SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended: March 31, 2000
or
[ ] 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 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)
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)
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)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitely proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K.
[ x ]
All the outstanding shares of CFP Holdings, Inc., Custom Food Products, Inc. and
QF Acquisition Corp. are owned by CFP Group, Inc. The aggregate market value of
the voting and non-voting common equity of CFP Group, Inc. held by non
affiliates as of June 15, 2000 using an assumed value of $500.00 per share are
as follows:
Class Aggregate Market Value
----- ----------------------
Voting Common Stock - Class A --
Non voting common stock - Class A $2,701,500
Non voting common stock - Class B $239,500
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There is no public trading market for shares of the registrants Common Stock.
Class Outstanding at June 15, 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 3,865
<PAGE>
CFP GROUP, INC.
CFP HOLDINGS, INC.
CUSTOM FOOD PRODUCTS, INC.
QFAC, LLC.
Form 10-K for the Fiscal Year Ended March 31, 2000
TABLE OF CONTENTS
PART I PAGE #
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 17
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 20
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management 38
Item 13. Certain relationships and related transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 41
SIGNATURES 47
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Special Note Regarding Forward Looking Information
CFP Group, Inc. ("CFP Group") and it's subsidiaries (such subsidiaries,
together with CFP Group, being sometimes hereinafter collectively referred to as
the "Company"), or their representatives, may make forward looking statements,
oral or written, including statements in this Annual Report on Form 10-K, press
releases and other filings with the Securities and Exchange Commission (the
"Commission"), regarding estimated future operating results, planned capital
expenditures (including the amount and nature thereof) and the Company's
financing plans, if any, related thereto, increases in customers, the Company's
business strategy, financial position and other plans and objectives for future
operations. Certain matters discussed may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from those expressed
or implied by such forward-looking statements. Important factors that could
cause the actual results, performance or achievements of the Company to differ
materially from the Company's expectations are set forth under "Factors
Affecting Future Performance" in Item 1 and elsewhere in this Annual Report on
Form 10-K, as well as factors contained in the Company's other filings with the
Commission.
All subsequent oral and written forward looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
Part I
Item 1. Business
History
CFP Group, Inc. became the parent of CFP Holdings,
Inc. ("CFP Holdings") on December 31, 1996 after the
recapitalization of CFP Holdings. CFP Holdings was formed in
1993 by First Atlantic Capital, Ltd. ("First Atlantic"), a
private investment firm specializing in acquiring and building
middle market companies, and commenced operations on April 1,
1993 after acquiring all of the outstanding stock of Center of
the Plate Foods, Inc. ("Center of the Plate"), and all
significant operating assets of Best Western Foods, Inc.
("Best Western"). Today, these two companies are known as
Custom Foods, Inc. On December 31, 1996 CFP Holdings acquired
Quality Foods, L.P. and its general partner, QF Acquisition
Corp. (collectively "Quality Foods"). On June 28, 1999, QF
Acquisition Corp. was reorganized as a limited liability
company under the name QFAC, LLC for tax and business
purposes. Quality Foods is one of the leading manufacturers of
sandwich steak products in the United States.
In March 1998, William Del Chiaro was named President
and CEO of Quality Foods. In May 1998, William Del Chiaro was
appointed to President and CEO of CFP Group, Inc. Concurrent
with Mr. Del Chiaro's appointment, Mr. Richard Griffith, then
the President and CEO of Custom Foods, agreed to retire at the
end of June 1998 and remain on the Board of Directors. Mr.
Griffith resigned from the Board of Directors effective
December 31, 1999. In addition, Mr. Robert Gioia, previously
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the President and CEO of CFP Group, agreed to continue as an
active member of the Board of Directors and agreed to become a
consultant to the Company effective June 30, 1998.
Since his appointment as President and CEO, Mr. Del
Chiaro has established and implemented strategic and tactical
plans for the Company contained within the Company's Long
Range Plan document published in April of 1998. This document
is the guiding factor in the Company's direction and is
reviewed several times per year and altered as appropriate.
Mr. Del Chiaro's focus for the Company centers on continued
sustainable growth. To achieve this objective a more focused
Sales and Marketing Organization was put in place. The Sales
and Marketing Organization has been significantly expanded
over the past few years. In Fiscal Year 2000, Mr. Del Chiaro
focused on and completed the successful consolidation of the
Company under one Management Team and built an infrastructure
to support the future growth of the Company. This was
completed by strengthening the Senior Management by hiring Key
Officers and Directors, and implementing a new Company wide
computer system. Additionally, the Company has initiated and
planned construction for a new facility in California that
will produce all of the Company's products and house the
Company's Research and Development Center. During Fiscal Year
2001, the Company will increase its focus on operations to
offset the expected increases in raw material prices. New York
Consulting Partners, experts in operational efficiencies, have
been retained to improve yields and overall operations,
including implementing specific standards and procedures
associated with the Company's Philadelphia operations, then to
be expanded to Kentucky and California. Eric Ek, the Company's
CFO since 1993, was promoted to Executive Vice President of
Corporate Development. Mr. Ek will oversee the building of the
California Facility that will supply the additional capacity
to support the Company's planned growth into the future.
General
The Company is a leading developer, manufacturer and
marketer of value-added meat, poultry, and pork products sold
to the foodservice industry and manufacturers of packaged
foods. The Company provides a wide range of pre-cooked and
uncooked products, including beef and chicken sandwich steaks;
beef, pork and poultry meat rolls used in further processing;
charbroiled products and crumble toppings; barbecue-flavored
meats; and meatballs. The Company manufactures higher margin
specialty products that provide superior quality and
performance for the end-user and that are typically
custom-formulated to meet specific customer requirements. In
the foodservice industry, the Company supplies some of the
country's leading restaurant chains and outlets, including
Subway, Arby's , Great Steak & Potato Company, Domino's Pizza,
Inc., Wal-Mart Stores, Inc., and Nathan's Famous Inc.. The
Company also serves many of the country's leading packaged
foods manufacturers, including Chef America, Oscar Mayer,
Schwan's Sales Enterprises Inc., Kraft Foods Inc. and McLane
Company, Inc. The Company believes that its proprietary
recipes and manufacturing processes, national presence and
long-standing customer relationships pose barriers to entry
for other manufacturers seeking to provide competitive
products. The Company is comprised of two operating
subsidiaries, Quality Foods and Custom Foods.
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Quality Foods
Quality Foods is one of the country's leading
manufacturers of pre-cooked and uncooked, thinly-sliced beef
used primarily in Philadelphia-style steak sandwiches. It also
supplies sliced chicken products and pre-cooked and uncooked
meatballs. Quality Foods serves the foodservice industry, with
particular emphasis on Quick Service Restaurants ("QSRs"),
sandwich chains and family dining establishments. For over
eleven years, Quality Foods has been the primary, and is now,
the exclusive supplier of pre-cooked beef to the Subway
restaurant chain for its popular steak and cheese sandwich.
Quality Foods employs a proprietary forming and freezing
process that, the Company believes, produces a product with
excellent flavor and visual appearance, as well as superior
yield when cooked.
In June 1997, the Company entered into a three-year
supply agreement with Subway, subsequently extended to May 31,
2001. The agreement which called for fixed pricing for the
first year, allows for price adjustments every six months
thereafter based on the historical average cost of raw
materials plus a margin which covers the Company's processing
costs and profit. This agreement established Quality Foods as
the exclusive supplier to Subway for the "Steak & Cheese"
product. Prior to this agreement, Quality Foods had
substantially all of the volume and has since supplied all of
Subway's needs for this product. Sales to Subway were
$36.3million, 20% of total Company sales, in fiscal year 1998;
$39.2 million, 21% of total Company sales, in fiscal year
1999, and $47.5 million, 21% of total Company sales, in fiscal
year 2000. The Company is currently in negotiations to renew
its supply contract with Subway and will continue to operate
under the same economic terms of the expired agreement for the
next twelve months or until a new contract has been finalized.
See "Factors Affecting Future Performance - Importance of Key
Customers."
Custom Foods
Custom Foods develops, manufactures and markets
pre-cooked meat, poultry, and pork products sold primarily to
manufacturers of branded and private label packaged foods,
also referred to as "consumer products" users, and is also a
major supplier of frozen, uncooked beef product to the Arby's
restaurant chain. Custom Foods' pre-cooked products include a
variety of pork, beef, chicken and turkey items such as meat
rolls used in further processing; barbecue products; Mexican
specialties; charbroiled patties and crumble toppings. Custom
Foods focuses on sales to manufacturers of frozen and
refrigerated convenience foods, including items in the
fast-growing hand-held foods segment. Custom Foods is the
largest supplier of custom-formulated meat and poultry
fillings to Chef America for use in substantially all of its
microwave sandwich product lines. Chef America has accounted
for a majority of Custom Foods' sales of pre-cooked products
for each of the past several years. See "Factors Affecting
Future Performance - Importance of Key Customers." Sales to
Chef America were $28.1
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million, 15% of total Company sales, in fiscal year 1998;
$24.3million, 13% of total Company sales, in fiscal year 1999,
and $26.1 million, 12% of total Company sales, in fiscal year
2000. The Company supplies Chef America under a one year
pricing arrangement whereby volumes are estimated but not
guaranteed and prices are fixed for twelve calendar months.
Chef America operates on a calendar year basis and has issued
purchase orders for products from the Company for the 2000
calendar year at similar prices and volumes as the Company
sold to Chef America during calendar 1999. In addition, Custom
Foods is also a major supplier to the Arby's restaurant chain.
Custom Foods supplies Arby's under a five year supply
agreement, which expires in May 2004, and is reported to be
the only five year beef supply contract ever awarded by ARCOP
(Arby's Purchasing Cooperative). Sales to Arby's were $47.1
million, 26% of total Company sales, in fiscal year 1998;
$45.3 million, 25% of total Company sales, in fiscal year
1999; and $50.2 million, 24% of total Company sales, in fiscal
year 2000. While sales growth occurred at both Chef America
and Arby's in fiscal 2000 over the prior fiscal year, sales
from other existing customers and new customers grew at an
increasing rate. As a result, Chef America and Arby's sales,
while increasing, represent a decreasing percentage of total
company sales from the prior fiscal year, further reducing
dependence on these key customers.
As a result of increased sales resulting from new
customers and the growth of current customers, the Company
significantly broadened its operations with the opening and
subsequent expansion of a new facility in Kentucky and, most
recently, planning construction of a new facility in
California to operate as the Company's flagship manufacturing
plant and Research and Development center. During the quarter
ended March 31, 2000, the Company signed a letter of intent
with Cold Supplychain Integrated, Inc. (Integrated) to
construct a new facility in La Habra, California. The Company
will produce the sandwich steak product, currently produced
only by the Company's Pennsylvania facility. The new facility
is planned to have the capability to produce all of the
Company's current and future products, thus making this site a
natural choice for the Research and Development center. The
Company intends to lease the facility for a minimum of 10
years and will guarantee a minimum level of cold storage
volume to Integrated over the lease term. The Company is
currently in final discussions with Integrated to complete the
lease agreement and the operating agreement, which will
provide for the construction and future operating arrangement
of the facility. The Company plans to relocate all of its
operations from its existing Montebello and Vernon locations
to the newly built facility which is expected to be completed
in the quarter ending June 30, 2001 and is expected to
encompass 80,000 square feet.
On February 3, 2000, the Company was notified that
its customer, Ameriserve Food Distribution, Inc., which is a
primary distributor to Arby's, Inc., filed Chapter 11
Bankruptcy proceedings. The Company had approximately $700,000
of accounts receivable outstanding from this customer as of
the time of the filing. The Company anticipates collecting
substantially all of the outstanding balance due to written
assurance from
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ARCOP, Inc., Arby's purchasing cooperative, that any credit
loss resulting from the aforementioned filing will be recouped
at a future time. Therefore, the Company believes that it will
not be negatively impacted as a result of this filing. In
addition, another distributor is being used by the Company and
the Company does not anticipate an impact on fiscal 2001
sales. Currently, the Company has recouped approximately
$175,000 of the outstanding balance.
Industry
Value-Added Meat and Poultry Processors
The Company is considered a value-added provider
within the meat and poultry industry and is focused on serving
the foodservice and consumer products markets. The Company
purchases raw cuts of beef, pork, chicken and turkey and
processes them into packaged form for further processing or
for distribution into the foodservice and retail markets.
Various steps including blending, forming, cooking, slicing
and mixing with vegetables and flavorings are employed to
create consistent products that fulfill specific preparation
or processing needs of customers. Industry trends have
increased the demand for value-added meat and poultry products
like those provided by the Company, including the desire for
more uniform and consistent end-products, continuous focus on
reduced preparation and/or reduced manufacturing costs and
increased food safety concerns.
Foodservice
The foodservice industry is composed of
establishments that serve food outside the home and includes
restaurants; the food operations of health care providers,
schools and other institutions, hotels, resorts and
corporations; and other non-traditional foodservice outlets.
Growth in this industry has been driven by the increase in
away-from-home meal preparation, which has accompanied the
expanding number of both dual income and single-parent
households. Another trend within the foodservice industry is
the growth in the number of non-traditional foodservice
outlets such as convenience stores, retail stores,
supermarkets and food kiosks. These non-traditional locations
often lack extensive cooking, storage or preparation
facilities, resulting in a need for pre-cooked and prepared
foods similar to those provided by the Company. The expansion
in the foodservice industry has also been accompanied by the
continued consolidation and growth of broadline and specialty
foodservice distributors, many of which are long-standing
customers of the Company.
Consumer Products
The majority of the Company's existing and targeted
"consumer products" customers are involved in the manufacture
of branded and private label packaged foods. The same trends
which have contributed to the increase in away-from-home meal
preparation have also fueled the
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growth in easy to prepare, microwave frozen and refrigerated
convenience foods. Among the fastest growing segments is the
frozen and refrigerated hand-held foods market. This growth
has been driven by improved product quality and variety and
the increasing need for inexpensive, yet hearty, food items
that require minimal preparation. Despite rapid growth, many
categories of frozen and refrigerated hand-held foods have
achieved minimal household penetration. The Company believes
it has been successful in establishing and maintaining supply
relationships with certain selected leading manufacturers in
this market, including Chef America, and that it is
well-suited to service this customer base with a broad line of
value-added products which meet its customers needs.
Products
The Company manufactures and markets a wide variety
of value-added beef, pork and poultry products for both
foodservice and consumer products customers. Products are
provided in either "solid-muscle," natural cut form or
"restructured" form, whereby natural cuts are ground, blended
or emulsified to provide a generally more consistent and lower
cost end product. The Company manufactures both pre-cooked and
uncooked products in both portion-controlled and bulk form,
depending upon the specific preparation, storage or
manufacturing needs of the end customer. Various sauces,
spices, marinades and vegetable mixtures are also used in
certain of the Company's products.
Customers and End Purchasers
The Company serves several hundred active customers
including broad line and specialty foodservice distributors,
packaged foods manufacturers and major national and regional
restaurant chains. Arby's distributors, Subway distributors
and Chef America accounted for 24%, 21% and 12% of the
Company's net sales, respectively, in fiscal 2000. As the
growth rate of these customers continue, dependence on them is
diminishing as the Company's customer base expands. See
"Factors Affecting Future Performance - Importance of Key
Customers."
The Company supplies its foodservice customers
generally through distributors that take title to the product
and resell it. Among the Company's customers are many of the
country's largest broad line and specialty foodservice
distributors. For these and other large end purchasers, the
Company's products generally go through extensive
qualification procedures and its manufacturing capabilities
are subjected to thorough review by the end purchasers prior
to the Company's approval as a vendor. Large end purchasers
typically select suppliers that can consistently meet
increased volume requirements on a national basis during peak
promotional periods. In its value-added operations, the
Company believes that its manufacturing flexibility, national
presence and long-standing customer relationships pose
barriers to entry for other manufacturers seeking to provide
similar products to the Company's current large foodservice
end purchasers.
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The Company's consumer products customers comprise
some of the leading packaged food manufacturers in the
country. Given the highly customized nature of the Company's
products, relationships with our customers are generally
maintained at various levels within the Company. The Company
believes that it has been able to maintain and expand these
relationships through its attention to customer service, by
providing products that consistently meet the changing needs
of its customers and by remaining cost competitive. The
Company believes that once its value-added products are
approved as principal ingredients in its customers' end
products, there exist high barriers to entry for other
manufacturers as long as the Company's overall quality, costs
and product support remain competitive.
Sales and Marketing
During the Fiscal Year ended March 31, 2000, the
Company continued the expansion of the Sales and Marketing
Organization under Glenn Myers - Senior Vice President of
Sales and Marketing. Mr. Myers has formed 5 arms of the
organization to include Field Sales, which is broken into 8
Regions, managing a network of 42 Brokers Nationwide, and a
Direct Sales Force in the Company's heartland markets of
Philadelphia, Baltimore, Washington, and New Jersey. The 2nd
arm of the Organization is Distributor Development, focusing
on developing business building programs with the Company's
largest Distributors. In Fiscal Year 2000, Mr. Myers
established the Business Development Division. One of the
strategic intents of the purchasing of Quality Foods by Custom
Foods in December of 1996 was to have an organization that
sold all the Company's portfolios. The Business Development
Division is a group of the Company's most capable Sales and
Research & Development Executives whose responsibility is to
call on the Company's largest current customers, and develop
the Company's business with its largest future prospects as
well. This Organization sells all of the Company's products
across all divisions. The Sales Operations Department has also
been organized into one, handling all the Company's Customer
Service, Traffic, and Transportation, etc. In Fiscal Year
2001, Mr. Myers will be initiating yet another arm to the
Organization to sell to the Military and International
Markets.
Independent Broker Network
The Company maintains a network of independent
foodservice brokers covering most of the states as well as
Canada, all of which are compensated on a commission basis.
