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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-20539
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)
350 Linden Place, PO Box 30682, Rochester, NY 14603-0682
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (585) 218-4210
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or 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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. As of April 30, 2006.
Common Stock - 1,769,298
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FORM 10-Q
For the Quarterly Period Ended March 25, 2006
PRO-FAC COOPERATIVE, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements .......................................... 3
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .... 20
ITEM 4. Controls and Procedures ....................................... 20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................. 21
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds ... 21
ITEM 4. Submission of Matters to a Vote of Security Holders ........... 21
ITEM 6. Exhibits ...................................................... 22
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited condensed financial statements of Pro-Fac Cooperative, Inc. ("Pro-Fac"
or "the Cooperative") as of March 25, 2006 and for the three month and nine
month periods ended March 25, 2006 and March 26, 2005 are presented on the
following pages. The financial statements have been prepared in accordance with
the Cooperative's usual accounting policies, are based, in part, on estimates
and reflect all normal and recurring adjustments which are, in the opinion of
management, necessary to a fair presentation of the results of the interim
periods. The June 25, 2005 condensed balance sheet was derived from the
Cooperative's audited balance sheet at June 25, 2005.
This Part I also includes management's discussion and analysis of the
Cooperative's financial condition as of March 25, 2006 and its results of
operations for the three month and nine month periods ended March 25, 2006.
Pro-Fac Cooperative, Inc.
Condensed Statements of Operations, Allocation of Net Income/(Loss) and
Comprehensive Income/(Loss)
(Unaudited)
(Dollars in Thousands)
Three Months Ended Nine Months Ended
--------------------- ---------------------
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $ 13 $ 0 $ 13 $ 0
Cost of sales 12 0 12 0
--------- --------- --------- ---------
Gross profit 1 0 1 0
Equity in loss of Birds Eye Holdings LLC (3,343) (1,843) (5,015) (286)
Gain from transaction with Birds Eye Foods, Inc.
and related agreements 1,191 1,190 4,761 4,760
Margin on delivered product 0 4 299 154
Selling, administrative and general expense (340) (352) (887) (973)
Other income 0 116 16 167
--------- --------- --------- ---------
Operating income/(loss) (2,491) (885) (825) 3,822
Interest income 21 8 81 34
Interest expense 0 (13) (26) (62)
--------- --------- --------- ---------
Income/(loss) before income taxes (2,470) (890) (770) 3,794
Income taxes (409) 0 (409) 0
--------- --------- --------- ---------
Net income/(loss) $ (2,879) $ (890) $ (1,179) $ 3,794
========= ========= ========= =========
Net income/(loss) $ (2,879) $ (890) $ (1,179) $ 3,794
Other comprehensive income/(loss):
Unrealized gain/(loss) on hedging activity of
equity investee 100 (196) 74 (151)
Minimum pension liability of investee 0 0 (71) 0
--------- --------- --------- ---------
Comprehensive income/(loss) $ (2,779) $ (1,086) $ (1,176) $ 3,643
========= ========= ========= =========
The accompanying notes are an integral part of these condensed financial
statements.
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Pro-Fac Cooperative, Inc.
Condensed Balance Sheets
(Unaudited)
(Dollars in Thousands)
March 25, June 25,
2006 2005
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,547 $ 1,103
Accounts receivable, trade 1,609 1,555
Accounts receivable from Birds Eye Foods, Inc. 10,958 8,395
Inventory 360 3
Prepaid expenses and other current assets 42 10
----------- ----------
Total current assets 14,516 11,066
Fixed assets, net 13 15
Investment in Birds Eye Holdings LLC 4,567 12,818
----------- ----------
Total assets $ 19,096 $ 23,899
=========== ==========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION/(DEFICIT)
Current liabilities:
Accounts payable $ 168 $ 104
Other accrued expenses 16 66
Accrued income taxes 409 0
Common stock subject to redemption 9 0
Amounts due members 14,731 12,500
----------- ----------
Total current liabilities 15,333 12,670
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Commitments and contingencies (Note 5)
Common stock, par value $5, authorized - 5,000,000 shares; issued
and outstanding 1,771,095 and 1,771,096 shares, respectively 8,846 8,855
----------- ----------
Shareholders' and members' capitalization/(deficit):
Retained earnings allocated to members 6,771 10,214
Non-cumulative preferred stock, par value $25, authorized
5,000,000 shares; issued and outstanding 26,499 and 27,965 shares, respectively 663 700
Class A cumulative preferred stock, liquidation preference $25 per share,
authorized 10,000,000 shares; issued and outstanding 4,929,085 and
4,789,910 shares, respectively 123,227 119,748
Special membership interests 21,733 21,733
Accumulated deficit (151,550) (144,091)
Accumulated other comprehensive (loss)/income:
Unrealized gain on hedging activity of equity investee 119 45
Minimum pension liability adjustment of equity investee (6,046) (5,975)
----------- ----------
Total shareholders' and members' capitalization/(deficit) (5,083) 2,374
----------- ----------
Total liabilities and shareholders' and members' capitalization/(deficit) $ 19,096 $ 23,899
=========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
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Pro-Fac Cooperative, Inc.
Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
------------------------
March 25, March 26,
2006 2005
----------- ----------
Cash Flows from Operating Activities:
Net income/(loss) $ (1,179) $ 3,794
Adjustments to reconcile net income/(loss) to net cash used in operating
activities:
Amortization of transition service receivable 0 71
Depreciation 2 3
Gain from transaction with Birds Eye Foods, Inc. and related agreements (4,761) (4,760)
Equity in loss of Birds Eye Holdings LLC 5,015 286
Change in assets and liabilities:
Accounts receivable (2,617) (3,778)
Accounts payable and other accrued expenses 14 (1,120)
Accrued income taxes 409 0
Amounts due members 2,231 2,480
Other assets and liabilities, net (389) (596)
----------- ----------
Net cash used in operating activities (1,275) (3,620)
----------- ----------
Cash Flows from Investing Activities:
Proceeds from Termination Agreement with Birds Eye Foods, Inc. 8,000 8,000
Purchase of property, plant and equipment 0 (19)
----------- ----------
Net cash provided by investing activities 8,000 7,981
----------- ----------
Cash Flows from Financing Activities:
Payments on long-term debt 0 (1,000)
Cash dividends paid (6,281) (6,221)
----------- ----------
Net cash used in financing activities (6,281) (7,221)
----------- ----------
Net change in cash and cash equivalents 444 (2,860)
Cash and cash equivalents at beginning of period 1,103 3,394
----------- ----------
Cash and cash equivalents at end of period $ 1,547 $ 534
=========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
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PRO-FAC COOPERATIVE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Pro-Fac Cooperative, Inc. ("Pro-Fac" or the
"Cooperative") is a New York agricultural cooperative corporation operating in
one segment, the marketing of crops grown by its members.
The Transaction: On August 19, 2002 (the "Closing Date"), pursuant to the terms
of the Unit Purchase Agreement dated as of June 20, 2002 (the "Unit Purchase
Agreement"), by and among Pro-Fac, Birds Eye Foods, at the time a New York
corporation and a wholly-owned subsidiary of Pro-Fac, and Vestar/Agrilink
Holdings LLC, a Delaware limited liability company, consummated the following
transactions (which are referred to collectively as "the Transaction"):
(i) Pro-Fac contributed to the capital of Birds Eye Holdings LLC
("Holdings, LLC"), a Delaware limited liability company, all of the
shares of Birds Eye Foods common stock owned by Pro-Fac,
constituting 100 percent of the issued and outstanding shares of
Birds Eye Foods capital stock, in consideration for Class B common
units of Holdings LLC, representing a 40.72 percent common equity
ownership at the Closing Date.
(ii) Vestar/Agrilink Holdings, LLC and certain co-investors
(collectively, "Vestar") contributed cash in the aggregate amount of
$175.0 million to the capital of Holdings LLC, in consideration for
preferred units and Class A common units and warrants, which
warrants were immediately exercised to acquire additional Class A
common units, representing 56.24 percent of the common equity of
Holdings LLC at the Closing Date, inclusive of the additional Class
A common units issued to Vestar upon exercise of the warrants. The
co-investors are either under common control with, or delivered an
unconditional voting proxy to, Vestar. The Class A common units
entitle Vestar to two votes for each Class A common unit held. All
other Holdings LLC common units entitle the holder(s) thereof to one
vote for each common unit held. Accordingly, Vestar has a voting
majority of all common units.
(iii) Immediately following Pro-Fac's contribution of its shares of Birds
Eye Foods common stock to Holdings LLC, Holdings LLC contributed
those shares to Birds Eye Holdings Inc. ("Holdings Inc."), a
Delaware corporation and a direct, wholly-owned subsidiary of
Holdings LLC. As a result, Birds Eye Foods became an indirect,
wholly-owned subsidiary of Holdings LLC.
(iv) Certain Birds Eye Foods management members, including Stephen R.
