Since 1960, Pro-Fac has operated as a New York agricultural cooperative, owned and controlled by its members, to purchase, market, and sell crops grown by its member-growers, for the mutual benefit of its members. Only growers of crops marketed through Pro-Fac, or associations of such growers, can become members of Pro-Fac. Membership in Pro-Fac is evidenced by the ownership of Pro-Fac common stock. As of December 23, 2006, there were approximately 490 Pro-Fac members, consisting of individual growers or associations of growers, located principally in the states of New York, Delaware, Pennsylvania, Illinois, Michigan, Washington, Oregon, Nebraska and Florida. Crops marketed by Pro-Fac include fruits (cherries, apples, blueberries, and peaches), vegetables (snap beans, beets, cucumbers, peas, sweet corn, carrots, cabbage, squash, asparagus and potatoes) and popcorn. For the year ended June 24, 2006, Pro-Fac delivered crops with a commercial market value of approximately $65.2 million. When Pro-Fac acts as an agent for its members in delivering crops, this activity is recorded on a net basis and no sales are reported.
Historically, Pro-Fac’s primary sources of income have been payments received under the terms of the Termination Agreement with Birds Eye Foods and income it recognizes from its investment in Holdings LLC, using the equity method of accounting. Income or loss based on Pro-Fac’s common equity interest in Holdings LLC, recorded under the equity method of accounting, varies depending on the operating results of Holdings LLC and the dividend requirements of Holdings LLC’s preferred equity holders. Holdings LLC’s operations are substantially comprised of the operations of Birds Eye Foods, its indirect, wholly-owned subsidiary. Pro-Fac’s primary source of cash has been payments under the Termination Agreement. One scheduled installment remains payable to Pro-Fac under the Termination Agreement - a final payment of $2.0 million expected to be received in July 2007. Although distributions under the Limited Liability Company are a potential source of cash, Holdings LLC has advised Pro-Fac that it will not speculate as to whether distributions will be made under the Limited Liability Company Agreement. As a minority owner of Holdings LLC, Pro-Fac has no control over the determination of whether such distributions will be made. Pro-Fac’s Board of Directors has developed a business plan that assumes distributions will not be made under the Limited Liability Company Agreement to replace the $10.0 million annual source of cash under the Termination Agreement ending with the last $2.0 million payment expected to be received in July 2007.
Until June 24, 2006, Pro-Fac accounted for its investment in Holdings LLC under the equity method of accounting. The Cooperative included its share, based on ownership, of the change in Holdings LLC’s minimum pension liabilities and unrealized holding gains and losses on hedging transactions in the Cooperative’s other comprehensive loss.
In the first quarter of fiscal 2007, the Cooperative concluded that it could no longer exert significant influence over the operating and financial policies of Holdings LLC and its indirect, wholly-owned subsidiary, Birds Eye Foods. Therefore, the Cooperative began accounting for this investment using the cost method effective June 25, 2006. This conclusion was reached based on a number of factors, including Birds Eye Foods decision, announced in the first quarter of fiscal 2007, to sell or close production facilities to which Pro-Fac supplied 34 percent of the total CMV of raw product sold to all Pro-Fac customers and 44 percent of the total CMV supplied to Birds Eye Foods. In October 2006, Birds Eye Foods announced its intent to repurchase its outstanding $50.0 million 11 7/8 percent senior subordinated notes. Birds Eye Foods did redeem the senior subordinated notes in full on November 20, 2006. As a result of the redemption, Birds Eye Foods is no longer required under the indenture covering the senior subordinated notes to file voluntary periodic reports with the Securities and Exchange Commission. Additionally, Holdings LLC’s management notified Pro-Fac that Birds Eye Foods had made a decision to no longer file periodic reports with the Securities and Exchange Commission and that, effective June 25, 2006, it will no longer provide Pro-Fac with financial information about Holdings LLC or Birds Eye Foods beyond that required under the Limited Liability Company Agreement of Holdings LLC. That agreement requires that Holdings LLC provide Pro-Fac with annual financial statements of Holdings LLC within 120 days after the close of a fiscal year and, to the extent received, financial statements of Birds Eye Foods. Any financial information received pursuant to the Limited Liability Company Agreement is subject to confidentiality provisions that preclude public disclosure.
