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1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(MarkOne)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended June 28, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
Registration Statement (Form S-1) No. 33-60273
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 16-6036816
(State 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
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Cumulative Preferred Stock
Liquidation Preference $25.00/Share
Par Value $1.00/Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to ITEM 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of August 8, 1997 Common Stock: $8,593,000 (based upon par value of shares
since there is no market for the Registrant's common stock)
Number of common shares outstanding at August 8, 1997:
Common stock: 1,739,831
FORM 10-K ANNUAL REPORT - 1997
PRO-FAC COOPERATIVE, INC.
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. Description of Business
General Development of Business................................................................. 3
Relationship with Curtice Burns................................................................. 3
Narrative Description of Business............................................................... 4
Financial Information About Industry Segments................................................... 6
Packaging and Distribution...................................................................... 6
Trademarks...................................................................................... 6
Raw Material Sources............................................................................ 7
Environmental Matters........................................................................... 7
Seasonality of Business......................................................................... 8
Practices Concerning Working Capital............................................................ 8
Significant Customers........................................................................... 8
Backlog of Orders............................................................................... 8
Business Subject to Government Contracts........................................................ 8
Competitive Conditions.......................................................................... 8
New Products and Research and Development....................................................... 9
Employees....................................................................................... 9
Cautionary Statement on Forward-Looking Statements.............................................. 9
ITEM 2. Description of Properties....................................................................... 10
ITEM 3. Legal Proceedings............................................................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders............................................. 11
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters........................ 11.
ITEM 6. Selected Financial Data......................................................................... 12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 13
ITEM 8. Financial Statements and Supplementary Data..................................................... 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 41
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............................................. 42
ITEM 11. Executive Compensation.......................................................................... 47
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................. 49
ITEM 13. Certain Relationships and Related Transactions.................................................. 51
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 53
Signatures...................................................................................... 56
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Pro-Fac Cooperative, Inc. ("Pro-Fac" or "the Cooperative") is an agricultural
cooperative corporation formed in 1960 under New York law to process and market
crops grown by its members. Pro-Fac crops include fruits (cherries, apples,
blueberries, peaches, and plums), vegetables (snap beans, beets, cucumbers,
peas, sweet corn, carrots, cabbage, squash, asparagus, potatoes, turnip roots,
and leafy greens), and popcorn. Only growers of crops marketed through Pro-Fac
(or associations of such growers) can become members of Pro-Fac; a grower
becomes a member of Pro-Fac through the purchase of common stock. Its
approximately 600 members are growers (or associations of growers) located
principally in New York, Pennsylvania, Illinois, Michigan, Washington, Oregon,
Iowa, Nebraska, Florida, and Georgia.
Curtice-Burns Foods, Inc. ("Curtice Burns" or the "Company") is a producer and
marketer of processed food products, including canned and frozen fruits and
vegetables, canned desserts and condiments, fruit fillings and toppings, canned
chilies and stews, salad dressings, pickles, peanut butter and snack foods.
Pro-Fac and Curtice Burns were established together in the early 1960s and have
had a long-standing contractual relationship under an Integrated Agreement
pursuant to which Pro-Fac provided crops and financing to Curtice Burns, Curtice
Burns provided a market and management to Pro-Fac, and Pro-Fac shared in the
profits of Curtice Burns (the "Integrated Agreement").
On November 3, 1994, Pro-Fac acquired Curtice Burns (the "Acquisition"), and
Curtice Burns became a wholly-owned subsidiary of Pro-Fac. The purchase price
and fees and expenses related to the Acquisition were financed with borrowings
under a new credit agreement (the "New Credit Agreement") with CoBank, ACB (the
"Bank"), and the proceeds of the Company's 12.25 percent Senior Subordinated
Notes due 2005 (the "Notes"). Pro-Fac has guaranteed the obligations of the
Company under the New Credit Agreement and the Notes. As a result of the
indebtedness incurred in connection with the Acquisition, Curtice Burns has
higher interest expenses than prior to the Acquisition.
RELATIONSHIP WITH CURTICE BURNS
Upon consummation of the Acquisition, the Integrated Agreement was terminated,
and Pro-Fac and Curtice Burns entered into the Pro-Fac Marketing and
Facilitation Agreement (the "Pro-Fac Marketing Agreement"). The Pro-Fac
Marketing Agreement resembles the Integrated Agreement in that it continues to
provide for Pro-Fac to supply crops and additional financing to Curtice Burns,
for Curtice Burns to provide a market and management services to Pro-Fac, and
for Pro-Fac to share in the profits of Curtice Burns. To preserve the
independence of Curtice Burns, the Pro-Fac Marketing Agreement also requires
that certain of the directors of Curtice Burns be individuals who are not
employees or shareholders of, or otherwise affiliated with, Pro-Fac or the
Company ("Disinterested Directors") and requires that certain decisions be
approved by the Disinterested Directors.
The New Credit Agreement and the Notes restrict the ability of Pro-Fac to amend
the Pro-Fac Marketing and Facilitation Agreement. The New Credit Agreement and
the Notes also restrict the amount of dividends and other payments that may be
made by the Company to Pro-Fac.
Purchase of Crops From Pro-Fac: Under the Pro-Fac Marketing Agreement, Curtice
Burns purchases crops from Pro-Fac at the commercial market value ("CMV") of
those crops. CMV is defined as the weighted average price paid by other
commercial processors for similar crops sold under preseason contracts and in
the open market in the same or competing market area. Under both the Pro-Fac
Marketing Agreement and the predecessor agreement to the Pro-Fac Marketing
Agreement, Curtice Burns paid Pro-Fac $51.4 million, $44.7 million, and $55.9
million as CMV for crops purchased from Pro-Fac in fiscal years 1997, 1996, and
1995, respectively. The crops purchased by Curtice Burns from Pro-Fac
represented approximately 71 percent, 72 percent, and 73 percent of all raw
agricultural crops purchased by Curtice Burns in fiscal 1997, 1996, and 1995,
respectively.
CMV is determined by a joint committee of the Boards of Directors of Pro-Fac and
Curtice Burns, which is currently comprised of the Chief Executive Officer of
Curtice Burns and an equal number of Pro-Fac directors and Disinterested
Directors. The Pro-Fac Marketing Agreement requires a majority of the
Disinterested Directors approve the recommendation of the joint committee.
Although CMV is intended to be no more than the fair market value of the crops
purchased by Curtice Burns, it may be more or less than the price Curtice Burns
would pay in the open market in the absence of the Pro-Fac Marketing Agreement.
The volume and type of crops to be purchased by Curtice Burns under the Pro-Fac
Marketing Agreement are determined pursuant to its annual profit plan, which
requires the approval of a majority of the Disinterested Directors.
Patronage Income of Pro-Fac: In addition to CMV, under the Pro-Fac Marketing
Agreement, Curtice Burns will pay to Pro-Fac as additional patronage income in
any year in which the Company has earnings on products which were processed from
crops supplied by Pro-Fac ("Pro-Fac Products") 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. This 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 the sharing of risks in 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.
Curtice Burns paid additional patronage income to Pro-Fac of $10.3 million
(including Pro-Fac's share of an accounting change) and $9.6 million in fiscal
1997 and 1995, respectively, for those years. In fiscal 1996, Curtice Burns
reduced the amount of CMV due to Pro-Fac by $9.0 million based on an allocation
of a loss at Curtice Burns on Pro-Fac products.
Additional patronage income received by Pro-Fac is deductible to Pro-Fac for
federal tax purposes only to the extent distributed to its members. Pro-Fac may
make this distribution to its members through a combination of cash and retains
as long as a minimum of 20 percent of the amount is paid in cash as required by
federal tax law. Pro-Fac has historically paid its members between 20 percent
and 30 percent of additional patronage income in cash and the remaining portion
in retains. Funds made available by the distribution of retains to members in
lieu of cash have historically been reinvested by Pro-Fac in Curtice Burns.
Since the Acquisition, Pro-Fac is required to reinvest at least 70 percent of
the additional patronage income in Curtice Burns.
NARRATIVE DESCRIPTION OF BUSINESS OF CURTICE BURNS
The Company sells products in three principal categories: (i) "branded"
products, which are sold under various Company trademarks, (ii) "private label"
products, which are sold to grocers who in turn use their own brand names on the
products and (iii) "foodservice" products, which are sold to foodservice
institutions such as restaurants, caterers, bakeries, and schools. In fiscal
1997, approximately 52 percent of the Company's net sales were branded and the
remainder divided between private label and foodservice. The Company's branded
products are listed under the "Trademarks" section of this report. The Company's
private label products include salad dressings, salsa, fruit fillings and
toppings, canned puddings, canned and frozen vegetables, Southern frozen
vegetable specialty products, and frozen and breaded products which are sold to
customers such as A&P, Brunos, Kroger, Piggly Wiggly, Safeway, SuperValu, Topco,
Wegmans and Winn-Dixie. The Company's foodservice products include salad
dressings, pickles, fruit fillings and toppings, canned and frozen vegetables,
frozen Southern specialties, frozen breaded and battered products, canned
puddings, cheese sauces and canned and frozen fruit, which are sold to customers
such as Carvel, Church's, Disney, Foodservice of America, KFC, MBM, McDonald's,
PYA, and Sysco.
Comstock Michigan Fruit ("CMF"), Southern Frozen Foods and Brooks Foods: During
fiscal 1997, these three separate divisions were consolidated and are now
headquartered in Rochester, New York. The consolidated entity represents Curtice
Burns largest business unit. This business unit produces products in several
food categories, including fruit fillings and toppings; aseptically-produced
products; canned and frozen fruits and vegetables and popcorn. Well-known brand
names include "Chill Ripe," "Comstock," "Greenwood," "Just for Chili,"
"McKenzie's," "McKenzie's Gold King," "Pops-Rite," "Rich and Tangy," "Silver
Floss," "Super Pop," "Southern Farms," "Thank You," "Tropic Isle," and
"Wilderness." In fiscal 1997, approximately 36 percent of net sales for these
businesses represented branded products, approximately 25 percent represented
private label products and approximately 39 percent represented
foodservice/industrial products.
This business unit is a major supplier of branded and private label fruit
fillings to retailers and to foodservice institutions such as restaurants,
caterers, bakeries and schools. On July 21, 1995, the Company acquired Packer
Foods, Inc., and merged this pie filling operation into its existing business.
(See further discussion in NOTE 3 of "Notes to Consolidated Financial
Statements.")
Aseptic operations produce puddings and cheese sauces for sale. The aseptic
production process involves preparation of the product in a sterile environment
beginning with batch formulation and continuing through packaging. As a result,
once packaged, the product requires no further cooking. The Company believes its
aseptic production is a state-of-the-art facility. In 1997, the Company's
aseptically processed puddings and aseptically processed cheese sauces held a
significant portion of the national foodservice market.
This business unit processes fruits and vegetables under Company brands and
private labels. Additional products include value-added items such as canned
specialty fruits and frozen vegetable blends. Success in the fruit and vegetable
processing business is driven, among other things, by an ability to control
costs. This objective is managed through capital investments and the
modernization of processing equipment, modifications to product mix, and
refinement to advertising strategies. In fiscal 1997, $9.6 million was invested
in capital improvements.
This Curtice Burns' business unit is also one of the nation's leading suppliers
in the production and sale of frozen, Southern-specialty products such as
black-eyed peas, okra, Southern squash, and Southern specialty side dishes that
include summer squash casserole, Southern-style creamed corn, and Southern-style
black-eyed peas in a savory sauce.
Canned beans and tomato products are sold in several Midwestern states under the
Brooks label. The category includes value-added items such as Chili Hot Beans
and stewed tomatoes.
Subsequent to fiscal 1997, the Company and Flanagan Brothers, Inc. of Bear
Creek, Wisconsin, contributed all of their assets involved in sauerkraut
production into one new entity. This new entity, Great Lakes Kraut Company, will
operate as a New York limited liability company, with ownership split between
the two parties. This joint venture includes the Silver Floss brand, the No. 1
selling sauerkraut brand in the US, and Krrrrisp Kraut, the No. 1 selling
refrigerated poly-bag brand in the country.
During fiscal 1997, Curtice Burns sold its private label canned vegetable
operation to Seneca Foods, along with its Blue Boy brand. Included in this sale
were the Leicester, New York manufacturing facility and LeRoy, New York
distribution warehouse. The disposal did not include the Greenwood and Silver
Floss labels, or sauerkraut, glass beets, or frozen vegetable businesses. This
transaction also included an agreement requiring Curtice Burns to handle all
vegetable sourcing for Seneca Foods at its New York plants.
On June 27, 1997, URS Logistics, Inc. ("URS") acquired the Company's frozen
foods distribution center in Montezuma, Georgia. In addition, the two companies
entered into a long-term logistics agreement under which URS will manage this
facility and all frozen food transportation operations of Curtice Burns in
Georgia and New York.
Curtice Burns Foods is renaming this combined business and will announce the
name in the second quarter of fiscal 1998.
Nalley Fine Foods: Nalley is headquartered in Tacoma, Washington. It markets
canned meat products such as chilies and stews, pickles, salad dressings, peanut
butter and syrup, which are sold throughout the Northwest and Western United
States and Western Canada. Approximately three-quarters of Nalley products are
branded; however, private label accounts for a growing percentage of Nalley
business.
The Nalley products have been a vehicle for both geographic expansion and line
extension. Several of Nalley's products have leading market shares in the
Pacific Northwest, such as chili and "Nalley" and "Farman's" pickles. In the
Pacific Northwest, the Company's "Nalley" and "Bernstein's" brands of salad
dressings have a combined market share of approximately 20 percent.
In line with the growing trend toward private label, Nalley has been
aggressively pursuing this growing business segment. Specifically, Nalley is
executing its store label strategy on specialty products, such as chili and
salsa, salad dressings and canned soups. The private label customer base
continues to expand on a national basis and includes Winn-Dixie in the
Southeast, Wegmans in Upstate New York, Topco in the Midwest, and Ralph's,
Safeway, QFC, Albertsons and Western Family on the West Coast. Specialty
businesses, such as International, continue to grow in both branded and private
label products.
In April 1997, the Company acquired certain businesses from Nalley Canada Ltd.,
a privately held, independent snack food company and former subsidiary of
Curtice Burns. The acquired Canadian operations include 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.
Snack Foods Group: During fiscal 1997, two of the Curtice Burns' snack
businesses, Snyder of Berlin and Husman Snack Foods, were united under one
management group. The two entities combined resources to obtain the most cost
efficient operations. Tim's Cascade Potato Chips represents the Company's other
snack food operation. A brief description of each follows:
Snyder of Berlin: Snyder of Berlin, located in Berlin, Pennsylvania,
produces and markets several varieties of potato chips in distinctive
silver-colored bags, as well as several varieties of corn-based snack
products in conventional packaging, primarily under the "Snyder of
Berlin" brand. Snyder products are recognized for their unique taste
and freshness among users in Mid-Atlantic states, which are some of the
country's highest per capita snack consumption markets.
Husman Snack Foods: Husman Snack Foods, located in Cincinnati, Ohio,
manufactures and markets potato chips, popcorn, and cheese curls and
distributes other snack items in Cincinnati and Dayton, Ohio and areas
of Northern Kentucky. Husman creates a unique product niche by
customizing its product development and promotions to local tastes.
Multi-packs and licensing agreements with local restaurants are two
ways Husman creates its value-added proposition.
Tim's Cascade Potato Chips: Tim's Cascade Potato Chips, located in
Auburn, Washington, produces kettle-fried potato chips, popcorn, cheese
curls, and snack mix in the Washington, Northern Idaho, Oregon, and
Montana area. Kettle frying produces a potato chip that is thicker and
crisper than other potato chips.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of the Company is principally conducted in one industry segment,
the processing and sale of various food products. The financial statements for
the fiscal years ended June 28, 1997 and June 29, 1996, which are included in
this report, reflect the information relating to that segment for each of the
Company's last three fiscal years.
PACKAGING AND DISTRIBUTION
The food products produced by the Company are distributed to various consumer
markets in all 50 states as well as in Canada. Branded lines of the
CMF/Southern/Brooks business unit are sold through food brokers which sell
primarily to supermarket chains and various institutional feeders. Nalley has
its own sales personnel responsible for sales within the Pacific Northwest and
uses food brokers for sales in other marketing areas. Snyder's, Tim's and Husman
products are marketed through distributors (some of which are owned and operated
by the Company) who sell directly to retail outlets in the Midwest, Mid-Atlantic
and Pacific Northwest.
Customer brand operations encompass the sale of products under private labels to
chain stores and under the controlled labels of buying groups. The Company has
developed central storage and distribution facilities that permit multi-item
single shipment to customers in key marketing areas.
Curtice Burns Express ("CBX"), a subsidiary of the Company, is a licensed common
carrier with authority in 48 states. It is used by the Company to obtain
backhaul volume on shipments via the Company's trucks or contract haulers. The
other divisions of the Company lease their equipment to CBX for these backhauls.
TRADEMARKS
The major brand names under which the Company markets its products are
trademarks of the Company. Such brand names are considered to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. All of the
Company's trademarks are of perpetual duration so long as periodically renewed,
and it is currently intended that the Company will maintain them in force. The
major brand names utilized by the Company are:
Product Brand Name
Chilies, stews and soups Brooks, Mariners Cove, Nalley, Riviera
Fruits and vegetables Brooks, Chill-Ripe, Gold King, Gracias, Greenwood, Hoosier Sweets, Just for Chili, McKenzie's,
McKenzie's Gold King, Naturally Good, Ritter, Southern Farms, Southland, Thank You, Tropic Isle
Fruit fillings and toppings Comstock, Globe, Gracias, Thank You, Wilderness
Peanut butter Adams
Pickles Farman's, Nalley
Popcorn Pops-Rite, Super Pop
Puddings Gracias, Thank You
Salad dressings Bernstein's, Bernstein's Light Fantastic, Nalley
Sauerkraut Silver Floss, Farman's
Snack food Cheese Pleezers, Husman, La Restaurante, Snyder of Berlin, Thunder Crunch, Tim's Cascade Chips,
Naturally Good, Matthews
Syrup Lumberjack
RAW MATERIAL SOURCES
In fiscal 1997, the Company acquired approximately 71 percent of its raw
agricultural products from Pro-Fac. The Company also purchased on the open
market some crops of the same type and quality as those purchased from Pro-Fac.
Such open market purchases may occur at prices higher or lower than those paid
to Pro-Fac for similar products. See further discussion of the relationship with
Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial Statements."
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 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 Company purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Company has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur.
