UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended June 24, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from _________ to ____________
Registration Statement (Form S-1) No. 33-60273
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 16-6036816
(State of incorporation) (I.R.S. Employer Identification No.)
90 Linden Place, P.O. Box 682, Rochester, New York 14603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 383-1850
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to ITEM 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of August 21, 1995:
Common Stock: $9,394,630
(based upon par value of shares since there is no market for the Registrant's
common stock)
Number of common shares outstanding at August 21, 1995:
Common stock: 1,878,926
The exhibit page begins on page 68
Page 1 of 71 pages
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FORM 10-K ANNUAL REPORT - 1995
PRO-FAC COOPERATIVE, INC.
TABLE OF CONTENTS
<TABLE>
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PART I
PAGE
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ITEM 1.
Description of Business
General Development of Business............................................... 3
Relationship with Curtice-Burns .............................................. 4
Narrative Description of Business............................................. 5
Financial Information About Industry Segments................................. 10
Packaging and Distribution.................................................... 10
Trademarks.................................................................... 10
Raw Material Sources.......................................................... 11
Environmental Matters......................................................... 12
Seasonality of Business....................................................... 13
Practices Concerning Working Capital.......................................... 13
Significant Customers......................................................... 14
Backlog of Orders............................................................. 14
Business Subject to Government Contracts...................................... 14
Competitive Conditions........................................................ 14
New Products and Research and Development..................................... 15
Employees..................................................................... 15
ITEM 2. Description of Properties..................................................... 16
ITEM 3. Legal Proceedings............................................................. 17
ITEM 4. Submission of Matters to a Vote of Security Holders........................... 17
PART II
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters................................................. 17
ITEM 6. Selected Financial Data....................................................... 18
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................... 19
ITEM 8. Financial Statements and Supplementary Data................................... 31
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................... 55
PART III
ITEM 10. Directors and Executive Officers of the
Registrant.................................................................. 55
ITEM 11. Executive Compensation........................................................ 60
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management.............................................................. 63
ITEM 13. Certain Relationships and Related Transactions................................ 64
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................................... 66
Signatures.................................................................... 70
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Pro-Fac Cooperative, Inc. ("Pro-Fac" or "the Cooperative") 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. Its approximately 650
members are growers (or associations of growers) located principally in New
York, Pennsylvania, Illinois, Michigan, Washington, Oregon, Iowa, Nebraska,
North Dakota, Florida, California, and Georgia. The principal office of Pro-Fac
is at 90 Linden Place, Rochester, New York 14625; its telephone number is (716)
383- 1850.
Curtice-Burns Foods, Inc. ("Curtice Burns" or 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, 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 12.25 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 and Facilitation
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.
Pro-Fac crops include fruits (cherries, apples, blueberries, peaches, and
plums), vegetables (snap beans, beets, cucumbers, peas, sweet corn, carrots,
cabbage, squash, asparagus, potatoes, southern peas, dry beans, turnip roots,
and leafy greens), and popcorn. These products are highly seasonal. Partly for
this reason, Pro-Fac also processes products unrelated to Pro-Fac crops in these
facilities. Such unrelated products include cheese sauce, soups and prepared
ethnic foods, salad dressings, certain snack foods, and non-fruit fillings and
puddings. These products are not seasonal, and their production permits better
utilization of the Pro-Fac facilities year round, reducing the overhead burden
on all products.
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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.
Purchase of Crops From Pro-Fac: Under the Pro-Fac Marketing Agreement,
Curtice-Burns purchases crops from Pro-Fac at the commercial market value
("CMV") of those crops. CMV is defined as the weighted average price paid by
other commercial processors for similar crops sold under preseason contracts and
in the open market in the same or competing market area. Under both the Pro-Fac
Marketing Agreement and the predecessor agreement to the Pro-Fac Marketing
Agreement, Curtice-Burns paid Pro-Fac $55.9 million, $59.2 million, and $59.8
million as CMV for crops purchased from Pro-Fac in fiscal years 1995, 1994, and
1993, respectively. The crops purchased by Curtice-Burns from Pro-Fac
represented approximately 73 percent, 65 percent and 60 percent of all raw
agricultural crops purchased by Curtice-Burns in fiscal 1995, 1994, and 1993,
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 up
to 90 percent of Curtice-Burns' pretax income on Pro-Fac related products (the
"Pro-Fac Products"), or reduce CMV by up to 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 pretax
income and that no more than 50 percent of Curtice-Burns' entire pretax loss
will be charged to Pro-Fac, through a reduction of CMV, during the term of the
Notes. Additional
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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' pretax income. Under the predecessor agreements to
the Pro-Fac Marketing Agreement, additional patronage income has generally been
equal to 50 percent of the pretax 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' pretax losses. Curtice-Burns paid
additional patronage income to Pro-Fac of $9.6 million and $16.9 million in
fiscal 1995 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. In January of 1995, the Boards of
Directors of Curtice-Burns Foods, Inc. and Pro-Fac Cooperative, Inc. approved
appropriate amendments to the Bylaws to allow the Company to qualify as a
cooperative under Subchapter T of the Internal Revenue Code. A private letter
ruling agreeing to this change was received from the Internal Revenue Service in
August 1995. The effective date of the change is June 25, 1995. As a
cooperative, patronage income will be deductible to the extent distributed to
its members. Accordingly, taxation on patronage income is only imposed at the
patron level. 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. See NOTE 7 - "Taxes on Income."
Additional patronage income received by Pro-Fac is deductible to Pro-Fac for
federal tax purposes only to the extent distributed to its members. 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.
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.
NARRATIVE DESCRIPTION OF BUSINESS
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.
5
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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 1995, 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.
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 1995, approximately one-third of CMF's
net sales represented branded products, approximately one-third represented
private label products and approximately one-third represented food service
products. CMF markets its branded products under the "Thank You," "Comstock,"
"Wilderness," "Greenwood," "Silver Floss," "Blue Boy," "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:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
-----------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $332.1 $333.4 $317.8
Operating income 31.9 29.6 23.0
</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 52 percent in the fruit filling segment in fiscal
1995. 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 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.
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 1994, CMF's
aseptically processed puddings accounted for approximately 66 percent of the
national food service market and aseptically processed cheese sauces accounted
for approximately one-quarter of the national food service market.
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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 production efficiencies. Subsequent to the end of fiscal 1995, on July 21,
1995, the Company acquired Packer Foods, Inc (see further discussion in NOTE 11
of the Consolidated Financial Statements). Packer's operation is in the process
of being merged into the CMF operations.
Nalley's Fine Foods: Nalley's is headquartered in Tacoma, Washington. It 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 under the "Nalley" brand and other premium brand names, 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:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
-----------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $181.2 $171.8 $164.5
Operating income 18.7 16.5 19.1
</TABLE>
The Nalley's products have been a vehicle for growth through both geographic
expansion and line extension. Several of Nalley's products have leading market
shares in the Pacific Northwest, such as Nalley's chili, which had a market
share of approximately 55 percent, and "Nalley" and "Farman's" pickles, which
together had a market share of approximately 48 percent, for the 52-week period
ended June 1995. In the Pacific Northwest, the Company's "Nalley" and
"Bernstein's" brands of salad dressings had a combined market share of
approximately 18 percent for the same period. Nalley's has taken an aggressive
position in growing its market share in the salad dressing category. It is
believed by management that over the last three years, Nalley's has been the
only major salad dressing company on the West Coast to grow its share
consistently. It has done this by pursuing unique line extensions (e.g.,
Bernstein's "Wine Country Italian"), entering fast-growing market segments with
superior-quality products (e.g., Bernstein's fat-free dressings), and by
entering new markets, such as refrigerated dressings (e.g., Bernstein's
refrigerated dressings).
In line with the growing trend toward private label, Nalley's has been
aggressively pursuing this profitable business segment. Specifically, Nalley's
has been executing its three-tiered store label strategy on specialty Mexican
products, such as chili and salsa, salad dressings and canned soups. The
three-tiered strategy allows the Company to offer to its private label customers
products in a "good," "better," "best" format. For example, if the grocer seeks
a premium salsa brand, Nalley's can offer its top-tier brand of salsa. By using
the three-tiered approach, the Company has successfully extended the reach of
its available products. The private label customer base continues to expand on a
national basis and includes
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Winn-Dixie in the Southeast, Wegman's in Upstate New York, Topco in the Midwest,
and Ralph's and Western Family on the West Coast.
Southern Frozen Foods: Southern Frozen Foods, headquartered 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 green beans. Southern also produces specialty side
dishes, breaded vegetables and onion rings, 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:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
-----------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $96.6 $94.3 $93.4
Operating income 9.2 10.2 7.6
</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 27 percent of the southern
vegetable market in the Southeastern United States for the 52-week period ended
February 5, 1995. Approximately 15 percent of Southern's products are sold to
private label customers with major accounts including Winn-Dixie, Federated
Foods, SuperValu and Marketing Management. Distribution is primarily in the
Southeast and South Central portions of the United States.
On July 7, 1994, a fire destroyed Southern's breading and packaging operations.
In the interim the Division outsourced these functions. On July 7, 1995, the new
plant and all production lines were back in operation. The new facility is 35
percent larger and houses state of the art packaging, breading and fryer
equipment.
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:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
-----------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $60.5 $61.2 $65.4
Operating income 3.6 2.7 4.1
</TABLE>
Snyder of Berlin: Snyder of Berlin, headquartered in Berlin, Pennsylvania,
produces and markets several varieties of potato chips in distinctive
silver-colored bags, as well as several varieties of cornbased snack
products in conventional packaging, primarily under the "Snyder of Berlin"
brand. Snyder products are recognized for their unique taste and freshness
among users in Western Pennsylvania, Ohio and West Virginia, some of the
country's highest per capita snack consumption markets.
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Tim's Cascade Chips: Tim's Cascade Chips, located in Auburn, Washington,
produces kettle-fried potato chips for distribution in the Washington,
Northern Idaho, and Western Oregon area. Kettle frying produces a potato
chip that is thicker and crisper than other potato chips.
Husman's Snack Foods: Husman's Snack Foods, located in Cincinnati, Ohio,
manufactures and markets potato chips, popcorn, and cheese curls and
distributes other snack items in Cincinnati and Dayton, Ohio and areas of
northern Kentucky. Husman's targets unique products and packaging to
maintain a strong potato chip market share. Multi-packs and licensing
agreements with local restaurants are two ways Husman's creates their
value added proposition.
Brooks Foods: Brooks Foods located in Mt. Summit, Indiana markets canned beans
and tomato products under their "Brooks" brand and private label or store
brands. The majority of sales, over 75 percent, are sold under the Brooks brand
and consist of value added items such as Chili Hot Beans and stewed tomatoes.
The following table sets forth the net sales and division operating income for
Brooks for the periods shown:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
-----------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $30.2 $30.0 $30.7
Operating income 2.8 3.1 2.7
</TABLE>
Brooks chili beans are the dominant leader with an average category share of
more than 65 percent. Brooks value-added canned tomatoes with chili seasonings
continue to grow share under the "Just for Chili" brand name after only a few
short years from introduction. Brooks brand "Rich & Tangy Ketchup" continues to
hold a very visible position in all stores in Brooks markets; in fact, has been
experiencing some unit growth in recent months.
Brooks growth in store-brand canned bean sales has continued, attributable in
large part to efficiency improvements and cost controls. Brooks has made great
strides in becoming a low-cost producer for these items and should see further
strides in this direction over the next two years. In the large-volume category,
opportunity continues to further decrease costs.
Brooks also co-packs for other companies and further opportunities are being
explored in this area.
Finger Lakes Packaging Company: Finger Lakes, headquartered in Lyons, New York,
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 intercompany sales) for Finger Lakes for the
periods shown:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Year Ended
-----------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $49.7 $49.9 $47.1
Operating income 3.5 3.9 2.9
</TABLE>
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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.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of Pro-Fac is principally conducted in one industry segment, the
processing and sale of various food products. The table set forth below shows
certain financial information relating to that industry segment for each of
Pro-Fac's last five fiscal years. The financial statements for the fiscal years
ended June 24, 1995, June 25, 1994, and June 26, 1993, which are included in
this report, reflect the information set forth in the table.
<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------------------------------------
Dollars in Millions June 24, June 25, June 26, June 26, June 28,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $522.4 $ 58.2 $ 59.7 $ 63.4 $ 62.2
Sales to unaffiliated
customers $522.4 $ 58.2 $ 59.7 $ 63.4 $ 62.2
Net income/(loss) $ 29.5 $ 24.5 $(17.5) $ 13.9 $ 5.3
Total assets $689.7 $296.1 $324.9 $361.4 $395.6
</TABLE>
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 divisions 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, West Virginia, Washington, Northern Idaho and Western
Oregon.
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
10
<PAGE>
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, 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 Silver Floss
Snack food Cheese Pleezers, Husman, La Restaurante,
Snyder of Berlin, Thunder Crunch, Tim's
Cascade Chips
Syrup Lumberjack
</TABLE>
RAW MATERIAL SOURCES
It is currently anticipated that the Company will continue to acquire a
substantial part of its raw agricultural products from Pro-Fac. In fiscal 1995,
approximately 73 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.
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. For
example, the 1993 floods in the Midwest and the drought in the South produced
lower crop yields in those areas and increased prices, even though the crops in
the Company's growing areas were at normal levels. Favorable weather conditions
in the 1994 growing season produced high crop yields resulting in somewhat
depressed selling prices, increased inventory levels throughout the year, and a
higher carryover inventory at the end of the year. The impact of the 1993
growing
11
<PAGE>
season principally affected the Company's operating results in fiscal 1994, and
the impact of the 1994 growing season principally affected the Company's
operating results in fiscal 1995. The impact of the 1995 growing season on the
Company's operating results for fiscal 1996 cannot be determined until late fall
of 1995 when national supplies are known.
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.
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.
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
12
<PAGE>
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 $1,250,000, which
amount has been properly accrued in the financial statements.
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 1995, total capital expenditures of Pro-Fac and the Company were $32.6
million (including $12.8 million relating to a fire claim reimbursed by
insurance proceeds), of which approximately $1.6 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 1996 fiscal year will be approximately $3.3
million. However, there can be no assurance that expenditures will not be
higher.
SEASONALITY OF BUSINESS
From the point of view of sales, the business of the Company is not highly
seasonal, since the demand for its products is fairly constant throughout the
year. Exceptions to this general rule include some products that have higher
sales volume in the cool weather months (such as canned fruits and vegetables,
chili, and fruit fillings and toppings), and others that have higher sales
volume in the warm weather months (such as potato chips, and condiments). Since
many of the raw materials processed by the Company are agricultural crops,
production of these products is predominantly seasonal, occurring during and
immediately following the harvest seasons of such crops.
PRACTICES CONCERNING WORKING CAPITAL
The Company must maintain substantial inventories throughout the year of those
finished products produced from seasonal raw materials; these inventories are
generally financed through seasonal borrowings.
