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 March 25, 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 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 April 25, 1995.
Common Stock - 2,043,493
Page 1 of 31<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
INTRODUCTION
Curtice-Burns Foods, Inc. ("Curtice-Burns" or "the Company") is a producer and
marketer of processed food products. In addition, the Company manufactures
cans which are both utilized by the Company and sold to third parties. The
Company sells products in three principal categories: (i) "branded" products,
which are sold under the Company's 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
distributors and institutions. In fiscal 1994, approximately one-half of the
Company's net sales were branded, and the remainder were split between private
label and food service. The Company operates throughout the United States and
in Western Canada through six operating divisions.
On November 3, 1994 the Company was acquired by Pro-Fac Cooperative, Inc.
("Pro-Fac"), an agricultural cooperative formed under New York State law to
process and market crops grown by its members.
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 agreements. The Integrated Agreement, which has been superseded
by the Pro-Fac Marketing Agreement, principally governed four arrangements
between Pro-Fac and the Company: Facilities Financing, Operations Financing,
Marketing, and Management. Pro-Fac continues to market its members' crops and
provide other accommodations to the Company, and the Company 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 the Company and a subsequent merger of PF Acquisition Corp.
("PFAC"), a wholly-owned subsidiary of Pro-Fac, into the Company. As a result
of the acquisition, the holders of the Class A and Class B common stock of the
Company became entitled to $19.00 per share in cash, the Company became a
wholly-owned subsidiary of Pro-Fac, and the Company 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 $94.8
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 $45.1 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 (the "Notes") due 2005 and entered into a credit
agreement (the "New Credit Agreement") with CoBank, ACB, formerly The <PAGE>
<PAGE>
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
Agreement have become obligations of the Company. Consequently, the Company
is more highly leveraged and has greater interest expense than prior to the
acquisition.
Further information concerning the acquisition, how it was accounted for, and
financed is set forth in Amendment No. 1 to the Company's 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 Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
<S> <C> <C> <C> <C>
Net sales $180,357 $ 2,670 $347,069 $58,423
Cost of sales 126,779 2,670 257,458 58,423
Gross profit 53,578 -- 89,611 --
Share of Curtice-Burns earnings
prior to acquisition -- 2,517 5,137 14,990
Interest income from Curtice-Burns
prior to acquisition -- 3,676 6,102 11,992
Other selling, general, and
administrative (expenses)/income (40,207) 357 (66,608) 648
Operating income 13,371 6,550 32,242 27,630
Interest expense (10,509) (2,724) (20,603) (8,998)
Income before taxes, dividends
and allocation of net proceeds 2,862 3,826 13,639 18,632
Tax benefit/(provision) (974) 718 4,293 (100)
Net income (net proceeds) $ 1,888 $ 4,544 $ 17,932 $18,532
Allocation of Net Proceeds:
Net income $ 1,888 $ 4,544 $ 17,932 $18,532
Dividends on common and preferred stock -- -- (4,914) (4,390)
Net proceeds 1,888 4,544 13,018 14,142
Allocation to earned surplus (1,205) (1,480) (9,808) (2,147)
Net proceeds available to members $ 683 $ 3,064 $ 3,210 $11,995
Allocation of net proceeds available to members:
Estimated to be paid currently $ 122 $ 583 $ 597 $ 2,308
Qualified retains 486 2,328 2,388 9,229
Non-qualified retains 75 153 225 458
Net proceeds available to members $ 683 $ 3,064 $ 3,210 $ 11,995
<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
<S> <C> <C> <C>
3/25/95 6/25/94 3/26/94
Current assets:
Cash $ 5,294 $ 10 $ 63
Accounts receivable, trade, net 58,813 -- --
Accounts receivable, other 6,415 68 24
Receivable from Curtice-Burns Foods, Inc. -- 11,197 15,469
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 1,340
Inventories:
Finished goods 136,915 -- --
Materials and supplies 54,755 -- --
Total inventories 191,670 -- --
Current deferred taxes receivable 8,461 -- --
Income taxes receivable 1,085 -- --
Prepaid manufacturing expense 5,062 -- --
Prepaid expenses 5,911 2,464 1,722
Total current assets 282,711 46,708 53,802
Goodwill and other intangible assets, net 93,793 -- --
Property, plant, and equipment, net 272,960 -- --
Long-term portion of investment in direct
financing leases -- 123,677 118,677
Long-term loans receivable from Curtice-Burns Foods, Inc. -- 78,040 86,262
Investment in Bank 22,907 19,632 19,356
Deferred tax benefit -- 2,623 2,170
Finance receivable related to intangibles -- 24,909 25,331
Assets held for resale 5,406 -- --
Other assets 24,909 462 248
Total assets $702,686 $296,051 $305,846
<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
<S> <C> <C> <C> <C> <C> <C>
3/25/95 6/25/94 3/26/94
Current liabilities:
Notes payable $ 66,000 $ 11,500 $ 19,500
Accounts payable 44,430 617 396
Accrued employee compensation 9,925 -- --
Other accrued expenses 24,819 2,536 3,226
Current portion of obligations under capital leases 785 -- --
Income taxes payable -- 668 190
Current portion of long-term debt 8,007 14,000 14,000
Amounts due members 14,490 15,327 16,425
Total current liabilities 168,456 44,648 53,737
Deferred income taxes 53,746 -- --
Obligations under capital leases 1,296 -- --
Long-term debt 165,438 127,134 133,014
Senior subordinated notes 160,000 -- --
Other non-current liabilities 18,443 504 484
Commitments and contingencies
Common stock, par value $5, authorized -
5,000,000 shares
3/25/95 6/25/94 3/26/94
Shares issued 2,043,493 2,056,878 2,066,585
Shares subscribed 2,432 9,270 9,679
Total subscribed and issued 2,045,925 2,066,148 2,076,264
Less subscriptions receivable in
installments (2,432) (9,270) (9,679)