The Company believes that its broker relationships in close
cooperation with the regional sales managers, are a valuable
asset providing significant new product and customer
opportunities. The regional sales managers perform several
significant functions for the Company including identifying
and developing new business opportunities and providing
customer service and support to the Company's distributors and
end purchasers through the effective use of the Company's
broker network.
Manufacturing and Processing
The Company purchases whole cuts of raw meat and
poultry in either fresh or frozen form and subjects them to
various processing steps including blending, forming, cooking
and, in some cases, further processing including shredding,
cubing, slicing, freezing and the addition of sauces and
vegetables. The Company has developed highly specialized
products for customers which include proprietary recipes and
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manufacturing processes that the Company believes would be
difficult for a competitor to duplicate. Specialized large
customers usually require the Company to develop the recipes
and manufacturing processes for them to meet their specific
needs or the Company receives general requirements and then
develops a product formulation and manufacturing process to
produce a product that meets the needs of its customers. These
requirements can include specific fat and nutritional content,
taste, texture and various performance characteristics
specific to the customer's manufacturing process.
The Company generally retains ownership of its
proprietary manufacturing processes and generally retains
ownership of its product recipes. Although the customer often
specifies the ultimate "label" requirements and product
specifications, the actual manufacturing steps and processes
typically remain confidential and proprietary to the Company.
Raw Materials and Suppliers
The Company's principal raw materials consist of
fresh and frozen cuts of beef, pork and poultry, purchased
from a variety of local, national and foreign suppliers. In
addition, the Company also purchases a variety of spices,
binders, sauces and other product additives used in the
manufacturing process. The Company often makes forward volume
commitments and purchases of raw materials to lock in
availability and pricing consistent with its production
expectations. The Company has experienced an increase in meat
costs during FY 2000 and expects this to continue. Where
product pricing is formula based for some of the Company's
customers, primarily Arby's, the Company does not believe it
will be negatively impacted by these increases as a result of
the higher costs being passed through to the customer.
However, as raw material prices increase, the Company expects
a lag or period of time where the gross margin will decrease
before the Company can pass on this increase. The decrease in
gross margin is expected to be temporary and the Company plans
to increase prices whenever reasonably practicable. The
Company expects to be impacted negatively in the near term as
raw material prices increase faster than increases in sales
prices. Over the long term, the Company plans to manage the
gross margin to historical levels. There can be no assurance
that the Company will be successful in this regard. To
minimize the impact of meat cost fluctuations within the
market the Company purchases its raw materials, the Company
has developed least cost formulations to use as a hedging
strategy to reduce the impact of seasonal cycles and market
supply shortages. Least cost formulations allow the Company to
use alternative cuts of meat to produce its products without
sacrificing quality, consistency, and taste.
The Company typically utilizes a variety of meat and
poultry cuts in the manufacture of its restructured products.
In its sandwich steak product lines, however, the Company
generally purchases beef lifter and loin tail cuts to ensure
product quality and consistency throughout the manufacturing
process. Lifter meat, and to a lesser extent loin tail, have
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historically experienced significant price fluctuations during
the course of a year based on seasonal buying patterns of
large users and product availability relative to other cuts of
beef. Whenever possible and economical, the Company purchases
larger quantities during the low points in the seasonal cycle,
forms the product into an intermediate stage and freezes it
for further processing as production requirements dictate. In
an effort curtail the impact of seasonal cycles on the
Company's capital and raw materials supply needs, least cost
formulations are being implemented by the Company to produce
its products that are most affected without sacrificing
quality.
The Company believes that its beef, pork and poultry
raw materials are available from a number of sources at market
prices and quantities sufficient to meet its anticipated
production needs. The Company does, however, concentrate
certain beef and pork purchases to ensure the highest quality
and consistency of product and to improve its overall costs.
The Company will contract with suppliers to provide product
under minimum volume and price commitments in order to ensure
a consistent supply of raw materials. With the development of
least cost formulations, dependence on key suppliers will be
diminished, thereby giving the Company greater leverage and
selectivity when making raw material purchases in the open
market.
Patents and Trademarks
The Company has no material patents or trademarks on
which its business depends. However, the Company has branded
its steak product under the "Philly Up" brand name. As the
Company's branding effort becomes successful and more widely
recognized, this brand is expected to become valuable to the
Company. During fiscal year 2000, the Company expended a
concerted effort to increase brand name recognition for its
"Philly-Up" brand name through local and national promotional
campaigns.
Competition
The Company competes in highly competitive markets
with a significant number of companies of various sizes,
including divisions or subsidiaries of larger companies. The
principle competitive factors in its markets are product
quality and consistency, price, customer service, and ability
to produce highly specialized products to meet specific
customer requirements. Many of the Company's competitors are
larger and have greater financial, marketing and manufacturing
resources.
Government Regulatory Matters
The Company is subject to federal, state and local
health laws and regulations that establish standards for the
manufacture, storage, labeling and transport of foodstuffs.
The United States Department of Agriculture ("USDA") is the
regulatory body that is primarily responsible for monitoring
the Company's operations. Beef, pork and poultry inspection
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is mandatory under the jurisdiction of the Food Safety and
Inspection Service (a division of the USDA), for meat that is
transported across state lines or is otherwise placed in
interstate commerce.
The Company operates USDA-approved facilities. The
Company's procedures are designed to assure that its products
are manufactured under conditions that meet or exceed all
applicable government standards. Such programs are monitored
by federal inspectors and include: (i) inspection of meat at
various stages of processing, (ii) temperature monitoring for
both fresh and cooked meat, (iii), review and approval of
labeling and (iv) controlling and monitoring the use of
additives.
The operations and products of the Company are also
subject to state and local regulation through such measures as
licensing of plants, enforcement of health standards and
inspection of the facilities. Enforcement actions for
violations of federal, state and local regulations may include
seizure and condemnation of violative products, cease and
desist orders, injunctions, monetary penalties and/or
impoundment. The Company believes that its facilities and
practices are adequate to maintain compliance with applicable
government regulations, although there can be no assurances in
this regard.
Employees
As of March 31, 2000, the Company had approximately
602 employees. Approximately 328 of the Company's employees
are represented by the Teamsters Union under contracts which
expire in January 2001 and March 2005. The Company has not
experienced a strike during the past eleven years. The
contract which expires in March 2005 was recently negotiated
and calls for nominal increases in base wages and vacation
benefits for the 34 current union employees covered by the
contract. There can be no assurance that the Company will be
successful in negotiating new contracts in the future.
Factors Affecting Future Performance
In addition to the other information in this Annual
Report on Form 10-K, readers are cautioned to carefully
consider the following factors that may affect the future
operations and performance of the Company.
Significant Leverage and Indebtedness Service
The Company incurred substantial indebtedness in
connection with the financing of the acquisition of Quality
Foods and is highly leveraged. As of March 31, 2000 the
Company had total consolidated indebtedness (including
capitalized lease obligations) of approximately $157.9 million
and a stockholders' deficiency of $28.8 million. Outstanding
debt at March 31, 2000 primarily relates to $115.0 million
outstanding principal amount of 11.625% Senior Notes due 2004
(the "Senior Notes") and borrowings under a $40.0 million loan
security agreement (the "Loan and
12
<PAGE>
Security Agreement"). Subject to the restrictions in the Loan
and Security Agreement and the Senior Notes Indenture, the
Company and its subsidiaries may incur additional indebtedness
from time to time to finance capital expenditures and
acquisitions and for other general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The degree to which the Company is leveraged will
have important consequences to the Company and to the holders
of the Senior Notes, including: (i) limitations on the
Company's ability to obtain additional financing for working
capital or other purposes; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the
payment of the principal and interest on its indebtedness,
thereby reducing funds available for operations; (iii) certain
of the Company's borrowings, including the borrowings under
the Loan and Security Agreement, are at variable rates of
interest which will cause the Company to be vulnerable to
increases in interests rates; (iv) making the Company more
vulnerable to economic downturns and limiting its ability to
withstand competitive pressures; and (v) the Senior Notes will
mature after substantially all of the Company's other
indebtedness.
The Company's ability to make scheduled payments of
principal of or interest on, or to refinance, its indebtedness
will depend on its future operating performance and cash flow,
which are subject to prevailing economic conditions,
prevailing interest rate levels, and financial, competitive,
business and other factors, many of which are beyond its
control, as well as the availability of borrowings under the
Loan and Security Agreement or successor facilities. If the
Company is unable to generate sufficient cash flow from
operations in the future to service its indebtedness, it will
be required to refinance all or a portion of its existing
indebtedness, or to obtain additional financing. There can be
no assurance that any such refinancing would be possible or
that any additional financing could be obtained. The inability
to obtain additional financing would have a material adverse
effect on the Company.
Importance of Key Customers
Certain customers are material to the business and
operations of the Company. Arby's distributors, Subway
distributors and Chef America accounted for 24%, 21% and 12%
of the Company's net sales, respectively, in fiscal 2000. No
other customer accounted for as much as 5% of the Company's
net sales during the fiscal year.
The Company's prospects will continue to depend upon
the success of the Subway and Chef America products that
incorporate meats provided by the Company, as well as Subway's
and Chef America's retention of the Company as a major
supplier. Although the Company believes that it has excellent
relationships with these customers and that such relationships
are mutually beneficial, the Company does not have a long-term
agreement with Chef America and its agreement with Subway
expires in June 2000. The Company's agreement with Arby's
expires
13
<PAGE>
May 2004. The loss of any as a customer, or a significant
reduction in the Company's business with any of them, would
have a material adverse effect on the Company. For fiscal year
2000, sales to each of these key customers increased from
fiscal year 1999, but declined as a percentage of total sales.
The Company believes it has a good relationship with all of
its customers. However, the loss of business from any key
customer could have a negative impact on the Company. Even
though sales to these customers is increasing year over year
and they represent a significant portion of sales for the
Company, dependence on them is diminishing as the Company's
customer base expands. In total, these customers represent
61%, 59%, and 57% of total sales for FY 1998, FY1999, and
FY2000, respectively.
While Arby's is one of the Company's three largest
customers, sales to Arby's distributors produce relatively low
profit margins, compared to other higher margin value-added
products of the Company, and require a high level of the
Company's working capital relative to the profit margins
produced.
Competition
The Company operates in highly competitive markets
with a significant number of companies of varying sizes,
including divisions of or subsidiaries of larger companies.
The Company's sales to Arby's and its sales of hamburger
patties and meatball items to other customers, because of
their low value-added nature are the most price sensitive and
competitive areas in which the Company competes. A number of
the Company's competitors have multiple product lines,
substantially greater financial and other resources available
to them and are, to varying degrees, vertically integrated.
There can be no assurance that the Company can continue to
compete successfully with such other companies. Competitive
pressures or other factors could cause the Company's products
to lose market share or result in significant price erosion,
which would have a material adverse effect on the Company.
General Risks of Food Industry
The food industry, and the markets within the food
industry in which the Company competes, are subject to various
risks, including: adverse changes in general economic
conditions; evolving consumer preferences; nutritional and
health-related concerns; federal, state and local food
inspection and processing controls; consumer product liability
claims; risks of product tampering; and the availability and
expense of liability insurance. The meat and poultry
industries have recently been subject to increasing scrutiny
due to the association of meat and poultry products with
recent outbreaks of illness, and on rare occasions even death,
caused by foodborne pathogens such as E. coli, Salmonella,
Listeria monocytogenes and others which are found in raw and
improperly cooked meat. Consumer demand for meat and poultry
fluctuates as the result of such outbreaks of illness. Product
recalls are sometimes required in the meat and poultry
industries to withdraw contaminated or mislabeled
14
<PAGE>
products from the market. The Company has not experienced any
product recalls; however, there can be no assurance that a
product recall may not be required in the future.
Suppliers and Raw Materials
The Company purchases large quantities of commodity
beef, pork and poultry. Historically, market prices for
products processed by the Company have fluctuated in response
to a number of factors, including changes in the United States
government farm support programs, changes in international
agricultural and trading policies, weather and other
conditions during the growing and harvesting seasons. The
Company historically has been able to pass through some
increases in the prices of beef, pork and poultry to end
users. Failure to pass on significant price increases to its
customers for a prolonged period of time would have a material
adverse effect on the Company. Further, certain of the
Company's customers, including Subway and Chef America, have
fixed price arrangements for certain products in which the
sale price is fixed for periods of up to one year. Although
the fixed price arrangements for Subway and Chef America are
for a targeted quantity of products, there is no requirement
to deliver the products until a purchase order is issued
establishing quantity and delivery time. Should the prices of
raw materials increase substantially for a prolonged period of
time, the Company could be required to deliver products to
these customers at lower gross margins than historically
achieved.
Government Regulation
The operations of the Company are subject to
extensive inspection and regulation by the USDA and by other
federal, state and local authorities, regarding the
processing, packaging, storage, transportation, distribution
and labeling of products that are manufactured, produced and
processed by the Company. The Company's processing facilities
and products are subject to frequent inspection by USDA and/or
other federal, state and local authorities. On July 25, 1996,
the USDA issued strict new policies against contamination by
foodborne pathogens such as E. coli and Salmonella, and
established a new system of regulation known as the Hazard
Analysis Critical Control Points ("HACCP") program. The HACCP
program required all meat and poultry processing plants to
develop and implement sanitary operating procedures and other
program requirements on or before January 26, 1998. As the
USDA's HACCP requirements continue to evolve, their full
impact on the meat and poultry industries is not yet fully
known. However, the Company believes that it is currently in
substantial compliance with all material governmental laws and
regulations (including the January 1998 HACCP requirements),
and that it maintains all material permits and licenses
relating to its operations. Nevertheless, there can be no
assurance that the Company will be able to maintain compliance
with existing laws or regulations or that it will be able to
comply with any future laws and regulations. Failure by the
Company to comply with applicable laws and regulations would
subject it to civil remedies, including withholding of
necessary USDA inspections,
15
<PAGE>
fines, injunctions, recalls or seizures, as well as potential
criminal sanctions, any of which would have a material adverse
effect on the Company.
Dependence on Key Management
The Company's executive officers and certain other
key employees have been primarily responsible for the
development and expansion of the Company's business, and the
loss of the services of one or more of these individuals could
have an adverse effect on the Company. The Company's future
success will be dependent in part upon its continued ability
to recruit, motivate and retain qualified personnel. There can
be no assurance that the Company will be successful in this
regard. The Company has employment and non-competition
agreements with certain key personnel.
Controlling Stockholder
Atlantic Equity Partners, LP, a Delaware limited
partnership ("AEP"), of which First Atlantic is the investment
manager, owns 42.2% and 97.2% of the Company's fully-diluted
common stock and voting common stock, respectively. As
controlling stockholder, AEP is able, subject to certain
contractual limitations, to determine the outcome of any
corporate transaction or other matter submitted to the
stockholders of the Company for approval, including mergers,
consolidations or the sale of all or substantially all of the
assets of the Company, or any of its subsidiaries (including
the Company). In addition, AEP has the ability to elect a
majority of the Company's Board of Directors and the Boards of
Directors of its subsidiaries.
Item 2. Properties
<TABLE>
The following table sets forth the Company's principal
facilities:
<CAPTION>
Owned/ Square Lease
Location Purpose Leased Footage Expiration
-------- ------- ------ ------- -----------
<S> <C> <C> <C> <C>
Philadelphia, PA Corporate Office and Owned 150,000
Manufacturing
Montebello, CA Manufacturing Leased 32,000 March 2003
Owingsville, KY Manufacturing Leased 38,000 September 2019
Vernon, CA Manufacturing Leased 20,000 March 2001
</TABLE>
The Company also has a 45,000 square foot facility in Camden,
NJ that was closed in March 1998. The Company is currently in
negotiations to sell this property.
During the quarter ended March 31, 2000, the Company
signed a letter of intent with Cold Supplychain Integrated,
Inc. (Integrated) to construct a new food processing facility
in La Habra, California. The Company intends to lease the
facility for a minimum of 10 years and will guarantee a
minimum level of cold storage volume to Integrated over the
lease term. The Company is in the final stages of negotiating
a definitive
16
<PAGE>
lease agreement for an 80,000 square foot facility under the
terms of the letter of intent. Construction is expected to
commence in the quarter ending September 2000. The Company
plans to relocate all of its operations from its existing
Montebello and Vernon locations to the newly built facility
which is expected to be completed in the quarter ending June
2001.
Environmental Matters
The business operations of the Company and the
operation of real property by Custom Foods and Quality Foods
are subject to extensive and changing federal, state and local
environmental laws, and regulations pertaining to the
discharge of materials into the environment, the handling and
disposition of wastes (including solid and hazardous wastes)
or otherwise relating to protection of the environment.
Compliance with federal, state and local environmental laws
and regulations is not expected to have a material impact on
the Company's capital expenditures, earnings or competitive
position. No assurance can be given, however, that additional
environmental issues relating to presently known matters or
identified sites or to other matters or sites will not require
additional, currently unanticipated investigation, assessment
or expenditures.
Item 3. Legal Proceedings
The Company is not involved in any legal matters
within or outside of the normal course of business that would
have a material impact on the operations or financial position
of the Company.
The Company is likely to be subject to claims arising
from time to time in the ordinary course of its business. In
certain of such actions, plaintiffs may request punitive or
other damages that may not be covered by insurance and,
accordingly, no assurance can be given with respect to the
ultimate outcome of any such possible future claims or
litigation or their effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of
security holders during the year covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the
Company's Voting Class A Common Stock, Nonvoting Class A
Common Stock or Nonvoting Class B Common Stock. As of March
31, 2000 there were 7 holders of record of Voting Class A
Common Stock, there were 15 holders of record of Nonvoting
Class A Common Stock and there were 14 holders of record of
Nonvoting Class B Common Stock. The Company has not
17
<PAGE>
declared dividends in the last three fiscal years and does not
anticipate doing so in the foreseeable future. For additional
information, see "Security Ownership of Certain Beneficial
Owners and Management" in this Annual Report of Form 10-K.
