Page 1 of 21
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 23, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Registration Statement (Form S-1) Number 33-60273
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 16-6036816
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number)
90 Linden Place, PO Box 682, Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (716) 383-1850
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of April 19, 1996.
Common Stock - 1,893,154
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM I. FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
<CAPTION>
(Dollars in Thousands)
Three Months Ended Nine Months Ended
3/23/96 3/25/95 3/23/96 3/25/95
<S> <C> <C> <C> <C>
Net sales $177,849 $180,357 $ 551,213 $347,069
Cost of sales 133,619 126,779 412,760 257,458
--------- --------- --------- ---------
Gross profit 44,230 53,578 138,453 89,611
Share of Curtice Burns earnings prior to acquisition 0 0 0 5,137
Interest income from Curtice Burns prior to acquisition 0 0 0 6,102
Other selling, general and administrative expense (33,249) (40,207) (116,272) (66,608)
---------- --------- ---------- ----------
Operating income 10,981 13,371 22,181 34,242
Interest expense (10,484) (10,509) (31,489) (20,603)
---------- --------- --------- ----------
Income/(loss) before taxes, dividends and allocation of net proceeds 497 2,862 (9,308) 13,639
Tax benefit/(provision) 4,317 (974) 7,028 4,293
----------- --------- --------- -----------
Net income/(loss) (net proceeds) $ 4,814 $ 1,888 $ (2,280) $ 17,932
========== ========= ========= =========
Allocation of Net Proceeds:
Net income/(loss) $ 4,814 $ 1,888 $ (2,280) $ 17,932
Dividends on common and preferred stock (1,289) 0 (7,636) (4,914)
---------- --------- ---------- ---------
Net proceeds/(loss) 3,525 1,888 (9,916) 13,018
Allocation (to)/from earned surplus (3,525) (1,205) 9,916 (9,808)
----------- --------- ---------- ---------
Net proceeds available to members $ 0 $ 683 $ 0 $ 3,210
=========== ========= ========== ========
Allocation of net proceeds available to members:
Estimated to be paid currently $ 122 $ 597
Qualified retains 486 2,388
Non-qualified retains 75 225
--------- --------
Net proceeds available to members $ 683 $ 3,210
========= ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
<CAPTION>
(Dollars in Thousands)
Assets
March 23, June 24, March 25,
1996 1995 1995
<S> <C> <C> <C>
Current assets:
Cash $ 6,073 $ 4,152 $ 5,294
Accounts receivable, trade, net 54,184 47,341 58,813
Accounts receivable, other 8,546 19,840 6,415
Income taxes refundable 2,679 10,106 1,085
Current deferred tax assets 3,954 6,784 8,461
Inventories -
Finished goods 130,708 108,691 136,915
Materials and supplies 39,157 51,491 54,755
-------- -------- --------
Total inventories 169,865 160,182 191,670
-------- -------- --------
Prepaid manufacturing expense 4,344 9,903 5,062
Prepaid expenses and other current assets 3,394 2,306 5,911
-------- -------- --------
Total current assets 253,039 260,614 282,711
Investment in Bank 24,439 22,907 22,907
Property, plant, and equipment, net 273,663 273,962 272,960
Assets held for sale 5,935 13,863 5,406
Goodwill and other intangible assets, net 82,891 101,494 93,793
Deferred tax assets 7,466 7,466 7,755
Other assets 15,550 9,433 24,909
-------- -------- --------
Total assets $662,983 $689,739 $710,441
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
<CAPTION>
(Dollars in Thousands)
Liabilities and Shareholders' and Members' Capitalization
March 23, June 24, March 25,
1996 1995 1995
<S> <C> <C> <C>
Current liabilities:
Notes payable $ 41,000 $ 0 $ 66,000
Accounts payable 38,623 60,074 44,430
Accrued interest 4,440 9,171 4,743
Accrued employee compensation 6,733 11,644 9,925
Other accrued expenses 21,534 15,116 20,076
Current portion of obligations under capital leases 764 764 785
Current portion of long-term debt 8,056 11,552 8,007
Dividend payable 88 0 0
Amounts due members 9,893 13,348 14,490
---------- ---------- ----------
Total current liabilities 131,131 121,669 168,456
Long-Term debt 181,418 183,665 165,438
Senior subordinated notes 160,000 160,000 160,000
Obligations under capital leases 1,620 1,620 1,296
Deferred income tax liabilities 33,710 59,721 61,501
Other non-current liabilities 19,599 17,836 18,443
--------- -------- --------
Total liabilities 527,478 544,511 575,134
--------- -------- --------
Commitments and contingencies 0 0 0
Class B cumulative redeemable preferred stock, liquidation preference $10 per
share, authorized 500,000 shares;
issued and outstanding, 25,478, 0, and 0 shares, respectively 255 0 0
Common stock, par value $5, authorized - 5,000,000 shares
March 23, June 24, March 25,
1996 1995 1995
<S> <C> <C> <C>
Shares issued 1,893,154 1,878,926 2,043,493
Shares subscribed 42,236 59,568 2,432
--------- --------- ---------
Total subscribed and issued 1,935,390 1,938,494 2,045,925
Less subscriptions receivable in
installments (42,236) (59,568) (2,432)
--------- --------- ---------
1,893,154 1,878,926 2,043,493 9,466 9,395 10,217
========= ========= =========
Shareholders' and members' capitalization:
Retained earnings allocated to members 32,318 34,250 30,749
Non-qualified allocation to members 3,275 3,851 3,765
Non-cumulative preferred stock, par value $25, authorized - 5,000,000 shares;
issued and outstanding -
105,788, 3,043,325, and 3,043,325, respectively 2,645 76,083 76,083
Cumulative preferred stock, liquidation preference $25, per share
authorized 49,500,000 shares; issued and outstanding -
3,032,704, 0, 0, respectively 75,817 0 0
Earned surplus 11,729 21,649 14,493
-------- -------- --------
Total shareholders' and members' capitalization 125,784 135,833 125,090
-------- -------- --------
Total liabilities and capitalization $662,983 $689,739 $710,441
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
<CAPTION>
(Dollars in Thousands)
Nine Months Ended
March 23, March 25,
1996 1995
------------ ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)/income $ (2,280) $ 17,932
Amount payable to members currently (597)
Adjustments to reconcile net income to net cash from operating activities:
Amortization of goodwill, other intangibles, and financing fees 3,114 1,020
Depreciation 19,740 9,774
Equity in undistributed earnings of the Bank (1,532) (1,288)
Change in assets and liabilities:
Accounts receivable 5,367 14,192
Inventories (5,433) 34,206
Accounts payable and accrued expenses (29,759) (33,904)
Amounts due to members (3,917) (19,936)
Federal and state taxes refundable 7,427 (499)
Other assets and liabilities (3,514) 5,594
Deferred taxes 0 (307)
--------- ----------
Net cash (used in)/provided by operating activities (10,787) 26,187
--------- ----------
Cash flows from investing activities:
Return from investment in direct financing leases 0 11,344
Investment in Bank 0 (663)
Cash paid for acquisition of Packer Foods (5,400) 0
Disposals of property, plant, and equipment 4,322 0
Purchase of property, plant, and equipment (14,116) (6,633)
--------- ----------
Net cash (used in)/provided by investing activities (15,194) 4,048
--------- ----------
Cash flows from financing activities:
Proceeds from short-term debt 41,000 66,000
Net assets acquired from Curtice Burns 0 (81,278)
Proceeds from long-term debt 5,400 359,000
Payments on long-term debt (11,143) (195,080)
Issuances of stock, net of repurchases 326 (67)
Amounts paid to shareholders for acquisition 0 (167,800)
Cash portion of non-qualified conversion (122) (802)
Cash paid in lieu of fractional shares (11) (10)
Cash dividends paid (7,548) (4,914)
--------- ----------
Net cash provided by/(used in) financing activities 27,902 (24,951)
--------- ----------
Net change in cash 1,921 5,284
Cash at beginning of period 4,152 10
--------- -----------
Cash at end of period $ 6,073 $ 5,294
========= ===========
<FN>
Consolidated Statement of Cash Flows continued on following page.