2,043,493 2,056,878 2,066,585 10,217 10,284 10,335
Shareholders' and members' capitalization:
Retained earnings allocated to members 30,749 36,924 33,719
Non-qualified allocation to members 3,765 7,454 6,162
Preferred stock, par value $25, authorized -
5,000,000 shares; issued and outstanding -
3,043,325, 2,576,720 and 2,576,720, respectively 76,083 64,418 64,418
Earned surplus 14,493 4,685 3,977
Total shareholders' and members' capitalization 125,090 113,481 108,276
Total liabilities and capitalization $702,686 $296,051 $305,846
<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>
Nine months Ended
3/25/95 3/26/94
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,932 $ 18,532
Amount payable to members currently (597) (2,308)
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of goodwill and other intangibles 1,020 --
Depreciation 9,774 --
Deferred tax (2,569) --
Equity in undistributed earnings of the Bank (1,288) (1,541)
Change in assets and liabilities:
Accounts receivable 14,170 1
Inventories 34,550 --
Accounts payable and accrued expenses (32,063) (416)
Amounts due to members (837) 1,900
Federal and state taxes refundable (5,096) 260
Other assets and liabilities (5,300 (1,115)
Net cash provided by operating activities 29,696 15,313
Cash flows from investing activities:
Due from Curtice-Burns, net 87,352 (11,970)
Return from direct investment in financing leases 141,322 33,652
Investment in Bank 20,785 (1,169)
Finance receivable related to intangibles 24,909 1,214
Purchase of property, plant, and equipment (9,433) --
Proceeds from disposals of property, plant, and equipment 1,239 --
Cash paid for acquisition (136,289) --
Net cash provided by investing activities 129,885 21,727
Cash flows from financing activities:
Proceeds from issuance of short-term debt 38,500 7,500
Payments on short-term debt (49,227) --
Payments on long-term debt (137,777) (36,986)
Repurchase of common stock, net of issuances (67) (3,120)
Cash portion of non-qualified conversion (802) --
Cash paid in lieu of fractional shares (10) --
Cash dividends paid (4,914) (4,390)
Net cash used in financing activities (154,297) (36,996)
Net change in cash 5,284 44
Cash at beginning of period 10 19
Cash at end of period $ 5,294 $ 63
<FN>
All amounts above exclude the effects of the acquisition
as detailed in the Supplemental Disclosure of
Cash Flow Information
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 (Continued)
(Dollars in Thousands)
<CAPTION>
Nine months Ended
3/25/95 3/26/94
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid/(received) during the year for:
Interest $ 19,140 $ 8,998
Income taxes, net $ (45) $ (180)
Cash paid for the acquisition of Curtice-Burns
Accounts receivable 79,330
Inventories 226,220
Investment in Bank 21,448
Other assets 40,713
Goodwill and other intangible assets 94,813
Fixed assets 270,443
Accounts payable and accrued expenses (125,087)
Short-term debt (72,562)
Long-term debt (170,088)
Subordinated notes (160,000)
Deferred tax liability (50,477)
Other liabilities (18,464)
$ 136,289
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of retains to preferred stock $ 11,665 $ 4,948
Receivables from Curtice-Burns forgiven in the acquisition:
Due from Curtice-Burns for short- and long-term debt $ 151,088
Investment in direct-financing lease 129,978
Investment in the Bank 21,448
Finance receivable related to intangibles 24,486
<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 March 25,
1995, 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. Assets held for resale are separately classified on the balance
sheet and represent fixed assets not currently used in, nor planned to be used
in, the business operations of the Company.
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 $94.8 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 nine months ending March 26, 1994 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.
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (SFAS No. 121). SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of.
Management believes current policies in effect, such as that pertaining to
goodwill and intangibles (as stated previously in this NOTE 1), satisfy the
requirements of SFAS No. 121, and no further action on the part of the Company
will be required for compliance.
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
nine months ended March 25, 1995 and March 26, 1994 include: commercial
market value of crops delivered, $56.1 million and $58.4 million,
respectively; interest income, $6.1 million and $12.0 million, respectively;
and additional proceeds from profit sharing provisions, $8.4 million and $15.0
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. 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
<PAGE>
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.
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 $94.8
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 $45.1 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 (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 Curtice-Burns.
Following, in capsule form, is the consolidated unaudited results of
operations of Curtice-Burns Foods for the nine months ended March 25, 1995 and
March 26, 1994, assuming the acquisition by Pro-Fac took place at the
beginning of the 1994 fiscal year.
<TABLE>
(In Millions)
<CAPTION>
Nine months Ended
(Unaudited)
March 25, 1995 March 26, 1994
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Net sales $347.1 $573.2 $58.4 $642.8
Income before taxes $ 13.6 $ 11.1 $18.6 $ 25.1
Net income $ 17.9 $ 6.2 $18.5 $ 17.4
</TABLE>
NOTE 4. DISPOSALS/POTENTIAL DISPOSAL
Disposals
National Oats. On November 19, 1993, the Company sold the oats portion of the
National Oats business for $39.0 million and transferred the popcorn business
<PAGE>
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, the Company 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, the Company sold the meat snacks business
for approximately $5.0 million. There was no material gain or loss on this
transaction after taking into account a restructuring charge recorded in
fiscal 1993.