Since April 1, 1996 the Company has issued
unregistered securities to investors and certain other
individuals as set forth below.
In December 1996 in connection with the
purchase by CFP Holdings of Quality Foods, the
Company issued 2,162 shares of its Nonvoting Class B
Common Stock to holders of equity interests in
Quality Foods valued at $1.5 million.
In January 1997, (i) in connection with the
recapitalization of CFP Holdings, each person owning
capital stock (or options to acquire capital stock of
CFP Holdings) exchanged their equity interests for
equivalent interests of capital stock (or options to
acquire capital stock) of CFP Group; (ii) the Company
issued 720 shares of its Nonvoting Class B Common
Stock to a group of Quality Foods management for
$500,000 with the Company receiving promissory notes
totaling $343,000 as partial consideration for such
sale; (iii) the Company issued 439 shares of its
Nonvoting Class B Common Stock, valued at $304,583
for $.01 per share to NationsBridge, L.L.C. in
exchange for services; (iv) the Company issued 4,538
shares of its Nonvoting Class A Common Stock valued
at $1,722,520 upon the exercise by NationsCredit
Commercial Corporation and CFP Associates of warrants
issued in exchange for services; and (v) the Company
issued 2,546 shares of its Nonvoting Class A Common
Stock for $735,845 to a group of employees of the
Company when Incentive Stock Options were exercised
in conjunction with the payment of a special dividend
by the Company in connection with the offering of the
Senior Notes.
In September 1997, the Company issued 72
shares of its Nonvoting Class B shares for $50,000 to
an employee of the Company. The Company received a
Promissory Note for $35,000 as partial consideration.
During fiscal year 2000, the Company issued
shares in connection with certain employees electing
to exercise their options to purchase Company stock.
Also, the Company repurchased company stock from
former employees. With respect to the issuance of
shares to certain employees, the Company issued 674
shares of its Nonvoting Class A shares for $194,799
and issued 984 shares of its Nonvoting Class B shares
for $412,762. The Company received Promissory Notes
in the amount of $532,415 as consideration. Regarding
the repurchase of shares from former employees, the
Company entered into an agreement with a shareholder
to purchase 1,716 shares of common stock and 1,124
option shares on or before June 30, 2000 for a gross
price of
18
<PAGE>
$500 per share. On January 4, 2000, the Company paid
$858,000 for the 1,716 shares of common stock. The
Company subsequently purchased the remaining 1,124
option shares in April 2000. In addition, two former
employees had their shares repurchased by the Company
for $193,000 and cancelled a Promissory Note for
$82,000 in connection with the transaction. During
April 2000, the Company purchased 100 shares of
common stock for $500 per share from an employee of
the Company.
All of the aforementioned issuances were made in
reliance upon the exemption from the registration requirements
of the Securities Act. of 1933, as amended, contained in
Section 4(2) of the Securities Act.
Item 6. Selected Financial Data
<TABLE>
The following selected consolidated financial data of
the Company has been derived from the audited consolidated
financial statements of the Company and should be read in
conjunction with the audited consolidated financial statements
and related notes hereto and the other financial data included
elsewhere in this filing.
<CAPTION>
Six
Months
Year Ended Ended Year Ended
September 30, March 31, March 31,
1995 1996 1997 (1) 1998 1999 2000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 61,543 $ 65,996 $ 60,529 $ 181,378 $ 183,164 $ 211,282
Cost of sales 49,868 53,818 52,276 152,484 147,518 174,969
--------- --------- --------- --------- --------- ---------
Gross profit 11,675 12,178 8,253 28,894 35,646 36,313
Selling, general and
administrative
expenses 6,700 5,512 7,474 17,156 20,411 18,670
Other charges 4,996(2)
--------- --------- --------- --------- --------- ---------
Income from operations 4,975 1,670 779 11,738 15,235 17,643
Interest expense 2,632 3,232 4,681 17,236 17,322 17,914
--------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes and
extraordinary items 2,343 (1,562) (3,902) (5,498) (2,087) (271)
Provision (benefit)
for income taxes 1,189 (409) (541) 30 467 (350)
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item 1,154 (1,153) (3,361) (5,528) (2,554) 79
Extraordinary loss on
early extinguishment
of debt (4,489)(3) (1,003)(4)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 1,154 $ (1,153) $ (7,850) $ (5,528) $ (3,557) $ 79
========= ========= ========= ========= ========= =========
Other Data:
EBITDA (5) $ 6,685 $ 3,758 $ 3,026 $ 18,484 $ 22,224 $ 25,548
Net cash provided by
(used in) operating
activities 4,382 135 3,477 661 4,244 (4,340)
Net cash used in
investing activities (1,785) (1,811) (67,293) (3,754) (6,643) (6,922)
Net cash (used in)
provided by
financing activities (2,807) 2,168 65,462 2,298 2,875 10,048
Depreciation and
amortization 1,710 2,088 2,236 6,732 6,733 7,681
Interest expense 2,632 3,232 4,681 17,236 17,322 17,914
19
<PAGE>
Capital expenditures 5,054 3,009 1,674 5,489 6,104 7,038
Ratio of earnings to
fixed charges (6) 1.83x
Balance Sheet Data:
Working capital $ 2,754 $ 3,153 $ 14,702 $ 15,373 $ 18,093 $ 30,236
Total assets 30,148 32,203 132,822 133,079 136,404 148,152
Total debt, redeemable
preferred stock and
redeemable common
stock 19,526 23,223 142,174 145,818 149,327 159,772
Total stockholders
equity (deficiency) 5,884 4,020 (19,383) (24,959) (28,516) (28,834)
<FN>
(1) In March 1997, the Company changed its fiscal year end from
the Saturday closest to September 30 to the Saturday closest
to March 31.
(2) Represents one-time costs associated with the termination of a
Sales Brokerage Agreement.
(3) Represents the write-off of deferred financing costs due to
early payment of long-term debt, partially offset by discounts
gained due to early repayment of certain long-term debt.
(4) The Company used proceeds from new borrowings under the Loan
and Security Agreement to repay all amounts outstanding under
its prior credit agreement. This represents the write-off of
unamortized deferred financing costs associated with the prior
credit agreement.
(5) EBITDA is the sum of income before income taxes and interest,
depreciation and amortization expense (and extraordinary and
unusual items). EBITDA is presented because it is a widely
accepted financial indicator of a Company's ability to service
indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from
operating activities (as determined in accordance with
generally accepted accounting principles) and should not be
construed as an indication of a Company's operating
performance or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed
charges. Fixed charges consist of interest (which includes
amortization of deferred financing costs) and one-third of
rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. A
ratio of earnings to fixed charges is not presented for the
year ended September 30, 1996, the six months ended March 31,
1997 or the years ended March 31, 1998, 1999, and 2000, as
earnings were not adequate to cover fixed charges. The
deficiency of earnings to cover fixed charges were $1.6
million for the fiscal year ended September 30, 1996, $3.9
million for the six month period ended March 31, 1997, $5.5
million for the fiscal year ended March 31, 1998, $2.1 million
for the fiscal year ended March 31, 1999, and $.3 million for
the fiscal year ended March 31, 2000.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results from Operations
The following table represents the Company's consolidated
income statement showing each income statement component as a
percentage of net sales.
Year Ended March 31,
1998 1999 2000
----- ----- -----
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of sales 84.1 80.5 82.8
----- ----- -----
Gross profit 15.9 19.5 17.2
Selling, general and administrative expenses 9.4 11.1 8.8
----- ----- -----
Income from operations 6.5 8.4 8.4
Interest expense 9.5 9.5 8.5
----- ----- -----
Loss before income taxes and extraordinary items (3.0) (1.1) (0.1)
Provision (benefit) for income taxes 0.3 (0.2)
----- ----- -----
(Loss) Income before extraordinary item (3.0) (1.4) 0.1
20
<PAGE>
Extraordinary loss on early extinguishment of debt (0.5)
----- ----- -----
Net (loss) income (3.0)% (1.9)% 0.1%
===== ===== =====
Fiscal Year Ended March 31, 2000 compared to the Fiscal Year
ended March 31, 1999
Net Sales. Net sales increased by $28.1 million or
15.4% to $211.3 million for the fiscal year ended March 31,
2000 when compared to $183.2 million for the fiscal year ended
March 31, 1999. Total pounds sold by the Company increased by
19.4 million pounds or 17.9% for the fiscal year ended March
31, 2000 when compared to the fiscal year ended March 31,
1999. This increase was experienced in all products within the
Company's product portfolio and is a direct result of the
Company's restructuring of the sales organization, and
continued investment and execution in its growth and branding
strategies. Particularly, sales of the Company's higher margin
value-added products increased by 17.1% to $161.1 million for
the fiscal year ended March 31, 2000 from $137.9 million for
the fiscal year ended March 31, 1999 and sales to Arby's
increased by 10.9% to $50.2 million for the fiscal year ended
March 31, 2000 from $45.3 million for the fiscal year ended
March 31, 1999. In addition, sales to key customers such as
Subway and Chef America increased 14.8% and 6.3%,
respectively. The net sales price decreased to $1.65 per pound
from $1.69 per pound as a result of a product mix shift in the
Broiler Line business combined with passing lower raw
materials prices to customers who are charged on a "cost plus"
basis, primarily Arby's, and a decrease in the average
contract prices to Chef America.
Gross Profit. Gross profit increased to $36.3 million
for the fiscal year ended March 31, 2000 from $35.6 million
for the fiscal year ended March 31, 1999. Volume was the key
driver for this $700,000 increase in performance over the
prior year. The gross margin decreased to 17.2% for the fiscal
year ended March 31, 2000 from 19.5% for the fiscal year ended
March 31, 1999 and the average gross profit per pound
decreased to $0.29 from $0.33 for the same periods,
respectively. The primary factors for the decrease include
higher raw material costs, lower yields due to production line
inefficiencies, higher operating costs as a result of the
increased volume over the prior year, and a decrease in the
average contract prices to Chef America.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased to
$18.7 million for the fiscal year ended March 31, 2000 from
$20.4 million for the fiscal year ended March 31, 1999. The
$1.7 million decrease in expenses is primarily due lower
expenses reflecting the Company's capitalization of certain
personnel costs directly related to the implementation of the
Company's new enterprise wide computer system, lower expense
due to unfilled positions, lower compensation related to
performance based compensation, and stronger fiscal
management, partially offset by an increase sales and
marketing expenses primarily as a result of increases in
brokerage costs. Included in selling, general, and
administrative expense for FY 2000 is a one time charge of
$237,142 related to the Company's purchase of 1,124
21
<PAGE>
option shares from a former employee of the Company. See
Market for Registrant's Common Equity and Related Stockholder
Matters.
Income from Operations. As a result of the foregoing
items, income from operations increased to $17.6 million for
the fiscal year ended March 31, 2000 from $15.2 million for
the fiscal year ended March 31, 1999.
Interest Expense. Interest expense increased to $17.9
million for the fiscal year ended March 31, 2000 from $17.3
million for the fiscal year ended March 31, 1999. The $600,000
increase is primarily a result of increased borrowings under
the Company's revolving credit facility.
Income Taxes. An income taxes benefit of $350,000 was
recorded for the fiscal year ended March 31, 2000 as compared
to a provision of $467,000 for the fiscal year ended March 31,
1999. The primary factors contributing to this were income tax
refunds combined with lower state tax obligations resulting
from the reorganization of the Company's Pennsylvania
subsidiary into a limited liability company.
Extraordinary Loss. In the first quarter of fiscal
year 1999, the Company used proceeds from borrowings under the
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. This amount
principally consisted of unamortized deferred financing costs.
Net Income. As a result of the foregoing factors, the
Company had net income of $79,000 for the year ended March 31,
2000 versus a net loss of $3.6 million for the prior year.
Fiscal Year Ended March 31, 1999 compared to the Fiscal Year
ended March 31, 1998
Net Sales. Net sales increased by $1.8 million or 1%
to $183.2 million for the fiscal year ended March 31, 1999
when compared to $181.4 million for the fiscal year ended
March 31, 1998. Total pounds sold by the Company increased by
1.6 million pounds or 1.5% for the fiscal year ended March 31,
1999 when compared to the fiscal year ended March 31, 1998.
Sales of the Company's higher margin value-added products
increased by 2.3% to $137.9 million for the fiscal year ended
March 31, 1999 from $134.8 million for the fiscal year ended
March 31, 1998 and sales to Arby's decreased by 2.7% to $45.3
million for the fiscal year ended March 31, 1999 from $46.5
million for the fiscal year ended March 31, 1998.The increase
in net sales reflects an overall increase in sales of the
Company's Quality Foods division, offset in large part by a
decrease in sales from the Custom Foods division. The increase
in sales at Quality Foods was a result of increases in sales
of its value added products. The decrease in net sales at
Custom Foods was a result of decreased sales of value added
products and the reduced sales prices of its
22
<PAGE>
products as a result of the cost plus nature of the contract
with Arby's. Approximately $1.2 million of the reduced sales
at Custom Foods was a result of the lower prices charged to
Arby's due to the lower prices paid for raw materials. The
decrease in sales of Custom Foods' value added business was a
result of a reduction in sales to one of Custom Foods largest
customers, Chef America. Commencing with the last quarter of
fiscal year 1998 and continuing through the second quarter of
fiscal year 1999 sales to Chef America declined. However, as
of March 31, 1999, the growth in other value added business of
the Company had offset the impact of the decline in sales to
Chef America and the comparable quarterly sales to Chef
America increased during the quarters ended December 31, 1998
and March 31, 1999. The net sales price decreased to $1.69 per
pound from $1.70 per pound as a result of the above changes.
Gross Profit. Gross profit increased to $35.6 million
for the fiscal year ended March 31, 1999 from $28.9 million
for the fiscal year ended March 31, 1998. This $6.7 million
increase was primarily due to increased sales and improved
efficiencies in operations at the Company's Quality Foods
division, as well as lower prices paid for raw materials at
both divisions. The gross margin increased to 19.5% for the
fiscal year ended March 31, 1999 from 15.9% for the fiscal
year ended March 31, 1998 and the average gross profit per
pound increased to $0.33 from $0.27 for the same periods,
respectively, for the same reasons.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased by $3.2
million to $20.4 million for the fiscal year ended March 31,
1999 from $17.2 million for the fiscal year ended March 31,
1998. The increase in expenses is primarily due to strategic
staffing additions, as the Company invested in its
infrastructure to consolidate the Company's businesses to
support future sales growth. The Company does not allocate
selling, general and administrative Expenses to each of the
Company's operating divisions.
Income from Operations. As a result of the foregoing
items, income from operations increased to $15.2 million for
the fiscal year ended March 31, 1999 from $11.7 million of the
fiscal year ended March 31, 1998.
Interest Expense. Interest expense increased slightly
to $17.3 million for the fiscal year ended March 31, 1999 from
$17.2 million for the fiscal year ended March 31, 1998.
Provision for Income Taxes. Provision for income
taxes increased to $467,000 for the fiscal year ended March
31, 1999 from $30,000 for the fiscal year ended March 31, 1998
due to the need to provide for an expected increase in income
tax expense in certain states in which the Company operates
and the disallowance of certain deductions resulting from an
IRS audit of prior years.
Extraordinary Loss. The Company used proceeds from
borrowings under the Loan and Security Agreement to repay all
amounts
23
<PAGE>
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 in FY1999. This amount principally consisted of
unamortized deferred financing costs.
Net Loss. A net loss of $3.6 million was incurred for
the year ended March 31, 1999 versus a net loss of $5.5
million for the prior year due to the net impact of the
foregoing items.
Liquidity and Capital Resources. The Company's total
consolidated indebtedness was $158.1 million at March 31,
2000, principally consisting of $115 million in Senior Notes
and $29.9 million in borrowings under the Loan and Security
Agreement as well as various notes payable to government
agencies and capital leases. Borrowings under the Loan and
Security Agreement consist of a $10.0 million term loan, $17.8
million of revolving credit borrowings and $2.1 million in
equipment loans. As of March 31, 2000, the Loan and Security
Agreement provides for a $10.0 million term loan and a
revolving credit facility up to $30.0 million, subject to a
borrowing base and other limitations, including amounts
outstanding under term loans, equipment loans, letter of
credit, and other borrowing instruments under the Loan and
Security Agreement. All amounts outstanding under the Loan and
Security Agreement become due and payable in May 2002. During
June 2000, the Company increased its credit facility from
$40.0 million to $45.0 million to provide additional working
capital.
Borrowings under the Loan and Security Agreement are
secured by substantially all of the Company's assets,
including a pledge of all the stock of Quality Foods and
Custom Foods, are guaranteed by the Company's subsidiaries,
which guarantees are secured by substantially all of the
assets of the Company's subsidiaries, and are further secured
by a pledge of all the stock of CFP Holdings. The Company is
also required to maintain a ratio not greater than 2.5 of debt
under the Loan and Security Agreement to EBITDA, as defined,
to remain in compliance under the agreement.
The Loan and Security Agreement and the Indenture
contain numerous restrictive covenants, which limit the
discretion of the management of the Company with respect to
certain business matters. These covenants place significant
restrictions on, among other things, the ability of the
Company to incur additional indebtedness, to create liens or
other encumbrances, to pay dividends or make other restricted
payments, to make investments, to make capital expenditures,
loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to, or merge or consolidate
with, another entity.
The Company entered into a sale leaseback arrangement
with The CIT Group (CIT) in April 2000 where CIT purchased and
then subsequently leased back to the Company food processing
and computer related equipment. The primary purpose of the
arrangement was to provide the Company with additional
liquidity in the amount of $2.6
24
<PAGE>
million for working capital needs. The term of the agreement
is 24 months for computer equipment and 36 months for food
processing equipment.
