SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Registration Statement (Form S-1) Number 2-66772
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 16-6036816
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
90 Linden Place, P.O. Box 682, Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (716) 383-1850
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 twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of October 15, 1993.
Common Stock - 2,036,655
Page 1 of 21<PAGE>
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<TABLE>
Part I. FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS
The interim financial statements contained herein are unaudited, but in the
opinion of the management of the Cooperative include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for these periods. The results
of operations for the interim periods are not necessarily indicative of the
results of operations for the full year.
Pro-Fac Cooperative, Inc.
Statement of Net Proceeds
Quarter Ended
(Dollars in Thousands) 9/24/94 9/25/93
<CAPTION> <C> <C>
Revenues:
<S>
Proceeds from sale of crops to Curtice Burns Foods, Inc.
Estimated commercial market value
delivered during the period $37,657 $42,327
Additional proceeds under the Integrated Agreement 2,368 2,773
Interest income 4,247 4,124
Patronage dividend from Springfield Bank for Cooperatives 275 350
Total revenues 44,547 49,574
Costs and expenses:
Estimated commercial market value paid to or accrued
for the accounts of members during the period 37,657 42,327
Interest expense 2,939 3,168
Administrative expenses 222 203
Total costs and expenses 40,818 45,698
Excess of revenues before taxes, dividends and
allocation of net proceeds 3,729 3,876
Provision for taxes on income (25) (409)
Net income (proceeds before dividends) 3,704 3,467
Dividends on common and preferred stock (4,914) (4,390)
Net proceeds (1,210) (923)
Allocation from earned surplus 1,210 923
Net proceeds available to members $ -- $ --
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Balance Sheet
<CAPTION>
(Dollars in Thousands) September 24, June 25, September 25,
<S> 1994 1994 1993
Current assets: <C> <C> <C>
Cash $ 113 $ 10 $ 16
Accounts receivable 140 68 25
Receivable from Curtice Burns Foods, Inc. 51,929 11,197 41,308
Current portion of long-term loans receivable
from Curtice Burns Foods, Inc. 14,000 14,000 16,000
Current portion of investment in direct
financing leases 17,645 17,645 21,184
Current portion of investment in
Springfield Bank for Cooperatives 1,308 1,324 1,371
Income taxes refundable
Prepaid expenses 3,437 2,464 1,154
Total current assets 88,572 46,708 81,058
Long-term portion of investment in
direct financing leases 113,083 123,677 150,924
Long-term loans receivable from Curtice
Burns Foods, Inc. 88,952 78,040 80,848
Long-term portion of investment in
Springfield Bank for Cooperatives 19,968 19,632 17,183
Deferred tax benefit 2,623 2,623 2,010
Finance receivable related to intangibles 24,486 24,909 26,125
Other assets 450 462 257
Total assets $338,134 $296,051 $358,405
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' and
Members Capitalization
<S>
Current liabilities: <C> <C> <C>
Notes payable $ 50,000 $ 11,500 $ 42,000
Accounts payable 2,288 617 712
Accrued interest 2,802 2,536 3,049
Federal and state income taxes payable 697 668 342
Current portion of long-term debt 14,000 14,000 16,000
Amounts due members 18,762 15,327 18,876
Total current liabilities 88,549 44,648 80,979
Long-term debt 126,925 127,134 168,000
Other non-current liabilities 521 504 431
Total liabilities 215,995 172,286 249,410
Commitments
Shareholders' and members' capitalization:
Retained earnings allocated to members 36,912 36,924 29,435
Non-qualified allocation to members 5,979 7,454 5,704
Capital Stock -
Preferred, par value $25, authorized -
5,000,000 shares; issued and
outstanding - 2,378,807, 2,378,807
and 2,148,050, respectively 65,590 64,418 59,470
Common, par value $5, authorized -
5,000,000 shares
September 24, June 25, September 25,
1994 1994 1993
Shares issued 2,036,655 2,056,878 2,695,885
Shares subscribed 9,270 9,270 18,038
Total subscribed
and issued 2,045,925 2,066,148 2,713,923
Less subscriptions
receivable in
installments (9,270) (9,270) (18,038)
2,036,655 2,256,878 2,695,885 10,183 10,284 13,479
Earned surplus 3,475 4,685 907
Total shareholders'
and members'
capitalization 122,139 123,765 108,995
Total liabilities and
capitalization $338,134 $296,051 $358,405
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Statement of Cash Flows (Dollars in Thousands) Quarters Ended
<S> 9/24/94 9/26/93
Cash flows from operating activities: <C> <C>
Net income $ 3,704 $ 3,467
Change in assets and liabilities:
Accounts receivable (72) --
Accounts payable and accrued expenses 1,937 (277)
Amounts due to members 3,435 4,351
Federal and state taxes payable/refundable 29 412
Other assets and liabilities (944) (452)
Net cash provided by operating
activities 8,089 7,501
Cash flows from investing activities:
Due from Curtice Burns, net (51,644) (34,395)
Return from direct investment in financing leases 10,594 1,405
Investment in Springfield Bank (320) (568)
Cash received from the finance receivable
related to intangibles 423 420
Net cash used in investing activities (40,947) (33,138)
Cash flows from financing activities:
Proceeds from short-term debt 38,500 30,000
Payments on long-term debt (209) --
Repurchase of common stock, net of issuances (101) 24
Cash portion of non-qualified conversion (304) --
Cash paid in lieu of fractional shares (11) --
Cash dividends paid (4,914) (4,390)
Net cash provided by financing activities 32,961 25,634
Net change in cash 103 (3)
Cash at beginning of period 10 19
Cash at end of period $ 113 $ 16
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 2,677 $ 3,146
Income taxes, net $ 54 $ (3)
Supplemental schedule of non-cash investing and financing activities:
Conversion of retains to preferred stock $ 1,172 $ --
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. AGREEMENT WITH CURTICE BURNS FOODS, INC.
Pro-Fac has a contractual relationship with Curtice Burns under an Agreement
("the Agreement") consisting of five sections: Operations Financing,
Marketing, Facilities Financing, Management and Settlement, which extends
to 1997 and provides for two successive five-year renewals at the option of
Curtice Burns.
The provisions of the Agreement include the financing of certain assets
utilized in the business of Curtice Burns and provide a sharing of income
and losses between Curtice Burns and Pro-Fac. Should Curtice Burns
terminate the Agreement, Curtice Burns has the option of purchasing those
assets financed by Pro-Fac at the book value at that time.
Revenues received from Curtice Burns under the Agreement for the quarters
ended September 24, 1994 and September 25, 1993 include: commercial market
value of crops delivered, $37,675,000 and $42,327,000, respectively;
interest income, $4,247,000 and $4,124,000, respectively; and additional
proceeds from profit sharing provisions, $2,368,000 and $2,773,000,
respectively. In addition, Pro-Fac received financing amortization payments
of $11,016,000 and $1,825,000 for the quarters ended September 24, 1994 and
September 25, 1993, respectively. See discussion at Note relative to
disputed profit sharing.
