SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 23, 1995
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 33-60273
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 16-6036816
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
90 Linden Place, P.O. Box 682, Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (716) 383-1850
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 13, 1995.
Common Stock - 1,886,424
Page 1 of 15<PAGE>
<PAGE>
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.
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
<CAPTION>
Quarter Ended
(Dollars in Thousands) September 23, September 24,
1995 1994
<S> <C> <C>
Net sales $165,178 $37,657
Cost of sales 122,646 37,657
Gross profit 42,532 --
Share of Curtice-Burns earnings
prior to acquisition -- 2,368
Interest income from Curtice-Burns
prior to acquisition -- 4,247
Other selling, general, and
administrative (expenses)/income (36,715) 53
Operating income 5,817 6,668
Interest expense (10,046) (2,939)
(Loss)/income before taxes, dividends
and allocation of net proceeds (4,229) 3,729
Tax benefit/(provision) 1,796 (25)
Net (loss)/income $ (2,433) $ 3,704
Allocation of Net Proceeds:
Net (loss)/income $ (2,433) $ 3,704
Dividends on common and preferred stock (5,035) (4,914)
Net deficit (7,468) (1,210)
Allocation from earned surplus 7,468 1,210
Net proceeds available to members $ -- $ --
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
<CAPTION>
September 23, June 24,
September 24,
1995 1995
1994
<S> <C> <C> <C> <C> <C>
<C>
ASSETS
Current assets:
Cash $ 5,221 $ 4,152
$ 113
Accounts receivable, trade, net 60,913 47,341
--
Accounts receivable, other 12,780 19,840
140
Receivable from Curtice-Burns Foods, Inc. --
- -- 51,929
Current portion of long-term loans receivable from
Curtice-Burns Foods, Inc. -- --
14,000
Current portion of investment in direct financing leases --
-- 17,645
Current portion of investment in Bank -- --
1,308
Current deferred tax assets 3,954 6,784
--
Income taxes refundable 11,679 10,106
--
Inventories -
Finished goods 179,559 108,691
--
Materials and supplies 52,387 51,491
--
Total inventories 231,946 160,182
--
Prepaid manufacturing expense -- 9,903
--
Prepaid expenses and other current assets 4,944
2,306 3,437
Total current assets 331,437 260,614
88,572
Property, plant, and equipment, net 279,669
273,962 --
Goodwill and other intangible assets, net 79,375
101,494 --
Long-term portion of investment in direct financing leases --
-- 113,083
Long-term loans receivable from Curtice-Burns Foods, Inc. --
-- 88,952
Investment in Bank 22,907 22,907
19,968
Deferred tax assets 7,466 7,466
2,623
Finance receivable related to intangibles -- --
24,486
Assets held for sale 5,521 13,863
--
Other assets 13,692 9,433
450
Total assets $740,067 $689,739
$338,134
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Notes payable $ 86,000 $ --
$ 50,000
Current portion of obligations under capital leases 764
764 --
Accounts payable 59,122 60,074
2,288
Accrued interest 4,525 9,171
2,792
Accrued employee compensation 7,042
11,644 --
Accrued manufacturing expense 787
- -- --
Other accrued expenses 19,288 15,116
10
Current portion of long-term debt 8,008 11,552
14,000
Income taxes payable -- --
697
Amounts due members 16,303
13,348 18,762
Total current liabilities 201,839 121,669
88,549
Obligations under capital leases 1,650 1,620
--
Long-term debt 185,274 183,665
126,925
Senior subordinated notes 160,000 160,000
--
Deferred tax liabilities 34,923 59,721
--
Other non-current liabilities 18,593 17,836
521
Total liabilities 602,279 544,511
215,995
Commitments and contingencies --
- -- --
Common stock, par value $5, authorized -
5,000,000 shares
September 23, June 24, September 24,
1995 1995 1994
Shares issued 1,886,424 1,878,926 2,036,655
Shares subscribed 51,638 59,568 9,270
Total subscribed and issued 1,938,062 1,938,494 2,045,925
Less subscriptions receivable in
installments (51,638) (59,568) (9,270)
1,886,424 1,878,926 2,036,655 9,432 9,395
10,183
Shareholders' and members' capitalization:
Retained earnings allocated to members 34,242
34,250 36,912
Non-qualified allocation to members 3,851
3,851 5,979
Preferred stock, par value $25, authorized -
5,000,000 shares; issued and outstanding -
3,043,325, 3,043,325, and 2,623,604,
respectively 76,083 76,083
65,590
Earned surplus 14,180 21,649
3,475
Total shareholders' and members' capitalization 128,356
135,833 111,956
Total liabilities and capitalization $740,067 $689,739
$338,134
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
<CAPTION>
Quarter Ended
September 23,
September 24,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net (loss)/income $ (2,433) $
3,704
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill, other intangibles, and
financing fees 1,180
- --
Depreciation 6,374
- --
Change in assets and liabilities:
Accounts receivable (5,137)
(72)
Inventories (67,486)
- --
Accounts payable and accrued expenses (549)
1,937
Amounts due to members 2,955
3,435
