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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K/A-1
(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 27, 1998
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-4) Number 33-56517
AGRILINK FOODS, INC.
(Exact name of registrant as specified in its charter)
New York 16-0845824
(State of incorporation) (IRS Employer Identification Number)
90 Linden Place, PO Box 681 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: NONE
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/A-1. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant:
NONE
Number of common shares outstanding at August 1, 1998:
Stock: 10,000
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FORM 10-K/A-1 ANNUAL REPORT - 1998
AGRILINK FOODS, INC.
TABLE OF CONTENTS
PART I
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PAGE
ITEM 1. Description of Business
General Development of Business..................................................... 3
Narrative Description of Business .................................................. 3
Financial Information About Industry Segments....................................... 5
Packaging and Distribution.......................................................... 6
Trademarks.......................................................................... 6
Raw Material Sources................................................................ 7
Environmental Matters............................................................... 7
Seasonality of Business............................................................. 7
Practices Concerning Working Capital................................................ 8
Significant Customers............................................................... 8
Backlog of Orders................................................................... 8
Business Subject to Government Contracts............................................ 8
Competitive Conditions.............................................................. 8
New Products and Research and Development........................................... 9
Employees........................................................................... 9
Cautionary Statement on Forward-Looking Statements.................................. 9
ITEM 2. Description of Properties............................................................... 9
ITEM 3. Legal Proceedings....................................................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders..................................... 11
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters................ 12
ITEM 6. Selected Financial Data................................................................. 12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 13
ITEM 8. Financial Statements and Supplementary Data............................................. 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 39
PART III
ITEM 10. Directors and Executive Officers of the Registrant...................................... 40
ITEM 11. Executive Compensation.................................................................. 42
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.......................... 44
ITEM 13. Certain Relationships and Related Transactions.......................................... 44
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 46
Signatures.............................................................................. 49
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Agrilink Foods, Inc. (the "Company" or "Agrilink"), incorporated in New York in
1961, 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. Agrilink has three primary business units: Curtice Burns Foods
("CBF"), Nalley Fine Foods, and its Snack Foods Group. Each business unit offers
different products and is managed separately. The majority of each of the
business unit's net sales is within the United States. In addition, currently
all of the Company's operating facilities are within the United States.
On July 27, 1998, the Company announced that it had reached a definitive
agreement with Dean Foods Company ("Dean") of Franklin Park, Illinois, to
acquire Dean's vegetable operations which includes the nationally known Birds
Eye brand and Dean's Freshlike and VegAll brands (the "Dean Foods Acquisition").
The Dean Foods Vegetable Company ("DFVC") reported revenues of $620.2 million
(on a basis consistent with that reported by Agrilink) and operating earnings of
$38.7 million for fiscal 1998. DFVC employs approximately 2,000 full-time
employees in 13 plants, located in California, Minnesota, New York, Texas, and
Wisconsin. The acquisition is expected to close in September 1998 and will be
accounted for as a purchase. (The acquisition was completed on September 23,
1998.)
On September 18, 1997, Curtice-Burns Foods, Inc. changed its name to Agrilink
Foods, Inc. The three recently consolidated business units of Comstock Michigan
Fruit, Southern Frozen Foods, and Brooks Foods, are now called Curtice Burns
Foods ("CBF").
On November 3, 1994, Pro-Fac Cooperative, Inc. ("Pro-Fac") acquired Agrilink
(the "Acquisition"), and Agrilink became a wholly-owned subsidiary of Pro-Fac.
Pro-Fac is an agricultural cooperative corporation formed in 1960 under New York
law to process and market crops grown by its members. The purchase price and
fees and expenses were financed with borrowings under a credit agreement (the
"Credit Agreement") with CoBank ACB (the "Bank"), and the proceeds of the
Company's 12.25 percent Senior Subordinated Notes due 2005 (the "Notes").
Pro-Fac has guaranteed the obligations of the Company under the Credit Agreement
and the Notes.
Upon consummation of the Acquisition, Pro-Fac and Agrilink entered into the
Pro-Fac Marketing and Facilitation Agreement (the "Pro-Fac Marketing
Agreement").