Developments Related to Change of Control of Curtice Burns
On March 23, 1993, Curtice Burns announced that Agway, which through its
wholly-owned subsidiary, AHI, owned approximately 99 percent of Curtice
Burns' Class B shares and approximately 14 percent of the Class A shares as
of June 25, 1994, was considering the potential sale of its interest in
Curtice Burns. In August 1993, Curtice Burns Board of Directors authorized
Curtice Burns management, with the advice of its investment bankers, to
pursue strategic alternatives for Curtice Burns. These options included (i)
negotiations with Pro-Fac relative to Pro-Fac gaining control of the
business; (ii) the possible sale of the entire equity of Curtice Burns to
a third party; and (iii) the implementation of additional restructuring
actions that my include recapitalizing Curtice Burns to buy out Pro-Fac.
Under the Integrated Agreement, title to substantially all of Curtice Burns
fixed assets is held by Pro-Fac, and Pro-Fac provides the major portion of
the financing of Curtice Burns operations. Under the Integrated Agreement,
Curtice Burns has an option to purchase these assets from Pro-Fac at their
book value. However, there presently exists a disagreement with Pro-Fac as
to how such settlement amount would be calculated. Exercise of the buyout
option would result in the termination of the Integrated Agreement with Pro-
Fac. In such event, Curtice Burns would be required to repay all debt owed
to Pro-Fac.
Curtice Burns actively explored these alternatives during fiscal 1994. On
June 8, 1994, Curtice Burns Board of Directors voted to pursue a proposal
submitted by Dean Foods Company ("Dean Foods") to acquire all the
outstanding shares of common stock of Curtice Burns at a maximum cash price
of $20.00 per share, subject to a number of contingencies, including an
agreement with Pro-Fac covering the termination of the Integrated Agreement,
an agreement with Hormel Foods Corporation for the purchase of Nalley's
(excluding Nalley's Canada Ltd. and the Nalley' U.S. Chips and Snacks
business) for $150.0 million, clearance of the transaction by appropriate
government agencies and negotiation of definitive agreements.
On August 4, 1994, Pro-Fac submitted a proposal to the Board of Directors
of Curtice Burns to acquire the shares for cash in the amount of $19.00 per
share. Pro-Fac's proposal was subject to certain terms and conditions,
including receipt of approval of the Board of Directors and shareholders of
Curtice Burns, receipt of approval of a majority of Pro-Fac's members and
receipt of sufficient financing to consummate the acquisition. In September
Pro-Fac modified its proposal by removing several contingencies and
indicating its interest in purchasing the share pursuant to a tender offer.
<PAGE>
<PAGE>
At its special meeting on September 27, 1994, the Board of Directors of
Curtice Burns accepted Pro-Fac's proposal. Pro-Fac and Curtice Burns
entered into the Merger Agreement on September 27, 1994. Pursuant to the
Merger Agreement, Curtice Burns notified Dean Foods that it had accepted
Pro-Fac's proposal and was terminating all negotiations with Dean Foods and
other parties for the purchase of all or part of Curtice Burns. Management
expects such merger to finalized in the second quarter of fiscal 1995.
During fiscal 1994 and the first quarter of fiscal 1995, Curtice Burns
expensed $3.5 million and $1.8 million, respectively, of legal, accounting,
investment banking and other expenses relative to the change of control
issue. In recognizing these expenses, Curtice Burns allocated half of this
amount to Pro-Fac as a deduction to the profit split. Pro-Fac has objected
to this allocation. This dispute will terminate upon completion of the
merger.
On October 4, 1994, Pro-Fac initiated a tender offer for all of Curtice-
Burns outstanding stock at $19.00 per share. At the expiration of the
tender offer on November 2, 1994, 6,229,442 shares of Class A and 2,046,997
shares of Class B common stock (or approximately 94 percent and 99 percent,
respectively of the total number of outstanding shares of Class A and Class
B common stock of Curtice-Burns) had been validly tendered and not
withdrawn. All such tendered shares were accepted for payment by PF
Acquisition Corp., a wholly-owned subsidiary of Pro-Fac. On November 3,
1994, PF Acquisition Corp. merged into Curtice-Burns, making Curtice-Burns
a wholly-owned subsidiary of Pro-Fac.
Roy A. Myers, who has served as the general manager of Pro-Fac since 1987,
has been named president and chief executive officer of Curtice-Burns,
replacing J. William Petty, who has resigned. Pro-Fac and Curtice-Burns
will continue to operate under two separate boards. The Pro-Fac Board of
Directors will remain unchanged, and a new Curtice-Burns Board, consisting
of seven directors, has been appointed.
Financing for the offer was obtained through approximately $234 million of
seasonal and term senior bank financing from Springfield Bank for
Cooperatives and from the issuance of $160 million in senior subordinated
debt securities issued to qualified institutional buyers. The bonds will
carry an annual interest rate of 12-1/4 percent. In addition, Pro-Fac
contributed approximately $133 million in capital to complete the
transaction.
Note 2. RESTRUCTURING PROGRAM
The Conceptual Vision and Strategy
The restructuring program first initiated in fiscal 1993 was based on
Curtice Burns new vision of a company smaller in sales but more profitable,
as measured by return on sales and equity, and possessing the financial and
management resources sufficient to drive growth in carefully selected
product line markets in which Curtice Burns can prosper for the long term.
Thus, the strategy was to focus on a more limited number of product lines
which now have a strong, competitive position.
The Plan outlined in 1993 is to restructure the business to a more
profitable base. At the same time, the remaining businesses were to be
managed to optimize earnings growth by installing corporate-wide purchasing,
and a corporate-wide focus of capital spending.
The third leg of the strategy was to accelerate Curtice Burns national sales
and distribution programs by executing new product programs in store-brand
retail dressings, salsa and chunky soups, and the "More Fruit/More Flavor"
pie filling program.
Execution of the Program
The first step of the restructuring program was to divest businesses that
were unprofitable or declining for Curtice Burns but would fit strategically
with other business portfolios. During fiscal 1993, Curtice Burns divested
Lucca Frozen Foods. A loss of approximately $2.7 million (before dividing
<PAGE>
with Pro-Fac and before taxes) was recognized on this transaction. At the
end of fiscal 1993, Curtice Burns wrote down the assets and provided for the
expenses to dispose of the Hiland potato chips and meat snacks businesses
during fiscal 1994. On November 22, 1993, Curtice Burns sold certain assets
of the Hiland Potato Chip business for $2 million at closing, plus
approximately $1 million paid in installments over three months. On
February 22, 1994, Curtice Burns sold the meat snacks business located in
Denver, Colorado and Albany, Oregon to Oberto Sausage Company of Kent,
Washington. Under the agreement, Oberto has purchased certain assets and
assumed certain liabilities of the meat snacks operation, excluding plant,
equipment, and trademarks. Curtice Burns will lease its Albany Oregon
manufacturing facility and equipment and license its trademarks, trade
names, etc. to Oberto until February 1995, at which time Oberto is
contractually obligated to purchase these assets. The sale of the Hiland
and meat snacks businesses did not result in any significant gain or loss
in fiscal 1994 after giving effect to the restructuring charges recorded in
fiscal 1993; however, charges of $3.1 million (before dividing with Pro-"Fac
and before taxes) were incurred in fiscal 1994 to adjust previous estimates.
