-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jcH/2Wm2mSFavGYhBS0UX1qxz6qm2EjLfu/PE//V4AopaD+aQGirci+OdwU5Yu+k nlpINKcWKfrTt5kWhIT9Mw== <IMS-DOCUMENT>0000202932-95-000010.txt : 19950417 <IMS-HEADER>0000202932-95-000010.hdr.sgml : 19950417 ACCESSION NUMBER: 0000202932-95-000010 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941224 FILED AS OF DATE: 19950414 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRO FAC COOPERATIVE INC CENTRAL INDEX KEY: 0000202932 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 160845824 STATE OF INCORPORATION: NY FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 002-66772 FILM NUMBER: 95528851 BUSINESS ADDRESS: STREET 1: 90 LINDEN PL STREET 2: P O BOX 682 CITY: ROCHESTER STATE: NY ZIP: 14603-0682 BUSINESS PHONE: 7163831850 </IMS-HEADER> <DOCUMENT> <TYPE>10-Q/A <SEQUENCE>1 <TEXT> SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q/A Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 24, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Registration Statement (Form S-1) Number 2-66772 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, P.O. Box 682, Rochester, NY 14603 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (716) 383-1850 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock as of January 15, 1993. Common Stock - 2,043,493 Page 1 of 27<PAGE> <PAGE> Part I. FINANCIAL INFORMATION INTRODUCTION On November 3, 1994 Curtice-Burns Foods, Inc. ("Curtice-Burns") was acquired by Pro-Fac Cooperative, Inc. ("The Cooperative" or "Pro-Fac"), an agricultural cooperative formed under New York State law to process and market crops grown by its members. Curtice-Burns is a producer and marketer of processed food products. In addition, Curtice-Burns manufactures cans which are both utilized by Curtice-Burns and sold to third parties. Curtice-Burns sells products in three principal categories: (i) "branded" products, which are sold under Curtice-Burns' trademarks, (ii) "private label" products, which are sold to grocers that in turn use their own brand names on the products and (iii) "food service" products, which are sold to food service institutions. In fiscal 1994, approximately one-half of Curtice-Burns' net sales were branded and the remainder were split between private label and food service. Curtice-Burns operates throughout the United States and in Western Canada through six operating divisions. Pro-Fac and Curtice-Burns were established together in the early 1960's and before Pro-Fac's recent acquisition of Curtice-Burns, had a long-standing contractual relationship under the Integrated Agreement, and similar predecessor agreements. The Integrated Agreement, which has been superseded by the Pro-Fac Marketing Agreement, principally governed four arrangements between Pro-Fac and Curtice-Burns: facilities financing, operations financing, marketing and management. Pro-Fac continues to market its members' crops and provide other accommodations to Curtice-Burns, and Curtice-Burns continues to provide management services to Pro-Fac, pursuant to the Pro-Fac Marketing Agreement. The Acquisition The acquisition was accomplished through a tender offer for all outstanding shares of Curtice-Burns and a subsequent merger of PF Acquisition Corp. ("PFAC"), a wholly-owned subsidiary of Pro-Fac, into Curtice-Burns. As a result of the acquisition, the holders of the Class A and Class B Common Stock of Curtice-Burns became entitled to $19.00 per share in cash, Curtice- Burns became a wholly-owned subsidiary of Pro-Fac, and Curtice-Burns assumed all of the liabilities of PFAC, including liabilities for acquisition indebtedness. The acquisition was accounted for using the purchase method of accounting. In recording the transaction, approximately $121.6 million was added to fixed asset values to bring the assets up to appraised fair market value, and the asset lives were adjusted to lives deemed appropriate for assets acquired. The resulting annual depreciation will approximate $23.3 million on all existing assets at the appraised values. In addition, approximately $94.3 million of goodwill and other intangible assets were recorded as the excess of purchase cost over net assets acquired. Included in this amount was approximately $41.0 million for deferred tax adjustments to properly reflect the effects of the acquisition in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." The resulting annual amortization of goodwill and other intangible assets will approximate $2.7 million for goodwill and other intangible assets using a 35-year amortization period. For purposes of preparing these financial statements a preliminary allocation of the purchase price has been made. Future adjustments will be made to this allocation based upon the final asset appraisals and analyses. In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent Senior Subordinated Notes due 2005 (the "Notes") and entered into a credit agreement (the "New Credit Agreement") with CoBank, ACB, formerly The Springfield Bank for Cooperatives (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 <PAGE> Agreement have become obligations of Curtice-Burns. Consequently, Curtice- Burns is more highly leveraged, and has greater interest expense, than prior to the acquisition. Further information concerning the acquisition and how it was accounted for and financed is set forth in Amendment No. 1 to Curtice-Burns' Registration Statement on Form S-4 (Registration No. 33-56517), which was filed with the Securities and Exchange Commission on December 16, 1994. Item I - FINANCIAL STATEMENTS The interim financial statements contained herein are unaudited, but in the opinion of the management of the Cooperative include all adjustments (consisting only of normal recurring adjustments and the effects of the acquisition) necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year, nor are they comparable to prior periods due to the effects of the acquisition. <TABLE> Pro-Fac Cooperative, Inc. Consolidated Statement of Operations and Net Proceeds (Dollars in Thousands) <CAPTION> Three Months Ended Six Months Ended 12/24/94 12/25/93 12/24/94 12/25/93 <S> <C> <C> <C> Net sales $129,055 $ 13,426 $166,712 $ 55,753 Cost of sales 93,022 13,426 130,679 55,753 Gross profit 36,033 -- 36,033 -- Share of Curtice-Burns earnings prior to acquisition 2,769 9,700 5,137 12,473 Interest income from Curtice-Burns prior to acquisition 1,857 4,192 6,102 8,316 Other selling, general and administrative (expenses)/income (26,454) 144 (26,399) 291 Operating income 14,205 14,036 20,873 21,080 Interest expense (7,155) (3,106) (10,094) (6,274) Income before taxes, dividends and allocation of net proceeds 7,050 10,930 10,779 14,806 Tax benefit/(provision) 5,317 (409) 5,292 (818) Net income (net proceeds) $ 12,367 $ 10,521 $ 16,071 $ 13,988 Allocation of Net Proceeds: Net income $ 12,367 $ 10,521 $ 16,071 $ 13,988 Dividends on common and preferred stock -- -- (4,914) (4,390) Net proceeds 12,367 10,521 11,157 9,598 Allocation to earned surplus (9,840) (1,590) (8,630) (667) Net proceeds available to members $ 2,527 $ 8,931 $ 2,527 $ 8,931 Allocation of net proceeds available to members: Estimated to be paid currently $ 475 $ 1,725 $ 475 $ 1,725 Qualified retains 1,902 6,901 1,902 6,901 Non-qualified retains 150 305 150 305 Net proceeds available to members $ 2,527 $ 8,931 $ 2,527 $ 8,931 <FN> The accompanying notes are an integral part of these consolidated financial statements. /TABLE <PAGE> <PAGE> <TABLE> Pro-Fac Cooperative, Inc. Consolidated Balance Sheet (Dollars in Thousands) <CAPTION> ASSETS 12/24/94 6/25/94 12/25/93 <S> <C> <C> <C> Current assets: Cash $ 7,766 $ 10 $ 54 Accounts receivable, trade, net 66,203 -- -- Accounts receivable, other 13,112 68 374 Receivable from Curtice-Burns Foods, Inc. -- 11,197 39,241 Current portion of long-term loans receivable from Curtice-Burns Foods, Inc. -- 14,000 14,000 Current portion of investment in direct financing leases -- 17,645 21,184 Current portion of investment in Bank -- 1,324 1,356 Inventories: Finished goods 160,962 -- -- Materials and supplies 54,464 -- -- Total inventories 215,426 -- -- Current deferred taxes receivable 10,610 -- -- Prepaid expenses 5,464 2,464 1,604 Total current assets 318,581 46,708 77,813 Goodwill