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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[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 29, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
Registration Statement (Form S-1) 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 1, 1996
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 1, 1996:
Common stock: 1,836,963
FORM 10-K ANNUAL REPORT - 1996
PRO-FAC COOPERATIVE, INC.
TABLE OF CONTENTS
PART I
ITEM 1. Description of Business
General Development of Business
Relationship with Curtice Burns
Narrative Description of Business
Financial Information About Industry Segments
Packaging and Distribution
Trademarks
Raw Material Sources
Environmental Matters
Seasonality of Business
Practices Concerning Working Capital
Significant Customers
Backlog of Orders
Business Subject to Government Contracts
Competitive Conditions
New Products and Research and Development
Employees
ITEM 2. Description of Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
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, southern peas,
dry beans, 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 650 members are growers (or associations of growers)
located principally in New York, Pennsylvania, Illinois, Michigan, Washington,
Oregon, Iowa, Nebraska, North Dakota, Florida, California, and Georgia. The
principal office of Pro-Fac is at 90 Linden Place, Rochester, New York 14625;
its telephone number is (716) 383-1850.
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. In
addition, Curtice Burns manufactures cans, which are both utilized by the
Company and sold to third parties. 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. In connection with
the Acquisition, the shareholders of Curtice Burns received $19.00 per share in
cash for their shares of common stock of Curtice Burns. 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 Springfield Bank for
Cooperatives, predecessor to 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 is a much more highly leveraged company, with higher interest
expenses, than prior to the Acquisition. 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.
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 as of November 3, 1994 (the "Pro-Fac Marketing
Agreement"). Under the Pro-Fac Marketing Agreement much of the financing
previously provided by Pro-Fac to Curtice Burns has been restructured. Financing
previously provided by the Bank to Pro-Fac, then re-lent by Pro-Fac to Curtice
Burns, is now provided directly by the Bank to Curtice Burns under the New
Credit Agreement. Pro-Fac's interest in the facilities and equipment of Curtice
Burns and Pro-Fac's investment in the Bank were transferred to Curtice Burns at
the time of the Acquisition. The Pro-Fac equity that was previously lent to
Curtice Burns was also transferred to Curtice Burns.
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.
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 $44.7 million, $55.9 million, and $59.2
million as CMV for crops purchased from Pro-Fac in fiscal years 1996, 1995, and
1994, respectively. The crops purchased by Curtice Burns from Pro-Fac
represented approximately 72 percent, 73 percent, and 65 percent of all raw
agricultural crops purchased by Curtice Burns in fiscal 1996, 1995, and 1994,
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 to 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. Additional patronage
income is paid to Pro-Fac for services provided to Curtice Burns, including the
provision of a long term, stable crop supply, favorable payment terms for crops
and access to cooperative bank financing and the sharing of risks 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 has historically paid Pro-Fac additional patronage income based on
a portion of Curtice Burns' pretax income. Under the predecessor agreements to
the Pro-Fac Marketing Agreement, additional patronage income has generally been
equal to 50 percent of the pretax income of Curtice Burns, or in loss years
amounts due to Pro-Fac for interest on its loans to Curtice Burns have been
reduced by 50 percent of Curtice Burns' pretax losses.
Curtice Burns paid additional patronage income to Pro-Fac of $9.6 million and
$16.9 million in fiscal 1995 and 1994 on account of Curtice Burns' earnings 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.
Under the Pro-Fac Marketing Agreement, Curtice Burns manages the business and
affairs of Pro-Fac and provides all personnel and systems required for its
management.
NARRATIVE DESCRIPTION OF BUSINESS
The Company sells products in three principal categories: (i) "branded"
products, which are sold under the Company's 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
1996, approximately 51.3 percent of the Company's net sales were branded and the
remainder were split 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
specialties, and frozen and breaded products which are sold to customers such as
A&P, Brunos, Kroger, Piggly Wiggly, Safeway, SuperValu, Topco, Wegman's 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"): CMF, the Company's largest division,
headquartered in Rochester, New York, produces products in four principal
categories: (i) fruit fillings and toppings; (ii) aseptically-produced products;
(iii) canned and frozen fruits and vegetables; and (iv) popcorn. In fiscal 1996,
approximately one-third of CMF's net sales represented branded products,
approximately one-third represented private label products and approximately
one-third represented foodservice products. CMF markets its branded products
under the "Thank You," "Comstock," "Wilderness," "Greenwood," "Silver Floss,"
"Blue Boy," "Super Pop," and "Pops-Rite" labels.
CMF estimates the national fruit fillings and toppings market to be
approximately $225.0 million. In fiscal 1996, CMF's fruit fillings and toppings
held a national market share of approximately 52 percent in the fruit filling
segment. In addition, CMF is also the major supplier of private label fruit
fillings to retailers. CMF's fruit fillings and toppings are sold both on the
retail level and to foodservice institutions such as restaurants, caterers,
bakeries, schools. In fiscal 1996, the Company introduced the Pro-Can "Flavor
Saver" container, a plastic container which has an easy-open end and can be
resealed and stored in the refrigerator for future use. The Company believes
this container has increased CMF's market share in the fruit fillings and
toppings category. On July 21, 1995, the Company acquired Packer Foods, Inc. and
merged this operation into CMF (see further discussion in NOTE 3 of "Notes to
Consolidated Financial Statements").
The aseptic operations produce puddings, cheese sauces and dips for sale by CMF.
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 1996, CMF's
aseptically processed puddings accounted for approximately 66 percent of the
national foodservice market and aseptically processed cheese sauces accounted
for approximately one-quarter of the national foodservice market.
The fruit and vegetable processing business includes both branded and private
label production. It also includes value-added products such as canned specialty
fruits and frozen vegetable mixes. Success in the fruit and vegetable processing
business is driven, among other things, by an ability to control costs. The
Company has aggressively sought to reduce costs in the fruit and vegetable
processing business by closing plants, making capital investments in the
modernization of processing equipment, changing its product mix and refining
advertising strategies.
In the first quarter of fiscal 1997, sales and administrative functions of the
Brooks Foods division were integrated into CMF.
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 under the "Nalley" brand and other premium brand names, such as
"Bernstein's" salad dressing, "Adams" natural peanut butter, and "Farman's"
pickles. 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 products have leading market shares in the Pacific
Northwest, such as chili, which had a market share of approximately 55 percent,
and "Nalley" and "Farman's" pickles, which together had a market share of
approximately 45 percent, for the 52-week period ended May 1996. In the Pacific
Northwest, the Company's "Nalley" and "Bernstein's" brands of salad dressings
had a combined market share of approximately 23 percent for the same period.
Nalley has taken an aggressive position in growing its market share in the salad
dressing category. It is believed by management that over the last four years,
Nalley has been the only major salad dressing company on the West Coast to grow
its share consistently. It has done this by pursuing unique line extensions,
entering fast-growing market segments with superior-quality products (e.g.,
Bernstein's fat-free dressings), and by entering new markets, such as
refrigerated dressings (e.g., Bernstein's refrigerated dressings).
In line with the growing trend toward private label, Nalley has been
aggressively pursuing this profitable business segment. Specifically, Nalley has
been executing its store label strategy on specialty Mexican 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.
Southern Frozen Foods: Southern Frozen Foods, headquartered in Montezuma,
Georgia, is one of the nation's leading suppliers in the production and sales 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 as well as a line of traditional vegetables such as corn, peas, squash and
green beans.
Southern's products are marketed under the brand names of "McKenzie's,"
"McKenzie's Gold King," "Chill Ripe," "Southern Farms," and "Tropic Isle."
Approximately one-half of Southern's products are sold under the aforementioned
company brand labels. This results in Southern Frozen Foods being the No. 1
brand (maintaining an approximate 26 percent share of market on Southern
vegetables) in their primary geographic selling regions, on a consistent 52-week
basis. The balance of Southern's sales are split between the private label and
foodservice business segments servicing major accounts including SuperValu, Winn
Dixie, Federated Foods, and Marketing Management (for private label), and
Church's, MBM, PYA, and Foodservice of America (for foodservice needs).
In fiscal 1995, Southern Frozen Foods' breading and packaging operations were
destroyed by fire. In fiscal 1996, Southern Frozen Foods brought its newly
rebuilt facility on-line.
Snack Foods Group: The Snack Foods Group consists of three separate divisions:
Snyder, Tim's, and Husman.
Snyder of Berlin: Snyder of Berlin, headquartered 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.
Tim's Cascade Chips: Tim's Cascade 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.
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.
Brooks Foods: Brooks Foods, located in Mt. Summit, Indiana markets canned beans
and tomato products under their "Brooks" brand and private label or store
brands. The majority of sales, approximately 75 percent, are sold under the
Brooks brand and consist of value-added items such as Chili Hot Beans and stewed
tomatoes.
Brooks chili beans dominate the Midwest market with an average category share of
more than 65 percent. Brooks value-added canned tomatoes with chili seasonings
continue to grow shares under the "Just for Chili." Brooks "Rich & Tangy
Ketchup" brand continues to hold a visible position in all stores in Brooks
markets.
Brooks' growth in store-brand canned bean sales has continued, attributable in
large part to efficiency improvements and cost controls. Brooks has made great
strides in becoming a low-cost producer for these items and should see further
strides in this direction over the next two years. In the large-volume category,
opportunity continues to further decrease costs.
Brooks also co-packs for other companies and further opportunities are being
explored in this area.
In the first quarter of fiscal 1997, sales and administrative functions of
Brooks Foods were integrated into CMF.
Finger Lakes Packaging Company: Finger Lakes, headquartered in Lyons, New York,
manufactures various sizes of three-piece sanitary food cans for sale to the
Company and third parties. In fiscal 1996, approximately two-thirds of Finger
Lakes sales were to other divisions of the Company and one-third were to other
customers.
Finger Lakes' three-part, metal, sanitary cans are used in the retail,
foodservice and institutional markets. These cans are recyclable and provide
economical containers for the Company's products based on volume run and
customer base.
As previously announced, the Company is investigating the possible sale of this
subsidiary.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of Pro-Fac is principally conducted in one industry segment, the
processing and sale of various food products. The table set forth below shows
certain financial information relating to that industry segment for each of
Pro-Fac's last three fiscal years. The financial statements for the fiscal years
ended June 29, 1996, June 24, 1995, and June 25, 1994, which are included in
this report, reflect the information set forth in the table.
(Dollars in Millions)
Fiscal Years
June 29, June 24, June 25,
1996 1995 1994
Net sales $739.1 $522.4 $ 58.2
Net (loss)/income $ (9.5) $ 29.5 $ 24.5
Total assets $644.1 $689.7 $296.1
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 CMF, Southern
and Brooks divisions 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, 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 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 as follows:
Product Brand Name
Chilies, stews and soups Brooks, Mariners Cove, Nalley, Riviera
Fruits and vegetables Blue Boy, 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
Product Brand Name
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 1996, the Company acquired approximately 72 percent of its raw
agricultural products from Pro-Fac. The Company also purchased on the open
market some crops of the same type and condition 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.
The vegetable portion 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.
Except for cans manufactured by Finger Lakes, the Company purchases all of its
requirements for nonagricultural products, including containers, on 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. Such renewal permits are currently being processed, and the
Company expects that they will be issued by the agencies in due course.
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, primarily associated with underground
storage tanks. Such actions are being conducted pursuant to procedures approved
by the appropriate environmental authorities at a cost that is not significant.
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 1996, total capital expenditures of Pro-Fac and the Company were $19.5
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 $1.7 million for the 1997 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 Cooperative 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, and strong
emphasis is placed on 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 51.3 percent; sales to the foodservice industry
(restaurants and institutional customers) represent approximately 24.0 percent;
private label sales currently represent approximately 19.9 percent; and sales to
other manufacturers are approximately 4.8 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 required the investment of a material amount
of assets have been publicly announced.
EMPLOYEES
As of June 29, 1996, the Company had 3,823 full-time employees, of whom 2,520
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 626
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.
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 division occupies a
large facility in which its executive offices, a processing plant and warehouse
space are located. Some divisions have additional processing plants located in
rural areas that are convenient for the delivery of crops from Pro-Fac members
and/or additional 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.
Five of the properties are held for sale. These properties are located in Wall
Lake, Iowa; Clifton, New Jersey; Alton, New York; South Dayton, New York; and
Rushville, New York.