Wright, then the General Manager and Secretary of Pro-Fac, entered
into subscription agreements with Holdings LLC to acquire (using a
combination of cash and promissory notes issued to Holdings LLC) an
aggregate of approximately $1.3 million of Class C common units and
Class D common units of Holdings LLC, representing approximately
3.04 percent of the common equity ownership at the Closing Date.
As a result of the Transaction, Pro-Fac no longer reports its financial
statements on a consolidated basis with those of Birds Eye Foods. As outlined
above, Pro-Fac owns Class B common units of Holdings LLC. Pro-Fac accounts for
its investment in Holdings LLC under the equity method of accounting.
For additional information about the transactions consummated, including
resulting agreements, see "NOTE 2. Agreements with Birds Eye Foods " under these
"Notes to Condensed Financial Statements".
Basis of Presentation: The accompanying unaudited condensed financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information required by GAAP for
complete annual financial statement presentation. Accounting for the
Cooperative's investment in Holdings LLC is based upon financial information
provided by Holdings LLC.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of
operations have been included in the accompanying unaudited condensed financial
statements. Operating results for the interim period ended March 25, 2006 are
not necessarily indicative of the results to be expected for other interim
periods or the full year. These financial statements should be read in
conjunction with the consolidated financial statements and accompanying notes
contained in the Pro-Fac Cooperative, Inc. Form 10-K for the fiscal year ended
June 25, 2005.
Fixed Assets, Net: Fixed assets, which consist of office and computer equipment,
are recorded at cost. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets, which range from five to
seven years.
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Inventory: Beginning in fiscal year 2005, the Cooperative supplied cherries to
another cooperative that markets the cherries. Title remains with the
Cooperative until the inventory is sold to third parties. Inventory and an equal
amount due member-growers is recorded at estimated cost. Certain other inventory
is purchased by the Cooperative for resale.
Investment in Birds Eye Holdings, LLC: Pro-Fac accounts for its investment in
Holdings LLC under the equity method of accounting. The Cooperative includes its
share, based on ownership, of the change in Holdings LLC's minimum pension
liabilities and unrealized holding gains and losses on hedging transactions in
the Cooperative's other comprehensive loss.
The following schedule sets forth summarized financial information of Holdings
LLC for the periods indicated (dollars in thousands):
Three Months Ended Nine Months Ended
--------------------- ---------------------
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $ 222,776 $ 211,600 $ 699,621 $ 655,417
Gross profit 35,533 41,533 133,652 140,810
Income/(loss) from continuing operations (34) 2,599 11,757 19,105
Net income/(loss) (34) 2,599 11,476 19,105
At March 25, 2006, Holdings LLC had $235.4 million of preferred units issued and
outstanding which accrue a preferred return at the rate of 15 percent per annum
compounded quarterly, based on a 360 day year. At March 25, 2006, the preferred
units had accrued payment-in-kind dividends since issuance of approximately
$97.0 million, which amount is included in the total preferred units
outstanding. Based on Holdings LLC's outstanding preferred units at March 25,
2006, and assuming that the preferred return is not paid and the preferred units
are not redeemed, the preferred units would have an approximate future
redemption value, including the compounded preferred return, as of the end of
fiscal years as follows:
(In Millions)
2006 $ 244.2
2007 283.0
2008 327.9
2009 379.9
2010 440.1
The preferred units are subject to redemption at the option of at least a
majority of the preferred unitholders upon an initial public offering of
Holdings LLC or any subsidiary, upon the sale of Holdings LLC or after August
19, 2010. The preferred units may also be redeemed at the option of Holdings LLC
at anytime, at a premium. At the time of issuance of the preferred units, $3.9
million in fees were charged against the proceeds received from Holdings LLC
from the sale of the preferred units. Holdings LLC is accreting the preferred
units up to their redemption value through transfers from retained earnings
using the effective interest method to the date of earliest redemption. At March
25, 2006, Pro-Fac owned 40.00 percent of the remaining common equity interest in
Holdings LLC. Pro-Fac's share of the income/(loss) of Holdings LLC under the
equity method of accounting is determined as follows:
Three Months Ended Nine Months Ended
--------------------- ---------------------
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
--------- --------- --------- ---------
(In Millions) (In Millions)
Net income/(loss) of Holdings LLC $ 0.0 $ 2.4 $ 11.5 $ 19.1
Less:
Preferred return on Holdings
LLC's preferred units (8.5) (7.3) (24.6) (21.3)
Accretion of preferred units (0.1) (0.1) (0.4) (0.3)
Plus:
Interest on termination payments
recorded by Holdings LLC 0.3 0.5 1.1 1.8
--------- --------- --------- ---------
Income/(loss) for common interests (8.3) (4.5) (12.4) (0.7)
Pro-Fac's share of common interests 40.00% 40.44% 40.39% 41.45%
--------- --------- --------- ---------
Equity income/(loss) from Holdings LLC $ (3.3) $ (1.8) $ (5.0) $ (0.3)
========= ========= ========= =========
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Income Taxes: On June 11, 2003, the Cooperative received notification from the
Internal Revenue Service that effective August 19, 2002 the Cooperative would
qualify for tax exempt status as a farmers' cooperative under Section 521 of the
Internal Revenue Code. Exempt cooperatives are permitted to reduce or eliminate
taxable income through the use of special deductions such as dividends paid on
its common and preferred stock and distributions of patronage income.
The Cooperative uses these special deductions and distributions of patronage
income to reduce the Cooperative's taxable income to zero for periods after
August 19, 2002. At its March 2006 meeting, the Pro-Fac Board of Directors
determined that there would be no payment or allocation of patronage proceeds
for the fiscal year ending June 24, 2006. As a result, the Cooperative recorded
a tax provision of $409,000 during the three month period ended March 25, 2006,
using its estimated annual effective tax rate applied to taxable income through
March 25, 2006.
NOTE 2. AGREEMENTS WITH BIRDS EYE FOODS
In connection with the Transaction, Birds Eye Foods and Pro-Fac entered into
several agreements effective as of the Closing Date, including the following:
Termination Agreement: Pro-Fac and Birds Eye Foods entered into a termination
agreement (the "Termination Agreement") as of the Closing Date, pursuant to
which, among other things, the marketing and facilitation agreement between
Pro-Fac and Birds Eye Foods (the "Marketing and Facilitation Agreement") was
terminated and, in consideration of such termination, Birds Eye Foods agreed to
pay Pro-Fac a termination fee of $10.0 million per year for five years, provided
that certain ongoing conditions are met, including maintaining grower membership
levels sufficient to generate certain minimum crop supply. The final installment
of $2.0 million is scheduled to be paid on April 1, 2007.
Payments under the Termination Agreement are considered additional consideration
related to the Transaction. Accordingly, the portion of the payments received
under the Termination Agreement related to Pro-Fac's continuing ownership
percentage is recorded as a reduction of Pro-Fac's investment in Holdings LLC.
The remaining portion of the payments is recognized as additional gain on the
transaction with Birds Eye Foods in the period it is received. Accordingly, in
each of the first nine months of fiscal 2006 and fiscal 2005, Pro-Fac recognized
approximately $4.8 million as gain from transaction with Birds Eye Foods, Inc.
Limited Liability Company Agreement of Holdings LLC: Pro-Fac and Vestar are
parties to a limited liability company agreement dated August 19, 2002 (as
amended from time to time, the "Limited Liability Company Agreement"). While
Birds Eye Foods is not a party to the Limited Liability Company Agreement, it
contains terms and conditions relating to the management of Holdings LLC and its
subsidiaries (including Birds Eye Foods), the distribution of profits and losses
and the rights and limitations of members of Holdings LLC. The Limited Liability
Company Agreement provides, among other things, that Holdings LLC's
distributable assets, which include cash receipts from operations, investing and
financing, net of expenses, will be distributed to Holdings LLC's members as
determined by Holdings LLC's management committee. Further, the Limited
Liability Company Agreement provides that, subject to restrictions contained in
any financing arrangements of Holdings LLC or its subsidiaries (including Birds
Eye Foods), after August 19, 2007 and prior to a sale (or dissolution) of
Holdings LLC, Holdings LLC will use commercially reasonable efforts to cause
Birds Eye Foods to distribute annually to Holdings LLC up to $24.8 million of
cash flow from the operations of Birds Eye Foods, which Holdings LLC will then
distribute to the holders of its common units.
