<PAGE>
As filed with the Securities and Exchange
Commission on , 1995
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PRO-FAC COOPERATIVE, INC.
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
16-6036816
(I.R.S. Employer Identification No.)
90 LINDEN PLACE
ROCHESTER, NEW YORK 14625
(716) 383-1850
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
STEPHEN R. WRIGHT, GENERAL MANAGER
Pro-Fac Cooperative, Inc.
90 Linden Place
Rochester, New York 14625
(716) 383-1850
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
THOMAS M. HAMPSON, ESQ.
Harris Beach & Wilcox, LLP
130 East Main Street
Rochester, New York 14604
<PAGE>
Approximate date of commencement of proposed sale to the public: as soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [x]
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed Proposed
Title of each Maximum Maximum
Class of Amount Offering Aggregate Amount of
Securities to to be Price Offering Registration
be Registered Registered per Unit Price Fee
- -------------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
Common Stock 100,000 $ 5.00 $ 500,000 $ 172.42
Retains $10,000,000 100% $10,000,000 $ 3,448.28
----------
Preferred Stock(1)
Total $ 3,620.70
==========
</TABLE>
(1) Representing Preferred Stock issuable at maturity of Retains.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Pro-Fac Cooperative, Inc.
Cross-Reference Sheet Furnished Pursuant to Item 501(b)
of Regulation S-K
<TABLE>
<CAPTION>
Location or
Item of Form S-1 Caption in Prospectus
- ----------------------------------- ----------------------------
<S> <C> <C>
1. Forepart of Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside and Available Information;
Back Cover Pages of Prospectus Summary of Prospectus;
Table of Contents
3. Summary Information, Summary of Prospectus;
Risk Factors and Ratio Special Factors to Be
of Earnings to Fixed Considered; Ratio of
Charges Earnings to Fixed Charges and
Preferred Dividends
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Business of Pro-Fac
Price
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page;
Description of Pro-Fac
Securities
9. Description of Securities Description of Pro Fac
to Be Registered Securities
10. Interests of Named Experts Not Applicable
and Counsel
11. Information with Respect Business of Pro-Fac;
to the Registrant Description of Properties,
Financial Statements, Selected
Historical Financial Data of
Pro-Fac; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Management and Directors;
Executive Compensation;
Security Ownership of Certain
Beneficial Owners and
Management; Certain
Transactions
12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
<PAGE>
SUBJECT TO COMPLETION DATED JUNE 12, 1995
PRO-FAC COOPERATIVE, INC.
100,000 Shares of Common Stock
$10,000,000 Retains
Pro-Fac Cooperative, Inc. ("Pro-Fac") is a New York cooperative corporation
with capital stock which markets the agricultural products grown by its members,
all of whom are its common shareholders, through Curtice-Burns Foods, Inc.
("Curtice-Burns"), a food processing corporation which is a wholly-owned
subsidiary of Pro-Fac. This Prospectus pertains to common stock, the allocation
by Pro-Fac to its members of certain credits representing payments by Pro-Fac
for crops purchased, denominated "retains", and to the issuance by Pro-Fac of
its preferred stock to members and other persons holding such retains.
SEE THE SECTION OF THIS PROSPECTUS ENTITLED "SPECIAL FACTORS TO BE
CONSIDERED" FOR CERTAIN SPECIAL FACTORS RELATING TO THIS OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Issuer (2)
-------------------- -------------- -----------
<S> <C> <C> <C>
Common Stock Per Share $ 5.00 -- $500,000
Total: $500,000
Retains Per Unit: 100% -- 100%
Total: $10,000,000 -- $10,000,000
</TABLE>
=====================================
(1) The securities described in this Prospectus are to be offered and
distributed directly by the issuer through officers of Pro-Fac, without
the use of any underwriter or dealer, and no discounts, commissions or
other compensation are to be allowed or paid therefor.
(2) Before deducting expenses estimated at $46,000.
(3) The issuance of preferred stock does not result in any additional cash
proceeds. See "Use of Proceeds."
The date of this Prospectus is , 1995.
2
<PAGE>
AVAILABLE INFORMATION
Pro-Fac is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at its
regional offices located at 7 World Trade Center (Suite 1300), New York, New
York 10048 and at 500 West Madison Street (Suite 1400), Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth St., N.W., Washington, D.C. 20549, at
prescribed rates.
REPORTS TO SHAREHOLDERS
Pro-Fac furnishes annual reports to its members on Form 10-K which contain
audited financial statements.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of Prospectus...................................................................... 5
Special Factors To Be Considered 8
Use of Proceeds............................................................................ 8
Ratio of Earnings to Fixed Charges and
Preferred Dividends................................................................... 11
Business of Pro-Fac........................................................................ 12
Relationship with Curtice-Burns............................................................ 19
Description of Pro-Fac Securities.......................................................... 21
Selected Historical Financial Data of Pro-Fac.............................................. 27
Pro Forma Financial Data of Pro-Fac and Curtice Burns...................................... 29
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 33
Business of Curtice Burns.................................................................. 54
Description of Properties.................................................................. 64
Management and Directors................................................................... 66
Executive Compensation..................................................................... 70
Certain Transactions....................................................................... 74
Security Ownership of Certain Beneficial Owners and
Management............................................................................ 77
Legal Opinion.............................................................................. 79
Experts.................................................................................... 79
Index to Financial Statements.............................................................. F-1
</TABLE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the transactions described herein, and if given
or made, such information or representations must not be relied upon as having
been authorized by Pro-Fac. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the securities covered by this
Prospectus in any state to any person to whom it is unlawful to make such offer
or solicitation in such state. Neither the delivery of this Prospectus nor the
distribution of any security covered by this Prospectus shall, under any
circumstances, create an implication that there has been no change in the facts
herein set forth or in the affairs of Pro-Fac since the date hereof.
TO INDIANA INVESTORS:
UNDER THE NEW YORK COOPERATIVE CORPORATIONS LAW, EACH MEMBER AND DIRECTOR
OF A COOPERATIVE CORPORATION MAY BE HELD PERSONALLY LIABLE FOR CERTAIN AMOUNTS
DUE EMPLOYEES OF THE COOPERATIVE FOR SERVICES RENDERED TO THE COOPERATIVE. AS IS
DESCRIBED IN THIS PROSPECTUS, PRO-FAC COOPERATIVE HAS NO EMPLOYEES.
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety and should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus.
Pro-Fac:
Pro-Fac is an agricultural cooperative corporation formed in 1960 under
New York law to process and market crops grown by its members. Only growers of
crops marketed through Pro-Fac (or associations of such growers) can become
members of Pro-Fac.
A grower becomes a member of Pro-Fac through the purchase of common stock,
which obligates the grower to supply, and Pro-Fac to purchase, crops for
delivery to and processing by Curtice-Burns Foods, Inc. ("Curtice-Burns" or the
"Company"). The principal office of Pro-Fac is at 90 Linden Place, Rochester,
New York 14625; its telephone number is (716) 383-1850.
Recent Changes in Relationship with Curtice-Burns:
Curtice-Burns is a producer and marketer of processed food products,
including canned and frozen fruits and vegetables, canned desserts and
condiments, fruit fillings and toppings, canned chilies and stews, salad
dressings, pickles, peanut butter and snack foods. In addition, Curtice-Burns
manufactures cans, which are both utilized by the Company and sold to third
parties. Pro-Fac and Curtice-Burns were established together in the early 1960s
and have had a long-standing contractual relationship under an Integrated
Agreement pursuant to which Pro-Fac provided crops and financing to
Curtice-Burns, Curtice-Burns provided a market and management to Pro-Fac, and
Pro-Fac shared in the profits of Curtice-Burns.
On November 3, 1994, Pro-Fac acquired Curtice-Burns (the "Acquisition"),
and Curtice-Burns became a wholly-owned subsidiary of Pro-Fac. In connection
with the Acquisition, Agway Inc. and the other shareholders of Curtice-Burns
received $19.00 per share in cash for their shares of common stock of
Curtice-Burns. The purchase price and fees and expenses related to the
Acquisition were financed with borrowings under a new credit agreement (the "New
Credit Agreement") with Springfield Bank for Cooperatives, predecessor to CoBank
ACB (the "Bank"), and the proceeds of the Company's 12-1/4 percent Senior
Subordinated Notes due 2005 (the "Notes"). Pro-Fac has guaranteed the
obligations of the Company under the New Credit Agreement and the Notes.
As a result of the indebtedness incurred in connection with the
Acquisition, Curtice-Burns is a much more highly leveraged company, with higher
interest expenses, than prior to the Acquisition. The New Credit Agreement and
the Notes restrict the ability of Pro-Fac to amend the Pro-Fac Marketing
Agreement. The New Credit Agreement and the Notes also restrict the amount of
dividends and other payments that may be made by the Company to Pro-Fac. Such
restrictions on the flow of cash to Pro-Fac may affect the ability of Pro-Fac to
pay dividends on its common and preferred stock or to repurchase common or
preferred stock.
Pro-Fac Securities:
Common Stock. Common stock, par value $5, is sold for cash at its par
value to all growers or associations of growers who become members of Pro-Fac,
and ownership of common stock is thus synonymous with membership in Pro-Fac. The
common stock investment required of each new member is based upon the nature,
location, and quantity of particular crops in particular locations. In
determining the level of common stock investment
5
<PAGE>
required for a member who desires to market a specified quantity or acreage of a
crop through Pro-Fac, the Board of Directors takes into account the expected
Commercial Market Value ("CMV") of the crop, the level of interest in marketing
that crop through Pro-Fac and other factors. Common stock may only be held by
members of Pro-Fac who are growers of crops marketed through Pro-Fac (or by
associations of such growers), and may only be transferred with the written
consent of Pro-Fac. Any proposed purchaser of outstanding common stock must be a
grower willing to assume all of the seller's obligations as a member of Pro-Fac
and must be acceptable to the Board of Directors.
Upon the purchase of common stock, a new member of Pro-Fac executes the
General Marketing Agreement, which provides for (1) delivery of crops; (2) the
availability of facilities for receiving and processing the crops; (3) the
operation of a single marketing pool for all crops delivered based upon the
establishment of the CMV, as defined, of each crop each year; and (4) the manner
of payment by Pro-Fac to its members of the purchase price for delivered crops.
Annual crop agreements supplement the General Marketing Agreement by setting
forth quality specifications, terms and conditions for the production and
delivery of the member's specific crop, and the relative value weighting to be
given to raw product by grade category. See "Business of Pro-Fac."
Retains. Retains are issued to reflect the retention by Pro-Fac of a
portion of its proceeds, as described below. Patronage proceeds are its gross
receipts derived from sources that under federal tax law qualify as patronage
income, which is primarily proceeds from the sale of crops supplied by members
of Pro-Fac, as well as transactions that facilitate or are directly related to
such marketing activities.
Under the bylaws of Pro-Fac, net proceeds from patronage income must be
paid or allocated each year to each member on the basis of the business done by
that member with Pro-Fac during the preceding crop year. Distribution may be
made in cash or by allocating to the account of each member his interest in that
portion of the proceeds retained by Pro-Fac for use as working capital or for
such other purposes as may be determined by the Board of Directors ("retains").
Such retains are made up of allocations for which qualified notices have been
distributed ("qualified retains") and non-qualified notices of allocations
("non-qualified retains"). Qualified retains are freely transferable and
normally mature into preferred stock at its par value, $25 per share, in
December of the fifth year after allocation. Although there were, for several
years preceding the Acquisition, two broker-dealers making a market in Pro-Fac
qualified retains, no such market currently exists, and there can be no
assurance that any such market will be reestablished. See "Description of
Pro-Fac Securities." Non-qualified retains may not be sold or purchased and may,
in the discretion of the Board of Directors, be redeemed after five years for
cash and/or preferred stock. See "Description of Pro-Fac Securities."
Preferred Stock. Preferred stock is issued at its $25 par value upon the
maturing of qualified retains or the redemption of non-qualified retains, as
described above. The holders of preferred stock are entitled to receive
dividends when, as, and if declared by the Board of Directors out of legally
available funds. Currently, the maximum lawful dividend rate for the preferred
stock is 12 percent of par value. The July 1994 and 1993 dividends were 6.75
percent and 6.25 percent, respectively. Such dividends, if any, are
non-cumulative. While shares of preferred stock are freely transferable, Pro-Fac
is aware that some sales have been made during the past several years at prices
less than the par value of such stock. Although there were, for several years
preceding the Acquisition, two broker-dealers making a market in Pro-Fac
preferred stock, no such market
6
<PAGE>
currently exists, and there can be no assurance that any such market will be
reestablished. See "Description of Pro-Fac Securities."
Use of Proceeds:
The cash retained as a result of distributing net proceeds in the form of
retains rather than in cash will be used for general corporate purposes as
determined by the Board of Directors at the time of receipt. No separate cash
proceeds are realized from the issuance of preferred stock that results from the
conversion of retains.
Tax Treatment of Amounts Paid or Allocated to Members:
Under the federal income tax laws, members of Pro-Fac must include
currently in their taxable income calculation the purchase price for their
crops, including all cash payments and allocations of qualified retains.
Non-qualified retains are not subject to current taxation to the members and are
taxable to the members only if and when redeemed by Pro-Fac. See "Business of
Pro-Fac."
Benefits of Membership:
From the point of view of a member of Pro-Fac there are several advantages
that he receives from his membership in Pro-Fac, which include the following:
1. The primary advantage is that the member has an established market
for a portion of his crop in advance of the crop season.
2. A member of Pro-Fac can specialize in the production of one or a
few crops, which normally tends to increase the efficiency of his
operations, yet have the opportunity to participate in the
potential benefits of crop and geographical diversity, since he
shares in the proceeds of all crops marketed through Pro-Fac in
proportion to the value of his own crops marketed through Pro-Fac.
3. Members of Pro-Fac have the satisfaction of knowing that their
views will be heard in the Cooperative because at least 80 percent
of the directors of Pro-Fac and all of the members of the commodity
committees are also grower-members. The members of the commodity
committees and all of the directors (except for directors, who may
not constitute more than 20 percent of the entire board, appointed
by the Board of Directors to represent the public interest) are
also elected by the members of Pro-Fac on a regional basis.
4. Should Pro-Fac or Curtice-Burns need additional crops for an
existing division of Curtice-Burns, qualified members are given the
first opportunity to provide those crops.
5. The member obtains the benefit of the expertise of Curtice-Burns in
the processing and marketing of food products.
6. Over a period of years, depending on the results of operations, the
member has the opportunity to build a substantial equity investment
in Pro-Fac retains and preferred stock.
7
<PAGE>
7. The investment of the member in Pro-Fac common stock and the market
for his products derived from that investment are transferable,
subject to the approval of the Pro-Fac Board of Directors, so that
should he want to reduce or terminate his production of crops, he
can liquidate his common stock investment through the sale of his
shares to an eligible grower or to Pro-Fac itself.
To obtain these advantages the member must:
1. Purchase shares of common stock of Pro-Fac based upon the type,
location, and volume of crops he agrees to market through Pro-Fac.
2. Agree to the retention by Pro-Fac of a portion of its proceeds from
patronage business above the CMV of crops marketed. For example, in
the 1994, 1993, and 1992 fiscal years, 80 percent, 80 percent and
75 percent, respectively of such proceeds, excluding non-qualified
retains, was so retained by Pro-Fac. For the first five years, such
amounts are retained without payment of interest or dividends. In
addition, in such fiscal years, 100 percent of such proceeds
allocated as non-qualified retains was so retained by Pro-Fac. A
member's investment in the retains and preferred stock of Pro-Fac
is relatively illiquid. Recent sales of qualified retains and
preferred stock have been at prices substantially below the face
amounts thereof.
3. Agree to the delayed payment of a portion of the purchase price for
his crops. Such delay will exceed the industry average in many
instances.
4. Include in his income for tax purposes not only the cash payments
received for his crops but also the amount of qualified retains
allocated to his account in that year and any non-qualified retains
redeemed in that year.
5. Assume the risk that he may by paid less than CMV for his crops.
See "Special Factors To Be Considered - Member's Share of Proceeds
Could be Less than CMV" and "Business of Pro-Fac."
SPECIAL FACTORS TO BE CONSIDERED
Member's Share of Proceeds Could be Less Than CMV:
Payment for crops is based upon the CMV of such crops, which is the
weighted average of the prices paid by other commercial processors for similar
crops used for similar or related purposes sold under preseason contracts or in
the open market in the same or similar market areas.
While Curtice-Burns has agreed to pay to Pro-Fac at least the CMV of
Pro-Fac crops, the total proceeds of Pro-Fac depend in large part on the overall
profitability of Curtice-Burns. There can be no assurance that payment by
Pro-Fac to a member for his crops from the proceeds of Pro-Fac will be equal to
or greater than the CMV of those crops. Although the members of Pro-Fac have
been paid more than the CMV of their crops in every year of Pro-Fac operations
except 1963, 1969, and 1970, the increased indebtedness incurred by
Curtice-Burns in connection with the Acquisition has increased the leverage and
interest expense of Curtice-Burns, thus increasing the risk that Pro-Fac may, in
one or more coming years, pay
8
<PAGE>
members less than the CMV of their crops. There is no relationship between the
CMV of crops and the cost of producing such crops since CMV is determined by
supply and demand in the marketplace.
While each year Pro-Fac must, under its bylaws, pay or allocate to each
member his pro rata share of the net proceeds of Pro-Fac from patronage
business, Pro-Fac may retain whatever portion of such proceeds the Board of
Directors may determine to be necessary for the operations of Pro-Fac,
allocating the retained portion to the accounts of members. There is thus no
assurance that a member of Pro-Fac will receive cash payments for his crops
equal to the CMV thereof or that he will receive any cash payments in addition
to CMV even if his share of the proceeds of Pro-Fac from patronage business is
equal to or greater than CMV.
Delayed Payments for Crops:
Pro-Fac members receive delayed payment of a portion of the purchase price
for their crops. The delay exceeds the industry average in many instances. See
"Business of Pro-Fac - Marketing of Members' Crops - Timing of Payments for
Crops" and "- Harvest-Time Advances."
Inclusion of Certain Payments in Taxable Income:
A member of Pro-Fac must include in his taxable income for federal income
tax purposes his share of the net proceeds of Pro-Fac realized from patronage
business which are paid to him in cash or allocated to his account as qualified
retains. Non-qualified retains are included in the member's taxable income only
upon redemption. See "Business of Pro-Fac."
Increase in Leverage of Curtice-Burns:
As a result of the Acquisition, Curtice-Burns is highly leveraged, and
such leverage may increase as a result of further borrowings to fund capital
expenditures, working capital needs or for other general corporate purposes. The
degree to which the Company is leveraged is important to members of Pro-Fac
because the amount paid by Curtice-Burns for crops supplied by Pro-Fac, and the
amount of dividends that Curtice-Burns may pay to Pro-Fac, varies depending upon
the profitability of Curtice-Burns. Such payments, in turn, affect what Pro-Fac
may pay to its members for their crops and the ability of Pro-Fac to pay
dividends on, or repurchase, its common and preferred stock. A high degree of
leverage may make Curtice-Burns more vulnerable to economic downturns, may limit
its ability to withstand competitive pressures, and may impair the Company's
ability to obtain financing in the future for working capital, capital
expenditures, and general corporate purposes.
Non-Transferability of Non-Qualified Retains:
Non-qualified retains are non-transferable and do not bear interest. See
"Description of Pro-Fac Securities."
Absence of Market for Preferred Stock and Qualified Retains:
The preferred stock and qualified retains of Pro-Fac may be transferred
without the consent of Pro-Fac. There were, for several years preceding the
Acquisition, broker-dealers making a market in Pro-Fac preferred stock and
qualified retains, but no such market currently exists. There is no assurance
that these arrangements, or any other organized market for Pro-Fac preferred
stock and qualified retains, will be re-established. Qualified retains do not
bear interest. See "Description of Pro-Fac Securities."
9
<PAGE>
Amortization of Loss:
The Board of Directors has determined that a loss incurred in fiscal 1993
is to be allocated to members over a ten-year period, so that net proceeds
otherwise available for allocation as patronage income are expected to be
reduced by $2,915,000 per year through fiscal 2002. The Board of Directors
retains the power to alter the utilization and allocation of the 1993 loss,
should circumstances make such a change desirable and prudent in the Board of
Directors' discretion.
Possible Changes of Treatment of Retains:
The current policy of Pro-Fac with regard to the maturing of qualified
retains into preferred stock and the redemption of non-qualified retains for
preferred stock and/or cash is described in this Prospectus under "Description
of Securities Offered." This policy is, however, subject to change, in the
discretion of the Board of Directors.
Each Member Receives One Vote:
Each member of Pro-Fac has one vote, regardless of the number of shares of
common stock held. Further, if two or more members are joined in a single
farming enterprise, the participating members receive only a single vote.
Accordingly, even a member with substantial holdings of common stock will have
relatively little control over the election of directors or other matters on
which members may vote. See "Description of Pro-Fac Securities."
Possible Discontinuance of Crop:
Pro-Fac continuously reviews the ability of its members to produce
high-quality crops, and Curtice Burns continuously reviews its ability to
process and market profitably the crops it buys from Pro-Fac. As a result of
such reassessment, Pro-Fac may determine to cease marketing a particular crop
and terminate the marketing agreements of the members producing that crop for
sale through the Cooperative. The members affected would be required to sell all
of their common stock supporting that crop to Pro-Fac for cash at its par value,
plus any accrued dividends. Pro-Fac may also adjust the quantity of a crop to be
marketed for members, either permanently or temporarily, in several ways
described herein under "Business of Pro-Fac - Marketing of Members' Crops -
Quantity of Crops Marketed." Permanent increases or decreases in the quantity of
a crop to be marketed would involve, respectively, the purchase of additional
common stock by members or other growers, or the sale of common stock by members
to Pro-Fac at par value, plus any accrued dividends.
Agricultural Risks:
Curtice-Burns and Pro-Fac and its members are subject to all the risks
generally associated with production and marketing of agricultural commodities.
For example, unfavorable growing conditions in the Northeast in 1989, coupled
with increased crop levels in competing areas, resulted in increased costs for
Curtice-Burns' canned and frozen vegetable businesses in fiscal 1990, while
increased national supplies reduced selling prices. Curtice-Burns' reduced
earnings on these Pro-Fac products in turn reduced the amount paid by
Curtice-Burns to Pro-Fac under the marketing provisions of the Integrated
Agreement between them. See "Relationship with Curtice-Burns."
Competition in Food Processing Industry:
The products of Curtice-Burns, including those processed from crops
supplied by Pro-Fac, compete with those of national and major regional food
10
<PAGE>
processors under highly competitive conditions. Many national manufacturers have
substantially greater resources than Curtice-Burns and Pro-Fac.
USE OF PROCEEDS
The securities offered hereunder are issued on a continuing basis as part
of the normal operations of Pro-Fac and are not offered to raise funds for any
specific purpose. As described more fully elsewhere herein, common stock is sold
from time to time to new members of Pro-Fac or to members who increase the
quantity of crops marketed through Pro-Fac. Retains are issued annually to
represent net proceeds from patronage business retained by Pro-Fac. The cash
retained as a result of distributing net proceeds in the form of retains rather
than in cash is transferred to Curtice-Burns and is used for general corporate
purposes, such as the financing of fixed assets and the reduction of short or
long-term borrowings, as determined by the Board of Directors at the time of
receipt. No separate cash proceeds are realized from the issuance of preferred
stock, which is issued only upon the maturing of outstanding retains and
replaces those retains on the books of the Cooperative.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
Nine
Fiscal Year Ended Months
------------------------------------------------------------------- Ended
June 29, June 28, June 26, June 26, June 25, March 25,
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges and
preferred dividends 1.5 1.2 1.4 (A) 2.2 1.4
Pro forma ratio of
earnings to fixed charges
and preferred dividends 1.2 (B) 1.2 (B) 1.7 1.1
</TABLE>
(A) In fiscal year ended June 26, 1993, the earnings were inadequate by
$22,877,000 to cover the amount of pretax fixed charges and preferred
dividends.
(B) In fiscal years ended June 26, 1993 and June 28, 1991, the earnings were
inadequate by $27,628,000 and $797,000, respectively, to cover the amount
of pretax basis fixed charges and preferred dividends which would have
been declared and paid if all retained earnings allocated to members'
"retains" at the end of each fiscal period had been converted to preferred
stock at the beginning of the period at the maximum dividend permitted by
law.
For purposes of computing the ratio of earnings to fixed charges and
preferred dividends, earnings consist of net proceeds before (1) equity in the
undistributed earnings of the Bank, (2) fixed charges, (3) income taxes, and (4)
dividends on common and preferred stock. Fixed charges represent total interest
expense. For purposes of this computation, preferred dividends are adjusted to a
pretax basis (the amount of earnings before taxes necessary to meet preferred
stock dividend requirements). Dividends represent those amounts deducted for
purposes of determining net proceeds in each fiscal year.
The pro forma ratios of earnings to fixed charges and preferred dividends
were computed by further increasing combined fixed charges and such dividends,
adjusted to a pretax basis, by the amount of pretax basis preferred dividends
which would have been declared and paid if all retained earnings allocated to
members' "retains" at the end of each fiscal period had been converted to
preferred stock at the beginning of the respective
11
<PAGE>
periods and the maximum dividend permitted by law of 12 percent of par value was
declared and paid thereon, except that for the nine-month period ended March 25,
1995 the assumed increase in pretax basis preferred dividends is pro-rated to
reflect such dividends ratably over the fiscal year.
BUSINESS OF PRO-FAC
Pro-Fac is an agricultural marketing cooperative. Membership in Pro-Fac is
limited to persons actively engaged in the growing of agricultural products (or
associations of such producers) which are marketed through Pro-Fac. Its
approximately 700 members are growers located principally in New York,
Pennsylvania, Illinois, Indiana, Michigan, Minnesota, Washington, Oregon, Iowa,
Nebraska, Florida, California and Georgia. A grower becomes a member of Pro-Fac
through the purchase of common stock, which obligates the grower to supply, and
Pro-Fac to purchase, crops. Crops grown by Pro-Fac members and purchased by
Pro-Fac include fruits (cherries, apples, blueberries, peaches and plums),
vegetables (snap beans, beets, cucumbers, peas, sweet corn, carrots, cabbage,
squash, asparagus, potatoes, dry beans, southern peas, turnip roots and leafy
greens) and popcorn. All of the crops supplied to Pro-Fac by its members are
sold to Curtice-Burns for processing.
Membership:
Membership in Pro-Fac is evidenced by the ownership of Pro-Fac common
stock. Hence the terms "member" and "common stockholder" are synonymous. Only
producers (or associations of producers) of agricultural products marketed
through Pro-Fac are eligible to become members and to own common stock of
Pro-Fac.
Under the Pro-Fac bylaws and the policies adopted by the Board of
Directors of Pro-Fac, growers who wish to become members of the Cooperative are
required to buy Pro-Fac common stock in order to provide a capital base for its
marketing activities. The stock purchase required of each grower is based upon
the type and quantity of product to be delivered by the grower to Pro-Fac as
established by the Board of Directors for particular commodities in particular
locations. In determining the level of common stock purchase required for a
member who desires to market a specified quantity or acreage of a crop through
Pro-Fac, the Board of Directors takes into account the expected CMV of the crop,
the level of interest in marketing that crop through Pro-Fac and other factors.
Common Stock:
Common stock is issued only at its par value, $5.00 per share. Payment for
common stock required to be purchased must be made in the manner approved by the
Board of Directors. In many cases, the board has permitted the purchase price to
be paid in four installments. Under this system, a cash deposit of at least 25
percent of the total price must be paid upon joining Pro-Fac; at that time 25
percent of the shares to be purchased are issued to the grower. The balance due
may be paid in three equal annual installments; upon receipt of each payment, 25
percent of the shares to be purchased are issued by Pro-Fac to the grower. A
member making his purchase in installments is permitted to market through
Pro-Fac the total quantities of product covered by his General Marketing
Agreement even before he has purchased the total required number of shares of
common stock. Since each Pro-Fac member is entitled to only one membership vote
regardless of the number of shares of common stock held, the voting rights of a
member are not affected by the purchase of common stock in installments. See
"Description of Pro-Fac Securities - Common Stock - Voting Rights." A member is
entitled to receive dividends only on shares actually issued to him.
12
<PAGE>
A grower may pay the three annual installments from the proceeds of his
crop sales to Pro-Fac or from other funds, as he chooses. He may pay the full
amount due at any time prior to the end of the third crop season, except that
members are not permitted to make voluntary advance payments for common stock
between April 1 and the dividend qualifying date for common stock during any
calendar year.
A grower who wishes to become a member of Pro-Fac is required to execute
an "Application for Membership", on which his required common stock purchase is
calculated and the method of payment is indicated, and in which he agrees to
include in his gross income in the year of receipt, for federal income tax
purposes, the stated amount of all patronage dividends allocated to him by
Pro-Fac by means of written notices of allocation of qualified retains. Such
member also agrees to include in gross income for federal income tax purposes,
in the year of redemption, the stated amount of non-qualified retains redeemed
by Pro-Fac. Each grower's application must be reviewed and approved by the Board
of Directors before it is accepted by Pro-Fac.
A grower must execute the General Marketing Agreement, and thereafter he
will also be required annually to execute a crop agreement setting forth quality
specifications for his crop and terms of production and delivery.
Pro-Fac is not aware of any government program which would materially
restrict a grower's ability to deliver crops which he has agreed to produce and
deliver in accordance with his crop agreement with Pro-Fac.
Regional Representation:
The business of Pro-Fac is conducted pursuant to policies established by
its Board of Directors. The territorial area in which Pro-Fac operates has been
divided into geographical regions based on natural divisions of product and
location. In addition, some regions have been further divided into districts.
The members within each region or district are represented on the Board by at
least one director. The board designates the number of directors to be elected
from each region or district, based on the value of raw product delivered, so as
to attain reasonably balanced representation on the Board. At present, there are
five regions of Pro-Fac covering the following areas and represented by the
number of directors indicated:
<TABLE>
<CAPTION>
Present Number
Region Area of Directors
- -------------------- --------------------------- --------------
<S> <C> <C> <C>
I (Dist. 1) Western Upstate New York 2
(Dist. 2) Eastern Upstate New York 2
(Dist. 3) Pennsylvania and Maryland 1
II (Dist. 1) Michigan 3
(Dist. 2) Illinois 1
III Iowa, Nebraska and Minnesota 1
IV Washington, Oregon and California 1
V Georgia and Florida 1
</TABLE>
In addition to the 12 directors elected by the members of Pro-Fac within
these five membership regions, the Board of Directors of Pro-Fac is permitted to
appoint up to one-fifth of the total number of directors to represent primarily
the interest of the general public in Pro-Fac.
13
<PAGE>
Commodity Committees:
A commodity committee has been established for each of the major crops
marketed through Pro-Fac. Each committee member is a member of Pro-Fac who grows
and markets through Pro-Fac the crop with which his committee is concerned.
Under current policies, where a crop is produced in different geographical
areas, commodity committees are established either for separate geographical
areas or for a combination of areas. Members of each commodity committee are
elected by the members of Pro-Fac in the region(s) for which the committee
serves.
The commodity committees have been active in advising the Board of
Directors of Pro-Fac as to numerous matters affecting Pro-Fac crops,
particularly with regard to the determination of CMV as hereinafter described
and the content of the annual crop agreements, which specify the terms under
which crops will be grown, harvested and delivered.
Marketing of Members' Crops
General Marketing Agreement:
Each member of Pro-Fac enters into a marketing agreement with Pro-Fac (the
"General Marketing Agreement"), in which he appoints Pro-Fac as his exclusive
agent for processing and marketing the portion of his crop committed under the
General Marketing Agreement and under annual crop agreements. In the General
Marketing Agreement, Pro-Fac agrees to make available, through its agreement
with Curtice-Burns, facilities for receiving and processing the crops delivered
by its members and the management personnel to operate such facilities and to
market the crops of its members as processed food products.
Passage of Title to Crops:
Upon delivery of a member's crops to Pro-Fac, Pro-Fac takes title to such
crops and has the right to transfer, process, or encumber them as it sees fit,
subject to the provisions of the General Marketing Agreement. A member
delivering crops to Pro-Fac has no control over such crops following delivery.
Prior to delivery to Pro-Fac, each member bears all risk of loss or damage to
his crops.
Quantity of Crops Marketed:
Ordinarily, the quantity of a crop to be delivered by a member of Pro-Fac
in any year is the quantity previously established in the General Marketing
Agreement and the Application for Membership or Additional Stock Subscription,
this being the quantity of raw product supported by the member's common stock
ownership. For annual crops, the quantity delivered is the quantity established
in the General Marketing Agreement and the Application for Membership or
Additional Stock Subscription. For perennial crops, the quantity is based on the
quantity in the General Marketing Agreement and the four-year history of an
individual member. For crops subscribed on a tonnage basis, members deliver 111
percent of the stock commitment. There are several ways, however, in which this
quantity may be changed.
If Pro-Fac determines that a permanent change is required in the total
quantity of a particular crop marketed through it, a corresponding change in the
common stock of the members producing that crop will be required. If additional
quantities of the crop are required, additional common stock will be offered to
growers of the crop, with qualified current members of Pro-Fac in the area where
the crop is needed given the first opportunity to purchase the stock. If a
reduction in the quantity of a crop is required,
14
<PAGE>
the common stock holdings of all Pro-Fac members delivering that crop will be
proportionately reduced; see "Special Factors To Be Considered -Possible
Discontinuance of Crop."
If a change in total crop requirement is determined to be only temporary,
adjustment of common stock holdings will not be required. If additional
quantities are temporarily required, Pro-Fac offers the opportunity to deliver
them to qualified current members growing the crop, on a pro rata basis. If a
temporary reduction in a crop is required, Pro-Fac may temporarily pro-rate
downward the quantity of the crop delivered by all members supplying it.
If the deliveries of a crop are temporarily pro-rated downward, the
members affected may, with the approval of the Board of Directors, be offered
the opportunity to sell their excess common stock to Pro-Fac. A member choosing
to do so would incur a permanent reduction in the amount of crop he is entitled
to deliver to Pro-Fac.
Pro-Fac crops under stock tonnage are subscribed for 90 percent of
Curtice-Burns normal required raw product needs. The difference between the
normal stock tonnage and the normal required raw product need of Curtice-Burns
becomes part of the member's delivery obligation. The tonnage will be paid for
by Pro-Fac and qualify for net proceeds distribution. No additional investment
is required from the member. This results in an increase of 11 percent to a
member's agreed to seasonal tonnage.
Agent Growers:
If a member is temporarily unable to fulfill his production obligation to
Pro-Fac, either in whole or in part, he may secure another grower or growers to
act as his agent in growing and delivering the crop to Pro-Fac. An agent grower
arrangement should be consummated prior to the planting season for the crop
concerned. An agent grower may, but need not, be a member of Pro-Fac. All
payments, including the allocation of retains, made by Pro-Fac for crops
delivered by an agent grower will be made directly to the agent grower. A member
may not utilize an agent grower to fulfill his production obligation to Pro-Fac
more frequently than one out of any two consecutive years without subjecting
himself to the mandatory transfer of his excess common stock.
Payments Received from Curtice-Burns; CMV:
Payment for crops is initially made by Curtice-Burns to Pro-Fac (and by
Pro-Fac to its members) on the basis of CMV. CMV is determined by a committee
established jointly by the Board of Directors of Pro-Fac and Curtice-Burns
("Joint Board CMV Committee") consisting of two members appointed by the
president of Pro-Fac, two members appointed by the chairman of Curtice-Burns,
and the president of Curtice-Burns. In making that determination, the Joint
Board CMV Committee acts on the basis of data supplied primarily by
Curtice-Burns concerning preseason contracts and open market purchases for
various crops; however, it also relies significantly upon the advice of the
commodity committee for each of the various crops marketed through Pro-Fac.
Because the members of the commodity committees are growers of the crops with
which they are concerned, and because those growers, like other growers who are
members of Pro-Fac, frequently sell crops to processors outside of Pro-Fac,
members of the commodity committees are familiar with prices paid by other
commercial processors for crops similar to those sold and marketed through
Pro-Fac.
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<PAGE>
Payment of Purchase Price to Members:
As a cooperative corporation subject to the provisions of the Internal
Revenue Code of 1986, as amended, Pro-Fac may retain for working capital a
portion of the proceeds received in payment for crops while currently deducting
for tax purposes the amount of such retained earnings that is annually allocated
to its members as qualified retains. In order to retain and deduct such amounts,
Pro-Fac must give a qualified written notice of allocation of such amount to
each member; the bylaws of Pro-Fac provide that such notices may contain such
terms and conditions as the Board of Directors deems appropriate, but the
allocation must be made within 8-1/2 months following the end of the fiscal
year. Each member must also consent to take his entire allocation of qualified
retains into income for tax purposes at its stated dollar amount, and Pro-Fac
must pay in cash at least 20 percent of each member's share of such proceeds.
Retains as to which Pro-Fac issues a non-qualified written notice of allocation
are excluded from these provisions. The earnings retained by Pro-Fac in this
fashion are discussed more fully under "Description of Pro-Fac Securities."
The bylaws of Pro-Fac, which are incorporated into the General Marketing
Agreement, require Pro-Fac annually to pay or account to its members for their
crops, on a cooperative basis, in cash and through such allocations of retains
as the Board of Directors may determine. It has been the practice of Pro-Fac
over the past five years to pay to its members each year in cash the full CMV of
all of their products marketed through Pro-Fac. The patronage proceeds of
Pro-Fac above CMV in those years have, after payment of dividends on capital
stock, partly been paid in cash to members and partly retained by Pro-Fac and
credited to an account allocated to each member by Pro-Fac. The percentages of
CMV paid in cash or allocated to members as retains over the last five fiscal
years are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June
----------------------------------------------------
1990 1991 1992 1993 1994
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Paid in cash 101.2% 100.1% 103.5% 101.8% 105.3%
Allocated as qualified retains 3.5% 0.4% 10.5% 7.0% 21.0%
Allocated as non-qualified retains 1.0% 0.5% 0.5% 1.0% 2.9%
----- ----- ----- ----- -----
Total 105.7% 101.0% 114.5% 109.8% 129.2%
===== ===== ===== ===== =====
</TABLE>
Since the Acquisition, Pro-Fac has agreed with Curtice-Burns to retain and
invest in the equity of Curtice-Burns 70 percent of Pro-Fac earnings over CMV
each year, so that cash payments with respect to qualified notices of allocation
cannot exceed 30 percent of such earnings.
For fiscal 1991, in addition to the percentages shown above, based on the
resolution of a matter with the Internal Revenue Service, Pro-Fac made an
additional distribution to members upon re-allocation of its 1991 income in
relation to the members' CMV for fiscal 1991. See "-Certain Tax Matters." The
following table illustrates the original allocation and the subsequent
additional distribution (which were reflected in the fiscal 1992 statements) and
the total distribution relating to members' crops in fiscal 1991.
<TABLE>
<CAPTION>
Allocated as Allocated as
Paid in Qualified Non-Qualified
Cash Retains Retains Total
------- ------------ ------------- -----
<S> <C> <C> <C> <C>
Original 1991 distribution 100.1% .4% .5% 101.0%
Additional 1991 distribution made during
fiscal 1992 1.6% 4.6% -- 6.2%
----- --- -- -----
Total payment of purchase price to members
as a percent of CMV for 1991 crops 101.7% 5.0% .5% 107.2%
===== === == =====
</TABLE>
16
<PAGE>
Timing of Payments for Crops:
Curtice-Burns is obligated to pay Pro-Fac the purchase price for crops
sold under the Marketing Agreement at such time or times as may be necessary to
permit Pro-Fac to make required payments to its members. The actual CMV of a
crop cannot ordinarily be determined until well after the harvest, so initial
payments are based upon estimated CMV, which is the final CMV established for
the crop in the prior year, unless the Board of Directors determines that
average industry prices have changed significantly since that time.
As soon as payments for particular crops are received from Curtice-Burns,
Pro-Fac pays the funds received over to the members who delivered those crops.
Thus, with minor variations, the purchase price is then paid by Pro-Fac to the
members in accordance with a long-established schedule, as follows: 50 percent
of estimated CMV is paid not later than 30 days after completion of delivery of
a particular crop, and another 25 percent of estimated or established CMV is
paid not later than 120 days after the average date of final delivery for each
crop. The balance of CMV is paid not later than July 15 of the following
calendar year. Any payments in addition to CMV are made as soon as possible, but
in any event within 8-1/2 months following the end of the fiscal year.
For example, a member of Pro-Fac who delivered crops with a CMV of $10,000
to Pro-Fac for marketing on August 1, 1993 was paid or allocated a total of
$12,920 for those crops. Of this amount, he was paid $10,000 (CMV) in cash in
three installments based on the following schedule of payments from
Curtice-Burns: $5,000 by August 30, 1993, $2,500 by November 30, 1993 (assuming
this member's date of final delivery coincides with the average date of final
delivery for the same crop), and $2,500 by July 15, 1994. In addition, as soon
as the necessary computations could be made, but before March 15, 1995 (8-1/2
months after fiscal year end) and final payment was received from Curtice-Burns,
he was paid an additional $530 (20 percent of the $2,630 earned over CMV,
excluding non-qualified retains) in cash, while $2,100 (the remaining 80 percent
of the earnings over CMV, excluding non-qualified retains) was retained by
Pro-Fac and allocated to his account as qualified retains. Finally, he was
notified of an allocation of an additional $290 in the form of non-qualified
retains which, at the discretion of the Board of Directors, may be redeemed for
cash and/or preferred stock. See "Description of Pro-Fac Securities."
Harvest Time Advance:
Recognizing the costs involved in harvesting and delivering a crop, Pro-
Fac has adopted a policy of offering harvest time cash advances to members. The
terms and conditions governing such advances are specified in the annual crop
agreements. Payment of the harvest time advance is usually made approximately
one week after delivery of a crop, and the total amount of the advance may not
exceed 50 percent of estimated CMV. The harvest time advance is repaid by
deducting the amount of the advance from the first payment due the member for
the crop.
Single Pool:
Under the General Marketing Agreement, Pro-Fac is required to account for
its earnings under what is generally referred to as the single pool concept, in
part because that portion of the purchase price for crops received from
Curtice-Burns which is in excess of CMV is not allocated to individual Pro-Fac
crops, but rather is a single payment based on the profitability of a variety of
products. Under the single pool system, a determination is made as to the
earnings of all crops in the aggregate. In the above example, the total purchase
price for crops paid or allocated to
17
<PAGE>
the hypothetical member was 29.2 percent over the CMV of the crops which he
delivered to Pro-Fac. The payment to him of $10,000 in cash was based upon the
CMV of the particular crops he delivered, but the 29.2 percent earned above that
was based upon the aggregate earnings of all Pro-Fac crops delivered in fiscal
1994 (1993 Production Year), computed in a single pool. The prices paid to
members of Pro-Fac for their crops are therefore related both to the CMV of
those crops and to the aggregate profitability of all Pro-Fac crops determined
under the single pool concept.
Certain Tax Matters:
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.
In August of 1993, the Internal Revenue Service issued a determination
letter which concluded that Pro-Fac 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. This exempt status was retroactive to fiscal year
1986. In conjunction with this ruling, Pro-Fac has filed for tax refunds for
fiscal years 1986 to 1990 in the amount of approximately $5.8 million and
interest payments of approximately $3.4 million. In addition, 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.
Pro-Fac ceased to qualify as a tax-exempt cooperative upon consummation of
the acquisition and, accordingly, is no longer permitted to deduct the cash
dividends paid on its capital stock. Non-patronage income is subject to federal
income tax at the cooperative level. Patronage income paid or allocated in the
form of qualified retains to members is taxable to the members and not to
Pro-Fac. Patronage income allocated in the form of non-qualified retains is
taxable at the cooperative level when issued. In the year that non-qualified
retains are redeemed at Pro-Fac's option, Pro-Fac receives a tax deduction and
the members have taxable income equal to the face amount redeemed.
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.
From time to time various proposals have been made and bills introduced in
Congress which would have the effect of modifying or even eliminating the
present provisions of the Code pursuant to which cooperatives are taxed and
could subject cooperatives to greater federal income tax liability. It is not
possible to predict whether any such proposal may be adopted, or, if
18
<PAGE>
adopted, what effect it might have on the federal income tax liability of
Pro-Fac or its members.
RELATIONSHIP WITH CURTICE-BURNS
Upon consummation of the Acquisition, certain disputed matters which were
the subject of pending arbitration were resolved. The Integrated Agreement was
terminated, and Pro-Fac and Curtice-Burns entered into the Pro-Fac Marketing and
Facilitation Agreement as of November 3, 1994 (the "Pro-Fac Marketing
Agreement"). The Pro-Fac Marketing Agreement reflects that much of the financing
previously provided by Pro-Fac to Curtice-Burns has been restructured. Financing
previously provided by the Bank to Pro-Fac, then re-lent by Pro-Fac to
Curtice-Burns, is now provided directly by the Bank to Curtice-Burns under the
New Credit Agreement. Pro-Fac's interest in the facilities and equipment of
Curtice-Burns and Pro-Fac's investment in the Bank were transferred to
Curtice-Burns at the time of the Acquisition. The Pro-Fac equity that was
previously lent to Curtice-Burns was also transferred to Curtice-Burns.
The Pro-Fac Marketing Agreement resembles the Integrated Agreement in that
it continues to provide for Pro-Fac to supply crops and additional financing to
Curtice-Burns, for Curtice-Burns to provide a market and management services to
Pro-Fac, and for Pro-Fac to share in the profits of Curtice-Burns. To preserve
the independence of Curtice-Burns, the Pro-Fac Marketing Agreement also requires
that certain of the directors of Curtice-Burns be individuals who are not
employees or shareholders of, or otherwise affiliated with, Pro-Fac or the
Company ("Disinterested Directors") and requires that certain decisions be
approved by the Disinterested Directors. The New Credit Agreement and the Notes
restrict the ability of Pro-Fac to amend the Pro-Fac Marketing Agreement.