Federal and state taxes refundable (1,573)
29
Other assets and liabilities (3,892)
(944)
Deferred taxes (122)
- --
Net cash (used in)/provided by operating activities (70,683)
8,089
Cash flows from investing activities:
Due from Curtice-Burns, net --
(51,644)
Return from investment in direct financing leases --
10,594
Investment in Bank --
(320)
Finance receivable related to intangibles --
423
Purchase of property, plant, and equipment (6,696)
--
Disposals of property, plant, and equipment 4,790
--
Cash paid for acquisition (5,400)
--
Net cash used in investing activities (7,306)
(40,947)
Cash flows from financing activities:
Proceeds from short-term debt 86,000
38,500
Proceeds from long-term debt 5,400
--
Payments on long-term debt (7,335)
(209)
Issuances of common stock, net of repurchases 37
(101)
Cash portion of non-qualified conversion --
(304)
Cash paid in lieu of fractional shares (9)
(11)
Cash dividends paid (5,035)
(4,914)
Net cash provided by financing activities 79,058
32,961
Net change in cash 1,069
103
Cash at beginning of period 4,152
10
Cash at end of period $ 5,221 $
113
All amounts above exclude the effects of the acquisition
of Packer Foods as detailed in the Supplemental
Disclosure of Cash Flow Information
Supplemental Disclosure of Cash Flow Information
Cash paid/(received) during the year for:
Interest $ 14,694 $ 2,677
Income taxes, net $ (82) $
54
Acquisition of Packer Foods:
Accounts receivable $ 1,375 $
--
Inventories 4,278
- --
Prepaid expenses and other current assets 270
--
Property, plant and equipment 5,884
--
Goodwill 128
- --
Accounts payable (4,954)
--
Accrued expenses (257)
--
Deferred income tax (226)
--
Other non-current liabilities (1,098)
--
Cash paid for acquisition $ 5,400 $
--
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. The acquisition was
accounted for using the purchase method of accounting. In conjunction with
the change in ownership all identifiable assets and liabilities were adjusted
to reflect their fair values at the date of acquisition. Such allocations
continue to be reviewed. These financial statements should be read in
conjunction with the financial statements and accompanying notes contained in
Pro-Fac's Form 10-K for the fiscal year ended June 24, 1995.
Fiscal Year: The fiscal year ends the last Saturday in June.
Consolidation: As of all dates after November 3, 1994, and for all periods
after such date, the consolidated financial statements include the
Cooperative and its wholly-owned subsidiary, Curtice-Burns Foods, Inc.
("Curtice-Burns" or "the Company") after elimination of intercompany
transactions and balances. The acquisition of Curtice-Burns was completed on
November 3, 1994 (see NOTE 3 - "Change in Control of Curtice-Burns"). Prior
to November 3, 1994, Curtice-Burns was not included in the financial
statements.
Reclassification: Certain items for fiscal 1995 have been reclassified to
conform with fiscal 1996 presentations.
NOTE 2. AGREEMENTS WITH CURTICE-BURNS
On November 3, 1994, Curtice-Burns was acquired by Pro-Fac (see NOTE 3 -
"Change in Control of Curtice-Burns"). Pro-Fac and the Company were
established together in the early 1960s and, before Pro-Fac's recent
acquisition of the Company, had a long-standing contractual relationship
under the Integrated Agreement and similar Predecessor entity agreements.
The Integrated Agreement, which has been superseded by the Pro-Fac Marketing
and Facilitation 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 the Company and provided a sharing of
income and losses between Curtice-Burns and Pro-Fac. Under the Pro-Fac
Marketing and Facilitation Agreement, Pro-Fac and the Company 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
the Company at acquisition primarily included the cancellation of
indebtedness and capital lease obligations.
Subsequent to the acquisition date, Pro-Fac invested an additional $3.9
million in Curtice-Burns and committed to another $10.0 million investment.
The $10.0 million investment has been reflected as a capital contribution
receivable on the Curtice-Burns balance sheet as the funds have not yet been
transferred to Pro-Fac.
Funds made available by the distribution of retains to members, in lieu of
cash by Pro-Fac, have historically been reinvested by Pro-Fac in the Company.
Under the Indentures related to the Notes, Pro-Fac will be required to
reinvest at least 70 percent of the additional Patronage income in Curtice-
Burns.
Amounts received/(paid) by Pro-Fac from Curtice-Burns under both Agreements
for the fiscal quarters ended September 23, 1995 and September 24, 1994
include: commercial market value of crops delivered, $31.8 million and $37.7
million, respectively; interest income, $4.2 million for the quarter ended
September 24, 1994; and additional proceeds from (loss)/profit sharing
provisions, $(2.1) million and $2.4 million, respectively. Payments by the
Company to Pro-Fac for interest, amortization, and lease financing payments
ceased as of November 3, 1994.