A short-term line of credit is extended to the Company under agreements with
CoBank, ACB. This line of credit is used primarily for seasonal borrowing, the
amount of which fluctuates during the year. The line of credit is subject to
annual renewal.
Both the maintenance of substantial inventories and the practice of seasonal
borrowing are common to the food processing industry.
13
<PAGE>
SIGNIFICANT CUSTOMERS
The Company's one principal industry segment is not dependent upon the business
of a single customer or a few customers. The Company does not have any customers
to which sales are made in an amount which equals 10 percent or more of the
Company's net sales. The loss of even its biggest customer would not have a
materially adverse effect on the Company.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Company. Orders are filled shortly after receipt from inventories of packaged
and processed foods.
BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of the Company is subject to renegotiation
of profits with, or termination by, any governmental agency.
COMPETITIVE CONDITIONS
All products of the Company, particularly branded products, compete with those
of national and major regional food processors under highly competitive
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, and 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. In this way, the problems inherent in attempting to supply markets
remote from its principal areas of operation are minimized, and the marketing
area is commensurate with the production and storage facilities.
The expansion of the operations of the Company over the years has also allowed
it to offer more complete and diverse lines of products. In the early years of
its existence, the Company marketed principally commodity canned vegetables. The
Company now also markets a broad range of snack foods, desserts, condiments and
other specialty food items, canned and other frozen entrees, salad dressings and
branded frozen vegetables. While all of these products are not offered in every
marketing area, in many areas the Company can offer a diverse line of products,
and the original commodity vegetable items now account for only 18.0 percent of
Company sales.
Quality of product and uniformity of quality are also important methods of
competition. The Company's relationship with Pro-Fac gives the Company 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's 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 developing consumer
14
<PAGE>
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.
Profit margins for canned and frozen fruits and vegetables are subject to
industry supply and demand fluctuations, attributable to changes in growing
conditions, acreage planted, inventory carryover, and other factors. The Company
has endeavored to protect against changing growing conditions through
geographical expansion of its sources of supply. The Company has also taken
steps to lessen the impact of such cycles on its earnings by diversifying into
food product lines which are not affected as severely by fluctuation in profit
margins. The Company has emphasized the merchandising of its own brands and
expanded service and product development for its high volume private label and
food service customers. The percentage of sales under brand names owned and
promoted by the Company (including franchise brands) increased from 35 percent
in fiscal 1972 to a current level of approximately 52.2 percent; sales to the
food service industry (restaurants and institutional customers), which were
insignificant in 1972, now represent approximately 23.5 percent; private label
sales, which were more than half the Company's sales in 1972, currently
represent approximately 20.6 percent; and sales to other manufacturers are
approximately 3.7 percent of total sales.
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, 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.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
The amount expensed during the last three fiscal years on Company-sponsored and
customer-sponsored research activities relating to the development of new
products or the improvement of existing products was not material, and the
number of employees engaged full-time in such research activities is also not
material. While several divisions of the Company operate test kitchens and pilot
plants for the development of new products, the emphasis generally has been on
the development of related products or modifications of existing products for
the Company's brands and customized products for the Company's private label and
food service businesses. No new products which required the investment of a
material amount of assets have been publicly announced.
EMPLOYEES
As of June 24, 1995, the Company had 3,802 full-time employees, of whom 2,720
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 950
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.
15
<PAGE>
ITEM 2. 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.
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.
Eight of the properties are held for sale. These properties are located in
Denver, Colorado; Wall Lake, Iowa; Clifton, New Jersey; Alton, New York; South
Dayton, New York; Rushville, New York; Albany, Oregon; and Vancouver, British
Columbia, Canada.
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 have
been covered under the Company's insurance policies. Costs associated with
business interruption are currently under negotiation with the insurance
carriers.
The following table describes all facilities leased or owned by the Company
(other than the eight properties held for sale 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.
FACILITIES UTILIZED BY THE COMPANY
<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 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
Distribution and warehouse North Bend, NE 50,000
</TABLE>
16
<PAGE>
FACILITIES UTILIZED BY THE COMPANY
(Continued)
<TABLE>
<CAPTION>
Type of Property Square
(By Division) Location Feet
------------------------------------------------------------ ------------ ------
<S> <C> <C>
NALLEY'S FINE FOODS:
--------------------
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 438,000
Parking lot and yards (1) Tacoma, WA 162,570
Warehouses (1) Tacoma, WA 254,000
Receiving and grading station (1) Cornelius, OR 11,700
Receiving and grading station (1) Mount Vernon, WA 30,206
SOUTHERN FROZEN FOODS:
----------------------
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 563,442
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
Distribution Center Elwood City, PA 8,000
Distribution Center Monessen, PA 10,000
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.
* Also includes can manufacturing equipment operated by Finger Lakes Packaging.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The information required by this item is contained in NOTES 9 and 10 to the
Consolidated Financial Statements.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA**
Consolidated Operating Data:
(Dollars in Thousands, Except Capital Stock Data)
<TABLE>
<CAPTION>
Six-Year Summary
-------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales $522,413 $ 58,237 $ 59,735 $ 63,434 $ 62,194 $ 60,823
Cost of sales 384,838 58,237 59,735 63,434 62,194 60,823
-------- -------- -------- -------- -------- --------
Gross profit 137,575 -- -- -- -- --
Share of Curtice-Burns earnings/(loss)
prior to acquisition 5,137 18,599 (21,800) 9,505 5,907 11,448
Interest income from Curtice-Burns
prior to acquisition 6,102 15,630 17,090 19,869 22,681 22,641
Interest income, other 4,402 -- -- -- -- --
Cost relating to fire claim (2,315) -- -- -- -- --
Other selling, general, and
administrative (expenses)/income (99,341) 1,056 965 559 37 345
-------- -------- -------- -------- -------- --------
Operating income/(loss) 51,560 35,285 (3,745) 29,933 28,625 34,434
Interest expense (29,035) (11,587) (13,753) (17,179) (20,302) (19,614)
-------- -------- -------- -------- -------- --------
Income/(loss) before taxes, dividends
and allocation of net proceeds 22,525 23,698 (17,498) 12,754 8,323 14,820
Tax benefit/(provision) 7,028 844 -- 1,151 (3,023) (4,389)
-------- -------- -------- -------- -------- --------
Net income/(loss) $ 29,553 $ 24,542 $(17,498) $ 13,905 $ 5,300 $ 10,431
======== ======== ======== ======== ======== ========
Allocation of Net Proceeds:
Net income/(loss) $ 29,553 $ 24,542 $(17,498) $ 13,905 $ 5,300 $ 10,431
Dividends on common and preferred stock (4,914) (4,390) (4,548) (4,437) (4,099) (3,553)
-------- -------- -------- -------- -------- --------
Net proceeds/(deficit) 24,639 20,152 (22,046) 9,468 1,201 6,878
Allocation (to)/from earned surplus (16,964) (2,856) 27,917 (155) (524) (3,716)
-------- -------- -------- -------- -------- --------
Net proceeds available to members $ 7,675 $ 17,296 $ 5,871 $ 9,313 $ 677 $ 3,162
======== ======== ======== ======== ======== ========
Allocation of net proceeds available to members:
Payable to members currently (20% of qualified
proceeds available to members) $ 1,475 $ 3,109 $ 1,052 $ 2,253 $ 91 $ 649
Allocated to members but retained by the
Cooperative:
Qualified retains 5,900 12,437 4,209 6,760 271 1,946
Non-qualified retains 300 1,750 610 300 315 567
-------- -------- -------- -------- -------- --------
Net proceeds available to members $ 7,675 $ 17,296 $ 5,871 $ 9,313 $ 677 $ 3,162
======== ======== ======== ======== ======== ========
CMV $ 55,855 $ 59,216 $ 59,800 $ 64,152 $ 61,204 $ 54,928
-------- -------- -------- -------- -------- --------
Net proceeds as a percent of CMV 44.11% 34.03% (36.87)% 14.76% 1.96% 12.52%
-------- -------- -------- -------- -------- --------
Net proceeds available to members as a percent of CMV:
Qualified 13.20% 26.25% 8.80% 14.05% .59%* 4.72%
Non-qualified .54% 2.96% 1.02% .47% .52% 1.03%
-------- -------- -------- -------- -------- --------
Total net proceeds allocated to
members as a percent of CMV 13.74% 29.21% 9.82% 14.52% 1.11% 5.75%
-------- -------- -------- -------- -------- --------
Percent of qualified net proceeds
available to members paid in cash 20.00% 20.00% 20.00% 25.00% 25.00% 25.00%
-------- -------- -------- -------- -------- --------
Balance Sheet Data:
Investment in direct financing leases $ -- $141,322 $173,513 $187,298 $193,300 $146,643
Common stock $ 9,395 $ 10,284 $ 13,455 $ 13,097 $ 12,009 $ 10,509
Shareholders' investment and members'
capitalization $135,833 $113,481 $ 96,449 $120,042 $114,586 $113,628
Total long-term debt and senior subordinated
notes $343,665 $127,134 $168,000 $164,000 $178,025 $192,406
Total assets $689,739 $296,051 $324,884 $361,408 $385,556 $385,091
-------- -------- -------- -------- -------- --------
Capital Stock Data
Cash dividends per share:
Common (par value $5.00) $ .275 $ .25 $ .25 $ .25 $ .25 $ .25
Preferred (par value $25.00) $ 1.6875 $ 1.5625 $ 1.8125 $ 2.00 $ 2.1875 $ 2.25
Average common stock investment per member $ 15,032 $ 14,546 $ 18,662 $ 17,771 $ 16,339 $ 13,938
-------- -------- -------- -------- -------- --------
Number of Members: 625 707 721 737 735 754
</TABLE>
-----------------
* Excludes an additional allocation of 1991 net proceeds which was distributed
to members in fiscal 1992. This allocation of $3,727 (6.09 percent of 1991
CMV) was distributed 25 percent in cash and the remainder in the form of
qualified retains. See "Statement of Changes in Shareholders' and Members'
Capitalization and Common Stock" and also NOTES 9 and 10 to the "Notes to
Consolidated Financial Statements."
** Certain prior year amounts have been reclassified to conform to fiscal 1995
presentation.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this review is to highlight the more significant changes in the
major items of Pro-Fac's statement of net proceeds from fiscal 1993 through
1995.
PRO-FAC'S RESULTS OF OPERATIONS
As a result of the acquisition on November 3, 1994, the consolidated results of
operations of Pro-Fac after that date include gross profit, operating expenses,
and other results of operations of Curtice-Burns. Prior to November 3, 1994,
Pro-Fac's results of operations included only amounts paid or payable by
Curtice-Burns to Pro-Fac under the Integrated Agreement.
Changes From Fiscal 1994 to Fiscal 1995: For the year ended June 24, 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 $ 137.6
Decreased share of Curtice-Burns earnings (13.5)
Decreased interest income received from Curtice-Burns (9.5)
Interest income, other 4.4
Cost relating to fire claim (2.3)
Increased selling, general and administrative expenses (100.4)
Increased interest expense (17.5)
--------
Change in income before taxes, dividends, and allocations
of net proceeds (1.2)
Change in tax benefit 6.2
--------
Change in net income $ 5.0
========
</TABLE>
The gross profit change represents Curtice-Burns gross profit after the
acquisition. The increased selling, general and administrative expenses were due
to the inclusion of Curtice-Burns costs since the acquisition. The increased
interest expense was primarily attributable to the increased borrowings related
to the acquisition of Curtice-Burns by Pro-Fac. The change in the tax benefit is
the net result of the inclusion of Curtice-Burns' tax provision after the
acquisition and a tax benefit, primarily related to the recording of the tax
benefits relating to a net operating loss carryforward and a tax settlement
regarding the Cooperative's exempt status (see NOTE 7 - "Taxes on Income").
Changes From Fiscal 1993 to Fiscal 1994: The 1994 commercial market value of
crops delivered during the 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 24, 1995, the change in net proceeds and the allocation
to members compared to the prior year is summarized below in millions of
dollars:
<TABLE>
<S> <C>
Increased proceeds from Curtice Burns $ 40.4
Increased net interest income 0.7
Change in bank dividend 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>
19
<PAGE>
The $40.4 million positive change in proceeds from Curtice Burns is caused by
the 1993 restructuring charge which resulted in a negative amount of proceeds of
$21.8 million for that year. The fiscal 1994 amount of $18.6 million reflects
improved earnings at Curtice Burns and a share of the gain in sale of assets of
$3.9 million during 1994.
Prior to the acquisition most of the proceeds of Pro-Fac had always been derived
from the sale to Curtice-Burns of the crops of its members and hence depended
primarily upon the volume and commercial market value of these crops (which
accrued to Pro-Fac at the time of delivery). In addition, proceeds depended upon
the profitability of the finished products made from Pro-Fac crops and raw
materials from other sources which were then processed and sold by Curtice-Burns
during the course of the fiscal year. Under the Agreements between the two
companies previously and presently in effect, the total purchase price for crops
and the financing charge were both based in part on the results of operations of
Curtice-Burns.
Because of the profit split provisions within the Agreements between
Curtice-Burns and Pro-Fac, business conditions and trends affecting Curtice-
Burns' profitability also affected the profitability of Pro-Fac, even before the
acquisition. For these reasons, management believes discussions relating to the
financial condition and results of operations of Pro-Fac should primarily focus
on the operations of Curtice-Burns.
The following comparisons of Curtice-Burns' results to its prior-year periods
present the results of Curtice-Burns for both the period prior to its
acquisition by Pro-Fac as well as the period subsequent to the acquisition.
Therefore, comparisons to the prior-year periods are not comparable in certain
respects due to differences between the cost bases of the assets prior to the
acquisition compared to those after the acquisition as well as the effect on
Curtice-Burns' operations for adjustments to depreciation, amortization and
interest expense.
Curtice Burns' Results of Operations: The following tables illustrate the
Company's results of operations by business for the fiscal years ended June 24,
1995, June 25, 1994, and June 26, 1993, and the Company's total assets by
business as at June 24, 1995 and June 25, 1994.
Net Sales
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------
6/24/95 6/25/94 6/26/93
--------------- --------------- ---------------
% of % of % of
$ Total $ Total $ Total
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") 332.1 44.4 333.4 40.2 317.8 36.1
Nalley's Fine Foods 181.2 24.2 171.8 20.7 164.5 18.7
Southern Frozen Foods 96.6 12.9 94.3 11.4 93.4 10.7
Snack Foods Group 60.5 8.1 61.2 7.4 65.4 7.4
Brooks Foods 30.2 4.0 30.0 3.6 30.7 3.5
Finger Lakes Packaging 49.7 6.6 49.9 6.0 47.1 5.4
Intercompany eliminations 1 (34.3) (4.5) (34.4) (4.1) (32.9) (3.7)
----- ----- ----- ----- ----- -----
Subtotal ongoing operations 716.0 95.7 706.2 85.2 686.0 78.1
Businesses sold or to be sold 2 32.5 4.3 122.9 14.8 192.6 21.9
----- ----- ----- ----- ----- -----
Total 748.5 100.0 829.1 100.0 878.6 100.0
===== ===== ===== ===== ===== =====
</TABLE>
1 Intercompany sales by Finger Lakes
2 The Company 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 subsequent to 1995 fiscal year end, sold
Nalley's Canada Ltd. See NOTE 4 - "Disposals."