ENVIRONMENTAL MATTERS
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods and the emission of wastes and odors inherent in the
heating of foods during preparation are subject to various federal, state, and
local environmental laws and regulations. Such laws and regulations have had an
important effect on the food processing industry as a whole, requiring
substantially all firms in the industry to incur material expenditures for
modification of existing processing facilities and for construction of new waste
treatment facilities. The Company is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position.
Among the various programs for the protection of the environment which have been
adopted to date, the most important for the operations of the Company are the
waste water discharge permit programs administered by the environmental
protection agencies in those states in which the Company does business and by
the federal Environmental Protection Agency. Under these programs, permits are
required for processing facilities which discharge certain wastes into streams
and other bodies of water, and the Company is required to meet certain discharge
standards in accordance with compliance schedules established by such agencies.
The Company has to date received permits for all facilities for which permits
are required, and each year submits applications for renewal permits for some of
the facilities.
While the Company cannot predict with certainty the effect of any proposed or
future environmental legislation or regulations on its processing operations,
management of the Company believes that the waste disposal systems which are now
in operation or which are being constructed or designed are sufficient to comply
with all currently applicable laws and regulations.
The Company is cooperating with environmental authorities in remedying various
leaks and spills at several of its plants. Such actions are being conducted
pursuant to procedures approved by the appropriate environmental authorities at
a cost that is not material.
Expenditures related to environmental programs and facilities have not had, and
are not expected to have, a material effect on the earnings of the Company. In
fiscal 1997, total capital expenditures of Pro-Fac and the Company were $13.7
million of which approximately $2.0 million was devoted to the construction of
environmental facilities. The Company estimates that the capital expenditures
for environmental control facilities, principally waste water treatment
facilities, will be approximately $0.8 million for the 1998 fiscal year.
However, there can be no assurance that expenditures will not be higher.
SEASONALITY OF BUSINESS
From the point of view of sales, the business of the Company is not highly
seasonal, since the demand for its products is fairly constant throughout the
year. Exceptions to this general rule include some products that have higher
sales volume in the cool weather months (such as canned fruits and vegetables,
chili, and fruit fillings and toppings), and others that have higher sales
volume in the warm weather months (such as potato chips and condiments). Since
many of the raw materials processed by the Company are agricultural crops,
production of these products is predominantly seasonal, occurring during and
immediately following the harvest seasons of such crops.
PRACTICES CONCERNING WORKING CAPITAL
The Company must maintain substantial inventories throughout the year of those
finished products produced from seasonal raw materials. These inventories are
generally financed through seasonal borrowings.
A short-term line of credit is extended to the Company under agreements with
CoBank, ACB. This line of credit is used primarily for seasonal borrowing, the
amount of which fluctuates during the year. The line of credit is subject to
annual renewal.
Both the maintenance of substantial inventories and the practice of seasonal
borrowing are common to the food processing industry.
SIGNIFICANT CUSTOMERS
The Company's one principal industry segment is not dependent upon the business
of a single customer or a few customers. The Company does not have any customers
to which sales are made in an amount which equals 10 percent or more of the
Company's net sales. The loss of even its biggest customer would not have a
materially adverse effect on the Company.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Company. Orders are filled shortly after receipt from inventories of packaged
and processed foods.
BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of the Company is subject to renegotiation
of contracts with, or termination by, any governmental agency.
COMPETITIVE CONDITIONS
All products of the Company, particularly branded products, compete with those
of national and major regional food processors under highly competitive
conditions. Many of the national manufacturers have substantially greater
resources than the Company. The principal methods of competition in the food
industry are ready availability of a broad line of products, product quality,
price, and advertising and sales promotion.
In recent years, and particularly when various food items are in short supply,
the constant availability of a full line of food items and the ability to
deliver the required items rapidly and economically have been among the most
important competitive factors in the markets in which the Company operates. The
Company believes that it is competitive with national brands in this area since
distribution of many of its regional brands and custom-pack food items are
limited to areas which can easily be served from its production and distribution
facilities. In this way, the problems inherent in attempting to supply markets
remote from its principal areas of operation are minimized, and the marketing
area is commensurate with the production and storage facilities.
Quality of product and uniformity of quality are also important methods of
competition. The Company's relationship with Pro-Fac gives the Company local
sources of supply, thus allowing the Company to exercise control over the
quality and uniformity of much of the raw product which it purchases. The
members of Pro-Fac generally operate relatively large production units with
emphasis on mechanized growing and harvesting techniques. This factor is also an
advantage in producing uniform, high-quality food products.
The Company's pricing is generally competitive with that of other food
processors for products of comparable quality. The branded products of the
Company are marketed under regional brands and its marketing programs are
focused on local tastes and preferences as a means of developing consumer brand
loyalty. The Company's advertising program utilizes local media, national
magazines, and in-store promotions.
Although the relative importance of the above factors may vary between
particular products or customers, the above description is generally applicable
to all of the products of the Company in the various markets in which they are
distributed.
Profit margins for canned and frozen fruits and vegetables are subject to
industry supply and demand fluctuations, attributable to changes in growing
conditions, acreage planted, inventory carryover, and other factors. The Company
has endeavored to protect against changing growing conditions through
geographical expansion of its sources of supply. The Company has emphasized the
merchandising of its own brands and expanded service and product development for
its high volume private label and foodservice customers. The percentage of sales
under brand names owned and promoted by the Company (including franchise brands)
amount to approximately 52 percent; sales to the foodservice industry
(restaurants and institutional customers) represent approximately 24 percent;
private label sales currently represent approximately 20 percent; and sales to
other manufacturers are approximately 4 percent of total sales.
An estimate of the number of competitors in the markets served by the Company is
very difficult. Nearly all products sold by the Company compete with the
nationally advertised brands of the leading food processors, including Borden,
DelMonte, Green Giant, Heinz, Frito-Lay, Kraft, Vlasic, Birdseye, and similar
major brands, as well as with the branded and private label products of a number
of regional processors, many of which operate only in portions of the marketing
area served by the Company. While the major brands are dominant in branded
products on a national level, the Company believes that it is a significant
factor in many of the marketing areas served by one or more of its regional
brands.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
The amount expensed during the last three fiscal years on Company-sponsored and
customer-sponsored research activities relating to the development of new
products or the improvement of existing products was not material, and the
number of employees engaged full-time in such research activities is also not
material. While the Company operates test kitchens and pilot plants for the
development of new products, the emphasis generally has been on the development
of related products or modifications of existing products for the Company's
brands and customized products for the Company's private label and foodservice
businesses. No new products which require the investment of a material amount of
assets have been publicly announced.
EMPLOYEES
As of June 28, 1997, the Company had 3,363 full-time employees, of whom 2,599
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 321
seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions.
The Company believes its relationship with its employees is good.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the SEC in its rules,
regulations, and releases. The Company desires to take advantage of the "safe
harbor" provisions in the Act for forward-looking statements made from time to
time, including, but not limited to, the forward-looking information contained
in the Management's Discussion and Analysis (pages 12 to 18 and other statements
made in this Form 10-K and in other filings with the SEC.
The Company cautions readers that any such forward-looking statements made by or
on behalf of the Company are based on management's current expectations and
beliefs but are not guarantees of future performance. Actual results could
differ materially from those expressed or implied in the forward-looking
statements. Among the factors that could impact the Company's ability to achieve
its goals are:
the impact of strong competition in the food industry;
the impact of weather on the volume and quality of raw product;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
the continuation of the Company's success in integrating operations and the
availability of acquisition and alliance opportunities; and
the Company's ability to achieve the gains in productivity and improvements
in capacity utilization.
ITEM 2. DESCRIPTION OF PROPERTIES
All plants, warehouses, office space and other facilities used by Curtice Burns
in its business are either owned by Curtice Burns or one of its subsidiaries or
leased from third parties. All of the properties owned by Curtice Burns are
subject to mortgages in favor of the Bank. In general, each business unit
occupies offices, processing plants and warehouse space. Some business units
have processing plants located in rural areas that are convenient for the
delivery of crops from Pro-Fac members and warehouse locations dispersed to
facilitate the distribution of finished products. Curtice Burns believes that
its facilities are in good condition and suitable for the operations of the
Company.
Four of the properties are held for sale. These properties are located in Alton,
New York; Rushville, New York, Mt. Summit, Indiana; and Wall Lake, Iowa.
The following table describes all facilities leased or owned by the Company
(other than the properties held for sale and certain public warehouses leased by
the Company from third parties from time to time). Except as otherwise noted,
each facility set forth below is owned by the Company.
FACILITIES UTILIZED BY THE COMPANY
Type of Property (By Business Unit) Location Square Feet
CMF/SOUTHERN FROZEN FOODS/BROOKS:
Office building, manufacturing plant and warehouse Benton Harbor, MI 239,252
Distribution center Coloma, MI 400,000
Manufacturing plant and warehouse Fennville, MI 350,000
Canning plant and warehouse Lawton, MI 142,000
Warehouse Sodus, MI 243,138
Warehouse and office; public storage facility1 Vineland, NJ 191,710
Freezing plant; warehouse; office and dry storage Barker, NY 123,600
Freezing plant Bergen, NY 138,554
Cold storage and repack facility and public storage warehouse Brockport, NY 429,052
Cutting, curing and packaging plant Gorham, NY 55,534
Canning plant and warehouse; freezing plant Oakfield, NY 263,410
Canning plant and warehouse Red Creek, NY 153,076
Cutting, curing and canning plant Shortsville, NY 111,946
Cutting and curing plant Waterport, NY 21,626
Manufacturing plant Ridgway, IL 50,000
Distribution and warehouse North Bend, NE 50,000
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 591,300
Office, freezing plant and cold storage Alamo, TX 114,446
FACILITIES UTILIZED BY THE COMPANY
Type of Property (By Business Unit) Location Square Feet
NALLEY FINE FOODS:
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 412,564
Parking lot and yards1 Tacoma, WA 305,470
Warehouses1 Tacoma, WA 568,556
Receiving and grading station1 Cornelius, OR 11,700
Receiving and grading station1 Mount Vernon, WA 110,806
Receiving and grading station1 Aurora, OR 6,800
Office building - Fuller Building1 Tacoma, WA 60,000
SNACK FOODS GROUP:
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center - Tim's1 Auburn, WA 34,000
Plant, warehouse, and distribution center - Matthews1 Auburn, WA 37,442
Office, plant and warehouse Cincinnati, OH 113,576
Distribution Center Elwood City, PA 8,000
Distribution Center Monessen, PA 10,000
CORPORATE HEADQUARTERS:
Headquarters office1 (Includes office space for CMF/Southern Frozen Foods/Brooks
as well as a Corporate Conference Center) Rochester, NY 62,500
<FN>
1Leased from third parties, although certain related equipment is owned by the
Company.
</FN>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than routine litigation
incidental to the business to which either the Company or Pro-Fac is a party or
to which any of their property is subject. Further, no such proceedings are
known to be contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The information required by this item is contained in NOTES 5, 8 and 9 to the
"Notes to Consolidated Financial Statements," at "Quarterly Financial Data," and
at "Selected Financial Data."
During fiscal 1997, the Cooperative issued 51,991 shares of its Class A
Cumulative Preferred Stock in exchange for shares for its Non-cumulative
Preferred Stock, on a share-for-share basis. Such exchanges are exempt from
registration under section 3(a)(9) of the Securities act of 1933. The dates and
amounts of the exchanges are set forth below:
Date Number of Shares Value of Shares
December 19, 1996 44,191 $1,104,775
April 11, 1997 1,118 27,950
June 27, 1997 6,682 167,050
------ ----------
Total 51,991 $1,299,775
====== ==========
ITEM 6. SELECTED FINANCIAL DATA*
Consolidated Operating Data:
(Dollars in Thousands, Except Capital Stock Data)
Five Year Summary
1997 1996 1995 1994 1993
Net sales $730,823 $739,094 $522,413 $ 58,237 $ 59,735
Cost of sales 539,081 562,926 384,838 58,237 59,735
-------- -------- -------- -------- --------
Gross profit 191,742 176,168 137,575 0 0
Income from Curtice Burns prior to Acquisition 0 0 11,239 34,229 (4,710)
Interest income 0 770 4,402 0 0
Selling, administrative, and general (expenses)/income (145,214) (151,671) (99,341) 1,056 965
Gain on sale of Finger Lakes Packaging 3,565 0 0 0 0
Restructuring charge 0 (5,871) 0 0 0
Additional costs incurred as a result of fire 0 0 (2,315) 0 0
---------- --------- -------- -------- --------
Operating income/(loss) 50,093 19,396 51,560 35,285 (3,745)
Interest expense (36,473) (41,998) (29,035) (11,587) (13,753)
-------- -------- -------- -------- --------
Pretax income/(loss) before dividends, allocation of net proceeds,
and cumulative effect of an accounting change 13,620 (22,602) 22,525 23,698 (17,498)
Tax (provision)/benefit (5,529) 13,071 7,028 844 0
-------- -------- -------- -------- --------
Income/(loss) before cumulative effect of an accounting change,
dividends and allocation of net proceeds 8,091 (9,531) 29,553 24,542 (17,498)
Cumulative effect of an accounting change 4,606 0 0 0
-------- -------- -------- --------
Net income/(loss) $ 12,697 $ (9,531) $ 29,553 $ 24,542 $(17,498)
======== ======== ======== ======== ========
Allocation of Net Proceeds:
Net income/(loss) $ 12,697 $ (9,531) $ 29,553 $ 24,542 $(17,498)
Dividends on common and preferred stock (5,503) (8,993) (4,914) (4,390) (4,548)
-------- -------- -------- -------- --------
Net proceeds/(deficit) 7,194 (18,524) 24,639 20,152 (22,046)
Allocation (to)/from earned surplus (3,661) 18,524 (16,964) (2,856) 27,917
-------- -------- -------- -------- --------
Net proceeds available to members $ 3,533 $ 0 $ 7,675 $ 17,296 $ 5,871
======== ======== ======== ======== ========
Allocation of net proceeds available to members:
Payable to members currently (25% of qualified proceeds available
to members in fiscal 1997 and 20% in fiscal 1995, 1994, and 1993) $ 883 $ 0 $ 1,475 $ 3,109 $ 1,052
Allocated to members but retained by the Cooperative:
Qualified retains 2,650 0 5,900 12,437 4,209
Non-qualified retains 0 0 300 1,750 610
-------- -------- -------- ------- --------
Net proceeds available to members $ 3,533 $ 0 $ 7,675 $ 17,296 $ 5,871
======== ======== ======== ======== ========
CMV** $ 51,445 $ 44,701 $ 55,855 $ 59,216 $ 59,800
======== ======== ======== ======== ========
Net proceeds allocated to members as a percent of CMV 6.87% (10.00)% 13.74% 29.21% 9.82%
Net proceeds available to members as a percent of CMV:
Qualified 6.87% 0.00% 13.20% 26.25% 8.80%
Non-qualified 0.00 0.00 .54% 2.96% 1.02%
-------- -------- ----------- -------- --------
Total net proceeds allocated to members as a percent of CMV 6.87% 0.00% 13.74% 29.21% 9.82%
-------- -------- ---------- -------- --------
Balance Sheet Data:
Investment in direct financing leases $ 0 $ 0 $ 0 $141,322 $173,513
Common stock $ 8,944 $ 9,185 $ 9,395 $ 10,284 $ 13,455
Redeemable Preferred $ 315 $ 334 $ 0 $ 0 $ 0
Shareholders' and members' capitalization and redeemable stock $132,663 $126,700 $145,228 $123,765 $109,904
Total long-term debt and senior subordinated notes
(excludes current portion) $229,829 $327,683 $343,665 $127,134 $168,000
Debt to equity ratio*** 1.8:1 2.7:1 2.4:1 1.2:1 1.8:1
Total assets $546,677 $637,297 $689,739 $296,051 $324,884
Capital Stock Data Cash dividends paid per share:
Common $ 0.00 $ .25 $ .2750 $ .25 $ .25
Non-Cumulative Preferred $ 1.50 $ 1.50 $ 1.6875 $ 1.5625 $ .8125
Class A Cumulative Preferred $ 1.72 $ 1.29 $ 0 $ 0 $ 0
Class B Cumulative Preferred $ 1.00 $ 1.00 $ 0 $ 0 $ 0
Average common stock investment per member $ 14,333 $ 14,419 $ 15,032 $ 14,546 $ 18,662
Number of Members: 624 637 625 707 721
<FN>
* Certain prior year amounts have been reclassified to conform to fiscal 1997
presentation.
** Payment to the members for CMV was limited to 90 percent of deliveries in
fiscal 1996.
*** For purposes of this calculation, debt includes both current and
non-current debt, and equity includes common stock and redeemable preferred
stock.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this review is to highlight the more significant changes in the
major items of Pro-Fac's statement of net proceeds from fiscal 1995 through
1997.
PRO-FAC'S RESULTS OF OPERATIONS
As a result of the Acquisition on November 3, 1994, the consolidated results of
operations of Pro-Fac after that date include gross profit, operating expenses,
and other results of operations of Curtice Burns. Prior to November 3, 1994,
Pro-Fac's results of operations included only amounts paid or payable by Curtice
Burns to Pro-Fac under the Integrated Agreement.
Changes From Fiscal 1996 to Fiscal 1997: The 1997 CMV of crops delivered during
the 1996 production season increased to $51.4 million from $44.7 million in
fiscal 1996. The 15.0 percent increase was the net result of a 4.0 percent
tonnage decrease offset by the effect of price and mix variations from the
commodities. Payment to the members of CMV was 106.9 percent of deliveries. The
increased payment was attributed to the significantly increased earnings of the
Company's wholly-owned subsidiary, Curtice Burns. The results of Curtice Burns
operations are discussed below.
For the year ended June 28, 1997, the increase/(decrease) in net proceeds and
the allocation to members compared to the prior year is summarized below in
millions of dollars.
Curtice Burns gross profit $ 15.6
Gain on sale of Finger Lakes Packaging 3.6
Restructuring 5.9
Interest income, other (0.8)
Decreased selling, general and administrative expenses 6.4
Decreased interest expense 5.5
------
Change in income before taxes, dividends, and allocations of net proceeds
and cumulative effect of an accounting change 36.2
Change in tax (provision)/benefit (18.6)
Cumulative effect of an accounting change 4.6
------
Change in net income $ 22.2
======
Changes From Fiscal 1995 to Fiscal 1996: The 1996 CMV of crops delivered during
the 1995 production season decreased to $44.7 million from $55.9 million in
fiscal 1995. This 20.0 percent decrease was the net result of a 17.8 percent
tonnage increase offset by the effect of price and mix variations from the
commodities. Payment to the members for CMV was limited to 90 percent of
deliveries, or $40.2 million. The 10 percent reduction in the obligation to
members of $4.5 million was recognized as a reduction in other selling, general
and administrative expenses.
