14
Page 1 of 15 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 March 29, 1997
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 15, 1997.
Common Stock - 1,793,838
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
<CAPTION>
Three Months Ended Nine Months Ended
March 29, March 23, March 29, March 23,
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $179,146 $177,849 $561,332 $ 551,213
Cost of sales 131,888 133,619 412,827 412,760
-------- -------- -------- ----------
Gross profit 47,258 44,230 148,505 138,453
Gain on sale of Finger Lakes Packaging 0 0 3,565 0
Selling, administrative, and general expense (35,613) (33,249) (110,410) (116,272)
-------- -------- -------- ----------
Operating income 11,645 10,981 41,660 22,181
Interest expense (8,987) (10,484) (28,429) (31,489)
-------- -------- -------- ----------
Income/(loss) before taxes, dividends, allocation of net
proceeds, and cumulative effect of an accounting change 2,658 497 13,231 (9,308)
Tax (provision)/benefit (971) 4,317 (4,714) 7,028
-------- -------- -------- -----------
Income/(loss) before cumulative effect of an accounting
change, dividends, and allocation of net proceeds 1,687 4,814 8,517 (2,280)
Cumulative effect of an accounting change 0 0 4,606 0
-------- -------- -------- --------------
Net income/(loss) $ 1,687 $ 4,814 $ 13,123 $ (2,280)
======== ======== ======== ==========
Allocation of Net Proceeds:
Net income/(loss) $ 1,687 $ 4,814 $ 13,123 $ (2,280)
Dividends on common and preferred stock (1,380) (1,289) (4,058) (7,636)
-------- -------- -------- -----------
Net proceeds/(deficit) 307 3,525 9,065 (9,916)
Allocation from/(to) earned surplus 173 (3,525) (4,109) 9,916
-------- -------- -------- -----------
Net proceeds available to members $ 480 $ 0 $ 4,956 $ 0
======== ======== ======== =============
Net Proceeds Available to Members:
Estimated cash payment $ 96 $ 991
Qualified retains 384 3,965
-------- --------
Net proceeds available to members $ 480 $ 4,956
======== ========
<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) March 29, June 29, March 23,
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,334 $ 8,873 $ 6,073
Accounts receivable, trade, net 51,138 47,259 54,184
Accounts receivable, other 4,060 6,814 8,546
Income taxes refundable 0 0 2,679
Current deferred tax assets 9,995 13,731 3,954
Inventories -
Finished goods 114,140 97,018 130,708
Raw materials and supplies 34,079 33,556 39,157
-------- -------- --------
Total inventories 148,219 130,574 169,865
-------- -------- --------
Investment in Bank, current 1,262 0 0
Prepaid manufacturing expense 2,002 11,339 4,344
Prepaid expenses and other current assets 9,281 1,066 3,394
-------- -------- --------
Total current assets 231,291 219,656 253,039
Investment in Bank 24,320 24,439 24,439
Property, plant, and equipment, net 247,554 271,574 273,663
Assets held for sale 903 5,368 5,935
Goodwill and other intangible assets, net 98,840 103,760 82,891
Other assets 11,480 12,500 15,550
-------- -------- --------
Total assets $614,388 $637,297 $655,517
======== ======== ========
Liabilities and Shareholders' and Members' Capitalization Current liabilities:
Notes payable $ 20,500 $ 0 $ 41,000
Current portion of obligations under capital leases 547 547 764
Current portion of long-term debt 8,075 8,075 8,056
Accounts payable 33,139 54,791 38,623
Income taxes payable 6,374 2,289 0
Accrued interest 4,651 9,447 4,440
Accrued employee compensation 10,015 8,368 6,733
Other accrued expenses 26,291 24,775 21,534
Dividends payable 40 128 88
Amounts due members 13,672 7,875 9,893
-------- -------- --------
Total current liabilities 123,304 116,295 131,131
Long-term debt 133,341 167,683 181,418
Senior subordinated notes 160,000 160,000 160,000
Obligations under capital leases 1,125 1,125 1,620
Deferred income tax liabilities 40,537 44,753 26,244
Other non-current liabilities 21,546 20,741 19,599
-------- -------- --------
Total liabilities 479,853 510,597 520,012
-------- -------- --------
Commitments and contingencies
Class B cumulative redeemable preferred stock liquidation preference $10 per
share, authorized - 500,000 shares; issued and
outstanding 36,531, 33,364, and 25,478 shares, respectively 365 334 255
Common stock, par value $5, authorized - 5,000,000 shares
March 29 June 29, March 23,
1997 1996 1996
Shares issued 1,800,623 1,836,963 1,893,154
Shares subscribed 44,387 59,359 42,236
--------- --------- ---------
Total subscribed and issued 1,845,010 1,896,322 1,935,390
Less subscriptions receivable in installments (44,387) (59,359) (42,236)
--------- --------- ---------
