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 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 January 15, 1993.
Common Stock - 2,043,493
Page 1 of 27<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
INTRODUCTION
On November 3, 1994 Curtice-Burns Foods, Inc. ("Curtice-Burns") was acquired
by Pro-Fac Cooperative, Inc. ("The Cooperative" or "Pro-Fac"), an
agricultural cooperative formed under New York State law to process and
market crops grown by its members.
Curtice-Burns is a producer and marketer of processed food products. In
addition, Curtice-Burns manufactures cans which are both utilized by
Curtice-Burns and sold to third parties. Curtice-Burns sells products in
three principal categories: (i) "branded" products, which are sold under
Curtice-Burns' trademarks, (ii) "private label" products, which are sold to
grocers that in turn use their own brand names on the products and (iii)
"food service" products, which are sold to food service institutions. In
fiscal 1994, approximately one-half of Curtice-Burns' net sales were branded
and the remainder were split between private label and food service.
Curtice-Burns operates throughout the United States and in Western Canada
through six operating divisions.
Pro-Fac and Curtice-Burns were established together in the early 1960's and
before Pro-Fac's recent acquisition of Curtice-Burns, had a long-standing
contractual relationship under the Integrated Agreement, and similar
predecessor agreements. The Integrated Agreement, which has been superseded
by the Pro-Fac Marketing Agreement, principally governed four arrangements
between Pro-Fac and Curtice-Burns: facilities financing, operations
financing, marketing and management. Pro-Fac continues to market its
members' crops and provide other accommodations to Curtice-Burns, and
Curtice-Burns continues to provide management services to Pro-Fac, pursuant
to the Pro-Fac Marketing Agreement.
The Acquisition
The acquisition was accomplished through a tender offer for all outstanding
shares of Curtice-Burns and a subsequent merger of PF Acquisition Corp.
("PFAC"), a wholly-owned subsidiary of Pro-Fac, into Curtice-Burns. As a
result of the acquisition, the holders of the Class A and Class B Common
Stock of Curtice-Burns became entitled to $19.00 per share in cash, Curtice-
Burns became a wholly-owned subsidiary of Pro-Fac, and Curtice-Burns assumed
all of the liabilities of PFAC, including liabilities for acquisition
indebtedness.
The acquisition was accounted for using the purchase method of accounting.
In recording the transaction, approximately $121.6 million was added to
fixed asset values to bring the assets up to appraised fair market value,
and the asset lives were adjusted to lives deemed appropriate for assets
acquired. The resulting annual depreciation will approximate $23.3 million
on all existing assets at the appraised values. In addition, approximately
$94.3 million of goodwill and other intangible assets were recorded as the
excess of purchase cost over net assets acquired. Included in this amount
was approximately $41.0 million for deferred tax adjustments to properly
reflect the effects of the acquisition in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." The resulting annual amortization of goodwill and other intangible
assets will approximate $2.7 million for goodwill and other intangible
assets using a 35-year amortization period. For purposes of preparing these
financial statements a preliminary allocation of the purchase price has been
made. Future adjustments will be made to this allocation based upon the
final asset appraisals and analyses.
In connection with the acquisition, PFAC sold $160.0 million of 12.25
percent Senior Subordinated Notes due 2005 (the "Notes") and entered into
a credit agreement (the "New Credit Agreement") with CoBank, ACB, formerly
The Springfield Bank for Cooperatives (the "Bank"), which provided for a
term loan, a term loan facility, a seasonal loan facility and a letter of
credit facility. All obligations of PFAC under the Notes and the New Credit
<PAGE>
Agreement have become obligations of Curtice-Burns. Consequently, Curtice-
Burns is more highly leveraged, and has greater interest expense, than prior
to the acquisition.
Further information concerning the acquisition and how it was accounted for
and financed is set forth in Amendment No. 1 to Curtice-Burns' Registration
Statement on Form S-4 (Registration No. 33-56517), which was filed with the
Securities and Exchange Commission on December 16, 1994.
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 and the effects of the
acquisition) 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,
nor are they comparable to prior periods due to the effects of the
acquisition.
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
<CAPTION>
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
<S> <C> <C> <C>
Net sales $129,055 $ 13,426 $166,712 $ 55,753
Cost of sales 93,022 13,426 130,679 55,753
Gross profit 36,033 -- 36,033 --
Share of Curtice-Burns earnings
prior to acquisition 2,769 9,700 5,137 12,473
Interest income from Curtice-Burns
prior to acquisition 1,857 4,192 6,102 8,316
Other selling, general and
administrative (expenses)/income (26,454) 144 (26,399) 291
Operating income 14,205 14,036 20,873 21,080
Interest expense (7,155) (3,106) (10,094) (6,274)
Income before taxes, dividends
and allocation of net proceeds 7,050 10,930 10,779 14,806
Tax benefit/(provision) 5,317 (409) 5,292 (818)
Net income (net proceeds) $ 12,367 $ 10,521 $ 16,071 $ 13,988
Allocation of Net Proceeds:
Net income $ 12,367 $ 10,521 $ 16,071 $ 13,988
Dividends on common and preferred stock -- -- (4,914) (4,390)
Net proceeds 12,367 10,521 11,157 9,598
Allocation to earned surplus (9,840) (1,590) (8,630) (667)
Net proceeds available to members $ 2,527 $ 8,931 $ 2,527 $ 8,931
Allocation of net proceeds available to members:
Estimated to be paid currently $ 475 $ 1,725 $ 475 $ 1,725
Qualified retains 1,902 6,901 1,902 6,901
Non-qualified retains 150 305 150 305
Net proceeds available to members $ 2,527 $ 8,931 $ 2,527 $ 8,931
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
<CAPTION>
ASSETS
12/24/94 6/25/94 12/25/93
<S> <C> <C> <C>
Current assets:
Cash $ 7,766 $ 10 $ 54
Accounts receivable, trade, net 66,203 -- --
Accounts receivable, other 13,112 68 374
Receivable from Curtice-Burns Foods, Inc. -- 11,197 39,241
Current portion of long-term loans receivable
from Curtice-Burns Foods, Inc. -- 14,000 14,000
Current portion of investment in direct
financing leases -- 17,645 21,184
Current portion of investment in Bank -- 1,324 1,356
Inventories:
Finished goods 160,962 -- --
Materials and supplies 54,464 -- --
Total inventories 215,426 -- --
Current deferred taxes receivable 10,610 -- --
Prepaid expenses 5,464 2,464 1,604
Total current assets 318,581 46,708 77,813
Goodwill and other intangible assets, net 93,975 -- --
Property, plant and equipment, net 271,907 -- --
Long-term portion of investment in direct
financing leases -- 123,677 126,325
Long-term loans receivable from Curtice-Burns Foods, Inc. -- 78,040 76,262
Investment in Bank 21,619 19,632 17,543
Deferred tax benefit -- 2,623 2,117
Finance receivable related to intangibles -- 24,909 25,725
Assets held for resale 6,138 -- --
Other assets 22,668 462 253
Total assets $734,888 $296,051 $326,038
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet (Continued)
(Dollars in Thousands)
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
12/24/94 6/25/94 12/25/93
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Notes payable $ 70,000 $ 11,500 $ 31,100
Accounts payable 55,593 617 3,272
Accrued employee compensation 9,259 -- --
Other accrued expenses 33,731 2,536 2,994
Accrued manufacturing expense 2,417 -- --
Current portion of obligations under capital leases 785 -- --
Income taxes payable 3,342 668 854
Current portion of long-term debt 8,182 14,000 14,000
Amounts due members 22,005 15,327 25,549
Total current liabilities 205,314 44,648 77,769
Deferred income taxes 53,016 -- --
Obligations under capital leases 1,296 -- --
Long-term debt 165,390 127,134 133,014
Senior subordinated notes 160,000 -- --
Other non-current liabilities 15,822 504 468
Commitments and contingencies
Common stock, par value $5, authorized -
5,000,000 shares
12/24/94 6/25/94 12/25/93
Shares issued 2,043,493 2,056,878 2,096,860
Shares subscribed 2,432 9,270 17,063
Total subscribed and issued 2,045,925 2,066,148 2,113,923
Less subscriptions receivable in