Net cash used in operating activities was $4.3
million in fiscal 2000 compared to $4.2 million of net cash
provided by operating activities in fiscal 1999. The primary
factors of this usage of cash over prior year's provision is
the Company's increased investment in inventories and
increased accounts receivable, both resulting from the
increase in sales in fiscal 2000 and the Company's decision to
build up inventories at its fiscal year end. Net cash used in
investing activities was $6.9 million in fiscal 2000 compared
to $6.6 million in fiscal 1999. Cash provided by financing
activities was $10.0 million in fiscal 2000 compared to $2.9
million in fiscal 1999. Cash provided by financing activities
was primarily received from borrowings under the Company's
credit facility.
In addition to its debt service obligations, the
Company requires liquidity for working capital and capital
expenditures. The Company experiences seasonal increases in
its working capital as a result of large product promotions
and planned inventory increases based upon seasonally low raw
material prices.
For the fiscal years ended March 31, 2000, 1999, and
1998 the Company spent $7.0 million, $6.6 million, and $5.5
million, respectively, on capital expenditures. The Company
presently anticipates that its capital expenditures for fiscal
2001 will be between $4.4 million and $8.0 million depending
on the needs associated with the Company's new California
facility and the timing associated with its opening.
The Company's primary sources of liquidity are cash
flows from operations and borrowings under the Loan and
Security Agreement. Based upon the current and anticipated
level of operations, the Company believes that its working
capital requirements, capital expenditures and debt service
requirements will be satisfied through a combination of cash
flow from operations and funds available under the Loan and
Security Agreement. However, in connection with the opening of
its new California facility, the Company may need to evaluate
and or revise its existing debt agreements to support its
planned growth.
Year 2000
As of the date of this report, the Company is not
aware of any adverse effects of Year 2000 issues on the
Company including its systems and operations.The Company
selected a Year 2000 compliant Enterprise Wide System, the
Ross Systems Renaissance CS Enterprise Resource Planning
System ("Ross System"). The Company expended $1,600,000 on the
Ross System implementation through March 31, 2000. The cost
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. The Company has successfully completed Phase I of the
implementation. Phase I
25
<PAGE>
entailed replacing systems at risk with the Ross System. Phase
II is now underway and it is comprised of replacing all the
remaining systems with the Ross System.
The Company believes the conversion to the Ross
System and Year 2000 project has resulted in the Company being
Year 2000 compliant and the Company has not experienced any
major Year 2000 problems to date. In addition, the Company is
not aware of any material Year 2000 problems experienced by
material third parties ("External Parties") and has not
received any notification from External Parties to date.
However, the Company will continue to monitor all critical
systems for the appearance of delayed complications or
disruptions, problems relating to the leap year, and problems
encountered by third parties with whom the Company deals.
Inflation
Management does not believe that inflation had any
material impact upon its business for the fiscal years ended
March 31, 2000, 1999, and 1998.
Item 7A. 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.
<TABLE>
The table below provides information concerning
long-term debt outstanding at March 31, 2000, including
principal amounts maturing each year, average interest rate
and fair value.
<CAPTION>
Total Fair
2001 2002 2003 2004 2005 Thereafter Total Value
--------- --------- ------------ ------------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11.625%
Senior Notes Average $ 115,000,000 $115,000,000 $ 105,800,000
Interest Rate Variable 11.625 11.625 11.625% 11.625%
Rate Notes Average $ 357,000 $ 357,000 $ 29,244,000 $ 29,958,000(a)
Interest Rate 9.00% 9.00% 9.00%
Variable Government Notes $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 2,952,000 $ 3,952,000(a)
Average
Interest Rate 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Fixed Rate Notes $ 226,000 $ 160,000 $ 156,000 $ 160,000 $ 165,000 $ 2,310,000 $ 3,177,000(a)
Average Interest Rate 2.18% 3.60% 3.50% 3.38% 3.23% 3.23%
Capitalized Leases
Fixed Rates $ 260,000 $ 311,000 $ 64,000 $ 69,000 $ 82,000 $ 5,060,000 $ 5,846,000(a)
Average Interest
Rate 14.42% 14.62% 14.90% 14.90% 14.90% 14.90%
<FN>
(a) The carrying value of these debt instruments approximates fair value as
either the rate of interest is tied to market rates or, if necessary,
the Company believes it could refinance this instrument at similar
terms as of March 31, 2000.
</FN>
</TABLE>
26
<PAGE>
Item 8. Financial statements and supplementary data
See Item 14 Exhibits, financial statement schedules, and
reports on Form 8-K.
Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the registrant
MANAGEMENT
Directors and Executive Officers of the Company
Set forth below are names, ages and positions of the
directors and executive officers of CFP Group. All directors
hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified, and all
executive officers hold office at the pleasure of the Board of
Directors.
Name Age Position(s)
---- --- -----------
Executive Officers and Directors
Roberto Buaron 54 Director, Chairman of the Board
William Del Chiaro 47 Director, President and Chief
Executive Officer
James Long 57 Director, Vice Chairman and Treasurer
Andrew Kohn 33 Director
Robert Gioia 52 Director
David Cohen 36 Director
Eric Ek 44 Director, Executive
Vice President, and Secretary
Ronald Gallo 36 Senior Vice President, Chief
Financial Officer
Glenn Myers 37 Senior Vice President, Sales and
Marketing
Roberto Buaron has been the Chairman and a Director
of CFP Group since December 1996. He is the Chairman and Chief
Executive Officer of First Atlantic, which he founded in 1989.
From 1987 to 1989, he was an Executive Vice President with
Overseas Partners, Inc., an investment management firm. Mr.
Buaron is currently a director of BPC Holding Corporation.
William Del Chiaro joined the Company in March 1998
as a Director and as President and CEO of Quality Foods. In
May 1998 he became President and CEO of CFP Group. He was
previously Executive Vice President of Sara Lee Corporation's
Hillshire Farm & Kahn's division, a $1 billion manufacturer of
processed and packaged meats for the retail grocer,
foodservice and other markets. There he was responsible for a
substantial portion of the business's operations, capital
expenditures,
27
<PAGE>
sales and marketing. Prior to this position, Mr. Del Chiaro
spent ten years as a senior executive of Mars, Inc., where he
held top-level marketing and sales positions in the Uncle
Ben's, Dove International, M&M/Mars, and foodservice
divisions. His experience also includes three years as
Director of Marketing of Dr. Pepper Company's food service
division, as well as various positions of increasing
responsibility during a seven-year career at Proctor & Gamble
Company.
Robert Gioia has been a Director of CFP Group since
December 1996. From December 1996 to June 30, 1998 he served
as the President and Chief Executive Officer of the Company.
Effective June 30, 1998 Mr. Gioia became a consultant to the
Company. Prior to December 1996, he was the Chairman and Chief
Executive Officer of Quality Foods and of a corporation (of
which he is the sole stockholder) which was a partner of
Quality Foods since July 1992. He has held management
positions in the food processing industry for over 22 years.
Prior to joining Quality Foods, Mr. Gioia was responsible for
sales and marketing of the foodservice division, both
restaurant and institutional, of the Red Wing Company, a
national food manufacturer and processor. In addition, Mr.
Gioia held several positions, including Vice President, with
the Gioia Macaroni Company, a national pasta manufacturer
founded by the Gioia family in 1910.
David Cohen has been a Director of CFP Group since
December 1996 and also serves as Vice Chairman of QFAC, LLC.
Prior to that he served as President and Chief Operating
Officer of Quality Foods since July 1992 and President of a
corporation (of which he is the sole stockholder) which was a
partner of Quality Foods. Mr. Cohen joined Quality Foods in
1983 and has served in numerous positions, including National
Sales Manager, before becoming Chief Operating Officer.
Eric Ek was the Vice President and Chief Financial
Officer of Custom Foods from July 1993 to August 1998, and a
Vice President, Chief Financial Officer and Director of CFP
Group from December 1996. In August 1998, he was promoted to
Senior Vice President and Chief Financial Officer, and in
February 2000 was promoted to Executive Vice President.
Previously, Mr. Ek was a Managing Director at Takenaka &
Company, a Pacific Rim focused investment banking firm from
1990 to 1993. At Takenaka, Mr. Ek was the Chief Financial
Officer of a residential homebuilder and a Chief
Administrative Officer for a manufacturing firm. Prior to
joining Takenaka, Mr. Ek was employed by KPMG Peat Marwick and
Ernst & Young from 1982 to 1990. Mr. Ek is a Certified Public
Accountant.
Ronald Gallo has been the Vice President of Business
Planning since joining the Company in July 1998 and Senior
Vice President of Staff Operations since March 1999. In
February 2000, concurrent with Mr. Ek's promotion to Executive
Vice President, he was promoted to the Company's Chief
Financial Officer. Previously, Mr. Gallo was the director of
Planning and Trade Marketing for Sara Lee Corporation's
Hillshire Farm & Kahn's Division. Mr. Gallo worked for the
Sara Lee
28
<PAGE>
Corporation for almost ten years, from 1989 to 1998, holding
various positions in a financial capacity. Mr. Gallo earned an
M.B.A. from Xavier University in Cincinnati, Ohio in 1996.
James Long has been the Vice Chairman and Treasurer
of CFP Group since December 1996 and a director of CFP
Holdings since March 1993. He has been an Executive Vice
President of First Atlantic since March 1991. From January
1990 to February 1991, Mr. Long was an Executive Vice
President at Kleinwort Benson Equity Fund, a leveraged buyout
fund. Mr. Long is currently a director of BPC Holding
Corporation.
Andrew Kohn has been a Director of CFP Group since
December 1996. Mr. Kohn is a Vice President of First Atlantic,
with whom he has been employed since 1994. Previously, Mr.
Kohn was employed by Berkshire Partners, a private equity
investment firm and Bear Stearns & Co.
Glenn Myers has been the Senior Vice President of
Sales and Marketing since joining the Company in April 1999.
Previously, Mr. Myers was Vice President of National Accounts
Sales for Best Foods International. In addition, Mr. Myers
held various positions from 1985 to 1996 in Sales, Marketing
and Training for Campbell Soup Company. Mr. Myers received a
B.A. degree from Oswego State University in 1984.
Item 11. Executive Compensation
The following table sets forth a summary of the
compensation earned by the Company's current Chief Executive
Officer and its four other most highly compensated executive
officers (collectively, the "Named Executive Officers") for
services rendered in all capacities during the last fiscal
year.
<TABLE>
SUMMARY COMPENSATION TABLE(1)
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION OPTIONS LTIP ALL OTHER
FISCAL SALARY BONUS GRANTED PAYOUTS COMPENSATION
NAME AND TITLE YEAR ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C>
William Del Chiaro 2000 400,000 400,000 411(4) 25,470(5)
President and Chief 1999 327,596 271,905 1,589(4) 15,900(5)
Executive Officer 1998 12,500(3) 75,000(3)
Eric Ek 2000 230,000 66,820 50(4) 27,182(9)
29
<PAGE>
Executive Vice 1999 202,000 172,550 200(4) 14,162(9)
President 1998 198,950 23,556 8,506(9)
Ron Gallo(6) 2000 149,136 44,740 188(4) 18,644(7)
Chief Financial Officer 1999 92,500 39,812 350(4) 6,750(7)
Senior Vice President 1998
Glenn Myers(10) 2000 150,000 45,000 50(4) 9,736(11)
Senior Vice President of 1999
Sales and Marketing 1998
David Cohen 2000 144,200 43,260 50(4) 21,571(8)
Director(2) 1999 127,165 103,321 367(4) 13,337(8)
1998 166,792 25,000 13,337(8)
<FN>
(1) For purposes of this table, the fiscal years referred to herein mean
the 12-month periods ended March 31.
(2) Mr. Cohen also serves as Vice Chairman of QFAC, LLC.
(3) Became an employee of the Company in March 1998. During 1998,
compensation included base salary of $325,000 since his start date of
March 18, 1998 and a signing bonus of $75,000. During 1999, Mr. Del
Chiaro's salary was increased to $400,000.
(4) Options granted under the 1998 stock option plan.
(5) For 2000: Consist of $14,400 car allowance, $1,056 excess term life
insurance, $7,170 medical and dental insurance, $2,844 disability
insurance. For 1999: Consists of $14,400 car allowance and $1,500
excess term life insurance.
(6) Became an employee of the Company in July 1998.
(7) For 2000: Consists of $9,000 for car allowance, $359 excess term life
insurance, $7,486 medical and dental insurance, $1,799 disability
insurance. For 1999: Consists of $6,750 for car allowance.
(8) For 2000: Consists of $12,000 for car allowance, $330 excess term life
insurance, $7,486 medical and dental insurance, $1,755 disability
insurance. For 1999: Consists of $12,000 for car allowance and $1,337
excess term life insurance. For 1998: Consists of $1,337 excess term
life insurance and $12,000 car allowance.
(9) For 2000: Consists of $8,900 for car allowance, $10,445 medical and
dental insurance, $757 excess term life Insurance and $7,080 in
disability insurance. For 1999: Consists of $8,400 for car allowance,
$1,020 excess term life insurance and $4,742 in disability insurance.
For 1998: Consists of $8,400 for car allowance and $106 excess term
life insurance.
(10) Became an employee of the Company in April 1999.
(11) For 2000: Consists of $396 excess term life insurance, $7,486 medical
and dental insurance, $1,854 disability insurance.
</FN>
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
The following table sets forth the options granted to
the Named Executive Officers during the last fiscal year under
the 1998 stock option plan.
<CAPTION>
Percent
of Total Potential
Options Realizable Value at
Number of Granted Assumed Annual
Securities to Rates of Stock
Underlying Employees Exercise of Price Appreciation
Options in Fiscal Base Price Expiration for Option Term
Granted Year ($/Sh) Date 5% ($) 10% ($)
------- ---- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
William Del Chiaro 411 29.0% 289.02 7-1-2009 $215,951 $414,217
Eric Ek 50 3.5% 289.02 7-1-2009 $ 26,271 $ 50,393
Ron Gallo 188 13.3% 289.02 7-1-2009 $ 98,780 $189,476
30
<PAGE>
Glenn Myers 50 3.5% 289.02 7-1-2009 $ 26,271 $ 50,393
David Cohen 50 3.5% 289.02 7-1-2009 $ 26,271 $ 50,393
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
The following table sets forth information with
respect to the exercise of stock options during the last
fiscal year by each of the Named Executive Officers and the
number of options held at fiscal year end and the aggregate
value of in-the-money options held at fiscal year end.
<CAPTION>
Value of
Number of Unexercised
Shares Securities In-The-Money
Acquired on Underlying Options At
Exercise Options at March 31, 2000
A Shares Value March 31, 2000 ($)(1)
/ B Realized Exercisable / Exercisable /
Shares ($) Unexercisable Unexercisable
------ --- ------------- -------------
<S> <C> <C> <C> <C>
William G. Del Chiaro 0/400 -- 0/1,600 0/337,568
Eric Ek 444/50 -- 0/200 0/42,196
Ron Gallo 0/107 -- 0/431 0/90,932
Glenn Myers 0/60 -- 0/240 0/50,635
David Cohen 0/337 -- 0/80 0/16,878
<FN>
(1) Based on the assumed fair market value of the Common Stock at March 31,
2000 ($500.00 per share), as determined by the Company's Board of
Directors.
</FN>
</TABLE>
Compensation of Directors
All Directors are reimbursed for their usual and
customary expenses incurred in attending all Board of
Directors and committee meetings. Directors of the Company
receive no remuneration for serving as directors.
The Company has entered into a consulting agreement
with Mr. Gioia (the "Gioia Consulting Agreement") that expires
on December 31, 2001 or on an earlier date in accordance with
the terms of the Gioia Consulting Agreement. Base compensation
under the Gioia Consulting Agreement through March 31, 1999
was $331,500. Effective April 1, 1999, base compensation is
$125,000 per year. Mr. Gioia was also eligible to participate
in the Company's annual cash bonus plan for the fiscal year
ended March 31, 1999, which was based upon the Company's
achievement of certain annual performance targets. The Company
may terminate Mr. Gioia at any time for "cause" or after a
specified period upon a "disability" (as such terms are
defined in the Gioia Consulting Agreement). If the Company
terminates Mr. Gioia "without cause" (as such term is defined
in the Gioia Employment Agreement), Mr. Gioia is entitled to
receive, among other things, the aggregate of his annual
consulting fee through the later of December 31, 2001 or 18
months from the date of termination by the Company. In
accordance with Mr. Gioia's prior Employment Agreement, with
the adoption of the 1998 Stock Option Plan, Mr. Gioia was
granted options to purchase 428 shares of Class B Nonvoting
Common Stock, $.01 par value, of CFP Group (the "Class B
31
<PAGE>
Nonvoting Common Stock").
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Roberto
Buaron, Chairman of CFP Group and James Long, Vice Chairman
and Treasurer of CFP Group. See "Transaction with Certain
Stockholders."
Employment Contracts
The Company has entered into an employment agreement
with Mr. Del Chiaro (the "Del Chiaro Employment Agreement")
that expires on March 17, 2001 or on an earlier date in
accordance with the terms of the Del Chiaro Employment
Agreement. Base compensation under the Del Chiaro Employment
Agreement is $400,000 per year. Mr. Del Chiaro is also
eligible to participate in the Company's annual cash bonus
plan, which is based upon the achievement of certain annual
performance targets. The Company may terminate Mr. Del Chiaro
at any time for "cause" or after a specified period upon a
"disability" (such as terms are defined in the Del Chiaro
Employment Agreement). If the Company terminates Mr. Del
Chiaro "without cause" (as such term is defined in the Del
Chiaro Employment Agreement), Mr. Del Chiaro is entitled to
receive, among other things, the aggregate of his base salary
payable for 18 months from the date of termination by the
Company.
The Company has entered into an employment agreement
as amended with Mr. Cohen (the "Cohen Employment Agreement")
that expires on December 31, 2001 or on an earlier date in
accordance with the terms of the Cohen Employment Agreement.