1,800,623 1,836,963 1,893,154 9,003 9,185 9,466
========= ========= =========
Shareholders' and members' capitalization:
Retained earnings allocated to members 33,235 32,318 32,318
Non-qualified allocation to members 2,960 3,275 3,275
Non-cumulative preferred stock, par value $25; authorized - 5,000,000 shares;
issued and outstanding - 61,597,
105,788, and 105,788, respectively 1,540 2,645 2,645
Class A cumulative preferred stock, liquidation preference
$25 per share; authorized - 49,500,000 shares; issued and
outstanding 3,207,909, 3,032,704 and 3,032,704 shares,
respectively 80,198 75,818 75,817
Earned surplus 7,234 3,125 11,729
-------- -------- --------
Total shareholders' and members' capitalization 125,167 117,181 125,784
-------- -------- --------
Total liabilities and capitalization $614,388 $637,297 $655,517
======== ======== ========
<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
Nine Months Ended
(Dollars in Thousands) March 29, March 23,
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $13,123 $(2,280)
Adjustments to reconcile net income/(loss) to net cash provided by operating
activities:
Cumulative effect of an accounting change (4,606) 0
Amortization of goodwill, other intangibles, and financing fees 3,651 3,114
Depreciation 16,883 19,740
Equity in undistributed earnings of the Bank (1,143) (1,532)
Gain on sale of Finger Lakes Packaging (3,565) 0
Change in assets and liabilities:
Accounts receivable (7,280) 5,367
Inventories (22,336) (5,433)
Accounts payable and accrued expenses (13,065) (29,759)
Amounts due to members 4,806 (3,917)
Federal and state taxes refundable 4,361 7,427
Other assets and liabilities (1,776) (3,514)
------- -------
Net cash used in operating activities (10,947) (10,787)
------- -------
Cash flows from investing activities:
Purchase of property, plant, and equipment (8,880) (14,116)
Disposals of property, plant, and equipment 34,387 4,322
Cash paid for acquisition 0 (5,400)
------- -------
Net cash provided by/(used in) investing activities 25,507 (15,194)
------- -------
Cash flows from financing activities:
Proceeds from short-term debt 20,500 41,000
Proceeds from long-term debt 0 5,400
Payments on long-term debt (34,342) (11,143)
Repurchases of stock, net of issuances (151) 326
Cash portion of nonqualified conversion (88) (122)
Cash paid in lieu of fractional shares 0 (11)
Cash dividends paid (4,018) (7,548)
------- -------
Net cash (used in)/provided by financing activities (18,099) 27,902
------- -------
Net change in cash and cash equivalents (3,539) 1,921
Cash and cash equivalents at beginning of period 8,873 4,152
------- -------
Cash and cash equivalents at end of period $ 5,334 $ 6,073
======= =======
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 $32,976 $36,147
======= =======
Income taxes, net $ 352 $(8,397)
======= =======
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
=======
Supplemental schedule of non-cash investing and financing activities:
Conversion of retains to preferred stock $ 3,275 $ 2,379
======= =======
<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 only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
these periods. 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 the Pro-Fac Cooperative, Inc. ("Pro-Fac")
Form 10-K for the fiscal year ended June 29, 1996. The results of operations for
the interim periods are not necessarily indicative of the results of operations
for the full year.
Consolidation: The consolidated financial statements include Pro-Fac and its
wholly-owned subsidiaries, including 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 Company's independent accountants have agreed that this change
in accounting is preferable. The Indenture, which covers the Company's Senior
Subordinated Notes (the "Notes") provides among other things that, if holders of
greater than 25 percent of the Notes object to this change, the Company must
return to its previous accounting practice. The favorable cumulative effect of
the change (net of income taxes of $1.1 million) was $4.6 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
Pro-Fac's contractual relationship with Curtice Burns 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, under the agreement, 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, as additional patronage income, 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 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 Indenture
related to the Notes, Pro-Fac is required to reinvest at least 70 percent of the
additional patronage income in Curtice Burns.