The following table describes all facilities leased or owned by the Company
(other than the five 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 Division) Location Square Feet
COMSTOCK MICHIGAN FRUIT:
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
Warehouse Alton, NY 60,060
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 Leicester, NY 205,599
Distribution center and warehouse LeRoy, NY 137,300
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
Receiving plant and warehouse North Bend, NE 50,000
NALLEY FINE FOODS:
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 438,000
Parking lot and yards1 Tacoma, WA 162,570
Warehouses1 Tacoma, WA 254,000
Receiving and grading station1 Cornelius, OR 11,700
Receiving and grading station1 Mount Vernon, WA 30,206
SOUTHERN FROZEN FOODS:
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 563,442
Office, freezing plant and cold storage Alamo, TX 110,000
SNACK FOODS GROUP:
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center - Tim's1 Auburn, WA 34,000
SNACK FOODS GROUP (Continued):
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
BROOKS FOODS:
Office building, canning plant and warehouse Mt. Summit, IN 200,000
FINGER LAKES PACKAGING:
Can manufacturing plant Lyons, NY 147,376
CORPORATE HEADQUARTERS:
Headquarters office1 (Includes office space for CMF as well as
Corporate Conference Center) Rochester, NY 62,500
*Also includes can manufacturing equipment operated by Finger Lakes Packaging.
1 Leased from third parties, although certain related equipment is owned by the
Company.
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 8 and 9 to the
"Notes to Consolidated Financial Statements."
ITEM 6. SELECTED FINANCIAL DATA*
Consolidated Operating Data:
(Dollars in Thousands, Except Capital Stock Data)
Five Year Summary
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Net sales $739,094 $522,413 $ 58,237 $ 59,735 $ 63,434
Cost of sales 562,926 384,838 58,237 59,735 63,434
-------- -------- ---------- -------- --------
Gross profit 176,168 137,575 0 0 0
Income from Curtice Burns prior to Acquisition 0 11,239 34,229 (4,710) 29,374
Interest income 770 4,402 0 0 0
Selling, general, and administrative (expenses)/income (151,671) (99,341) 1,056 965 559
Restructuring (5,871) 0 0 0 0
Cost relating to fire claim 0 (2,315) 0 0 0
-------- -------- -------- --------- --------
Operating income/(loss) 19,396 51,560 35,285 (3,745) 29,933
Interest expense (41,998) (29,035) (11,587) (13,753) (17,179)
-------- -------- -------- --------- --------
(Loss)/income before taxes, dividends and allocation of net proceeds (22,602) 22,525 23,698 (17,498) 12,754
Tax benefit/(provision) 13,071 7,028 844 0 1,151
-------- -------- ---------- -------- --------
Net (loss)/income $ (9,531) $ 29,553 $ 24,542 $(17,498) $ 13,905
======== ======== ======== ======== ========
Allocation of Net Proceeds:
Net (loss)/income $ (9,531) $ 29,553 $ 24,542 $(17,498) $ 13,905
Dividends on common and preferred stock (8,993) (4,914) (4,390) (4,548) (4,437)
-------- -------- -------- -------- --------
Net (deficit)/proceeds (18,524) 24,639 20,152 (22,046) 9,468
Allocation from/(to) earned surplus 18,524 (16,964) (2,856) 27,917 (155)
-------- -------- -------- -------- --------
Net proceeds available to members $ 0 $ 7,675 $ 17,296 $ 5,871 $ 9,313
======== ======== ======== ======== ========
Allocation of net proceeds available to members:
Payable to members currently (20% of qualified proceeds available
to members) $ 0 $ 1,475 $ 3,109 $ 1,052 $ 2,253
Allocated to members but retained by the Cooperative:
Qualified retains 0 5,900 12,437 4,209 6,760
Non-qualified retains 0 300 1,750 610 300
-------- -------- -------- -------- --------
Net proceeds available to members $ 0 $ 7,675 $ 17,296 $ 5,871 $ 9,313
======== ======== ======== ======== ========
CMV** $ 44,701 $ 55,855 $ 59,216 $ 59,800 $ 64,152
======== -------- -------- -------- --------
Net proceeds allocated to members as a percent of CMV (10.00)% 13.74% 29.21% 9.82% 14.52%
Net proceeds available to members as a percent of CMV:
Qualified 0.0 13.20% 26.25% 8.80% 14.05%
Non-qualified 0.0 .54% 2.96% 1.02% .47%
-------- -------- -------- --------- --------
Total net proceeds allocated to members as a percent of CMV 0.0 13.74% 29.21% 9.82% 14.52%
-------- -------- -------- --------- --------
Percent of qualified net proceeds available to members paid in cash 0.0 20.00% 20.00% 20.00% 25.00%
-------- -------- --------- --------
Balance Sheet Data:
Investment in direct financing leases $ 0 $ 0 $141,322 $173,513 $187,298
Common stock $ 9,185 $ 9,395 $ 10,284 $ 13,455 $ 13,097
Redeemable Preferred $ 334 $ 0 $ 0 $ 0 $ 0
Shareholders' investment and members' capitalization $117,181 $135,833 $113,481 $ 96,449 $120,042
Total long-term debt and senior subordinated notes (excludes
current portion) $327,683 $343,665 $127,134 $168,000 $164,000
Debt to equity ratio*** 2.7:1 2.4:1 1.2:1 1.8:1 1.5:1
Total assets $644,116 $689,739 $296,051 $324,884 $361,408
-------- -------- -------- -------- --------
Capital Stock Data
Cash dividends per share:
Common $ .25 $ .2750 $ .25 $ .25 $ .25
Non-Cumulative Preferred $ 1.50 $ 1.6875 $ 1.5625 $ .8125 $ 2.00
Class A Cumulative Preferred $ 1.29 $ 0 $ 0 $ 0 $ 0
Class B Cumulative Preferred $ 1.00 $ 0 $ 0 $ 0 $ 0
Average common stock investment per member $ 14,419 $ 15,032 $ 14,546 $ 18,662 $ 17,771
-------- -------- -------- -------- --------
Number of Members: 637 625 707 721 737
* Certain prior year amounts have been reclassified to conform to fiscal 1996
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.
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 1994 through
1996.
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 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)
======
Changes From Fiscal 1994 to Fiscal 1995: For the year ended June 24, 1995, the
increase/(decrease) in net proceeds compared to the prior year is summarized
below in millions of dollars:
Curtice Burns gross profit $ 137.6
Decreased share of Curtice Burns earnings (13.5)
Decreased interest income received from Curtice Burns (9.5)
Interest income, other 4.4
Cost relating to fire claim (2.3)
Increased selling, general and administrative expenses (100.4)
Increased interest expense (17.5)
-------
Change in income before taxes, dividends, and allocations of net proceeds (1.2)
Change in tax benefit 6.2
-------
Change in net income $ 5.0
=======
The variations in fiscal 1996 and 1995 were mainly due to the Acquisition of
Curtice Burns which is reflected for all of fiscal 1996 and only a partial
period in fiscal 1995. The increased interest expense was primarily attributable
to the increased borrowings related to the Acquisition. The change in the tax
benefit is the net result of the inclusion of Curtice Burns' tax provision after
the Acquisition and a tax benefit, primarily related to the recording of a net
operating loss carryforward and a tax settlement regarding the Cooperative's
exempt status (see NOTE 6 - "Taxes on Income").
Prior to the Acquisition most of the proceeds of Pro-Fac had always been derived
from the sale to Curtice Burns of the crops of its members and hence depended
primarily upon the volume and CMV of these crops. In addition, proceeds depended
upon the profitability of the finished products made from Pro-Fac crops.
Because of the profit/(loss) split provisions between Curtice Burns and Pro-Fac,
business conditions and trends affecting Curtice Burns' profitability also
affected 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 29, 1996, June 24, 1995, and June 25, 1994, and
the Company's total assets by business as at June 29, 1996 and June 24, 1995.
Net Sales
(Dollars in Millions)
Fiscal Years Ended
6/29/96 6/24/95 6/25/94
% of % of % of
$ Total $ Total $ Total
------ ----- ----- ----- ----- -----
Comstock Michigan Fruit ("CMF") 336.2 45.5 332.1 44.4 333.4 40.2
Nalley Fine Foods 189.2 25.6 181.2 24.2 171.8 20.7
Southern Frozen Foods 98.7 13.3 96.6 12.9 94.3 11.4
Snack Foods Group 63.7 8.6 60.5 8.1 61.2 7.4
Brooks Foods 33.0 4.5 30.2 4.0 30.0 3.6
----- ----- ----- ----- ----- -----
Subtotal ongoing operations 720.8 97.5 700.6 93.6 690.7 83.3
Businesses sold or to be sold1 18.3 2.5 47.9 6.4 138.4 16.7
----- ----- ----- ----- ----- -----
Total 739.1 100.0 748.5 100.0 829.1 100.0
===== ===== ===== ===== ===== =====
1 The Company sold the oats portion of the National Oats business, the Hiland
potato chips business, the meat snacks business, the Nalley US Chips and
Snacks business, Nalley Canada Ltd., and announced the intent to sell Finger
Lakes Packaging. See NOTE 3.
Operating Income1
(Dollars in Millions)
Fiscal Years Ended
6/29/96 6/24/95 6/25/94
% of % of % of
$ Total $ Total $ Total
----- ----- ----- ----- ----- -----
CMF 17.9 126.0 31.9 61.3 29.6 54.9
Nalley Fine Foods (2.9) (20.4) 18.7 36.0 16.5 30.6
Southern Frozen Foods 2.1 14.8 9.2 17.7 10.2 18.9
Snack Foods Group 4.1 28.9 3.6 6.9 2.7 5.0
Brooks Foods 2.7 19.0 2.8 5.4 3.1 5.8
Corporate overhead (7.2) (50.7) (10.3) (19.8) (14.9) (27.6)
---- ----- ----- ----- ----- -----
Subtotal ongoing operations 16.7 117.6 55.9 107.5 47.2 87.6
Businesses sold or to be sold and other non-recurring1 (2.5) (17.6) (3.9) (7.5) 6.7 12.4
---- ----- ----- ------ ----- -----
Total 14.2 100.0 52.0 100.0 53.9 100.0
==== ===== ===== ===== ===== =====
1 Includes restructuring (loss)/gain in fiscal 1996, 1995 and 1994, change in
control expense in fiscal 1995 and 1994, and gain on assets net of additional
costs incurred as a result of a fire claim recorded in fiscal 1995. The
Company sold the oats portion of the National Oats business, the Hiland
potato chips business, the meat snacks business, the Nalley US Chips and
Snacks business, Nalley Canada Ltd., and announced the intent to sell Finger
Lakes Packaging. See NOTE 3.
EBITDA
(Dollars in Millions)
Fiscal Years Ended
6/29/96 6/24/95 6/25/94
% of % of % of
$ Total $ Total $ Total
---- ----- ----- ----- ----- -----
CMF 32.3 73.9 42.2 55.8 41.1 51.6
Nalley Fine Foods 2.3 5.3 22.9 30.3 19.5 24.5
Southern Frozen Foods 7.4 16.9 13.1 17.3 12.7 16.0
Snack Foods Group 6.0 13.7 5.4 7.1 4.7 5.9
Brooks Foods 3.6 8.2 3.5 4.6 3.7 4.6
Corporate (7.3) (16.6) (10.6) (13.9) (12.4) (15.5)
---- ----- ----- ------ ----- -----
Subtotal ongoing operations 44.3 101.4 76.5 101.2 69.3 87.1
Businesses sold or to be sold and other non recurring1 (0.6) (1.4) (0.9) (1.2) 10.3 12.9
---- ----- ----- ------- ----- -----
Total 43.7 100.0 75.6 100.0 79.6 100.0
==== ===== ===== ===== ===== =====
1 Includes restructuring (loss)/gain in fiscal 1996, 1995 and 1994, change in
control expense in fiscal 1995 and 1994, and gain on assets net of additional
costs incurred as a result of a fire claim recorded in fiscal 1995. The
Company sold the oats portion of the National Oats business, the Hiland
potato chips business, the meat snacks business, the Nalley US Chips and
Snacks business, Nalley Canada Ltd., and announced the intent to sell Finger
Lakes Packaging. See NOTE 3.
Total Assets
(Dollars in Millions)
6/29/96 6/24/95
% of % of
$ Total $ Total
----- ----- ----- -----
CMF 261.2 41.2 267.9 39.9
Nalley Fine Foods 134.1 21.1 158.9 23.6
Southern Frozen Foods 86.9 13.7 97.9 14.6
Snack Foods Group 27.8 4.4 28.4 4.2
Brooks Foods 20.8 3.3 20.9 3.1
Corporate 71.6 11.3 38.4 5.7
----- ----- ----- -----
Subtotal ongoing operations 602.4 95.0 612.4 91.1
Businesses sold or to be sold1 31.9 5.0 59.9 8.9
----- ----- ----- -----
Total 634.3 100.0 672.3 100.0
===== ===== ===== =====
1 The Company sold the oats portion of the National Oats business, the Hiland
potato chips business, the meat snacks business, the Nalley US Chips and
Snacks business, Nalley Canada Ltd., and announced the intent to sell Finger
Lakes Packaging. See NOTE 3.