and other intangible assets, net 93,975 -- -- Property, plant and equipment, net 271,907 -- -- Long-term portion of investment in direct financing leases -- 123,677 126,325 Long-term loans receivable from Curtice-Burns Foods, Inc. -- 78,040 76,262 Investment in Bank 21,619 19,632 17,543 Deferred tax benefit -- 2,623 2,117 Finance receivable related to intangibles -- 24,909 25,725 Assets held for resale 6,138 -- -- Other assets 22,668 462 253 Total assets $734,888 $296,051 $326,038 <FN> The accompanying notes are an integral part of these consolidated financial statements. /TABLE <PAGE> <PAGE> <TABLE> Pro-Fac Cooperative, Inc. Consolidated Balance Sheet (Continued) (Dollars in Thousands) <CAPTION> LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION 12/24/94 6/25/94 12/25/93 <S> <C> <C> <C> <C> <C> <C> Current liabilities: Notes payable $ 70,000 $ 11,500 $ 31,100 Accounts payable 55,593 617 3,272 Accrued employee compensation 9,259 -- -- Other accrued expenses 33,731 2,536 2,994 Accrued manufacturing expense 2,417 -- -- Current portion of obligations under capital leases 785 -- -- Income taxes payable 3,342 668 854 Current portion of long-term debt 8,182 14,000 14,000 Amounts due members 22,005 15,327 25,549 Total current liabilities 205,314 44,648 77,769 Deferred income taxes 53,016 -- -- Obligations under capital leases 1,296 -- -- Long-term debt 165,390 127,134 133,014 Senior subordinated notes 160,000 -- -- Other non-current liabilities 15,822 504 468 Commitments and contingencies Common stock, par value $5, authorized - 5,000,000 shares 12/24/94 6/25/94 12/25/93 Shares issued 2,043,493 2,056,878 2,096,860 Shares subscribed 2,432 9,270 17,063 Total subscribed and issued 2,045,925 2,066,148 2,113,923 Less subscriptions receivable in installments (2,432) (9,270) (17,063) 2,043,493 2,056,878 2,096,860 10,217 10,284 10,484 Shareholders' and members' capitalization: Retained earnings allocated to members 38,802 36,924 36,377 Non-qualified allocation to members 6,128 7,454 5,959 Preferred stock, par value $25, authorized - 5,000,000 shares; issued and outstanding - 2,623,604, 2,576,720 and 2,378,807, respectively 65,590 64,418 59,470 Earned surplus 13,313 4,685 2,497 Total shareholders' and members' capitalization 123,833 113,481 104,303 Total liabilities and capitalization $734,888 $296,051 $326,038 <FN> The accompanying notes are an integral part of these consolidated financial statements. /TABLE <PAGE> <PAGE> <TABLE> Pro-Fac Cooperative Inc. Consolidated Statement of Cash Flows (Dollars in Thousands) <CAPTION> Six Months Ended 12/24/94 12/25/93 <S> <C> <C> Cash flows from operating activities: Net income $ 16,071 $ 13,988 Amount payable to members currently (475) (1,725) Adjustments to reconcile net income to net cash provided by operating activities: Amortization of goodwill and other intangibles 410 -- Depreciation 3,742 -- Deferred tax (5,651) (107) Change in assets and liabilities: Accounts receivable 10,133 (349) Inventories 10,794 -- Accounts payable and accrued expenses (20,789) 2,228 Amounts due to members 6,678 11,024 Federal and state taxes payable/refundable (1,332) 924 Other assets and liabilities 12,784 (870) Net cash provided by operating activities 32,365 25,113 Cash flows from investing activities: Due from Curtice-Burns, net 103,237 (25,742) Return from direct investment in financing leases 141,322 26,004 Investment in Bank 21,448 (913) Cash received from the finance receivable related to intangibles 564 820 Purchase of property, plant and equipment (5,206) -- Cash paid for acquisition (136,288) -- Net cash provided by investing activities 125,077 169 Cash flows from financing activities: Proceeds from issuance of short-term debt 45,835 19,100 Payments on short-term debt (52,562) -- Payments on long-term debt (137,650) (36,986) Repurchase of common stock, net of issuances (67) (2,971) Cash portion of non-qualified conversion (304) -- Cash paid in lieu of fractional shares (24) -- Cash dividends paid (4,914) (4,390) Net cash used in financing activities (149,686) (25,247) Net change in cash 7,756 35 Cash at beginning of period 10 19 Cash at end of period $ 7,766 $ 54 All amounts above exclude the effects of the acquisition as detailed in the Supplemental Disclosure of Cash Flow Information Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest $ 6,775 $ 6,274 Income taxes, net $ 2,457 $ (106) Cash paid for the acquisition of Curtice-Burns Accounts receivable 89,380 Inventories 226,220 Investment in Bank 21,448 Other assets 20,785 Goodwill and other intangible assets 94,451 Fixed assets 270,443 Accounts payable and accrued expenses (121,979) Short-term debt (72,562) Long-term debt (162,753) Subordinated notes (160,000) Deferred tax liability (50,680) Other liabilities (18,465) $ 136,288 Supplemental schedule of non-cash investing and financing activities: Conversion of retains to preferred stock $ 1,172 $ -- <FN> The accompanying notes are an integral part of these consolidated financial statements. /TABLE <PAGE> <PAGE> PRO-FAC COOPERATIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. SUMMARY OF ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The following summarizes the significant accounting policies applied in the preparation of the accompanying financial statements. Fiscal Year The financial statements of Pro-Fac include the results of operations of Curtice-Burns from November 3, 1994, the acquisition date, through December 24, 1994, the fiscal quarter end (see Note 3). The fiscal year of Pro-Fac will correspond with that of Curtice-Burns and will end on June 24, 1995, the last Saturday in June. Consolidation The consolidated financial statements include Pro-Fac and its wholly-owned subsidiaries after elimination of intercompany transactions and balances. Inventories Inventories are stated at the lower of cost or market on the first-in, first-out ("FIFO") method. Inventory reserves are recorded to reflect the difference between FIFO cost and the market applicable to canned and frozen fruit and vegetable inventories. Investment in CoBank, ACB ("the Bank") The Cooperative's investment in the Bank is required as a condition of borrowing, the amount of investment equal to a percentage of average borrowings over a five year period. These securities are not physically issued by the Bank, but the Cooperative is notified as to their monetary value. The investment is carried at cost plus a share of the undistributed earnings of the Bank (that portion of patronage refunds not distributed currently in cash). Manufacturing Overhead Allocation of manufacturing overhead to finished goods produced is on the basis of a production year; thus at the end of each fiscal year, manufacturing costs incurred by seasonal plants subsequent to the previous pack are deferred and included in the accompanying balance sheet under the caption "Accrued/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. 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. <PAGE> <PAGE> 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 Pro-Fac's 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 Pro-Fac and its subsidiaries are based upon actuarially determined costs. Pension liabilities are funded by periodic payments to the various pension plan trusts. Employers' Accounting for Postemployment Benefits On June 26, 1994, Curtice-Burns adopted the SFAS No. 112, "Employers' Accounting for Postemployment Benefits," with no material impact. This statement establishes accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. Postemployment benefits are all types of benefits provided to former or inactive employees, their beneficiaries, and covered dependents. Goodwill and Other Intangibles Goodwill and other intangible assets include the cost in excess of the fair value of net tangible assets acquired in purchase transactions and acquired non-competition agreements and trademarks. Goodwill and other intangible assets, stated at net of accumulated amortization, are amortized on a straight-line basis over periods ranging to 35 years. Pro-Fac 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 undiscounted future cash flows and the carrying value of goodwill. Goodwill resulting from the purchase of Curtice-Burns by Pro-Fac of approximately $94.3 million is being amortized on a straight line basis over 35 years. See Note 3. Environmental Expenditures Environmental expenditures that pertain to current operations are expensed or capitalized consistent with Pro-Fac'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. Reclassification Certain items for the three and six months ending December 25, 1993 have been reclassified to conform with the current year presentations.