For the year ended June 29, 1996, the increase/(decrease) in net proceeds and
the allocation to members compared to the prior year is summarized below in
millions of dollars:
Curtice Burns gross profit $ 38.6
Restructuring (5.9)
Income received from Curtice Burns prior to Acquisition (11.2)
Interest income, other (3.6)
Cost relating to fire claim 2.3
Increased selling, general and administrative expenses (52.3)
Increased interest expense (13.0)
------
Change in income before taxes, dividends, and allocations of net proceeds (45.1)
Change in tax benefit 6.0
------
Change in net income $(39.1)
======
Because of the profit/(loss) split provisions between Curtice Burns and Pro-Fac,
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.
The following comparisons of Curtice Burns' results to its prior-year periods
present the results of Curtice Burns for both the period prior to its
Acquisition by Pro-Fac as well as the period subsequent to the Acquisition.
Therefore, comparisons to the prior-year periods are not comparable in certain
respects due to differences between the cost bases of the assets prior to the
Acquisition compared to those after the Acquisition as well as the effect on
Curtice Burns' operations for adjustments to depreciation, amortization and
interest expense. The following tables illustrate the Company's results of
operations by business for the fiscal years ended June 28, 1997, June 29, 1996,
and June 24, 1995, and the Company's total assets by business as at June 28,
1997 and June 29, 1996.
Net Sales
(Dollars in Millions)
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
----- ----- ----- ----- ----- -----
CMF, Southern Frozen Foods, and
Brooks Foods1 440.2 60.2 431.2 58.4 419.5 56.0
Nalley Fine Foods 182.4 25.0 189.2 25.6 181.2 24.2
Snack Foods Group 67.3 9.2 63.7 8.6 60.5 8.1
----- ----- ------ ----- ----- -----
Subtotal ongoing operations 689.9 94.4 684.1 92.6 661.2 88.3
Businesses sold or to be sold2 40.9 5.6 55.0 7.4 87.3 11.7
----- ----- ------ ----- ----- -----
Total 730.8 100.0 739.1 100.0 748.5 100.0
===== ===== ===== ===== ===== =====
<FN>
1 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
2 Includes the sales of Finger Lakes Packaging, the portion of the canned
vegetable business sold, Nalley Canada Ltd., and Nalley US chips and Snacks
business. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
Operating Income1
(Dollars in Millions)
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
----- ----- ----- ----- ----- -----
CMF, Southern Frozen Foods, and Brooks Foods2 40.5 81.1 26.5 186.6 42.2 81.2
Nalley Fine Foods 10.8 21.7 (2.9) (20.4) 18.7 35.9
Snack Foods Group 5.9 11.8 4.1 28.9 3.6 6.9
Corporate overhead (10.5) (21.0) (6.8) (47.9) (10.3) (19.8)
----- ----- ---- ------ ----- -----
Subtotal ongoing operations 46.7 93.6 20.9 147.2 54.2 104.2
Businesses sold or to be sold and other non-recurring3 3.2 6.4 (6.7) (47.2) (2.2) (4.2)
----- ----- ---- ------ ----- -----
Total 49.9 100.0 14.2 100.0 52.0 100.0
===== ===== ==== ===== ===== =====
<FN>
1 Excludes cumulative effect of an accounting change. See NOTE 1 to the
"Notes to Consolidated Financial Statements."
2 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
3 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned
vegetable business, final settlement of an insurance claim, and a loss on
the disposal of property held for sale.
In fiscal 1996, such amount includes restructuring initiatives and
operating activities of both Finger Lakes Packaging and the canned
vegetable business.
In fiscal 1995, such amount includes change in control expenses, a gain on
assets resulting from a fire and operating activities of Finger Lakes
Packaging, the canned vegetable business, Nalley Canada Ltd., and the
Nalley US Chips and Snacks business.
</FN>
See NOTE 3 to the "Notes to Consolidated Financial Statements."
EBITDA1,2
(Dollars in Millions)
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
------ ----- ----- ----- ----- -----
CMF, Southern Frozen Foods, and Brooks Foods3 57.1 74.4 44.4 101.6 55.0 72.7
Nalley Fine Foods 16.2 21.1 2.3 5.3 22.9 30.3
Snack Foods Group 7.6 9.9 6.0 13.7 5.4 7.1
Corporate (10.1) (13.1) (6.9) (15.8) (10.6) (13.9)
----- ----- ---- ----- ----- -----
Subtotal ongoing operations 70.8 92.3 45.8 104.8 72.7 96.2
Businesses sold or to be sold and other non recurring4 5.9 7.7 (2.1) (4.8) 2.9 3.8
----- ----- ---- ----- ----- -----
Total 76.7 100.0 43.7 100.0 75.6 100.0
===== ===== ==== ===== ===== =====
<FN>
1 In conjunction with the Acquisition, net assets were adjusted to fair
market value and additional debt was incurred. Accordingly, depreciation
and interest expense have increased, making year-to-year comparisons
difficult to analyze. Nonetheless, earnings before interest, taxes,
depreciation and amortization (EBITDA) for ongoing businesses can be
compared. EBITDA does not represent information prepared in accordance with
generally accepted accounting principles, nor is such information
considered superior to information presented in accordance with generally
accepted accounting principles.
2 Excludes cumulative effect of an accounting change. See NOTE 1 to the
"Notes to Consolidated Financial Statements."
3 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
4 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned
vegetable business, final settlement of an insurance claim, and a loss on
the disposal of property held for sale.
In fiscal 1996, such amount includes restructuring initiatives and
operating activities of both Finger Lakes Packaging and the canned
vegetable business.
In fiscal 1995, such amount includes change in control expenses, a gain on
assets resulting from a fire, and operating activities of Finger Lakes
Packaging, the canned vegetable business, Nalley Canada Ltd., and the
Nalley US Chips and Snacks business.
</FN>
See NOTE 3 to the "Notes to Consolidated Financial Statements."
Total Assets
(Dollars in Millions)
6/28/97 6/29/96
% of % of
$ Total $ Total
----- ----- ----- -----
CMF, Southern Frozen Foods and
Brooks Foods1 329.0 60.6 339.5 53.5
Nalley Fine Foods 144.4 26.6 134.1 21.1
Snack Foods Group 26.7 4.9 27.8 4.4
Corporate 42.5 7.9 71.6 11.3
----- ----- ----- -----
Subtotal ongoing operations 542.6 100.0 573.0 90.3
Businesses sold or to be sold2 0.0 0.0 61.3 9.7
----- ----- ----- -----
Total 542.6 100.0 634.3 100.0
===== ===== ===== =====
<FN>
1 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
2 Includes Finger Lakes Packaging and the portion of the canned vegetable
business sold to Seneca Foods. See NOTE 3 to the "Notes to Consolidated
Financial Statements."
</FN>
CHANGES FROM FISCAL 1996 TO FISCAL 1997
Net income for fiscal 1997 of $5.5 million represented a $17.4 million increase
over the prior year's loss of $11.9 million. Total EBITDA before cumulative
effect of an accounting change was $76.7 million for the year ended June 28,
1997 versus $43.7 million in the prior year. EBITDA for ongoing business reached
$70.8 million versus the prior year's $45.8 million. This significant
improvement reflected the benefits from numerous initiatives, the focus of which
was the implementation of a strategic plan that outlined several major efforts
including debt reduction and structural changes.
During fiscal 1997, the outstanding debt of the Company was reduced by $86.8
million. Ongoing efforts to improve cash flow through inventory control and the
proceeds received from the sales of Finger Lakes Packaging, the New York canned
vegetable business, the Georgia distribution center, and the sale of idle assets
were the primary factors in the reduction of debt and related interest expense.
Structural changes within the Company's business units included a review of the
Nalley operations and the consolidation of several other operations. EBITDA for
the Nalley business unit was $16.2 million for the year ended June 28, 1997
versus $2.3 million in the prior year. These results were driven by
organizational changes and the absence of the significant start-up costs for the
new salad dressing line which were incurred throughout fiscal 1996. In addition
during fiscal 1997, the Company completed the restructuring program begun in the
fourth quarter of fiscal 1996. These efforts focused on consolidation of the
Southern Frozen Foods and Brooks operations into CMF and the consolidation of
support services such as human resources and agricultural services.
Net Sales: Total net sales in fiscal 1997 decreased $8.3 million or 1.1 percent
compared to the prior year period. Net sales from ongoing operations, however,
increased $5.8 million or 0.8 percent. This increase is primarily attributable
to increased volume and improved pricing at both CMF and the Snack Foods Group.
The vegetable and fruit categories at CMF have 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 $191.7 million in fiscal 1997 increased $15.5
million or 8.8 percent from $176.2 million in fiscal 1996. This increase is
attributable to improved margins in all business units. Improved pricing in the
vegetable, fruit, and popcorn categories at CMF have increased profitability
from a year ago. Nalley's, which in the prior year experienced extremely high
start-up costs on the new salad dressing line, has managed through those issues
and has significantly improved margins.
Increased sales from the Snack Foods Group also improved profitability.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $10.7 million as compared with the prior year.
This decrease is net of the inclusion of expenses (approximately $5.6 million)
relating to the Company's incentive program. Payments under the incentive
programs are attributable to the significantly improved earnings. Overall, the
net decrease is attributed to a $5.8 million decrease in selling, advertising,
and trade promotions expenses resulted from decreased spending at Nalley's.
Reductions in other administrative expenses accounted for $10.5 million and were
primarily attributable to benefits from the restructuring initiative that began
late in fiscal 1996. These initiatives included the consolidation of the
administrative functions at CMF, Southern Frozen Foods, and Brooks locations,
and the sale of Finger Lakes Packaging.
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. A gain of approximately $3.6 million was recognized on
this disposal. The Company received proceeds of approximately $30 million which
were applied to Bank debt. The transaction also included a long-term supply
agreement.
Interest Expense: The decrease in interest expense of $7.0 million or 16.6
percent resulted from both the inventory reduction and cash flow management
programs initiated in fiscal 1996 as well as the debt reduction in fiscal 1997
attributable to the sales of Finger Lakes Packaging, the canned vegetable
business, and idle facilities.
Provision for Taxes: The provision for taxes in fiscal 1997 of $3.7 million
changed $10.6 million from the benefit of $6.9 million in fiscal 1996. The
provision for taxes in fiscal 1997 results from increased earnings. The
Company's effective tax rate in fiscal 1997 was 49.3 percent. The Company's
effective tax rate is negatively impacted by the non-deductibility of goodwill.
A further discussion of tax matters is included at NOTE 6 to the "Notes to
Consolidated Financial Statements."
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. 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. 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.
CHANGES FROM FISCAL 1995 TO FISCAL 1996
EBITDA from ongoing businesses declined $32.2 million from $76.5 million in the
prior year to $44.3 million in fiscal 1996.
Depressed vegetable pricing significantly impacted the Company's financial
results as well as much of the industry. The Company's vegetable category, which
includes significant segments of CMF and Southern Frozen Foods, experienced a
71.2 percent reduction in EBITDA compared to the prior year. Improvements in
earnings of other product lines at CMF offset the vegetable earnings reduction.
Issues impacting Nalley results included the costly start up of the dressing
plant, other manufacturing variances and increased promotion expenses. Nalley
EBITDA was $20.6 million lower than the prior year. Several steps were taken to
address these problems, including senior management changes at the division.
A major inventory reduction program across all divisions was implemented in
fiscal 1996. Long-term debt was reduced $37.5 million in fiscal 1996 due to the
cash flow generated from these programs and from additional payments to the
Company by Pro-Fac. (See NOTES 2 and 5 to the "Notes to Consolidated Financial
Statements.")
During the fourth quarter of fiscal 1996, the Company initiated a corporate-wide
restructuring program. The overall objectives of the plan were to reduce
expense, improve productivity, and streamline operations. Efforts focused on the
consolidation of operations and the elimination of approximately 900 positions.
Reductions in personnel included operational and administrative positions. The
total fiscal 1996 restructuring charge amounted to $5.9 million, which included
a fourth quarter charge of approximately $4.0 million, primarily comprised of
employee termination benefits, and approximately $1.9 million for strategic
consulting which was incurred throughout the year
Net Sales: The Company's net sales in fiscal 1996 of $739.1 million decreased
$9.4 million or 1.3 percent from $748.5 million in fiscal 1995. The net sales
attributable to businesses sold or to be sold were $55.0 million in fiscal 1996
compared to $87.3 million in fiscal 1995. The Company's net sales from ongoing
operations were $684.1 million in fiscal 1996, an increase of $22.9 million or
3.5 percent from $661.2 million in fiscal 1995.
Gross Profit: Gross profit of $176.2 million in fiscal 1996 decreased $42.2
million or 19.3 percent from $218.4 million in fiscal 1995. Of this net
decrease, a $14.0 million reduction was attributable to businesses sold or to be
sold. The remaining decrease of $28.2 million from ongoing operations was the
result of variations in volume, selling prices, costs, product mix, and
increased depreciation due to the Acquisition.
Reductions at the Company's CMF/Southern Frozen Foods operations primarily
relates to depressed vegetable pricing.
Reductions at the Company's Nalley operation relates to higher costs on all the
product lines, but particularly in salad dressings due to plant start-up
activities.
Restructuring: Restructuring expenses, as described above, amounted to $5.9
million in fiscal 1996. Restructuring expenses in fiscal 1995 of $8.4 million
reflect the impact of the sale of certain assets of the Nalley US Chips and
Snacks business and other expenses relating to the disposal of this operation.
Change in Control Expenses: Change in control expenses recorded in fiscal 1995,
amounting to $2.2 million, reflected non-deductible cost relating to the sale of
the Company (primarily legal, accounting, and investment banking fees).
Gain on Assets Resulting From Fire Claim: The gain on assets resulting from the
fire claim recorded in fiscal 1995 amounted to $4.1 million. This amount
represented the replacement value in excess of the depreciated book value of the
building and equipment destroyed on July 7, 1994 at Southern Frozen Foods. This
amount is net of additional costs incurred.
Selling, Administrative and General Expenses: Selling, administrative and
general expenses in fiscal 1996 of $156.1 million decreased $3.8 million or 2.4
percent from $159.9 million in fiscal 1995. This net decrease of $3.8 million
includes:
(In Millions)
Businesses
Sold or
to be Sold Ongoing Total
Change in trade promotions, advertising and selling costs $(8.3) $0.7 $(7.6)
Change in other administrative expenses 2.5 1.3 3.8
----- ---- -----
$(5.8) $2.0 $(3.8)
===== ==== =====
The $0.7 million decrease in trade promotions, advertising and selling costs at
the Company's ongoing operations is the net from increased costs at Nalley of
$3.7 million (primarily in the canned and dressing product lines), increased
costs of $1.0 million at the Snack Group offset by decreases at CMF/Southern
Frozen Foods/Brooks of $4.0 million (primarily in the filling and topping
product lines).
The $1.3 million increase in other administrative costs attributable to the
Company's ongoing operations was primarily related to increased expense at
Nalley. The increased expense at Nalley included administrative expenses which
previously had been allocated to Nalley Chips and Snacks and Nalley Canada Ltd.
The disposal of these businesses did not eliminate centralized functions leaving
costs which will be reduced over a period of time.
Interest Expense: Interest expense in fiscal 1996 of $42.0 million increased
$9.6 million or 29.6 percent from $32.4. million in fiscal 1995. This increase
was primarily attributable to the increased borrowing and increased rates
related to the Acquisition of the Company by Pro-Fac. The impact of the
Acquisition was reflected for the full year in fiscal 1996 and for a partial
year in fiscal 1995.
Benefit/(Provision) for Taxes: The benefit for taxes in fiscal 1996 of $6.9
million compared to a provision of $6.0 million in fiscal 1995. A further
discussion of tax matters is included at NOTE 6 of "Notes to Consolidated
Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Consolidated
Statement of Changes in Cash Flows" for fiscal 1997 compared to fiscal 1996.
Net cash provided by operating activities decreased in fiscal 1997 primarily due
to an inventory-reduction program that favorably impacted fiscal 1996 cash flow.
Cash flow was also positively impacted in fiscal 1996 due to the receipt of
approximately $8.5 million in insurance proceeds compared to the final
settlement of $4.0 million received in fiscal 1997. Earnings, however, were
greatly improved in fiscal 1997.
Net cash provided by investing activities increased significantly in fiscal
1997, primarily due to the sales of Finger Lakes Packaging, a portion of the
canned vegetable business, the Georgia distribution center, and the idle
facilities. These actions were part of an overall initiative in fiscal 1997 to
reduce the Company's outstanding debt. Management believes that the significant
reduction in debt will provide the Company with the added financial flexibility
needed to operate the business. All proceeds from asset sales were applied to
Bank debt in accordance with the terms of the New Credit Agreement. Fiscal 1996
results included 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: Under the New Credit Agreement, Pro-Fac 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 $18.0 million in
aggregate face amount of letters of credit pursuant to a Letter of Credit
Facility. The borrowing base is defined as the lesser of (i) the total line and
(ii) the sum of 60 percent of eligible accounts receivable plus 50 percent of
eligible inventory. On June 28, 1997, Pro-Fac established a seasonal line of
credit with the Bank. In doing so, the Bank limited the Company's availability
under the Seasonal Facility to $66.0 million less outstanding borrowings of
Pro-Fac. Pro-Fac's outstanding borrowings under their seasonal line were $7.0
million at June 28, 1997.
The Company believes that the cash flow generated by its operations and the
amounts available under the Seasonal Facility should be sufficient to fund its
working capital needs, fund its capital expenditures and service its debt for
the foreseeable future.
As of June 28, 1997, (i) cash borrowings outstanding under the Seasonal Facility
were zero and (ii) additional availability under the Seasonal Facility, after
taking into account the amount of the borrowing base and Pro-Fac's outstanding
borrowings, was $59.0
million. In addition to its seasonal financing, as of June 28, 1997, the Company
had $34.2 million available for long-term borrowings under the Term Loan
Facility.
The New Credit Agreement and Indenture requires that Pro-Fac and Curtice Burns
meet certain financial tests and ratios and comply with certain other
restrictions and limitations. As of June 28, 1997, the Company is in compliance
with, or has obtained waivers for, all such covenants, restrictions and
limitations.
Short- and Long-Term Trends: Throughout fiscal 1997 the Company has worked
toward accomplishing the restructuring initiatives begun in fiscal 1996. During
fiscal 1997, this program focused on 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 completed is
outlined at NOTE 3 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business, which includes CMF/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 has been
a minor improvement from the prior year.
Supplemental Information on Inflation: The changes in costs and prices within
the Company's business due to inflation were not significantly different from
inflation in the United States economy as a whole. Levels of capital investment,
pricing and inventory investment were not materially affected by the moderate
inflation.