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. 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.
Potential Disposal
Nalley's Canada Ltd. On March 30, 1995, the Company announced the potential
sale of Nalley's Canada Ltd., located in Vancouver, British Columbia, to a
management group within its Canadian division.
The sale agreements are being negotiated and are subject to Board approval.
For the nine months ended March 25, 1995, net sales were $30.1 millon and
operating income was breakeven. The net assets employed, which have not yet
been classified as being held for resale, are $9.3 million as of March 25,
1995.
Nalley's Canada Ltd. is Western Canada's largest snack food company and also
competes in the salad dressing, canned meat, and pickle categories. The
buyers intend to close the salad dressing plant but would continue to operate
its snack food plant. The Company's Nalley's U.S. division would provide to
Nalley's Canada Ltd., through a supply agreement, those products which would
no longer be manufactured in Canada through. If this sale is finalized, it
would be in late June or early July 1995 with no significant gain or loss to
the Company.
The business divestitures resulted in the following charges to earnings of the
Predecessor Entity company 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 the Company historically have been funded with cash flows
generated by operations, borrowings from Pro-Fac (which in turn borrowed a<PAGE>
portion of these funds from the Bank), and borrowings under the Company's
seasonal facility with a syndicate of commercial lenders led by The Chase
Manhattan Bank, N.A. Pro-Fac and the Company 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 the Company
by Pro-Fac and replaced by the New Credit Agreement.
New Credit Agreement
The Bank has provided the Company, 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 the Company, and to pay fees and
expenses related to the purchase of shares.
The Bank also has provided the Company, 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. The Company's
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 the Company and each guarantor, respectively, 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 the Company's 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 the Company's 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. These installments are equivalent to $8.0 million per
year. 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. The Company 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.<PAGE>
<PAGE>
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 the Company, 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. Management believes the Company 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 the Company, subordinated
in right of payment to certain other debt obligations of the Company
(including the Company's 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 the Company 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 12 30-day months.
Each of the Pro-Fac and the Subsidiary Guarantors has unconditionally
guaranteed the payment of Obligations of the Company 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 the
Company. Senior Indebtedness of the Company includes the short- and long-term
debt due the Bank as well as approximately $1.7 million of supplemental
executive retirement benefits.
<PAGE>
<PAGE>
Funds made available by the distribution of investment certificates 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.
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 $4.0 million. In addition, the Cooperative
has filed for a tax refund for fiscal year 1991 and will soon be filing a
refund claim for fiscal 1992 for approximately $3.1 million and interest
payments of approximately $.5 million. No such refund amounts have been
reflected in the Cooperative's financial statements as of March 25, 1995. 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 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 Cooperative ("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. In April 1995, 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<PAGE>
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 by Curtice-Burns representing the insurance
proceeds for the replacement value in excess of the depreciated book value of
the building and equipment destroyed in this fire. It is expected the
facility will be operational in the fourth quarter of fiscal 1995.
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
For the quarter ended March 25, 1995, the change in net proceeds compared to
the prior year is summarized below in millions of dollars:
Curtice-Burns gross profit $ 53.6
Decreased share of Curtice-Burns earnings (2.5)
Decreased interest income received from Curtice-Burns (3.7)
Increased selling, general and administrative expenses (40.6)
Increased interest expense (7.8)
Change in income before taxes, dividends, and allocations
of net proceeds (1.0)
Change in tax benefit/(provision) (1.7)
Change in net proceeds $ (2.7)
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".
Nine Month Changes From the Corresponding Year
The commercial market value of crops delivered by members during the nine
months ended March 25, 1995 decreased 0.3 percent to $58.2 million from $58.4
million in the comparable fiscal 1994 period.
For the nine months ended March 25, 1995, the change in net proceeds compared
to the prior year is summarized below in millions of dollars:<PAGE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Curtice-Burns gross profit $ 89.6
Decreased share of Curtice-Burns earnings (9.8)
Decreased interest income received from Curtice-Burns (5.9)
Increased selling, general and administrative expenses (67.3)
Increased interest expense (11.6)
Change in income before taxes, dividends, and allocations
of net proceeds (5.0)
Change in tax benefit/(provision) 4.4
Change in net proceeds $ (0.6)
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 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.
The following tables illustrate the Company's results of operations by
business for the three and nine months of fiscal 1994 compared to the three
and nine months of fiscal 1995.
<PAGE>
<PAGE>
</TABLE>
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") 77.8 43.1 79.5 42.0 253.8 44.3 259.7 40.4
Nalley's Fine Foods 43.3 24.0 40.8 21.5 131.5 22.9 124.7 19.4
Southern Frozen Foods 23.6 13.1 22.7 12.0 73.3 12.8 70.9 11.0
Snack Foods Group 14.1 7.8 14.5 7.7 44.8 7.8 45.3 7.1
Brooks Foods 9.3 5.2 9.3 4.9 26.0 4.5 26.6 4.1
Finger Lakes Packaging 11.2 6.2 10.8 5.7 36.5 6.4 35.5 5.5
Intercompany eliminations1 (7.9) (4.4) (6.9) (3.7) (25.1) (4.4) (24.6) (3.8)
Subtotal ongoing operations 171.4 95.0 170.7 90.1 540.8 94.3 538.1 83.7
Businesses sold and to be sold2 9.0 5.0 18.8 9.9 32.4 5.7 104.7 16.3
Total 180.4 100.0 189.5 100.0 573.2 100.0 642.8 100.0
<FN>
1 Intercompany sales by Finger Lakes
2 The Company 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,
and announced the potential sale of Nalley's Canada Ltd. See NOTE 4 - "Disposals/Potential
Disposal."