The following table illustrates the Consolidated Statement of Net Proceeds data
and the percentage of net sales represented by these items for the fiscal years
ended June 29, 1996, June 24, 1995, and June 25, 1994.
Consolidated Statement of Operations
(Dollars in Millions)
Fiscal Years Ended
6/29/96 6/24/95 6/25/94
% of % of % of
$ Sales $ Sales $ Sales
------ ----- ------ ----- ------ -----
Net sales 739.1 100.0 748.5 100.0 829.1 100.0
Cost of sales 562.9 76.2 530.1 70.8 592.6 71.5
------ ----- ------ ----- ------ -----
Gross profit 176.2 23.8 218.4 29.2 236.5 28.5
Selling, administrative and
general expenses (156.1) (21.1) (159.9) (21.3) (186.9) (22.5)
Restructuring (5.9) (0.8) (8.4) (1.1) 7.8 0.9
Change in control expenses 0.0 0.0 (2.2) (0.3) (3.5) (0.4)
Gain on assets net of additional costs
incurred as result of a fire claim 0.0 0.0 4.1 0.5 0.0 0.0
------ ----- ------ ----- ------ ------
Operating income before dividing
with Pro-Fac 14.2 1.9 52.0 6.9 53.9 6.5
Interest expense (42.0) (5.7) (32.4) (4.3) (18.2) (2.2)
------ ----- ------ ----- ------ -----
Pretax (loss)/earnings before dividing
with Pro-Fac (27.8) (3.8) 19.6 2.6 35.7 4.3
Pro-Fac share of loss/(earnings) 9.0 1.2 (9.6) (1.3) (16.9) (2.0)
------ ----- ------ ----- ------ ------
(Loss)/income before taxes (18.8) (2.6) 10.0 1.3 18.8 2.3
Benefit/(provision) for taxes 6.9 1.0 (6.0) (0.8) (8.7) (1.1)
------ ----- ------ ----- ------ -----
Net (loss)/income (11.9) (1.6) 4.0 0.5 10.1 1.2
====== ===== ====== ===== ====== =====
CHANGES FROM FISCAL 1995 TO FISCAL 1996
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, 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.
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 has significantly impacted the Company's financial
results as well as much of the industry. The industry as a whole expected a
slight increase in pricing which has not happened. The Company's vegetable
category, which includes significant segments of both the CMF and Southern
Frozen Foods divisions, experienced a 71.2 percent reduction in EBITDA compared
to the prior year. Improvements in earnings of other product lines at the CMF
division have offset part of the vegetable earnings reduction.
Other issues impacting year-to-date results include the costly start up of the
Nalley dressing plant, other manufacturing variances and increased promotion
expenses at Nalley. Nalley EBITDA is $20.6 million lower versus the prior year.
Several steps have been taken to address these problems, including senior
management changes at the division and restructuring initiatives discussed
below.
A major inventory reduction program across all divisions was implemented in
fiscal 1996. Long-term debt was reduced $37.5 million more in this year than
during the same period last year due to significant cash flow generated from
these programs and from additional payments to the Company by Pro-Fac. (See
NOTES 2 and 5.)
During the fourth quarter of fiscal 1996, the Company initiated a corporate-wide
restructuring program. The overall objectives of the plan are to reduce expense,
improve productivity, and streamline operations. Total fiscal 1996 restructuring
charge amounted to $5.9 million, which includes a fourth quarter charge of
approximately $4.0 million (which will improve fiscal 1997 earnings by
approximately $3.0 million), primarily comprised of employee termination
benefits, and approximately $1.9 million for strategic consulting was incurred
throughout the year. Efforts will focus on the consolidation of operations and
the elimination of approximately 8 percent of the work force. Reductions in
personnel will include operational and administrative positions. The majority of
such termination benefits will be liquidated with proceeds from operations
during the first six months of fiscal 1997. Work-force reductions have been
implemented at CMF, Nalley Fine Foods, and Southern Frozen Foods. In addition,
the sales and administrative functions of the Brooks Foods division were
integrated into the CMF division in the first quarter of fiscal 1997. Management
is continuing to evaluate whether further efforts to consolidate operations will
be required in the future.
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 discussed in NOTE 3 were $18.3
million in fiscal 1996 compared to $47.9 million in fiscal 1995. The Company's
net sales from ongoing operations excluding businesses sold or to be sold were
$720.8 million in fiscal 1996, an increase of $20.2 million or 2.9 percent from
$700.6 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 $7.4 million reduction was attributable to businesses sold or to be
sold, and a decrease of $34.8 million was attributable to decreased gross profit
at the Company's ongoing operations. This decrease of $34.8 million was the
result of variations in volume, selling prices, costs, product mix, and
increased depreciation due to the Acquisition. Division results are as follows:
(In Millions)
CMF $(18.3)
Southern Frozen Foods (5.9)
Nalley (13.5)
All others 2.9
------
$(34.8)
======
The decreased gross profit at the Company's CMF and Southern Frozen Foods
operations primarily relates to depressed vegetable pricing.
The decreased gross profit 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 amounted to $5.9 million in fiscal 1996 as
discussed above. 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, reflect non-deductible expenses relating to the sale
of the Company which include legal, accounting, investment banking and other
expenses.
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 represents the
replacement value in excess of the depreciated book value of the building and
equipment destroyed by fire on July 7, 1994 at the Southern Frozen Foods
division, 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 $(7.1) $(0.5) $(7.6)
Change in other administrative expenses (0.4) 4.2 3.8
------ ----- -----
$(7.5) $ 3.7 $(3.8)
===== ===== =====
The $0.5 million decrease in trade promotions, advertising and selling costs at
the Company's ongoing operations resulted 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, increased costs of $0.5 million at Southern
Frozen Foods, and increased costs at Brooks of $0.2 million, offset by decreases
at CMF of $5.9 million primarily in the filling and topping product lines.
The $4.2 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 which was reflected for the
full year in fiscal 1996 and for only 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. See NOTE 6 of
"Notes to Consolidated Financial Statements."
CHANGES FROM FISCAL 1994 TO FISCAL 1995
General: Operating earnings for fiscal 1995 reflect changes in many product
lines. The chips and snacks segment posted gains, while the popcorn earnings at
CMF declined. Vegetable prices decreased during the year because there was an
ample national supply in the fall of 1994, but vegetable earnings for the year
were still ahead of fiscal 1994. Net income of $4.0 million for fiscal 1995
compared to $10.1 million a year ago. The decrease in net income is primarily
due to increased interest expense caused by the revised capital structure of the
Company and the gain on the sale of National Oats included in the fiscal 1994
results.
Net Sales: The Company's net sales in fiscal 1995 of $748.5 million decreased
$80.6 million or 9.7 percent from $829.1 million in fiscal 1994. The net sales
attributable to businesses sold or to be sold in connection with the Company's
restructuring program discussed in NOTE 3 were $32.5 million in fiscal 1995 and
$122.9 million in fiscal 1994. The Company's net sales from ongoing operations,
excluding businesses sold or to be sold, were $716.0 million in fiscal 1995, an
increase of $9.8 million or 1.4 percent from $706.2 million in fiscal 1994. This
net sales variance of $9.8 million for ongoing operations is primarily comprised
of a $9.4 million increase at Nalley with minor variations at other divisions.
An increase of $5.4 million in sales of pickles and relishes and an increase of
$2.7 million in dressing sales were the primary reasons for Nalley increase.
Gross Profit: Gross profit of $218.4 million in fiscal 1995 decreased $18.1
million or 7.7 percent from $236.5 million in fiscal 1994. Of this net decrease,
a $23.9 million reduction was attributable to businesses sold or to be sold, and
an increase of $5.8 million was attributable to increased gross profit at the
Company's ongoing operations. This increase of $5.8 million was the result of
variations in volume, selling prices, costs, product mix, and increased
depreciation due to the acquisition. The increase in gross profit for ongoing
operations is comprised of increases and decreases as follow:
Gross
Profit
Variance
CMF $(0.8)
Nalley Fine Foods 5.1
Southern Frozen Foods (0.9)
Snack Foods Group 0.5
All Other 1.9
-----
$ 5.8
=====
Nalley Fine Foods' increased gross profit primarily relates to improved margins
on canned entrees and soups ($3.4 million) and improved margins on dressings
($1.2 million).
Restructuring: Restructuring expenses resulted in a charge in fiscal 1995 of
$8.4 million to reflect the impact of the sale of certain assets of the Nalley
US Chips and Snack business and other expenses relating to the disposal of this
operation. Included in fiscal 1994 was a $7.8 million net gain from
restructuring, for a net increase in this expense from year to year of $16.2
million, all of which was incurred by the Predecessor entity. See NOTE 3.
Change in Control Expenses: Change in control expenses recorded in fiscal 1995
and fiscal 1994, amounting to $2.2 million and $3.5 million, respectively,
reflect non-deductible expenses relating to the sale of the Company covering
legal, accounting, investment banking, and other expenses relative to the change
in control issue. All of these expenses were incurred by the Predecessor entity.
See NOTE 2 - "Change in Control of the Company."
Gain on Assets Net of Additional Costs Incurred as a Result of Fire Claim at
Southern Frozen Foods: The gain on assets net of additional costs incurred as a
result of a fire claim recorded in fiscal 1995 amounted to $4.1 million.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses in fiscal 1995 of $159.9 million decreased $27.0 million or
14.4 percent from $186.9 million in fiscal 1994. This net decrease of $27.0
million includes primarily:
(In Millions)
Businesses
Sold or
to be Sold Ongoing Total
Change in trade promotions $ (8.1) $(2.8) $(10.9)
Change in advertising and selling costs (13.8) 2.0 (11.8)
All other (5.6) 1.3 (4.3)
------- ----- ------
Change in selling, administrative,
and general expenses $(27.5) $ 0.5 $(27.0)
====== ===== ======
The $2.8 million decrease in trade promotions at the Company's ongoing
operations is primarily comprised of a decrease at CMF of $4.0 million (which
primarily relates to reduced spending on the fruit filling and topping category,
with minor increases in other categories) and increased trade promotions at
Nalley Fine Foods of $0.8 million (primarily related to increased spending on
canned entrees and soups and salad dressings, offsetting decreased spending on
other product lines).
The $2.0 million increase in advertising and selling costs at the Company's
ongoing operations represents increased costs at CMF ($1.5 million) and Nalley
Fine Foods ($1.6 million), with minor offsetting variations at other operations.
The increase at CMF primarily relates to fruit fillings and toppings, with minor
variations in other product lines. The increase at Nalley Fine Foods primarily
relates to costs associated with canned entrees and soups and salad dressings,
with minor variations in other product lines.
The $1.3 million increase in other administrative expenses primarily relates to
increased amortization of intangibles resulting from the acquisition and other
minor offsetting variances.
Interest Expense: Interest expense in fiscal 1995 of $32.4 million increased
$14.2 million or 78.0 percent from $18.2 million in fiscal 1994. This increase
was primarily attributable to the increased borrowing and increased interest
rates related to the acquisition of the Company by Pro-Fac.
Provision for Taxes: The provision for taxes in fiscal 1995 of $6.0 million
decreased $2.7 million or 31.0 percent from $8.7 million in fiscal 1994. The
effective tax rate in fiscal 1995 was 60.0 percent compared to 46.2 percent in
fiscal 1994. The non-deductibility of the amortization of excess purchase cost
over net assets acquired was primarily responsible for the significantly
increased rate.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996 net cash provided by operating activities of $54.3 million
reflects a net loss of $9.5 million. Depreciation and amortization of assets
amounted to $30.3 million. Accounts receivable and inventories decreased $13.5
million and $33.3 million, respectively. Accounts receivable decreased primarily
due to the receipt of insurance proceeds and the IRS refund. The reduction in
inventories was accomplished primarily as a result of a company-wide inventory
reduction program.
Cash flows from investing activities include the Acquisition of property, plant,
and equipment, and other assets held for or used in the production of goods, and
the amounts received from Curtice Burns prior to the Acquisition for payments on
capital leases. Net cash used in investing activities of $20.2 million in fiscal
1996 was comprised of $19.5 million paid for property, plant, and equipment, and
disposals provided $5.0 million. The sale of Nalley Canada Ltd. accounted for
the majority of the proceeds from disposals. The acquisition of Packer Foods and
Matthews Candy Co. used $5.8 million.