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 fiscal
1997, approximately $2.0 million of this reserve was liquidated. It is
anticipated that the remaining reserve will be liquidated during the first
quarter of fiscal 1998.
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced a major outsourcing
services and software agreement effective June 30, 1997. The ten-year agreement,
valued at approximately $50 million, is for SCT's OnSite outsourcing services,
ADAGE ERP software and implementation services and assistance in solving the
Year 2000 issue.
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.
Favorable Tax Ruling and Developments: In August of 1993, the Internal Revenue
Service issued a determination letter which concluded that the Cooperative was
exempt from federal income tax to the extent provided by Section 521 of the
Internal Revenue Code, "Exemption of Farmers' Cooperative from Tax." Unlike a
nonexempt cooperative, a tax-exempt cooperative is entitled to deduct cash
dividends it pays on its capital stock in computing its taxable income. The
exempt status was retroactive to fiscal year 1986. In conjunction with this
ruling, the Cooperative filed for tax refunds for fiscal years 1986 to 1992 in
the amount of approximately $8.8 million and interest payments of approximately
$5.2 million. A refund amount of $10.1 million for tax and interest was
reflected in the financial statements of the Cooperative as of June 24, 1995. In
addition, a refund amount of $3.9 million for tax and interest have been
reflected in the financial statements of the Cooperative as of June 29, 1996.
The refund and interest for the fiscal years 1986 to 1991 was received in March
of 1996. The refund and interest for fiscal year 1992 was received in June of
1997
As a result of the Acquisition, the Cooperative's exempt status has ceased.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
ITEM Page
Pro-Fac Cooperative, Inc. and Consolidated Sub idiary:
Management's Responsibility for Financial Statements.................................................................... 21
Report of Independent Accountants....................................................................................... 22
Consolidated Financial Statements:
Consolidated Statement of Operations and Net Proceeds for the years ended June 28, 1997, June 29, 1996,
and June 24, 1995................................................................................................... 23
Consolidated Balance Sheet for the years ended June 28, 1997 and June 29, 1996........................................ 24
Consolidated Statement of Cash Flows for the years ended June 28, 1997, June 29, 1996, and June 24, 1995.............. 25
Consolidated Statement of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
for the years ended June 28, 1997, June 29, 1996, and June 24, 1995................................................. 27
Notes to Consolidated Financial Statements............................................................................ 28
Selected Quarterly Financial Data..................................................................................... 41
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begins on the page following the "Report of
Independent Accountants." These statements have been prepared in accordance with
generally accepted accounting principles.
The Company's accounting systems include internal controls designed to provide
reasonable assurance of the reliability of its financial records and the proper
safeguarding and use of its assets. Such controls are monitored through the
internal and external audit programs.
The financial statements have been audited by Price Waterhouse LLP, independent
accountants, who were responsible for conducting their examination in accordance
with generally accepted auditing standards. Their resulting report is on the
succeeding page.
The Board of Directors exercises its responsibility for these financial
statements. The independent accountants and internal auditors of the Company
have full and free access to the Board. The Board periodically meets with the
independent accountants and the internal auditors, without management present,
to discuss accounting, auditing and financial reporting matters.
/s/Stephen R. Wright /s/Earl L. Powers
Stephen R. Wright Earl L. Powers
General Manager Vice President Finance and
Assistant Treasurer
August 1, 1997
Report of Independent Accountants
To the Shareholders and
Board of Directors of
Pro-Fac Cooperative, Inc.
In our opinion, the consolidated financial statements listed under Item 8 of
this Form10-K present fairly, in all material respects, the financial position
of Pro-Fac Cooperative, Inc. and its subsidiary at June 28,1997 and June 29,
1996, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended June 28, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Cooperative's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in NOTE 1 to the financial statements, the Cooperative changed its
method of accounting for spare parts in 1997.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item14 of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Rochester, New York
August 1, 1997
FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
Fiscal Years Ended
June 28, June 29, June 24,
1997 1996 1995
Net sales $730,823 $739,094 $522,413
Cost of sales 539,081 562,926 384,838
-------- -------- --------
Gross profit 191,742 176,168 137,575
Selling, administrative, and general expenses (145,214) (151,671) (99,341)
Gain on sale of Finger Lakes Packaging 3,565 0 0
Restructuring charge 0 (5,871) 0
Additional costs incurred as a result of fire 0 0 (2,315)
Income from Curtice Burns prior to Acquisition 0 0 11,239
Interest income 0 770 4,402
-------- -------- --------
Operating income 50,093 19,396 51,560
Interest expense (36,473) (41,998) (29,035)
-------- -------- --------
Pretax income/(loss) before dividends and allocation of net proceeds 13,620 (22,602) 22,525
Tax (provision)/benefit (5,529) 13,071 7,028
-------- -------- --------
Income/(loss) before cumulative effect of an accounting change, dividends,
and allocation of net proceeds 8,091 (9,531) 29,553
Cumulative effect of an accounting change 4,606 0 0
-------- -------- --------
Net income/(loss) $ 12,697 $ (9,531) $ 29,553
======== ======== ========
Allocation of Net Proceeds:
Net income/(loss) $ 12,697 $ (9,531) $ 29,553
Dividends on common and preferred stock (5,503) (8,993) (4,914)
-------- --------- --------
Net proceeds/(deficit) 7,194 (18,524) 24,639
Allocation (to)/from earned surplus (3,661) 18,524 (16,964)
-------- -------- --------
Net proceeds available to members $ 3,533 $ 0 $ 7,675
======== ======== ========
Allocation of net proceeds available to members:
Payable to members currently (25% and 20% of qualified proceeds
available to members in fiscal 1997 and 1995, respectively) $ 883 $ 0 $ 1,475
Allocated to members but retained by the Cooperative:
Qualified retains 2,650 0 5,900
Non-qualified retains 0 0 300
-------- -------- --------
Net proceeds available to members $ 3,533 $ 0 $ 7,675
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
ASSETS
June 28, 1997 June 29, 1996
Current assets:
Cash and cash equivalents $ 2,838 $ 8,873
Accounts receivable, trade, less allowances for bad debts of $970 and $836,
respectively 48,661 47,259
Accounts receivable, other 2,795 6,814
Current deferred tax assets 12,312 13,731
Inventories -
Finished goods 87,904 97,018
Raw Materials and supplies 27,001 33,556
-------- --------
Total inventories 114,905 130,574
-------- --------
Prepaid manufacturing expense 8,265 11,339
Prepaid expenses and other current assets 6,323 1,066
Current investment in Bank 946 0
-------- --------
Total current assets 197,045 219,656
Investment in Bank 24,321 24,439
Property, plant, and equipment, net 217,923 271,574
Assets held for sale 3,259 5,368
Goodwill and other intangible assets, less accumulated amortization of $10,053
and $5,961, respectively 96,429 103,760
Other assets 7,700 12,500
-------- --------
Total assets $546,677 $637,297
======== ========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Current portion of obligations under capital leases $ 558 $ 547
Current portion of long-term debt 8,075 8,075
Accounts payable 49,256 54,791
Income taxes payable 5,672 2,289
Accrued interest 8,663 9,447
Accrued employee compensation 11,063 8,368
Other accrued expenses 21,956 24,775
Dividends payable 61 128
Amounts due members 15,791 7,875
-------- --------
Total current liabilities 121,095 116,295
Long-term debt 69,829 167,683
Senior subordinated notes 160,000 160,000
Obligations under capital leases 817 1,125
Deferred income tax liabilities 39,591 44,753
Other non-current liabilities 22,682 20,741
-------- --------
Total liabilities 414,014 510,597
-------- --------
Commitments and contingencies
Class B cumulative redeemable preferred stock, liquidation
preference $10 per share, authorized 500,000 shares; issued
and outstanding 31,435 and 3,364, respectively 315 334
Common stock, par value $5, authorized - 5,000,000 shares
June 28, 1997 June 29, 1996
------------- -------------
Shares issued 1,788,815 1,836,963
Shares subscribed 54,557 59,359
--------- ---------
Total subscribed and issued 1,843,372 1,896,322
Less subscriptions receivable in installments (54,557) (59,359)
--------- ---------
Total issued and outstanding 1,788,815 1,836,963 8,944 9,185
========= =========
Shareholders' and members' capitalization:
Retained earnings allocated to members 31,920 32,318
Non-qualified allocation to members 2,960 3,275
Non-cumulative Preferred Stock, par value $25, authorized - 5,000,000 shares;
issued and outstanding - 53,797 and 105,788, respectively 1,345 2,645
Class A Cumulative Preferred Stock, liquidation preference $25 per share; authorized
49,500,000 shares; issued and outstanding 3,215,709 and 3,032,704, respectively 80,393 75,818
Earned surplus 6,786 3,125
-------- --------
Total shareholders' and members' capitalization 123,404 117,181
-------- --------
Total liabilities and capitalization $546,677 $637,297
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
Fiscal Years Ended
June 28, 1997 June 29, 1996 June 24, 1995
------------- ------------- -------------
Cash Flows from Operating Activities:
Net income/(loss) $ 12,697 $ (9,531) $ 29,553
Amount payable to members currently (883) 0 (1,475)
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
Restructuring and net gain from disposals (3,565) 5,871 0
Amortization of goodwill and other intangibles 4,092 3,422 2,618
Amortization of debt issue costs 800 800 600
Depreciation 22,680 26,081 13,864
Cumulative effect of an accounting change (4,606) 0 0
Provision/(benefit) for deferred taxes 4,557 (8,212) (3,186)
Provision for losses on accounts receivable 445 528 91
Equity in undistributed earnings of the Bank (1,143) (1,532) (1,288)
Change in assets and liabilities:
Accounts receivable (3,983) 13,482 12,148
Inventories (1,636) 33,347 67,022
Income taxes payable/(refundable) 2,272 12,395 (9,520)
Accounts payable and accrued expenses (2,424) (15,027) (16,331)
Amounts due to members 7,033 (5,935) (729)
Other assets and liabilities 530 (1,385) 18,139
--------- -------- -----------
Net cash provided by operating activities 36,866 54,304 111,506
--------- -------- ----------
Cash Flows from Investing Activities:
Purchase of property, plant, and equipment (13,691) (19,453) (28,661)
Proceeds from disposals 74,683 5,005 0
Return from investment in direct financing leases 0 0 11,344
Proceeds from Investment in Bank 315 0 0
Cash paid for acquisition 0 (5,785) 0
--------- -------- --------
Net cash provided by/(used in) investing activities 61,307 (20,233) (17,317)
--------- -------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 0 5,400 359,000
Payments on long-term debt including acquisition related financing fees (97,854) (25,056) (192,095)
Payments on capital leases (503) (825) (1,259)
Amounts paid to shareholders for acquisition 0 0 (167,800)
Net assets acquired from Curtice Burns 0 0 (81,278)
Issuance of stock, net of repurchases (260) 124 (889)
Cash portion of non-qualified conversion (88) (122) (802)
Cash paid in lieu of fractional shares 0 (6) (10)
Cash dividends paid (5,503) (8,865) (4,914)
--------- -------- --------
Net cash used in financing activities (104,208) (29,350) (90,047)
--------- -------- --------
Net change in cash and cash equivalents (6,035) 4,721 4,142
Cash and cash equivalents at beginning of period 8,873 4,152 10
--------- -------- --------
Cash and cash equivalents at end of period $ 2,838 $ 8,873 $ 4,152
========= ======== ========
<FN>
All amounts above exclude the effects of acquisitions as detailed in the
Supplemental Disclosure of Cash Flow Information
</FN>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
Fiscal Years Ended
June 28, 1997 June 29, 1996 June 24, 1995
------------- ------------- -------------
Supplemental Disclosure of Cash Flow Information Cash paid/(received) during the
year for:
Interest (net of amount capitalized) $36,907 $41,508 $ 24,498
======= ======= ========
Income taxes, net $(1,300) $(9,206) $ 5,567
======= ======= ========
Acquisition of Packer Foods and Matthews Candy Co.:
Accounts receivable $ 0 $ 1,282 $ 0
Inventories 0 3,902 0
Prepaid expenses and other current assets 0 270 0
Property, plant and equipment 0 6,044 0
Goodwill 0 493 0
Deferred tax asset 0 264 0
Accounts payable 0 (4,954) 0
Accrued expenses 0 (418) 0
Other non-current liabilities 0 (1,098) 0
-------- ------- --------
Cash paid for acquisition $ 0 $ 5,785 $ 0
======== ======= ========
Net assets acquired from Curtice Burns:
Accounts receivable $ 0 $ 0 $ 79,068
Inventories 0 0 226,220
Other assets 0 0 27,664
Goodwill and other intangible assets 0 0 24,156
Fixed assets 0 0 159,985
Accounts payable and accrued expenses 0 0 (100,594)
Short-term debt 0 0 (49,097)
Long-term debt 0 0 (276,391)
Deferred tax liability 0 0 (3,247)
Other liabilities 0 0 (6,486)
-------- ------- --------
$ 0 $ 0 $ 81,278
======== ======= ========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of retains to preferred stock $ 3,275 $ 2,379 $ 11,665
======== ======= ========
Net proceeds allocated to members but retained by the Cooperative $ 2,650 $ 0 $ 6,200
======== ======= ========
Capital lease obligations incurred $ 206 $ 113 $ 1,562
======== ======= ========
Notes from Nalley Canada Ltd. forgiven in acquisition $ 4,986 $ 0 $ 0
======== ======= ========
Receivables from Curtice Burns forgiven in the acquisition:
Due from Curtice Burns for long-term debt $ 0 $ 0 $110,576
======== ======= ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Pro-Fac Cooperative, Inc.
Consolidated Statement of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
(Dollars in Thousands)
Fiscal Years Ended
June 28, June 29, June 24,
1997 199 1995
-------- --------- --------
Retained earnings allocated to members:
0Qualified retains:
Balance at beginning of period $ 32,318 $ 34,250 $ 36,924
Net proceeds allocated to members 2,650 0 5,900
Converted to preferred stock (3,048) (1,926) (8,564)
Cash paid in lieu of fractional shares 0 (6) (10)
-------- -------- --------
Balance at end of period 31,920 32,318 34,250
-------- -------- --------
Non-qualified retains:
Balance at beginning of period 3,275 3,851 7,454
Distribution of 1991, 1990, 1989, and 1988 non-qualified retains:
Cash paid (88) (122) (802)
Converted to preferred stock (227) (454) (3,101)
Net proceeds allocated to members 0 0 300
-------- -------- --------
Balance at end of period 2,960 3,275 3,851
-------- -------- --------
Total retains allocated to members at end of period 34,880 35,593 38,101
-------- -------- --------
Non-cumulative Preferred Stock:
Balance at beginning of period 2,645 76,083 64,418
Converted from earnings retained for preferred stock 0 0 8,564
Conversion of 1991, 1990, 1989, and 1988 non-qualified retains 0 0 3,101
Conversion to cumulative preferred stock (1,300) (73,438) 0
-------- -------- --------
Balance at end of period 1,345 2,645 76,083
-------- -------- --------
Cumulative preferred stock:
Balance at beginning of period 75,818 0 0
Converted from Non-cumulative Preferred Stock 1,300 73,438 0
Converted from non-qualified retains 227 454 0
Converted from qualified retains 3,048 1,926 0
-------- -------- --------
Balance at end of period 80,393 75,818 0
-------- -------- --------
Earned surplus (unallocated and apportioned):
Balance at beginning of period 3,125 21,649 4,685
Allocation to/(from) earned surplus 3,661 (18,524) 16,964
-------- -------- --------
Balance at end of period 6,786 3,125 21,649
-------- -------- --------
Total shareholders' and members' capitalization $123,404 $117,181 $135,833
======== ======== ========
Redeemable stock:
Class B cumulative preferred stock:
Balance at beginning of period $ 334 $ 0 $ 0
(Repurchased)/issued, net (19) 334 0
-------- -------- --------
Balance at end of period $ 315 $ 334 $ 0
======== ======== ========
Common stock:
Balance at beginning of period $ 9,185 $ 9,395 $ 10,284
Repurchased, net of issued (241) (210) (889)
-------- -------- --------
Balance at end of period $ 8,944 $ 9,185 $ 9,395
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
PRO-FAC COOPERATIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Pro-Fac Cooperative, Inc. ("Pro-Fac" or the "Cooperative") is an agricultural
cooperative which processes and markets crops grown by its members through its
wholly-owned subsidiary Curtice-Burns Foods, Inc. ("Curtice Burns" or the
"Company").
Curtice Burns is a producer and marketer of processed food products, including
canned and frozen fruits and vegetables, canned desserts and condiments, fruit
fillings and toppings, canned chilies and stews, salad dressings, pickles,
peanut butter, and snack foods. The vegetable and fruit product lines account
for approximately 70 percent of sales. The Company's products are primarily
distributed in the United States.
Fiscal Year: The Fiscal year of Pro-Fac ends on the last Saturday in June.
Fiscal 1996 comprised 53 weeks and fiscal 1997 and 1995 each comprised 52 weeks.
Consolidation: As of all dates after November 3, 1994, and for all periods after
such date, the consolidated financial statements include the Cooperative and its
wholly-owned subsidiary, Curtice-Burns Foods, Inc. ("Curtice Burns" or "the
Company") after elimination of intercompany transactions and balances. The
Acquisition of Curtice Burns was completed on November 3, 1994 (see NOTE 2 of
"Notes to Consolidated Financial Statements").
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. Management
believes this change is preferable because it provides a better matching of
costs with related revenues. 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 and fiscal 1995 have been
reclassified to conform with fiscal 1997 presentations.
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with maturities of three months or less. Short-term investments
amounted to $5.3 million at June 29, 1996. There were no such short-term
investments at June 28, 1997 or June 24, 1995.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method. Reserves recorded at June 28, 1997 and June
29, 1996 were $362,000 and $485,000, respectively.
Investment in CoBank ("The Bank"): The investment in the Bank is required as a
condition of borrowing. These securities are not physically issued by the Bank,
but the Company is notified as to their monetary value. The investment is
carried at cost plus the Company's share of the undistributed earnings of the
Bank (that portion of patronage refunds not distributed currently in cash).
Manufacturing Overhead: Allocation of manufacturing overhead to finished goods
produced is on the basis of a production year; thus at the end of each fiscal
year, manufacturing costs incurred by seasonal plants, subsequent to the
previous pack, are deferred and included in the accompanying balance sheet under
the caption "Prepaid manufacturing expense."
Property, Plant, and Equipment and Related Lease Arrangements: Property, plant,
and equipment are depreciated over the estimated useful lives of the assets
using the straight-line method, half-year convention, over 4 to 40 years.