Purchase of Crops From Pro-Fac:
Under the Pro-Fac Marketing Agreement, Curtice-Burns purchases crops from
Pro-Fac at the CMV of those crops. Under the predecessor agreements to the
Pro-Fac Marketing Agreement, Curtice-Burns paid Pro-Fac $64.2 million, $59.8
million and $59.2 million as CMV for crops purchased from Pro-Fac in fiscal
years 1992, 1993 and 1994, respectively. The crops purchased by Curtice-Burns
from Pro-Fac represented approximately 65 percent, 60 percent and 65 percent of
all raw agricultural crops purchased by Curtice-Burns in fiscal 1992, 1993 and
1994, respectively.
CMV will be determined, similar to the process that existed prior to the
Acquisition, by a joint committee of the Boards of Directors of Pro-Fac and
Curtice-Burns, which is currently comprised of the Chief Executive Officer of
Curtice-Burns and an equal number of Pro-Fac directors and Disinterested
Directors. The Pro-Fac Marketing Agreement requires a majority of the
Disinterested Directors to approve the recommendation of the joint committee.
Although CMV is intended to be no more than the fair market value of the crops
purchased by Curtice-Burns, it may be more or less than the price Curtice-Burns
would pay in the open market in the absence of the Pro-Fac Marketing Agreement.
The volume and type of crops to be purchased by Curtice-Burns under the Pro-Fac
Marketing Agreement are determined pursuant to its annual profit plan, which
requires the approval of a majority of the Disinterested Directors.
Patronage Income of Pro-Fac:
In addition to CMV, under the Pro-Fac Marketing Agreement, Curtice-Burns
will pay to Pro-Fac as additional patronage income (the "Additional Patronage
Income") up to 90 percent of Curtice-Burns' pre-tax income on Pro-Fac related
products (the "Pro-Fac Products"), or reduce CMV by up to
19
<PAGE>
90 percent of Curtice-Burns' losses on Pro-Fac Products. The Pro-Fac Marketing
Agreement provides that Additional Patronage Income may not exceed 50 percent of
Curtice-Burns' entire pre-tax income and that no more than 50 percent of
Curtice-Burns' entire pre-tax loss will be charged to Pro-Fac, through a
reduction of CMV, during the term of the Notes. Additional Patronage Income is
paid to Pro-Fac for services provided to Curtice-Burns, including the provision
of a long term, stable crop supply, favorable payment terms for crops and access
to cooperative bank financing and the sharing of risks in losses of operations
of the business.
Curtice-Burns has historically paid Pro-Fac Additional Patronage Income
based on a portion of Curtice-Burns' pre-tax income. Under the predecessor
agreements to the Pro-Fac Marketing Agreement, Additional Patronage Income has
generally been equal to 50 percent of the pre-tax income of Curtice-Burns, or
in loss years amounts due to Pro-Fac for interest on its loans to Curtice-Burns
have been reduced by 50 percent of Curtice-Burns' pre-tax losses. Curtice-Burns
paid Additional Patronage Income to Pro-Fac of $9.5 million and $16.9 million in
fiscal 1992 and 1994 on account of Curtice-Burns' earnings for those years. In
fiscal 1993, Curtice-Burns reduced the amount of interest due to Pro-Fac by
$21.8 million based on a 50 percent allocation of a loss at Curtice-Burns.
Historically, Curtice-Burns has deducted Additional Patronage Income for
income tax purposes as an ordinary and necessary business expense for
accommodations provided to Curtice-Burns by Pro-Fac. Under the Pro-Fac Marketing
Agreement, Pro-Fac will continue to provide many of the same services as it has
in the past. Although Curtice-Burns is a wholly-owned subsidiary of Pro-Fac, the
payment of Additional Patronage Income will be subject to a similar methodology
to that established at arm's length in the past and will be approved by a
majority of the Disinterested Directors. Curtice-Burns' management believes that
it will continue to be able to pay Additional Patronage Income to Pro-Fac and
deduct such payments for federal income tax purposes as ordinary and necessary
business expenses. There can be no assurance that all of such payments will be
able to be deducted in the future. The Board of Directors of Curtice-Burns has
adopted amendments to the Company's bylaws that are designed to qualify
Curtice-Burns as a cooperative for federal income tax purposes, to be
implemented only upon receipt of a favorable ruling from the Internal Revenue
Service on the consequences of such election. The objective of the change is
both to maximize the amount of patronage income derived by Pro-Fac and to
achieve a greater degree of certainty concerning the federal income tax
treatment of Additional Patronage Income paid by Curtice-Burns to Pro-Fac.
Additional Patronage Income received by Pro-Fac is deductible to Pro-Fac
for federal tax purposes only to the extent distributed to its members as
retains. Pro-Fac may make this distribution to its members through a combination
of cash and retains as long as a minimum of 20 percent of the amount is paid in
cash as required by federal tax law. Pro-Fac has historically paid its members
between 20 percent and 30 percent of Additional Patronage Income in cash and the
remaining portion in retains. Funds made available by the distribution of
retains to members in lieu of cash have historically been reinvested by Pro-Fac
in Curtice-Burns. Pro-Fac will be required to reinvest at least 70 percent of
the Additional Patronage Income in Curtice-Burns. See "Restrictions Under New
Financing Arrangements."
Under the Pro-Fac Marketing Agreement, Curtice-Burns will continue to
manage the business and affairs of Pro-Fac and provide all personnel and systems
required for its management, and Pro-Fac will pay Curtice-Burns a quarterly fee
of $25,000 for these services. See "Executive Compensation -- Pro-Fac."
20
<PAGE>
Restrictions Under New Financing Arrangements:
The New Credit Agreement and the Notes impose a variety of restrictions on
the relationship, and flow of cash, between Pro-Fac and Curtice-Burns. Under the
New Credit Agreement, a reduction in the number of Disinterested Directors on
the Curtice-Burns Board of Directors to less than two or the number of Pro-Fac
directors on the board (whichever is greater) would constitute a change of
control and trigger an event of default. Pro-Fac's guarantee of the Company's
obligations under the New Credit Agreement (the "Pro-Fac Bank Guarantee")
requires Pro-Fac to reinvest in Curtice-Burns at least 70 percent of any
Additional Patronage Income in excess of CMV paid by Curtice-Burns for crops.
The Indenture, dated as of November 3, 1994, pursuant to which the Notes
were issued (the "Indenture") also requires Pro-Fac to reinvest in Curtice-
Burns at least 70 percent of any Additional Patronage Income in excess of CMV
paid by Curtice-Burns for crops. The Indenture further restricts Curtice-Burns
from amending the calculation of amounts payable to Pro-Fac under the Pro-Fac
Marketing Agreement in a manner that would increase the payments made to Pro-Fac
or amending the Pro-Fac Marketing Agreement to require that certain transactions
with Pro-Fac be approved by less than a majority of the Disinterested Directors.
If the number of Disinterested Directors on the Curtice-Burns Board of Directors
is reduced for more than 120 days to less than two or to less than the number of
Pro-Fac directors on the board (whichever is greater), a change of control would
be deemed to have occurred under the Indenture. If a change of control is deemed
to have occurred, the Company would be required by the Indenture to make an
offer to repurchase Notes for an amount equal to 101 percent of the principal
amount of the Notes plus accrued and unpaid interest.
The Indenture also limits the amount and timing of dividends and other
payments ("Restricted Payments") from the Company to Pro-Fac or other holders of
payments Curtice-Burns debt or equity. No dividends or other Restricted Payments
may be made if there is an existing event of default under the Notes or if
Curtice-Burns's Fixed Charge Coverage Ratio (as defined in the Indenture, a
ratio of cash flow to interest and tax-adjusted dividends) for the preceding
four quarters, after giving effect to the Restricted Payment, is not at least
1.75 to 1.00. The amount of all dividends and other Restricted Payments
subsequent to the date of the Indenture is subject to an overall limit that is
based on the Company's net income and the amount of additional equity invested
in the Company.
DESCRIPTION OF PRO-FAC SECURITIES
Common Stock, Par Value $5
Dividend Rights:
After full non-cumulative dividends at the rate then determined by the
Board of Directors have been declared and paid to the holders of preferred
stock, dividends may be declared and paid to the holders of common stock. Under
present law, dividends on common stock may not exceed 12 percent of par value
per annum. Persons who purchase common stock in installments are entitled to
receive dividends only on those shares of common stock which have been issued to
them.
Voting Rights:
The holders of common stock are members of Pro-Fac. Each member has one
vote, regardless of the number of shares held. The one-vote-per-member rule is
subject to certain limitations where, for estate planning, tax planning or other
reasons, more than one member is part of the same farm operation.
21
<PAGE>
The certificate of incorporation of Pro-Fac provides that, when two or more
holders of common stock join in an agricultural venture, the Board of Directors
in its discretion shall determine whether the venture is a single enterprise for
which the participating holders shall have a single vote or a multiple
enterprise entitling the holders to more than one vote.
Liquidation Rights:
Upon dissolution or other termination of Pro-Fac or its business, after
the payment of all debts, all outstanding retains (see "Retains," below) are to
be retired in full, on a pro-rata basis without priority, before any liquidating
dividends are declared on or with respect to capital stock.
After payment to holders of all outstanding retains, holders of preferred
stock are entitled to receive, out of the funds then remaining, the full par
value of their stock, together with the amount of such dividends as may have
been declared but remain unpaid. After payment to the holders of preferred
stock, holders of common stock are entitled to receive the par value thereof,
together with the amount of such dividends as may have been declared but remain
unpaid.
To summarize, the order of priority upon distribution of assets in
dissolution is as follows:
1. First to creditors;
2. Then to redeem outstanding retains at full face
value.
3. Then to redeem preferred stock at par;
4. Then to redeem common stock at par;
5. With the remainder distributed proportionately to
the members to whom retains have been allocated
during the preceding five fiscal years.
Preemptive Rights:
Holders of common stock have no preemptive rights.
Conversion Rights:
Common stock is not convertible into any other security of Pro-Fac.
Redemption Provisions:
If a member ceases to be a producer of agricultural products marketed
through Pro-Fac, however, he must dispose of his common stock. If the member
follows the proper termination procedure and gives the required notice, Pro-Fac
will ordinarily purchase his stock at par value. The same procedure will
ordinarily apply when a member is expelled from the Cooperative or reduces his
production of a particular crop, in which cases all or part of his common stock
must be disposed of. Should Pro-Fac discontinue a crop, producers of that crop
will be required to dispose of their related common stock investments. Upon
notice from the Cooperative, members must sell such stock to Pro-Fac for cash
equal to its par value.
Liability to Further Assessment:
Shares of Pro-Fac common stock are subject to no further call or
assessment. Under the New York Cooperative Corporations Law, however, each
22
<PAGE>
member of a cooperative corporation, as well as each director, may be personally
liable for certain amounts due to employees for services rendered to the
Cooperative. As described elsewhere herein, Pro-Fac currently has no employees.
Transfer Agent:
Pro-Fac functions as its own transfer agent.
Transferability:
Pro-Fac common stock is issued only to growers of agricultural products
marketed through Pro-Fac (or to associations of such growers) and may be
transferred only to another grower who meets Pro-Fac standards for membership. A
member who wishes to sell his common stock must no notify Pro-Fac, which then
advises the member of the price another qualified grower acceptable to Pro-Fac
is willing to pay for the stock. Such prices vary widely by commodity and the
region in which the crop associated with the common stock is to be grown. Such
sales are often at a price exceeding the $5 par value at which the stock was
originally issued. Historically, there has usually been a demand for common
stock offered for sale by members. However, should there be no qualified buyer
for the common stock offered for sale, then Pro-Fac is obligated to repurchase
the common stock at its $5 par value.
Preferred Stock, Par Value $25
Dividend Rights:
The holders of Pro-Fac preferred stock are entitled to receive, in
preference to dividends on common stock, dividends at a rate of not less than 6
percent of par value per annum, when, as, and if declared by the board of
directors out of legally available funds. A dividend rate of 12 percent per
annum is the maximum rate presently permitted by law. Such dividends, if any,
are noncumulative.
Voting Rights:
Holders of preferred stock are not entitled to vote as such. Common
stockholders have all the voting power of the Cooperative. Under New York law,
however, the holders of preferred stock and common stock would be entitled to
vote as separate classes upon certain matters which would affect or subordinate
the rights of a class.
Liquidation Rights:
The rights of holders of preferred stock upon the dissolution or other
termination of Pro-Fac or its business are described under "Common Stock -
Liquidation Rights", above.
Preemptive Rights:
Holders of preferred stock have no preemptive rights.
Conversion Rights:
Preferred stock is not convertible into any other security of Pro-Fac.
Redemption Provisions:
Pro-Fac is entitled from time to time to redeem or retire all or any
portion of its outstanding preferred stock upon payment to the holder of the
23
<PAGE>
par value of the stock plus any accrued dividends unpaid at the date of
retirement. No such payments for the retirement of preferred stock may be made
under circumstance which would produce any impairment of the capital or capital
stock of the Cooperative. Any retirement of preferred stock may be made on such
other terms and conditions as are established by the board of directors,
provided that no retirement of any preferred stock may be effected except upon
90 days written notice to the holders thereof. The ability of Pro-Fac to redeem
its preferred shares is subject to significant restrictions imposed as a part of
the Acquisition, and it is unlikely that any preferred stock will be redeemed
during the next five years.
Liability to Further Assessment:
Shares of Pro-Fac preferred stock are subject to no further call or
assessment.
<TABLE>
<CAPTION>
Fiscal Year Annual Number of Shares
of Series Outstanding in
Issue Designation Series
---------- ----------- ---------------
<S> <C> <C>
1968 and 1969 B 2,777
1970 C 1,377
1971 D 1,669
1972 E 4,976
1973 F 6,899
1974 G 11,388
1977 H 3,783
1978 I 3,542
1979 J 5,777
1980 K 83,333
1981 L 138,827
1982 M 120,054
1983 N 87,444
1984 O 110,717
1985 P 164,435
1986 Q 124,724
1987 R 133,866
1988 S 157,634
1989 T 205,177
1990 U 253,018
1991 and 1992 V 339,033
1992 W 180,992
1993 X 237,365
1994 Y 244,797
1995 Z 419,721
</TABLE>
During the 1975 and 1976 fiscal years, there were no preferred shares
issued because there were no retains created in fiscal years 1969 and 1970 which
would have converted into preferred shares in 1975 and 1975, respectively.
Transferability; Absence of Market:
Shares of preferred stock are freely transferable. Although there were,
for several years preceding the Acquisition, two broker-dealers making a market
in Pro-Fac preferred stock, no such market currently exists, and there can be no
assurance that any such market will be reestablished. Historically, sales of
preferred stock have been at prices substantially less than par value. If a
market for Pro-Fac preferred stock is reestablished, the increased leverage of
Pro-Fac as a result of the Acquisition, and the limits on Pro-Fac's ability to
repurchase preferred
24
<PAGE>
stock resulting from the New Credit Agreement and the Indenture, are likely to
decrease the prices at which Pro-Fac preferred stock is traded.
Authorization of Additional Classes
At the Pro-Fac annual meeting on January 28, 1995, the members approved an
amendment to the certificate of incorporation authorizing the board of directors
to issue five additional classes of preferred shares of 10 million shares each
and to fix the rights, specifications, limitations and restrictions on each such
series without any further rate or return by the members. No such shares have as
yet been issued.
Retains
Annual Allocation:
Retains must be allocated to the accounts of members within 8-1/2 months
of the close of the fiscal year. The fiscal year of Pro-Fac ends on the last
Saturday of June; it has been and continues to be the policy of Pro-Fac to make
the allocation of the retains on or about September 15 of each year. Each member
is typically advised of the allocation of qualified and non-qualified retains to
his account by means of an investment summary which is mailed to him each year
about September 15.
Qualified Retains Mature into Preferred Stock:
Qualified retains bear no interest, but five years after issuance they
generally mature into preferred stock at the par value of $25 per share. One
share of preferred stock for each $25 of qualified retains is ordinarily issued
to holders of qualified retains on or about December 31 following the completion
of the fifth year after allocation of the qualified retains. Qualified retains
are now created in multiples of $25 to avoid the necessity of paying fractional
amounts in cash.
Redemption of Non-Qualified Retains:
It is the present intention of the Board of Directors that non-qualified
retains will be redeemed, through partial payment in cash and the issuance of
preferred stock, approximately five years after their issuance.
Methods of Allocation of Retains:
The bylaws of Pro-Fac provide that the written notice of allocation of
retains may contain such terms and conditions as the Board of Directors may deem
appropriate. Pro-Fac does not issue actual certificates to represent retains,
but rather issues periodic investment summaries showing the allocation of
qualified and non-qualified retains to each member.
Adjustment of Amount of Non-Qualified Retains:
It is possible that the allocation of proceeds made immediately following
the close of a fiscal year may not be final and may require modification because
of some event which could occur after the close of the fiscal year. Should such
an event require a reduction in the proceeds paid or allocated to members in a
previous year, the Board of Directors may in its discretion reduce the amount of
the non-qualified retains allocated to the accounts of those members for the
year in question.
Transferability of Retains; Absence of Market:
Non-qualified retains are not transferable, except to the heirs or
personal representative of a member in the event of the member's death.
Qualified retains are freely transferable. Although there were, for several
years preceding the Acquisition, two broker-dealers making a market in Pro-Fac
qualified retains, no such market currently exists, and there can be no
assurance that any such market will be reestablished. Historically, sales
25
<PAGE>
of qualified retains have been at prices substantially less than the face
amount. If a market for Pro-Fac and Curtice Burns qualified retains is
reestablished, the increased leverage of Pro-Fac as a result of the Acquisition,
and the limits on Pro-Fac's ability to repurchase preferred stock resulting from
the New Credit Agreement and the Indenture, are likely to decrease the prices at
which Pro-Fac qualified retains are traded.
Liquidation Rights:
All retains are junior and subordinate to all debts of Pro-Fac. The
liquidation rights of the holders of retains are described under "Common Stock -
Liquidation Rights" above.
Dividends and Other Distributions to Members and Investors
Each year the Pro-Fac Board of Directors determines the dividend levels on
common and preferred stock as well as the percentage of current patronage income
to be paid in cash. The Board of Directors sets priorities based on several
factors:
The cash portion of the patronage distribution goes to
active members as opposed to retired members or
investors.
The dividend on common stock goes to active members.
Members purchase common stock primarily to obtain a
market for their crops, and therefore should not
require a dividend return as high as investors in the
preferred stock.
The dividend on the preferred stock determines the
market value of the preferred stock.
All members' patronage income retained by Pro-Fac as
qualified allocations will eventually convert to
preferred stock.
The amount, if any, of preferred stock to be
repurchased and canceled.
In recent years the Pro-Fac Board of Directors has placed the highest
priority on preferred stock dividends because of the dividend's role in
determining the value of the preferred stock. The market value is important to
the members whether the preferred stock is used for collateral or eventually is
sold. Although only required to distribute 20 percent in cash, the Board of
Directors has placed a high priority on keeping the percentage of current
patronage income in excess of CMV paid in cash within the range of 25 to 30
percent, when business conditions permit, to allow for payment of the members'
taxes due on the total patronage income. The dividends on common stock have been
held to a lower dividend rate than the preferred stock because the member is
deriving a benefit beyond the investment itself.
The Pro-Fac Bank Guarantee places aggregate dollar limits on the amount
Pro-Fac may pay as dividends, stock repurchases or similar distributions to
shareholders each fiscal year. The Pro-Fac Bank Guarantee also includes
financial covenants with respect to working capital, minimum tangible net worth,
long term debt to equity ratio, total net worth, and cash flow coverage that may
limit Pro-Fac's ability to pay dividends on its common and preferred stock.
Further, because Curtice-Burns is the principal source of cash used by Pro-Fac
to pay dividends, the restrictions on payments from Curtice-Burns to Pro-Fac
described above under "Relationship with Curtice-Burns - Restrictions Under New
Financing Arrangements" may also limit Pro-Fac's ability to pay dividends on
its common and preferred stock.
26
<PAGE>
Certificates for Securities
Pro-Fac ordinarily does not issue certificates representing shares of
either its common or preferred stock or its members' interests in retains,
except upon specific request. In lieu of certificates, Pro-Fac distributes to
its members and its non-member security holders periodic computerized statements
referred to as "investment summaries." The investment summaries detail the
investment of each member or security holder in the securities of Pro-Fac
(common stock, preferred stock and retains) by type of security, number of
shares (or dollar amount) and date of issue. In the case of qualified retains,
the summaries also indicate the date upon which they are anticipated to be
replaced by corresponding par value dollar amounts of preferred stock.
Additionally, the investment summaries detail each member's crop commitments to
the Cooperative.
SELECTED HISTORICAL FINANCIAL DATA OF PRO-FAC
The following table sets forth selected historical financial data of
Pro-Fac for the periods indicated. The information should be read in conjunction
with the Pro-Fac Financial Statements and related notes thereto appearing
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Pro-Fac."
The selected historical financial data for each of the years ended June
26, 1992, June 26, 1993 and June 25, 1994 and as of June 26, 1993 and June 26,
1994 have been derived from Pro-Fac's audited financial statements included
elsewhere herein. The selected historical financial information for each of the
years ended June 29, 1990 and June 28, 1991 and as of June 29, 1990, June 28,
1991 and June 26, 1992 have been derived from Pro-Fac's audited financial
statements not included herein. The financial data for nine months ended March
26, 1994 and March 25, 1995 and, as of March 25, 1995, are unaudited, but in the
opinion of management, reflect all adjustments necessary for a fair presentation
of such data. The data for the nine months ended March 25, 1995 are not
necessarily indicative of results of operations for fiscal 1995.
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------------------
June 29, June 28, June 26, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement Of Operations Data:
Raw product deliveries at Commercial
Market Value $ 54.9 $ 61.2 $ 64.2 $ 59.8 $ 59.2
Adjust to fiscal year basis 5.9 1.0 (0.7) (0.1) (1.0)
Additional proceeds (loss) from Curtice-
Burns under the Integrated Agreement 11.5 5.9 9.5 (21.8) 18.6
Interest income 22.6 22.7 19.8 17.1 15.6
Other income 1.1 0.9 1.4 1.9 1.9
------ ------ ------ ------ ------
Total revenues 96.0 91.7 94.2 56.9 94.3
------ ------ ------ ------ ------
Total interest and other expenses 20.4 21.2 18.0 14.7 12.4
CMV paid or accrued 60.8 62.2 63.4 59.7 58.2
------ ------ ------ ------ ------
Total costs and expenses 81.2 83.4 81.4 74.4 70.6
Excess/(deficiency) of revenues before
taxes, dividends and allocation of net
proceeds 14.8 8.3 12.8 (17.5) 23.7
Tax (provision)/benefit for taxes on
income (4.4) (3.0) 1.1 -- 0.8
------ ------ ------ ------ ------
Net income/(loss) (proceeds before
dividends) $ 10.4 $ 5.3 $ 13.9 $(17.5) $ 24.5
====== ====== ====== ====== ======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
(Continued)
June 29, June 28, June 26, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Investment in direct financing leases $146.6 $193.3 $187.3 $173.5 $141.3
Total assets $385.1 $385.6 $361.4 $324.9 $296.1
Total debt $192.4 $178.0 $164.0 $168.0 $127.1
Shareholders' investment and members'
capitalization $113.6 $114.6 $120.0 $ 96.4 $113.5
</TABLE>
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
March 26, March 25,
1994 1995 *
--------- ---------
<S> <C> <C>
Statement Of Operations Data:
Net sales $ -- $347.1
Raw product deliveries at Commercial
Market Value 58.4
Additional proceeds from Curtice-Burns prior
to the acquisition 15.0 5.1
Interest income from Curtice-Burns
prior to the acquisition 12.0 6.1
Other income 0.6 --
------ ------
Total revenues 86.0 358.3
------ ------
Cost of sales -- 257.5
Selling, administrative and general -- 66.6
Total interest and other expenses 9.0 20.6
CMV paid or accrued 58.4 --
------ ------
Total costs and expenses 67.4 344.7
------ ------
Excess of revenues before taxes, dividends and
allocation of net proceeds 18.6 13.6
Tax (provision)/benefit for taxes on income (0.1) 4.3
------ ------
Net income (proceeds before dividends) $ 18.5 $ 17.9
====== ======
Balance Sheet Data:
Investment in direct financing leases $139.9 $ --
Total assets $305.8 $702.7
Total debt $147.0 $333.4
Shareholders' investment and members'
capitalization $108.3 $125.1
</TABLE>
* Reflects the acquisition of Curtice Burns as of November 3, 1994.
28
<PAGE>
PRO FORMA FINANCIAL DATA OF PRO-FAC AND CURTICE-BURNS
The following unaudited pro forma condensed combined financial data (the
"Pro Forma Combined Financial Data") of Pro-Fac and Curtice-Burns is based on
the historical Financial Statements of Pro-Fac and the historical Consolidated
Financial Statements of Curtice-Burns included elsewhere
herein, adjusted to give effect to the Acquisition.
The Unaudited Pro Forma Combined Statements of Operations of Pro-Fac and
Curtice-Burns for the year ended June 25, 1994 and for the nine months ended
March 25, 1995 of Curtice-Burns give effect to the Acquisition as if they had
occurred as of June 27, 1993 and June 26, 1994, respectively. The pro forma
combined financial data do not purport to represent what the combined results of
operations or financial position of Pro-Fac and Curtice-Burns would actually
have been had the Acquisition in fact occurred on such dates or to project the
combined results of operations or financial position of Pro-Fac and
Curtice-Burns for any future period or date. The pro forma combined data do not
give effect to any transactions other than the Acquisition as discussed in the
notes to the pro forma financial data set forth below.
The Acquisition was accounted for using the purchase method of accounting.
In recording the Acquisition, approximately $121.6 million was added to fixed
asset values to reflect appraised fair market value, and the asset lives were
adjusted to lives deemed appropriate for the 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.
The Pro Forma adjustments are based on available information and upon
certain assumptions that management of Curtice-Burns believes are reasonable
under the circumstances. The Pro Forma Combined Financial Data of Pro-Fac and
Curtice-Burns and accompanying notes should be read in conjunction with the
historical Consolidated Financial Statements of Curtice-Burns, including the
notes thereto, and other financial information pertaining to Curtice-Burns
included elsewhere herein.
29
<PAGE>
Pro-Fac Cooperative, Inc. and Curtice-Burns Foods, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended June 25, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Pro-Fac Curtice- Acquisition
Cooperative Burns and Note
Inc. Foods, Inc. Offering Pro Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales and revenues $ 94.3 $829.1 $(94.3)(a)(c) $829.1
Cost of sales 58.2 592.6 (54.1)(a)(b) 596.7
------ ------ ------ ------
Gross profit 36.1 236.5 (40.2) 232.4
Selling, administrative and
general 0.8 186.9 (2.6)(a)(c) 185.1
Restructuring including net
(gain)/loss from
division disposals -- (7.8) 7.8 (g) --
Change in control expenses -- 3.5 (3.5)(d) --
Pro-Fac share of earnings -- 16.9 (16.9)(a) --
------ ------ ------ ------
Operating income 35.3 37.0 (25.0) 47.3
Total interest expense 11.6 18.2 7.4 (e) 37.2
------ ------ ------ ------
Pre-tax earnings/(loss) 23.7 18.8 (32.4) 10.1
(Benefit)/provision for
taxes (0.8) 8.7 (3.9)(f) 4.0
------ ------ ------ ------
Net income/(loss) $ 24.5 $ 10.1 $(28.5) $ 6.1
====== ====== ====== ======
</TABLE>
Pro-Fac Cooperative, Inc. and Curtice-Burns Foods, Inc.
(Unaudited)
Pro Forma Combined Statement of Operations
For the Nine Months Ended March 25, 1995
<TABLE>
<CAPTION>
Pro-Fac Curtice- Acquisition
Cooperative Burns and Note
Inc. Foods, Inc. Offering Pro Forma
(Historical) (Predecessor) Adjustments Combined
------------ ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales and revenues $347.1 $276.6 $(50.5)(a) $573.2
Cost of sales 257.5 195.8 (50.8)(a)(b) 402.5
------ ------ ------ ------
Gross profit 89.6 80.8 0.3 170.7
Selling, administrative and
general 66.6 60.6 (0.6)(a)(c) 126.6
Interest income from Curtice-
Burns prior to Acquisition (6.1) -- 6.1 (a) --
Restructuring including net
loss from division
disposals -- 8.4 (8.4)(g) --
Change in control expenses -- 2.2 (2.2)(d) --
Gain on assets resulting from
fire claim -- (6.5) -- (6.5)
Pro-Fac share of earnings (5.2) 4.1 1.1 (a) --
------ ------ ------ ------
Operating income 34.3 12.0 4.3 50.6
Total interest expenses 20.6 7.6 2.9 (e) 31.1
------ ------ ------ ------
Pretax earnings (loss) 13.7 4.4 1.4 19.5
(Benefit)/provision for taxes (4.2) 2.7 (1.3)(f) (.2)(h)
------ ------ ------ ------
Net income/(loss) $ 17.9 $ 1.7 $ 0.1 $ 19.7
====== ====== ====== ======
</TABLE>
See accompanying notes to the pro forma combined financial data.
30
<PAGE>
NOTES TO THE PRO FORMA COMBINED FINANCIAL DATA
NOTE 1. BASIS OF PRESENTATION
The unaudited Pro Forma Combined Statements of Operations for the year
ended June 25, 1994 and the nine months ended March 25, 1995 have been presented
assuming the Acquisition was consummated as of June 27, 1993. The unaudited pro
forma financial information should be read in conjunction with the financial
historical statements and notes thereto of Curtice-Burns and Pro-Fac included
elsewhere in this document.
NOTE 2. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 25, 1994 ADJUSTMENTS
(a) To reflect the elimination of the earnings split
and other transactions between Curtice-Burns and
Pro-Fac.
(b) Primarily to reflect the adjustment to
depreciation expense in connection with recording
fixed asset values at appraised fair market value
and to adjust the asset lives to lives deemed
appropriate for the assets acquired.
(c) To reflect $2.7 million of amortization of
goodwill and other intangible assets assuming
life of 35 years and to reduce previously
recorded amortization of goodwill and other
intangibles by $3.4 million. Additionally, to
reflect the reclassification of the patronage
dividend received from the Bank ($1.9 million).
(d) To reflect the elimination of change in control
expenses incurred during fiscal 1994.
(e) To reflect the net adjustment to interest expense
calculated as follows:
<TABLE>
<CAPTION>
(Dollars in
Millions)
----------
<S> <C>
Notes at rate of 12.25% $ 19.6
Borrowings under New Credit Agreement:
$80.0 million Term Loan at assumed rate of 8.3% 6.7
$97.5 million Term Loan Facility at assumed rate of 7.8% 7.6
Amortization of debt issuance costs (10-year period) 0.8
Less historical interest expense net adjustment (27.0)
Less amortization of debt issue costs related to debt repaid (0.3)
------
Net adjustment to interest expense $ 7.4
======
</TABLE>
(f) To reflect the income tax effect of the pro forma
adjustments (exclusive of non-deductible
expenses) based on an assumed marginal income tax
rate of 40 percent.
(g) To reflect the elimination of restructuring
activities relating to divisions disposed of by
the Company.
31
<PAGE>
NOTE 3. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED MARCH 25, 1995 ADJUSTMENTS FOR PREDECESSOR ENTITY
(a) To reflect the elimination of the earnings split
and other transactions between Curtice-Burns and
Pro-Fac.
(b) Primarily to reflect the adjustment to
depreciation expense in connection with recording
fixed asset values at appraised fair market value
and to adjust the asset lives to lives deemed
appropriate for the assets acquired.
(c) To adjust amortization of goodwill and other
intangibles assuming life of 35 years and to
eliminate previously recorded amortization of
Curtice Burns.
(d) To reflect the elimination of change in control
expenses incurred by Curtice-Burns during the
period.
(e) To reflect the net adjustment to interest expense
for the Predecessor entity calculated as follows:
<TABLE>
<CAPTION>
(Dollars in
Millions)
----------
<S> <C>
Notes at rate of 12.25% $ 7.1
Borrowings under New Credit Agreement:
$80.0 million Term Loan at assumed rate of 8.3% 2.4
$97.5 million Term Loan Facility at assumed rate of 7.8% 2.8
Amortization of debt issuance costs (10-year period) 0.3
Less historical interest expense net adjustment (9.7)
------
Net adjustment to interest expense $ 2.9
======
</TABLE>
(f) To reflect the income tax effect of the pro forma
adjustments (exclusive of non-deductible
expenses) based on an assumed marginal income tax
rate of 40 percent.
(g) To reflect the elimination of restructing
activities relating to divisions disposed of by
the Company.
(h) The benefit for taxes includes the recognition of
an operating loss carryforward recorded by
Pro-Fac in the second quarter of fiscal 1995.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pro-Fac's Results of Operations
Nine Month Changes From the Corresponding Prior Year Period
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:
<TABLE>
<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)
======
</TABLE>
The gross profit change represents Curtice-Burns gross profit after the
Acquisition. The changes in the Curtice-Burns profit split and interest income
from Curtice-Burns also relates to the Acquisition, since with the Acquisition,
these items ceased. The increased selling, general and administrative expenses
were due to the inclusion of Curtice-Burns costs since the Acquisition. The
increased interest expense was primarily attributable to the increased
borrowings related to the Acquisition of Curtice-Burns by Pro-Fac. The change in
the tax benefit/(provision) is the net result of the inclusion of Curtice-Burns'
tax provision after the Acquisition and the recognition of a tax benefit,
primarily related to Pro-Fac's net operating loss carryforward from fiscal
1993.
Changes From Fiscal 1993 to Fiscal 1994
The 1994 CMV of crops delivered during this production season decreased to
$59.2 million from $59.8 million in fiscal 1993. This 1.0 percent decrease was
the net result of a 2.5 percent tonnage increase offset by the effect of price
and mix variations from the commodities.
For the year ended June 25, 1994, the change in net proceeds and the
allocation to members compared to the prior year is summarized below:
<TABLE>
<CAPTION>
(Dollars in
Millions)
----------
<S> <C>
Increased proceeds from the Company $ 40.4
Increased net interest income 0.7
All other 0.1
------
Change in excess of revenues before taxes,
dividends and allocation of net proceeds 41.2
Benefit for taxes 0.8
Change in dividends 0.2
Change in net proceeds 42.2
------
Less increase in allocation to earned surplus (30.8)
------
Increase in net proceeds available to members $ 11.4
======
</TABLE>
33
<PAGE>
Changes From Fiscal 1992 to Fiscal 1993
The 1993 CMV of crops delivered during the production season decreased to
$59.8 million from $64.2 million in fiscal 1992. This decrease of 6.9 percent
was the net result of a 12.0 percent tonnage increase offset by the effect of
price and mix variations for the commodities. Significant supplies of cherries
in 1992 drove CMV for that crop down so that even though the volume delivered to
Pro-Fac increased 64 percent from the prior year the dollar amount of CMV
decreased by 39 percent.
For the year ended June 26, 1993, the change in net proceeds and the
allocation to members compared to the prior year is summarized below:
<TABLE>
<CAPTION>
Dollars in
Millions)
----------
<S> <C>
Decreased proceeds from the Company $(31.3)
Increase net interest income 0.6
Change in bank dividend 0.4
Change in excess of revenues before taxes,
dividends and allocation of net proceeds (30.3)
Decrease in the benefit for taxes (1.1)
Increase in dividends (0.1)
------
Change in net proceeds (31.5)
Decrease in allocation to earned surplus 28.0
------
Decrease in net proceeds available to members
from current operations (3.5)
Additional distribution of 1991 net proceeds from
earned surplus in fiscal 1992 (3.7)
------
Decrease in net proceeds available to members $ (7.2)
======
</TABLE>
Results of Operations of Curtice Burns
Prior to the Acquisition, most of the proceeds of Pro-Fac have 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.
Comparisons to the prior-year periods are imperfect 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 of adjustments to depreciation, amortization and interest expense.
34
<PAGE>
Nine Month Changes From the Corresponding Prior Year Period
The following tables illustrate the Company's results of operations by
business for the first nine months of fiscal 1994 compared to the first nine
months of fiscal 1995.
Net Sales
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
3/25/95 3/26/94
------------ ------------
% of % of
$ Total $ Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") 253.8 44.3 259.7 40.4
Nalley's Fine Foods 131.5 22.9 124.7 19.4
Southern Frozen Foods 73.3 12.8 70.9 11.0
Snack Foods Group 44.8 7.8 45.3 7.1
Brooks Foods 26.0 4.5 26.6 4.1
Finger Lakes Packaging 36.5 6.4 35.5 5.5
Intercompany eliminations(1) (25.1) (4.4) (24.6) (3.8)
----- ----- ----- -----
Subtotal ongoing operations 540.8 94.3 538.1 83.7
Businesses sold and to be sold(2) 32.4 5.7 104.7 16.3
----- ----- ----- -----
Total 573.2 100.0 642.8 100.0
===== ===== ===== =====
</TABLE>
----------
(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 recently announced the potential sale of
Nalley's Canada Ltd.
35
<PAGE>
Cost of Sales
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
3/25/95 3/26/94
--------------- ----------------
% of % of
$ Total $ Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
CMF 188.2 46.7 195.1 42.7
Nalley's Fine Foods 79.3 20.0 76.3 16.7
Southern Frozen Foods 57.1 14.2 55.6 12.2
Snack Foods Group 28.8 7.2 28.9 6.3
Brooks Foods 16.5 4.1 17.3 3.8
Finger Lakes Packaging 33.2 8.2 32.0 7.0
Intercompany eliminations and
corporate overhead (25.4) (6.6) (23.0) (5.0)
----- ----- ----- -----
Subtotal ongoing operations 377.7 93.8 382.2 83.7
Businesses sold and to be sold(1) 25.1 6.2 74.4 16.3
----- ----- ----- -----
Total 402.8 100.0 456.6 100.0
===== ===== ===== =====
</TABLE>
(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 recently announced the potential sale
of Nalley's Canada Ltd.
Gross Profit
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
3/25/95 3/26/94
------------- --------------
% of % of
$ Total $ Total
---- ----- ---- -----
<S> <C> <C> <C> <C>
CMF 65.6 38.5 64.6 34.7
Nalley's Fine Foods 52.2 30.6 48.4 26.0
Southern Frozen Foods 16.2 9.5 15.3 8.2
Snack Foods Group 16.0 9.4 16.4 8.8
Brooks Foods 9.5 5.6 9.3 5.0
Finger Lakes Packaging 3.3 1.9 3.5 1.9
Intercompany eliminations and
corporate overhead 0.3 0.2 (1.6) (0.9)
----- ----- ----- -----
Subtotal ongoing operations 163.1 95.7 155.9 83.7
Businesses sold and to be sold(1) 7.3 4.3 30.3 16.3
----- ----- ----- -----
Total 170.4 100.0 186.2 100.0
===== ===== ===== =====
</TABLE>
(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 recently announced the potential sale
of Nalley's Canada Ltd.
36
<PAGE>
Operating Income Before Dividing with Pro-Fac1
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
3/25/95 3/26/94
------------- ------------
% of % of
$ Total $ Total
---- ----- ---- -----
<S> <C> <C> <C> <C>
CMF 24.3 56.3 21.6 57.6
Nalley's Fine Foods 12.6 29.2 11.5 30.7
Southern Frozen Foods 7.8 16.2 7.4 19.7
Snack Foods Group 2.2 5.1 2.2 5.9
Brooks Foods 3.3 7.6 3.2 8.5
Finger Lakes Packaging 2.3 5.3 2.5 6.7
Intercompany eliminations and
corporate overhead(1) (8.9) (18.8) (10.1) (27.0)
---- ----- ----- -----
Subtotal ongoing operations 43.6 100.9 38.3 102.1
Businesses sold and to be sold(2) (0.4) (0.9) (0.8) (2.1)
---- ----- ----- -----
Total 43.2 100.0 37.5 100.0
==== ===== ===== =====
</TABLE>
(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 recently announced the potential sale of
Nalley's Canada Ltd.
Depreciation and Amortization
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
3/25/95 3/26/94
-------------- --------------
% of % of
$ Total $ Total
---- ----- ---- -----
<S> <C> <C> <C> <C>
CMF 7.8 42.9 8.3 44.9
Nalley's Fine Foods 2.3 12.6 2.3 12.4
Southern Frozen Foods 1.9 10.4 1.7 9.2
Snack Foods Group 1.6 8.8 1.6 8.7
Brooks Foods 0.5 2.8 0.5 2.7
Finger Lakes Packaging 0.9 5.0 1.0 5.4
Corporate(1) 2.2 12.0 0.2 1.0
----- ----- ----- -----
Subtotal ongoing operations 17.2 94.5 15.6 84.3
Businesses sold and to be sold(2) 1.0 5.5 2.9 15.7
----- ----- ----- -----
Total 18.2 100.0 18.5 100.0
===== ===== ===== =====
</TABLE>
(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 recently announced the potential sale of
Nalley's Canada Ltd.
37
<PAGE>
Total Assets
(Dollars in Millions)
<TABLE>
<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
Corporate(1) 256.1 36.6 48.4 10.3
----- ----- ----- -----
Subtotal ongoing operations 689.2 98.3 440.7 95.0
Businesses sold to be sold(2) 11.7 1.7 22.9 5.0
----- ----- ----- -----
Total 700.9 100.0 463.6 100.0
===== ===== ===== =====
</TABLE>
(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 recently announced the potential sale of
Nalley's Canada Ltd.
The following table illustrates the Company's income statement data and
the percentage of net sales represented by these items for the nine months ended
March 25, 1995 and March 26, 1994.
Consolidated Statement of Operations
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
3/25/95 3/26/94
---------------- ----------------
% of % of
$ Sales $ Sales
----------------- ----- -----
<S> <C> <C> <C> <C>
Net sales 573.2 100.0 642.8 100.0
Cost of sales 402.8 70.3 456.6 71.0
------ ----- ------ -----
Gross profit 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 (127.2) (22.2) (148.7) (23.1)
------ ----- ------ -----
Operating income before dividing
with Pro-Fac 39.1 6.8 45.6 7.1
Interest expense (24.0) (4.2) (14.3) (2.2)
------ ----- ------ -----
Pretax earnings before dividing
with Pro-Fac 15.1 2.6 31.3 4.9
Pro-Fac share of earnings (7.3) (1.3) (15.0) (2.3)
------ ----- ------ -----
Income before taxes 7.8 1.3 16.3 2.6
Provision for taxes (4.7) (0.8) (6.7) (1.1)
------ ----- ------ -----
Net Income 3.1 0.5 9.6 1.5
====== ===== ====== =====
</TABLE>
38
<PAGE>
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
3 at page F-9, 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 volume, selling
prices, costs, and product mix. The $7.2 million increase in gross profit for
ongoing operations is comprised of increases as follows:
39
<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 at page F-34.
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 at page F-32.
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:
40
<PAGE>
<TABLE>
<CAPTION>
(In Millions)
Businesses
----------------------------------------------
Sold or to be Sold Ongoing Total
------------------ ------- ------
<S> <C> <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
months of fiscal 1994. This increase was primarily attributable
41
<PAGE>
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.
42
<PAGE>
Changes From Fiscal Years 1992 Through 1994
The following tables illustrate the Company's results of operations by
business for fiscal years 1992, 1993 and 1994.
NET SALES
(Dollars in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
JUNE 26, 1992 JUNE 26, 1993 JUNE 25, 1994
-------------- --------------- ----------------
NET % OF NET % OF NET % OF
SALES TOTAL SALES TOTAL SALES TOTAL
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit........... $318.8 35.6% $317.8 36.1% $333.4 40.2%
Nalley's Fine Foods............... 211.9 23.6 211.1 24.0 214.8 26.0
Southern Frozen Foods............. 91.7 10.2 93.4 10.7 94.3 11.4
Snack Foods Group................. 65.3 7.3 65.4 7.4 61.2 7.4
Brooks Foods...................... 30.0 3.3 30.7 3.5 30.0 3.6
Finger Lakes...................... 46.9 5.2 47.1 5.4 49.9 6.0
Intercompany eliminations(1)...... (30.6) (3.4) (32.9) (3.7) (34.4) (4.2)
------ ----- ------ ----- ------ -----
Sub-total -- Ongoing
operations................. 734.0 81.8 732.6 83.4 749.2 90.4
Businesses sold(2)................ 162.9 18.2 146.0 16.6 79.9 9.6
------ ----- ------ ----- ------ -----
Total net sales......... $896.9 100.0% $878.6 100.0% $829.1 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
- ------------
(1) Principally intercompany sales by Finger Lakes.
(2) The Company has sold the private label beverage business, the Lucca
Frozen Foods business, the oats portion of the National Oats
business, the Hiland potato chips business, the meats snack business
and the Nalley's U.S. Chips and Snacks business. The Company
recently announced the potential sale of Nalley's Canada Ltd.
Nalley's Canada Ltd. had net sales of $43.0 million in fiscal year
1994, $46.6 million in fiscal 1993, and $46.0 million in fiscal
1992. Such amounts are included as sales of Nalley's Fine Foods, and
not of a business sold.