NOTE 3. CHANGE IN CONTROL OF CURTICE-BURNS
In 1993, the Company's management and Board of Directors began exploring
several strategic alternatives for the Company, including a possible sale of
all the equity of the Company. Those activities ultimately resulted in the
Company entering into an Agreement and Plan of Merger with Pro-Fac and its
subsidiary 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 the Company's 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 the Company) had been validly tendered
and not withdrawn. All such tendered shares were accepted for payment by
PFAC. On November 3, 1994, PFAC merged into the Company, making the Company
a wholly-owned subsidiary of Pro-Fac.<PAGE>
<PAGE>
Prior to November 3, 1994, the Company expensed $2.2 million of legal,
accounting, investment banking, and other expenses relative to the change of
control issue. In recognizing these expenses, the Company 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.
The acquisition was accounted for using the purchase method of accounting.
In conjunction with the change in ownership all identifiable assets and
liabilities were adjusted to reflect their fair value at the date of
acquisition. In recording the transaction, approximately $121.5 million was
recorded to adjust property, plant, and equipment to fair market value. In
addition lives were adjusted for assets acquired. The resulting annual
depreciation will approximate $23.3 million on all existing assets at the
appraised values. In addition, approximately $104.0 million of goodwill and
other intangible assets were recorded as the excess of purchase cost over net
tangible assets acquired. Included in this amount was approximately $43.8
million for deferred tax adjustments to properly reflect the effects of the
acquisition in accordance with the SFAS No. 109, "Accounting for Income
Taxes." This amount was adjusted in the first quarter of fiscal 1996 in
conjunction with the change in tax status of Curtice-Burns. See NOTE 5. The
resulting annual amortization of goodwill and other intangible assets will
approximate $3.0 million for goodwill and other intangible assets using lives
ranging from 5 to 35-years. There were no other significant changes to
accounting policies as a result of the acquisition.
In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes (the "Notes") due 2005 and entered into a credit
agreement (the "New Credit Agreement") with 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
Agreement have become obligations of the Company.
Following, in capsule form, is the consolidated, unaudited results of
operations of Pro-Fac for the quarters ended September 23, 1995 and September
24, 1994, assuming the acquisition by Pro-Fac took place at the beginning of
the 1995 fiscal year.
<TABLE>
(In Millions)
<CAPTION>
Quarter Ended
(Pro Forma is Unaudited)
September 23, 1995 September 24, 1994
Actual Actual Pro Forma
<S> <C> <C> <C>
Net sales $165.2 $37.6 $176.8
(Loss)/income before taxes $ (4.2) $ 3.7 $ 4.3
Net (loss)/income $ (2.4) $ 3.7 $ 1.8
</TABLE>
NOTE 4. DISPOSALS
Nalley's U.S. Chips and Snacks: On December 19, 1994, the Company sold the
Nalley's U.S. Chips and Snacks business for approximately $2.0 million. In
the first quarter of fiscal 1995, the Company recognized a charge of
approximately $8.4 million in connection with the elimination of this line of
business. This sale was contemplated by Pro-Fac in conjunction with the
acquisition.
Nalley's Canada Ltd.: On June 26, 1995, the Company sold Nalley's Canada Ltd.
subsidiary, located in Vancouver, British Columbia, to a group led by
management within its Canadian subsidiary. This sale was contemplated by
Pro-Fac in conjunction with the acquisition.
The Company's Nalley's U.S. division will provide to Nalley's Canada Ltd.,
through a supply agreement, those products which would no longer be
manufactured in Canada.
NOTE 5. TAXES
The benefit for taxes on income recorded in the first quarter of fiscal 1996
included both Pro-Fac and its wholly-owned subsidiary, Curtice-Burns Foods.
PRO-FAC
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.<PAGE>
<PAGE>
In August of 1993, the Internal Revenue Service issued a determination letter
which concluded that the Cooperative was 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 was
retroactive to fiscal year 1986. In conjunction with this ruling, the
Cooperative has filed for tax refunds for fiscal years 1986 to 1991 in the
amount of approximately $7.2 million and interest payments of approximately
$4.9 million. In addition, it is anticipated that the Cooperative will file
for tax refunds for fiscal 1992 in the amount of approximately $1.6 million
and interest payments of approximately $.3 million. Based upon the status of
the government's review of the refunds for fiscal years 1986 to 1990, the
legal counsel to the Cooperative has issued an opinion that such refunds
constitute a legally enforceable account receivable from the government.
Accordingly, refund amounts of $10.1 million for tax and interest have been
reflected in the financial statements of Pro-Fac as of June 24, 1995. It is
anticipated that such amounts will be received in the first half of fiscal
1996. The Board of Directors of the Cooperative has committed that
substantially all of such refunds and interest payments, when received, will
be invested in its subsidiary, Curtice-Burns Foods, Inc.
As a result of the acquisition, the Cooperative's exempt status has ceased.