Base compensation under the Cohen Employment Agreement is
$125,000 per year plus an annual adjustment beginning in
January 1998 based on the Consumer Price Index. Mr. Cohen is
also eligible to participate in the Company's annual cash
bonus plan that is based upon the achievement of certain
annual performance targets, subject to the right to receive a
minimum annual cash bonus of $50,000. The Company may
terminate Mr. Cohen at any time for "cause" or after a
specified period upon a "disability" (as such terms are
defined in the Cohen Employment Agreement). If the Company
terminates Mr. Cohen "without cause" (as such term is defined
in the Cohen Employment Agreement), Mr. Cohen is entitled to
receive, among other things, the aggregate of his base salary
and the pro rata portion of his minimum annual bonus through
the later of December 31, 2001 or 18 months from the date of
termination by the Company. In accordance with the Cohen
Employment Agreement, and in conjunction with the adoption of
the 1998 Stock Option Plan, Mr. Cohen was granted options to
purchase up to 367 shares of Class B Nonvoting Common Stock of
CFP Group.
The Company has entered into an employment agreement
with Mr. Ek (the "Ek Employment Agreement") that expires on
June 30, 2001 or on an earlier date in accordance with the
terms of the Ek Employment Agreement. Base compensation under
the Ek Employment Agreement is
32
<PAGE>
$240,000 per year. Mr. Ek is also eligible to participate in
the Company's annual cash bonus plan that is based upon the
Company's achievement of certain annual performance targets.
The Company may terminate Mr. Ek at any time for "cause" or
after a specified period upon a "disability" (as such terms
are defined in the Ek Employment Agreement). If the Company
terminates Mr. Ek "without cause" (as such term is defined in
the Ek Employment Agreement), Mr. Ek is entitled to receive,
among other things, the aggregate of his base salary payable
for 12 months from the date of termination by the Company and
the pro rata portion of his annual bonus for the fiscal year
in which such termination occurred.
The Company has entered into an employment agreement
with Mr. Gallo (the "Gallo Employment Agreement) to expire on
March 31, 2003 or on an earlier date in accordance with the
terms of the Gallo Employment Agreement. Base compensation
under the Gallo Employment Agreement is $200,000 per year plus
an annual adjustment beginning in July of each year based on
the discretion of the compensation committee. Mr. Gallo is
also eligible to participate in the Company's annual cash
bonus plan which is based upon the Company's achievement of
certain annual performance targets. The Company may terminate
Mr. Gallo at any time for "cause" or after a specified period
upon a "disability" (as such terms are defined in the Gallo
Employment Agreement). If the Company terminates Mr. Gallo
"without cause" (as such term is defined in the Gallo
Employment Agreement), Mr. Gallo is entitled to receive, among
other things, the aggregate of his base salary payable for 12
months from the date of termination by the Company and the pro
rata portion of his annual bonus for the fiscal year in which
such termination occurred.
Put Rights of Messrs. Gioia and Cohen
Under the terms of their respective employment
agreements, each of Messrs. Gioia and Cohen have the right, in
connection with the termination of their relationships with
the Company under certain circumstances, to sell to CFP Group,
and CFP Group is obligated to purchase, the shares of Class B
Nonvoting Common owned by them. The price at which such shares
may be purchased and sold is intended to be the fair market
value thereof as determined by an appraisal. The right of such
individuals to sell their shares to CFP Group is subject to
the terms and conditions of the then outstanding debt
instruments of CFP Group and its subsidiaries.
Call Rights of Messrs. Griffith
Under the terms of the Griffith Employment Agreement,
CFP Group has the right, under certain circumstances, to
require Mr. Griffith to sell the shares of Class A Nonvoting
Common Stock owned by him to CFP Group. The price at which
such shares may be purchased and sold is intended to be the
fair market value thereof as determined pursuant to a formula.
The right of CFP Group to purchase Mr. Griffith's shares is
also subject to the terms and conditions of the then
outstanding indebtedness of CFP Group and its subsidiaries.
See "Item 13. Certain Relationships and
33
<PAGE>
Related Transactions - Certain Transactions - Stockholders
Agreement."
EMPLOYEE STOCK OPTION PLAN
1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the "Option
Plan"), which was assumed by CFP Group in December, 1996,
provides for the grant of both incentive stock options
("ISOs") and non-qualifying stock options ("NSOs") to
directors and employees of, and independent consultants and
contractors to, the Company and its subsidiaries. A total of
11,586 shares of Nonvoting Common Stock has been authorized
and reserved for issuance under the Option Plan, subject to
adjustment to reflect changes in capitalization resulting from
stock splits, stock dividends and similar events. As of March
31, 2000, a total of 3,560 shares have been issued upon
exercise of options issued under the Option Plan, and options
to purchase 220 shares are vested and unexercised.
The Option Plan is administered by the Board of
Directors or a Stock Option Committee ("the Committee")
appointed by the Board of Directors. The Committee has the
authority to interpret the Option Plan, to determine the
persons to whom options will be granted, to determine the
basis upon which the options will be granted, and to determine
the exercise price, duration and other terms of the options to
be granted under the Option Plan, provided, among other
things, that (a) the exercise price of ISOs granted under the
Option Plan may not be less than the fair market value of the
stock subject to the option on the date of the grant (110% of
fair market value if the employee is the beneficial owner of
10% or more of CFP Group's voting securities), (b) the
exercise price must be paid in cash, by personal or certified
check or by surrendering previously owned shares of nonvoting
common stock upon the exercise of the option, (c) the term of
the option may not exceed ten years (or five years in the case
of an ISO granted to an employee who is the beneficial owner
of 10% or more of CFP Group's voting securities), (d) no
option is transferable other than by will or the laws of
descent and distribution and (e) no option may be granted by a
member of the Committee.
Upon the termination of an optionee's employment
(other than by death or disability), such person's options may
be exercised during the three-month period following the date
of such termination. In the event of the death or disability
of an optionee, the option may be exercised by such person or
his personal representative during the six month period
following the date the optionee ceases to be an employee of
the Company by reason of such death or disability. In the
event of a Corporate Transaction (as such term is defined in
the Option Plan), each outstanding option under the Option
Plan which is not assumed or replaced with a comparable option
from the successor corporation will automatically terminate.
ISOs may not be granted under the plan to any
individual if the
34
<PAGE>
effect of such grant would be to permit that person to have
the first opportunity to exercise such options, in any
calendar year, for the purchase of shares having a fair market
value (at the time of the grant of such options) in excess of
$100,000. ISOs granted under the Option Plan are intended to
have the federal income tax consequences of a qualified stock
option. An employee to whom an incentive stock option ;("ISO")
which qualifies under Section 422 of the Code is granted will
not recognize income at the time of grant or exercise of such
Option. However, upon the exercise of an ISO, any excess in
the fair market price of the Common Stock over the exercise
price constitutes a tax preference item which may have
alternative minimum tax consequences for the employee. If the
employee sells such shares more than one year after the date
of transfer of such shares and more than two years after the
date of grant of such ISO, the employee will generally
recognize a long-term capital gain or loss equal to the
difference, if any, between the sale prices of such shares and
the exercise price. In such case, CFP Group will not be
entitled to a federal income tax deduction in connection with
the grant or exercise of the ISO. If the employee does not
hold such shares for the required period, when the employee
sells such shares, the employee will recognize ordinary
compensation income and possibly capital gain or loss
(long-term or short term, depending on the holding period of
the stock sold) in such amounts as are prescribed by the Code
and the regulations thereunder, and CFP Group will generally
be entitled to a Federal income tax deduction in the amount of
such ordinary compensation income recognized by the employee.
An employee to whom a nonqualified stock option
("NSO") is granted will not recognize income at the time of
grant of such option. When such employee exercises such NSO,
the employee will recognize ordinary compensation income equal
to the excess, if any, of the fair market value, as of the
date of option exercise, of the shares the employee receives
upon such exercise over the exercise price paid. The tax basis
of such shares to such employee will be equal to the exercise
price paid plus the amount, if any, includible, in the
employee's gross income, and the employee's holding period for
such shares will commence on the date on which the employee
recognizes taxable income in respect of such shares. Gain or
loss upon a subsequent sale of any Common Stock received upon
the exercise of a NSO generally would be taxed as capital gain
or loss (long-term or short-term, depending upon the holding
period of the stock sold). Certain additional rules apply if
the exercise price is paid in shares previously owned by the
participant. Subject to the applicable provisions of the Code
and regulations thereunder, CFP Group will generally be
entitled to a Federal income tax deduction in respect of a NSO
in an amount equal to the ordinary compensation income
recognized by the employee. This deduction will, in general,
be allowed for the taxable year of CFP Group in which the
participant recognizes such ordinary income. The Board of
Directors may amend the Option Plan without stockholder
approval in any respect other than any amendment that requires
stockholder approval by law or pursuant to the rules of the
Code regarding qualified stock options.
35
<PAGE>
1998 Stock Option Plan
On June 17, 1998 the Company's Board of Directors
adopted a new incentive stock option program (the "1998
Plan"), which provides for the grant of both incentive stock
options ("ISOs") and non-qualifying stock options ("NSOs") to
directors and employees of, and independent consultants and
contractors to, the Company and its subsidiaries. A total of
5,525 shares of Nonvoting Common Stock has been authorized and
reserved for issuance under the 1998 Plan, subject to
adjustment to reflect changes in capitalization resulting from
stock splits, stock dividends and similar events. As of March
31, 2000, a total of 984 shares have been issued upon exercise
of options issued under the 1998 Plan, options to purchase 677
shares are vested and unexercised, and options to purchase
3,878 are unvested.
The 1998 Plan is administered by the Board of
Directors or a Stock Option Committee ("the Committee")
appointed by the Board of Directors. The Committee has the
authority to interpret the 1998 Plan, to determine the persons
to whom options will be granted, to determine the basis upon
which the options will be granted, and to determine the
exercise price, duration and other terms of the options to be
granted under the 1998 Plan, provided, among other things,
that (a) the exercise price of ISOs granted under the 1998
Plan may not be less than the fair market value of the stock
subject to the option on the date of the grant (110% of fair
market value if the employee is the beneficial owner of 10% or
more of CFP Group's voting securities), (b) the exercise price
must be paid in cash, by personal or certified check or by
surrendering previously owned shares of nonvoting common stock
upon the exercise of the option, (c) the term of the option
may not exceed ten years (or five years in the case of an ISO
granted to an employee who is the beneficial owner of 10% or
more of CFP Group's voting securities), (d) no option is
transferable other than by will or the laws of descent and
distribution and (e) no option may be granted by a member of
the Committee.
Upon the termination of an optionee's employment
(other than by death or disability), such person's options may
be exercised during the three-month period following the date
of such termination. In the event of the death or disability
of an optionee, the option may be exercised by such person or
his personal representative during the six month period
following the date the optionee ceases to be an employee of
the Company by reason of such death or disability. In the
event of a Corporate Transaction (as such term is defined in
the 1998 Plan), each outstanding option under the Option Plan
which is not assumed or replaced with a comparable option from
the successor corporation will automatically terminate.
ISOs may not be granted under the 1998 plan to any
individual if the effect of such grant would be to permit that
person to have the first opportunity to exercise such options,
in any calendar year, for the purchase of shares having a fair
market value (at the time of the grant of such options) in
excess of $100,000. ISOs granted under the 1998 Plan
36
<PAGE>
are intended to have the federal income tax consequences of a
qualified stock option. An employee to whom an incentive stock
option; ("ISO") which qualifies under Section 422 of the Code
is granted will not recognize income at the time of grant or
exercise of such option. However, upon the exercise of an ISO,
any excess in the fair market price of the Common Stock over
the exercise price constitutes a tax preference item which may
have alternative minimum tax consequences for the employee. If
the employee sells such shares more than one year after the
date of transfer of such shares and more than two years after
the dates of grant of such ISO, the employee will generally
recognize a long-term capital gain or loss equal to the
difference, if any, between the sale prices of such shares and
the exercise price. In such case, CFP Group will not be
entitled to a federal income tax deduction in connection with
the grant or exercise of the ISO. If the employee does not
hold such shares for the required period, when the employee
sells such shares, the employee will recognize ordinary
compensation income and possibly capital gain or loss
(long-term or short term, depending on the holding period of
the stock sold) in such amounts as are prescribed by the Code
and the regulations thereunder, and CFP Group will generally
be entitled to a Federal income tax deduction in the amount of
such ordinary compensation income recognized by the employee.
An employee to whom a nonqualified stock option
("NSO") is granted will not recognize income at the time of
grant of such option. When such employee exercises such NSO,
the employee will recognize ordinary compensation income equal
to the excess, if any, of the fair market value, as of the
date of option exercise, of the shares the employee receives
upon such exercise over the exercise price paid. The tax basis
of such shares to such employee will be equal to the exercise
price paid plus the amount, if any, includible, in the
employee's gross income, and the employee's holding period for
such shares will commence on the date on which the employee
recognizes taxable income in respect of such shares. Gain or
loss upon a subsequent sale of any Common Stock received upon
the exercise of a NSO generally would be taxed as capital gain
or loss (long-term or short-term, depending upon the holding
period of the stock sold). Certain additional rules apply if
the exercise price is paid in shares previously owned by the
participant. Subject to the applicable provisions of the Code
and regulations thereunder, CFP Group will generally be
entitled to a Federal income tax deduction in respect of a NSO
in an amount equal to the ordinary compensation income
recognized by the employee. This deduction will, in general,
be allowed for the taxable year of CFP Group in which the
participant recognizes such ordinary income. The Board of
Directors may amend the 1998 Plan without stockholder approval
in any respect other than any amendment that requires
stockholder approval by law or pursuant to the rules of the
Code regarding qualified stock options.
37
<PAGE>
Item 12. Security ownership of certain beneficial owners and management
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain information
regarding the ownership of the capital stock of CFP Group as
of May 31, 2000 with respect to (i) each person known by the
Company to own beneficially more than 5% of the outstanding
shares of any class of its voting capital stock, (ii) each of
the Company's directors, (iii) the Named Executive Officers
and (iv) all directors and executive officers as a group.
Except as otherwise indicated, each of the stockholders has
sole voting and investment power with respect to shares
beneficially owned. Unless otherwise indicated, the address
for each stockholder is c/o CFP Group, Inc., 5501 Tabor Road,
Philadelphia, Pennsylvania 19120.
<CAPTION>
Shares of Percentage of
Voting Percentage All Classes
Common of Voting of Common
Name and Address of Stock(1) Common Shares of Nonvoting Stock (Fully
Beneficial Owner Class A Stock Common Stock(1) -Diluted)
Class A CLASS B
<S> <C> <C> <C> <C> <C>
Atlantic Equity Partners, 14,293 97.2% - - 42.2%
L.P. (2)
Roberto Buaron (3) 14,293 97.2% - - 42.2%
William Del Chiaro - 400 5.9%
Robert Gioia (4) - - - 1,081 4.5%
Ron Gallo 107 1.6%
Eric Ek - - 1,539 50 5.3%
David Cohen (5) - - - 1,418 4.4%
James Long (6) 173 1.2% - - *
Glenn Myers - - 60 *
All officers and directors 14,466 98.4% 1,539 3,116 64.8%
as a group (8 persons)
<FN>
* Less than one percent.
(1) The authorized capital stock of CFP Group consists of 160,000 shares of capital
stock, including 150,000 shares of Common Stock, $.01 par value (the "Common
Stock") and 10,000 shares of Preferred Stock, $.01 par value (the "Preferred
Stock"). Of the 150,000 shares of common Stock, 100,000 shares are designated Class
A Voting Common Stock (the "Class A Voting Stock"), 25,000 shares are designated
Class A Nonvoting Stock (the "Class A Nonvoting Stock"), and 25,000 shares are
designed Class B Nonvoting Stock (the "Class B Nonvoting Stock").
(2) Address is P.O. Box 847, One Capital Place, Fourth Floor, Grand Cayman, Cayman
Islands, British West Indies. Atlantic Equity Associates, L.P. ("AEA") is the sole
general partner of AEP and as such exercises voting and/or investment power over
shares of capital stock owned by AEP, including the shares of Common Stock held by
AEP (the "AEP Shares"). Mr. Buaron is the sole stockholder of Buaron Capital
Corporation ("BCC"). BCC is the managing general partner of AEA. Rodney Limited
("Rodney"), an indirect wholly owned subsidiary of Akros Finanziana S.p.a.
("Akros"), is also a general partner of AEA. As general partners of AEA, BCC and
Rodney share voting and/or investment power over, and may be deemed to beneficially
own the AEP Shares. BCC and Rodney disclaim any beneficial ownership of any shares
of capital stock owned by AEP, including the AEP Shares. Through their respective
affiliations with BCC, Rodney and AEA, Mr. Buaron and Akros control the sole
general partner of AEP and therefore have the authority to control voting and/or
investment power over, and may be deemed to beneficially own, the AEP Shares. Mr.
Buaron and Akros disclaim any beneficial ownership of any AEP Shares. Certain
present and former employees of First Atlantic, an affiliate of AEP, owning an
additional 412 shares (2.8%) of Class A Voting Stock, have granted AEP the right to
vote the shares of Class A Voting Stock beneficially owned by them, accordingly,
AEP has the right to vote 100% of the voting common stock of CFP Group.
(3) Address is c/o First Atlantic Capital, Ltd., 135 East 57th Street, New York, New
York 10022. Represents shares of Common Stock to be owned and controlled by AEP.
Mr. Buaron is the sole shareholder of BCC. BCC is the managing general partner of
AEA. AEA is the sole general partner of AEP and as such, exercises voting and/or
investment power over shares of capital stock owned and controlled by AEP,
including the AEP Shares. Mr. Buaron, as the sole shareholder and Chief Executive
Officer of BCC, and Rodney, as a general partner of AEA, control the sole general
partner of AEP and therefore share voting and/or investment power over, and may be
deemed to beneficially own, the AEP Shares. Mr. Buaron disclaims any beneficial
ownership of the AEP Shares.
