SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SEURITIES EXCHANGE ACT OF 1934
for the transition period from
________ to ________
Commission File Numbers 333-23893; 333-23893-01; 333-23893-02; 333-23893-03
-------------------------
CFP HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4413619
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
CFP GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4616486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
CUSTOM FOOD PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
California 95-3760291
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
QFAC, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-2999998
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
-------------------------
5501 Tabor Road
Philadelphia, PA 19120
(Address, Including Zip Code of Registrant's Principal Executive Offices)
215-288-0888
(Registrant's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days.
[ x ] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class September 30, 1999
----- ------------------
Voting Common Stock - Class A, $.01 par value 14,705
Non-voting common Stock - Class A, $.01 par value 11,001
Non-voting common Stock - Class B $.01 par value 2,881
<PAGE>
CFP Group, Inc. and Subsidiaries
FORM 10-Q
INDEX
Part I. Financial Information Page #
------
Item 1. Financial Statements
Consolidated Balance Sheets - 1
March 31, 1999 and September 30, 1999
Consolidated Statements of Operations - 2
Three months and six months ended
September 30, 1999 and 1998
Consolidated Statements of Cash Flows - 3
Six months ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
Exhibit Index
<PAGE>
Part I Financial Information
Item 1. Financial Statements
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except share data)
(UNAUDITED)
ASSETS
<CAPTION>
March 31, September 30,
1999 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,820 $ 714
Accounts receivable, net of allowance
for doubtful accounts of $369,000 and
$312,000 at March 31, 1999 and
September 30, 1999, respectively 15,448 16,628
Inventories 16,839 22,385
Prepaid expenses and other current assets 692 1,131
--------- ---------
Total current assets 34,799 40,858
Property and equipment, net 29,922 31,833
Costs in excess of net assets acquired, net 65,195 63,587
Intangible and other assets, net 6,488 4,774
--------- ---------
Total $ 136,404 $ 141,052
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 1,113 $ 938
Accounts payable 8,904 6,969
Accrued expensed and other current liabilities 6,689 4,538
--------- ---------
Total current liabilities 16,706 12,445
--------- ---------
Long term debt 145,895 154,103
--------- ---------
Commitments and contingencies
Redeemable common stock 2,319 2,319
--------- ---------
Stockholders' deficiency:
Preferred stock, $.01 par value; 6,472 shares
authorized, none issued and outstanding
Voting common stock - Class A, $.01 par value;
100,000 shares authorized,
14,705 shares issued and outstanding 3,196 3,196
Nonvoting common stock - Class A, $.01 par value;
25,000 shares authorized,
11,241 and 11,001 (inclusive of 3,011 shares
classified as redeemable common stock)
shares issued and outstanding at March 31, 1999 and
September 30, 1999, respectively 2,204 2,135
Nonvoting common stock - Class B, $.01 par value;
25,000 shares authorized, 3,059 and 2,881 shares
(inclusive of 2,162 shares classified as
redeemable common stock) issued and outstanding
at March 31, 1999 and September 30, 1999,
respectively 623 499
Stockholders' notes receivable (203) (105)
Accumulated deficit (34,336) (33,540)
--------- ---------
Total stockholders' deficiency (28,516) (27,815)
--------- ---------
Total $ 136,404 $ 141,052
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 45,070 $ 51,206 $ 89,346 $ 98,679
Cost of Sales 35,962 41,730 72,065 80,032
-------- -------- -------- --------
Gross Profit 9,108 9,476 17,281 18,647
Selling, general and administrative expenses 4,834 4,357 9,550 8,952
Terminated transaction related costs 256
-------- -------- -------- --------
Income from operations 4,274 5,119 7,475 9,695
Interest expense 4,353 4,484 8,696 8,822
-------- -------- -------- --------
(Loss) Income before provision for income taxes and (79) 635 (1,221) 873
extraordinary item