CURTICE-BURNS
In January 1995, the Boards of Directors of Curtice-Burns Foods, Inc. and
Pro-Fac Cooperative, Inc. approved appropriate amendments to the Bylaws of
Curtice-Burns Foods, Inc. to allow the Company to qualify as a cooperative
under Subchapter T of the Internal Revenue Code. In August 1995, Curtice-
Burns and Pro-Fac received a favorable ruling from the Internal Revenue
Service approving the change in tax treatment effective for fiscal 1996.
Pro-Fac's ruling also confirmed that the change in Curtice-Burns status would
have no affect on Pro-Fac's ongoing treatment as a cooperative under
Subchapter T of the Internal Revenue Code of 1986. Accordingly, during the
quarter ended September 23, 1995, the Company provided taxes on non-patronage
earnings and patronage earnings to be retained by the Company. The effective
tax benefit of approximately 13.4 percent recognized in the first quarter, is
comprised of state income taxes, federal taxes on non-patronage earnings and
patronage earnings retained by the Company. The Company's effective tax
benefit is negatively impacted by the amount of non-deductible goodwill
created in conjunction with the acquisition and merger of Curtice-Burns
Foods, Inc. by Pro-Fac Cooperative, Inc. as of November 3, 1994.
As a cooperative, deferred tax accounting is generally not required for
temporary differences associated with patronage earnings allocated to
members. Therefore, in conjunction with this change in tax status, deferred
taxes have been adjusted based upon estimated future levels of patronage
earnings to be allocated to members. As the change in tax status represents
a resolution of an uncertainty related to income taxes outstanding at the
date of the acquisition, the reduction in net deferred taxes of approximately
$22 million has been applied against goodwill.
NOTE 6. OTHER MATTERS
Preferred Stock: The existing preferred stock originated from the conversion
at par value of retains. This stock is non-voting and non-cumulative, except
that the holders of preferred stock would be entitled to vote as a separate
class on certain matters which would affect or subordinate the rights of the
class.
At the Cooperative's annual meeting in January 1995, shareholders approved an
amendment to the certification of incorporation to authorize the creation of
five additional classes of preferred stock.
On August 23, 1995, the Cooperative commenced an offer to exchange one share
of its Class A cumulative preferred stock (liquidation preference $25 per
share) for each of its existing non-cumulative preferred stock (liquidation
preference $25 per share). The exchange offer expired on October 10, 1995.
As of that date, $2.8 million or 92 percent of the total outstanding shares
were exchanged. Pro-Fac has received approval for inclusion of the
cumulative preferred stock on the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
In June 1995, the Board approved, pursuant to its authority under the Charter
Amendment the creation of a new series of preferred stock, to be designated
the "Class B, Series 1, 10 percent cumulative preferred stock" (the "Class B
Stock"). Pro-Fac expects to issue up to 500,000 shares of the Class B Stock
at $10 per share (liquidation value $10 per share) to employees of Curtice-
Burns pursuant to an Employee Stock Purchase Plan adopted by the Curtice-
Burns and Pro-Fac Boards of Directors in June 1995 and implemented in the
fall of 1995.
It is expected that, beginning with the retains issued in 1995, the maturity
of all future retains will result in the issuance of Class A Cumulative
Preferred Stock. With respect to retains issued prior to September 1995,
however, it is expected that the Board will permit holders of such retains to
elect to receive Non-Cumulative Preferred Stock rather than Class A
Cumulative Preferred Stock.<PAGE>
<PAGE>
In the first quarter of fiscal 1996, the Cooperative declared a cash dividend
of 6.0 percent of the par value of preferred stock and 5.0 percent of the
par value of the common stock, paid on July 15, 1995. These dividends
amounted to $5,035,000.
Purchase of Packer Foods: On July 21, 1995, the Company completed the
acquisition of Packer Foods, a privately owned, Michigan-based food
processor. The total cost of acquisition was approximately $5.4 million in
notes plus interest at 10 percent to be paid until the notes mature in the
year 2000. The transaction will be accounted for as a purchase. For its
latest fiscal year ended December 31, 1994, Packer had net sales of $13
million, operating income of $300,000, and income before extraordinary items
of $100,000. Packer Foods is in the process of being merged into the
Company's Comstock Michigan Fruit operations.
Commitments: The Company's 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.
Southern Frozen Foods: In July 1994, a plant operated by the Company's
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 the Company's insurance
policies. A gain on assets destroyed in the fire was recognized by the
Company prior to the acquisition. Subsequent to the acquisition, additional
costs in the amount of $2.3 million were incurred for which negotiations are
currently in progress with the insurance carriers. As of September 23, 1995,
the Company has received $12.5 million in proceeds from the insurance claims
for the fire and approximately $6.4 million is receivable at September 23,
1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
The purpose of this review is to highlight the more significant changes in
the major items of Pro-Fac's statement of operations and net proceeds in the
first quarter of fiscal 1996 and 1995.