20
<PAGE>
Operating Income Before Dividing with Pro-Fac 1
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------
6/24/95 6/25/94 6/26/93
--------------- ---------------- ----------------
% of % of % of
$ Total $ Total $ Total
------ ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CMF 31.9 54.5 29.6 59.7 23.0 59.1
Nalley's Fine Foods 18.7 32.0 16.5 33.3 19.1 49.1
Southern Frozen Foods 9.2 15.7 10.2 20.5 7.6 19.5
Snack Foods Group 3.6 6.1 2.7 5.4 4.1 10.6
Brooks Foods 2.8 4.8 3.1 6.3 2.7 6.9
Finger Lakes Packaging 3.5 6.0 3.9 7.9 2.9 7.5
Intercompany eliminations and
corporate overhead 1 (10.0) (17.1) (15.1) (30.5) (14.4) (37.0)
----- ----- ----- ----- ----- -----
Subtotal ongoing operations 59.7 102.0 50.9 102.6 45.0 115.7
Businesses sold or to be sold 2 (1.2) (2.0) (1.3) (2.6) (6.1) (15.7)
----- ----- ----- ----- ----- -----
Total 58.5 100.0 49.6 100.0 38.9 100.0
===== ===== ===== ===== ===== =====
</TABLE>
1 Table excludes restructuring (loss)/gain from division disposals of fiscal
1995, 1994, and 1993 change in control expense in fiscal 1995 and 1994, and
gain on assets net of additional costs incurred as a result of a fire claim
recorded in fiscal 1995.
2 The Company 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, subsequent to 1995 fiscal year end, sold Nalley's
Canada Ltd. See NOTE 4 - "Disposals."
Depreciation and Amortization
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------
6/24/95 6/25/94 6/26/93
--------------- ---------------- ---------------
% of % of % of
$ Total $ Total $ Total
----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CMF 10.3 43.3 11.5 44.8 11.6 38.0
Nalley's Fine Foods 4.2 17.6 3.0 11.7 3.0 9.8
Southern Frozen Foods 3.9 16.4 2.5 9.7 2.1 6.9
Snack Foods Group 1.8 7.6 2.0 7.8 2.0 6.5
Brooks Foods 0.7 2.9 0.6 2.3 0.6 2.0
Finger Lakes Packaging 1.6 6.7 1.2 4.7 1.4 4.6
Corporate 0.5 2.1 1.7 6.5 2.7 8.9
---- ----- ----- ----- ----- -----
Subtotal ongoing operations 23.0 96.6 22.5 87.5 23.4 76.7
Businesses sold or to be sold 1 0.8 3.4 3.2 12.5 7.1 23.3
---- ----- ----- ----- ----- -----
Total 23.8 100.0 25.7 100.0 30.5 100.0
==== ===== ===== ===== ===== =====
</TABLE>
1 The Company 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, subsequent to 1995 fiscal year end, sold Nalley's
Canada Ltd. See NOTE 4 - "Disposals."
21
<PAGE>
Total Assets
(Dollars in Millions)
<TABLE>
<CAPTION>
6/24/95 6/25/94
--------------- -------------
% of % of
$ Total $ Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
CMF 267.9 39.9 218.5 48.9
Nalley's Fine Foods 158.9 23.6 73.8 16.5
Southern Frozen Foods 97.9 14.6 48.2 10.8
Snack Foods Group 28.4 4.2 24.5 5.4
Brooks Foods 20.9 3.1 11.0 2.5
Finger Lakes Packaging 46.1 6.9 39.3 8.8
Corporate 38.4 5.7 5.8 1.3
----- ----- ----- -----
Subtotal ongoing operations 658.5 98.0 421.1 94.2
Businesses sold or to be sold 1 13.8 2.0 25.8 5.8
----- ----- ----- -----
Total 672.3 100.0 446.9 100.0
===== ===== ===== =====
</TABLE>
1 The Company 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, subsequent to 1995 fiscal year end, sold Nalley's
Canada Ltd. See NOTE 4 - "Disposals."
The following table illustrates the Company's income statement data and the
percentage of net sales represented by these items for the fiscal years ended
June 24, 1995, June 25, 1994, and June 26, 1993.
Consolidated Statement of Operations
(Dollars in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------------------------
6/24/95 6/25/94 6/26/93
------------------- ----------------- -----------------
% of % of % of
$ Sales $ Sales $ Sales
------- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 748.5 100.0 829.1 100.0 878.6 100.0
Cost of sales 530.1 70.8 592.6 71.5 632.6 72.0
------ ----- ------ ----- ------ -----
Gross profit 218.4 29.2 236.5 28.5 246.0 28.0
Restructuring expenses, including
net (loss)/gain from division
disposals (8.4) (1.1) 7.8 0.9 (61.0) (6.9)
Change in control expenses (2.2) (0.3) (3.5) (0.4) -- --
Gain on assets net of additional costs
incurred as result of a fire claim 4.1 0.5 -- -- -- --
Other selling, administrative and
general expenses (159.9) (21.3) (186.9) (22.5) (207.1) (23.6)
------ ----- ------ ----- ------ -----
Operating income/(loss) before
dividing with Pro-Fac 52.0 6.9 53.9 6.5 (22.1) (2.5)
Interest expense (32.4) (4.3) (18.2) (2.2) (19.6) (2.2)
------ ----- ------ ----- ------ -----
Pretax earnings/(loss) before dividing
with Pro-Fac 19.6 2.6 35.7 4.3 (41.7) (4.7)
Pro-Fac share of (earnings)/loss (9.6) (1.3) (16.9) (2.0) 21.8 2.5
------ ----- ------ ----- ------ -----
Income/(loss) before taxes 10.0 1.3 18.8 2.3 (19.9) (2.2)
Provision for taxes (6.0) (0.8) (8.7) (1.1) (3.9) (0.5)
------ ----- ------ ----- ------ -----
Net income/(loss) 4.0 0.5 10.1 1.2 (23.8) (2.7)
====== ===== ====== ===== ====== =====
</TABLE>
22
<PAGE>
CHANGES FROM FISCAL 1994 TO FISCAL 1995
General: Net sales declined 9.7 percent in the year, to $748.5 million from
$829.1 million the previous year due primarily to divested businesses. Operating
earnings for fiscal 1995 reflect changes in many product lines.
The chips and snacks segment posted gains, while the popcorn earnings at CMF
declined. Vegetable prices decreased during the year because there was an ample
national supply in the fall of 1994, but vegetable earnings for the year were
still ahead of fiscal 1994. Net income of $4.0 million for fiscal 1995 compared
to $10.1 million a year ago. The decrease in net income is primarily due to
increased interest expense caused by the revised capital structure of the
Company and the gain on the sale of National Oats included in the fiscal 1994
results.
Net Sales: The Company's net sales in fiscal 1995 of $748.5 million decreased
$80.6 million or 9.7 percent from $829.1 million in fiscal 1994. The net sales
attributable to businesses sold or to be sold in connection with the Company's
restructuring program discussed in NOTE 4 were $32.5 million in fiscal 1995 and
$122.9 million in fiscal 1994. The Company's net sales from ongoing operations,
excluding businesses sold or to be sold, were $716.0 million in fiscal 1995, an
increase of $9.8 million or 1.4 percent from $706.2 million in fiscal 1994. This
net sales variance of $9.8 million for ongoing operations is primarily comprised
of a $9.4 million increase at Nalley's with minor variations at other divisions.
An increase of $5.4 million in sales of pickles and relishes and an increase of
$2.7 million in dressing sales were the primary reasons for Nalley's increase.
Gross Profit: Gross profit of $218.4 million in fiscal 1995 decreased $18.1
million or 7.7 percent from $236.5 million in fiscal 1994. Of this net decrease,
a $23.9 million reduction was attributable to businesses sold or to be sold, and
an increase of $5.8 million was attributable to increased gross profit at the
Company's ongoing operations. This increase of $5.8 million was the result of
variations in volume, selling prices, costs, and product mix. The increase in
gross profit for ongoing operations is comprised of increases and decreases as
follow:
<TABLE>
<CAPTION>
Gross
Profit
Variance
--------
<S> <C>
CMF $(0.8)
Nalley's Fine Foods 5.1
Southern Frozen Foods (0.9)
Snack Foods Group 0.5
All Other 1.9
-----
$ 5.8
=====
</TABLE>
Nalley's Fine Foods increased gross profit primarily relates to improved margins
on canned entrees and soups ($3.4 million) and improved margins on dressings
($1.2 million).
Restructuring Expenses Including Net (Loss)/Gain From Division Disposals:
Restructuring expenses, including net (loss)/gain from division disposals,
resulted in a charge in fiscal 1995 of $8.4 million to reflect the impact of the
sale of certain assets of the Nalley's U.S. Chips and Snack business and other
expenses relating to the disposal of this operation. Included in fiscal 1994 was
an $7.8 million net gain from restructuring, including division disposals, for a
net increase in this expense from year to year of $16.2 million, all of which
was incurred by the Predecessor entity. See NOTE 4 -- "Disposals."
23
<PAGE>
Change in Control Expenses: Change in control expenses recorded in fiscal 1995
and fiscal 1994, amounting to $2.2 million and $3.5 million, respectively,
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 prior to the acquisition.
See NOTE 3 - "Change in Control of Curtice Burns."
Gain on Assets Net of Additional Costs Incurred as a Result of Fire Claim at
Southern Frozen Foods: The gain on assets net of additional costs incurred as a
result of a fire claim recorded in fiscal 1995 amounted to $4.2 million.
Other Selling, Administrative, and General Expenses: Other selling,
administrative, and general expenses in fiscal 1995 of $159.9 million decreased
$27.0 million or 14.4 percent from $186.9 million in fiscal 1994. This net
decrease of $27.0 million includes primarily:
(In Millions)
<TABLE>
<CAPTION>
Businesses
-------------------------------
Sold or to be Sold Ongoing Total
------------------ ------- -----
<S> <C> <C> <C>
Change in trade promotions $ (8.1) $(2.8) $(10.9)
Change in advertising and selling costs (13.8) 2.0 (11.8)
All other (5.6) 1.3 (4.3)
------ ----- ------
Change in selling, administrative,
and general expenses $(27.5) $ 0.5 $(27.0)
====== ===== ======
</TABLE>
The $2.8 million decrease in trade promotions at the Company's ongoing
operations is primarily comprised of a decrease at CMF of $4.0 million (which
primarily relates to reduced spending on the fruit filling and topping category,
with minor increases in other categories) and increased trade promotions at
Nalley's Fine Foods of $0.8 million (primarily related to increased spending on
canned entrees and soups and salad dressings, offsetting decreased spending on
other product lines).
The $2.0 million increase in advertising and selling costs at the Company's
ongoing operations represents increased costs at CMF ($1.5 million) and Nalley's
Fine Foods ($1.6 million), with minor offsetting variations at other operations.
The increase at CMF primarily relates to fruit fillings and toppings, with minor
variations in other product lines. The increase at Nalley's Fine Foods primarily
relates to costs associated with canned entrees and soups and salad dressings,
with minor variations in other product lines.
The $1.3 million increase in other administrative expenses primarily relates to
increased amortization of intangibles resulting from the acquisition and other
minor offsetting variances.
Operating Income Before Dividing with Pro-Fac: The Company's operating income
(before dividing with Pro-Fac) for fiscal 1995 of $52.0 million decreased $1.8
million or 3.3 percent from $53.8 million in fiscal 1994. Included in the 1995
operating income: the restructuring charges, including a loss from division
disposals of $8.4 million; change in control expenses of $2.2 million; net gain
on assets resulting from fire claim of $4.2 million; and operating losses
attributable to businesses sold or to be sold of $1.2 million. Included in the
1994 operating income: the restructuring gain from division disposals of $7.8
million; change in control expenses of $3.5 million; and operating losses
attributable to businesses sold or to be sold of $4.8 million. Excluding the
restructuring loss/gain from division disposals, change in control expense, gain
on assets net of additional costs incurred resulting from the fire claim, and
operating losses attributable
24
<PAGE>
to businesses sold or to be sold, the Company's operating income (before
dividing with Pro-Fac) from ongoing operations for fiscal 1995 of $59.7 million
increased $5.3 million or 9.7 percent from $54.4 million in fiscal 1994.
Interest Expense: Interest expense in fiscal 1995 of $32.4 million increased
$14.2 million or 78.0 percent from $18.2 million in fiscal 1994. This increase
was primarily attributable to the increased borrowing and increased interest
rates 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 fiscal
1995 of $9.6 million decreased $7.3 million or 43.1 percent from $16.9 million
in fiscal 1994. The restructuring expenses, change in control expense, and fire
claim discussed above accounted for $5.4 million of this decrease. The Pro-Fac
share of earnings in fiscal 1995 and fiscal 1994 was 49.0 percent and 47.3
percent, respectively, of the Company's pretax earnings before dividing with
Pro-Fac.
Income Before Taxes: The Company's income before taxes in fiscal 1995 of $10.0
million decreased $8.8 million or 46.8 percent from $18.8 million in fiscal
1994. The restructuring expenses, change in control expense, and fire claim
discussed above accounted for $5.4 million or 61.4 percent of the decrease.
Provision for Taxes: The provision for taxes in fiscal 1995 of $6.0 million
decreased $2.7 million or 31.0 percent from $8.7 million in fiscal 1994. The
effective tax rate in fiscal 1995 was 60.0 percent compared to 46.2 percent in
fiscal 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 fiscal 1995 of $4.0 million decreased
$6.1 million or 60.4 percent from $10.1 million in fiscal 1994.
The primary reasons for the Company's $6.1 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 net 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.
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 percent, from $878.6 million in fiscal 1993. The net sales
attributable to businesses sold or to be sold in connection with the Company's
restructuring program were $122.9 million in fiscal 1994 and $192.6 million in
fiscal 1993. The Company's net sales from ongoing operations excluding
businesses sold or to be sold in fiscal 1994 were $706.2 million, an increase of
$20.2 million, or 2.9 percent, from $686.0 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 percent,
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 $171.8 million increased $7.3 million, or 4.4 percent, from
$164.5
25
<PAGE>
million in fiscal 1993. The increase in net sales at Nalley's was primarily
attributable to an $8.5 million increase in the salad dressing and a $1.0
million decrease in pickles and relishes related to reduced volume. 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 percent, 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 percent, 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
percent increase in units sold. Net sales at Finger Lakes in fiscal 1994 of
$49.9 million increased $2.8 million, or 5.9 percent, from $47.1 million (before
elimination of intercompany sales) in fiscal 1993. This was primarily the result
of a 10.2 percent increase in volume.