(4) Represents 1,081 shares of Class B Nonvoting Stock owned by Robert D. Gioia, Alison
Gioia's Trust, Carolyn Gioia's Trust, and Lauren Gioia's Trust.
(5) Represents 1,081 shares of Class B Nonvoting of Amjor Holdings, Inc. ("AHI"). Mr.
Cohen, as the sole stockholder of AHI, controls the voting and disposition of the
shares owned by AHI and, therefore, is deemed to beneficially own the Class B
Nonvoting Stock owned by AHI.
38
<PAGE>
(6) Address is c/o First Atlantic Capital, Ltd., 135 East 57th Street, New York, New
York 10022. These shares are part of the 412 shares owned by present and former
employees of First Atlantic. See note 2 above.
</FN>
</TABLE>
Item 13. Certain relationships and related transactions
CERTAIN TRANSACTIONS
Transactions with Certain Stockholders
Effective December 31, 1996, the Company entered into
a new management consulting agreement with First Atlantic
which provides for the annual payment of compensation in the
amount of $600,000 plus out of pocket expenses to First
Atlantic in exchange for providing management consulting
services to the Company and its subsidiaries. Payments under
this agreement during fiscal years 1998, 1999, and 2000 were
$666,000, $698,000 and $629,000, respectively. Such agreement
will continue until December 31, 2003 unless extended pursuant
to its terms.
Stockholders' Agreement
CFP Group, AEP, NationsCredit Commercial Corporation,
Richard Griffith, Robert Gioia, David Cohen, Eric Ek and the
other Stockholders named therein entered into a Stockholders'
Agreement (the "Stockholders' Agreement") dated as of December
31, 1996, which contains certain restrictions with respect to
the transfer of CFP Group's capital stock, certain rights
granted by CFP Group with respect to such shares and certain
voting and other arrangements. The rights and obligations of
each party to the Stockholders' Agreement shall terminate as
to such stockholder upon the earliest to occur of (i) the
transfer of all stock of CFP Group owned by such stockholder,
(ii) the twentieth anniversary of the dates of the
Stockholders' Agreement, (iii) a sale of all or substantially
all of the stock of CFP Group in a single transaction, or (iv)
the consummation of an initial public offering of the common
stock of CFP Group which results in net proceeds to CFP Group
of at least $100 million dollars.
The Company and the Stockholders shall use its and
their best efforts (including any action required to amend the
Certificate of Incorporation or By-Laws of the Company) to
cause the size of the Board to consist of seven directors (or
such other number as a Majority in Interest of AEP
Stockholders (as defined in the Stockholders Agreement) shall
determine) and to provide that, notwithstanding any vacancies,
any corporate action taken by the Board of the Corporation
must be approved by at least five directors (or such larger
number as shall constitute a majority of the Board).
The Stockholders' Agreement provides that all of the
parties to the Stockholders' Agreement other than AEP (each
such other party being referred to herein as the "Selling
Group") are prohibited from transferring
39
<PAGE>
any stock to any person engaged in a business which competes
in any manner with the business conducted by CFP Group and its
subsidiaries. In addition, subject to certain exceptions, no
member of the Selling Group may transfer stock unless it first
offers such stock to CFP Group. Should CFP Group fail to
accept all or any part of the stock offered for sale, AEP will
have the right to purchase all or any part of the stock
offered but not accepted for purchase by CFP Group. Should AEP
fail to accept all such stock offered for sale, then the
Selling Group member may transfer the stock so offered to an
Institutional Investor (as such term is defined in the
Stockholders' Agreement) or to such other purchaser as shall
be approved by AEP (and its transferees).
In the event that AEP receives an offer from an
unaffiliated third party to purchase more than 50% of the
total number of shares of CFP Group then outstanding, AEP
shall not transfer any stock unless the terms of such offer
are extended to the other stockholders and the other
stockholders are given the opportunity to participate on a pro
rata basis in such sale.
Pursuant to the Stockholders' Agreement, if at any
time AEP shall approve (i) a proposal from a person that is
not an affiliate of AEP for the transfer of all of the stock
of CFP Group, (ii) the merger or consolidation of CFP Group
with or into another person that is not an affiliate of AEP in
which the stockholders will receive cash or securities for
their shares or (iii) the sale by CFP Group or its
subsidiaries of all or substantially all of their assets to a
person that is not an affiliate of AEP, then each stockholder
shall be required to participate in such transaction and to
take all necessary action to cause CFP Group to consummate
such transaction.
In the event of a Termination of Relationship of a
Management Investor (as such terms are defined in the
Stockholders' Agreement), CFP Group shall have the right to
repurchase all or any part of the stock owned by such
Management Investor. The price at which such shares are to be
purchased shall be either the lesser of the price paid by such
terminated Management Investor or the fair value per share of
the stock (as determined in accordance with the provisions of
the Stockholders' Agreement), depending on whether the
Management Investor was terminated for "cause" (as defined in
the Stockholders' Agreement) or for any reason other than
"cause."
Indemnification of Officers and Directors
The Certificates of Incorporation of CFP Holdings,
CFP Group, Custom Foods and Quality Foods contain provisions
eliminating the personal liability of directors for monetary
damages for breaches of their duty of care, except in certain
prescribed circumstances. The Bylaws of CFP Holdings, CFP
Group, Custom Foods and Quality Foods also provide that
directors and officers will be indemnified to the fullest
extent authorized by Delaware law or California law, as the
case may be, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in
connection with service for or on behalf
40
<PAGE>
of CFP Holdings, CFP Group, Custom Foods or Quality Foods (as
the case may be). The Bylaws of CFP Holdings, CFP Group and
Custom Foods provide that the right of directors and officers
to indemnification is not exclusive of any other right now
possessed or hereinafter acquired under any statute, agreement
or otherwise.
Part IV
Item 14. Exhibits, financial statement schedules, and reports on Form
8-K
Set forth below are consolidated financial
statements, financial statement schedules and exhibits filed
as part of this Annual Report on Form 10-K.
1) Consolidated Financial Statements
Filed herewith.
2) Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts, is
filed herewith. All other schedules are not included
because they are not applicable.
3) Exhibits
The following Exhibits are filed as a part of, or
incorporated by reference into this report:
3.1 Amended and Restated Certificate of
Incorporation of CFP Holdings (incorporated
by reference to Exhibit 3.1 of the
Registrants Registration Statement on Form
S-4 (File Nos. 333-23893, 333-23893-01,
333-23893-02 and 333-23893-03 (the "S-4
Registration Statement").
3.2 By-laws of CFP Holdings (incorporated by
reference to Exhibit 3.2 of the S-4
Registration Statement).
3.3 Amended and Restated Certificate of
Incorporation of CFP Group (incorporated by
reference to Exhibit 3.3 of the S-4
Registration Statement).
3.4 By-Laws of CFP Group (incorporated by
reference to Exhibit 3.4 of the S-4
Registration Statement).
3.5 Agreement of Merger dated as of June 28,
1999, between QF Acquisition Corp., a
Delaware corporation, and QFAC, LLC, a
Delaware limited liability company
(incorporated by reference to Exhibit 2 of
the Registrants Form 10-Q for the quarter
ended June 30, 1999).
41
<PAGE>
3.6 Certificate of Formation of QFAC, LLC issued
by the Secretary of State of the State of
Delaware on April 15, 1999 (incorporated by
reference to Exhibit 3.1 of the Registrants
Form 10-Q for the quarter ended June 30,
1999).
3.7 Operating Agreement of QFAC, LLC dated June
28, 1999 (incorporated by reference to
Exhibit 3.2 of the Registrants Form 10-Q for
the quarter ended June 30, 1999).
3.8 By-laws of QFAC, LLC adopted as of June 28,
1999 (incorporated by reference to Exhibit
3.3 of the Registrants Form 10-Q for the
quarter ended June 30, 1999).
3.9 Amended and Restated Articles of
Incorporation of Custom Foods (incorporated
by reference to Exhibit 3.7 of the S-4
Registration Statement).
3.10 By-laws of Custom Foods (incorporated by
reference to Exhibit 3.8 of the S-4
Registration Statement).
4.1 Indenture dated January 28, 1997, among CFP
Holdings, CFP Group, Custom Foods, QFAC and
United States Trust Company of New York, as
Trustee (the "Trustee") (including the form
of Note as Exhibit A and the other exhibits
thereto) (incorporated by reference to
Exhibit 4.1 of the S-4 Registration
Statement).
4.2 First Supplemental Indenture dated June 29,
1999, among CFP Holdings, Inc., CFP Group,
Inc., Custom Food Products, QFAC, LLC and
United States Trust Company of New York
(incorporated by reference to Exhibit 4.1 of
the Registrants Form 10-Q for the quarter
ended June 30, 1999).
4.3 Registration Rights Agreement dated January
28, 1997 among CFP Holdings, CFP Group,
Custom Foods, QFAC, NCMI and DLJ
(incorporated by reference to Exhibit 4.2 of
the S-4 Registration Statement).
10.1 Securities Purchase Agreement dated December
31, 1996, among CFP Holdings, Quality Foods,
L.P., the Partners of Quality Foods, L.P.,
certain additional beneficial owners of
Quality Foods, L.P., the Stockholders of
QFAC and the stockholders of QF Management
Corp (incorporated by reference to Exhibit
10.1 of the S-4 Registration Statement).
10.2 Employment agreement dated December 31,
1996, between CFP Holdings and David Cohen
(incorporated by reference to Exhibit 10.2
of the S-4 Registration Statement).
42
<PAGE>
10.3 Amendment No. 1 dated September 15, 1997 to
Employment Agreement between CFP Holdings,
Inc. and David Cohen (incorporated by
reference to Exhibit 10.3 of the Registrants
Form 10-K for the year ended March 31,
1998).
10.4 Employment Agreement dated March 31, 2000
between CFP Holdings and Eric W. Ek (Filed
herewith).
10.7 Management consulting agreement dated
December 31, 1996 between CFP Holdings and
First Atlantic Capital, Ltd. ("FACL")
(incorporated by reference to Exhibit 10.7
of the S-4 Registration Statement).
10.8 Investment Banking Agreement dated March 1,
1996, between CFP Holdings and FACL
(incorporated by reference to Exhibit 10.8
of the S-4 Registration Statement).
10.9 Stockholders' Agreement dated December 31,
1996, among CFP Group and the stockholders
listed on Annex I thereto (incorporated by
reference to Exhibit 10.9 of the S-4
Registration Statement).
10.10 Standard Industrial Lease dated April 7,
1981, between Philip E. Bauer Properties and
Best Western Foods, Inc. (including material
Amendments and Addendums thereto)
(incorporated by reference to Exhibit 10.10
of the S-4 Registration Statement).
10.11 Standard Industrial Lease--Net dated
November 3, 1991, among William I.
Altshuler, Maxine Altshuler and Center of
the Plate Foods Inc. (including material
Amendments and Addendums thereto)
(incorporated by reference to Exhibit 10.11
of the S-4 Registration Statement).
10.12 Lease Agreement dated September 30, 1994,
between CFP Associates and Custom Foods
(Including Material Amendments and Addendums
thereto) (incorporated by reference to
Exhibit 10.12 of the S-4 Registration
Statement).
10.13 Employment Agreement dated March 9, 1998
between CFP Holdings, Inc. and William G.
Del Chiaro (incorporated by reference to
Exhibit 10.2 of the Registrants Form 10-K
for the year ended March 31, 1998).
10.14 Loan and Security Agreement Dated May 5,
1998 between Fleet Capital Corporation and
CFP Holdings, Inc.
43
<PAGE>
(incorporated by reference to Exhibit 10.1
of the Registrants Form 10-K for the year
ended March 31, 1998).
10.15 Trademark Collateral Security Agreement
dated May 5, 1998 between QF Acquisition
Corp. (d/b/a Quality Foods), and Fleet
Capital Corporation (incorporated by
reference to Exhibit 10.16 of the
Registrants Form 10-K for the year ended
March 31, 1999).
10.16 Patent Collateral Security Agreement dated
May 5, 1998 between QF Acquisition Corp.
(d/b/a Quality Foods and Fleet Capital
Corporation (incorporated by reference to
Exhibit 10.17 of the Registrants Form 10-K
for the year ended March 31, 1999).
10.17 Patent Assignment of Security dated May 5,
1998 between QF Acquisition Corp. and Fleet
Capital Corporation (incorporated by
reference to Exhibit 10.18 of the
Registrants Form 10-K for the year ended
March 31, 1999).
10.18 Amendment and Assumption Agreement dated
June 28, 1999, among QF Acquisition Corp.,
QFAC, LLC, CFP Holdings, Inc., Custom Food
Products, Inc., and Fleet Capital
Corporation (incorporated by reference to
Exhibit 10.1 of the Registrants Form 10-Q
for the quarter ended June 30, 1999).
10.19 Pledge and Security Agreement between CFP
Holdings, Inc. and Fleet Capital Corporation
in respect of Membership Interests of QFAC,
LLC (incorporated by reference to Exhibit
10.2 of the Registrants Form 10-Q for the
quarter ended June 30, 1999).
10.20 Pledge Agreement dated May 5, 1998 between
CFP Holdings, Inc. and Fleet Capital
Corporation (incorporated by reference to
Exhibit 10.19 of the Registrants Form 10-K
for the year ended March 31, 1999).
10.21 Pledge Agreement dated May 5, 1998 between
CFP Group, Inc. and Fleet Capital
Corporation (incorporated by reference to
Exhibit 10.20 of the Registrants Form 10-K
for the year ended March 31, 1999).
10.22 Consulting Agreement dated June 30, 1998
between CFP Holdings, Inc. and Robert D.
Gioia (incorporated by reference to Exhibit
10.1 of the Registrants Form 10-Q for the
quarter ended September 30, 1998).
44
<PAGE>
10.23 CFP Holdings, Inc. 1995 Stock Option Plan
dated March 1, 1995 (incorporated by
reference to Exhibit 10.22 of the
Registrants Form 10-K for the year ended
March 31, 1999).
10.24 CFP Group Inc. 1998 Stock Option Plan dated
July 15, 1998 (incorporated by reference to
Exhibit 10.2 of the Registrants Form 10-Q
for the quarter ended September 30, 1998).
10.25 Employment Agreement dated March 31, 2000
between CFP Group, Inc. and Ronald J. Gallo
(Filed herewith).
10.26 Union Contract dated April 1, 2000 between
Wholesale and Retail Food Distribution
Teamsters Local Union # 63 and Custom Food
Products, Inc. (Filed herewith).
10.27 Amendment #3 to Loan and Security Agreement
Dated June 5, 2000 between Fleet Capital
Corporation and CFP Holdings, Inc. (Filed
herewith).
10.28 Lease Agreement dated April 18, 2000 between
The CIT Group and Custom Food Products, Inc.
(Filed herewith).
10.29 Lease Agreement dated April 18, 2000 between
The CIT Group and QFAC, LLC (Filed
herewith).
12.1 Computation of Ratio of Earnings to Fixed
Charges (Filed herewith).
21 Subsidiaries of the CFP Group, Inc. CFP
Holdings, Inc., A Delaware Corporation
Custom Food Products, Inc., a California
Corporation QFAC, LLC, a Delaware limited
liability company
27 Financial Data Schedule (Filed herewith).
4) Reports on Form 8-K (None.)
No reports on form 8-K were filed by the Registrants
during the last quarter of the period covered by this
Report on Form 10-K.
5. SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d)
OF THE ACT BY REGISTRANTS
45
<PAGE>
WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
Except for a copy of this Annual Report on
Form 10-K, no annual report to securities
holders covering the registrants' last
fiscal year or proxy material will be sent
to security holders.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
June, 2000.
CFP GROUP, INC.
By: _____________________________________
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the 23rd day of June, 2000, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Chairman of the Board and Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Executive Vice President, Secretary
Eric W. Ek and Director
____________________________________ Vice Chairman of the Board,
James A. Long Treasurer and Director
____________________________________ Director
David Cohen
____________________________________ Director
Andrew Kohn
____________________________________ Senior Vice President, Chief
Ronald J. Gallo Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
June, 2000.
CFP HOLDINGS, INC.
By: _____________________________________
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the 23rd day of June, 2000, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Chairman of the Board and Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Executive Vice President, Secretary
Eric W. Ek and Director
____________________________________ Vice Chairman of the Board,
James A. Long Treasurer and Director
____________________________________ Director
David Cohen
____________________________________ Director
Andrew Kohn
____________________________________ Senior Vice President, Chief
Ronald J. Gallo Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
June, 2000.
CUSTOM FOOD PRODUCTS, INC.
By: _____________________________________
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the 23rd day of June, 2000, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Executive Vice President, Secretary
Eric W. Ek and Director
____________________________________ Chairman of the Board
James A. Long and Director
____________________________________ Senior Vice President, Chief
Ronald J. Gallo Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
June, 2000.
QFAC, LLC
By: _____________________________________
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the 23rd day of June, 2000, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Managing Member
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Managing Member
____________________________________ Managing Member
Robert Gioia
____________________________________ Executive Vice President, Secretary
Eric W. Ek and Managing Member
____________________________________ Chairman of the Board,
James A. Long and Managing Member
____________________________________ Vice Chairman of the Board and
David Cohen Managing Member
____________________________________ Senior Vice President, Chief
Ronald J. Gallo Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
50
<PAGE>
<TABLE>
CFP HOLDINGS, INC.