<PAGE> <PAGE> Earnings Per Share Data Omitted Net income or net proceeds per share amounts are not presented because 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. Note 2. AGREEMENTS WITH CURTICE-BURNS On November 3, 1994 Curtice-Burns was acquired by Pro-Fac. Pro-Fac and Curtice-Burns were established together in the early 1960's and before Pro- Fac's recent acquisition of Curtice-Burns, had a long-standing contractual relationship under the Integrated Agreement, and similar predecessor agreements. The Integrated Agreement, which has been superseded by the Pro- Fac Marketing Agreement, consisted of four principal sections: Operations Financing, Marketing, Facilities Financing and Management. The provisions of the Integrated Agreement included the financing of certain assets utilized in the business of Curtice-Burns and provided a sharing of income and losses between Curtice-Burns and Pro-Fac. Under the Pro-Fac Marketing Agreement, Pro-Fac and Curtice-Burns will continue the marketing and management arrangements of the Integrated Agreement, as well as the sharing of income and losses. The capital contribution of Pro-Fac to Curtice-Burns at acquisition primarily included the cancellation of indebtedness and capital lease obligations. Payments by Curtice-Burns to Pro-Fac for interest, amortization and lease financing payments ceased as of November 3, 1994. Amounts received by Pro-Fac from Curtice-Burns under both Agreements for the six months ended December 24, 1994 and December 25, 1993 include: commercial market value of crops delivered, $54.2 million and $55.8 million, respectively; interest income, $6.1 million and $8.3 million, respectively; and additional proceeds from profit sharing provisions, $6.9 million and $12.5 million, respectively. During fiscal 1993 a dispute arose between Curtice-Burns and Pro-Fac regarding the sharing of certain losses incurred in Curtice-Burns' restructuring program. As part of the merger, such dispute was resolved. Note 3. DEVELOPMENTS RELATED TO CHANGE IN CONTROL OF CURTICE-BURNS In 1993, Curtice-Burns' management and Board of Directors began exploring several strategic alternatives for Curtice-Burns, including a possible sale of all the equity of Curtice-Burns. Those activities ultimately resulted in Curtice-Burns entering into an Agreement and Plan of Merger with Pro-Fac and 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 Curtice-Burns' 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 Curtice-Burns) had been validly tendered and not withdrawn. All such tendered shares were accepted for payment by PFAC. On November 3, 1994, PFAC merged into Curtice-Burns, making Curtice-Burns a wholly-owned subsidiary of Pro-Fac. Prior to November 3, 1994, Curtice-Burns expensed $2.2 million of legal, accounting, investment banking and other expenses relative to the change of control issue. In recognizing these expenses, Curtice-Burns 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.<PAGE> <PAGE> The acquisition was accounted for using the purchase method of accounting. In recording the transaction, approximately $121.6 million was added to fixed asset values to bring the assets up to appraised fair market value, and the asset lives were adjusted to lives deemed appropriate for assets acquired. The resulting annual depreciation will approximate $23.3 million on all existing assets at the appraised values. In addition, approximately $94.3 million of goodwill and other intangible assets were recorded as the excess of purchase cost over net assets acquired. Included in this amount was approximately $41.0 million for deferred tax adjustments to properly reflect the effects of the acquisition in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." The resulting annual amortization of goodwill and other intangible assets will approximate $2.7 million for goodwill and other intangible assets using a 35-year amortization period. For purposes of preparing these financial statements a preliminary allocation of the purchase price has been made. Future adjustments will be made to this allocation based upon the final asset appraisals and analyses. In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent Senior Subordinated Notes due 2005 (the "Notes") and entered into a credit agreement (the "New Credit Agreement") with The Springfield Bank for Cooperatives, 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 Curtice-Burns. Following, in capsule form, is the consolidated unaudited results of operations of Curtice-Burns Foods for the six months ended December 24, 1994 and December 23, 1993, assuming the acquisition by Pro-Fac took place at the beginning of the 1994 fiscal year. <TABLE> (In Millions) <CAPTION> Six Months Ended (Unaudited) December 24, 1994 December 23, 1993 As Reported Pro Forma As Reported Pro Forma <S> <C> <C> <C> <C> Net sales $166.7 $392.8 $55.8 $453.3 Income before taxes $ 10.8 $ 8.2 $14.8 $ 15.3 Net income $ 16.1 $ 4.4 $14.0 $ 9.7 </TABLE> Note 4. DISPOSALS National Oats. On November 19, 1993, Curtice-Burns sold the oats portion of the National Oats business for $39.0 million and transferred the popcorn business to CMF. The sale of the oats business resulted in an approximate $10.9 million gain in fiscal 1994. Hiland Potato Chips. On November 22, 1993, Curtice-Burns sold certain assets of the Hiland potato chips business for approximately $3.0 million. There was no material gain or loss on this transaction after taking into account the fiscal 1993 restructuring charge. Meat Snacks. On February 22, 1994, Curtice-Burns sold the meat snacks business. Curtice-Burns will lease certain manufacturing facilities and equipment and license its trademarks, trade names, etc. to the buyer until February 1995, at which time the buyer is contractually obligated to purchase these assets for $2.0 million. There was no material gain or loss <PAGE> on this transaction after taking into account a restructuring charge recorded fiscal 1993. Nalley's U.S. Chips and Snacks. On December 19, 1994, Curtice-Burns sold the Nalley's U.S. Chips and Snacks business for approximately $2.0 million. In the first quarter of fiscal 1995, Curtice-Burns recognized a charge of approximately $8.4 million in connection with the elimination of this line of business. There was no material gain or loss on this transaction after taking into account a restructuring charge recorded in the first quarter of fiscal 1995. The business divestitures resulted in the following charges to earnings of Curtice-Burns in fiscal 1994 and fiscal 1995: 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 oats business of $10.9 million, net of a charge of $3.1 million to adjust previous estimates regarding activities initiated in fiscal 1993. Fiscal 1995 Restructuring Charge. Included in the first three months of 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's U.S. Chips and Snacks operation and other expenses relating to the disposal of this operation. Note 5. DEBT Historical Funding and Capital Expenditures The operations of Curtice-Burns historically have been funded with cash flows generated by operations, borrowings from Pro-Fac (which in turn borrowed a portion of these funds from the Bank) and borrowings under Curtice-Burns seasonal facility with a syndicate of commercial lenders led by The Chase Manhattan Bank, N.A. Pro-Fac and Curtice-Burns had available seasonal lines of credit of $100.0 million through September 1993, $86.0 million through September 1994 and $96.0 million thereafter. The maximum borrowing on those seasonal lines during fiscal 1994 was $81.0 million, while the average amount outstanding during such year totaled approximately $51.5 million. The balance outstanding at November 3, 1994 was $83.5 million. These borrowings were repaid simultaneously with the consummation of the acquisition of