PRO-FAC'S RESULTS OF OPERATIONS
As a result of the Acquisition on November 3, 1994, the consolidated results
of operations of Pro-Fac after that date include gross profit, operating
expenses, and other results of operations of Curtice-Burns. Prior to
November 3, 1994, Pro-Fac's results of operations included only amounts paid
or payable by Curtice-Burns to Pro-Fac under the Integrated Agreement.
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.
Changes From the First Quarter of Fiscal 1995 to the First Quarter of Fiscal
1996: For the quarter ended September 23, 1995, 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 $ 42.6
Decreased share of Curtice-Burns earnings (2.4)
Decreased interest income received from Curtice-Burns (4.2)
Increased selling, general and administrative expenses (36.8)
Increased interest expense (7.1)
Change in income before taxes, dividends, and allocations
of net proceeds (7.9)
Change in taxes on income 1.8
Change in net income $ (6.1)
</TABLE>
The gross profit change represents Curtice-Burns gross profit after the
acquisition. 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.
CURTICE-BURNS RESULTS OF OPERATIONS
The following tables illustrate the Company's results of operations by
business for the quarters ended September 23, 1995 and September 24, 1994,
and the Company's total assets by business as of September 23, 1995 and
September 24, 1994.
<PAGE>
<PAGE>
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 23, September 24,
1995 1994
% of % of
$ Total $ Total
<S> <C> <C> <C>
Comstock Michigan Fruit ("CMF") $ 68.7 41.6% $ 71.7 40.6%
Nalley's Fine Foods 46.4 28.1 43.9 24.8
Southern Frozen Foods 22.9 13.9 23.1 13.1
Snack Foods Group 15.4 9.3 15.4 8.7
Brooks Foods 6.9 4.2 5.4 3.1
Finger Lakes Packaging 12.3 7.4 14.6 8.3
Intercompany eliminations1 (7.4) (4.5) (9.7) (5.6)
Subtotal ongoing operations 165.2 100.0 164.4 93.0
Businesses sold2 -- -- 12.4 7.0
Total $165.2 100.0% $176.8 100.0%
<FN>
1 Intercompany sales by Finger Lakes
2 The Company sold Nalley's U.S. Chips and Snacks business and Nalley's Canada Ltd. See
NOTE 4 -
"Disposals."
</TABLE>
<TABLE>
Operating Income Before Dividing with Pro-Fac1
(Dollars in Millions)
<CAPTION> Quarter Ended
September 23, September 24,
1995 1994
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $ 3.9 67.2% $ 6.7 55.8%
Nalley's Fine Foods 1.0 17.2 4.4 36.7
Southern Frozen Foods 1.0 17.2 2.4 20.0
Snack Foods Group 1.0 17.2 0.8 6.7
Brooks Foods 0.4 6.9 0.1 0.8
Finger Lakes Packaging 0.8 13.8 1.0 8.3
Intercompany eliminations (2.3) (39.5) (3.0) (25.0)
Subtotal ongoing operations 5.8 100.0 12.4 103.3
Businesses sold2 -- -- (0.4) (3.3)
Total $ 5.8 100.0% $12.0 100.0%
<FN>
1 Table excludes restructuring loss from division disposals in fiscal 1995, change in control
expense
in fiscal 1995, and gain on assets as a result of a fire claim recorded in fiscal 1995.
2 The Company sold the Nalley's U.S. Chips and Snack business and Nalley's Canada Ltd.
See NOTE 4 -
"Disposals."
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Depreciation and Amortization
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 23, September 24,
1995 1994
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $3.5 48.0% $2.7 49.1%
Nalley's Fine Foods 1.3 17.8 0.8 14.5
Southern Frozen Foods 1.3 17.8 0.6 10.9
Snack Foods Group 0.5 6.8 0.5 9.1
Brooks Foods 0.2 2.8 0.2 3.6
Finger Lakes Packaging 0.5 6.8 0.3 5.5
Corporate -- -- 0.1 1.8
Subtotal ongoing operations 7.3 100.0 5.2 94.5
Businesses sold 1 -- -- 0.3 5.5
Total $7.3 100.0% $5.5 100.0%
<FN>
1 The Company sold the Nalley's U.S. Chips and Snack business and Nalley's Canada Ltd.
See NOTE 4 -
"Disposals."
</TABLE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 23, September 24,
1995 1994
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $338.2 46.6% $258.9 49.2%
Nalley's Fine Foods 161.5 22.3 84.4 16.1
Southern Frozen Foods 99.2 13.7 47.6 9.1
Snack Foods Group 28.0 3.9 24.1 4.6
Brooks Foods 23.4 3.2 13.0 2.5
Finger Lakes Packaging 37.5 5.2 50.5 9.6
Corporate 37.4 5.1 22.8 4.3
Subtotal ongoing operations 725.2 100.0 501.3 95.4
Businesses sold1 -- -- 24.5 4.6
Total $725.2 100.0% $525.8 100.0%
<FN>
1 The Company sold the Nalley's U.S. Chips and Snack business and Nalley's Canada Ltd.
See NOTE 4 -
"Disposals."