<PAGE>
NOTE 3. ACQUISITIONS AND DISPOSALS
Nalley's Canada: In April 1997, the Company acquired certain businesses from
Nalley's Canada Ltd., a privately held, independent snack food company and
former subsidiary of Curtice Burns. The acquired Canadian businesses are a $12
million consumer products business that includes Nalley's chili and snack dips;
Adams Natural Peanut Butter; Bernstein's Salad Dressings; LaRestaurante Salsa
and other niche dressing and sauce products marketed throughout the western
Provinces of Canada. The purchase price of approximately $5.0 million was paid
through the forgiveness of various long-term receivables issued to the Company
in connection with its sale of the stock of Nalley's Canada Ltd. in 1995.
Curtice Burns sold its Canadian subsidiary in June 1995, but continued to
produce and supply these products to the operation through its Nalley's Fine
Foods business in Tacoma, Washington. The reacquired business will operate
through Nalley's Fine Foods in Tacoma with sales representation through local
brokers and distributors in Canada. Nalley's Canada Ltd. will continue to
distribute snack dip and salsa products as the exclusive distributor for these
goods in Canada.
Formation of New Sauerkraut Company: In April 1997, the Company and Flanagan
Brothers, Inc., of Bear Creek, Wisconsin, jointly announced that they have
signed a letter of intent to merge all assets involved in sauerkraut production
into one new sauerkraut company. Curtice Burns currently has sauerkraut
operations in New York State and Flanagan has operations in Wisconsin and New
York State. This new company, which has not yet been named, will operate as a
cooperative, incorporated in New York State, with ownership split between the
two companies.
The new company will have a joint board of directors to oversee operations.
Curtice Burns will manage all New York State cabbage sourcing and will also
provide accounting and marketing services for the new entity. Flanagan Brothers,
Inc. will provide the management needed to assure that the same tradition of
excellent customer service practiced by the founding companies will continue in
the new venture.
The parties are working toward completion of a definitive joint venture
agreement and creation of the venture which are expected to occur in the fourth
quarter of fiscal 1997.
Management anticipates the alliance will positively impact fiscal 1998 earnings.
Brooks Foods: During April 1997, the Company entered into an agreement with
Hoopeston Foods for Hoopeston to acquire certain assets from the Brooks Foods
division operating facility and for Hoopeston to pack certain products, using
raw product supplied by Curtice Burns, on a contractual basis. The parties
expect to close in the fourth quarter of fiscal 1997. The Brooks facility, in
Mt. Summit, Indiana, will be closed by July 1997. Approximately 180 employees
will be affected.
No significant gain or loss is anticipated as a result of this transaction.
Georgia Frozen Distribution Center: On February 25, 1997, the Company and URS
Logistics, Inc. ("URS") announced that they have signed a letter of intent for
URS to acquire Curtice Burns' frozen foods distribution center in Montezuma,
Georgia. In addition, the two companies will enter into a long-term logistics
agreement under which URS will manage all frozen food transportation operations
of Curtice Burns in Georgia and New York. Curtice Burns fleet operation is not
included in the sale.
The parties expect to close by the end of June.
No significant gain or loss is anticipated as a result of this transaction.
Seneca to Purchase Private Label Canned Vegetable Businesses: On January 6,
1997, the Company and Seneca Foods Corporation ("Seneca") jointly announced that
they have signed a letter of intent for Seneca to acquire certain Curtice Burns
assets and to realign the sourcing of Seneca's New York State raw vegetable
products. The transaction calls for Seneca to acquire the Curtice Burns
Leicester, New York production facility and the LeRoy, New York distribution
center, as well as the Blue Boy brand.
Seneca will produce, market and sell the Blue Boy brand canned vegetables and
private label canned vegetables and will also pack certain products on a
contractual basis for Curtice Burns. The acquisition will not include the
Greenwood and Silver Floss labels, or Curtice Burns sauerkraut, beets in glass
containers, or frozen vegetable business. Terms and conditions of the agreement
are subject to ongoing negotiations.
