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
June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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.
Class Outstanding at June 30, 2000
----- ----------------------------
Voting Common Stock - Class A, $.01 par value 14,705
Non-voting common Stock - Class A, $.01 par value 9,859
Non-voting common Stock - Class B $.01 par value 3,886
<PAGE>
CFP Group, Inc. and Subsidiaries
FORM 10-Q
INDEX
Part I. Financial Information Page #
------
Item 1. Financial Statements
Consolidated Balance Sheets - 3
March 31, 2000 and June 30, 2000
Consolidated Statements of Operations - 4
Three months ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows - 5
Three months ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
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 12
Exhibit Index
2
<PAGE>
Part I Financial Information
Item 1. Financial Statements
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousand, Except Share Data)
(UNAUDITED)
ASSETS
<CAPTION>
March 31, June 30,
2000 2000
---------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 606 $ 713
Accounts receivable, net of allowance for doubtful accounts of $782,000
and $1,091,000 at March 31, 2000 and June 30, 2000, respectively 23,578 21,522
Inventories 23,897 31,123
Prepaid expenses and other current assets 412 824
---------------------------------
Total current assets 48,493 54,182
Property and equipment, net 33,465 33,397
Costs in excess of net assets acquired, net 62,022 61,165
Intangible and other assets, net 4,172 3,880
---------------------------------
Total $ 148,152 $ 152,624
=================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 1,043 $ 777
Accounts payable 11,923 11,467
Accrued expenses and other current liabilities 5,291 8,529
---------------------------------
Total current liabilities 18,257 20,773
---------------------------------
Long term debt 156,890 160,648
---------------------------------
Commitments and contingencies
Redeemable common stock 1,839 1,839
---------------------------------
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, 3,196 3,196
14,705 shares issued and outstanding
Nonvoting common stock - Class A, $.01 par value; 25,000 shares authorized, 2,330 2,280
9,959 and 9,859 (inclusive of 1,350 shares classified as redeemable
common stock) shares issued and outstanding at March 31, 2000 and June
30, 2000, respectively
Nonvoting common stock - Class B, $.01 par value; 25,000 shares authorized, 912 918
3,865 and 3,886 shares (inclusive of 2,162 shares classified as
redeemable common stock) shares issued and outstanding at March 31, 2000
and June 30, 2000, respectively
Stockholders' notes receivable (637) (635)
Accumulated deficit (34,635) (36,395)
---------------------------------
Total stockholders' deficiency (28,834) (30,636)
---------------------------------
Total $ 148,152 $ 152,624
=================================
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------
June 30, June 30,
1999 2000
---- ----
(In Thousands)
Sales $ 47,473 $ 50,375
Cost of Sales 38,302 42,774
----------------------------
Gross Profit 9,171 7,601
Selling, general and administrative expenses 4,595 4,479
----------------------------
Income from operations 4,576 3,122
Interest expense 4,338 4,806
----------------------------
Income (loss) before income taxes 238 (1,684)
Provision for income taxes 22 76
----------------------------
Net income (loss) $ 216 $ (1,760)
============================
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30, June 30,
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 216 $ (1,760)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 1,836 2,130
Amortization of deferred financing costs and original issue discount 288 297
Changes in assets and liabilities:
Accounts receivable 1,033 2,056
Inventories (2,103) (7,226)
Prepaid expenses and other current assets (619) (412)
Accounts payable (2,091) (456)
Accrued expenses and other current liabilities 1,142 3,238
---------------------------------
Net cash used in operating activities (298) (2,133)
---------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (403) (1,205)
Other assets (721) (5)
---------------------------------
Net cash used in investing activities (1,124) (1,210)
---------------------------------
Cash flows from financing activities:
Borrowings under revolving loan facility 3,978 54,794
Repayment of revolving loan facilities (2,000) (53,467)
Proceeds from equipment loan 2,604
Repayment of long-term debt and capitalized lease obligations (248) (439)
Sale of Common Stock 6
Purchase of Common Stock (50)
Collection of shareholder notes receivable 12 2
---------------------------------
Net cash provided by financing activities 1,742 3,450
---------------------------------
Net increase in cash 320 107
Cash, beginning of period 1,820 606
---------------------------------
Cash, end of period $ 2,140 $ 713
=================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 707 $ 1,163
Income taxes $ 344 $ 90
See accompanying notes to consolidated financial statements.
