SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q/A
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 December 25, 1993
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 January 14, 1994.
Common Stock - 2,097,309
Page 1 of 15<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
(Dollars in Thousands except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
12/25/93 12/25/92 12/25/93 12/25/92
<S> <C> <C> <C> <C>
Revenues:
Proceeds from sale of crops to Curtice
Burns Foods, Inc.
Estimated commercial market value
delivered during the period $13,426 $16,489 $55,753 $56,017
Additional proceeds under the
Integrated Agreement 9,700 3,381 12,473 5,213
Interest income 4,192 4,419 8,316 8,557
Patronage dividend from Springfield
Bank for Cooperatives 350 375 700 750
Total revenues 27,668 24,664 77,242 70,537
Costs and expenses:
Estimated commercial market value paid
to or accrued for the accounts of
members during the period 13,426 16,489 55,753 56,017
Interest expense 3,106 3,677 6,274 7,175
Administrative expenses 206 133 409 389
Total costs and expenses 16,738 20,299 62,436 63,581
Excess of revenues before taxes, dividends
and allocation of net proceeds 10,930 4,365 14,806 6,956
Provision for taxes on income (409) (411) (818) (823)
Net income (proceeds before dividends) 10,521 3,954 13,988 6,133
Dividends on common and preferred stock -- -- (4,390) (4,548)
Net proceeds 10,521 3,954 9,598 1,585
Allocation from/(to) earned surplus (1,590) (1,067) (667) 1,302
Net proceeds available to members $ 8,931 $ 2,887 $ 8,931 $ 2,887
Allocation of net proceeds available to members:
Estimated to be payable currently $ 1,725 $ 547 $ 1,725 $ 547
Allocated to members but retained by the
Cooperative:
Qualified retains 6,901 2,190 6,901 2,190
Non-qualified retains 305 150 305 150
$ 8,931 $ 2,887 $ 8,931 $ 2,887
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
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<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Balance Sheet
(Dollars in Thousands)
<CAPTION>
<S>
Assets 12/25/93 6/26/93 12/25/92
Current assets: <C> <C> <C>
Cash $ 54 $ 19 $ 30
Accounts receivable 374 25 864
Receivable from Curtice Burns Foods, Inc. 39,241 9,113 43,002
Current portion of long-term loans receivable
from Curtice Burns Foods, Inc. 14,000 16,000 14,000
Current portion of investment in direct
financing leases 21,184 21,184 21,940
Current portion of investment in
Springfield Bank for Cooperatives 1,356 1,172 773
Income taxes refundable -- 70 --
Prepaid expenses 1,604 693 27
Total current assets 77,813 48,276 80,636
Long-term portion of investment in direct
financing leases 126,325 152,329 154,240
Long-term loans receivable from Curtice
Burns Foods, Inc. 76,262 78,648 68,877
Long-term portion of investment in Springfield
Bank for Cooperatives 17,543 16,814 14,709
Deferred tax benefit 2,117 2,010 2,500
Finance receivable related to intangibles 25,725 26,545 50,116
Other assets 253 262 275
Total assets $326,038 $324,884 $371,353
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' and Members Capitalization
<S> <C> <C> <C>
Current liabilities:
Notes payable $ 31,100 $ 12,000 $ 37,000
Accounts payable 3,272 1,019 100
Accrued expenses 2,994 3,019 3,503
Federal and state income taxes payable 854 -- 1,255
Current portion of long-term debt 14,000 16,000 14,010
Amounts due members 25,549 14,525 24,670
Total current liabilities 77,769 46,563 80,538
Long-term debt 133,014 168,000 156,000
Other non-current liabilities 468 417 388
Total liabilities 211,251 214,980 236,926
Commitments
Shareholders' and members' capitalization:
Retained earnings allocated to members 36,377 29,446 32,130
Non-qualified allocation to members 5,959 5,704 6,795
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 59,470 59,470 53,701
Common, par value $5, authorized -
5,000,000 shares
12/25/93 6/26/93 12/25/92
Shares issued 2,096,860 2,690,430 2,671,193
Shares subscribed 17,063 24,788 50,521
Total subscribed
and issued 2,113,923 2,715,218 2,721,714
Less subscriptions
receivable in installments (17,063) (24,788) (50,521)
2,096,860 2,690,430 2,671,193 10,484 13,455 13,356
Earned surplus 2,497 1,829 28,445
Total shareholders' and
members' capitalization 114,787 109,904 134,427
Total liabilities and capitalization $326,038 $324,884 $371,353