Provision for income taxes 181 55 231 77
-------- -------- -------- --------
Net (loss) income before extraordinary item (260) 580 (1,452) 796
Extraordinary loss on early extinguishment of debt 1,003
-------- -------- -------- --------
Net (loss) income $ (260) $ 580 $ (2,455) $ 796
======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<CAPTION>
Six Months Ended
Sept. 30, Sept. 30,
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,455) $ 796
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 3,206 3,663
Amortization of deferred financing costs
and original issue discount 598 597
Extraordinary loss on early extinguishment of debt 1,003
Changes in assets and liabilities:
Accounts receivable 1,431 (1,180)
Inventories (2,737) (5,546)
Prepaid expensed and other current assets (108) (439)
Accounts payable 759 (1,935)
Accrued expenses and other current liabilities (44) (2,151)
-------- --------
Net cash provided by (used in) operating activities 1,653 (6,195)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (3,003) (3,870)
Other assets (819) 1,021
-------- --------
Net cash used in investing activities (3,822) (2,849)
-------- --------
Cash flows from financing activities:
Borrowings under revolving loan facility 8,773 34,515
Repayment of revolving loan facilities (4,500) (25,985)
Proceeds from issuance of long-term debt 14,127
Repayment of long-term debt and capitalized
lease obligations (14,338) (497)
Deferred financing costs (590)
Collection of shareholder notes receivable 98
Purchase of common stock (193)
-------- --------
Net cash provided by financing activities 3,472 7,938
-------- --------
Net increase (decrease) in cash 1,303 (1,106)
Cash, beginning of period 1,344 1,820
-------- --------
Cash, end of period $ 2,647 $ 714
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,964 $ 8,245
Income taxes $ 131 $ 401
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
CFP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of CFP Group,
Inc. and its wholly-owned subsidiaries (the "Company") have been prepared in
accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the period are not
necessarily indicative of the results that may be expected for the full fiscal
year. The accompanying financial statements include the results of CFP Group,
Inc. ("CFP Group") and its wholly-owned subsidiary CFP Holdings, Inc. ("CFP
Holdings"), and CFP Holdings' wholly-owned subsidiaries Custom Food Products,
Inc. ("Custom Foods") and QFAC, LLC ("Quality Foods"). The consolidated
financial statements as presented herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
The Company's fiscal year is the 52 or 53 week period ending on the
Saturday nearest to March 31. The Company's three month periods ended on the
Saturday nearest September 30, 1999 and 1998 were 13 weeks in duration. The
Company's six month periods ended on the Saturday nearest September 30, 1999 and
1998 were 26 weeks in duration. For simplicity of presentation, the Company has
described the interim periods and year end period herein as ending on September
30 and March 31, respectively.
NOTE 2: INVENTORIES
Inventories consisted of the following:
March 31, September 30
1999 1999
----------------- ----------------
(In Thousands) (In Thousands)
Raw materials $ 5,820 $ 8,477
Work-in-process 3,773 3,660
Finished goods 7,918 10,777
-------- --------
Total 17,511 22,914
Reserve (672) (529)
-------- --------
Inventories, Net $ 16,839 $ 22,385
======== ========
4
<PAGE>
<TABLE>
NOTE 3: LONG-TERM OBLIGATIONS
<CAPTION>
March 31, Sept. 30,
1999 1999
---- ----
(In Thousands)
<S> <C> <C>
Long-term obligations consisted of the following:
Senior notes payable, interest at 11.625% payable semiannually, principal due
January 2004 $ 115,000 $ 115,000
Term note payable to a bank, interest at a reference rate (8.25% at September 30,
1999) or Eurodollar rate (5.38% at September 30, 1999) plus 2.25%, interest
payable monthly, principal payable on May 1, 2002 10,000 10,000
Revolving loan payable to a bank, interest at a reference rate (8.25% at September
30, 1999) or Eurodollar rate (5.38% at September 30, 1999) plus 2.25%, interest
payable monthly, expires May 1, 2002 5,763 14,293
Term note payable to a bank, interest at a reference rate (8.25% at September 30,