As a result of beginning to use the cost method during the first quarter of fiscal 2007, the Cooperative’s proportionate share of the other comprehensive income and loss items of Holdings LLC previously recorded (net loss of approximately $5.6 million at June 24, 2006) was removed with a corresponding increase in the investment of approximately $5.6 million in accordance with Financial Accounting Standards Board Staff Position APB18-1 – “Accounting by an Investor for its Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon a Loss of Significant Influence.” The previously recorded proportional share of earnings and losses of Holdings LLC remain as a component of the carrying amount of the investment.
For the year ended June 24, 2006, Pro-Fac recorded equity method losses of $7.2 million. Cumulative equity method losses were $4.6 million through June 24, 2006.
Under the cost method, the Cooperative’s share of earnings or losses is not included in the Cooperative’s balance sheet or statement of operations and the Cooperative does not record its proportionate share of the other comprehensive income and loss items of Holdings LLC. Also, dividends received from Holdings LLC, if any, will be recorded as income when received. Impairment charges, if any, will be recognized in the statement of operations.
RESULTS OF OPERATIONS - THIRD QUARTER 2007 COMPARED TO THIRD QUARTER 2006
Net sales, cost of sales and gross profit:Net sales and cost of sales increased in the quarter ended March 24, 2007, as the Cooperative entered into more sales transactions as a principal for its members than in the quarter ended March 25, 2006.
Equity in loss of Holdings LLC: For the quarter ended March 24, 2007, the Cooperative accounted for its investment in Holdings LLC using the cost method, therefore, no income or loss was recorded (See Notes to Condensed Financial Statements). A loss of approximately $3.3 million was recorded in the third quarter of fiscal 2006 using the equity method of accounting. Holdings’ operations are substantially comprised of the operations of Birds Eye Foods, its indirect, wholly-owned subsidiary.
During the quarter ended March 24, 2007, Pro-Fac’s recorded investment in Holdings LLC decreased by $0.8 million due to the allocation (approximately 40 percent) of the portion of termination payments received during the quarter related to Pro-Fac’s continuing indirect ownership of Birds Eye Foods.
Gain from transaction with Birds Eye Foods and related agreements:In accordance with the Termination Agreement, Pro-Fac is entitled to the payment of a termination fee of $10.0 million per year for five years payable in quarterly installments as follows: $4.0 million on each July 1, and $2.0 million each October 1, January 1, and April 1 with the final payment expected to be received in July 2007.
Payments under the Termination Agreement are considered additional consideration related to the Transaction. Accordingly, the portion of the payments received under the Termination Agreement related to Pro-Fac’s continuing ownership percentage are recorded as a reduction to Pro-Fac’s investment in Holdings LLC. The remaining portion of payments received is recognized as additional gain on the Transaction with Birds Eye Foods in the period it is received. Accordingly, in the third quarter of fiscal 2007 and the third quarter of fiscal 2006, Pro-Fac recognized approximately $1.2 million as additional gain (approximately 60 percent) from the receipt of termination payments ($2.0 million on each of January 1, 2007 and January 1, 2006).
Margin on delivered product:The Cooperative negotiates certain sales transactions on behalf of its members, which result in margin being earned by the Cooperative. The Cooperative earned $0.1 million in margin during the third quarter of fiscal 2007 and no margin during the third quarter of fiscal 2006. The increase is attributable to the Cooperative entering into more sales transactions as an agent for its members.
Selling, administrative, and general expense:Selling, administrative, and general expenses totaled $0.4 million and $0.3 million for the quarters ended March 24, 2007 and March 25, 2006, respectively.
Interest income:Interest income increased from $21 thousand for the quarter ended March 25, 2006, to $67 thousand for the quarter ended March 24, 2007, due to higher on-hand cash balances.
Income taxes:The Cooperative qualifies for tax exempt status as a farmers’ cooperative under Section 521 of the Internal Revenue Code. Exempt cooperatives are permitted to reduce or eliminate taxable income through the use of special deductions such as dividends paid on its common and preferred stock and distributions of patronage income.