Net cash used in financing activities of $29.4 million is primarily comprised of
payments on long-term debt of $25.0 million. Proceeds from the issuance of
long-term debt (to finance the Packer acquisition) amounted to $5.4 million.
Cash dividends paid amounted to $8.9 million. The payments on long-term debt
included required scheduled payments, proceeds from disposals of property,
primarily Nalley Ltd., and excess cash provided from operations, primarily a
result of the receipt of insurance claims, the IRS refund, and inventory
reduction.
Because dividends on the Non-Cumulative Preferred Stock are payable annually
(with the most recent dividend having been paid in July 1995) and dividends on
the Cumulative Preferred Stock were paid quarterly (with dividends paid on
October 31, 1995, January 31, 1996 and April 30, 1996), 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. The depletion to earned surplus caused by the
higher dividend payments in fiscal 1996 and the loss incurred from operations
resulted in a 10 percent reduction in the payment to members for CMV in fiscal
1996.
Because of the additional debt as a result of the Acquisition of the Company by
Pro-Fac, the cash flow of the Company is the single, most important measure of
performance. Net cash provided from operations is expected to be sufficient to
cover scheduled payments on long-term debt and planned capital expenditures.
New 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 $14.2 million in
aggregate face amount of letters of credit pursuant to a Letter of Credit
Facility (see NOTE 5). The borrowing base is defined as the lesser of (i) $84.0
million or (ii) the sum of 60 percent of eligible accounts receivable plus 50
percent of eligible inventory.
As of June 29, 1996, (i) cash borrowings outstanding under the Seasonal Facility
were zero and (ii) availability under the Seasonal Facility, after taking into
account the amount of the borrowing base, was $84.0 million. In addition to its
seasonal financing, as of June 29, 1996, Pro-Fac had $9.8 million available for
long-term borrowings under the Term Loan Facility. Pro-Fac 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.
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. The consequence for the failure to achieve
financial ratios in the New Credit Agreement is to limit the Cooperative's
payment to its members to 90 percent of CMV. As of June 29, 1996, Pro-Fac is in
compliance with or has obtained waivers for all such restrictions and
limitations.
Short- and Long-Term Trends: The vegetable portion 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.
As a result of the shortage situation of the national supply due to the low
yields from the 1993 crop year, many vegetable producers intentionally increased
planned production for the 1994 crop year attempting to return their own
inventories to normal. Favorable weather conditions in the 1994 growing season
produced high crop yields in addition to the increased planned production. This
resulted in somewhat depressed selling prices, increased inventory levels
throughout fiscal 1995, and a higher carryover inventory at the end of fiscal
1995 than at the end of fiscal 1994 for the Company. With the harvesting
completed for the smaller 1995 vegetable crop, it had been anticipated that
prices would gradually increase during the 1996 fiscal year. This did not occur,
however, to the degree expected.
The effect of the 1996 growing season on fiscal 1997 financial results cannot be
estimated until late fall 1996 or early calendar 1997 when harvesting is
complete and national supplies can be determined. The Company began fiscal 1997
with $29.6 million less inventories than the beginning of fiscal 1996. The
reduction in inventories was primarily accomplished as a result of decreased
production and increased sales and was planned to correct the higher carryover
inventory situation from the previous year and to improve the utilization of
capital. The spring of 1996 produced excessive rain in some of the Company's
growing areas and drought conditions in some others. These adverse weather
conditions delayed or reduced the processing of certain early 1996 crops which
further reduced inventory levels somewhat. The Company anticipates, however,
that all customers' needs will be met in fiscal 1997.
Required scheduled payments on long-term debt will approximate $8.0 million in
the next 12 months. In fiscal 1996, cash proceeds of approximately $4.4 million
from the sale of Nalley Canada Ltd. and other real estate that had been held for
sale were applied to long-term debt in accordance with the terms of the New
Credit Agreement.
Effective June 30, 1996 (fiscal 1997), accounting procedures will be changed to
include in prepaids and other assets, general purpose spare parts previously
charged directly to expense. This change is preferable as it provides a better
matching of costs with related revenues. The estimated favorable cumulative
effect of the change (net of income taxes of approximately $1.6 to $1.9 million)
is approximately $2.4 to $3.0 million.
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.
Finger Lakes Packaging: On April 9, 1996, the Company announced its intent to
sell its Finger Lakes Packaging Company subsidiary ("Finger Lakes"), a
can-making operation based in Lyons, New York. Finger Lakes also has an
operation in Benton Harbor, Michigan. Approximately 60 percent of the cans
manufactured by Finger Lakes are used by divisions of the Company. The Company
plans to enter into a long-term supply agreement in conjunction with the sale.
The Company anticipates that proceeds from the sale will be utilized to reduce
debt.
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, refund amounts of $3.9 million for tax and interest have been
reflected in the financial statements of the Cooperative as of June 29, 1996.
The refunds and interest for the fiscal years 1986 to 1991 were received in
March of 1996.
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
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Management's Responsibility for Financial Statements
Report of Independent Accountants
Consolidated Financial Statements:
Consolidated Statement of Operations and Net Proceeds for the years ended
June 29, 1996, June 24, 1995, and June 25, 1994
Consolidated Balance Sheet for the years ended June 29, 1996 and
June 24, 1995
Consolidated Statement of Cash Flows for the years ended June 29, 1996,
June 24, 1995, and June 25, 1994
Consolidated Statement of Changes in Shareholders' and Members'
Capitalization and Redeemable Stock for the years ended June 29, 1996,
June 24, 1995, and June 25, 1994
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data
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/William D. Rice
Stephen R. Wright William D. Rice
General Manager Assistant Treasurer and
Management Chief Financial Officer
August 9, 1996
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 Form 10-K present fairly, in all material respects, the financial position
of Pro-Fac Cooperative, Inc. and its subsidiary at June 29, 1996 and June 24,
1995 and the results of their operations and their cash flows for each of the
three fiscal years in the period ended June 29, 1996, 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.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item 14 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.
/s/Price Waterhouse, LLP
Price Waterhouse, LLP
Rochester, New York
August 9, 1996
FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
Fiscal Years Ended
June 29, June 24, June 25,
1996 1995 1994
Net sales $ 739,094 $522,413 $ 58,237
Cost of sales 562,926 384,838 58,237
--------- -------- --------
Gross profit 176,168 137,575 0
Selling, general, and administrative (expenses)/income (151,671) (99,341) 1,056
Restructuring (5,871) 0 0
Income from Curtice Burns prior to Acquisition 0 11,239 34,229
Interest income 770 4,402 0
Additional costs incurred as a result of the fire 0 (2,315) 0
--------- -------- --------
Operating income 19,396 51,560 35,285
Interest expense (41,998) (29,035) (11,587)
--------- -------- --------
(Loss) income before taxes, dividends and allocation of net proceeds (22,602) 22,525 23,698
Tax benefit 13,071 7,028 844
--------- -------- --------
Net (loss)/income $ (9,531) $ 29,553 $ 24,542
========= ======== ========
Allocation of Net Proceeds:
Net (loss)/income $ (9,531) $ 29,553 $ 24,542
Dividends on common and preferred stock (8,993) (4,914) (4,390)
--------- -------- --------
Net (deficit)/proceeds (18,524) 24,639 20,152
Allocation from/(to) earned surplus 18,524 (16,964) (2,856)
--------- -------- --------
Net proceeds available to members $ 0 $ 7,675 $ 17,296
========= ======== ========
Allocation of net proceeds available to members:
Payable to members currently (20% of qualified proceeds available
to members in fiscal 1995 and 1994) $ 0 $ 1,475 $ 3,109
Allocated to members but retained by the Cooperative:
Qualified retains 0 5,900 12,437
Non-qualified retains 0 300 1,750
--------- -------- --------
Net proceeds available to members $ 0 $ 7,675 $ 17,296
========= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
June 29, 1996 June 24, 1995
ASSETS
Current assets:
Cash and cash equivalents $ 8,873 $ 4,152
Accounts receivable, trade, less allowance for doubtful accounts of $836 and $673,
respectively 47,259 47,341
Accounts receivable, other 6,814 19,840
Income taxes refundable 0 10,106
Current deferred tax assets 13,731 6,784
Inventories -
Finished goods 97,018 108,691
Materials and supplies 33,556 51,491
-------- --------
Total inventories 130,574 160,182
-------- --------
Prepaid manufacturing expense 11,339 9,903
Prepaid expenses and other current assets 1,066 2,306
-------- --------
Total current assets 219,656 260,614
Investment in Bank 24,439 22,907
Property, plant, and equipment, net 271,574 273,962
Assets held for sale 5,368 13,838
Goodwill and other intangible assets, less accumulated amortization of $5,961 and $2,539, respectively 103,760 101,494
Deferred tax assets 6,819 7,466
Other assets 12,500 9,458
-------- --------
Total assets $644,116 $689,739
======== ========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION Current liabilities:
Current portion of obligations under capital leases $ 547 $ 764
Current portion of long-term debt 8,075 11,552
Accounts payable 54,791 60,074
Income taxes payable 2,289 0
Accrued interest 9,447 9,171
Accrued employee compensation 8,368 11,644
Other accrued expenses 24,775 15,116
Dividend payable 128 0
Amounts due members 7,875 13,348
-------- --------
Total current liabilities 116,295 121,669
Long-term debt 167,683 183,665
Senior subordinated notes 160,000 160,000
Obligations under capital leases 1,125 1,620
Deferred tax liability 51,572 59,721
Other non-current liabilities 20,741 17,836
-------- --------
Total liabilities 517,416 544,511
-------- --------
Commitments and contingencies
Class B cumulative redeemable preferred stock liquidation preference $10 per
share, authorized 500,000 shares; issued and outstanding 33,364
and 0 shares, respectively 334 0
Common stock, par value $5, authorized - 5,000,000 shares
June 29, 1996 June 24, 1995
------------- -------------
Shares issued 1,836,963 1,878,926
Shares subscribed 59,359 59,568
--------- ---------
Total subscribed and issued 1,896,322 1,938,494
Less subscriptions receivable in installments (59,359) (59,568)
--------- ---------
Total issued and outstanding 1,836,963 1,878,926 9,185 9,395
========= =========
Shareholders' and members' capitalization:
Retained earnings allocated to members 32,318 34,250
Non-qualified allocation to members 3,275 3,851
Non-cumulative preferred stock, par value $25, authorized - 5,000,000 shares;
issued and outstanding - 105,788 and 3,043,325, respectively 2,645 76,083
Class A cumulative preferred stock, liquidation preference $25 per share; authorized
49,500,000 shares; issued and outstanding 3,032,704 and 0 shares, respectively 75,818 0
Earned surplus 3,125 21,649
-------- --------
Total shareholders' and members' capitalization 117,181 135,833
-------- --------
Total liabilities and capitalization $644,116 $689,739
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
Fiscal Years Ended
June 29, 1996 June 24, 1995 June 25, 1994
------------- ------------- -------------
Cash flows from operating activities:
Net (loss)/income $ (9,531) $ 29,553 $ 24,542
Amount payable to members currently 0 (1,475) (3,109)
Adjustments to reconcile net income to net cash provided by operating
activities:
Restructuring 5,871 0 0
Amortization of goodwill, other intangibles, and financing fees 4,222 3,218 0
Depreciation 26,081 13,864 0
Provision for losses on accounts receivable 528 91 0
Deferred tax (12,390) (3,686) (613)
Equity in undistributed earnings of the Bank (1,532) (1,288) (1,541)
Change in assets and liabilities:
Accounts receivable 13,482 12,148 (43)
Inventories 33,347 67,022 0
Accounts payable and accrued expenses (15,027) (16,331) (885)
Amounts due to members (5,935) (729) 802
Federal and state taxes payable 12,395 (9,520) 738
Other assets and liabilities 2,793 18,639 (1,895)
-------- --------- --------
Net cash provided by operating activities 54,304 111,506 17,996
-------- --------- --------
Cash flows from investing activities:
Due from Curtice Burns, net 0 0 524
Return from investment in direct financing leases 0 11,344 32,191
Investment in Bank 0 0 (1,429)
Finance receivable related to intangibles 0 0 1,636
Cash paid for acquisitions (5,785) 0 0
Disposals of property, plant and equipment 5,005 0 0
Purchase of property, plant, and equipment (19,453) (28,661) 0
---------- --------- --------
Net cash (used in)/provided by investing activities (20,233) (17,317) 32,922
---------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,400 359,000 120
Payments on short-term debt 0 0 (500)
Payments on long-term debt (including Acquisition related financing fees) (25,056) (192,095) (42,986)
Payments on capital leases (825) (1,259) 0
Amount paid to shareholders for Acquisition 0 (167,800) 0
Net assets acquired from Curtice Burns 0 (81,278) 0
Issuance of stock, net of repurchases 124 (889) (3,171)
Cash portion of non-qualified conversion (122) (802) 0
Cash paid in lieu of fractional shares (6) (10) 0
Cash dividends paid (8,865) (4,914) (4,390)
----------- --------- --------
Net cash used in financing activities (29,350) (90,047) (50,927)
---------- --------- --------
Net change in cash and cash equivalents 4,721 4,142 (9)
Cash and cash equivalents at beginning of period 4,152 10 19
----------- --------- --------
Cash and cash equivalents at end of period $ 8,873 $ 4,152 $ 10
========== ========= ========
All amounts above exclude the effects of Acquisitions as detailed in the
Supplemental Disclosure of Cash Flow Information
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
Fiscal Years Ended
June 29, 1996 June 24, 1995 June 25, 1994
------------- ------------- -------------
Supplemental Disclosure of Cash Flow Information Cash paid/(received) during the
year for:
Interest $41,508 $ 24,498 $12,068
======= ========= =======
Income taxes, net $(9,206) $ 5,567 $ (970)
======= ========= =======
Acquisition of Packer Foods and Matthews Candy Co.:
Accounts receivable $ 1,282 $ 0 $ 0
Inventories 3,902 0 0
Prepaid expenses and other current assets 270 0 0
Property, plant and equipment 6,044 0 0
Goodwill 493 0 0
Deferred tax asset 264 0 0
Accounts payable (4,954) 0 0
Accrued expenses (418) 0 0
Other non-current liabilities (1,098) 0 0
------- --------- -------
Cash paid for acquisition $ 5,785 $ 0 $ 0
======= ========= =======
Net assets acquired from Curtice Burns:
Accounts receivable $ 0 $ 79,068 $ 0
Inventories 0 226,220 0
Other assets 0 27,664 0
Goodwill and other intangible assets 0 24,156 0
Fixed assets 0 159,985 0
Accounts payable and accrued expenses 0 (100,594) 0
Short-term debt 0 (49,097) 0
Long-term debt 0 (276,391) 0
Deferred tax liability 0 (3,247) 0
Other liabilities 0 (6,486) 0
------- --------- -------
$ 0 $ 81,278 $ 0
======= ========= =======
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of retains to preferred stock $ 2,379 $ 11,665 $ 4,948
======= ========= =======
Net proceeds allocated to members but retained by the Cooperative $ 0 $ 6,200 $14,187
======= ========= =======
Capital lease obligations incurred $ 113 $ 1,562 $ 0
======= ========= =======
Receivables from Curtice Burns forgiven in the Acquisition:
Due from Curtice Burns for long-term debt $ 0 $ 110,576 $ 0
The accompanying notes are an integral part of these consolidated financial
statements.