Amended and Restated Marketing and Facilitation Agreement: Pro-Fac and Birds Eye
Foods are parties to an amended and restated marketing and facilitation
agreement dated as of the Closing Date (the "Amended and Restated Marketing and
Facilitation Agreement"). The Amended and Restated Marketing and Facilitation
Agreement provides that, among other things, Pro-Fac will be Birds Eye Foods'
preferred supplier of crops. Pursuant to the Amended and Restated Marketing and
Facilitation Agreement, Birds Eye Foods buys crops from Pro-Fac grown by
Pro-Fac's members. Birds Eye Foods pays Pro-Fac the commercial market value
("CMV") of the crops supplied in installments corresponding to the dates payment
is made by Pro-Fac to its members for the delivered crops. Commercial market
value is the weighted average price paid by commercial processors for the same
or similar crops, used for the same or similar purposes, in the same or similar
marketing areas. Birds Eye Foods makes estimated CMV payments to Pro-Fac for a
particular crop year, subject to adjustments to reflect the actual CMV following
the end of such year. Commodity committees of Pro-Fac meet with Birds Eye Foods
management to establish CMV or receivable guidelines, review calculations, and
report to a joint CMV committee of Pro-Fac and Birds Eye Foods. The Amended and
Restated Marketing and Facilitation Agreement also provides that Birds Eye Foods
will provide Pro-Fac services relating to planning, consulting, sourcing and
harvesting crops from Pro-Fac members in a manner consistent with past
practices. In addition, until August 19, 2007, Birds Eye Foods will provide
Pro-Fac with services related to the expansion of the market for the
agricultural products of Pro-Fac members (at no cost to Pro-Fac other than
reimbursement of Birds Eye Foods' incremental and out-of-pocket expenses related
to providing such services as agreed to by Pro-Fac and Birds Eye Foods).
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Under the Amended and Restated Marketing and Facilitation Agreement, Birds Eye
Foods determines the amount of crops which it will acquire from Pro-Fac for each
crop year. If the amount to be purchased by Birds Eye Foods during a particular
crop year does not meet (i) a defined crop amount or (ii) a defined target
percentage of Birds Eye Foods' needs for each particular crop, then certain
shortfall payments will be made by Birds Eye Foods to Pro-Fac. The defined crop
amounts and targeted percentages were set based upon the needs of Birds Eye
Foods in the 2002 crop year (fiscal 2003). The shortfall payment provisions of
the agreement include a maximum shortfall payment, determined for each crop,
that can be paid over the term of the Amended and Restated Marketing and
Facilitation Agreement. The aggregate shortfall payment amounts for all crops
covered under the agreement cannot exceed $10.0 million over the term of the
agreement.
Unless terminated earlier, the Amended and Restated Marketing and Facilitation
Agreement will continue in effect until August 19, 2012. Birds Eye Foods may
terminate the Amended and Restated Marketing and Facilitation Agreement prior to
August 19, 2012 upon the occurrence of certain events, including in connection
with a change in control transaction affecting Birds Eye Foods or Holdings Inc.
Transitional Services Agreement: Pro-Fac and Birds Eye Foods entered into a
transitional services agreement (the "Transitional Services Agreement") dated as
of the Closing Date, pursuant to which Birds Eye Foods provided Pro-Fac certain
administrative and other services for a period of 24 months from the Closing
Date. Pursuant to its terms, the Transitional Services Agreement terminated on
August 19, 2004. During the term of the Transitional Services Agreement, Mr.
Wright, who served as the General Manager and Secretary of Pro-Fac, was employed
by Birds Eye Foods, serving as executive vice president - investor relations of
Birds Eye Foods. As an employee of Birds Eye Foods, Mr. Wright's salary was paid
by Birds Eye Foods. Effective August 19, 2004, Mr. Wright and two other
individuals previously employed by Birds Eye Foods became employees of Pro-Fac
and ceased to be employed by Birds Eye Foods.
NOTE 3. DEBT
Credit Agreement: Birds Eye Foods and Pro-Fac entered into a credit agreement,
dated August 19, 2002 (the "Credit Agreement"), pursuant to which Birds Eye
Foods agreed to make available to Pro-Fac loans in an aggregate principal amount
of up to $5.0 million (the "Credit Facility "). Pro-Fac is permitted to borrow
up to $1.0 million per year under the Credit Facility, unless Birds Eye Foods is
prohibited from making such advances under the terms of certain third party
indebtedness of Birds Eye Foods. At March 25, 2006 the maximum amount which may
be borrowed was $2.0 million. The amount available under the terms of the Credit
Facility will be reduced, on a dollar-for-dollar basis, to the extent of certain
distributions made by Holdings LLC to Pro-Fac in respect of its ownership in
Holdings LLC. Pro-Fac has pledged all of its Class B common units in Holdings
LLC as security for advances under the Credit Facility. Advances outstanding
under the Credit Agreement bear interest at 10 percent per annum. Amounts
borrowed and accrued interest are required to be paid only upon a sale of
Pro-Fac's ownership interest in Holdings LLC or receipt of a distribution from
Holdings LLC in connection with the sale or liquidation of all or substantially
all of the assets of Holdings LLC or one of more of its subsidiaries. Pro-Fac
may voluntarily repay amounts borrowed and interest at any time. As of March 25,
2006 and June 25, 2005, no amount was outstanding under the Credit Facility.
Line of Credit: The Cooperative may borrow up to $2.0 million under the terms of
an annually renewable line of credit (the "M&T Line of Credit") from
Manufacturers and Traders Trust Company ("M&T Bank"). The M&T Line of Credit
expires on September 30, 2006. At March 25, 2006 and June 25, 2005, there were
no borrowings outstanding under the M&T Line of Credit. Principal amounts
borrowed bear interest at 75 basis points above the prime rate in effect on the
day proceeds are disbursed, as announced by M&T Bank as its prime rate of
interest. Interest is payable monthly. Amounts extended under the M&T Line of
Credit are required to be repaid in full during each year by July 15, with
further borrowings prohibited for a minimum of 60 consecutive days after such
repayment. The Cooperative's obligations under the M&T Line of Credit are
secured by a security interest granted to M&T Bank in substantially all of the
assets of the Cooperative, excluding its Class B common units owned in Holdings
LLC. The collateral does include any distributions made in respect of the Class
B common units and cash payments made by Birds Eye Foods to the Cooperative.
Contractual Obligations Guaranteed: Pro-Fac guarantees certain obligations of
Birds Eye Foods. Following is a schedule of obligations guaranteed by Pro-Fac at
March 25, 2006:
(Dollars in Millions)
Amounts
Committed Expiration
--------- -------------
Senior Subordinated Notes - 11 7/8 Percent $ 52.4 November 2008
Subordinated Promissory Notes $ 39.7 November 2008
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NOTE 4. COMMON STOCK AND CAPITALIZATION
The following table illustrates the Cooperative's shares authorized, issued, and
outstanding at March 25, 2006 and June 25, 2005.
Shares Issued and Outstanding
-----------------------------
Par Shares March 25, June 25,
Value Authorized 2006 2005
------- ---------- ------------ -------------
Common Stock $ 5.00 5,000,000 1,771,095 1,771,096
Non-Cumulative Preferred Stock $ 25.00 5,000,000 26,499 27,965
Class A Cumulative Preferred Stock $ 1.00 10,000,000 4,929,085 4,789,910
Class B Cumulative Preferred Stock $ 1.00 9,500,000 0 0
Class C Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class D Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class E Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class B, Series I 10% Cumulative Redeemable
Preferred Stock $ 1.00 500,000 0 0
In the event of liquidation, the relative preference of Pro-Fac's outstanding
securities is as follows: first retains, then all classes of preferred stock,
pari passu, then common stock and, finally, special membership interests.
While the Cooperative presently has no plans to liquidate, if liquidation were
to occur, the order of redemption and the amount required to fully redeem each
class outstanding, at March 25, 2006, is as follows:
Amount Required
(Dollars in Thousands) to Fully Redeem
---------------
Retains $ 6,771
Non-Cumulative Preferred Stock 663 (1)
AND
Class A Cumulative Preferred Stock 123,227 (1)
Common Stock 8,846
Special Membership Interests 21,733
---------------
$ 161,240
===============
(1) Pari passu
Qualified Retained Earnings Allocated to Members ("Retains"): Retains arise from
patronage income and are allocated to the accounts of members within 8 1/2
months of the end of each fiscal year. For the three month and nine month
periods ended March 25, 2006 and March 26, 2005, no patronage income was
retained. Qualified retains are taxable income to the member in the year the
allocation is made. At its March 2006 meeting, the Pro-Fac Board of Directors
determined that there would be no payment or allocation of patronage proceeds
for the fiscal year ending June 24, 2006.
When and if determined by the Board of Directors, retains convert into shares of
Class A cumulative preferred stock. The Board of Directors, however, has
tentatively decided that conversion of matured retains into Class A cumulative
preferred stock will not be considered by the Board of Directors for retains
issued for fiscal year 2002 and thereafter. During the nine month period ended
March 25, 2006, $3.4 million of retains were converted into shares of Class A
cumulative preferred stock.
Preferred Stock: All preferred stock outstanding originated, directly or
indirectly, from the conversion at par value of retains at the discretion of
Pro-Fac's Board of Directors. Preferred stock is generally non-voting, except
that the holders of preferred stock are entitled to vote on those matters
specifically required by law.