1999) or Eurodollar rate (5.38% at September 30, 1999) plus 2.25%, interest
payable monthly, principal quarterly at $89,285.72, principal payable January
through February 2006 2,500 2,321
Revenue bond payable to a government financing authority, interest at a reference
rate (5.45% at September 30, 1999) not to exceed 18% payable monthly, principal
payable annually at $100,000 increasing to $400,000 through December 2014 4,100 4,100
Notes payable to a government agency, interest at 2%, payable monthly through April
2012, collateralized in a second position on the Company's Philadelphia facility 1,545 1,494
Note payable to a government agency, interest at 0.5% payable monthly beginning
February 1999 through July 2005, principal and interest payable in equal monthly
installments from August 2005 through January 2012, collateralized in a shared
third position on the Company's Philadelphia facility 1,000 1,000
Notes payable to a government agency, interest at 5.25% payable monthly with
principal through March 2012, collateralized in a shared first position on the
Company's Philadelphia facility 678 659
Notes payable to a government agency, interest at 2%, payable with principal
monthly through April 2001 206 155
Capital lease obligations payable in varying monthly installments through 2021,
collateralized by buildings and equipment with a net book value of $5,787,000 at
March 31, 1999 and $5,578,000 at September 30, 1999 6,216 6,019
--------- ---------
Total 147,008 155,041
Less current portion (1,113) (938)
--------- ---------
Long-term debt $ 145,895 $ 154,103
========= =========
</TABLE>
5
<PAGE>
NOTE 4: SEGMENT INFORMATION
<TABLE>
The Company does not maintain separate stand-alone financial statements prepared
in accordance with generally accepted accounting principles for each of its
operating segments. In accordance with SFAS 131, the Company has prepared the
following tables which present information related to each operating segment
included in internal management reports.
<CAPTION>
Three Months Ended September 30, 1999
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
----- ----- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales to external customers $ 23,589 $ 27,617 $ 51,206
Interest expense 223 125 4,136 4,484
Depreciation and amortization expense 358 1,400 69 1,827
Segment profit (loss) from operations 3,228 2,058 (167) 5,119
Long-lived assets 27,085 84,203 114,041 (125,135) 100,194
Total segments assets 41,812 109,753 114,622 (125,135) 141,052
Capital expenditures 227 1,497 1,724
Three Months Ended September 30, 1998
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
----- ----- --------- ------------ -----
Net sales to external customers $ 22,050 $ 23,020 $ 45,070
Interest expense 237 (922) 5,038 4,353
Depreciation and amortization expense 351 738 69 1,158
Segment profit (loss) from operations 2,736 (2,145) 3,683 4,274
Long-lived assets 27,863 84,603 125,237 (135,176) 102,527
Total segments assets 41,159 104,066 125,352 (135,176) 135,401
Capital expenditures 682 1,952 2,634
Six Months Ended September 30, 1999
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
----- ----- --------- ------------ -----
Net sales to external customers $ 45,162 $ 53,517 $ 98,679
Interest expense 456 248 8,118 8,822
Depreciation and amortization expense 722 2,801 140 3,663
Segment profit (loss) from operations 6,206 3,814 (325) 9,695
Long-lived assets 27,085 84,203 114,041 (125,135) 100,194
Total segments assets 41,812 109,753 114,622 (125,135) 141,052
Capital expenditures 453 2,396 2,849
Six Months Ended September 30, 1998
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
----- ----- --------- ------------ -----
Net sales to external customers $ 43,284 $ 46,062 $ 89,346
Interest expense 486 185 8,025 8,696
Depreciation and amortization expense 733 2,333 140 3,206
Extraordinary item 1,003 1,003
Segment profit (loss) from operations 4,881 (624) 3,218 7,475
Long-lived assets 27,863 84,603 125,237 (135,176) 102,527
Total segments assets 41,159 104,066 125,352 (135,176) 135,401
Capital expenditures 848 2,974 3,822
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
Results of Operations
Three months ended September 30, 1999 compared to Three months ended September
30, 1998.