In the fiscal year ended June 26, 1993, Curtice Burns incurred losses of
$13.2 million from the meat snacks and Hiland potato chip businesses before
dividing such losses with Pro-Fac and before taxes.
On November 19, 1993, Curtice Burns sold the oats portion of the National
Oats business for $39 million. The oats business contributed approximately
$1.4 million of earnings in fiscal 1993 before dividing with Pro-Fac and
before taxes. The sale of the oats business resulted in an approximate
$10.9 million gain (before dividing with Pro-Fac and before taxes). The
popcorn portion of the National Oats Division was transferred to the
Comstock Michigan Fruit Division.
During fiscal 1993 and 1994, Curtice Burns also made staff reductions in
selected locations throughout Curtice Burns. A $1 million accrual relating
to such costs was recorded as part of the fiscal 1993 restructuring charge.
Thus, a major part of the restructuring plan was successfully executed
during fiscal 1994.
As reported above, Curtice Burns incurred restructuring charges in fiscal
1993 of $61.0 million (before dividing such charges with Pro-Fac and before
taxes), which included the loss incurred on the sale of the Lucca frozen
entree business, anticipated losses on the sale of the meat snacks and
Hiland businesses, and other costs (primarily severance and unexpected
losses prior to sale) in conjunction with the restructuring program.
Virtually all of this charge was a revaluation of assets, rather than cash
expense.
Having completed the first phase of the restructuring program in fiscal
1993, the second phase was approved by Curtice Burns Board of Directors in
August 1994. In connection with the second phase, Curtice Burns is
evaluating several alternatives regarding the Nalley's snack food business
in the United States, including its possible sale to a third party. A
charge of $8.4 million before split with Pro-Fac and before taxes, for this
phase of the restructuring program was recorded during the first quarter of
fiscal 1995.
With respect to the potential sale of the snack food business, Curtice Burns
has signed a letter of intent with Country Crisp Foods of Salt Lake City,
Utah. The letter of intent is subject to a number of conditions, including
successful financing by the purchaser and the negotiation of a definitive
purchase agreement. Country Crisp, a regional snack food company operating
in the inter-mountain states of Colorado, Utah, Wyoming, Idaho, Nevada and
New Mexico, will continue to market the Nalley's brand snacks under a
licensing arrangement with Curtice Burns.
Note 3. DEBT
Short-Term Debt -
Short-term borrowings are made by the Cooperative under a seasonal line of
credit with Springfield which currently provides for borrowings up to <PAGE>
<PAGE>
$56,000,000. Outstanding borrowings at September 24, 1994 amounted to
$50,000,000.
The Cooperative's short-term borrowings are loaned to Curtice Burns under
the same conditions and at the same rates as the Cooperative obtained from
its lenders. Provisions of the Agreement between the two companies do
however, allow Pro-Fac, with sufficient notice to Curtice Burns, to
accelerate the repayment of outstanding debt.
Long-Term Debt -
The Cooperative's long-term debt consists of the following:
September 24, September 25,
1994 1994
Term loans due Springfield:
Interest rate of 6.8% and 6.3% at
9/24/94 and 9/25/93,
respectively $140,805,000 $184,000,000
Other debt 120,000 --
140,925,000 184,000,000
Less current portion 14,000,000 16,000,000
$126,925,000 $168,000,000
The term loans are collateralized by virtually all the assets of Curtice
Burns and Pro-Fac. In addition, Curtice Burns guarantees all of the
Cooperative's bank debt and the Cooperative guarantees Curtice Burns' short-
term notes payable to commercial banks and certain other debt. The total
lines of credit available to the companies for seasonal borrowings expire
annually unless extended or renewed. Curtice Burns had short-term notes
payable to commercial banks at September 24, 1994 and September 25, 1993 of
$40,000,000 and $34,000,000, respectively.
Additional information with respect to borrowing arrangements
Because Pro-Fac's income is largely determined by the income of Curtice
Burns and because Pro-Fac guarantees the debt of Curtice Burns and Curtice
Burns guarantees the debt of Pro-Fac (substantially all of which is advanced
to Curtice Burns), management and lenders use combined pro forma financial
statements to assess the financial strength of the two companies.
Specifically, the combined statement of operations, balance sheet and
statement of cash flows portray the financial results, cash flows and equity
of Curtice Burns and Pro-Fac. Management believes that combined financial
statements are useful because they provide information concerning Pro-Fac's
ability to continue present credit arrangements and/or obtain additional
borrowings in the future.
Certain borrowing agreements require that the companies maintain specified
levels with regard to working capital, tangible net worth, fixed charges and
the incurrence of additional debt. The Cooperative is in compliance with,
or has obtained waivers for, restrictions and requirements under the terms
of the borrowing agreements.
Such financial statements are neither necessary for a fair presentation of
the financial position of Pro-Fac nor appropriate as primary statements for
Curtice Burns' shareholders or for Pro-Fac shareholders and members because
they combine earnings, assets and liabilities and cash flows which are
legally attributable to either Curtice Burns' shareholders or to Pro-Fac
shareholders and members, but not to both. Accordingly, the condensed pro
forma financial statements presented herein are special purpose in nature
and should be used only within the context described.
<PAGE>
<PAGE> Combined Pro Forma Condensed Statement of Operations
<TABLE> Unaudited
(Millions)
<CAPTION>
Three Months Ended
September 24, 1994 September 25, 1993
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Sales and revenues $176.8 $ 44.5 $(44.5) $176.8 $210.1
Cost of sales 126.8 37.7 (37.7) 126.8 153.1
Restructuring 8.4 -- -- 8.4 --
Change of control costs 1.8 -- -- 1.8 --
Insurance gain (6.5) -- -- (6.5) --
Selling, administrative
and general expenses 38.0 0.2 (0.2) 38.0 46.1
Interest expense 5.1 2.9 (4.2) 3.8 3.9
Pro-Fac share of earnings 1.5 -- (1.5) -- --
Total cost and expenses 175.1 40.8 (43.6) 172.3 203.1
Income before taxes 1.7 3.7 (0.9) (A) 4.5 7.0
Provision for taxes (1.4) -- -- (1.4) (2.3)
Net income $ 0.3 $ 3.7 $ (0.9) (A) $ 3.1 $ 4.7
<FN>
(A) Amounts represent the balance of the first quarter fiscal 1995 share of earnings between
Curtice Burns and Pro-Fac which is currently under dispute. See discussion at Note 1.
Transactions between Curtice Burns and Pro-Fac have been eliminated for purposes of this
combined statement of operations.