The Pro-Fac Marketing Agreement provides for Pro-Fac to supply crops and
additional financing to Agrilink, for Agrilink to provide market and management
services to Pro-Fac, and for Pro-Fac to share in the profits and losses of
Agrilink. Pro-Fac is required to reinvest at least 70 percent of the additional
patronage income received back into Agrilink. To preserve the independence of
Agrilink, the Pro-Fac Marketing Agreement also requires that certain directors
of Agrilink 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, including the volume of and the amount to
be paid for crops received from Pro-Fac, be approved by the Disinterested
Directors. See further discussion of the relationship with Pro-Fac in NOTE 2 to
the "Notes to Consolidated Financial Statements."
The Credit Agreement and the Notes restrict the ability of Pro-Fac to amend the
Pro-Fac Marketing and Facilitation Agreement. The Credit Agreement and the Notes
also restrict the amount of dividends and other payments that may be made by the
Company to Pro-Fac.
Under the Pro-Fac Marketing Agreement, Agrilink manages the business and affairs
of Pro-Fac and provides all personnel and administrative support required.
Pro-Fac pays Agrilink a quarterly fee of $25,000 for these services.
NARRATIVE DESCRIPTION OF BUSINESS
The Company sells products in three principal categories: (i) "branded"
products, which are sold under various Company trademarks, (ii) "private label"
products, which are sold to grocers who in turn use their own brand names on the
products and (iii) "food service" products, which are sold to food service
institutions such as restaurants, caterers, bakeries, and schools. In fiscal
1998, approximately 52 percent of the Company's net sales were branded and the
remainder divided between private label and food service. The Company's branded
products are listed under the "Trademarks" section of this report. The Company's
private label products include salad dressings, salsa, fruit fillings and
toppings, canned puddings, canned and frozen vegetables, Southern frozen
vegetable specialty products, and frozen and breaded products which are sold to
customers such as Food Lion, Kroger, Piggly Wiggly, Safeway, SuperValu, Topco,
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Wegmans and Winn-Dixie. The Company's food service 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 Alliant Food Service, Carvel, Church's, Disney, Food service of America,
KFC, MBM, McDonald's, PYA, and SYSCO.
A description of the Company's three primary business units follows:
Curtice Burns Foods ("CBF"): On September 18, 1997, the Comstock Michigan Fruit,
Southern Frozen Foods, and Brooks Foods business units were consolidated and are
now called Curtice Burns Foods, headquartered in Rochester, New York. The
consolidated entity currently represents the largest business unit of Agrilink.
This business unit produces products in several food categories, including fruit
fillings and toppings; aseptically-produced products; canned and frozen fruits
and vegetables and popcorn. Well-known brand names include "Chill Ripe,"
"Comstock," "Greenwood," "Just for Chili," "McKenzie's," "McKenzie's Gold King,"
"Pops-Rite," "Rich and Tangy," "Super Pop," "Southern Farms," "Thank You,"
"Tropic Isle," and "Wilderness." In fiscal 1998, approximately 36 percent of net
sales for these businesses represented branded products, approximately 18
percent represented private label products and approximately 46 percent
represented food service/industrial products.
This business unit processes fruits and vegetables under Company brands and
private labels. Additional products include value-added items such as canned
specialty fruits, frozen vegetable blends, and Southern-specialty products such
as black-eyed peas, okra, Southern squash, and Southern specialty side dishes.
Canned beans and tomato products are sold in several Midwestern states under the
Brooks label. The category includes value-added items such as Chili Hot Beans
and stewed tomatoes. This business unit is also a major supplier of branded and
private label fruit fillings to retailers and food service institutions such as
restaurants, caterers, bakeries and schools. Success in the fruit and vegetable
processing business is driven, among other things, by an ability to control
costs.
Aseptic operations produce puddings and cheese sauces for sale. The aseptic
production process involves preparation of the product in a sterile environment
beginning with batch formulation and continuing through packaging. As a result,
once packaged, the product requires no further cooking. As part of the Dean
Foods Acquisition, the Company has agreed to sell to Dean its aseptic operations
located in Benton Harbor, Michigan. The fiscal 1998 net sales of the aseptic
operations were $97.9 million. The fiscal 1998 earnings before interest, taxes,
depreciation, and amortization ("EBITDA") was approximately $17.5 million. The
sale price is approximately $83.0 million. It is anticipated the Company will
recognize a gain on this sale. (The sale of the aseptic operations was completed
on September 23, 1998.)