installments (2,432) (9,270) (17,063)
2,043,493 2,056,878 2,096,860 10,217 10,284 10,484
Shareholders' and members' capitalization:
Retained earnings allocated to members 38,802 36,924 36,377
Non-qualified allocation to members 6,128 7,454 5,959
Preferred stock, par value $25, authorized -
5,000,000 shares; issued and outstanding -
2,623,604, 2,576,720 and 2,378,807, respectively 65,590 64,418 59,470
Earned surplus 13,313 4,685 2,497
Total shareholders' and members' capitalization 123,833 113,481 104,303
Total liabilities and capitalization $734,888 $296,051 $326,038
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
<CAPTION>
Six Months Ended
12/24/94 12/25/93
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,071 $ 13,988
Amount payable to members currently (475) (1,725)
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of goodwill and other intangibles 410 --
Depreciation 3,742 --
Deferred tax (5,651) (107)
Change in assets and liabilities:
Accounts receivable 10,133 (349)
Inventories 10,794 --
Accounts payable and accrued expenses (20,789) 2,228
Amounts due to members 6,678 11,024
Federal and state taxes payable/refundable (1,332) 924
Other assets and liabilities 12,784 (870)
Net cash provided by operating
activities 32,365 25,113
Cash flows from investing activities:
Due from Curtice-Burns, net 103,237 (25,742)
Return from direct investment in financing leases 141,322 26,004
Investment in Bank 21,448 (913)
Cash received from the finance receivable
related to intangibles 564 820
Purchase of property, plant and equipment (5,206) --
Cash paid for acquisition (136,288) --
Net cash provided by investing activities 125,077 169
Cash flows from financing activities:
Proceeds from issuance of short-term debt 45,835 19,100
Payments on short-term debt (52,562) --
Payments on long-term debt (137,650) (36,986)
Repurchase of common stock, net of issuances (67) (2,971)
Cash portion of non-qualified conversion (304) --
Cash paid in lieu of fractional shares (24) --
Cash dividends paid (4,914) (4,390)
Net cash used in financing activities (149,686) (25,247)
Net change in cash 7,756 35
Cash at beginning of period 10 19
Cash at end of period $ 7,766 $ 54
All amounts above exclude the effects of the acquisition
as detailed in the Supplemental Disclosure of
Cash Flow Information
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 6,775 $ 6,274
Income taxes, net $ 2,457 $ (106)
Cash paid for the acquisition of Curtice-Burns
Accounts receivable 89,380
Inventories 226,220
Investment in Bank 21,448
Other assets 20,785
Goodwill and other intangible assets 94,451
Fixed assets 270,443
Accounts payable and accrued expenses (121,979)
Short-term debt (72,562)
Long-term debt (162,753)
Subordinated notes (160,000)
Deferred tax liability (50,680)
Other liabilities (18,465)
$ 136,288
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 consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. The
following summarizes the significant accounting policies applied in the
preparation of the accompanying financial statements.
Fiscal Year
The financial statements of Pro-Fac include the results of operations of
Curtice-Burns from November 3, 1994, the acquisition date, through December
24, 1994, the fiscal quarter end (see Note 3). The fiscal year of Pro-Fac
will correspond with that of Curtice-Burns and will end on June 24, 1995,
the last Saturday in June.
Consolidation
The consolidated financial statements include Pro-Fac and its wholly-owned
subsidiaries after elimination of intercompany transactions and balances.
Inventories
Inventories are stated at the lower of cost or market on the first-in,
first-out ("FIFO") method. Inventory reserves are recorded to reflect the
difference between FIFO cost and the market applicable to canned and frozen
fruit and vegetable inventories.
Investment in CoBank, ACB ("the Bank")
The Cooperative's investment in the Bank is required as a condition of
borrowing, the amount of investment equal to a percentage of average
borrowings over a five year period. These securities are not physically
issued by the Bank, but the Cooperative is notified as to their monetary
value. The investment is carried at cost plus a share of the undistributed
earnings of the Bank (that portion of patronage refunds not distributed
currently in cash).
Manufacturing Overhead
Allocation of manufacturing overhead to finished goods produced is on the
basis of a production year; thus at the end of each fiscal year,
manufacturing costs incurred by seasonal plants subsequent to the previous
pack are deferred and included in the accompanying balance sheet under the
caption "Accrued/prepaid manufacturing expense."
Property, Plant and Equipment and Related Lease Arrangements
Property, plant and equipment are depreciated over the estimated useful
lives of the assets using the straight-line method, half-year convention,
over 4 to 40 years.
Lease arrangements are capitalized when such leases convey substantially all
of the risks and benefits incidental to ownership. Capital leases are
amortized over either the lease term or the life of the related assets,
depending upon available purchase options and lease renewal features.
<PAGE>
<PAGE>
Income Taxes
Income taxes are provided on non-patronage income for financial reporting
purposes. Deferred income taxes resulting from temporary differences
between financial reporting and tax reporting as well as from the issuance
of non-qualified retains are appropriately classified in the balance sheet
and properly reflect the effects of the acquisition in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes."
Pension
Pro-Fac's subsidiaries have several pension plans and participate in various
union pension plans which on a combined basis cover substantially all
employees. Charges to income with respect to plans sponsored by Pro-Fac and
its subsidiaries are based upon actuarially determined costs. Pension
liabilities are funded by periodic payments to the various pension plan
trusts.
Employers' Accounting for Postemployment Benefits
On June 26, 1994, Curtice-Burns adopted the SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," with no material impact.
This statement establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but before
retirement. Postemployment benefits are all types of benefits provided to
former or inactive employees, their beneficiaries, and covered dependents.
Goodwill and Other Intangibles
Goodwill and other intangible assets include the cost in excess of the fair
value of net tangible assets acquired in purchase transactions and acquired
non-competition agreements and trademarks. Goodwill and other intangible
assets, stated at net of accumulated amortization, are amortized on a
straight-line basis over periods ranging to 35 years. Pro-Fac periodically
assesses whether there has been a permanent impairment in the value of
goodwill. This is accomplished by determining whether the estimated
undiscounted future cash flows from operating activities exceed the carrying
value of goodwill as of the assessment date. Should aggregate future cash
flows be less than the carrying value, a writedown would be required,
measured by the difference between the undiscounted future cash flows and
the carrying value of goodwill.
Goodwill resulting from the purchase of Curtice-Burns by Pro-Fac of
approximately $94.3 million is being amortized on a straight line basis over
35 years. See Note 3.
Environmental Expenditures
Environmental expenditures that pertain to current operations are expensed
or capitalized consistent with Pro-Fac's capitalization policy.
Expenditures that result from the remediation of an existing condition
caused by past operations that do not contribute to current or future
revenues are expensed. Liabilities are recorded when remedial activities
are probable and the cost can be reasonably estimated.
Reclassification
Certain items for the three and six months ending December 25, 1993 have
been reclassified to conform with the current year presentations.<PAGE>
<PAGE>
Earnings Per Share Data Omitted
Net income or net proceeds per share amounts are not presented because
earnings are not distributed to members in proportion to their common stock
holdings. For example, patronage related earnings (representing those
earnings derived from patronage-sourced business) are distributed to members
in proportion to the dollar value of deliveries under Pro-Fac contracts
rather than based on the number of shares of common stock held.
