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Page 1 of 13 Pages
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 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 October 15, 1996.
Common Stock - 1,855,329
<PAGE>
4
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
<S> <C> <C>
Net sales $174,000 $165,178
Cost of sales 132,309 122,646
Gross profit 41,691 42,532
Selling, administrative, and general expense (32,916) (36,715)
Operating income 8,775 5,817
Interest expense (9,881) (10,046)
Loss before taxes, dividends, allocation of net proceeds, and
cumulative effect of an accounting change (1,106) (4,229)
Tax (provision)/benefit (527) 1,796
Loss before cumulative effect of an accounting change,
dividends, and allocation of net proceeds (1,633) (2,433)
Cumulative effect of an accounting change 4,516 0
Net income/(loss) $ 2,883 $ (2,433)
Allocation of Net Proceeds:
Net income/(loss) $ 2,883 $ (2,433)
Dividends on common and preferred stock (1,335) (5,035)
Net proceeds/(deficit) 1,548 (7,468)
Allocation (to)/from earned surplus (1,035) 7,468
Net proceeds available to members $ 513 $ 0
Net Proceeds Available to Members:
Estimated cash payment $ 103 $ 0
Qualified retains 410 0
Net proceeds available to members $ 513 $ 0
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
<CAPTION>
September 28, June 29, September 23,
1996 1996 1995
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,682 $ 8,873 $ 5,221
Accounts receivable, trade, net 62,020 47,259 60,913
Accounts receivable, other 6,268 6,814 12,780
Income taxes refundable 0 0 11,679
Current deferred tax assets 13,731 13,731 3,954
Inventories -
Finished goods 158,474 97,018 179,559
Raw materials and supplies 35,161 33,556 52,387
Total inventories 193,635 130,574 231,946
Prepaid manufacturing expense 1,111 11,339 0
Prepaid expenses and other current assets 8,742 1,066 4,944
Total current assets 292,189 219,656 331,437
Investment in Bank 24,439 24,439 22,907
Property, plant, and equipment, net 269,254 271,574 279,669
Assets held for sale 5,113 5,368 5,521
Goodwill and other intangible assets, net 102,734 103,760 79,375
Other assets 12,550 12,500 13,692
Total assets $706,279 $637,297 $732,601
Liabilities and Shareholders and Members Capitalization
Current liabilities:
Notes payable $ 63,000 $ 0 86,000
Current portion of obligations under capital leases 548 547 764
Current portion of long-term debt 8,075 8,075 8,008
Accounts payable 46,188 54,791 59,122
Income taxes payable 3,961 2,289 0
Accrued interest 4,767 9,447 4,525
Accrued employee compensation 8,143 8,368 7,042
Accrued manufacturing expense 0 0 787
Other accrued expenses 27,554 24,775 19,288
Dividends payable 0 128 0
Amounts due members 27,051 7,875 16,303
Total current liabilities 189,287 116,295 201,839
Long-term debt 162,164 167,683 185,274
Senior subordinated notes 160,000 160,000 160,000
Obligations under capital leases 1,125 1,125 1,650
Deferred income tax liabilities 44,753 44,753 27,457
Other non-current liabilities 20,713 20,741 18,593
Total liabilities 578,042 510,597 594,813
Commitments and contingencies
Class B cumulative redeemable preferred stock liquidation
preference $10 per share, authorized - 500,000 shares; issued
and outstanding 33,364, 33,364, and 0 shares, respectively 334 334 0
Common stock, par value $5, authorized - 5,000,000 shares
September 28, June 29, September 23,
1996 1996 1995
Shares issued 1,855,329 1,836,963 1,886,424
Shares subscribed 57,859 59,359 51,638
Total subscribed and issued 1,913,188 1,896,322 1,938,062
Less subscriptions receivable in installments (57,859) (59,359) (51,638)
1,855,329 1,836,963 1,886,424 9,277 9,185 9,432
Shareholders' and members' capitalization:
Retained earnings allocated to members 32,728 32,318 34,242
Non-qualified allocation to members 3,275 3,275 3,851
Non-cumulative preferred stock, par value $25; authorized -
5,000,000 shares; issued and outstanding - 105,788,
105,788, and 3,043,325, respectively 2,645 2,645 76,083
Class A cumulative preferred stock, liquidation preference
$25 per share; authorized - 49,500,000 shares; issued and
outstanding 3,032,704, 3,032,704 and 0 shares,
respectively 75,818 75,818 0
Earned surplus 4,160 3,125 14,180
Total shareholders' and members' capitalization 118,626 117,181 128,356
Total liabilities and capitalization $706,279 $637,297 $732,601