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Statement of Cash Flows (Dollars in Thousands)
<CAPTION>
Six Months Ended
<S> 12/25/93 12/25/92
Cash flows from operating activities: <C> <C>
Net income $ 13,988 $ 6,133
Amount payable to members currently (1,725) (547)
Change in deferred tax benefit (107) (51)
Change in assets and liabilities:
Accounts receivable (349) (221)
Accounts payable and accrued expenses 2,228 (126)
Amounts due to members 11,024 7,868
Federal and state taxes payable/refundable 924 (87)
Other assets and liabilities (870) 626
Net cash provided by operating
activities 25,113 13,595
Cash flows from investing activities:
Due from Curtice Burns, net (25,742) (23,812)
Return from investment in direct financing leases 26,004 11,118
Investment in Springfield Bank (913) (919)
Cash received from the finance receivable
related to intangibles 820 3,327
Net cash from/(used in) investing activities 169 (10,286)
Cash flows from financing activities:
Proceeds from short-term debt 19,100 9,000
Payments on long-term debt (36,986) (8,015)
Issuance of common stock, net of cancellations (2,971) 259
Cash dividends paid (4,390) (4,548)
Net cash provided by financing activities (25,247) (3,304)
Net change in cash 35 5
Cash at beginning of period 19 25
Cash at end of period $ 54 $ 30
Supplemental Disclosure of Cash Flow Information
Cash paid/(received) during the year for:
Interest $ 6,274 $ 10,580
Income taxes, net $ (106) $ 910
<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. ("Curtice Burns")
Pro-Fac has a contractual relationship with Curtice Burns under the
Integrated Agreement ("the Agreement") consisting of four sections:
Operations Financing, Marketing, Facilities Financing, and Management,
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. Under the 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. As described below under "Potential Sale of Curtice Burns
and Possible Effects on Pro-Fac," Curtice Burns is exploring several
options, some of which could lead to a termination by Curtice Burns of
the Agreement. Such a termination would have a material adverse effect
on Pro-Fac's ability to provide a market for crops and would eliminate
Pro-Fac's right to share in earnings with Curtice Burns.
Revenues received from Curtice Burns under the Agreement for the six
months ended December 25, 1993, and December 25, 1992, include:
commercial market value of crops delivered, $55,753,000 and $56,017,000,
respectively; interest income, $8,314,000 and $8,557,000, respectively;
and additional proceeds from profit sharing provisions, $12,473,000 and
$5,213,000, respectively. In addition, Pro-Fac received financing
amortization payments of $26,824,000 and $12,518,000 for the periods
ended December 25, 1993 and December 25, 1992, respectively.
Potential Sale of Curtice Burns and Possible Effects on Pro-Fac
On March 23, 1993, Curtice Burns announced that Agway Inc., which owns 99
percent of Curtice Burns' Class B shares and approximately 14 percent of
Curtice Burns' Class A shares, was considering the potential sale of its
interest in Curtice Burns. At its meeting held on August 9 and 10, 1993,
the Curtice Burns Board of Directors authorized Curtice Burns' management
with the advice of its investment bankers to pursue strategic
alternatives for Curtice Burns. These options include negotiations with
Pro-Fac and its investment banker relating to Pro-Fac gaining control of
the business; the possible sale of the entire equity of Curtice Burns to
a third party; and a possible expanded restructuring plan and a
refinancing plan which would involve Curtice Burns exercising its option
to purchase from Pro-Fac the property and equipment and certain other
assets used by Curtice Burns in its business.
Curtice Burns has the right to terminate the Agreement on 60-days notice.
In the event of a termination, Curtice Burns must repay all debt owed to
Pro-Fac and has the option to purchase all of the assets owned by Pro-Fac
at book value. Curtice Burns has advised Pro-Fac that it believes it
would be required to pay Pro-Fac $302,737,000 based on the December 25,
1993 book value. Pro-Fac has advised Curtice Burns that it believes the
amount would be significantly higher and has reserved all rights to
dispute Curtice Burns' position in the event of a termination of the
Agreement.