<PAGE>
Seneca and the Company will also forge a long-term strategic alliance to combine
their agricultural departments into one organization to be managed by Curtice
Burns. The objective is to maximize sourcing efficiencies of New York State
vegetable requirements for both companies. This agreement will initially have a
minimum ten-year term.
The parties are working towards finalizing the agreement, subject to further due
diligence by both parties, and expect to close in the fourth quarter of fiscal
1997. A mutually-agreed goal for both companies is a continuity of employment at
the facilities.
No significant gain or loss is anticipated as a result of this transaction.
For the quarters ended March 27, 1997 and March 23, 1996, the canned vegetable
business to be sold to Seneca incurred operating losses of $0.4 million and $0.6
million, respectively. For the nine months ended March 27, 1997 and March 23,
1996, this canned vegetable business incurred operating losses of $0.6 million
and $2.6 million, respectively.
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging, Inc. ("Finger Lakes Packaging"), a subsidiary of the
Company to Silgan Containers Corporation, an indirect, wholly-owned subsidiary
of Silgan Holdings, Inc., headquartered in Stamford, Connecticut. The Company
received proceeds of approximately $30.0 million. The transaction also included
a long-term supply agreement between Silgan and Curtice Burns. A gain of
approximately $3.6 million was recorded. Proceeds from this sale were applied to
the outstanding loans at CoBank, ACB ("the Bank"). For the quarter ended March
23, 1996, the can-making operation realized an operating gain of $1.1 million.
For the nine months ended March 27, 1997 and March 23, 1996, the can-making
operation realized operating gains of $4.9 million and $2.8 million,
respectively.
NOTE 4. OTHER MATTERS
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 $1.4 million and will be paid on April 30, 1997.
Product Recall: In February 1997, the Company issued a nationwide recall of all
"Tropic Isle" brand fresh frozen coconut produced in Costa Rica because it has
the potential to be contaminated with Listeria monocytogenes, an organism which
can cause serious and sometimes fatal infections in small children, frail or
elderly people, and others with weakened immune systems.
Any material costs associated with this recall are anticipated to be covered
under the Company's insurance policies.
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
nine months and third quarter of fiscal 1997 and 1996.
<PAGE>
PRO-FAC'S RESULTS OF OPERATIONS
Changes From March 1996 to March 1997: For the three and nine months ended March
29, 1997, the change in net proceeds compared to the prior year is summarized
below in millions of dollars:
<TABLE>
Favorable/(Unfavorable)
Three Month Nine Month
Change Change
<S> <C> <C>
Change in gross profit $ 3.0 $10.0
Change in selling, general and administrative expenses (2.4) 5.9
Change in interest expense 1.5 3.1
Gain on sale of Finger Lakes Packaging 0.0 3.6
----- -----
Change in income before taxes, dividends, allocations
of net proceeds, and cumulative effect of an accounting change 2.1 22.6
Change in taxes on income (5.2) (11.8)
Cumulative effect of an accounting change 0.0 4.6
----- -----
Change in net income $(3.1) $15.4
===== =====
</TABLE>
Selling, administrative, and general expense includes estimates for various
employee incentive plans and interest income relating to tax refunds. Excluding
changes in employee incentive plans expense (which increased from the prior year
due to improved earnings) and changes in interest income relating to tax refunds
received in fiscal 1996, other expenses have decreased $1.4 million for the
three-month period and $4.2 million for the nine-month period compared to the
respective prior-year periods.
Because Curtice Burns is Pro-Fac's principal subsidiary, business conditions and
trends affecting Curtice Burns' profitability also affect the profitability of
Pro-Fac. 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.