</TABLE>
<PAGE>
<PAGE>
The following table illustrates the Company's income statement data and the
percentage of net sales represented by these items for the quarters ended
September 23, 1995 and September 24, 1994.
<TABLE>
Consolidated Statement of Operations
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 23, September 24,
1995 1994
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
Net sales $165.2 100.0% $176.8 100.0%
Cost of sales 122.6 74.2 126.8 71.7
Gross profit 42.6 25.8 50.0 28.3
Restructuring expenses, including net loss from
division disposals -- -- (8.4) (4.8)
Change in control expenses -- -- (1.8) (1.0)
Gain on assets incurred as result of a fire claim -- -- 6.5 3.7
Other selling, administrative and general expenses (36.8) (22.3) (38.0) (21.5)
Operating income/(loss) before dividing with Pro-Fac 5.8 3.5 8.3 4.7
Interest expense (10.0) (6.0) (5.1) (2.9)
Pretax (loss)/earnings before dividing with Pro-Fac (4.2) (2.5) 3.2 1.8
Pro-Fac share of loss/(earnings) 2.1 1.3 (1.5) (0.8)
Loss/(income) before taxes (2.1) (1.2) 1.7 1.0
Tax benefit/(provision) 0.3 0.1 (1.4) (0.8)
Net loss/(income) $ (1.8) (1.1)% $ 0.3 0.2%
</TABLE>
CHANGES FROM FIRST QUARTER FISCAL 1995 TO FIRST QUARTER FISCAL 1996
General: First quarter net sales for Curtice-Burns declined from $176.8
million in the previous year to $165.2 million in the current year. After
adjusting for divested businesses, which had net sales of $12.4 million in
the first quarter of the prior year, there was a small net sales increase.
In conjunction with the acquisition, net assets were adjusted to fair market
value and additional debt was incurred. Accordingly, depreciation,
amortization and interest expense have increased, making year-to-year
comparisons difficult to analyze. Nonetheless, earnings before interest,
depreciation and amortization (EBITDA) for ongoing businesses can be
compared.
The following table reconciles EBITDA with pretax earnings:
<TABLE>
Curtice Burns Foods Earnings Comparison
(Dollars in Thousands)
<CAPTION>
Quarter Ended
9/23/95 9/24/94 Variance
<S> <C> <C> <C>
Pretax earnings prior to interest, depreciation and
amortization from ongoing businesses (EBITDA) $ 13,174 $17,290
$(4,116)
(Losses)/gains from non-recurring and sold businesses -- (3,374) 3,374
Depreciation and amortization (7,367) (5,582) (1,785)
Operating earnings for ongoing businesses 5,807 8,334 (2,527)
Interest expense (10,046) (5,071) (4,975)
Pretax (loss)/earnings prior to dividing with Pro-Fac $ (4,239) $ 3,263
$(7,502)
</TABLE>
The reduction in EBITDA from the prior year first quarter is $4.1 million or
24 percent. There are two main reasons for this: a $3.0 million decrease
due to a decline in vegetable pricing compared with the prior year, an
industry-wide problem related to the bountiful 1994 national vegetable
harvest; and an increase in promotional expenses, particularly at Nalley's
Fine Foods division, caused in part by "slotting allowances," which are
necessary expenses for new product introductions. Nalley's introduced a new
line of Bernstein's fat-free dressings during the first quarter which
management believes will have a positive effect on earnings later this fiscal
year.
The remaining earnings variances relate to non-recurring charges in the
previous year along with the increased depreciation, amortization and
interest.
<PAGE>
<PAGE>
Many of these variances were expected, specifically the vegetable pricing
situation and changes related to our acquisition by Pro-Fac. The September
quarter has historically had lower earnings than the other quarters of the
year. Accordingly, interest coverage and other such measures should be made
on a full year basis. Vegetable prices have stabilized, and with harvesting
nearly done for the smaller 1995 vegetable crop, prices may gradually
increase during the 1996 fiscal year. The high promotional expenses related
to new products are not expected to continue through the remainder of the
fiscal year.
Net Sales: The Company's net sales for the quarter ended September 23, 1995
of $165.2 million decreased $11.6 million or 6.6 percent from $176.8 million
for the same quarter last year. The net sales attributable to businesses
sold were $12.4 million in the quarter ended September 24, 1994. The
Company's net sales from ongoing operations, excluding businesses sold, were
$164.4 in the quarter ended September 24, 1994 compared to $165.2 million in
the quarter ended September 23, 1995. This increase in net sales of $0.8
million for ongoing operations is comprised of increased net sales at
Nalley's and Brooks of $2.5 million and $1.5 million, respectively, partially
offset by decreases of $3.2 million in the other operations, primarily at
CMF. CMF net sales decreased $3.0 million or 4.2 percent from the prior year
quarter primarily due to decreased pricing on canned and frozen vegetables
which offset a 7.0 percent increase in unit sales for the category. It is
anticipated vegetable pricing will improve in the remainder of fiscal 1996.