</TABLE>
<TABLE>
Cost of Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF 59.1 46.7 59.2 44.1 188.2 46.7 195.1 42.7
Nalley's Fine Foods 26.0 20.5 24.8 18.5 79.3 20.0 76.3 16.7
Southern Frozen Foods 18.4 14.5 17.6 13.1 57.1 14.2 55.6 12.2
Snack Foods Group 9.2 7.3 9.5 7.1 28.8 7.2 28.9 6.3
Brooks Foods 5.9 4.7 6.1 4.6 16.5 4.1 17.3 3.8
Finger Lakes Packaging 10.3 8.1 9.5 7.1 33.2 8.2 32.0 7.0
Intercompany eliminations and
corporate overhead (9.2) (7.4) (6.6) (5.0) (25.4) (6.6) (23.0) (5.0)
Subtotal ongoing operations 119.7 94.4 120.1 89.5 377.7 93.8 382.2 83.7
Businesses sold and to be sold1 7.1 5.6 14.1 10.5 25.1 6.2 74.4 16.3
Total 126.9 100.0 134.2 100.0 402.8 100.0 456.6 100.0
<FN>
1 The Company 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,
and announced the potential sale of Nalley's Canada Ltd. See NOTE 4 -
"Disposals/Potential Disposal."
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Gross Profit
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF 18.7 34.9 20.3 36.7 65.6 38.5 64.6 34.7
Nalley's Fine Foods 17.3 32.3 16.0 28.9 52.2 30.6 48.4 26.0
Southern Frozen Foods 5.2 9.7 5.1 9.2 16.2 9.5 15.3 8.2
Snack Foods Group 4.9 9.1 5.0 9.0 16.0 9.4 16.4 8.8
Brooks Foods 3.4 6.3 3.2 5.8 9.5 5.6 9.3 5.0
Finger Lakes Packaging 0.9 1.7 1.3 2.4 3.3 1.9 3.5 1.9
Intercompany eliminations and
corporate overhead 1.3 2.4 (0.3) (0.5) 0.3 0.2 (1.6) (0.9)
Subtotal ongoing operations 51.7 96.4 50.6 91.5 163.1 95.7 155.9 83.7
Businesses sold and to be sold1 1.9 3.6 4.7 8.5 7.3 4.3 30.3 16.3
Total 53.6 100.0 55.3 100.0 170.4 100.0 186.2 100.0
<FN>
1 The Company 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,
and announced the potential sale of Nalley's Canada Ltd. See NOTE 4 -
"Disposals/Potential Disposal."
</TABLE>
<TABLE>
Operating Income Before Dividing with Pro-Fac1
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF 6.2 46.3 7.4 74.8 24.3 56.3 21.6 57.6
Nalley's Fine Foods 4.0 29.9 3.2 32.3 12.6 29.2 11.5 30.7
Southern Frozen Foods 2.3 11.2 2.7 27.3 7.8 16.2 7.4 19.7
Snack Foods Group 0.3 2.2 0.2 2.0 2.2 5.1 2.2 5.9
Brooks Foods 1.2 9.0 0.9 9.1 3.3 7.6 3.2 8.5
Finger Lakes Packaging 0.7 5.2 0.6 6.1 2.3 5.3 2.5 6.7
Intercompany eliminations and
corporate overhead1 (1.1) (2.3) (2.7) (27.4) (8.9) (18.8) (10.1) (27.0)
Subtotal ongoing operations 13.6 101.5 12.3 124.2 43.6 100.9 38.3 102.1
Businesses sold and to be sold2 (0.2) (1.5) (2.4) (24.2) (0.4) (0.9) (0.8) (2.1)
Total 13.4 100.0 9.9 100.0 43.2 100.0 37.5 100.0
<FN>
1 Table excludes restructuring (loss)/gain from division disposals of fiscal 1995 and 1994,
change-in-control expense, and an insurance gain on assets resulting from a fire claim
recorded in the first nine months of fiscal 1995.
2 The Company 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,
and announced the potential sale of Nalley's Canada Ltd. See NOTE 4 -
"Disposals/Potential Disposal."
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Depreciation and Amortization
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF 2.9 43.9 2.6 45.6 7.8 42.9 8.3 44.9
Nalley's Fine Foods 0.8 12.1 0.8 14.0 2.3 12.6 2.3 12.4
Southern Frozen Foods 0.7 10.6 0.6 10.5 1.9 10.4 1.7 9.2
Snack Foods Group 0.6 9.1 0.6 10.5 1.6 8.8 1.6 8.7
Brooks Foods 0.2 3.1 0.1 1.8 0.5 2.8 0.5 2.7
Finger Lakes Packaging 0.3 4.6 0.4 7.0 0.9 5.0 1.0 5.4
Corporate1 0.9 13.6 -- -- 2.2 12.0 0.2 1.0
Subtotal ongoing operations 6.4 97.0 5.1 89.4 17.2 94.5 15.6 84.3
Businesses sold and to be sold2 0.2 3.0 0.6 10.6 1.0 5.5 2.9 15.7
Total 6.6 100.0 5.7 100.0 18.2 100.0 18.5 100.0
<FN>
1 Includes adjustment for amortization of excess of purchase cost over net assets acquired.
2 The Company 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,
and announced the potential sale of Nalley's Canada Ltd. See NOTE 4 -
"Disposals/Potential Disposal."