CURTICE BURNS RESULTS OF OPERATIONS
The following tables illustrate the Company's results of operations by business
for the three- and nine-month periods ended March 29, 1997 and March 23, 1996,
and the Company's total assets by business as of March 29, 1997 and March 23,
1996.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
March 27, 1997 March 23, 1996 March 27, 1997 March 23, 1996
% of % of % of % of
$ Total $ Total $ Total $ Total
------ ----- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") $ 75.1 41.9 $ 70.4 39.6% $240.6 42.9% $225.3 40.9%
Nalley's Fine Foods 43.8 24.5 44.4 25.0 133.6 23.8 137.2 24.9
Southern Frozen Foods 24.5 13.7 23.2 13.1 71.8 12.8 72.6 13.2
Snack Foods Group 16.2 9.0 14.4 8.1 49.7 8.8 44.9 8.1
Brooks Foods 9.0 5.0 9.3 5.2 28.2 5.0 28.6 5.2
------ ----- ------ ----- ------ ----- ------ -----
Subtotal ongoing operations 168.6 94.1 161.7 91.0 523.9 93.3 508.6 92.3
Businesses sold or to be sold1 10.5 5.9 16.1 9.0 37.4 6.7 42.6 7.7
------ ----- ------ ----- ------ ----- ------ -----
Total $179.1 100.0% $177.8 100.0% $561.3 100.0% $551.2 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<FN>
1 Includes Finger Lakes Packaging and canned vegetable business to be sold to
Seneca Foods. See Note 3 - "Acquisitions and Disposals."
</FN>
</TABLE>
<PAGE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
March 27, 1997 March 23, 1996 March 27, 1997 March 23, 1996
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ----- ----- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF $ 7.2 61.6% $ 5.3 55.3% $21.0 50.5% $19.4 93.3%
Nalley's Fine Foods 3.0 25.6 1.6 16.7 8.1 19.5 (3.1) (14.9)
Southern Frozen Foods 2.1 17.9 1.6 16.7 6.7 16.1 4.7 22.6
Snack Foods Group 1.3 11.1 0.8 8.3 4.4 10.6 2.7 13.0
Brooks Foods 1.3 11.1 1.1 11.5 4.0 9.6 3.3 15.9
Corporate overhead (2.8) (23.9) (1.3) (13.7) (6.9) (16.6) (6.4) (30.9)
----- ----- ----- ----- ----- ----- ----- -----
Subtotal 12.1 103.4 9.1 94.8 37.3 89.7 20.6 99.0
Business sold and other nonrecurring2 (0.4) (3.4) 0.5 5.2 4.3 10.3 0.2 1.0
----- ----- ----- ----- ----- ----- ----- -----
Total $11.7 100.0 $ 9.6 100.0% $41.6 100.0% $20.8 100.0%
===== ===== ===== ===== ===== ===== ===== =====
<FN>
1 Excludes cumulative effect of an accounting change. See NOTE 1 - "Summary
of Accounting Policies - Change in Accounting Principle."
2 Includes Finger Lakes Packaging earnings and gain on sale. See NOTE 3 -
"Acquisitions and Disposals." Also includes final settlement of an
insurance claim in fiscal 1997, strategic planning consulting fees, and a
loss on the disposal of property held for sale in fiscal 1996, and
operating losses in both years for the canned vegetable business to be sold
to Seneca Foods.
</FN>
</TABLE>
<TABLE>
EBITDA1
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine MonthsEnded
March 27, 1997 March 23, 1996 March 27, 1997 March 23, 1996
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF $10.0 56.8% $ 8.2 47.1% $29.4 47.8% $28.1 65.4%
Nalley's Fine Foods 4.1 23.3 3.1 17.8 12.2 19.8 1.0 2.3
Southern Frozen Foods 3.0 17.0 2.9 16.7 9.8 15.9 8.7 20.2
Snack Foods Group 1.7 9.6 1.3 7.5 5.8 9.4 4.2 9.8
Brooks Foods 1.5 8.5 1.3 7.5 4.6 7.5 3.9 9.1
Corporate overhead (2.8) (15.8) 0.2 1.1 (6.9) (11.2) (4.9) (11.5)
----- ----- ----- ----- ----- ----- ----- -----
Subtotal 17.5 99.4 17.0 97.7 54.9 89.2 41.0 95.3
Business sold and other nonrecurring2 0.1 0.6 0.4 2.3 6.6 10.8 2.0 4.7
----- ----- ----- ----- ----- ----- ----- -----
Total $17.6 100.0% $17.4 100.0% $61.5 100.0% $43.0 100.0%
===== ===== ===== ===== ===== ===== ===== =====
<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 Includes Finger Lakes Packaging earnings and gain on sale. See NOTE 3 -
"Acquisitions and Disposals." Also includes final settlement of an insurance
claim in fiscal 1997, strategic planning consulting fees, and a loss on the
disposal of property held for sale in fiscal 1996, and operating losses in
both years for the canned vegetable business to be sold to Seneca Foods.