Note 2. AGREEMENTS WITH CURTICE-BURNS
On November 3, 1994 Curtice-Burns was acquired by Pro-Fac. Pro-Fac and
Curtice-Burns were established together in the early 1960's and before Pro-
Fac's recent acquisition of Curtice-Burns, had a long-standing contractual
relationship under the Integrated Agreement, and similar predecessor
agreements. The Integrated Agreement, which has been superseded by the Pro-
Fac Marketing Agreement, consisted of four principal sections: Operations
Financing, Marketing, Facilities Financing and Management.
The provisions of the Integrated Agreement included the financing of certain
assets utilized in the business of Curtice-Burns and provided a sharing of
income and losses between Curtice-Burns and Pro-Fac. Under the Pro-Fac
Marketing Agreement, Pro-Fac and Curtice-Burns will continue the marketing
and management arrangements of the Integrated Agreement, as well as the
sharing of income and losses. The capital contribution of Pro-Fac to
Curtice-Burns at acquisition primarily included the cancellation of
indebtedness and capital lease obligations. Payments by Curtice-Burns to
Pro-Fac for interest, amortization and lease financing payments ceased as
of November 3, 1994.
Amounts received by Pro-Fac from Curtice-Burns under both Agreements for the
six months ended December 24, 1994 and December 25, 1993 include:
commercial market value of crops delivered, $54.2 million and $55.8 million,
respectively; interest income, $6.1 million and $8.3 million,
respectively; and additional proceeds from profit sharing provisions, $6.9
million and $12.5 million, respectively. During fiscal 1993 a dispute arose
between Curtice-Burns and Pro-Fac regarding the sharing of certain losses
incurred in Curtice-Burns' restructuring program. As part of the merger,
such dispute was resolved.
Note 3. DEVELOPMENTS RELATED TO CHANGE IN CONTROL OF CURTICE-BURNS
In 1993, Curtice-Burns' management and Board of Directors began exploring
several strategic alternatives for Curtice-Burns, including a possible sale
of all the equity of Curtice-Burns. Those activities ultimately resulted
in Curtice-Burns entering into an Agreement and Plan of Merger with Pro-Fac
and PFAC on September 27, 1994 (the "Merger Agreement"). Pursuant to the
Merger Agreement, 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 PFAC. On November 3, 1994, PFAC merged into Curtice-Burns,
making Curtice-Burns a wholly-owned subsidiary of Pro-Fac.
Prior to November 3, 1994, Curtice-Burns expensed $2.2 million of legal,
accounting, investment banking and other expenses relative to the change of
control issue. In recognizing these expenses, Curtice-Burns allocated half
of these amounts to Pro-Fac as a deduction to the profit split. Pro-Fac
disputed these charges, but such dispute was resolved with the merger.<PAGE>
<PAGE>
The acquisition was accounted for using the purchase method of accounting.
In recording the transaction, approximately $121.6 million was added to
fixed asset values to bring the assets up to appraised fair market value,
and the asset lives were adjusted to lives deemed appropriate for assets
acquired. The resulting annual depreciation will approximate $23.3 million
on all existing assets at the appraised values. In addition, approximately
$94.3 million of goodwill and other intangible assets were recorded as the
excess of purchase cost over net assets acquired. Included in this amount
was approximately $41.0 million for deferred tax adjustments to properly
reflect the effects of the acquisition in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." The resulting annual amortization of goodwill and other intangible
assets will approximate $2.7 million for goodwill and other intangible
assets using a 35-year amortization period. For purposes of preparing these
financial statements a preliminary allocation of the purchase price has been
made. Future adjustments will be made to this allocation based upon the
final asset appraisals and analyses.
In connection with the acquisition, PFAC sold $160.0 million of 12.25
percent Senior Subordinated Notes due 2005 (the "Notes") and entered into
a credit agreement (the "New Credit Agreement") with The Springfield Bank
for Cooperatives, which provided for a term loan, a term loan facility, a
seasonal loan facility and a letter of credit facility. All obligations of
PFAC under the Notes and the New Credit Agreement have become obligations
of Curtice-Burns.
Following, in capsule form, is the consolidated unaudited results of
operations of Curtice-Burns Foods for the six months ended December 24, 1994
and December 23, 1993, assuming the acquisition by Pro-Fac took place at the
beginning of the 1994 fiscal year.
<TABLE>
(In Millions)
<CAPTION>
Six Months Ended
(Unaudited)
December 24, 1994 December 23, 1993
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Net sales $166.7 $392.8 $55.8 $453.3
Income before taxes $ 10.8 $ 8.2 $14.8 $ 15.3
Net income $ 16.1 $ 4.4 $14.0 $ 9.7
</TABLE>
Note 4. DISPOSALS
National Oats. On November 19, 1993, Curtice-Burns sold the oats portion
of the National Oats business for $39.0 million and transferred the popcorn
business to CMF. The sale of the oats business resulted in an approximate
$10.9 million gain in fiscal 1994.
Hiland Potato Chips. On November 22, 1993, Curtice-Burns sold certain
assets of the Hiland potato chips business for approximately $3.0 million.
There was no material gain or loss on this transaction after taking into
account the fiscal 1993 restructuring charge.
Meat Snacks. On February 22, 1994, Curtice-Burns sold the meat snacks
business. Curtice-Burns will lease certain manufacturing facilities and
equipment and license its trademarks, trade names, etc. to the buyer until
February 1995, at which time the buyer is contractually obligated to
purchase these assets for $2.0 million. There was no material gain or loss
<PAGE>
on this transaction after taking into account a restructuring charge
recorded fiscal 1993.
Nalley's U.S. Chips and Snacks. On December 19, 1994, Curtice-Burns sold
the Nalley's U.S. Chips and Snacks business for approximately $2.0 million.
In the first quarter of fiscal 1995, Curtice-Burns recognized a charge of
approximately $8.4 million in connection with the elimination of this line
of business. There was no material gain or loss on this transaction after
taking into account a restructuring charge recorded in the first quarter of
fiscal 1995.
The business divestitures resulted in the following charges to earnings of
Curtice-Burns in fiscal 1994 and fiscal 1995:
Fiscal 1994 Restructuring Gain. Included in fiscal 1994 results was a net
gain of $7.8 million comprised of a gain on the sale of the oats business
of $10.9 million, net of a charge of $3.1 million to adjust previous
estimates regarding activities initiated in fiscal 1993.
Fiscal 1995 Restructuring Charge. Included in the first three months of
fiscal 1995 results was a restructuring charge of $8.4 million to reflect
the estimated impact of the sale of certain assets of the Nalley's U.S.
Chips and Snacks operation and other expenses relating to the disposal of
this operation.
Note 5. DEBT
Historical Funding and Capital Expenditures
The operations of Curtice-Burns historically have been funded with cash
flows generated by operations, borrowings from Pro-Fac (which in turn
borrowed a portion of these funds from the Bank) and borrowings under
Curtice-Burns seasonal facility with a syndicate of commercial lenders led
by The Chase Manhattan Bank, N.A. Pro-Fac and Curtice-Burns had available
seasonal lines of credit of $100.0 million through September 1993, $86.0
million through September 1994 and $96.0 million thereafter. The maximum
borrowing on those seasonal lines during fiscal 1994 was $81.0 million,
while the average amount outstanding during such year totaled approximately
$51.5 million. The balance outstanding at November 3, 1994 was $83.5
million. These borrowings were repaid simultaneously with the consummation
of the acquisition of Curtice-Burns by Pro-Fac and replaced by the New
Credit Agreement.
New Credit Agreement
The Bank has provided Curtice-Burns, subject to the terms and conditions set
out in the New Credit Agreement, with loans of up to $200 million to finance
the purchase of Shares pursuant to the Tender Offer and the merger, to
refinance certain existing indebtedness of Pro-Fac and Curtice-Burns and to
pay fees and expenses related to the purchase of Shares.