</TABLE>
<TABLE>
Combined Pro Forma Condensed Balance Sheet
Unaudited
(Millions)
<CAPTION>
Three Months Ended
September 24, 1994 September 25, 1993
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Assets
Current assets (A)(C) $321.7 $ 88.5 $ (83.6) $326.6 $324.0
Property, plant and
equipment, net (B) 160.3 -- -- 160.3 191.3
Investment in direct
financing leases (C) -- 113.1 (113.1) -- --
Due from Curtice Burns (D) -- 89.0 (89.0) -- --
Goodwill and other intangibles 24.5 24.5 -- 49.0 52.2
Other assets 17.9 23.0 -- 40.9 28.1
Total assets $524.4 $338.1 $(285.7) $576.8 $595.6
Liabilities and Net Worth
Current liabilities (A)(C) $219.9 $ 88.5 $ (81.0) $227.4 $221.9
Lease obligations (C) 114.4 -- (113.1) 1.3 1.8
Long-term debt--
Due Pro-Fac (D) 89.0 -- (89.0) -- --
Due others 0.9 126.9 -- 127.8 173.9
Other liabilities 20.3 0.6 -- 20.9 13.4
Total liabilities 444.5 216.0 (283.1) 377.4 411.0
Shareholders' equity and
members' capitalization (E) 79.9 122.1 (2.6) (F) 199.4 184.6
Total Liabilities and
Net Worth $524.4 $338.1 $(285.7) $576.8 $595.6
<FN>
Notes to combined balance sheet:
(A) Current assets of Pro-Fac consist principally of amounts due from Curtice Burns with
respect to the Agreement described in Note 1. Such amounts are eliminated for purposes
of this balance sheet.
<PAGE>
(B) Property, plant and equipment to which Pro-Fac holds title (with net book value of $130.7
million at September 24, 1994) is leased to Curtice Burns on a financing basis. Such
leased assets are reclassified as property, plant and equipment for purposes of this
balance sheet.
(C) The majority of Curtice Burns' lease obligations are payable to Pro-Fac and amount to
$130.7 million at September 24, 1994, of which $17.6 million is payable currently. The
related Curtice Burns liability and Pro-Fac receivable are eliminated for purposes of this
balance sheet.
(D) Long-term borrowings by Curtice Burns from Pro-Fac under the Agreement are eliminated for
purposes of this balance sheet.
(E) Shareholders' equity of Curtice Burns consists of Class A common stock, $6.6 million; Class
B common stock, $2.0 million; additional paid-in capital, $14.3 million, and retained
earnings, $57.0 million.
(F) Amount represents the balance of the fiscal 1994 and first quarter fiscal 1995 share of
earnings between Curtice Burns and Pro-Fac which is currently under dispute. See
discussion at Note 1.
</TABLE>
<TABLE>
Combined Pro Forma Condensed Statement of Cash Flows
Unaudited
(Millions)
<CAPTION>
Three Months Ended
September 24, 1994 September 25, 1993
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Net cash (used in)/provided by
operating activities $(68.4) $ 8.1 $ (1.8) (A) $(62.1) $(51.9)
Net cash (used in)/provided by
investing activities (4.4) (40.9) 40.6 (A) (4.7) (5.0)
Net cash provided by/(used in)
financing activities 77.2 32.9 (38.8) 71.3 58.0
Net change in cash 4.4 0.1 -- 4.5 1.1
Cash at beginning of period 2.9 -- -- 2.9 6.5
Cash at end of period $ 7.3 $ 0.1 $ -- $ 7.4 $ 7.6
Supplemental disclosure of
cash flow information
Cash paid during the period for:
Interest (net of amount
capitalized) $ 4.6 $ 2.7 $ (4.2) $ 3.1 $ 3.9
Income taxes, net $ .6 $ -- $ -- $ 0.6 $ 7.5
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obligations
incurred $ 0.9 $ -- $ (0.9) $ -- $ --
Conversion of retains to
preferred stock $ -- $ 1.2 $ -- $ 1.2 $ --
<FN>
(A) Amounts include the balance of the first quarter fiscal 1995 share of earnings between
Curtice Burns and Pro-Fac which is currently under dispute. See discussion at Note 1.
Transactions between Curtice Burns and Pro-Fac have been eliminated for purposes of this
combined statement of cash flows.
</TABLE>
<PAGE>
<PAGE>
Note 4. OTHER MATTERS
Favorable Tax Ruling
In August of 1993, the Internal Revenue Service issued a determination
letter which concluded that the Cooperative is exempt from federal income
tax to the extent provided by Section 521 of the Internal Revenue Code,
"Exemption of Farmers' Cooperatives from Tax." Unlike a non-exempt
cooperative, a tax-exempt cooperative is entitled to deduct cash dividends
it pays on its capital stock in computing its taxable income. This exempt
status is retroactive to fiscal year 1986 and is anticipated to apply to
future years as long as there is no significant change in the way in which
the Cooperative operates. In conjunction with this ruling, the Cooperative
has filed for tax refunds for fiscal years 1986 to 1990 in the amount of
approximately $5.8 million and interest payments of approximately $3.4
million. In addition, it is anticipated that the Cooperative will file for
tax refunds for fiscal years 1991 and 1992 in the amount of approximately
$3.1 million and interest payments of approximately $.4 million. No such
refund amounts have been reflected in the Cooperative's financial statements
as of September 24, 1994. It is anticipated that the refund amounts will
be recognized upon receipt.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Most of the proceeds of Pro-Fac are derived from the sale to Curtice-Burns
Foods, Inc. ("Curtice Burns") of the crops of its members and hence depend
primarily upon the volume and commercial market value of these crops (which
accrues to Pro-Fac at the time of delivery). In addition, proceeds depend
upon the profitability of the finished products made from Pro-Fac crops and
raw materials from other sources which are then processed and sold by
Curtice Burns during the course of the fiscal year. Under the Integrated
Agreement ("the Agreement") between the two companies presently in effect,
the total purchase price for crops and the financing charge are both based
in part on the results of operations of Curtice Burns.
Because of the profit split provisions within the Agreement between Curtice
Burns and Pro-Fac, business conditions and trends affecting Curtice Burns'
profitability will also affect the profitability of Pro-Fac.
Curtice Burns Results of Operations - General
In addition to the results of operations there were two significant
developments which began in fiscal 1993 and had lingering effects for the
first quarter of fiscal 1995: the continuation of a major restructuring
program; and significant progress made in the effort to sell the Company.
Results of Operations
For the first quarter of fiscal 1995, the Company's net earnings were
$333,000, or $0.04 per share, compared to $1,184,000, or $0.14 per share,
for the first quarter of fiscal 1994. Included in the first quarter results
for fiscal 1995, however, are non-recurring charges of $3,696,000 (before
Pro-Fac split and before taxes), the equivalent of $0.21 per share. In
addition, net earnings for the first quarter of fiscal 1994 included a
charge against earnings of $480,000, equivalent to $0.06 per share, to
adjust deferred taxes to the higher rates legislated by Congress and as
required under Financial Accounting Standard Board Regulation No. 109. Net
earnings excluding these non-recurring charges increased to $2,142,000 from
$1,664,000 or the equivalent of $0.25 per share, as compared with the
equivalent of $0.20 per share in the same period of the prior year, an
increase of 25 percent.
RESTRUCTURING PROGRAM
The Conceptual Vision and Strategy
The restructuring program first initiated in fiscal 1993 was based on
Curtice-Burns' new vision of a company smaller in sales but more profitable,
as measured by return on sales and equity, and possessing the financial and
management resources sufficient to drive growth in carefully selected
product line markets in which the Company can prosper for the long term.