43
<PAGE>
OPERATING INCOME(1)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
JUNE 26, 1992 JUNE 26, 1993 JUNE 25, 1994
---------------- ---------------- ----------------
OPERATING % OF OPERATING % OF OPERATING % OF
INCOME TOTAL INCOME TOTAL INCOME TOTAL
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit... $20.4 47.2% $23.0 59.1% $29.6 59.7%
Nalley's Fine Foods....... 19.5 45.1 21.4 55.0 17.6 35.5
Southern Frozen Foods..... 8.1 18.7 7.6 19.5 10.2 20.5
Snack Foods Group......... 5.1 11.8 4.1 10.6 2.7 5.4
Brooks Foods.............. 2.7 6.3 2.7 6.9 3.1 6.3
Finger Lakes Packaging.... (0.9) (2.0) 2.9 7.5 3.9 7.9
Intercompany eliminations
and corporate
overhead................ (11.2) (25.9) (14.4) (37.0) (15.1) (30.4)
----- ----- ----- ----- ----- -----
Sub-total -- Ongoing
operations......... 43.7 101.2 47.3 121.6 52.0 104.9
----- ----- ---- ----- ---- -----
Businesses sold(2)........ (0.5) (1.2) (8.4) (21.6) (2.4) (4.9)
---- ---- ---- ----- ---- ----
Total operating
income........ $43.2 100.0% $38.9 100.0% $49.6 100.0%
===== ====== ===== ====== ===== ======
</TABLE>
- ------------
(1) Table excludes restructuring loss from division disposals of $8.4
million, change in control expense of $1.8 million, and an
insurance gain on assets resulting from a fire claim of $6.5
million in the first quarter of fiscal 1995. Table also excludes
restructuring loss on division disposals for fiscal 1993 of $61.0
million and restructuring gain from division disposals in fiscal
1994 of $7.8 million and change of control expense in fiscal 1994
of $3.5 million.
(2) The Company has sold the private label beverage business, the Lucca
Frozen Foods business, the oats portion of the National Oats
business, the Hiland potato chips business, the meats snack
business and the Nalley's U.S. Chips and Snacks business. The
Company recently announced the potential sale of Nalley's Canada
Ltd. Nalley's Canada Ltd. had operating income of $1.2 million in
fiscal year 1994, $2.4 million in fiscal 1993, and $2.6 million in
fiscal 1992. Such amounts are included as operating income of
Nalley's Fine Foods, and not of a business sold.
44
<PAGE>
DEPRECIATION AND AMORTIZATION
(Dollars in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------------
JUNE 26, 1992 JUNE 26, 1993 JUNE 25, 1994
------------------ ------------------- ---------------------
DEPRE. & % OF DEPRE. & % OF DEPRE. & % OF
Amort. Total Amort. Total Amort. Total
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Comstock Michigan
Fruit ............................. $12.0 40.1% $11.6 38.0% $11.5 44.8%
Nalley's Fine Foods ................... 3.7 12.4 3.7 12.1 3.6 14.0
Southern Frozen Foods ................. 2.1 7.0 2.1 6.9 2.5 9.7
Snack Foods Group ..................... 1.9 6.4 2.0 6.5 2.0 7.8
Brooks Foods .......................... 0.7 2.3 0.6 2.0 0.6 2.3
Finger Lakes Packaging ................ 1.1 3.7 1.4 4.6 1.2 4.7
Intercompany eliminations
and
corporate overhead .................. 0.9 3.0 2.7 8.9 1.7 6.6
----- ----- ----- ----- ----- -----
Sub-total -- Ongoing
operations ..................... 22.4 74.9 24.1 79.0 23.1 89.9
----- ----- ----- ----- ----- -----
Businesses sold(1) .................... 7.5 25.1 6.4 21.0 2.6 10.1
----- ----- ----- ----- ----- -----
Total depreciation and
amortization ..................... $29.9 100.0% $30.5 100.0% $25.7 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
- ------------
(1) The Company has sold the private label beverage business, the Lucca
Frozen Foods business, the oats portion of the National Oats
business, the Hiland potato chips business, the meats snack
business and the Nalley's U.S. Chips and Snacks business. The
Company recently announced the potential sale of Nalley's Canada
Ltd. Nalley's Canada Ltd. had depreciation and amortization of
$0.6 million each year in fiscal year 1994, fiscal 1993, and fiscal
1992. Such amounts are included as depreciation and amortization
of Nalley's Fine Foods, and not of a business sold.
45
<PAGE>
TOTAL ASSETS
(Dollars in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
JUNE 26, 1992 JUNE 26, 1993 JUNE 25, 1994
------------- ------------- -------------
TOTAL % OF TOTAL % OF TOTAL % OF
ASSETS TOTAL ASSETS TOTAL ASSETS TOTAL
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit....... $223.4 42.2% $238.3 48.3% $218.5 48.9%
Nalley's Fine Foods........... 81.0 15.3 83.9 17.0 83.5 18.6
Southern Frozen Foods......... 47.6 9.0 45.4 9.1 48.2 10.8
Snack Foods Group............. 26.6 5.0 27.6 5.6 24.5 5.5
Brooks Foods.................. 14.9 2.8 12.6 2.6 11.0 2.5
Finger Lakes Packaging........ 42.2 8.0 42.2 8.5 39.3 8.8
Intercompany eliminations and
corporate overhead.......... (31.2) (5.9) (11.5) (2.3) 5.8 1.3
----- ---- ----- ---- ---- ---
Sub-total -- Ongoing
operations............. 404.5 76.4 438.5 88.8 430.8 96.4
----- ---- ----- ---- ----- ----
Businesses sold(1)............ 125.2 23.6 55.2 11.2 16.1 3.6
----- ---- ----- ---- ----- ----
Total Assets............. $529.7 100.0% $493.7 100.0% $446.9 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
- ------------
(1) The Company has sold the private label beverage business, the Lucca
Frozen Foods business, the oats portion of the National Oats
business, the Hiland potato chips business, the meats snack
business and the Nalley's U.S. Chips and Snacks business. The
Company recently announced the potential sale of Nalley's Canada
Ltd. Nalley's Canada Ltd. had total assets of $9.6 million as of
June 25, 1994, $9.2 million as of June 26, 1993, and $8.5 million
as of June 26, 1992. Such amounts are included as assets of
Nalley's Fine Foods, and not of a business sold.
46
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
The following table illustrates the Company's income statement data and
the percentage of net sales represented by these items for the periods
indicated.
(Dollars in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
JUNE 26, 1992 JUNE 26, 1993 JUNE 25, 1994
------------- ------------- --------------
% OF % OF % OF
DOLLARS SALES DOLLARS SALES DOLLARS SALES
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 896.9 100.0% $ 878.6 100.0% $ 829.1 100.0%
Cost of sales.......... 652.3 72.7 632.6 72.0 592.6 71.5
----- ----- ----- ----- ----- ----
Gross profit....... 244.6 27.3 246.0 28.0 236.5 28.5
Operating expense:
Selling,
administrative and
general............ 201.4 22.5 207.1 23.6 186.9 22.5
Restructuring,
including net loss
(gain) on division
disposals.......... -- -- 61.0 6.9 (7.8) (0.9)
(Gain) on assets
resulting from fire
claim.............. -- -- -- -- -- --
Change in control
expenses........... -- -- -- -- 3.5 0.4
----- ---- ----- ---- ----- ----
Total operating
expenses...... 201.4 22.5 268.1 30.5 182.6 22.0
----- ---- ----- ---- ----- -----
Operating income
(loss)............. 43.2 4.8 (22.1) (2.5) 53.9 6.5
Total interest expense.... 22.8 2.5 19.6 2.2 18.2 2.2
---- --- ----- ---- ---- ---
Income (loss) before
split with Pro-Fac
and before tax..... 20.4 2.3 (41.7) (4.7) 35.7 4.3
Pro-Fac share of
(earnings) loss......... (9.5) (1.1) 21.8 2.5 (16.9) (2.0)
----- ----- ---- --- ------ -----
Pre-tax income
(loss)............. 10.9 1.2 (19.9) (2.2) 18.8 2.3
Provision for taxes....... 4.8 0.5 3.9 0.4 8.7 1.1
---- ---- ---- ---- ---- ----
Net income (loss).... $ 6.1 0.7% $(23.8) (2.6)% $ 10.1 1.2%
===== ==== ======= ====== ====== ====
</TABLE>
47
<PAGE>
Changes from Fiscal 1993 to Fiscal 1994
Net Sales. The Company's net sales in fiscal 1994 of $829.1 million
decreased $49.5 million, or 5.6%, from $878.6 million in fiscal 1993. The net
sales attributable to businesses sold in connection with the Company's
restructuring program were $79.9 million in fiscal 1994 and $146.0 million in
fiscal 1993. The Company's net sales from ongoing operations excluding
businesses sold in fiscal 1994 were $749.2 million, an increase of $16.6
million, or 2.3%, from $732.6 million in fiscal 1993. The increase in net sales
from ongoing operations is attributable in part to CMF. Net sales at CMF in
fiscal 1994 of $333.4 million increased $15.6 million, or 4.9%, from $317.8
million in fiscal 1993. The increase in net sales at CMF was due to an increase
in net sales at CMF's New York vegetables business resulting from increased
prices and volumes associated with a national shortage in supply in the
vegetable market attributable to floods in the Midwest and a drought in the
South in the 1993 growing season. This increase in sales at CMF was offset in
part by reduced raw material costs at the Company, that were reflected in
reduced selling prices of the Company's products. Net sales at Nalley's in
fiscal 1994 of $214.8 million increased $3.7 million, or 1.8%, from $211.1
million in fiscal 1993. The increase in net sales at Nalley's was primarily net
of increases and decreases as follows: (i) an $8.6 million increase in the salad
dressing operation that was primarily due to an increase in volume, (ii) a $1.7
million decrease in pickles and relishes related to reduced volume, and (iii) a
$3.0 million reduction in the Canadian chips and snacks operation due to reduced
pricing. Net sales at Southern in fiscal 1994 of $94.3 million remained
essentially flat compared to $93.4 million in fiscal 1993. Net sales at the
Snack Foods Group in fiscal 1994 of $61.2 million decreased $4.2 million, or
6.4%, from $65.4 million in fiscal 1993. The decrease was caused by reduced
volume related principally to the competitive pressures of the salty snacks
business and the decline in consumption for the potato chip category. Net sales
at Brooks in fiscal 1994 of $30.0 million decreased $0.7 million, or 2.3%, from
$30.7 million in fiscal 1993. This net decrease is comprised of a decrease of
$2.8 million of tomato products almost completely offset by increased sales of
bean products. The decrease in tomato products sold was the result of the
decision to exit the private label ketchup business. The increase in bean
products was due to a 21.0% increase in units sold. Net sales at Finger Lakes in
fiscal 1994 of $49.9 million increased $2.8 million, or 5.9%, from $47.1 million
(before elimination of intercompany sales) in fiscal 1993. This was primarily
the result of a 10.2% increase in volume.
Gross Profit. Gross profit of $236.5 million in fiscal 1994 decreased $9.5
million, or 3.9%, from $246.0 million in fiscal 1993. Of this net decrease, a
$21.1 million reduction was attributable to businesses sold and an increase of
$11.6 million was attributable to increased gross profit at the Company's
ongoing operations. Gross profit for CMF increased $8.5 million, Nalley's
increased $2.1 million, Southern increased $2.5 million, and the Snack Foods
Group decreased $2.8 million. These changes were the result of variations in
volume, selling prices, costs and product mix.
Restructuring including net (gain)/loss from division disposals. Included
in the fiscal 1994 results was a net gain of $7.8 million comprised of a gain on
the sale of the oats operations of National Oats of $10.9 million, net of a
charge of $3.1 million to adjust previous estimates regarding activities
initiated in fiscal 1993. Consummation of the sale of Nalley's U.S. Chips and
Snacks completed the Company's dispositions pursuant to the restructuring
program initiated in 1993. The Company incurred restructuring charges in fiscal
1993 of $61.0 million, which included the loss incurred on the sale of the Lucca
frozen entree business, anticipated
48
<PAGE>
losses on the sale of the meat snacks and Hiland potato chips businesses, and
other costs anticipated in conjunction with the restructuring program.
Change in control expenses. During fiscal 1994, the Company expensed $3.5
million of legal, accounting, investment banking and other expenses relative to
the change in control issue. In recognizing this expense, the Company allocated
half of this amount to Pro-Fac as a deduction to the profit split.
Selling, administrative and general expenses. Selling, administrative and
general expenses of $186.9 million in fiscal 1994 decreased $20.2 million, or
9.8%, from $207.1 million in fiscal 1993. Cost reductions include (i) a $0.7
million decrease in trade promotions, (ii) a $13.1 million decrease in
advertising and selling costs and (iii) a $5.1 million decrease in
administrative costs. Of the net decrease in trade promotions, an $8.4 million
decrease was attributable to businesses sold and an increase of $7.7 million was
attributable to increased trade promotions at the Company's ongoing operations.
Of this increase, $2.6 million was due to increased promotions on a reformulated
fruit filling and topping product of CMF and to the expansion of the pumpkin pie
filling category and $4.3 million was primarily due to new product promotions
for Nalley's salad dressings and canned meats and entrees introduced in fiscal
1993 and 1994. Of the net decrease in advertising and selling costs, $12.2
million was attributable to businesses sold. The remaining decrease of $0.9
million was attributable to a $2.1 million decrease in advertising and selling
costs net of an increase in such costs of $1.2 million at Nalley's. The increase
at Nalley's was primarily related to canned meats and entrees and salad
dressings.
Operating Income before dividing profits with Pro-Fac. The Company's
operating income in fiscal 1994 of $53.9 million increased $76.0 million from an
operating loss of $22.1 million in fiscal 1993. Excluding restructuring charges
and change in control expenses, the Company's operating income in fiscal 1994
was $49.6 million, a $10.7 million increase, or 27.5%, from an operating income
of $38.9 million in fiscal 1993. Operating losses attributable to businesses
sold in connection with the Company's restructuring program were $2.4 million in
fiscal 1994 and $8.4 million in fiscal 1993. Excluding operating losses from
businesses sold, the Company's operating income from continuing operations in
fiscal 1994 was $52.0 million, an increase of $4.7 million, or 9.9%, from $47.3
million in fiscal 1993. Of this increase, CMF contributed $6.6 million, Southern
contributed $2.6 million and Finger Lakes contributed $1.0 million. These
increases were off-set in part by decreased operating income at Nalley's of $3.8
million and $1.4 million for the Snack Foods Group. The increases for CMF's New
York vegetables business and Southern were attributable to increased selling
prices as a result of the short crop of vegetables nationally due to poor
weather conditions in the Midwest during the 1993 growing season. Finger Lakes
benefitted from improved production efficiencies and procedures as a result of
capital improvements. The decrease at Nalley's pertained to both a sales volume
decline and an increase in costs for the peanut butter and pickles and relishes
categories, and trade promotions and selling costs on the canned meat and entree
category. In addition, CMF's fruit fillings and toppings business experienced
increased trade promotions and advertising costs related to reformulated fruit
fillings and toppings and expansion of the pumpkin pie filling markets. The
decrease in the Snack Foods Group is the result of the sales decline as
previously mentioned. An increase of $1.2 million related to the management
incentive plan also reduced operating income.
Interest Expense. Interest expense in fiscal 1994 of $18.2 million
decreased $1.4 million, or 7.1%, from $19.6 million in fiscal 1993. The
49
<PAGE>
reduction in interest expense is due to lower interest rates off-set in part by
an increase in loan volume.
Pro-Fac share of earnings/(loss). Pro-Fac share of earnings in 1994 of
$16.9 million increased $38.7 million from a share of loss of $21.8 million in
fiscal 1993. The increase is attributable to the factors described above. The
Pro-Fac share of earnings/(loss) in fiscal 1994 and fiscal 1993 was 47.3% and
52.3%, respectively, of the Company's pre-tax earnings/(loss) before dividing
with Pro-Fac. The change in percentage is the result of changes in the dividend
paid by the Bank that Pro-Fac shares with the Company.
Income/(loss) before taxes. Income/(loss) before taxes in fiscal 1994 of
$18.8 million increased $38.7 million from a loss of $19.9 million in fiscal
1993. Excluding restructuring charges and change in control expenses, the
Company's income before taxes in fiscal 1994 was $16.6 million, a $6.0 million
increase, or 56.6%, from income before taxes of $10.6 million in fiscal 1993.
The increase is attributable to the factors described above.
Provision for taxes. Provision for taxes in fiscal 1994 of $8.7 million
increased $4.8 million from a provision of $3.9 million in fiscal 1993. Included
in the fiscal 1994 results was a charge against earnings of $0.5 million to
adjust deferred taxes to the higher rate as legislated by Congress and as
required under Financial Accounting and Standards Board No. 109. The Company's
effective tax rate was significantly impacted during fiscal 1994 by
non-deductible legal and advisory expenses incurred in conjunction with the
change in control, the increase in the federal statutory income tax rate enacted
on August 10, 1993 and the adjustment of the valuation allowance previously
recorded.
Net income/(loss). The Company's fiscal 1994 net earnings were $10.1
million compared to a loss of $23.8 million in fiscal 1993. Also included in the
fiscal 1994 results was a net gain of $7.8 million comprised of a gain on the
sale of the oats operations of National Oats of $10.9 million, net of a charge
of $3.1 million to adjust previous estimates regarding activities initiated in
1993, and a charge of $3.5 million of legal, accounting and investment banking
and other expenses relating to the potential change of control of the Company.
Included in fiscal 1993 results were restructuring charges of $61.0 million. Net
earnings, excluding these items, were approximately $9.1 million in fiscal 1994
and $5.8 million in fiscal 1993, an increase of 56.9%.
Changes from Fiscal 1992 to Fiscal 1993
Net Sales. The Company's net sales in fiscal 1993 of $878.6 million
decreased $18.3 million, or 2.0%, from $896.9 million in fiscal 1992. The net
sales attributable to businesses sold in connection with the Company's
restructuring program were $146.0 million in fiscal 1993 and $162.9 million in
fiscal 1992. The Company's net sales from continuing operations, excluding
business sold, in fiscal 1993 were $732.6 million, a decrease of $1.4 million,
or 0.2%, from $734.0 million in fiscal 1992. There were no major variations in
net sales by division in these two years.
Gross Profit. Gross profit of $246.0 million in fiscal 1993 increased $1.4
million, or 0.6%, from $244.6 million in fiscal 1992. Of this net increase, a
$10.1 million reduction was attributable to businesses sold and an increase of
$11.5 million was attributable to increased gross profit at the Company's
continuing operations. Gross profit for CMF increased $4.3 million, Nalley's
increased $4.9 million, Southern decreased $0.7 million, and the Snack Foods
Group decreased $0.1 million. These changes were the result of variations in
volume, selling prices, costs and product mix.
50
<PAGE>
Restructuring including net (gain)/loss from division disposals. To
reflect completed and anticipated effects of the restructuring program, the
Company incurred restructuring charges in fiscal 1993 of $61.0 million, which
included the loss incurred on the sale of the Lucca frozen entree business,
anticipated losses on the sale of the meat snacks and Hiland potato chips
businesses, and other costs anticipated in conjunction with the restructuring
program.
Selling, administrative and general expenses. Selling, administrative and
general expenses of $207.1 million in fiscal 1993 increased $5.7 million, or
2.8%, from $201.4 million in fiscal 1992. This net increase includes an $8.6
million increase in trade promotions, a $1.9 million decrease in advertising and
selling costs, a one-time $3.3 million benefit due to operational changes in the
Company's salaried vacation policy, and a $2.3 million increase in other
administrative costs. Of the increase in trade promotions, $0.4 million was
attributable to businesses sold and $8.2 million was attributable to ongoing
businesses. Of this $8.2 million increase in trade promotions attributable to
ongoing businesses, $4.8 million related to CMF, primarily attributable to pie
fillings and toppings, New York vegetables business and the introduction of
salad dressings in the eastern United States. Nalley's had a $2.7 million
increase in trade promotions, primarily attributable to canned meats and entrees
and salad dressings. All of the decrease in advertising and selling costs were
attributable to ongoing operations, primarily CMF, which was mostly attributable
to reduced advertising and selling costs for the fruit filling and topping
category. Of the $2.3 million increase in other administrative costs, $1.8
million relates to increases attributable to ongoing businesses and $0.5 million
was attributable to businesses sold.
Operating Income before dividing profits with Pro-Fac. The Company's
operating loss in fiscal 1993 of $22.1 million was a decrease of $65.3 million,
or 151.1%, from an operating income of $43.2 million in fiscal 1992. Excluding
the restructuring charge, the Company's operating income in fiscal 1993 was
$38.9 million, a $4.3 million decrease, or 10.0%, from fiscal 1992. Operating
losses attributable to businesses sold in connection with the Company's
restructuring program were $8.4 million in fiscal 1993 and $0.5 million in
fiscal 1992. Excluding operating losses from businesses sold, the Company's
operating income from ongoing operations in fiscal 1993 was $47.3 million, an
increase of $3.6 million, or 8.2%, from $43.7 million in fiscal 1992. This $3.6
million increase was comprised of a $2.6 million increase at CMF, including $2.8
million attributable to fruit fillings and toppings and puddings, a $1.9 million
increase at Nalley's primarily comprised of a $1.6 million increase in canned
meats and entrees and a $0.3 million decrease in peanut butter, and a $3.8
million increase at Finger Lakes primarily due to improved production
efficiencies. These increases were offset, in part, by reduced operating profits
for CMF's New York vegetables business of $0.9 million and Southern of $0.5
million as a result of the over-supply situation in the commodity vegetable
business. The Snack Foods Group had a decreased operating income of $1.0 million
as a result of competitive pressures that prevented the implementation of price
increases to cover increased costs. An increase of $1.3 million related to the
management incentive plan also reduced operating income.
Interest Expense. Interest expense in fiscal 1993 of $19.6 million
decreased $3.2 million, or 14.0%, from $22.8 million in fiscal 1992. This
decrease was attributable to a reduction in debt, which accounted for $0.8
million of the decrease, and lower interest rates, which accounted for $2.4
million of the decrease.
Pro-Fac share of earnings/(loss). Pro-Fac's share of the Company's loss in
fiscal 1993 of $21.8 million decreased $31.3 million from a share of earnings in
fiscal 1992 of $9.5 million. Restructuring charges accounted
51
<PAGE>
for $30.5 million of the decrease. The Pro-Fac share of earnings/(loss) in
fiscal 1993 and fiscal 1992 was 52.3% and 46.6%, respectively, of the Company's
pre-tax earnings/(loss) before dividing with Pro-Fac.
Income/(loss) before taxes. The Company's loss before taxes in fiscal 1993
of $19.9 million decreased $30.8 million from income of $10.9 million in fiscal
1992. This decrease in earnings was due primarily to the restructuring charges
discussed above.
Provision for taxes. Provision for taxes in fiscal 1993 of $3.9 million
decreased $0.9 million from a provision of $4.8 million in fiscal 1992. The
Company's effective tax rate was significantly impacted by the writedown of
goodwill and other intangibles having a lower tax basis than book value.
Net income/(loss). The Company's fiscal 1993 net loss of $23.8 million was
a decrease of $29.9 million compared to earnings of $6.1 million in fiscal 1992.
This decrease was almost entirely due to the restructuring charges (after
allocating to Pro-Fac its share of the loss) and the Company's increased
effective tax rate, as 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 Acquisition.
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 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.
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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 and Curtice Burns meet certain financial tests and ratios and comply
with certain other restrictions and limitations. 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 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
"Fire Claim" in Note 6 at page F-36. 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.
53
<PAGE>
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.
Sale of Nalley's Canada Ltd.
On March 20, 1995 Curtice-Burns announced its intention to sell its Canadian
subsidiary, Nalley's Canada Ltd., located in Vancouver, British Columbia, to a
management group within the Canadian subsidiary. The Canadian subsidiary was
responsible for about 20% of the total net sales of Nalley's in fiscal 1994. It
is anticipated that Nalley's U.S. will have an on-going supply agreement with
Nalley's Canada Ltd. following the sale.
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.
BUSINESS OF CURTICE-BURNS ("THE COMPANY")
General:
The Company is a producer and marketer of processed food products
including canned and frozen fruits and vegetables, canned desserts and
condiments, fruit fillings and toppings, canned chilies and stews, salad
dressings, pickles, peanut butter and snack foods. 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
institutions such as restaurants, caterers and bakeries and to schools. 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's
branded products include "Comstock," "Thank You" and "Wilderness" fruit fillings
and toppings, "Nalley" chilies and stews, "Bernstein's" salad dressings and
"Adams" peanut butter. The Company's private label products include salad
dressings, salsa, fruit fillings and toppings, canned puddings and canned and
frozen vegetables, which are sold to customers such as A&P, Kroger, Safeway,
Topco, Wegman's and Winn-Dixie. The Company's food service products include
salad dressings, pickles, fruit fillings and toppings, canned and frozen
vegetables, canned puddings, cheese sauces and canned and frozen fruit, which
are sold to customers such as Carvel, Disney, Foodservice of America, KFC,
McDonald's and Sysco.
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Business Strategy
Achieve Leading Market Shares of Branded Products:
The Company believes that having branded products with strong shares in
regional markets provides it with distinct advantages. Specifically, by
achieving a market presence within a geographic region, the Company believes it
is better able to create avenues for the sale of the Company's other branded
products and to assess and meet local market and consumer needs.
Diversify Through Sales of Branded, Private Label and Food Service Products:
Historically, the Company has focused primarily on its branded products,
many of which have leading market shares in the regions they serve. However,
with the growth of the private label and food service businesses, the Company
has also begun to focus on profitable opportunities in these areas. For example,
Nalley's has been working with grocers on programs for private label salsa,
soups and salad dressings with "good", "better" and "best" categories. This
concept offers the grocer a three-tiered product selection and provides the
Company with a means to customize products and programs specifically for
consumer desires. The Company is currently reviewing the expansion of the
"good", "better" and "best" program to many other products. In addition, with
the growth of the food service sector, the Company has pursued food service
opportunities for its fruit fillings and toppings, puddings and cheese sauces.
Future food service growth is planned for other products such as breaded
vegetables and salad dressings.
Engage in Selective National Expansion Program:
Certain of the Company's products have achieved significant market shares
within specific geographic regions, and the Company believes substantial
opportunities exist to distribute these products on a national basis. The
Company recently began selling its "Bernstein's" salad dressing, first
introduced in California, in Arizona, Colorado and Upstate New York. Other
products under consideration for national expansion include Mexican specialty
items, such as chili and salsa, other salad dressings and canned soups.
Continuous Focus on Cost Reduction:
Through a corporate-wide program of information management, selected
capital expenditures and individual division initiatives, the Company
continuously seeks to reduce costs and improve efficiency. During fiscal 1993,
the Company initiated production consolidation efforts involving the closing of
four plants located in Michigan, Colorado and New York.
Further consolidations are being explored to reduce operational
redundancies. In the area of purchasing, by maximizing market leverage through
collaborative and cooperative purchasing activities throughout the Company,
significant savings have been achieved. As a result of the Company's cost
reduction activities, the Company's operating income margin from ongoing
businesses improved from 6.0 percent to 6.5 percent to 6.9 percent in each of
fiscal 1992, 1993 and 1994, respectively.
Description of Businesses
Comstock Michigan Fruit:
CMF, the Company's largest division, headquartered in Rochester, New York,
produces products in three principal categories: (i) fruit fillings and
toppings, (ii) aseptically produced products and (iii) canned and frozen fruits
and vegetables. In fiscal 1994, approximately one-third of CMF's net
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<PAGE>
sales represented branded products, approximately one-third represented private
label products and approximately one-third represented food service products.
CMF markets it's branded products under the "Thank You," "Comstock",
"Wilderness", "Greenwood", "Silver Floss", "Blue Boy", "Victor", "Cortland
Valley", "Cerise", "Super Pop", "Pop-Eye" and "Pops-Rite" labels. The following
table sets forth the net sales and division operating income for CMF for the
periods shown:
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
---------------------------------------- --------------------------
June 26, June 26, June 25, March 26, March 25,
1992 1993 1994 1994 1995
-------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Net sales $318.8 $317.8 $333.4 $259.7 $253.8
Operating income 20.4 23.0 29.6 21.6 24.3
</TABLE>
CMF estimates the national fruit fillings and toppings market to be
approximately $225.0 million. CMF's fruit fillings and toppings are marketed
under the "Comstock", "Thank You" and "Wilderness" brands, which held a national
market share of approximately 56 percent in the fruit filling segment in fiscal
1994. CMF's fruit fillings and toppings are sold both through grocers to the
public and to food service institutions such as restaurants, caterers and
bakeries and to schools. In fiscal 1994, the Company introduced the "More
Fruit/More Flavor" program at CMF, which involved the production of fruit
fillings and toppings with 25 percent more fruit content, which CMF sells at a
premium price. The Company believes this program has increased CMF's market
share in the fruit fillings and toppings category. In fiscal 1992, CMF also
launched a pumpkin filling, which represents approximately one-quarter of the
fruit fillings and toppings category. CMF is capitalizing on its existing brand
franchise in fruit fillings and toppings to make pumpkin a part of its full
line.
CMF's aseptic operations produce puddings, cheese sauces and dips for sale
by CMF and diet drinks for sale by a third party under a co-packing arrangement.
The aseptic production process involves preparation of the product in a sterile
environment beginning with batch formulation and continuing through packaging.
As a result, once packaged, the product requires no further cooking. The Company
believes its aseptic production facility is state-of-the-art. In 1993, CMF's
aseptically processed puddings accounted for approximately one-half of the
national food service market and aseptically processed cheese sauces accounted
for approximately one-quarter of the national food service market.
CMF's fruit and vegetable processing business includes both branded and
private label production. It also includes value added products such as canned
specialty fruits and frozen vegetable mixes. Success in the fruit and vegetable
processing business is driven by, among other things, an ability to control
costs. The Company has aggressively sought to reduce costs in the fruit and
vegetable processing business by closing plants, making capital investments in
the modernization of processing equipment, changing its product mix and refining
advertising strategies. For example, in fiscal 1993, the Company initiated
production consolidation efforts involving the closing of CMF plants located in
Michigan and New York. Programs aimed at further reducing costs include
continued capital investment in cost savings projects and further vegetable
plant consolidation.
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<PAGE>
Nalley's:
Nalley's, which includes the Nalley's Fine Foods Division headquartered in
Tacoma, Washington and Nalley's Canada Ltd. located in Vancouver, British
Columbia, markets canned meat products such as chilies and stews, pickles, salad
dressings, peanut butter and syrup, which are sold throughout the Northwest and
Western United States and Western Canada under the "Nalley" brand and other
brands, such as "Bernstein's" salad dressing and "Adams" natural peanut butter.
Approximately three-quarters of Nalley's products are branded; however, private
label accounts for a growing percentage of Nalley's business. The following
table sets forth the net sales and division operating income for Nalley's for
the periods shown:
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
---------------------------------------- ---------------------------
June 26, June 26, June 25, March 26, March 25,
1992 1993 1994 1994 1995
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $211.9 $211.1 $214.8(1) $124.7 $131.5
Operating income 19.5 21.4 17.6 11.5 12.6
</TABLE>
(1) Sales by Nalley's Canada Ltd. accounted for approximately 20 percent of
Nalley's total net sales in fiscal 1994. On March 30, 1995, the Company
announced its intention to sell Nalley's Canada, Ltd. to a management
group within its Canadian division.
The Nalley's branded products have been a vehicle for growth through both
geographic expansion and line extension. Several of Nalley's branded products
have leading market shares in the Pacific Northwest, such as Nalley's chili,
which had a market share of approximately 57 percent, and "Nalley" and
"Farman's" pickles, which together had a market share of approximately 49
percent, for the 52-week period ended August 7, 1994. In the Pacific Northwest,
the Company's "Nalley" and "Bernstein's" brands of salad dressings had a
combined market share of approximately 17 percent for the same period. The
Company recently began selling its "Bernstein's" salad dressings in Arizona,
Colorado and Upstate New York. Plans are under consideration to expand
production to an existing facility in the Midwest or East to service Eastern
markets. In addition, Nalley's has begun distribution of a refrigerated version
of the "Bernstein's" dressings in the Pacific Northwest. Nalley's is currently
exploring opportunities with two national food companies in order to expand the
distribution of its products.
Private label efforts include executing a new three-tiered store labeling
strategy for specialty Mexican products such as chili and salsa, salad dressings
and canned soups. The three-tiered strategy allows the Company to offer its
"Nalley" branded products to its private label customers in a "good", "better",
"best" product format. For example, if a given grocer seeks a premium salsa
brand, Nalley's can offer its top-tier brand of salsa. By using the three-tiered
product approach, the Company believes it can effectively extend the reach of a
given product line. The private label customer base includes Kroger in the
Midwest, Ralph's on the West Coast, Wegman's in Upstate New York and Winn-Dixie
in the Southeast.
Southern Frozen Foods:
Southern, located in Montezuma, Georgia, freezes and sells a full line of
southern vegetables such as black-eyed peas, okra and leafy greens as well as a
line of traditional vegetables such as corn, peas, squash and
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<PAGE>
green beans. Southern also produces specialty side dishes and a small amount of
frozen fruit. The following table sets forth the net sales and division
operating income for Southern for the periods shown:
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
---------------------------------------- ----------------------------
June 26, June 26, June 25, March 26, March 25,
1992 1993 1994 1994 1995
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $91.7 $93.4 $94.3 $70.9 $73.3
Operating income 8.1 7.6 10.2 7.4 7.8
</TABLE>
Southern's products are marketed under the following brand names:
"McKenzie's", "Southern Farms", "Gold King", "Chill-Ripe" and "Tropic Isle."
Approximately one-half of Southern's products are sold under brand labels, with
"McKenzie's" and "Southern Farms" accounting for approximately 26 percent of the
southern vegetable market in the Southeastern United States for the 52-week
period ended March 6, 1994. Approximately 15 percent of Southern's products are
sold to private label customers with major accounts including Winn-Dixie,
Federated Foods, SuperValue and Marketing Management. Distribution is primarily
in the Southeast and South Central portions of the United States.
On July 7, 1994, a fire extensively damaged Southern's breading and
packaging operations. By July 12, 1994, Southern had arranged for co-packing and
resumed shipments. The Company has business interruption insurance and believes
that all losses beyond its $250,000 deductible will be covered. The Company
began construction of a new breading and packaging facility in late October
1994. Completion is scheduled for June 1995.
Snack Foods Group:
The Snack Foods Group consists of three separate divisions: (i) Snyder,
(ii) Tim's and (iii) Husman. The following table sets forth the net sales and
division operating income for the Snack Foods Group for the periods shown:
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
---------------------------------------- ----------------------------
June 26, June 26, June 25, March 26, March 25,
1992 1993 1994 1994 1995
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $65.3 $65.4 $61.2 $45.3 $44.8
Operating income 5.1 4.1 2.7 2.2 2.2
</TABLE>
Snyder of Berlin, located in Berlin, Pennsylvania, produces and markets
several varieties of potato chips in distinctive silver-colored bags, as well as
several varieties of corn chips and similar snack products in conventional
packaging, primarily under the "Snyder of Berlin" brand. Snyder products are
recognized for their taste and freshness among users in Western Pennsylvania,
Ohio and West Virginia, some of the country's highest per capita snack
consumption markets.
Tim's Cascade Chips, located in Tacoma, Washington, produces kettle-fried
potato chips for distribution in the Seattle/Tacoma, Washington area. Kettle
frying produces a potato chip that is thicker and crisper than other potato
chips.
Husman Snack Foods, located in Cincinnati, Ohio, markets potato chips
in Cincinnati and Dayton, Ohio. Husman has maintained volume with marketing
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<PAGE>
concepts such as a licensing agreement with a leading local restaurant chain to
use its recognizable Bar-B-Que flavor in potato chips and dip.
Brooks Foods:
Brooks markets specialty chili beans, specialty tomato products, barbecue
sauce and related products under the "Brooks" label. Its principal markets are
in the Midwest. In fiscal 1994, branded sales accounted for approximately
three-quarters of Brooks' total sales. However, Brooks is seeking to expand its
private label business, particularly for its specialty chili bean products. The
following table sets forth the net sales and division operating income for
Brooks for the periods shown:
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
---------------------------------------- ----------------------------
June 26, June 26, June 25, March 26, March 25,
1992 1993 1994 1994 1995
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $30.0 $30.7 $30.0 $26.6 $26.0
Operating income 2.7 2.7 3.1 3.2 3.3
</TABLE>
Brooks sells a line of specialty tomato products under the "Just for
Chili" brand name, a line of whole and stewed tomatoes under the "Hoosier
Sweets" brand name and a line of chili hot beans under the "Brooks" brand name.
In fiscal 1994, "Brooks" chili hot beans had a market share of approximately 68
percent in the major Midwestern cities it serves.
Finger Lakes Packaging Company:
Finger Lakes manufactures various sizes of three-piece sanitary food cans
for sale to the Company and third parties. In fiscal 1994, approximately
two-thirds of Finger Lakes sales were to other divisions of the Company and
one-third were to other customers. The following table sets forth the net sales
and division operating income (before elimination of corporate overhead) for
Finger Lakes for the periods shown:
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
---------------------------------------- -----------------------------
June 26, June 26, June 25, March 26, March 25,
1992 1993 1994 1994 1995
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $46.9 $47.1 $49.9 $35.5 $36.5
Operating income (0.9) 2.9 3.9 2.5 2.3
</TABLE>
Finger Lakes' three part metal sanitary cans are used in the retail, food
service and institutional markets. These cans are recyclable and provide
economical containers for the Company's products based on volume run and
customer base.
Packaging and Distribution:
The food products produced by the Company are distributed to various
consumer markets in all 50 states as well as in Canada. Branded lines of CMF,
Southern and Brooks are sold through food brokers which sell primarily to
supermarket chains and various institutional feeders. Nalley's has its own sales
personnel responsible for sales within the Pacific Northwest and uses food
brokers for sales in other marketing areas. Snyder's, Tim's and Husman's
products are marketed through distributors, some of which are owned and operated
by the Company, who sell directly to retail outlets in Kentucky, Maryland, Ohio,
Pennsylvania, Virginia and West Virginia.
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<PAGE>
Customer brand operations encompass the sale of products under private
labels to chain stores and under the controlled labels of buying groups. For
example, private label customers of CMF include such major food distributors as
A&P, Kroger, Safeway, Topco, Wegman's and Winn-Dixie. The Company has developed
central storage and distribution facilities that permit multi-item single
shipment to customers in key marketing areas.
Curtice-Burns Express ("CBX"), a subsidiary of the Company, is a licensed
common carrier with authority in 48 states. It is used by the Company to obtain
backhaul volume on shipments via the Company's trucks or contract haulers. The
other divisions of the Company lease their equipment to CBX for these backhauls.
Trademarks:
The major brand names under which the Company markets its products are
trademarks of the Company. Such brand names are considered to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. All of the
Company's trademarks are of perpetual duration so long as periodically renewed,
and it is currently intended that the Company will maintain them in force. The
major brand names utilized by the Company are as follows:
<TABLE>
<CAPTION>
Product Brand Name
- ---------------------------------- ----------------------------------------------
<S> <C>
Chilies, stews and soups Brooks, Mariners Cove, Nalley
Fruits and vegetables Blue Boy, Brooks, Cerise, Chill-Ripe, Gold
King, Gracias, Greenwood, Hoosier Sweets,
Just for Chili, McKenzie's, Naturally Good,
Ritter, Southern Farms, Southland, Thank You,
Tropic Isle
Fruit fillings and toppings Comstock, Globe, Gracias, Thank You,
Wilderness
Peanut butter Adams
Pickles Farman's, Nalley
Popcorn Pop-Eye, Pops-Rite, Super Pop
Puddings Gracias, Thank You
Salad dressings Bernstein's, Bernstein's Light Fantastic,
Nalley
Sauerkraut Cortland Valley, Silver Floss, Victor
Snack food Cheese Pleezers, Husman, La Restaurante,
Snyder of Berlin, Thunder Crunch, Tim's
Cascade Chips
Syrup Lumberjack
</TABLE>
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<PAGE>
Raw Materials:
It is currently anticipated that the Company will continue to acquire a
substantial part of its raw agricultural products from Pro-Fac. In fiscal 1994,
approximately 65 percent of the crops processed by the Company were supplied by
Pro-Fac. The Company also will purchase on the open market some crops of the
same type and condition as those purchased from Pro-Fac. Such open market
purchases may occur at prices higher or lower than those paid to Pro-Fac for
similar products. See "Relationship with Curtice-Burns - Purchase of Crops from
Pro-Fac."
The canned and frozen vegetable portion of the Company's 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 in a given year. This oversupply
typically will result in depressed selling prices and reduced profitability to
the Company on the inventory produced from that year's crops. Excessive rain or
drought conditions can produce low crop yields and a shortage situation. This
shortage typically will result in higher selling prices and increased
profitability to the Company. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather. The
1993 floods in the Midwest and the drought in the South increased prices, even
though the crops in the Company's growing areas were at normal levels.
Except for cans manufactured by Finger Lakes, the Company purchases all of
its requirements for nonagricultural products, including containers, on the open
market. Although the Company has not experienced any difficulty in obtaining
adequate supplies of such items, occasional periods of short supply of certain
raw materials may occur.
Competition:
All products of the Company, particularly branded products, compete with
those of national and major regional food processors under highly competi- tive
conditions. Many of the national manufacturers have substantially greater
resources than the Company. The principal methods of competition in the food
industry are ready availability of a broad line of products, product quality,
price, advertising and sales promotion.
In recent years, and particularly when various food items are in short
supply, the constant availability of a full line of food items and the ability
to deliver the required items rapidly and economically have been among the most
important competitive factors in the markets in which the Company operates. The
Company believes that it is competitive with national brands in this area since
distribution of many of its regional brands and custom-pack food items are
limited to areas which can easily be served from its production and distribution
facilities.
Quality of product and uniformity of quality are also important methods of
competition. The Company's relationship with Pro-Fac has provided the Company
with local sources of supply, thus allowing the Company to exercise control over
the quality and uniformity of much of the raw product which it purchases. The
members of Pro-Fac generally operate relatively large production units with
emphasis on mechanical growing and harvesting techniques. This factor is also an
advantage in producing uniform, high-quality food products.
The Company believes that its pricing is generally competitive with that
of other food processors for products of comparable quality. The branded
products of the Company are marketed under regional brands and its marketing
programs are focused on local tastes and preferences as a means of
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<PAGE>
developing consumer brand loyalty. The Company's advertising program utilizes
local media, and strong emphasis is placed on in-store promotions.
Although the relative importance of the above factors may vary as between
particular products or customers, the above description is generally applicable
to all of the products of the Company in the various markets in which they are
distributed.
An estimate of the number of competitors in the markets served by the
Company is very difficult. Nearly all products sold by the Company compete with
the nationally advertised brands of the leading food processors, including
Borden, DelMonte, Eagle, Green Giant, Heinz, Frito-Lay, Kraft, Vlasic, Birdseye
and similar major brands, as well as with the branded and private label products
of a number of regional processors, many of which operate only in portions of
the marketing area served by the Company. While the major brands are dominant in
branded products on a national level, the Company believes that it is a
significant factor in many of the marketing areas served by one or more of its
regional brands.
Environmental Matters:
The disposal of solid and liquid waste material resulting from the
preparation and processing of foods and the emission of wastes and odors
inherent in the heating of foods during preparation are subject to various
federal, state, and local environmental laws and regulations. Such laws and
regulations have had an important effect on the food processing industry as a
whole, requiring substantially all firms in the industry to incur material
expenditures for modification of existing processing facilities and for
construction of new waste treatment facilities. The Company is also subject to
standards imposed by regulatory agencies pertaining to the occupational health
and safety of its employees. Management believes that continued measures to
comply with such laws and regulations will not have a material adverse effect
upon its competitive position.
Among the various programs for the protection of the environment which
have been adopted to date, the most important for the operations of the Company
are the waste water discharge permit programs administered by the environmental
protection agencies in those states in which the Company does business and by
the federal Environmental Protection Agency. Under these programs, permits are
required for processing facilities which discharge certain wastes into streams
and other bodies of water, and the Company is required to meet certain discharge
standards in accordance with compliance schedules established by such agencies.
The Company has to date received permits for all facilities for which permits
are required, and each year submits applications for renewal permits for some of
the facilities. Such renewal permits are currently being processed, and the
Company expects that they will be issued by the agencies in due course.
While the Company cannot predict with certainty the effect of any proposed
or future environmental legislation or regulations on its processing operations,
management of the Company believes that the waste disposal systems which are now
in operation or which are being constructed or designed are sufficient to comply
with all currently applicable laws and regulations.
In 1991, the Company settled criminal charges arising out of its alleged
failure to file accurate monthly discharge reports pursuant to waste water
discharge permits at its Red Creek, New York and Rushville, New York facilities.
There was no claim of any harm to the environment, only that certain reports
were not properly filed as required by the permits. At the time the criminal
charges were settled by payment of a fine of $50,000, the New York State
Department of Environmental Conservation ("DEC"), which
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<PAGE>
issued the permits, indicated that it might seek a civil penalty for the same
alleged violations on which the criminal charges were based. During the ensuing
three years the DEC has not formally sought any such penalties, and in any event
the Company believes that it has valid defenses to any such claims.
A facility owned by the Company in Brockport, New York, known as the
Former 3M/Dynacolor Plant Site (DEC Site No. 828066) and used by prior owners as
a manufacturing facility, was in May, 1995 classified as a hazardous waste site
presenting a significant threat to the environment. DEC is currently assessing
any impact on groundwater from soil contamination. Until the results of DEC's
assessment are available, it is not possible to determine what, if any, response
actions will be required at the facility.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, ("CERCLA") along with over 100 other entities, at the Ellis
Road Site in Jacksonville, Florida. To date, the Company has paid approximately
$45,000 toward the completion of various removal actions and soil clean up. EPA
is evaluating the need for groundwater remediation which, if required, the
Company does not believe will have a material impact on its earnings given its
relatively small contribution of material to the site and the availability of
other viable PRPs.
The Company has been identified by EPA as a PRP under CERCLA at the
Spectron Inc. Site located in Elkton, Maryland. The investigation of the site is
still in the preliminary stages, and it is not yet possible to estimate the
scope or cost of whatever remedial action may be required. However, based upon
its very small contribution of material to the site and the large number of
other viable PRPs, the Company does not believe this matter will have a material
impact on its earnings.
The Company is cooperating with environmental authorities in remedying
various leaks and spills at several of its plants, primarily associated with
underground storage tanks. Such actions are being conducted pursuant to
procedures approved by the appropriate environmental authorities at a cost that
is not significant, except for one project at the Company's Nalley's plant in
Tacoma, Washington, where the cost of remediation is expected to be
approximately $800,000. Approximately three-quarters of this amount has already
been expended by the Company.