</FN>
</TABLE>
<PAGE>
<TABLE>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows (Continued)
<CAPTION>
(Dollars in Thousands)
Nine Months Ended
March 23, March 25,
1996 1995
--------- --------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid/(received) during the year for:
Interest $36,147 $ 19,140
======= =========
Income taxes, net $(8,397) $ (45)
======= =========
Acquisition of Packer Foods:
Accounts receivable $ 1,375
Inventories 4,278
Prepaid expenses and other current assets 270
Property, plant and equipment 5,884
Goodwill 128
Accounts payable (4,954)
Accrued expenses (257)
Deferred income tax (226)
Other non-current liabilities (1,098)
-------
Cash paid for acquisition $ 5,400
=======
Cash paid for the acquisition of 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 $ 2,379 $ 11,655
======= =========
Receivable from Curtice Burns forgiven in the acquisition $ 110,576
=========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
PRO-FAC COOPERATIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and in the opinion
of management include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
the periods presented.
The following summarizes the significant accounting policies applied in the
preparation of the accompanying financial statements. The acquisition of
Curtice-Burns Foods, Inc. ("Curtice Burns" or the "Company") was accounted for
using the purchase method of accounting. In conjunction with the change in
ownership all identifiable assets and liabilities were adjusted to reflect their
fair values at the date of acquisition.
These financial statements should be read in conjunction with the financial
statements and accompanying notes contained in the Pro-Fac Cooperative Inc.
("Pro-Fac" or the "Cooperative") Form 10-K for the fiscal year ended June 24,
1995.
Fiscal Year: The fiscal year ends the last Saturday in June.
Consolidation: As of all dates after November 3, 1994, and for all periods after
such date, the consolidated financial statements include the Cooperative and its
wholly-owned subsidiary, Curtice Burns, after elimination of intercompany
transactions and balances. The acquisition of Curtice Burns was completed on
November 3, 1994 (see NOTE 2 - "Change in Control of Curtice Burns and
Agreements with Curtice Burns"). Prior to November 3, 1994, Curtice Burns was
not included in the financial statements.
Reclassification: Certain items for fiscal 1995 have been reclassified to
conform with fiscal 1996 presentation.
NOTE 2. CHANGE IN CONTROL OF CURTICE BURNS AND AGREEMENTS WITH CURTICE BURNS
On November 3, 1994, Curtice-Burns Foods, Inc. ("Curtice Burns" or the
"Company") was acquired by Pro-Fac. Pro-Fac and the Company were established
together in the early 1960s and, before Pro-Fac's recent acquisition of the
Company, had a long-standing contractual relationship under the Integrated
Agreement and similar Predecessor entity agreements. The Integrated Agreement,
which has been superseded by the Pro-Fac Marketing 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 continue the Marketing and
Management arrangements of the Integrated Agreement as well as the sharing of
income and losses. Under the Pro-Fac Marketing and Facilitation Agreement, the
Company pays Pro-Fac the commercial market value ("CMV") for all crops supplied
by Pro-Fac. In addition, in any year in which the Company has earnings on
products which were processed from crops supplied by Pro-Fac ("Pro-Fac
Products"), the Company pays to Pro-Fac up to 90 percent of such earnings, but
in no case more than 50 percent of all pretax earnings (before dividing with
Pro-Fac) of the Company. In years in which the Company has losses on Pro-Fac
Products, the Company reduces the CMV it would otherwise pay to Pro-Fac by up to
90 percent of such losses, but in no case by more than 50 percent of all pretax
losses (before dividing with Pro-Fac) of the Company. Earnings and losses are
determined at the end of the fiscal year, but are accrued on an estimated basis
during the year.
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 $13.9 million
in the Company (including reinvested Patronage Income as described below).
Funds made available by the distribution of patronage income over CMV
("Additional Patronage Income") to members in the form of retains, in lieu of
cash by Pro-Fac, have historically been reinvested by Pro-Fac in the Company.
Under the Indenture related to the Notes, Pro-Fac is required to reinvest at
least 70 percent of the Additional Patronage Income in Curtice Burns, and
Pro-Fac has reinvested $3.9 million of such patronage in the Company since the
acquisition.
<PAGE>
Following, in capsule form, are the consolidated, unaudited results of
operations of Pro-Fac for the nine months ended March 25, 1995, assuming the
acquisition by Pro-Fac took place at the beginning of the 1995 fiscal year.