Gross Profit: Gross profit of $236.5 million in fiscal 1994 decreased $9.5
million, or 3.9 percent, from $246.0 million in fiscal 1993. Of this net
decrease, a $23.6 million reduction was attributable to businesses sold or to be
sold and an increase of $14.1 million was attributable to increased gross profit
at the Company's ongoing operations. Gross profit for CMF increased $8.5
million, Nalley's increased $4.8 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 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 percent, 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 $8.8 million
decrease was attributable to businesses sold or to be sold and an increase of
$8.1 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, $13.2 million was attributable to businesses sold or to be
sold. The remaining increase of
26
<PAGE>
$0.1 million was primarily attributable to a $2.1 million decrease in
advertising and selling costs net of an increase in such costs of $1.8 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 $53.8 million increased $76.0 million from an operating
loss of $22.2 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 percent, from an operating income of
$38.9 million in fiscal 1993. Operating losses attributable to businesses sold
or to be sold in connection with the Company's restructuring program were $4.8
million in fiscal 1994 and $6.1 million in fiscal 1993. Excluding operating
losses from businesses sold or to be sold, the Company's operating income from
continuing operations in fiscal 1994 was $54.4 million, an increase of $9.4
million, or 20.9 percent, from $45.0 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 offset in part by decreased
operating income at Nalley's of $2.6 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 percent, from $19.6 million in fiscal 1993. The 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 percent and
52.2 percent, 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 percent, 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
27
<PAGE>
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 a 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 ere 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 percent.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1995, net cash provided by operating activities of $111.5 million
reflects net income of $29.5 million. Depreciation and amortization of assets
amounted to $16.4 million. Accounts receivable and inventories decreased $12.1
million and $67.0 million, respectively. Changes in other assets and liabilities
used cash of $7.3 million.
Cash flows from investing activities include the acquisition of property, plant,
and equipment, and other assets held for or used in the production goods, and
the amounts received from Curtice-Burns prior to the acquisition for payments on
capital leases. Net cash used in investing activities of $17.3 million in fiscal
1995 was comprised of $28.7 million paid for property, plant, and equipment and
$11.4 million received for capital leases.
Net cash used in financing activities of $90.0 million is primarily related to
the acquisition of Curtice Burns in fiscal 1995. Proceeds from the issuance of
long-term debt (net of repayments) amounted to $107 million. The amounts paid to
the former shareholders of Curtice-Burns totaled $167.8 million, and the net
assets acquired amounted to $81.3 million.
Because of the additional debt as a result of the acquisition of the Company by
Pro-Fac, the cash flow of the Company is the single, most important measure of
performance. Net cash provided from operations is expected to be sufficient to
cover scheduled payments on long-term debt and planned capital expenditures.
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.
As of June 24, 1995, (i) cash borrowings outstanding under the Seasonal Facility
were zero and (ii) 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 June 24, 1995, Pro-Fac had $1.0 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
28
<PAGE>
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 requires that Pro-Fac and Curtice Burns
meet certain financial tests and ratios and comply with certain other
restrictions and limitations. As of June 24, 1995, Pro-Fac is in compliance
with or has obtained waivers for 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. For
example, the 1993 floods in the Midwest and the drought in the South produced
lower crop yields in those areas and increased prices nationally even though the
crops in the Company's growing areas were at normal levels.
As a result of the shortage situation of the national supply due to the low
yields from the 1993 crop year, many vegetable producers intentionally increased
planned production for the 1994 crop year attempting to return the supplies to
ample levels. Favorable weather conditions in the 1994 growing season, however,
produced high crop yields in addition to the increased planned production. This
resulted in somewhat depressed selling prices, increased inventory levels
throughout fiscal 1995, and left a higher carryover inventory at the end of
fiscal 1995 than at the end of fiscal 1994 for the Company. As of June 24, 1995,
the Company's total inventories were $160.2 million, an increase of $4.9 million
or 3.2 percent from $155.3 million in the prior year. This excess will be
gradually reduced by the end of the 1996 fiscal year due to a decrease in the
planned production for the 1995 crop 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. Decreased vegetable prices
are expected to depress earnings for the first quarter of fiscal 1996 as are
increased slotting allowances for certain new items.
The impact of the 1993 growing season principally affected the Company's
operating results in fiscal 1994, and the impact of the 1994 growing season
principally affected the Company's operating results in fiscal 1995. The impact
of the 1995 growing season on the Company's operating results for fiscal 1996
cannot be determined until late fall of 1995 when national supplies can be
determined.
In addition to the excess inventory discussed above, another element affecting
cash flow in fiscal 1995 was the timing of reimbursement for cash expenditures
relative to the facility repairs and other activities of the Company's
Montezuma, Georgia plant which was destroyed by fire in July 1994. See "Fire
Claim" in NOTE 6. As of June 24, 1995, approximately $10.0 million of such
expenditures were receivable from insurance companies. Final settlements with
insurance carriers regarding claims for business interruption are currently
being negotiated.
29
<PAGE>
Primarily due to higher inventory levels and the timing of the insurance
proceeds of the fire claim, the average seasonal loan balance in fiscal 1995 was
$66.5 million, an increase of $15.0 million or 29.1 percent over the fiscal 1994
average of $51.5 million.
Capital expenditures (excluding the expenditures relating to the fire for which
reimbursement was received) amounted to $19.8 million in fiscal 1995. The
largest, single capital project in process during fiscal 1995 was 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 coming year. Cash proceeds from the sale of Nalley's Canada Ltd., sold
subsequent to fiscal year end of approximately $3.8 million, were applied to
long-term debt in accordance with the terms of the New Credit Agreement.
Supplemental Information on Inflation: The changes in costs and prices within
the Company's business due to inflation were not significantly different from
inflation in the United States economy as a whole. Levels of capital investment,
pricing and inventory investment were not materially affected by the moderate
inflation.
Sale of Nalley's Canada Ltd.: On 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. This sale was finalized subsequent to year end (as of June 26, 1995)
and was contemplated by Pro-Fac in conjunction with the acquisition. Nalley's
U.S. will have an ongoing supply agreement with Nalley's Canada Ltd. as a result
of the sale. See further discussion at "Certain Transactions."
Subsequent Event: On July 21, 1995, the Company completed the acquisition of
Packer Foods, a privately owned, Michigan-based food processor. The total cost
of acquisition was approximately $5.4 million in notes plus interest at 10
percent to be paid until the notes mature in the year 2000. The transaction will
be accounted for as a purchase. For its latest fiscal year ended December 31,
1994, Packer had net sales of approximately $13 million, operating income of
approximately $300,000, and income before extraordinary items of approximately
$100,000. Packer Foods is in the process of being merged into the Company's CMF
operations.
Favorable Tax Ruling and Developments: In August of 1993, the Internal Revenue
Service issued a determination letter which concluded that the Cooperative is
exempt from federal income tax to the extent provided by Section 521 of the
Internal Revenue Code, "Exemption of Farmers' Cooperatives from Tax." Unlike a
non-exempt cooperative, a tax-exempt cooperative is entitled to deduct cash
dividends it pays on its capital stock in computing its taxable income. The
exempt status is retroactive to fiscal year 1986 and is anticipated to apply to
future years as long as there is no significant change in the way in which the
Cooperative operates. In conjunction with this ruling, the Cooperative has filed
for tax refunds for fiscal years 1986 to 1991 in the amount of approximately
$7.2 million and interest payments of approximately $4.9 million. In addition,
it is anticipated that the Cooperative will file for tax refunds for fiscal 1992
in the amount of approximately $1.6 million and interest payments of
approximately $.3 million. Based upon the status of the government's review of
the refunds for fiscal years 1986 to 1990 the legal counsel to the Cooperative
has issued an opinion that such refunds constitute a legally enforceable account
receivable from the government. Accordingly, refund
30
<PAGE>
amounts of $10.1 million for tax and interest have been reflected in the
financial statements of Pro-Fac as of June 24, 1995. It is anticipated that such
amounts will be received in the first half of fiscal 1996. The Board of
Directors of the Cooperative has committed that substantially all of such
refunds and interest payments, when received, will be invested in its
subsidiary, Curtice-Burns Foods, Inc.
As a result of the acquisition, the Cooperative's exempt status has ceased.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM Page
---- ----
<S> <C>
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Report of Independent Accountants.................................... 32
Management's Responsibility for Financial Statements................. 33
Consolidated Financial Statements for the years ended June 24,
1995, June 25, 1994, and June 26, 1993:
Consolidated Statement of Operations and
Net Proceeds................................................ 34
Consolidated Balance Sheet..................................... 35
Consolidated Statement of Cash Flows........................... 37
Consolidated Statement of Changes in Shareholders'
and Members' Capitalization and Common Stock................ 39
Notes to Consolidated Financial Statements..................... 40
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Pro-Fac Cooperative, Inc.
In our opinion, the consolidated financial statements listed under ITEM 8 of
this Form 10-K present fairly, in all material respects, the financial position
of Pro-Fac Cooperative, Inc. and its subsidiary at June 24, 1995 and June 25,
1994, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended June 24, 1995, 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.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under ITEM 14 of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/Price Waterhouse, LLP
------------------------
Price Waterhouse, LLP
Rochester, New York
August 16, 1995
32
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begins on the next page. These statements
have been prepared in accordance with generally accepted accounting principles.
The Company's accounting systems include internal controls designed to provide
reasonable assurance of the reliability of its financial records and the proper
safeguarding and use of its assets. Such controls are monitored through the
internal and external audit programs.
The financial statements have been audited by Price Waterhouse LLP, independent
accountants, who were responsible for conducting their examination in accordance
with generally accepted auditing standards. Their resulting report is on the
preceding page.
The Board of Directors exercises its responsibility for these financial
statements. The independent accountants and internal auditors of the Company
have full and free access to the Board. The Board periodically meets with the
independent accountants and the internal auditors, without management present,
to discuss accounting, auditing and financial reporting matters.
/s/Stephen R. Wright
--------------------
Stephen R. Wright
General Manager
/s/William D. Rice
--------------------
William D. Rice
Assistant Treasurer
September 15, 1995
33
<PAGE>
FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
June 24, June 25, June 26,
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Net sales $522,413 $ 58,237 $ 59,735
Cost of sales 384,838 58,237 59,735
-------- -------- --------
Gross profit 137,575 -- --
Share of Curtice-Burns earnings/(loss)
prior to acquisition 5,137 18,599 (21,800)
Interest income from Curtice-Burns
prior to acquisition 6,102 15,630 17,090
Interest income, other 4,402 -- --
Additional costs incurred
as a result of the fire (2,315) -- --
Other selling, general, and
administrative (expenses)/income (99,341) 1,056 965
-------- -------- --------
Operating income/(loss) 51,560 35,285 (3,745)
Interest expense (29,035) (11,587) (13,753)
-------- -------- --------
Income/(loss) before taxes, dividends
and allocation of net proceeds 22,525 23,698 (17,498)
Tax benefit 7,028 844 --
-------- -------- --------
Net income/(loss) $ 29,553 $ 24,542 $(17,498)
======== ======== ========
Allocation of Net Proceeds:
Net income/(loss) $ 29,553 $ 24,542 $(17,498)
Dividends on common and preferred stock (4,914) (4,390) (4,548)
-------- -------- --------
Net proceeds/(deficit) 24,639 20,152 (22,046)
Allocation (to)/from earned surplus (16,964) (2,856) 27,917
-------- -------- --------
Net proceeds available to members $ 7,675 $ 17,296 $ 5,871
======== ======== ========
Allocation of net proceeds available to members:
Payable to members currently (20% of qualified
proceeds available to members) $ 1,475 $ 3,109 $ 1,052
Allocated to members but retained by the Cooperative:
Qualified retains 5,900 12,437 4,209
Non-qualified retains 300 1,750 610
-------- -------- --------
Net proceeds available to members $ 7,675 $ 17,296 $ 5,871
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
June 24, June 25,
1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash $ 4,152 $ 10
Accounts receivable, trade, less allowance for doubtful
accounts of $673 47,341 --
Accounts receivable, other 19,840 68
Receivable from Curtice-Burns Foods, Inc. -- 11,197
Current portion of long-term loans receivable
from Curtice-Burns Foods, Inc. -- 14,000
Current portion of investment in direct
financing leases -- 17,645
Current portion of investment in Bank -- 1,324
Current deferred tax assets 6,784 --
Income taxes refundable 10,106 --
Inventories -
Finished goods 108,691 --
Materials and supplies 51,491 --
--------- ---------
Total inventories 160,182 --
--------- ---------
Prepaid manufacturing expense 9,903 --
Prepaid expenses and other current assets 2,306 2,464
--------- ---------
Total current assets 260,614 46,708
Property, plant, and equipment, net 273,962 --
Goodwill and other intangible assets, less accumulated
amortization of $2,539 101,494 --
Long-term portion of investment in direct
financing leases -- 123,677
Long-term loans receivable from Curtice-Burns Foods, Inc. 78,040
Investment in Bank 22,907 19,632
Deferred tax assets 7,466 2,623
Finance receivable related to intangibles -- 24,909
Assets held for sale 13,838 --
Other assets 9,458 462
--------- ---------
Total assets $ 689,739 $ 296,051
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet (Continued)
(Dollars in Thousands)
LIABILITIES AND
SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
<TABLE>
<CAPTION>
June 24, June 25,
1995 1994
--------- ---------
<S> <C> <C> <C> <C>
Current liabilities:
Notes payable -- $ 11,500
Current portion of obligations under capital leases 764 --
Accounts payable 60,074 617
Accrued interest 9,171 2,530
Accrued employee compensation 11,644 --
Other accrued expenses 15,116 6
Current portion of long-term debt 11,552 14,000
Income taxes payable -- 668
Amounts due members 13,348 15,327
--------- ---------
Total current liabilities 121,669 44,648
Obligations under capital leases 1,620 --
Long-term debt 183,665 127,134
Senior subordinated notes 160,000 --
Deferred tax liability 59,721 --
Other non-current liabilities 17,836 504
--------- ---------
Total liabilities 544,511 172,286
--------- ---------
Commitments and contingencies -- --
Common stock, par value $5, authorized -
5,000,000 shares
June 24, June 25,
1995 1994
--------- ---------
Shares issued 1,878,926 2,056,878
Shares subscribed 59,568 9,270
--------- ---------
Total subscribed and issued 1,938,494 2,066,148
Less subscriptions receivable in
installments (59,568) (9,270)
--------- ---------
1,878,926 2,056,878 9,395 10,284
========= =========
Shareholders' and members' capitalization:
Retained earnings allocated to members 34,250 36,924
Non-qualified allocation to members 3,851 7,454
Preferred stock, par value $25, authorized -
5,000,000 shares; issued and outstanding -
3,043,325 and 2,576,720, respectively 76,083 64,418
Earned surplus 21,649 4,685
--------- ---------
Total shareholders' and members' capitalization 135,833 113,481
--------- ---------
Total liabilities and capitalization $ 689,739 $ 296,051
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------
June 24, June 25, June 26,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 29,553 $ 24,542 $ (17,498)
Amount payable to members currently (1,475) (3,109) (1,052)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill, other intangibles, and
financing fees 3,218 -- --
Depreciation 13,864 -- --
Provision for losses on accounts receivable 91 -- --
Deferred tax (benefit)/provision (3,686) (613) 207
Equity in undistributed earnings of the Bank (1,288) (1,541) (1,486)
Change in assets and liabilities:
Accounts receivable 12,148 (43) 618
Inventories 67,022 -- --
Accounts payable and accrued expenses (16,331) (885) 309
Amounts due to members (729) 802 (2,277)
Federal and state taxes refundable (9,520) 738 (1,180)
Other assets and liabilities 18,639 (1,895) (319)
---------- ---------- ----------
Net cash provided by/(used in) operating activities 111,506 17,996 (22,678)
---------- ---------- ----------
Cash flows from investing activities:
Due from Curtice-Burns, net -- 524 (1,694)
Return from investment in direct financing leases 11,344 32,191 13,785
Investment in Bank -- (1,429) (1,937)
Finance receivable related to intangibles -- 1,636 26,898
Purchase of property, plant, and equipment (28,661) -- --
---------- ---------- ----------
Net cash (used in)/provided by investing activities (17,317) 32,922 37,052
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 359,000 120 20,000
Payments on short-term debt -- (500) (16,000)
Payments on long-term debt (including acquisition
related financing fees) (192,095) (42,986) (14,025)
Payments on capital leases (1,259) -- --
Amount paid to shareholders for acquisition (167,800) -- --
Net assets acquired from Curtice-Burns (81,278)
Repurchase of common stock, net of issuances (889) (3,171) 358
Repurchase of preferred stock -- -- (165)
Cash portion of non-qualified conversion (802) -- --
Cash paid in lieu of fractional shares (10) -- --
Cash dividends paid (4,914) (4,390) (4,548)
---------- ---------- ----------
Net cash used in financing activities (90,047) (50,927) (14,380)
---------- ---------- ----------
Net change in cash 4,142 (9) (6)
Cash at beginning of period 10 19 25
---------- ---------- ----------
Cash at end of period $ 4,152 $ 10 $ 19
========== ========== ==========
</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.