<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
(Dollars in Thousands)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 2,883 $ (2,433)
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of an accounting change (4,516) 0
Amortization of goodwill, other intangibles, and financing fees 1,226 1,180
Depreciation 6,202 6,374
Change in assets and liabilities:
Accounts receivable (14,215) (5,137)
Inventories (63,061) (67,486)
Accounts payable and accrued expenses (629) (549)
Amounts due to members 19,073 2,955
Federal and state taxes refundable 471 (1,573)
Other assets and liabilities (2,236) (3,892)
Deferred taxes 0 (122)
Net cash used in operating activities (54,802) (70,683)
Cash flows from investing activities:
Purchase of property, plant, and equipment (3,920) (6,696)
Disposals of property, plant, and equipment 293 4,790
Cash paid for acquisition 0 (5,400)
Net cash used in investing activities (3,627) (7,306)
Cash flows from financing activities:
Proceeds from short-term debt 63,000 86,000
Proceeds from long-term debt 0 5,400
Payments on long-term debt (5,519) (7,335)
Issuances of common stock, net of repurchases 92 37
Cash paid in lieu of fractional shares 0 (9)
Cash dividends paid (1,335) (5,035)
Net cash provided by financing activities 56,238 79,058
Net change in cash and cash equivalents (2,191) 1,069
Cash and cash equivalents at beginning of period 8,873 4,152
Cash and cash equivalents at end of period $ 6,682 $ 5,221
Fiscal 1996 amounts above exclude the effects of the acquisition of Packer Foods as detailed in
the Supplemental Disclosure of Cash Flow Information
Supplemental Disclosure of Cash Flow Information
Cash paid/(received) during the year for:
Interest $ 14,476 $ 14,694
Income taxes, net $ 56 $ (82)
Acquisition of Packer Foods in July 1995:
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
<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. The following
summarizes the significant accounting policies applied in the preparation of the
accompanying financial statements. These financial statements should be read in
conjunction with the financial statements and accompanying notes contained in
Pro-Fac's Form 10-K for the fiscal year ended June 29, 1996.
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.
Change in Accounting Principle: Effective June 30, 1996, accounting procedures
were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. This change is
preferable because it provides a better matching of costs with related revenues.
In addition, the independent accountants of the Company have agreed that this
change in accounting is preferable. Their report, relative to this change in
accounting, is attached to this filing as Exhibit 18. The Senior Subordinated
Note agreement of the Company allows that if holders of greater than 25 percent
of the Notes object to this change, the Company would return to its previous
accounting practice. The favorable cumulative effect of the change (net of
income taxes of $1.2 million) was $4.5 million. Pro forma amounts for the
cumulative effect of the accounting change on prior periods are not determinable
due to the lack of physical inventory counts required to establish quantities at
the respective dates.
Reclassification: Certain items for fiscal 1996 have been reclassified to
conform with fiscal 1997 presentation.
NOTE 2. AGREEMENTS WITH CURTICE BURNS
The contractual relationship between the two parties is defined in the Pro-Fac
Marketing and Facilitation Agreement (Agreement). Under the Agreement, the
Company pays Pro-Fac the commercial market value (CMV) for all crops supplied by
Pro-Fac. 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. 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 Agreement. Under the Agreement the Company is required to have on
its board of directors some persons who are neither members of nor affiliated
with Pro-Fac (Disinterested Directors). The number of Disinterested Directors
must at least equal the number of directors who are members of Pro-Fac. The
volume and type of crops to be purchased by Curtice Burns under the Agreement
are determined pursuant to its annual profit plan, which requires the approval
of a majority of the Disinterested Directors. 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.