Effective May 1, 1998, the Company acquired Nutrition Medical's private label
adult nutrition formula business. Under terms of the Agreement, Nutrition
Medical will be paid royalty payments for two years. The Company also received
existing product and packaging inventories. This contract will be transferred to
Dean in conjunction with the sale of the aseptic operations.
Effective March 31, 1998, the Company entered into a multiyear logistic
agreement under which GATX Logistics will provide freight management, packaging
and labeling services, and distribution support to and from production
facilities owned by the Company in and around Coloma, Michigan. The agreement
included the sale of the Company's labeling equipment and distribution center.
Effective March 30, 1998, the Company acquired the majority of assets and the
business of DelAgra Corp. of Bridgeville, Delaware. DelAgra Corp. is a producer
of private label frozen vegetables.
In the fall of 1997, the Company was named the sole supplier of frozen
vegetables for all Sam's club stores across the United States. Shipments began
in the fourth quarter of fiscal 1998, and it is anticipated full distribution
will occur in the first quarter of fiscal 1999.
Effective July 1, 1997, the Company and Flanagan Brothers, Inc. of Bear Creek,
Wisconsin contributed all their assets involved in sauerkraut production to form
a new sauerkraut company. This new company, Great Lakes Kraut Company, operates
as a New York limited liability company with ownership and earnings divided
equally between the two companies. This joint venture includes the Silver Floss
and Krrrrisp Kraut Brands.
On June 27, 1997, Americold acquired the Company's frozen foods distribution
center in Montezuma, Georgia. In addition, the two companies entered into a
long-term logistics agreement under which Americold manages this facility and
all frozen food transportation operations of Agrilink in Georgia and New York.
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In May 1997, Agrilink sold its private label canned vegetable operation to
Seneca Foods, along with its Blue Boy brand. Included in this sale were the
Leicester, New York manufacturing facility and LeRoy, New York distribution
warehouse. The disposal did not include the Greenwood and Silver Floss labels,
or sauerkraut, beets in glass jars, or frozen vegetable businesses. This
transaction also included an agreement requiring Agrilink to handle all
vegetable sourcing for Seneca Foods at its New York plants.
Nalley Fine Foods: Nalley is headquartered in Tacoma, Washington. It markets
canned meat products such as chilies and stews, pickles, salad dressings, peanut
butter, salsa, and syrup, which are sold throughout the Northwest and Western
United States and Western Canada. Approximately 74 percent of Nalley products
are branded; however, private label and food service accounts for a growing
percentage of Nalley business.
Several of Nalley's products have leading market shares in the Pacific
Northwest, such as chili and "Nalley" and "Farman's" pickles. In the Pacific
Northwest, the Company's "Nalley" and "Bernstein's" brands of salad dressings
have a combined market share of approximately 20 percent.
In April 1997, the Company acquired certain businesses from Nalley Canada Ltd.,
a privately held, independent snack food company and former subsidiary of
Agrilink. The acquired Canadian operations include a $12.0 million consumer
products business that includes Nalley's chili and snack dips; Adams Natural
Peanut Butter; Bernstein's Salad Dressings; LaRestaurante Salsa and other niche
dressing and sauce products marketed throughout the western Provinces of Canada.
Snack Foods Group: During fiscal 1998, two of the Agrilink snack businesses,
Snyder of Berlin and Husman Snack Foods, were united under one management group.
The two entities combined resources to obtain the most cost efficient
operations. Tim's Cascade Potato Chips represents the Company's other snack food
operation. A brief description of each follows:
Snyder of Berlin: Snyder of Berlin, located in Berlin, Pennsylvania,
produces and markets several varieties of potato chips including regular
and kettle fried, as well as several varieties of corn-based snack
products, primarily under the "Snyder of Berlin" brand. Snyder products are
recognized for their unique taste and freshness among users in Mid-Atlantic
states.
Effective March 10, 1998, the Company acquired the majority of the assets
and the business of C&O Distributing Company ("C&O") of Canton, Ohio. C&O
distributes snack products for Snyder of Berlin.
Effective July 21, 1998, the Company acquired J.A. Hopay Distributing Co.,
Inc. ("Hopay") of Pittsburgh, Pennsylvania. Hopay distributes snack
products for Snyder of Berlin.
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 products.