Pro-Fac Cooperative, Inc.
Consolidated Statement of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
(Dollars in Thousands)
Fiscal Years Ended
June 29, June 24, June 25,
1996 1995 1994
-------- ------- -------
Retained earnings allocated to members:
Qualified retains:
Balance at beginning of period $ 34,250 $ 36,924 $ 29,446
Net proceeds allocated to members 0 5,900 12,437
Converted to preferred stock (1,926) (8,564) (4,948)
Cash paid in lieu of fractional shares (6) (10) (11)
-------- -------- ---------
Balance at end of period 32,318 34,250 36,924
-------- -------- ---------
Non-qualified retains:
Balance at beginning of period 3,851 7,454 5,704
Distribution of 1990, 1989, and 1988 non-qualified retains:
Cash paid (122) (802) 0
Converted to preferred stock (454) (3,101) 0
Net proceeds allocated to members 0 300 1,750
-------- -------- ---------
Balance at end of period 3,275 3,851 7,454
-------- -------- ---------
Total retains allocated to members at end of period 35,593 38,101 44,378
-------- -------- ---------
Non-cumulative preferred stock:
Balance at beginning of period 76,083 64,418 59,470
Converted from earnings retained for preferred stock 0 8,564 4,948
Conversion of 1990, 1989, and 1988 non-qualified retains 0 3,101 0
Conversion to cumulative preferred stock (73,438) 0 0
-------- -------- ---------
Balance at end of period 2,645 76,083 64,418
-------- -------- ---------
Cumulative preferred stock:
Balance at beginning of period 0 0 0
Converted from non-cumulative preferred stock 73,438 0 0
Converted from non-qualified retains 454 0 0
Converted from qualified retains 1,926 0 0
-------- -------- ---------
Balance at end of period 75,818 0 0
-------- -------- ---------
Earned surplus (unallocated and apportioned):
Balance at beginning of period 21,649 4,685 1,829
Net (deficit)/proceeds arising from after tax undistributed (loss)/income (18,524) 16,964 2,856
-------- -------- --------
Balance at end of period 3,125 21,649 4,685
-------- -------- --------
Total shareholders' and members' capitalization $117,181 $135,833 $113,481
======== ======== ========
Redeemable stock:
Class B cumulative preferred stock:
Balance at beginning of period $ 0 $ 0 $ 0
Issued in connection with Employee Stock Purchase Plan 334 0 0
-------- -------- --------
Balance at end of period $ 334 $ 0 $ 0
======== ======== ========
Common stock:
Balance at beginning of period $ 9,395 $ 10,284 $ 13,455
Repurchased, net of issued (210) (889) (3,171)
-------- -------- --------
Balance at end of period $ 9,185 $ 9,395 $ 10,284
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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. In addition, the Company manufactures cans,
which are both utilized by the Company and sold to third parties. The vegetable
and fruit product lines account for approximately 70 percent of sales. The
Company's products are primarily distributed in the United States.
The vegetable portion 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.
Fiscal Year: Fiscal 1996 ended on June 29, 1996, the last Saturday in June and
comprised 53 weeks. Fiscal 1995 and fiscal 1994 ended on June 24, 1995 and June
25, 1994, respectively, the last Saturday in June and comprised 52 weeks each.
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
"Change in Control of Curtice Burns"). Prior to November 3, 1994, Curtice Burns
was not included in the financial statements.
Reclassification: Certain items for fiscal 1995 and fiscal 1994 have been
reclassified to conform with fiscal 1996 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 24, 1995.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method.
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) which
approximates market.
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 and a
long-term receivable issued in connection with the sale of Nalley Canada Ltd.
The debt issuance costs are amortized over the term of the debt. The receivable
relating to the sale of Nalley Canada Ltd. is due on various dates between the
years 1998 and 2005.
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 and
properly reflect the effects of the Acquisition in accordance with the Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
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 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 approximately 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 self-insurance 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 are not distributed to members in
proportion to their common stock holdings. For example, patronage related
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 1996 and 1995 amounted to $9,831,000 and $13,150,000,
respectively.
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"). Pursuant to the Merger
Agreement, on October 4, 1994, Pro-Fac initiated a tender offer for all of the
Company's outstanding stock at $19.00 per share. At the expiration of the tender
offer on November 2, 1994, 6,229,442 shares of Class A and 2,046,997 shares of
Class B common stock (or approximately 94 percent and 99 percent, respectively,
of the total number of outstanding shares of Class A and Class B common stock of
the Company) had been validly tendered and not withdrawn. All such tendered
shares were accepted for payment by PFAC. 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 of PFAC under the Notes and the New Credit Agreement
have become obligations of the Company. 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, but
such dispute was resolved with the merger.
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. In addition,
in any year in which the Company has earnings on products which were processed
from crops supplied by Pro-Fac ("Pro-Fac Products"), the Company pays to Pro-Fac
up to 90 percent of such earnings, but in no case more than 50 percent of all
pretax earnings (before dividing with Pro-Fac) of the Company. In years in which
the Company has losses on Pro-Fac Products, the Company reduces the CMV it would
otherwise pay to Pro-Fac by up to 90 percent of such losses, but in no case by
more than 50 percent of all pretax losses (before dividing with Pro-Fac) of the
Company. Additional patronage income is paid to Pro-Fac for services provided to
Curtice Burns, including the provision of a long term, stable crop supply,
favorable payment terms for crops and access to cooperative bank financing and
the sharing of risks 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.
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. In addition lives were adjusted for
assets acquired. The resulting annual depreciation will approximate $23.3
million on all existing assets at the appraised values. In addition,
approximately $110.0 million of goodwill and other intangible assets were
recorded as the excess of purchase cost over net tangible 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." The resulting annual
amortization of goodwill and other intangible assets will approximate $3.0
million using lives ranging from 5 to 35-years. There were no other significant
changes to accounting policies as a result of the Acquisition.
Following, in capsule form, is the consolidated, unaudited results of operations
of Pro-Fac for the fiscal years ended June 24, 1995 and June 25, 1994, 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 June 25, 1994
Actual Pro Forma Actual Pro Forma
Net sales $522.4 $748.5 $58.2 $829.1
Income before taxes $ 22.5 $ 28.4 $23.7 $ 10.1
Net income $ 29.5 $ 31.4 $24.5 $ 6.1
NOTE 3. RESTRUCTURING, ACQUISITIONS, AND DISPOSALS
National Oats: On November 19, 1993, the Company sold the oats portion of the
National Oats business for $39.0 million and transferred the popcorn business to
Comstock Michigan Fruit ("CMF"). The sale of the oats business resulted in an
approximate $10.9 million pretax gain in fiscal 1994, prior to the Acquisition.
Hiland Potato Chips: On November 22, 1993, the Company sold certain assets of
the Hiland potato chips business for approximately $3.0 million. There was no
material gain or loss on this transaction.
Meat Snacks: On February 22, 1994, the Company sold the meat snacks business for
approximately $5.0 million. There was no material gain or loss on this
transaction. See further discussion at NOTE 6 - "Taxes on Income."
Sale of Nalley Canada Ltd.: On June 26, 1995, Curtice Burns sold its Canadian
subsidiary, Nalley Canada Ltd., located in Vancouver, British Columbia, to a
management group within the Canadian subsidiary. Nalley US has an ongoing supply
agreement with Nalley Canada Ltd. as a result of the sale.
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
for in cash. Matthews Candy Co. has been merged into the Company's Tim's Cascade
Chips operation of the Snack Foods Group.
Finger Lakes Packaging: On April 9, 1996, the Company announced its intent to
sell its Finger Lakes Packaging Company subsidiary ("Finger Lakes"), a
can-making operation based in Lyons, New York. Finger Lakes also has an
operation in Benton Harbor, Michigan. Approximately 60 percent of the cans
manufactured by Finger Lakes are used by divisions of the Company. The Company
plans to enter into a long-term supply agreement in conjunction with the sale.
The business divestitures resulted in the following charges to earnings of the
company in fiscal 1994, 1995, and 1996:
Fiscal 1994 Restructuring Gain: Included in fiscal 1994 results was a
net gain of $7.8 million comprised of a gain on the sale of the
National Oats business of $10.9 million, net of a charge of $3.1
million to adjust previous estimates regarding restructuring activities
initiated in fiscal 1993. This gain was incurred prior to the
Acquisition.
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. This loss was incurred prior to the Acquisition.
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 are to reduce
expenses, improve productivity, and streamline operations. 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 incurred throughout the year.
Efforts will focus on the consolidation of operations and the
elimination of approximately 8 percent of the work force. Reductions in
personnel will include operational and administrative positions. The
majority of such termination benefits will be liquidated during the
first six months of fiscal 1997. Work-force reductions at CMF, Nalley
Fine Foods, and Southern Frozen Foods were implemented. In addition,
the sales and administrative functions of the Brooks Foods division
were integrated into the Company's CMF division in the first quarter of
fiscal 1997.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 29, 1996 and June 24, 1995.
(Dollars in Thousands)
June 29, 1996 June 24, 1995
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
Land $ 6,005 $ 0 $ 6,005 $ 5,467 $ 0 $ 5,467
Land improvements 2,186 0 2,186 1,540 0 1,540
Buildings 98,310 690 99,000 92,215 795 93,010
Machinery and equipment 193,608 2,509 196,117 168,477 3,520 171,997
Construction in progress 11,881 0 11,881 20,489 0 20,489
-------- ------ -------- -------- ------ --------
311,990 3,199 315,189 288,188 4,315 292,503
Less accumulated depreciation 42,042 1,573 43,615 16,695 1,846 18,541
-------- ------ -------- -------- ------ --------
Net $269,948 $1,626 $271,574 $271,493 $2,469 $273,962
======== ====== ======== ======== ====== ========
Obligations under capital leases1 $1,672 $2,384
Less current portion 547 764
------ ------
Long-term portion $1,125 $1,620
====== ======
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 to 10 percent.