<TABLE>
<CAPTION>
(In Millions)
Nine Months Ended
(Pro Forma is Unaudited)
March 25, 1995
Actual Pro Forma
<S> <C> <C>
Net sales $347.1 $573.2
Income before taxes $ 3.6 $ 11.1
Net income $ 17.9 $ 6.2
</TABLE>
NOTE 3. DISPOSALS
Nalley's US Chips and Snacks: On December 19, 1994, the Company sold the
Nalley's US Chips and Snacks business for approximately $2.0 million. In the
first quarter of fiscal 1995, the Company recognized a charge of approximately
$8.4 million in connection with the elimination of this line of business. This
sale was contemplated by Pro-Fac in conjunction with the acquisition.
Nalley's Canada Ltd.: On June 26, 1995, the Company sold Nalley's Canada Ltd.
subsidiary, located in Vancouver, British Columbia, to a group led by management
within its Canadian subsidiary.
Through a supply agreement, the Company's Nalley's US division will provide to
the new owner those products previously provided as well as certain products for
which manufacturing has been discontinued by the new owners.
Finger Lakes Packaging: On April 9, 1996, the Company announced its intent to
sell its Finger Lakes Packaging Company subsidiary ("Finger Lakes"), a
can-making operation, based in Lyons, New York. Finger Lakes also has an
operation in Benton Harbor, Michigan. Approximately 60 percent of the cans
manufactured by Finger Lakes are used by divisions of the Company. The Company
plans to enter into a long-term supply agreement with Finger Lakes Packaging in
conjunction with the sale.
NOTE 4. TAXES
The benefit for taxes on income recorded in the first nine months of fiscal 1996
included both Pro-Fac and Curtice Burns.
PRO-FAC
Favorable Tax Ruling and Developments: In August of 1993, the Internal Revenue
Service issued a determination letter which concluded that the Cooperative was
exempt from federal income tax to the extent provided by Section 521 of the
Internal Revenue Code, "Exemption of Farmers' Cooperatives from Tax." Unlike a
non-exempt cooperative, a tax-exempt cooperative is entitled to deduct cash
dividends it pays on its capital stock in computing its taxable income. The
exempt status was retroactive to fiscal year 1986. In conjunction with this
ruling, the Cooperative had filed for tax refunds for fiscal years 1986 to 1992
in the amount of approximately $8.8 million and interest payments of
approximately $5.8 million. 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. In addition, refund amounts of $4.5 million for tax and interest
have been reflected in the financial statements of the Cooperative as of March
25, 1996. These refund amounts were recorded at this date based upon approval by
the Internal Revenue Service as to the status of the claim. Tax refunds and
interest for the fiscal years 1986 to 1991 were received in March of 1996. The
Board of Directors of the Cooperative has invested $10 million of such refunds
and interest payments in Curtice Burns.
As a result of the acquisition, the Cooperative's exempt status has ceased.
CURTICE BURNS
In January 1995, the Boards of Directors of Curtice Burns and Pro-Fac approved
appropriate amendments to the Bylaws of Curtice Burns to allow the Company to
qualify as a cooperative under Subchapter T of the Internal Revenue Code. In
August 1995, Curtice
<PAGE>
Burns and Pro-Fac received a favorable ruling from the Internal Revenue Service
approving the change in tax treatment effective for fiscal 1996. This ruling
also confirmed that the change in Curtice Burns status would have no affect on
Pro-Fac's ongoing treatment as a cooperative under Subchapter T of the Internal
Revenue Code of 1986. Accordingly, during the nine months ended March 23, 1996,
the Company provided taxes on non-patronage earnings and patronage earnings to
be retained by the Company. The Company's effective tax benefit is negatively
impacted by the amount of non-deductible goodwill created in conjunction with
the acquisition and merger of Curtice Burns by Pro-Fac as of November 3, 1994.
As a cooperative, deferred tax accounting is generally not required for
temporary differences associated with patronage earnings allocated to members.
Therefore, in conjunction with this change in tax status, deferred taxes have
been adjusted based upon estimated future levels of patronage earnings to be
allocated to members. As the change in tax status represents a resolution of an
uncertainty related to income taxes outstanding at the date of the acquisition,
the reduction in net deferred taxes of approximately $22 million has been
applied against goodwill.
NOTE 5. OTHER MATTERS
Preferred Stock: Non-Cumulative Preferred Stock originated from the conversion
at par value of retains. This stock had been non-voting and non-cumulative,
except that the holders of this would be entitled to vote as a separate class on
certain matters which would affect or subordinate the rights of the class.
At the Cooperative's annual meeting in January 1995, shareholders approved an
amendment to the certification of incorporation to authorize the creation of
five additional classes of preferred stock.
On August 23, 1995, the Cooperative commenced an offer to exchange one share of
its Class A Cumulative Preferred Stock (liquidation preference $25 per share)
for each of its existing Non-Cumulative Preferred Stock (liquidation preference
$25 per share). As a result of the exchange offer, 2.8 million shares or 97
percent of the total outstanding shares were exchanged. Pro-Fac received
approval for inclusion of the Cumulative Preferred Stock on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ").
It is expected that, beginning with the retains issued in 1995, the maturity of
all future retains will result in the issuance of Class A Cumulative Preferred
Stock. With respect to retains issued prior to September 1995, however, it is
expected that the Board will permit holders of such retains to elect to receive
Non-Cumulative Preferred Stock rather than Class A Cumulative Preferred Stock.
In June 1995, the Board approved, pursuant to its authority under the Charter
Amendment the creation of a new series of preferred stock, to be designated the
"Class B, Series 1, 10 percent Cumulative Preferred Stock" (the "Class B
Stock"). Pro-Fac expects to issue up to 500,000 shares of the Class B Stock at
$10 per share (liquidation value $10 per share) to employees of Curtice Burns
pursuant to an Employee Stock Purchase Plan adopted by the Curtice Burns and
Pro-Fac Boards of Directors in June 1995. Under this plan, 25,478 shares were
issued in the fall of 1995.
In the first quarter of fiscal 1996, the Cooperative declared a cash dividend of
6.0 percent of the par value of Non-Cumulative Preferred Stock and 5.0 percent
of the par value of the common stock, paid on July 15, 1995. These dividends
amounted to $5.0 million.
In the second and third quarters of fiscal 1996, the Cooperative declared
quarterly cash dividends of $0.43 per share each on the Class A Cumulative
Preferred Stock, paid on October 31, 1995 and January 31, 1996. These dividends
amounted to $2.5 million.