</TABLE>
5
<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, 2000.
The Company's fiscal year is the 52 or 53 week period ending on the
Saturday nearest to March 31. The Company's first quarter is the thirteen week
period ending on the Saturday nearest to June 30. For simplicity of
presentation, the Company has described the interim periods-end and year-end
herein as June 30 and March 31, respectively.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." As amended by SFAS No. 137, SFAS
No. 133 is effective for financial statements issued for all fiscal years
beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be
recorded on the balance sheet at fair value. The Company is in the process of
evaluating the effect that this new standard will have on its financial
statements.
In December 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin ("SAB") No. 101, which provides the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. In March 2000, the SEC released SAB No. 101A, which delayed
for one quarter the implementation date of SAB No. 101 for registrants with
fiscal years beginning between December 16, 1999 and March 15, 2000. In June
2000, the SEC released SAB No. 101B, which delayed the implementation date of
SAB No. 101 until no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. The Company is evaluating what impact, if
any, SAB No. 101 may have on its consolidated financial statements.
6
<PAGE>
NOTE 3: INVENTORIES
Inventories consisted of the following:
March 31, June 30,
2000 2000
(In Thousands)
--------------------------------
Raw materials $ 8,279 $ 10,541
Work-in-process 5,602 9,268
Finished goods 10,384 11,482
--------------------------------
Total 24,265 31,291
Reserve (368) (168)
--------------------------------
Inventories, net $ 23,897 $ 31,123
================================
NOTE 4: LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
March 31, June 30,
2000 2000
-------------------------------
(In Thousands)
<S> <C> <C>
Senior notes payable, interest at 11.625% payable semiannually, principal due $ 115,000 $ 115,000
January 2004
Term note payable to a bank, interest at a reference rate (9.25% at June 30,
2000) or Eurodollar rate (6.44% at June 30, 2000) 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 (9.25% at June
30, 2000) or Eurodollar rate (6.44% at June 30, 2000) plus 2.25%, interest
payable monthly, expires May 1, 2002 17,815 19,142
Term note payable to a bank, interest at a reference rate (9.25% at June 30,
2000) or Eurodollar rate (6.44% at June 30, 2000) plus 2.25%, interest
payable monthly, principal quarterly at $89,285.72, principal payable
January through February 2006 2,143 2,054
Revenue bond payable to a government financing authority, interest at a
reference rate (6.75% at June 30, 2000) not to exceed 18% payable monthly,
principal payable annually at $100,000 increasing to $400,000 through
December 2014 3,952 3,952
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 1,433 1,423
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. 640 630
Notes payable to a government agency, interest at 2%, payable with principal
monthly through April 2001 104 86
Capital lease obligations payable in varying monthly installments through 2021,
collateralized by buildings and equipment. 5,846 8,138
-----------------------------------
Total 157,933 161,425
Less current portion (1,043) (777)
-----------------------------------
Long-term debt $ 156,890 $ 160,648
===================================
</TABLE>
7
<PAGE>
NOTE 5: SEGMENT INFORMATION
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 that present information related to each operating segment
included in internal management reports.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
----- ----- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales to external customers $25,296 $25,079 $50,375
Interest expense 286 152 $4,368 4,806
Depreciation and amortization expense 307 1,752 71 2,130
Segment income (loss) from operations 2,871 409 (158) 3,122
Long-lived assets 31,211 78,902 108,458 $(120,129) 98,442
Total segments assets 49,538 114,719 108,496 (120,129) 152,624
Capital expenditures 230 975 1,205
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
----- ----- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales to external customers $21,573 $25,900 $47,473
Interest expense 233 123 $3,982 4,338
Depreciation and amortization expense 364 1,401 71 1,836
Segment income (loss) from operations 2,978 1,756 (158) 4,576
Long-lived assets 27,264 85,476 116,905 $(129,040) 100,605
Total segments assets 41,303 107,799 117,351 (129,040) 137,413
Capital expenditures 226 898 1,124
</TABLE>
8
<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 June 30, 2000 compared to three months ended June 30, 1999.