Historically, expenditures for facilities related to protection of the
environment have been made from the regular capital budget of Pro-Fac and such
facilities were then leased to the Company pursuant to the facilities financing
section of the Integrated Agreement. Expenditures related to environmental
programs and facilities have not had, and are not expected to have, a material
effect on the earnings of the Company.
In fiscal 1994, total capital expenditures of Pro-Fac and the Company were
$19.5 million, of which approximately $2.1 million was devoted to the
construction of environmental facilities. The Company estimates that the capital
expenditures for environmental control facilities, principally waste water
treatment facilities, for the 1995 fiscal year will be approximately $2.7
million. However, there can be no assurance that expenditures will not be
higher.
Employees:
As of June 25, 1994, the Company had 4,325 full-time employees, of whom
2,750 were engaged in production and the balance in management, sales and
63
<PAGE>
administration. As of that date, the Company also employed approximately 1,000
seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions. The Company believes its relationship with its employees is good.
Legal Proceedings:
A grower has filed suit against the Company for damages resulting from
defective seed which was purchased from Southern. The lawsuit alleges that the
defective seed resulted in the loss of crops and acreage, and the grower is
seeking $950,000 in damages. Management believes this claim is without merit and
intends to vigorously defend its position. In addition, management anticipates
that any material costs of settlement, if incurred, will be covered under its
insurance policies.
Other than this dispute, there are no material pending legal proceedings
other than routine litigation incidental to the business to which either the
Company or Pro-Fac is a party or to which any of their property is subject.
Further, no such proceedings are known to be contemplated by governmental
authorities.
DESCRIPTION OF PROPERTIES
Historically, Pro-Fac has held title to, and leased to the Company, most
of the processing facilities, warehouses and other plants and equipment
(including equipment located in properties not owned by Pro-Fac) utilized in the
Company's business. Nalley's Canada Ltd. owns the facility used in its business
and the Company leases some facilities from third parties.
In connection with the Acquisition, Pro-Fac transferred to Curtice-Burns
all of the plants, other real property, and equipment previously owned by
Pro-Fac and leased to Curtice-Burns. As a result, all plants, warehouses, office
space and other facilities used by Curtice-Burns in its business are now either
owned by Curtice-Burns or one of its subsidiaries or leased from third parties.
Most of the properties owned by Curtice-Burns are subject to mortgages in favor
of the Bank. In general, each division occupies a large facility in which its
executive offices, a processing plant and warehouse space are located. Some
divisions have additional processing plants located in rural areas that are
convenient for the delivery of crops from Pro-Fac members and/or additional
warehouse locations dispersed to facilitate the distribution of finished
products. Curtice-Burns believes that its facilities are in good condition and
suitable for the operations of the Company.
Seven of the properties contributed by Pro-Fac are not being used for
production by the Company and are held for resale. These properties are located
in Denver, Colorado; Wall Lake, Iowa; Clifton, New Jersey; Alton, New York;
South Dayton, New York; Rushville, New York; and Albany, Oregon.
In July 1994, a plant operated by Southern, located in Montezuma, Georgia,
was damaged by fire. All material costs associated with repairs to the facility
and business interruption are anticipated to be covered under the Company's
insurance policies.
The following table describes all facilities leased or owned by the
Company (other than the seven properties held for resale and certain public
warehouses leased by the Company from third parties from time to time). Except
as otherwise noted, each facility set forth below is owned by the Company.
64
<PAGE>
<TABLE>
<CAPTION>
Type of Property Square
(By Division) Location Feet
- -------------------------------------------------------------- -------------------- --------
<S> <C> <C>
COMSTOCK MICHIGAN FRUIT:
Office building, manufacturing plant and warehouse Benton Harbor, MI 239,252
Distribution center Coloma, MI 400,000
Manufacturing plant and warehouse Fennville, MI 370,600
Warehouse Sodus, MI 243,138
Warehouse and office; public storage facility (1) Vineland, NJ 198,000
Warehouse Alton, NY 60,060
Freezing plant; warehouse; office and dry storage Barker, NY 150,100
Freezing plant Bergen, NY 122,009
Cold storage and repack facility and public storage warehouse Brockport, NY 429,052
Cutting, curing and packaging plant Gorham, NY 55,534
Canning plant and warehouse; freezing plant Leicester, NY 205,599
Distribution center and warehouse LeRoy, NY 137,300
Canning plant and warehouse; freezing plant Oakfield, NY 203,403
Canning plant and warehouse So. Dayton, NY 151,140
Canning plant and warehouse Red Creek, NY 137,264
Cutting, curing and canning plant Shortsville, NY 103,686
Cutting and curing plant Waterport, NY 21,626
Manufacturing plant Ridgway, IL 50,000
Manufacturing plant North Bend, NE 50,000
NALLEY'S FINE FOODS:
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 438,000
Sales offices and distribution warehouse (1) Spokane, WA 16,300
Parking lot and yards (1) Tacoma, WA 162,570
Warehouses (1) Tacoma, WA 254,000
Receiving and grading station (1) Cornelius, OR 11,700
Sales offices and distribution warehouses (1) Portland, OR 14,365
Receiving and grading station (1) Mount Vernon, WA 30,206
Warehouse (1) Sea-Tac, WA 13,950
Office, manufacturing plant and distribution warehouse (1) Annacis Island, BC 108,000
Main office (1) Burnaby, BC 8,350
Office building and warehouse (1) Kelowna, BC 15,900
Office, manufacturing plant and warehouse Vancouver, BC 48,000
Warehouse (1) Calgary, AB 13,800
Warehouse (1) Edmonton, AB 8,000
SOUTHERN FROZEN FOODS:
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 545,942
Office, freezing plant and cold storage Alamo, TX 110,000
SNACK FOODS GROUP:
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center (1) Auburn, WA 37,600
Office, plant and warehouse Cincinnati, OH 113,576
Warehouse (1) Elwood City, PA 8,000
BROOKS FOODS:
Office building, canning plant and warehouse Mt. Summit, IN 200,000
FINGER LAKES PACKAGING:
Can manufacturing plant Lyons, NY 147,376
CORPORATE HEADQUARTERS:
Headquarters office (1) (Includes office space for CMF
as well as Corporate Conference Center) Rochester, NY 62,500
</TABLE>
(1) Leased from third parties, although certain related equipment is owned by
the Company.
65
<PAGE>
MANAGEMENT AND DIRECTORS
Effective upon consummation of the Acquisition, Pro-Fac established a
management structure for the Company, providing for a Board of Directors
consisting of one management director, Pro-Fac Directors and Disinterested
Directors. The number of Pro-Fac Directors is equal to the number of
Disinterested Directors. The Chairman of the Board is a Pro-Fac Director. The
initial management and directors are listed below. The Company may in the future
expand the Board of Directors, but Pro-Fac has undertaken to cause the Company
to maintain a Board on which the number of Pro-Fac Directors does not exceed the
number of Disinterested Directors. Both the New Credit Agreement and the
Indenture provide that there will be a Change of Control if, for a period of 120
consecutive days, the number of Disinterested Directors on the Board of
Directors of the Company is less than the greater of (i) two and (ii) the number
of directors of the Company who are Pro-Fac Directors.
Upon consummation of the Acquisition, Roy A. Myers was elected as Chief
Executive Officer. The Company intends to commence a search for a chief
executive officer to succeed Mr. Myers. Although the Company believes that it
will be able to find a qualified candidate to become chief executive officer,
there can be no assurance as to how long such search will take. Mr. Myers has
agreed to remain as Chief Executive Officer until his successor is found. The
Company
Directors and Officers:
Set forth below is certain information concerning the individuals who
serve as directors and executive officers of the Company and the individuals who
serve as presidents and chief executive officers of certain of the Company's
divisions.
<TABLE>
<CAPTION>
Year of
Name Birth Positions
- ------------------------------- ------- -----------------------------------------------------
<S> <C> <C>
Roy A. Myers(1) 1931 Chief Executive Officer and Director
William D. Rice 1934 Senior Vice President, Secretary and Treasurer
Stephen R. Wright 1947 Senior Vice President -- Procurement
Patrick D. Lindenbach 1955 Executive Vice President of the Company and President
and Chief Executive Officer of Nalley's
Dennis M. Mullen 1953 President and Chief Executive Officer of CMF
Thomas A. Collins 1938 President and Chief Executive Officer of Southern
Eugene W. Hermenet 1936 President and Chief Executive Officer of Brooks
Ronald R. Fithen 1946 President and Chief Executive Officer of Finger Lakes
Robert V. Call, Jr.(2) 1926 Director and Chairman of the Board
Bruce R. Fox(2) 1947 Director
Cornelius D. Harrington, Jr.(3) 1927 Director
Steven D. Koinzan(2) 1948 Director
William B. McKnight, Jr.(3) 1945 Director
Frank M. Stotz(3) 1930 Director
</TABLE>
(1) Management director.
(2) Pro-Fac Director.
(3) Disinterested Director.
66
<PAGE>
Roy A. Myers has been the Chief Executive Officer and a Director of the
Company since the completion of the Acquisition. Mr. Myers served as a Director
and Executive Vice President of the Company from 1987 to the completion of the
Acquisition (at which time he was appointed the Chief Executive Officer). He
served as Vice President-Operations of the Company from 1985 to 1987 and as Vice
President of the Company from 1983 to 1985. He has been an employee of the
Company or a predecessor to the Company since 1955 in various other capacities
including Industrial Relations Manager, Operations Manager and President of the
Corporate Services Division. He was General Manager of Pro-Fac from 1987 until
the completion of the Acquisition, having served as Assistant General Manager
from 1983 to 1987.
William D. Rice has been Senior Vice President Finance and Administra-
tion of the Company since 1991, Secretary of the Company since 1989 and
Treasurer of the Company since 1975. He was Vice President-Finance of the
Company from 1969 to 1991. He has been Assistant Treasurer of Pro-Fac since
1970.
Stephen R. Wright has been Senior Vice President -- Procurement of the
Company since the completion of the Acquisition. He was Vice President --
Procurement for the Company from 1990 to November, 1994, having served as
Director of Commodities and Administration Services for the Company from 1988 to
1990. He became General Manager of Pro-Fac in March 1995.
Patrick D. Lindenbach has been an Executive Vice President of the
Company since March 1993 and Division President and Chief Executive Officer
of Nalley's since June 1990. He was Division President and Chief Executive
Officer of Nalley's Canada Ltd. from 1988 to 1990. Prior to working at the
Company, he held various positions at Kellogg Salada Canada Inc., Warner
Lambert Canada, Inc. and Standard Brands Canada Ltd.
Dennis M. Mullen has been President and Chief Executive Officer of CMF
since March 1993. He was Senior Vice President and Business Unit Manager- Food
Service of CMF from 1991 to 1993, and Senior Vice President-Custom Pack Sales
for Nalley's from 1990 to 1991. Prior to employment with the Company, he was
President and Chief Executive Officer of Globe Products Company.
Thomas A. Collins has been President and Chief Executive Officer of
Southern since 1990. He was Executive Vice President of Southern from 1989 to
1990, Vice President-Sales and Marketing of Southern from 1985 to 1989, Vice
President, Marketing for Retail and Foodservice of Southern from 1981 to 1985
and Vice President, Foodservice Sales of Southern from 1975 to 1981.
Ronald R. Fithen has been President and Chief Executive Officer of
Finger Lakes since 1991. Prior to joining the Company in 1991, he was Plant
Manager for Continental Can's largest manufacturing operation in St. Louis.
Eugene W. Hermenet has been President and Chief Executive Officer of
Brooks since 1978. He was Executive Vice President of Brooks from 1975 to 1978.
He was President of Silver Floss from 1972 to 1975, Vice President of Silver
Floss from 1971 to 1972 and Assistant to the President of Silver Floss from 1969
to 1971.
Robert V. Call, Jr. has been a Director of the Company since the
completion of the Acquisition. Mr. Call had been a Director of the Company
since 1986 until completion of the Acquisition (at which time he resigned
and was reappointed). He has been a Director of Pro-Fac since 1962. He was
President of Pro-Fac from 1986 to March 27, 1995, having served as Treasurer
from 1973 to 1984. He has been a member of Pro-Fac since 1961. He is a
vegetable, fruit and grain farmer (My-T Acres, Inc., Batavia, NY).
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<PAGE>
Bruce R. Fox has been a Director of the Company since the completion of
the Acquisition. He has been a Director of Pro-Fac since 1974. He was
Treasurer of Pro-Fac from 1984 until March 27, 1995, when he was elected
President. He has been a member of Pro-Fac since 1974. Mr. Fox is a fruit
and vegetable grower (N.J. Fox & Sons, Inc., Shelby, MI).
Mr. Harrington, prior to his retirement, was President of the Bank of New
England-West in Springfield, MA or a predecessor to the Bank of New England-West
from 1978 to December 1990. He was Chief Executive Officer of the Bank of New
England-West from 1984 to December 1990. Until 1987, he served as Chairman of
the Board of Directors of BayState Medical Center in Springfield, MA. He has
been a Director of the Farm Credit Bank of Springfield since January 1994.
Steven D. Koinzan has been a Director of the Company since the completion
of the Acquisition. He has been a Director of Pro-Fac since 1983. He was
Secretary of Pro-Fac from March 1993 until March 27, 1995, when he was elected
Treasurer. He has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn,
field corn and soybean farmer (Koinzan Farms; Norden, Nebraska).
William B. McKnight, Jr. has been a Director of the Company since the
completion of the Acquisition. Mr. McKnight is a management consultant.
He was Executive Vice President of the Nabisco Foods Group of RJR Nabisco,
Inc. until 1993. He was President and Chief Executive Officer of the
Nabisco Foods Company from 1988 to 1992 and President of the Biscuit
Division of the Nabisco Foods Group from 1986 to 1988. Mr. McKnight was
President of the Grocery Division of the Nabisco Foods Group from 1984 to
1986, President of the Grocery Products Division from 1982 to 1984 and Vice
President, Marketing of the Special Products Division from 1981 to 1982.
From 1968 to 1981, he held various management positions at General Mills,
Inc. Mr. McKnight has been a Director of VideOcart, Inc. since 1989 and a
Director of Ghirardelli Chocolate Company since 1991. He is a member of the
Executive Committee of The Kenyon College Fund and St. Clare's Riverside
Hospital.
Frank M. Stotz has been a Director of the Company since the completion of
the Acquisition. Mr. Stotz retired in 1994 from his position as Senior Vice
President -- Finance of Bausch & Lomb Incorporated. Before joining Bausch & Lomb
in that capacity in 1991, Mr. Stotz was a partner with Price Waterhouse. He
joined Price Waterhouse in Chicago in 1954, was admitted to partnership in 1966
and retired from the firm in 1991 to join Bausch & Lomb. From 1980 to 1991, he
was partner in charge of the Rochester office of Price Waterhouse. Mr. Stotz
serves on the Boards of Trustees of St. John Fisher College, The Genesee
Hospital, The Rochester Center for Governmental Research and The Automobile Club
of Rochester. He is also a member of the Bishop's Council of the Catholic
Diocese of Rochester.
Term of Office:
All directors of the Company will hold office from the date of election
until the next annual meeting of shareholders or until their successors are duly
elected and qualified. Each executive officer of the Company will hold office
from the date of election until his successor is elected or appointed.
68
<PAGE>
Pro-Fac
Directors and Executive Officers:
Set forth below is certain information concerning the individuals who
serve as directors and executive officers of Pro-Fac.
<TABLE>
<CAPTION>
Date
Name of Birth Positions
- ------------------------ -------- ----------------------------------
<S> <C> <C>
Bruce R. Fox 1947 President and Director
Albert P. Fazio 1936 Vice President and Director
Steven D. Koinzan 1948 Treasurer and Director
Tommy R. Croner 1942 Secretary and Director
Stephen R. Wright 1947 General Manager
William D. Rice 1934 Assistant Treasurer
Thomas R. Kalchik 1947 Vice President of Member Relations
Dale W. Burmeister 1940 Director
Robert V. Call, Jr. 1926 Director
Glen Lee Chase 1937 Director
Kenneth A. Mattingly 1948 Director
Allan D. Mitchell 1927 Director
Allan W. Overhiser 1960 Director
Paul E. Roe 1939 Director
Edward L. Whitaker 1926 Director
</TABLE>
Bruce R. Fox has been a Director of Pro-Fac since 1974. For information
regarding Mr. Fox, see "Management -- The Company -- Directors and
Officers."
Albert P. Fazio has been a Director of Pro-Fac since 1976. He was Vice
President of Pro-Fac between March 1993 and acted as President from January
28, 1995 to March 27, 1995. He has been a member of Pro-Fac since 1975.
He was Secretary of Pro-Fac from 1991 to 1993. Mr. Fazio is a vegetable,
grain and livestock farmer (New Columbia Garden Co., Inc.; Vancouver,
Washington). Mr. Fazio also operates a sand and gravel business (Fazio
Bros. Sand Co.; Vancouver, Washington).
Steven D. Koinzan has been a Director of Pro-Fac since 1983. For
information regarding Mr. Koinzan, see "Management -- The Company --
Directors and Officers."
Tommy R. Croner has been a Director of Pro-Fac since 1985 and a member
of Pro-Fac since 1973. He was elected Secretary on March 27, 1995. Mr.
Croner is a dairy and potato farmer (T-Rich Inc.; Berlin, Pennsylvania).
William D. Rice has been Assistant Treasurer of Pro-Fac since 1970. For
information regarding Mr. Rice, see "Management -- The Company -- Directors
and Officers."
Stephen R. Wright has been General Manager of Pro-Fac since March 1995,
having previously served as Assistant General Manager since November 1994.
For information regarding Mr. Wright, see "Management -- The Company --
Directors and Officers."
Thomas R. Kalchik has served as Vice President of Member Relations of
Pro-Fac since June 1990 and Assistant Secretary of Pro-Fac since 1983. Mr.
69
<PAGE>
Kalchik was Director of Member Relations of Pro-Fac from August 1983 to June
1990.
Dale W. Burmeister has been a Director of Pro-Fac since 1992 and a
member of Pro-Fac since 1974. Mr. Burmeister is a fruit and vegetable
grower (Lakeshore Farms, Inc.; Shelby, Michigan).
Robert V. Call, Jr. has been a Director of Pro-Fac since 1962. For
information regarding Mr. Call, see "Management -- The Company -- Directors
and Officers."
Glen Lee Chase has been a Director of Pro-Fac since 1989 and a member of
Pro-Fac since 1984. Mr. Chase is a peanut, poultry, grain and vegetable farmer
(Chase Farms Inc.; Oglethorpe, Georgia).
Kenneth A. Mattingly has been a Director of Pro-Fac since 1993 and a
member of Pro-Fac since 1978. Mr. Mattingly is a vegetable and grain farmer
(M-B Farms Inc.; LeRoy, New York).
Allan D. Mitchell has been a Director of Pro-Fac since 1975 and a member
of Pro-Fac since 1961. He was Secretary of Pro-Fac from 1985 to 1990. Mr.
Mitchell is a fruit grower (North Rose, New York).
Allan W. Overhiser has been a Director of Pro-Fac since March 1994 and
a member of Pro-Fac since 1984. Mr. Overhiser is a fruit farmer (A.W.
Overhiser Orchards; South Haven, Michigan).
Paul E. Roe has been a Director of Pro-Fac since 1986 and a member of
Pro-Fac since 1961. Mr. Roe is a vegetable, grain and dry bean farmer (Roe
Acres, Inc.; Bellona, New York).
Edward L. Whitaker has been a Director of Pro-Fac since 1992 and a
member of Pro-Fac since 1988. Mr. Whitaker is a farm land owner and a
popcorn grower (Forest City, Illinois).
Term of Office:
Directors of Pro-Fac are elected for three-year terms. Officers of Pro-Fac
are elected for one-year terms.
EXECUTIVE COMPENSATION
The Company:
The following table shows the cash compensation and certain other
components of the compensation of the chief executive officer and the four other
most highly compensated executive officers of the Company earned during fiscal
years ended June 25, 1994, June 26, 1993 and June 26, 1992.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation Deferred
-------------------------------- Awards Profit
Name and Principal Position Year Salary Bonus(2) Options(3) Sharing(4)
- ------------------------------ ---- -------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
J. William Petty (5) 1994 $406,369 $219,440 -- $13,323
Chief Executive Officer and 1993 322,498 148,739 66,800 --
Director 1992 283,134 73,803 11,785 --
</TABLE>
70
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Roy A. Myers 1994 $228,615 $101,231 -- $ 7,886
Executive Vice President and 1993 219,969 35,943 18,200 --
Director (6) 1992 211,467 -- 3,460 --
Patrick D. Lindenbach 1994 $189,083 $ 66,438 -- $ 6,403
Executive Vice President and 1993 166,779 102,152 12,700 0
President & Chief Executive 1992 145,206 84,569 1,154 0
Officer, Nalley's
William D. Rice 1994 $230,912 $102,248 -- $ 7,933
Senior Vice President, 1993 222,700 36,389 19,500 --
Secretary and Treasurer 1992 215,494 -- 3,403 --
Dennis M. Mullen 1994 $170,128 $101,643 -- $ 5,761
President and Chief Executive 1993 151,880 98,531 10,200 --
Officer, CMF 1992 134,369 57,217 -- --
</TABLE>
(1) No named executive officer has received personal benefits during the
listed years in excess of the lesser of $50,000 or 10 percent of annual
salary.
(2) Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of
the officers and employees eligible under the Incentive Plan and by the
earnings of the Company and Pro-Fac.
(3) Fiscal 1992 options are net of cancelled options as follows:
<TABLE>
<CAPTION>
Granted Cancelled
------------------------- ------------------------
Shares Per Share Shares Per Share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
J. William Petty 23,485 $10.25 11,700 $15.375
Roy A. Myers 12,460 10.25 9,000 15.375
Patrick D. Lindenbach 6,554 10.25 5,400 15.375
William D. Rice 12,803 10.25 9,400 15.375
</TABLE>
(4) The deferred profit sharing program (the "Profit Sharing Plan") is a
defined contribution plan, which is dependent upon the financial success
of the Company.
(5) Mr. Petty resigned as a Director and the Chief Executive Officer of the
Company upon completion of the Acquisition.
(6) Mr. Myers has been a Director and the Chief Executive Officer of the
Company since completion of the Acquisition.
Retirement Plans:
The Company's Master Salaried Retirement Plan (the "Pension Plan")
provides defined retirement benefits for its officers and all salaried and
clerical personnel. The compensation upon which the pension benefits are
determined for the named executive officers of the Company is included in
the salary column of the Summary Compensation Table.
For retirement before age 65, the annual benefits are reduced by an
amount, depending upon the participant's date of birth, for each year
prior to age 65 at which such retirement occurs so that if retirement
occurs at age 55, the benefits are 70 percent of those payable at age 65
for any participant whose date of birth precedes January 1, 1938, and 61
percent for any participant whose of date of birth is January 1, 1938 or
later.
The number of years of credited participation under the Company's
Pension Plan as of June 25, 1994, of the executive officers listed in the
Summary Compensation Table are as follows: J. William Petty, 10; Roy A.
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<PAGE>
Myers, 32; Patrick D. Lindenbach, 4; William D. Rice, 22; and Dennis M.
Mullen, 4.
The Company's Excess Benefit Retirement Plan serves to provide
employees with the same retirement benefit they would have received from
the Pension Plan under the career average base pay formula, but for
changes required under the 1986 Tax Reform Act and the compensation
limitation under Section 401(a)(17) of the Code, which was $150,000 on
January 1, 1994, having been revised in the 1992 Omnibus Budget Reform
Act.
The following table shows the estimated pension benefits payable to a
covered participant, at age 65, at the specified final average pay, and
years of credited service levels under the Pension Plan and the Excess
Benefit Retirement Plan.
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
Final ----------------------------------------------------------------------------------
Average Pay 15 20 25 30 35
----------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $22,607 $ 29,558 $ 36,490 $ 43,446 $ 50,645
150,000 27,857 36,558 45,240 53,946 62,895
175,000 33,107 43,558 53,990 64,446 75,145
200,000 38,357 50,558 62,740 74,946 87,395
225,000 43,607 57,558 71,490 85,446 99,645
250,000 48,857 64,558 80,240 94,946 111,895
275,000 54,107 71,558 88,990 106,446 124,145
300,000 59,357 78,558 97,740 116,946 136,395
350,000 69,857 92,558 115,240 137,946 160,895
400,000 80,357 106,558 132,740 158,946 185,395
</TABLE>
The benefits listed on the Pension Plan Table are not subject to any
deduction for Social Security.
The Company also maintains a Supplemental Executive Retirement Plan
(the "SERP") to ensure that key executives affected by joining the Company
at mid-career will receive levels of retirement income reasonably related
to their service and compensation and reflecting their contribution to the
success of the Company.
Change of Control Provisions of Severance and Other Benefit Plans:
The Company has adopted the Key Executive Severance Plan concerning
certain key employees and executive officers (the "KESP"). The KESP
provides salary and benefit continuation to designated executives
(including the named executives listed in the Summary Compensation Table)
in the event their employment is terminated within a specified period
after a change of control of the Company, as such term is defined in the
KESP. The completion of the Acquisition constituted a change of control
under the KESP as of November 3, 1994. As part of the Acquisition, Mr.
Petty has resigned.
Because of the completion of the Acquisition, the term of the KESP is
extended through November 3, 1996. The KESP cannot be terminated during
this two-year period. The KESP provides for salary and benefit
continuation upon a designated executive's termination, other than for
cause, as follows: one year of salary and benefit continuation for Messrs.
Petty, Myers and Rice; two years of salary and benefit continuation for
the other designated executives including Messrs. Lindenbach and Mullen,
or until the executive (other than Mr. Petty) obtains other employment at
an annual salary not less than 75 percent of his annual salary at
termination, whichever occurs first.
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<PAGE>
Under the terms of the KESP, Mr. Petty was entitled to a minimum
supplemental retirement benefit equal to 50 percent of his salary as of
the Closing Date, less all other sources of retirement income including
his supplemental retirement benefit under the SERP. Messrs. Myers and Rice
would be entitled to a supplemental retirement benefit equal to the
benefit they would receive from the Pension Plan if they continue working
until age 65 at their current salary level, less their actual retirement
benefit from such Plan. In all cases, the supplemental retirement benefits
begin at the end of the salary and benefit continuation period. Also, upon
completion of the Acquisition all stock options granted prior to February
15, 1993 became exercisable. However, with the exception of Mr. Petty's
stock options, the vesting of stock options was accelerated only to the
extent that such acceleration would not result in an excise tax under the
Code. Upon completion of the Acquisitions payments were made by the
Company to the designated executives in connection with the cancellation
of exercisable stock options.
If any excise tax is imposed on Mr. Petty in respect to payments
under these agreements and the accelerated vesting of stock options, the
Company will pay to Mr. Petty an amount that will net him the same sum as
he would have retained if the excise tax did not apply. See "Certain
Transactions -- Golden Parachutes/Severance in Connection With the
Acquisition."
The Profit Sharing Plan and the Incentive Plan also contain a change
of control provision pursuant to which, in the event of a change of
control of the Company, participants in such plans who are terminated
within two years following a change in control are entitled to benefits
earned under such plans for the fiscal year of their termination on a pro
rata basis for the part of the year they were employed.
Executive Stock Options:
The following table provides information on unexercised stock options
held as of the end of the fiscal year by the named executive officers. No
options were exercised by the named executive officers during the fiscal
year ended June 25, 1994. For certain amounts paid to the named executive
officers on account of cancelled options in connection with the
consummation of the Acquisition, see "Certain Transactions - Golden
Parachutes/Severance in Connection With the Acquisition."
Aggregated Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money
Options at Fiscal Year End(1) Options at Fiscal Year End(2)
------------------------------------ --------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. William Petty $59,038 $49,474 $175,674 $140,047
Roy A. Myers 26,836 15,904 61,773 53,613
Patrick D. Lindenbach 17,145 10,242 35,227 31,955
William D. Rice 27,632 16,821 64,573 56,046
Dennis M. Mullen 4,080 6,120 8,160 12,240
</TABLE>
(1) Fair market value of the Company's Class A Common Stock on June 25, 1994
was $16.625.
(2) Value of unexercised options equals the fair market value of the shares
underlying in-the-money options at June 25, 1994 ($16.625), less exercise
price, times the number of options outstanding.
Subject to certain limited exceptions, the Company will maintain in effect
for at least one year after the effective time of the Merger all
73
<PAGE>
existing employee benefit plans (except stock-related plans) and will honor all
deferred compensation arrangements for current and former executive officers of
the Company. Upon the effective time of the Merger, all stock option plans, and
the provisions of any other benefit plan calling for the issuance of stock by
the Company, were terminated.
Directors Compensation:
In fiscal 1994, non-employee directors who were designated by either
Pro-Fac or Agway received an annual stipend of $6,000 per year, plus $200 per
day for attending Board or Committee meetings. In fiscal 1994, all other outside
directors, Messrs. Blazin and Tiedemann and Ms. Ford, received $18,000 in
addition to $600 per day. The Chairman of the Board receives a fixed amount in
lieu of the standard attendance fees and annual stipend. During fiscal 1994, Mr.
Pease received $24,700 for the fiscal year as Chairman of the Board. Directors
who are also officers of the Company or Agway were not paid directors' fees.
Directors of the Company will continue to be compensated according to the same
terms. Due to the consummation of the Acquisition, there will no longer be any
directors designated by Agway.
Pro-Fac:
Pro-Fac does not compensate its executive officers. However, under the
Integrated Agreement, which has been superseded by the Pro-Fac Marketing
Agreement, Pro-Fac had reimbursed the Company annually for the salaries and
expenses of the Company employees who performed Pro-Fac membership relations
functions. Under the Pro-Fac Marketing Agreement, the Company will continue to
manage the business and affairs of Pro-Fac and provide all personnel and systems
required for its management, and Pro-Fac will pay the Company a quarterly fee of
$25,000 for these services.
For fiscal 1994, the salary expense paid by Pro-Fac was $180,000 and the
employee expense (travel and telephone) was $68,000. Each director of Pro-Fac
receives an annual fee of $6,000 (except the President who receives $12,000)
plus an additional fee of $200 per day (except the President who receives $400)
for attendance at board and other designated meetings. Pro-Fac directors are
also reimbursed for their out-of-pocket expenses.
Pro-Fac has no pension or retirement plan under which retirement benefits
are proposed to be paid to any of its officers or directors.
CERTAIN TRANSACTIONS
Borrowings by Pro-Fac:
The Indenture governing the Notes permits the Company to make demand loans
to Pro-Fac for working capital purposes in amounts not exceeding $10.0 million
at any time outstanding, each such loan to bear interest at a rate equal to the
rate in effect on the date of such loan under the Seasonal Facility. The loan
balance must be reduced to zero for a period of not less than 15 consecutive
days in each fiscal year. Except for the foregoing provision and except for
Pro-Fac's guarantee of the Notes and the New Credit Agreement, as long as
Pro-Fac has the right to borrow under the Pro-Fac Marketing Agreement, the
Indenture does not permit Pro-Fac to incur any other Indebtedness.
74
<PAGE>
Equity Ownership in Springfield Bank For Cooperatives:
As part of its historical lending arrangements with the Bank, which is a
cooperative, Pro-Fac made investments in the Bank. Pro-Fac made these
investments through (i) a capital purchase obligation equal to a percentage, set
annually based on the Bank's capital needs, of its interest paid to the Bank and
(ii) a patronage rebate on interest paid by Pro-Fac to the Bank based on the
Bank's earnings, which is paid in cash and capital certifi- cates. The
investments in the Bank are capital certificates that are redeemed by the Bank,
currently beginning six years after issuance in four quarterly installments. As
of June 25, 1994, the amount of Pro-Fac's investment in the Bank was
approximately $20.9 million. Pursuant to its capital purchase obligation,
Pro-Fac increased its investment in the Bank by $2.5 million, $2.6 million and
$2.6 million in fiscal 1992, 1993 and 1994, respectively. Amounts paid to
Pro-Fac on account of dividends and the redemption of capital certificates in
connection with such investment were $2.2 million, $2.5 million and $3.1 million
in fiscal 1992, 1993 and 1994, respectively. In connection with the Acquisition,
Pro-Fac contributed its investment in the Bank to the capital of the Company.
Robert V. Call, Jr., a director and executive officer of Pro-Fac and a director
of the Company, and was also a director of the Bank until the Bank consolidated
with the Farm Credit Bank of Springfield and CoBank effective January 1, 1995 to
form an Agricultural Credit Bank named CoBank ACB.
Golden Parachutes/Severance in Connection With the Acquisition:
The completion of the Acquisition constituted a change of control under
the KESP thereby causing the KESP to remain in effect until November 3, 1996.
The KESP provides ten executive officers of the Company with salary and benefit
continuation in the event of their termination within two years of the
Acquisition. Under the KESP, certain executives are provided with two years of
salary and benefit continuation and the other executives with up to twelve
months of salary and benefit continuation if they are terminated for reasons
other than "cause" or resign for "good reason" within the term of the KESP. In
addition, the KESP permits Mr. Petty and Mr. Lindenbach to receive severance
benefits if they voluntarily resign from the Company during the term of the
KESP.
Upon consummation of the Acquisition, Mr. Petty resigned from the Company.
Under the KESP, Mr. Petty will receive salary continuation for one year of
approximately $424,000, less earned income from other sources of employment, an
annual supplemental retirement benefit for his life of approximately $58,000 and
benefits continuation for one year with a value of approximately $4,500. These
benefits to Mr. Petty are in addition to the projected annual benefits payable
under the SERP. See "Executive Compensation -- Retirement Plans."
In the event Mr. Lindenbach exercises his right to resign voluntarily from
the Company during the remaining term of the KESP, his benefits would include
salary continuation for two years with a present value of approximately $370,000
in the aggregate, and benefit continuation for two years with a present value of
approximately $11,000 in the aggregate.
Messrs. Myers, Mullen and Rice also participate in the KESP. Under the
KESP, none of these executives will be entitled to benefits unless his
employment with the Company is terminated for reasons other than "cause" or he
resigns for "good reason" within two years of the Acquisition.
Although not technically severance plans, the Profit Sharing Plan and
Incentive Plan provide that, in a change of control situation, a pro rata
portion of annual awards will be granted to terminated executives for the year
of termination.
75
<PAGE>
The payments made by the Company to the named executive officers set forth
in the Summary Compensation Table in connection with the cancellation pursuant
to the Merger Agreement of certain options granted to such officers pursuant to
the Company's stock option plans, which options were exercisable at prices less
than $19.00 per share, were as follows: J. William Petty, $340,856; Roy A.
Myers, $148,342; Patrick D. Lindenbach, $85,545; William D. Rice, $154,231; and
Dennis M. Mullen, $17,850.
Sale of Crops To Pro-Fac:
Each of the members of Pro-Fac sells crops to Pro-Fac pursuant to a
general marketing agreement between such member and Pro-Fac, which crops in turn
are sold to the Company pursuant to the Pro-Fac Marketing Agreement. Prior to
consummation of the Acquisition, these crops were sold to the Company pursuant
to the Integrated Agreement. During fiscal 1994, the following directors and
executive officers of Pro-Fac and beneficial owners of more than 5 percent of
Pro-Fac's common stock, directly or through sole proprietorships or
corporations, sold crops to Pro-Fac for the following aggregate amounts:
(Dollars in Millions)
<TABLE>
<CAPTION>
Aggregate Amount
Relationship Paid in Fiscal
Name to Pro-Fac 1994
- ----------- ------------ ----------------
<S> <C> <C>
Dale E. Burmeister(1) Director $0.1
Robert V. Call, Jr.(2) Director 2.0
Glen Lee Chase(3) Director 0.1
Tommy R. Croner(4) Director and Secretary 0.2
Albert P. Fazio(5) Director and Vice President 0.2
Bruce R. Fox(6) Director and President 0.4
Steven D. Koinzan Director and Treasurer 0.1
Kenneth A. Mattingly(7) Director 0.4
Paul E. Roe(8) Director 0.2
Cherry Central Cooperative, Inc. Stockholder 2.1
Michigan Blueberry Growers Assoc Stockholder 2.5
</TABLE>
(1) Paid to Lakeshore Farms, Inc., which is 100 percent beneficially owned
by Mr. Burmeister.
(2) Paid to My-T Acres, Inc., which is 20 percent beneficially owned by Mr.
Call.
(3) Paid to Chase Farms, Inc., which is 96 percent beneficially owned by
Mr. Chase.
(4) Paid to T-Rich, Inc., which is 50 percent beneficially owned by Mr.
Croner.
(5) Paid to New Columbia Garden Co., Inc., which is 30 percent beneficially
owned by Mr. Fazio.
(6) Paid to N.J. Fox & Sons, which is 33 percent beneficially owned by Mr.
Fox.
(7) Paid to M-B Farms, Inc., which is 50 percent beneficially owned by Mr.
Mattingly.
(8) Paid to Roe Acres, Inc., which is 100 percent beneficially owned by Mr.
Roe.
76
<PAGE>
Other Transactions With Directors and Officers of Pro-Fac:
In fiscal 1994, CMF paid My-T Acres, Inc. $0.2 million for commercial
harvesting and hauling services and $0.1 million for crops (not covered by the
Integrated Agreement). Robert V. Call, Jr. is a Director of Pro-Fac, Chairman of
the Board of the Company, and the President and a 20 percent beneficial owner of
My-T Acres, Inc.
In fiscal 1994, the Company paid T-Rich, Inc. $0.1 million for solid waste
removal services provided to Snyder. Tommy R. Croner is a Director and Secretary
of Pro-Fac and is the President and a 50 percent beneficial owner of T-Rich,
Inc.
In fiscal 1994, Pro-Fac paid N.J. Fox & Sons, Inc. $0.4 million for
storage, handling, hydrocooling and trucking services. Bruce R. Fox is a
Director and the President of Pro-Fac, a Director of the Company, and the
President and a 33 percent beneficial owner of N.J. Fox & Sons.
In fiscal 1994, CMF paid H&M Harvesting $0.2 million for harvesting
services. M-B Farms Inc. is a 50 percent partner of H&M Harvesting. Kenneth A.
Mattingly is a Director of Pro-Fac and the President and a 50 percent beneficial
owner of M-B Farms Inc.
In fiscal 1994, CMF paid Roe Acres, Inc. $0.2 million for harvesting
services. Paul E. Roe is a Director of Pro-Fac and the President and sole
stockholder of Roe Acres, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 28, 1995,
with respect to (i) each person known by Pro-Fac to own beneficially 5 percent
or more of any class of Pro-Fac's voting securities, (ii) each director and
executive officer of Pro-Fac and (iii) all directors and executive officers of
Pro-Fac as a group.
<TABLE>
<CAPTION>
Title Amount and Nature of Percent of
Name of Class Beneficial Ownership(A) Class(B)
- -------------------------------- -------- ----------------------- ----------
<S> <C> <C> <C>
Cherry Central Cooperative, Inc. Common 383,942 20.71%
P.O. Box 988 Preferred 41,638 1.37%
Traverse City, MI 49685
Michigan Blueberry Growers Assoc. Common 116,400 6.28%
P.O. Drawer B Preferred 93,200 3.06%
Grand Junction, MI 49056
Dale E. Burmeister Common 2,918(c) 0.16%
Preferred 703(c) 0.02%
8,490 0.28%
Robert V. Call, Jr. Common 36,800(d) 1.99%
Preferred 23,702(d) 0.78%
13,088(e) 0.43%
5,361(f) 0.18%
1,506 0.05%
Glen Lee Chase Common 9,472(g) 0.51%
Preferred 4,962(g) 0.16%
Tommy R. Croner Common 7,026(h) 0.38%
Preferred 10,076(i) 0.33%
</TABLE>
77
<PAGE>
(Continued)
<TABLE>
<CAPTION>
Name of Class Beneficial Ownership(A) Class(B)
- -------------------------------- -------- ----------------------- --------
<S> <C> <C> <C>
Albert P. Fazio Common 8,000(j) 0.43%
Preferred 8,430(j) 0.28%
Bruce R. Fox Common 20,222(k) 1.09%
Preferred 8,572(k) 0.28%
3,902(l) 0.13%
1,085 0.04%
Thomas R. Kalchik Preferred 328(n) 0.01%
Steven D. Koinzan Common 7,140 0.39%
Preferred 1,924 0.06%
Kenneth A. Mattingly Common 4,645(m) 0.25%
Preferred 3,147(m) 0.10%
Allan D. Mitchell Common 78 0.00%
Preferred 1,674(n) 0.06%
5,006 0.16%
Allan W. Overhiser Common 1,139(o) 0.06%
Preferred 1,512(o) 0.05%
Paul E. Roe Common 12,851(p) 0.69%
Preferred 3,160(p) 0.10%
Edward L. Whitaker Common 240 0.01%
Preferred 117 0.00%
Stephen Wright Preferred 840 0.03%
All directors and officers
as a group Common 110,531 5.96%
Preferred 107,585 3.54%
</TABLE>
(a) Certain of the directors named above may have the opportunity, along with
the other members producing a specific crop, to acquire beneficial
ownership of additional shares of the common stock of Pro-Fac within a
period of approximately 60 days commencing February 1, 1995 if Pro-Fac
determines that a permanent change is required in the total quantity of
that particular crop.
(b) In the above table, each director who has direct beneficial ownership of
common or preferred shares by reason of being the record owner of such
shares has sole voting and investment power with respect to such shares,
while each director who has direct beneficial ownership of common or
preferred shares as a result of owning such shares as a joint tenant has
shared voting and investment power regarding such shares. Each director
who has indirect beneficial ownership of common or preferred shares
resulting from his status as a shareholder or a partner of a corporation
or partnership which is the record owner of such shares has sole voting
and investment power if he controls such corporation or partnership. If
he does not control such corporation or partnership, he has shared voting
and investment power. Pro-Fac does not believe that the percentage
ownership of any such corporation or partnership by a director is
material, since in the aggregate no director beneficially owns in excess
of 5 percent of either the common or preferred shares of Pro-Fac.
78
<PAGE>
(c) Record ownership by Lakeshore Farms, Inc.
(d) Record ownership by My-T Acres, Inc.
(e) Record ownership by My-T Acres, Inc. Employee Profit-Sharing Plan
(f) Record ownership by Call Farms, Inc.
(g) Record ownership by Chase Farms, Inc.
(h) Record ownership by Richard Croner & Son
(i) Record ownership by T-Rich, Inc.
(j) Record ownership by New Columbia Garden Co., Inc.
(k) Record ownership by N.J. Fox & Sons, Inc.
(l) Record ownership by K. Fox
(m) Record ownership by M-B Farms, Inc.
(n) Record ownership jointly with spouse
(o) Record ownership by A.W. Overhiser Orchards
(p) Record ownership by Roe Acres, Inc.
LEGAL OPINION
The validity of the securities offered hereby has been passed upon for
Pro-Fac by Harris Beach & Wilcox, LLP, 130 East Main Street, Rochester, New York
14604.
EXPERTS
The consolidated financial statements and financial statement schedules of
Curtice-Burns Foods, Inc. and the financial statements and financial statement
schedules of Pro-Fac Cooperative, Inc. at June 25, 1994 and June 26, 1993 and
for each of the three years in the period ended June 25, 1994, included in the
Prospectus, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants (which reports contain an explanatory paragraph
relative to disputes between Curtice-Burns Foods, Inc. and Pro-Fac Cooperative,
Inc.), given on the authority of said firm as experts in auditing and
accounting.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ITEM Page
- ------------- ----
Curtice-Burns Foods, Inc. and Consolidated Subsidiaries:
Report of Independent Accountants F-2
Consolidated Financial Statements for the years ended
June 25, 1994, June 26, 1993 and June 26, 1992:
Consolidated Statement of Operations and
Retained Earnings F-3
Consolidated Balance Sheet F-4
Consolidated Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Consolidated Financial Statements (Unaudited)
for the nine months ended March 25, 1995 and
March 26, 1994:
Consolidated Statement of Operations (Predecessor
6/26/94 - 11/3/94; Successor 11/4/94 - 3/25/95) F-26
Consolidated Balance Sheet F-27
Consolidated Statement of Cash Flows F-28
Notes to Consolidated Financial Statements F-29
Pro-Fac Cooperative, Inc.:
Report of Independent Accountants F-37
Financial Statements for the years ended
June 25, 1994, June 26, 1993 and June 26, 1992:
Consolidated Statement of Net Proceeds F-38
Consolidated Balance Sheet F-39
Consolidated Statement of Cash Flows F-40
Statement of Changes in Shareholders' and Members'
Capitalization F-41
Notes to Consolidated Financial Statements F-42
Financial Statements (Unaudited)
for the nine months ended March 25, 1995 and
March 26, 1994:
Consolidated Statement of Net Proceeds F-55
Consolidated Balance Sheet F-56
Consolidated Statement of Cash Flows F-58
Notes to Consolidated Financial Statements F-60
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
CURTICE-BURNS FOODS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and retained earnings and cash flows
present fairly, in all material respects, the financial position of
Curtice-Burns Foods, Inc. and its subsidiaries at June 25, 1994 and June 26,
1993, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended June 25, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in NOTES 2 and 4 to the consolidated financial statements,
several disputes currently exist between Pro-Fac Cooperative, Inc. and the
Company. The Company has requested arbitration to resolve the disputes with
Pro-Fac Cooperative, Inc. Additionally, two competing offers to acquire the
outstanding common stock of the Company have been made.