Net Sales. Net sales increased by $6.1 million or 13.5% to $51.2
million for the quarter ended September 30, 1999 from $45.1 million for the
quarter ended September 30, 1998. Total pounds sold by the Company increased by
18% to 31.0 million pounds for the quarter ended September 30, 1999 from 26.2
million pounds for the quarter ended September 30, 1998. The increase in sales
was a result of increases in sales at both the Quality Foods and Custom Foods
divisions of the Company. In addition, sales of the Company's higher margin
value added products increased by 21% and 7%, respectively, for the Quality
Foods and Custom Foods divisions. The net sales price decreased to $1.65 from
$1.72 primarily as a result of passing lower raw materials prices to customers
of our Custom Foods division who are charged on a "cost plus" basis, primarily
Arby's.
Gross Profit. Gross Profit increased to $9.5 million for the quarter
ended September 30, 1999 from $9.1 million for the quarter ended September 30,
1998. This $.4 million increase was due to an increase in sales. The gross
margin decreased to 18.5% for the quarter ended September 30, 1999 from 20.2%
for the quarter ended September 30, 1998 due to higher meat cost at the
Company's Quality Foods division.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $4.4 million for the quarter ended
September 30, 1999 from $4.8 million for the quarter ended September 30, 1998.
This $.4 million decrease is due primarily to lower expenses reflecting the
capitalization of certain personnel costs related to the implementation of a new
enterprise wide system, lower bad debt reserves, and a continued focus on
reducing costs.
Income from Operations. As a result of the foregoing items, income from
operations increased to $5.1 million for the quarter ended September 30, 1999
from $4.3 million for the quarter ended September 30, 1998.
Interest Expense. Interest expense increased minimally to $4.5 million
for the quarter ended September 30, 1999 from $4.4 million for the quarter ended
September 30, 1998 primarily as a result of increased borrowings under the
Company's revolving credit facility.
Provision for Income Taxes. Provision for income taxes decreased to
$55,000 for the quarter ended September 30, 1999 from $181,000 for the quarter
ended September 30, 1998, primarily as a result of lower State tax obligations.
Net Income (Loss). Net income of $580,000 was realized for the quarter
ended September 30, 1999 versus a net loss of $260,000 for the quarter ended
September 30, 1998 due to the net impact of the foregoing items.
Six months ended September 30, 1999 compared to Six months ended September 30,
1998.
Net Sales. Net sales increased by $9.3 million or 10.5% to $98.7
million for the six month period ended September 30, 1999 from $89.3 million for
the six month period ended September 30, 1998. Total pounds sold by the Company
increased by 14.5% to 59.3 million pounds for the six months ended September 30,
1999 from 51.8 million pounds for the six months ended September 30, 1998. The
increase in sales was a result of increases in sales at both the Quality Foods
and Custom Foods divisions of the Company. In addition, sales of the Company's
higher margin value added products increased by 17.5% and 11%, respectively, for
the Quality Foods and Custom Foods divisions. The net sales price decreased to
$1.66 from $1.73 primarily as a result of passing lower raw materials prices to
customers of our Custom Foods division who are charged on a "cost plus" basis,
primarily Arby's.
7
<PAGE>
Gross Profit. Gross Profit increased to $18.6 million for the six
months ended September 30, 1999 from $17.3 million for the six months ended
September 30, 1998. This $1.4 million increase was due to the increase in sales.
The gross margin decreased minimally to 18.9% for the six months ended September
30, 1999 from 19.3% for the six months ended September 30, 1998 due to higher
meat costs at the Company's Quality Foods division.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $9.0 million for the six months ended
September 30, 1999 from $9.6 million for the six months ended September 30,
1998. This $.6 million decrease is due primarily to lower expenses reflecting
the Company's lower bonus accrual, capitalization of certain personnel costs
related to the implementation of a new enterprise wide system, lower bad debt
reserves, and a continued focus on reducing costs.