The increased net sales at Nalley's of $2.5 million or 5.7 percent primarily
relates to increases in the salad dressings, salsa, and pickles product
lines. The net sales increase at Brooks of $1.5 million or 27.8 percent is
primarily attributable to a 37.4 percent increase in unit sales compared to
the prior year quarter.
Gross Profit: Gross profit of $42.6 million for the quarter ended September
23, 1995 decreased $7.4 million or 14.8 percent from $50.0 million for the
quarter ended September 24, 1994. Of this net decrease, a $2.9 million
reduction was attributable to businesses sold, and a decrease of $4.5 million
was attributable to the Company's ongoing operations. The decrease in gross
profit for ongoing operations is comprised of increases and decreases as
follow:
<TABLE>
<CAPTION>
<S> <C>
CMF $(3.6)
Southern Frozen Foods (1.2)
Nalley's Fine Foods (0.8)
Brooks 0.3
All Other 0.8
$(4.5)
</TABLE>
The decreased gross profit at the Company's CMF and Southern Frozen Foods
operations primarily relates to depressed vegetable pricing. The decreased
gross profit at the Company's Nalley's operation primarily relates to higher
costs in the canned meats and salads category. The improvement at Brooks is
due to the increased sales volume.
Restructuring Expenses Including Net Loss From Division Disposals:
Restructuring expenses, including net loss from division disposals, resulted
in a charge in 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 business and other
expenses relating to the disposal of this operation. See NOTE 4 --
"Disposals."
Change in Control Expenses: Change in control expenses recorded in fiscal
1995 amounting to $1.8 million reflect non-deductible expenses relating to
the sale of the Company covering legal, accounting, investment banking, and
other expenses relative to the change in control issue. All of these
expenses were incurred by the Predecessor entity. See NOTE 3 -- "Change in
Control of the Company."
Gain on Assets Incurred as a Result of Fire Claim at Southern Frozen Foods:
The gain on assets incurred as a result of a fire claim recorded in the first
quarter of fiscal 1995 amounted to $6.5 million.
Other Selling, Administrative, and General Expenses: Other selling,
administrative, and general expenses in the quarter ended September 23, 1995
of $36.8 million decreased $1.2 million or 3.2 percent from $38.0 million in
the quarter ended September 24, 1994. This net decrease of $1.2 million
includes primarily:
<TABLE>
(In Millions)
<CAPTION> Businesses
Sold Ongoing Total
<S> <C> <C> <C>
Change in trade promotions $(1.1) $ 1.0 $(0.1)
Change in advertising and selling costs (1.9) (0.2) (2.1)
Change in other selling, administrative, and
general expenses (0.3) 1.3 1.0
$(3.3) $ 2.1 $(1.2)
</TABLE>
<PAGE>
<PAGE>
The $1.0 million increase in trade promotions at the Company's ongoing
operations is primarily comprised of increased spending at the Nalley's
operation on the dressing category which offset decreased spending on CMF's
filling & topping category.
The $1.3 million increase in other administrative expenses at the Company's
ongoing operations primarily relates to increased costs at the Company's CMF
and Nalley's operations.
Operating Income Before Dividing with Pro-Fac: The Company's operating income
(before dividing with Pro-Fac) for the quarter ended September 23, 1995 of
$5.8 million decreased $2.5 million or 30.1 percent from $8.3 million in the
quarter ended September 24, 1994. Prior year operating income included:
restructuring expenses, including a net loss from division disposals of $8.4
million; change in control expenses of $1.8 million; net gain on assets
resulting from fire claim of $6.5 million; and operating losses attributable
to businesses sold of $0.4 million. Excluding the restructuring expenses,
change in control expenses, gain on assets incurred resulting from the fire
claim, and operating losses attributable to businesses sold, the Company's
operating income (before dividing with Pro-Fac) from ongoing operations for
the quarter ended September 23, 1995 of $5.8 million decreased $6.6 million
or 53.2 percent from $12.4 million in the quarter ended September 24, 1994.
Interest Expense: Interest expense in the quarter ended September 23, 1995
of $10.0 million increased $4.9 million or 96.1 percent from $5.1 million in
the quarter ended September 24, 1994. This increase was primarily
attributable to the increased borrowing and increased interest rates related
to the acquisition of the Company by Pro-Fac.
Provision for Taxes: The benefit for taxes in the quarter ended September 23,
1995 of $0.3 million changed $1.7 million from the provision of $1.4 million
in the quarter ended September 24, 1994. See NOTE 5, "Taxes," relative to
the change in tax status of Curtice-Burns.
Net Income: The Company's net (loss)/income for the quarter ended September
23, 1995 of $(1.8) million decreased $2.1 million from $0.3 million in the
prior year quarter. The primary reasons for the Company's $2.1 million
decrease in net income are decreased gross profit and increased interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
In the quarter ended September 23, 1995, the net cash used in operating
activities of Pro-Fac of $70.7 million reflects net loss of $2.4 million.