Schedule II - Valuation and Qualifying Accounts
Years Ended September 1995, and 1996
Six Months Ended March 31, 1997
Years Ended March 31, 1998, 1999, and 2000
<CAPTION>
Balance at Balance at
beginning Charged to Charged to end
Description of period Expenses Other Deductions of period
----------- --------- -------- ----- ---------- ---------
Accounts Receivable: (In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended September 30, 1995 9 129 -- -- 138
Year ended September 30, 1996 138 12 -- (100) 50
Year ended March 31, 1997 50 22 50 (29) 93
Year ended March 31, 1998 93 119 (79) (18) 115
Year ended March 31, 1999 115 256 -- (2) 369
Year ended March 31, 2000 369 623 -- (210) 782
</TABLE>
51
<PAGE>
------------------------------------
CFP Group, Inc.
Consolidated Financial Statements as
of March 31, 2000 and 1999 and for
each of the Three Years in the
Period Ended March 31, 2000 and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CFP Group, Inc.:
We have audited the accompanying consolidated balance sheets of CFP Group, Inc.
and subsidiaries (the "Company") as of March 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the three years in the period ended March 31, 2000. Our audits also
included the financial statement schedule listed at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with accounting standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Los Angeles, California
June 12, 2000
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
March 31,
--------------------------
ASSETS 2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 606 $ 1,820
Accounts receivable, net of allowance for doubtful accounts of $782,000 and
$369,000 at March 31, 2000 and 1999, respectively (Note 2) 23,578 15,448
Inventories (Notes 2 and 4) 23,897 16,839
Prepaid expenses and other current assets 412 692
-------- --------
Total current assets 48,493 34,799
PROPERTY AND EQUIPMENT, Net (Notes 2 and 5) 33,465 29,922
COSTS IN EXCESS OF NET ASSETS ACQUIRED,
Net (Notes 2 and 3) 62,022 65,195
INTANGIBLE AND OTHER ASSETS, Net (Notes 2 and 6) 4,172 6,488
-------- --------
TOTAL $148,152 $136,404
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
March 31,
------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term obligations (Note 7) $ 1,043 $ 1,113
Accounts payable 11,923 8,904
Accrued expenses and other current liabilities 5,291 6,689
--------- ---------
Total current liabilities 18,257 16,706
--------- ---------
LONG-TERM OBLIGATIONS (Note 7) 156,890 145,895
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 12)
REDEEMABLE COMMON STOCK (Note 9) 1,839 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; 9,959 and 11,241 shares issued and outstanding
(inclusive of 1,350 and 3,011 shares classified as redeemable
common stock) at March 31, 2000 and 1999, respectively 2,330 2,204
Nonvoting common stock - Class B, $.01 par value; 25,000 shares
authorized; 3,865 and 3,059 shares issued and outstanding
(inclusive of 2,162 shares classified as redeemable
common stock) at March 31, 2000 and 1999, respectively 912 623
Stockholders' notes receivable (637) (203)
Accumulated deficit (34,635) (34,336)
--------- ---------
Total stockholders' deficiency (28,834) (28,516)
--------- ---------
TOTAL $ 148,152 $ 136,404
========= =========
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended March 31,
-----------------------------------------------------
2000 1999 1998
(in Thousands)
<S> <C> <C> <C>
NET SALES (Note 2) $ 211,282 $ 183,164 $ 181,378
COST OF SALES 174,969 147,518 152,484
--------- --------- ---------
GROSS PROFIT 36,313 35,646 28,894
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Notes 8, 10 and 13) 18,670 20,411 17,156
--------- --------- ---------
INCOME FROM OPERATIONS 17,643 15,235 11,738
INTEREST EXPENSE (Note 7) 17,914 17,322 17,236
--------- --------- ---------
LOSS BEFORE (BENEFIT) PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM (271) (2,087) (5,498)
(BENEFIT) PROVISION FOR INCOME TAXES
(Notes 2 and 11) (350) 467 30
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 79 (2,554) (5,528)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (Note 7) (1,003)
--------- --------- ---------
NET INCOME (LOSS) $ 79 $ (3,557) $ (5,528)
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (Dollars in Thousands)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nonvoting Nonvoting
Voting Class A Class A Class B
Common Stock Common Stock Common Stock Shareholders'
---------------- ----------------- ---------------- Notes Accumulated
Shares Amount Shares Amount Shares Amount Receivable Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 14,705 $ 3,196 11,241 $ 2,204 3,321 $ 805 $ (337) $(25,251) $(19,383)
Issuance of common stock and
grant note receivable 72 50 (35) 15
Repurchase of common stock and
cancellation of note receivable (334) (232) 169 (63)
Net loss (5,528) (5,528)
------- ------- ------- -------- ------- ------- -------- -------- --------
BALANCE, MARCH 31, 1998 14,705 3,196 11,241 2,204 3,059 623 (203) (30,779) (24,959)
Net loss (3,557) (3,557)
------- ------- ------- -------- ------- ------- -------- -------- --------
BALANCE, MARCH 31, 1999 14,705 3,196 11,241 2,204 3,059 623 (203) (34,336) (28,516)
Issuance of common stock and
grant note receivable 674 195 984 413 (532) 76
Repurchase of redeemable common stock (1,716) (378) (378)
Repurchase of common stock, cancellation
of note receivable, and other (240) (69) (178) (124) 82 (111)
Payments on note receivable 16 16
Net income 79 79
------- ------- ------- -------- ------- ------- -------- -------- --------
BALANCE, MARCH 31, 2000 14,705 $ 3,196 9,959 $ 2,330 3,865 $ 912 $ (637) $(34,635) $(28,834)
======= ======= ======= ======== ======= ======= ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended March 31,
-----------------------------------------
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 79 $(3,557) $(5,528)
Adjustments to reconcile net income loss to net cash
provided by operating activities:
Depreciation and amortization 7,681 6,733 6,732
Amortization of deferred financing costs 1,200 1,199 1,283
(Gain) loss on sale of equipment (13) (9) 15
Extraordinary loss on early extinguishment of debt 1,003
Changes in assets and liabilities:
Accounts receivable (8,130) (3,441) (1,288)
Inventories (7,058) (1,255) (4,378)
Prepaid expenses and other current assets 280 198 1,636
Accounts payable 3,019 2,088 1,852
Accrued expenses and other current liabilities (1,398) 1,285 337
------- ------- -------
Net cash (used for) provided by operating activities (4,340) 4,244 661
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (7,914) (6,104) (4,497)
Proceeds from sale of property and equipment 116 9 1,137
Other assets 876 (548) (394)
------- ------- -------
Net cash used in investing activities (6,922) (6,643) (3,754)
------- ------- -------
<FN>
See accompanying notes to consolidated financing statements.
(Continued)
</FN>
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended March 31,
-------------------------------------------------
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving loan facility $ 140,892 $ 21,263 $ 23,000
Repayment of revolving loan facility (128,840) (20,500) (18,500)
Proceeds from issuance of long-term debt 12,500
Repayment of long-term debt and capitalized lease
obligations (1,127) (9,754) (1,847)
Deferred financing costs (634) (308)
Proceeds from sale of common stock 76 15
Purchase of common stock (969) (63)
Collection of shareholders' notes receivable 16 1
--------- --------- ---------
Net cash provided by financing activities 10,048 2,875 2,298
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH (1,214) 476 (795)
CASH, BEGINNING OF PERIOD 1,820 1,344 2,139
--------- --------- ---------
CASH, END OF PERIOD $ 606 $ 1,820 $ 1,344
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -
Cash paid (received) during the year for:
Interest $ 16,706 $ 16,128 $ 15,386
Income taxes (501) 403 33
<FN>
See accompanying notes to consolidated financial statements.
(Continued)
</FN>
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended March 31,
---------------------------
2000 1999 1998
(In Thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITY:
Issuance of employee notes in exchange for nonvoting
common stock $ 532 $ 35
Issuance of nonvoting Class B common stock to
a financial institution for services rendered in
1997 and to an employee in 1998 50
Cancellation of employee note in exchange for nonvoting
common stock 82
Acquisition of property and equipment through
capital lease obligations 1,019
<FN>
See accompanying notes to consolidated financial statements.
(Concluded)
</FN>
</TABLE>
<PAGE>
CFP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
1. BUSINESS
CFP Group, Inc. (the "Company") was incorporated on November 26, 1996
as New CFP Holdings, Inc. and subsequently changed its name to CFP
Group, Inc. The Company was formed to recapitalize CFP Holdings, Inc.
On December 31, 1996, each person owning capital stock (or options to
acquire capital stock) of CFP Holdings, Inc. exchanged his/her equity
interests for equivalent interests of capital stock (or options to
acquire capital stock) of the Company. CFP Group, Inc. has no
operations or assets separate from its investment in its respective
subsidiaries and relies on its subsidiaries for its cash flows.
CFP Group, Inc., through its wholly owned subsidiaries, develops,
manufactures and markets precooked and uncooked meat products sold
primarily to manufacturers of branded and private label packaged foods,
foodservice distributors, and restaurants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CFP Group, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
Fiscal Periods - The Company's fiscal year end is the last Saturday of
March. For clarity of presentation, the Company discloses its year-end
as March 31. All years presented are 52 weeks in duration.
Revenue Recognition - The Company recognizes revenue as products are
shipped.
Concentration of Credit Risk - Financial instruments that subject the
Company to credit risk consist primarily of accounts receivable. The
Company performs ongoing credit evaluations of its customers and
maintains an allowance for potential credit losses. The Company has one
significant customer that accounted for more than 10% of its sales.
Sales to this customer totaled 12%, 13% and 15% of total sales for the
years ended March 31, 2000, 1999 and 1998, respectively. Accounts
receivable from this customer totaled 7% and 9% of total accounts
receivable at March 31, 2000 and 1999, respectively. In addition,
pursuant to franchise supply agreements with two different
international franchising operations, the Company sells products to
authorized distributors, who in turn sell these products to two
franchising operations. During the years ended March 31, 2000, 1999 and
1998, approximately 45%, 46% and 46% of sales, respectively, were to
such distributors.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost. The
Company uses the straight-line method of depreciation and amortization
for buildings and leasehold improvements and both the straight-line and
double-declining methods for all other property and equipment.
Depreciation is provided for over the estimated useful lives of the
related assets, ranging from 3 to 39 years. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the
lease.
<PAGE>
The Company capitalizes all direct costs incurred in the development
and installation of new computer and operation systems and construction
of new equipment. Such amounts include the costs of materials and other
direct construction costs, purchase of computer hardware and software,
outside programming and consulting fees and direct employee salaries.
Intangible and Long-Lived Assets - The Company reviews the
recoverability of intangible and long-lived assets whenever events or
changes in circumstances indicate that the carrying value of such
assets may not be recoverable. If the expected future cash flows from
the use of such assets (undiscounted and without interest charges) are
less than the carrying value, the Company's policy is to record a
write-down that is determined based on the difference between the
carrying value of the asset and its estimated fair value.
Cost in Excess of Net Assets Acquired - Cost in excess of net assets
acquired is amortized over periods of 20 to 40 years using the
straight-line method. Accumulated amortization was $12,158,000 and
$8,745,000 as of March 31, 2000 and 1999, respectively (see Note 3).
Income Taxes - Deferred income taxes are determined based on temporary
differences between the financial reporting and income tax bases of
assets and liabilities at the balance sheet date, multiplied by the
applicable tax rates. Future tax benefits are recognized to the extent
that realization of such benefits is more likely than not.
Fair Value of Financial Instruments - The fair value of financial
instruments, other than long-term debt, closely approximates their
carrying values because of their short-term maturity. The estimated
fair value of long-term debt, including current maturities, based on
references to quoted market prices was below its carrying value by
approximately $9.2 million and $18.9 million as of March 31, 2000 and
1999, respectively.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 133 is effective
for financial statements issued for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company will adopt SFAS 133 as
required in April 2001. SFAS 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.
Reclassification - Certain reclassifications were made to prior year
statements to conform to the current year presentation.
3. BUSINESS ACQUISITIONS
On December 31, 1996, pursuant to a securities purchase agreement, the
Company acquired all of the equity interests in Quality Foods for a
total purchase price of $67.1 million, which was composed of cash
payments to sellers of $64.0 million less a purchase price adjustment
refund received from the sellers of $354,000, the issuance of 2,162
shares of nonvoting common stock - Class B valued at $1.5 million plus
acquisition costs of $2.6 million less cash assumed of $600,000. Funds
for the acquisition, repayment of certain existing indebtedness, and
working capital were primarily provided by $76.0 million in term loans,
a $20.0 million revolving credit facility and $25.0 million of
subordinated bridge loans. This acquisition has been accounted for
under the purchase method, and the results of the operations of Quality
Foods have been included in the consolidated financial statements since
the date of acquisition. The purchase price has been allocated to the
assets acquired and liabilities assumed based on fair values at the
date of acquisition. This resulted in an excess of cost over net assets
acquired of $62.6 million, which is being amortized on a straight-line
basis over 20 years.
<PAGE>
4. INVENTORIES
Inventories consisted of the following:
March 31,
------------------------
2000 1999
(In Thousands)
Raw materials $ 8,279 $ 5,820
Work-in-process 5,602 3,773
Finished goods 10,384 7,918
-------- --------
Total 24,265 17,511
Less reserve (368) (672)
-------- --------
Inventory, net $ 23,897 $ 16,839
======== ========
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31,
--------------------
2000 1999
(In Thousands)
Land $ 376 $ 376
Building 19,644 19,550
Machinery and equipment 20,330 15,872
Office furniture and fixtures 1,431 1,288
Leasehold improvements 2,137 2,110
Construction in progress 3,348 371
-------- --------
Total 47,266 39,567
Less accumulated depreciation and amortization (13,801) (9,645)
-------- --------
Property and equipment, net $ 33,465 $ 29,922
======== ========
6. INTANGIBLES AND OTHER ASSETS
Intangible and other assets consisted of the following:
March 31,
-------------------
2000 1999
(In Thousands)
Deferred financing costs $ 7,835 $ 7,835
Other assets 1,116
------- -------
Total 7,835 8,951
Less accumulated amortization (3,663) (2,463)
------- -------
Intangible and other assets, net $ 4,172 $ 6,488
======= =======
<PAGE>
7. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
March 31,
----------------------
2000 1999
(In Thousands)
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 (8.75% at March 31, 2000), interest payable
monthly, principal payable on May 1, 2002 10,000 10,000
Revolving loan payable to a bank, interest at a
reference rate (8.75% at March 31, 2000), interest
payable monthly, expires May 1, 2002 17,815 5,763
Term note payable to a bank, interest at a reference
rate (8.75% at March 31, 2000), interest payable
monthly, principal quarterly at $89,285.72,
principal payable January through February 2006 2,143 2,500
Revenue bond payable to a government financing
authority, interest at a reference rate (6% at March
31, 2000) not to exceed 18%, payable monthly,
principal payable annually at $200,000, increasing
to $400,000 through December 2014 3,952 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 1,433 1,545
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 640 678
Notes payable to a government agency, interest at 2%,
payable with principal monthly through April 2001 104 206
Capital lease obligations payable in varying monthly
installments through 2021, collateralized by
buildings and equipment with a net book value of
$5,383,000 and $5,787,000 at March 31, 2000 and
1999, respectively 5,846 6,216
--------- ---------
Total 157,933 147,008
Current portion (1,043) (1,113)
--------- ---------
Long-term debt $ 156,890 $ 145,895
========= =========
The senior notes payable are senior unsecured obligations that rank
pari passu in the right of payment with all other existing and future
senior debt of the Company. The senior notes payable provide
limitations on the sale or transfer of the Company's subsidiaries and
also provide for the holders of the notes to require the Company to
purchase the notes upon a change in control of the Company. The senior
notes payable contain certain financial covenants, including
limitations on incurring additional debt, payments to stockholders,
capital stock transactions and transactions with affiliates. At March
31, 2000, no amounts were available for dividend payments. The Company
may redeem the notes prior to maturity, subject to certain redemption
premiums. The senior notes payable are obligations of CFP Holdings and
are, jointly and severally, unconditionally guaranteed in full by CFP
Group and each of CFP Holdings' subsidiaries.
In May 1998, the Company entered into a $40.0 million loan and security
agreement (the "Loan and Security Agreement") with a financial
institution providing for revolving credit loans (the "Revolver") and
term loan options. Maximum borrowings under the Revolver cannot exceed
$40.0 million, limited
<PAGE>
to a borrowing base and other limitations, including amounts
outstanding under term loans, letters of credit and other borrowing
instruments under the Loan and Security Agreement. At March 31, 2000,
the Company had $18 million outstanding under the revolver and $10.0
million outstanding under term loans. All amounts outstanding under the
Loan and Security Agreement become due and payable in May 2002.
Subsequent to March 31, 2000 the Company increased the Loan and
Security Agreement to $45.0 million, limited to similar terms as
mentioned herein.
In 1999, the Company repaid all amounts outstanding under an existing
bank borrowing arrangement with advances under the Loan and Security
Agreement. In connection with this repayment the Company recorded an
extraordinary loss on the extinguishment of debt of $1,003,000, which
primarily consisted of unamortized deferred financing costs.
The Bank Debt is collateralized by substantially all of the Company's
assets and is guaranteed jointly and severally, and unconditionally, in
full by each of the Company's subsidiaries. The bank credit agreement
provides for the maintenance of certain financial ratios and other
financial covenants and also includes limitations on capital
expenditures, incurrence of additional debt, payment of dividends,
capital stock transactions and asset dispositions.
The revenue bond payable provides for monthly escrow deposits in
amounts sufficient to fund annual sinking fund requirements. Mandatory
sinking fund redemptions are required each December 1 through final
redemption in 2014. The bonds are supported by an irrevocable letter of
credit, which is backed by a guarantee provided by a commercial lender.
The letter of credit and guarantee are collateralized by a first
priority lien on the Company's Philadelphia real property. The
commercial lender also has a lien on certain production equipment owned
by the Company.
One of the notes payable to a government agency requires that the
Company maintain a letter of credit for $750,000.