The Bank also has provided Curtice-Burns, subject to the terms and
conditions set out in the New Credit Agreement, with seasonal financing of
up to $86.0 million and a $10.0 million letter of credit facility. The
Acquisition Facility, the Seasonal Facility and the Letter of Credit
Facility are collectively referred to herein as the "Bank Facility".
Guarantees and Security. All obligations under the Bank Facility are
guaranteed by Pro-Fac and the Subsidiary Guarantors. Curtice-Burns'
obligations under the Bank Facility, and Pro-Fac's and the Subsidiary
Guarantor's obligations under their respective guaranties, are secured by
all of the assets of Curtice-Burns and each guarantor, respectively,<PAGE>
<PAGE>
including (i) all present and future accounts, contracts rights, chattel
paper, instruments (excluding shares of capital stock), documents,
inventory, general intangibles and equipment, (ii) all real property and
(iii) all products and proceeds of the foregoing.
Interest. The Bank Facility provides for interest rates on the Acquisition
Facility, at Curtice-Burns' option, equal to (i) the relevant London
interbank offered rate plus 2.60 percent, (ii) the relevant prime rate plus
0.50 percent or (iii) the relevant U.S. Treasury Rate plus 3.00 percent.
The Seasonal Facility provides for interest rates on amounts outstanding
thereunder, at Curtice-Burns' option, equal to (x) the relevant London
interbank offered rate plus 1.75 percent, (y) the relevant prime rate minus
0.25 percent or (z) the relevant U.S. Treasury Rate plus 2.00 percent. The
Bank has extended to a portion of the Acquisition Facility for a limited
period of time certain fixed rates that were in effect with respect to
indebtedness repaid to the Bank on November 3, 1994. The weighted average
rate of interest applicable to that portion of the Acquisition Facility is
estimated to equal approximately 8.3 percent per annum for the period from
November 3, 1994 through May 1, 1995.
Maturity. Borrowings of $80.0 million under the Term Loan portion of the
Acquisition Facility are payable in 20 equal semi-annual installments,
beginning in May 1995. Borrowings of up to an additional $120.0 million
under the Term Loan Facility portion of the Acquisition Facility are payable
during the first five years of the facility in annual installments on
September 1 of each year, in an amount equal to the "annual cash sweep" for
the preceding fiscal year, as defined in the Acquisition Facility. Curtice-
Burns will be permitted to pay and reborrow funds under the Term Loan
Facility, subject to limitations on the amount reborrowed and the other
terms of the Acquisition Facility. Beginning in the year 2000, the balance
of the Term Loan Facility will be payable in ten equal semi-annual
installments.
Borrowings under the Seasonal Facility are payable at the expiration of that
portion of the facility, which is May, 1996 except that for 15 consecutive
calendar days before the end of fiscal 1995, the borrowings under the
Seasonal Facility must be zero. The Letter of Credit Facility provides
for the issuance of letters of credit through October, 1995.
Certain Covenants. The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to achieve an adjusted cash flow coverage ratio at the
end of fiscal 1995 of at least 1.0 to 1.0 and at the end of each fiscal
year thereafter of at least 1.1 to 1.0, to maintain a minimum working
capital of at least $100.0 million for each fiscal year (beginning with the
fiscal year ending June 30, 1995), and to maintain a minimum long-term debt
to equity ratio (measured at each month-end) of 3.1 to 1.0 from the Closing
Date through May, 1995, 2.8 to 1.0 from June 30, 1995 through May 1996 and
declining over time to 1.8 to 1.0 at June 30, 2001 and thereafter. In
addition, the Pro-Fac Bank Guarantee requires Pro-Fac, on a consolidated
basis, to maintain a consolidated total net worth of not less than 15
percent of total assets for each month-end until July 2000, and 20 percent
thereafter and at least 19 percent of total assets at the fiscal years
ending June 1995 and 1996, increasing over time to at least 25 percent of
total assets at the fiscal year ending June 2001 and each fiscal year
thereafter. The Bank Facility and the Pro-Fac Bank Guarantee contain
additional restrictions and obligations on Pro-Fac and Curtice-Burns,
including (i) restrictions on the ability to declare or pay dividends or
repurchase stock, (ii) limitations on the incurrence of debt or prepayment
of debt, (iii) limitations on debt, investments, acquisitions, capital
expenditures and asset sales and (iv) requiring maintenance of properties
and insurance and the delivery of information, financial and otherwise. <PAGE>
<PAGE>
Management believes Curtice-Burns is in compliance with all restrictions and
requirements under the terms of the borrowing agreement.
The Senior Subordinated Notes ("Notes")
The Notes represent general unsecured obligations of Curtice-Burns,
subordinated in right of payment to certain other debt obligations of
Curtice-Burns (including Curtice-Burns' obligations under the New Credit
Agreement). The Notes are unconditionally guaranteed by the Guarantors on
a senior subordinated basis, with each such guarantee subordinated to the
Guarantors' respective guarantees of the obligations of Curtice-Burns under
the New Credit Agreement and all other Senior Indebtedness of the
Guarantors.
The Notes are limited in aggregate principal amount to $160.0 million and
will mature on February 1, 2005. Interest on the Notes accrues at the rate
of 12.25 percent per annum and is payable semi-annually in arrears on
February 1 and August 1, commencing on February 1, 1995, to Holders of
record on the immediately preceding January 15 and July 15, respectively.
Except as provided above, interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months.
Each of Pro-Fac and the Subsidiary Guarantors has unconditionally guaranteed
the payment of Obligations of Curtice-Burns under the Notes. Rights of
Holders pursuant to such guarantees are subordinate to the rights of the
holders of the Senior Indebtedness of Pro-Fac and the Subsidiary Guarantors
to payment in full in the same manner as the rights of Holders of the Notes
are subordinate to those of the holders of the Senior Indebtedness of
Curtice-Burns.
Note 6. 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 was anticipated to apply to
future years as long as there was no significant change in the way in which
the Cooperative operates. The acquisition of Curtice-Burns was a significant
change in the way in which Pro-Fac operates; therefore, this exempt status
ceased as of November 3, 1994. 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
$3.6 million. In addition, the Cooperative has filed 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 December 24,
1994. It is anticipated that the refund amounts will be recognized upon
receipt.
The results of operations for fiscal 1993 produced a net operating loss
carryforward which expires in fiscal 2008. No tax benefit was recognized
at that time because with Pro-Fac's tax exempt status and, due to the issues
surrounding the potential change in control of Curtice-Burns, there was no
assurance of the utilization of this net operating loss carryforward in
future years. With the cessation of the exempt status due to the <PAGE>
<PAGE>
acquisition of Curtice-Burns, Pro-Fac's cash dividends will no longer be tax
deductible, and because of the resolution of Curtice-Burns change in control
issue, it is more probable than not that Pro-Fac will be able to utilize the
net operating loss carryforward. A tax benefit relative to the net
operating loss carryforward in the amount of $8.0 million was recorded in
the second quarter of fiscal 1995.
Contingencies
In conjunction with the sale of the National Oats Division by Curtice-Burns,
Pro-Fac terminated the membership of the Harvest States Cooperatives
("Harvest States") in Pro-Fac. Harvest States was the National Oats
Division's only supplier of oats. As a result of this action, Harvest
States filed a claim against Pro-Fac for, among other things, the receipt
of payments for future oats purchases after the sale of National Oats
division through fiscal year 1995. Subsequent to quarter end, a settlement
was reached with Harvest States resulting in no material cost to Pro-Fac.
A grower has filed suit against Curtice-Burns for damages resulting from
defective seed which was purchased from the Southern Frozen Foods division.