The Cooperative uses these special deductions and distributions of patronage income to reduce the Cooperative's taxable income for periods after August 19, 2002. At its March 2007 meeting, the Pro-Fac Board of Directors determined that there would be no payment or allocation of patronage income for the fiscal year ending June 30, 2007. As a result, the Cooperative recorded a tax provision of $0.2 million in the quarter ended March 24, 2007.
A deferred income tax asset has not been recognized on the excess of the tax basis over the recorded investment in Holdings LLC. This asset would only be realized upon the sale of the investment based on the proceeds received.
RESULTS OF OPERATIONS - FIRST NINE MONTHS 2007 COMPARED TO FIRST NINE MONTHS 2006
Net sales, cost of sales and gross profit:Net sales and cost of sales increased in the nine months ended March 24, 2007, as the Cooperative entered into more sales transactions as a principal for its members than in the nine months ended March 25, 2006.
Equity in loss of Holdings LLC: For the nine months ended March 24, 2007, the Cooperative accounted for its investment in Holdings LLC using the cost method, therefore, no income or loss was recorded. A loss of approximately $5.0 million was recorded in the nine months ended March 25, 2006, using the equity method of accounting. Holdings’ operations are substantially comprised of the operations of Birds Eye Foods, its indirect, wholly-owned subsidiary.
In the nine months ended March 24, 2007, Pro-Fac’s recorded investment in Holdings LLC decreased by $3.2 million due to the allocation (approximately 40%) of the portion of termination payments received during the nine months related to Pro-Fac’s continuing indirect ownership of Birds Eye Foods.
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Gain from transaction with Birds Eye Foods, Inc. and related agreements: In each of the first nine months of fiscal 2007 and fiscal 2006, Pro-Fac recognized approximately $4.8 million as additional gain (approximately 60%) from receipt of termination payments.
Margin on delivered product: The Cooperative earned $0.2 million in margin during the nine months ended March 24, 2007. The Cooperative earned $0.3 million in margin during the nine months ended March 25, 2006. The decrease is attributable to the Cooperative entering into fewer sales transactions as an agent for its members.
Selling, administrative, and general expenses: Selling, administrative, and general expenses totaled $1.1 and $0.9 million for the nine months ended March 24, 2007 and March 25, 2006, respectively, with the increase attributable primarily to increased insurance costs and professional fees.
Interest income:Interest income increased from $81 thousand for the nine months ended March 25, 2006, to $185 thousand for the nine months ended March 24, 2007, due to higher on-hand cash balances.
Income Taxes:At its March 2007 meeting, the Board of Directors determined that there would be no payment or allocation of patronage income for the fiscal year ending June 30, 2007. As a result, the Cooperative recorded a tax provision of $1.1 million for the nine months ended March 24, 2007.
CRITICAL ACCOUNTING POLICIES
“NOTE 1. Description of Business and Summary of Accounting Policies” under “Notes to Condensed Financial Statements” included in Part I, Item 1 of this Report discusses the significant accounting policies of Pro-Fac. Pro-Fac’s discussion and analysis of its financial condition and results of operations are based upon its condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Pro-Fac’s management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis, Pro-Fac evaluates its estimates.
Pro-Fac’s estimates affecting the financial statements relate primarily to contingencies. Certain accounting policies deemed critical to Pro-Fac’s results of operations or financial position are discussed below.
Until June 24, 2006, Pro-Fac accounted for its investment in Holdings LLC under the equity method of accounting. The Cooperative included its share, based on ownership, of the change in Holdings LLC’s minimum pension liabilities and unrealized holding gains and losses on hedging transactions in the Cooperative’s other comprehensive loss.
In the first quarter of fiscal 2007, the Cooperative concluded that it could no longer exert significant influence over the operating and financial policies of Holdings LLC and its indirect, wholly-owned subsidiary, Birds Eye Foods. Therefore, the Cooperative began accounting for this investment using the cost method effective June 25, 2006. This conclusion was reached based on a number of factors, including Birds Eye Foods decision, announced in the first quarter of fiscal 2007, to sell or close production facilities to which Pro-Fac supplied 34 percent of the total CMV of raw product sold to all Pro-Fac customers and 44 percent of the total CMV supplied to Birds Eye Foods. Further, in conjunction with Birds Eye Foods announcement in October 2006 of its intent to repurchase its outstanding $50.0 million 11 7/8 percent senior subordinated notes, Holdings LLC’s management notified Pro-Fac that Birds Eye Foods had made a decision to no longer file periodic reports with the Securities and Exchange Commission and that, effective June 25, 2006, it will no longer provide Pro-Fac with financial information about Holdings LLC or Birds Eye Foods beyond that required under the Limited Liability Company Agreement of Holdings LLC. That agreement requires that Holdings LLC provide Pro-Fac with annual financial statements of Holdings LLC within 120 days after the close of a fiscal year and, to the extent received, financial statements of Birds Eye Foods. Any financial information received pursuant to the Limited Liability Company Agreement is subject to confidentiality provisions that preclude public disclosure.