Subsequent to quarter end, the Cooperative declared a quarterly cash dividend of
$0.43 per share on the Class A Cumulative Preferred Stock. This dividend will be
paid on April 30, 1996 and amounts to $1.3 million.
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 the acquisition was approximately $5.4 million in notes
bearing interest at 10 percent to be paid until the notes mature in the year
2000. The transaction was 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 has been merged into the Company's Comstock Michigan Fruit operations.
Commitments: The Company's Southern Frozen Foods division has guaranteed an
approximate $2.0 million loan for the City of Montezuma to renovate a sewage
treatment plant operated by Southern Frozen Foods on behalf of the City.
<PAGE>
Southern Frozen Foods: In July 1994, a plant operated by the Company's Southern
Frozen Foods division, located in Montezuma, Georgia, was damaged by fire. All
material costs associated with the facility repairs and business interruption
are anticipated to be covered under the Company's insurance policies. A gain on
assets destroyed in the fire was recognized by the Company prior to the
acquisition. Final negotiations are currently in progress with the insurance
carriers. As of March 23, 1996, the Company has received $18.5 million in
proceeds from the insurance claims for the fire and approximately $3.0 million
is receivable at March 23, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this review is to highlight the more significant changes in the
major items of Pro-Fac's statement of operations and net proceeds in the three
and nine month periods of fiscal 1996 and 1995.
PRO-FAC'S RESULTS OF OPERATIONS
As a result of the acquisition on November 3, 1994, the consolidated results of
operations of Pro-Fac after that date include gross profit, operating expenses,
and other results of operations of Curtice Burns. Prior to November 3, 1994,
Pro-Fac's results of operations included only amounts paid or payable by Curtice
Burns to Pro-Fac under the Integrated Agreement. Because of the profit split
provisions within the Agreement between Curtice Burns and Pro-Fac, business
conditions and trends affecting Curtice Burns profitability also affected the
profitability of Pro-Fac.
Changes From the Third Quarter of Fiscal 1995 to the Third Quarter of Fiscal
1996: For the quarter ended March 23, 1996, the change in net income compared to
the prior year is summarized below in millions of dollars:
<TABLE>
<S> <C>
Curtice Burns gross profit $(9.4)
Decreased selling, general and administrative expenses 7.0
------
Change in income before taxes (2.4)
Change in taxes on income 5.3
-----
Change in net income $ 2.9
=====
</TABLE>
Changes From the First Nine Months of Fiscal 1995 to the First Nine Months of
Fiscal 1996: For the nine months ended March 23, 1996, the change in net income
compared to the prior year period is summarized below in millions of dollars:
<TABLE>
<S> <C>
Curtice Burns gross profit $ 48.8
Decreased share of Curtice Burns earnings (5.1)
Decreased interest income received from Curtice Burns (6.1)
Increased selling, general and administrative (49.6)
Increased interest expense (10.9)
------
Change in income before taxes (22.9)
Change in tax benefit 2.7
-------
Change in net income $(20.2)
=======
</TABLE>
The gross profit change represents Curtice Burns gross profit change after the
acquisition. The increased selling, general and administrative expenses were due
to the inclusion of Curtice Burns costs since the acquisition. The increased
interest expense was primarily attributable to the increased borrowings related
to the acquisition of Curtice Burns by Pro-Fac.
CURTICE BURNS RESULTS OF OPERATIONS
The purpose of this discussion is to outline the most significant reasons for
changes in net sales, expenses and earnings for the three- and nine-month
periods of fiscal 1996 compared to the comparable prior year periods. The
following comparisons to the prior year periods present the results of the
Company during the period prior to its acquisition by Pro-Fac, ("Predecessor
entity") as well as the period subsequent to its acquisition, ("Successor
entity"). The financial statements of the Predecessor and Successor entities are
not comparable in certain respects because of differences between the cost bases
of the assets as well as the effect on the Successor entity's operations for
adjustments to depreciation, amortization, and interest expense.
General: Third quarter net sales for Curtice Burns declined from $180.4 million
in the previous year to $177.8 million in the current year. After adjusting for
businesses sold or to be sold, which had net sales of $4.3 million in the third
quarter of this year and $12.4 million the prior year, there was a net sales
increase of $5.5 million. The nine months net sales for Curtice Burns declined
from $573.2 million in the previous year to $551.2 million in the current year.
After adjusting for businesses sold or to be sold, which had net sales of $12.8
million in the current year and $43.8 million in the prior year period, net
sales increased $9.0 million.
In conjunction with the acquisition of the Company by Pro-Fac, net assets were
adjusted to fair market value and additional debt was incurred. Accordingly,
depreciation, amortization and interest expense have increased, making
year-to-year comparisons difficult to analyze. Nonetheless, earnings before
interest, depreciation and amortization (EBITDA) for ongoing businesses can be
compared. EBITDA does not represent information prepared in accordance with
generally accepted accounting principles, nor is such information considered
superior to information presented in accordance with generally accepted
accounting principles.
The following table reconciles EBITDA with pretax earnings for the three and
nine month periods:
<TABLE>
Curtice Burns Foods Earnings Comparison
<CAPTION>
(Dollars in Thousands)
Quarter Ended Nine Months Ended
3/23/96 3/25/95 Variance 3/23/96 3/25/95 Variance
<S> <C> <C> <C> <C> <C> <C>
Pretax earnings prior to interest,
depreciation, and amortization from
ongoing businesses (EBITDA) $ 15,906 $ 17,229 $(1,323) $ 38,794 $ 54,992 $(16,198)
Non-recurring gains and losses and
businesses sold or to be sold 1,520 1,399 121 4,239 449 3,790
Depreciation and amortization (7,829) (5,257) (2,572) (22,254) (16,390) (5,864)
--------- -------- -------- --------- -------- --------
Operating earnings 9,597 13,371 (3,774) 20,779 39,051 (18,272)
Interest expense (10,484) (10,509) 25 (31,489) (23,982) (7,507)
--------- -------- ------- --------- -------- --------
Pretax (loss)/earnings prior to dividing
with Pro-Fac $ (887) $ 2,862 $(3,749) $(10,710) $ 15,069 $(25,779)
========= ======== ======= ======== ======== ========
</TABLE>
EBITDA from ongoing businesses declined $1.3 million for the quarter, from $17.2
million in the same period the previous year to $15.9 million in fiscal 1996.