<PAGE>
Thus, the strategy was to focus on a more limited number of product lines
which now have a strong, competitive position.
The Plan outlined in 1993 is to restructure the business to a more
profitable base. At the same time, the remaining businesses were to be
managed to optimize earnings growth by installing corporate-wide purchasing,
and a corporate-wide focus of capital spending.
The third leg of the strategy was to accelerate the Company's national sales
and distribution programs by executing new product programs in store-brand
retail dressings, salsa and chunky soups, and the "More Fruit/More Flavor"
pie filling program.
Execution of the Program
The first step of the restructuring program was to divest businesses that
were unprofitable or declining for the Company but would fit strategically
with other business portfolios. During fiscal 1993, the Company divested
Lucca Frozen Foods. A loss of approximately $2.7 million (before dividing
with Pro-Fac and before taxes) was recognized on this transaction. At the
end of fiscal 1993, the Company wrote down the assets and provided for the
expenses to dispose of the Hiland potato chips and meat snacks businesses
during fiscal 1994. On November 22, 1993, Curtice-Burns sold certain assets
of the Hiland Potato Chip business for $2 million at closing, plus
approximately $1 million paid in installments over three months. On
February 22, 1994, Curtice-Burns sold the meat snacks business located in
Denver, Colorado and Albany, Oregon to Oberto Sausage Company of Kent,
Washington. Under the agreement, Oberto has purchased certain assets and
assumed certain liabilities of the meat snacks operation, excluding plant,
equipment, and trademarks. Curtice-Burns will lease its Albany Oregon
manufacturing facility and equipment and license its trademarks, trade
names, etc. to Oberto until February 1995, at which time Oberto is
contractually obligated to purchase these assets. The sale of the Hiland
and meat snacks businesses did not result in any significant gain or loss
in fiscal 1994 after giving effect to the restructuring charges recorded in
fiscal 1993; however, charges of $3.1 million were incurred (before dividing
with Pro-Fac and before taxes) in fiscal 1994 to adjust previous estimates.
In the fiscal year ended June 26, 1993, Curtice-Burns incurred losses of
$13.2 million from the meat snacks and Hiland potato chip businesses before
dividing such losses with Pro-Fac and before taxes.
On November 19, 1993, the Company sold the oats portion of the National Oats
business for $39 million. The oats business contributed approximately $1.4
million of earnings in fiscal 1993 before dividing with Pro-Fac and before
taxes. The sale of the oats business resulted in an approximate $10.9
million gain. The popcorn portion of the National Oats Division was
transferred to the Comstock Michigan Fruit Division.
During fiscal 1993 and 1994, the Company also made staff reductions in
selected locations throughout the Company. A $1 million accrual relating
to such costs was recorded as part of the fiscal 1993 restructuring charge.
Thus, a major part of the restructuring plan was successfully executed
during fiscal 1994.
As reported above, Curtice-Burns incurred restructuring charges in fiscal
1993 of $61.0 million (before dividing such charges with Pro-Fac and before
taxes), which included the loss incurred on the sale of the Lucca frozen
entree business, anticipated losses on the sale of the meat snacks and
Hiland businesses, and other costs (primarily severance and unexpected
losses prior to sale) in conjunction with the restructuring program.
Virtually all of this charge was a revaluation of assets, rather than cash
expense.
Having completed the first phase of the restructuring program in fiscal
1993, the second phase was approved by the Company's Board of Directors in
August 1994. In connection with the second phase, the Company is evaluating
several alternatives regarding the Nalley's snack food business in the
United States, including its possible sale to a third party. A charge of
$8.4 million before split with Pro-Fac and before taxes, for this phase of
the restructuring program was recorded during the first quarter of fiscal
1995.<PAGE>
<PAGE>
With respect to the potential sale of the snack food business, the Company
has signed a letter of intent with Country Crisp Foods of Salt Lake City,
Utah. The letter of intent is subject to a number of conditions, including
successful financing by the purchaser and the negotiation of a definitive
purchase agreement. Country Crisp, a regional snack food company operating
in the inter-mountain states of Colorado, Utah, Wyoming, Idaho, Nevada and
New Mexico, will continue to market the Nalley's brand snacks under a
licensing arrangement with the Company.
Developments Related to Change of Control of the Company
On March 23, 1993, the Company announced that Agway, which through its
wholly-owned subsidiary, AHI, owned approximately 99 percent of the
Company's Class B shares and approximately 14 percent of the Class A shares
as of June 25, 1994, was considering the potential sale of its interest in
the Company. In August 1993, the Company's Board of Directors authorized
the Company's management, with the advice of its investment bankers, to
pursue strategic alternatives for the Company. These options included (i)
negotiations with Pro-Fac relative to Pro-Fac gaining control of the
business; (ii) the possible sale of the entire equity of the Company to a
third party; and (iii) the implementation of additional restructuring
actions that my include recapitalizing the Company to buy out Pro-Fac.
Under the Integrated Agreement, title to substantially all of the Company's
fixed assets is held by Pro-Fac, and Pro-Fac provides the major portion of
the financing of the Company's operations. Under the Integrated Agreement,
the Company has an option to purchase these assets from Pro-Fac at their
book value. However, there presently exists a disagreement with Pro-Fac as
to how such settlement amount would be calculated. Exercise of the buyout
option would result in the termination of the Integrated Agreement with Pro-
Fac. In such event, the Company would be required to repay all debt owed
to Pro-Fac.
The Company actively explored these alternatives during fiscal 1994. On
June 8, 1994, the Company's Board of Directors voted to pursue a proposal
submitted by Dean Foods Company ("Dean Foods") to acquire all the
outstanding shares of common stock of the Company at a maximum cash price
of $20.00 per share, subject to a number of contingencies, including an
agreement with Pro-Fac covering the termination of the Integrated Agreement,
an agreement with Hormel Foods Corporation for the purchase of Nalley's
(excluding Nalley's Canada Ltd. and the Nalley' U.S. Chips and Snacks
business) for $150.0 million, clearance of the transaction by appropriate
government agencies and negotiation of definitive agreements.
On August 4, 1994, Pro-Fac submitted a proposal to the Board of Directors
of the Company to acquire the shares for cash in the amount of $19.00 per
share. Pro-Fac's proposal was subject to certain terms and conditions,
including receipt of approval of the Board of Directors and shareholders of
the Company, receipt of approval of a majority of Pro-Fac's members and
receipt of sufficient financing to consummate the acquisition. In September
Pro-Fac modified its proposal by removing several contingencies and
indicating its interest in purchasing the share pursuant to a tender offer.
At its special meeting on September 27, 1994, the Board of Directors of the
Company accepted Pro-Fac's proposal. Pro-Fac and the Company entered into
the Merger Agreement on September 27, 1994. Pursuant to the Merger
Agreement, the Company notified Dean Foods that it had accepted Pro-Fac's
proposal and was terminating all negotiations with Dean Foods and other
parties for the purchase of all or part of the Company.