As a result of beginning to use the cost method during the first quarter of fiscal 2007, the Cooperative’s proportionate share of the other comprehensive income and loss items of Holdings LLC previously recorded (net loss of approximately $5.6 million at June 24, 2006) was removed with a corresponding increase in the investment of approximately $5.6 million in accordance with Financial Accounting Standards Board Staff Position APB18-1 – “Accounting by an Investor for its Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon a Loss of Significant Influence.”
For the year ended June 24, 2006, Pro-Fac recorded equity method losses of $7.2 million. Cumulative equity method losses were $4.6 million through June 24, 2006.
Under the cost method, the Cooperative’s share of earnings or losses is not included in the Cooperative’s balance sheet or statement of operations and the Cooperative does not record its proportionate share of the other comprehensive income and loss items of Holdings LLC. Also, dividends received from Holdings LLC, if any, will be recorded as income when received. Impairment charges, if any, will be recognized in the statement of operations.
Pro-Fac markets and sells its members’ crops to food processors, including Birds Eye Foods. Under the provisions of Emerging Issues Task Force Issue No. 99-19, “Reporting Revenue Gross Versus Net as an Agent”, subsequent to the Transaction, the Cooperative records most crop delivery activity among Birds Eye Foods and other customers, itself and its members on a net basis. For transactions in which Pro-Fac acts as a principal rather than an agent, sales and cost of sales are reported.
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LIQUIDITY AND CAPITAL RESOURCES
At March 24, 2007, Pro-Fac had $4.4 million in cash and cash equivalents. Net cash available to Pro-Fac, after payment of CMV to Pro-Fac’s member-growers, has been used to pay Pro-Fac’s operating expenses as well as its quarterly dividends on its preferred stock and to fund repurchases of its common stock. Dividends on Pro-Fac’s preferred stock were $8.4 million and $8.3 million in fiscal 2006 and 2005, respectively.
Pro-Fac has four sources or potential sources of available cash to fund its operating expenses and the payment of its quarterly dividends: (i) cash from its sale of raw products to its customers, (ii) payments received under the Termination Agreement with Birds Eye Foods, (iii) potential cash distributions related to its investment in Birds Eye Holdings LLC, and (iv) borrowings.
Pro-Fac’s primary source of cash has been and currently is the installment payments from Birds Eye Foods under the Termination Agreement. Another potential source of cash is the CMV payments made to it by Birds Eye Foods and other customers for crops sold pursuant to the Amended and Restated Marketing and Facilitation Agreement and other supply agreements. Although CMV payments are considered a potential source of cash to Pro-Fac, Pro-Fac has typically paid 100 percent of CMV to its member-growers for crops delivered and did so in fiscal 2005 and fiscal 2006 and expects to do so in fiscal 2007. Since such CMV payments are approximately equal to the cash Pro-Fac receives from its customers for its raw products, CMV payments are not considered a significant source of available cash from which Pro-Fac can pay operating expenses and quarterly dividends.
As stated above, Pro-Fac’s current primary source of cash is its receipts under the Termination Agreement. In January 2007, the Cooperative received a $2.0 million installment. There is one scheduled quarterly installment payment of $2.0 million remaining, which is expected to be received in July 2007.
Subsequent to August 19, 2007 and prior to any sale (or dissolution) of Holdings LLC, the Limited Liability Company Agreement of Holdings LLC provides that, subject to the restrictions contained in any financing arrangements of Holdings LLC or its subsidiaries (including Birds Eye Foods), Holdings LLC will use commercially reasonable efforts to cause Birds Eye Foods to distribute annually to Holdings LLC up to $24.8 million of cash flow from operations of Birds Eye Foods, which Holdings LLC will then distribute to the holders of its common units, including Pro-Fac. Many factors could affect whether such distributions are made in the future including any financing arrangements of Birds Eye Foods which may preclude or otherwise restrict such distributions.