A substantial part of the dispute over the amounts that would be due to
Pro-Fac in the event of a termination of the Agreement involve writedowns
recorded as of June 26, 1993 by Curtice Burns of the book value of Hiland
Potato Chip Company and Curtice Burns Meat Snacks. Pro-Fac believes that
the asset writedown should not affect amounts to be paid for assets
should Curtice Burns terminate the Agreement. Pro-Fac and Curtice Burns
have agreed to defer any resolution of their disagreement over this issue
until such time as Curtice Burns may decide to terminate the Agreement.
<PAGE>
<PAGE>
Management of Pro-Fac is actively evaluating the effects of a sale of
Curtice Burns or other potential changes in its relationship with Curtice
Burns. In this regard, it is exploring alternatives for Pro-Fac,
including: (1) acquiring all or part of Curtice Burns; (2) continuing
its relationship with Curtice Burns or any third-party purchaser of
Curtice Burns under the Agreement, on the same or modified terms; and (3)
protecting Pro-Fac's interest, including amounts that would be due to
Pro-Fac by Curtice Burns in the event of a proposed termination under the
Agreement
Note 2. RECEIVABLES FROM CURTICE BURNS FOODS, INC.
Current and long-term receivables from Curtice Burns under the Agreement
consist of the following:
12/25/93
12/25/92
Current receivable $39,241,000 $43,002,000
Long-term receivable $90,262,000 $82,877,000
Less current portion 14,000,000
14,000,000
$76,262,000
$68,877,000
The long-term receivable shown above is 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 should Pro-Fac require such
funds for its legitimate business purposes. In addition to the
receivables shown above, the finance receivable related to intangibles
amounted to $25,725,000 and $50,116,000 at December 25, 1993 and December
25, 1992, respectively. The amount of the finance receivable relative to
intangibles is related to the dispute disclosed in Note 1.
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
$46,000,000. Outstanding borrowings at December 25, 1993 amounted to
$31,100,000 at 4.5 percent. The maximum amount of short-term borrowings
outstanding during the six months ended December 25, 1993 was
$46,000,000.
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 should Pro-Fac require such
funds for its legitimate business purposes.
Long-Term Debt -
The Cooperative's long-term debt consists of the following:
12/25/93
12/25/92
Term loans due Springfield:
Interest rate of 6.3% and 7.1% at
12/25/93 and
12/25/92 respectively $147,014,000 $170,000,000
Other Debt --
10,000
147,014,000
170,010,000
Less current
portion 14,000,000 14,010,000
$133,014,000
$156,000,000
The term loans are collateralized by the Cooperative's investment in
Springfield Bank for Cooperatives. 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
<PAGE>
borrowings expire annually unless extended or renewed. Curtice Burns had
short-term notes payable to commercial banks at December 25, 1993 and
December 25, 1992 of $17,000,000 and $40,000,000, 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, net income, tangible net
worth, coverage of interest and fixed charges and the incurrence of
additional debt. The Cooperative is in compliance with restrictions and
requirements under the terms of the borrowing agreements. The revolving
lines of credit under such agreements have been renewed through November
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.
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.
<TABLE>
Combined Pro Forma Condensed Statement of Operations
<CAPTION>
(Millions)
Six Months Ended
December 25, 1993 December 25, 1992
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Sales and revenues $453.3 $ 77.2 $(77.2) $453.3 $455.5
Cost of sales 322.4 55.7 (55.7) 322.4 322.1
Restructuring (gain)/loss (8.1) -- -- (8.1) 2.2
Selling, administrative
and general expenses 103.4 .4 (.8) 103.0 109.4
Interest expense 10.0 6.3 (8.3) 8.0 8.9
Pro-Fac share of earnings 12.4 -- (12.4) -- --
Total cost and expenses 440.1 62.4 (77.2) 425.3 442.6
Income before taxes 13.2 14.8 28.0 12.9
Provision for taxes (5.3) (.8) (6.1) (3.3)
Net income $ 7.9 $ 14.0 $ 21.9 $ 9.6
<FN>
Transactions between Curtice Burns and Pro-Fac have been eliminated for purposes of this
combined statement of operations.