37
<PAGE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------
June 24, June 25, June 26,
1995 1994 1993
========= ======== ========
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid/(received) during the year for:
Interest $ 24,498 $12,068 $14,050
========= ======= ========
Income taxes, net $ 5,567 $ (970) $ 970
========= ======= ========
Net assets acquired from Curtice-Burns:
Accounts receivable $ 79,068 -- --
Inventories 226,220 -- --
Other assets 27,664 -- --
Goodwill and other intangible assets 24,156 -- --
Fixed assets 159,985 -- --
Accounts payable and accrued expenses (100,594) -- --
Short-term debt (49,097) -- --
Long-term debt (276,391) -- --
Deferred tax liability (3,247) -- --
Other liabilities (6,486) -- --
--------- ------- --------
$ 81,278 $ -- $ --
========= ======= ========
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Conversion of retains to preferred stock $ 11,665 $ 4,948 $ 5,934
========= ======= =======
Net proceeds allocated to members but retained by
the Cooperative $ 6,200 $14,187 $ 4,819
========= ======= =======
Capital lease obligations incurred $ 1,562 $ -- $ --
========= ======= =======
Receivables from Curtice-Burns Forgiven in the
Acquisition:
Due from Curtice-Burns for long-term debt $ 110,576 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
Pro-Fac Cooperative, Inc.
Consolidated Statement of Changes in Shareholders' and Members' Capitalization
and Common Stock
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended June 24, June 25, June 26,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Retained earnings allocated to members:
Qualified retains:
Balance at beginning of period $ 36,924 $ 29,446 $ 29,950
Net proceeds allocated to members 5,900 12,437 4,209
Converted to preferred stock (8,564) (4,948) (4,702)
Cash paid in lieu of fractional shares (10) (11) (11)
--------- --------- ---------
Balance at end of period 34,250 36,924 29,446
--------- --------- ---------
Non-qualified retains:
Balance at beginning of period 7,454 5,704 6,645
Distribution of 1989, 1988, and 1987 non-
qualified retains:
Cash paid (802) -- (319)
Converted to preferred stock (3,101) -- (1,232)
Net proceeds allocated to members 300 1,750 610
--------- --------- ---------
Balance at end of period 3,851 7,454 5,704
--------- --------- ---------
Total retains allocated to members
at end of period 38,101 44,378 35,150
--------- --------- ---------
Preferred stock:
Balance at beginning of period 64,418 59,470 53,701
Converted from earnings retained for
preferred stock 8,564 4,948 4,702
Conversion of 1989, 1988 and 1987 non-
qualified retains 3,101 -- 1,232
Repurchased and canceled -- -- (165)
--------- --------- ---------
Balance at end of period 76,083 64,418 59,470
--------- --------- ---------
Earned surplus (unallocated and apportioned):
Balance at beginning of period 4,685 1,829 29,746
Net proceeds arising from after tax
undistributed income/(loss) 16,964 2,856 (27,917)
--------- --------- ---------
Balance at end of period 21,649 4,685 1,829
--------- --------- ---------
Total shareholders' and members' capitalization $ 135,833 $ 113,481 $ 96,449
========= ========= =========
Common stock:
Balance at beginning of period $ 10,284 $ 13,455 $ 13,097
Repurchased, net of issued (889) (3,171) 358
--------- --------- ---------
Balance at end of period $ 9,395 $ 10,284 $ 13,455
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
PRO-FAC COOPERATIVE, 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. The following
summarizes the significant accounting policies applied in the preparation of the
accompanying financial statements.
Fiscal Year: Fiscal 1995, fiscal 1994, and fiscal 1993 ended on June 24, 1995,
June 25, 1994, and June 26, 1993, respectively, the last Saturday in June. Each
year comprised 52 weeks.
Consolidation: As of all dates after November 3, 1994, and for all periods after
such date, the consolidated financial statements include the Cooperative and its
wholly-owned subsidiary, Curtice-Burns Foods, Inc. ("Curtice-Burns" or "the
Company") after elimination of intercompany transactions and balances. The
acquisition of Curtice Burns was completed on November 3, 1994 (see NOTE 3 -
"Change in Control of Curtice-Burns"). Prior to November 3, 1994, Curtice-Burns
was not included in the financial statements.
Reclassification: Certain items for fiscal 1994 and fiscal 1993 have been
reclassified to conform with fiscal 1995 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 value applicable to canned and
frozen fruit and vegetable inventories. These reserves amounted to $.1 million
for fiscal 1995.
Investment in CoBank ("The Bank"): The 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 at cost plus the Company's share of the undistributed earnings of the
Bank (that portion of patronage refunds not distributed currently in cash) which
approximates market.
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 4 to 40 years.
Assets held for sale are separately classified on the balance sheet. The
recorded value represents an estimate of net realizable value.
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 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
40
<PAGE>
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." See NOTE 7. - "Taxes on Income."
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 and acquired
non-competition agreements and trademarks. Goodwill and other intangible assets,
stated net of accumulated amortization, are amortized on a straight-line basis
over approximately 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 discounted future cash
flows and the carrying value of goodwill.
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,
satisfy the requirements of SFAS No. 121, and no further action on the part of
the Company will be required for compliance.
Commodities Options Contracts: In connection with the purchase of certain
commodities for anticipated manufacturing requirements, the Company occasionally
enters into options contracts as deemed appropriate to reduce the effect of
price fluctuations. These options contracts are accounted for as hedges and,
accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost.
Casualty Insurance: The Company is insured for workers compensation and
automobile liability through a self-insurance program. The Company accrues for
the estimated losses from both asserted and unasserted claims. The estimate of
the liability for unasserted claims arising from unreported incidents is based
on an analysis of historical claims data.
Earnings Per Share Data Omitted: 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.
41
<PAGE>
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.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The cost of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal 1995 amounted to $13,150,000.
NOTE 2. AGREEMENTS WITH CURTICE-BURNS
On November 3, 1994, Curtice Burns was acquired by Pro-Fac (see NOTE 3 - "Change
in Control of Curtice-Burns"). Pro-Fac and the Company were established together
in the early 1960s and, before Pro-Fac's recent acquisition of the Company, had
a long-standing contractual relationship under the Integrated Agreement and
similar Predecessor entity agreements. The Integrated Agreement, which has been
superseded by the Pro-Fac Marketing and Facilitation Agreement, consisted of
four principal sections: Operations Financing, Marketing, Facilities Financing,
and Management.
The provisions of the Integrated Agreement included the financing of certain
assets utilized in the business of the Company and provided a sharing of income
and losses between Curtice-Burns and Pro-Fac. Under the Pro-Fac Marketing and
Facilitation Agreement, Pro-Fac and the Company will continue the Marketing and
Management arrangements of the Integrated Agreement as well as the sharing of
income and losses. The capital contribution of Pro-Fac to the Company at
acquisition primarily included the cancellation of indebtedness and capital
lease obligations.
Subsequent to the acquisition date, Pro-Fac invested an additional $3.9 million
and committed to another $10.0 million investment which is reflected as a
capital contribution receivable on the Curtice-Burns balance sheet.
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.
Amounts received by Pro-Fac from Curtice-Burns under both Agreements for the
fiscal years ended June 24, 1995, June 25, 1994, and June 26, 1993 include:
commercial market value of crops delivered, $55.7 million, $59.2 million and
$59.8 million, respectively; interest income, $6.1 million, $15.6 million, and
$17.1 million, respectively; and additional proceeds from profit/(loss) sharing
provisions, $9.6 million, $16.8 million and $(21.8) million, respectively.
Payments by the Company to Pro-Fac for interest, amortization, and lease
financing payments ceased as of November 3, 1994.
NOTE 3. CHANGE IN CONTROL OF CURTICE-BURNS
In 1993, the Company's management and Board of Directors began exploring several
strategic alternatives for the Company, including a possible sale of all the
equity of the Company. Those activities ultimately resulted in the Company
entering into an Agreement and Plan of Merger with Pro-Fac and its subsidiary
PFAC on September 27, 1994 (the "Merger Agreement"). Pursuant to the Merger
Agreement, on October 4, 1994, Pro-Fac initiated a tender offer for all of the
Company's outstanding stock at $19.00 per share. At the expiration of the tender
offer on November 2, 1994, 6,229,442 shares of Class A and 2,046,997 shares of
Class B common stock (or approximately
42
<PAGE>
94 percent and 99 percent, respectively, of the total number of outstanding
shares of Class A and Class B common stock of the Company) had been validly
tendered and not withdrawn. All such tendered shares were accepted for payment
by PFAC. On November 3, 1994, PFAC merged into the Company, making the Company a
wholly-owned subsidiary of Pro-Fac.
Prior to November 3, 1994, the Company expensed $2.2 million of legal,
accounting, investment banking, and other expenses relative to the change of
control issue. In recognizing these expenses, the Company allocated half of
these amounts to Pro-Fac as a deduction to the profit split. Pro-Fac disputed
these charges, but such dispute was resolved with the merger.
The acquisition was accounted for using the purchase method of accounting. In
conjunction with the change in ownership all other identifiable assets and
liabilities were adjusted to reflect their fair value at the date of
acquisition. In recording the transaction, approximately $121.5 million was
recorded to adjust property, plant, and equipment to fair market value. In
addition lives were adjusted for assets acquired. The resulting annual
depreciation will approximate $23.3 million on all existing assets at the
appraised values. In addition, approximately $104.0 million of goodwill and
other intangible assets were recorded as the excess of purchase cost over net
tangible assets acquired. Included in this amount was approximately $43.8
million for deferred tax adjustments to properly reflect the effects of the
acquisition in accordance with the SFAS No. 109, "Accounting for Income Taxes."
The resulting annual amortization of goodwill and other intangible assets will
approximate $3.0 million for goodwill and other intangible assets using lives
ranging from 5 to 35-years. There were no other significant changes to
accounting policies as a result of the acquisition.
In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes (the "Notes") due 2005 and entered into a credit
agreement (the "New Credit Agreement") with the Bank, which provided for a term
loan, a term loan facility, a seasonal loan facility, and a letter of credit
facility. All obligations of PFAC under the Notes and the New Credit Agreement
have become obligations of the Company.
Following, in capsule form, is the consolidated, unaudited results of operations
of Pro-Fac for the fiscal years ended June 24, 1995 and June 25, 1994, assuming
the acquisition by Pro-Fac took place at the beginning of the 1994 fiscal year.
(In Millions)
Fiscal Year Ended
(Pro Forma is unaudited)
<TABLE>
<CAPTION>
June 24, 1995 June 25, 1994
------------------- -------------------
Actual Pro Forma Actual Pro Forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net sales .................. $522.4 $748.5 $58.2 $829.1
Income before taxes ........ $ 22.5 $ 28.4 $23.7 $ 10.1
Net income ................. $ 29.5 $ 31.4 $24.5 $ 6.1
</TABLE>
NOTE 4. 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
Comstock Michigan Fruit. The sale of the oats business resulted in an
approximate $10.9 million pretax gain in fiscal 1994.
43
<PAGE>
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 this 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. This
sale was contemplated by Pro-Fac in conjunction with the acquisition.
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 group
led by management within its Canadian subsidiary. This sale was finalized,
subsequent to fiscal year end (as of June 26, 1995) and was contemplated by
Pro-Fac in conjunction with the acquisition. The assets of Nalley's Canada Ltd.
are classified as held for sale as of June 24, 1995.
The Company's Nalley's U.S. division will provide to Nalley's Canada Ltd.,
through a supply agreement, those products which would no longer be manufactured
in Canada.
The business divestitures resulted in the following charges to earnings of the
Predecessor company in fiscal 1993, 1994 and fiscal 1995:
Fiscal 1993 Restructuring Charge: To reflect completed and anticipated effects
of the restructuring program, the Company incurred restructuring charges in
fiscal 1993 of $61.0 million. This charge included the loss incurred on the sale
of the Lucca Frozen Foods business, anticipated losses on the sale of the Hiland
potato chips and meat snacks businesses, and other costs anticipated in
conjunction with the restructuring program.
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 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
New Credit Agreement: The Bank has provided the Company, subject to the terms
and conditions set out in the New Credit Agreement, as amended, 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
balance outstanding under the New Credit Agreement was $195.0 million at June
24, 1995.
The Bank also has provided the Company, subject to the terms and conditions set
out in the New Credit Agreement, as amended, with seasonal financing of up to
$86.0 million and a $11.0 million Letter of Credit Facility. The
44
<PAGE>
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 certain subsidiaries of Curtice-Burns (the "Subsidiary
Guarantors"). The Company's obligations under the Bank Facility and Pro-Fac's
and the Subsidiary Guarantors' 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 (i) the relevant London interbank
offered rate plus 1.75 percent, (ii) the relevant prime rate minus 0.25 percent,
or (iii) 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 the Acquisition Facility was 8.7 percent per annum for the period from
November 3, 1994 through June 24, 1995.