</FN>
</TABLE>
<PAGE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
March 29, 1997 March 23, 1996
% of % of
$ Total $ Total
------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
CMF and Brooks Foods1 $269.6 43.9% $280.9 42.3%
Nalley's Fine Foods 149.8 24.4 145.4 21.9
Southern Frozen Foods 85.5 13.9 95.1 14.3
Snack Foods Group 26.0 4.2 26.9 4.1
Corporate 54.5 8.9 58.0 8.7
------ ----- ------ -----
Subtotal ongoing operations 585.4 95.3 606.3 91.3
Businesses sold or to be sold2 29.0 4.7 57.7 8.7
------ ----- ------ -----
Total $614.4 100.0% $664.0 100.0%
====== ===== ====== =====
<FN>
1 Effective October 1, 1996, CMF and Brooks administrative operations were
consolidated.
2 Includes Finger Lakes Packaging and canned vegetable business to be sold to
Seneca Foods. See Note 3 - "Other Matters."
</FN>
</TABLE>
CHANGES FROM THIRD QUARTER FISCAL 1996 TO THIRD QUARTER FISCAL 1997
Net Sales: Total net sales in the third quarter compared to the prior year
increased modestly. However, net sales for ongoing operations increased $6.9
million or 4.2 percent. The increase was primarily attributable to CMF and Snack
Foods Group improvement in pricing and volume.
Gross Profit: Gross profit of $47.3 million in the quarter ended March 29, 1997
increased $3.1 million or 7.0 percent from $44.2 million in the quarter ended
March 23, 1996. This increase is attributable to operating improvements at
Southern Frozen Foods, CMF and Nalley's and increased sales.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses include estimates for various employee incentive plans which
are allocated primarily to corporate overhead in the preceding tables. The
increase over the prior year is attributable to improved earnings. Excluding
such programs, expenses have decreased $1.4 million as compared with the prior
year.
Interest Expense: The decrease in interest expense of $1.8 million or 18 percent
is a benefit of inventory reduction and cash flow management programs initiated
in fiscal 1996 as well as the debt reduction attributable to the sale of Finger
Lakes Packaging and idle facilities.
Provision for Taxes: The provision for taxes in the quarter ended March 29, 1997
changed $0.5 million from the quarter ended March 23, 1996 resulting from an
increase in earnings. The tax provision was also negatively impacted by the
non-deductibility of goodwill.
CHANGES FROM FIRST NINE MONTHS FISCAL 1996 TO FIRST NINE MONTHS FISCAL 1997
Net Sales: Total net sales in the first nine months of fiscal 1997 increased
$10.1 million or 2 percent compared to the prior year period. Net sales from
ongoing operations increased $15.3 million or 3 percent. This increase is
primarily attributable to increased volume and improved pricing at both CMF and
the Snack Foods Group. The vegetable category at CMF has experienced improved
pricing due to overall demand and increasing sales to new customers.
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.
Gross Profit: Gross profit of $148.5 million in the nine months ended March 29,
1997 increased $10.0 million or 7.2 percent from $138.5 million in the nine
months ended March 23, 1996. This increase is attributable to improved margins
in all operations. Improved pricing in the vegetable and popcorn categories at
CMF have increased profitability from a year ago. Nalley's, which in the
<PAGE>
prior year experienced extremely high start-up costs on the new salad dressing
line, has managed through those issues and has significantly improved margins.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $7.2 million as compared with the prior year,
despite increased costs under various employee incentive plans as a result of
increased earnings. A $3.0 million decrease in selling and advertising expenses
and trade promotions related primarily to decreased spending at the Nalley's
division. Reductions in other administrative expenses accounted for $4.2 million
and were primarily attributable to benefits from the restructuring initiative
that began late in fiscal 1996 and the reduction of consulting and legal
expenses incurred in the prior year.
Gain on Sale of 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 Company received proceeds of approximately $30
million. The transaction also included a long-term supply agreement. A gain of
approximately $3.6 million was recognized. Proceeds from this sale were applied
to Bank debt.
Interest Expense: The decrease in interest expense of $4.0 million or 13 percent
was a benefit of inventory reduction and cash flow management programs initiated
in fiscal 1996 as well as the debt reduction attributable to the sale of Finger
Lakes Packaging and idle facilities.