Assets held for sale are separately classified on the balance sheet. The
recorded value represents an estimate of net realizable value.
Lease arrangements are capitalized when such leases convey substantially all of
the risks and benefits incidental to ownership. Capital leases are amortized
over either the lease term or the life of the related assets, depending upon
available purchase options and lease renewal features.
Other Assets: Other assets are primarily comprised of debt issuance costs. The
debt issuance costs are amortized over the term of the debt. Amortization
expense incurred in fiscal 1997, 1996, and 1995 was $800,000, $800,000, and
$600,000, respectively.
Income Taxes: Income taxes are provided on non-patronage income for financial
reporting purposes. Deferred income taxes resulting from temporary differences
between financial reporting and tax reporting as well as from the issuance of
non-qualified retains are appropriately classified in the balance sheet.
Pension: The Company and its subsidiaries have several pension plans and
participate in various union pension plans which on a combined basis cover
substantially all employees. Charges to income with respect to plans sponsored
by the Company and its subsidiaries are based upon actuarially determined costs.
Pension liabilities are funded by periodic payments to the various pension plan
trusts.
Goodwill and Other Intangibles: Goodwill and other intangible assets include the
cost in excess of the fair value of net tangible assets acquired in purchase
transactions and acquired non-competition agreements and trademarks. Goodwill
and other intangible assets, stated net of accumulated amortization, are
amortized on a straight-line basis over 5 to 35 years. The Company periodically
assesses whether there has been a permanent impairment in the value of goodwill.
This is accomplished by determining whether the estimated, undiscounted future
cash flows from operating activities exceed the carrying value of goodwill as of
the assessment date. Should aggregate future cash flows be less than the
carrying value, a writedown would be required, measured by the difference
between the discounted future cash flows and the carrying value of goodwill.
Commodities Options Contracts: In connection with the purchase of certain
commodities for anticipated manufacturing requirements, the Company occasionally
enters into options contracts as deemed appropriate to reduce the effect of
price fluctuations. These options contracts are accounted for as hedges and,
accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost. These activities are not significant to the Company's
operations as a whole.
Casualty Insurance: The Company is insured for workers compensation and
automobile liability through a primarily self-insured program. The Company
accrues for the estimated losses from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from unreported
incidents is based on an analysis of historical claims data.
Earnings Per Share Data Omitted: Earnings per share amounts are not presented as
earnings are not distributed to members in proportion to their common stock
holdings. Earnings (representing those earnings derived from patronage-sourced
business) are distributed to members in proportion to the dollar value of
deliveries under Pro-Fac contracts rather than based on the number of shares of
common stock held.
Environmental Expenditures: Environmental expenditures that pertain to current
operations are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that do not contribute to current
or future revenues are expensed. Liabilities are recorded when remedial
activities are probable, and the cost can be reasonably estimated.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The cost of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal 1997, 1996, and 1995 amounted to $8,736,000, $9,831,000 and
$13,150,000, respectively.
Disclosures Abut Fair Value of Financial Instruments: The following methods and
assumptions were used by the Company in estimating the fair value disclosures
for financial instruments:
Cash, Accounts Receivable, Accounts Payable, and Other Accrued
Expenses: The carrying amount approximates fair value because of the
short maturity of these instruments.
Long-Term Investments: The carrying value of the Company's investment
in CoBank was $25.3 million at June 28, 1997. As there is no market
price for this investment, a reasonable estimate of fair value is not
possible.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities.
New Accounting Pronouncements: During fiscal 1997, the Company adopted Financial
Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation" As the Company's Long-Term Incentive Plan is a
compensatory plan, the adoption of SFAS 123 had no significant impact on
operations.
NOTE 2. CHANGE IN CONTROL OF CURTICE BURNS
In 1993, the Company's management and Board of Directors began exploring several
strategic alternatives for the Company, including a possible sale of all the
equity of the Company. Those activities ultimately resulted in the Company
entering into an Agreement and Plan of Merger with Pro-Fac and its subsidiary
PFAC on September 27, 1994 (the "Merger Agreement"). On November 3, 1994, PFAC
merged into the Company, making the Company a wholly-owned subsidiary of
Pro-Fac.
In connection with the Acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes (the "Notes") due 2005 and entered into a credit
agreement (the "New Credit Agreement") with the Bank, which provided for a term
loan, a term loan facility, a seasonal loan facility, and a letter of credit
facility. All obligations under the Notes and the New Credit Agreement have
become obligations of the Company and have been guaranteed by Pro-Fac.
Prior to the Acquisition on November 3, 1994, the Company expensed $2.2 million
of legal, accounting, investment banking, and other expenses relative to the
change of control issue. In recognizing these expenses, the Company allocated
half of these amounts to Pro-Fac as a deduction to the profit split. Pro-Fac
disputed these charges, however, such dispute was resolved with the merger.
The Acquisition was accounted for using the purchase method of accounting. In
conjunction with the change in ownership all other identifiable assets and
liabilities were adjusted to reflect their fair value at the date of
Acquisition. These allocations were finalized in fiscal 1996. In recording the
transaction, approximately $121.5 million was recorded to adjust property,
plant, and equipment to fair market value, and the asset lives were adjusted for
assets acquired. In addition, approximately $110.0 million of goodwill and other
intangible assets were recorded as the excess of purchase cost over net assets
acquired. Included in this amount was approximately $42.0 million for deferred
tax adjustments to properly reflect the effects of the Acquisition in accordance
with the SFAS No. 109, "Accounting for Income Taxes." (See further discussion of
tax matters at NOTE 6 of "Notes to Consolidated Financial Statements.") The
resulting annual amortization of goodwill and other intangible assets will
approximate $4.0 million using lives ranging from 5 to 35 years.
The contractual relationship between Pro-Fac and the Company is defined in the
Pro-Fac Marketing and Facilitation Agreement. Under the Pro-Fac Marketing and
Facilitation Agreement, the Company pays Pro-Fac the commercial market value
("CMV") for all crops supplied by Pro-Fac. 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 Pro-Fac Marketing Agreement.
The volume and type of crops to be purchased by Curtice Burns under the Pro-Fac
Marketing Agreement are determined pursuant to its annual profit plan, which
requires the approval of a majority of the Disinterested Directors of Curtice
Burns. 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 the sharing
of risks in losses of certain operations of the business.
Following, in capsule form, is the consolidated, unaudited results of operations
of Pro-Fac for the fiscal year ended June 24, 1995, assuming the Acquisition by
Pro-Fac took place at the beginning of the 1994 fiscal year.
(In Millions)
Fiscal Year Ended
(Pro Forma is unaudited)
June 24, 1995
Actual Pro Forma
Net sales $522.4 $748.5
Income before taxes $ 22.5 $ 28.4
Net income $ 29.5 $ 31.4
NOTE 3. RESTRUCTURING, ACQUISITIONS, AND DISPOSALS
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced they signed a major
outsourcing services and software agreement effective June 30, 1997. The
ten-year agreement, valued at approximately $50 million, is for SCT's, OnSite
outsourcing services and ADAGE ERP software and implementation services.
Nalley Canada Ltd.: In April 1997, the Company acquired certain businesses from
Nalley Canada Ltd., a privately held, independent snack food company and former
subsidiary of Curtice Burns. The acquired Canadian operations include 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.
Brooks Foods: On April 30, 1997, Hoopeston Foods acquired certain assets from
the Brooks Foods operating facility. The purchase price of approximately $2.1
million was paid with $400,000 in cash and a $1.7 million ten-year note. The
proceeds were applied to outstanding Bank loans. No significant gain or loss
occurred as a result of this transaction. In addition, the two companies entered
into a copack and warehouse agreement under which Hoopeston will produce,
package, and warehouse certain products.
Georgia Frozen Distribution Center: On June 27, 1997, URS Logistics, Inc.
("URS") acquired the Company's frozen foods distribution center in Montezuma,
Georgia. In addition, the two companies entered into a long-term logistics
agreement under which URS will manage its facility and all frozen food
transportation operations of Curtice Burns in Georgia and New York. The Company
received proceeds of approximately $9.1 million which were applied to
outstanding Bank loans. No significant gain or loss occurred as a result of this
transaction.
Sale of New York Canned Vegetable Businesses: On May 6, 1997, Seneca Foods
Corporation ("Seneca") acquired the Curtice Burns Leicester, New York production
facility and the LeRoy, New York distribution center, as well as the Blue Boy
brand.
Seneca and the Company have also forged 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 initially has a
minimum ten-year term.
The Company received proceeds of approximately $29.4 million which were applied
to outstanding Bank loans. No significant gain or loss occurred as a result of
this transaction.
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. A gain of
approximately $3.6 million was recognized on this transaction. Proceeds from
this sale were applied to outstanding Bank loans. The Company received proceeds
of approximately $30.0 million. The transaction also included a long-term supply
agreement between Silgan and Curtice Burns.
Packer Foods: On July 21, 1995, the Company acquired Packer Foods, a privately
owned, Michigan-based food processor. The total cost of acquisition was
approximately $5.4 million in notes plus interest at 10 percent to be paid until
the notes mature in the year 2000. The transaction was accounted for as a
purchase. For its latest fiscal year ended December 31, 1994, Packer had net
sales of $13 million, operating income of $300,000, and income before
extraordinary items of $100,000. Packer Foods has been merged into the Company's
CMF operations.
Matthews Candy Co.: In the fourth quarter of fiscal 1996, the Company acquired
Matthews Candy Co., a privately owned Washington-based snack food distributor.
The total cost of the acquisition was approximately $0.4 million and was paid in
cash. Matthews Candy Co. has been merged into the Tim's Cascade Chips operation
of the Company's Snack Foods Group.
Restructuring initiatives resulted in the following charges to earnings of the
company in fiscal 1996 and 1995:
Fiscal 1996 Restructuring Charge: During the fourth quarter of fiscal
1996, the Company began implementation of a corporate-wide
restructuring program. The overall objectives of the plan were to
reduce expenses, improve productivity, and streamline operations.
Efforts focused on the consolidation of operations and the elimination
of approximately 900 positions. The total fiscal 1996 restructuring
charge amounted to $5.9 million. This amount included a fourth-quarter
charge of approximately $4.0 million which was primarily comprised of
employee
termination benefits, and approximately $1.9 million for strategic
consulting incurred throughout the year. Reductions in personnel
included both operational and administrative positions.
Fiscal 1995 Restructuring Charge: Included in fiscal 1995 results was a
restructuring charge of $8.4 million to reflect the estimated impact of
the sale of certain assets of the Nalley US Chips and Snacks operation
and other expenses relating to the disposal of this operation. On
December 19, 1994 this operation was sold for approximately $2.0
million. This sale was contemplated by Pro-Fac in conjunction with the
acquisition.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 28, 1997 and June 29, 1996:
(Dollars in Thousands)
June 28, 1997 June 29, 1996
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
Land $ 5,755 $ 0 $ 5,755 $ 6,005 $ 0 $ 6,005
Land improvements 2,061 0 2,061 2,641 0 2,641
Buildings 80,907 645 81,552 97,855 690 98,545
Machinery and equipment 167,043 2,397 169,440 193,608 2,509 196,117
Construction in progress 13,053 0 13,053 11,881 0 11,881
-------- ------ -------- -------- ------ --------
268,819 3,042 271,861 311,990 3,199 315,189
Less accumulated depreciation 52,194 1,744 53,938 42,042 1,573 43,615
-------- ------ -------- -------- ------ --------
Net $216,625 $1,298 $217,923 $269,948 $1,626 $271,574
======== ====== ======== ======== ====== ========
Obligations under capital leases1 $1,375 $1,672
Less current portion 558 547
------ ------
Long-term portion $ 817 $1,125
====== ======
<FN>
1 Represents the present value of net minimum lease payments calculated at the
Company's incremental borrowing rate at the inception of the leases, which
ranged from 6.3 to 9.8 percent.
</FN>
Interest capitalized in conjunction with construction amounted to approximately
$342,000 and $470,000 in fiscal 1997 and 1996, respectively.
The following is a schedule of future minimum lease payments together with the
present value of the minimum lease payments related to capitalized leases, both
as of June 28, 1997.
(Dollars in Thousands)
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
1998 $ 783 $ 5,368 $ 6,151
1999 556 4,248 4,804
2000 125 2,522 2,647
2001 92 1,115 1,207
2002 66 444 510
Later years 200 71 271
------ ------- -------
Net minimum lease payments 1,822 $13,768 $15,590
======= =======
Less amount representing interest 447
Present value of minimum lease payments $1,375
Total rent expense related to operating leases (including lease arrangements of
less than one year which are not included in the previous table) amounted to
$11,204,000, $10,927,000, and $6,017,000 fiscal years 1997, 1996, and 1995,
respectively.
NOTE 5. DEBT
Bank Facility: The Bank Facility includes Term Loan, Seasonal Facility, and
Letter of Credit facilities. The outstanding borrowings under the Term Loan were
$72.2 million at June 28, 1997.
The Seasonal Facility provides seasonal financing of up to $66.0 million. The
Letter of Credit Facility provides $18.0 million.
Guarantees and Security: All obligations under the Bank Facility are
guaranteed by Pro-Fac and certain subsidiaries of Curtice Burns (the
"Subsidiary Guarantors"). The Company's obligations under the Bank
Facility and Pro-Fac's and the Subsidiary Guarantors' obligations under
their respective guaranties are secured by all of the assets of the
Company and each guarantor, respectively.
The Bank has extended to a portion of the Term Loan Facility for a
limited period of time certain fixed rates that were in effect with
respect to indebtedness repaid to the Bank on November 3, 1994. The
weighted-average rate of interest applicable to the Term Loan was 8.6
percent per annum for fiscal 1997.
Borrowings under the Seasonal Facility are payable at the expiration of
that portion of the facility, which is December 1997; except that for
15 consecutive calendar days during each year, the borrowings under the
Seasonal Facility must be zero.
Short-term borrowings for the three years ended June 28, 1997 were as follows:
(Dollars in Thousands)
Fiscal Fiscal Fiscal
1997 1996 19951
Balance at end of period $ 0 $ 0 $ 0
Rate at fiscal year end 0.0% 0.0% 0.0%
Maximum outstanding during the period $65,000 $94,000 $73,000
Average amount outstanding during the period $34,300 $53,700 $55,600
Weighted average interest rate during the period 7.3% 7.4% 7.5%
<FN>
1 The above amounts include borrowings from commercial banks and from Pro-Fac
under existing and pre-existing loan agreements.
</FN>
The Letter of Credit Facility provides for the issuance of letters of
credit through December 1997. Management anticipates timely renewals of
both the Seasonal and the Letter of Credit facilities.
Certain Covenants: The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to maintain specified levels with regard to working
capital, tangible net worth, fixed charges, the incurrence of
additional debt, and limitations on dividends, investments,
acquisitions, and asset sales. The Company is in compliance with, or
has obtained waivers for, all covenants, restrictions and requirements
under the terms of the borrowing agreement.
Commitment Fees: The Bank assesses commitment fees of 0.55 percent on
the seasonal line and 0.25 percent on the unused portion of the Term
Loan.
Fair Value: Based on an estimated borrowing rate at fiscal year end
1997 of 8.7 percent for long-term debt with similar terms and
maturities, the fair value of the Company's long-term debt outstanding
under the New Credit Agreement was approximately $71.8 million at June
28, 1997.
Based on an estimated borrowing rate at fiscal year end 1996 of 9.6
percent for long-term debt with similar terms and maturities, the fair
value of the Company's long-term debt outstanding under the New Credit
Agreement was approximately $167.6 million at June 29, 1996.
The Senior Subordinated Notes ("Notes"): The Notes are limited in aggregate
principal amount to $160.0 million and will mature on February 1, 2005. Interest
on the Notes accrues at the rate of 12.25 percent per annum and is payable
semi-annually in arrears on February 1 and August 1.
Guarantees and Security: The Notes represent general unsecured
obligations of the Company, subordinated in right of payment to certain
other debt obligations of the Company (including the Company's
obligations under the New Credit Agreement).
Certain Covenants: The Notes limited the amount Pro-Fac can borrow from
the Company to $10.0 million and provided that, if Pro-Fac borrowed
from a source other than the Company, Pro-Fac was restricted from
borrowing from the Company. On June 28, 1996, Pro-Fac established a
line of credit with the Bank and, therefore, no longer can borrow from
the Company.
The Notes also limit the amount and timing of dividends and other
payments ("Restricted Payments") from the Company to Pro-Fac or to
holders of other Curtice Burns debt or equity. No dividends or other
Restricted Payments may be made if there is an existing event of
default under the Notes or if Curtice Burns' Fixed Charge Coverage
Ratio (as defined in the Indenture, a ratio of cash flow to interest
and tax-adjusted dividends) for the preceding four quarters is not at
least 1.75 to 1.00. The amount of all dividends and other Restricted
Payments subsequent to the date of the Indenture is subject to an
overall limit that is based on the Company's net income and the amount
of additional equity invested in the Company.
Fair Value: Based on an estimated borrowing rate at 1997 fiscal year
end of 11.1 percent for borrowings with similar terms and maturities,
the fair value of the Notes was $174.7 million at June 28, 1997.
Based on an estimated borrowing rate at 1996 fiscal year end of 12.5
percent for borrowings with similar terms and maturities, the fair
value of the Notes was $156.7 million at June 29, 1996.
Other Debt: Other debt of $5.7 million carries rates up to 11.0 percent at June
28, 1997.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 1998 through 1999, $8.1 million each; 2000, $9.7 million,
2001, $16.9 million, and 2002, $11.5 million. Provisions of the Term Loan
require annual payments in the years through 2000 on October 1 of each year in
an amount equal to the "annual cash sweep" (equivalent to approximately 80
percent of net income adjusted for certain cash and non-cash items) for the
preceding fiscal year as defined in the Bank Facility. As of June 28, 1997, the
Company had satisfied its obligation under this provision. Provisions of the
Term Loan also require that cash proceeds from the sale of businesses be applied
to the Term Loan.