Interest capitalized in conjunction with construction amounted to $470,000 and
$1,841,000 in fiscal 1996 and 1995, 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 29, 1996.
(Dollars in Thousands)
Fiscal Year Ending Capital Operating Total Future
In June Leases Leases Commitment
1997 $ 837 $ 6,064 $ 6,901
1998 647 4,794 5,441
1999 425 3,772 4,197
2000 96 2,114 2,210
2001 76 1,020 1,096
Later years 255 655 910
------ ------- -------
Net minimum lease payments 2,336 $18,419 $20,755
======= =======
Less amount representing interest 664
------
Present value of minimum lease payments $1,672
======
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
$10,927,000 and $6,017,000 for fiscal years 1996 and 1995, respectively.
NOTE 5. DEBT
New Credit Agreement: The Bank has provided the Company, subject to the terms
and conditions set out in the New Credit Agreement, as amended, with loans of up
to $200 million to finance the purchase of shares pursuant to the tender offer
and the merger, to refinance certain existing indebtedness of Pro-Fac and the
Company, and to pay fees and expenses related to the purchase of shares. The
balance outstanding under the New Credit Agreement was $170.0 million at June
29, 1996.
The Bank also has provided the Company and Pro-Fac, subject to the terms and
conditions set out in the New Credit Agreement, as amended, with seasonal
financing of up to $84.0 million and a $14.2 million Letter of Credit Facility.
The Acquisition Facility, the Seasonal Facility, and the Letter of Credit
Facility are collectively referred to herein as the "Bank Facility."
The senior subordinated notes (see below) limits the amount Pro-Fac can borrow
from the Company to $10.0 million and provides that, if Pro-Fac borrows from a
source other than the Company, Pro-Fac is restricted from borrowing from the
Company. On June 28, 1996, Pro-Fac established a line of credit with CoBank, but
did not increase the total seasonal line. Accordingly, proceeds of $18.0 million
from such borrowing were utilized to extinguish outstanding obligations with the
Company. In accordance with the loan agreement with the Bank, in consolidation,
the seasonal borrowings by Pro-Fac will be consolidated with term loans.
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, including (i) all present and
future accounts, contracts rights, chattel paper, instruments
(excluding shares of capital stock), documents, inventory, general
intangibles, and equipment; (ii) all real property; and (iii) all
products and proceeds of the foregoing.
Interest: The Bank Facility provides for interest rates on the
Acquisition Facility, at the Company's option, equal to (i) the
relevant London interbank offered rate plus 2.60 percent, (ii) the
relevant prime rate plus 0.50 percent, or (iii) the relevant US
Treasury Rate plus 3.00 percent.
The Seasonal Facility provides for interest rates on amounts
outstanding thereunder at the Company's option equal to (i) the
relevant London interbank offered rate plus 1.75 percent, (ii) the
relevant prime rate minus 0.25 percent, or (iii) the relevant US
Treasury Rate plus 2.00 percent. The Bank has extended to a portion of
the Acquisition 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 Acquisition Facility was 8.7 percent per annum for
fiscal 1996.
Based on an estimated borrowing rate at fiscal year end 1995 of 9.0
percent for long-term debt with similar terms and maturities, the fair
value of the Cooperative's long-term debt outstanding is approximately
$193.8 million at June 24, 1995.
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 Cooperative's long-term debt outstanding was approximately
$172.4 million at June 29, 1996.
Borrowings under the Seasonal Facility are payable at the expiration of
that portion of the facility, which is December 1996; except that for
15 consecutive calendar days during each fiscal year, the borrowings
under the Seasonal Facility must be zero. The average borrowing under
the Seasonal Facility was $53.7 million during fiscal 1996, and the
weighted-average interest rate on such borrowing was 7.4 percent. There
were no borrowings under this Seasonal Facility at June 29, 1996. The
Letter of Credit Facility provides for the issuance of letters of
credit through December 1996. Management anticipates timely renewals
for both the Seasonal Facility and the Letter of Credit Facility.
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 consequence for the failure to
achieve financial ratios is to limit the Cooperative's payment to its
members to 90 percent of CMV. The Company is in compliance with, or has
obtained waivers for, all covenants, restrictions, and requirements
under the terms of the borrowing agreement.
OtherDebt: Other debt of $5.8 million carries rates up to 11.0 percent
at June 29, 1996.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 1997 through 1999, $8.0 million each; 2000, $18.2 million;
and 2001, $28.4 million. Provisions of the Term Loan Facility require annual
payments in the years 1996 through 2000 in October 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 Acquisition Facility. Provisions of the Term Loan
Facility also require that cash proceeds from the sale of businesses be applied
to the Term Loan Facility.
The Senior Subordinated Notes ("Notes"): 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).
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, commencing on February 1, 1995, to holders of record on the
immediately preceding January 15 and July 15, respectively. Except as provided
above, interest on the Notes accrues from the most recent date to which interest
has been paid. Interest is computed on the basis of a 360-day year, comprised of
12 30-day months.
Each of the Pro-Fac and the Subsidiary Guarantors has unconditionally guaranteed
the payment of obligations of the Company under the Notes. Rights of holders,
pursuant to such guarantees, are subordinate to the rights of the holders of the
senior indebtedness of Pro-Fac and the Subsidiary Guarantors to payment in full
in the same manner as the rights of holders of the Notes are subordinate to
those of the holders of the senior indebtedness of the Company.
The Indenture limits the amount Pro-Fac can borrow from the Company to $10.0
million and provides that, if Pro-Fac borrows from a source other than the
Company, Pro-Fac is restricted from borrowing from the Company. On June 28,
1996, Pro-Fac established a line of credit with the Bank. Accordingly, proceeds
of $18.0 million from such borrowing were utilized to extinguish outstanding
obligations with the Company.
The Indenture also limits 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,
after giving effect to the Restricted Payment, 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.
Based on an estimated borrowing rate at 1995 fiscal year end of 11.6 percent for
borrowings with similar terms and maturities, the fair value of the Notes was
$149.8 million at June 24, 1995.
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
$163.3 million at June 29, 1996.
Short-Term Borrowings: Short-term borrowings for the three years ended June 29,
1996 were as follows:
(Dollars in Thousands)
Fiscal Fiscal Fiscal
1996 1995 1994
Balance at end of period $ 0 $ 0 $11,500
Rate at fiscal year end 0.0% 0.0% 5.5%
Maximum outstanding during the period $94,000 $73,000 $46,000
Average amount outstanding during the period $53,739 $55,648 $30,464
Weighted average interest rate during the period 7.4% 7.5% 4.8%
The above amounts include borrowings under existing and pre-existing loan
agreements.
NOTE 6. TAXES ON INCOME
Taxes on income include the following:
(Dollars in Thousands)
Fiscal Fiscal Fiscal
1996 1995 1994
Federal -
Current $ (4,884) $(3,796) $ 267
Deferred (7,349) (4,081) (613)
-------- ------- -----
(12,233) (7,877) (346)
State and foreign -
Current 25 (46) (498)
Deferred (863) 895 0
-------- ------- -----
(838) 849 (498)
-------- ------- ------
$(13,071) $(7,028) $(844)
======== ======= ======
A reconciliation of the consolidated effective tax rate to the amount computed
by applying the federal income tax rate to income before taxes, is as follows:
Effective Tax Rate (Percent):
June 29, June 24, June 25,
1996 1995 1994
Federal (34.0)% 35.0% 34.0%
State income taxes, net of federal income tax effect (3.7) 2.5 0.4
Goodwill amortization 3.5 2.8 0.0
Dividend received deduction (2.3) 0.0 0.0
Utilization of net operating loss carryforward 0.0 (26.4) (34.0)
Other (net) (0.4) (0.3) (4.0)
----- ----- -----
Subtotal (36.9) 13.6 (3.6)
Tax benefits resulting from prior years' exempt status (20.8) (44.8) 0.0
----- ----- -----
Total (57.7)% (31.2)% (3.6)%
===== ===== =====
The consolidated deferred tax (liabilities)/assets consist of the following at
June 29, 1996:
Fiscal Fiscal
1996 1995
Liabilities
Depreciation $(61,350) $(65,292)
Non-compete agreements (766) (1,120)
Long-term receivables (426) (626)
Prepaid manufacturing (4,411) (3,827)
Other (39) (45)
-------- --------
(66,992) (70,910)
Assets
Non-qualified retains 1,114 1,181
Inventory reserves 2,203 3,416
Allowance for doubtful accounts 313 382
Capital and operating loss carryforwards 30,827 9,838
Accrued employee benefits 3,014 3,711
Insurance accruals 2,031 1,659
Pension/OPEB accruals 6,368 6,237
Restructuring reserves 1,731 280
Other 2,664 2,562
-------- --------
50,165 29,266
-------- --------
Net deferred liabilities (16,827) (41,644)
Valuation allowance (14,195) (3,827)
-------- --------
$(31,022) $(45,471)
======== ========
The Cooperative has recorded a benefit for the net operating loss carryforwards
resulting from fiscal 1993, 1995 and 1996 results. As of June 29, 1996 the net
operating loss carryforward available is $44.2 million ($16.1 million net of
tax). Such amounts expire between 2008 and 2011.
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 net of tax).
A full valuation allowance has been recorded against the capital loss
carryforward, as it is more likely than not that a tax benefit will not be
realized. The increase to the Cooperative's capital loss carryforward
corresponds to the increase in the valuation allowance. The capital loss
carryforward expires in 2001. In conjunction with the Acquisition of Curtice
Burns by the Cooperative, any future recognition of the capital loss
carryforward will 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. 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, refund amounts of $3.9 million for
tax and interest have been reflected in the financial statements of the
Cooperative as of June 29, 1996. The refunds and interest for the fiscal years
1986 to 1991 were received in March of 1996.
As a result of the Acquisition of Curtice Burns, the Cooperative's tax exempt
status has ceased.
During the second quarter of fiscal 1996 the net deferred taxes liabilities of
the Cooperative subsidiary, Curtice Burns, were reduced by approximately $22
million. The adjustment was made in conjunction with Curtice Burns obtaining its
cooperative tax status and was applied against goodwill, as it represented an
uncertainty related to income taxes outstanding at the date of the Pro-Fac
Acquisition. Based on further advice from outside counsel, it was later
determined that such an adjustment was not warranted. Accordingly, the net
deferred taxes were re-established during the fourth quarter. The reversal had
no material effect on the operations of the Cooperative.
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 1996 and 1995 includes the following
components:
(Dollars in Thousands)
Fiscal 1996 Fiscal 1995
Service cost -- benefits earned during the period $ 3,141 $ 2,427
Interest cost on projected benefit obligation 6,544 4,365
Return on assets:
Actual gain (19,430) 0
Deferred gain 12,123 (4,789)
--------- --------
Total gain (7,307) (4,789)
Amortization of (gain)/loss (64) 0
--------- --------
2,314 2,003
Union and other pension costs 385 147
--------- --------
Net pension cost $ 2,699 $ 2,150
========= ========
The pension plan's funded status was as follows:
(Dollars in Thousands)
June 29, 1996 June 24, 1995
------------- -------------
Assets Assets
Exceed Exceed
Accumulated Accumulated
Benefits Benefits
Actuarial present value of benefit obligations:
Vested benefit obligation $(74,108) $(65,350)
======== ========
Accumulated benefit obligation $(77,035) $(69,449)
======== ========
Projected benefit obligation $(85,307) $(78,809)
Plan assets at fair value 89,716 74,897
-------- --------
Plan assets excess of/(less than) projected benefit obligation 4,409 (3,912)
Unrecognized net (gain)/loss (18,456) (8,787)
Unrecognized prior service cost (266) 0
-------- --------
(14,313) (12,699)
Union and other pension plans (2,318) (2,243)
-------- --------
Pension liability at year end $(16,631) $(14,942)
======== ========
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.
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 7.0 percent in 1994 and 5.0
percent in 1995 of the combined long-term debt and equity (as defined) of
Pro-Fac and the Company. In fiscal 1995 and 1994, $1,400,000 and $1,171,000,
respectively, 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 divisional 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 1996 the Company allocated $400,000 in the form of
matching contributions and $211,000 in the form of incentive contributions for
the benefit of its employees.