Additional patronage income is paid to Pro-Fac for services provided to Curtice
Burns, including the provision of a long term, stable crop supply, favorable
payment terms for crops and access to cooperative bank financing and the sharing
of risks of losses of certain operations of the business. Earnings and losses
are determined at the end of the fiscal year, but are accrued on an estimated
basis during the year.
Some of the additional patronage income received by Pro-Fac from the Company is
not paid in cash by Pro-Fac to its members but is instead allocated to them
through notices of allocation (Retains). Funds represented by Retains have
historically been reinvested by Pro-Fac in the Company. Under the Indentures
related to the Notes, Pro-Fac is required to reinvest at least 70 percent of the
additional Patronage income in Curtice Burns.
NOTE 3. OTHER MATTERS
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging to Silgan Containers Corporation, an indirect,
wholly-owned subsidiary of Silgan Holdings, Inc., headquartered in Stamford,
Connecticut. The transaction price was approximately $30.0 million and includes
a long-term supply agreement between Silgan and Curtice Burns. A gain of
approximately $4.0 million will be recognized in the second quarter earnings of
the Company. Proceeds from this sale were applied to debt.
<PAGE>
Dividends: Subsequent to quarter end, the Cooperative declared a cash dividend
of $.43 per share on the Class A Cumulative Preferred Stock. These dividends
amounted to $1.3 million and were paid on October 30, 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 first
quarter of fiscal 1997 and 1996.
PRO-FAC'S RESULTS OF OPERATIONS
Changes From the First Quarter of Fiscal 1996 to the First Quarter of Fiscal
1997: For the quarter ended September 28, 1996, the change in net proceeds
compared to the prior year is summarized below in millions of dollars:
<TABLE>
<S> <C>
Change in gross profit $(0.8)
Change in selling, general and administrative expenses 3.8
Change in interest expense 0.1
Change in income before taxes, dividends, allocations
of net proceeds, and cumulative effect of an accounting change 3.1
Change in taxes on income (2.3)
Cumulative effect of an accounting change 4.5
Change in net income $ 5.3
</TABLE>
CURTICE BURNS RESULTS OF OPERATIONS
The following tables illustrate the Company's results of operations by business
for the quarters ended September 28, 1996 and September 23, 1995, and the
Company's total assets by business as of September 28, 1996 and September 23,
1995.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit (CMF) $ 78.0 44.8% $ 68.7 41.6%
Nalley Fine Foods 44.2 25.4 46.4 28.1
Southern Frozen Foods 22.4 12.9 22.9 13.9
Snack Foods Group 17.2 9.9 15.4 9.3
Brooks Foods 7.1 4.1 6.9 4.2
Subtotal ongoing operations 168.9 97.1 160.3 97.1
Business to be sold1 5.1 2.9 4.9 2.9
Total $174.0 100.0% $165.2 100.0%
<FN>
1 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
<PAGE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $ 3.7 42.0% $ 3.9 67.2%
Nalley Fine Foods 2.1 23.9 1.0 17.2
Southern Frozen Foods 1.9 21.6 1.0 17.2
Snack Foods Group 1.5 17.0 1.0 17.2
Brooks Foods 0.5 5.7 0.4 6.9
Corporate overhead (1.1) (12.5) (2.2) (37.8)
Subtotal ongoing operations 8.6 97.7 5.1 87.9
Business to be sold2 0.2 2.3 0.7 12.1
Total $ 8.8 100.0% $ 5.8 100.0%
<FN>
1 Excludes cumulative effect of an accounting change. See NOTE 1 - Summary of Accounting Policies - Change in Accounting
Principle.
2 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
<TABLE>
EBITDA1
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $ 7.1 44.4% $ 7.4 56.5%
Nalley Fine Foods 3.6 22.5 2.3 17.6
Southern Frozen Foods 3.0 18.7 2.3 17.6
Snack Foods Group 2.0 12.5 1.5 11.4
Brooks Foods 0.7 4.4 0.6 4.6
Corporate overhead (1.0) (6.3) (2.2) (16.8)
Subtotal ongoing operations 15.4 96.2 11.9 90.9
Business to be sold2 0.6 3.8 1.2 9.1
Total $16.0 100.0% $13.1 100.0%
<FN>
1 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. Excludes
cumulative effect of an accounting change. See NOTE 1 - Summary of Accounting Policies - Change in Accounting Principle.