Minimum principal payments of long-term obligations as of March 31,
2000 are as follows:
Year Ending 2000
March 31, (In Thousands)
2001 $ 1,043
2002 1,028
2003 29,664
2004 115,429
2005 447
Thereafter 10,322
--------
Total $157,933
========
8. RELATED PARTY TRANSACTIONS
The Company has a management consulting agreement with an affiliate of
a stockholder under which the Company is obligated to pay $600,000 per
year plus expenses through December 2003, at which time the agreement
is automatically extended annually, until terminated by the Company or
the stockholder. Consulting expense under this and a preceding
agreement was $629,000, $736,000, and $666,000, including reimbursed
expenses, for the years ended March 31, 2000, 1999 and 1998,
respectively.
<PAGE>
The Company and certain of its shareholders have entered into a
shareholder agreement that restricts the transfer or sale of the
Company's stock. Among other provisions, the shareholder agreement
provides for the right of first refusal upon sale of the stock in
addition to providing for the election of certain directors of the
Company.
The Company has entered into employment agreements with certain of its
executive officers, which expire at various dates through December
2001. Such agreements provided for minimum salary levels, adjusted
annually for cost-of-living changes, as well as for incentive bonuses,
which are payable if specified management goals are attained, and for
the issuance of stock options. The aggregate commitment for future
salaries and minimum bonuses at March 31, 2000, was approximately $1.5
million through December 2001. Additionally, the Company has a
consulting agreement with a key employee, which expires in December
2001 and provides for a total commitment for future salaries of
approximately $220,000.
9. REDEEMABLE COMMON STOCK
In December 1996, in connection with the execution of certain
employment agreements (see Note 8), three management shareholders were
granted the right to sell certain shares of common stock and shares to
be issued upon the exercise of certain stock options back to the
Company. The management shareholders have the right to sell these
shares back to the Company upon the occurrence of certain
employment-related events, which include termination without cause,
termination for nonrenewal of employment agreement and involuntary
termination. Originally there was 3,011 shares of redeemable nonvoting
- Class A common stock, which the redemption price is determined by a
formula specified in the agreement. On December 31, 1999, the Company
repurchased 1,716 shares of nonvoting - Class A common stock from one
shareholder at its fair market value per share of $500 for a total
purchase price of $858,000. With respect to 2,162 shares of redeemable
nonvoting - Class B common stock, the redemption price is the fair
value of shares or in certain circumstances the higher of the price
paid for the stock or the fair value. The redemption amounts are
payable in cash or, in certain circumstances, subordinated notes
payable. With respect to the remaining 1,350 shares, in certain
circumstances, the Company has the right to purchase the stock from the
management shareholder at a formula-driven price as determined in the
agreement.
The redeemable common stock was initially recorded at its fair value at
the date the common stock was issued. Adjustments to the carrying value
of the redeemable common stock are recorded when the redemption value
exceeds the carrying value. As of March 31, 2000, no change in the
carrying value was necessary.
10. STOCK OPTION PLAN
In connection with the recapitalization (see Note 1), the Company
assumed all obligations of CFP Holdings under the CFP Holdings Stock
Option Plan (the "1995 Stock Option Plan"). Under the plan, which is
administered by the Board of Directors, 11,586 shares of nonvoting
common stock were reserved for the issuance of incentive stock options
or nonqualified stock options to directors, employees and consultants
of the Company. The price, terms and conditions of each issuance are
determined based on the provisions of the plan. During the year ended
March, 31, 2000, no options were granted under the 1995 Stock Option
Plan, 674 options were exercised and 188 options terminated. Also in
2000, 1,124 vested but unexercised options were purchased by the
Company for a total purchase price of $562,000 or $500 per share.
Compensation expense of $237,000 is included in selling, general and
administrative expense, which represents the difference between $500
and the exercise price of $289. As of March 31, 2000, 220 vested
options at an exercise price of $289 per share, expiring 2002, were
outstanding.
<PAGE>
In June 1998 the Company's Board of Directors, adopted a new incentive
stock option plan (the "1998 Stock Option Plan"), which allows the
grant of both incentive stock options and nonqualified stock options to
key employees of the Company. A total of 6,603 shares of nonvoting
common stock has been authorized and reserved for issuance under this
plan. As of March 31, 2000, 5,539 options had been granted at an
exercise price of either $289 or $694, which included 1,418 granted
during fiscal year 2000. Additionally during fiscal year 2000, 984
options were exercised and 1,253 options were terminated. As of March
31, 2000, there were a total of 4,556 options outstanding, including
677 vested options and 3878 unvested options.
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." As such, the Company accounts for its
stock-based compensation plans in accordance with APB No. 25,
"Accounting for Stock Issued to Employees." The estimated fair value
of options granted under the 1995 Stock Option Plan and the 1998 Stock
Option Plan pursuant to SFAS No. 123 was $664,000 and $480,000,
respectively. Had compensation cost for the Company's stock option plan
been determined based on their fair value at the date of grant
consistent with the provisions of SFAS No. 123, the Company's pro forma
net loss would have been, $75,000, $3.7 million and $5.7 million for
the years ended March 31, 2000, 1999 and 1998, respectively. The fair
value of each option grant was estimated using the Black-Scholes option
pricing model with the following assumptions: dividend yield of zero, a
risk-free interest rate of 6.36%, volatility of 24%, and expected
option life of 5 years.
11. INCOME TAXES
The (benefit) provision for income taxes consisted of the following:
Year Ended March 31
--------------------------
2000 1999 1998
Current:
Federal $(562)
State 212 $ 467 $ 30
----- ----- -----
(350) 467 30
----- ----- -----
Total (benefit) provision $(350) $ 467 $ 30
===== ===== =====
<TABLE>
The major elements contributing to the difference between the federal
statutory income tax rate and the effective income tax rate relating to
loss before income taxes are as follows:
<CAPTION>
Year Ended March 31,
--------------------------------------
2000 1999 1998
<S> <C> <C> <C>
Statutory rate (35.0)% (35.0)% (35.0)%
Net refunds from NOL carryback claim (182.0) 0.6 2.0
Officer's life insurance and other nondeductible expenses 20.5 0.6 2.0
Goodwill amortization 36.7 3.2 1.8
State taxes, net 21.7 10.6 (2.0)
Valuation allowance 8.9 35.7 33.2
----- ----- -----
Effective tax rate (129.2)% 15.1% 0.0%
====== ==== ===
</TABLE>
<PAGE>
<TABLE>
Deferred income taxes consist of the following:
<CAPTION>
March 31,
-----------------------------------------
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Deferred income tax assets:
Federal net operating loss carryforwards $ 4,900 $ 5,171 $ 4,747
State taxes 15 113 160
Accrued vacation 56 102 113
Expense accruals 782 767 485
State net operating loss carryforwards 1,273 452 849
Other 258 106 126
Valuation allowances (5,825) (4,785) (5,333)
------- ------- -------
$ 1,459 $ 1,926 $ 1,147
======= ======= =======
Deferred income tax liabilities:
Depreciation and amortization $ 1,459 $ 1,905 $ 1,135
Other 21 12
------- ------- -------
$ 1,459 $ 1,926 $ 1,147
======= ======= =======
</TABLE>
At March 31, 2000, the Company had federal net operating loss
carryforwards of approximately $14.0 million expiring 2013 through
2020. At March 31, 2000, the Company had various states operating loss
carryforwards of approximately $13.7 million, which expire in the years
2001 through 2020.
For the years ended March 31, 2000, 1999 and 1998, the Company
established a valuation allowance equal to the net deferred tax asset
of $5.8 million, $4.8 million, and $5.3 million, respectively.
12. COMMITMENTS
The Company leases its facilities and certain equipment under both
capital and noncancelable operating leases that expire through November
2021. Rent expense under operating leases totaled $1,190,000,
$1,120,000 and $1,220,000 for the years ended March 31, 2000, 1999 and
1998, respectively. Certain of the leases require the payment of
related property taxes, insurance, maintenance and other costs.
<PAGE>
Minimum future lease payments under both capital and operating leases,
together with the present value of the net minimum lease payments under
capital leases as of March 31, 2000, are summarized as follows:
Capital Operating
Year Ending Leases Leases
March 31, (In Thousands)
2001 $ 1,094 $ 226
2002 1,113 154
2003 844 94
2004 841 63
2005 843 27
Thereafter 12,913
------- -------
Total minimum lease payments 17,648 $ 564
=======
Amount representing interest (11,802)
Present value of net minimum
lease payments $ 5,846
=======
The Company is involved in certain legal proceedings arising in the
ordinary course of business, none of which is expected to have a
material impact on the financial condition of the Company.
13. BENEFIT PLAN
One of the Company's subsidiaries has a defined contribution
profit-sharing salary reduction plan covering substantially all of its
employees not otherwise covered under a collective bargaining
agreement. Company contributions to the profit-sharing plan are
determined by the Board of Directors and are a percentage of each
participant's compensation. Benefit plan expense recorded by the
Company was $329,913, $266,000 and $98,000 for the years ended March
31, 2000, 1999, and 1998 respectively.
14. SEGMENT INFORMATION
In fiscal year 1999, the Company implemented SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS No. 131
requires disclosure of certain information about operating segments,
geographic areas in which the Company operates, and major customers. In
accordance with SFAS No. 131, the Company has determined it has two
operating segments, Custom Food Products and Quality Foods. Each of
these segments is managed separately primarily because of geography and
differences in products and customer base. Custom Food Products
develops, manufactures and markets precooked meat and poultry products
sold primarily to manufacturers of branded and private label packaged
foods. Custom Food Products is also a major supplier of frozen uncooked
beef products to a national franchise operation. Quality Foods is the
country's leading manufacturer of thinly sliced beef supplying quick
service restaurants, sandwich chains, and family dining establishments.
Custom Foods Products has one significant customer that represents
approximately $26.1 million, $24 million, and $28 million for the years
ended March 31, 2000, 1999 and 1998, respectively. Additionally, the
Company sells products to authorized distributors, who in turn sell
these products to two franchising operations. For Custom Food Products
one of these franchising operations is significant in total with $50.2
million, $45 million, and $47 million for the years ended March 31,
2000, 1999 and 1998, respectively. Quality Foods also has a significant
franchise customer with sales of $47.5 million, $39 million and $36
million for the years ended March 31, 2000, 1999 and 1998,
respectively.
<PAGE>
The accounting policies of these segments are the same as those
described in the summary of significant accounting principles. In
accordance with SFAS No. 131, the Company has prepared the following
tables, which present information related to each operating segment
included in internal management reports.
<TABLE>
2000
(In Thousands)
<CAPTION>
Custom Quality Corporate
Foods Foods and Other Eliminations Total
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales to external customers $ 97,984 $ 113,298 $ 211,282
Interest expense 881 478 $ 16,555 17,914
Depreciation and amortization expense 1,661 5,735 285 7,681
Segment profit (loss) from operations 12,050 6,247 (654) 17,643
Long-lived assets 29,014 82,347 109,051 $(120,753) 99,659
Total segments assets 45,668 114,149 109,088 (120,753) 148,152
Capital expenditures 925 6,113 7,038
1999
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
--------- --------- --------- ------------ ---------
Net sales to external customers $ 87,676 $ 95,488 $ 183,164
Interest expense 945 394 $ 15,983 17,322
Depreciation and amortization expense 1,539 4,910 284 6,733
Extraordinary item 1,003 1,003
Segment profit (loss) from operations 11,177 5,055 (997) 15,235
Long-lived assets 27,468 87,948 117,959 $ (131,770) 101,605
Total segments assets 41,245 108,816 118,113 (131,770) 136,404
Capital expenditures 1,224 4,880 6,104
<PAGE>
1998
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
--------- --------- --------- ------------ ---------
Net sales to external customers $ 87,676 $ 95,488 $ 183,164
Net sales to external customers $ 94,992 $ 86,386 $ 181,378
Interest expense 863 4,490 $ 11,883 17,236
Depreciation and amortization expense 2,190 4,197 345 6,732
Extraordinary item
Segment profit (loss) from operations 9,555 3,256 (1,073) 11,738
Long-lived assets 27,903 75,977 160,086 $ (160,712) 103,254
Total segments assets 40,848 92,597 160,346 (160,712) 133,079
Capital expenditures 2,132 3,384 5,516
</TABLE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods for the years
ended March 31, 2000 and 1999.
2000
--------------------------------------------
June 30 Sept. 30 Dec. 31 March 31
(In Thousands)
Net sales $ 47,473 $ 51,206 $ 57,312 $ 55,291
Gross profit 9,171 9,476 9,181 8,485
Income from operations 4,576 5,119 4,177 3,771
Income (loss) before income
taxes 238 635 (257) (887)
Net income (loss) 216 580 (243) (474)
1999
--------------------------------------------
June 30 Sept. 30 Dec. 31 March 31
(In Thousands)
Net sales $ 44,275 $ 45,070 $ 46,137 $ 47,682
Gross profit 8,172 9,108 8,761 9,605
Income from operations 3,247 4,274 3,913 3,801
Loss before income taxes (1,143) (79) (393) (472)
Net loss (2,196) (260) (393) (708)
<PAGE>
16. SUMMARIZED FINANCIAL INFORMATION
<TABLE>
The full financial statements of each of the other co-guarantors of the
senior notes payable (see Note 7) have not been provided because the
Company's management believes that the presentation of full financial
statements is not material to investors. Summarized financial
information of CFP Group, Inc. and CFP Holdings, Inc. as of March 31,
2000 and 1999 is as follows:
<CAPTION>
March 31, 2000
---------------------------------------------------------------
CFP
Holdings CFP CFP Group,
Inc. Group, Inc.
Consolidated Inc. Eliminations Consolidated
(In Thousands)
<S> <C> <C> <C> <C>
Total current assets $ 48,493 $ 48,493
Total noncurrent assets 99,65 9 99,659
Investment in subsidiary $ 10,872 $ (10,872)
--------- --------- --------- ---------
Total $ 148,152 $ 10,872 $ (10,872) $ 148,152
========= ========= ========= =========
Total current liabilities $ 18,257 $ 18,257
--------- --------- --------- ---------
Total noncurrent liabilities 156,890 156,890
--------- --------- --------- ---------
Intercompany (receivable) payable (16,123) $ 16,123
--------- --------- --------- ---------
Redeemable preferred stock 1,228 $ (1,228)
--------- --------- --------- ---------
Common stock subject to redemption 1,839 1,839
--------- --------- --------- ---------
Stockholder's equity (deficiency):
Voting common stock 3,196 3,196 (3,196) 3,196
Nonvoting common stock 5,081 3,242 (5,081) 3,242
Stockholders' notes receivable (637) (637)
Accumulated deficit (20,377) (34,635) 20,377 (34,635)
--------- --------- --------- ---------
Total stockholder's equity (deficiency) (12,100) (28,834) 12,100 (28,834)
--------- --------- --------- ---------
Total $ 148,152 $ (10,872) $ 10,872 $ 148,152
========= ========= ========= =========
Sales $ 211,282 $ 211,282
Cost of sales 174,969 174,969
--------- --------- --------- ---------
Gross profit 36,313 36,313
Selling, general and administrative expenses 18,670 18,670
--------- --------- --------- ---------
Income from operations 17,643 17,643
Equity in loss of subsidiary $ 79 $ (79)
Interest expense 17,914 17,914
--------- --------- --------- ---------
Loss before income taxes and extraordinary item (271) (79) 79 (271)
Benefit for income taxes (350) (350)
--------- --------- --------- ---------
Income before extraordinary item 79 (79) 79 79
Extraordinary loss on early extinguishment of debt
--------- --------- --------- ---------
Net income $ 79 $ (79) $ 79 $ 79
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------------------
CFP
Holdings CFP CFP Group,
Inc. Group, Inc.
Consolidated Inc. Eliminations Consolidated
(In Thousands)
<S> <C> <C> <C> <C>
Total current assets $ 34,799 $ 34,799
Total noncurrent assets 101,605 101,605
Investment in subsidiary $ 2,490 $ (2,490)
Total $ 136,404 $ 2,490 $ (2,490) $ 136,404
========= ========= ========= =========
Total current liabilities $ 16,706 $ 16,706
--------- --------- --------- ---------
Total noncurrent liabilities 145,895 145,895
--------- --------- --------- ---------
Intercompany (receivable) payable (28,687) $ 28,687
--------- --------- --------- ---------
Redeemable preferred stock 1,228 $ (1,228)
--------- --------- --------- ---------
Common stock subject to redemption 2,319 2,319
--------- --------- --------- ---------
Stockholder's equity (deficiency):
Voting common stock 3,196 3,196 (3,196) 3,196
Nonvoting common stock 5,146 2,827 (5,146) 2,827
Stockholder's notes receivable (203) (203)
Accumulated deficit (7,080) (34,336) 7,080 (34,336)
--------- --------- --------- ---------
Total stockholder's equity (deficiency) 1,262 (28,516) (1,262) (28,516)
--------- --------- --------- ---------
Total $ 136,404 $ 2,490 $ (2,490) $ 136,404
========= ========= ========= =========
Sales $ 183,164 $ 183,164
Cost of sales 147,518 147,518
--------- --------- --------- ---------
Gross profit 35,646 35,646
Selling, general and administrative expenses 20,411 20,411
--------- --------- --------- ---------
Income from operations 15,235 15,235
Equity in loss of subsidiary $ (3,557) $ 3,557
Interest expense 17,322 17,322
--------- --------- --------- ---------
Loss before income taxes and
extraordinary item (2,087) (3,557) 3,557 (2,087)
Provision for income taxes 467 467
--------- --------- --------- ---------
Loss before extraordinary item (2,554) (3,557) 3,557 (2,554)
Extraordinary loss on early
extinguishment of debt (1,003) (1,003)
--------- --------- --------- ---------
Net loss $ (3,557) $ (3,557) $ 3,557 $ (3,557)
========= ========= ========= =========
</TABLE>
******