PRICE WATERHOUSE LLP
Rochester, New York
August 10, 1994 (Except as to NOTE 3, which is as of September 22, 1994)
F-2
<PAGE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations and Retained Earnings
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Net sales $829,116 $878,627 $896,931
Costs and expenses:
Cost of sales 592,621 632,663 652,347
Restructuring including net (gain)/loss
from division disposals (7,768) 61,037 --
Change in control expenses 3,500 -- --
Other selling, administrative and
general expenses 186,934 207,119 201,327
Interest expense:
Interest expense on Pro-Fac related
borrowings 15,617 16,515 19,869
Interest expense on other debt 2,667 3,047 3,558
Less capitalized interest (79) (12) (592)
-------- -------- --------
Total interest expense 18,205 19,550 22,835
-------- -------- --------
Total costs and expenses 793,492 920,369 876,509
-------- -------- --------
Pretax earnings/(loss) before dividing
with Pro-Fac 35,624 (41,742) 20,422
Pro-Fac share of (earnings)/loss (16,849) 21,800 (9,505)
-------- -------- --------
Income/(loss) before taxes 18,775 (19,942) 10,917
Provision for taxes (8,665) (3,895) (4,769)
-------- -------- --------
Net income/(loss) 10,110 (23,837) 6,148
Retained earnings at beginning of period 53,541 82,882 80,849
Less cash dividends declared ($.64, $.64, and
$.48 per share, respectively) (5,530) (5,504) (4,115)
-------- -------- --------
Retained earnings at end of period $ 58,121 $ 53,541 $ 82,882
======== ======== ========
Earnings per share $ 1.17 $ (2.77) $ .71
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Curtice-Burns Foods, Inc.
Consolidated Balance Sheet
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 25, June 26,
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,928 $ 6,516
Accounts receivable trade, less allowances for bad
debts of $1,066 and $801, respectively 57,640 63,160
Accounts receivable, other 8,460 8,151
Income taxes refundable 237 --
Current deferred taxes receivable 10,487 7,561
Inventories --
Finished goods 108,538 110,772
Raw materials and supplies 46,721 58,704
-------- --------
Total inventories 155,259 169,476
-------- --------
Prepaid manufacturing expense 8,190 7,164
Prepaid expenses and other current assets 4,305 4,920
-------- --------
Total current assets 247,506 266,948
Net property, plant, and equipment leased from Pro-Fac 141,322 173,513
Other property, plant, and equipment, net 26,194 18,939
Goodwill and other intangibles, less amounts financed
and accumulated amortization of $10,335 and $8,650,
respectively 24,909 26,546
Other assets 7,007 7,783
-------- --------
Total assets $446,938 $493,729
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,335 $ 64,663
Due to Pro-Fac 9,447 9,113
Accrued employee compensation 11,482 11,843
Other accrued expenses 26,947 30,334
Income taxes payable -- 9,046
Current portion of obligations under Pro-Fac capital leases 17,645 21,184
Current portion of obligations under other capital leases 785 1,687
Current portion of Pro-Fac long-term debt 14,000 16,000
Current portion of other long-term debt 816 2,656
-------- --------
Total current liabilities 143,457 166,526
Long-term debt due Pro-Fac 78,040 78,648
Long-term debt due others 1,021 6,389
Obligations under Pro-Fac capital leases 123,677 152,329
Obligations under other capital leases 1,296 1,773
Deferred income taxes 14,958 9,362
Other non-current liabilities 3,591 3,027
-------- --------
Total liabilities 366,040 418,054
-------- --------
Commitments and contingencies
Shareholders' equity:
Class A Common -- $.99 par value; 10,125,000 shares authorized;
6,628,430 and 6,568,518 outstanding, respectively 6,562 6,503
Class B Common -- $.99 par value; 4,050,000 shares authorized;
2,056,876 and 2,060,702 outstanding, respectively 2,036 2,040
Additional paid-in capital 14,224 13,591
Retained earnings 58,121 53,541
Minimum pension liability adjustment (45) --
-------- --------
Total shareholders' equity 80,898 75,675
-------- --------
Total liabilities and shareholders' equity $446,938 $493,729
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in Thousands) Fiscal Years Ended
-----------------------------------------
1994 1993 1992
--------- --------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 10,110 $(23,837) $ 6,148
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring charges, including net (gain)/loss
from division disposals (7,768) 61,037 --
Amortization of goodwill and other intangibles 1,685 2,538 2,742
Depreciation and amortization of capital assets 22,322 25,432 24,414
Provision for losses on accounts receivable 709 346 827
Deferred tax provision/(benefit) 2,670 (10,642) 1,009
Change in assets and liabilities net of affects of disposals:
Accounts receivable 5,704 (8,043) 7,823
Inventories 250 4,738 9,162
Income taxes (refundable)/payable (9,283) 11,617 (650)
Accounts payable and accrued expenses (7,313) 2,497 7,136
Due to Pro-Fac 834 (1,654) (443)
Other assets and liabilities 2,055 (3,345) (5,491)
-------- -------- --------
Net cash provided by operating activities 21,975 60,684 52,677
-------- -------- --------
Cash flows from investing activities:
Proceeds from division disposals 42,097 -- --
Cash paid for intangibles (1,637) (26,898) (2,405)
Purchase of property, plant, and equipment (9,543) (8,360) (562)
Disposal of assets 1,900 3,817 6,176
Disposal of Pro-Fac assets 714 4,923 1,661
Disposal of third party leases 357 94 587
-------- -------- --------
Net cash provided by/(used in)
investing activities 33,888 (26,424) 5,457
-------- -------- --------
Cash flows from financing activities:
Due to Pro-Fac (500) (16,000) (18,000)
Proceeds from issuance of Pro-Fac long-term debt 40,378 33,348 201
Payments on Pro-Fac long-term debt (42,986) (14,000) --
Payments on other long-term debt (7,208) (2,644) (3,108)
Payments on Pro-Fac capital leases (42,193) (26,928) (23,827)
Payments on other capital leases (2,100) (2,642) (2,073)
Proceeds from sale of stock under stock option plans 688 517 213
Stock repurchased -- (17) (5,000)
Cash dividends paid (5,530) (5,504) (5,540)
-------- -------- --------
Net cash used in financing activities (59,451) (33,870) (57,134)
-------- -------- --------
Net change in cash (3,588) 390 1,000
Cash at beginning of year 6,516 6,126 5,126
-------- -------- --------
Cash at end of year $ 2,928 $ 6,516 $ 6,126
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for --
Interest (net of amount capitalized) $ 18,623 $ 19,757 $ 22,636
======== ======== ========
Income taxes, net $ 15,077 $ 1,909 $ 3,795
======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred $ 10,723 $ 16,065 $ 19,897
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Curtice-Burns Foods, Inc.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles including the following
major accounting policies:
Fiscal Year:
Fiscal 1994 ended on June 25, 1994, and fiscal 1993 ended on June 26,
1993, the last Saturday in June. Prior years ended on the last Friday in June.
All future fiscal years will end on the last Saturday in June. The years ended
June 25, 1994, June 26, 1993, and June 26, 1992 each comprised 52 weeks.
Consolidation:
The consolidated financial statements include the Company and its
wholly-owned subsidiaries after elimination of intercompany transactions and
balances. Certain items for fiscal 1993 and 1992 have been reclassified to
conform with fiscal 1994 presentations.
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. These reserves amounted to $379,000, $1,189,000
and $2,520,000 for fiscal 1994, 1993 and 1992, respectively.
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 "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 3
to 40 years.
Lease arrangements are capitalized when such leases convey substantially
all of the risks and benefits incidental to ownership. Such leases include those
assets title to which is held by Pro-Fac and utilized by the Company under the
terms of the Integrated Agreement (the "Agreement") described in NOTE 4. 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.
Income Taxes:
Income taxes are provided on income for financial reporting purposes.
Deferred income taxes resulting from temporary differences between financial
reporting and tax reporting are appropriately classified in the balance sheet.
F-6
<PAGE>
Pension:
The Company and its 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 the Company and its subsidiaries are based upon actuarially determined costs.
Pension liabilities are funded by periodic payments to the various Pension Plan
trusts.
Postretirement Benefits Other Than Pensions:
In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers Accounting for Postretirement Benefits Other than
Pensions" which is further described in NOTE 9.
Employers' Accounting For Postemployment Benefits:
In November 1992, the Financial Accounting Standards Board issued
Statement of Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits."
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.
This Statement is effective for fiscal years beginning after December 15,
1993. Management believes that any change caused by this Statement will not be
material.
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 net of the portion of such intangibles
financed by Pro-Fac in those transactions. Goodwill and other intangible assets,
stated at net of accumulated amortization, are amortized on a straight-line
basis over periods ranging to 40 years. The Company 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.
Environmental Expenditures:
Environmental expenditures that pertain to current operations are expensed
or capitalized consistent with the Company'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.
NOTE 2. POTENTIAL CHANGE OF CONTROL OF CURTICE-BURNS
On March 23, 1993, the Company announced that Agway Inc., which owns 99
percent of Curtice-Burns' Class B shares and approximately 14 percent of Class A
shares, was considering the potential sale of its interest in the Company. At
its meeting held on August 9 and 10, 1993, the Curtice-Burns Board of Directors
authorized Curtice-Burns' management, with the advice of
F-7
<PAGE>
its investment bankers, to pursue strategic alternatives for Curtice-Burns.
These options include negotiations with Pro-Fac relative to Pro-Fac gaining
control of the business; the possible sale of the entire equity of Curtice-Burns
to a third party; and the implementation of additional restructuring actions
that may include recapitalizing the Company to buy out Pro-Fac and possibly
Agway. Under the Agreement with Pro-Fac, title to substantially all of
Curtice-Burns' fixed assets is held by Pro-Fac, and Pro-Fac provides the major
portion of the financing of Curtice-Burns' operations. Under the Agreement,
Curtice-Burns has an option to purchase these assets from Pro-Fac at their book
value. However, Curtice-Burns and Pro-Fac are currently in arbitration
proceedings relating to, among other matters, whether or not Curtice-Burns has
the right to terminate the Agreement, the amount that would be due to Pro-Fac
upon such termination and when such termination would take effect. In connection
with any termination of the Agreement, Curtice-Burns would be required to repay
all debt owed to Pro-Fac.
The Company actively explored these alternatives during fiscal 1994. On
June 8, 1994, the Curtice-Burns Board of Directors voted to pursue a proposal
submitted by Dean Foods to acquire all the outstanding shares of Curtice-Burns
at a maximum cash price of $20.00 per share, subject to a number of
contingencies, including an agreement with Pro-Fac covering the termination of
the Integrated Agreement, an agreement with Hormel Foods Corporation for the
purchase of the Nalley's Fine Foods Division of Curtice-Burns, clearance of the
transaction by appropriate government agencies, negotiation of definitive
agreements and approval of any transaction by Curtice-Burns' shareholders.
As a result of Pro-Fac's unwillingness to enter into the agreement
required by Dean Foods, on July 11, 1994, Curtice-Burns commenced arbitra- tion
proceedings against Pro-Fac under the Integrated Agreement. These arbitration
proceedings are discussed in more detail under "Arbitration Proceedings with
Pro-Fac" below.
Arbitration Proceedings With Pro-Fac:
On July 11, 1994, Curtice-Burns commenced arbitration proceedings against
Pro-Fac under the Integrated Agreement by serving a Demand for Arbitration on
Pro-Fac. In the arbitration, Curtice-Burns is seeking, among other relief, a
declaration confirming its right to terminate the Integrated Agreement and to
purchase the assets owned by Pro-Fac but used by Curtice- Burns in the conduct
of its business upon tender of the then current book value thereof, determined
in accordance with generally accepted accounting principles, a declaration
confirming the effect of termination of the Integrated Agreement on the
obligations of Curtice-Burns under the Integrated Agreement and a declaration
confirming that Curtice-Burns does not have any obligations under the Integrated
Agreement to purchase crops except as set forth in the fiscal 1995 Profit Plan.
Curtice-Burns is also seeking an award of damages sustained by Curtice-Burns in
an amount to be determined by the arbitrators, but in no event less than the
difference in value between the Dean Foods $20.00 per share offer and the market
price per share of Curtice-Burns' common stock following any public announcement
that the Dean Foods acquisition proposal has been withdrawn.
On August 2, 1994, Curtice-Burns filed a petition in the Supreme Court of
New York for an order compelling Pro-Fac to proceed with the arbitration.
On August 4, 1994, Pro-Fac served Curtice-Burns with Pro-Fac's Response
and Counterdemand for Arbitration (the "Response"). In the Response, Pro-Fac
asserted (1) that Pro-Fac is entitled to a 50 percent share of the profits from
the consummation of the pending acquisition proposal from Dean Foods, which
share Pro-Fac calculated to be greater than $5.75 per share of
F-8
<PAGE>
Curtice-Burns' common stock; (2) that Curtice-Burns cannot terminate the
Integrated Agreement at all or not before, at the earliest, June 1996; (3) that
the book value of Pro-Fac's assets for the purposes of calculating the price at
which Curtice-Burns may buy those assets and terminate the Integrated Agreement
should not take into account specified writedowns by Curtice-Burns of those
assets; (4) that Curtice-Burns is in default under the Integrated Agreement for
improper termination of crops; and (5) that Curtice-Burns is in default under
the Integrated Agreement for failing to manage the business of Pro-Fac. Pro-Fac
also claimed damages that it estimated at more than $50 million.
In the Response, Pro-Fac also generally denied Curtice-Burns' allegations
in its Demand for Arbitration.
On August 4, 1994, Pro-Fac submitted a proposal for acquisition of all the
outstanding stock of Curtice-Burns for $19.00 per share in cash, and upon
acceptance of the offer, Pro-Fac would relinquish its claims against
Curtice-Burns. The contingencies of the Pro-Fac offer involve shareholder
approval and financing. This was the second proposal submitted by Pro-Fac. The
first was for $16.87 per share, in cash, on June 8, 1994, which the Company
rejected at that time in favor of pursuing the Dean Foods offer.
The Company has expensed $3.5 million of legal, accounting, investment
banking and other expenses relative to the change in control issue. In
recognizing this expense, the Company allocated half of this amount to Pro-Fac
as a deduction to the profit split ($1.8 million). The allocation to Pro-Fac of
this charge is being disputed by Pro-Fac. See NOTES 4 and 5.
The Company believes that Pro-Fac's allegations are without merit and
intends to resist them vigorously.
NOTE 3. RESTRUCTURING PROGRAM
The Conceptual Vision and Strategy:
The restructuring program first initiated in fiscal 1993 was based on
Curtice-Burns' new vision of a company smaller in sales but more profitable, as
measured by return on sales and equity, and possessing the financial and
management resources sufficient to drive growth in carefully selected product
line markets in which the Company can prosper for the long term. Thus, the
strategy was to focus on a more limited number of product lines which now have a
strong, competitive position.
The Plan outlined in 1993 is to restructure the business to a more
profitable base. At the same time, the remaining businesses were to be managed
to optimize earnings growth by installing corporate-wide purchasing, and a
corporate-wide focus of capital spending.
The third leg of the strategy was to accelerate the Company's national
sales and distribution programs by executing new product programs in store-brand
retail dressings, salsa and chunky soups, and the "More Fruit/More Flavor" pie
filling program.
Execution of the Program:
The first step of the restructuring program was to divest businesses that
were unprofitable or declining for the Company but would fit strategically with
other business portfolios. During fiscal 1993, the Company divested Lucca Frozen
Foods. A loss of approximately $2.7 million (before dividing with Pro-Fac and
before taxes) was recognized on this transaction. At the end of fiscal 1993, the
Company wrote down the assets and provided for the expenses to dispose of the
Hiland potato chips and meat
F-9
<PAGE>
snacks businesses during fiscal 1994. On November 22, 1993, Curtice-Burns sold
certain assets of the Hiland potato chips business for $2.0 million at closing,
plus approximately $1.0 million paid in installments over three months. On
February 22, 1994, Curtice-Burns sold the meat snacks business located in
Denver, Colorado and Albany, Oregon to Oberto Sausage Company of Kent,
Washington. Under the agreement, Oberto has purchased certain assets and assumed
certain liabilities of the meat snacks operation, excluding plant, equipment,
and trademarks. Curtice-Burns will lease its Albany, Oregon manufacturing
facility and equipment and license its trademarks, trade names, etc. to Oberto
until February 1995, at which time Oberto is contractually obligated to purchase
these assets. The sale of the Hiland potato chips and meat snacks businesses did
not result in any significant gain or loss in fiscal 1994 after giving effect to
the restructuring charges recorded in fiscal 1993; however, charges of $3.1
million were incurred in fiscal 1994 to adjust previous estimates. In the fiscal
year ended June 26, 1993, Curtice-Burns incurred losses of $13.2 million from
the meat snacks and Hiland potato chips businesses before dividing such losses
with Pro-Fac and before taxes.
On November 19, 1993, the Company sold the oats portion of the National
Oats business for $39.0 million. The oats business contributed approxi- mately
$1.4 million of earnings in fiscal 1993 before dividing with Pro-Fac and before
taxes. The sale of the oats business resulted in an approximate $10.9 million
gain. The popcorn portion of the National Oats Division was transferred to the
Comstock Michigan Fruit Division.
During fiscal 1993 and 1994, the Company also made staff reductions in
selected locations throughout the Company. A $1.0 million accrual relating to
such costs was recorded as part of the fiscal 1993 restructuring charge.
Thus, a major part of the restructuring plan was successfully executed
during fiscal 1994.
As reported above, Curtice-Burns incurred restructuring charges in fiscal
1993 of $61.0 million (before dividing such charges with Pro-Fac and before
taxes), which included the loss incurred on the sale of the Lucca frozen entree
business, anticipated losses on the sale of the meat snacks and Hiland
businesses, and other costs (primarily severance and losses prior to sale) in
conjunction with the restructuring program. Virtually all of this charge was a
revaluation of assets, rather than cash expense.
Having completed the first phase of the restructuring program in fiscal
1993, the second phase was approved by the Company's Board of Directors in
August 1994. In connection with the second phase, the company is evaluating
several alternatives regarding the Nalley's snack food business in the United
States, including its possible sale to a third party. A charge, not to exceed
$12.0 million before split with Pro-fac and before taxes, for this phase of the
restructuring program will be recorded during the first quarter of fiscal 1995.
With respect to the potential sale of the snack food business, the Company
has signed a letter of intent with Country Crisp Foods of Salt Lake City, Utah.
The letter of intent is subject to a number of conditions, including successful
financing by the purchaser and the negotiation of a definitive purchase
agreement. Country Crisp, a regional snack food company operating in the
inter-mountain states of Colorado, Utah, Wyoming, Idaho, Nevada and New Mexico,
will continue to market the Nalley's brand snacks under a licensing arrangement
with the Company. If this sale is finalized, it may result in a revision to the
aforementioned reserve.
F-10
<PAGE>
NOTE 4. AGREEMENT WITH PRO-FAC
The Company has a contractual relationship with Pro-Fac under an Agreement
consisting of five sections: Operations Financing, Marketing, Facilities
Financing, Management, and Settlement, which extends to 1997, and provides for
two successive five-year renewals at the option of the Company.
The provisions of the Agreement include the financing of certain assets
utilized in the business of the Company and provide a sharing of income and
losses between Curtice-Burns and Pro-Fac. Should the Company terminate the
Agreement, the Company has the option of purchasing those assets financed by
Pro-Fac at their book value at that time.
Revenues received or paid by Pro-Fac from or to Curtice-Burns under the
Agreement for the years ended June 25, 1994, June 26, 1993, and June 26, 1992
include: CMV of crops delivered, $59,216,000, $59,800,000, and $64,152,000,
respectively; interest income, $15,617,000, $16,515,000, and $19,869,000,
respectively; and additional proceeds from profit and loss sharing provisions
(amounts in parenthesis indicate deductions from amounts otherwise payable by
Curtice-Burns to Pro-Fac as a result of loss sharing), $16,849,000,
($21,800,000), and $9,505,000, respectively. In addition, Pro-Fac received from
the Company amortization and financing payments of $43,830,000, $53,826,000, and
$26,232,000 for the years ending June 25, 1994, June 26, 1993, and June 26,
1992, respectively.
Should the resolution of the potential change of control of Curtice-Burns
(see NOTE 2) result in the Company exercising its option to purchase from
Pro-Fac the property and equipment and certain other assets used by the Company
in its business, the financing required to accomplish this (including the
repayment of debt) would be $267,718,000 as measured at the book value on June
25, 1994. Of this amount, $101,487,000 represents short- and long-term debt,
$24,909,000 relates to intangible assets, and $141,322,000 relates to fixed
assets. This $267,718,000 at June 25, 1994 compares to $303,820,000 at June 26,
1993, which was comprised of $103,761,000 of short- and long-term debt,
$26,546,000 relating to intangible assets and $173,513,000 relating to leased
fixed assets. This change of $36,102,000 during the year is the net of increases
and decreases in the amounts attributable to short- and long-term debt and
leased assets. The decrease in leased assets during fiscal 1994 is the result of
certain businesses that were sold (see NOTE 3) and depreciation exceeding
additions for the period, resulting in a net decrease of $32,191,000 in the
leased asset values for which Pro-Fac holds title.
In fiscal 1993 the Company wrote down assets associated with its Meat
Snacks and Hiland Potato Chip businesses (see NOTE 3). The total amount of such
writedown was $58,300,000, of which approximately $29,150,000 was allocated to
reduce the value of assets leased from Pro-Fac.
In the arbitration proceedings currently pending between Curtice-Burns and
Pro-Fac, Pro-Fac has asserted, among other matters, (1) that Pro-Fac is entitled
to a 50 percent share of the profits from the consummation of the pending
acquisition proposal from Dean Foods, which share Pro-Fac calculates to be
greater than $5.75 per share of Curtice-Burns' common stock; and (2) that the
book value of Pro-Fac's assets for the purposes of calculating the buyout price
under the Integrated Agreement should not take into account the writedown of the
assets associated with the Meat Snacks and Hiland Potato Chip businesses. See
NOTE 2. The Company and Pro-Fac have agreed that, in such arbitration, the
effect of the fiscal 1993 writedown of assets associated with the Company's Meat
Snacks and Hiland Potato Chip businesses will be treated as if such businesses
had not been sold. Also in dispute is Curtice-Burns allocation to Pro-Fac of
one-half of the change in control
F-11
<PAGE>
costs of $3.5 million, one-half of which were allocated to Pro-Fac in fiscal
1994 pursuant to the provisions of the Agreement. See NOTE 2.
In March 1994, the Company advised Pro-Fac that, in view of the
possibility that the Company might be acquired by a third party, Pro-Fac should
not rely on Curtice-Burns to purchase any crops from Pro-Fac or its growers in
calendar 1995 and beyond. In addition, the Company notified Pro-Fac that
Curtice-Burns will not commit to purchase a substantial portion of the crops
historically purchased from Pro-Fac in the 1995 growing season. As a result,
Pro-Fac has given notice to its affected members terminating Pro-Fac's
obligation to purchase these crops beginning next year. The affected Pro-Fac
growers are principally Pro-Fac's New York fruit and vegetable growers, Illinois
and Nebraska popcorn growers, and Northwest potato growers who represent more
than half of Pro-Fac's membership and have accounted for approximately $29.9
million or 50 percent of the total crops delivered by Pro-Fac to Curtice-Burns
in the past year. In the arbitration proceedings currently pending between
Curtice-Burns and Pro-Fac, Pro-Fac has asserted, among other matters, that
Curtice-Burns is in default under the Integrated Agreement for improper
termination of crops and has claimed damages that Pro-Fac estimates at more than
$50.0 million (see NOTE 2). The Company believes that its only obligation to
purchase crops from Pro-Fac is as set forth in the Profit Plan as approved each
year by the Boards of Directors of both Pro-Fac and the Company. Because the
most recent approved Profit Plan was fiscal year 1995 (which Plan corresponds to
the 1994 calendar year crops), the Company believes that it is not currently
obligated to purchase any crops from Pro-Fac for calendar year 1995 or later.
On August 3, 1994, Pro-Fac responded to the claim and served the Company
with a counter claim demanding arbitration.
NOTE 5 DEBT
Short-Term Debt:
Short-term bank lines of credit are extended individually to both the
Company and Pro-Fac. They are interrelated so that both companies must
participate on a proportionate basis in the average borrowings under such lines.
At least 55 percent of such borrowing is attributable to Pro-Fac and advanced by
the Springfield Bank for Cooperatives and up to 45 percent is attributable to
the Company and advanced by a commercial bank syndicate consisting of six banks.
The combined line of credit at June 25, 1994 was $86,000,000. The revolving
lines of credit under such agreements have been renewed through November of
1994. Such lines expire annually unless renewed. Such renewals grant both
short-term and long-term lenders liens on substantially all assets of the
Company and Pro-Fac as collateral for borrowings under such agreements and other
long-term debt. Outstanding borrowings at June 25, 1994 were $11,500,000. The
maximum amount of short-term borrowings outstanding during the year were
$81,000,000. The approximate average short-term borrowings during fiscal 1994
were $51,516,000, of which $30,464,000 was borrowed from Pro-Fac through funds
advanced to Pro-Fac from the Springfield Bank for Cooperatives and $21,052,000
was borrowed from commercial banks. The approximate daily weighted average
interest rate on borrowings was 4.6 percent and the rate at June 25, 1994 was
5.5 percent. The Company pays a one-fourth of one percent fee on the unused
portion of the commercial bank lines of credit and a one-eighth of one percent
facility fee to commercial banks participating in the credit agreement. There
are no compensating balance requirements.
F-12
<PAGE>
Long-Term Debt:
In addition to the long-term and the short-term borrowings included in the
balance sheet as due to Pro-Fac, the Company guaranteed Pro-Fac debt at June 25,
1994 of $48,974,000 which was used primarily for financing the fixed and
intangible assets referred to in NOTE 4. The interest rate on Pro-Fac borrowings
was 6.7 percent at June 25, 1994. The other debt of $1,837,000, primarily
Industrial Revenue Bonds, carries rates ranging up to 11.0 percent at June 25,
1994.
Long-term debt maturities during each of the next five fiscal years are as
follows: 1995-$14,816,000; 1996-$14,343,000; 1997-$14,209,000; 1998-
$14,206,000, and 1999-$14,182,000. Provisions of the Agreement do, however,
allow Pro-Fac, with sufficient notice, to accelerate the repayment of debt.
Based on an estimated borrowing rate at fiscal year end 1994 of 8.0
percent for long-term debt with similar terms and maturities, the fair value of
the Company's long-term debt outstanding is approximately $88,709,000 for
Pro-Fac related debt and $1,835,000 for other debt.
Additional Information With Respect To Borrowing Arrangements:
Because Pro-Fac guarantees the debt of the Company and the Company
guarantees the debt of Pro-Fac (substantially all of which is advanced to the
Company), management and lenders use combined pro forma financial statements to
assess the financial strength of the two companies. Specifically, the combined
statement of operations, balance sheet and statement of cash flows portray the
financial results, cash flows and equity of the Company and Pro-Fac. Management
believes that combined financial statements are useful because they provide
information concerning the Company's ability to continue present credit
arrangements and/or obtain additional borrowings in the future.
Certain borrowing agreements require that the companies maintain specified
levels with regard to working capital, current ratio, ratio of net worth to
assets, ratio of long-term debt to net worth, tangible net worth, net income,
coverage of interest, and fixed charges and the incurrence of additional debt.
The companies are in compliance with, or have obtained waivers for, restrictions
and requirements under the terms of the borrowing agreements. The revolving
lines of credit under such agreements have been renewed through November of
1994. Such renewals grant to both short-term and long-term lenders liens on
substantially all assets of the Company and Pro-Fac as collateral for borrowings
under such agreements.
Such combined financial statements are neither necessary for a fair
presentation of the financial position of the Company nor appropriate as primary
statements for the Company's shareholders or for Pro-Fac shareholders and
members because they combine earnings, assets and liabilities and cash flows
which are legally attributable to either the Company's shareholders or to
Pro-Fac shareholders and members, but not to both. Accordingly, the condensed
pro forma financial statements presented below are special purpose in nature and
should be used only within the context described.
F-13
<PAGE>
Combined Pro Forma Condensed Statement of Operations
Unaudited
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------
June 25, 1994 June 26, 1993
-------------------------------------- -------------
Curtice-
Burns Pro-Fac Eliminations Combined Combined
-------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Sales and revenues $829.1 $ 94.4 $(94.4) $829.1 $878.6
Cost of sales 592.6 58.2 (58.2) 592.6 632.7
Restructuring, including net (gain)/
loss from division disposals (7.8) -- -- (7.8) 61.0
Change in control costs 3.5 -- -- 3.5 --
Other selling, administrative and
general expenses 187.0 .9 (2.0) 185.9 205.5
Interest expense 18.2 11.6 (15.6) 14.2 16.8
Pro-Fac share of earnings 16.8 -- (16.8) -- --
------ ------ ------ ------ ------
Total cost and expenses 810.3 70.7 (92.6) 788.4 916.0
------ ------ ------ ------ ------
Income/(loss) before taxes 18.8 23.7 (1.8)(A) 40.7 (37.4)
(Provision)/benefit for taxes (8.7) .8 -- (7.9) (3.9)
------ ------ ------ ------ ------
Net income/(loss) $ 10.1 $ 24.5 $ (1.8)(A) $ 32.8 $(41.3)
====== ====== ====== ====== ======
</TABLE>
Notes to combined pro forma condensed statement of operations:
(A) Amounts represent the balance of the fiscal 1994 share of earnings between
the Company and Pro-Fac which is currently under dispute. See discussion
at NOTES 2 and 4.
Transactions between Curtice-Burns and Pro-Fac have been eliminated for purposes
of this combined statement of operations.
F-14
<PAGE>
Combined Pro Forma Condensed Balance Sheet
Unaudited
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------------
June 25, 1994 June 26, 1993
--------------------------------------- -------------
Curtice-
Burns Pro-Fac Eliminations Combined Combined
-------- ------- ------------ -------- --------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets(A)(C) $247.5 $ 46.7 $ (42.9) $251.3 $268.9
Property, plant, and equipment,
net(B) 167.5 -- -- 167.5 192.5
Investment in direct financing
leases(C) -- 123.7 (123.7) -- --
Due from Curtice-Burns(D) -- 78.0 (78.0) -- --
Goodwill and other intangibles 24.9 24.9 -- 49.8 53.1
Other assets 7.0 22.7 -- 29.7 26.9
------ ------ ------- ------ ------
Total assets $446.9 $296.0 $(244.6) $498.3 $541.4
====== ====== ======= ====== ======
LIABILITIES AND NET WORTH
Current liabilities(A)(C) $143.4 $ 44.6 $ (41.1) $ 146.9 $166.8
Lease obligations(C) 125.0 -- (123.7) 1.3 1.8
Long-term debt
Due Pro-Fac(D) 78.0 -- (78.0) -- --
Due others(E) 1.1 127.1 -- 128.2 174.4
Other liabilities 18.5 0.5 -- 19.0 12.8
------ ------ ------- ------ ------
Total liabilities 366.0 172.2 (242.8) 295.4 355.8
Shareholders' equity and members'
capitalization(F) 80.9 123.8 (1.8)(G) 202.9 185.6
------ ------ ------- ------ ------
Total liabilities and net worth $446.9 $296.0 $(244.6) $498.3 $541.4
====== ====== ======= ====== ======
</TABLE>
Notes to combined balance sheet:
(A) Current assets of Pro-Fac consist principally of amounts due from
Curtice-Burns with respect to the Agreement described in NOTE 4. Such
amounts are eliminated for purposes of this balance sheet.
(B) Property, plant and equipment owned by Pro-Fac and leased to Curtice-Burns
on a financing basis had a net book value of $141.3 million at June 25,
1994.
(C) The majority of the lease obligations of Curtice-Burns are payable to
Pro-Fac and amount to $141.3 million at June 25, 1994, of which $17.6
million is payable currently. The related Curtice-Burns liability and
Pro-Fac receivable are eliminated for purposes of this balance sheet.
(D) Long-term borrowings by Curtice-Burns from Pro-Fac under the Agreement are
eliminated for purposes of this balance sheet.
(E) With respect to Pro-Fac, long-term debt due others represents term loans
payable to the Springfield Bank for Cooperatives (interest rate of 6.7
percent at June 25, 1994).
(F) Shareholders' and members' capitalization of Pro-Fac at June 25, 1994
consists of common stock, $10.3 million; retained earnings allocated to
members ("retains"), $44.4 million; preferred stock, $64.4 million which
originates from conversion of "retains" -- normally after five years --
and which is redeemable at the option of Pro-Fac; and earned surplus
(unallocated and apportioned), $4.7 million.
(G) Amount represents the balance of the fiscal 1994 share of earnings between
the Company and Pro-Fac which is currently under dispute. See discussion
at NOTES 2 and 4.
F-15
<PAGE>
Combined Pro Forma Condensed Statement of Cash Flows
Unaudited
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------------
June 25, 1994 June 26, 1993
--------------------------------------- -------------
Curtice-
Burns Pro-Fac Eliminations Combined Combined
-------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in)
operating activities $ 21.9 $ 18.0 $ (0.9) $ 39.0 $ 42.2
Net cash provided by/(used in)
investing activities 33.9 32.9 (44.4)(A) 22.4 (17.1)
Net cash (used in)/provided by
financing activities (59.4) (50.9) 45.3 (65.0) (24.7)
------ ------ ------ ----- ------
Net change in cash (3.6) -- -- (3.6) 0.4
Cash at beginning of year 6.5 -- -- 6.5 6.1
------ ------ ------ ------ ------
Cash at end of year $ 2.9 $ -- $ -- $ 2.9 $ 6.5
====== ====== ====== ====== ======
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amount
capitalized) $ 18.6 $ 12.1 $(15.6) $ 15.1 $ 17.3
====== ====== ====== ====== ======
Income taxes, net $ 15.0 $ (1.0) $ -- $ 14.0 $ 2.9
====== ====== ====== ====== ======
Supplemental schedule of non-cash
investing and financing activities:
Capital lease obligations incurred $ 10.7 $ -- $(10.0) $ 0.7 $ 3.0
====== ====== ====== ====== =====
Conversion of retains into
preferred stock $ 4.9 $ 4.9 $ 5.9
====== ====== ======
Net proceeds allocated to members but
retained by the Cooperative $ 14.2 $ 14.2 $ 4.8
====== ====== ======
</TABLE>
(A) Amount includes the balance of the fiscal 1994 share of earnings
between the Company and Pro-Fac which is currently under dispute. See
discussion at NOTES 2 and 4.
Transactions between Curtice-Burns and Pro-Fac have been eliminated for purposes
of this combined statement of cash flows.
F-16
<PAGE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 25, 1994 and June 26, 1993.
<TABLE>
<CAPTION>
June 25, 1994 June 26, 1993
------------------------------------- -------------------------------------------
Leased From Leased From
Owned ------------------------ Owned -------------------
Assets Pro-Fac Others Total Assets Pro-Fac Others Total
-------- -------- -------- -------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Land $ 6 $ 8,635 $ -- $ 8,641 $ 41 $ 9,673 $ -- $ 9,714
Land improvements 85 3,467 -- 3,552 85 3,693 -- 3,778
Buildings 1,150 86,903 720 88,773 1,377 95,597 720 97,694
Machinery and
equipment 8,953 219,971 4,609 233,533 8,895 234,930 6,615 250,440
Construction in
progress 21,085 -- -- 21,085 18,778 -- -- 18,778
Valuation allowance -- (3,970) -- (3,970) (6,900) -- -- (6,900)
-------- -------- -------- -------- ------- -------- ------ --------
31,279 315,006 5,329 351,614 22,276 343,893 7,335 373,504
Less accumulated
amortization 7,142 173,684 3,272 184,098 6,628 170,380 4,044 181,052
-------- -------- -------- -------- ------- -------- ------ --------
Net $ 24,137 $141,322 $ 2,057 $167,516 $15,648 $173,513 $3,291 $192,452
======== ======== ======== ======== ======= ======== ====== ========
Obligations under
capital leases(1) $141,322 $ 2,081 $143,403 $173,513 $3,460 $176,973
Less current portion 17,645 785 18,430 21,184 1,687 22,871
-------- -------- -------- -------- ------ --------
Long-term portion $123,677 $ 1,296 $124,973 $152,329 $1,773 $154,102
======== ======== ======== ======== ====== ========
</TABLE>
(1) Represents the present value of net minimum lease payments calculated at
the Company's incremental borrowing rate at the inception of the leases,
which ranged from 6 to 9 percent.
As of June 25, 1994, the Company leases seven facilities from Pro-Fac that
are not being utilized and are currently for sale. The net book value of
these properties is $11,898,000 at June 25, 1994.
The following is a schedule of future minimum lease payments together with
the present value of the minimum lease payments related to capitalized
leases, both as of June 25, 1994.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Capitalized Lease
Fiscal Year Ending Last ------------------------------------ Operating Total Future
Saturday In June Pro-Fac Other Total Leases Commitment
- ------------------------ -------- ------ -------- --------- -----------
<S> <C> <C> <C> <C> <C>
1995 $ 17,645 $1,207 $ 18,852 $ 5,175 $ 24,027
1996 15,829 765 16,594 2,591 19,185
1997 14,590 503 15,093 1,655 16,748
1998 13,276 308 13,584 1,234 14,818
1999 11,963 98 12,061 932 12,993
Later years 68,019 309 68,328 956 69,284
-------- ------ -------- ------- --------
Net minimum lease payments(1) $141,322 $3,190 $144,512 $12,543 $157,055
Less amount representing interest(1) -- 1,109 1,109
-------- ------ --------
Present value of minimum lease payments $141,322 $2,081 $143,403
======== ====== ========
</TABLE>
(1) With respect to the Agreement with Pro-Fac (see NOTE 4), the net minimum
payments do not include interest since interest amounts are determined
and billed to Curtice-Burns based upon Pro-Fac's borrowing costs required
to finance the leased assets. With respect to other leases, interest has
been calculated at the Company's incremental borrowing rate at the
inception of the respective leases.
Total rent expense related to operating leases (including lease
arrangements of less than one year which are not included in the previous
table) amounted to $11,721,000, $13,713,000, and $13,659,000, for fiscal
years 1994, 1993 and 1992, respectively.
F-17
<PAGE>
NOTE 7. INCOME TAXES
Taxes on income include the following:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal -
Current $4,047 $10,132 $1,933
Deferred 1,831 (7,407) 911
------ ------- ------
5,878 2,725 2,844
------ ------- ------
State and foreign -
Current 1,948 4,405 1,827
Deferred 839 (3,235) 98
------ ------- ------
2,787 1,170 1,925
------ ------- ------
$8,665 $ 3,895 $4,769
====== ======= ======
</TABLE>
The deferred tax liabilities/assets consist of the following:
<TABLE>
1994 1993 1992
--------- -------- ------
<S> <C> <C> <C>
Liabilities
Depreciation $22,147 $19,854 $ 27,734
Non-compete agreements 513 620 1,336
Long-term receivables 1,416 885 --
Insurance accruals -- -- 317
Other 486 592 1,178
------- ------- --------
24,562 21,951 30,565
------- ------- --------
Assets
Inventory reserves 319 796 3,124
Allowance for doubtful accounts 514 364 520
Reserve for restructuring 3,526 6,459 --
Capital loss carryforward 3,979 3,979 --
Accrued employee benefits 2,180 1,817 3,659
Insurance accruals 2,022 1,249 --
Pension accruals 2,971 2,179 1,749
Plant consolidation and closing expenses 3,639 2,321 3,256
Alternative minimum income tax -- 376 2,859
Other 941 1,460 2,955
------- ------- --------
20,091 21,000 18,122
------- ------- --------
Net deferred liabilities (4,471) (951) (12,443)
Valuation allowance -- (850) --
------- ------- --------
$(4,471) $(1,801) $(12,443)
======= ======= ========
</TABLE>
Federal income taxes have been reduced by $213,000 for job development
credits for fiscal 1992. The fiscal 1994 and 1993 credits have no significant
impact on federal income taxes. The Alternative Minimum Tax credit carryforwards
created in prior years have been fully utilized.
A valuation allowance was recorded in fiscal 1993 for that portion of the
capital loss carryforward where, it was more likely than not that, a tax benefit
would not be realized. However, based on activities during fiscal 1994, which
include the anticipated acquisition of the Company by a third party and the
disposal of certain divisions, management now believes that the utilization of
the complete capital loss carryforward is more likely than not. Accordingly, the
provision for the valuation allowance was reversed in fiscal 1994.
The capital loss carryforward can be used to reduce future capital gains.
The amount expires in fiscal 1999.
A reconciliation of the Company's effective tax rate to the amount
computed by applying the federal income tax rates of 35 and 34 percent to income
before taxes, is as follows:
F-18
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Income tax provision (benefit), at 35%
in 1994 and 34% in previous years $6,571 $(6,797) $3,712
State income taxes, net of federal
income tax effect 900 189 597
Goodwill 480 9,248 442
Valuation allowance (850) 850 --
Tax credits -- -- (141)
Statutory rate change 480 -- --
Non-deductible legal and advisory expenses 1,058 -- --
Other, net 26 405 159
------ ------- ------
$8,665 $ 3,895 $4,769
====== ======= ======
Effective Tax Rate 46.2% N/M* 43.7%
====== ======= ======
</TABLE>
* The effective tax rate calculation for 1993 is not meaningful.
On August 10, 1993, President Clinton signed into law a new income tax
bill which increased corporate income tax rates from 34 percent to 35 percent.
Under the provisions of SFAS 109 the Company recorded the impact of this rate
increase during the first quarter of fiscal 1994. The impact of this rate
increase on the Company's deferred tax assets and liabilities resulted in an
increase to income tax expense of approximately $480,000.
Although the Company reported a pretax loss for fiscal 1993, a tax
provision of $3,895,000 was recorded, primarily due to the non-deductible
writedown of goodwill recorded in conjunction with the Company's overall
restructuring plan.
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes," and the Company adopted the provisions of
this standard effective as of June 29, 1991. Under the liability method
specified by SFAS 109, the deferred tax liability is based on the difference
between the financial statement and tax basis of assets and liabilities as
measured by the enacted tax rates which are anticipated to be in effect when
these differences reverse. The deferred tax provision is the result of changes
in the liability for deferred tax. There was no cumulative effect of this change
on prior years and no effect on the 1992 provision for income taxes for this
accounting change as the Company was previously accounting for income taxes in
accordance with SFAS 96.
NOTE 8. CAPITAL STOCK
The rights and privileges of the holders of the two classes of common
stock are identical except as follows:
Class A shares are freely transferable. Holders of Class B shares cannot
transfer or sell such shares without first offering the shares to the Company.
Dividends may be paid on Class A shares without payment of dividends on
Class B shares; any dividends paid on Class B shares cannot exceed the per share
dividends on Class A shares.
The Class A shareholders vote for the election of 30 percent (rounded to
the nearest whole number) and the Class B shareholders vote for the election of
70 percent of the directors of the Company. As of June 25, 1994, Agway Inc.
owned through a subsidiary approximately 33.8 percent of the outstanding
securities of the Company, consisting of 899,447 shares or 13.6 percent of the
Class A stock and 2,036,643 shares or 99.0 percent of the Class B stock. In
fiscal 1993, Agway informed the Company it was considering the potential sale of
its interest in the Company (see NOTE 2).
F-19
<PAGE>
The Company had reserved 523,125 shares of Class A Common Stock for its
1980 Non-Qualified Stock Option Plan. During fiscal 1982, by shareholder vote,
this Plan and most of the outstanding options under the Plan were converted to
an Incentive Stock Option Plan complying with the regulations issued by the
Internal Revenue Service under 1981 tax legislation. The Plan has expired so
that no new options can be granted from it but the remaining unexercised options
can be exercised until ten years from the day they were granted. The Company
reserved 500,000 shares of Class A Common Stock for its 1990 Incentive Stock
Option Plan which was approved by shareholders on November 15, 1990. Under these
plans, options have been granted to officers and key employees at prices equal
to the fair market value at the date of grant and are exercisable over a ten
year period. During the first five years, the options are exercisable at a rate
of 20 percent each year on a cumulative basis, except that those options granted
March 27, 1993, were not exercisable until March 27, 1994, at which time 40
percent were exercisable.
The following summarizes stock option transactions for fiscal years 1992
through 1994:
<TABLE>
<CAPTION>
1980 Plan 1990 Plan
--------------------------- --------------------------
Number of Price per Number of Price per
Shares Share Shares Share
--------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Outstanding at June 28, 1991 173,823 $ 7.11-24.63 97,700 $15.38
Granted -- -- 150,000 10.25
Exercised -- -- (3,141) 10.25
Canceled (8,203) 20.58-22.67 (97,700) 15.38
------- ------------ ------- ------
Outstanding at June 26, 1992 165,620 7.11-24.63 146,859 10.25
Granted -- -- 268,000 14.25-14.63
Exercised 31,185 7.11-12.17 (3,500) 10.25
Canceled (13,901) 11.00-23.83 (3,120) 10.25
------- ------------ ------- ------
Outstanding at June 26, 1993 120,534 11.00-24.63 408,239 10.25-14.63
Granted -- -- 1,400 12.63
Exercised -- -- (5,650) 10.25
Canceled (19,747) 17.67-24.63 (26,066) 10.25-14.63
------- ------------ ------- ------------
Outstanding at June 25, 1994 100,787 $11.00-22.67 377,923 $10.25-14.63
======= ============ ======= ============
Exercisable at June 25, 1994 98,965 $11.00-22.67 175,645 $10.25-14.63
======= ============ ======= ============
</TABLE>
The Company had reserved 409,688 shares of Class A Common Stock for
issuance under the 1980 Installment Stock Purchase Plan, which was amended by
stockholder vote on November 12, 1981 to an Incentive Stock Option Plan. Under
this plan, 401,593 shares were issued and the Plan expired as of June 28, 1991.
The Company has also reserved 150,000 shares of Class A Common Stock for
issuance under the 1990 Installment Stock Purchase Plan which was approved by
shareholders on November 15, 1990. Under this plan, 75,441 shares were issued,
and no shares had been subscribed as of June 25, 1994.
Under this Stock Purchase Plan, each salaried employee and eligible
hourly-paid employee has been offered options equal in value to 10 percent of
the employee's annual base salary as of the date the option is offered, at
prices equal to the fair market value at the date of offer. The employee has 45
days to subscribe and can exercise at that time or up to one year later. The
absence of stock subscriptions as of June 25, 1994, relates to a decision by the
Company to freeze this Plan until the potential change in ownership of the
Company is clarified or completed.