Curtice-Burns by Pro-Fac and replaced by the New Credit Agreement. New Credit Agreement The Bank has provided Curtice-Burns, subject to the terms and conditions set out in the New Credit Agreement, 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 Curtice-Burns and to pay fees and expenses related to the purchase of Shares. The Bank also has provided Curtice-Burns, subject to the terms and conditions set out in the New Credit Agreement, with seasonal financing of up to $86.0 million and a $10.0 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". Guarantees and Security. All obligations under the Bank Facility are guaranteed by Pro-Fac and the Subsidiary Guarantors. Curtice-Burns' obligations under the Bank Facility, and Pro-Fac's and the Subsidiary Guarantor's obligations under their respective guaranties, are secured by all of the assets of Curtice-Burns and each guarantor, respectively,<PAGE> <PAGE> 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 Curtice-Burns' 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 U.S. Treasury Rate plus 3.00 percent. The Seasonal Facility provides for interest rates on amounts outstanding thereunder, at Curtice-Burns' option, equal to (x) the relevant London interbank offered rate plus 1.75 percent, (y) the relevant prime rate minus 0.25 percent or (z) the relevant U.S. 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 that portion of the Acquisition Facility is estimated to equal approximately 8.3 percent per annum for the period from November 3, 1994 through May 1, 1995. Maturity. Borrowings of $80.0 million under the Term Loan portion of the Acquisition Facility are payable in 20 equal semi-annual installments, beginning in May 1995. Borrowings of up to an additional $120.0 million under the Term Loan Facility portion of the Acquisition Facility are payable during the first five years of the facility in annual installments on September 1 of each year, in an amount equal to the "annual cash sweep" for the preceding fiscal year, as defined in the Acquisition Facility. Curtice- Burns will be permitted to pay and reborrow funds under the Term Loan Facility, subject to limitations on the amount reborrowed and the other terms of the Acquisition Facility. Beginning in the year 2000, the balance of the Term Loan Facility will be payable in ten equal semi-annual installments. Borrowings under the Seasonal Facility are payable at the expiration of that portion of the facility, which is May, 1996 except that for 15 consecutive calendar days before the end of fiscal 1995, the borrowings under the Seasonal Facility must be zero. The Letter of Credit Facility provides for the issuance of letters of credit through October, 1995. Certain Covenants. The Pro-Fac Bank Guarantee requires Pro-Fac, on a consolidated basis, to achieve an adjusted cash flow coverage ratio at the end of fiscal 1995 of at least 1.0 to 1.0 and at the end of each fiscal year thereafter of at least 1.1 to 1.0, to maintain a minimum working capital of at least $100.0 million for each fiscal year (beginning with the fiscal year ending June 30, 1995), and to maintain a minimum long-term debt to equity ratio (measured at each month-end) of 3.1 to 1.0 from the Closing Date through May, 1995, 2.8 to 1.0 from June 30, 1995 through May 1996 and declining over time to 1.8 to 1.0 at June 30, 2001 and thereafter. In addition, the Pro-Fac Bank Guarantee requires Pro-Fac, on a consolidated basis, to maintain a consolidated total net worth of not less than 15 percent of total assets for each month-end until July 2000, and 20 percent thereafter and at least 19 percent of total assets at the fiscal years ending June 1995 and 1996, increasing over time to at least 25 percent of total assets at the fiscal year ending June 2001 and each fiscal year thereafter. The Bank Facility and the Pro-Fac Bank Guarantee contain additional restrictions and obligations on Pro-Fac and Curtice-Burns, including (i) restrictions on the ability to declare or pay dividends or repurchase stock, (ii) limitations on the incurrence of debt or prepayment of debt, (iii) limitations on debt, investments, acquisitions, capital expenditures and asset sales and (iv) requiring maintenance of properties and insurance and the delivery of information, financial and otherwise. <PAGE> <PAGE> Management believes Curtice-Burns is in compliance with all restrictions and requirements under the terms of the borrowing agreement. The Senior Subordinated Notes ("Notes") The Notes represent general unsecured obligations of Curtice-Burns, subordinated in right of payment to certain other debt obligations of Curtice-Burns (including Curtice-Burns' obligations under the New Credit Agreement). The Notes are unconditionally guaranteed by the Guarantors on a senior subordinated basis, with each such guarantee subordinated to the Guarantors' respective guarantees of the obligations of Curtice-Burns under the New Credit Agreement and all other Senior Indebtedness of the Guarantors. 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 or, if no interest has been paid, from the date of original issuance. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Each of Pro-Fac and the Subsidiary Guarantors has unconditionally guaranteed the payment of Obligations of Curtice-Burns 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 Curtice-Burns. Note 6. OTHER MATTERS Favorable Tax Ruling In August of 1993, the Internal Revenue Service issued a determination letter which concluded that the Cooperative is exempt from federal income tax to the extent provided by Section 521 of the Internal Revenue Code, "Exemption of Farmers' Cooperatives from Tax." Unlike a non-exempt cooperative, a tax-exempt cooperative is entitled to deduct cash dividends it pays on its capital stock in computing its taxable income. This exempt status is retroactive to fiscal year 1986 and was anticipated to apply to future years as long as there was no significant change in the way in which the Cooperative operates. The acquisition of Curtice-Burns was a significant change in the way in which Pro-Fac operates; therefore, this exempt status ceased as of November 3, 1994. In conjunction with this ruling, the Cooperative has filed for tax refunds for fiscal years 1986 to 1990 in the amount of approximately $5.8 million and interest payments of approximately $3.6 million. In addition, the Cooperative has filed for tax refunds for fiscal years 1991 and 1992 in the amount of approximately $3.1 million and interest payments of approximately $.4 million. No such refund amounts have been reflected in the Cooperative's financial statements as of December 24, 1994. It is anticipated that the refund amounts will be recognized upon receipt. The results of operations for fiscal 1993 produced a net operating loss carryforward which expires in fiscal 2008. No tax benefit was recognized at that time because with Pro-Fac's tax exempt status and, due to the issues surrounding the potential change in control of Curtice-Burns, there was no assurance of the utilization of this net operating loss carryforward in future years. With the cessation of the exempt status due to the <PAGE> <PAGE> acquisition of Curtice-Burns, Pro-Fac's cash dividends will no longer be tax deductible, and because of the resolution of Curtice-Burns change in control issue, it is more probable than not that Pro-Fac will be able to utilize the net operating loss carryforward. A tax benefit relative to the net operating loss carryforward in the amount of $8.0 million was recorded in the second quarter of fiscal 1995. Contingencies In conjunction with the sale of the National Oats Division by Curtice-Burns, Pro-Fac terminated the membership of the Harvest States Cooperatives ("Harvest States") in Pro-Fac. Harvest States was the National Oats Division's only supplier of oats. As a result of this action, Harvest States filed a claim against Pro-Fac for, among other things, the receipt of payments for future oats purchases after the sale of National Oats division through fiscal year 1995. Subsequent to quarter end, a settlement was reached with Harvest States resulting in no material cost to Pro-Fac. A grower has filed suit against Curtice-Burns for damages resulting from defective seed which