Terminated Transaction Related Costs. In the six months ended September
30, 1998, the Company expensed $256,000 in transactions costs associated with a
potential acquisition which was terminated.
Income from Operations. As a result of the foregoing items, income from
operations increased to $9.7 million for the six month period ended September
30, 1999 from $7.5 million for the period ended September 30, 1998.
Interest Expense. Interest expense increased minimally to $8.8 million
for the six month period ended September 30, 1999 from $8.7 million for the six
month period ended September 30, 1998 primarily as a result of increased
borrowings under the Company's revolving credit facility.
Provision for Income Taxes. Provision for income taxes decreased to
$77,000 for the six month period ended September 30, 1999 from $231,000 for the
six month period ended September 30, 1998, primarily as a result of lower State
tax obligations.
Extraordinary Loss. In the first quarter of fiscal 1999, the Company
used proceeds from new borrowings under its Loan and Security Agreement to repay
all amounts outstanding under its prior credit agreement. In connection with
these repayments, an extraordinary loss on the extinguishment of debt of
approximately $1.0 million was recorded for the six months ended September 30,
1998. This amount principally consisted of unamortized deferred financing costs.
Net Income (Loss). Net income of $796,000 was realized for the six
months ended September 30, 1999 versus a net loss of $2.5 million for the six
months ended September 30, 1998 due to the net impact of the foregoing items.
Year 2000 Issue
Introduction: The term "Year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date sensitive calculations by computers and other machinery as the
Year 2000 is approached and reached. These problems generally arise in cases
where computer systems or any equipment with computer chips use two-digit fields
that recognize dates using the assumption that the first two digits are "19". On
January 1, 2000, any clock or date recording mechanism including date sensitive
software that uses only two digits to represent the year may recognize a date
using "00" as the year 1900 rather than the Year 2000. This could result in a
system failure or miscalculations, causing disruption of operations, including
among other things a temporary inability to process transactions, send invoices
or engage in similar activities.
State of Readiness: The Company has selected a new Year 2000 compliant
Enterprise Wide System and currently expects to have this new system implemented
by the end of calendar 1999. Further, the Company is currently engaged in a
review of its computer systems and applications, including packaged software
used by the Company, that will not be addressed by the new system. The Company
expects to make any modifications required to resolve Year 2000 issues in a
timely manner and leave adequate time to assess and correct any significant
issues that may materialize. These internal modifications are essentially
complete, the principal exception being full implementation of the Ross System.
Initial operations and testing on the Ross System is underway with accelerated
testing scheduled and acceptance expected on or about November 26, 1999. The
Company has also initiated formal communications with selected vendors and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. The Company can
give no guarantee that the
8
<PAGE>
systems of other companies on which the Company's systems rely will be converted
on time or that failure to convert by another company or a conversion that is
incompatible with the Company's systems would not have a material adverse effect
on the Company. The Company is taking steps to reduce the likelihood that such
failures could affect the Company's systems through any electronic
communications.
Costs to Address the Year 2000 Issue: The Company does not expect that
the review and modifications of the Company's current enterprise systems as
described above, excluding the cost of implementing the new system, will require
material expenditures. The Company's net total expenditures on the Ross System
implementation through September 30, 1999 are $843,000. The Company currently
estimates the aggregate cost of its new system (Ross) is approximately
$1,300,000, although the amount could be greater. The cost estimate includes
expenditures incurred pursuant to the Company's technology upgrade and business
process reengineering programs occurring concurrently but not directly related
to Year 2000 issues. In addition, a portion of the estimated total costs of the
Ross System implementation will be funded by reallocation of existing resources
rather than in incurring incremental costs. This reallocation of resources is
not expected to have a significant impact on the day-to-day operations of the
Company. The Company's aggregate cost estimate does not include costs that may
be incurred by the Company as a result of the failure of any third parties,
including suppliers, to become Year 2000 ready or costs to implement any
contingency plans. Such costs may be material.