NOTE 6. TAXES ON INCOME
Taxes on income before cumulative effect of an accounting change include the
following:
(Dollars in Thousands)
Fiscal Fiscal Fiscal
1997 1996 1995
Federal -
Current $ 658 $ (4,884) $(3,796)
Deferred 4,409 (7,349) (4,081)
------ -------- -------
5,067 (12,233) (7,877)
State and foreign -
Current 314 25 (46)
Deferred 148 (863) 895
------ -------- -------
462 (838) 849
------ -------- -------
$5,529 $(13,071) $(7,028)
====== ======== =======
A reconciliation of the consolidated effective tax rate to the amount computed
by applying the federal income tax rate to income before taxes and cumulative
effect of an accounting change, is as follows:
(Dollars in Thousands)
June 28, June 29, June 24,
1997 1996 1995
Federal $4,631 $ (7,697) $ 7,884
State income taxes, net of federal income tax effect 484 (834) 564
Allocation to members (230) 0 (2,581)
Goodwill amortization 1,041 784 637
Dividend received deduction (472) (521) 0
Utilization of net operating loss carryforward 0 0 (5,078)
Other (net) 75 (95) 162
------ -------- -------
Subtotal 5,529 (8,363) 1,588
Tax benefits resulting from prior years' exempt status 0 (4,708) (8,616)
------ -------- -------
Total $5,529 $(13,071) $(7,028)
====== ======== =======
Effective Tax Rate 40.6% (57.7)% (31.2)%
==== ===== =====
The consolidated deferred tax (liabilities)/assets consist of the following at
June 28, 1997:
Fiscal Fiscal
1997 1996
Liabilities
Depreciation $(49,357) $(61,350)
Non-compete agreements (462) (766)
Long-term receivables (538) (426)
Prepaid manufacturing (3,215) (4,411)
Other (215) (39)
-------- --------
(53,787) (66,992)
Assets
Non-qualified retains 1,006 1,114
Inventory reserves 2,322 2,203
Allowance for doubtful accounts 377 313
Capital and operating loss carryforwards 10,159 34,615
Accrued employee benefits 3,431 3,014
Insurance accruals 2,058 2,031
Pension/OPEB accruals 7,128 6,368
Restructuring reserves 1,332 1,731
Promotional Reserves 1,592 0
Other 3,315 2,564
-------- --------
32,720 53,953
-------- --------
Net deferred liabilities (21,067) (13,039)
Valuation allowance (6,212) (17,983)
-------- --------
$(27,279) $(31,022)
The Cooperative has recorded a benefit for the federal net operating loss
carryforwards resulting from fiscal 1996 results. As of June 28, 1997 the net
operating loss carryforward available is $11.8 million ($4.0 million of tax).
The net operating loss carryforward expires 2011. During fiscal year 1997 the
cooperative utilized $32.4 million ($11.0 million of tax) of the net operating
loss available.
During fiscal year 1996, the Cooperative's wholly owned subsidiary, Curtice
Burns, sold the stock of its wholly-owned subsidiary Curtice Burns Meat Snacks,
Inc. Substantially all of the assets of this subsidiary were previously sold.
The sale resulted in a capital loss of $36.3 million ($14.2 million of tax). At
the time a full valuation allowance has been recorded against the capital loss
carryforward, as it was more likely than not that a tax benefit would not be
realized. During fiscal year 1997, the Cooperative utilized $21.6 million of the
capital loss carryforward. In conjunction with the acquisition of Curtice Burns
by the Cooperative, the
recognition of this capital loss carryforward reduces goodwill. The decrease to
the Cooperative's capital loss carryforward corresponds to the decrease in the
valuation allowance. As of June 28, 1997 the Cooperative has $14.7 million ($5.7
million of tax) of a capital loss carryforward available. The capital loss
carryforward expires in 2001 and any future recognition of this capital loss
carryforward will also reduce goodwill.
In January 1995, the Boards of Directors of Curtice Burns and Pro-Fac approved
appropriate amendments to the Bylaws of the Curtice Burns to allow the company
to qualify as a cooperative under Subchapter T of the Internal Revenue Code. In
August 1995, Curtice Burns and Pro-Fac received a favorable ruling from the
Internal Revenue Service approving the change in tax treatment effective for
fiscal 1996. This ruling also confirmed that the change in Curtice Burns tax
status would have no affect on Pro-Fac's ongoing treatment as a cooperative
under Subchapter T of the Internal Revenue Code of 1986.
In August of 1993, the Internal Revenue Service issued a determination letter
which concluded that the Cooperative was exempt from federal income tax to the
extent provided by Section 521 of the Internal Revenue Code, "Exemption of
Farmers' Cooperative from Tax." Unlike a nonexempt cooperative, a tax-exempt
cooperative is entitled to deduct cash dividends it pays on its capital stock in
computing its taxable income. The exempt status was retroactive to fiscal year
1986. In conjunction with this ruling, the Cooperative had filed for tax refunds
for fiscal years 1986 to 1992 in the amount of approximately $8.8 million and
interest payments of approximately $5.2 million. Accordingly, refund amount of
$10.1 million for tax and interest have been reflected in the financial
statements of the Cooperative as of June 24, 1995. In addition, refund amounts
of $3.9 million for tax and interest have been reflected in the financial
statement of the Cooperative as of June 29, 1996. These refunds and interest for
the fiscal years 1986 to 1991 were received in March of 1996. The refund and
interest for fiscal year 1992 was received in June of 1997.
As results of the acquisition of Curtice Burns Foods, the Cooperative's tax
exempt status has ceased.
NOTE 7. PENSIONS, PROFIT SHARING, AND OTHER EMPLOYEE BENEFITS
Pensions: The Company has primarily noncontributory defined benefit plans
covering most employees. The benefits for these plans are based primarily on
years of service and employees' pay near retirement. The Company's funding
policy is consistent with the funding requirements of Federal law and
regulations. Plan assets consist principally of common stocks, corporate bonds
and US government obligations.
The Company also participates in several union sponsored pension plans. It is
not possible to determine the Company's relative share of the accumulated
benefit obligations or net assets for these plans.
Pension cost for fiscal years ended 1997, 1996, and 1995 includes the following
components:
(Dollars in Thousands)
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
Service cost -- benefits earned during the period $ 2,888 $ 3,141 $ 2,427
Interest cost on projected benefit obligation 6,461 6,544 4,365
Return on assets:
Actual gain (4,884) (19,430) 0
Net amortization and deferral (4,063) 12,123 (4,789)
-------- --------- --------
Total gain (8,947) (7,307) (4,789)
Amortization of prior service costs (22) 0 0
Amortization of (gain)/loss (811) (64) 0
-------- --------- --------
(431) 2,314 2,003
Union and other pension costs 282 385 147
-------- --------- --------
Net pension cost $ (149) $ 2,699 $ 2,150
======== ========= =======
The pension plan's funded status was as follows:
(Dollars in Thousands)
June 28, 1997 June 29, 1996 June 24, 1995
------------- ------------- -------------
Assets Assets Assets
Exceed Exceed Exceed
Accumulated Accumulated Accumulated
Benefits Benefits Benefits
Actuarial present value of benefit obligations:
Vested benefit obligation $(72,223) $(74,108) $(65,350)
======== ======== ========
Accumulated benefit obligation $(75,138) $(77,035) $(69,449)
======== ======== ========
Projected benefit obligation $(84,280) $(85,307) $(78,809)
Plan assets at fair value 88,979 89,716 74,897
--------- --------- ---------
Plan assets excess of/(less than) projected benefit obligation 4,699 4,409 (3,912)
Unrecognized net (gain)/loss (15,913) (18,456) (8,787)
Unrecognized prior service cost (243) (266) 0
-------- -------- --------
(11,457) (14,313) (12,699)
Union and other pension plans (2,125) (2,318) (2,243)
-------- -------- --------
Pension liability $(13,582) $(16,631) $(14,942)
======== ======== ========
In 1997, the assumed discount rate, assumed long-term rate of return on plan
assets and the assumed long-term rate of compensation increase were 8.0 percent,
10.0 percent, and 4.5 percent, respectively. The year-end projected benefit
obligation decreased by approximately $2,606,000 due to the increase in the
discount rate from 7.75 percent to 8.0 percent.
In 1996 the assumed discount rate, assumed long-term rate of return on plan
assets, and the assumed long-term rate of compensation increase were 7.75
percent, 10.0 percent, and 4.50 percent, respectively. The year end projected
obligation increased by approximately $7,587,000 due to the decrease in the
discount rate from 8.5 percent to 7.75 percent.
In 1995 the assumed discount rate, assumed long-term rate of return on plan
assets, and the assumed long-term rate of compensation increase were 8.50
percent, 10.0 percent, and 4.50 percent, respectively.
Postretirement Benefits Other Than Pensions: Generally, other than pensions, the
Company does not pay retirees' benefit costs. Isolated exceptions exist, which
have evolved from union negotiations, early retirement incentives and existing
retiree commitments from acquired companies.
The Company has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The plan's funded status was as follows:
(Dollars In Thousands)
June 28, 1997 June 29, 1996
Accumulated postretirement benefit obligation:
Fully eligible active participants $ 169 $ 141
Other active participants 75 108
Retirees 2,360 2,446
------- -------
Total 2,604 2,695
Less Plan assets at fair value 0 0
------- -------
Accumulated postretirement benefit obligation in excess of fair value of assets (2,604) (2,695)
Unrecognized gains (378) (443)
------- -------
Accrued postretirement benefit cost $(2,982) $(3,138)
======= =======
Net periodic postretirement benefit cost included the following components:
(Dollars in Thousands)
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
Service cost $ 8 $ 23 $ 15
Interest cost 199 222 154
Net amortization and deferral (15) 0 0
---- ---- ----
Net periodic postretirement benefit cost $192 $245 $169
==== ==== ====
The weighted-average, assumed discount rate used to measure the benefit
obligations was 7.75 percent at the beginning and 8.00 percent at the end of
fiscal 1997. The change in the discount rate caused the accumulated
postretirement benefit obligation to decrease by approximately $53,000.
The annual rate of increase in the per capita cost of health care benefits was
assumed to be 10.0 percent for 1997 and 11.0 percent for 1996. The rate was
assumed to decrease gradually to 5.0 percent by the year 2007 and remain at that
level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation (APBO) and the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost as
follows:
(Dollars in Thousands)
Fiscal 1997
Current 1% Higher
Trend Trend
APBO $2,604 $2,696
Service cost + interest cost $ 207 $ 215
Profit Sharing/401(k): Under the prior Deferred Profit Sharing Plan and the
Non-Qualified Profit Sharing Plan, the Company allocated to all salaried exempt
employees a percentage of its earnings in excess of 5.0 percent of the combined
long-term debt and equity (as defined) of Pro-Fac and the Company. In fiscal
1995, $1.4 million was allocated to the plans.
On October 1, 1995, the Company merged the Deferred Profit Sharing Plan into the
401(k) Investment Plan. Under the new combined plan, the Retirement Savings and
Incentive Plan ("RSIP"), the Company makes an incentive contribution to the Plan
if certain pre-established earnings goals are achieved. The maximum incentive
contribution is 3 percent of base salary earned during the fiscal year. In
addition, the Company contributes 401(k) matching contributions to the Plan for
the benefit of employees who elect to defer a portion of their salary into the
plan. During fiscal 1997 and 1996 the Company allocated $500,000 and $400,000,
respectively, in the form of matching contributions and $400,000 and $211,000,
respectively, in the form of incentive contributions for the benefit of its
employees.
Long-Term Incentive Plan: On June 24, 1996, the Company introduced a long-term
incentive program, the Curtice Burns Foods Equity Value Plan, which provides
performance units to a select group of management. The future value of the
performance units is determined by the Company's performance on earnings and
debt repayment. The performance units vest 25 percent each year after the first
anniversary of the grant, becoming 100 percent vested on the fourth anniversary
of grant. One-third of the appreciated value of units in excess of the initial
grant price is paid as cash compensation over the subsequent three years. The
final value of the 1997 performance units is determined on the fourth
anniversary of grant. The total units granted were 176,278 at $25.04 per unit,
and 7,996 at $13.38 per unit in June 1997, and 248,511 at $13.38 per unit in
June 1996. In fiscal 1997, approximately $1.5 million was allocated to this
plan.
The value of the grants from the Curtice Burns Foods Equity Value Plan will be
based on the Company's future earnings and debt repayment.
Employee Stock Purchase Plan: During fiscal 1996 the Company introduced an
Employee Stock Purchase Plan which affords employees the opportunity to purchase
semi-annually, in cash or via payroll deduction, shares of Class B Cumulative
Pro-Fac Preferred Stock to a maximum value of 5 percent of salary. The purchase
price of such shares is par value, $10 per share. During fiscal 1997 and 1996,
31,435 and 33,364 shares, respectively, were held by employees, and 833 shares
were subscribed to as of June 28, 1997.
NOTE 8. COMMON STOCK AND CAPITALIZATION
Common Stock: The common stock purchased by members is related to the crop
delivery of each member. Regardless of the number of shares held, each member
has one vote. As of June 28, 1997, there were 623 holders of the common stock.
Common stock may be transferred to another grower only with approval of the
Pro-Fac Board of Directors. If a member ceases to be a producer of agricultural
products which he markets through the Cooperative, then he must sell his common
stock to another grower acceptable to the Cooperative. If no such grower is
available to purchase the stock, then the member must provide one year's advance
written notice of his intent to withdraw, after which the Cooperative must
purchase his common stock at par value. There is no established public trading
market for the common stock of the Cooperative.
In fiscal 1996 dividends on common stock were paid at a rate of 5.0 percent. No
dividends on common stock were paid in fiscal 1997.
At June 28, 1997 and June 29, 1996, there were outstanding subscriptions, at par
value, for 54,557 and 59,359 shares of common stock, respectively. These shares
are issued as subscription payments are received.
Preferred Stock: Except for the Class B Cumulative Preferred Stock all preferred
stock originated from the conversion at par value of retains. This stock is
non-voting, except that the holders of preferred and common stock would be
entitled to vote as separate classes on certain matters which would affect or
subordinate the rights of the class.
At the Cooperative's annual meeting in January 1995, shareholders approved an
amendment to the certification of incorporation to authorize the creation of
five additional classes of preferred stock.
On August 23, 1995, the Cooperative commenced an offer to exchange one share of
its Class A Cumulative Preferred Stock (liquidation preference $25 per share)
for each of its existing Non-cumulative Preferred Stock (liquidation preference
$25 per share). Pro-Fac's Class A Cumulative Preferred Stock is listed under the
symbol PFACP on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). As of June 28, 1997,
the number of Class A Cumulative Preferred Stock record holders was 1,892.
Subsequent to June 28, 1997, the Cooperative declared a cash dividend of $1.50
per share on the Non-cumulative Preferred Stock and $.43 per share on the
cumulative preferred stock. These dividends amounted to $1.3 million.
In June 1995, the Board approved, pursuant to its authority under the Charter
Amendment the creation of a new series of preferred stock, to be designated the
"Class B, Series 1, 10% cumulative preferred stock" (the "Class B Stock"). These
shares will be issued to employees of Curtice Burns pursuant to an Employee
Stock Purchase Plan. At least once a year Pro-Fac plans to offer to repurchase
at least 5 percent of the outstanding shares of Class B Stock.
The dividend rates for the preferred stock are as follows:
Non-cumulative preferred $1.50 per share paid annually at the discretion of the Board.
Class A Cumulative Preferred $1.72 per share annually, paid in four quarterly installments of $.43 per share.
Class B Cumulative Preferred $1.00 per share paid annually.
Because dividends on the Non-cumulative Preferred Stock are payable annually and
dividends on the Cumulative Preferred Stock are paid quarterly, the exchange of
Non-cumulative Preferred Stock for Cumulative Preferred Stock on October 10,
1995 resulted in the payment of 1-3/4 years of dividends to the holders of
exchanged shares in fiscal 1996.
Retained Earnings Allocated to Members ("Retains"): Retains arise from patronage
income and are allocated to the accounts of members within 8.5 months of the end
of each fiscal year.
Qualified Retains: Qualified retains are freely transferable and
normally mature into preferred stock in December of the fifth year
after allocation. Qualified retains are taxable income to the member in
the year the allocation is made.
Non-Qualified Retains: Non-qualified retains may not be sold or
purchased. The present intention of the board of directors is that the
non-qualified retains allocation be redeemed in five years through
partial payment in cash and issuance of preferred stock. The
non-qualified retains will not be taxable to the member until the year
of redemption. Non-qualified retains may be subject to later adjustment
if such is deemed necessary by the Board of Directors because of events
which may occur after the retains were allocated.
Beginning with the retains issued in 1995, the maturity of all future
retains will result in the issuance of Class A Cumulative Preferred
Stock.
Earned Surplus (Unallocated and Apportioned): Earned surplus consists of
accumulated income after distribution of earnings allocated to members,
dividends and after state and federal income taxes. Earned surplus is reinvested
in the business in the same fashion as retains.
NOTE 9. SUBSEQUENT EVENTS AND OTHER MATTERS
Formation of New Sauerkraut Company: Subsequent to fiscal year-end, on July 1,
1997, the Company and Flanagan Brothers, Inc., of Bear Creek, Wisconsin,
contributed all their assets involved in sauerkraut production into one new
sauerkraut company. This new company, Great Lakes Kraut Company, will operate as
a New York limited liability company, with ownership split between the two
companies. Management anticipates the alliance will positively impact fiscal
1998 earnings.
Legal Matters: The Company is party to various litigation and claims arising in
the ordinary course of business. Management and legal counsel for the Company
are of the opinion that none of these legal actions will have a material effect
on the financial position of the Company.
Commitments: The Company's Southern Frozen Foods Division has guaranteed an
approximate $1.4 million loan for the City of Montezuma to renovate a sewage
treatment plant operated in Montezuma on behalf of the City.
Southern Frozen Foods Fire: In July 1994, a plant operated by the Company's
Southern Frozen Foods Division, located in Montezuma, Georgia, was damaged by
fire. All material costs associated with the facility repairs and business
interruption were covered under the Company's insurance policies. A gain on
assets destroyed in the fire was recognized by Curtice Burns prior to the
Acquisition.
PRO-FAC COOPERATIVE, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the fiscal year ended June 28, 1997 appears
in the following table. All quarters reflect 13-week periods.
In the opinion of management, all adjustments necessary for a fair presentation
of the unaudited quarterly data have been made.
(Dollars in Thousands Except Per Share)
Quarters
Fiscal 1997 1 2 3 4 Total Year
--------- --------- -------- -------- ----------
Net sales $174,000 $208,186 $179,146 $169,491 $730,823
Gross profit $ 41,691 $ 59,556 $ 47,258 $ 43,237 $191,742
(Loss)/income before taxes and cumula-
tive effect of an accounting change $ (1,106) $ 11,679 $ 2,658 $ 389 $ 13,620
Cumulative effect of an accounting change1 $ 4,606 0 0 0 $ 4,606
Net (loss)/income $ 2,883 $ 8,553 $ 1,687 $ (426) $ 12,697
Cash dividends declared per share on
Class A Cumulative Preferred Stock $ 0.43 $ 0.43 $ 0.43 $ 0.43 $ 1.72
Market price per share (NASDAQ)
High $ 14.00 $ 14.00 $ 19.25 $ 18.75 $ 19.25
Low $ 12.50 $ 12.00 $ 13.38 $ 16.50 $ 12.00
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
1 Reflects final allocation of change in accounting principle (net of income
taxes) to Pro-Fac.