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 share of its outstanding non-cumulative preferred stock (liquidation
preference $25 per share). During the three month period ended March 25, 2006,
1,463 shares of non-cumulative preferred stock were exchanged for Class A
cumulative preferred stock. At its March 2006 meeting, the Pro-Fac Board of
Directors determined that it would no longer accept offers from holders of
shares of Pro-Fac non-cumulative preferred stock to exchange their shares of
non-cumulative preferred stock for shares of Pro-Fac Class A cumulative
preferred stock. Pro-Fac's Class A cumulative preferred stock is listed under
the symbol PFACP on the Nasdaq National Market system.
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The dividend rates for the preferred stock outstanding are as follows:
Non-Cumulative Preferred Stock $1.50 per share payable annually at the discretion of the Board.
Class A Cumulative Preferred Stock $1.72 per share annually, payable in four quarterly installments
of $.43 per share.
During the quarter ended March 25, 2006, the Cooperative declared a cash
dividend of $.43 per share on the Class A Cumulative Preferred Stock. This
dividend amounted to approximately $2.1 million and was paid in April 2006.
The Cooperative's ability to pay dividends is dependent upon, among other
factors, its available cash, capital surplus and its future earnings. The
Cooperative's principal use of available cash has been the payment of dividends
on its Class A cumulative preferred stock and its non-cumulative preferred
stock. The $10.0 million annual receipts under the Termination Agreement have
been the principal source of cash for payment of dividends with the last
installment under the Termination Agreement payable on April 1, 2007. The
Limited Liability Company Agreement of Holdings LLC provides that, subject to
restrictions contained in any financing arrangements of Holdings LLC or its
subsidiaries (including Birds Eye Foods), after August 19, 2007 and prior to a
sale (or dissolution) of Holdings LLC, Holdings LLC will use commercially
reasonable efforts to cause Birds Eye Foods to make annual distributions to
Holdings LLC, which can in turn be used by Holdings LLC to fund distributions to
its common unit holders, including Pro-Fac. Many factors could affect whether
such distributions are made in the future and the current financing arrangements
of Birds Eye Foods with its senior lenders include a covenant which precludes
such distributions without the permission of the senior lenders.
Holdings LLC has advised Pro-Fac that it will not speculate as to whether
distributions will be made under the Limited Liability Company Agreement.
Because Pro-Fac has no control over the determination of whether such
distributions will be made, Pro-Fac's Board of Directors has developed a
business plan that assumes distributions will not be made under the Limited
Liability Company Agreement to replace the $10.0 million annual source of cash
under the Termination Agreement ending on April 1, 2007.
On May 5, 2006, the Board determined, subject to all of the facts and
circumstances at the relevant times, that it expects to declare a full quarterly
dividend of $.43 per share of Class A cumulative preferred stock for payment in
July 2006. Thereafter, the Board expects to declare dividends of $.21 per share
of Class A cumulative stock for quarterly payments to be made in October 2006,
January 2007, and April 2007. Beginning with the quarter ending in June 2007,
the Board expects to suspend in full the declaration and payment of dividends on
its Class A cumulative preferred stock. To the extent that dividends on the
Class A cumulative preferred stock are not paid or are not paid in full, the
unpaid amounts cumulate and must be paid before any dividends may be paid on any
other securities of Pro-Fac.
The Board expects to declare the annual dividend of $1.50 per share on the
Cooperative's non-cumulative preferred stock (a total of approximately $40,000)
for payment in July 2006, and in accordance with the Cooperative's Certificate
of Incorporation expects to set aside the proportionate share of the annual
non-cumulative preferred stock dividend (expected to be approximately $15,000)
for payment in July 2007, if, as expected, reduced quarterly dividend
declarations are made in fiscal 2007 on the Class A cumulative preferred stock.
Beginning with the quarter ending in June 2007, the Board expects to suspend in
full the declaration and payment of dividends on its non-cumulative preferred
stock.
The Board believes, taking into consideration the reduction and ultimate
suspension of dividend payments on the Cooperative's preferred stock and
borrowing capacity under Pro-Fac's Credit Agreement with Birds Eye Foods, that
Pro-Fac will have sufficient sources of cash to fund its operations at least
through the end of fiscal 2010, which the Board believes will provide time to
monitor Pro-Fac's investment in Holdings LLC and explore other methods of
raising cash. The declaration of any future dividends, including the expected
declarations outlined above, are subject to Board action in advance of any such
declaration based upon all of the facts and circumstances at each such time.
The Cooperative determines its capital surplus under applicable state law. Under
New York law, capital surplus is the amount by which the fair value of the
Cooperative's assets exceed the total of its liabilities and the par value of
its capital stock. There can be no assurance that the value of the Cooperative's
assets, including its investment in Holdings LLC, will be sufficient to support
a determination of capital surplus in the future. Absent sufficient capital
surplus, the Cooperative will be prohibited from paying dividends. Factors that
may influence the fair market value of the Cooperative's investment in Holdings
LLC include the financial condition and results of operations of Birds Eye
Foods.
Common Stock: The Cooperative's common stock is owned by its members. The number
of shares of common stock owned by a Pro-Fac member-grower is based upon the
quantity and type of crops to be marketed through Pro-Fac by the member-grower.
If a member-grower ceases to be a producer of agricultural products that are
marketed through the Cooperative, then the member-grower must sell its shares of
Pro-Fac common stock to another grower that is acceptable to the Cooperative.
Additionally, member-growers desiring to adjust quantities of crops marketed
through Pro-Fac may either offer to sell or purchase shares of Pro-Fac common
stock.
If the selling member-grower is unable to find a qualified grower to purchase
its shares of Pro-Fac common stock, the member-grower must, upon notification
from the Cooperative, sell its shares of common stock to the Cooperative for
cash at par value, plus any dividends thereon which have been declared but
remain unpaid.
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At its January 2006 meeting, the Pro-Fac Board of Directors extended its
moratorium on Pro-Fac's repurchase of shares of common stock from member-growers
to apply to all potential repurchases except for approximately $9,000 of common
stock repurchased in April 2006 under policies in effect prior to the January
2006 change. In the future, Pro-Fac will not repurchase shares of Pro-Fac common
stock unless approved by the Board of Directors on a case-by-case basis.
At its January 2003 meeting, the Board of Directors of Pro-Fac determined to
suspend the payment of annual dividends on the Cooperative's common stock for an
indefinite period of time.
Special Membership Interests: In conjunction with the Transaction, special
membership interests were allocated to the then current and former members of
Pro-Fac who had made patronage deliveries to or on behalf of Pro-Fac in the six
fiscal years ended June 29, 2002, in proportion to the patronage deliveries made
by those members during that six fiscal year period.
Accumulated Deficit: Accumulated deficit consists of accumulated (losses)/income
after distribution of earnings allocated to members and dividends.
NOTE 5. OTHER MATTERS
Legal Matters: The Cooperative is party to various legal proceedings from time
to time in the normal course of its business. In the opinion of management, any
liability that might be incurred upon the resolution of these proceedings will
not, in the aggregate, have a material adverse effect on the Cooperative's
business, financial condition, or results of operations. Further, no such
proceedings are known to be contemplated by any governmental authorities. The
Cooperative maintains general liability insurance coverage in amounts deemed to
be adequate by its Board of Directors.
Guarantees and Indemnifications: Pro-Fac is a guarantor, under an Indenture
dated November 18, 1998, as amended, among Birds Eye Foods, the Guarantors named
therein and The Bank of New York, as trustee, of Birds Eye Foods' obligations
under its 11 7/8 percent Senior Subordinated Notes issued in fiscal 1999 in the
original aggregate principal amount of $200.0 million. The aggregate principal
amount is due November 1, 2008. Interest on the Notes accrues at the rate of 11
7/8 percent per annum and is payable semi-annually in arrears on May 1 and
November 1. Pro-Fac, jointly and severally, guarantees Birds Eye Foods'
obligations under the 11 7/8 percent Senior Subordinated Notes. As of March 25,
2006, the outstanding loan amount subject to the Cooperative's guarantee
included principal of $50.0 million and accrued interest of $2.4 million.
As partial consideration for the acquisition in fiscal 1999 of the frozen and
canned vegetable business of Dean Foods Company, Birds Eye Foods issued to Dean
Foods a Subordinated Promissory Note for $30 million due November 22, 2008. The
Subordinated Promissory Note is currently owned by GLK, LLC, a New York limited
liability company, whose members are Birds Eye Foods and GLK Holdings, Inc.,
which is a wholly owned subsidiary of Birds Eye Foods. Pro-Fac guarantees Birds
Eye Foods' obligations under the Subordinated Promissory Note. Interest on the
Subordinated Promissory Note accrued quarterly in arrears, commencing December
31, 1998, at a rate per annum of 5 percent until November 22, 2003, with such
interest payable in kind through the issuance by Birds Eye Foods of additional
subordinated promissory notes identical to the Subordinated Promissory Note.