2 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
<PAGE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $313.4 44.4% $338.2 46.6%
Nalley Fine Foods 154.7 21.9 161.5 22.3
Southern Frozen Foods 90.6 12.8 99.2 13.7
Snack Foods Group 27.6 3.9 28.0 3.9
Brooks Foods 24.2 3.4 23.4 3.2
Corporate 61.7 8.8 37.4 5.1
Subtotal ongoing operations 672.2 95.2 687.7 94.8
Business to be sold1 34.0 4.8 37.5 5.2
Total $706.2 100.0% $725.2 100.0%
<FN>
1 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
The following table illustrates the Company's income statement data and the
percentage of net sales represented by these items for the quarters ended
September 28, 1996 and September 23, 1995.
<TABLE>
Consolidated Statement of Operations
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Net Sales $ Net Sales
<S> <C> <C> <C> <C>
Net sales $174.0 100.0% $165.2 100.0%
Cost of sales 132.3 76.0 122.6 74.2
Gross profit 41.7 24.0 42.6 25.8
Selling, administrative and general expenses (32.9) (18.9) (36.8) (22.3)
Operating income before dividing with Pro-Fac 8.8 5.1 5.8 3.5
Interest expense (9.4) (5.4) (10.0) (6.0)
Pretax loss before dividing with Pro-Fac and before
cumulative effect of an accounting change (0.6) (0.3) (4.2) (2.5)
Pro-Fac share of loss before cumulative effect of an
accounting change 0.3 0.2 2.1 1.3
Loss before taxes and cumulative effect of an accounting change (0.3) (0.1) (2.1) (1.2)
Tax benefit/(provision) (0.1) (0.1) 0.3 0.1
Cumulative effect of an accounting change before dividing
with Pro-Fac 4.5 2.6 0.0 0.0
Pro-Fac share of accounting change (2.6) (1.5) 0.0 0.0
Net income/(loss) $ 1.5 0.9% $ (1.8) (1.1)%
</TABLE>
CHANGES FROM FIRST QUARTER FISCAL 1995 TO FIRST QUARTER FISCAL 1996
Net Sales: The net sales increase in the first quarter compared to the prior
year of $8.8 million is primarily attributable to increased volume and improved
pricing at both CMF and the Snack Foods Group.
<PAGE>
More specifically, the vegetable category at CMF has experienced improved
pricing due to several industry factors as well as increasing sales to new
customers. Net sales for the CMF vegetable category increased $5.0 million.
Higher product costs have increased pricing in the canned-fruit category which
along with incremental sales from the Packer Foods acquisition have resulted in
net sales increases of approximately $1.4 million for the quarter.
Increases at the Snack Foods Group are attributable to successful
sales/marketing efforts and the acquisition of Matthews Candy Company during the
fourth quarter of fiscal 1996.
Canned meats and salads at Nalley have increased $1.8 million due to sales and
marketing efforts. These increases were, however, offset by a net sales decrease
in the pickle ($2.5 million) and salad dressing ($1.1 million) product lines.
These decreases were the result of a decline in sales volume as a result of
competitive new product introductions. Sales and marketing efforts for these
categories are currently being reviewed to ensure opportunities for growth are
obtained.
Gross Profit: Gross profit of $41.7 million in the quarter ended September 28,
1996 decreased $0.9 million or 2.1 percent from $42.6 million in the quarter
ended September 23, 1995. This decrease is primarily attributable to the
competitive pressures experienced in the salad dressing category, primarily
offset by stronger pricing in most other product lines.