</TABLE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
3/25/95 3/26/94
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF 215.9 30.8 198.7 43.0
Nalley's Fine Foods 87.5 12.5 82.7 17.8
Southern Frozen Foods 62.5 8.9 45.9 9.9
Snack Foods Group 23.4 3.3 23.0 5.0
Brooks Foods 11.5 1.6 11.2 2.4
Finger Lakes Packaging 32.3 4.6 30.8 6.6
Corporate1 256.1 36.6 48.4 10.3
Subtotal ongoing operations 689.2 98.3 440.7 95.0
Businesses sold to be sold2 11.7 1.7 22.9 5.0
Total 700.9 100.0 463.6 100.0
<FN>
1 Includes excess of purchase cost over net assets acquired. These amounts are
allocable to division operations following further analysis which will be
completed in the fourth quarter of fiscal 1995.
2 The Company 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, and announced the potential sale of Nalley's Canada
Ltd. See NOTE 4 - "Disposals/Potential Disposal."
</TABLE>
The following table illustrates the Company's income statement data and the
percentage of net sales represented by these items for the three and nine
months ended March 25, 1995 and March 26, 1994.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statement of Operations
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
3/25/95 3/26/94 3/25/95 3/26/94
% of % of % of % of
$ Sales $ Sales $ Sales $ Sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 180.4 100.0 189.5 100.0 573.2 100.0 642.8 100.0
Cost of sales 126.8 70.3 134.2 70.8 402.8 70.3 456.6 71.0
Gross profit 53.6 29.7 55.3 29.2 170.4 29.7 186.2 29.0
Restructuring expenses, including
net (loss)/gain from division
disposals -- -- -- -- (8.4) (1.5) 8.1 1.2
Change-in-control expenses -- -- -- -- (2.2) (0.4) -- --
Gain on assets resulting from
fire claim -- -- -- -- 6.5 1.2 -- --
Other selling, administrative
and general expenses (40.2) (22.3) (45.4) (24.0) (127.2) (22.2) (148.7) (23.1)
Operating income before dividing
with Pro-Fac 13.4 7.4 9.9 5.2 39.1 6.8 45.6 7.1
Interest expense (10.5) (5.8) (4.3) (2.3) (24.0) (4.2) (14.3) (2.2)
Pretax earnings before dividing
with Pro-Fac 2.9 1.6 5.6 2.9 15.1 2.6 31.3 4.9
Pro-Fac share of earnings (1.4) (0.8) (2.5) (1.3) (7.3) (1.3) (15.0) (2.3)
Income before taxes 1.5 0.8 3.1 1.6 7.8 1.3 16.3 2.6
Provision for taxes (1.0) (0.5) (1.4) (0.7) (4.7) (0.8) (6.7) (1.1)
Net Income 0.5 0.3 1.7 0.9 3.1 0.5 9.6 1.5
</TABLE>
THREE-MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales
The Company's net sales in the third quarter of fiscal 1995 of $180.4 million
decreased $9.1 million or 4.8 percent from $189.5 million in the third quarter
of fiscal 1994. Net sales attributable to businesses sold or to be sold in
connection with the Company's restructuring program discussed in NOTE 4 in the
third quarter of fiscal 1995 were $9.0 million and $18.8 million in the third
quarter of fiscal 1994. The Company's net sales from ongoing operations,
excluding businesses sold or to be sold, were $540.8 million in the third
quarter of fiscal 1995, an increase of $2.7 million or 0.5 percent from $538.1
million in the third quarter of fiscal 1994.
Cost of Sales
The Company's cost of sales in the third quarter of fiscal 1995 of $126.8
million decreased $7.4 million or 5.5 percent from $134.2 million in the third
quarter of fiscal 1994. Of this decrease, $7.0 million was attributable to
businesses sold or to be sold, and a $0.4 million reduction was attributable
to the Company's ongoing operations. This decrease of $0.4 million was the
result of variations in volume, selling prices, and product mix.
Gross Profit
Gross profit of $53.6 million in the third quarter of fiscal 1995 decreased
$1.7 million or 3.1 percent from $55.3 million in the third quarter of fiscal
1994. Of this net decrease, a $2.8 million reduction was attributable to
businesses sold or to be sold, and an increase of $1.1 million was
attributable to increased gross profit at the Company's ongoing operations.
This increase of $1.1 million was the result of variations in volume, selling
prices, costs, and product mix.<PAGE>
<PAGE>
Other Selling, Administrative, and General Expenses
Other selling, administrative, and general expenses in the third quarter of
fiscal 1995 of $40.2 million decreased $5.2 million or 11.5 percent from $45.4
million in the third quarter of fiscal 1994. This decrease of $5.2 million
includes primarily:
<TABLE>
(In Millions)
<CAPTION>
Businesses
Sold or to be Sold Ongoing Total
<S> <C> <C>
Change in trade promotions $(1.4) $(1.2) $(2.6)
Change in advertising and selling costs (2.1) 1.6 (0.5)
All other (0.6) (1.5) (2.1)
Change in selling, administrative
and general expenses $(4.1) $(1.1) $(5.2)
</TABLE>
The $1.5 million decrease in other administrative cost, attributable to the
Company's ongoing operations, was primarily related to reduced spending at
Corporate Headquarters, with minor variations throughout the division
operations.