<PAGE>
<PAGE>
</TABLE>
<TABLE> Combined Pro Forma Condensed Balance Sheet
<CAPTION>
(Millions)
December 25, 1993 December 25, 1992
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Assets
Current assets (A)(C) $303.3 $ 77.8 $ (74.4) $306.7 $316.0
Property, plant and
equipment, net (B) 169.5 -- -- 169.5 197.2
Investment in direct
financing leases (C) 126.3 (126.3) -- --
Due from Curtice Burns (D) 76.3 (76.3) -- --
Goodwill and other intangibles 25.7 25.7 -- 51.4 100.2
Other assets 8.0 19.9 -- 27.9 24.2
Total assets $506.5 $326.0 $(277.0) $555.5 $637.6
Liabilities and Net Worth
Current liabilities (A)(C) $202.8 $ 77.8 $ (74.4) $206.2 $207.8
Lease obligations (C) 128.1 -- (126.3) 1.8 2.0
Long-term debt--
Due Pro-Fac (D) 76.3 -- (76.3) -- --
Due others 4.8 133.0 -- 137.8 164.6
Other liabilities 13.5 .5 -- 14.0 23.3
Total liabilities 425.5 211.3 (277.0) 359.8 397.7
Shareholders' equity and
members' capitalization (E) 81.0 114.7 -- 195.7 239.9
Total Liabilities and
Net Worth $506.5 $326.0 $(277.0) $555.5 $637.6
<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.
(B) Property, plant and equipment to which Pro-Fac holds title (with net book value of
$147.5 million at December 25, 1993) 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 $147.5 million at December 25, 1993, of which $21.2 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 at par, $6.5
million; Class B common stock at par, $2.0 million; additional paid-in capital,
$13.7 million, and retained earnings, $58.7 million.
/TABLE
<PAGE>
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<TABLE>
Combined Pro Forma Condensed Statement of Cash Flows
<CAPTION>
(Millions)
Six Months Ended
December 25, 1993 December 25, 1992
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Net cash (used in)/provided by
operating activities $(10.1) $ 25.1 $(10.2) $ 4.8 $(31.3)
Net cash provided by/(used in)
investing activities 11.8 .2 (1.1) 10.9 (1.0)
Net cash provided by/(used in)
financing activities 1.7 (25.3) 11.3 (12.3) 33.7
Net change in cash 3.4 -- -- 3.4 1.4
Cash at beginning of period 6.5 -- -- 6.5 6.1
Cash at end of period $ 9.9 -- -- $ 9.9 $ 7.5
Supplemental disclosure of
cash flow information
Cash paid during the period for:
Interest (net of amount
capitalized) $ 10.0 $ 6.3 $( 8.3) $ 8.0 $ 8.4
Income taxes, net $ 11.0 $ (.1) $ -- $ 10.9 $ 1.9
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obligations
incurred $ 4.6 $ -- $ (4.6) $ -- $ --
<FN>
Transactions between Pro-Fac and Curtice Burns 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 $5.7 million and interest payments of
approximately $2.8 million. In addition, it is anticipated that the
Cooperative will file for tax refunds for fiscal years 1991 and 1992.
Restructuring Program
Curtice Burns and Pro-Fac have agreed upon a restructuring program of the
business.
To reflect both the completed and contemplated effect of the
restructuring program, Curtice Burns incurred a restructuring charge in
fiscal 1993 of $61 million (before dividing 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
Division and the Hiland operation of the Snack Foods Division, and other
costs anticipated in conjunction with the restructuring program. A $1.9
million non-recurring charge was incurred in the second quarter of fiscal
1994 to adjust previous estimates was recorded to complete the Lucca sale
transaction and to reserve against additional operating losses on the
meat snacks business prior to the sale.
The first step of the restructuring program is the divestiture of
unprofitable or declining businesses. Lucca Frozen Foods was sold during
fiscal 1993 at a loss of approximately $2.7 million before dividing with
Pro-Fac and before taxes. On November 19, 1993, the oats portion of the
business of the National Oats Division of Curtice Burns was sold to
Ralston Purina at a gain of $10 million before taxes and dividing with
Pro-Fac. The popcorn portion of the National Oats division was
transferred to the Comstock Michigan Fruit division. On November 22,
1993, certain assets of Hiland were sold to Weaver Potato Chip Company.