During fiscal 1994 and the first quarter of fiscal 1995, the Company
expensed $3.5 million and $1.8 million, respectively, of legal, accounting,
investment banking and other expenses relative to the change of control
issue. In recognizing these expenses, the Company allocated half of this
amount to Pro-Fac as a deduction to the profit split. Pro-Fac has objected
to this allocation.
On October 4, 1994, Pro-Fac initiated a tender offer for all of Curtice-
Burns outstanding stock at $19.00 per share. At the expiration of the
tender offer on November 2, 1994, 6,229,442 shares of Class A and 2,046,997
shares of Class B common stock (or approximately 94 percent and 99 percent,
respectively of the total number of outstanding shares of Class A and Class
B common stock of Curtice-Burns) had been validly tendered and not <PAGE>
<PAGE>
withdrawn. All such tendered shares were accepted for payment by PF
Acquisition Corp., a wholly-owned subsidiary of Pro-Fac. On November 3,
1994, PF Acquisition Corp. merged into Curtice-Burns, making Curtice-Burns
a wholly-owned subsidiary of Pro-Fac.
Roy A. Myers, who has served as the general manager of Pro-Fac since 1987,
has been named president and chief executive officer of Curtice-Burns,
replacing J. William Petty, who has resigned. Pro-Fac and Curtice-Burns
will continue to operate under two separate boards. The Pro-Fac Board of
Directors will remain unchanged, and a new Curtice-Burns Board, consisting
of seven directors, has been appointed.
Financing for the offer was obtained through approximately $234 million of
seasonal and term senior bank financing from Springfield Bank for
Cooperatives and from the issuance of $160 million in senior subordinated
debt securities issued to qualified institutional buyers. The bonds will
carry an annual interest rate of 12-1/4 percent. In addition, Pro-Fac
contributed approximately $133 million in capital to complete the
transaction.
The following tables illustrate the Company's results of operations by
business for the first quarter of fiscal 1994 compared to the first quarter
of fiscal 1995.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION> Quarter Ending Quarter Ending
September 25, 1993 September 24, 1994
Net % of Net % of
Sales Total Sales Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit $ 75.0 35.7% $ 71.7 40.6%
Nalley's Fine Foods 52.7 25.1 54.0 30.5
Southern Frozen Foods 22.9 10.9 23.1 13.1
Snack Foods Group 15.5 7.4 15.4 8.7
Brooks Foods 5.6 2.7 5.4 3.1
Finger Lakes Packaging 12.6 6.0 14.6 8.3
Intercompany eliminations1 (9.3) (4.5) (9.7) (5.6)
Subtotal ongoing operations 175.0 83.3 174.5 98.7
Businesses sold2 27.6 13.1 -- --
Businesses to be sold3 7.5 3.6 2.3 1.3
Subtotal 35.1 16.7 2.3 1.3
Total $210.1 100.0% $176.8 100.0%
<FN>
1 Principally intercompany sales by Finger Lakes.
2 The Company has sold the oats portion of the National Oats business, the
Hiland potato chips business and the meat snacks business. See
"Restructuring Program."
3 On September 8, 1994, the Company signed a letter of intent to sell the
Nalley's U.S. Chips and Snacks business. There can be no assurance that
the transaction will be completed. However, if the transaction is not
completed, the Company will continue to explore options with respect to
this business.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Cost of Sales
(Dollars in Millions)
Quarter Ending Quarter Ending
September 25, 1993 September 24, 1994
Cost of % of Cost of % of
Sales Total Sales Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit $ 59.8 39.1% $ 54.2 42.7%
Nalley's Fine Foods 34.4 22.5 34.9 27.5
Southern Frozen Foods 18.7 12.2 18.1 14.3
Snack Foods Group 9.8 6.4 9.9 7.8
Brooks Foods 4.2 2.7 3.9 3.1
Finger Lakes Packaging 11.2 7.3 13.2 10.4
Intercompany eliminations1 (9.0) (5.9) (8.9) (7.0)
Subtotal ongoing operations 129.1 84.3 125.3 98.8
Businesses sold2 19.2 12.5 -- --
Businesses to be sold3 4.8 3.2 1.5 1.2
Subtotal 24.0 15.7 1.5 1.2
Total $153.1 100.0% $126.8 100.0%
<FN>
1 Principally intercompany sales by Finger Lakes.
2 The Company has sold the oats portion of the National Oats business, the
Hiland potato chips business and the meat snacks business. See
"Restructuring Program."
3 On September 8, 1994, the Company signed a letter of intent to sell the
Nalley's U.S. Chips and Snacks business. There can be no assurance that
the transaction will be completed. However, if the transaction is not
completed, the Company will continue to explore options with respect to
this business.
</TABLE>
<TABLE>
<CAPTION>
Gross Profit
(Dollars in Millions)
Quarter Ending Quarter Ending
September 25, 1993 September 24, 1994
Gross % of Gross % of
Profit Total Profit Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit $15.2 26.6% $17.5 35.0%
Nalley's Fine Foods 18.3 32.1 19.1 38.2
Southern Frozen Foods 4.2 7.4 5.0 10.0
Snack Foods Group 5.7 10.0 5.5 11.0
Brooks Foods 1.4 2.5 1.5 3.0
Finger Lakes Packaging 1.4 2.5 1.4 2.8
Intercompany eliminations1 (0.3) (0.5) (0.8) (1.6)
Subtotal ongoing operations 45.9 80.6 49.2 98.4
Businesses sold2 8.4 14.7 -- --
Businesses to be sold3 2.7 4.7 0.8 1.6
Subtotal 11.1 19.4 0.8 1.6
Total $57.0 100.0% $50.0 100.0%
<FN>
1 Principally intercompany sales by Finger Lakes.
2 The Company has sold the oats portion of the National Oats business, the
Hiland potato chips business and the meat snacks business. See
"Restructuring Program."
3 On September 8, 1994, the Company signed a letter of intent to sell the
Nalley's U.S. Chips and Snacks business. There can be no assurance that
the transaction will be completed. However, if the transaction is not
completed, the Company will continue to explore options with respect to
this business.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION> Quarter Ending Quarter Ending
September 25, 1993 September 24, 1994
Operating % of Operating % of
Income Total Income Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit $ 4.9 45.4% $ 6.7 55.8%
Nalley's Fine Foods 4.7 43.5 4.6 38.3
Southern Frozen Foods 1.8 16.7 2.4 20.0
Snack Foods Group .9 8.3 .8 6.7
Brooks Foods .2 1.9 .1 0.8
Finger Lakes Packaging 1.1 10.2 1.0 8.3
Intercompany Eliminations (3.6) (33.4) (3.2) (26.6)
Subtotal ongoing operations 10.0 92.6 12.4 103.3
Businesses sold2 1.0 9.3 -- --
Businesses to be sold3 (0.2) (1.9) (0.4) (3.3)
Subtotal 0.8 7.4 (0.4) (3.3)
Total $10.8 100.0% $12.0 100.0%
<FN>
1 Table excludes restructuring gain from division disposals of $8.4
million, change in control expense of $1.8 million, and an insurance gain
on assets resulting from a fire claim in the first quarter of fiscal
1995. The table above also excludes the Pro-Fac split.
2 The Company has sold the oats portion of the National Oats business, the
Hiland potato chips business and the Meat Snacks business. See
"Restructuring Program."