While distributions under the Limited Liability Agreement are a potential source of cash, Holdings LLC has advised Pro-Fac that it will not speculate as to whether distributions will be made under the Limited Liability Company Agreement. Because Pro-Fac has no control over the determination of whether such distributions will be made, Pro-Fac’s Board of Directors has developed a business plan that assumes distributions will not be made under the Limited Liability Company Agreement to replace the $10.0 million annual source of cash under the Termination Agreement ending with the last $2.0 million payment expected to be received in July 2007.
On May 5, 2006, the Board determined, subject to all of the facts and circumstances at the relevant times, that it expected to declare a full quarterly dividend of $.43 per share of Class A cumulative preferred stock for payment in July 2006 and $.21 per share of Class A cumulative preferred stock for payment in October 2006 and January and April 2007. These dividends were paid in July and October 2006 and January and April 2007. Beginning with the quarter ending in June 2007, the Board expects to suspend in full the declaration and payment of dividends on its Class A cumulative preferred stock. Dividends on the Class A cumulative preferred stock cumulate whether or not declared, and are payable in preference to any dividends on Pro-Fac common stock and the special membership interests.
In June 2006, the Board declared the annual dividend of $1.50 per share on the Cooperative’s non-cumulative preferred stock (a total of approximately $40,000) which was paid in July 2006, and in accordance with the Cooperative’s certificate of incorporation has set aside the proportionate share of the annual non-cumulative preferred stock dividend (approximately $15,000) for payment in July 2007. Beginning with the quarter ending in June 2007, the Board expects to suspend in full the declaration and payment of dividends on its non-cumulative preferred stock. To the extent any dividends are declared on the Class A cumulative preferred stock, a pro rata dividend will be declared on the non-cumulative preferred stock in accordance with Pro-Fac’s certificate of incorporation.
The Board believes, taking into consideration the reduction and ultimate suspension of dividend payments on the Cooperative’s preferred stock and borrowing capacity under Pro-Fac’s Credit Agreement with Birds Eye Foods, that Pro-Fac will have sufficient sources of cash to fund its operations at least through the end of fiscal 2010, which the Board believes will provide time to review Pro-Fac’s investment in Holdings LLC and explore other methods of raising cash.
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The amount of available cash that may be generated from Pro-Fac’s operations depends upon how successful Pro-Fac is in its efforts, including controlling any associated costs. For the nine months ended March 24, 2007 and March 25, 2006, Pro-Fac generated modest margin from sales of product to customers other than Birds Eye Foods. Any available cash generated from products and/or services offerings by Pro-Fac is currently anticipated to be a secondary source of cash, and is not expected to provide a significant amount of available cash to fund Pro-Fac’s operating expenses or dividend payments.
In addition to the cash payments to Pro-Fac pursuant to the Termination Agreement, Pro-Fac has available up to $1.0 million per year, until November 20, 2007 (total potential borrowing at March 24, 2007 was $2.0 million), under the Credit Agreement with Birds Eye Foods, and up to $2.0 million under an annually renewable line of credit from M&T Bank, as discussed below. The current agreement with M&T Bank expires on September 30, 2007.
The Cooperative may borrow up to $2.0 million under the M&T Line of Credit. Principal amounts borrowed under the M&T Line of Credit bear interest at 75 basis points above the prime rate in effect on the day proceeds are disbursed, as announced by M&T Bank as its prime rate of interest. Interest is payable monthly. Amounts extended under the M&T Line of Credit are required to be repaid in full during each year by July 15, with further borrowings prohibited for a minimum of 60 consecutive days after such repayment. Pro-Fac’s obligations under the M&T Line of Credit are secured by a security interest granted to M&T in substantially all of Pro-Fac’s assets, excluding Pro-Fac’s Class B common units owned in Holdings LLC. The collateral does include any distributions made to Pro-Fac by Holdings LLC in respect of Pro-Fac’s Class B common units and cash payments made by Birds Eye Foods to the Cooperative. At March 24, 2007 and June 24, 2006, there was no balance outstanding under the M&T Line of Credit.