Interest after November 22, 2003 accrues at the rate per annum of 10 percent and
is payable in cash. Pro-Fac, jointly and severally, guarantees Birds Eye Foods'
obligations under the Subordinated Promissory Notes. As of March 25, 2006, the
outstanding loan amount subject to the Cooperative's guarantee included
principal of $30 million and accrued interest of $9.7 million.
Historically, when Pro-Fac has sold assets, it may have retained certain
liabilities for known exposures and provided indemnification to the buyer(s)
with respect to future claims for certain unknown liabilities existing, or
arising from events occurring, prior to the sale date, including liabilities for
taxes, legal matters, environmental exposures, labor contingencies, product
liability, and other obligations. Pro-Fac may enter into similar arrangements in
the future. Agreements to provide indemnifications may vary in duration,
generally for two years for certain types of indemnities, to terms for tax
indemnifications that are generally aligned to the applicable statute of
limitations for the jurisdiction in which the tax is imposed, and to terms for
certain liabilities (i.e., warranties of title and environmental liabilities)
that typically do not expire. The maximum potential future payments that the
Cooperative could be required to make under agreements of indemnification are
(or may be) either contractually limited to a specified amount or unlimited. The
maximum potential future payments that the Cooperative could be required to make
under agreements of indemnification are not determinable at this time, as any
future payments would be dependent on the type and extent of the related claims,
and all relevant defenses, which are not estimable. Historically, costs incurred
to resolve claims related to agreements of indemnification have not been
material to the Cooperative's financial position, results of operations or cash
flows.
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From time to time, in the ordinary course of its business, Pro-Fac has, or may,
enter into agreements with its customers, suppliers, service providers and
business partners which contain indemnification provisions. Generally, such
indemnification provisions require the Cooperative to indemnify and hold
harmless the indemnified party(ies) and to reimburse the indemnified party(ies)
for claims, actions, liabilities, losses and expenses in connection with any
personal injuries or property damage resulting from any Pro-Fac products sold or
services provided. Additionally, the Cooperative may from time to time agree to
indemnify and hold harmless its providers of services from claims, actions,
liabilities, losses and expenses relating to their services to Pro-Fac, except
to the extent finally determined to have resulted from the fault of the provider
of services relating to such services. The level of conduct constituting fault
of the service provider will vary from agreement to agreement and may include
conduct which is defined in terms of negligence, gross negligence, willful
misconduct, omissions or other culpable behavior. The term of these
indemnification provisions are generally not limited. The maximum potential
future payments that the Cooperative could be required to make under these
indemnification provisions are unlimited and are not determinable at this time,
as any future payments would be dependent on the type and extent of the related
claims, and all relevant defenses to the claims, which are not estimable.
Historically, costs incurred to resolve claims related to these indemnification
provisions have not been material to the Cooperative's financial position,
results of operations or cash flows.
The Cooperative has by-laws, policies, and agreements under which it indemnifies
its directors and officers from liability for certain events or occurrences
while the directors or officers are, or were, serving at Pro-Fac's request in
such capacities. Pro-Fac indemnifies its officers and directors to the fullest
extent allowed by law. The maximum potential amount of future payments that the
Cooperative could be required to make under these indemnification provisions is
unlimited, but would be affected by all relevant defenses to the claims.
As part of the Transaction, Pro-Fac agreed to indemnify Birds Eye Foods for
certain environmental liabilities, provided any single claim for indemnification
must exceed $200,000. This obligation, however, is only triggered once the
aggregate of all liabilities subject to indemnification under the Unit Purchase
Agreement (including those unrelated to environmental matters) exceeds $10
million.
As of the date of this Report, Pro-Fac does not expect to be required to perform
under the guarantees and indemnifications described above.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS
From time to time, Pro-Fac or persons acting on behalf of Pro-Fac may make oral
and written statements that may constitute "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or
by the Securities and Exchange Commission ("SEC") in its rules, regulations, and
releases. The Cooperative desires to take advantage of the "safe harbor"
provisions in the PSLRA 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 of Financial Condition and Results of
Operations" section of this Report and other statements made in this Report and
in other filings with the SEC.
The Cooperative cautions readers that any such forward-looking statements made
by or on behalf of the Cooperative are based on management's current
expectations and beliefs, all of which could be affected by the uncertainties
and risk factors described below. The Cooperative's actual results could differ
materially from those expressed or implied in the forward-looking statements.
The risk factors that could impact the Cooperative include:
o the Cooperative's ability to pay dividends is dependent upon, among
other factors available cash, capital surplus and its future
earnings. The Cooperative's principal use of available cash has been
the payment of dividends on its Class A cumulative preferred stock
and its non-cumulative preferred stock. The $10.0 million annual
receipts under the Termination Agreement have been the principal
source of cash for payment of dividends with the last installment
under the Termination Agreement payable on April 1, 2007. The
Limited Liability Company Agreement of Holdings LLC provides that,
subject to restrictions contained in any financing arrangements of
Holdings LLC or its subsidiaries (including Birds Eye Foods), after
August 19, 2007 and prior to a sale (or dissolution) of Holdings
LLC, Holdings LLC will use commercially reasonable efforts to cause
Birds Eye Foods to make annual distributions to Holdings LLC, which
can in turn be used by Holdings LLC to fund distributions to its
common unit holders, including Pro-Fac. Many factors could affect
whether such distributions are made in the future and the current
financing arrangements of Birds Eye Foods with its senior lenders
include a covenant which precludes such distributions without the
permission of the senior lenders.
Holdings LLC has advised Pro-Fac that it will not speculate as to
whether distributions will be made under the Limited Liability
Company Agreement. As a minority owner of Holdings LLC, Pro-Fac has
no control over the determination of whether such distributions will
be made, Pro-Fac's Board of Directors has developed a business plan
that assumes distributions will not be made under the Limited
Liability Company Agreement to replace the $10.0 million annual
source of cash under the Termination Agreement ending on April 1,
2007.
On May 5, 2006, the Board determined, subject to all of the facts
and circumstances at the relevant times, that it expects to declare
a full quarterly dividend of $.43 per share of Class A cumulative
preferred stock for payment in July 2006. Thereafter, the Board
expects to declare dividends of $.21 per share of Class A cumulative
stock for quarterly payments to be made in October 2006, January
2007, and April 2007. Beginning with the quarter ending in June
2007, the Board expects to suspend in full the declaration and
payment of dividends on its Class A cumulative preferred stock. To
the extent that dividends on the Class A cumulative preferred stock
are not paid or are not paid in full, the unpaid amounts cumulate
and must be paid before any dividends may be paid on any other
securities of Pro-Fac.
The Board expects to declare the annual dividend of $1.50 per share
on the Cooperative's non-cumulative preferred stock (a total of
approximately $40,000) for payment in July 2006, and in accordance
with the Cooperative's Certificate of Incorporation expects to set
aside the proportionate share of the annual non-cumulative preferred
stock dividend (expected to be approximately $15,000) for payment in
July 2007, if, as expected, reduced quarterly dividend declarations
are made in fiscal 2007 on the Class A cumulative preferred stock.
Beginning with the quarter ending in June 2007, the Board expects to
suspend in full the declaration and payment of dividends on its
non-cumulative preferred stock.
The Board believes, taking into consideration the reduction and
ultimate suspension of dividend payments on the Cooperative's
preferred stock and borrowing capacity under Pro-Fac's Credit
Agreement with Birds Eye Foods, that Pro-Fac will have sufficient
sources of cash to fund its operations at least through the end of
fiscal 2010, which the Board believes will provide time to monitor
Pro-Fac's investment in Holdings LLC and explore other methods of
raising cash. The declaration of any future dividends, including the
expected declarations outlined above, are subject to Board action in
advance of any such declaration based upon all of the facts and
circumstances at each such time.
While the Cooperative prepares its financial statements using
generally accepted accounting principles, which are based primarily
on historical cost, it determines its capital surplus under
applicable state law. Under New York Law, capital surplus is the
amount by which the fair value of the Cooperative's assets exceed
the total of its liabilities and the par value of its capital stock.
For the fiscal quarter ended March 25, 2006, the Cooperative's Board
of Directors determined that capital surplus was available based
upon evidence of the fair market value of the Cooperative's assets,
including its investment in Holdings LLC. There can, however, be no
assurance that the value of the Cooperative's assets, including its
investment in Holdings LLC, will be sufficient to support a
determination of capital surplus in the future. Absent sufficient
capital surplus, the Cooperative will be prohibited from paying
dividends. Factors that may influence the fair market value of the
Cooperative's investment in Holdings LLC, include the financial
condition and results of operations of Birds Eye Foods.