was purchased from the Southern Frozen Foods division. The lawsuit alleges that the defective seed resulted in the loss of crops and acreage use for a growing season, and the grower is seeking approximately $1.0 million in damages. Management believes this claim is without merit and intends to vigorously defend its position. As the amount of damages is neither probable nor reasonably estimable, no accrual for loss has been included in the financial statements. In addition, management anticipates that all material costs of settlement, if incurred, will be covered under its insurance policies. Commitments Curtice-Burns' 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. Fire Claim In July 1994, a plant operated by Curtice-Burns' Southern Frozen Foods division, located in Montezuma, Georgia, was damaged by fire. All material costs associated with the facility repairs and business interruption are anticipated to be covered under Curtice-Burns' insurance policies. During the first quarter of fiscal 1995, a $6.5 million gain (before dividing with Pro-Fac and before taxes) was recorded representing the insurance proceeds for the replacement value in excess of the depreciated book value of the building and equipment destroyed in this fire. Subsequent Events - Submission of Matters to a Vote of Security Holders. The Pro-Fac annual meeting was held on January 28, 1995 in Rochester, New York. Director elections were not involved in the annual meeting, as these elections take place on different dates and locations in each Region. The director elections will be completed by March 1995. The matters voted upon, the number of votes cast for and against were as follows: 1. To consider and vote upon a proposed amendment to Pro- Fac's restated certification of incorporation to authorize the creation of five additional classes of preferred stock.<PAGE> <PAGE> 2. To consider and vote upon several proposed amendments to Pro- Fac's bylaws. a. To remove from Pro-Fac's bylaws the requirement that the board of directors appoint a nominee of Agway Inc. and a nominee of Curtice-Burns Foods, Inc. to the board of directors, and to permit (rather than require) the board to appoint up to one-fifth of the total number of directors to represent primarily the interest of the general public in Curtice-Burns. b. To amend Pro-Fac's bylaws in order to clarify that written votes of members absent from an annual, special or regional meeting shall be counted and to clarify the number of votes required to authorize action at a regional meeting of members. c. To amend Pro-Fac's bylaws to permit the board of directors to authorize the issuance of stock certificates representing any or all of the capital stock in Pro-Fac. The voting results for proposal one were 368 for and 24 against, or 93.9 percent of the votes cast in favor of the proposal, and the results for proposal two were 378 for and 14 against, or 96.4 percent of the votes cast in favor of the proposal. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pro-Fac's Results of Operations Changes From the Corresponding Prior Year Quarter The commercial market value of crops delivered by members during the quarter ended December 24, 1994 decreased 3.7 percent to $12.9 million from $13.4 million in the comparable fiscal 1994 period. For the quarter ended December 24, 1994, the change in net proceeds compared to the prior year is summarized below in millions of dollars: <TABLE> <CAPTION> <S> <C> Curtice-Burns gross profit $ 36.0 Decreased share of Curtice-Burns earnings (6.9) Decreased interest income received from Curtice-Burns (2.3) Increased selling, general and administrative expenses (26.7) Increased interest expense (4.0) Change in excess of revenues before taxes, dividends, and allocations of net proceeds (3.9) Change in tax benefit/(provision) 6.1 Change in net proceeds $ 2.2 </TABLE> The gross profit change represents Curtice-Burns gross profit after the acquisition. The changes in the Curtice-Burns profit split and interest income from Curtice-Burns also relates to the acquisition, since with the acquisition, these items ceased. The increased selling, general and administrative expenses were due to the inclusion of Curtice-Burns costs since the acquisition. The increased interest expense was primarily attributable to the increased borrowings related to the acquisition of Curtice-Burns by Pro-Fac. The change in the tax benefit/(provision) is the net result of the inclusion of Curtice-Burns' tax provision after the acquisition and a net increase in the tax benefit, primarily related to the recording of the tax benefit relating to Pro-Fac's net operating loss <PAGE> <PAGE> carryforward from fiscal 1993 (see Note 6 - "Other Matters" - "Favorable Tax Ruling". Six Month Changes From the Corresponding Year The commercial market value of crops delivered by members during the six months ended December 24, 1994 decreased 2.9 percent to $54.2 million from $55.8 million in the comparable fiscal 1994 period. For the six months ended December 24, 1994, the change in net proceeds compared to the prior year is summarized below in millions of dollars: <TABLE> <CAPTION> <S> <C> Curtice-Burns gross profit $ 36.0 Decreased share of Curtice-Burns earnings (7.3) Decreased interest income received from Curtice-Burns (2.2) Increased selling, general and administrative expenses (26.7) Increased interest expense (3.8) Change in excess of revenues before taxes, dividends, and allocations of net proceeds (4.0) Change in tax benefit/(provision) 5.7 Change in net proceeds $ 1.7 </TABLE> The gross profit change represents Curtice-Burns gross profit after the acquisition. The changes in the Curtice-Burns profit split and interest income from Curtice-Burns also relates to the acquisition, since with the acquisition, these items ceased. The increased selling, general and administrative expenses were due to the inclusion of Curtice-Burns costs since the acquisition. The increased interest expense was primarily attributable to the increased borrowings related to the acquisition of Curtice-Burns by Pro-Fac. The change in the tax benefit/(provision) is the net result of the inclusion of Curtice-Burns' tax provision after the acquisition and a net increase in the tax benefit, primarily related to the recording of the tax benefit relating to Pro-Fac's net operating loss carryforward from fiscal 1993 (see Note 6 - "Other Matters" - "Favorable Tax Ruling". Prior to the acquisition most of the proceeds of Pro-Fac have always been derived from the sale to Curtice-Burns of the crops of its members and hence depended primarily upon the volume and commercial market value of these crops (which accrued to Pro-Fac at the time of delivery). In addition, proceeds depended upon the profitability of the finished products made from Pro-Fac crops and raw materials from other sources which were then processed and sold by Curtice-Burns during the course of the fiscal year. Under the Agreements between the two companies previously and presently in effect, the total purchase price for crops and the financing charge were both based in part on the results of operations of Curtice-Burns. Because of the profit split provisions within the Agreements between Curtice-Burns and Pro-Fac, business conditions and trends affecting Curtice- Burns' profitability also affected the profitability of Pro-Fac, even before the acquisition. 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.<PAGE> <PAGE> The following tables illustrate Curtice-Burns' results of operations by business for the three and six months of fiscal 1994 compared to the three and six months of fiscal 1995, both before and after the acquisition. <TABLE> Net Sales (Dollars in Millions) <CAPTION> Three Months Ended Six Months Ended 12/24/94 12/25/93 12/24/94 12/25/93 % of % of % of % of $ Total $ Total $ Total $ Total <S> <C> <C> <C> <C> <C> <C> <C> Comstock Michigan Fruit 104.3 48.3 105.2 43.3 176.0 44.8 180.2 39.7 Nalley's Fine Foods 55.3 25.6 53.2 21.9 109.3 27.8 105.9 23.4 Southern Frozen Foods 26.6 12.3 25.3 10.4 49.7 12.7 48.2 10.6 Snack Foods Group 15.3 7.1 15.3 6.3 30.7 7.8 30.8 6.8 Brooks Foods 11.3 5.2 11.7 4.8 16.7 4.3 17.3 3.8 Finger Lakes Packaging 10.7 5.0 12.1 5.0 25.3 6.4 24.7 5.5 Intercompany eliminations1 (7.5) (3.5) (8.4) (3.5) (17.2) (4.4) (17.7) (3.9) Subtotal ongoing operations 216.0 100.0 214.4 88.2 390.5 99.4 389.4 85.9 Businesses sold and to be sold2 -- -- 28.8 11.8 2.3 .6 63.9 14.1 Total 216.0 100.0 243.2 100.0 392.8 100.0 453.3 100.0 <FN> 1 Intercompany sales by Finger Lakes. 