Operating Income - Before Dividing With Pro-Fac
The Company's operating income (before dividing with Pro-Fac) for the third
quarter of fiscal 1995 of $13.4 million increased $3.5 million or 35.3 percent
from $9.9 million in the third quarter of fiscal 1994. Included in the fiscal
1995 operating income are operating losses of $0.2 million (attributable to
businesses sold or to be sold); and the fiscal 1994 operating income includes
operating losses of $2.4 million, attributable to businesses sold or to be
sold. The Company's operating income from ongoing operations of $13.6 million
in the third quarter of fiscal 1995 increased $1.3 million or 10.6 percent
from $12.3 million in the third quarter of fiscal 1994.
Interest Expense
Interest expense in the third quarter of fiscal 1995 of $10.5 million
increased $6.2 million or 144.2 percent from $4.3 million in the third quarter
of fiscal 1994. This increase was primarily attributable to the increased
borrowing related to the acquisition of the Company by Pro-Fac.
Pro-Fac Share of Earnings
Pro-Fac's share of the Company's earnings in the third quarter of fiscal 1995
of $1.4 million decreased $1.1 million or 44.0 percent from $2.5 million in
the third quarter of fiscal 1994. The Pro-Fac share of earnings in the third
quarter of fiscal 1995 and fiscal 1994 was 50.0 percent and 44.6 percent,
respectively, of the Company's pretax earnings before dividing with Pro-Fac.
Income Before Taxes
The Company's income before taxes in the third quarter of fiscal 1995 of $1.5
million decreased $1.6 million or 51.6 percent from $3.1 million in the third
quarter of fiscal 1994.
Provision for Taxes
The provision for taxes in the third quarter of fiscal 1995 of $1.0 million
decreased $0.4 million or 28.6 percent from $1.4 million in the third quarter
of fiscal 1994. The effective tax rate for the quarter ended March 25, 1995
was 66.7 percent compared to 45.2 percent for the quarter ended March 26,<PAGE>
1994. The effective tax rate was negatively affected by the non-deductibility
of the amortization of excess of purchase cost over net assets acquired.
Net Income
The Company's net income for the third quarter of fiscal 1995 of $0.5 million
decreased $1.2 million or 70.6 percent from $1.7 million in the third quarter
of fiscal 1994.
NINE MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales
The Company's net sales in the first nine months of fiscal 1995 of $573.2
million decreased $69.6 million or 10.8 percent from $642.8 million in the
first nine months of fiscal 1994. The net sales, attributable to businesses
sold or to be sold in connection with the Company's restructuring program
discussed in NOTE 4, were $32.4 million in the first nine months of fiscal
1995 and $104.7 million in the first nine months of fiscal 1994. The
Company's net sales from ongoing operations, excluding businesses sold or to
be sold, were $540.8 million in the first nine months of fiscal 1995, an
increase of $2.7 million or 0.5 percent from $538.1 million in the first nine
months of fiscal 1994. This net sales variance of $2.7 million for ongoing
operations is comprised of increases and decreases as follows:
<TABLE>
<CAPTION>
Net Sales
Variance
<S> <C>
CMF $(5.9)
Nalley's Fine Foods 6.8
Southern Frozen Foods 2.4
All Other (0.6)
$ 2.7
</TABLE>
The decreased sales at the CMF division were primarily the result of decreased
sales of popcorn ($3.4 million) and fruit fillings and toppings ($2.6
million). The increased sales at the Nalley's Fine Foods division were
primarily the result of increased sales of pickles and relishes ($2.2
million), salad dressings ($1.3 million), and canned entrees and soups ($1.6
million). Southern Frozen Foods' increased sales were primarily the result
of a $3.0 million increase in frozen vegetables, partially offset by a
decrease in frozen fruit sales.
Cost of Sales
The Company's cost of sales in the first nine months of fiscal 1995 of $402.8
million decreased $53.8 million or 11.8 percent from $456.6 million in the
first nine months of fiscal 1994. Of this decrease, $49.3 million was
attributable to businesses sold or to be sold, and a $4.5 million reduction
was attributable to the Company's ongoing operations. This decrease of $4.5
million was the result of variations in volume, selling prices, and product
mix.
Gross Profit
Gross profit of $170.4 million in the first nine months of fiscal 1995
decreased $15.8 million or 8.5 percent from $186.2 million in the first nine
months of fiscal 1994. Of this net decrease, a $23.0 million reduction was
attributable to businesses sold or to be sold, and an increase of $7.2 million
was attributable to increased gross profit at the Company's ongoing
operations. This increase of $7.2 million was the result of variations in<PAGE>
volume, selling prices, costs, and product mix. The $7.2 million increase in
gross profit for ongoing operations is comprised of increases as follows:
<PAGE>
<TABLE>
<CAPTION>
Gross
Profit
Variance
<S> <C>
CMF $ 1.0
Nalley's Fine Foods 3.8
Southern Frozen Foods 0.9
Snack Foods Group (0.4)
Intercompany profit elimination 1.5
All Other 0.4
$ 7.2
</TABLE>
The increased gross profit at CMF is primarily comprised of a gross profit
increase in the canned and frozen vegetable category ($3.9 million), partially
offset by decreased gross profit on the fruit filling and topping category
($1.9 million, and the popcorn category ($1.1 million). Nalley's Fine Foods
increased gross profit primarily relates to improved margins on canned entrees
and soups ($4.0 million) and improved margins on peanut butter ($0.3 million),
partially offset by reduced margins on pickles and relishes ($0.7 million).
Southern Frozen Foods' increased gross profit primarily relates to improved
margins on its increased sales of frozen vegetables.