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o the value of the Cooperative's investment in Holdings LLC is also
impacted by the rights and preferences of Holdings LLC's preferred
units. The holders of Holdings LLC's preferred units have priority
over the holders of Holdings LLC's common units with respect to,
among other things, preferred returns on their investment in
Holdings LLC. The Cooperative owns Class B common units of Holdings
LLC. The preferred units accrue a preferred return equal to 15
percent per annum of the preferred unit holders' preferred capital
contributions (less distributions, if any, made in respect of such
preferred units), compounded quarterly. Holdings LLC has the option
to redeem all, but not less than all, of its preferred units
outstanding at a premium. At March 25, 2006, Holdings LLC had $235.4
million of preferred units issued and outstanding, including
approximately $97.0 million of payments-in-kind dividends on such
preferred units. Based on Holdings LLC's outstanding preferred units
at March 25, 2006, and assuming that the preferred return is not
paid and the preferred units are not redeemed, the preferred units
would have an approximate future redemption value, including the
compounded preferred return, as of the end of fiscal years as
follows:
(Dollars in Millions)
2006 $ 244.2
2007 283.0
2008 327.9
2009 379.9
2010 440.1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to outline the reasons for material changes in
Pro-Fac's financial condition and results of operations in the third quarter and
first nine months of fiscal 2006 as compared to the third quarter and first nine
months of fiscal 2005. This section should be read in conjunction with Part I,
Item 1, Financial Statements of this Report.
OVERVIEW
Since 1960, Pro-Fac has operated as a New York agricultural cooperative, owned
and controlled by its members, to purchase, market, and sell crops grown by its
member-growers, for the mutual benefit of its members. Only growers of crops
marketed through Pro-Fac, or associations of such growers, can become members of
Pro-Fac. Membership in Pro-Fac is evidenced by the ownership of Pro-Fac common
stock. As of March 25, 2006, there were approximately 495 Pro-Fac members,
consisting of individual growers or associations of growers, located principally
in the states of New York, Delaware, Pennsylvania, Illinois, Michigan,
Washington, Oregon, Nebraska and Florida. Crops marketed by Pro-Fac include
fruits (cherries, apples, blueberries, and peaches), vegetables (snap beans,
beets, cucumbers, peas, sweet corn, carrots, cabbage, squash, asparagus and
potatoes) and popcorn. For the year ended June 25, 2005, Pro-Fac delivered crops
with a commercial market value of approximately $65.1 million. Because Pro-Fac
acts as an agent for its members in delivering crops, this activity is recorded
on a net basis and no sales are reported.
Pro-Fac's primary sources of income are derived from payments received under the
terms of the Termination Agreement with Birds Eye Foods and income it recognizes
from its investment in Holdings LLC, using the equity method of accounting.
Pro-Fac receives $10.0 million annually under the Termination Agreement through
April 2007. Income or loss based on Pro-Fac's common equity interest in Holdings
LLC, recorded under the equity method of accounting, varies depending on the
operating results of Holdings LLC and the dividend requirements of Holdings
LLC's preferred equity holders. Holdings LLC's operations are substantially
comprised of the operations of Birds Eye Foods, its indirect, wholly-owned
subsidiary. To date, Holdings LLC has not made any cash distributions of its
income. Pro-Fac's net losses for the three-month and nine-month periods ended
March 25, 2006, are primarily a result of recording Pro-Fac's equity in the loss
of Holdings LLC under the equity method of accounting.
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RESULTS OF OPERATIONS - THIRD QUARTER 2006 COMPARED TO THIRD QUARTER 2005
Equity in income of Holdings LLC: For the quarter ended March 25, 2006, the
Cooperative recognized a loss of approximately $3.3 million from its investment
in Holdings LLC, as compared to a loss of approximately $1.8 million in the
third quarter of fiscal 2005. The change results primarily from a decrease in
the net income of Holdings LLC and increases in the preferred return on Holdings
LLC preferred units due to compounding of accrued payment-in-kind preferred
dividends. Holdings' operations are substantially comprised of the operations of
Birds Eye Foods, its indirect, wholly-owned subsidiary. Birds Eye Foods is a
voluntary filer with the Securities and Exchange Commission. Birds Eye Foods'
periodic report equivalents are available at the SEC's website: www.sec.gov.
During the quarter ended March 25, 2006, Pro-Fac's recorded investment in
Holdings LLC decreased by $4.1 million due to recording Pro-Fac's equity in the
loss for common interests of Holdings LLC ($3.4 million), elimination of the
portion of termination payments related to Pro-Fac's continuing indirect
ownership of Birds Eye Foods ($0.8 million) and recording Pro-Fac's share of
other comprehensive income items of Holdings, LLC ($0.1 million).
Gain from transaction with Birds Eye Foods and related agreements: In accordance
with the Termination Agreement, Pro-Fac is entitled to the payment of a
termination fee of $10.0 million per year for five years payable in quarterly
installments as follows: $4.0 million on each July 1, and $2.0 million each
October 1, January 1, and April 1 until the final payment which is due April 1,
2007.
Payments under the Termination Agreement are considered additional consideration
related to the Transaction. Accordingly, the portion of the payments received
under the Termination Agreement related to Pro-Fac's continuing ownership
percentage are recorded as an adjustment to Pro-Fac's investment in Holdings
LLC. The remaining portion of payments received is recognized as additional gain
on the Transaction with Birds Eye Foods in the period it is received.
Accordingly, in the third quarter of fiscal 2006 and the third quarter of fiscal
2005, Pro-Fac recognized approximately $1.2 million as additional gain from the
receipt of termination payments ($2.0 million on each of January 1, 2006 and
January 1, 2005).
Margin on delivered product: The Cooperative negotiates certain sales
transactions on behalf of its members and on its own behalf, which result in
margin being earned by the Cooperative. The Cooperative earned a minimal amount
of margin during the quarters ended March 25, 2006 and March 26, 2005.
Selling, administrative, and general expense: Selling, administrative, and
general expenses totaled $0.3 million for each of the quarters ended March 25,
2006 and March 26, 2005.
Income Taxes: On June 11, 2003, the Cooperative received notification from the
Internal Revenue Service that effective August 19, 2002 the Cooperative would
qualify for tax exempt status as a farmers' cooperative under Section 521 of the
Internal Revenue Code. Exempt cooperatives are permitted to reduce or eliminate
taxable income through the use of special deductions such as dividends paid on
its common and preferred stock and distributions of patronage income.
The Cooperative uses these special deductions and distributions of patronage
income to reduce the Cooperative's taxable income to zero for periods after
August 19, 2002. At its March 2006 meeting, the Pro-Fac Board of Directors
determined that there would be no payment or allocation of patronage proceeds
for the fiscal year ending June 24, 2006. As a result, the Cooperative recorded
a tax provision of $409,000 during the three month period ended March 25, 2006,
using its estimated annual effective tax rate applied to taxable income through
March 25, 2006.
RESULTS OF OPERATIONS - FIRST NINE MONTHS 2006 COMPARED TO FIRST NINE
MONTHS 2005
Equity income from Holdings LLC: For the nine months ended March 25, 2006, the
Cooperative recognized a loss of approximately $5.0 million from Holdings LLC,
as compared to a loss of approximately $0.3 million in the fiscal 2005 period.
The change results primarily from a decrease in the net income of Holdings LLC
and increases in the preferred return on Holdings LLC preferred units due to
compounding of cumulative preferred dividends.
In the nine months ended March 25, 2006, Birds Eye Foods reported a charge of
$4.5 million (approximately $2.7 million, net of tax benefit) for payments to be
provided and incurred in conjunction with the departure of Birds Eye Foods'
former Chairman, President and Chief Executive Officer. Birds Eye Foods is a
voluntary filer with the Securities and Exchange Commission. Birds Eye Foods'
periodic report equivalents are available at the SEC's website: www.sec.gov.
During the nine months ended March 25, 2006, Pro-Fac's recorded investment in
Holdings LLC decreased by $8.3 million due to recording Pro-Fac's equity in the
loss for common interests of Holdings LLC ($5.0 million) and elimination of the
portion of termination payments related to Pro-Fac's continueing indirect
ownership of Birds Eye Foods ($3.3 million).
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Gain from transaction with Birds Eye Foods, Inc. and related agreements: As part
of the Transaction, Pro-Fac and Birds Eye Foods entered into the Termination
Agreement, pursuant to which, among other things, the Marketing and Facilitation
Agreement was terminated, and in consideration of such termination, Pro-Fac is
entitled to the payment of a termination fee of $10.0 million per year for five
years, provided that certain ongoing conditions are met, including maintaining
grower membership levels sufficient to generate certain minimum crop supply. The
$10.0 million payment is payable in quarterly installments to the Cooperative as
follows: $4.0 million on each July 1, and $2.0 million each October 1, January
1, and April 1 until the final payment which is due April 1, 2007.
Payments under the Termination Agreement are considered additional consideration
related to the Transaction. Accordingly, the portion of the payments received
under the Termination Agreement related to Pro-Fac's ownership percentage in
Holdings LLC is recorded as an adjustment to Pro-Fac's investment in Holdings
LLC. The remaining payments are recognized as additional gain on the Transaction
with Birds Eye Foods in the period it is received. Accordingly, in the first
nine months of both fiscal 2006 and fiscal 2005, Pro-Fac recognized
approximately $4.8 million as gain from the Transaction.