Year-to-date EBITDA from ongoing businesses declined $16.2 million, from $55.0
million in the prior year to $38.8 million.
Depressed vegetable pricing has significantly impacted the Company's financial
results as well as much of the rest of the industry. The industry as a whole
fully expected a slight upturn in pricing which has not happened. The Company's
vegetable category, which includes significant segments of both the Comstock
Michigan Fruit and Southern Frozen Foods divisions, experienced a 56 percent
reduction in EBITDA for nine months. Improvements in earnings of other product
lines at the Comstock Michigan Fruit division have offset part of the vegetable
category earnings reduction.
Other issues impacting year-to-date results include the costly start up of the
Nalley's dressing plant, other manufacturing variances and increased promotion
expenses at Nalley's. In total, Nalley's EBITDA is $14 million lower for the
nine-months period ended March 23, 1996 versus the prior year. Several steps
have been taken to address these problems, including senior management changes
at the division. Third quarter results for this division have improved from the
first six months results.
A major inventory reduction program across all divisions has been implemented.
Short-term debt was reduced an additional $25 million in the third quarter of
this year than during the same period last year due to significant cash flow
generated from these programs and from an additional investment in the Company
by Pro-Fac. (See NOTE 2.)
<PAGE>
The following tables illustrate the Company's results of operations by business
for the three and nine months ended March 23, 1996 and March 25, 1995, and the
Company's total assets by business as of March 23, 1996 and March 25, 1995.
<TABLE>
Net Sales
<CAPTION>
(Dollars in Millions)
Three Months Ended Nine Months Ended
3/23/96 3/25/95 3/23/96 3/24/95
% of % of % of % of
$ Total $ Total $ Total $ Total
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") 82.2 46.2 77.7 43.1 255.1 46.3 253.8 44.3
Nalley's Fine Foods 44.4 25.0 43.3 24.0 137.2 24.9 131.5 22.9
Southern Frozen Foods 23.2 13.1 23.6 13.1 72.6 13.2 73.3 12.8
Snack Foods Group 14.4 8.1 14.1 7.8 44.9 8.1 44.8 7.8
Brooks Foods 9.3 5.2 9.3 5.1 28.6 5.2 26.0 4.5
----- ---- ----- ----- ----- ----- ----- -----
Subtotal ongoing operations 173.5 97.6 168.0 93.1 538.4 97.7 529.4 92.3
Businesses sold or to be sold1 4.3 2.4 12.4 6.9 12.8 2.3 43.8 7.7
----- ----- ----- ----- ----- ----- ----- -----
Total 177.8 100.0 180.4 100.0 551.2 100.0 573.2 100.0
===== ===== ===== ===== ===== ===== ===== =====
<FN>
1 The Company sold Nalley's US Chips and Snacks business and Nalley's Canada
Ltd. and announced the intent to sell Finger Lakes Packaging. See NOTE 3 -
"Disposals and Potential Disposal."
</FN>
</TABLE>
<TABLE>
Operating Income Before Dividing with Pro-Fac
<CAPTION>
(Dollars in Millions)
Three Months Ended Nine Months Ended
3/23/96 3/25/95 3/23/96 3/24/95
% of % of % of % of
$ Total $ Total $ Total $ Total
------- ----- ----- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF 4.7 49.0 6.2 46.2 16.8 80.8 24.3 62.1
Nalley's Fine Foods 1.6 16.7 4.0 29.8 (3.1) (14.9) 12.6 32.2
Southern Frozen Foods 1.6 16.7 2.3 17.2 4.8 23.1 7.8 19.9
Snack Foods Group 0.8 8.3 0.3 2.2 2.8 13.5 2.2 5.6
Brooks Foods 1.1 11.5 1.2 9.0 3.3 15.9 3.3 8.4
Corporate eliminations (1.3) (13.7) (1.8) (13.4) (6.4) (31.9) (9.3) (23.6)
---- ----- ---- ----- ---- ----- ----- ------
Subtotal ongoing operations 8.5 88.5 12.2 91.0 18.0 86.5 40.9 104.6
Non-recurring gains and losses and
businesses sold or to be sold1 1.1 11.5 1.2 9.0 2.8 13.5 (1.8) (4.6)
--- ------ ----- ------- ----- ------ ----- -------
Total 9.6 100.0 13.4 100.0 20.8 100.0 39.1 100.0
=== ===== ==== ===== ==== ===== ==== =====
<FN>
1 The Company sold the Nalley's US Chips and Snack business and Nalley's
Canada Ltd. and announced the intent to sell Finger Lakes Packaging. See
NOTE 3 - "Disposals and Potential Disposal." Fiscal 1995 includes
restructuring loss from division disposals, change in control expense, and
gain on assets as a result of a fire claim recorded in fiscal 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
EBITDA
<CAPTION>
(Dollars in Millions)
Three Months Ended Nine Months Ended
3/23/96 3/25/95 3/23/96 3/24/95
% of % of % of % of
$ Total $ Total $ Total $ Total
------- ----- ----- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF 8.5 48.8 9.1 48.9 27.7 64.4 32.2 58.1
Nalley's Fine Foods 3.1 17.8 4.7 25.3 1.0 2.3 14.9 26.9
Southern Frozen Foods 2.9 16.7 3.0 16.1 8.7 20.2 9.7 17.5
Snack Foods Group 1.3 7.5 0.8 4.3 4.2 9.8 3.8 6.8
Brooks Foods 1.3 7.5 1.4 7.5 3.9 9.1 3.8 6.8
Corporate and eliminations (1.2) (6.9) (1.8) (9.6) (6.7) (15.6) (9.4) (16.8)
---- ---- ---- ----- ---- ----- ---- -----
Subtotal ongoing operations 15.9 91.4 17.2 92.5 38.8 90.2 55.0 99.3
Non-recurring gains and losses and
businesses sold or to be sold1 1.5 8.6 1.4 7.5 4.2 9.8 0.4 0.7
---- ----- ---- ----- ---- ----- ---- -----
Total 17.4 100.0 18.6 100.0 43.0 100.0 55.4 100.0
==== ===== ==== ===== ==== ===== ==== =====
<FN>
1 The Company sold the Nalley's US Chips and Snacks business and Nalley's
Canada Ltd. and announced the intent to sell Finger Lakes Packaging. See
NOTE 3 - "Disposals and Potential Disposal." Fiscal 1995 includes
restructuring loss from division disposals, change in control expense and
gain on assets as a result of a fire claim.