No gain or loss was incurred on the sale of Hiland due to writedowns
taken in fiscal 1993. See Note 1 "Potential Sale of Curtice Burns and
Possible Effects on Pro-Fac." Negotiations for the sale of Meat Snacks
are continuing with a potential buyer. In fiscal year 1993, Curtice
Burns incurred losses of $13.2 million from Meat snacks and Hiland before
dividing with Pro-Fac and before taxes. The oats business earnings were
approximately $1.4 million in fiscal 1993 before dividing with Pro-Fac
and before taxes.
Additional charges to earnings in connection with the restructuring
program may be required in fiscal 1994 as a result of decisions yet to be
made.
Repurchase of Common Stock
As a result of the sale of the oats business of National Oats on November
19, 1993, Pro-Fac no longer had any facilities to process or otherwise
market oats, so that effective as of that date, Pro-Fac discontinued oats
as a crop to be marketed through the Cooperative. Harvest States
Cooperative, Inc. ("Harvest States") was the only member of Pro-Fac which
marketed oats through the Cooperative. As required by the Pro-Fac bylaws
upon discontinuance of a crop, Pro-Fac has repurchased its 600,000 shares
of common stock of Pro-Fac for $3,000,000, which is the par value of such
stock and the amount for which it was purchased by Harvest States from
Pro-Fac. Other conditions of the termination of the membership of
Harvest States in Pro-Fac are being negotiated.<PAGE>
<PAGE>
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
There were two significant developments in fiscal 1993, with lingering
effects for fiscal 1994: initiation of a major restructuring program at
Curtice Burns; and Agway's announcement of the possible sale of its
interest in Curtice Burns. See Notes 1 and 4 to the Financial
Statements.
Curtice Burns realized increased earnings from Comstock Michigan Fruit
and Southern Frozen Foods from improved pricing on commodity frozen and
canned vegetables achieved as a result of the weather-related short
national crop. The crop size for Northeastern vegetables was generally
at normal levels. The Snack Group continued to have weak earnings
performances, primarily due to significant sales volume and margin
declines resulting from severe competitive pressures in the salty snack
foods industry. Contributing factors were the decline in consumption of
potato chips in the Company's marketing area, and an inability to
increase prices to offset raw material price increases. These factors
reduced available marketing and promotional funds required to increase
volume in the grocery food store channel of distribution.
For the first six months of fiscal 1994, Curtice Burns' net earnings were
$7,908,000 or $.92 per share compared to $3,490,000 or $.41 per share for
the first six months of fiscal 1993. Included in the first quarter
results was a charge against earnings of $480,000, equivalent to $.06 per
share, to adjust deferred taxes to the higher rates legislated by
Congress as required under Financial Accounting Standards Board
regulation number 109. Included in the fiscal 1994 six-month results,
however, was a non-recurring net gain on sale of the businesses and other
restructuring (see Note 4) of $8,114,000, equivalent to $.38 per share.
Included in the corresponding prior year was a loss on the disposition of
the Lucca business of approximately $2,152,000, the equivalent of $.07
per share. Net earnings, excluding these non-recurring items for the
current fiscal year to date, were approximately $5,144,000, equivalent to
$.60 per share, compared to the prior year of approximately $4,082,000,
equivalent to $.48 per share.
Pro-Fac's Results of Operations
Changes From the Corresponding Prior Year Quarter
The commercial market value of crops delivered during the quarter
decreased to $13,426,000 from $16,489,000 in the comparable fiscal 1993
period.
For the quarter ended December 25, 1993, the change in net proceeds
compared to the prior year period is summarized below:
Increased proceeds from Curtice Burns $6,319,000
Increased net interest income 344,000
Change in bank patronage dividend (25,000)
All other (73,000)
Change in excess of revenues before taxes,
dividends
and allocation of net proceeds 6,565,000
Change in tax provision 2,000
Change in net proceeds $6,567,000
Of the $6,319,000 increased proceeds from Curtice Burns, $5,133,000 was
attributable to net restructuring gains and the remainder is primarily
due to increased profits generated <PAGE>
<PAGE>
by the vegetable business.
Six Month Changes From the Corresponding Prior Year Period
The commercial market value of crops delivered during the six-month
period decreased to $55,753,000 from $56,017,000 in comparable fiscal
1993 period.