PART III
ITEM 10. DIRECTORS AND OFFICERS
MANAGEMENT AND DIRECTORS OF PRO-FAC
Date
Name of Birth Positions
Bruce R. Fox 1947 President and Director
Albert P. Fazio 1936 Vice President and Director
Steven D. Koinzan 1948 Treasurer and Director
Tommy R. Croner 1942 Secretary and Director
Stephen R. Wright 1947 Assistant Treasurer and General Manager
Earl L. Powers 1944 Vice President Finance and Assistant Treasurer
Thomas R. Kalchik 1947 Vice President Administration and Planning
Kevin M. Murphy 1952 Vice President of Member Relations
Diana Bartalo 1946 Assistant Treasurer
Dale W. Burmeister 1940 Director
Robert V. Call, Jr. 1926 Director
Glen Lee Chase 1937 Director
Robert DeBadts 1957 Director
Kenneth A. Mattingly 1948 Director
Allan W. Overhiser 1960 Director
Paul E. Roe 1939 Director
Darrell Sarff 1949 Director
Bruce R. Fox has been a Director of Pro-Fac since 1974. For information
regarding Mr. Fox, see "Management and Directors of Curtice Burns."
Albert P. Fazio has been a Director of Pro-Fac since 1976. He was Vice President
of Pro-Fac between March 1993 and acted as President from January 28, 1995 to
March 27, 1995. He has been a member of Pro-Fac since 1975. He was Secretary of
Pro-Fac from 1991 to 1993. Mr. Fazio is a vegetable, grain and livestock farmer
(New Columbia Garden Co., Inc.; Vancouver, Washington). Mr. Fazio also operates
a sand and gravel business (Fazio Bros. Sand Co.; Vancouver, Washington).
Steven D. Koinzan has been a Director of Pro-Fac since 1983. For information
regarding Mr. Koinzan, see "Management and Directors of Curtice Burns."
Tommy R. Croner has been a Director of Pro-Fac since 1985 and a member of
Pro-Fac since 1973. He was elected Secretary on March 27, 1995. Mr. Croner is a
dairy and potato farmer (T-Rich Inc.; Berlin, Pennsylvania).
Earl L. Powers has been Vice President Finance and Assistant Treasurer of
Pro-Fac since 1997. For information regarding Mr. Powers, see "Management and
Directors of Curtice Burns."
Stephen R. Wright has been General Manager of Pro-Fac since March 1995, having
previously served as Assistant General Manager since November 1994. For
information regarding Mr. Wright, see "Management and Directors of Curtice
Burns."
Thomas R. Kalchik has served as Vice President of Administration and Planning
since June 1995 and had been Vice President of Member Relations of Pro-Fac from
June 1990 to June 1995 and Assistant Secretary of Pro-Fac since 1983. Mr.
Kalchik was Director of Member Relations of Pro-Fac from August 1983 to June
1990.
Kevin M. Murphy has been Vice President of Member Relations of Pro-Fac since
June 1995. Mr. Murphy was Director of Pro-Fac Communications and Member
Relations from August 1990 to June 1995.
Diana Bartalo has been Assistant Treasurer of Pro-Fac since 1988. For
information regarding Ms. Bartalo, see ""Management and Directors of Curtice
Burns."
Dale W. Burmeister has been a Director of Pro-Fac since 1992 and a member of
Pro-Fac since 1974. Mr. Burmeister is a fruit and vegetable grower (Lakeshore
Farms, Inc.; Shelby, Michigan).
Robert V. Call, Jr. has been a Director of Pro-Fac since 1962. For information
regarding Mr. Call, see "Management and Directors of Curtice Burns."
Glen Lee Chase has been a Director of Pro-Fac since 1989 and a member of Pro-Fac
since 1984. Mr. Chase is a peanut, poultry, grain and vegetable farmer (Chase
Farms Inc.; Oglethorpe, Georgia).
Robert DeBadts was elected a Director of Pro-Fac in January 1997 and has been a
member of Pro-Fac since 1978. Mr. DeBadts is a fruit grower (Lake Breeze Fruit
Farms, Inc.; Sodus, New York).
Kenneth A. Mattingly has been a Director of Pro-Fac since 1993 and a member of
Pro-Fac since 1978. Mr. Mattingly is a vegetable and grain farmer (M-B Farms
Inc.; LeRoy, New York).
Allan W. Overhiser has been a Director of Pro-Fac since March 1994 and a member
of Pro-Fac since 1984. Mr. Overhiser is a fruit farmer (A.W. Overhiser Orchards;
South Haven, Michigan).
Paul E. Roe has been a Director of Pro-Fac since 1986 and a member of Pro-Fac
since 1961. Mr. Roe is a vegetable, grain and dry bean farmer (Roe Acres, Inc.;
Bellona, New York).
Darrell Sarff was elected a Director of Pro-Fac in February 1997 and has been a
member of Pro-Fac since 1988. Mr. Sarff is a grain and vegetable farmer (Sarff
Farms; Chandlerville, Illinois).
Term of Office: Directors of Pro-Fac are elected for three-year terms. Officers
of Pro-Fac are elected for one-year terms.
MANAGEMENT AND DIRECTORS OF CURTICE BURNS
Effective upon consummation of the Acquisition, Pro-Fac established a management
structure for the Company, providing for a Board of Directors consisting of one
management director, Pro-Fac Directors and Disinterested Directors. The number
of Pro-Fac Directors is equal to the number of Disinterested Directors. The
Chairman of the Board is a Pro-Fac Director. The management and directors are
listed below. The Company may in the future expand the Board of Directors, but
Pro-Fac has undertaken to cause the Company to maintain a Board on which the
number of Pro-Fac Directors does not exceed the number of Disinterested
Directors. Both the New Credit Agreement and the Indenture provide that there
will be a Change of Control if, for a period of 120 consecutive days, the number
of Disinterested Directors on the Board of Directors of the Company is less than
the greater of (i) two and (ii) the number of directors of the Company who are
Pro-Fac Directors.
Set forth below is certain information concerning the individuals who serve as
directors and officers of the Company as well as other corporate officers and
the individuals who serve as presidents and chief executive officers of certain
of the Company's divisions.
Year of
Name Birth Positions
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
Roy A. Myers 1931 Retired President and Chief Executive Officer and Director
William D. Rice 1934 Senior Vice President Strategic Development and Secretary
Diana Bartalo 1946 Treasurer and Director of Financial Reporting
Robert E. McMahon 1941 Vice President Management Information Systems
Earl L. Powers 1944 Vice President and Chief Financial Officer
Beatrice B. Slizewski 1943 Vice President Corporate Communications
Lois J. Warlick-Jarvie 1958 Vice President Human Resources
Stephen R. Wright 1947 Executive Vice President Agriculture
Carl W. Caughran 1953 President and Chief Executive Officer of Nalley Fine Foods
Year of
Name Birth Positions
Bernhard Frega 1950 President and Chief Executive Officer of CMF
Tim Kennedy 1948 President and Chief Executive Officer of Tim's Cascade Chips
David R. Ray 1945 President and Chief Executive Officer of Husman and Snyder
Robert V. Call, Jr.(2) 1926 Director and Chairman of the Board
Bruce R. Fox(2) 1947 Director
Cornelius D. Harrington, Jr.(3) 1927 Director
Steven D. Koinzan(2) 1948 Director
Walter F. Payne(3) 1936 Director
Frank M. Stotz(3) 1930 Director
<FN>
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
</FN>
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1997 and a Director of the Company since May 1996. He was Chief
Operating Officer from since May 1996 to January 1997 and Executive Vice
President since January 1996. He had been President and Chief Executive Officer
of CMF from March 1993 to May 1996. He was Senior Vice President and Business
Unit Manager Foodservice of CMF from 1991 to 1993, and Senior Vice
President-Custom Pack Sales for Nalley from 1990 to 1991. Prior to employment
with the Company, he was President and Chief Executive Officer of Globe Products
Company.
Roy A. Myers was President and Chief Executive Officer from November 1994 to
January 1997. Mr. Myers retired in January 1997. Prior to his retirement Mr.
Myers served as a Director and Executive Vice President of the Company from 1987
to the completion of the Acquisition (at which time he was appointed the Chief
Executive Officer). He served as Vice President-Operations of the Company from
1985 to 1987 and as Vice President of the Company from 1983 to 1985. He has been
an employee of the Company or a predecessor to the Company since 1955 in various
other capacities including Industrial Relations Manager, Operations Manager and
President of the Corporate Services Division. He was General Manager of Pro-Fac
from 1987 until the completion of the Acquisition, having served as Assistant
General Manager from 1983 to 1987.
William D. Rice has been Senior Vice President Strategic Development since
February 1997 and Secretary of the Company since 1989. He was Chief Financial
Officer from 1969 to February 1997. He was Treasurer of the Company from 1975 to
1996. He was Vice President-Finance of the Company from 1969 to 1991. He was
Assistant Treasurer of Pro-Fac from 1970 to February 1997 (Management Chief
Financial Officer for Pro-Fac).
Diana Bartalo has been Treasurer since March 1996 and Director of Financial
Reporting since 1992; Assistant Treasurer from 1988 to March 1996; Corporate
Accounting Manager 1976-1992. She held several administrative staff positions
1970-1976 and has been Assistant Treasurer of Pro-Fac since 1987.
Robert E. McMahon has been Vice President Information Systems since November
1993; prior to that he was Vice President, Information Systems for the CMF
Division 1992-1993 and Director of Corporate Information Systems since December
1991. He joined the CMF Division as Systems Integration Manager in 1989 and
became Director of Information Systems for that Division in 1990. Prior to
employment with Curtice Burns, he held management, executive and technical
positions with such organizations as Abbott Labs, BASF, IBM, MTech, and Price
Waterhouse LLP.
Earl L. Powers has been Vice President and Chief Financial Officer since
February 1997. He was Vice President and Corporate Controller from March 1993 to
February 1997, and Vice President Finance and Management Information Systems,
CMF Division of the Company from 1991 to March 1993. Prior to joining the
Company, he was Controller of various Pillsbury Company divisions 1987-1990 and
various other executive management positions at the Pillsbury Company 1976-1987.
Beatrice B. Slizewski has been Vice President of Corporate Communications for
Curtice Burns and Pro-Fac since March 1995. She joined the Company as Director
of Corporate Communications in 1991. Prior to joining Curtice Burns (1988-1991),
she worked as a marketing and public relations consultant for J.P. Associates, a
business consulting agency in Rochester, New York. Previous food industry
experience includes 14 years with the R.T. French Company (1974-1988) -- eight
years in public relations and six years in various accounting functions.
Lois J. Warlick-Jarvie has been Vice President Human Resources since January
1993; Corporate Director Human Resources July 1991 to January 1993; Manager
Compensation, Benefits and Risk Management January 1989 to July 1991; various
administrative staff positions within the Company 1982 to 1989.
Stephen R. Wright has been Executive Vice President since November 6, 1996. He
was Senior Vice President - Procurement of the Company from November 1994 and
Vice President -- Procurement for the Company from 1990 to November, 1994,
having served as Director of Commodities and Administration Services for the
Company from 1988 to 1990. He became General Manager of Pro-Fac in March 1995.
Carl W. Caughran has been President and Chief Executive Officer of Nalley Fine
Foods since March 1996. Prior to joining the Company, he was Vice
President/General Manager of Borden's Eastern Snacks Group 1993 to 1995, Vice
President/General Manager of Borden's Western Snacks Group 1991 to 1993, and
held various executive positions at Borden 1983 to 1991.
Bernhard Frega has been President and Chief Executive Officer of CMF since May
1996. He had been Executive Vice President and Chief Operating Officer of CMF
from December 1995 to May 1996. Prior to that he held increasingly responsible
positions at CMF, beginning in 1974 in sales and marketing. He became Marketing
Director in 1984, Vice President Private Label in 1987 and Senior Vice President
for Consumer Products in 1995.
Tim Kennedy has been President and Chief Executive Officer of Tim's since its
acquisition by the Company in 1989. Prior to that, he was President and Chief
Executive Officer at Tim's which was a privately-held corporation since its
inception in 1986.
David R. Ray has been President and Chief Executive Officer of Husman since
1995. He was Executive Vice President and Chief Operating Officer of Husman 1990
to 1995 and Director of Sales for Chips and Snacks at Nalley 1987 to 1990.
Robert V. Call, Jr. has been a Director of the Company since the completion of
the Acquisition. Mr. Call had been a Director of the Predecessor entity since
1986 until completion of the Acquisition (at which time he resigned and was
reappointed). He has been a Director of Pro-Fac since 1962. He was President of
Pro-Fac from 1986 to March 27, 1995, having served as Treasurer from 1973 to
1984. He has been a member of Pro-Fac since 1961. He is a vegetable, fruit and
grain farmer (My-T Acres, Inc., Batavia, NY).
Bruce R. Fox has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1974. He was Treasurer of
Pro-Fac from 1984 until March 27, 1995, when he was elected President. He has
been a member of Pro-Fac since 1974. Mr. Fox is a fruit and vegetable grower
(N.J. Fox & Sons, Inc., Shelby, MI).
Cornelius D. Harrington, prior to his retirement, was President of the Bank of
New England-West in Springfield, MA or a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
MA. He has been a Director of the Farm Credit Bank of Springfield since January
1994.
Steven D. Koinzan has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1983. He was Secretary of
Pro-Fac from March 1993 until March 27, 1995, when he was elected Treasurer. He
has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn, field corn
and soybean farmer (Koinzan Farms; Norden, Nebraska).
Walter F. Payne has been a Director of the Company since January 1996 and
President and Chief Executive Officer of Blue Diamond Growers since 1992. He
held various positions at Blue Diamond Growers between 1973 and 1992. He is
currently on the Board of Directors of the Almond Board of California and the
International Nut Council, a board alternate for the National Council of Farmer
Cooperatives, and a member of the Board of Trustees for the Graduate Institute
of Cooperative Leadership.
Frank M. Stotz has been a Director of the Company since the completion of the
Acquisition. Mr. Stotz retired in 1994 from his position as Senior Vice
President - Finance of Bausch & Lomb Incorporated. Before joining Bausch & Lomb
in that capacity in 1991, Mr. Stotz was a partner with Price Waterhouse. He
joined Price Waterhouse in Chicago in 1954, was admitted to partnership in 1966
and retired from the firm in 1991 to join Bausch & Lomb. From 1980 to 1991, he
was partner in charge of the Rochester office of Price Waterhouse. Mr. Stotz
serves on the Boards of Trustees of St. John Fisher College, The Genesee
Hospital, The Rochester
Center for Governmental Research and The Automobile Club of Rochester. He is
also a member of the Bishop's Council of the Catholic Diocese of Rochester.
Term of Office: All directors of the Company will hold office from the date of
election until the next annual meeting of the shareholder or until their
successors are duly elected and qualified. Each executive officer of the Company
will hold office from the date of election until his successor is elected or
appointed.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by the Company to become a Director or executive
officer. Officers of the Company serve for a term of office from the date of
election to the next organization meeting of the Board of Directors or until
their respective successors are elected and qualified, except in the case of
death, resignation, or removal.
Section 16(a) Beneficial Ownership Reporting Compliance: In accordance with the
rules of the Securities and Exchange Commission under Section 16 of the
Securities Exchange Act of 1934, directors, executive officers, and beneficial
owners of 10 percent or more of the Company's stock must file certain reports of
stock ownership and changes of stock ownership. Based solely upon its review of
copies of such reports received by it, or written representations of certain
reporting persons that no forms were required to be filed, Pro-Fac believes that
for the fiscal year ended June 28, 1997, all reports required by such reporting
persons were timely filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and certain other most highly
compensated executive officers of the Company, earned during fiscal years ended
June 28, 1997, June 29, 1996, and June 24, 1995 (collectively, the "Named
Executive Officers").
Executive Compensation
Summary Compensation Table
RSIP/
Matching
Contributions
Annual Deferred
Compensation1 Profit
Name and Principal Position Year Salary Bonus2 Sharing
Dennis M. Mullen - 1997 $349,181 $210,000 $ 8,013
President and Chief Executive Officer 1996 $216,107 $ 0 $ 1,465
1995(3) $112,772 $ 71,207 $ 7,265
Roy A. Myers - 1997 $224,000 $125,280 $ 2,736
Retired President, Chief Executive Officer, and Director 1996 $410,154 $ 0 $ 2,672
1995(3) $258,375 $200,539 $10,609
William D. Rice - 1997 $259,422 $107,000 $ 5,990
Senior Vice President Strategic Development and Secretary 1996 $249,642 $ 0 $ 1,656
1995(3) $159,081 $116,143 $ 9,791
Stephen R. Wright 1997 $180,043 $ 80,000 $ 4,321
General Manager of Pro-Fac Cooperative, Inc. and 1996 $156,789 $ 0 $ 1,627
Executive Vice President of Curtice-Burns Foods, Inc. 1995(3) $ 98,373 $ 51,628 $ 4,520
Earl L. Powers 1997 $187,179 $107,000 $ 4,492
Vice President Finance and Chief Financial Officer 1996 $157,990 $ 0 $ 1,642
1995(3) $ 99,151 $ 60,333 $ 6,099
Bernhard Frega 1997 $175,769 $ 90,000 $ 4,341
President and Chief Executive Officer of CMF 1996 $141,677 $ 0 $ 1,675
1995(3) $ 81,800 $ 42,500 $ 4,539
<FN>
1 No Named Executive Officer has received personal benefits during the period
in excess of the lesser of $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of
the officers and employees eligible under the Incentive Plan and by the
earnings of the Company and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
3 Represents partial year of annual salary paid subsequent to November 3,
1994.
</FN>
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
Roy A. Myers 0 6/25/2001 $0 $0
Dennis M. Mullen 32,085 6/25/2001 $0 $0
William D. Rice 23,636 6/25/2001 $0 $0
Stephen R. Wright 13,970 6/25/2001 $0 $0
Earl L. Powers 14,056 6/25/2001 $0 $0
Bernhard Frega 15,041 6/25/2001 $0 $0
<FN>
(1) On June 25, 1997, the Company issued performance units under the Curtice
Burns Foods Equity Value Plan ("EVP") to a select group of management. The
future value of the performance units is determined by the Company's
performance on earnings and debt repayment. The performance units vest 25
percent each year after the first anniversary of the grant, becoming 100
percent vested on the fourth anniversary of grant. One-third of the
appreciated value of units in excess of the initial grant price is paid as
cash compensation over the subsequent three years. The final value of the
1997 performance units is determined on the fourth anniversary of grant.