2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato chips business, the meat snacks business and the Nalley's U.S. Chips and Snacks business. See Note 4 - "Restructuring Program." </TABLE> <TABLE> Cost of Sales (Dollars in Millions) <CAPTION> Three Months Ended Six Months Ended 12/24/94 12/25/93 12/24/94 12/25/93 % of % of % of % of $ Total $ Total $ Total $ Total <S> <C> <C> <C> <C> <C> <C> <C> <C> Comstock Michigan Fruit 74.9 50.2 76.1 44.9 129.1 46.8 135.9 42.1 Nalley's Fine Foods 34.9 23.4 33.9 20.0 69.8 25.3 68.3 21.2 Southern Frozen Foods 20.6 13.8 19.3 11.4 38.7 14.0 38.0 11.8 Snack Foods Group 9.7 6.5 9.6 5.7 19.6 7.1 19.4 6.0 Brooks Foods 6.7 4.5 7.0 4.1 10.6 3.8 11.2 3.5 Finger Lakes Packaging 9.7 6.5 11.3 6.7 22.9 8.3 22.5 7.0 Intercompany eliminations and corporate overhead (7.3) (4.9) (7.3) (4.3) (16.2) (5.8) (16.4) (5.1) Subtotal ongoing operations 149.2 100.0 149.9 88.5 274.5 99.5 278.9 86.5 Businesses sold and to be sold1 -- -- 19.5 11.5 1.5 0.5 43.5 13.5 Total 149.2 100.0 169.4 100.0 276.0 100.0 322.4 100.0 <FN> 1 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato chips business, and the meat snacks business and the Nalley's U.S. Chips and Snacks business. See Note 4 - "Restructuring Program." /TABLE <PAGE> <PAGE> <TABLE> Gross Profit (Dollars in Millions) <CAPTION> Three Months Ended Six Months Ended 12/24/94 12/25/93 12/24/94 12/25/93 % of % of % of % of $ Total $ Total $ Total $ Total <S> <C> <C> <C> <C> <C> <C> <C> <C> Comstock Michigan Fruit 29.4 44.0 29.1 39.4 46.9 40.2 44.3 33.8 Nalley's Fine Foods 20.4 30.5 19.3 26.1 39.5 33.8 37.6 28.7 Southern Frozen Foods 6.0 9.0 6.0 8.1 11.0 9.4 10.2 7.8 Snack Foods Group 5.6 8.4 5.7 7.7 11.1 9.5 11.4 8.7 Brooks Foods 4.6 6.9 4.7 6.4 6.1 5.2 6.1 4.7 Finger Lakes Packaging 1.0 1.5 0.8 1.1 2.4 2.1 2.2 1.7 Intercompany eliminations and corporate overhead (0.2) (0.3) (1.0) (1.4) (1.0) (.9) (1.3) (1.0) Subtotal ongoing operations 66.8 100.0 64.6 87.4 116.0 99.3 110.5 84.4 Businesses sold and to be sold1 -- -- 9.3 12.6 0.8 0.7 20.4 15.6 Total 66.8 100.0 73.9 100.0 116.8 100.0 130.9 100.0 <FN> 1 The Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato chips business and the meat snacks business and the Nalley's U.S. Chips and Snacks Business. See Note 4 - "Restructuring Program." </TABLE> <TABLE> Operating Income Before Dividing with Pro-Fac1 (Dollars in Millions) <CAPTION> Three Months Ended Six Months Ended 12/24/94 12/25/93 12/24/94 12/25/93 % of % of % of % of $ Total $ Total $ Total $ Total <S> <C> <C> <C> <C> <C> <C> <C> <C> Comstock Michigan Fruit 11.4 64.0 9.3 55.3 18.1 60.7 14.2 51.4 Nalley's Fine Foods 4.2 23.6 4.5 26.8 8.8 29.5 9.2 33.3 Southern Frozen Foods 3.1 17.4 2.9 17.3 5.5 18.5 4.7 17.0 Snack Foods Group 1.1 6.2 1.1 6.5 1.9 6.4 2.0 7.3 Brooks Foods 2.0 11.2 2.1 12.5 2.1 7.1 2.3 8.3 Finger Lakes Packaging 0.6 3.4 0.8 4.8 1.6 5.4 1.9 6.9 Intercompany eliminations and corporate overhead1 (4.6) (25.8) (3.6) (21.4) (7.8) (26.3) (7.2) (26.0) Subtotal ongoing operations 17.8 100.0 17.1 101.8 30.2 101.3 27.1 98.2 Businesses sold and to be sold2 -- -- (0.3) (1.8) (0.4) (1.3) 0.5 1.8 Total 17.8 100.0 16.8 100.0 29.8 100.0 27.6 100.0 <FN> 1 Table excludes restructuring (loss)/gain from division disposals of fiscal 1995 and 1994 and change in control expense, and an insurance gain on assets resulting from a fire claim recorded in the first six months of fiscal 1995. 2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business. See Note 4 "Restructuring Program". </TABLE> <PAGE> <PAGE> <TABLE> Depreciation and Amortization (Dollars in Millions) <CAPTION> Three Months Ended Six Months Ended 12/24/94 12/25/93 12/24/94 12/25/93 % of % of % of % of $ Total $ Total $ Total $ Total <S> <C> <C> <C> <C> <C> <C> <C> <C> Comstock Michigan Fruit 2.2 36.1 2.8 44.4 4.9 42.2 5.7 44.5 Nalley's Fine Foods 0.8 13.1 0.8 12.7 1.8 15.5 1.8 14.1 Southern Frozen Foods 0.6 9.8 0.6 9.5 1.2 10.4 1.1 8.6 Snack Foods Group 0.5 8.2 0.5 7.9 1.0 8.6 1.0 7.8 Brooks Foods 0.1 1.6 0.2 3.2 0.3 2.6 0.4 3.1 Finger Lakes Packaging 0.3 4.9 0.3 4.8 0.6 5.2 0.6 4.7 Corporate1 1.6 26.3 0.2 3.2 1.3 11.2 0.2 1.6 Subtotal ongoing operations 6.1 100.0 5.4 85.7 11.1 95.7 10.8 84.4 Businesses sold and to be sold2 -- -- 0.9 14.3 0.5 4.3 2.0 15.6 Total 6.1 100.0 6.3 100.0 11.6 100.0 12.8 100.0 <FN> 1 Includes adjustment for amortization of excess of purchase cost over net assets acquired. 2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business. See Note 4 - "Restructuring Program." </TABLE> <TABLE> Total Assets (Dollars in Millions) <CAPTION> 12/24/94 12/25/93 % of % of $ Total $ Total <S> <C> <C> <C> <C> Comstock Michigan Fruit 264.0 36.0 234.3 46.3 Nalley's Fine Foods 95.2 13.0 91.3 18.0 Southern Frozen Foods 64.9 8.8 48.8 9.6 Snack Foods Group 24.3 3.3 26.3 5.2 Brooks Foods 11.1 1.5 10.2 2.0 Finger Lakes Packaging 42.5 5.8 57.4 11.3 Corporate1 232.2 31.6 (28.8) (5.6) Subtotal ongoing operations 734.2 100.0 439.5 86.8 Businesses sold to be sold2 -- -- 67.0 13.2 Total 734.2 100.0 506.5 100.0 <FN> 1 Includes excess of purchase cost over net assets acquired. 2 Curtice-Burns has sold the oats portion of the National Oats business, the Hiland potato chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business. See Note 4 - "Restructuring Program." </TABLE> THREE MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD Net Sales Net sales in the second quarter of fiscal 1995 of $216.0 million decreased $27.2 million or 11.2 percent from $243.2 million in the second quarter of fiscal 1994. No net sales were attributable to businesses sold in connection with the restructuring program discussed in Note 4 in the second quarter of fiscal 1995 whereas $28.8 million in the second quarter of fiscal 1994. The net sales from ongoing operations excluding businesses sold were $216.0 million in the second quarter of fiscal 1995, an increase of $1.6 <PAGE> <PAGE> million or 0.7 percent from $214.4 million in the second quarter of fiscal 1994. Cost of Sales Cost of sales in the second quarter of fiscal 1995 of $149.2 million decreased $20.1 million or 11.9 percent from $169.3 million in the second quarter of fiscal 1994. Of this decrease, $19.5 million was attributable to businesses sold and a $0.6 million reduction was attributable to Curtice- Burns' ongoing operations. This decrease of $0.6 million was the result of variations in volume, selling prices and product mix. Gross Profit Gross profit of $66.8 million in the second quarter of fiscal 1995 decreased $7.1 million or 9.6 percent from $73.9 million in the second quarter of fiscal 1994. Of this net decrease, a $9.3 million reduction was attributable to businesses sold and an increase of $2.2 million was attributable to increased gross profit at Curtice-Burns' ongoing operations. This increase of $2.2 million was the result of variations in volume, selling prices, costs and product mix. Restructuring Expenses, Including Net Gain From Division Disposals Restructuring expenses, including net gain from division disposals resulted in a gain in the second quarter of fiscal 1994 of $8.1 million, primarily from the sale of the oats business of National Oats referred to in Note 4. Change in Control Expenses Change in control expenses recorded in the second quarter of fiscal 1995, amounting to $0.4 million, reflect non-deductible expenses relating to the sale of Curtice-Burns covering legal, accounting, investment banking and other expenses relative to the change in control issue. In recognizing this expense, Curtice-Burns allocated half of this amount to Pro-Fac as a deduction to the profit split. See Note 3 - "Developments Related to Change in Control of Curtice-Burns". Other Selling, Administrative and General Expenses Other selling, administrative and general expenses in the second quarter of fiscal 1995 of $48.9 million decreased $8.0 million or 14.1 percent from $56.9 million in the second quarter of fiscal 1994. This decrease of $8.0 million includes primarily: <TABLE> (In