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.
This plan's funded status was as follows:
(Dollars In Thousands)
June 29, 1996 June 24, 1995
Accumulated postretirement benefit obligation:
Fully eligible active participants $ 141 $ 113
Other active participants 108 244
Retirees 2,446 2,386
------- -------
Total 2,695 2,743
Less Plan assets at fair value 0 0
------- -------
Accumulated postretirement benefit obligation in excess of fair value of assets (2,695) (2,743)
Unrecognized gains (443) (274)
------- -------
Accrued postretirement benefit cost $(3,138) $(3,017)
======= =======
Net periodic postretirement benefit cost included the following components:
(Dollars in Thousands)
Fiscal 1996 Fiscal 1995
Service cost $ 23 $ 15
Interest cost 222 154
Actual return on assets 0 0
Net amortization and deferral 0 0
---- ----
Net periodic postretirement benefit cost $245 $169
==== ====
The weighted-average, assumed-discount rate used to measure the benefit
obligations was 8.50 percent at the beginning and 7.75 percent at the end of
fiscal 1996.
The annual rate of increase in the per capita cost of health care benefits was
assumed to be 12 percent for 1995 and 11 percent for 1996. The rate was assumed
to decrease gradually to 5.0 percent by the year 2006 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 1996 Fiscal 1995
----------------------- ---------------------
Current 1% Higher Current 1% Higher
Trend Trend Trend Trend
APBO $2,695 $2,798 $2,743 $2,874
Service cost + interest cost $ 245 $ 255 $ 170 $ 178
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 1996, 33,364
shares were purchased by employees, and 3,447 shares were subscribed to as of
June 29, 1996.
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 after five years. The
performance units expire upon the tenth anniversary of grant. The appreciated
value of units in excess of the initial grant price converts to cash
compensation upon expiration of the units. The total units granted on June 24,
1996 under this plan were 248,511 at $13.38 per unit. The value of the June 24,
1996 grants from the Curtice Burns Foods Equity Value Plan will be based on the
Company's earnings and debt repayment in fiscal 1997. The beginning value of
these performance units was set at a level requiring improved earnings and
debt-repayment performance. If future performance equals fiscal 1996
performance, no payouts will be made from the plan relative to the option
granted on June 24, 1996.
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.
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. (See NOTE 9 for common stock dividend
information.)
At June 29, 1996 and June 24, 1995, there were outstanding subscriptions, at par
value, for 59,359 and 59,568 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 and non-cumulative, 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 on the
National Market System of the National Association of Securities Dealers
Automated Quotation System ("NASDAQ").
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").
Pro-Fac expects to issue up to 500,000 shares of the Class B Stock at $10 per
share (liquidation value $10 per share) to employees of Curtice Burns pursuant
to an Employee Stock Purchase Plan adopted by the Curtice Burns and Pro-Fac
Boards of Directors in June 1995 and implemented in the fall of 1995. 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
(with the most recent dividend having been paid in July 1995) and dividends on
the Cumulative Preferred Stock were paid quarterly (with dividends paid on
October 31, 1995, January 31, 1996 and April 30, 1996), 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 conversion. 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.
Market for Pro-Fac Securities: There is no established market for trading
Pro-Fac common stock. All trades have been arranged on a private basis between
buyers and sellers.
NOTE 9. DIVIDENDS ON CAPITAL STOCK
Dividends on preferred and common stock are declared at the discretion of the
board of directors and are paid out of legally available funds. Effective
January 1995, preferred shareholders are entitled to dividends as disclosed in
the table in the previous NOTE. In fiscal 1996 and 1995 dividends on
non-cumulative preferred stock were paid at a rate of 6.0 and 6.75 percent,
respectively, of the par value and dividends on common stock were paid at a rate
of 5.0 and 5.5 percent, respectively, of the par value.
Subsequent to June 29, 1996, 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.
NOTE 10. OTHER MATTERS
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 by Southern Frozen Foods 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.
PRO-FAC COOPERATIVE, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the fiscal year ended June 29, 1996 appears
in the following table. All quarters reflect 13-week periods, except the fourth
quarter, which reflects a 14-week period.
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 1996 1 2 3 4 Total Year
-------- -------- -------- -------- ----------
Net sales $165,178 $208,186 $177,849 $187,881 $739,094
Gross profit $ 42,532 $ 51,691 $ 44,230 $ 37,715 $176,168
(Loss)/income before taxes $ (4,229) $ (5,576) $ 497 $(13,294) $(22,602)
Net (loss)/income $ (2,433) $ (4,661) $ 4,814 $ (7,251) $ (9,531)
Cash dividends declared per share on
Class A Cumulative Preferred Stock $ 0.00 $ 0.43 $ 0.43 $ 0.43 $ 1.29
Market price per share (NASDAQ)
High $ 0.00 $ 17.00 $ 14.63 $ 14.75 $ 17.00
Low $ 0.00 $ 12.50 $ 13.00 $ 13.00 $ 12.50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 General Manager
William D. Rice 1934 Assistant Treasurer and Management Chief Financial Officer
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
Kenneth A. Mattingly 1948 Director
Allan D. Mitchell 1927 Director
Allan W. Overhiser 1960 Director
Paul E. Roe 1939 Director
Edward L. Whitaker 1926 Director
Bruce R. Fox has been a Director of Pro-Fac since 1974. For information
regarding Mr. Fox, see "Management -- The Company -- Directors and Officers."
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 -- The Company -- Directors and
Officers."
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).
William D. Rice has been Assistant Treasurer of Pro-Fac since 1970. For
information regarding Mr. Rice, see "Management -- The Company -- Directors and
Officers."
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 -- The Company -- Directors
and Officers."
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 -- The Company -- Directors
and Officers."
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 -- The Company -- Directors and Officers."
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).
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 D. Mitchell has been a Director of Pro-Fac since 1975 and a member of
Pro-Fac since 1961. He was Secretary of Pro-Fac from 1985 to 1990. Mr. Mitchell
is a fruit grower (North Rose, 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).
Edward L. Whitaker has been a Director of Pro-Fac since 1992 and a member of
Pro-Fac since 1988. Mr. Whitaker is a farm land owner and a popcorn grower
(Forest City, 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
Roy A. Myers(1) 1931 President and Chief Executive Officer and Director
Dennis M. Mullen 1953 Chief Operating Officer and Executive Vice President
William D. Rice 1934 Chief Financial Officer, Senior Vice President, and Secretary
Diana Bartalo 1946 Treasurer and Director of Financial Reporting
Robert E. McMahon 1941 Vice President Information Systems
Blaine B. Petersen 1928 Vice President Operations
Earl L. Powers 1944 Vice President and Controller
Beatrice B. Slizewski 1943 Vice President Corporate Communications
Lois J. Warlick-Jarvie 1958 Vice President Human Resources
Stephen R. Wright 1947 Senior Vice President - Procurement
Year of
Name Birth Positions
Carl W. Caughran 1953 President and Chief Executive Officer of Nalley Fine Foods
Thomas A. Collins 1938 President and Chief Executive Officer of Southern Frozen Foods
Ronald R. Fithen 1946 President and Chief Executive Officer of Finger Lakes Packaging
Bernhard Frega 1950 President and Chief Executive Officer of Comstock Michigan Fruit
Michael A. Gaffney 1950 President and Chief Executive Officer of Snyder
Eugene W. Hermenet 1936 President and Chief Executive Officer of Brooks Foods
Tim Kennedy 1948 President and Chief Executive Officer of Tim's Cascade Chips
David R. Ray 1945 President and Chief Executive Officer of Husman
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
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
Roy A. Myers has been the Chief Executive Officer and a Director of the Company
since the completion of the Acquisition. 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.
Dennis M. Mullen has been Chief Operating Officer of the Company since May 1996
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.
William D. Rice has been Senior Vice President, Chief Financial Officer, and
Secretary of the Company since 1991, Secretary of the Company since 1989. He was
Treasurer of the Company from 1975 to 1996. He was Vice President-Finance of the
Company from 1969 to 1991. He has been Assistant Treasurer of Pro-Fac since 1970
(Management Chief Financial Officer for Pro-Fac).
Diana Bartalo has been Treasurer since March 1996 and Director of Financial
Reporting since 1992; Assistant Treasurer since 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 Comstock
Michigan Fruit Division 1992-1993 and Director of Corporate Information Systems
since December 1991. He joined the Comstock Michigan Fruit 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.
Blaine B. Petersen has been Vice President Operations since 1991; prior to that
he was Director of Operations since 1990. Before joining Curtice Burns, he was
Vice President Plant Operations, Grace Culinary Systems Division of W.R. Grace &
Co. 1988-1990, and Vice President Operations, Fishery Products, Inc. 1983-1988.
He held various executive management positions 1969-1983.
Earl L. Powers has been Vice President and Controller since March 1993, and Vice
President Finance and Management Information Systems, Comstock Michigan Fruit
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
small 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 seven 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 Senior Vice President - Procurement of the Company
since the completion of the Acquisition. He was 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.
Thomas A. Collins has been President and Chief Executive Officer of Southern
since 1990. He was Executive Vice President of Southern from 1989 to 1990, Vice
President-Sales and Marketing of Southern from 1985 to 1989, Vice President,
Marketing for Retail and Foodservice of Southern from 1981 to 1985 and Vice
President, Foodservice Sales of Southern from 1975 to 1981.
Ronald R. Fithen has been President and Chief Executive Officer of Finger Lakes
since 1991. Prior to joining the Company in 1991, he was Plant Manager for
Continental Can's largest manufacturing operation in St. Louis.
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.
Michael A. Gaffney has been President and Chief Executive Officer of Snyder
since 1995. He was Executive Vice President and Chief Operating Officer of
Snyder from 1990 to 1995. Prior to 1990, he held various management and
executive positions with State Line Snacks, Frito-Lay, Gallo, and Procter and
Gamble.
Eugene W. Hermenet has been President and Chief Executive Officer of Brooks
since 1978. He was Executive Vice President of Brooks from 1975 to 1978. He was
President of Silver Floss from 1972 to 1975, Vice President of Silver Floss from
1971 to 1972 and Assistant to the President of Silver Floss from 1969 to 1971.
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 Company 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 29, 1996, all reports required by such reporting
persons were timely filed with the Securities and Exchange Commission, except
the following: Diana Bartalo, Assistant Treasurer of Pro-Fac and Treasurer and
Director of Financial Reporting of the Company, failed to file one Form 3 and
one Form 4 relating to the acquisition of 140 shares of Class B, Series 1, 10%
Cumulative Preferred Stock of Pro-Fac ("Class B Stock"); and William D. Rice,
Management Chief Financial Officer and Assistant Treasurer of Pro-Fac and Senior
Vice President, Chief Financial Officer, and Secretary of the Company, failed to
file one Form 3 and one Form 4 relating to the acquisition of 200 shares of
Class B Stock.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the cash compensation and certain other components of
the compensation of the chief executive officer and the four (4) other most
highly compensated executive officers of the Cooperative earned during fiscal
year ended 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
Roy A. Myers - 1996 $410,154 $ 0 $ 2,672
President, CEO of Curtice Burns 1995 $258,375 $200,539 $10,609
William D. Rice - 1996 $249,642 $ 0 $ 1,656
Senior Vice President, CFO, Secretary, 1995 $159,081 $116,143 $ 9,791
and Treasurer of Curtice Burns
Dennis M. Mullen - 1996 $216,107 $ 0 $ 1,465
Executive Vice President and 1995 $112,772 $ 71,207 $ 7,265
Chief Operating Officer
Stephen R. Wright 1996 $156,789 $ 0 $ 1,627
General Manager and 1995 $ 98,373 $ 51,628 $ 4,520
CEO of Pro-Fac Cooperative, Inc.
Earl L. Powers 1996 $157,990 $ 0 $ 1,642
Vice President and Controller 1995 $ 99,151 $ 60,333 $ 6,099
1 No Named Executive Officer has received personal benefits during the listed years in excess of the lesser of $50,000 or 10
percent of annual salary.
2 Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of the
officers and employees eligible under the Incentive Plan and by the earnings
of the Company and of Pro-Fac.
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
Roy A. Myers 46,637 6/24/2006 $0 $0
Dennis M. Mullen 32,085 6/24/2006 $0 $0
William D. Rice 23,636 6/24/2006 $0 $0
Stephen R. Wright 13,970 6/24/2006 $0 $0
Earl L. Powers 14,056 6/24/2006 $0 $0
(1) On June 24, 1996, the Company introduced a long-term incentive program, the
Curtice Burns Foods Equity Value Plan ("EVP"), 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 after five years. The
performance units expire upon the tenth anniversary of grant. The
appreciated value of units in excess of the initial grant price converts to
cash compensation upon expiration of the units.