Provision for Taxes: The provision for taxes in the nine months ended March 29,
1997 of $3.3 million changed $4.5 million from the benefit of $1.2 million in
the nine months ended March 23, 1996 resulting from the increased earnings
before tax. The tax provision was also 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. Management
believes this change is preferable because it provides a better matching of
costs with related revenues. In addition, the Company's independent accountants
have agreed that this change in accounting is preferable. The favorable
cumulative effect of the change (net of Pro-Fac's share of $2.9 million and
income taxes of $1.1 million) was $1.7 million. The estimate of the Pro-Fac
share of the accounting change has been adjusted to reflect that actually
anticipated for the fiscal year. See further comments at NOTE 2. 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 nine months of fiscal 1997
compared to the first nine months of fiscal 1996.
Net cash used in operating activities improved in the first nine months of
fiscal 1997 primarily due to increased earnings and an inventory-reduction
program initiated in fiscal 1996. The change to amounts payable to members
increased primarily due to increased deliveries. Cash flow was, however,
positively impacted in the first nine months of fiscal 1996 due to the receipt
of insurance proceeds and tax refunds in fiscal 1996. No such proceeds were
received in fiscal 1997.
Net cash provided by/(used in) investing activities varied significantly from
year to year, primarily due to the sale of Finger Lakes Packaging and the
receipt of approximately $4 million for the sale of the idle Clifton, New Jersey
plant which had been held for resale. Offsetting items in the prior year were
proceeds from the disposition of Nalley's Ltd. and the acquisition of Packer
Foods. The purchase of property, plant, and equipment in both years was for
general operating purposes.
Borrowings decreased from the prior year due to increased earnings,
inventory-reduction, and proceeds from the sale of Finger Lakes Packaging and
the Clifton property. The decrease in dividends resulted from the payment in the
prior year period of both the annual fiscal 1995 dividend and quarterly fiscal
1996 dividend. The change in dividend payment resulted from the conversion of
non-cumulative preferred stock to cumulative preferred stock and the Nasdaq
listing requirement of quarterly dividend payments. In addition, the prior year
included a common dividend of $0.5 million which was not made in fiscal 1997.
Overall, the Company has focused on a major initiative in debt reduction during
the first nine months of fiscal 1997, and these efforts will continue throughout
the remainder of the year. A detailed outline of actions regarding acquisitions
and disposals is included in NOTE 3.
Borrowings: Under the Company's New Credit Agreement with the Bank, as amended,
$76.0 million is available for seasonal working capital purposes under the
Seasonal Facility, subject to a borrowing base limitation, and up to $13.0
million in aggregate face
<PAGE>
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 March 29, 1997, (i) cash borrowings outstanding under the Seasonal
Facility were $20.5 million and (ii) additional availability under the Seasonal
Facility, after taking into account the amount of the borrowing was $55.5
million. In addition to its seasonal financing, as of March 29, 1997, the
Company had $0.1 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. Pro-Fac believes that the cash flow generated by
operations and the amounts available under the Seasonal and Term Loan Facilities
should be sufficient to fund working capital needs, fund capital expenditures,
service 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 March 29, 1997, Pro-Fac is in compliance with, or has
obtained waivers for, all such covenants, restrictions and limitations.
Short- and Long-Term Trends: The statements contained herein are based on
current expectations. These statements are forward looking and actual results
may differ materially. Throughout fiscal 1997, the Company has focused its
efforts on the restructuring initiatives begun in the fourth quarter of fiscal
1996. These actions have included a focus on its core businesses, reductions in
general and administrative expenses, and debt reduction. The benefit from these
efforts are apparent in the increase in earnings over the prior year, and
management anticipates this trend will continue through the fourth quarter.
In addition, several other initiatives outlined in NOTE 3 to the consolidated
financial statements, including the sale of a portion of the canned vegetable
business and the sale of the Georgia distribution center, will have a favorable
impact on interest expense in fiscal 1998.
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 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.
The effect of the 1996 growing season on fiscal 1997 financial results so far
has been a moderate improvement from the prior year in earnings on vegetable
products. The Company began fiscal 1997 with $29.6 million less in inventories
than the beginning of fiscal 1996 and at the end of the first nine months of
fiscal 1997 inventories were $21.6 million less than the fiscal 1996 period. 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 as well as to manage nonseasonal
inventories for shorter lead times in order to improve the utilization of
capital. The spring of 1996 produced excessive rain in some of the Company's
growing areas and drought conditions in some others. These adverse weather
conditions delayed or reduced the processing of certain early 1996 crops, but a
significant proportion of these throughputs have been replaced by later
production.