</FN>
</TABLE>
<TABLE>
Total Assets
<CAPTION>
(Dollars in Millions)
March 23, 1996 March 25, 1995
% of % of
$ Total $ Total
------- ----- ------- -----
<S> <C> <C> <C> <C>
CMF 285.9 43.1 215.9 30.8
Nalley's Fine Foods 145.4 21.9 87.5 12.5
Southern Frozen Foods 95.1 14.3 62.5 8.9
Snack Foods Group 26.9 4.1 23.4 3.3
Brooks Foods 21.3 3.2 11.5 1.6
Corporate1 58.0 8.7 256.1 36.6
----- ----- ----- -----
Subtotal ongoing operations 632.6 95.3 656.9 93.7
Businesses sold or to be sold2 31.4 4.7 44.0 6.3
----- ----- ----- -----
Total 664.0 100.0 700.9 100.0
===== ===== ===== =====
<FN>
1 The March 25, 1995 figure includes the adjustment required to reflect
property, plant, and equipment at fair market values and excess of cost
over market value of assets acquired. Such amounts were subsequently
allocated by division.
2 The Company sold the Nalley's US Chips and Snack business and Nalley's
Canada Ltd. and announced the intent to sell Finger Lakes Packaging. See
NOTE 3 - "Disposals and Potential Disposal."
</FN>
</TABLE>
<PAGE>
The following table illustrates the Company's income statement data and the
percentage of net sales represented by these items for the quarters and nine
months ended March 23, 1996 and March 25, 1995.
<TABLE>
Consolidated Statement of Operations
<CAPTION>
(Dollars in Millions)
Three Months Ended Nine Months Ended
3/23/96 3/25/95 3/23/96 3/25/95
% of % of % of % of
$ Sales $ Sales $ Sales $ Sales
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 177.8 100.0 180.4 100.0 551.2 100.0 573.2 100.0
Cost of sales 133.6 75.1 126.8 70.3 412.7 74.9 402.8 70.3
----- ----- ----- ----- ------ ----- ------ -----
Gross profit 44.2 24.9 53.6 29.7 138.5 25.1 170.4 29.7
Restructuring expenses, including
net loss from division disposals 0.0 0.0 0.0 0.0 0.0 0.0 (8.4) (1.5)
Change in control expenses 0.0 0.0 0.0 0.0 0.0 0.0 (2.2) (0.4)
Gain on assets incurred as result
of a fire claim 0.0 0.0 0.0 0.0 0.0 0.0 6.5 1.2
Other selling, administrative
and general expenses (34.6) (19.5) (40.2) (22.3) (117.7) (21.3) (127.2) (22.2)
----- ----- ----- ----- ------ ----- ------ -----
Operating income before dividing
with Pro-Fac 9.6 5.4 13.4 7.4 20.8 3.8 39.1 6.8
Interest expense (10.5) (5.9) (10.5) (5.8) (31.5) (5.7) (24.0) (4.2)
----- ---- ----- ----- ------ ----- ------ -----
Pretax (loss)/earnings before
dividing with Pro-Fac (0.9) (0.5) 2.9 1.6 (10.7) (1.9) 15.1 2.6
Pro-Fac share of loss/(earnings) 0.1 0.1 (1.4) (0.8) 5.0 0.9 (7.3) (1.3)
----- ----- ----- ----- ------ ----- ------ -----
Loss/(income) before taxes (0.8) (0.4) 1.5 0.8 (5.7) (1.0) 7.8 1.3
Tax (provision)/benefit 0.0 0.0 (1.0) (0.5) 1.2 0.2 (4.7) (0.8)
----- ----- ----- ----- ------ ----- ----- -----
Net loss/(income) (0.8) (0.4) 0.5 0.3 (4.5) (0.8) 3.1 0.5
===== ===== ===== ===== ====== ===== ===== =====
</TABLE>
CHANGES FROM THE THIRD QUARTER OF FISCAL 1995 TO
THE THIRD QUARTER OF FISCAL 1996
Net Sales: The Company's net sales in the quarter ended March 23, 1996 of $177.8
million decreased $2.6 million or 1.4 percent from $180.4 million in the same
quarter last year. The net sales attributable to businesses sold or to be sold
discussed in NOTE 3 were $4.3 million in the quarter ended March 23, 1996 and
$12.4 million in the quarter ended March 25, 1995. The Company's net sales from
ongoing operations, excluding businesses sold or to be sold, were $168.0 in the
quarter ended March 25, 1995 compared to $173.5 million in the quarter ended
March 23, 1996. This increase in net sales of $5.5 million for ongoing
operations is primarily comprised of increased net sales at CMF and Nalley's of
$4.4 million and $1.1 million, respectively, with minor variations at other
operations. The increased net sales at Nalley's of $1.1 million or 2.5 percent
primarily relates to increases in the salad dressings, salsa, and pickles
product lines. The net sales increase at CMF of $4.4 million or 5.7 percent is
primarily attributable to an increase in canned and frozen vegetables compared
to the prior year quarter.
Gross Profit: Gross profit of $44.2 million for the quarter ended March 23, 1996
decreased $9.4 million or 17.5 percent from $53.6 million for the quarter ended
March 25, 1995. Of this net decrease, a $1.8 million reduction was attributable
to businesses sold or to
<PAGE>
be sold, and a decrease of $7.6 million was attributable to the Company's
ongoing operations. The decrease in gross profit for ongoing operations is
comprised of increases and decreases as follows:
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
CMF $(3.4)
Southern Frozen Foods (1.7)
Nalley's Fine Foods (2.1)
All Other (0.4)
-----
$(7.6)
=====
</TABLE>
The decreased gross profit at the Company's CMF and Southern Frozen Foods
operations primarily relates to depressed vegetable pricing. The decreased gross
profit at the Company's Nalley's operation was caused by increased manufacturing
costs primarily related to the new dressing plant.