Selling, Administrative, and General Expenses: Selling, Administrative, and
General expenses have decreased $3.8 million as compared with the prior year. A
$1.3 million decrease in trade promotions related primarily to decreased
spending at the Nalley division. Reductions in other administrative expenses
accounted for $2.3 million and were primarily attributable to the elimination of
consulting and legal expenses incurred in the prior year and benefits from the
restructuring initiative that began late in fiscal 1996.
Interest Expense: The decrease in interest expense was a benefit of inventory
reduction and cash flow management programs initiated in fiscal 1996.
Provision for Taxes: The provision for taxes in the quarter ended September 28,
1996 of $0.1 million changed $0.4 million from the benefit of $0.3 million in
the quarter ended September 23, 1995. The tax provision was negatively impacted
by the non-deductibility of goodwill.
Cumulative Effect of a Change in Accounting: Effective June 30, 1996, accounting
procedures were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. This change is
preferable because it provides a better matching of costs with related revenues.
In addition, the independent accountants of the Company have agreed that this
change in accounting is preferable. Their report, relative to this change in
accounting, is attached to this filing as Exhibit 18. The Senior Subordinated
Note agreement of the Company allows that if holders of greater than 25 percent
of the Notes object to this change, the Company would return to its previous
accounting practice. The favorable cumulative effect of the change (net of the
Pro-Fac share of $2.6 million and income taxes of $1.2 million) was $1.9
million. Pro forma amounts for the cumulative effect of the accounting change on
prior periods are not determinable due to the lack of physical inventory counts
required to establish quantities at the respective dates.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the Consolidated
Statement of Changes in Cash Flows for the first quarter of fiscal 1997 compared
to the first quarter of fiscal 1996.
Net cash used in operating activities decreased $15.9 million or 22.5 percent
from $70.7 million in fiscal 1996 to $54.8 million in fiscal 1997. Net income
excluding the cumulative effect of an accounting change increased $0.8 million
from the prior year. The decrease in net cash used in operations was also due to
a $4.4 million reduction for inventories as a result of an inventory-reduction
program initiated in fiscal 1996; a $9.1 million increase in cash usage relating
to accounts receivable due to the receipt of insurance proceeds in the prior
year; and a $16.1 million change in cash usage relating to amounts payable to
members is primarily due to increased deliveries and changes in the timing of
deliveries from year to year. In July of each year, members receive the final
payment for crops processed in the prior fiscal year. The crops processed in
fiscal 1996 were less than the prior year, and payments of the members were
further reduced by 10 percent due to losses for fiscal 1996. Changes in other
assets and liabilities used $3.7 million less than the prior year.
Net cash used by investing activities amounted to $3.6 million in fiscal 1997
compared to $7.3 million in fiscal 1996. In fiscal 1997, $3.9 million was used
for the purchase of property, plant, and equipment compared to $6.7 million in
fiscal 1996. Also in fiscal 1996, $5.4 million was used for the purchase of
Packer Foods, and disposals provided $4.8 million. The sale of Nalley Ltd.
accounted for the majority of the proceeds from disposals in the first quarter
of fiscal 1996.
<PAGE>
Net cash provided by financing activities amounted to $56.2 million in fiscal
1997 compared to $79.1 million provided in fiscal 1996. Proceeds from short- and
long-term debt amounted to $63.0 million in fiscal 1997 and $91.4 in fiscal 1996
($5.4 million of which was used to finance the Packer acquisition in fiscal
1996). The decreased loan proceeds were primarily the result of the
inventory-reduction program, reduced dividend payments, and improved
profitability. Long-term debt payments amounted to $5.5 million in fiscal 1997
and $7.3 million in fiscal 1996. Dividends paid in fiscal 1997 amounted to $1.3
million compared to $5.0 million in fiscal 1996. The decreased dividends were
due to the conversion of non-cumulative preferred stock to cumulative preferred
stock and the Nasdaq listing requirement of quarterly dividend payments as
opposed to the annual payment previously made in July. In addition, the prior
year included a common dividend of $0.5 million which was not made in fiscal
1997.
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) the total
line and (ii) the sum of 60 percent of eligible accounts receivable plus 50
percent of eligible inventory.