The lawsuit alleges that the defective seed resulted in the loss of crops
and acreage use for a growing season, and the grower is seeking
approximately $1.0 million in damages. Management believes this claim is
without merit and intends to vigorously defend its position. As the amount
of damages is neither probable nor reasonably estimable, no accrual for loss
has been included in the financial statements. In addition, management
anticipates that all material costs of settlement, if incurred, will be
covered under its insurance policies.
Commitments
Curtice-Burns' Southern Frozen Foods Division has guaranteed an approximate
$1.4 million loan for the City of Montezuma to renovate a sewage treatment
plant operated by Southern Frozen Foods on behalf of the City.
Fire Claim
In July 1994, a plant operated by Curtice-Burns' Southern Frozen Foods
division, located in Montezuma, Georgia, was damaged by fire. All material
costs associated with the facility repairs and business interruption are
anticipated to be covered under Curtice-Burns' insurance policies. During
the first quarter of fiscal 1995, a $6.5 million gain (before dividing with
Pro-Fac and before taxes) was recorded representing the insurance proceeds
for the replacement value in excess of the depreciated book value of the
building and equipment destroyed in this fire.
Subsequent Events -
Submission of Matters to a Vote of Security Holders.
The Pro-Fac annual meeting was held on January 28, 1995 in Rochester, New
York. Director elections were not involved in the annual meeting, as these
elections take place on different dates and locations in each Region. The
director elections will be completed by March 1995.
The matters voted upon, the number of votes cast for and against were as
follows:
1. To consider and vote upon a proposed amendment to Pro-
Fac's restated certification of incorporation to
authorize the creation of five additional classes of
preferred stock.<PAGE>
<PAGE>
2. To consider and vote upon several proposed amendments to Pro-
Fac's bylaws.
a. To remove from Pro-Fac's bylaws the requirement that
the board of directors appoint a nominee of Agway
Inc. and a nominee of Curtice-Burns Foods, Inc. to
the board of directors, and to permit (rather than
require) the board to appoint up to one-fifth of the
total number of directors to represent primarily the
interest of the general public in Curtice-Burns.
b. To amend Pro-Fac's bylaws in order to clarify that
written votes of members absent from an annual,
special or regional meeting shall be counted and to
clarify the number of votes required to authorize
action at a regional meeting of members.
c. To amend Pro-Fac's bylaws to permit the board of
directors to authorize the issuance of stock
certificates representing any or all of the capital
stock in Pro-Fac.
The voting results for proposal one were 368 for and 24 against, or 93.9
percent of the votes cast in favor of the proposal, and the results for
proposal two were 378 for and 14 against, or 96.4 percent of the votes cast
in favor of the proposal.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pro-Fac's Results of Operations
Changes From the Corresponding Prior Year Quarter
The commercial market value of crops delivered by members during the quarter
ended December 24, 1994 decreased 3.7 percent to $12.9 million from $13.4
million in the comparable fiscal 1994 period.
For the quarter ended December 24, 1994, the change in net proceeds compared
to the prior year is summarized below in millions of dollars:
<TABLE>
<CAPTION>
<S> <C>
Curtice-Burns gross profit $ 36.0
Decreased share of Curtice-Burns earnings (6.9)
Decreased interest income received from Curtice-Burns (2.3)
Increased selling, general and administrative expenses (26.7)
Increased interest expense (4.0)
Change in excess of revenues before taxes, dividends,
and allocations of net proceeds (3.9)
Change in tax benefit/(provision) 6.1
Change in net proceeds $ 2.2
</TABLE>
The gross profit change represents Curtice-Burns gross profit after the
acquisition. The changes in the Curtice-Burns profit split and interest
income from Curtice-Burns also relates to the acquisition, since with the
acquisition, these items ceased. The increased selling, general and
administrative expenses were due to the inclusion of Curtice-Burns costs
since the acquisition. The increased interest expense was primarily
attributable to the increased borrowings related to the acquisition of
Curtice-Burns by Pro-Fac. The change in the tax benefit/(provision) is the
net result of the inclusion of Curtice-Burns' tax provision after the
acquisition and a net increase in the tax benefit, primarily related to the
recording of the tax benefit relating to Pro-Fac's net operating loss <PAGE>
<PAGE>
carryforward from fiscal 1993 (see Note 6 - "Other Matters" - "Favorable Tax
Ruling".
Six Month Changes From the Corresponding Year
The commercial market value of crops delivered by members during the six
months ended December 24, 1994 decreased 2.9 percent to $54.2 million from
$55.8 million in the comparable fiscal 1994 period.
For the six months ended December 24, 1994, the change in net proceeds
compared to the prior year is summarized below in millions of dollars:
<TABLE>
<CAPTION>
<S> <C>
Curtice-Burns gross profit $ 36.0
Decreased share of Curtice-Burns earnings (7.3)
Decreased interest income received from Curtice-Burns (2.2)
Increased selling, general and administrative expenses (26.7)
Increased interest expense (3.8)
Change in excess of revenues before taxes, dividends,
and allocations of net proceeds (4.0)
Change in tax benefit/(provision) 5.7
Change in net proceeds $ 1.7
</TABLE>
The gross profit change represents Curtice-Burns gross profit after the
acquisition. The changes in the Curtice-Burns profit split and interest
income from Curtice-Burns also relates to the acquisition, since with the
acquisition, these items ceased. The increased selling, general and
administrative expenses were due to the inclusion of Curtice-Burns costs
since the acquisition. The increased interest expense was primarily
attributable to the increased borrowings related to the acquisition of
Curtice-Burns by Pro-Fac. The change in the tax benefit/(provision) is the
net result of the inclusion of Curtice-Burns' tax provision after the
acquisition and a net increase in the tax benefit, primarily related to the
recording of the tax benefit relating to Pro-Fac's net operating loss
carryforward from fiscal 1993 (see Note 6 - "Other Matters" - "Favorable Tax
Ruling".
Prior to the acquisition most of the proceeds of Pro-Fac have always been
derived from the sale to Curtice-Burns of the crops of its members and hence
depended primarily upon the volume and commercial market value of these
crops (which accrued to Pro-Fac at the time of delivery). In addition,
proceeds depended upon the profitability of the finished products made from
Pro-Fac crops and raw materials from other sources which were then processed
and sold by Curtice-Burns during the course of the fiscal year. Under the
Agreements between the two companies previously and presently in effect, the
total purchase price for crops and the financing charge were both based in
part on the results of operations of Curtice-Burns.
Because of the profit split provisions within the Agreements between
Curtice-Burns and Pro-Fac, business conditions and trends affecting Curtice-
Burns' profitability also affected the profitability of Pro-Fac, even before
the acquisition. For these reasons, management believes discussions
relating to the financial condition and results of operations of Pro-Fac
should primarily focus on the operations of Curtice-Burns.
The following comparisons of Curtice-Burns' results to its prior year
periods present the results of Curtice-Burns for both the period prior to
its acquisition by Pro-Fac as well as the period subsequent to the
acquisition. Therefore, comparisons to the prior year periods are not
comparable in certain respects due to differences between the cost bases of
the assets prior to the acquisition compared to those after the acquisition
as well as the effect on Curtice-Burns' operations for adjustments to
depreciation, amortization and interest expense.<PAGE>
<PAGE>
The following tables illustrate Curtice-Burns' results of operations by
business for the three and six months of fiscal 1994 compared to the three
and six months of fiscal 1995, both before and after the acquisition.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 104.3 48.3 105.2 43.3 176.0 44.8 180.2 39.7
Nalley's Fine Foods 55.3 25.6 53.2 21.9 109.3 27.8 105.9 23.4
Southern Frozen Foods 26.6 12.3 25.3 10.4 49.7 12.7 48.2 10.6
Snack Foods Group 15.3 7.1 15.3 6.3 30.7 7.8 30.8 6.8
Brooks Foods 11.3 5.2 11.7 4.8 16.7 4.3 17.3 3.8
Finger Lakes Packaging 10.7 5.0 12.1 5.0 25.3 6.4 24.7 5.5
Intercompany eliminations1 (7.5) (3.5) (8.4) (3.5) (17.2) (4.4) (17.7) (3.9)
Subtotal ongoing operations 216.0 100.0 214.4 88.2 390.5 99.4 389.4 85.9
Businesses sold and to be sold2 -- -- 28.8 11.8 2.3 .6 63.9 14.1
Total 216.0 100.0 243.2 100.0 392.8 100.0 453.3 100.0
<FN>
1 Intercompany sales by Finger Lakes.
2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business and the Nalley's U.S. Chips and Snacks business.