Margin on delivered product: The Cooperative negotiates certain sales
transactions on behalf of its members which result in margin being earned by the
Cooperative. The Cooperative earned $0.3 million in margin during the nine
months ended March 25, 2006. The Cooperative earned $0.2 million in margin
during the nine months ended March 26, 2005.
Selling, administrative, and general expenses: Selling, administrative, and
general expenses totaled $0.9 and $1.0 million for the nine months ended March
25, 2006 and March 26, 2005, respectively.
Income Taxes: On June 11, 2003, the Cooperative received notification from the
Internal Revenue Service that effective August 19, 2002 the Cooperative would
qualify for tax exempt status as a farmers' cooperative under Section 521 of the
Internal Revenue Code. Exempt cooperatives are permitted to reduce or eliminate
taxable income through the use of special deductions such as dividends paid on
its common and preferred stock and distributions of patronage income.
The Cooperative uses these special deductions and distributions of patronage
income to reduce the Cooperative's taxable income to zero for periods after
August 19, 2002. At its March 2006 meeting, the Pro-Fac Board of Directors
determined that there would be no payment or allocation of patronage proceeds
for the fiscal year ending June 24, 2006. As a result, the Cooperative recorded
a tax provision of $409,000 during the three month period ended March 25, 2006,
using its estimated annual effective tax rate applied to taxable income through
March 25, 2006.
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CRITICAL ACCOUNTING POLICIES
"NOTE 1. Description of Business and Summary of Accounting Policies" under
"Notes to Condensed Financial Statements" included in Part I, Item 1 of this
Report discusses the significant accounting policies of Pro-Fac. Pro-Fac's
discussion and analysis of its financial condition and results of operations are
based upon its condensed financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires Pro-Fac's management to
make estimates, judgments and assumptions that affect the reported amount of
assets, liabilities, revenues and expenses. On an ongoing basis, Pro-Fac
evaluates its estimates.
Pro-Fac's estimates affecting the financial statements relate primarily to
contingencies. Certain accounting policies deemed critical to Pro-Fac's results
of operations or financial position are discussed below.
The Cooperative accounts for its ownership interest in Holdings LLC under the
equity method of accounting. Accordingly, the portion of payments received as a
result of the Transaction related to Pro-Fac's continuing ownership percentage
is recorded as an adjustment to Pro-Fac's investment in Holdings LLC. The
remaining portion is recorded as a gain. Pro-Fac also records its share of the
earnings of Holdings LLC under the equity method of accounting. Pro-Fac's share
of the earnings is after the preferred return on Holdings LLC's preferred units
and accretion recorded by Holdings LLC.
Pro-Fac markets and sells its members' crops to food processors, including Birds
Eye Foods. Under the provisions of Emerging Issues Task Force Issue No. 99-19,
"Reporting Revenue Gross Versus Net as an Agent", subsequent to the Transaction,
the Cooperative records crop delivery activity among Birds Eye Foods and other
customers, itself and its members on a net basis. For transactions in which
Pro-Fac acts as a principal rather than an agent, sales and cost of sales are
reported. This type of transaction is not significant.
LIQUIDITY AND CAPITAL RESOURCES
As discussed under "NOTE 1. Description of Business and Summary of Significant
Accounting Policies" under "Notes to Condensed Financial Statements" included in
Part I, Item 1 of this Report, Pro-Fac's balance sheet reflects Pro-Fac's
ownership interest in Holdings LLC, which is accounted for under the equity
method.
Pro-Fac has four sources or potential sources of available cash to fund its
operating expenses and the payment of its quarterly dividends: (i) cash from its
sale of raw products to its customers, (ii) payments received under the
Termination Agreement with Birds Eye Foods, (iii) cash distributions related to
its investment in Birds Eye Holdings LLC, and (iv) borrowings.
Net cash available to Pro-Fac, after payment of CMV to Pro-Fac's member-growers,
has been used to pay Pro-Fac's operating expenses as well as its quarterly
dividends on its preferred stock and to fund repurchases of its common stock.
Dividends on Pro-Fac's preferred stock were $8.3 million and $8.1 million in
fiscal 2005 and 2004, respectively.
The final installment payment of $2.0 million to Pro-Fac under the Termination
Agreement will be received on April 1, 2007. Pro-Fac's primary source of cash
through and including August 19, 2007 is the $10.0 million payable annually to
Pro-Fac by Birds Eye Foods pursuant to the Termination Agreement. Pro-Fac's
other principal source of cash is the CMV payments made to it by Birds Eye Foods
and other customers for crops sold pursuant to the Amended and Restated
Marketing and Facilitation Agreement and other supply agreements. Although CMV
payments are considered a potential source of cash to Pro-Fac, with the
exception of the Board's decision to deduct 1 percent of CMV otherwise payable
to its grower-members for crops delivered in fiscal years 2003 and 2004, Pro-Fac
has typically paid 100 percent of CMV to its member-growers for crops delivered
and did so in fiscal 2005. Since such CMV payments are approximately equal to
the cash Pro-Fac receives from its customers for its raw products, CMV payments
are not a significant source of available cash from which Pro-Fac can pay
operating expenses and quarterly dividends.
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As stated above, Pro-Fac's current primary source of cash is its receipts under
the Termination Agreement. The $10.0 million is paid annually to Pro-Fac in
quarterly installments as follows: $4.0 million on July 1 and $2.0 million each
on October 1, January 1, and April 1. The final installment under the
Termination Agreement will be paid on April 1, 2007. Subsequent to August 19,
2007 and prior to any sale (or dissolution) of Holdings LLC, the Limited
Liability Company Agreement of Holdings LLC provides that, subject to the
restrictions contained in any financing arrangements of Holdings LLC or its
subsidiaries (including Birds Eye Foods), Holdings LLC will use commercially
reasonable efforts to cause Birds Eye Foods to distribute annually to Holdings
LLC up to $24.8 million of cash flow from operations of Birds Eye Foods, which
Holdings LLC will then distribute to the holders of its common units, including
Pro-Fac. Many factors could affect whether such distributions are made in the
future and the current financing arrangements of Birds Eye Foods with its senior
lenders include a covenant which precludes such distributions from Birds Eye
Foods to Holdings, LLC without the permission of the senior lenders.
Holdings LLC has advised Pro-Fac that it will not speculate as to whether
distributions will be made under the Limited Liability Company Agreement.
Because Pro-Fac has no control over the determination of whether such
distributions will be made, Pro-Fac's Board of Directors has developed a
business plan that assumes distributions will not be made under the Limited
Liability Company Agreement to replace the $10.0 million annual source of cash
under the Termination Agreement ending on April 1, 2007.
On May 5, 2006, the Board determined, subject to all of the facts and
circumstances at the relevant times, that it expects to declare a full quarterly
dividend of $.43 per share of Class A cumulative preferred stock for payment in
July 2006. Thereafter, the Board expects to declare dividends of $.21 per share
of Class A cumulative stock for quarterly payments to be made in October 2006,
January 2007, and April 2007. Beginning with the quarter ending in June 2007,
the Board expects to suspend in full the declaration and payment of dividends on
its Class A cumulative preferred stock. To the extent that dividends on the
Class A cumulative preferred stock are not paid or are not paid in full, the
unpaid amounts cumulate and must be paid before any dividends may be paid on any
other securities of Pro-Fac.
The Board expects to declare the annual dividend of $1.50 per share on the
Cooperative's non-cumulative preferred stock (a total of approximately $40,000)
for payment in July 2006, and in accordance with the Cooperative's Certificate
of Incorporation expects to set aside the proportionate share of the annual
non-cumulative preferred stock dividend (expected to be approximately $15,000)
for payment in July 2007, if, as expected, reduced quarterly dividend
declarations are made in fiscal 2007 on the Class A cumulative preferred stock.
Beginning with the quarter ending in June 2007, the Board expects to suspend in
full the declaration and payment of dividends on its non-cumulative preferred
stock.
The Board believes, taking into consideration the reduction and ultimate
suspension of dividend payments on the Cooperative's preferred stock and
borrowing capacity under Pro-Fac's Credit Agreement with Birds Eye Foods, that
Pro-Fac will have sufficient sources of cash to fund its operations at least
through the end of fiscal 2010, which the Board believes will provide time to
monitor Pro-Fac's investment in Holdings LLC and explore other methods of
raising cash. The declaration of any future dividends, including the expected
declarations outlined above, are subject to Board action in advance of any such
declaration based upon all of the facts and circumstances at each such time.
Although Pro-Fac is attempting to increase revenue through expanding its
customer base and the types of products and/or services it offers, the actual
amount of available cash that may be generated from Pro-Fac's expanded
operations depends upon how successful Pro-Fac is in this effort, including
controlling any associated costs. For the nine months ended March 25, 2006 and
March 26, 2005, Pro-Fac generated $0.3 million and $0.2 million, respectively,
in margin from sales of product to customers other than Birds Eye Foods. Any
available cash generated from expanded products and/or services offerings by
Pro-Fac is currently anticipated to be a secondary source of cash, and is not
expected to provide a significant amount of available cash to fund Pro-Fac's
operating expenses or dividend payments.