Risks Presented by the Year 2000 Issue: If the Company is unable to
successfully implement the upgrades to its existing systems sufficiently in
advance of the Year 2000 or if any other system modifications required to
address the Company's Year 2000 issues are not made, or are not timely, the Year
2000 issues could have a material adverse impact on the operations and financial
results and conditions of the Company. In addition, if any third parties who
provide goods and services that are critical to the Company's business
activities fail to appropriately address their Year 2000 issues, there could be
a material adverse effect on the Company's financial condition and results of
operations. Initial results of the Ross System testing are positive and the
level of uncertainty in the implementation is diminishing. Responses from
material third parties ("External Parties") also indicate a greater degree of
Year 2000 compliance than anticipated. At this time, the Company believes that
the most reasonably likely "worst-case" scenario relating to Year 2000 involves
potential disruptions in areas in which the Company's operations must rely on
third parties, such as suppliers, whose systems may not work properly after
January 1, 2000. While such system failures could either directly or indirectly
affect important operations of the Company and its subsidiaries in a significant
manner, the Company cannot at present estimate either the likelihood or the
potential cost of such failure.
Contingency Plans: Based on the assessment efforts to date, the Company
does not believe that the Year 2000 issue will have a material adverse effect on
its financial condition or results of operations. The Company will develop
appropriate contingency plans in the event that a significant exposure is
identified.
Readers are cautioned that forward-looking statements contained under
this "Year 2000" caption should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements" below. Additionally,
these statements are Year 2000 Readiness Disclosure in conformance with the Year
2000 Information and Readiness Disclosure Act of 1998 (Public law 105-271, 112
Stat. 2386) enacted on October 19,1998.
Liquidity and Financial Resources
The Company's total consolidated indebtedness was $155.0 million at
September 30, 1999. Interest payments on the 11.625% Senior Notes and
anticipated interest and principal payments under the Loan and Security
Agreement represent significant obligations of the Company. The 11.625% Senior
Notes require semi-annual interest payments of approximately $6.7 million which
commenced in July 1997. Borrowings under the Loan and Security Agreement bear
interest at floating rates. Approximately $5.0 million of the revolving credit
portion of the Loan and Security Agreement (the "Revolver") is reserved to
provide letters of credit supporting the industrial revenue bond issue with
respect to Quality Foods' Philadelphia facility and other obligations.
9
<PAGE>
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Revolver. The Revolver provides for
borrowings up to $40.0 million, subject to a borrowing base and other
limitations, including amounts outstanding under term loans, letters of credit
and other borrowing instruments. At September 30, 1999 approximately $6.8
million was available to the Company for borrowings under the Revolver, subject
to inventory and accounts receivable levels. The Company anticipates that its
working capital requirements, capital expenditures and debt service requirements
for the next twelve months will be satisfied through a combination of cash flow
from operations and funds available under the Loan and Security Agreement.
Forward Looking Statements
This report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are detailed periodically in the Company's SEC filings on
Forms 10-K and 10-Q. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
Item 3. Quantitative and Qualitative Disclosures about market risk.
Long-term Debt
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's current and future debt obligations, which
have not changed materially from those disclosed in the Company's Form 10-K for
the year ended March 31, 1999.
10
<PAGE>
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
September 30, 1999. Reference is made to the Company's Annual Report on
Form 10-K and the exhibits filed therewith. The exhibits filed as part
of this form are listed below:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
CFP Group, Inc.
CFP Holdings, Inc.
Custom Food Products, Inc.
QFAC, LLC
November ___, 1999
---------------------------------------------------
Eric W. Ek
Senior Vice President,
Chief Financial Officer and
Secretary of CFP Group, Inc.
and CFP Holdings, Inc. and
its subsidiaries
12
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