Net Sales. Net sales increased by $2.9 million or 6.1% to $50.4 million
for the three month period ended June 30, 2000 from $47.5 million for the three
month period ended June 30, 1999. Total pounds sold by the Company increased by
9% to 30.8 million pounds for the three months ended June 30, 2000 from 28.3
million pounds for the three months ended June 30, 1999. The increase in sales
was primarily a result of increased volume, with lower margin products
comprising a higher portion of the increases over prior year. Sales of the
Company's higher margin value-added product were essentially the same as the
prior year due to strong 4th quarter sales that resulted from the announcement
of a price increase effective Period 1 Fiscal Year 2001. The net sales price
decreased to $1.64 per pound from $1.68 primarily as a result of sales mix
shifting due to the significant increase in sales to Arby's. Net sales prices
were somewhat benefited from price increases implemented in April 2000 to the
Company's Field Sales Division customers.
Gross Profit. Gross profit decreased to $7.6 million for the three
months ended June 30, 2000 from $9.2 million for the three months ended June 30,
1999. This $1.6 million decrease was due primarily to increases in raw material
costs. The gross margin decreased to 15.1% for the three months ended June 30,
2000 from 19.3% for the three months ended June 30, 1999 as a result. Additional
factors contributing to the lower gross margin performance to prior year are the
sales mix changes noted above and higher depreciation expense.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $4.5 million for the three months ended
June 30, 2000 from $4.6 million for the three months ended June 30, 1999.
Income from Operations. As a result of the foregoing items, income from
operations decreased to $3.1 million for the three month period ended June 30,
2000 from $4.6 million for the three month period ended June 30, 1999.
Interest Expense. Interest expense increased to $4.8 million for the
three month period ended June 30, 2000 from $4.3 million for the three month
period ended June 30, 1999. The $500,000 increase is primarily due to increased
borrowings under the Company's revolving credit facility.
Provision for Income Taxes. Provision for income taxes increased
minimally to $76,000 for the three month period ended June 30, 2000 from $21,000
for the three month period ended June 30, 1999.
9
<PAGE>
Net (Loss) Income. A net loss of $1.8 million was incurred for the
three months ended June 30, 2000 versus net income of $216,000 for the three
months ended June 30, 1999 due to the net impact of the foregoing items.
Liquidity and Financial Resources
The Company's total consolidated indebtedness at June 30, 2000 was
$161.4 million compared to $148.7 million at June 30, 1999. The increase from
prior year is due primarily to increased borrowings under the Company's $45.0
million Loan and Security Agreement ("Loan and Security Agreement") with a
financial institution providing for revolving credit loans ("Revolver") and term
loan options. Borrowings under the Loan and Security Agreement bear interest at
floating rates. Interest payments on the 11 5/8% Senior Notes and anticipated
interest and principal payments under the Loan and Security Agreement represent
significant obligations of the Company as the Senior Notes require semi-annual
interest payments of approximately $6.7 million which commenced in July 1997.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Revolver. The Revolver provides for
borrowings up to $45.0 million, subject to a borrowing base and other
limitations, including amounts outstanding under term loans, letters of credit
and other borrowing instruments. At June 30, 2000 approximately $7.8 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 will be
satisfied through a combination of cash flows 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 be correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") 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, 2000.
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 June
30, 2000. 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.
August 7, 2000 ---------------------------
Ronald J. Gallo
Senior Vice President and
Chief Financial Officer
12