See Note 4 - "Restructuring Program."
</TABLE>
<TABLE>
Cost of Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 74.9 50.2 76.1 44.9 129.1 46.8 135.9 42.1
Nalley's Fine Foods 34.9 23.4 33.9 20.0 69.8 25.3 68.3 21.2
Southern Frozen Foods 20.6 13.8 19.3 11.4 38.7 14.0 38.0 11.8
Snack Foods Group 9.7 6.5 9.6 5.7 19.6 7.1 19.4 6.0
Brooks Foods 6.7 4.5 7.0 4.1 10.6 3.8 11.2 3.5
Finger Lakes Packaging 9.7 6.5 11.3 6.7 22.9 8.3 22.5 7.0
Intercompany eliminations and
corporate overhead (7.3) (4.9) (7.3) (4.3) (16.2) (5.8) (16.4) (5.1)
Subtotal ongoing operations 149.2 100.0 149.9 88.5 274.5 99.5 278.9 86.5
Businesses sold and to be sold1 -- -- 19.5 11.5 1.5 0.5 43.5 13.5
Total 149.2 100.0 169.4 100.0 276.0 100.0 322.4 100.0
<FN>
1 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato
chips business, and the meat snacks business and the Nalley's U.S. Chips and Snacks
business. See Note 4 - "Restructuring Program."
/TABLE
<PAGE>
<PAGE>
<TABLE>
Gross Profit
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 29.4 44.0 29.1 39.4 46.9 40.2 44.3 33.8
Nalley's Fine Foods 20.4 30.5 19.3 26.1 39.5 33.8 37.6 28.7
Southern Frozen Foods 6.0 9.0 6.0 8.1 11.0 9.4 10.2 7.8
Snack Foods Group 5.6 8.4 5.7 7.7 11.1 9.5 11.4 8.7
Brooks Foods 4.6 6.9 4.7 6.4 6.1 5.2 6.1 4.7
Finger Lakes Packaging 1.0 1.5 0.8 1.1 2.4 2.1 2.2 1.7
Intercompany eliminations and
corporate overhead (0.2) (0.3) (1.0) (1.4) (1.0) (.9) (1.3) (1.0)
Subtotal ongoing operations 66.8 100.0 64.6 87.4 116.0 99.3 110.5 84.4
Businesses sold and to be sold1 -- -- 9.3 12.6 0.8 0.7 20.4 15.6
Total 66.8 100.0 73.9 100.0 116.8 100.0 130.9 100.0
<FN>
1 The Curtice-Burns has sold the oats portion of the National Oats business, the Hiland
potato chips business and the meat snacks business and the Nalley's U.S. Chips and Snacks
Business. See Note 4 - "Restructuring Program."
</TABLE>
<TABLE>
Operating Income Before Dividing with Pro-Fac1
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 11.4 64.0 9.3 55.3 18.1 60.7 14.2 51.4
Nalley's Fine Foods 4.2 23.6 4.5 26.8 8.8 29.5 9.2 33.3
Southern Frozen Foods 3.1 17.4 2.9 17.3 5.5 18.5 4.7 17.0
Snack Foods Group 1.1 6.2 1.1 6.5 1.9 6.4 2.0 7.3
Brooks Foods 2.0 11.2 2.1 12.5 2.1 7.1 2.3 8.3
Finger Lakes Packaging 0.6 3.4 0.8 4.8 1.6 5.4 1.9 6.9
Intercompany eliminations and
corporate overhead1 (4.6) (25.8) (3.6) (21.4) (7.8) (26.3) (7.2) (26.0)
Subtotal ongoing operations 17.8 100.0 17.1 101.8 30.2 101.3 27.1 98.2
Businesses sold and to be sold2 -- -- (0.3) (1.8) (0.4) (1.3) 0.5 1.8
Total 17.8 100.0 16.8 100.0 29.8 100.0 27.6 100.0
<FN>
1 Table excludes restructuring (loss)/gain from division disposals of fiscal 1995 and 1994
and change in control expense, and an insurance gain on assets resulting from a fire claim
recorded in the first six months of fiscal 1995.
2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business.
See Note 4 "Restructuring Program".
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Depreciation and Amortization
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 2.2 36.1 2.8 44.4 4.9 42.2 5.7 44.5
Nalley's Fine Foods 0.8 13.1 0.8 12.7 1.8 15.5 1.8 14.1
Southern Frozen Foods 0.6 9.8 0.6 9.5 1.2 10.4 1.1 8.6
Snack Foods Group 0.5 8.2 0.5 7.9 1.0 8.6 1.0 7.8
Brooks Foods 0.1 1.6 0.2 3.2 0.3 2.6 0.4 3.1
Finger Lakes Packaging 0.3 4.9 0.3 4.8 0.6 5.2 0.6 4.7
Corporate1 1.6 26.3 0.2 3.2 1.3 11.2 0.2 1.6
Subtotal ongoing operations 6.1 100.0 5.4 85.7 11.1 95.7 10.8 84.4
Businesses sold and to be sold2 -- -- 0.9 14.3 0.5 4.3 2.0 15.6
Total 6.1 100.0 6.3 100.0 11.6 100.0 12.8 100.0
<FN>
1 Includes adjustment for amortization of excess of purchase cost over net assets acquired.
2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business.
See Note 4 - "Restructuring Program."
</TABLE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
12/24/94 12/25/93
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit 264.0 36.0 234.3 46.3
Nalley's Fine Foods 95.2 13.0 91.3 18.0
Southern Frozen Foods 64.9 8.8 48.8 9.6
Snack Foods Group 24.3 3.3 26.3 5.2
Brooks Foods 11.1 1.5 10.2 2.0
Finger Lakes Packaging 42.5 5.8 57.4 11.3
Corporate1 232.2 31.6 (28.8) (5.6)
Subtotal ongoing operations 734.2 100.0 439.5 86.8
Businesses sold to be sold2 -- -- 67.0 13.2
Total 734.2 100.0 506.5 100.0
<FN>
1 Includes excess of purchase cost over net assets acquired.
2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack
business. See Note 4 - "Restructuring Program."
</TABLE>
THREE MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales
Net sales in the second quarter of fiscal 1995 of $216.0 million decreased
$27.2 million or 11.2 percent from $243.2 million in the second quarter of
fiscal 1994. No net sales were attributable to businesses sold in
connection with the restructuring program discussed in Note 4 in the second
quarter of fiscal 1995 whereas $28.8 million in the second quarter of fiscal
1994. The net sales from ongoing operations excluding businesses sold were
$216.0 million in the second quarter of fiscal 1995, an increase of $1.6 <PAGE>
<PAGE>
million or 0.7 percent from $214.4 million in the second quarter of fiscal
1994.
Cost of Sales
Cost of sales in the second quarter of fiscal 1995 of $149.2 million
decreased $20.1 million or 11.9 percent from $169.3 million in the second
quarter of fiscal 1994. Of this decrease, $19.5 million was attributable
to businesses sold and a $0.6 million reduction was attributable to Curtice-
Burns' ongoing operations. This decrease of $0.6 million was the result of
variations in volume, selling prices and product mix.