Based on an estimated borrowing rate at fiscal year end 1995 of 9.0 percent for
long-term debt with similar terms and maturities, the fair value of the
Cooperative's long-term debt outstanding is approximately $193.8 million at June
24, 1995.
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
Cooperative's long-term debt outstanding was approximately $136.8 million at
June 24, 1995.
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 during each fiscal year, the borrowings under the Seasonal
Facility must be zero. The average borrowing under the Seasonal Facility was
$65.1 million during fiscal 1995, and the weighted-average interest rate on such
borrowing was 7.2 percent. There were no borrowings under this Seasonal Facility
at June 24, 1995. The Letter of Credit Facility provides for the issuance of
letters of credit through May 1996.
Certain Covenants: The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to maintain specified levels with regard to working capital,
tangible net worth, fixed charges, the incurrence of additional debt, and
limitations on dividends, investments, acquisitions, and asset sales. The
Company is in compliance with, or has obtained waivers for, all restrictions and
requirements under the terms of the borrowing agreement.
45
<PAGE>
Other Debt: Other debt of $.2 million carries rates up to 11.0 percent at June
24, 1995.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 1996, $11.5 million; 1997 through 1999, $8.0 million each;
and 2000, $31.1 million. Provisions of the Term Loan Facility require annual
payments in the years 1996 through 2000 in October of each year in an amount
equal to the "annual cash sweep" (equivalent to approximately 80 percent of net
income adjusted for certain cash and non-cash items) for the preceding fiscal
year as defined in the Acquisition Facility. The annual sweep to be paid on
October 1, 1995 (included in the fiscal 1996 amount above) relating to fiscal
1995 amounted to $3.5 million. Provisions of the Term Loan Facility also require
that cash proceeds from the sale of businesses be applied to the Term Loan
Facility. The sale of Nalley's Canada Ltd. subsequent to 1995 fiscal year end
resulted in $3.8 million cash proceeds that were applied to this debt.
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 limited in aggregate principal amount to $160.0 million and will
mature on February 1, 2005. Interest on the Notes accrues at the rate of 12.25
percent per annum and is payable semi-annually in arrears on February 1 and
August 1, commencing on February 1, 1995, to holders of record on the
immediately preceding January 15 and July 15, respectively. Except as provided
above, interest on the Notes accrues from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest is computed on the basis of a 360-day year, comprised of 12
30-day months.
Each of the Pro-Fac and the Subsidiary Guarantors has unconditionally guaranteed
the payment of Obligations of the Company under the Notes. Rights of holders,
pursuant to such guarantees, are subordinate to the rights of the holders of the
Senior Indebtedness of Pro-Fac and the Subsidiary Guarantors to payment in full
in the same manner as the rights of holders of the Notes are subordinate to
those of the holders of the Senior Indebtedness of the Company.
Based on an estimated borrowing rate at fiscal year end 1995 of 11.6 percent for
borrowings with similar terms and maturity, the fair value of the Notes was
$149.8 million at June 24, 1995.
Short-Term Borrowings: Short-term borrowings for the three years ended June 24,
1995 were as follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Balance at end of period $ -- $11,500 $12,000
Rate at fiscal year end --% 5.5% 4.3%
Maximum outstanding during the period $73,000 $46,000 $56,000
Average amount outstanding during the period $55,648 $30,464 $39,444
Weighted average interest rate during the period 7.5% 4.8% 4.6%
</TABLE>
The above amounts include borrowings under existing and pre-existing loan
agreements.
46
<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 24, 1995.
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 24, 1995
---------------------------------------
Owned Leased
Assets Assets Total
--------- --------- ---------
<S> <C> <C> <C>
Land $ 5,467 -- $ 5,467
Land improvements 1,540 -- 1,540
Buildings 92,215 795 93,010
Machinery and equipment 168,477 3,520 171,997
Construction in progress 20,489 -- 20,489
--------- --------- ---------
288,188 4,315 292,503
Less accumulated
depreciation 16,695 1,846 18,541
--------- --------- ---------
Net $ 271,493 $ 2,469 $ 273,962
========= ========= =========
Obligations under
capital leases 1 $ 2,384 $ 2,384
Less current portion 764 764
--------- ---------
Long-term portion $ 1,620 $ 1,620
========= =========
</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.
Interest capitalized in conjunction with construction amounted to $1,841,000 and
$79,000 in fiscal 1995 and 1994, respectively.
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 24, 1995.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
----------------------- ------- --------- ------------
<S> <C> <C> <C>
1996 $1,225 $ 4,868 $ 6,093
1997 842 2,804 3,646
1998 637 2,028 2,665
1999 395 1,422 1,817
2000 75 366 441
Later years 320 597 917
------ ------- -------
Net minimum lease payments 3,494 12,085 $15,579
======= =======
Less amount representing interest 1,110
------
Present value of minimum lease payments $2,384
======
</TABLE>
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
$6,107,000 for fiscal year 1995.
NOTE 7. TAXES ON INCOME
The consolidated financial statements reflect the tax status of the Cooperative
and its wholly-owned subsidiary, Curtice-Burns Foods, Inc. Pro-Fac has been
taxed as a cooperative since its inception. Curtice-Burns has consistently been
taxed as a Subchapter C Corporation.
47
<PAGE>
A summary of the Cooperative's taxable income/(loss) and the related
(benefit)/provision for income taxes for fiscal 1995, 1994, and 1993 follows:
Dollars in Thousands
Fiscal Years Ended
<TABLE>
<CAPTION>
June 24, June 25, June 26,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Consolidated income/(loss) before taxes
dividends and allocation of net proceeds $ 22,525 $ 23,698 $ (17,498)
Taxable (income)/loss of Curtice-Burns (5,555) -- --
Dividend received from Curtice-Burns 2,264 -- --
--------- --------- ---------
Excess/(deficiency) of revenues before
taxes, dividends and allocation of
net proceeds 19,234 23,698 (17,498)
Less:
Patronage income to be allocated to members
for current period (7,375) (15,546) (5,261)
Cash dividends paid on capital stock (4,914) (4,390) (4,548)
Dividend received deduction on Curtice-Burns
dividend (2,264) -- --
Utilization of net operating loss
carryforwards (4,665) (3,857) --
Difference between book and tax
methodologies (16) 95 52
--------- --------- ---------
Taxable income/(loss) to the Cooperative $ -- $ -- $ (27,255)
========= ========= =========
(Benefit)/provision for income taxes:
Federal -
Current $ (2,428) $ 267 $ 207
Deferred (7,891) (613) (207)
--------- --------- ---------
(10,319) (346) --
State -- (498) --
--------- --------- ---------
$ (10,319) $ (844) $ --
========= ========= =========
</TABLE>
A summary of Curtice Burns taxes on income include the following for
the period subsequent to acquisition:
(Dollars in Thousands)
<TABLE>
<S> <C>
Federal -
Current $(1,368)
Deferred 3,810
-------
2,442
-------
State and foreign -
Current (46)
Deferred 895
-------
849
-------
$ 3,291
=======
</TABLE>
48
<PAGE>
The consolidated deferred tax liabilities/assets consist of the following at
June 24, 1995:
<TABLE>
<S> <C>
Liabilities
Depreciation $(66,736)
Non-compete agreements (1,120)
Long-term receivables (626)
Prepaid manufacturing (3,827)
Other (45)
--------
(72,354)
--------
Assets
Non-qualified retains 1,181
Inventory reserves 3,416
Allowance for doubtful accounts 382
Capital and operating loss carryforwards 9,838
Accrued employee benefits 3,711
Insurance accruals 1,659
Pension/OPEB accruals 6,237
Plant consolidation and closing expenses 2,572
Tax credits 3,628
Other 1,625
--------
34,249
--------
Net deferred liabilities (38,105)
Valuation allowance (7,366)
--------
$(45,471)
========
</TABLE>
A benefit for the Cooperative has been recorded for a net operating loss
carryforward resulting from 1993 operations. As of June 24, 1995, the amount
available is $17.4 million ($6.1 million net of tax) which expires in 2008.
In conjunction with the acquisition, a valuation allowance was recorded in
fiscal 1995 for that portion of the Curtice Burns capital loss carryforward and
tax credits where it was more likely than not that a tax benefit would not be
realized.
A reconciliation of the consolidated effective tax rate to the amount computed
by applying the federal income tax rate to income before taxes, is as follows:
Effective Tax Rate (Percent):
<TABLE>
<CAPTION>
June 24, June 25, June 26,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal 35.0% 34.0% (34.0)%
State income taxes, net of federal income tax effect 2.5 0.4 --
Goodwill amortization 2.8 -- --
Loss for which no benefit was recorded -- -- 34.0
Utilization of net operating loss carryforward (26.4) (34.0) --
Other (net) (0.3) (4.0) --
----- ----- -----
Subtotal 13.6 (3.6) --
Tax benefit resulting from exempt status (44.8) -- --
----- ----- -----
Total (31.2)% (3.6)% --%
===== ===== =====
</TABLE>
In December 1991, the national office of the Internal Revenue Service issued a
technical advice memorandum ("TAM") concluding that virtually all of Pro-Fac's
income arises from patronage sources. As a result of the TAM, in January 1992 an
additional distribution of patronage proceeds for fiscal 1991 was made to
members in the amount of $3,727,000. Patronage proceeds available for
distribution are determined by the Board of Directors each year, as stipulated
in the Bylaws.
In August of 1993, the Internal Revenue Service issued a determination letter
which concluded that the Cooperative is exempt from federal income
49
<PAGE>
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 1991 in the amount of approximately $7.2 million and
interest payments of approximately $4.9 million. In addition, it is anticipated
that the Cooperative will file for tax refunds for fiscal 1992 in the amount of
approximately $1.6 million and interest payments of approximately $.3 million.
Based upon the status of the government's review of the refunds for fiscal years
1986 to 1990, the legal counsel to the Cooperative has issued an opinion that
such refunds constitute a legally enforceable account receivable from the
government. Accordingly, refund amounts of $10.1 million for tax and interest
have been reflected in the financial statements of Pro-Fac as of June 24, 1995.
It is anticipated that such amounts will be received in the first half of fiscal
1996. The Board of Directors of the Cooperative has committed that substantially
all of such refunds and interest payments, when received, will be invested in
its subsidiary, Curtice-Burns Foods, Inc.
As a result of the acquisition, the Cooperative's exempt status has ceased.
In January 1995, the Boards of Directors of Curtice-Burns Foods, Inc. and
Pro-Fac Cooperative, Inc. approved appropriate amendments to the Bylaws of
Curtice-Burns Foods, Inc. to allow the Company to qualify as a cooperative under
Subchapter T of the Internal Revenue Code. A private letter ruling agreeing to
this change was received from the Internal Revenue Service in August 1995. The
effective date of the change is June 25, 1995. As a cooperative, patronage
income will be deductible to the extent distributed to its members. Accordingly,
taxation on patronage income is only imposed at the patron level.
NOTE 8. 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 year ended 1995 includes the following components:
(Dollars in Thousands)
<TABLE>
<S> <C>
Service cost -- benefits earned
during the period $ 2,427
Interest cost on projected benefit
obligation 4,365
Return on assets
Deferred gain (4,789)
2,003
Union and other pension costs 147
-------
Net pension cost $ 2,150
=======
</TABLE>
50
<PAGE>
The pension plans' funded status was as follows at June 24, 1995:
(Dollars in Thousands)
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(65,350)
========
Accumulated benefit obligation $(69,449)
========
Projected benefit obligation $(78,809)
Plan assets at fair value 74,897
--------
Projected benefit obligation in excess of
Plan assets (3,912)
Unrecognized net gain (8,787)
--------
(12,699)
Union and other pension plans (281)
--------
Pension liability at year end $(12,980)
========
</TABLE>
In 1995 the assumed discount rate, assumed long-term rate of return on Plan
assets, and the assumed long-term rate of compensation increase were 8.50
percent, 10.0 percent, and 4.50 percent, respectively.
Profit Sharing: Under the Deferred Profit Sharing Plan and the Non-Qualified
Profit Sharing Plan, the Company allocated to all salaried exempt employees a
percentage of its earnings in excess of 5.0 percent in 1995 of the combined
long-term debt and equity (as defined) of Pro-Fac and the Company. In fiscal
1995, $1,400,000 was allocated to the Plans.
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.
51
<PAGE>
The Plan's funded status was as follows at June 24, 1995:
(Dollars In Thousands)
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Fully eligible active participants $ 113
Other active participants 244
Retirees 2,386
-------
Total 2,743
Less Plan assets at fair value --
-------
Accumulated postretirement benefit obligation
in excess of fair value of assets (2,743)
Unrecognized transition obligation --
Unrecognized prior service cost --
Unrecognized losses/(gains) (274)
-------
Accrued postretirement benefit cost $(3,017)
=======
</TABLE>
Net periodic postretirement benefit cost included the following components in
fiscal 1995:
(Dollars in Thousands)
<TABLE>
<S> <C>
Service cost $ 15
Interest cost 154
Actual return on assets --
Net amortization and deferral --
----
Net periodic postretirement benefit cost $169
====
</TABLE>
The weighted-average, assumed-discount rate used to measure the benefit
obligations was 7.75 percent at the beginning and 8.50 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 12 percent for 1995. The rate was assumed to decrease gradually to
6.0 percent by the year 2005 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 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 for fiscal
1995:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Current 1% Higher
Trend Trend
------- ---------
<S> <C> <C>
APBO $2,743 $2,874
Service cost+interest cost $ 170 $ 178
</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.
The Company adopted the provisions of FAS No. 112 effective June 26, 1994. The
adoption did not have a significant impact on the operations or cash flow of the
Company.
52
<PAGE>
NOTE 9. COMMON STOCK AND CAPITALIZATION
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 10 for common stock dividend
information.)
At June 24, 1995 and June 25, 1994, there were outstanding subscriptions, at par
value, for 59,568 and 9,270 shares of common stock, respectively. These shares
are issued as subscription payments are received.
Preferred Stock: The existing preferred stock originated from the conversion at
par value of retains. This stock is non-voting and non-cumulative, except that
the holders of preferred and common stock would be entitled to vote as separate
classes on certain matters which would affect or subordinate the rights of the
class.
At the Cooperative's annual meeting in January 1995, shareholders approved an
amendment to the certification of incorporation to authorize the creation of
five additional classes of preferred stock.
On August 23, 1995, the Cooperative commenced an offer to exchange one share of
its Class A cumulative preferred stock (liquidation preference $25 per share)
for each of its existing non-cumulative preferred stock (liquidation preference
$25 per share). The exchange offer is scheduled to expire on October 10, 1995
unless extended. Pro-Fac has applied to include, and received conditional
approval for inclusion of, the cumulative preferred stock on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ").