3 On September 8, 1994, the Company singed a letter of intent to sell the
Nalley's U.S. Chips and Snacks business. There can be no assurance that
the transaction will be completed. However, if the transaction is not
completed, the Company will continue to explore options with respect to
this business.
</TABLE>
CHANGES FROM FIRST QUARTER FISCAL 1994 TO FIRST QUARTER FISCAL 1995
Net Sales
The Company's net sales in the first quarter of fiscal 1995 of $176.8
million decreased $33.3 million or 15.8 percent from $210.1 million the
first quarter of fiscal 1994. The net sales attributable to businesses
sold or to be sold in connection with the Company's restructuring program
discussed in Note 3 were $2.3 million in the first quarter of fiscal 1995
and $35.1 million in the first quarter of fiscal 1994. The Company's net
sales from ongoing operations excluding businesses sold or to be sold were
$174.5 million in the first quarter of fiscal 1995, a decrease of $0.5
million or 0.3 percent from $175.0 million in the first quarter of fiscal
1994.
Cost of Sales
The Company's cost of sales in the first quarter of fiscal 1995 of $126.8
million decreased $26.3 million or 17.2 percent from $153.1 million in the
first quarter of fiscal 1994. Of this decrease, $22.5 million was
attributable to businesses sold or to be sold and a $3.8 million reduction
was attributable to the Company's ongoing operations. This decrease of $3.8
million was the result in variations in volume, selling prices and product
mix.
Gross Profit
Gross profit of $50.0 million in the first quarter of fiscal 1995 decreased
$7.0 million or 12.3 percent from $57.0 million in the first quarter of
fiscal 1994. Of this net decrease, a $10.3 million reduction was
attributable to businesses sold or to be sold and an increase of $3.3
million was attributable to increased gross profit at the Company's ongoing
<PAGE>
operations. This increase of $3.3 million was the result of variations in
volume, selling prices, costs and product mix.
NON-RECURRING CHARGES
Restructuring Expenses Including Net (Gain)/Loss From Division Disposals
Restructuring expenses, including net (gain)/loss from division disposals
resulted in a charge in the first quarter of fiscal 1995 of $8.4 million to
reflect the estimated impact of the potential sale of certain assets of the
Nalley's U.S. Chips and Snack operation to Country Crisp Foods of Salt Lake
City, Utah and other expenses relating to the disposal of this operation.
Of this amount, approximately 40 percent reflects non-cash charges.
Curtice-Burns announced on September 8, 19894 the signing of a letter of
intent with Country Crisp, subject to a number of conditions, including
successful financing by the purchaser and the negotiation of a definitive
agreement. This sale is expected to be consummated in the second quarter
of fiscal 1995.
Change in Control Expenses
Change in control expenses recorded in the first quarter of fiscal 1995,
amounting to $1.8 million, reflect non-deductible expenses relating to the
sale of Curtice-Burns covering legal, accounting, investment banking and
other expenses relative to the change in control issue. In recognizing this
expense, Curtice-Burns allocated half of this amount to Pro-Fac as a
deduction to the profit split. See "Developments Related to Change in
Control of the Company" above.
Gain on Assets Resulting From Fire Claim
The gain on assets resulting from fire claim recorded in the first quarter
of fiscal 1995 amounted to $6.5 million representing the insurance proceeds
for the replacement value in excess of the depreciated book value of the
building and equipment destroyed by fire on July 7, 1994 at the Southern
Frozen Foods Division.
Other Selling, Administrative and General Expenses
Other selling, administrative and general expenses in the first quarter of
fiscal 1995 of $38.0 million decreased $8.3 million or 17.9 percent from
$46.3 million in the first quarter of fiscal 1994. This net decrease of
$8.3 million includes primarily: a $1.2 million net decrease in trade
promotions (comprised of a decrease attributable to businesses sold or to
be sold of $2.7 million and an increase for ongoing operations of $1.5
million); a $4.3 net decrease in advertising and selling costs (comprised
of a decrease attributable to businesses sold or to be sold of $5.1 million
and a $0.8 million increase for the Company's ongoing operations); and a
$2.8 million decrease in other administrative costs (comprised of a decrease
attributable to businesses sold or to be sold of $1.7 million and a decrease
of $1.1 million attributable to the Company's ongoing operations). Of the
$1.5 million increase in trade promotions for the Company's ongoing
operations: $0.4 million is attributable to an increase at Comstock
Michigan Fruit; $0.9 million is attributable to increased spending at
Nalley's Fine Foods; and $0.2 million is attributable to increased spending
at Southern Frozen Foods. The $0.8 million increase in advertising and
selling costs attributable to the Company's ongoing operations is comprised
of no major variations in any individual division. The $1.1 million
decrease in other administrative cost attributable to the Company's ongoing
operations is primarily related to reduced spending at Comstock Michigan
Fruit ($0.2 million), Nalley's Fine Foods ($0.3 million) and corporate
headquarters ($0.5 million).
Pretax Earnings Before Dividing With Pro-Fac
The Company's pretax earnings before dividing with Pro-Fac (and excluding
non-recurring charges discussed above) of $12.0 million in the first quarter
of fiscal 1995 increased $1.2 million or 11.1 percent from $10.8 million in
<PAGE>
the first quarter of fiscal 1994. Of this net increase, a decrease of $1.2
million is attributable to businesses sold or to be sold and an increase of
$2.4 million is attributable to ongoing operations. Comstock Michigan Fruit
experienced increased operating income during this period of $1.8 million;
Southern Frozen Foods increased $0.6 million; and Nalley's Fine Foods, the
Snack Foods Group, Brooks Foods, and Finger Lakes Packaging each decreased
$0.1 million. Reduced administrative expenses at the Company's corporate
headquarters increased operating profit by $0.3 million. Comstock Michigan
Fruit's improved operating earnings resulted from increased profits relating
to the cheese sauce, fruit fillings and toppings, canned and frozen
vegetables and pudding product lines.
Interest Expense
Interest expense in the first quarter of fiscal 1995 of $5.1 million
increased $0.2 million or 4.1 percent from $4.9 million in the first quarter
of fiscal 1994. This net increase is attributable to an increase in debt
(with Pro-Fac), which accounted for $0.8 million, offset by a decrease of
$0.6 million due to lower interest rates,
Pro-Fac Share of Earnings
Pro-Fac's share of the Company's earnings in the first quarter of fiscal
1995 of $1.5 million decreased $1.3 million or 46.4 percent from $42.8
million in the first quarter of fiscal 1994. The non-recurring charges
discussed above accounted for a decrease of $1.8 million which offset an
increase of $0.5 million due to operational improvements. The Pro-Fac share
of earnings in the first quarter of fiscal 1995 and fiscal 1994 was 45.8
percent and 47.0 percent, respectively, of the Company's pretax earnings
before dividing with Pro-Fac.