Gross Profit
Gross profit of $66.8 million in the second quarter of fiscal 1995 decreased
$7.1 million or 9.6 percent from $73.9 million in the second quarter of
fiscal 1994. Of this net decrease, a $9.3 million reduction was
attributable to businesses sold and an increase of $2.2 million was
attributable to increased gross profit at Curtice-Burns' ongoing operations.
This increase of $2.2 million was the result of variations in volume,
selling prices, costs and product mix.
Restructuring Expenses, Including Net Gain
From Division Disposals
Restructuring expenses, including net gain from division disposals resulted
in a gain in the second quarter of fiscal 1994 of $8.1 million, primarily
from the sale of the oats business of National Oats referred to in Note 4.
Change in Control Expenses
Change in control expenses recorded in the second quarter of fiscal 1995,
amounting to $0.4 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 Note 3 - "Developments Related to Change
in Control of Curtice-Burns".
Other Selling, Administrative and General Expenses
Other selling, administrative and general expenses in the second quarter of
fiscal 1995 of $48.9 million decreased $8.0 million or 14.1 percent from
$56.9 million in the second quarter of fiscal 1994. This decrease of $8.0
million includes primarily:
<TABLE>
(In Millions)
<CAPTION>
Businesses
Sold Ongoing Total
<S> <C> <C> <C>
Change in trade promotions $(2.8) $(1.3) $(4.1)
Change in advertising
and selling costs (4.7) 1.7 (3.0)
All other (.2) (.7) (.9)
Change in selling, administrative
and general expenses $(7.7) $(0.3) $(8.0)
</TABLE>
The $0.7 million decrease in other administrative cost attributable to
Curtice-Burns' ongoing operations was primarily related to reduced spending
at Comstock Michigan Fruit, with minor variations throughout the other
operations.
<PAGE>
<PAGE>
Interest Expense
Interest expense in the second quarter of fiscal 1995 of $7.8 million
increased $3.7 million or 90.2 percent from $4.1 million in the second
quarter of fiscal 1994. This increase was primarily attributable to the
increased borrowing related to the acquisition of Curtice-Burns by Pro-Fac.
Income Before Taxes
Pro-Fac's income before distribution to members and taxes in the second
quarter of fiscal 1995 of $9.7 million decreased $11.3 million or 54.3
percent from $21.0 million in the second quarter of fiscal 1994.
Provision for Taxes
The provision for taxes, excluding the previously mentioned tax benefit, in
the second quarter of fiscal 1995 of $2.2 million decreased $1.0 million or
30.3 percent from $3.3 million in the second quarter of fiscal 1994. The
effective tax rate (after deducting members' patronage allocation) for the
quarter ended December 24, 1994 was 49.5 percent compared to 33.0 percent
for the quarter ended December 25, 1993. The effective tax rate was
negatively effected by the non-deductibility of the amortization of excess
of purchase cost over net assets acquired.
Net Income
Net income for the second quarter of fiscal 1995 of $13.6 million decreased
$3.6 million or 20.9 percent from $17.2 million in the second quarter of
fiscal 1994.
SIX MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales
Net sales in the first six months of fiscal 1995 of $392.8 million decreased
$60.5 million or 13.3 percent from $453.3 million in the first six months
1994. The net sales attributable to businesses sold or to be sold in
connection with the restructuring program discussed in Note 3 were $2.3
million in the first six months of fiscal 1995 and $63.9 million in the
first six months of fiscal 1994. The net sales from ongoing operations
excluding businesses sold or to be sold were $390.5 million in the first six
months of fiscal 1995, an increase of $1.1 million or 0.3 percent from
$389.4 million in the first six months of fiscal 1994.
Cost of Sales
The cost of sales in the first six months of fiscal 1995 of $276.0 million
decreased $46.4 million or 14.4 percent from $322.4 million in the first six
months of fiscal 1994. Of this decrease, $42.0 million was attributable to
businesses sold or to be sold and a $4.3 million reduction was attributable
to Curtice-Burns' ongoing operations. This decrease of $4.3 million was the
result in variations in volume, selling prices and product mix.
Gross Profit
Gross profit of $116.8 million in the first six months of fiscal 1995
decreased $14.1 million or 10.8 percent from $130.9 million in the first six
months of fiscal 1994. Of this net decrease, a $19.6 million reduction was
attributable to businesses sold or to be sold and an increase of $5.5
million was attributable to increased gross profit at Curtice-Burns' ongoing
operations. This increase of $5.5 million was the result of variations in
volume, selling prices, costs and product mix.<PAGE>
<PAGE>
Restructuring Expenses Including Net (Loss)/Gain
From Division Disposals
Restructuring expenses, including net (loss)/gain from division disposals
resulted in a charge in the first six months of fiscal 1995 of $8.4 million
to reflect the impact of the sale of certain assets of the Nalley's U.S.
Chips and Snack other expenses relating to the disposal of this operation.
Of this amount, approximately 40 percent reflects non-cash charges.
Included in the first six months of fiscal 1994 was an $8.1 million net gain
from restructuring including division disposals.
Change in Control Expenses
Change in control expenses recorded in the first six months of fiscal 1995,
amounting to $2.2 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 Note 3 - "Developments Related to Change
in Control of Curtice-Burns".
Gain on Assets Resulting From Fire Claim
The gain on assets resulting from fire claim recorded in the first six
months 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 six months
of fiscal 1995 of $87.0 million decreased $16.0 million or 15.5 percent from
$103.0 million in the first six months of fiscal 1994. This net decrease
of $16.0 million includes primarily:
<TABLE>
(In Millions)
<CAPTION>
Businesses
Sold or to be Sold Ongoing Total
<S> <C> <C> <C>
Change in trade promotions $ (5.5) $ 0.2 $ (5.3)
Change in advertising
and selling costs (9.8) 2.5 (7.3)
All other (2.3) (1.1) (3.4)
Change in selling, administrative
and general expenses $(17.6) $ 1.6 $(16.0)
</TABLE>
The $2.5 million increase in advertising and selling costs at Curtice-Burns'
ongoing operations resulted from increased costs at Nalley's of $1.6 million
primarily in the canned and dressing product lines and an increase at
Comstock Michigan Fruit of $0.8 million primarily in the filling and topping
product lines. Minor variations occurred in other operations.
The $1.1 million decrease in other administrative cost attributable to
Curtice-Burns' ongoing operations was primarily related to reduced spending
at Comstock Michigan Fruit and corporate headquarters and slight variations
at other operations.<PAGE>
<PAGE>
Interest Expense
Interest expense in the first six months of fiscal 1995 of $11.6 million
increased $3.6 million or 45.0 percent from $8.0 million in the first six
months of fiscal 1994. This increase was primarily attributable to the
increased borrowing related to the acquisition of Curtice-Burns by Pro-Fac.
Income Before Taxes
Income before allocation of net proceeds and taxes in the first six months
of fiscal 1995 of $14.1 million decreased $13.9 million or 50.0 percent from
$28.0 million in the first six months of fiscal 1994.
Provision for Taxes
The provision for taxes excluding the previously mentioned tax benefit in
the first six months of fiscal 1995 of $3.6 million decreased $1.7 million
or 32.1 percent from $5.3 million in the first six months of fiscal 1994.
The effective tax rate on taxable income in the six months ended December
24, 1994 was 58.4 percent compared to 40.2 percent in the six months ended
December 25, 1993. The non-deductibility of the amortization of excess
purchase cost over net assets acquired was responsible for the significantly
increased rate.