(2) The value of the June 25, 1997 grants from the Curtice Burns Foods Equity
Value Plan will be based on the Company's future earnings and debt
repayment. The beginning value of these performance units was set at a
level requiring improved earnings and debt-repayment performance. The
target payouts shown above are based on the value of the performance units
at fiscal 1997 earnings and debt levels and would yield no payout from the
plan at those levels. If future performance equals fiscal 1997 performance,
no payouts will be made from the plan relative to the options granted on
June 25, 1997.
</FN>
Retirement Plans: The Company's Master Salaried Retirement Plan (the "Pension
Plan") provides defined retirement benefits for its officers and all salaried
and clerical personnel. The compensation upon which the pension benefits are
determined is included in the salary columns of the "Summary Compensation
Table."
For retirement before age 65, the annual benefits are reduced by an amount for
each year prior to age 65 at which such retirement occurs so that if retirement
occurs at age 55, the benefits are 70 percent of those payable at age 65.
The approximate number of years of Plan participation under the Company's
Pension Plan as of June 28, 1997, of the Executive Officers listed in the
Summary Compensation Table are as follows: Roy A. Myers-34, Dennis M. Mullen-7,
William D. Rice-25, Stephen R. Wright-23, Earl L. Powers-5, and Bernhard
Frega-21.
On January 28, 1992, the Company adopted an Excess Benefit Retirement Plan which
serves to provide employees with the same retirement benefit they would have
received from the Company's Master Salaried Retirement Plan under the career
average base pay formula, but for changes required under the 1986 Tax Reform Act
and the compensation limitation under Section 401(a)(17) of the Internal Revenue
Code, which was $150,000 on January 1, 1994, having been revised in the 1992
Omnibus Budget Reform Act.
The following table shows the estimated pension benefits payable to a covered
participant, at age 65, at the specified final average pay, and years of
credited service levels under the Company's Master Salaried Retirement Plan and
the Excess Benefit Retirement Plan.
Pension Plan Table
Final Years of Plan Participation
Average Pay 15 20 25 30 35
$125,000 $22,142 $ 29,008 $ 35,775 $ 42,721 $ 49,805
150,000 27,392 36,008 44,525 53,221 62,055
175,000 32,642 43,008 53,275 63,721 74,305
200,000 37,892 50,008 62,025 74,221 86,555
225,000 43,142 57,008 70,775 84,721 98,805
250,000 48,392 64,008 79,525 95,221 111,055
275,000 53,642 71,008 88,275 105,721 123,305
300,000 58,892 78,008 97,025 116,221 135,555
325,000 64,142 85,008 105,775 126,721 147,805
350,000 69,392 92,008 114,525 137,221 160,055
375,000 74,642 99,008 123,275 147,721 172,305
400,000 79,892 106,008 132,025 158,221 184,555
Termination Protection Provisions: The Company has adopted a Salary Continuation
Agreement for Mr. Mullen, whereby, two years of salary and benefit continuation
will be provided if Mr. Mullen's employment is involuntarily terminated on or
before December 31, 1998, for reasons other than for "cause" as such term is
defined in the Agreement.
Directors Compensation: In fiscal 1997, non-employee directors who were
designated by Pro-Fac received an annual stipend of $6,000 per year, plus $200
per day for attending Board or Committee meetings. In fiscal 1997, all other
outside directors, Messrs. Harrington, Payne, and Stotz received an annual rate
of $18,000 in addition to $600 per day. The Chairman of the Board receives a
fixed amount in lieu of the standard attendance fees and annual stipend. The
Company accrued an annual stipend of $24,700 for Mr. Call as Chairman of the
Board. Mr. Myers was not paid directors' fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 15, 1997, with
respect to (i) each person known by Pro-Fac to own beneficially 5 percent or
more of any class of Pro-Fac's voting securities, (ii) each director and Named
Executive Officer of Pro-Fac and (iii) all directors and officers of Pro-Fac as
a group.
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
Cherry Central Cooperative, Inc. Common 345,912 19.34%
PO Box 988 Class A Cumulative Preferred 51,706 1.61%
Traverse City, MI 49685
Michigan Blueberry Growers Assoc. Common 116,400 6.51%
PO Drawer B Class A Cumulative Preferred 22,422 0.70%
Grand Junction, MI 49056
Dale E. Burmeister Common 6,646(c) 0.29%
Class A Cumulative Preferred 757(c) 0.02%
Class A Cumulative Preferred 8,900 0.28%
Robert V. Call, Jr. Common 39,728(d) 2.22%
Class A Cumulative Preferred 24,493(d) 0.77%
Class A Cumulative Preferred 13,485(e) 0.42%
Class A Cumulative Preferred 5,361(f) 0.17%
Class A Cumulative Preferred 1,506 0.05%
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
Glen Lee Chase Common 9,472(g) 0.53%
Class A Cumulative Preferred 5,585(g) 0.17%
Tommy R. Croner Common 7,026(h) 0.39%
Class A Cumulative Preferred 10,593(i) 0.33%
Robert DeBadts Common 11,513(j) 0.64%
Class A Cumulative Preferred 5,982(j) 0.19%
Class A Cumulative Preferred 100(k) 0.00%
Albert P. Fazio Common 8,000(l) 0.45%
Class A Cumulative Preferred 9,072(l) 0.28%
Bruce R. Fox Common 21,757(m) 1.22%
Class A Cumulative Preferred 8,831(m) 0.27%
Class A Cumulative Preferred 4,566(n) 0.14%
Class A Cumulative Preferred 1,871 0.06%
Steven D. Koinzan Common 7,800 0.44%
Class A Cumulative Preferred 2,460 0.08%
Kenneth A. Mattingly Common 6,471(o) 0.36%
Class A Cumulative Preferred 3,929(o) 0.12%
Dennis M. Mullen None 0 0.00%
Allan W. Overhiser Common 2,412(p) 0.13%
Class A Cumulative Preferred 1,607(p) 0.05%
Earl L. Powers None 0 0.00%
Paul E. Roe Common 14,215(q) 0.79%
Class A Cumulative Preferred 1,681(q) 0.05%
William D. Rice None 0 0.00%
Darrell Sarff Common 1,140 0.06%
Class A Cumulative Preferred 224 0.01%
Stephen R. Wright Class A Cumulative Preferred 840 0.03%
All directors and officers as a group Common 136,180 7.61%
Class A Cumulative Preferred 111,843 3.47%
<FN>
(a) Certain of the directors named above may have the opportunity, along with
the other members producing a specific crop, to acquire beneficial
ownership of additional shares of the common stock of Pro-Fac within a
period of approximately 60 days commencing February 1, 1996 if Pro-Fac
determines that a permanent change is required in the total quantity of
that particular crop.
(b) In the above table, each director who has direct beneficial ownership of
common or preferred shares by reason of being the record owner of such
shares has sole voting and investment power with respect to such shares,
while each director who has direct beneficial ownership of common or
preferred shares as a result of owning such shares as a joint tenant has
shared voting and investment power regarding such shares. Each director
who has indirect beneficial ownership of common or preferred shares
resulting from his status as a shareholder or a partner of a corporation or
partnership which is the record owner of such shares has sole voting and
investment power if he controls such corporation or partnership. If he does
not control such corporation or partnership, he has shared voting and
investment power. Pro-Fac does not believe that the percentage ownership of
any such corporation or partnership by a director is material, since in the
aggregate no director beneficially owns in excess of 5 percent of either
the common or preferred shares of Pro-Fac.
(c) Record ownership by Lakeshore Farms, Inc.
(d) Record ownership by My-T Acres, Inc.
(e) Record ownership by My-T Acres, Inc. Employee Profit Sharing Plan
(f) Record ownership by Call Farms, Inc.
(g) Record ownership by Chase Farms, Inc.
(h) Record ownership by Richard Croner & Son
(i) Record ownership by T-Rich, Inc.
(j) Record ownership by Lake Breeze Farm, Inc.
(k) Record ownership jointly with spouse
(l) Record ownership by New Columbia Garden Co., Inc.
(m) Record ownership by N.J. Fox & Sons, Inc.
(n) Record ownership by K. Fox
(o) Record ownership by M-B Farms, Inc.
(p) Record ownership by A.W. Overhiser Orchards
(q) Record ownership by Roe Acres, Inc.
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Borrowings by Pro-Fac: The Indenture governing the Notes permitted the Company
to make demand loans to Pro-Fac for working capital purposes in amounts not to
exceed $10.0 million at any time, each such loan to bear interest at a rate
equal to the rate in effect on the date of such loan under the Seasonal
Facility. The loan balance was required to be reduced to zero for a period of
not less than 15 consecutive days in each fiscal year. Except for the foregoing
provision and except for Pro-Fac's guarantee of the Notes and the New Credit
Agreement, as long as Pro-Fac has the right to borrow under the Pro-Fac
Marketing and Facilitation Agreement, the Indenture does not permit Pro-Fac to
incur any other indebtedness. During fiscal 1996, Pro-Fac repaid amounts due the
Company and incurred debt from the Bank.
Equity Ownership in CoBank: As part of its historical lending arrangements with
the Bank, which is a cooperative, Pro-Fac made investments in the Bank. Pro-Fac
made these investments through (i) a capital purchase obligation equal to a
percentage, set annually based on the Bank's capital needs, of its interest paid
to the Bank and (ii) a patronage rebate on interest paid by Pro-Fac to the Bank
based on the Bank's earnings, which is paid in cash and capital certificates.
The investments in the Bank represent a percentage of the previous five-years'
average borrowings from the Bank. As of June 28, 1997, the amount of the
Company's investment in the Bank was approximately $25.3 million.
Purchase of Crops From Pro-Fac: Each of the members of Pro-Fac sells crops to
Pro-Fac pursuant to a general marketing agreement between such member and
Pro-Fac, which crops in turn are sold to the Company pursuant to the Pro-Fac
Marketing and Facilitation Agreement. During fiscal 1997, the following
directors and executive officers of Pro-Fac directly or through sole
proprietorships or corporations, sold crops to Pro-Fac and provided harvesting,
trucking and waste removal services to Curtice Burns for the following aggregate
amounts:
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 1997
Dale E. Burmeister................................................ Director 183,000
Robert V. Call, Jr................................................ Director 2,254,000
Glen Lee Chase.................................................... Director 199,000
Tommy R. Croner................................................... Director and Secretary 261,000
Robert DeBadts.................................................... Director 422,000
Albert P. Fazio................................................... Director and Vice President 144,000
Bruce R. Fox...................................................... Director and President 935,000
Steven D. Koinzan................................................. Director and Treasurer 475,000
Kenneth A. Mattingly.............................................. Director 806,000
Allan W. Overhiser................................................ Director 30,000
Paul E. Roe....................................................... Director 733,000
Darrell Sarff..................................................... Director 75,000
DIRECTORS AND OFFICERS LIABILITY INSURANCE
As authorized by New York law and in accordance with the policy of that state,
the Cooperative has obtained insurance from Chubb Group Insurance insuring the
Cooperative against any obligation it incurs as a result of its indemnification
of its officers and directors, and insuring such officers and directors for
liability against which they may not be indemnified by the Cooperative. This
insurance has a term expiring on August 15, 1998, at an annual cost of
approximately $80,000. As of this date, no sums have been paid to any officers
or directors of the Cooperative under this indemnification insurance contract.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The following appears in ITEM 8 of This Report
ITEM Page
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Management's Responsibility for Financial Statements.................................................................. 21
Report of Independent Accountants..................................................................................... 22
Consolidated Financial Statements for the years ended June 28, 1997, June 29,
1996, and June 24, 1995:
Consolidated Statement of Operations and Net Proceeds............................................................. 23
Consolidated Balance Sheet........................................................................................ 24
Consolidated Statement of Cash Flows.............................................................................. 25
Consolidated Statement of Changes in Shareholders' and Members' Capitalization and Common Stock................... 27
Notes to Consolidated Financial Statements........................................................................ 28
Selected Quarterly Financial Data................................................................................. 41
(2) The following additional financial data are set forth herein:
SCHEDULE II: Valuation and Qualifying Accounts
SCHEDULE II
Pro-Fac Cooperative, Inc.
Valuation and Qualifying Accounts
June 28, 1997 June 29, 1996 June 24, 1995
------------- ------------- -------------
Balance at beginning of period $ 836,000 $ 673,000 $ 683,000
Additions charged to expense 446,000 537,000 91,000
Deductions (312,000) (374,000) (101,000)
------------ ----------- ---------
Balance at end of period $ 970,000 $ 836,000 $ 673,000
============ =========== ==========
Inventory reserve*
Balance at beginning of period $ 485,000 $ 144,000 $ 0
Net change (123,000) (341,000) 144,000
------------ ----------- ---------
Balance at end of period* $ 362,000 $ 485,000 $ 144,000
============ =========== ==========
Tax valuation allowance**
Balance at beginning of period $ 17,983,000 $ 7,366,000 $ 0
Net change (11,771,000) 10,617,000 7,366,000
------------ ----------- ----------
Balance at end of period $ 6,212,000 $17,983,000 $7,366,000
============ =========== ==========
<FN>
* Difference between FIFO cost and market applicable to canned and frozen
fruit and vegetable inventories.
** See further discussion regarding tax matters at NOTE 6 to the "Notes to
Consolidated Financial Statements."
</FN>
Schedules other than those listed above are omitted because they are either not
applicable or not required, or the required information is shown in the
financial statements or the notes thereto.
(3) The following exhibits are filed herein or have been previously filed with
the Securities and Exchange Commission:
(b) Report on Form 8-K
None
(c) EXHIBITS:
Exhibit
Number Description
3.3(2) Certificate of Incorporation of Curtice Burns.
3.4(3) Bylaws of Curtice Burns.
10.1(2) Indenture, dated as of November 3, 1994 (the
"Indenture"), among PFAC, Pro-Fac and IBJ Schroder
Bank & Trust Company ("IBJ"), as Trustee, as
amended by First Supplemental Indenture, dated as
of November 3, 1994, each with respect to Curtice
Burns' 12.25 percent Senior Subordinated Notes due
2005 (the "Notes").
10.2(2) Term Loan, Term Loan Facility and Seasonal Loan
Agreement, dated as of November 3, 1994, among
Springfield Bank for Cooperatives (the "Bank"),
Curtice Burns and PFAC.
10.3(2) Parent Guaranty, dated as of November 3, 1994, by
Pro-Fac in favor of the Bank.
10.4(2) Parent Security Agreement, dated as of November 3,
1994 between Pro-Fac and the Bank.
10.5(2) Mortgage, Open End Mortgage, Deed of Trust, Trust
Deed, Deed to Secure Debt, Purchase Money Mortgage,
Assignment, Security Agreement and Financing
Statement dated November 3, 1994 among PFAC,
Curtice Burns and the Bank.
10.6(2) Marketing and Facilitation Agreement, dated
as of November 3, 1994, between Pro-Fac and Curtice
Burns.
10.7(2) Management Incentive Plan, as amended.
10.8(2) Supplemental Executive Retirement Plan, as amended.
10.10(2) Master Salaried Retirement Plan, as amended.
10.11(2) Non-Qualified Profit Sharing Plan, as amended.
10.12(2) Excess Benefit Retirement Plan.
10.13 Salary Continuation Agreement - Dennis M. Mullen.
10.14(1) Modification A of Term Loan, Term Loan Facility,
and Seasonal Loan Agreement, dated as of January
26, 1995, between Curtice Burns and the Bank.
10.15(1) Second Amendment to Non-Qualified Profit Sharing
Plan.
10.16(3) Modifications B - D of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Curtice Burns and the Bank.
10.17(4) Modifications E - F of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Curtice Burns and the Bank.
10.18(4) Equity Value Plan Adopted on June 24, 1996.
10.19(4) Seasonal Loan Agreement Between Pro-Fac and the
Bank Dated June 28, 1996.
10.20 Modifications G - K of Term Loan, Term Loan Facility,
and Seasonal Loan Agreement Between Curtice Burns and
Bank.
10.21 OnSite Services Agreement with Systems & Computer
Technology.
10.22 Raw-Product Supply Agreement with Seneca Foods
Corporation.
10.23 Reciprocal Co-Pack Agreement with Seneca Foods
Corporation.
Exhibit
Number Description
18(5) Accountant's Report Regarding Change in Accounting Method
21.1 List of Subsidiaries.
27 Financial Data Schedule.
(1) Incorporated by reference from Registration Statement No. 33-60273.
(2) Incorporated by reference from Registration Statement No. 33-56517, as
amended.
(3) Incorporated by reference from the Registrant's 1995 Annual Report on Form
10-K.
(4) Incorporated by reference from the Registrant's 1996 Annual Report on Form
10-K.
(5) Incorporated by reference from the Registrant's First Quarter Report on
Form 10-Q.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: August 21, 1997 BY:/s/ Stephen R. Wright
STEPHEN R. WRIGHT
GENERAL MANAGER
Date: August 21, 1997 BY:/s/ Earl L. Powers
EARL L. POWERS
VICE PRESIDENT FINANCE AND
ASSISTANT TREASURER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints STEPHEN R. WRIGHT AND EARL L. POWERS, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby satisfying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Bruce R. Fox President and Director August 21, 1997
(BRUCE R. FOX)
/s/ Albert P. Fazio Vice President and Director August 21, 1997
(ALBERT P. FAZIO)
/s/ Steven D. Koinzan Treasurer and Director August 21, 1997
(STEVEN D. KOINZAN)
/s/ Tommy R. Croner Secretary and Director August 21, 1997
(TOMMY R. CRONER)
/s/ Dale W. Burmeister Director August 21, 1997
(DALE W. BURMEISTER)
/s/ Robert V. Call, Jr. Director August 21, 1997
(ROBERT V. CALL, JR.)
/s/ Glen Lee Chase Director August 21, 1997
(GLEN LEE CHASE)
/s/ Robert DeBadts Director August 21, 1997
(ROBERT DEBADTS)
/s/ Kenneth A. Mattingly Director August 21, 1997
(KENNETH A. MATTINGLY)
/s/ Allan W. Overhiser Director August 21, 1997
(ALLAN W. OVERHISER)
/s/ Paul E. Roe Director August 21, 1997
(PAUL E. ROE)
/s/ Darrell Sarff Director August 21, 1997
(DARRELL SARFF)
/s/ Stephen R. Wright General Manager August 21, 1997
(STEPHEN R. WRIGHT) (Principal Executive Officer)
/s/ Earl L. Powers Vice President Finance and August 21, 1997
(EARL L. POWERS) Assistant Treasurer
(Principal Accounting Officer)