Millions) <CAPTION> Businesses Sold Ongoing Total <S> <C> <C> <C> Change in trade promotions $(2.8) $(1.3) $(4.1) Change in advertising and selling costs (4.7) 1.7 (3.0) All other (.2) (.7) (.9) Change in selling, administrative and general expenses $(7.7) $(0.3) $(8.0) </TABLE> The $0.7 million decrease in other administrative cost attributable to Curtice-Burns' ongoing operations was primarily related to reduced spending at Comstock Michigan Fruit, with minor variations throughout the other operations. <PAGE> <PAGE> Interest Expense Interest expense in the second quarter of fiscal 1995 of $7.8 million increased $3.7 million or 90.2 percent from $4.1 million in the second quarter of fiscal 1994. This increase was primarily attributable to the increased borrowing related to the acquisition of Curtice-Burns by Pro-Fac. Income Before Taxes Pro-Fac's income before distribution to members and taxes in the second quarter of fiscal 1995 of $9.7 million decreased $11.3 million or 54.3 percent from $21.0 million in the second quarter of fiscal 1994. Provision for Taxes The provision for taxes, excluding the previously mentioned tax benefit, in the second quarter of fiscal 1995 of $2.2 million decreased $1.0 million or 30.3 percent from $3.3 million in the second quarter of fiscal 1994. The effective tax rate (after deducting members' patronage allocation) for the quarter ended December 24, 1994 was 49.5 percent compared to 33.0 percent for the quarter ended December 25, 1993. The effective tax rate was negatively effected by the non-deductibility of the amortization of excess of purchase cost over net assets acquired. Net Income Net income for the second quarter of fiscal 1995 of $13.6 million decreased $3.6 million or 20.9 percent from $17.2 million in the second quarter of fiscal 1994. SIX MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD Net Sales Net sales in the first six months of fiscal 1995 of $392.8 million decreased $60.5 million or 13.3 percent from $453.3 million in the first six months 1994. The net sales attributable to businesses sold or to be sold in connection with the restructuring program discussed in Note 3 were $2.3 million in the first six months of fiscal 1995 and $63.9 million in the first six months of fiscal 1994. The net sales from ongoing operations excluding businesses sold or to be sold were $390.5 million in the first six months of fiscal 1995, an increase of $1.1 million or 0.3 percent from $389.4 million in the first six months of fiscal 1994. Cost of Sales The cost of sales in the first six months of fiscal 1995 of $276.0 million decreased $46.4 million or 14.4 percent from $322.4 million in the first six months of fiscal 1994. Of this decrease, $42.0 million was attributable to businesses sold or to be sold and a $4.3 million reduction was attributable to Curtice-Burns' ongoing operations. This decrease of $4.3 million was the result in variations in volume, selling prices and product mix. Gross Profit Gross profit of $116.8 million in the first six months of fiscal 1995 decreased $14.1 million or 10.8 percent from $130.9 million in the first six months of fiscal 1994. Of this net decrease, a $19.6 million reduction was attributable to businesses sold or to be sold and an increase of $5.5 million was attributable to increased gross profit at Curtice-Burns' ongoing operations. This increase of $5.5 million was the result of variations in volume, selling prices, costs and product mix.<PAGE> <PAGE> Restructuring Expenses Including Net (Loss)/Gain From Division Disposals Restructuring expenses, including net (loss)/gain from division disposals resulted in a charge in the first six months of fiscal 1995 of $8.4 million to reflect the impact of the sale of certain assets of the Nalley's U.S. Chips and Snack other expenses relating to the disposal of this operation. Of this amount, approximately 40 percent reflects non-cash charges. Included in the first six months of fiscal 1994 was an $8.1 million net gain from restructuring including division disposals. Change in Control Expenses Change in control expenses recorded in the first six months of fiscal 1995, amounting to $2.2 million, reflect non-deductible expenses relating to the sale of Curtice-Burns covering legal, accounting, investment banking and other expenses relative to the change in control issue. In recognizing this expense, Curtice-Burns allocated half of this amount to Pro-Fac as a deduction to the profit split. See Note 3 - "Developments Related to Change in Control of Curtice-Burns". Gain on Assets Resulting From Fire Claim The gain on assets resulting from fire claim recorded in the first six months of fiscal 1995 amounted to $6.5 million representing the insurance proceeds for 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. Other Selling, Administrative and General Expenses Other selling, administrative and general expenses in the first six months of fiscal 1995 of $87.0 million decreased $16.0 million or 15.5 percent from $103.0 million in the first six months of fiscal 1994. This net decrease of $16.0 million includes primarily: <TABLE> (In Millions) <CAPTION> Businesses Sold or to be Sold Ongoing Total <S> <C> <C> <C> Change in trade promotions $ (5.5) $ 0.2 $ (5.3) Change in advertising and selling costs (9.8) 2.5 (7.3) All other (2.3) (1.1) (3.4) Change in selling, administrative and general expenses $(17.6) $ 1.6 $(16.0) </TABLE> The $2.5 million increase in advertising and selling costs at Curtice-Burns' ongoing operations resulted from increased costs at Nalley's of $1.6 million primarily in the canned and dressing product lines and an increase at Comstock Michigan Fruit of $0.8 million primarily in the filling and topping product lines. Minor variations occurred in other operations. The $1.1 million decrease in other administrative cost attributable to Curtice-Burns' ongoing operations was primarily related to reduced spending at Comstock Michigan Fruit and corporate headquarters and slight variations at other operations.<PAGE> <PAGE> Interest Expense Interest expense in the first six months of fiscal 1995 of $11.6 million increased $3.6 million or 45.0 percent from $8.0 million in the first six months of fiscal 1994. This increase was primarily attributable to the increased borrowing related to the acquisition of Curtice-Burns by Pro-Fac. Income Before Taxes Income before allocation of net proceeds and taxes in the first six months of fiscal 1995 of $14.1 million decreased $13.9 million or 50.0 percent from $28.0 million in the first six months of fiscal 1994. Provision for Taxes The provision for taxes excluding the previously mentioned tax benefit in the first six months of fiscal 1995 of $3.6 million decreased $1.7 million or 32.1 percent from $5.3 million in the first six months of fiscal 1994. The effective tax rate on taxable income in the six months ended December 24, 1994 was 58.4 percent compared to 40.2 percent in the six months ended December 25, 1993. The non-deductibility of the amortization of excess purchase cost over net assets acquired was responsible for the significantly increased rate. Net Income Net income for the first six months of fiscal 1995 of $16.7 million decreased $5.2 million or 26.0 percent from $21.9 million in the first six months of fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES Historical Funding and Capital Expenditures The operations of Curtice-Burns historically have been funded with cash flows generated by operations, borrowings from Pro-Fac (which in turn borrowed a portion of these funds from the Bank) and borrowings under Curtice-Burns' seasonal facility with a syndicate of commercial lenders led by The Chase Manhattan Bank, N.A. Pro-Fac and Curtice-Burns had available seasonal lines of credit of $100.0 million through September 1993, $86.0 million through September 1994 and $96.0 million thereafter. The maximum borrowing on those seasonal lines during fiscal 1994 was $81.0 million, while the average amount outstanding during such year totaled approximately $51.5 million. The balance outstanding at November 3, 1994 was $83.5 million. These borrowings were repaid simultaneously with the consummation of the transactions. In addition to borrowings by Pro-Fac, which had been loaned to