Net Income
Net income for the first six months of fiscal 1995 of $16.7 million
decreased $5.2 million or 26.0 percent from $21.9 million in the first six
months of fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historical Funding and Capital Expenditures
The operations of Curtice-Burns historically have been funded with cash
flows generated by operations, borrowings from Pro-Fac (which in turn
borrowed a portion of these funds from the Bank) and borrowings under
Curtice-Burns' seasonal facility with a syndicate of commercial lenders led
by The Chase Manhattan Bank, N.A. Pro-Fac and Curtice-Burns had available
seasonal lines of credit of $100.0 million through September 1993, $86.0
million through September 1994 and $96.0 million thereafter. The maximum
borrowing on those seasonal lines during fiscal 1994 was $81.0 million,
while the average amount outstanding during such year totaled approximately
$51.5 million. The balance outstanding at November 3, 1994 was $83.5
million. These borrowings were repaid simultaneously with the consummation
of the transactions.
In addition to borrowings by Pro-Fac, which had been loaned to Curtice-
Burns, substantially all cash not distributed by Pro-Fac to its members or
securityholders had either been invested in assets leased to Curtice-Burns
or loaned to Curtice-Burns to finance its operations. As such, the
information provided below describes liquidity and capital resources of
Curtice-Burns and Pro-Fac on a combined basis, before the acquisition as
well as after.
In the first six months of fiscal 1995, the net cash used by combined
operating activities of Curtice-Burns and Pro-Fac reflects net income of
$16.7 million for Curtice-Burns and for Pro-Fac. Amortization of assets
amounted to $11.6 million ($7.4 million before the acquisition and $5.2
million after the acquisition). Inventories increased $60.2 million (an
increase of $71.0 million before the acquisition and a decrease of $10.8
million after the acquisition), accounts receivable increased $13.1 million
<PAGE>
(an increase of $12.4 million before the acquisition and an increase of $0.7
million after the acquisition), and the deferred tax provision increased
$41.0 million. The increases in the deferred tax provision and the changes
in other assets and liabilities were primarily related to the excess of cost
over net assets acquired in the acquisition of Curtice-Burns by Pro-Fac.
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 in the first six
months of fiscal 1995 was comprised of $7.9 million paid for fixed assets
($5.7 million before the acquisition and $2.2 million after the
acquisition), and a $0.7 million increase in the investment in the Bank.
Net cash provided by financing activities in the first six months of fiscal
1995 was primarily comprised of net proceeds of short-term debt of $58.5
million and proceeds from the issuance long-term debt of $192.9 million,
cash paid for Curtice-Burns' stock and stock options of $162.9 million, the
cash portion of non-qualified retain conversion of $0.3 million, and
dividends paid of $6.3 million ($1.4 million of which was Curtice-Burns'
dividends prior to the acquisition). The net borrowings for short- and
long-term debt discussed above include the liquidation of existing debt of
$83.5 million for short-term debt and $137.7 million for long-term debt at
the acquisition date and new debt of $70.0 million short-term and $333.6
million long-term.
New Borrowings
Under the New Credit Agreement, Curtice-Burns is able to borrow up to $86.0
million for seasonal working capital purposes under the Seasonal Facility,
subject to a borrowing base limitation, and obtain up to $10.0 million in
aggregate face amount of letters of credit pursuant to a letter of credit
facility. The borrowing base is defined as the lesser of (i) $86.0 million
and (ii) the sum of 60 percent of eligible accounts receivable plus 50
percent of eligible inventory ($108.2 million at December 24, 1994). As
of December 24, 1994, the outstanding borrowing under the Seasonal Facility
was $70.0 million.
As of December 24, 1994, (i) cash borrowings outstanding under the Seasonal
Facility were $70.0 million and (ii) additional availability under the
Seasonal Facility, after taking into account the amount of the borrowing
base, was $16.0 million. In addition to its seasonal financing, as of
December 24, 1994, Pro-Fac had $23.8 million available for long-term
borrowings under the Term Loan Facility. Pro-Fac believes that the cash
flow generated by its operations and the amounts available under the
Seasonal Facility should be sufficient to fund its working capital needs,
fund its capital expenditures and service its debt for the foreseeable
future.
As a result of the acquisition of Curtice-Burns by Pro-Fac, Pro-Fac's total
debt and interest expense have increased because the Notes have a
substantially higher interest rate than the debt that was repaid with the
proceeds from the Note Offering. The New Credit Agreement will require that
Pro-Fac meet certain financial tests and ratios and comply with certain
other restrictions and limitations.
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
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
<PAGE>
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.
Preliminary indications for the 1994 crop year are that national supplies
increased over the prior year due to the intentional increase in planned
production by vegetable processors and increased crop yields thereby
returning the current national supplies to ample levels. Yields in Curtice-
Burns' growing areas increased as well. There are variations among the
specific commodities and the effect on pricing and profitability in fiscal
1995 depends upon individual company pricing practices and the effect of
recent industry plant closings and production realignments.
Capital expenditures are expected to approximate $20.0 million in fiscal
1995. The largest single capital project in process is renovation and
updates to the Nalley's salad dressing plant in Tacoma, Washington. This
capital project amounts to approximately $10.0 million and will provide
increased production and efficiencies for the salad dressing line.
Required scheduled payments on long-term debt will approximate $8 million
in the current calendar year. Management expects that cash provided from
operations will 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 Pro-Fac's 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.
Item 5 - Submission of Matters to a Vote of Security Holders.
The Pro-Fac annual meeting was held on January 28, 1995 in Rochester, New
York. Director elections were not involved in the annual meeting, as these
elections take place on different dates and locations in each Region. The
director elections will be completed by March 1995.
The matters voted upon, the number of votes cast for and against were as
follows:
1. To consider and vote upon a proposed amendment to Pro-
Fac's restated certification of incorporation to
authorize the creation of five additional classes of
preferred stock.
2. To consider and vote upon several proposed amendments to Pro-
Fac's bylaws.
a. To remove from Pro-Fac's bylaws the requirement that
the board of directors appoint a nominee of Agway
Inc. and a nominee of Curtice-Burns Foods, Inc. to
the board of directors, and to permit (rather than
require) the board to appoint up to one-fifth of the
total number of directors to represent primarily the
interest of the general public in Curtice-Burns.
b. To amend Pro-Fac's bylaws in order to clarify that
written votes of members absent from an annual,
special or regional meeting shall be counted and to
clarify the number of votes required to authorize
action at a regional meeting of members.<PAGE>
<PAGE>
c. To amend Pro-Fac's bylaws to permit the board of
directors to authorize the issuance of stock
certificates representing any or all of the capital
stock in Pro-Fac.
The voting results for proposal one were 368 for and 24 against, or 93.9
percent of the votes cast in favor of the proposal, and the results for
proposal two were 378 for and 14 against, or 96.4 percent of the votes cast
in favor of the proposal.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the fiscal period to which
this report relates.
<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: 4/14/95 BY: /S/ William D. Rice
WILLIAM D. RICE, ASSISTANT TREASURER
(Principal Accounting Officer)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-END> DEC-24-1994
<CASH> 7766
<SECURITIES> 0
<RECEIVABLES> 79315
<ALLOWANCES> 0
<INVENTORY> 215426
<CURRENT-ASSETS> 318581
<PP&E> 271907
<DEPRECIATION> 0
<TOTAL-ASSETS> 734888
<CURRENT-LIABILITIES> 205134
<BONDS> 0
<COMMON> 10217
0
65590
<OTHER-SE> 58243
<TOTAL-LIABILITY-AND-EQUITY> 734888
<SALES> 166712
<TOTAL-REVENUES> 166712
<CGS> 130679
<TOTAL-COSTS> 130679
<OTHER-EXPENSES> 15160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10094
<INCOME-PRETAX> 10779
<INCOME-TAX> (5292)
<INCOME-CONTINUING> 16071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16071
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