For the six months ended December 25, 1993, the change in net proceeds
compared to the prior year period is summarized below:
Increased proceeds from Curtice Burns $7,260,000
Increased net interest income 660,000
Change in bank patronage dividend (50,000)
All other (20,000)
Change in excess of revenues before taxes,
dividends and
allocation of net proceeds 7,850,000
Change in tax provision 5,000
Decrease in dividends 158,000
Change in net proceeds $8,013,000
Of the $7,260,000 increased proceeds from Curtice Burns, $5,133,000 was
attributable to non-recurring items, and the remainder is primarily due
to increased profits generated by the vegetable business.
Pro Forma Combined Results of Operations
The following analysis of the pro forma combined results of operations of
Pro-Fac and Curtice Burns for the six-month period ended December 25,
1993, as compared to the prior year period, is based on the combined pro
forma condensed statement of operations for that period set forth in Note
3 to the accompanying financial statements of Pro-Fac and is subject to
the caveats and limitations set forth in Note 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 in general terms under "Curtice Burns' Results of
Operations" above.
Sales and revenues decreased $2.2 million or .5 percent. The change is
comprised of a $12.2 million decrease due to the disposition of
businesses, a $15.4 million increase due to changes in volume other than
the dispositions and a decrease of $5.4 million due to variations in
price and mix. The sales volume increase was due primarily to increased
demand as a result of decreased supply in the vegetable industry due to
the floods in the Midwest and the droughts in the South during the 1993
growing season. The vegetable sales volume increase offset sales volume
decreases in the snack foods category.
Cost of sales increased $.3 million. As a percent of sales, costs
increased to 71.1 percent from 70.7 percent. Gross profit decreased $2.5
million or 1.8 percent. These changes resulted primarily from variations
in price and product mix.
Selling, administrative and general expenses decreased $6.4 million or
5.9 percent. Cost changes include a $.1 million decrease in trade
promotions, a $3.8 million reduction in advertising and selling costs,
and a $2.5 million reduction of other administrative costs.
Interest expense decreased $.9 million or 10.1 percent; representing a
$1.0 million decrease due to lower rates partially offset by a $.1
million increase due to an increase in debt.
Income before taxes increased $15.1 million or 117.1 percent, primarily
due to the non-recurring gain (see Note 4).
Restructuring gains and losses before taxes improved by $10.3 million
from the prior year. <PAGE>
A non-recurring charge to earnings of $.5 million was recorded in fiscal
1994 to adjust deferred taxes as a result of a tax increase legislated by
Congress. The effect on combined net income for these non-recurring
items improved earnings by $8.5 million.
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 Curtice Burns and the combined financial statements are
shown in Notes 1, 2 and 3 to the financial statements. Note that such
financial statements should not be used as a basis for determining
shareholders' interest in the Cooperative, 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
restrictions and requirements under the terms of the borrowing
agreements. The borrowing agreements have been extended during the first
half of fiscal 1994, and the revised agreements include the grant by
Curtice Burns and Pro-Fac to their lenders of security interests in
substantially all assets as collateral for the outstanding indebtedness.
Curtice Burns has the right to terminate the Integrated Agreement on 60-
days notice. In the event of a termination, Curtice Burns must repay all
debt owed to Pro-Fac and has the option to purchase all of the assets
owned by Pro-Fac at book value. Curtice Burns has advised Pro-Fac that
it believes it would be required to pay Pro-Fac $302.7 million based on
the December 25, 1993 book value. Pro-Fac has advised Curtice Burns that
it believes the amount would be significantly higher and has reserved all
rights to dispute Curtice Burns' position in the event of a termination
of the Agreement. Of the $302.7 million, $129.5 million represents
short- and long-term debt, $25.7 million is relative to intangible
assets, and $147.5 million relates to leased fixed assets. This $302.7
million at December 25, 1993 compares to $303.8 million at June 26, 1993,
which was comprised of $103.8 million of short- and long-term debt, $26.5
million relating to intangible assets and $173.5 million relates to
leased fixed assets. The increase in the debt due Pro-Fac during the
period of $25.7 million is a result of increased borrowings of $61.4
million for seasonal financing for the production of raw product
deliveries during the period less $35.7 million relating to sale proceeds
of business units sold (see Note 4). The decrease in the leased asset
values of $26.0 million is the net of assets sold as a result of business
units sold and depreciation for the six months having exceeded additions.
However, as discussed in Note 1 to the financial statements, Pro-Fac
believes that the total payments would be significantly in excess of
these amounts. In any event, the amount fluctuates from time to time,
depending upon the amount of indebtedness, including seasonal debt, at
the time of termination and other factors, so that the exact amount
cannot now be calculated.