None of the options has been considered in the computation of weighted
average shares outstanding inasmuch as their inclusion would be insignificant.
F-20
<PAGE>
The following summarizes changes in common stock, additional paid-in
capital and treasury stock for fiscal years 1992 through 1994:
<TABLE>
<CAPTION>
Additional
Class A Common Class B Common
----------------------- ----------------------- Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at June 28, 1991 6,846,029 $6,778 2,063,282 $2,043 $17,600
Exchange of Class B stock for
Class A stock 2,430 3 (2,430) (3) --
Issued under Stock Option and
Purchase Plans 15,292 14 -- -- 199
Stock canceled in connection
with acquisition (341,297) (338) -- -- (4,662)
--------- ------ ---------- ------ -------
Balance at June 26, 1992 6,522,454 6,457 2,060,852 2,040 13,137
Exchange of Class B stock for
Class A stock 150 -- (150) -- --
Issued under Stock Option and
Purchase Plans 47,539 47 -- -- 470
Repurchased and canceled under
terms of Stock Option Plan (1,625) (1) -- -- (16)
--------- ------ --------- ------ -------
Balance at June 26, 1993 6,568,518 6,503 2,060,702 2,040 13,591
Exchange of Class B stock for
Class A stock 3,826 4 (3,826) (4) --
Issued under Stock Option and
Purchase Plans 56,086 55 -- -- 633
--------- ------ --------- ------ -------
Balance at June 25, 1994 6,628,430 $6,562 2,056,876 $2,036 $14,224
========= ====== ========= ====== =======
</TABLE>
NOTE 9. PENSIONS, PROFIT SHARING, AND OTHER EMPLOYEE BENEFITS
Pensions:
The Company has primarily noncontributory defined benefit plans covering
most employees. The benefits for these plans are based primarily on years of
service and employees' pay near retirement. The Company's funding policy is
consistent with the funding requirements of Federal law and regulations. Plan
assets consist principally of common stocks, corporate bonds and U.S. Government
obligations.
The Company also participates in several union sponsored pension plans;
however, it is not possible to determine the Company's relative share of the
accumulated benefit obligations or net assets for these plans.
Pension cost for fiscal years ended 1994, 1993 and 1992 includes the
following components:
F-21
<PAGE>
<TABLE>
<CAPTION>
(Dollars In Thousands)
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period $ 3,958 $ 3,927 $ 3,393
Interest cost on projected benefit
obligation 6,815 6,259 5,951
Return on assets
Actual gain (2,044) (6,311) (6,446)
Deferred gain (5,213) (842) (493)
------- ------- -------
Total gain (7,257) (7,153) (6,939)
Amortization of transition amount
at June 29, 1985 (1,001) (1,001) (1,001)
Amortization of prior service cost 426 130 134
Recognition of curtailment gain (874) -- --
Amortization of gain 6 -- --
------- ------- -------
2,073 2,162 1,538
Union and other pension costs 593 555 427
------- ------- -------
Net pension cost $ 2,666 $ 2,717 $ 1,965
======= ======= =======
</TABLE>
As a result of restructuring activities, the Plan assets and obligations
were remeasured as of November 22, 1993. The restructuring and the resulting
curtailment caused the projected benefit obligation to decrease by approximately
$874,000 and caused approximately $311,000 of previously unrecognized prior
service cost to be recognized immediately. This resulted in a net decrease in
annual pension cost of $563,000.
The pension plans' funded status was as follows:
<TABLE>
<CAPTION>
June 25, 1994 June 26, 1993 June 26, 1992
------------- ------------- -------------
Accumulated Assets Assets
Benefits Exceed Exceed
Exceed Accumulated Accumulated
(Dollars in Thousands) Assets Benefits Benefits
------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(71,302) $(66,927) $(57,234)
======== ======== ========
Accumulated benefit obligation $(76,649) $(70,522) $(62,997)
======== ======== ========
Projected benefit obligation $(87,744) $(85,277) $(76,033)
Plan assets at fair value 71,875 74,147 72,941
-------- -------- --------
Projected benefit obligation in excess of
Plan assets (15,869) (11,130) (3,092)
Unrecognized net loss 11,075 8,305 3,423
Unrecognized prior service cost 1,088 1,693 1,701
Unrecognized net asset at year end (4,408) (5,410) (6,411)
Liability for unfunded accumulated
benefit obligation (1,401) -- --
-------- -------- --------
(9,515) (6,542) (4,379)
Union and other pension plans (958) (711) (536)
-------- -------- --------
Pension liability at year end $(10,473) $ (7,253) $ (4,915)
======== ======== ========
</TABLE>
In 1994 the assumed discount rate, assumed long-term rate of return on
Plan assets and the assumed long-term rate of compensation increase were 7.75
percent, 10.0 percent and 4.50 percent, respectively. In 1993 and 1992 the
assumed discount rate, assumed long-term rate of return on Plan assets and the
assumed long-term rate of compensation increase were 8.25 percent, 10.0 percent
and 6.0 percent, respectively.
Provisions of the Financial Accounting Standards Board SFAS No. 87,
"Employers Accounting for Pensions," require the Company to record a minimum
pension liability relating to certain unfunded pension obligations,
F-22
<PAGE>
establish an intangible asset thereto and reduce stockholders equity. At June
25, 1994, a minimum pension liability of $1,401,000 was recorded as required by
SFAS 87. A related intangible asset was recorded for $1,356,000 and stockholders
equity was reduced by $45,000. The adjustment in the minimum pension liability
at June 25, 1994 resulted mainly from a decrease in the discount rate and the
general performance of investment markets.
Profit Sharing:
Under the Deferred Profit Sharing Plan, the Company allocates to all
salaried employees a percentage of its earnings in excess of 7.0 percent of the
combined long-term debt and equity (as defined) of Pro-Fac and the Company. In
fiscal 1994, $1,171,000 was allocated to the Plan while no awards were allocated
in fiscal years 1993 and 1992.
Postretirement Benefits Other Than Pensions:
Generally, other than pensions, the Company does not pay retirees' benefit
costs. Isolated exceptions exist, which have evolved from union negotiations,
early retirement incentives and existing retiree commitments from acquired
companies.
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
SFAS 106, effective for fiscal years beginning after December 15, 1992, requires
employers to accrue the cost of retiree health and other postretirement benefits
during the working careers of active employees and allows the transition
obligation to be recognized in net income either immediately or over 20 years.
The Company adopted SFAS 106 during the first quarter of fiscal 1994. The
Company has elected to amortize the unrecognized transition obligation over 20
years. The adoption of SFAS 106 is not considered material to the financial
statements as a whole.
The Company has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no Plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The plan's funded status was as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands)
June 25, 1994
-------------
<S> <C>
Accumulated postretirement benefit obligation:
Fully eligible active participants $ 202
Other active participants 288
Retirees 2,474
-------
Total 2,964
Less Plan assets at fair value --
Accumulated postretirement benefit obligation in excess of
fair value of assets (2,964)
Unrecognized transition obligation 2,622
Unrecognized prior service cost --
Unrecognized losses 6
-------
Accrued postretirement benefit cost $ (336)
=======
F-23
<PAGE>
Net periodic postretirement benefit cost included the following components:
</TABLE>
<TABLE>
<CAPTION>
(Dollars In Thousands)
June 25. 1994
-------------
<S> <C>
Service cost $ 38
Interest cost 248
Actual return on assets --
Net amortization and deferral 155
-----
Net periodic postretirement benefit cost $ 441
=====
</TABLE>
Restructuring activities during the year resulted in a curtailment which
caused the Accumulated Postretirement Obligation to decrease by approximately
$878,000 and the Unrecognized Transition Obligation to decrease by approximately
$817,000. This resulted in a net decrease in the Net Postretirement Benefit Cost
of $92,000.
The weighted-average, assumed-discount rate used to measure the benefit
obligations was 8.25 percent at the beginning and 7.75 percent at the end of the
fiscal year.
The annual rate of increase in the per capita cost of health care benefits
was assumed to be 15 percent for 1993. The rate was assumed to decrease
gradually to 6.5 percent by the year 2006 and remain at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation (APBO) and the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost as
follows:
<TABLE>
<CAPTION>
(Dollars In Thousands)
Current 1% Higher
Trend Trend
------- ---------
<S> <C> <C>
APBO $2,964 $3,149
Service cost+interest cost 286 301
</TABLE>
Employers' Accounting For Postemployment Benefits:
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits."
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.
This Statement is effective for fiscal years beginning after December 15,
1993. Management believes that any change caused by this Statement will not be
material.
NOTE 10. OTHER MATTERS
Contingencies:
In conjunction with the sale of the National Oats Division by the Company,
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
F-24
<PAGE>
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.
Under an agreement with Pro-Fac, the Company agreed to indemnify Pro-Fac as
to certain expenses arising out of the termination of the membership of Harvest
States in Pro-Fac. It was agreed that any settlement payments would be deemed an
expense of the Company under the division of earnings with Pro-Fac. The exact
amount of any potential settlement related to this issue cannot be estimated at
June 25, 1994, but management, upon input from counsel, does not believe that
this is a material exposure to the Company.
A grower has filed suit against the Company 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 $950,000 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 fiscal 1994 financial
statements. In addition, management anticipates that all material costs of
settlement, if incurred, will be covered under its insurance policies.
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.
Subsequent Events:
Subsequent to year end, on July 1, 1994, Curtice-Burns declared a dividend
of $.16 per share to Class A and Class B shareholders of record on July 15,
1994. The dividend was paid on July 29, 1994.
In July 1994, a plant operated by the Company's Southern Frozen Foods
Division, located in Montezuma, Georgia, was damaged by fire. The plant itself
is owned by Pro-Fac and leased to the Company under the terms of the Integrated
Agreement. Management is currently in the process of assessing the extent of
damage to the facility. All material costs associated with the facility repairs
and business interruption are anticipated to be covered under the Company's
insurance policies. The Springfield Bank for Cooperatives is loss payee on the
property insurance policy under the terms of the Security Agreement with
lenders. See NOTE 5.
NOTE 11. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF
INDEPENDENT ACCOUNTANTS
On November 3, 1994, PF Acquisition Corp., a New York corporation and a
wholly-owned subsidiary of Pro-Fac, consummated a merger with the Company. The
Company will continue as the surviving corporation and has, therefore, become a
wholly-owned subsidiary of Pro-Fac. In conjunction with the consummation of this
merger, the disputes between the Company and Pro-Fac, as described in NOTES 2
and 4, have been resolved.
F-25
<PAGE>
The interim financial statements contained herein are unaudited but, in the
opinion of the management of the Company, include all adjustments (consisting 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. The Company is a wholly-owned subsidiary of
Pro-Fac.
In addition, the interim financial statements contained herein present the
results of the Company during the period prior to its acquisition by Pro-Fac
(the "Predecessor Entity") as well as the period subsequent to its November 3,
1994 acquisition (the "Successor Entity"). The financial statements of the
Predecessor Entity and Successor Entity are not comparable in certain respects
because of differences between the cost bases of the assets held by the
Predecessor Entity compared to that of the Successor Entity as well as the
effect on the Successor Entity's operations for adjustments to depreciation,
amortization, and interest expense.
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations
(Continued)
<TABLE>
<CAPTION>
(Dollars in Thousands)
Fiscal 1995 Fiscal 1994
-------------------------- -----------
6/26/94 - 11/4/94 - 6/27/93 -
11/3/94 3/25/95 3/26/94
Predecessor Successor Predecessor
----------- --------- -----------
<S> <C> <C> <C>
Net sales $276,621 $296,560 $ 642,791
Cost of sales 195,810 206,949 456,594
-------- -------- ---------
Gross profit 80,811 89,611 186,197
Restructuring expenses, including net
(loss)/gain from division disposals (8,415) -- 8,114
Change-in-control expenses (2,150) -- --
Gain on assets resulting from fire claim 6,469 -- --
Other selling, administrative, and
general expenses (60,576) (66,699) 148,724)
-------- -------- ---------
Operating income before dividing with Pro-Fac 16,139 22,912 45,587
Interest expense (7,624) (16,358) (14,294)
-------- -------- ---------
Pretax earnings before dividing with Pro-Fac 8,515 6,554 31,293
Pro-Fac share of earnings (4,062) (3,282) (14,990)
-------- -------- ---------
Income before taxes 4,453 3,272 16,303
Provision for taxes (2,735) (1,916) (6,744)
-------- -------- ---------
Net income $ 1,718 $ 1,356 $ 9,559
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
Curtice-Burns Foods, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Dollars in Thousands Except Share Amounts
Successor Predecessor Predecessor
3/25/95 6/25/94 3/26/94
--------- ----------- -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 5,294 $ 2,928 $ 3,836
Accounts receivable trade, net 58,813 57,640 55,972
Accounts receivable, other 6,348 8,460 7,916
Income taxes refundable 722 237 6,229
Current deferred taxes receivable 8,461 10,487 8,825
Inventories -
Finished goods 136,915 108,538 120,432
Raw materials and supplies 54,755 46,721 47,704
-------- -------- --------
Total inventories 191,670 155,259 168,136
-------- -------- --------
Prepaid manufacturing expense 5,062 8,190 3,117
Prepaid expenses and other current assets 4,947 4,305 7,898
-------- -------- --------
Total current assets 281,317 247,506 261,929
Investment in Bank 22,907 -- --
Property, plant, and equipment, net 272,960 167,516 168,342
Goodwill and other intangibles, net 93,793 24,909 25,331
Assets held for resale 5,406 -- --
Other assets 24,547 7,007 8,024
-------- -------- --------
Total Assets $700,930 $446,938 $463,626
======== ======== ========
Liabilities and shareholders' equity Current liabilities:
Notes payable $ 66,000 $ -- $ 15,500
Accounts payable 44,379 62,335 42,551
Due to Pro-Fac 2,692 9,447 15,469
Accrued employee compensation 9,925 11,482 10,547
Other accrued expenses 24,819 26,947 29,648
Current portion of obligations under
capital leases 785 18,430 22,871
Current portion of long-term debt 8,007 14,816 15,150
-------- -------- --------
Total current liabilities 156,607 143,457 151,736
Long-term debt 165,438 79,061 87,357
Senior subordinated notes 160,000 -- --
Obligations under capital leases 1,296 124,973 120,450
Deferred income taxes 61,501 14,958 19,449
Other non-current liabilities 18,443 3,591 3,380
-------- -------- --------
Total liabilities 563,285 366,040 382,272
-------- -------- --------
Commitments and Contingencies
Shareholders' Equity:
Class A common - $.99 par value; -0-, 10,125,000
and 10,125,000 shares authorized;
- 0 -, 6,628,430, and 6,582,878
outstanding, respectively -- 6,562 6,517
Class B common - $.99 par value; -0-, 4,050,000
and 4,050,000 shares authorized;
- 0 -, 2,056,876, and 2,060,702
outstanding, respectively -- 2,036 2,040
Common stock, par value $.01
10,000 shares outstanding, owned by Pro-Fac -- -- --
Additional paid-in capital 136,289 14,224 13,744
Retained earnings 1,356 58,121 58,953
Minimum pension liability -- (45) --
-------- -------- --------
Total shareholders' equity 137,645 80,898 81,254
-------- -------- --------
Total liabilities and shareholders' equity $700,930 $446,938 $463,626
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Dollars in Thousands
Fiscal 1995 Fiscal 1994
---------------------- -----------
Predecessor Successor Predecessor
6/26/94 - 11/4/94 - 6/27/93 -
11/3/94 3/25/95 3/26/94
----------- --------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,718 $ 1,356 $ 9,559
Adjustments to reconcile net income to net cash
provided by operating activities -
Restructuring including net loss/(gain) from
division disposals 8,415 -- (8,114)
Gain on assets resulting from fire claim (6,469) -- --
Amortization of goodwill and other intangibles 753 1,020 1,215
Depreciation 6,228 9,774 16,066
Equity in undistributed earnings of Bank -- (1,288) --
Change in assets and liabilities:
Accounts receivable (12,430) 13,907 8,625
Inventories (70,961) 34,550 (12,627)
Income taxes refundable 1,491 (1,976) (15,275)
Deferred taxes (1,224) 49,793 8,823
Accounts payable and accrued expenses (5,662) (26,533) (18,859)
Due to Pro-Fac 9,650 (16,405) (1,144)
Other assets and liabilities 8,733 7,655 (3,725)
-------- --------- --------
Net cash (used in)/provided by operating activities (59,758) 71,853 (15,456)
-------- --------- --------
Cash Flows From Investing Activities:
Fixed asset write-up to appraised values -- (121,572) --
Goodwill and other intangible assets -- (70,657) --
Purchase of property, plant, and equipment (5,689) (9,433) (13,503)
Proceeds from disposals -- 1,322 42,097
Investment in Bank -- (21,619) --
-------- --------- --------
Net cash (used in)/provided by investing activities (5,689) (221,959) 28,594
-------- --------- --------
Cash Flows From Financing Activities:
Due to Pro-Fac 42,000 (42,000) 7,500
Proceeds from issuance of short-term debt 30,000 66,000 15,500
Proceeds from issuance of long-term debt 10,886 333,445 5,614
Payments on short term debt -- (30,000) --
Payments on long-term debt (350) (104,413) (6,800)
Payments on Pro-Fac capital leases (11,344) (129,978) (33,652)
Stock activity relating to Predecessor's equity 52 (81,278) 167
Capital contribution by Pro-Fac -- 136,289 --
Cash dividends paid (1,390) -- (4,147)
-------- --------- --------
Net cash provided by/(used in) financing activities 69,854 148,065 (15,818)
-------- --------- --------
Net change in cash 4,407 (2,041) (2,680)
Cash at beginning of period 2,928 7,335 6,516
-------- --------- --------
Cash at end of period $ 7,335 $ 5,294 $ 3,836
======== ========= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for -
Interest (net of amount capitalized) $ 6,967 $ 12,365 $ 14,413
======== ========= ========
Income taxes, net $ 2,135 $ 5,689 $ 12,437
======== ========= ========
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Amounts included in goodwill and other intangible
assets relating to deferred tax and other
liability valuations in connection with
the acquisition of the Company by Pro-Fac $ -- $ 45,141 $ --
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
CURTICE-BURNS FOODS, 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 accounting policies
apply to both the Predecessor Entity and Successor Entity companies unless
otherwise noted.
Fiscal Year
The financial statements of the Predecessor Entity include the period from
June 26, 1994 through November 3, 1994, the acquisition date. The financial
statements of the Successor Entity include the period from November 3, 1994
through March 25, 1995, the fiscal quarter end (see NOTE 3). The fiscal year of
the Successor Entity will correspond with that of its parent, Pro-Fac
Cooperative, Inc. ("Pro-Fac"), and will end on June 24, 1995, the last Saturday
in June.
Consolidation
The consolidated financial statements include the Company 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 ("The Bank")
The Company's investment in the Bank is required as a condition of
borrowing. These securities are not physically issued by the Bank, but the
Company is notified as to their monetary value. The investment is carried on the
Company's books at cost plus the Company's share of the undistributed earnings
of the Bank (that portion of patronage refunds not distributed currently in
cash). The investment was contributed to the Company by Pro- Fac in conjunction
with the acquisition.
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.
F-29
<PAGE>
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.
Income Taxes
Income taxes are provided on income for financial reporting purposes.
Deferred income taxes resulting from temporary differences between financial
reporting and tax reporting are appropriately classified in the balance sheet
and properly reflect the effects of the acquisition in accordance with the SFAS
No. 109, "Accounting for Income Taxes."
Pension
The Company and its 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 the Company 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, the Company adopted the SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," with no significant 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 35 years. The Company 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 the Company by Pro-Fac of
approximately $94.8 million is being amortized on a straight-line basis over 35
years. See NOTE 3.
Earnings Per Share Data Omitted
Net income or earnings per share amounts are not presented, as subsequent
to November 3, 1994, the Company is a wholly-owned subsidiary of Pro-Fac.
Environmental Expenditures
Environmental expenditures that pertain to current operations are expensed
or capitalized consistent with the Company'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
F-30
<PAGE>
revenues are expensed. Liabilities are recorded when remedial activities
are probable, and the cost can be reasonably estimated.
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 PRO-FAC
On November 3, 1994, the Company was acquired by Pro-Fac. 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
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
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. Payments by the Company 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, $7.3 million and $15.0 million,
respectively. During fiscal 1993 a dispute arose between the Company and Pro-Fac
regarding the sharing of certain losses incurred in the Company's restructuring
program. As part of the merger, such dispute was resolved.
NOTE 3. CHANGE IN CONTROL OF THE COMPANY
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 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
F-31
<PAGE>
November 3, 1994, PFAC merged into the Company, making the Company a
wholly-owned subsidiary of Pro-Fac.
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 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 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 the Company.
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. The column headed "As Reported" for March 25, 1995 is
the total of Successor and Predecessor entities.
(In Millions)
Nine Months Ended
(Unaudited)
<TABLE>
<CAPTION>
March 25, 1995 March 25, 1994
----------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $573.2 $573.2 $642.8 $642.8
Income before taxes $ 7.7 $ 5.5 $ 16.3 $ 9.4
Net income $ 3.1 $ 2.2 $ 9.6 $ 3.8
</TABLE>
Included in the March 1995 net sales are $32.4 million relating to
businesses sold or to be sold. The March 1994 net sales include $104.7 million
such sales, resulting in comparable net sales for ongoing businesses of $540.8
million for the nine months ended March 1995 and $538.1 million for the nine
months ended March 1994.
Included in the March 1995 income before taxes are losses of $1.2 million
(after dividing with Pro-Fac), relating to restructuring costs including
division disposals, operating losses for businesses sold or to be
F-32
<PAGE>
sold (offsetting a gain for an insurance claim); and the March 1994 income
before taxes includes gains of $3.7 million (after dividing with Pro-Fac),
relating to restructuring gain on division disposals (offsetting operating
losses for businesses sold or to be sold) resulting in comparable income before
taxes for ongoing businesses of $6.7 million for the nine months ended March
1995 and $5.7 million for the nine months ended March 1994 on a pro-forma basis.
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 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
F-33
<PAGE>
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
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
F-34
<PAGE>
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.
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
F-35
<PAGE>
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.
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
Contingencies
In conjunction with the sale of the National Oats Division by the Company,
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 the Company.
A grower has filed suit against the Company for damages resulting from
defective seed which was purchased from the Southern Frozen Foods Division. The
lawsuit alleges that the defective seed resulted in the loss of crops and
acreage use for a growing season, and the grower is seeking approximately $1.0
million in damages. Management believes this claim is without merit and intends
to vigorously defend its position. As the amount of damages is neither probable
nor reasonably estimable, no accrual for loss has been included in the financial
statements. In addition, management anticipates that all material costs of
settlement, if incurred, will be covered under its insurance policies.
Commitments
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.
Fire Claim
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. During the first quarter
of fiscal 1995, a $6.5 million gain (before dividing with Pro-Fac and before
taxes) was recorded, representing the insurance proceeds for the replacement
value in excess of the depreciated book value of the building and equipment
destroyed in this fire. It is expected the facility will be operational in the
fourth quarter of fiscal 1995.
F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members, Shareholders and
Board of Directors of
PRO-FAC COOPERATIVE, INC.
In our opinion, the accompanying balance sheets and the related statements
of net proceeds, of cash flows and of changes in shareholders' and members'
capitalization present fairly, in all material respects, the financial position
of Pro-Fac Cooperative, Inc. at June 25, 1994 and June 26, 1993, and the results
of its operations and its cash flows for each of the three fiscal years in the
period ended June 25, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Cooperative's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Several disputes currently exist between Curtice-Burns Foods, Inc. and the
Cooperative. Both Curtice-Burns Foods, Inc. and the Cooperative have requested
arbitration to resolve these matters. In addition, on September 27, 1994, the
Cooperative's offer to acquire the outstanding common stock of Curtice-Burns
Foods, Inc. was recommended for shareholders' approval by the Board of Directors
of Curtice-Burns Foods, Inc. The outcome of such transactions could affect the
Integrated Agreement with the Cooperative. These matters are described in NOTE 2
to the financial statement.
PRICE WATERHOUSE LLP
Rochester, New York
September 28, 1994
F-37
<PAGE>
Pro-Fac Cooperative, Inc.
Statement of Net Proceeds
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
June 25, June 26, June 26,
(Dollars in Thousands) 1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Revenues
Proceeds from sale of crops to Curtice-Burns Established CMV:
Delivered during production season (April
through March in each period) $59,216 $ 59,800 $64,152
Adjust to fiscal year basis (979) (65) (718)
------- -------- -------
Deliveries during the period 58,237 59,735 63,434
Proceeds/(loss) under the Integrated Agreement 18,599 (21,800) 9,505
Interest income 15,630 17,090 19,869
Patronage dividend from Springfield Bank
for Cooperatives 1,927 1,857 1,411
------- -------- -------
Total revenues 94,393 56,882 94,219
------- -------- -------
Costs and Expenses
Established CMV paid to or accrued
for the accounts of members during the period 58,237 59,735 63,434
Interest expense 11,587 13,753 17,179
Administrative expenses 871 892 852
------- -------- -------
Total costs and expenses 70,695 74,380 81,465
------- -------- -------
Excess/(deficiency) of revenues before taxes, dividends and
allocation of net proceeds from current operations 23,698 (17,498) 12,754
Benefit for taxes 844 -- 1,151
------- -------- -------
Net income/(loss) (proceeds before dividends) 24,542 (17,498) 13,905
Dividends on common and preferred stock (4,390) (4,548) (4,437)
------- -------- -------
Net proceeds/(loss) 20,152 (22,046) 9,468
Allocation (to)/from earned surplus (2,856) 27,917 (155)
------- -------- -------
Net proceeds available to members from current operations 17,296 5,871 9,313
Additional distribution of 1991 net proceeds -- -- 3,727
------- -------- -------
Total net proceeds available to members $17,296 $ 5,871 $13,040
======= ======== =======
Net proceeds available to members as a percent of commercial market value:
From current operations 29.21% 9.82% 14.52%
From additional distribution of 1991 net proceeds -- -- 5.81%
Allocation of net proceeds available to members Distribution from current
operations:
Payable to members currently (20%, 20% and 25%, respectively,
of qualified proceeds available to members) $ 3,109 $ 1,052 $ 2,253
Allocated to members but retained by the Cooperative:
Qualified retains 12,437 4,209 6,760
Non-qualified retains 1,750 610 300
------- -------- -------
17,296 5,871 9,313
------- -------- -------
Additional distribution of 1991 net proceeds:
Cash -- -- 932
Qualified Retains -- -- 2,795
------- -------- -------
-- -- 3,727
------- -------- -------
Total allocation of net proceeds available to members $17,296 $ 5,871 $13,040
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
Pro-Fac Cooperative, Inc.
Balance Sheet
<TABLE>
<CAPTION>
(Dollars in Thousands)
June 25, June 26,
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 10 $ 19
Accounts receivable 68 25
Receivable from Curtice-Burns Foods, Inc 11,197 9,113
Current portion of long-term loans receivable from
Curtice-Burns Foods, Inc 14,000 16,000
Current portion of investment in direct financing leases 17,645 21,184
Current portion of investment in Springfield Bank
for Cooperatives 1,324 1,172
Income taxes refundable -- 70
Prepaid expenses 2,464 693
-------- --------
Total current assets 46,708 48,276
Long-term portion of investment in direct financing leases 123,677 152,329
Long-term loans receivable from Curtice-Burns Foods, Inc 78,040 78,648
Long-term portion of investment in Springfield Bank for
Cooperatives 19,632 16,814
Deferred tax benefit 2,623 2,010
Finance receivable related to intangibles 24,909 26,545
Other assets 462 262
-------- --------
Total assets $296,051 $324,884
======== ========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Notes payable $ 11,500 $ 12,000
Accounts payable 617 1,019
Accrued interest 2,536 3,019
Federal and state income taxes payable 668 --
Current portion of long-term debt 14,000 16,000
Amounts due members 15,327 14,525
-------- --------
Total current liabilities 44,648 46,563
Long-term debt 127,134 168,000
Other non-current liabilities 504 417
-------- --------
Common, par value $5.00, authorized --
5,000,000 shares
June 25, June 26,
1994 1993
--------- ---------
Shares issued 2,056,878 2,690,430
Shares subscribed 9,270 24,788
--------- ---------
Total subscribed and issued 2,066,148 2,715,218
Less subscriptions receivable in installments (9,270) (24,788)
--------- ---------
2,056,878 2,690,430 10,284 13,455
========= ========= -------- --------
Total liabilities 182,570 228,435
-------- --------
Commitments and contingencies Shareholders' and members' capitalization:
Retained earnings allocated to members 36,924 29,446
Non-qualified allocation to members 7,454 5,704
Preferred, par value $25.00, authorized --
5,000,000 and shares issued and
outstanding -- 2,576,720 and 2,378,807,
respectively 64,418 59,470
Earned surplus (unallocated and apportioned) 4,685 1,829
-------- --------
Total shareholders' and members' capitalization 113,481 96,444
-------- --------
Total liabilities and capitalization $296,051 $324,884
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
Pro-Fac Cooperative, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
June 25, June 26, June 26,
(Dollars in Thousands) 1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 24,542 $(17,498) $ 13,905
Less amounts payable to members currently (3,109) (1,052) (2,253)
-------- -------- --------
21,433 (18,550) 11,652
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of Springfield (1,541) (1,486) (1,129)
(Benefit)/provision for deferred taxes (613) 207 307
Change in assets and liabilities:
Accounts receivable (43) 618 (552)
Accounts payable and accrued expenses (885) 309 (1,117)
Amounts due to members 802 (2,277) 372
Federal and state taxes payable 738 (1,180) 265
Other assets and liabilities (1,895) (319) 591
-------- -------- --------
Net cash provided by/(used in) operating activities 17,996 (22,678) 10,389
-------- -------- --------
Cash flows from investing activities:
Due from Curtice-Burns, net 524 (1,694) 18,242
Return from/(investment in) direct financing leases 32,191 13,785 6,002
Investment in Springfield Bank (1,429) (1,937) (1,691)
Cash received from the finance receivable related
to intangibles 1,636 26,898 2,405
-------- -------- --------
Net cash provided by investing activities 32,922 37,052 24,958
-------- -------- --------
Cash flows from financing activities:
Payments on short-term debt (500) (16,000) (18,000)
Proceeds from long-term debt 120 20,000 --
Payments on long-term debt (42,986) (14,025) (14,027)
Repurchases of common stock, net of issuances (3,171) 358 1,088
Payments for the repurchase of preferred stock -- (165) --
Cash dividends paid (4,390) (4,548) (4,437)
-------- -------- --------
Net cash used in financing activities (50,927) (14,380) (35,376)
-------- -------- --------
Net decrease in cash (9) (6) (29)
Cash at beginning of year 19 25 54
-------- -------- --------
Cash at end of year $ 10 $ 19 $ 25
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid or received during the year for:
Interest $ 12,068 $ 14,050 $ 18,349
======== ======== ========
Income taxes, net $ (970) $ 970 $ (1,711)
======== ======== ========
Supplemental schedule of non-cash investing and
financing activities
Conversion of retains to preferred stock $ 4,948 $ 5,934 $ 5,739
======== ======== ========
Net proceeds allocated to members but retained by the
Cooperative $ 14,187 $ 4,819 $ 9,855
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
Pro-Fac Cooperative, Inc.
Statement of Changes in Shareholders' and Members' Capitalization
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
June 25, June 26, June 26,
(Dollars In Thousands) 1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Retained earnings allocated to members:
Qualified retains:
Balance at beginning of period $ 29,446 $ 29,950 $ 24,128
Additional distribution of 1991 net proceeds -- -- 2,795
Net proceeds allocated to members 12,437 4,209 6,760
Converted to preferred stock (4,948) (4,702) (3,719)
Cash paid in lieu of fractional shares (11) (11) (14)
-------- -------- --------
Balance at end of period 36,924 29,446 29,950
-------- -------- --------
Non-qualified retains:
Balance at beginning of period 5,704 6,645 9,178
Distribution of 1987, 1986 and 1985 non-qualified retains:
Cash paid -- (319) (813)
Converted to preferred stock -- (1,232) (2,020)
Net proceeds allocated to members 1,750 610 300
-------- -------- --------
Balance at end of period 7,454 5,704 6,645
-------- -------- --------
Total retains allocated to members at end of period 44,378 35,150 36,595
-------- -------- --------
Preferred stock:
Balance at beginning of period 59,470 53,701 47,962
Converted from earnings retained for preferred stock 4,948 4,702 3,719
Conversion of 1987, 1986 and 1985 non-qualified retains -- 1,232 2,020
Repurchased and canceled -- (165) --
-------- -------- --------
Balance at end of period 64,418 59,470 53,701
-------- -------- --------
Common stock:
Balance at beginning of period 13,455 13,097 12,009
Repurchased, net of issued (3,171) 358 1,088
-------- -------- --------
Balance at end of period 10,284 13,455 13,097
-------- -------- --------
Earned surplus (unallocated and apportioned):
Balance at beginning of period 1,829 29,746 33,318
Additional distribution of 1991 net proceeds -- -- (3,727)
Net proceeds arising from after-tax undistributed
income/(loss) 2,856 (27,917) 155
-------- -------- --------
Balance at end of period 4,685 1,829 29,746
-------- -------- --------
Total shareholders' and members' capitalization $123,765 $109,904 $133,139
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
PRO-FAC COOPERATIVE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles including the following major
accounting policies:
Fiscal Year:
Fiscal 1994 ended on June 25, 1994, and fiscal 1993 ended on June 26, 1993,
the last Saturday in June. All future fiscal years will end on the last Saturday
in June. The fiscal year ended on the last Friday in June in fiscal 1992. The
years ended June 25, 1994, June 26, 1993, and June 26, 1992 each comprised 52
weeks.
Leases:
The Cooperative leases its property, plant, equipment and intangibles to
Curtice-Burns Foods, Inc. ("Curtice-Burns") under an agreement described in NOTE
2. Such leases are recorded under the financing method of accounting. See
further discussion in NOTE 4.
Investment in Springfield Bank for Cooperatives ("Springfield" or "the
Bank"):
The Cooperative's investment in Springfield is comprised of revolving
securities which are presently being redeemed by the Bank on the basis of a
six-year cycle. These securities are not physically issued by the Bank, but the
Cooperative is notified as to their monetary value. The investment is carried on
the Cooperative's books at cost (the cash purchases of securities each year in
an amount equal to a percentage of the annual interest paid by the Cooperative
on its borrowings from the Bank) plus the Cooperative's share of the
undistributed earnings of the Bank (that portion of patronage refunds not
distributed currently in cash).
The current portion of the investment represents securities which are
expected to be redeemed by the Bank during the subsequent fiscal year.
Income Taxes:
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes," with retro-active adoption permitted. The
Cooperative has adopted the provisions of this standard as of June 29, 1991.
Deferred income taxes arise from the issuance of non-qualified retains (see NOTE
5). Income taxes are recorded under the liability method specified by SFAS 109
in 1992, 1993 and 1994.
Finance receivable relating to goodwill and other intangibles -- Under the
provisions of the Agreement with Curtice-Burns, the Cooperative has provided
financing for a portion of the goodwill and other intangible assets which
represent the excess of the fair value of net tangible assets acquired in
purchase transactions. The decrease in the receivable related to intangibles in
fiscal 1993 is attributable to the restructuring efforts initiated by
Curtice-Burns (see NOTE 8).
Reclassification:
Certain items for fiscal 1993 and 1992 have been reclassified to conform
with 1994 presentations.
F-42
<PAGE>
Earnings Per Share Data Omitted:
Net income or net proceeds per share amounts are not presented because
earnings are not distributed to members in proportion to their common stock
holdings. For example, patronage related earnings (representing those earnings
derived from patronage-sourced business) are distributed to members in
proportion to the dollar value of deliveries under Pro-Fac contracts rather than
based on the number of shares of common stock held.
NOTE 2. AGREEMENT WITH CURTICE-BURNS FOODS, INC.
Pro-Fac has a contractual relationship with Curtice-Burns under an
Agreement ("the Agreement") consisting of five sections: Operations Financing,
Marketing, Facilities Financing, Management, and Settlement, which extends to
1997 and provides for two successive five-year renewals at the option of
Curtice-Burns.
The provisions of the Agreement include the financing of certain assets
utilized in the business of Curtice-Burns and provide a sharing of income and
losses between Curtice-Burns and Pro-Fac. Should Curtice-Burns terminate the
Agreement, Curtice-Burns has the option of purchasing those assets financed by
Pro-Fac at the book value at that time.
Revenues received from Curtice-Burns under the Agreement for the years
ended June 25, 1994, June 26, 1993, and June 26, 1992, include: CMV of crops
delivered, $59,216,000, $59,800,000, and $64,152,000, respectively; interest
income, $15,617,000, $16,515,000, and $19,869,000, respectively; and additional
proceeds from profit sharing provisions, $18,599,000 gain, $21,800,000 loss, and
$9,505,000 gain, respectively. In addition, Pro-Fac received financing
amortization payments of $43,830,000, $53,826,000, and $26,232,000 for the years
ended June 25, 1994, June 26, 1993, and June 26, 1992, respectively.
In March 1994, Curtice-Burns advised Pro-Fac that in view of the
possibility that Curtice-Burns might be acquired by a third party, Pro-Fac
should not rely on Curtice-Burns to purchase any crops from Pro-Fac or its
growers in calendar 1995 and beyond. In addition, Curtice-Burns notified Pro-Fac
that Curtice-Burns will not commit to purchase a substantial portion of the
crops historically purchased from Pro-Fac in the 1995 growing season. As a
result, Pro-Fac has given notice to its affected members terminating Pro-Fac's
obligation to purchase these crops beginning next year. The affected Pro-Fac
growers are principally Pro-Fac's New York fruit and vegetable growers, Illinois
and Nebraska popcorn growers, and Northwest potato growers who represent more
than half of Pro-Fac's membership and have accounted for approximately $29.9
million or 50 percent of the total crops delivered by Pro-Fac to Curtice-Burns
in the past year. In the arbitration proceedings currently pending between
Curtice-Burns and Pro-Fac, Pro-Fac has asserted, among other matters, that
Curtice-Burns is in default under the Integrated Agreement for improper
termination of crops and has claimed damages that Pro-Fac estimates at more than
$50.0 million. Curtice-Burns believes that its only obligation to purchase crops
from Pro-Fac is as set forth in the Profit Plan as approved each year by the
Boards of Directors of both Pro-Fac and Curtice-Burns. Because the most recent
approved Profit Plan was for fiscal year 1995 (which Plan corresponds to the
1994 calendar year crops), Curtice-Burns believes that it is not currently
obligated to purchase any crops from Pro-Fac for calendar year 1995 or later.
Management believes these matters will be resolved in conjunction with the
Merger Agreement described above.
F-43
<PAGE>
Potential Change Of Control Of Curtice-Burns:
On March 23, 1993, Curtice-Burns announced that Agway Inc., which owns 99
percent of Curtice-Burns' Class B shares and approximately 14 percent of Class A
shares, was considering the potential sale of its interest in Curtice-Burns. At
its meeting held on August 9 and 10, 1993, the Curtice-Burns Board of Directors
authorized Curtice-Burns' management, with the advice of its investment bankers,
to pursue strategic alternatives for Curtice-Burns. These options included
negotiations with Pro-Fac relative to Pro-Fac gaining control of the business;
the possible sale of the entire equity of Curtice-Burns to a third party; and
the implementation of additional restructuring actions that may include
recapitalizing Curtice-Burns to buy out Pro-Fac. Under the Agreement with
Pro-Fac, title to substantially all of Curtice-Burns' fixed assets is held by
Pro-Fac, and Pro-Fac provides the major portion of the financing of
Curtice-Burns' operations. Under the Agreement Curtice-Burns has an option to
purchase these assets from Pro-Fac at their book value. However, there presently
exists a disagreement with Pro-Fac as to how such settlement amount would be
calculated. Exercise of the option would result in the termination of the
Agreement with Pro-Fac. In such event, Curtice-Burns would be required to repay
all debt owed to Pro-Fac.
On June 8, 1994, the Curtice-Burns Board of Directors voted to pursue an
offer from Dean Foods Company for a maximum of $20.00 per share which was
contingent upon Curtice-Burns buying Pro-Fac's assets at book value and upon the
sale of the Nalley's Fine Foods Division and the Nalley's Canada, Ltd.
subsidiary, both excluding the chips and snack businesses, to Hormel Foods
Corporation.
On September 27, 1994, Pro-Fac and Curtice-Burns entered into a Merger
Agreement pursuant to which Pro-Fac will purchase all of the shares of Class A
common stock and Class B common stock of Curtice-Burns for $19.00 per share, or
approximately $167.0 million in the aggregate. Pro-Fac will immediately commence
a tender offer for all of the shares to be followed, if successful, by a merger
of a subsidiary of Pro-Fac into Curtice-Burns. Pro-Fac has advised Curtice-Burns
that it expects to complete its tender offer on or about November 1, 1994.
In connection with the proposed purchase of Curtice-Burns, Pro-Fac has
obtained the commitment of the Springfield Bank to provide up to $200.0 million
in long-term financing and up to $86 million in seasonal financing. In addition,
Pro-Fac intends to issue up to $160.0 million principal amount of senior
subordinated debt privately placed through Dillon, Read & Co. Inc. Upon
completion of the merger transaction, Pro-Fac would have an equity investment of
$133.0 million in Curtice-Burns, most of which was existing financing to
Curtice-Burns under the Integrated Agreement.
During fiscal 1994, Curtice-Burns expensed $3.5 million of legal,
accounting and other expenses relative to the change in control issue and
allocated half of those expenses to Pro-Fac. Pro-Fac has disputed this
allocation and the financial statements do not reflect the charge as management
believes it should not be included as a component of the fiscal 1994 earnings
split. Resolution of this dispute is anticipated in conjunction with the Merger
Agreement described above.
NOTE 3. DEBT
Short-Term Debt:
Short-term borrowings are made by the Cooperative under a seasonal line of
credit with Springfield which currently provides for borrowings up to
$46,000,000. Outstanding borrowings at June 25, 1994 amounted to $11,500,000
F-44
<PAGE>
at 5.5 percent. The maximum amount of short-term borrowings outstanding during
the 52-week period ended June 25, 1994 was $46,000,000. The approximate average
aggregate short-term borrowings were: fiscal 1994 -- $30,464,000, fiscal 1993 --
$39,444,000, fiscal 1992 -- $47,764,000. The approximate daily weighted average
interest rates were: fiscal 1994 -- 4.6 percent, fiscal 1993 -- 4.6 percent and
fiscal 1992 -- 6.2 percent.
The Cooperative's short-term borrowings are loaned to Curtice-Burns under
the same conditions and at the same rates as the Cooperative obtained from its
lenders. Provisions of the Agreement between the two companies do however, allow
Pro-Fac, with sufficient notice to Curtice-Burns, to accelerate the repayment of
outstanding debt.
Long-Term Debt:
The Cooperative's long-term debt consists of the following:
<TABLE>
<CAPTION>
June 25, June 26,
1994 1993
------------- -------------
<S> <C> <C>
Term loans due Springfield:
Interest rate of 6.7% and 6.2% at
June 25, 1994 and June 26, 1993,
respectively $141,014,000 $184,000,000
Other debt 120,000 --
------------ ------------
141,134,000 184,000,000
Less current portion 14,000,000 16,000,000
------------ ------------
$127,134,000 $168,000,000
============ ============
</TABLE>
The term loans due Springfield are payable as follows: $14.0 million
annually fiscal 1995 through fiscal 2002; $12.0 million in fiscal 2003; $10.0
million in fiscal 2004 and $7.0 million in fiscal 2005. The term loans are
collateralized by fixed assets and the Cooperative's investment in Springfield
(see NOTE 1). In addition, Curtice-Burns guarantees all of the Cooperative's
bank debt and the Cooperative guarantees Curtice-Burns' short-term notes payable
to commercial banks and certain other debt. The total lines of credit available
to the companies for seasonal borrowings expire annually unless extended or
renewed. Curtice-Burns had no short-term notes payable to commercial banks at
June 25, 1994, June 26, 1993 or June 26, 1992. Other Curtice-Burns debt which
Pro-Fac guarantees amounted to $106,000 at June 25, 1994 and $6,294,000 at June
26, 1993.
Pro-Fac's other debt of $120,000 is payable in nine installments from
fiscal 1996 to fiscal 2005. The rate on this debt is 4 percent.
Based on an estimated borrowing rate at 1994 fiscal year end of 8.0 percent
for long-term debt with similar terms and maturities, the fair value of the
Cooperative's long-term debt outstanding is approximately $136,779,000 at June
25, 1994.
Additional Information with Respect to Borrowing Arrangements:
Because Pro-Fac's income is largely determined by the income of
Curtice-Burns and because Pro-Fac guarantees the debt of Curtice-Burns and
Curtice-Burns guarantees the debt of Pro-Fac (substantially all of which is
advanced to Curtice-Burns), management and lenders use combined pro forma
financial statements to assess the financial strength of the two companies.
Specifically, the combined statement of operations, balance sheet and statement
of cash flows portray the financial results, cash flows and equity of
Curtice-Burns and Pro-Fac. Management believes that combined financial
statements are useful because they provide information concerning Pro-Fac's
F-45
<PAGE>
ability to continue present credit arrangements and/or obtain additional
borrowings in the future.
Certain borrowing agreements require that the companies maintain specified
levels with regard to working capital, tangible net worth, fixed charges and the
incurrence of additional debt. The Cooperative is in compliance with, or has
obtained waivers for, restrictions and requirements under the terms of the
borrowing agreements.