A discussion of "Consolidated Statement of Cash Flows" for the nine months ended March 24, 2007, follows:
Net cash used in operating activities of $2.7 million for the first nine months of fiscal 2007 primarily represents the timing of cash receipts from customers other than Birds Eye Foods and related cash payments to member-growers.
Cash provided by investing activities for the first nine months of fiscal 2007 was $8.0 million related to the receipt by the Cooperative of $8.0 million from Birds Eye Foods under the Termination Agreement, net of $50 thousand investment in Farm Fresh.
Net cash used in financing activities includes dividends paid ($4.2 million), net of amounts borrowed ($1.0 million) by the Cooperative during the nine months ended March 24, 2007.
Pursuant to a directive of the Cooperative’s Board of Directors in 2003, dividends will not be paid on the Cooperative’s common stock for an indefinite period of time. Further, since the Board of Directors meeting in January 2006, Pro-Fac has not repurchased shares of common stock from member-growers, except on a case-by-case basis as approved by the Board of Directors.
The Board believes, taking into consideration the reduction and ultimate suspension of dividend payments on the Cooperative’s preferred stock and borrowing capacity under Pro-Fac’s Credit Agreement with Birds Eye Foods, that Pro-Fac will have sufficient sources of cash to fund its operations at least through the end of fiscal 2010. Pro-Fac’s ability to fund its cash requirements will depend on Pro-Fac’s future operations, performance and cash flow, and is subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond Pro-Fac’s control. For a discussion of factors that could impact Pro-Fac’s future operations, performance and cash flow, including its decision to reduce and ultimately suspend the payment of dividends, see “Cautionary Statement on Forward-Looking Statements and Risk Factors” in Part 1, Item 1 of this Report.
Contractual Obligations: On November 20, 2006, Birds Eye Foods redeemed the remaining $50.0 million of outstanding Senior Subordinated Notes. Pro-Fac had previously guaranteed this obligation.
OTHER MATTERS
The vegetable and fruit portions 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. Excessive rain or drought conditions can produce low crop yields and a shortage situation. This typically results in higher selling prices. While the national supply situation controls the pricing, the supply can differ regionally because of variations in weather.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Transaction, Pro-Fac is subject to interest rate fluctuations related to borrowings under the M&T Line of Credit. Amounts borrowed bear interest at the prime rate plus 75 basis points. The M&T prime rate and, therefore, the interest payable by Pro-Fac on principal borrowed under the M&T Line of Credit, is subject to change by M&T. At March 24, 2007, no amount was outstanding under the M&T Line of Credit. See “NOTE 3. Debt” in the “Notes to Condensed Financial Statements” included in Part I. Item 1 and Item 2 under the heading “Liquidity and Capital Resources” for a description of the terms of the M&T Line of Credit.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: Pro-Fac’s Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the design and operation of Pro-Fac’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, Pro-Fac’s Principal Executive and Principal Financial Officer concluded that Pro-Fac’s disclosure controls and procedures as of March 24, 2007 (the end of the period covered by this Report), have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by Pro-Fac in reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There were no changes in Pro-Fac’s internal control over financial reporting identified during the quarter ended March 24, 2007, that materially affected, or are reasonably likely to materially affect, Pro-Fac’s internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
The information called for by this Item is disclosed in NOTE 5. "Other Matters – Legal Matters" under "Notes to Condensed Financial Statements" in Part I, Item 1 of this Form 10-Q, and is incorporated herein by reference in answer to this Item.