Income Before Taxes
The Company's income before taxes in the first quarter of fiscal 1995 of
$1.8 million decreased $1.3 million or 41.9 percent from $3.1 million in the
first quarter of fiscal 1994. The nonrecurring charges discussed above
accounted for a decrease of $1.8 million which offset an increase of $0.5
million due to operational improvements.
Provision for Taxes
The provision for taxes in the first quarter of fiscal 1995 of $1.4 million
decreased $0.5 million or 26.3 percent from $1.9 million in the first
quarter of fiscal 1994. The provision for taxes is adversely affected by
the non-deductibility of change in control expenses incurred in the first
quarter of fiscal 1995. The tax provision for the first quarter of fiscal
1994 includes a charge of $.5 million to adjust deferred taxes to the higher
rates as legislated by the Congress and as required under Financial
Accounting Standards Board No. 109.
Net Income
The Company's net income for the first quarter of fiscal 1995 of $0.3
million decreased $0.9 million or 75 percent from $1.2 million in the first
quarter of fiscal 1994. Excluding non-recurring charges, the Company's net
income for the first quarter of fiscal 1995 of $2.1 million increased $0.4
million or 23.5 percent from $1.7 million in the first quarter of fiscal
1994.
Pro-Fac's Results of Operations - General
The commercial market value ("CMV") of crops delivered during the first
quarter of fiscal 1995 increased to $37.7 million from $42.3 million in the
first quarter of fiscal 1994.
For the quarter ended September 24, 1994, the change in net proceeds
compared to the prior year quarter is summarized below:
<PAGE> (Millions)
Decreased proceeds from Curtice Burns $(0.4)
Increased net interest income 0.3
Change in bank dividend (0.1)
Change in excess of revenues before taxes,
dividends and allocation of net proceeds (0.2)
Change in tax provision 0.4
Increase in dividends (0.5)
Change in net proceeds $(0.3)
Because most revenues and expenses of Pro-Fac result from, or are offset by,
transactions with Curtice Burns, the pro forma combined results of
operations of the two entities depend predominantly on the results of
operations of Curtice Burns. The results of operations of Curtice Burns
are discussed under "Curtice Burns Results of Operations" above.
Liquidity and Capital Resources
Substantially all cash not distributed by Pro-Fac to its members or security
holders is either invested in assets leased to Curtice Burns or loaned to
Curtice Burns to finance its operations. In order to gauge the working
capital and other resources available to the companies, the combined pro
forma condensed financial statements should be used. The relationship with
Pro-Fac and the combined financial statements are shown in Notes 1 and 4 to
the Consolidated Financial Statements. Such financial statements should not
be used as a basis for determining shareholders' interest in Curtice Burns,
but only as a measure of the total financial resources available to the
companies.
Certain borrowing agreements require that the companies maintain specified
levels with regard to working capital, current ratio, ratio of net worth to
assets, ratio of long-term debt to net worth, tangible net worth, net
income, coverage of interest, and fixed charges and the incurrence of
additional debt. The companies are in compliance with, or have obtained
waivers for, restrictions and requirements under the terms of the borrowing
agreements. The revolving lines of credit under such agreements have been
renewed through November of 1994. Such renewals provide for adjustments in
interest rates and covenants and grant to both short-term and long-term
lenders, or entitle such lenders to obtain, liens on substantially all
assets of Curtice Burns and Pro-Fac as collateral for borrowings under such
agreements.
In the first quarter of fiscal 1995, the net cash used by combined operating
activities of the Company and Pro-Fac of $62.1 million reflects net income
of $0.3 million for the Company and $3.7 million for Pro-Fac. Amortization
of assets amounted to $5.5 million. Non-recurring charges, discussed
above,amounted to $3.7 million. Inventories increased $67.2 million, and
accounts receivable increased $7.1 million. Changes in other assets and
liabilities amounted to $0.1 million.
Cash flows from investing activities include the acquisition and disposition
of property, plant and equipment and other assets held for or used in the
production of goods. Net cash used in investing activities of $4.7 million
in the period was comprised of $1.0 million received for the disposition of
fixed assets, offset by $5.4 million paid for fixed assets, and a $0.3
million increase in the investment in the Springfield Bank.
Net cash provided by financing activities of $71.3 million in the period is
primarily comprised of proceeds of short-term debt of $78.5 million which
offset payments on long-term debt of $0.5 million, the cash portion of non-
qualified retain conversion of $0.3 million, and dividends paid of $6.3
million.
Short- and Long-Term Trends
The vegetable portion of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
<PAGE>
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This results in depressed selling prices and reduced
profitability on the inventory produced from that year's crops. Excessive
rain or drought conditions can produce low crop yields and a shortage
situation. This typically results in higher selling prices and increased
profitability. While the national supply situation controls the pricing,
the supply can differ regionally because of variations in weather. The 1993
floods in the Midwest and the drought in the South increased finished goods
pricing, even though the crops in the Company's growing areas were at normal
levels. It is difficult to assess the 1994 crop yields and resulting impact
on fiscal 1995 profitability until late fall of 1994 when national supplies
of the vegetable commodities are known.
Seasonal lines of credit of $96.0 million were available to the Company and
Pro-Fac at September 1994. The balance outstanding at September 24, 1994
was $90.0 million.
There are no current plans for the acquisition of businesses. Capital
expenditures are expected to approximate $20.0 million in the next year.
Scheduled payments on long-term debt will approximate $15 million in the
coming year. Net cash provided from operations should be sufficient to
cover the scheduled payments on long-term debt and planned capital
expenditures.
Supplemental Information on Inflation
The changes in costs and prices within Curtice Burns' business due to
inflation were not significantly different from inflation in the United
States economy as a whole. Levels of capital investment, pricing and
inventory investment were not materially affected by the moderate inflation.
Favorable Tax Ruling and Developments
In August of 1993, the Internal Revenue Service issued a determination
letter which concluded that the Cooperative is exempt from federal income
tax to the extent provided by Section 521 of the Internal Revenue Code,
"Exemption of Farmers' Cooperatives from Tax." Unlike a non-exempt
cooperative, a tax-exempt cooperative is entitled to deduct cash dividends
it pays on its capital stock in computing its taxable income. This exempt
status is retroactive to fiscal year 1986 and is anticipated to apply to
future years as long as there is no significant change in the way in which
the Cooperative operates. In conjunction with this ruling, the Cooperative
has filed for tax refunds for fiscal years 1986 to 1990 in the amount of
approximately $5.8 million and interest payments of approximately $3.4
million. In addition, it is anticipated that the Cooperative will file for
tax refunds for fiscal years 1991 and 1992 in the amount of approximately
$3.1 million and interest payments of approximately $.4 million. No such
refund amounts have been reflected in the Cooperative's financial statements
as of September 24, 1994. It is anticipated that the refund amounts will
be recognized upon receipt.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) No current report on Form 8-K was filed during the fiscal period to
which this report relates.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: BY:
ROY A. MYERS, GENERAL MANAGER
Date: BY:
WILLIAM D. RICE, ASSISTANT TREASURER
(Principal Accounting Officer)