Should Curtice Burns terminate the Agreement then, even with the total
payments asserted by Curtice Burns, Pro-Fac should have cash and other
assets of not less than its equity, which as of December 25, 1993 was
$114,787,000. Pro-Fac has disputed the amount claimed by Curtice Burns
to be due on termination of the Agreement and believes that the total
payments would be such that it would have cash and other assets of a
greater amount.
In any event, following such a transaction a determination would have to
be made as to whether Pro-Fac would be liquidated or continued in some
form.
Should the resolution of the potential sale of Curtice Burns result in
Pro-Fac acquiring control of Curtice Burns, it is presently anticipated
that Pro-Fac would obtain any required financing from the Springfield
Bank for Cooperatives.
Should the resolution of the potential sale of Curtice Burns result in
the sale to a third party, that third party might purchase the Curtice
Burns' shares outstanding as well as a <PAGE>
purchase of assets from Pro-Fac.
Cash flows from operating activities are generally the cash effects of
transactions and other events that enter into the determination of net
income. Net cash provided by operating activities of the combined
companies of $4.8 million in the six-month period reflect net income of
$7.9 million and $14.0 million for Curtice Burns and Pro-Fac,
respectively. Amortization of assets amounted to $12.8 million.
Inventories increased $29.0 million and accounts receivable increased
$8.5 million. Changes in other assets and liabilities amounted to $4.2
million.
Cash flows from investing activities include the acquisition and
disposition of property, plant and equipment and other assets held for or
used in the production of goods. Net cash provided by investing
activities of $10.9 million in the periods was comprised of <PAGE>
cash paid for
purchases of property, plant and equipment of $10.0
million, cash received for disposals of fixed assets of $21.8 million and
an increase in the investment in Springfield Bank for Cooperatives of
$.9 million. During the six-month period, $40.8 million was received in
proceeds from the disposition of the oats portion of the National Oats
business and the Hiland Potato Chip business. Approximately $2 million
is expected to be received in additional proceeds by February 22, 1994 in
connection with such disposition. Proceeds from such dispositions have
been and will be applied to debt.
Net cash used in financing activities of $12.3 million in the period was
comprised of proceeds from short-term debt of $36.1 million, payments on
long-term debt of $38.4 million, issuance of capital stock of $.2 million
less repurchases of $3.0 million and dividends paid of $7.2 million.
Short- and Long-Term Trends
The fruit and vegetable portion of the business can be positively or
negatively affected by weather conditions nationally and the resulting
impact on crop yields. Favorable weather conditions can produce high
crop yields and an oversupply situation, such as that experienced in the
last three years. 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 vary regionally because of variations in
weather. The 1993 floods in the Midwest and the drought in the South
have increased prices even though the crops in the Company's growing
areas have been at normal levels.
Seasonal lines of credit of $100.0 million were available to the combined
companies in the six months ended December 25, 1993, and the maximum
borrowing on those lines was $81.0 million. The balance outstanding at
December 25, 1993 was $48.1 million.
There are no current plans for the acquisition of further 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 as well as anticipated dividends of approximately $10
million in the coming year. Proceeds from the sale of business units
will be applied to debt.
Favorable Tax Ruling and Developments
In December 1991, the national office of the Internal Revenue Service
issued a technical advice memorandum ("TAM") concluding that virtually
all of Pro-Fac's income arises from patronage sources. As a result of
the TAM, in January 1992 an additional distribution of patronage proceeds
for fiscal 1991 was made to members in the amount of $3,727,000.
Patronage proceeds available for distribution are determined by the Board
of Directors each year, as stipulated in the Bylaws.
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.
The 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 $5.7 million and interest payments of
approximately $2.8 million. In addition, it is anticipated that the
Cooperative will file for tax refunds for fiscal years 1991 and 1992.
Impact of Inflation and Changing Prices
General inflation levels have not significantly affected Pro-Fac sales
and revenues. The sales prices of Pro-Fac crops sold to Curtice Burns
have been affected by agricultural crop size, prices and trends.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: BY
ROY A. MYERS, GENERAL MANAGER
Date: BY
WILLIAM D. RICE, ASSISTANT TREASURER
(Principal Accounting Officer)