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 nine 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 business and other expenses relating to the disposal of this
operation. Included in the first nine months of fiscal 1994 was an $8.1
million net gain from restructuring, including division disposals, for a net
increase in this expense from year to year of $16.5 million, all of which was
incurred by the Predecessor Entity. See NOTE 4 - "Disposals/Potential
Disposal."
Change-in-Control Expenses
Change-in-control expenses recorded in the first nine months of fiscal 1995,
amounting to $2.2 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. In recognizing this expense, the Company
allocated one-half of this amount to Pro-Fac as a deduction to the profit
split. See NOTE 3 -"Change in Control of the Company."
Gain on Assets Resulting From Fire Claim
The gain on assets resulting from the fire claim recorded in the first nine
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. This gain was recorded by the Predecessor Entity.
Other Selling, Administrative, and General Expenses
Other selling, administrative, and general expenses in the first nine months
of fiscal 1995 of $127.2 million decreased $21.5 million or 14.5 percent from
$148.7 million in the first nine months of fiscal 1994. This net decrease of
$21.5 million includes primarily:
<PAGE>
<PAGE>
<TABLE>
(In Millions)
<CAPTION>
Businesses
Sold or to be Sold Ongoing Total
<S> <C> <C>
Change in trade promotions $ (6.6) $(1.2) $ (7.8)
Change in advertising and selling costs (11.7) 3.8 (7.9)
All other (2.3) (3.5) (5.8)
Change in selling, administrative,
and general expenses $(20.6) $ 0.9 $(21.5)
</TABLE>
The $1.2 million decrease in trade promotions at the Company's ongoing
operations is primarily comprised of a decrease at CMF of $2.5 million (which
primarily relates to reduced spending on the fruit filling and topping
category of $3.6 million, with minor increases in other categories) and
increased trade promotions at Nalley's Fine Foods of $0.9 million (primarily
related to increased spending on canned entrees and soups of $0.7 million and
salad dressings of $0.6 million, offsetting decreased spending of $0.4 million
on other product lines).
The $3.8 million increase in advertising and selling costs at the Company's
ongoing operations represents increased costs at CMF ($2.0 million) and
Nalley's Fine Foods ($1.9 million), with minor offsetting variations at other
operations. The increase at CMF primarily relates to fruit fillings and
toppings ($2.2 million), with minor variations in other product lines. The
increase at Nalley's Fine Foods primarily relates to costs associated with
canned entrees and soups ($0.8 million) and salad dressings ($0.7 million),
with minor variations in other product lines.
The $3.5 million decrease in other administrative costs, attributable to the
Company's ongoing operations, primarily relates to CMF and Corporate
Headquarters, with minor variations at other operations. The improved costs
at CMF amount to $0.3 million. Administrative expense reductions at Corporate
Headquarters amount to $1.0 million. There is a $0.3 million reduction in the
Company's management bonus accrual and a $0.4 million reduction in the
currency exchange loss. In addition, dividend income relating to the
Company's investment in the Bank amounted to $0.6 million.
Operating Income
Before Dividing with Pro-Fac
The Company's operating income (before dividing with Pro-Fac) for the nine
months ended March 25, 1995 of $39.1 million decreased $6.5 million or 14.3
percent from $45.6 million in the nine months ended March 26, 1994. Included
in the March 1995 operating income: the restructuring charges, including a
loss from division disposals of $8.4 million; change-in-control expense of
$2.2 million; gain on assets resulting from fire claim of $6.5 million; and
operating losses attributable to businesses sold or to be sold of $0.2
million. Included in the March 1994 operating income: the restructuring gain
from division disposals of $8.1 million and operating losses attributable to
businesses sold or to be sold of $2.4 million. Excluding the restructuring
loss/gain from division disposals, change-in-control expense, and gain on
assets resulting from fire claim, and operating losses attributable to
businesses sold or to be sold, the Company's operating income (before dividing
with Pro-Fac) from ongoing operations for the nine months ended March 25, 1995
of $43.6 million increased $5.3 million or 13.8 percent from $38.3 million in
the nine months ended March 26, 1994.
Interest Expense
Interest expense in the first nine months of fiscal 1995 of $24.0 million
increased $9.7 million or 67.8 percent from $14.3 million in the first nine
<PAGE>
months of fiscal 1994. This increase was primarily attributable to the
increased borrowing related to the acquisition of the Company by Pro-Fac.
Pro-Fac Share of Earnings
Pro-Fac's share of the Company's earnings in the first nine months of fiscal
1995 of $7.3 million decreased $7.7 million or 51.3 percent from $15.0 million
in the first nine months of fiscal 1994. The restructuring expenses, change-
in-control expense, and fire claim discussed above accounted for $6.1 million
of this decrease. The Pro-Fac share of earnings in the first nine months of
fiscal 1995 and fiscal 1994 was 48.3 percent and 47.9 percent, respectively,
of the Company's pretax earnings before dividing with Pro-Fac.
Income Before Taxes
The Company's income before taxes in the first nine months of fiscal 1995 of
$7.8 million decreased $8.5 million or 52.1 percent from $16.3 million in the
first nine months of fiscal 1994. The restructuring expenses, change-in-
control expense, and fire claim discussed above accounted for $6.1 million or
71.8 percent of the decrease.
Provision for Taxes
The provision for taxes in the first nine months of fiscal 1995 of $4.7
million decreased $2.0 million or 29.9 percent from $6.7 million in the first
nine months of fiscal 1994. The effective tax rate in the nine months ended
March 25, 1995 was 60.3 percent compared to 41.1 percent in the nine months
ended March 26, 1994. The non-deductibility of the amortization of excess
purchase cost over net assets acquired was primarily responsible for the
significantly increased rate.