Such financial statements are neither necessary for a fair presentation of
the financial position of Pro-Fac nor appropriate as primary statements for
Curtice-Burns' shareholders or for Pro-Fac shareholders and members because they
combine earnings, assets and liabilities and cash flows which are legally
attributable to either Curtice-Burns' shareholders or to Pro-Fac shareholders
and members, but not to both. Accordingly, the condensed pro forma financial
statements presented below are special purpose in nature and should be used only
within the context described.
Combined Pro Forma Condensed Statement Of Operations
Unaudited
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------
June 25, 1994 June 26,
----------------------------------------------------- 1993
Curtice- -------
(Dollars in Millions) Burns Pro-Fac Eliminations Combined Combined
-------- ------ ------------ ------- ------
<S> <C> <C> <C> <C> <C>
Sales and revenues $829.1 $ 94.4 $ (94.4) $829.1 $878.6
------ ------ ------- ------ ------
Cost of sales 592.6 58.2 (58.2) 592.6 632.7
Restructuring, including net (gain)/
loss from division disposals (7.8) -- -- (7.8) 61.0
Change in control costs 3.5 -- -- 3.5 --
Other selling, administrative and
general expenses 187.0 0.9 (2.0) 185.9 205.5
Interest expense 18.2 11.6 (15.6) 14.2 16.8
Pro-Fac share of earnings 16.8 -- (16.8) -- --
------ ------ ------ ------ ------
Total cost and expenses 810.3 70.7 (92.6) 788.4 916.0
------ ------ ------ ------ ------
Income/(loss) before taxes 18.8 23.7 (1.8)(A) 40.7 (37.4)
(Provision)/benefit for taxes (8.7) 0.8 -- (7.9) (3.9)
------ ------ ------ ------- ------
Net income/(loss) $ 10.1 $ 24.5 $ (1.8)(A) $ 32.8 $(41.3)
====== ====== ====== ====== ======
</TABLE>
(A) Amounts represent the balance of the fiscal 1994 share of earnings between
Curtice-Burns and Pro-Fac which is currently under dispute. See discussion
at NOTE 2.
Transactions between Curtice-Burns and Pro-Fac have been eliminated for
purposes of this combined statement of operations.
F-46
<PAGE>
Combined Pro Forma Condensed Balance Sheet
Unaudited
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
June 25, 1994
--------------------------------------- June 26,
(Dollars in Millions) Curtice- 1993
Burns Pro-Fac Eliminations Combined Combined
------ ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets(A)(C) $247.5 $ 46.7 $ (42.9) $251.3 $268.9
Property, plant and equipment, net(B) 167.5 -- -- 167.5 192.5
Investment in direct financing leases(C) -- 123.7 (123.7) -- --
Due from Curtice-Burns(D) -- 78.0 (78.0) -- --
Goodwill and other intangibles 24.9 24.9 -- 49.8 53.1
Other assets 7.0 22.7 -- 29.7 26.9
------ ------ ------- ------ ------
Total assets $446.9 $296.0 $(244.6) $498.3 $541.4
====== ====== ======= ====== ======
LIABILITIES AND NET WORTH
Current liabilities(A)(C) $143.4 $ 44.6 $ (41.1) $146.9 $166.8
Lease obligations(C) 125.0 -- (123.7) 1.3 1.8
Long-term debt --
Due Pro-Fac(D) 78.0 -- (78.0) -- --
Due others(E) 1.1 127.1 -- 128.2 174.4
Other liabilities 18.5 0.5 -- 19.0 12.8
------ ------ ------- ------ ------
Total liabilities 366.0 172.2 (242.8) 295.4 355.8
Shareholders' equity and members'
capitalization(E) 80.9 123.8 (1.8)(F) 202.9 185.6
------ ------ ------- ------ ------
Total liabilities and net worth $446.9 $296.0 $(244.6) $498.3 $541.4
====== ====== ======= ====== ======
</TABLE>
Notes to combined balance sheet:
(A) Current assets of Pro-Fac consist principally of amounts due from
Curtice-Burns with respect to the Agreement described in NOTE 2. Such
amounts are eliminated for purposes of this balance sheet.
(B) Property, plant and equipment owned by Pro-Fac (with net book value $141.3
million at June 25, 1994) is leased to Curtice-Burns on a financing basis.
Such leased assets are reclassified as property, plant and equipment for
purposes of this balance sheet.
(C) The majority of Curtice-Burns' lease obligations are payable to Pro-Fac and
amount to $141.3 million at June 25, 1994, of which $17.6 million is payable
currently. The related Curtice-Burns liability and Pro-Fac receivable are
eliminated for purposes of this balance sheet.
(D) Long-term borrowings by Curtice-Burns from Pro-Fac under the Agreement are
eliminated for purposes of this balance sheet.
(E) Shareholders' equity of Curtice-Burns consists of Class A common stock, $6.6
million; Class B common stock, $2.0 million; additional paid-in capital,
$14.2 million; and retained earnings, $58.1 million.
(F) Amount represents the balance of the fiscal 1994 share of earnings between
Curtice-Burns and Pro-Fac which is currently under dispute. See discussion
at NOTE 2.
F-47
<PAGE>
Combined Pro Forma Condensed Statement of Cash Flows
Unaudited
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
----------------------------------------------------
June 25, 1994
---------------------------------------- June 26,
Curtice- 1993
Burns Pro-Fac Eliminations Combined Combined
------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities $ 21.8 $ 18.0 $ (0.9) $ 38.9 $ 42.2
Net cash provided by/(used in)
investing activities 33.9 32.9 (44.4) 22.4 (A) (17.1)
Net cash (used in)/provided by
financing activities (59.4) (50.9) 45.3 (65.0) (24.7)
------ ------ ------ ------ ------
Net change in cash (3.7) -- -- (3.7) 0.4
Cash at beginning of year 6.5 -- -- 6.5 6.1
Cash at end of year $ 2.8 $ -- $ -- $ 2.8 $ 6.5
====== ====== ====== ====== ======
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest (net of amount capitalized) $ 18.6 $ 12.1 $(15.6) $ 15.1 $ 17.3
====== ====== ====== ====== ======
Income taxes, net $ 15.0 $ (1.0) $ -- $ 14.0 $ 2.9
====== ====== ====== ====== ======
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Capital lease obligations incurred $ 10.7 $ -- $(10.0) $ 0.7 $ 3.0
====== ====== ====== ====== ======
Conversion of retains into preferred
stock $ 4.9 $ 4.9 $ 5.9
====== ====== ======
Net proceeds allocated to members but
retained by the Cooperative $ 14.2 $ 14.2 $ 4.8
======= ====== ======
</TABLE>
(A) Amount represents the balance of the fiscal 1994 share of earnings between
Curtice-Burns and Pro-Fac which is currently under dispute. See discussion
at NOTE 2.
Transactions between Curtice-Burns and Pro-Fac have been eliminated for
purposes of this combined statement of cash flows.
NOTE 4. LEASES
At June 25, 1994 and June 26, 1993 Pro-Fac had investments in financing
leases of $141,322,000 and $173,513,000, respectively, of which $17,645,000 and
$21,184,000, were due currently.
Minimum rent payments to be received during each of the next five fiscal
years are as follows: 1995-$17,645,000; 1996-$15,829,000; 1997-$14,590,000;
1998-$13,276,000; and 1999-$11,963,000. The minimum rent payments do not include
executory costs, since such costs are paid directly by Curtice-Burns and they do
not include interest, since interest amounts are determined and billed to
Curtice-Burns based upon Pro-Fac's borrowing costs required to finance the
leased assets.
NOTE 5. TAXES ON INCOME
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. As the longer term effects of the TAM are further
researched and analyzed, it is possible that the Board may
F-48
<PAGE>
calculate future patronage proceeds available for distribution utilizing a
different formula from that used for 1992 and 1993.
A summary of taxable income/(loss) and the related (benefit)/provision for
income taxes for fiscal 1994, 1993 and 1992 follows.
(Dollars In Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------
June 25, June 26, June 26,
1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Taxable income/(loss):
Excess/(deficiency) of revenues before taxes,
dividends and allocation of net proceeds $ 23,698 $ (17,498) $ 12,754
Less patronage income to be allocated to members
for current period (15,546) (5,261) (13,040)
Less cash dividends paid on capital stock (4,390) (4,548) --
Less utilization of net operating loss carryforwards (3,857) -- --
Additional fiscal 1991 distribution -- -- 3,727
Difference between book and tax methodologies 95 52 996
--------- --------- ---------
Taxable income/(loss) to the Cooperative $ -- $ (27,255) $ 4,437
========= ========= =========
Provision/(benefit) for income taxes:
Federal:
Current $ 267 $ 207 $ (1,560)
Deferred (613) (207) 307
--------- --------- ---------
(346) -- (1,253)
State (498) -- 102
--------- --------- ---------
$ (844) $ -- $ (1,151)
========= ========= =========
Effective tax rate (percent):
Federal 34.0% (34.0)% 34.0%
Loss for which no benefit was recorded -- 34.0 --
Utilization of net operating loss carryforward (34.0) -- --
State (net of federal tax benefit) 0.4 -- 1.6
Other (4.0) -- 0.7
--------- --------- ---------
Subtotal (3.6) -- 36.3
Tax benefits resulting from the IRS Technical
Advice Memorandum -- -- (62.3)
--------- --------- ---------
Total (3.6)% -- % (26.0)%
========= ========= =========
</TABLE>
In August of 1993, the Internal Revenue Service issued a determination
letter which concluded that the Cooperative is exempt from federal income tax to
the extent provided by Section 521 of the Internal Revenue Code, "Exemption of
Farmers' Cooperatives from Tax." Unlike a non-exempt cooperative, a tax-exempt
cooperative is entitled to deduct cash dividends it pays on its capital stock in
computing its taxable income. This exempt status is retroactive to fiscal year
1986 and is anticipated to apply to future years as long as there is no
significant change in the way in which the Cooperative operates. In conjunction
with this ruling, the Cooperative has filed for tax refunds for fiscal years
1986 to 1990 in the amount of approximately $5.8 million and interest payments
of approximately $3.4 million. In addition, it is that anticipated the
Cooperative will file for tax refunds for fiscal years 1991 and 1992 in the
amount of approximately $3.1 million and interest payments of approximately $0.4
million. No such refund amounts have been reflected in the Cooperative's
financial statements as of June 25, 1994. It is anticipated that the refund
amounts will be recognized upon receipt.
F-49
<PAGE>
A benefit has not been recorded for the net operating loss carryforward
resulting from 1993 operations due to the uncertainties surrounding utilization
in future years.
Deferred tax assets have been established for the future tax benefit of the
redemption on non-qualified retains.
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes," and the Cooperative has adopted the
provisions of this standard as of June 29, 1991. There was no effect on the 1992
provision for income taxes for this accounting change as the Cooperative was
previously accounting for income taxes in accordance with SFAS 96.
NOTE 6. CAPITALIZATION
Preferred Stock. Preferred stock originates from the conversion at par
value of retains. Preferred stock is non-voting, except that the holders of
preferred and common stock would be entitled to vote as separate classes on
certain matters which would affect or subordinate the rights of the class. The
preferred stock is segregated by the original year of issue in the records of
the Cooperative.
The Cooperative is entitled to redeem or retire all or any portion of its
outstanding preferred stock, at par value, upon 90 days notice.
Common Stock. The common stock purchased by members is related to the crop
delivery of each member. Regardless of the number of shares held, each member
has one vote.
Common stock may be transferred to another grower only with approval of the
Pro-Fac Board of Directors. If a member ceases to be a producer of agricultural
products which he markets through the Cooperative, then he must sell his common
stock to another grower acceptable to the Cooperative. If no such grower is
available to purchase the stock, then the member must provide one year's advance
written notice of his intent to withdraw, after which the Cooperative must
purchase his common stock at par value. (See NOTE 7 for common stock dividend
information.)
Due to the uncertainty surrounding the potential change of control of
Curtice-Burns and its implications to the Integrated Agreement, the Board of
Directors, during 1994, approved a moratorium on all transactions involving
common stock and waived the restriction on the utilization of agent farmers to
satisfy supply commitments. As a Merger Agreement between the Cooperative and
Curtice-Burns was entered into on September 27, 1994, it is anticipated that the
Board of Directors will re-evaluate the above described restrictions.
At June 25, 1994 and June 26, 1993, there were outstanding subscriptions,
at par value, for 9,270 and 24,788 shares of common stock, respectively. These
shares are issued as subscription payments are received.
Retained Earnings Allocated to Members ("Retains"). Retains arise from
patronage income and are allocated to the accounts of members within 8.5 months
of the end of each fiscal year.
Qualified Retains. Qualified retains are freely transferable and normally
mature into preferred stock in December of the fifth year after allocation.
Qualified retains are taxable income to the member in the year the allocation is
made.
F-50
<PAGE>
Non-Qualified Retains. Non-qualified retains may not be sold or purchased.
The present intention of the Board of Directors is that the non-qualified
retains allocation be redeemed in five years through partial payment in cash and
issuance of preferred stock. The non-qualified retains will not be taxable to
the member until the year of conversion. Non-qualified retains may be subject to
later adjustment if such is deemed necessary by the Board of Directors because
of events which may occur after the retains were allocated.
Earned Surplus (Unallocated and Apportioned). Earned surplus consists of
accumulated income after distribution of earnings allocated to members,
dividends and after state and federal income taxes. Earned surplus is reinvested
in the business in the same fashion as retains. (See NOTE 5.)
Stabilization Program. Each year a portion of the earnings is available for
the CMV stabilization program. The amount designated for the program is
determined at the discretion of the Board of Directors based upon the amount
needed to accumulate the maximum authorized, which is 15 percent of the previous
year's CMV of crops delivered. In a year when revenues are insufficient to pay
100 percent of CMV, the stabilization program, with Board approval, will provide
for extra payments to be made up to the amount previously designated for the
program. The amount designated to the program was $8,970,000 at June 25, 1994.
Market for Pro-Fac Securities. There is no established market for trading
Pro-Fac common stock. All trades have been arranged on a private basis between
buyers and sellers.
Transfers of preferred stock and qualified retained earnings can be
arranged on a regular basis through the Buffalo offices of First Albany
Corporation or Trubee, Collins and Company, registered securities broker
dealers. Transfers of preferred stock can also be arranged on a regular basis
through the Erie, Pennsylvania office of Advest, registered securities broker
dealer. There can be no assurance this market will have the necessary volume of
transactions to continue in the future.
NOTE 7. DIVIDENDS ON CAPITAL STOCK
Dividends on preferred and common stock are declared at the discretion of
the Board of Directors and are paid out of legally available funds. Preferred
shareholders are entitled to a dividend of up to 12 percent of the par value of
the stock if declared by the Board. Pursuant to New York State laws, applicable
to agricultural cooperatives, dividends have been declared and paid subsequent
to the fiscal year to which they relate. In fiscal 1994 and 1993, dividends on
preferred stock were paid at a rate of 6.25 and 7.25 percent, respectively, of
the par value and dividends on common stock were paid at a rate of 5 percent of
the par value.
Subsequent to June 25, 1994, the Cooperative declared a cash dividend of
6.75 percent of the par value of preferred stock and 5.5 percent of the par
value of the common stock, payable on July 15, 1994. These dividends amounted to
$4,914,000 and will appear in the fiscal 1995 Statement of Net Proceeds.
NOTE 8. RESTRUCTURING PROGRAM
The Conceptual Vision and Strategy:
The restructuring program first initiated in fiscal 1993 was based on
Curtice-Burns' new vision of a company smaller in sales but more profitable, as
measured by return on sales and equity, and possessing the financial and
management resources sufficient to drive growth in carefully selected
F-51
<PAGE>
product line markets in which Curtice-Burns can prosper for the long term. Thus,
the strategy was to focus on a more limited number of product lines which now
have a strong, competitive position.
The Plan outlined in 1993 is to restructure the business to a more
profitable base. At the same time, the remaining businesses were to be managed
to optimize earnings growth by installing corporate-wide purchasing, and a
corporate-wide focus of capital spending.
The third leg of the strategy was to accelerate Curtice-Burns' national
sales and distribution programs by executing new product programs in store-brand
retail dressings, salsa and chunky soups and the "More Fruit/More Flavor" pie
filling program.
Execution of the Program:
The first step of the restructuring program was to divest businesses that
were unprofitable or declining for Curtice-Burns but would fit strategically
with other business portfolios. During fiscal 1993, Curtice-Burns divested Lucca
Frozen Foods. A loss of approximately $2.7 million (before dividing with Pro-Fac
and before taxes) was recognized on this transaction. At the end of fiscal 1993,
Curtice-Burns wrote down the assets and provided for the expenses to dispose of
the Hiland potato chips and meat snacks businesses during fiscal 1994. On
November 22, 1993, Curtice-Burns sold certain assets of the Hiland potato chips
business for $2.0 million at closing, plus approximately $1.0 million paid in
installments over three months. On February 22, 1994, Curtice-Burns sold the
meat snacks business located in Denver, Colorado and Albany, Oregon to Oberto
Sausage Company of Kent, Washington. Under the agreement, Oberto has purchased
certain assets and assumed certain liabilities of the meat snacks operation,
excluding plant, equipment, and trademarks. Curtice-Burns will lease its Albany
Oregon manufacturing facility and equipment and license its trademarks, trade
names, etc. to Oberto until February 1995, at which time Oberto is contractually
obligated to purchase these assets. The sale of the Hiland potato chips and meat
snacks businesses did not result in any significant gain or loss in fiscal 1994
after giving effect to the restructuring charges recorded in fiscal 1993;
however, charges of $3.1 million were incurred in fiscal 1994 to adjust previous
estimates. In the fiscal year ended June 26, 1993, Curtice-Burns incurred losses
of $13.2 million from the meat snacks and Hiland potato chips businesses before
dividing such losses with Pro-Fac and before taxes.
On November 19, 1993, Curtice-Burns sold the oats portion of the National
Oats business for $39 million. The oats business contributed approximately $1.4
million of earnings in fiscal 1993 before dividing with Pro-Fac and before
taxes. The sale of the oats business resulted in an approximate $10.9 million
gain. The popcorn portion of the National Oats Division was transferred to the
Comstock Michigan Fruit Division.
During fiscal 1993 and 1994, Curtice-Burns also made staff reductions in
selected locations throughout Curtice-Burns. A $1.0 million accrual relating to
such costs was recorded as part of the fiscal 1993 restructuring charge.
Thus, a major part of the restructuring plan was successfully executed
during fiscal 1994.
As reported above, Curtice-Burns incurred restructuring charges in fiscal
1993 of $61.0 million (before dividing such charges with Pro-Fac and before
taxes), which included the loss incurred on the sale of the Lucca frozen entree
business, anticipated losses on the sale of the meat snacks and Hiland potato
chips businesses, and other costs (primarily severance and
F-52
<PAGE>
losses prior to sale) in conjunction with the restructuring program. Virtually
all of this charge was a revaluation of assets, rather than cash expense.
Having completed the first phase of the restructuring program in fiscal
1993, the second phase was approved by Curtice-Burns' Board of Directors in
August 1994. In connection with the second phase, the company is evaluating
several alternatives regarding the Nalley's snack food business in the United
States, including its possible sale to a third party. A charge, not to exceed
$12.0 million, before the split with Pro-Fac and before taxes, for this phase of
the restructuring program will be recorded during the first quarter of fiscal
1995.
With respect to the potential sale of the snack food business, Curtice-
Burns has signed a letter of intent with Country Crisp Foods of Salt Lake City,
Utah. The letter of intent is subject to a number of conditions, including
successful financing by the purchaser and the negotiation of a definitive
purchase agreement. Country Crisp, a regional snack food company operating in
the inter-mountain states of Colorado, Utah, Wyoming, Idaho, Nevada and New
Mexico, will continue to market the Nalley's brand snacks under a licensing
arrangement with Curtice-Burns. If this sale is finalized, it may result in a
revision to the aforementioned reserve.
NOTE 9. OTHER MATTERS
Harvest States Cooperative:
In conjunction with the sale of the National Oats Division by Curtice-
Burns, Pro-Fac terminated the membership of the Harvest States Cooperatives
("Harvest States") in Pro-Fac. Harvest States was the National Oats Divisions'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.
Under an agreement with Curtice-Burns, Curtice-Burns agreed to indemnify
Pro-Fac as to certain expenses arising out of the termination of the membership
of Harvest States in Pro-Fac. It was agreed that any settlement payments would
be deemed an expense of Curtice-Burns under the division of earnings with
Pro-Fac. The exact amount of any potential settlement related to this issue
cannot be estimated at June 25, 1994, but management does not believe that this
is a material exposure to Curtice-Burns.
Subsequent Events:
In July 1994, a plant operated by Curtice-Burns's Southern Frozen Foods
Division, located in Montezuma, Georgia, was damaged by fire. The plant itself
is owned by Pro-Fac and leased to Curtice-Burns under the terms of the
Integrated Agreement. Management is currently in the process of assessing the
extent of damage to the facility. All material costs associated with the
facility repairs and business interruption are anticipated to be covered under
Curtice-Burns's insurance policies. The Springfield Bank for Cooperatives is
loss payee on the property insurance policy under the terms of the Security
Agreement with lenders. See NOTE 5.
On September 27, 1994, and Pro-Fac Curtice-Burns entered into a Merger
Agreement pursuant to which Pro-Fac will purchase all of the shares of Class A
common stock and Class B common stock of Curtice-Burns for $19.00 per share, or
approximately $167.0 million in the aggregate. Pro-Fac will immediately commence
a tender offer for all of the shares to be followed, if successful, by a merger
of a subsidiary of Pro-Fac into Curtice-Burns.
F-53
<PAGE>
Pro-Fac has advised Curtice-Burns that it expects to complete its tender offer
on or about November 1, 1994.
NOTE 10. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF
INDEPENDENT ACCOUNTANTS
On November 3, 1994, PF Acquisition Corp., a New York corporation and a
wholly-owned subsidiary of Pro-Fac, consummated a merger with Curtice-Burns.
Curtice-Burns will continue as the surviving corporation and has, therefore,
become a wholly-owned subsidiary of Pro-Fac. In conjunction with the
consummation of this merger, the disputes between Curtice-Burns and Pro-Fac as
described in NOTE 2 have been resolved.
Common stock has been reclassified due to the Cooperative's potential
obligation to repurchase stock from members who become ineligible to own such
stock. Management believes that the occurrence of such events is remote.
F-54
<PAGE>
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.
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
<TABLE>
<CAPTION>
(Dollars in Thousands)
Nine Months Ended
-----------------------
3/25/95 3/26/94
--------- ---------
<S> <C> <C>
Net sales $ 347,069 $ 58,423
Cost of sales 257,458 58,423
--------- ---------
Gross profit 89,611 --
Share of Curtice-Burns earnings
prior to acquisition 5,137 14,990
Interest income from Curtice-Burns
prior to acquisition 6,102 11,992
Other selling, general, and
administrative (expenses)/income (66,608) 648
--------- ---------
Operating income 32,242 27,630
Interest expense (20,603) (8,998)
--------- ---------
Income before taxes, dividends
and allocation of net proceeds 13,639 18,632
Tax benefit/(provision) 4,293 (100)
--------- ---------
Net income (net proceeds) $ 17,932 $ 18,532
========= =========
Allocation of Net Proceeds:
Net income $ 17,932 $ 18,532
Dividends on common and preferred stock (4,914) (4,390)
--------- ---------
Net proceeds 13,018 14,142
Allocation to earned surplus (9,808) (2,147)
--------- ---------
Net proceeds available to members $ 3,210 $ 11,995
========= =========
Allocation of net proceeds available to members:
Estimated to be paid currently $ 597 $ 2,308
Qualified retains 2,388 9,229
Non-qualified retains 225 458
--------- ---------
Net proceeds available to members $ 3,210 $ 11,995
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Dollars in Thousands)
ASSETS
3/25/95 6/25/94 3/26/94
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet (Continued)
<TABLE>
<CAPTION>
(Dollars in Thousands)
LIABILITIES AND
SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
3/25/95 6/25/94 3/26/94
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in Thousands)
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
========== ==========
</TABLE>
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.
F-58
<PAGE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows (Continued)
<TABLE>
<CAPTION>
(Dollars in Thousands)
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
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<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.
F-60
<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.
F-61
<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
F-62
<PAGE>
tender offer for all of Curtice-Burns' outstanding stock at $19.00 per share. At
the expiration of the tender offer on November 2, 1994, 6,229,442 shares of
Class A and 2,046,997 shares of Class B common stock (or approximately 94
percent and 99 percent, respectively, of the total number of outstanding shares
of Class A and Class B common stock of Curtice-Burns) had been validly tendered
and not withdrawn. All such tendered shares were accepted for payment by PFAC.
On November 3, 1994, PFAC merged into Curtice-Burns, making Curtice-Burns a
wholly-owned subsidiary of Pro-Fac.
Prior to November 3, 1994, Curtice-Burns expensed $2.2 million of legal,
accounting, investment banking and other expenses relative to the change of
control issue. In recognizing these expenses, Curtice-Burns allocated half of
these amounts to Pro-Fac as a deduction to the profit split. Pro-Fac disputed
these charges, but such dispute was resolved with the merger.
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>
<TABLE>
<CAPTION>
(In Millions)
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 $ 13.0 $18.5 $ 17.4
</TABLE>
F-63
<PAGE>
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 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.
F-64
<PAGE>
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
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
F-65
<PAGE>
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.
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.
F-66
<PAGE>
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.
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.
F-67
<PAGE>
A grower has filed suit against Curtice-Burns for damages resulting from
defective seed which was purchased from the Southern Frozen Foods Division. The
lawsuit alleges that the defective seed resulted in the loss of crops and
acreage use for a growing season, and the grower is seeking approximately $1.0
million in damages. Management believes this claim is without merit and intends
to vigorously defend its position. As the amount of damages is neither probable
nor reasonably estimable, no accrual for loss has been included in the financial
statements. In addition, management anticipates that all material costs of
settlement, if incurred, will be covered under its insurance policies.
Commitments
Curtice-Burns' Southern Frozen Foods Division has guaranteed an approximate
$1.4 million loan for the City of Montezuma to renovate a sewage treatment plant
operated by Southern Frozen Foods on behalf of the City.
Fire Claim
In July 1994, a plant operated by Curtice-Burns' Southern Frozen Foods
Division, located in Montezuma, Georgia, was damaged by fire. All material costs
associated with the Facility repairs and business interruption are anticipated
to be covered under Curtice-Burns' insurance policies. During the first quarter
of fiscal 1995, a $6.5 million gain (before dividing with Pro-Fac and before
taxes) was recorded 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.
F-68
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are as follows:
<TABLE>
<CAPTION>
<S> <C>
Filing fee for Registration Statement $ 3,620.70
Legal fees and expenses 10,000.00*
Accounting fees and expenses 15,000.00*
Blue sky fees and expenses 10,000.00*
Taxes None
Transfer agents' fees None
Printing and engraving 4,000.00*
Miscellaneous 3,000.00*
Total $45,620.70*
</TABLE>
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 721 through 727 of the New York Business Corporation Law
permit the registrant to indemnify its officers and directors against
liabilities under certain circumstances. Section 726 of the New York
Business Corporation Law allows the registrant to purchase and maintain
insurance to indemnify (i) the registrant for any obligation which it incurs
as a result of the indemnification of directors and officers, (ii) directors
and officers in instances in which they may be indemnified by the
registrant, and (iii) directors and officers in instances in which they may
not otherwise be indemnified by the registrant provided the contract of
insurance covering such directors and officers provides, in a manner
acceptable to the superintendent of insurance of the State of New York, for
a retention amount and for co-insurance. Notwithstanding the foregoing, no
such insurance may provide for any payment, other than cost of defense, to
or on behalf of any director or officer (i) if a judgment or other final
adjudication adverse to the insured director or officer establishes that his
acts of active and deliberate dishonesty were material to the cause of
action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or (ii) in
relation to any risk the insurance of which is prohibited under the
insurance law of the State of New York. As permitted by law, the registrant
has obtained a policy of directors and officers liability and corporation
reimbursement insurance, which is due for renewal on July 1, 1995.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Between October 1, 1992 and November 3, 1994, the registrant issued
the following securities in unregistered transactions:
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stock March, 1993 700 shares
April, 1993 9,730 shares
Preferred Stock Dec., 1992 188,073 shares
March, 1993 49,292 shares
Dec., 1993 197,913 shares
Sept., 1994 46,884 shares
Retains Sept., 1993 $ 4,809,458
Sept., 1994 $14,177,977
</TABLE>
II-1
<PAGE>
Because, during such period, registrant was a farmer's cooperative
organization exempt from tax under Section 521 of the Internal Revenue Code,
all such issuances were exempt from registration under Section 3(a)(5)(B)(i)
of the Securities Act of 1933.
Subsequent to November 3, 1994, the registrant issued 342,101 shares
of preferred stock in exchange for maturing retains in December, 1994 and
77,620 shares of preferred stock in exchange for maturing retains in
January, 1995. Such issuances were exempt from registration under Section
3(a)(9) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Pro-Fac.
3.2 Bylaws of Pro-Fac.
5 Opinion and Consent of Harris Beach & Wilcox, LLP.
10.1* Indenture, dated as of November 3, 1994 (the "Inden-
ture"), among PFAC, Pro-Fac and IBJ Schroder Bank & Trust
Company ("IBJ"), as Trustee, as amended by First
Supplemental Indenture, dated as of November 3, 1994,
each with respect to Curtice-Burns' 12 1/4% Senior
Subordinated Notes due 2005 (the "Notes").
10.2* Term Loan, Term Loan Facility and Seasonal Loan
Agreement, dated as of November 3, 1994, among
Springfield Bank for Cooperatives (the "Bank"),
Curtice-Burns and PFAC.
10.3* Parent Guaranty, dated as of November 3, 1994, by Pro-Fac
in favor of the Bank.
10.4* Parent Security Agreement, dated as of November 3, 1994
between Pro-Fac and the Bank.
10.5* Mortgage, Open End Mortgage, Deed of Trust, Trust Deed,
Deed to Secure Debt, Purchase Money Mortgage, Assignment,
Security Agreement and Financing Statement dated November
3, 1994 among PFAC, Curtice-Burns and the Bank.
10.6* Marketing and Facilitation Agreement, dated as of No-
vember 3, 1994, between Pro-Fac and Curtice-Burns.
10.7* Management Incentive Plan, as amended.
10.8* Supplemental Executive Retirement Plan, as amended.
10.9* Key Executive Severance Plan, as amended.
10.10* Master Salaried Retirement Plan, as amended.
10.11* Non-Qualified Profit Sharing Plan, as amended.
10.12* Excess Benefit Retirement Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------ ------------------------------------------------------
<S> <C>
10.13 Modification of Term Loan, Term Loan Facility, and
Seasonal Loan Agreement, dated as of January 26, 1995,
between Curtice Burns and the Bank.
10.14 Second Amendment to Non-Qualified Profit Sharing Plan.
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
21.1* List of Subsidiaries.
23.1 Consent of Price Waterhouse LLP, independent accountants,
relating to the financial statements of Pro-Fac.
23.2 Consent of Price Waterhouse LLP, independent accountants,
relating to the consolidated financial statements of
Curtice-Burns.
23.3 Consent of Harris Beach & Wilcox, LLP (included in
Exhibit 5).
</TABLE>
* Incorporated by reference from Registration Statement No. 33-56517, as
amended.
(b) Financial Statement Schedules:
Curtice-Burns
<TABLE>
<CAPTION>
Schedule Reference Schedule Description
------------------ --------------------
<S> <C>
Schedule VIII Valuation and Qualifying Accounts
</TABLE>
All other schedules of the Company and Pro-Fac for which provision is
made in the applicable accounting regulations of the Securities and Exchange
Commission are not required, are inapplicable or have been disclosed in the
notes to the consolidated financial statements and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event
arising after the effective date of this
registration (or the most recent post-effective
amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in this registration
statement;
II-3
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rochester, State of New York, on
the 18th day of May, 1995.
PRO-FAC COOPERATIVE, INC.
BY: /s/William D. Rice
William D. Rice
Assistant Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen R. Wright and William D.
Rice, and each of them, his true and lawful Attorneys-in-Fact and Agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-Fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-Fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- --------------------------- -------------
<S> <C> <C>
/s/Bruce R. Fox President and Director May 19, 1995
- -------------------------
(BRUCE R. FOX)
/s/Albert P. Fazio Vice President and Director May 19, 1995
- -------------------------
(ALBERT P. FAZIO)
/s/Steven D. Koinzan Treasurer and Director May 22, 1995
- -------------------------
(STEVEN D. KOINZAN)
/s/Tommy R. Croner Secretary and Director May 19, 1995
- -------------------------
(TOMMY R. CRONER)
/s/Dale W. Burmeister Director May 19, 1995
- -------------------------
(DALE W. BURMEISTER)
/s/Robert V. Call, Jr. Director May 19, 1995
- -------------------------
(ROBERT V. CALL, JR.)
/s/Glen Lee Chase Director May 22, 1995
- -------------------------
(GLEN LEE CHASE)
Director , 1995
- -------------------------
(KENNETH A. MATTINGLY)
/s/Allan D. Mitchell Director May 19, 1995
- -------------------------
(ALLAN D. MITCHELL)
/s/Allan W. Overhiser Director May 20, 1995
- -------------------------
(ALLAN W. OVERHISER)
/s/Paul E. Roe Director May 20, 1995
- -------------------------
(PAUL E. ROE)
/s/Edward L. Whitaker Director May 23, 1995
- -------------------------
(EDWARD L. WHITAKER)
/s/Stephen R. Wright General Manager May 18, 1995
- -------------------------
(STEPHEN R. WRIGHT) (Principal Executive Officer)
/s/William D. Rice Assistant Treasurer May 18, 1995
- -------------------------
(WILLIAM D. RICE) (Principal Accounting Officer)
</TABLE>
II-6
SCHEDULE VIII
Curtice-Burns Foods, Inc.
Valuation and Qualifying Accounts
For the Three Fiscal Years Ended June 25, 1994
<TABLE>
<CAPTION>
Additions Deductions
Balance At --------- ---------- Balance
Beginning Of Charge To Accounts At End Of
Period Expense Written Off Period
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year ended June 25, 1994 $ 801,000 $ 702,000 $ 437,000 $1,066,000
Year ended June 26, 1993 $1,353,000 $ 346,000 $ 898,000 $ 801,000
Year ended June 26, 1992 $1,118,000 $ 827,000 $ 592,000 $1,353,000
</TABLE>
<TABLE>
<CAPTION>
Balance At Balance
Beginning Of Net At End Of
Period Change Period
------------ ------ ---------
<S> <C> <C> <C>
Inventory Reserve
Year ended June 25, 1994 $1,189,000 $ (810,000) $ 379,000
Year ended June 26, 1993 $2,520,000 $(1,331,000) $1,189,000
Year ended June 26, 1992 $2,549,000 $ (29,000) $2,520,000
</TABLE>
* Difference between FIFO cost and market applicable to canned and frozen
fruit and vegetable inventories.
S-1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
Pursuant to Article 6 of the Cooperative
Corporations Law of the State of New York
We, the undersigned, producers of agricultural products, for the
purpose of forming a corporation pursuant to Article 6 of the Cooperative
Corporations Law of the State of New York, do hereby make, sign and acknowledge
and file this Certificate for that purpose as follows:
1. The name of the corporation is Pro-Fac Cooperative, Inc.
2. The purposes for which the corporation is to be formed are:
(a) To engage in activities connected with the marketing, processing,
manufacture and sale of agricultural products, including, without
limitation, the purchase, financing, production, manufacture, warehousing,
cultivating, harvesting, preservation, drying, processing, cleansing,
canning, blending, packing, grading storing, handling, utilization,
shipping, marketing, merchandising, and selling of agricultural and food
products of its members and the by-products thereof.
(b) To engage as a cooperative purchasing association in activities
relating to the purchase of supplies for producers of agricultural
products.
(c) To perform services connected with the acquisition for its members of
supplies and articles of common use, including livestock, equipment,
machinery, food products and family and other household and personal
supplies to be used or consumed by members, their families and guests.
(d) To do all and everything incidental and necessary for the
accomplishment of any of the purposes or the attainment of any of the
objects or the furtherance of any of the powers hereinabove set forth or
permitted under Paragraphs 13 and 14 of Article 2 as limited by said
Article 6 of the Cooperative Corporation Law of the State of New York,
individually or as agent either alone or in association with other
corporations, firms or individuals.
3. Its duration shall be perpetual.
4. Its principal business office is to be located at City of
Rochester, County of Monroe, State of New York.
5. The number of its directors shall be such number not less than 5 nor
more than 18 as the Bylaws shall from time to time provide.
6. The aggregate number of shares of stock which the Corporation shall
have the authority to issue is 60,000,000, of which 5,000,000 shares of the par
value of $5 per share shall be designated as Common Voting Stock, 5,000,000
shares of the par value of $25 per share shall be designated as Non-Cumulative
Preferred Stock, 10,000,000 shares of the par value of $1 per share shall be
designated
<PAGE>
as Class A Preferred Stock, 10,000,000 shares of the par value of $1 per share
shall be designated as Class B Preferred Stock, 10,000,000 shares of the par
value of $1 per share shall be designated as Class C Preferred Stock, 10,000,000
shares of the par value of $1 per share shall be designated as Class D Preferred
Stock, 10,000,000 shares of the par value of $1 per share shall be designated as
Class E Preferred Stock.
The designation, rights, preferences, privileges, voting powers and
limitations of said classes of stock are as follows:
(a) The shares of the Non-Cumulative Preferred Stock may be issued in one
or more annual series, which the Board of Directors shall have the
authority to establish, the shares of each such series to be designated by
the year of issuance so as to distinguish them from shares of all other
series.
The holders of the Non-Cumulative Preferred Shares shall be entitled to
receive as and when declared by the Board of Directors out of funds
legally available therefor dividends at such rate as may, from time to
time, be determined by the Board of Directors, but not less than 6 percent
per annum of the par value of such shares. Such dividends, if any, shall
be non-cumulative and shall be payable at such times as shall be
determined by the Board of Directors. After full non-cumulative dividends
at the rate determined by the Board of Directors for the then current year
shall have been declared and paid or set apart for payment to the holders
of Preferred shares, dividends may be declared and paid or set apart for
payment to the holders of Common shares.
Subject to the foregoing provisions, the Non-Cumulative Preferred Stock
shall not be entitled to participate in any other or additional surplus or
net profits of the corporation. The corporation shall be entitled from
time to time to retire the whole or any portion or series of its
Non-Cumulative Preferred Stock upon payment of the par value of such stock
plus all accrued dividends unpaid at the date of such retirement. Such
retirement shall be effected by payment out of funds legally available for
such purpose, but no such stock shall be redeemed for cash under
circumstances which would produce any impairment of the capital or capital
stock of the corporation. Such retirement shall be on such other terms and
conditions as may be determined by the Board of Directors, provided that
no shares of the Non-Cumulative Preferred Stock shall be retired except
upon 90 days' written notice of such retirement given to the holders
thereof.
Upon dissolution or other termination of the Corporation or its business,
or the distribution of its assets, prior to any payment to the holders of
the Common Voting Stock, the holders of the Non- Cumulative Preferred
Stock shall first receive the full par value of such stock, together with
the amount of such dividends as have been declared but are unpaid as of
such distribution of payment.
(b) Each of the Class A Preferred Stock, the Class B Preferred
Stock, the Class C Preferred Stock, the Class D Preferred Stock and
2
<PAGE>
the Class E Preferred Stock may be issued from time to time by the Board
of Directors as shares of one or more series of Class A Preferred Stock,
Class B Preferred Stock, the Class C Preferred Stock, Class D Preferred
Stock or Class E Preferred Stock, as the case may be, and the Board of
Directors is expressly authorized, prior to issuance, in the resolution or
resolutions providing for the issue of shares of each particular series of
any such class of preferred stock, to fix the following:
(i) The distinctive serial designation of such series which
shall distinguish it from other series;
(ii) The number of shares included in such series, which number may
be increased or decreased from time to time unless otherwise provided
by the Board of Directors in creating the series;
(iii) The annual dividend rate (or method of determining such rate)
for shares of such series, the date or dates upon which, and the form
or method of payment in which, such dividends shall be payable and,
subject to paragraph (c) below, the relative priority of the right to
such dividends;
(iv) Whether dividends on the shares of such series shall be
cumulative or non-cumulative, and, in the case of shares of any
series having cumulative dividend rights, the date or dates or method
of determining the date or dates from which dividends on the shares
of such series shall be cumulative;
(v) The amount or amounts which shall be paid out of the assets of
the Corporation to the holders of the shares of such series upon
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and, subject to paragraph (c) below, the relative
priority of the right to such distribution;
(vi) The price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series may
be redeemed, in whole or in part, at the option of the Corporation;
(vii) The obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or otherwise
and the price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series
shall be redeemed, in whole or in part, pursuant to such obligations;
(viii)The period or periods within which and the terms and
conditions, if any, including the price or prices or the rate or
rates of conversion and the terms and conditions of any adjustments
thereof, upon with the shares of such series shall be convertible at
the option of the holder into shares of any class of stock or into
shares of any other series of such class
3
<PAGE>
of preferred stock, except into share of a class having rights or
preferences as dividends or distribution of assets upon liquidation
which are prior or superior in rank to those of the shares being
converted;
(ix) The voting rights, if any, of the shares of such series in
addition to those required by law; and
(x) Any other relative designations, rights, preferences, privileges,
voting powers or limitations of the shares of the series not
inconsistent herewith or with applicable law.
(c) All shares of Class A Preferred Stock, Class B Preferred Stock, ,
Class C Preferred Stock, Class D Preferred Stock and Class E Preferred
Stock (i) shall rank senior in priority to the Common Voting Stock and, as
determined by the Board of Directors, on a parity with or junior in
priority to the Non-Cumulative Preferred Stock in respect of the right to
receive dividends and the right to receive payments out of the assets of
the Corporation upon voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, (ii) shall, with respect to other shares of
its class, be of equal rank with respect to all other shares of such
class, regardless of series, and (iii) shall be identical in all respects
except as provided in paragraph (b) above. The shares of any one series of
the Class A Preferred Stock, the Class B Preferred Stock, , the Class C
Preferred Stock, the Class D Preferred Stock or the Class E Preferred
Stock shall be identical with each other in all respects except as to the
dates from and after which dividends thereon shall be cumulative. In case
the stated dividends or the amounts payable on liquidation are not paid in
full, the shares of any series of the Class A Preferred Stock, the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred
Stock or the Class E Preferred Stock shall share ratably with the shares
of all other series of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock, Class D Preferred Stock or Class E Preferred
Stock, as the case may be, in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be payable
on said shares if all dividends were declared and paid in full, and in any
distribution of assets other than by way of dividends in accordance with
the sums which would be payable on such distribution if all sums payable
were discharged in full. Shares of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and
Class E Preferred Stock redeemed, purchased or otherwise acquired by the
Corporation (including shares surrendered for conversion) shall, as
determined by the Board of Directors and subject to applicable law, be
canceled and thereupon restored to the status of authorized but unissued
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred
Stock, Class D Preferred Stock or Class E Preferred Stock, as the case may
be, undesignated as to series, or retained as treasury shares.
4
<PAGE>
(d) Except as otherwise provided by the Board of Directors in accordance
with paragraph (b) above in respect of any series of the Class A Preferred
Stock, the Class B Preferred Stock, the Class C Preferred Stock, the
Class D Preferred Stock or the Class E Preferred Stock or as otherwise
expressly required by law, all voting rights of the Corporation shall be
vested exclusively in the holders of the Common Voting Stock. Each holder
of Common Voting Stock shall have one vote regardless of the number of
such shares held by such shareholder. When two or more holders of Common
Voting Stock join in an agricultural venture which markets crops through
the Corporation, the Board of Directors shall in its discretion determine
whether such venture is a single agricultural enterprise for which the
holders of the Common Voting Stock who participate in the enterprise shall
have one vote among them or whether the venture is a multiple enterprise
entitling the holders of Common Voting Stock who participate in the
enterprise to more than one vote.
Any holder of Common Voting Stock who ceases to be a producer of
agricultural products which he sells to the Corporation shall be obligated
to dispose of his Common Voting Stock as provided in the Bylaws of the
Corporation.
Upon dissolution or other termination of the Corporation or its business,
or the distribution of its assets, after payment to the holders of
Non-Cumulative Preferred Stock, Class A Preferred Stock, Class B Preferred
Stock, , Class C Preferred Stock, Class D Preferred Stock and Class E
Preferred Stock as herein provided, out of funds so remaining there shall
first be paid to the holders of the Common Voting Stock the par value
thereof, together with the amount of such dividends as may have been
declared but are unpaid as of such distribution and payment. Should there
be insufficient funds to make such payment, then the holders of such
Common Voting Stock shall share such funds as are available in such
proportion as the par value of and accrued dividends on their stock shall
bear to the total par value of and accrued dividends on all outstanding
Common Voting Stock. After payment to the holders of all classes of stock
as herein provided, the funds remaining shall be distributed as provided
by law and in the Bylaws of the Corporation.
7. The following provisions are adopted for the regulations of
the business and conduct of the affairs of the corporation:
(a) No transaction, right or liability entered into, enjoyed or incurred
by or in respect of the corporation, shall be affected by the fact that
any director or directors of the corporation are or may have been
personally interested in or concerning the same, and each director of the
corporation is hereby relieved of and from any and all liability which
otherwise might prevent him from contracting with the corporation for the
benefit of himself, or any firm, association or corporation, in which in
any way he may be interested.
5
<PAGE>
(b) The Board of Directors may, from time to time, sell any or all of the
unissued capital stock of the corporation, whether the same be any of the
original authorized capital or of any increase thereof, without first
offering the same to the stockholders then existing, and all such sales
may be made upon such terms and conditions as by the Board may be deemed
advisable, and may restrict a purchase, sale, distribution, transfer,
owning and holding of stock as fully and to the extent as authorized by
the Cooperative Corporations Law.