In June 1995, the Board approved, pursuant to its authority under the Charter
Amendment the creation of a new series of preferred stock, to be designated the
"Class B, Series 1, 10% cumulative preferred stock" (the "Class B Stock").
Pro-Fac expects to issue up to 500,000 shares of the Class B Stock at $10 per
share (liquidation value $10 per share) to employees of Curtice-Burns pursuant
to an Employee Stock Purchase Plan adopted by the Curtice-Burns and Pro-Fac
Boards of Directors in June 1995 and implemented in the fall of 1995.
The dividend rates for the preferred stock are as follows:
Non-cumulative preferred $1.50 per share paid annually at the
discretion of the Board.
Cumulative Class A preferred $1.72 per share annually, paid in four
quarterly installments of $.43 per share.
Cumulative Class B preferred $1.00 per share paid annually.
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.
53
<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.
Beginning with the retains issued in 1995, the maturity of all future
retains will result in the issuance of Class A cumulative preferred stock.
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 7.)
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.
NOTE 10. 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. Effective
January 1995, preferred shareholders are entitled to dividends as disclosed in
the table in the previous NOTE. 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 1995 and 1994, dividends on
preferred stock were paid at a rate of 6.75 and 6.25 percent, respectively, of
the par value and dividends on common stock were paid at a rate of 5.5 and 5.0
percent, respectively, of the par value.
Subsequent to June 24, 1995, the Cooperative declared a cash dividend of 6.0
percent of the par value of preferred stock and 5.0 percent of the par value of
the common stock, payable on July 15, 1995. These dividends amounted to
$5,035,000.
NOTE 11. OTHER MATTERS
SUBSEQUENT EVENTS
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. This sale was finalized subsequent to year end (as of June 26, 1995)
and was contemplated by Pro-Fac is conjunction with the acquisition. Nalley's
U.S. will have an ongoing supply agreement with Nalley's Canada Ltd. as a result
of the sale.
Purchase of Packer Foods: On July 21, 1995, the Company completed the
acquisition of Packer Foods, a privately owned, Michigan-based food processor.
The total cost of acquisition was approximately $5.4 million in notes plus
interest at 10 percent to be paid until the notes mature in the year 2000. The
transaction will be accounted for as a purchase. For its latest fiscal year
ended December 31, 1994, Packer had net sales of $13 million, operating income
of $300,000, and income before extraordinary items of $100,000. Packer Foods is
in the process of being merged into the Company's Comstock Michigan Fruit
operations.
Commitments: The Company's Southern Frozen Foods Division has guaranteed an
approximate $1.4 million loan for the City of Montezuma to renovate a
54
<PAGE>
sewage treatment plant operated by Southern Frozen Foods on behalf of the
City.
In July 1994, a plant operated by the Company's Southern Frozen Foods Division,
located in Montezuma, Georgia, was damaged by fire. All material costs
associated with the facility repairs and business interruption are anticipated
to be covered under the Company's insurance policies. A gain on assets destroyed
in the fire was recognized by the Company prior to the acquisition. Subsequent
to the acquisition, additional costs in the amount of $2.3 million were incurred
for which negotiations are currently in progress with the insurance carriers. As
of June 24, 1995, the Company has received $10.0 million in proceeds from the
insurance claims for the fire. Subsequent to fiscal year end, $2.5 million was
received for a total of $12.5 million with $10.0 million receivable at August
30, 1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers of the Registrant and Subsidiary: 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 Administration and Planning
Kevin M. Murphy 1953 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).
55
<PAGE>
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 Administration and Planning
since June 1995 and had been Vice President of Member Relations of Pro-Fac from
June 1990 to June 1995 and Assistant Secretary of Pro-Fac since 1983. Mr.
Kalchik was Director of Member Relations of Pro-Fac from August 1983 to June
1990.
Kevin M. Murphy has been Vice President of Member Relations of Pro-Fac since
June 1995. Mr. Murphy was Director of Pro-Fac Communications and Member
Relations from August 1990 to June 1995. 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.
MANAGEMENT AND DIRECTORS OF CURTICE BURNS
Effective upon consummation of the Acquisition, Pro-Fac established a management
structure for the Company, providing for a Board of Directors
56
<PAGE>
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.
Set forth below is certain information concerning the individuals who serve as
directors and executive officers of the Company as well as other corporate
officers 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 President and Chief Executive Officer and Director
William D. Rice 1934 Senior Vice President, Chief Financial Officer, 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
Diana T. Bartalo 1946 Assistant Treasurer and Director of Financial Reporting
Robert E. McMahon 1941 Vice President Information Systems
Blaine B. Petersen 1928 Vice President Operations
Earl L. Powers 1944 Vice President and Controller
Beatrice B. Slizewski 1943 Vice President Corporate Communications
Lois J. Warlick-Jarvie 1958 Vice President Human Resources
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.
57
<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 Administration 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.
Diana T. Bartalo has been Director of Financial Reporting since 1992; Assistant
Treasurer since 1988; Corporate Accounting Manager 1976-1992; and held several
administrative staff positions 1970-1976.
Robert E. McMahon has been Vice President Information Systems since November
1993; prior to that he was Vice President, Information Systems for the Comstock
Michigan Fruit Division 1992-1993 and Director of Corporate Information Systems
since December 1991. He joined the Comstock Michigan Fruit Division as Systems
Integration Manager in 1989 and became Director of Information Systems for that
Division in 1990. Prior to employment with Curtice Burns, he held management,
executive and technical positions with such organizations as Abbott Labs, BASF,
IBM, MTech, and Price Waterhouse.
Blaine B. Petersen has been Vice President Operations since 1991; prior to that
he was Director of Operations since 1990. Before joining Curtice Burns, he was
Vice President Plant Operations, Grace Culinary Systems Division of W.R. Grace &
Co. 1988-1990, Vice President Operations, Fishery Products, Inc. 1983-1988.
Various executive management positions 1969-1983.
Earl L. Powers has been Vice President and Controller since March 1993, and Vice
President Finance and Management Information Systems, Comstock Michigan Fruit
Division of the Company 1991 to March 1993. Prior to joining the Company, he was
Controller of various Pillsbury Company divisions 1987-1990 and various other
executive management positions at the Pillsbury Company 1976-1987.
Beatrice B. Slizewski has been Vice President of Corporate Communications for
Curtice-Burns and Pro-Fac since March 1995. She joined the Company as Director
of Corporate Communications in 1991. Prior to joining Curtice Burns (1988-1991),
she worked as a marketing and public relations consultant for J.P. Associates, a
small business consulting agency in Rochester, New York. Previous food industry
experience includes 14 years with the R.T.
58
<PAGE>
French Company (1974 - 1988) -- eight years in public relations and seven years
in various accounting functions.
Lois J. Warlick-Jarvie has been Vice President Human Resources since January
1993; Corporate Director Human Resources July 1991 to January 1993; Manager
Compensation, Benefits and Risk Management January 1989 to July 1991; various
administrative staff positions within the Company 1982 to 1989.
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).
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).
Cornelius D. 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 President and Chief Executive Officer of
Wise Snack Foods. He was Executive Vice President of
59
<PAGE>
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.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by the Company to become a Director or executive
officer. Officers of the Company serve for a term of office from the date of
election to the next organization meeting of the Board of Directors and until
their respective successors are elected and qualified, except in the case of
death, resignation, or removal.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the cash compensation and certain other components of
the compensation of the chief executive officer and the four (4) other most
highly compensated Executive Officers of the Cooperative earned during fiscal
year ended June 24, 1995.
Executive Compensation
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation 1 Compensation Deferred
-------------------- Awards Profit
Name and Principal Position Year Salary Bonus 2 Options Sharing
------------------------------ ---- ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Roy A. Myers - 1995 $258,375 $200,539 $ 0 $ 10,609
President, CEO of
Curtice-Burns
William D. Rice - 1995 $159,081 $116,143 $ 0 $ 9,791
Senior Vice President, CFO,
Secretary and Treasurer of
Curtice-Burns
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Annual Long-Term
Compensation 1 Compensation Deferred
-------------------- Awards Profit
Name and Principal Position Year Salary Bonus 2 Options Sharing
------------------------------ ---- ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Patrick D. Lindenbach - 1995 $128,927 $ 71,504 $ 0 $ 8,134
Executive Vice President of
Curtice-Burns
Dennis M. Mullen - 1995 $112,772 $ 71,207 $ 0 $ 7,265
President, Comstock
Michigan Fruit Division
Stephen R. Wright 1995 $ 98,373 $ 51,628 $ 0 $ 4,520
General Manager and
CEO of Pro-Fac
Cooperative, Inc.
</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 of Pro-Fac Cooperative, Inc. ("Pro-Fac").
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 is included in the salary column of the "summary compensation table".
For retirement before age 65, the annual benefits are reduced by an amount 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.
The approximate number of years of Plan participation under the Company's
Pension Plan as of June 24, 1995, of the Executive Officers listed in the
compensation table are as follows: Patrick D. Lindenbach-6, Dennis M. Mullen-5,
Roy A. Myers-33, William D. Rice-23, and Stephen R. Wright-22.
On January 28, 1992, the Company adopted an Excess Benefit Retirement Plan which
serves to provide employees with the same retirement benefit they would have
received from the Company's Master Salaried Retirement 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 Internal Revenue
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 Company's Master Salaried Retirement Plan and
the Excess Benefit Retirement Plan.
61
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
Years of Plan Participation
Final --------------------------------------------------------------------------------
Average Pay 15 20 25 30 35
----------- ------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
$125,000 $22,586 $ 29,522 $ 36,435 $ 43,397 $ 50,540
150,000 27,836 36,522 45,185 53,897 62,790
175,000 33,086 43,522 53,935 64,397 75,040
200,000 38,336 50,522 62,685 74,897 87,290
225,000 43,586 57,522 71,435 85,397 99,540
250,000 48,836 64,522 80,185 95,897 111,790
275,000 54,086 71,522 88,935 106,397 124,040
300,000 59,336 78,522 97,685 116,897 136,290
325,000 64,586 85,522 106,435 127,397 148,540
350,000 69,836 92,522 115,185 137,897 160,790
375,000 75,086 99,522 123,935 148,397 173,040
400,000 80,336 106,522 132,685 158,897 185,290
</TABLE>
The benefits listed on the Pension Plan Table are not subject to any deduction
for Social Security.
Change of Control Provisions of Severance and Other Benefit Plans: The Company
has adopted a Change of Control Severance Plan concerning certain key employees
and Executive Officers (the "Plan"). The Plan provides salary and benefit
continuation to designated executives (including the named executives listed in
the 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 Plan.
The Plan will remain in existence until November 3, 1996. The Plan provides for
salary and benefit continuation upon termination other than for cause within the
two-year period following a change of control as follows: one year of salary and
benefit continuation for Messrs. Myers and Rice; two years of salary and benefit
continuation for the other designated executives including Messrs. Lindenbach
and Mullen, or until the executive obtains other employment at an annual salary
not less than 75 percent of his annual salary at termination, whichever occurs
first.
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 plan who are terminated within two years following a change
in control are entitled to an allocation of benefits under such plan for the
fiscal year of their termination on a pro rata basis for the part of the year
they were employed.
Directors Compensation: In fiscal 1995, directors of Pro-Fac received an annual
stipend of $6,000 per year, plus $200 per day for attending Board or Committee
meetings, except for the President, who received double those amounts.
In fiscal 1995, non-employee directors of Curtice-Burns who were designated by
Pro-Fac received an annual stipend of $6,000 per year, plus $200 per day for
attending Board or Committee meetings. In fiscal 1995, all other outside
directors, Messrs. Harrington, McKnight, and Stotz 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. The Company accrued an annual
stipend of $24,700 for Mr. Call as Chairman of the Board. Mr. Myers was not paid
directors' fees.
62
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of August 21, 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 20.43%
P.O. Box 988 Preferred 41,638 1.37%
Traverse City, MI 49685
Michigan Blueberry Growers Assoc. Common 116,400 6.20%
P.O. Drawer B Preferred 93,200 3.06%
Grand Junction, MI 49056
Dale E. Burmeister Common 3,218(c) 0.17%
Preferred 703(c) 0.02%
8,490 0.28%
Robert V. Call, Jr. Common 39,116(d) 2.08%
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) 0.50%
Preferred 4,962(g) 0.16%
Tommy R. Croner Common 7,026(h) 0.37%
Preferred 10,076(i) 0.33%
Albert P. Fazio Common 8,000(j) 0.43%
Preferred 8,430(j) 0.28%
Bruce R. Fox Common 20,597(k) 1.10%
Preferred 8,572(k) 0.28%
3,902(l) 0.13%
1,589 0.05%
Thomas R. Kalchik Preferred 328(n) 0.01%
Steven D. Koinzan Common 7,140 0.38%
Preferred 1,924 0.06%
Kenneth A. Mattingly Common 5,150(m) 0.27%
Preferred 3,147(m) 0.10%
Allan D. Mitchell Common 78 0.00%
Preferred 1,674(n) 0.06%
5,006 0.16%
Kevin M. Murphy Preferred 300 0.01%
Allan W. Overhiser Common 1,379(o) 0.07%
Preferred 1,512(o) 0.05%
Paul E. Roe Common 12,851(p) 0.68%
Preferred 3,160(p) 0.10%
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Title Amount and Nature of Percent of
Name of Class Beneficial Ownership(A) Class(B)
-------------------------------- -------- ----------------------- ----------
<S> <C> <C> <C>
Edward L. Whitaker Common 240 0.01%
Preferred 117 0.00%
Stephen R. Wright Preferred 840 0.03%
All directors and officers
as a group Common 114,267 6.08%
Preferred 108,389 3.56%
</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.
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Ownership in CoBank: 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
64
<PAGE>
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 certificates. 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 24, 1995, the amount of Pro-Fac's investment
in the Bank was approximately $22.9 million. Pursuant to its capital purchase
obligation, Pro-Fac increased its investment in the Bank by $1.3 million and
$2.6 million in fiscal 1995 and 1994, respectively. Amounts paid to Pro-Fac on
account of dividends and the redemption of capital certificates in connection
with such investment were $2.3 million and $3.1 million in fiscal 1995 and 1994,
respectively. In connection with the Transactions, Pro-Fac contributed its
investment in the Bank to the capital of the Company.