Selling, Administrative and General Expenses: Selling, administrative and
general expenses in the quarter ended March 23, 1996 of $34.6 million decreased
$5.6 million or 13.9 percent from $40.2 million in the quarter ended March 25,
1995. This net decrease of $5.6 million includes:
<TABLE>
<CAPTION>
(In Millions)
Businesses
Sold or
to be Sold Ongoing Total
<S> <C> <C> <C>
Change in trade promotions $(0.6) $(1.5) $(2.1)
Change in advertising and selling costs (1.3) (0.5) (1.8)
Change in other administrative expenses (0.1) (1.6) (1.7)
----- ----- -----
$(2.0) $(3.6) $(5.6)
===== ===== =====
</TABLE>
The $2.0 million decrease in trade promotions and advertising and selling costs
at the Company's ongoing operations is primarily comprised of decreased spending
at CMF's and Nalley's operations.
The $1.6 million decrease in other administrative expenses at the Company's
ongoing operations primarily relates to reduced expenditures relating to the
Company's management incentive plan.
NINE MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales: The Company's net sales in the first nine months of fiscal 1996 of
$551.2 million decreased $22.0 million or 3.8 percent from $573.2 million in the
first nine months of fiscal 1995. The net sales attributable to businesses sold
or to be sold discussed in NOTE 3 were $12.4 million in the first nine months of
fiscal 1996 compared to $43.8 million in the first nine months of fiscal 1995.
The Company's net sales from ongoing operations excluding businesses sold or to
be sold were $538.3 million in the first nine months of fiscal 1996, an increase
of $9.0 million or 1.7 percent from $529.4 million in the first nine months of
fiscal 1995. This increase in net sales of $8.9 million for ongoing operations
primarily relates to Nalley's and Brooks, with increases of $5.7 million and
$2.6 million, respectively.
Gross Profit: Gross profit of $138.5 million in the first nine months of fiscal
1996 decreased $31.9 million or 18.7 percent from $170.4 million in the first
nine months of fiscal 1995. Of this net decrease, a $7.3 million reduction was
attributable to businesses sold or to be sold, and a decrease of $24.6 million
was attributable to decreased gross profit at the Company's ongoing operations.
<PAGE>
This decrease of $24.6 million was the result of variations in volume, selling
prices, costs and product mix. The gross profit variations are comprised of
increases and decreases as follows:
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
CMF $(14.0)
Southern Frozen Foods (3.6)
Nalley (8.7)
All others 1.7
------
$(24.6)
</TABLE>
The decreased gross profit at the Company's CMF and Southern Frozen Foods
operations primarily relates to depressed vegetable pricing.
The decreased gross profit at the Company's Nalley's operation relates to higher
costs on all the product lines, but particularly in salad dressings due to plant
start-up activities.
Restructuring Expenses Including Net (Loss)/Gain From Division Disposals:
Restructuring expenses, including net (loss)/gain from division disposals
resulted in a charge in the first nine months of fiscal 1995 of $8.4 million to
reflect the impact of the sale of certain assets of the Nalley's US Chips and
Snacks business and other expenses relating to the disposal of this operation.
Change in Control Expenses: Change in control expenses recorded in the first
nine months of fiscal 1995, amounting to $2.2 million, reflect non-deductible
expenses relating to the sale of the Company which include legal, accounting,
investment banking and other expenses.
Gain on Assets Resulting From Fire Claim: The gain on assets resulting from fire
claim recorded in the first nine months of fiscal 1995 amounted to $6.5 million
representing the replacement value in excess of the depreciated book value of
the building and equipment destroyed by fire on July 7, 1994 at the Southern
Frozen Foods division.
Other Selling, Administrative and General Expenses: Other selling,
administrative and general expenses in the first nine months of fiscal 1996 of
$117.7 million decreased $9.5 million or 7.5 percent from $127.2 million in the
first nine months of fiscal 1995. This net decrease of $9.5 million includes:
<TABLE>
<CAPTION>
(In Millions)
Businesses
Sold or
to be Sold Ongoing Total
<S> <C> <C> <C>
Change in trade promotions $(2.5) $(2.0) $(4.5)
Change in advertising and selling costs (4.6) (1.1) (5.7)
Change in other administrative expenses (0.5) 1.2 0.7
------ ------ ------
$(7.6) $(1.9) $(9.5)
===== ===== =====
</TABLE>
The $3.1 million decrease in trade promotions, advertising and selling costs at
the Company's ongoing operations resulted from increased costs at Nalley's of
$3.0 million primarily in the canned and dressing product lines offset by
decreases at Comstock Michigan Fruit of $6.6 million primarily in the filling
and topping product lines. Minor variations occurred in the Company's other
operations.
The $1.2 million increase in other administrative costs attributable to the
Company's ongoing operations was primarily related to increased expense at
Nalley's of $4.0 million and a decrease in the Company's management incentive
expense. The increased expense at Nalley's included administrative expenses
which had been allocated to Nalley's Chips and Snacks and Nalley's Canada Ltd.
which had been sold. The disposal of these businesses did not eliminate
centralized functions leaving costs which must be reduced over a period of time.
Interest Expense: Interest expense in the first nine months of fiscal 1996 of
$31.5 million increased $7.5 million or 31.3 percent from $24.0 million in the
first nine months of fiscal 1995. This increase was primarily attributable to
the increased borrowing and rates related to the acquisition of the Company by
Pro-Fac.
Provision for Taxes: The benefit for taxes in the first nine months of fiscal
1996 of $1.2 million decreased $5.9 million from the provision of $4.7 million
in the first nine months of fiscal 1995. The non-deductibility of the
amortization of goodwill negatively impacts the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended March 23. 1996, the net cash used in operating
activities of Pro-Fac of $10.8 million reflects a net loss of $2.3 million.
Depreciation and amortization of assets amounted to $22.8 million. Inventories
increased $5.4 million, and accounts receivable decreased $5.4 million. Changes
in accounts payable and accrued expenses amounted to $29.7 million. Changes in
other assets and liabilities amounted to $1.3 million.
Cash flows used in investing activities of $15.2 million include net cash used
for capital expenditures in the period of $14.2 million, disposals provided $4.3
million, and the acquisition of Packer used $5.4 million.
Net cash provided by financing activities in the period amounted to $27.9
million. Proceeds from seasonal borrowings amounted to $41.0 million, proceeds
from long-term debt to finance the Packer acquisition amounted to $5.4 million,
payments on long-term debt amounted to $11.1 million, dividends paid amounted to
$7.5 million and stock sales provided $0.3 million.