Depreciation and amortization of assets amounted to $7.6 million.
Inventories increased $67.5 million, and accounts receivable increased $5.1
million. Changes in other assets and liabilities amounted to $3.3 million.
Cash flows used in investing activities of $7.3 million include net cash used
for capital expenditures in the quarter of $6.7 million, disposals provided
$4.8 million, and the acquisition of Packer used $5.4 million.
Net cash provided by financing activities in the quarter amounted to $79.1
million. Proceeds from seasonal borrowings amounted to $86.0 million,
proceeds from long-term debt to finance the Packer acquisition amounted to
$5.4 million, payments on long-term debt amounted to $7.3 million, and
dividends paid amounted to $5.0 million.
Because of the additional debt as a result of the acquisition of the Company
by Pro-Fac, the cash flow of the Company is the single, most important
measure of performance. Net cash provided from operations in fiscal 1996 is
expected to be sufficient to cover scheduled payments on long-term debt and
planned capital expenditures.
New Borrowings : Under the New Credit Agreement, as amended, Curtice-Burns
is able to borrow up to $99.8 million for seasonal working capital purposes
under the Seasonal Facility, subject to a borrowing base limitation, and
obtain up to $14.2 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) $99.8 million and (ii) the sum of 60 percent of eligible
accounts receivable plus 50 percent of eligible inventory.
As of September 23, 1995, (i) cash borrowings outstanding under the Seasonal
Facility were $86.0 and (ii) availability under the Seasonal Facility, after
taking into account the amount of the borrowing base, was $13.8 million. In
addition to its seasonal financing, as of September 23, 1995, The Company had
$1.0 million available for long-term borrowings under the Term Loan Facility.
The Company 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, 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 requires that Pro-Fac and Curtice-Burns<PAGE>
<PAGE>
meet certain financial tests and ratios and comply with certain other
restrictions and limitations. As of September 23, 1995, the Company is in
compliance with all such 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 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.
As a result of the shortage situation of the national supply due to the low
yields from the 1993 crop year, many vegetable producers intentionally
increased planned production for the 1994 crop year attempting to return the
supplies to ample levels. Favorable weather conditions in the 1994 growing
season, however, produced high crop yields in addition to the increased
planned production. This resulted in somewhat depressed selling prices,
increased inventory levels throughout fiscal 1995, and left a higher
carryover inventory at the end of fiscal 1995 than at the end of fiscal 1994
for the Company. With the harvesting nearly done for the smaller 1995
vegetable crop, it is anticipated prices and inventory levels will stabilize
during the 1996 fiscal year.
Required scheduled payments on long-term debt will approximate $8.0 million
in the coming year. Cash proceeds from the sale of Nalley's Canada Ltd. of
approximately $3.8 million were applied to long-term debt in accordance with
the terms of the New Credit Agreement.
Supplemental Information on Inflation: The changes in costs and prices within
the Company'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.
Sale of Nalley's Canada Ltd.: On June 26, 1995 Curtice-Burns sold its
Canadian subsidiary, Nalley's Canada Ltd., located in Vancouver, British
Columbia, to a management group within the Canadian subsidiary. This sale
was contemplated by Pro-Fac in conjunction with the acquisition. Nalley's
U.S. will have an ongoing supply agreement with Nalley's Canada Ltd. as a
result of the sale.
Packer Foods: On July 21, 1995, the Company completed the acquisition of
Packer Foods, a privately owned, Michigan-based food processor. The total
cost of acquisition was approximately $5.4 million in notes plus interest at
10 percent to be paid until the notes mature in the year 2000. The
transaction will be accounted for as a purchase. For its latest fiscal year
ended December 31, 1994, Packer had net sales of $13 million, operating
income of $300,000, and income before extraordinary items of $100,000.
Packer Foods is in the process of being merged into the Company's CMF
operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
Exhibit 27 Financial Data Schedule
(b) No current report on Form 8-K was 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: October 25, 1995 BY:/s/ Stephen R. Wright
STEPHEN R. WRIGHT, GENERAL MANAGER
Date: October 25, 1995 BY:/s/ William D. Rice
WILLIAM D. RICE, ASSISTANT TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> SEP-23-1995
<CASH> 5221
<SECURITIES> 0
<RECEIVABLES> 73693
<ALLOWANCES> 0
<INVENTORY> 231946
<CURRENT-ASSETS> 331437
<PP&E> 279669
<DEPRECIATION> 0
<TOTAL-ASSETS> 740067
<CURRENT-LIABILITIES> 201839
<BONDS> 0
<COMMON> 9432
0
76083
<OTHER-SE> 52273
<TOTAL-LIABILITY-AND-EQUITY> 740067
<SALES> 165178
<TOTAL-REVENUES> 165178
<CGS> 122646
<TOTAL-COSTS> 159361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10046
<INCOME-PRETAX> (4229)
<INCOME-TAX> (1796)
<INCOME-CONTINUING> (2433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