In addition to the cash payments to Pro-Fac pursuant to the Termination
Agreement, Pro-Fac has available up to $1.0 million per year, until August 19,
2007, under the Credit Agreement with Birds Eye Foods, and up to $2.0 million
under an annually renewable line of credit from M&T Bank, as discussed below.
The current agreement with M&T Bank expires on September 30, 2006.
The Cooperative may borrow up to $2.0 million under the M&T Line of Credit.
Principal amounts borrowed under the M&T Line of Credit bear interest at 75
basis points above the prime rate in effect on the day proceeds are disbursed,
as announced by M&T Bank as its prime rate of interest. Interest is payable
monthly. Amounts extended under the M&T Line of Credit are required to be repaid
in full during each year by July 15, with further borrowings prohibited for a
minimum of 60 consecutive days after such repayment. Pro-Fac's obligations under
the M&T Line of Credit are secured by a security interest granted to M&T in
substantially all of Pro-Fac's assets, excluding Pro-Fac's Class B common units
owned in Holdings LLC. The collateral does include any distributions made to
Pro-Fac by Holdings LLC in respect of Pro-Fac's Class B common units and cash
payments made by Birds Eye Foods to the Cooperative. At March 25, 2006 and June
25, 2005, there was no balance outstanding under the M&T Line of Credit.
Under the Transitional Services Agreement, Birds Eye Foods provided Pro-Fac
certain administrative and other services until August 19, 2004. Since the
termination of the Transition Services Agreement, Pro-Fac pays for the services
previously provided under the Transition Services Agreement, including salary,
administrative and other expenses.
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Net cash available to Pro-Fac, after payment of CMV to Pro-Fac's member-growers,
has been used to pay Pro-Fac's operating expenses as well as to pay dividends on
its capital stock and fund repurchases of its common stock.
A discussion of "Consolidated Statement of Cash Flows" for the nine months ended
March 25, 2006 follows:
Net cash used in operating activities of $1.3 million for the first nine months
of fiscal 2006 primarily represents the timing of cash receipts from customers
other than Birds Eye Foods and related cash payments to member-growers.
Net cash provided by investing activities for the first nine months of fiscal
2006 was $8.0 million related to the receipt by the Cooperative of $8.0 million
from Birds Eye Foods under the Termination Agreement.
Net cash used in financing activities includes dividends paid ($6.3 million) by
the Cooperative during the nine months ended March 25, 2006.
Pursuant to a directive of the Cooperative's Board of Directors in 2003,
dividends will not be paid on the Cooperative's common stock for an indefinite
period of time. Further, at its January 2006 meeting, the Pro-Fac Board of
Directors extended its moratorium on Pro-Fac's repurchase of shares of common
stock from member-growers to apply to all potential repurchases except for
approximately $9,000 of common stock repurchased in April 2006 under policies in
effect prior to the January 2006 change. In the future, Pro-Fac will not
repurchase shares of Pro-Fac common stock unless approved by the Board of
Directors on a case-by-case basis.
The Board believes, taking into consideration the reduction and ultimate
suspension of dividend payments on the Cooperative's preferred stock and
borrowing capacity under Pro-Fac's Credit Agreement with Birds Eye Foods, that
Pro-Fac will have sufficient sources of cash to fund its operations at least
through the end of fiscal 2010. Pro-Fac's ability to fund its cash requirements
will depend on Pro-Fac's future operations, performance and cash flow, and is
subject to prevailing economic conditions and financial, business, and other
factors, some of which are beyond Pro-Fac's control. For a discussion of factors
that could impact Pro-Fac's future operations, performance and cash flow,
including its decision to reduce and ultimately suspend the payment of
dividends, see "Cautionary Statement on Forward-Looking Statements and Risk
Factors" in Part 1, Item 1 of this Report.
Contractual Obligations: There have been no material changes to Pro-Fac's
contractual obligations since June 25, 2005.
OTHER MATTERS
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This results in depressed selling prices. Excessive rain
or drought conditions can produce low crop yields and a shortage situation. This
typically results in higher selling prices. While the national supply situation
controls the pricing, the supply can differ regionally because of variations in
weather.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Transaction, Pro-Fac is subject to interest rate fluctuations related
to borrowings under the M&T Line of Credit. Amounts borrowed bear interest at
the prime rate plus 75 basis points. The M&T prime rate and, therefore, the
interest payable by Pro-Fac on principal borrowed under the M&T Line of Credit,
is subject to change by M&T. At March 25, 2006, no amount was outstanding under
the M&T Line of Credit. See "NOTE 3. Debt" in the "Notes to Condensed Financial
Statements" included in Part I, Item 1 and Item 2 under the heading "Liquidity
and Capital Resources" for a description of the terms of the M&T Line of Credit.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: Pro-Fac's Principal Executive Officer and
Principal Financial Officer evaluated the effectiveness of the design and
operation of Pro-Fac's disclosure controls and procedures (as defined in Rule
13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")). Based on that evaluation, Pro-Fac's Principal Executive and
Principal Financial Officer concluded that Pro-Fac's disclosure controls and
procedures as of March 25, 2006 (the end of the period covered by this Report)
have been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by Pro-Fac in reports
filed or submitted by it under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
There were no changes in Pro-Fac's internal control over financial reporting
identified during the quarter ended March 25, 2006, that materially affected, or
are reasonably likely to materially affect, Pro-Fac's internal control over
financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
The information called for by this Item is disclosed in NOTE 5. "Other Matters -
Legal Matters" under "Notes to Condensed Financial Statements" in Part I, Item 1
of this Form 10-Q, and is incorporated herein by reference in answer to this
Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 9, 2006, the Cooperative issued 1,463 shares of its Class A
cumulative preferred stock (valued at $36,575 based on a liquidation value per
share of $25) in exchange for shares of 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The regional annual membership meetings for the members of
Pro-Fac were held as follows:
Date Region/District City/State
----------------- --------------- -----------------------
February 8, 2006 I/1 and I/2 Rochester, New York
February 15, 2006 III Columbus, Nebraska
February 16, 2006 IV Algona, Washington
February 27, 2006 I/3 Johnstown, Pennsylvania
February 28, 2006 II/1 Holland, Michigan
March 1, 2006 II/2 Havana, Illinois
(b) Peter Call, Robert DeBadts, Steven Koinzan, Allan Overhiser and
Darell Sarff were re-elected directors for a three-year term as a
result of the elections at the regional meetings held in February
and March 2006. The following is a list of the remaining
directors whose terms of office continued after the regional
annual meetings.
Name Term Expires
----------------- ------------
Charles Altemus 2007
Dale Burmeister 2007
Kenneth Dahlstedt 2007
James Vincent 2007
Bruce Fox 2008
Kenneth Mattingly 2008
Paul Roe 2008
(c) The only matter submitted to the Cooperative's members for action
at the regional annual meetings was the election of directors.
Following are the voting results from the regional meetings:
Votes Cast For Votes Cast Against
-------------- ------------------
Peter Call 65 0
Robert DeBadts 39 0
Steven Koinzan 11 0
Allan Overhiser 61 0
Darell Sarff 8 0
At the Board's March 22, 2006 meeting, William J. Lipinski was
appointed by the Pro-Fac Board of Directors, consistent with the
Cooperative's Bylaws, to serve as a director of the Cooperative. Mr.
Lipinski replaces director James A. Pierson, whose term expired on
March 22, 2006. In addition, Messrs. Cornelius D. Harrington and Frank
M. Stotz were reappointed to the Board and will continue to serve,
together with Mr. Lipinski, as members of Pro-Fac's Audit Committee.
Mr. Lipinski will also serve on Pro-Fac's Executive and Compensation
Committee.
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ITEM 6. EXHIBITS
Exhibits
Exhibit Number Description
-------------- -------------------------------------------------------
*10.1 Extension and Amendment to Employment Agreement between
Pro-Fac and Stephen R. Wright dated March 23, 2006.
*10.2 Summary of Compensation Arrangements for the
Cooperative's Directors, amended as of March 23, 2006.
31. Certification required by Rule 13a-14 (a) of the
Securities Exchange Act of 1934 of the Principal
Executive Officer and the Principal Financial Officer
(filed herewith).
32. Certification required by Rule 13a-14 (b) of the
Securities Exchange Act of 1934 and pursuant to 18
U.S.C., Section 1350. as adopted pursuant to Section
906 of the Sarbanes Oxley Act of 2002, of the Principal
Executive Officer and the Principal Financial Officer
(filed herewith).
* Management contracts or compensatory plans or
arrangements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: May 8, 2006 BY: /s/ Stephen R. Wright
---------------------------------------
General Manager, Chief Executive
Officer, Chief Financial Officer
and Secretary
(On Behalf of the Registrant and as
Principal Executive Officer
Principal Financial Officer, and
Principal Accounting Officer)
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