(c) The earnings and savings of the corporation, after payment of
dividends as aforesaid and after deduction of reserve and other funds in
amounts required or permitted by law to be established, shall be
distributed, whether in the form of stock, cash, or evidence of
indebtedness, or notices of equity or participation or in services,
proportionately and equitably among the persons for whom it does business,
on the basis of the amount of sales, purchases or other services, rendered
to or by such persons, and within the limits of law provided.
(d) No director of the corporation shall be personally liable to the
corporation or to any member or shareholder for damages for any breach of
duty in such capacity except where a judgment or other final adjudication
adverse to such director establishes: (i) that the director's acts or
omissions were in bad faith or involved intentional misconduct or a
knowing violation of law; or (ii) that the director personally gained in
fact a financial profit or other advantage to which the director was not
legally entitled; or (iii) that the director's acts violated Section 719
of the New York Business Corporation Law. If the New York Business
Corporation Law or Cooperative Corporation Law is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of the directors of the
corporation shall be eliminated or limited to the fullest extent permitted
by the New York Business Corporation Law and Cooperative Corporation Law,
as so amended.
8. The Secretary of State of the State of New York is designated as the
agent of the corporation upon whom process against it may be served, and the
post office address to which the Secretary of State shall mail a copy of such
process served upon him is P.O. Box 682, Rochester, New York 14603.
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IN WITNESS WHEREOF, we have made and subscribed this certificate in
duplicate this 3rd day of February 1995.
/s/Albert P. Fazio
--------------------------
Albert P. Fazio, President
/s/Thomas R. Kalchik
--------------------------
Thomas R. Kalchik
Assistant Secretary
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Exhibit 3.2
BYLAWS OF
PRO-FAC COOPERATIVE, INC.
Article I: Offices
Section 1. Principal Office
The principal office of the Cooperative shall be located in
Rochester, New York, or such other place as the Board of Directors may
from time to time designate.
Article II: Memeber
Section 1. Eligibility
All persons, partnerships, firms, corporations, institutions and
business organizations of any sort which engage in the production of
agricultural products which can be marketed through the Cooperative
shall be eligible for membership in the Cooperative as shall cooperative
corporations of such producers.
Section 2. Application for Membership
An applicant for membership in the Cooperative shall file with the
Cooperative an application for membership in such form and containing
such terms as shall be from time to time determined by the Board of
Directors. Included in the application shall be a statement that the
applicant agrees to (a) comply with and be bound by the terms and
conditions contained in the Certificate of Incorporation and in these
bylaws and amendments thereto; (b) purchase the required number of
shares of common stock of the Cooperative as established from time to
time by the Board of Directors based upon the quantity and type of
agricultural products to be marketed through the Cooperative by the
applicant; and (c) take into account, pursuant to Section 1385 and 1388
of the Internal Revenue Code of l954 as amended, the stated dollar
amount of any and all written notices of allocation received from the
Cooperative and include such stated dollar amount in his gross income
for the year in which such written notices of allocation are received.
<PAGE>
Section 3. Approval of Application
An application for membership may be approved by the Board of
Directors as herein provided if it is determined that the approval of
the application will be for the mutual benefit of the members of the
Cooperative and consistent with the accomplishment of its corporate
purposes.
Section 4. Membership Committee
The Board of Directors, by resolution adopted by a majority of the
entire Board, may appoint a Membership Committee, a majority of which
shall be members of the Board of Directors, each of whom shall hold
office until such appointment is rescinded and a successor appointed and
qualified. The Membership Committee shall have such functions and
responsibilities as may be delegated by the Board of Directors,
including, but not limited to, approving or rejecting applications for
membership and for transfer of common stock by a member. In any case
where factual information concerning the qualifications of an applicant
is insufficient to determine eligibility, the matter may be referred by
the Membership Committee to the Commodity Committee of the Cooperative
in or near the community in which the applicant resides for report and
recommendation to the Membership Committee.
Section 5. Ownership and Transfer of Common Stock
(a) The common stock of the Cooperative shall be issued to and owned by
only persons, partnerships, firms, corporations, institutions, or
other business organizations of any sort engaged in the production
of agricultural products (and cooperative corporations of such
producers) whose application for membership has been approved and
who market such agricultural products annually through the
Cooperative. The term "member" shall refer to an owner of common
stock of the Cooperative.
(b) No common stock shall be transferred without the prior written
consent of the Cooperative.
(c) Upon the death of an individual member, the estate of the deceased
shall continue as a member of the Cooperative solely for the
purpose of winding up the affairs of the deceased until all
obligations of he deceased to the Cooperative, including those
under the current commodity agreement, have been performed, after
which the estate shall dispose of its common stock in the manner
specified in Section 7.
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(d) Upon determination by the Board of Directors that a member is no
longer a producer of agricultural products which he sells to the
Cooperative, then such member shall dispose of his common stock in
the Cooperative in the manner specified in Section 7.
(e) Should the Cooperative discontinue a crop, then it shall notify all
members whose ownership of common stock is based upon their
marketing such crop through the Cooperative and direct such members
within a time specified by the Board of Directors in its discretion
to sell their common stock to the Cooperative for cash at the par
value thereof, plus any dividends accrued to the date of such sale.
(f) Should a member desire or be required by the Cooperative
permanently to reduce the quantity of a crop which he sells to the
Cooperative, then such member shall in the in the manner specified
in Section 7 of this Article, dispose of such number of shares of
his common stock as is necessary to bring his ownership of common
shares into the proper relationship to the quantity and type of
agricultural products which he markets through the Cooperative as
determined by the Board of Directors.
Section 6. Expulsion
(a) The Board of Directors, acting through its Membership Committee if
it elects to do so, may expel any member of the Cooperative if it
determines that such member (1) has become in default in payment of
his subscription for common stock, or (2) willfully fails to comply
with these bylaws or otherwise obstructs the purposes or proper
activities of Cooperative, or (3) has defaulted in his obligation
under the general marketing agreement, crop agreement, or any other
agreement with the Cooperative.
(b) A member may be expelled from the Cooperative only after a hearing
before the Membership Committee. The member shall be given by mail
or in person at least five days' written notice of such hearing,
which indicates the intention to consider such expulsion and
specifies the proposed reasons therefore. The member shall be given
an opportunity to appear and be heard at such hearing. If after
such hearing the Committee determines that the member should be
expelled, he shall have the right to appeal the decision to the
full Board of Directors. The decision of the Board of Directors in
such a case shall be final.
(c) If a member is expelled as provided herein, the Cooperative shall
cause written notice of such action to be mailed to the member.
(d) A member expelled from the Cooperative under this Section shall
dispose of his common stock as specified in Section 7.
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Section 7. Procedure on Transfer
A member who is obligated to dispose of his common stock in the
Cooperative shall do so as follows:
(a) A member shall make a reasonable effort to find another grower who
is willing to purchase the common stock of such member and assume
all his obligations to the Cooperative and who meets all
requirements for membership in the Cooperative. The Cooperative may
assist the member in finding such a grower and shall give the
member a reasonable time within which to try to find such a grower.
(b) The Cooperative shall notify the member when such reasonable time
has expired, at which time the member must then promptly sell his
common stock to the Cooperative for cash at the par value thereof
plus any dividends thereon which have been declared but remain
unpaid.
Section 8. Rights of Transferees
No one shall become a member of the Cooperative unless an
application for membership is filed in accordance with Section 2 of this
Article and is approved as provided in Section 3 of this Article.
Article III: Meetings of Members
Section 1. Meetings of Members
(a) Annual, special and regional meetings of members of the Cooperative
shall be held at such time and place and upon such terms and
conditions as shall be determined by the Board of Directors.
Written notice of the time, place and any particular known business
to be transacted at such meeting shall be given by mailing, not
less than ten nor more than fifty days prior to the meeting,
postage prepaid, a copy of such notice directed to each eligible
voter at his address as it appears on the books of the Cooperative.
(b) The Board of Directors may direct that, in lieu of or in addition
to a single annual or special meeting of members, one or more
regional membership meetings be held in the regions, or in
combinations of the regions, designated by the Board of Directors.
Such regional meetings shall be conducted as provided in this
Article and as otherwise determined by the Board of Directors.
(c) Should the Board of Directors direct the holding of regional
meetings of members as herein provided, then notice of such
meetings shall be given to all members in each region in the manner
provided in Section 1(a) of this Article. If so requested
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by the Board of Directors, at a regional meeting the members shall
from their number elect a delegate and alternate delegate (who
shall act if the delegate is unable to serve) to represent the
members at any meeting of delegates. Delegates and alternate
delegates shall be selected and authorized to act as follows:
(1) Delegates and alternate delegates shall be nominated and elected
in the same manner as provided herein for the nomination and
election of regional directors.
(2) Delegates and alternate delegates shall be elected for a term of
one year, or until their successors have been duly elected and
qualified. At all meetings of delegates a majority of the
delegates (or any alternate delegates if they are serving
instead of the delegates) shall constitute a quorum.
(3) Any action required to be taken by the entire membership of the
Cooperative may if requested by the Board of Directors then be
taken in their behalf by the delegates at a meeting of
delegates.
(4) To the maximum extent possible, the members shall at regional
meetings instruct their delegates as to how to vote at any
meeting of delegates. At any meeting of delegates each delegate
shall, as to all matters voted upon by members at a regional
meeting, have a number of votes equal to the total votes cast by
the members in his region at such regional meeting, and he shall
cast those votes in the same manner as those votes were cast at
the regional meeting.
(5) As to any matter properly submitted to a meeting of delegates
which has not been voted upon by members at a regional meeting,
each delegate shall cast in a manner which he believes to be in
the best interest of the Cooperative all votes available to be
cast by the members in the region represented by such delegate.
Section 2. Special Meetings
A special meeting of members or delegates may be called by a
majority of the Board of Directors or of the members. Notice of such
special meeting, specifying the time, place and purpose for which it is
called, shall be given to each member (or if a delegate meeting is
called, to each delegate) in the manner provided in Section 1(a) of this
Article.
Section 3. Quorum & Voting
(a) At all meetings of the members, the members present shall
constitute a quorum. At any annual, special or regional meeting of
members, duly called in accordance with these bylaws and applicable
law, the written vote of an absent member signed by him shall be
received and counted, provided he shall have been previously
notified in writing of the substance of the motion or resolution
upon which such
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vote is taken. At all annual and special meetings of members and
all regional meetings of members with respect to the election of
directors, delegates and alternate delegates, all decisions (except
decisions on matters otherwise regulated by statute or otherwise
governed by these bylaws) shall be determined by the majority vote
of the members present in person or voting by mail as herein
provided. At all regional meetings of members other than those as
they relate to the election of directors, delegates or alternate
delegates, all decisions (except decisions on matters otherwise
regulated by statue or otherwise governed by these bylaws) shall be
determined by the majority vote of the aggregate number of members
present in person or voting by mail as herein provided at all such
regional meetings, taken in the aggregate.
(b) All voting by members and delegates shall be as described in these
bylaws, and voting by proxy shall not be permitted.
(c) The delegates may take action without a meeting upon the unanimous
written consent of all of the delegates.
Section 4. Inspectors of Election
Two inspectors of election shall be appointed by the Chairman of the
meeting at each annual meeting or regional meeting of members to serve
for that meeting. If any inspector shall not be present or shall decline
to serve, the chairman shall appoint an inspector to fill his place.
Article IV: Directors
Section 1. Number of Directors
There shall be no fewer than eleven (11) nor more than eighteen (18)
directors of the Cooperative, with the exact number to be determined
from time to time by resolution of the Board.
Section 2. Term of Office
Except as provided in Section 5(b) and (c) of this Article,
directors shall serve for the term of three (3) years or until their
successors shall have been duly elected and qualified.
Section 3. Election of Directors
(a) Directors shall be chosen by a plurality of the votes cast at any
meeting called for that purpose, and substantially one-third (1/3)
of their number shall be elected each year.
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(b) The Board of Directors shall divide the territorial area in which
the Cooperative operates into regions and shall designate the
number of Directors to be elected from each region so as to attain
reasonably balanced regional representation on the Board based upon
the value of raw product delivered by the members in each region.
The Board of Directors may in its discretion further divide any
region into districts within the region.
(c) The Board of Directors shall appoint a number of Directors no
greater than one-fifth (1/5) of the entire number of Directors to
represent primarily the interest of the general public in the
Cooperative. Such directors need not be members of the Cooperative.
(d) The members in each region shall elect the director or directors
for that region. In any region which is divided into districts, the
members in each district shall elect the directors from that
district.
Section 4. Nomination of Directors
(a) The members of each region of the Cooperative shall elect a
nominating committee for their region. In any region which is
divided into districts there shall be a nominating committee for
each district elected by the members of the district. Each
committee member shall serve for a two-year term with substantially
one-half of the membership of the committee elected each year.
Rules for the election of committee members and for selection of
nominees for directorships shall be established annually by the
Board of Directors.
(b) Directors representing each region or district shall be nominated
by the regional or district nominating committees formed pursuant
to these bylaws. Additional nominations of directors may otherwise
be made only by members from the floor of the meeting at which
directors are to be elected.
(c) All nominees for director, to be validly nominated, must meet such
qualifications for office as are established under these bylaws or
by law.
Section 5. Revision of Regional Representation
(a) Should there be major shifts in the geographical distribution of
members or the production of raw products delivered to the
Cooperative, the Board of Directors shall redistribute the number
of Directors representing one or more regions or shall revise the
boundaries of one or more regions so as to maintain reasonably
balanced regional representation on the Board of Directors based
upon the value of raw product delivered in each region.
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(b) In case the number of directors representing a region is to be
reduced by a redistribution as provided in Section 5(a), then in
order to facilitate that reduction the Board of Directors may
request (but not compel) the resignation as a director of all
directors from the region (or from a district within a region)
affected whose terms will not have expired as of the time such
reduction is to become effective.
(c) In acting pursuant to this section, the Board of Directors may
request the nominating committees for the affected regions or
districts to nominate members for election to those vacant
directorships which the region or district may be entitled to elect
after the redistribution of director representation as provided in
this Section 5. At a meeting of the members of the affected region
or district called upon such terms as may be determined by the
Board of Directors, directors may be elected to fill such vacant
directorships as the members of the affected regions or districts
may be entitled to elect after the redistribution of director
representation as provided in this Section 5. Such directors shall
be nominated for and elected to such directorships for terms of one
to three years so that the terms of substantially one-third of all
directors shall expire each year.
Section 6. Board Vacancies
Vacancies in the Board of Directors occurring during the year caused
by death, resignation or otherwise, may, until the next meeting of
members called for the election of a successor director, be filled by a
majority vote of the remaining directors at any meeting of the Board.
Vacancies shall be filled by members from the region or district in
which the vacancy occurs.
Section 7. Compensation
Directors, as such, shall not receive any stated salary, but as
fixed by resolution of the Board, a stated sum and expenses of
attendance may be allowed for such meetings as they necessarily attend
in behalf of the Cooperative.
Section 8. Power of Directors
Subject to the provisions of the Certificate of Incorporation and of
these bylaws, the business of the Cooperative shall be managed and
conducted by the Board of Directors. The Board may adopt rules and
regulations for the conduct of its meetings and for the management of
the affairs of the Cooperative and may adopt additional bylaws
consistent with the Laws of the State of New York and with these bylaws,
provided such additional bylaws are submitted for the approval of
members at the next annual meeting.
Section 9. Committees of the Board
The Board of Directors, by resolution adopted by a majority of
the entire board,
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may designate from among its members an executive committee and other
committees, each consisting of three or more directors, and each of
which, to the extent provided in such resolution, shall have all the
authority of the Board, except as to the following matters:
(1) The submission to members of any action that by law requires
authorization of members.
(2) The filling of vacancies in the Board of Directors or in any
committee.
(3) The fixing of compensation of any director for serving on the
Board or on any committee.
(4) The amendment or repeal of the bylaws, or the adoption of new
bylaws.
(5) The amendment or repeal of any resolution of the Board which by
its terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members
of any such committee, who may replace any absent member or members at
any meeting of such committee. Each such committee (and each member of
such committee) shall serve at the pleasure of the Board of Directors.
Article V: Meetings of Directors
Section 1. Place of Meetings
All meetings of the Board of Directors shall be held at the
principal office of the Cooperative or at such other places as the Board
of Directors, from time to time, may determine.
Section 2. Regular Meetings
Regular meetings of the Board of Directors shall be held immediately
after the annual meeting of members, or delegates, and thereafter at
such time as may be fixed by the directors for regular meetings.
Section 3. Special Meetings
Special meetings of the Board of Directors may be called by the
General Manager or the President and shall be called by the General
Manager at any time at the request of any three directors.
Section 4. Notice
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Written notice of each regular meeting of the Board of Directors
shall be mailed to each director not less than five days before each
regular meeting. Notice of special meetings shall be given not less five
days before the meeting, if given by mail, or three days before the
meeting, if given by telephone or telegram, and such notice shall state
the purpose of the meeting. No other business shall be transacted at a
special meeting except with the unanimous consent of all directors.
Section 5. Quorum
A majority of all the directors shall constitute a quorum for the
transaction of business at any meeting.
Section 6. Official Acts of the Board
Each of the official acts of the Board of Directors shall be by a
majority vote of the directors present at any duly convened meeting. The
board may take action without a meeting upon the unanimous written
consent of all the directors.
Article VI: Officers
Section 1. Officers and Agents
(a) The officers of the Cooperative shall be a president, a vice
president, a secretary, a treasurer, and a general manager, who
shall be elected by the Board of Directors immediately after each
annual meeting of members or delegates. Any two of the aforesaid
offices, except those of president and secretary, may be held by
the same person.
(b) The Board may elect such other officers as it shall deem necessary,
who shall have such authority and shall perform such duties as from
time to time shall be prescribed by the Board.
Section 2. Term of Office
The officers of the Cooperative shall hold office for one year and
until their successors are chosen and qualify in their stead. Any
officer may be removed at any time by the affirmative vote of a majority
of the directors. If any office becomes vacant for any reason, the
vacancy shall be filled by the Board of Directors.
Section 3. President
The president shall be a member and director of the Cooperative; he
shall preside at all meetings of members, delegates and directors.
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Section 4. Vice President
The Vice President shall be a member and director of the
Cooperative, in the absence or disability of the President, he shall
perform the duties and exercise the power of the President. He shall
also perform such other duties as the Board of Directors shall
prescribe.
Section 5. Secretary
The secretary shall attend all meetings of the Board and of
the members or delegates and shall
(a) give or cause to be given a notice of all meetings of members,
shareholders, delegates and the Board of Directors,
(b) record or cause to be recorded all votes and minutes of the
proceedings of such meetings,
(c) have custody of the seal of the Cooperative and affix it to any
instrument when authorized by the Board of Directors,
(d) perform or cause to be performed such other duties as may be
prescribed by the Board of Directors.
Section 6. Treasurer
The treasurer shall
(a) have custody of the funds of the Cooperative,
(b) keep or cause to be kept full and accurate accounting of receipts
and disbursements in books belonging to the Cooperative,
(c) deposit or cause to be deposited, all money and other valuable
effects in the name and to the credit of the Cooperative in such
depositories as may be designated by the Board of Directors,
(d) disburse or cause to be disbursed, the funds of the Cooperative as
may be ordered by the Board, taking proper vouchers for such
disbursements,
(e) render or cause to be rendered to the President, directors and
members an accounting of all his transactions as Treasurer and of
the financial condition of the Cooperative,
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(f) give, or cause to be given to the Cooperative, if required by the
Board of Directors, a bond in such sum or sums with such surety or
sureties as shall be satisfactory to the Board, conditioned upon
the faithful performance of his duties and for restoration to the
Cooperative in case of his death, resignation, retirement, or
removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the Cooperative.
Section 7. General Manager
The General Manager shall be the chief executive officer of the
Cooperative and shall see that all orders and resolutions of the Board
of Directors are carried into effect.
Article VII: Commodity Committees
Section 1. Formation
There shall be a commodity committee representing the member-growers
for each of the major crops produced for the Cooperative as determined
by the Board of Directors.
Section 2. Committee Members
The number, distributions, and method of election of committee
members, each of whom shall be a member of the Cooperative, shall be
determined by the Board of Directors
Section 3. Purpose
Commodity committees are charged with the responsibility of
counseling and advising the Board of Directors and officers and
management of the Cooperative on matters generally associated with the
specific crop, the growers of which they represent. The committees shall
also act in matters referred to them by the membership committee under
Article II, Section 4 hereof, and shall have such other functions as may
be delegated by the Board.
Article VIII: Investment Summaries and Shares of Stock
Section 1. Investment Summaries
To the extend a determination to issue certificates is not pursuant
to Section 2 of this Article, the Cooperative shall issue, not less
frequently than annually, investment summaries to each member or
shareholder of the Cooperative, which shall set forth the entire
interest of the member or shareholder in the Cooperative as of the date
it is issued.
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Section 2. Certificates of Stock
The Board of Directors may determine to issue certificates for some
or all of its capital stock. The certificates of stock of the
Cooperative shall be numbered and entered in the books of the
Cooperative as they are issued. They shall exhibit the holder's name and
the number of shares and shall be signed by the President or a Vice
President and the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary.
Section 3. Lost Certificates
Should it appear that a stock certificate issued by the Cooperative
has been lost, the Board of Directors may direct that a new certificate
or certificates be issued in place of any certificates theretofore
issued by the Cooperative, alleged to have been lost or destroyed, upon
the making of an affidavit of the fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may,
in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or certificates,
or his legal representative, to advertise the same in such manner as it
shall require and/or give the Cooperative a bond in such sum and with
such surety or sureties as may direct as indemnity against any claim
that may be made against the Cooperative with respect to the certificate
alleged to have been lost or destroyed.
Section 4. Stock Ownership
The Cooperative shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof, and
accordingly shall not be bound to recognize any equitable or other claim
to or interest in such share on the part of any other person whether or
not it shall have express or other notice thereof, except as expressly
provided by the laws of New York.
Section 5. Closing of Transfer Books or Fixing of Record Date
The Board of Directors may prescribe a period not exceeding fifty
days prior to the date of meetings of the members and shareholders or
prior to the last day on which the consent or dissent of members and
shareholders may be effectively expressed for any purpose without a
meeting, during which no transfer of stock on the books of the
Cooperative may be made; or in lieu of prohibiting the transfer of
stock, may fix a time not more than fifty days prior to the date of any
meeting of members and shareholders or prior to the last day on which
the consent or dissent of members and shareholders may be effectively
expressed for any purpose without a meeting, as the time of which
members and shareholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for
any purpose,
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as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no others shall be
entitled to notice of and to vote at such meeting or to express their
consent or dissent, as the case may be. The Board of Directors may also
fix a time not exceeding fifty days preceding the date fixed for the
payment of any dividend or the making of any distribution, or for the
delivery of evidence of rights, or evidence of interests arising out of
any change, conversion or exchange of capital stock, as a record time
for the determination of the members and shareholders entitled to
receive any such dividend, distribution, rights or interests, or at its
option, in lieu of so fixing a record time, may prescribe a period not
exceeding fifty days prior to the date for such payment, distribution or
delivery during which no transfer of stock on the books of the
Cooperative may be made.
Article IX: Processing and Marketing
Section 1. Agent Growers
A member of the Cooperative may on a temporary basis contract with
another grower, who may, but need not be, a member of the Cooperative,
to fulfill all or a part of the member's obligation to deliver crops to
the Cooperative, provided such agreement is approved by the Membership
Committee of the Board of Directors. Such grower shall be referred to as
an "agent grower."
Section 2. Delivery of Members' Products
It shall be the duty of every member and agent grower to deliver his
crops to the Cooperative for marketing in accordance with the terms and
conditions of, and in the amounts specified in, the general marketing
agreement, the annual crop agreements, or any agreement between him and
the Cooperative. It shall be the duty of the Cooperative to receive and
market such crops in accordance with the terms and conditions of all
such agreements.
Section 3. Cooperative's Control
All handling of the products of members and agent growers produced
under agreement with the Cooperative shall upon delivery to the
Cooperative be under the full and exclusive control of the Cooperative
and its agents and representatives, and the Cooperative shall have the
full and unqualified right to take title to such products and process,
sell, mortgage, pledge or otherwise encumber, dispose of or transfer
them and to sue on, enforce and compromise any rights or claims arising
out of any transaction involving such products. No member or agent
grower shall have any rights or shall exercise any control over any
products delivered by virtue of having furnished such products, other
than as may be expressly provided in these bylaws or in any agreement
with the Cooperative.
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Section 4. Liens
The Cooperative shall have a lien upon all of the products of any
member or agent grower to be marketed through the Cooperative, whether
harvested or growing, and upon all sums payable to the member or agent
grower, as security for the payment to the Cooperative of all sums owing
from such member or agent at any time, including the sums due as damages
pursuant to any crop purchase or other agreement.
Section 5. Non-Member Dealings
The Cooperative shall have the right to handle the products of or
otherwise deal with non-members upon such terms and conditions as the
Board of Directors may from time to time determine, but the total value
of all such products shall not exceed the total value of all products
handled for its members.
Section 6. Other Activities
The Cooperative shall have the right to engage in such other
activities, including but not limited to, the furnishing of equipment
and supplies to members and agent growers, research and advertising, as
may be conducive to the attainment of its purposes.
Article X: Proceeds and Dispostion of Proceeds
Section 1. Commercial Market Value
The Board of Directors shall each year determine the commercial
market value of each crop marketed through the Cooperative. Such
commercial market value is to be a weighted average of the prices paid
by commercial processors for similar crops sold for similar or related
uses in the same or competing marketing areas, as determined by the
Board of Directors in agreement with the Board of Directors of Curtice
Burns Foods.
Section 2. Pools
The Cooperative shall operate with a single pool, unless the Board
of Directors determines that additional pools are advisable. The term
"pool" means the grouping together each fiscal year, for accounting
purposes, of the operations concerned with the determination of proceeds
derived from a commodity or group of commodities.
Section 3. Patronage Proceeds
The patronage proceeds of the Cooperative shall be its gross
receipts derived from sources which under law qualify as patronage
income, including income from the sale of raw products and all income
from other patronage sources, less its operating expenses properly
attributable to the production of such patronage income, including
15
<PAGE>
overhead, interest, dividends on capital stock, maintenance,
depreciation, obsolescence, depletion, bad debts, taxes and other proper
costs, all as determined by the Board of Directors in accordance with
regular business practices and sound accounting principles. Capital
gains and capital losses shall be distributed as determined by the Board
of Directors in it discretion after considering the current federal
income tax law and regulations.
Section 4. Members' Share of Patronage Proceeds
Each member's and each agent grower's prorate share of the patronage
proceeds shall be determined annually by dividing the patronage proceeds
by the total raw product value (commercial market value times total
quantity delivered); this gives the percent of commercial market value
earned. The multiplication of that percentage by the raw product value
delivered by each member and agent grower determines the prorata share
of patronage proceeds of each member and agent grower. In any year in
which patronage proceeds as determined pursuant to Sections 3, 4 and 8
are less than commercial market value there shall be paid or allocated
to each member and agent grower as the purchase price for his crops as
provided in Section 5 not only his share of patronage proceeds for the
year but also his share of funds available for such payment pursuant to
any commercial market value stabilization program adopted by the Board
of Directors, up to a total payment or allocation of full commercial
market value or the maximum amount available under the program,
whichever is less.
Section 5. Payment of Patronage Proceeds
Without any further action on the part of any officer or the Board
of Directors of the Cooperative, the Cooperative shall be absolutely
liable for the payment or allocation as herein provided to each member
and agent grower of the prorata share of patronage proceeds of each
member and agent grower determined pursuant to Section 4. Such payment
allocation shall be accomplished annually within eight and one-half
months of the close of the fiscal year of the Cooperative.
Section 6. Retention of Patronage Proceeds
Upon such terms and conditions and in such amounts as are deemed
advisable in the discretion of the Board of Directors, a portion of the
patronage proceeds may be retained in the Cooperative for use as working
capital or for such other purposes as may be determined by the Board of
Directors. Such portion of the patronage proceeds so retained shall be
allocated among the members and agent growers entitled thereto, and the
Cooperative shall cause written notice of such allocation to be sent to
each such member and agent grower. The balance of the patronage proceeds
not so retained shall be paid in cash.
16
<PAGE>
Section 7. Taxable Income of Members
Each member of the Cooperative, and, as applicable, each agent
grower as described in Article IX, Section 1, shall take into account,
pursuant to Section 1385 and 1388 of the Internal Revenue Code of l954
as amended, the stated dollar amount of any and all written notices of
allocation received from the Cooperative and shall include such stated
dollar amount in his gross income for tax purposes for the year in which
such written notice of allocation is received.
Section 8. Non-Patronage Proceeds
The non-patronage proceeds of the Cooperative shall be its gross
receipts derived from all sources which under law do not qualify as
patronage income, less all expenses properly attributable to the
production of such non-patronage income. Non-patronage proceeds shall be
used in behalf of the Cooperative and its members in accordance with
such lawful purposes as may be determined by the Board of Directors. In
any year in which non-patronage expenses exceed non-patronage income so
that there is a loss from the non-patronage activities of the
Cooperative, such non-patronage loss shall be deducted from patronage
proceeds determined in accordance with Sections 3 and 4 of this article
before payment and allocation of patronage proceeds is made pursuant to
Sections 5 and 6 of this article.
Section 9. Dissolution
Upon dissolution or other termination of the Cooperative or its
business, after the payment of all debts, amounts allocated to members
but retained by the Cooperative shall be paid in full, or on a prorata
basis without priority, before any liquidating dividends are declared on
or with respect to capital stock.
After such payments, out of any funds then remaining, holders of
non-cumulative preferred stock are entitled to receive the full par
value of such stock, together with the amount of such dividends as may
have been declared but are then unpaid. After payment to the holders of
preferred stock, out of any funds then remaining, the holders of common
stock are entitled to receive the par value thereof, together with the
amount of such dividends as may have been declared but are then unpaid.
After payments to the holders of preferred and common stock, any
funds then remaining shall be distributed amount the members to whom
interests in funds retained by the Cooperative have been allocated
during the preceding five fiscal years in such proportion as the total
of the amounts allocated to each member during such period shall bear to
the total of the amounts allocated to all members but retained by the
Cooperative during such period.
Section 10. Guarantee
17
<PAGE>
The Cooperative may, by resolution of the Board of Directors,
guarantee and endorse the notes, checks, drafts or borrowings of any
other corporation, and any bank or trust company shall be fully
protected under any such guarantee or endorsement upon receipt of a copy
of any such resolution duly certified by the secretary of the
Cooperative.
Section 11. Fiscal Year
The fiscal year of the Cooperative shall be as determined from time
to time by the Board of Directors of the Cooperative.
Article XI: Dividends
Section 1. Declaration
Dividends upon the capital stock of the Cooperative may be declared
by the Board of Directors at any regular or special meeting, subject to
the provisions of law and of the Certificate of Incorporation relating
thereto.
Article XII: Miscellaneous Provisions
Section 1. Seal
The seal of the Cooperative shall be circular in form and contain
the name of the Cooperative, the year of its organization and the words,
"Corporate Seal, New York". The seal may be used by causing it to be
impressed directly on the instrument or writing to be sealed, or upon an
adhesive substance affixed thereto. The seal on any corporate instrument
may be a facsimile, engraved or printed.
Section 2. Roberts Rules of Order
To the extent that issues concerning the operation of the
Cooperative are not resolved by law, the Certificate of Incorporation,
or these bylaws, are to be determined in accordance with the most recent
edition of Roberts Rules of Order published at the time such issue
arises.
Section 3. Amendments
These bylaws may be amended by the Board of Directors as set forth
in Article IV, Section 8, hereof, and may also be amended or repealed,
or new bylaws adopted, at any meeting of members or delegates by the
affirmative vote of two-thirds of the votes cast by the members voting,
either in person or by mail, providing the substance of the proposed
amendment has been inserted in the notice of such meeting.
18
<PAGE>
EXHIBIT 5
June 13, 1995
Pro-Fac Cooperative, Inc.
90 Linden Place
Rochester, New York 14625
Re: Registration Statement on Form S-1
Gentlemen:
We have acted as your counsel in connection with a
Registration Statement on Form S-1 to be filed by you with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended. Such Registration Statement may be amended, from time to time, by
one or more amendments at the request of the Commission, or on your own
initiative, either before or after its effective date. The Registration
Statement, as so amended or to be amended, covers the shares of common stock,
par value $5 (the "Common Stock"), the shares of preferred stock, par value $25
(the "Preferred Stock"), and the retains (the "Retains") of Pro-Fac referred to
therein.
We have examined originals or copies, identified to our
satisfaction, of such documents and records of Pro-Fac, and such other documents
and records as we have deemed necessary, as a basis for the opinions hereinafter
expressed.
Based on the foregoing, and having regard for such legal
considerations as we have deemed relevant, we are of the opinion that, subject
to an order or other appropriate action by the Commission declaring the
Registration Statement effective, the Common Stock of Pro-Fac, when sold in
accordance with the terms and conditions set forth in the prospectus forming
part of the Registration Statement to be filed with the Commission (the
"Prospectus"), and the Preferred Stock and Retains of Pro-Fac, when issued in
accordance with the terms and conditions set forth in the Prospectus, will be
legally issued, fully paid and non-assessable, except that under the New York
Cooperative Corporations Law each member and each director of Pro-Fac may be
personally liable, jointly and severally, for certain amounts owed to employees
for services rendered to Pro-Fac, as described in the Prospectus under the
caption "Description of Pro-Fac Securities - Common Stock", and except that the
amount of outstanding Non-Qualified Retains may be subject to adjustments
subsequent to issuance, as described in the Prospectus under the caption
"Description of Pro-Fac Securities - Retains".
<PAGE>
Pro-Fac Cooperative, Inc.
June 13, 1995
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the caption
"Legal Opinion" in the Prospectus.
Very truly yours,
/s/Harris Beach & Wilcox, LLP
<PAGE>
Exhibit 10.13
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-A,
T-6186-A, S-6183-A, and S-6181-A
January 26, 1995
CURTICE-BURNS FOODS, INC.
- --------------------------------------------------------------------
MODIFICATION OF
TERM LOAN, TERM LOAN FACILITY AND SEASONAL LOAN AGREEMENT
IT IS AGREED, That the Term Loan, Term Loan Facility and Seasonal Loan Agreement
dated as of November 3, 1994, entered into between Curtice- Burns Foods, Inc.
(successor to merger between PF Acquisition Corp. and Curtice-Burns Foods, Inc.)
("Borrower") and Springfield Bank for Cooperatives, now known as CoBank, ACB
("Bank") is hereby amended as follows:
(1) Section 2.7 entitled Seasonal Loan Facility is modified to allow the Bank to
make Seasonal Loans to the Borrower from time to time during the period from the
Closing Date through December 31, 1995. The Bank may, at its option, renew the
Seasonal Loan Commitment for one or more successive one (1)-year periods from
and after December 31, 1995.
(2) Subsection (a) of Section 2.13 entitled Interest is modified to change the
allocation of the first Twenty-One Million Dollars ($21,000,000) of the Term
Loan Facility Loans made by the Bank. Tranche No. 3 and Thirteen Million
($13,000,000) of Tranche No. 4 shall consititute in the aggregate the first
Twenty-One Million Dollars ($21,000,000) of the Term Loan Facility Loans made by
the Bank to the Borrower.
(3) Section 3.1 entitled Letter of Credit Accommodations is modified to allow
the Bank to provide the Borrower with a Letter of Credit Facility during the
period from the Closing Date through December 31, 1995. The Bank may, at its
sole option, renew the Commitment for Letter of Credit Accommodations for one or
more successive one (1)-year periods from and after December 31, 1995.
(4) Section 3.7 entitled L/C Limit is modified by increasing the L/C Limit
outstanding at any time to Eleven Million Dollars ($11,000,000).
The Borrower agrees to execute such additional documents and to take such other
action as may be reasonably requested by the Bank to give effect to this
Modification.
<PAGE>
The Term Loan, Term Loan Facility and Seasonal Loan Agreement is hereby amended
accordingly but otherwise shall remain in full force and effect.
CoBANK, ACB (formerly known as
Springfield Bank for Cooperatives)
By /s/ Roger Murray
----------------------------
Its Assistant Vice President
ACCEPTED AND AGREED TO: 1/28/95
----------------------------
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ Roy A. Myers
----------------------------
Its President & CEO
ACKNOWLEDGED AND AGREED TO: 1/28/95
-------------------
(Date)
PRO-FAC COOPERATIVE, INC.
By /s/ William D. Rice
-------------------------------------------
Its Assistant Treasurer
ACKNOWLEDGED AND AGREED TO: 1/28/95
------------------
(Date)
CURTICE-BURNS EXPRESS, INC.
CURTICE-BURNS MEAT SNACKS, INC.
FINGER LAKES PACKAGING COMPANY, INC.
HUSMAN SNACK FOODS COMPANY, INC.
KENNEDY ENDEAVORS, INCORPORATED
NALLEY'S CANADA LIMITED
QUALITY SNAX OF MARYLAND, INC.
SEASONAL EMPLOYERS, INC.
PRO-FAC HOLDING COMPANY OF IOWA, INC.
By /s/ William D. Rice
---------------------------------
Its Vice President
<PAGE>
Exhibit 10.14
SECOND AMENDMENT
TO THE CURTICE BURNS FOODS
NON-QUALIFIED PROFIT SHARING PLAN
This Amendment is adopted by Curtice Burns Foods, Inc., a corporation duly
formed and existing under the laws of the State of New York, (the "Employer").
WHEREAS, the Employer has adopted the Curtice Burns Foods Non-qualified
Profit Sharing Plan (the "Plan"), and has reserved the right pursuant to the
provisions of the Plan to amend it at any time, and
WHEREAS, the Employer, based upon the determination of the Board of
Directors, now wishes to amend the Plan,
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 4.01 of the Plan is hereby amended as follows:
(a) The Employer shall make a contribution to the Plan for the Employer's
fiscal year ending June 24, 1995 determined in the following
manner:
(1) Seven percent (7%) of the Earnings of Curtice Burns Foods,
Inc. after deduction of five percent (5%) of Capital
Employed by Curtice Burns Foods, Inc. and Pro-Fac
Cooperative, both determined in accordance with (b) below
shall be determined as a "hypothetical contribution."
(2) The hypothetical contribution shall be allocated (the
"hypothetical allocation") to Participants in the Curtice
Burns Foods Deferred Profit Sharing Plan (effective
September 15, 1989) in accordance with the provisions of
such Plan regarding allocations, and to those Employees who
are eligible to participate in this Plan, and who are not
eligible to participate in the Curtice Burns Foods Deferred
Profit Sharing Plan because such Employees are Highly
Compensated Employees, in accordance with the allocation
provisions of Article V hereof.
(3) The portion of the hypothetical allocation for Highly
Compensated Employees shall be determined.
(4) The resultant amount determined in Paragraph (3) above shall
be the amount available for contribution to this Plan, and
such contribution shall be allocated in accordance with
Article V hereof.
<PAGE>
-2-
(b) The following terms shall have the following meanings:
(1) "Earnings" shall mean Division Net Earnings on the Curtice
Burns Foods, Inc. Comparative Statement of Operations and
Retained Earnings for the fiscal year ending June 24, 1995,
net of non-operating income and expenses, less charitable
contributions, and shall include the entire fiscal 1995
Springfield Bank for Cooperatives dividend and the Nalley's
Chips and Snacks losses through December of 1994, and shall
exclude any one-time gains or losses, and any change of
control expenses and incremental expenses due to the change
of control. The exclusion of any extraordinary charges of
earnings shall be approved by the Board of Directors of
Curtice Burns Foods, Inc.
(2) "Capital Employed" shall mean all debt, including long-term
debt which is temporarily paid seasonally, and equity of
Curtice Burns Foods, Inc. subject to interest or dividends
as of fiscal year end; provided, however, that the current
portion of long-term debt shall be excluded, short-term debt
shall be excluded, and any liability for unpaid deferred
compensation shall be excluded. All equity is included
except for Pro-Fac Cooperative retains and Pro-Fac
Cooperative earned surplus which is less than five years
old. The computation of Capital Employed shall be in
accordance with generally accepted accounting principles
consistently applied.
(c) Notwithstanding the foregoing, in no event shall the Employer
contribution during any fiscal year exceed fifteen percent (15%) of the
aggregate compensation paid to Participants during such year.
(d) The Employer contribution amount shall be determined by the public
accountant regularly employed by Curtice Burns Foods, Inc. and the
certificate of such accountant shall be conclusive and binding upon all
persons having or claiming an interest hereunder.
(e) The Employer contribution shall not be increased or decreased by reason
of any audit or change made by the Internal Revenue Service or any
other person or agency subsequent to the date when the Employer
contribution is made for a year.
<PAGE>
-3-
(f) For fiscal years of the Employer commencing on or after June 25, 1995,
the Company shall determine on an annual basis the formula to be used
to determine Employer Contributions, such formula to be approved
annually by the Board of Directors of Curtice Burns Foods, Inc.
2. This Amendment shall be effective as of the date of signing below. The
provisions of Section 4.01 of the Plan in existence prior to the
effective date of this amendment are hereby revoked.
IN WITNESS WHEREOF, this Amendment has been executed this 26th day of
January, 1995.
CURTICE BURNS FOODS, INC.
By: /S/ Lois Warlick-Jarvie
-------------------------
Lois Warlick-Jarvie
Vice President, Human Resources
EXHIBIT 12
Pro-Fac Cooperative, Inc.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine
Months
Fiscal Year Ended Ended
--------------------------------------------------------------------
June 29, June 28, June 26, June 26, June 25, March 25,
1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends
Excess/(deficiency) of revenues before taxes,
dividends and allocation of net proceeds
from current operations $14,820 $ 8,323 $12,754 $(17,498) $23,698 $13,639
Deduct - Equity in undistributed earnings of
CoBank (814) (747) (1,129) (1,486) (1,541) (1,288)
------ ----- ------ ------- ------ ------
14,006 7,576 11,625 (18,984) 22,157 12,351
Fixed charges:
Interest expense 19,614 20,302 17,179 13,753 11,587 20,603
Rentals (A) 600
------
Total fixed charges 19,614 20,302 17,179 13,753 11,587 21,203
------ ----- ------ ------- ------ ------
Adjusted earnings/(loss) before fixed charges $ 33,620 $27,878 $28,804 $ (5,231) $33,744 $33,554
======= ======= ======= ======== ======= =======
Preferred dividends - interim periods prorated $ 3,118 $ 3,573 $ 3,837 $ 3,893 $ 3,717 $ 3,261
Add - Adjustment to reflect preferred dividends
on a pretax basis1 -- -- -- -- -- --
------ ----- ------ ------- ------ ------
Preferred dividends on a pretax basis 3,118 3,573 3,837 3,893 3,717 3,261
Fixed charges 19,614 20,302 17,179 13,753 11,518 21,203
------ ----- ------ ------- ------ ------
Total $22,732 $23,875 $21,016 $ 17,646 $15,235 $24,464
======= ======= ======= ======== ======= =======
Ratio of earnings to fixed charges and
preferred dividends 1.5 1.2 1.4 (B) 2.2 1.4
======= ======= ======= ======== ======= =======
Computation of Pro Forma Ratio of Earnings to Fixed
Charges and Preferred Dividends
Adjusted earnings/(loss) before
fixed charges, as above $33,620 $27,878 $28,804 $ (5,231) $33,744 $33,554
======= ======= ======= ======== ======= =======
Total fixed charges and pretax basis
preferred dividends, as above $22,732 $23,875 $21,016 $ 17,646 $15,235 $24,464
------ ----- ------ ------- ------ ------
Pro forma preferred dividends assuming all "Retains"
were converted into preferred stock (retained
earnings allocated to members times the maximum
dividend rate permitted by law of 12 percent)
interim periods prorated 5,258 4,800 3,997 4,391 4,218 3,995
Add - Adjustments to reflect preferred dividends on a
pretax basis1 -- -- -- -- -- --
------ ----- ------ ------- ------ ------
5,258 4,800 3,997 4,391 4,218 3,995
------ ----- ------ ------- ------ ------
Pro forma total fixed charges and pretax basis
preferred dividends $27,990 $28,675 $25,013 $22,037 $19,435 $28,459
======= ======= ======= ======== ======= ========
Pro forma ratio of earnings to fixed charges and
preferred dividends 1.2 (C) 1.2 (B) 1.7 1.2
======= ======= ======= ======== ======= =======
</TABLE>
(A) Rentals deemed representative of the interest factor included in rent
expense.
(B) In fiscal year ended June 26, 1993, the earnings were inadequate by
$22,877,000 to cover fixed charges and pretax-basis preferred dividends and
by $27,268,000 to cover pro forma total fixed charges and pretax-basis
preferred dividends.
(C) In fiscal year ended June 28, 1991, the earnings were inadequate by $797,000
to cover the amount of fixed charges and pretax-basis preferred dividends
which would have been declared and paid if all retained earnings allocated
to members' "retains" at the end of each fiscal periods had been converted
to preferred stock at the beginning of the period at the maximum dividend
permitted by law.
1 As a tax-exempt cooperative until the acquisition of Curtice-Burns, cash
dividends paid were an allowable deduction for computation of taxable
income.
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 28, 1994
(which report contains an explanatory paragraph relative to disputes
between Curtice Burns Foods, Inc. and Pro-Fac Cooperative, Inc.),
relating to the financial statements of Pro-Fac Cooperative,Inc., which
appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/PRICE WATERHOUSE LLP
Rochester, New York
June 9, 1995
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 10, 1994 (except
as to Note 3, which is as of September 22, 1994 and which report contains an
explanatory paragraph relative to disputes between Curtice Burns Foods, Inc. and
Pro-Fac Cooperative, Inc.), relating to consolidated financial statements of
Curtice Burns Foods, Inc., which appears in such Prospectus. We also consent to
the application of such report to the Financial Statement Schedule for the three
years ended June 25, 1994, June 26, 1993 and June 26, 1992 listed under Item
16(b) of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our report. The audits referred to
in such report also included this schedule. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/PRICE WATERHOUSE LLP
Rochester, New York
June 9, 1995