New Borrowings: Under the New Credit Agreement, as amended, Curtice Burns is
able to borrow up to $84.0 million for seasonal working capital purposes under
the Seasonal Facility, subject to a borrowing base limitation, and obtain up to
$14.2 million in aggregate face amount of letters of credit pursuant to a Letter
of Credit Facility. The borrowing base is defined as the lesser of (i) $84.0
million and (ii) the sum of 60 percent of eligible accounts receivable plus 50
percent of eligible inventory.
As of March 23, 1996, (i) cash borrowings outstanding under the Seasonal
Facility were $41.0 and (ii) additional availability under the Seasonal
Facility, after taking into account the amount of the borrowing base, was $43.0
million. In addition to its seasonal financing, as of March 23, 1996, the
Cooperative had $1.0 million available for long-term borrowings under the Term
Loan Facility. 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. The Cooperative believes that the cash flow
generated by its operations (due in part to the inventory reduction program) and
the amounts available under the Seasonal Facility should be sufficient to fund
its working capital needs, fund its capital expenditures, service its debt, and
fund its dividends for the foreseeable future.
As a result of the acquisition of Curtice Burns by Pro-Fac, total debt and
interest expense have increased because the Notes have a substantially higher
interest rate than the debt that was repaid with the proceeds from the Note
Offering. The New Credit Agreement requires that Pro-Fac and Curtice Burns meet
certain financial tests and ratios and comply with certain other restrictions
and limitations. As of March 23, 1996, the Cooperative is in compliance with all
such restrictions and limitations. The Cooperative anticipates it will not
achieve the cash flow coverage ratio at June 29, 1996 outlined in the Guarantee
Agreement to the New Credit Agreement. The consequence for failure to achieve
this ratio is to limit the Cooperative payment to its members to 90 percent of
commercial market value. Management is currently working with the lending
institution to obtain a waiver for this covenant.
Short- and Long-Term Trends: The vegetable portion of the business can be
positively or negatively affected by weather conditions nationally and the
resulting impact on crop yields. Favorable weather conditions can produce high
crop yields and an oversupply situation. This results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
As a result of the shortage situation of the national supply due to the low
yields from the 1993 crop year, many vegetable producers intentionally increased
planned production for the 1994 crop year attempting to return their own
inventories to normal. Favorable weather conditions in the 1994 growing season
produced high crop yields in addition to the increased planned production. This
resulted in somewhat depressed selling prices, increased inventory levels
throughout fiscal 1995, and left a higher carryover inventory at the end of
fiscal 1995 than at the end of fiscal 1994 for the Company. With the harvesting
completed for the smaller 1995 vegetable crop, it had been anticipated that
prices would gradually increase during the 1996 fiscal year. This has not
occurred to the degree expected.
Required scheduled payments on long-term debt will approximate $8.0 million in
the next 12 months. Cash proceeds from the sale of Nalley's Canada Ltd. of
approximately $3.8 million were applied to long-term debt in accordance with the
terms of the New Credit Agreement, as will any proceeds from the sale of Finger
Lakes Packaging, as discussed below.
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.
Finger Lakes Packaging: On April 9, 1996, the Company announced its intent to
sell its Finger Lakes Packaging Company subsidiary ("Finger Lakes"), a
can-making operation, based in Lyons, New York. Finger Lakes also has an
operation in Benton Harbor, Michigan. Approximately 60 percent of the cans
manufactured by Finger Lakes are used by divisions of the Company. The Company
plans to enter into a long-term supply agreement with Finger Lakes Packaging in
conjunction with the sale.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Pro-Fac annual meeting was held on January 26, 1996 in Orlando,
Florida. Director elections were not involved in the annual meeting as
these elections take place on different dates and locations in each
Region/District. The director elections were completed in March 1995.
No matters were voted upon at the annual meeting.
(b) The regional membership meetings for the members of Pro-Fac were held
as follows:
Date Region/District City/State
February 6, 1996 I/3 Somerset Pennsylvania
February 13, 1996 I/1 and I/2 Rochester, New York
February 14, 1996 II/2 Havana, Illinois & Marion, Illinois
February 15, 1996 III Columbus, Nebraska
February 20, 1996 IV Mt. Vernon, Washington
February 21, 1996 IV Portland, Oregon
February 22, 1996 V Oglethorpe, Georgia
March 14, 1996 II/1 Holland, Michigan
(c) Glen Lee Chase, Bruce Fox, Kenneth Mattingly, and Paul Roe were
elected directors for a three-year term as a result of the
elections at the regional meetings held in February and March
1996. The following is a list of the remaining directors whose
terms of office continued after the regional meetings.
Name Term Expires
Robert Call 1997
Steven Koinzan 1997
Allan Mitchell 1997
Allan Overhiser 1997
Edward Whitaker 1997
Tom Croner 1998
Dale Burmeister 1998
Albert Fazio 1998
Following are the voting results from the regional meetings:
Votes Cast For Votes Cast Against
Glen Lee Chase 6 0
Bruce Fox 70 0
Kenneth Mattingly 79 0
Paul Roe 53 0
ITEM 5. OTHER MATTERS
Pursuant to previously disclosed succession plans, the Board of Directors of
Curtice Burns, with the aid of a professional executive recruiting firm, has
been conducting a search, both inside and outside of the Company, for a Chief
Operating Officer to provide continuity for the future.
It is contemplated that the Chief Operating Officer will be a potential
successor when retirement plans are determined for the Chief Executive Officer.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
Exhibit 27 Financial Data Schedule
(b) No current report on Form 8-K was filed during the fiscal period to
which this report relates.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: April 25, 1996 BY: /s/ Stephen R. Wright
------------------- ------------------------------
STEPHEN R. WRIGHT
GENERAL MANAGER
Date: April 25, 1996 BY: /s/ William D. Rice
------------------ ------------------------------
WILLIAM D. RICE
ASSISTANT TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000202932
<NAME> PRO-FAC COOPERATIVE, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> MAR-23-1996
<CASH> 6073
<SECURITIES> 0
<RECEIVABLES> 62730
<ALLOWANCES> 0
<INVENTORY> 169865
<CURRENT-ASSETS> 253039
<PP&E> 273663
<DEPRECIATION> 0
<TOTAL-ASSETS> 662983
<CURRENT-LIABILITIES> 131131
<BONDS> 0
255
78462
<COMMON> 9466
<OTHER-SE> 47322
<TOTAL-LIABILITY-AND-EQUITY> 662983
<SALES> 551213
<TOTAL-REVENUES> 551213
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</TABLE>