Purchase of Crops by 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 and Facilitation Agreement. Prior to the Acquisition, these crops were
sold to the Company pursuant to the Integrated Agreement. During fiscal 1995,
the following directors and executive officers of Pro-Fac directly or through
sole proprietorships or corporations, sold crops to Pro-Fac and provided
harvesting, trucking and waste removal services to Curtice Burns for the
following aggregate amounts:
<TABLE>
<CAPTION>
RELATIONSHIP AGGREGATE AMOUNT PAID
NAME TO PRO-FAC IN FISCAL 1995
------------------- ------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Dale E. Burmeister ................ Director $0.1
Robert V. Call, Jr ................ Director 2.1
Glen Lee Chase .................... Director 0.1
Tommy R. Croner ................... Director and Secretary 0.3
Albert P. Fazio ................... Director and Vice President 0.2
Bruce R. Fox ...................... Director and President 1.1
Steven D. Koinzan ................. Director and Treasurer 0.2
Kenneth A. Mattingly .............. Director 0.7
Paul E. Roe ....................... Director 0.5
Allan D. Mitchell ................. Director 0.2
</TABLE>
Stock Option Payments to Management: In conjunction with the acquisition of the
Company, $1.7 million representing the aggregate payments that were made in
connection with the cancellation of certain outstanding options to purchase
shares of Curtice Burns stock which were exercisable at a price less than $19.00
per share.
Of the total stock option payments made in conjunction with the acquisition,
following were the payments to those listed in the summary compensation table:
<TABLE>
<CAPTION>
Name Amount
--------------------- -------
<S> <C>
Roy A. Myers $148,348
William D. Rice $154,231
Patrick D. Lindenbach $ 85,545
Dennis M. Mullen $ 17,850
Stephen R. Wright $ 27,746
</TABLE>
Sale of Nalley's Canada Ltd: Subsequent to the end of the fiscal year, the
Company sold its Nalley's Canada Ltd. subsidiary to a group of investors led by
Mr. Patrick Lindenbach, who is Chief Executive Officer for the Company's
Nalley's Fine Foods Division. The sale price was approximately $8 million,
one-half in cash and one-half in notes. The effect on ongoing earnings is
negligible and appropriate incentives, reporting relationships, and management
reports have been instituted to avoid any problems or appearance of problems
with conflict of interest.
65
<PAGE>
Directors and Officers Liability Insurance: As authorized by New York law and in
accordance with the policy of that state, the Company has obtained insurance
from Chubb Group Insurance insuring the Company against any obligation it incurs
as a result of its indemnification of its officers and directors, and insuring
such officers and directors for liability against which they may not be
indemnified by the Cooperative. This insurance has a term expiring on August 15,
1996, at an annual cost of approximately $85,000. As of this date, no sums have
been paid to any officers or directors of the Cooperative under this
indemnification insurance contract.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The following appears in ITEM 8 of This Report
<TABLE>
<CAPTION>
ITEM Page
------------- ----
<S> <C>
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Report of Independent Accountants...................................... 32
Management's Responsibility for Financial Statements................... 33
Consolidated Financial Statements for the years ended
June 24, 1995, June 25, 1994, and June 26, 1993:
Consolidated Statement of Operations and
Net Proceeds.................................................. 34
Consolidated Balance Sheet....................................... 35
Consolidated Statement of Cash Flows............................. 37
Consolidated Statement of Changes in Shareholders' and
Members' Capitalization and Common Stock...................... 39
Notes to Consolidated Financial Statements....................... 40
</TABLE>
(2) The following additional financial data are set forth herein:
Schedule VIII: Valuation and Qualifying Accounts
66
<PAGE>
Schedule VIII
Pro-Fac Cooperative, Inc.
Valuation and Qualifying Accounts
For the Fiscal Year Ended June 24, 1995
<TABLE>
<S> <C>
Allowance for doubtful accounts
Balance at beginning of period $683,000
Additions charged to expense $ 91,000
Deductions $101,000
Balance at end of period $673,000
Inventory reserve
Balance at beginning of period $ --
Net change $144,000
Balance at end of period* $144,000
</TABLE>
* Difference between FIFO cost and market applicable to canned and frozen
fruit and vegetable inventories.
67
<PAGE>
Schedules other than those listed above are omitted because they are either not
applicable or not required, or the required information is shown in the
financial statements or the notes thereto.
(3) The following exhibits are filed herein or have been previously
filed with the Securities and Exchange Commission:
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------
<S> <C>
3.3** Certificate of Incorporation of Pro-Fac.
3.4* Bylaws of Pro-Fac.
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' 12.25 percent
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.
10.13* Modification A 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.
10.15 Modification B-D of Term Loan, Term Loan Facility, and
Seasonal Loan Agreement Between Curtice Burns and the
Bank.
</TABLE>
68
<PAGE>
(b) Exhibits (Continued):
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------
<S> <C>
21.1 List of Subsidiaries.
27 Financial Data Schedule.
</TABLE>
* Incorporated by reference from Registration Statement No. 33-60273.
** Incorporated by reference from Registration Statement No. 33-56517, as
amended.
69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: 8/17/95
PRO-FAC COOPERATIVE, INC.
By: /s/ Stephen R. Wright
-------------------------
General Manager
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 to this Annual Report on Form
10-K 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 satisfying 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.
70
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------- -------------------------- -------
<S> <C> <C>
/s/Bruce R. Fox President and Director 8/17/95
----------------------- -------
(BRUCE R. FOX)
/s/Albert P. Fazio Vice President and Director 8/17/95
----------------------- -------
(ALBERT P. FAZIO)
/s/Steven D. Koinzan Treasurer and Director 8/17/95
----------------------- -------
(STEVEN D. KOINZAN)
/s/Tommy R. Croner Secretary and Director 8/17/95
----------------------- -------
(TOMMY R. CRONER
/s/Dale W. Burmeister Director 8/17/95
----------------------- -------
(DALE W. BURMEISTER)
/s/Robert V. Call, Jr. Director 8/17/95
----------------------- -------
(ROBERT V. CALL, JR.)
/s/Glen Lee Chase Director 8/17/95
----------------------- -------
(GLEN LEE CHASE)
/s/Kenneth A. Mattingly Director 8/17/95
----------------------- -------
(KENNETH A. MATTINGLY)
/s/Allan D. Mitchell Director 8/17/95
----------------------- -------
(ALLAN D. MITCHELL)
/s/Allan W. Overhiser Director 8/17/95
----------------------- -------
(ALLAN W. OVERHISER)
/s/ Paul E. Roe Director 8/17/95
----------------------- -------
(PAUL E. ROE)
/s/Edward L. Whitaker Director 8/17/95
----------------------- -------
(EDWARD L. WHITAKER)
/s/Stephen R. Wright General Manager 8/17/95
----------------------- -------
(STEPHEN R. WRIGHT) (Principal Executive Officer)
/s/ William D. Rice Assistant Treasurer 8/17/95
----------------------- -------
(WILLIAM D. RICE) (Principal Accounting Officer)
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No proxy statement, form of proxy or other proxy soliciting material has been or
will be sent to security holders with respect to the 1996 Annual Meeting.
Pro-Fac's 1995 Annual Report on Form 10-K will be sent to its security holders.
71
<PAGE>
<PAGE>
EXHIBIT 10.15
Modification B
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-B,
T-6186-B, S-6183-B, and S-6181-B
July 19, 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"),as amended January 26,1995 is hereby further amended as follows:
(1) Section 2.4 entitled Term Loan Facility is modified by decreasing the Term
Loan Facility to an aggregate principal amount of up to One Hundred Sixteen
Million Two Hundred Ten Thousand Dollars ($116,210,000).
(2) Section 2.7 entitled Seasonal Loan Facility is modified by decreasing the
Seasonal Loans to an aggregate principal amount not to exceed at any time
outstanding the lesser of (a) Eighty-Three Million Three Hundred Thousand
Dollars ($83,300,000) or (b) the Borrowing Base (the "Seasonal Loan
Commitment").
(3) Section 3.7 entitled L/C Limit is modified by increasing the L/C Limit
outstanding at any time to Thirteen Million Seven Hundred Thousand Dollars
($13,700,000).
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>
EXHIBIT 10.15
Modification B
(Continued)
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/ Ralph T. Lawrence
--------------------------
Its VP
ACCEPTED AND AGREED TO: 7/20/95
--------------
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ Roy A. Myers
--------------------------
Its President
ACKNOWLEDGED AND AGREED TO: 7/20/95
------------
(Date)
PRO-FAC COOPERATIVE, INC.
By /s/ William D. Rice
--------------------------
Its Asst. Treasurer
ACKNOWLEDGED AND AGREED TO: 7/20/95
--------------
(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
----------------------------------------
Its
<PAGE>
EXHIBIT 10.15
Modification C
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-C,
T-6186-C, S-6183-C, and S-6181-C
August 30, 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"),as amended January 26,1995 and July 19, 1995 is hereby further amended
as follows:
(1) Section 2.7 entitled Seasonal Loan Facility is modified by decreasing the
Seasonal Loans to an aggregate principal amount not to exceed at any time
outstanding the lesser of (a) Eighty-Two Million Eight Hundred Thousand Dollars
($82,800,000) or (b) the Borrowing Base (the "Seasonal Loan Commitment").
(2) Section 3.7 entitled L/C Limit is modified by increasing the L/C Limit
outstanding at any time to Fourteen Million Two Hundred Thousand Dollars
($14,200,000).
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>
EXHIBIT 10.15
Modification C
(Continued)
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/ Ralph Lawrence
----------------------------------
Its V.P.
ACCEPTED AND AGREED TO: 8/25/95
------------
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ Roy A. Myers
----------------------------
Its President
ACKNOWLEDGED AND AGREED TO: 8/25/95
-------------
(Date)
PRO-FAC COOPERATIVE, INC.
By /s/ William D. Rice
----------------------------
Its Asst. Treas.
ACKNOWLEDGED AND AGREED TO: 8/25/95
--------------
(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 10.15
Modification D
CoBANK, ACB
LOAN AGREEMENT NO. T-6184-D,
T-6186-D, S-6183-D, and S-6181-D
As of September 1, 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"),as amended January 26, 1995, July 19, 1995 and August 30, 1995 is
hereby further amended as follows:
(1) Section 2.6 entitled Amortization of Term Loan Facility Loans is modified by
changing the dates of the first five annual installments from September 1 of
each year, beginning September 1, 1995, to October 1 of each of the first five
years beginning October 1, 1995.
(2) Section 2.7 entitled Seasonal Loan Facility is modified by increasing the
Seasonal Loans to an aggregate principal amount not to exceed at any time
outstanding the lesser of (a) Ninety-nine Million Eight Hundred Thousand Dollars
($99,800,000) for the period beginning September 15, 1995 and ending at the
close of business on December 15, 1995 at which time the aggregate principal
amount shall be decreased to Eighty-two Million Eight Hundred Thousand Dollars
($82,800,000)or (b) the Borrowing Base (the "Seasonal Loan Commitment")
(3) Section 2.14 entitled Fees is modified by adding a paragraph reading as
follows:
(c) The Borrower agrees to pay an origination fee of 2/10 of 1 percent
(.20%) on the Seventeen Million Dollar ($17,000,000) increase on the Seasonal
Loan Facility to be billed by the Bank.
The Borrower agrees to execute such additional documents, including amendments
and modifications of the Seasonal Note, and to take such other action as may be
reasonably requested by the Bank to give effect to this Modification.
<PAGE>
EXHIBIT 10.15
Modification D
(Continued)
The Term Loan, Term Loan Facility and Seasonal Loan Agreement is hereby amended
accordingly but otherwise shall remain in full force and effect.
All terms of the Term Loan, Term Loan Facility and Seasonal Loan Agreement and
any other related loan and collateral documents (collectively "Loan Documents")
remain in full force and effect and are hereby ratified and confirmed, except to
the extent modified by this Agreement, by Borrower.
All Financial Statements and disclosures submitted to the Bank under the Loan
Documents are true and accurate in all material respects. Except as previously
disclosed to the Bank, there has been no material adverse change in the
financial condition or operations of Borrower.
The Loan Documents are not subject to any offset, claim, or defense by Borrower.
All liens granted by Borrower to the Bank (i) remain in full force and effect,
(ii) are not subject to any claim or defense, and (iii) retain a first priority
lien position.
To the best of Borrower's knowledge, there are no liens, other than liens
granted under the Loan Documents, on any real or personal property of Borrower.
CoBANK, ACB (formerly known as Springfield
Bank for Cooperatives)
By /s/ Ralph T. Lawrence
-----------------------------------
Its V.P.
ACCEPTED AND AGREED TO: 9/14/95
------------
(Date)
CURTICE-BURNS FOODS, INC. (successor to merger between PF
Acquisition Corp. and Curtice-Burns Foods, Inc.)
By /s/ William D. Rice
-----------------------------
Its Sr. Vice Pres.
ACKNOWLEDGED AND AGREED TO: 9/14/95
------------
(Date)
PRO-FAC COOPERATIVE, INC.
By /s/ Thomas R. Kalchik
------------------------------
Its Assisant Secretary
<PAGE>
EXHIBIT 10.15
Modification D
(Continued)
ACKNOWLEDGED AND AGREED TO: 9/14/95
------------
(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 Pres.
<PAGE>
EXHIBIT 10.15
Modification D
(Continued)
AMENDMENT TO SEASONAL LOAN NOTE
September 15, 1995 Rochester, New York
CURTICE-BURNS FOODS, INC., a New York corporation ("Borrower"), and CoBank, ACB
("CoBank"), a corporation established and existing under the law of the United
States of America, with regional office located at 67 Hunt Street, Agawam,
Massachusetts, hereby agree to amend the Seasonal Loan Note dated November 3,
1994 in the amount of $86,000,000 made by Borrower and PF Acquisition Corp
(whereby borrower is the successor to merger between PF Acquisition Corp. and
Borrower) to the Springfield Bank for Cooperatives, now known as CoBank
("Note").
The Borrower and CoBank hereby agree as follows:
1. The stated principal amount of the Note is amended from Eighty-Six Million
Dollars ($86,000,000) to Ninety-Nine Million Eight Hundred Thousand Dollars
($99,800,000).
The Note is hereby amended accordingly but otherwise shall remain in full force
and effect.
CURTICE-BURNS FOODS. INC.
By /s/ William D. Rice
----------------------------------
Title Sr. Vice Pres.
------------------------------
CoBank, ACB
By /s/ Ralph T. Lawrence
----------------------------------
Title Vice Pres.
------------------------------
<PAGE>
EXHIBIT 21.1
PRO-FAC COOPERATIVE, INC.
SUBSIDIARIES OF THE REGISTRANT
Curtice-Burns Foods, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000202932
<NAME> PRO FAC COOPERATIVE INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-END> JUN-24-1995
<CASH> 4152
<SECURITIES> 0
<RECEIVABLES> 67854
<ALLOWANCES> 673
<INVENTORY> 160182
<CURRENT-ASSETS> 260614
<PP&E> 288188
<DEPRECIATION> 16695
<TOTAL-ASSETS> 689739
<CURRENT-LIABILITIES> 121669
<BONDS> 0
<COMMON> 9395
0
76083
<OTHER-SE> 59750
<TOTAL-LIABILITY-AND-EQUITY> 135883
<SALES> 522413
<TOTAL-REVENUES> 538054
<CGS> 384838
<TOTAL-COSTS> 486494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29035
<INCOME-PRETAX> 22525
<INCOME-TAX> (7028)
<INCOME-CONTINUING> 29553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29553
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