(2) The value of the June 24, 1996 grants from the Curtice Burns Foods Equity
Value Plan will be based on the Company's earnings and debt repayment in
fiscal 1997. 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 1996 earnings and debt levels and would yield no payout from the
plan at those levels. If future performance equals fiscal 1996 performance,
no payouts will be made from the plan relative to the option granted on
June 24, 1996.
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 29, 1996, of the Executive Officers listed in the
Summary Compensation Table are as follows: Roy A. Myers-34, Dennis M. Mullen-6,
William D. Rice-24, Stephen R. Wright-22, and Earl L. Powers-4.
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 $22,437 $ 29,342 $ 36,160 $ 43,133 $ 50,278
150,000 27,687 36,342 44,910 53,633 62,528
175,000 32,937 43,342 53,660 64,133 74,778
200,000 38,187 50,342 62,410 74,633 87,028
225,000 43,437 57,342 71,160 85,133 99,278
250,000 48,687 64,342 79,910 95,633 111,528
275,000 53,937 71,342 88,660 106,113 123,778
300,000 59,187 78,342 97,410 116,633 136,028
325,000 64,437 85,342 106,160 127,133 148,278
350,000 69,687 92,342 114,910 137,633 160,528
375,000 74,937 99,342 123,660 148,133 172,778
400,000 80,187 106,342 132,410 158,633 185,028
Change of Control Provisions of Severance and Other Benefit Plans: The Company
has adopted a Change of Control Severance Plan concerning certain key employees
and Executive Officers (the "Plan"). The Plan provides salary and benefit
continuation to designated executives (including the named executives listed in
the Summary Compensation Table) in the event their employment is terminated
within a specified period after a change of control of the Company, as such term
is defined in the Plan.
The Plan will remain in existence until November 3, 1996. The Plan provides for
salary and benefit continuation upon termination other than for cause within the
two-year period following a Change of Control as follows: one year of salary and
benefit continuation for Messrs. Petty, Myers and Rice; two years of salary and
benefit continuation for the other designated executives including Messrs.
Mullen, and Powers, or until the executive obtains other employment at an annual
salary not less than 75 percent of his annual salary at termination, whichever
occurs first.
Under the terms of the Agreement, Messrs. Myers and Rice would be entitled to a
supplemental retirement benefit equal to the benefit they would receive from the
Curtice Burns Foods Master Salaried Retirement Plan if they were to continue
working until age 65 at their current salary level, less their actual retirement
benefit from this Plan. In all cases, the supplemental retirement benefits begin
at the end of the salary and benefit continuation period. Also, upon a Change of
Control all stock options granted prior to February 18, 1994 became exercisable.
The Incentive Plan also contains a change of control provision pursuant to
which, in the event of a change of control of the Company, participants in such
plan who are terminated within two years following a change in control are
entitled to an allocation of benefits under such plan for the fiscal year of
their termination on a pro rata basis for the part of the year they were
employed.
Directors Compensation: In fiscal 1996, directors of Pro-Fac received an annual
stipend of $6,000 per year, plus $200 per day for attending Board or Committee
meetings, except for the President, who received double those amounts.
In fiscal 1996, non-employee directors of Curtice Burns 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 1996, 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 29, 1996, 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 383,942 20.71%
PO Box 988 Class A Cumulative Preferred 45,791 1.51%
Traverse City, MI 49685
Michigan Blueberry Growers Assoc. Common 116,400 6.28%
PO Drawer B Class A Cumulative Preferred 27,446 0.91%
Grand Junction, MI 49056
Dale E. Burmeister Common 5,162(c) 0.28%
Class A Cumulative Preferred 737(c) 0.02%
Class A Cumulative Preferred 8,640 0.29%
Robert V. Call, Jr. Common 39,728(d) 2.14%
Class A Cumulative Preferred 24,167(d) 0.80%
Class A Cumulative Preferred 13,088(e) 0.43%
Class A Cumulative Preferred 5,361(f) 0.18%
Class A Cumulative Preferred 1,506 0.05%
Glen Lee Chase Common 9,472(g) 0.51%
Class A Cumulative Preferred 5,233(g) 0.17%
Tommy R. Croner Common 7,026(h) 0.38%
Class A Cumulative Preferred 10,212(i) 0.34%
Albert P. Fazio Common 8,000(j) 0.43%
Class A Cumulative Preferred 8,728(j) 0.29%
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
Bruce R. Fox Common 21,197(k) 1.14%
Class A Cumulative Preferred 8,730(k) 0.29%
Class A Cumulative Preferred 4,129(l) 0.14%
Class A Cumulative Preferred 1,871 0.06%
Steven D. Koinzan Common 7,140 0.38%
Class A Cumulative Preferred 2,069 0.07%
Kenneth A. Mattingly Common 5,512(m) 0.30%
Class A Cumulative Preferred 3,325(m) 0.11%
Allan D. Mitchell Common 78 0.00%
Class A Cumulative Preferred 1,674(n) 0.06%
Class A Cumulative Preferred 4,360 0.14%
Dennis M. Mullen None 0 0.0%
Roy A. Myers None 0 0.0%
Allan W. Overhiser Common 1,859(o) 0.10%
Class A Cumulative Preferred 1,551(o) 0.05%
Earl L. Powers None 0 0.0%
Paul E. Roe Common 12,851(p) 0.69%
Class A Cumulative Preferred 3,340(p) 0.11%
William D. Rice Class B Cumulative Preferred 4,200 12.59%
Edward L. Whitaker Common 396 0.02%
Class A Cumulative Preferred 139 0.01%
Stephen R. Wright Class A Cumulative Preferred 840 0.03%
All directors and officers as a group Common 118,421 6.39%
Class A Cumulative Preferred 110,328 3.64%
Class B Cumulative Preferred 4,540 13.61%
(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 New Columbia Garden Co., Inc.
(k) Record ownership by N.J. Fox & Sons, Inc.
(l) Record ownership by K. Fox
(m) Record ownership by M-B Farms, Inc.
(n) Record ownership jointly with spouse
(o) Record ownership by A.W. Overhiser Orchards
(p) Record ownership by Roe Acres, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 are required to be a percentage of the five-year
average borrowing. As of June 29, 1996, the amount of Pro-Fac's investment in
the Bank was approximately $24.4 million. Pursuant to its capital purchase
obligation, Pro-Fac increased its investment in the Bank by $1.5 million and
$1.3 million in fiscal 1996 and 1995, respectively. Amounts paid to Pro-Fac on
account of dividends and the redemption of capital certificates in connection
with such investment were $2.3 million in fiscal 1995 and none in fiscal 1996.
In connection with the Transactions, Pro-Fac contributed its investment in the
Bank to the capital of the Company.
Purchase of Crops by 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. Prior to the Acquisition, these crops were
sold to the Company pursuant to the Integrated Agreement. During fiscal 1996,
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 1996
Dale E. Burmeister................................................ Director $ 122,000
Robert V. Call, Jr................................................ Director 2,147,000
Glen Lee Chase.................................................... Director 139,000
Tommy R. Croner................................................... Director and Secretary 236,000
Albert P. Fazio................................................... Director and Vice President 4,000
Bruce R. Fox...................................................... Director and President 880,000
Steven D. Koinzan................................................. Director and Treasurer 163,000
Kenneth A. Mattingly.............................................. Director 527,000
Paul E. Roe....................................................... Director 654,000
Allan D. Mitchell................................................. Director 177,000
Allan W. Overhiser................................................ Director 21,000
Edward L. Whitaker................................................ Director 2,000
Pro-Fac's payment to the members for CMV was limited to 90 percent of deliveries
in fiscal 1996.
Directors and Officers Liability Insurance: As authorized by New York law and in
accordance with the policy of that state, the Company has obtained insurance
from Chubb Group Insurance insuring the Company 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,
1997, 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
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Management's Responsibility for Financial Statements
Report of Independent Accountants
Consolidated Financial Statements for the years ended June 29, 1996, June 24,
1995, and June 25, 1994:
Consolidated Statement of Operations and Net Proceeds
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Shareholders' and Members'
Capitalization and Common Stock
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data
(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 29, 1996 June 24, 1995
Allowance for doubtful accounts
Balance at beginning of period $ 673,000 $683,000
Additions charged to expense 537,000 91,000
Deductions (374,000) (101,000)
--------- --------
Balance at end of period $ 836,000 $673,000
========= ========
Inventory reserve*
Balance at beginning of period $ 144,000 $ 0
Net change (144,000) 144,000
--------- --------
Balance at end of period* $ 0 $144,000
========= ========
* Difference between FIFO cost and market applicable to canned and frozen
fruit and vegetable inventories.
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** Certificate of Incorporation of Pro-Fac.
3.4* Bylaws of Pro-Fac.
10.1** 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** 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** Parent Guaranty, dated as of November 3, 1994, by
Pro-Fac in favor of the Bank.
10.4** Parent Security Agreement, dated as of November 3,
1994 between Pro-Fac and the Bank.
10.5** 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** Marketing and Facilitation Agreement, dated as of
November 3, 1994, between Pro-Fac and Curtice Burns.
10.7** Management Incentive Plan, as amended.
10.8** Supplemental Executive Retirement Plan, as amended.
10.10** Master Salaried Retirement Plan, as amended.
10.11** Non-Qualified Profit Sharing Plan, as amended.
10.12* Excess Benefit Retirement Plan.
10.13* Modification A of Term Loan, Term Loan Facility,
and Seasonal Loan Agreement, Dated as of January
26, 1995, Between Curtice Burns and the Bank.
10.14* Second Amendment to Non-Qualified Profit Sharing
Plan.
10.15*** Modifications B - D of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Curtice Burns and the Bank.
10.16 Modifications E - F of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Curtice Burns and the Bank.
10.17 Equity Value Plan Adopted on June 24, 1996.
10.18 Seasonal Loan Agreement Between Pro-Fac and the
Bank Dated June 28, 1996.
21.1 List of Subsidiaries.
27 Financial Data Schedule.
* Incorporated by reference from Registration Statement No. 33-60273.
** Incorporated by reference from Registration Statement No. 33-56517, as
amended.
*** Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 24, 1995.
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 22, 1996 BY: /s/ Stephen R. Wright
---------------
STEPHEN R. WRIGHT
GENERAL MANAGER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints STEPHEN R. WRIGHT AND WILLIAM D. RICE, 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 22, 1996
- ---------------------------------------------------------- ---------------
(BRUCE R. FOX)
/s/ Albert P. Fazio Vice President and Director August 22, 1996
- ---------------------------------------------------------- ---------------
(ALBERT P. FAZIO)
/s/ Steven D. Koinzan Treasurer and Director August 22, 1996
- ---------------------------------------------------------- ---------------
(STEVEN D. KOINZAN)
/s/ Tommy R. Croner Secretary and Director August 22, 1996
- ---------------------------------------------------------- ---------------
(TOMMY R. CRONER)
/s/ Dale W. Burmeister Director August 22, 1996
- ---------------------------------------------------------- ---------------
(DALE W. BURMEISTER)
/s/ Robert V. Call, Jr. Director August 22, 1996
- ---------------------------------------------------------- ---------------
(ROBERT V. CALL, JR.)
/s/ Glen Lee Chase Director August 22, 1996
- ---------------------------------------------------------- ---------------
(GLEN LEE CHASE)
/s/ Kenneth A. Mattingly Director August 22, 1996
- ---------------------------------------------------------- ---------------
(KENNETH A. MATTINGLY)
/s/ Allan D. Mitchell Director August 22, 1996
- ---------------------------------------------------------- ---------------
(ALLAN D. MITCHELL)
/s/ Allan W. Overhiser Director August 22, 1996
- ---------------------------------------------------------- ---------------
(ALLAN W. OVERHISER)
/s/ Paul E. Roe Director August 22, 1996
- ---------------------------------------------------------- ---------------
(PAUL E. ROE)
/s/ Edward L. Whitaker Director August 22, 1996
- ---------------------------------------------------------- ---------------
(EDWARD L. WHITAKER)
/s/ Stephen R. Wright General Manager August 22, 1996
- ---------------------------------------------------------- ---------------
(STEPHEN R. WRIGHT) (Principal Executive Officer)
/s/ William D. Rice Assistant Treasurer and August 22, 1996
- ---------------------------------------------------------- ---------------
(WILLIAM D. RICE) Management Chief Financial Officer
(Principal Accounting Officer)