As of September 28, 1996, (i) cash borrowings outstanding under the Seasonal
Facility were $63.0 million and (ii) additional availability under the Seasonal
Facility, after taking into account the amount of the borrowing was $21.0
million. In addition to its seasonal financing, as of September 28, 1996, the
Company had $15.1 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 and the amounts available under the Seasonal and Term Loan
Facilities should be sufficient to fund its working capital needs, fund its
capital expenditures, service its debt, and pay dividends for the foreseeable
future.
Certain financing arrangements require that Pro-Fac and Curtice Burns meet
certain financial tests and ratios and comply with certain other restrictions
and limitations. As of September 28, 1996, Pro-Fac is in compliance with, or has
obtained waivers for, all such covenants, restrictions and limitations.
Short- and Long-Term Trends: The vegetable portion of the business, which
includes CMF and Southern Frozen Foods, 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 the crops that year. 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.
The effect of the 1996 growing season on fiscal 1997 financial results cannot be
estimated until late 1996 or early calendar 1997 when harvesting is complete and
national supplies can be determined. The Company began fiscal 1997 with $29.6
million less inventories than the beginning of fiscal 1996 and at the end of the
first quarter of fiscal 1997 inventories were $38.3 million less than the prior
year. The reduction in inventories was primarily accomplished as a result of
decreased production and increased sales and was planned to correct the higher
carryover inventory situation from the previous year and to improve the
utilization of capital. The spring of 1996 produced excessive rain in some of
the growing areas of the Company and drought conditions in some others. These
adverse weather conditions delayed or reduced the processing of certain early
1996 crops which further reduced inventory levels and increased costs.
Other Matters:
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging to Silgan Containers Corporation, an indirect,
wholly-owned subsidiary of Silgan Holdings, Inc., headquartered in Stamford,
Connecticut. The transaction price was approximately $30.0 million and includes
a long-term supply agreement between Silgan and Curtice Burns. A gain of
approximately $4.0 million will be recognized in the second quarter earnings of
the Company. Proceeds from this sale were applied to Bank debt.
Deferred Taxes: During the first quarter of fiscal 1996 the net deferred taxes
liabilities of Pro-Fac were reduced by approximately $22 million. The adjustment
was made in conjunction with the Curtice Burns obtaining its cooperative tax
status and was applied against goodwill, as it represented an uncertainty
related to income taxes outstanding at the date of the acquisition. Based on
further guidance from outside counsel, it was later determined that such an
adjustment was not warranted. Accordingly, the adjustment was reversed at the
end of fiscal 1996.
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
Exhibit 18 Change in Accounting Method
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: October 30, 1996 BY:/s/ Stephen R. Wright
STEPHEN R. WRIGHT,
GENERAL MANAGER
Date: October 30, 1996 BY:/s/ William D. Rice
WILLIAM D. RICE,
ASSISTANT TREASURER AND
CHIEF MANAGEMENT FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
<PAGE>
Exhibit 18
October 11, 1996
To the Board of Directors of
Pro-Fac Cooperative, Inc.
Dear Directors:
We have been furnished with a copy of the Form 10-Q for Pro-Fac Cooperative,
Inc. for the quarter ended September 28, 1996. NOTE 1 therein describes a change
in the method of accounting for spare parts inventory, whereby spare parts
previously charged directly to expense will be capitalized until placed in
service. It should be understood that the preferability of one acceptable method
of accounting for spare parts over another has not been addressed in any
authoritative accounting literature, and in arriving at our opinion expressed
below, we have relied on the business planning and judgment of management. Based
upon our discussions with management and the stated reasons for the change, we
believe that such change represents, in your circumstances, the adoption of a
preferable alternative accounting principle for spare parts in conformity with
Accounting Principles Board Opinion No. 20.
We have not made an audit in accordance with generally accepted auditing
standards of the financial statements of Pro-Fac Cooperative, Inc. for the
three-month period ended September 28, 1996 and, accordingly, we express no
opinion thereon or on the financial information files as part of the Form 10-Q
of which this letter is to be an exhibit.
Yours very truly,
/s/ Price Waterhouse LLP
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<NAME> PRO-FAC COOPEATIVE, INC.
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78,463
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