ITEM 1A. RISK FACTORS
The risks associated with the Cooperative’s business are outlined above under “Cautionary Statement on Forward-Looking Statements and Risk Factors” in Part I, Item 1. That description includes any material changes to and supersedes the description of the risk factors associated with the Cooperative’s business previously disclosed in Part I, Item 1A of its Annual Report on Form 10-K for the fiscal year ended June 24, 2006; and such disclosure is incorporated by reference into and in response to this Item 1A.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The regional annual membership meetings for the members of Pro-Fac were held as follows:
| | Date | | Region/District | | City/State |
| | | | | |
| February 7, 2007 | | I/1 and I/2 | | Pittsford, New York |
| February 14, 2007 | | III | | Columbus, Nebraska |
| February 15, 2007 | | IV | | Mt. Vernon, Washington |
| February 26, 2007 | | I/3 | | Johnstown, Pennsylvania |
| February 27, 2007 | | II/1 | | Holland, Michigan |
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - CONTINUED
| | (b) | Joseph Herman was elected to a three-year term on the Pro-Fac Board of Directors, succeeding Dale Burmeister, and Charles Altemus, Kenneth Dahlstedt and James Vincent were re-elected directors for a three-year term as a result of the elections at the regional meetings held in February 2007. The following is a list of the remaining directors whose terms of office continued after the regional annual meetings. |
| |
| | Name | | Term Expires |
| | | |
| Peter Call | | 2009 |
| Robert DeBadts | | 2009 |
| Steven Koinzan | | 2009 |
| Allan Overhiser | | 2009 |
| Darell Sarff | | 2009 |
| Bruce Fox | | 2008 |
| Kenneth Mattingly | | 2008 |
| Paul Roe | | 2008 |
| | (c) | The only matter submitted to the Cooperative’s members for action at the regional annual meetings was the election of directors. Following are the voting results from the regional meetings: |
| |
| | Name | | Votes Cast For | | Votes Cast Against |
| | | | | |
| Charles Altemus | | 10 | | 0 |
| Kenneth Dahlstedt | | 15 | | 0 |
| Joseph Herman | | 53 | | 37 |
| James Vincent | | 61 | | 0 |
Consistent with the Cooperative’s Bylaws, the Pro-Fac Board of Directors re-appointed directors Cornelius D. Harrington, Frank M. Stotz and William J. Lipinski to continue to serve as directors of the Cooperative for a one year term and until their successors are duly elected and qualified. Messrs. Harrington, Stotz and Lipinski will continue to serve as members of the Cooperative’s Audit Committee and Executive and Compensation Committee.
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ITEM 6. EXHIBITS
Exhibits
Exhibit Number | | Description |
| |
| 10.1 | | | Amendment to Agreements - Credit Agreement dated August 19, 2002 and Termination Agreement |
| | | | dated August 19, 2002 - between Pro-Fac Cooperative, Inc. and Birds Eye Foods, Inc., dated |
| | | | March 28, 2007 (incorporated by reference to Exhibit 10.1 to Pro-Fac Cooperative, Inc.’s Current |
| | | | Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2007). |
| |
| 10.2 | | | Services Agreement dated April 13, 2007 between Pro-Fac Cooperative, Inc. and Farm Fresh First, |
| | | | LLC (incorporated by reference to Exhibit 10.1 to Pro-Fac Cooperative’s Current Report on Form 8- |
| | | | K filed with the Securities and Exchange Commission on April 17, 2007). |
| |
| 10.3 | | | Raw Product Supply Agreement dated April 17, 2007 between Pro-Fac Cooperative, Inc. and Allens |
| | | | Inc (incorporated by reference to Exhibit 10.1 to Pro-Fac cooperative’s Current Report on Form 8-K |
| | | | filed with the Securities and Exchange Commission on April 20, 2007). |
| |
| 31 | . | | Certification required by Rule 13a-14 (a) of the Securities Exchange Act of 1934 of the Principal |
| | | | Executive Officer and the Principal Financial Officer (filed herewith). |
| |
| 32 | . | | Certification required by Rule 13a-14 (b) of the Securities Exchange Act of 1934 and pursuant to 18 |
| | | | U.S.C., Section 1350. as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, of the |
| | | | Principal Executive Officer and the Principal Financial Officer (filed herewith). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | |
| | | | | | PRO-FAC COOPERATIVE, INC. |
| |
| |
| |
| Date: | May 4, 2007 | | BY: | /s/ | Stephen R. Wright |
| | | | | | General Manager, Chief Executive |
| | | | | | Officer, Chief Financial Officer |
| | | | | | and Secretary |
| | | | | | (On Behalf of the Registrant and as |
| | | | | | Principal Executive Officer |
| | | | | | Principal Financial Officer, and |
| | | | | | Principal Accounting Officer) |
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