Acquisitions and Disposals: Throughout fiscal 1997 the Company has worked toward
accomplishing the restructuring initiatives begun in fiscal 1996 which included
debt reduction. Ongoing initiatives will include a focus on the Company's core
businesses and growth opportunities. A complete description of the acquisition
and disposal activities currently outlined is included at NOTE 3 to the
consolidated financial statements.
Other Matters:
Restructuring: During the fourth quarter of fiscal 1996, the Company initiated a
corporate-wide restructuring program. Approximately $4 million of the
restructuring charge comprised employee termination benefits. During the first
nine months of fiscal 1997, approximately $1.8 million of this reserve has been
liquidated for this purpose.
Deferred Taxes: During the first quarter of fiscal 1996, the net deferred tax
liabilities of the Company were reduced by approximately $22 million. The
adjustment was made in conjunction with the Company 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, the adjustment was reversed at the end of
fiscal 1996.
<PAGE>
Product Recall: In February 1997,.the Company issued a nationwide recall of all
"Tropic Isle" brand fresh frozen coconut produced in Costa Rica because it has
the potential to be contaminated with Listeria monocytogenes, an organism which
can cause serious and sometimes fatal infections in small children, frail or
elderly people, and others with weakened immune systems. Any material costs
associated with this recall are anticipated to be covered under the Company's
insurance policies.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The regional membership meetings for the members of Pro-Fac were held as
follows:
Date Region/District City/State
February 4, 1997 I/3 Berlin, Pennsylvania
January 23, 1997 I/1 and I/2 Rochester, New York
January 28, 1997 II/2 Havana, Illinois
January 29, 1997 II/2 Ridgway, Illinois
January 30, 1997 III Columbus, Nebraska
February 19, 1997 IV Mt. Vernon, Washington
February 18, 1997 IV Portland, Oregon
February 5, 1997 V Montezuma, Georgia
March 31, 1997 II/1 Holland, Michigan
(b) Robert V. Call, Jr., Robert A. DeBadts, Steven D. Koinzan, Allan W.
Overhiser, and Darell D. Sarff were elected directors for a three-year term
as a result of the elections at the regional meetings held in January,
February and March 1997. The following is a list of the remaining directors
whose terms of office continued after the regional meetings.
Name Term Expires
Tom Croner 1998
Dale Burmeister 1998
Albert Fazio 1998
Glen Lee Chase 1999
Bruce Fox 1999
Kenneth Mattingly 1999
Paul Roe 1999
Following are the voting results from the regional meetings:
Votes Cast For Votes Cast Against
Robert V. Call, Jr. 69 0
Robert A. DeBadts 33 49*
Steven D. Koinzan 21 0
Allan W. Overhiser 90 0
Darell D. Sarff 27 21**
Other candidates: Votes Cast For
* William DeFisher 25
* Robert Coene 24
**Joe E. Murphy 21
<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 29, 1997 BY:/s/ Stephen R. Wright
-------------- ---------------------------------------
STEPHEN R. WRIGHT,
GENERAL MANAGER
Date: April 29, 1997 BY:/s/ Earl L. Powers
-------------- ---------------------------------------
EARL L. POWERS
VICE PRESIDENT, FINANCE AND
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-28-1997
<PERIOD-END> Mar-29-1997
<CASH> 5,334
<SECURITIES> 0
<RECEIVABLES> 55,198
<ALLOWANCES> 0
<INVENTORY> 148,219
<CURRENT-ASSETS> 231,291
<PP&E> 247,554
<DEPRECIATION> 0
<TOTAL-ASSETS> 614,388
<CURRENT-LIABILITIES> 123,304
<BONDS> 0
365
81,738
<COMMON> 0
<OTHER-SE> 43,429
<TOTAL-LIABILITY-AND-EQUITY> 614,388
<SALES> 561,332
<TOTAL-REVENUES> 561,332
<CGS> 412,827
<TOTAL-COSTS> 412,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,429
<INCOME-PRETAX> 13,231
<INCOME-TAX> 4,714
<INCOME-CONTINUING> 8,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 4,606
<NET-INCOME> 13,123
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