Net Income
The Company's net income for the first nine months of fiscal 1995 of $3.1
million decreased $6.5 million or 67.7 percent from $9.6 million in the first
nine months of fiscal 1994.
The primary reasons for the Company's $6.5 million decrease in net income are
the after-tax effect of the increased expenses relating to restructuring,
change in control, and interest, partially offset by the gains resulting from
the Southern Frozen Foods' fire claim and improvements in divisions' operating
results as well as the change in the Company's effective tax rate -- all
discussed above.
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 security-
<PAGE>
holders had either been invested in assets leased to Curtice-Burns or loaned
to Curtice-Burns to finance its operations.
In the first nine months of fiscal 1995, the net cash provided by operating
activities reflects net income of $17.9 million, and amortization of assets
amounted to $10.8 million. Inventories decreased $34.6 million, accounts
receivable decreased $14.2 million, and deferred taxes decreased $2.6 million.
Changes in other assets and liabilities amounted to $44.6 million.
Cash flows from investing activities include the acquisition and disposition
of property, plant, and equipment and other assets held for or used in the
production of goods, and the amounts relating to the acquisition of Curtice-
Burns. Net cash provided by investing activities of $130.0 million in the
first nine months of fiscal 1995 was comprised of $9.4 million paid for fixed
assets and $1.2 million received for disposals. Cash paid for the acquisition
of Curtice-Burns amounted to $136.3 million.
Net cash used in financing activities in the first nine months of fiscal 1995
of $154.3 was primarily comprised of payments for short- and long-term debt
to liquidate the existing debt prior to the acquisition. The cash portion of
non-qualified retain conversions amounted to $0.8 million, and dividends paid
amounted to $4.9 million.
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 $11.0 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 ($96.4 million at March 25, 1995).
As of March 25, 1995, (i) cash borrowings outstanding under the Seasonal
Facility were $66.0 million and (ii) additional availability under the
Seasonal Facility, after taking into account the amount of the borrowing base,
was $20.0 million. In addition to its seasonal financing, as of March 25,
1995, 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 imitations. As of March 25, 1995, Pro-Fac 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. Indications for the 1994 crop
year are that national supplies increased over the prior year due to the <PAGE>
<PAGE>
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. As of
March 25, 1995, the Company's total inventories were $191.7 million, an
increase of $23.5 million or 14.0 percent from $168.1 million in the prior
year. This excess has affected seasonal-loan balances and will be gradually
reduced by the end of the 1996 fiscal year. There are variations among the
specific commodities and the effect on pricing and profitability in fiscal
1995 has depended upon individual company pricing practices and the effect of
recent industry plant closings and production realignments.
In addition to the excess inventory discussed above, another element impeding
the reduction of short-term debt in fiscal 1995 is the timing of reimbursement
for cash expenditures relative to the facility repairs of the Company's
Montezuma, Georgia plant with was destroyed by fire in July 1994. See NOTE
6 - "Other Matters - Fire Claim." While all material costs associated with
the fire are anticipated to be covered under the Company's insurance policies,
as of March 25, 1995, approximately $13.0 million of such expenditures were
receivable from insurance companies.
Capital expenditures are expected to approximate $21.0 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 $8.0 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A. 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 were completed in
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<PAGE>
<PAGE>
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.
B. The regional membership meetings for the members of Pro-Fac
were held as follows;
Region/
Date District City/State
January 31, 1995 I/3 Berlin, Pennsylvania
February 1, 1995 V Montezuma, Georgia
February 7, 1995 II/2 Harrisburg, Pennsylvania
February 8, 1995 II/2 Havana, Illinois
February 9, 1995 III Lincoln, Nebraska
February 15, 1995 IV Portland, Oregon
February 16, 1995 IV Mt. Vernon, Washington
March 16, 1995 II/1 Holland, Michigan
C. Tom Croner, Dale Burmeister, and Albert Fazio were elected
directors for a three-year term as a result of the
elections at the regional meetings held in January,
February, and March 1995. The following is a list of the
remaining directors whose terms of office continued after
the regional meetings:
Name Date
Robert Call 1997
Glen Lee Chase 1996
Bruce Fox 1996
Steven Koinzan 1997
Kenneth Mattingly 1996
Allan Mitchell 1997
Allan Overhiser 1997
Paul Roe 1996
Edward Whitaker 1997
<PAGE>
<PAGE>
Following are the voting results from the Regional Meetings:
Votes Cast For Votes Cast Against
Tom Croner 16 0
Dale Burmeister 100 0
Albert Fazio 29 0
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: 5/9/95 BY: /s/ William D. Rice
WILLIAM D. RICE, ASSISTANT TREASURER
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-END> MAR-25-1995
<CASH> 5294
<SECURITIES> 0
<RECEIVABLES> 65228
<ALLOWANCES> 0
<INVENTORY> 191670
<CURRENT-ASSETS> 282711
<PP&E> 272960
<DEPRECIATION> 0
<TOTAL-ASSETS> 702686
<CURRENT-LIABILITIES> 168456
<BONDS> 0
<COMMON> 10217
0
76803
<OTHER-SE> 49007
<TOTAL-LIABILITY-AND-EQUITY> 702686
<SALES> 347069
<TOTAL-REVENUES> 347069
<CGS> 257458
<TOTAL-COSTS> 257458
<OTHER-EXPENSES> 55369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20603
<INCOME-PRETAX> 13639
<INCOME-TAX> (4293)
<INCOME-CONTINUING> 17932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17932
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