Curtice- Burns, substantially all cash not distributed by Pro-Fac to its members or securityholders had either been invested in assets leased to Curtice-Burns or loaned to Curtice-Burns to finance its operations. As such, the information provided below describes liquidity and capital resources of Curtice-Burns and Pro-Fac on a combined basis, before the acquisition as well as after. In the first six months of fiscal 1995, the net cash used by combined operating activities of Curtice-Burns and Pro-Fac reflects net income of $16.7 million for Curtice-Burns and for Pro-Fac. Amortization of assets amounted to $11.6 million ($7.4 million before the acquisition and $5.2 million after the acquisition). Inventories increased $60.2 million (an increase of $71.0 million before the acquisition and a decrease of $10.8 million after the acquisition), accounts receivable increased $13.1 million <PAGE> (an increase of $12.4 million before the acquisition and an increase of $0.7 million after the acquisition), and the deferred tax provision increased $41.0 million. The increases in the deferred tax provision and the changes in other assets and liabilities were primarily related to the excess of cost over net assets acquired in the acquisition of Curtice-Burns by Pro-Fac. Cash flows from investing activities include the acquisition and disposition of property, plant and equipment and other assets held for or used in the production of goods. Net cash used in investing activities in the first six months of fiscal 1995 was comprised of $7.9 million paid for fixed assets ($5.7 million before the acquisition and $2.2 million after the acquisition), and a $0.7 million increase in the investment in the Bank. Net cash provided by financing activities in the first six months of fiscal 1995 was primarily comprised of net proceeds of short-term debt of $58.5 million and proceeds from the issuance long-term debt of $192.9 million, cash paid for Curtice-Burns' stock and stock options of $162.9 million, the cash portion of non-qualified retain conversion of $0.3 million, and dividends paid of $6.3 million ($1.4 million of which was Curtice-Burns' dividends prior to the acquisition). The net borrowings for short- and long-term debt discussed above include the liquidation of existing debt of $83.5 million for short-term debt and $137.7 million for long-term debt at the acquisition date and new debt of $70.0 million short-term and $333.6 million long-term. New Borrowings Under the New Credit Agreement, Curtice-Burns is able to borrow up to $86.0 million for seasonal working capital purposes under the Seasonal Facility, subject to a borrowing base limitation, and obtain up to $10.0 million in aggregate face amount of letters of credit pursuant to a letter of credit facility. The borrowing base is defined as the lesser of (i) $86.0 million and (ii) the sum of 60 percent of eligible accounts receivable plus 50 percent of eligible inventory ($108.2 million at December 24, 1994). As of December 24, 1994, the outstanding borrowing under the Seasonal Facility was $70.0 million. As of December 24, 1994, (i) cash borrowings outstanding under the Seasonal Facility were $70.0 million and (ii) additional availability under the Seasonal Facility, after taking into account the amount of the borrowing base, was $16.0 million. In addition to its seasonal financing, as of December 24, 1994, Pro-Fac had $23.8 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. As a result of the acquisition of Curtice-Burns by Pro-Fac, Pro-Fac's total debt and interest expense have increased because the Notes have a substantially higher interest rate than the debt that was repaid with the proceeds from the Note Offering. The New Credit Agreement will require that Pro-Fac meet certain financial tests and ratios and comply with certain other 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 <PAGE> 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. Preliminary indications for the 1994 crop year are that national supplies increased over the prior year due to the intentional increase in planned production by vegetable processors and increased crop yields thereby returning the current national supplies to ample levels. Yields in Curtice- Burns' growing areas increased as well. There are variations among the specific commodities and the effect on pricing and profitability in fiscal 1995 depends upon individual company pricing practices and the effect of recent industry plant closings and production realignments. Capital expenditures are expected to approximate $20.0 million in fiscal 1995. The largest single capital project in process is renovation and updates to the Nalley's salad dressing plant in Tacoma, Washington. This capital project amounts to approximately $10.0 million and will provide increased production and efficiencies for the salad dressing line. Required scheduled payments on long-term debt will approximate $8 million in the current calendar year. Management expects that cash provided from operations will be sufficient to cover the scheduled payments on long-term debt and planned capital expenditures. Supplemental Information on Inflation The changes in costs and prices within Pro-Fac'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. Item 5 - Submission of Matters to a Vote of Security Holders. The Pro-Fac annual meeting was held on January 28, 1995 in Rochester, New York. Director elections were not involved in the annual meeting, as these elections take place on different dates and locations in each Region. The director elections will be completed by March 1995. The matters voted upon, the number of votes cast for and against were as follows: 1. To consider and vote upon a proposed amendment to Pro- Fac's restated certification of incorporation to authorize the creation of five additional classes of preferred stock. 2. To consider and vote upon several proposed amendments to Pro- Fac's bylaws. a. To remove from Pro-Fac's bylaws the requirement that the board of directors appoint a nominee of Agway Inc. and a nominee of Curtice-Burns Foods, Inc. to the board of directors, and to permit (rather than require) the board to appoint up to one-fifth of the total number of directors to represent primarily the interest of the general public in Curtice-Burns. b. To amend Pro-Fac's bylaws in order to clarify that written votes of members absent from an annual, special or regional meeting shall be counted and to clarify the number of votes required to authorize action at a regional meeting of members.<PAGE> <PAGE> c. To amend Pro-Fac's bylaws to permit the board of directors to authorize the issuance of stock certificates representing any or all of the capital stock in Pro-Fac. The voting results for proposal one were 368 for and 24 against, or 93.9 percent of the votes cast in favor of the proposal, and the results for proposal two were 378 for and 14 against, or 96.4 percent of the votes cast in favor of the proposal. Item 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description Exhibit 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the fiscal period to which this report relates. <PAGE> <PAGE> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRO-FAC COOPERATIVE, INC. Date: 4/14/95 BY: /S/ William D. Rice WILLIAM D. RICE, ASSISTANT TREASURER (Principal Accounting Officer)<PAGE> </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27 <SEQUENCE>2 <DESCRIPTION>EXHIBIT 27 <TEXT> <TABLE> <S> <C> <ARTICLE> 5 <S> <C> <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> JUN-24-1995 <PERIOD-END> DEC-24-1994 <CASH> 7766 <SECURITIES> 0 <RECEIVABLES> 79315 <ALLOWANCES> 0 <INVENTORY> 215426 <CURRENT-ASSETS> 318581 <PP&E> 271907 <DEPRECIATION> 0 <TOTAL-ASSETS> 734888 <CURRENT-LIABILITIES> 205134 <BONDS> 0 <COMMON> 10217 <PREFERRED-MANDATORY> 0 <PREFERRED> 65590 <OTHER-SE> 58243 <TOTAL-LIABILITY-AND-EQUITY> 734888 <SALES> 166712 <TOTAL-REVENUES> 166712 <CGS> 130679 <TOTAL-COSTS> 130679 <OTHER-EXPENSES> 15160 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 10094 <INCOME-PRETAX> 10779 <INCOME-TAX> (5292) <INCOME-CONTINUING> 16071 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 16071 <EPS-PRIMARY> 0 <EPS-DILUTED> 0 </TEXT> </DOCUMENT> </IMS-DOCUMENT> -----END PRIVACY-ENHANCED MESSAGE-----