Tim's Cascade Potato Chips: Tim's Cascade Potato Chips, located in Auburn,
Washington, produces kettle-fried potato chips, popcorn, cheese curls, and
snack mix in the Washington, Northern Idaho, Oregon, and Montana area.
Kettle frying produces a potato chip that is thicker and crisper than other
potato chips.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of the Company is principally conducted in one industry segment,
the processing and sale of various food products. The financial statements for
the fiscal years ended June 27, 1998, June 28, 1997, and June 29, 1996, which
are included in this report, reflect the information relating to that segment
for each of the Company's last three fiscal years.
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PACKAGING AND DISTRIBUTION
The food products produced by the Company are distributed to various consumer
markets in all 50 states. International sales account for a small portion of the
Company's activities. Branded lines of the CBF business unit are sold primarily
through food brokers who sell primarily to supermarket chains and various
institutional entities. Nalley has its own sales personnel responsible for sales
within the Pacific Northwest and uses food brokers for sales in other marketing
areas. Snyder's, Tim's and Husman products are marketed through distributors
(some of which are owned and operated by the Company) who sell directly to
retail outlets in the Midwest, Mid-Atlantic and Pacific Northwest.
Customer brand operations encompass the sale of products under private labels to
chain stores and under the controlled labels of buying groups. The Company has
developed central storage and distribution facilities that permit multi-item
single shipment to customers in key marketing areas.
Curtice Burns Express ("CBX"), a subsidiary of the Company, is a licensed common
carrier with authority in 48 states. It is used by the Company to obtain
backhaul volume on shipments using the Company's trucks or contract haulers. The
other business units of the Company lease their equipment to CBX for these
backhauls.
TRADEMARKS
The major brand names under which the Company markets its products are
trademarks of the Company. Such brand names are considered to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. All of the
Company's trademarks are of perpetual duration so long as periodically renewed,
and it is currently intended that the Company will maintain them in force. The
major brand names utilized by the Company are:
Product Brand Name
Chilies, stews and soups Brooks, Mariners Cove, Nalley, Riviera
Fruits and vegetables Brooks, Chill-Ripe, Gold King, Gracias,
Greenwood, Hoosier Sweets, Just for Chili,
McKenzie's, McKenzie's Gold King, Naturally
Good, Ritter, Southern Farms, Southland,
Thank You, Tropic Isle
Fruit fillings and toppings Comstock, Globe, Gracias, Thank You,
Wilderness
Peanut butter Adams
Pickles Farman's, Nalley
Popcorn Pops-Rite, Super Pop
Puddings(1) Gracias, Thank You
Salad dressings Bernstein's, Bernstein's Light Fantastic,
Nalley
Snack food Cheese Pleezers, Husman, La Restaurante,
Snyder of Berlin, Thunder Crunch, Tim's
Cascade Chips, Naturally Good, Matthews
Syrup Lumberjack
Sauerkraut(2) Silver Floss, Farman's, Krrrrisp Kraut
(1) These brand names will be licensed to Dean for the production and sale of
puddings in conjunction with the sale of the aseptic operations. (The sale
of the aseptic operations was completed on September 23, 1998.)
(2) Represent trademarks of Great Lakes Kraut Company. The Company owns a 50
percent interest in this joint venture.
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RAW MATERIAL SOURCES
In fiscal 1998, the Company acquired approximately 76 percent of its raw
agricultural products from Pro-Fac. The Company also purchased on the open
market some crops of the same type and quality as those purchased from Pro-Fac.
Such open market purchases may occur at prices higher or lower than those paid
to Pro-Fac for similar products. See further discussion of the relationship with
Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This situation typically results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
The Company purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Company has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur.
ENVIRONMENTAL MATTERS
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods and the emission of wastes and odors inherent in the
heating of foods during preparation are subject to various federal, state, and
local environmental laws and regulations. Such laws and regulations have had an
important effect on the food processing industry as a whole, requiring
substantially all firms in the industry to incur material expenditures for
modification of existing processing facilities and for construction of new waste
treatment facilities. The Company is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position or financial condition.
Among the various programs for the protection of the environment which have been
adopted by the Company 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 received permits for all
facilities for which permits are required. Each year the Company submits
applications for renewal permits for some of the facilities.
While the Company cannot predict with certainty the effect of any proposed or
future environmental legislation or regulations on its processing operations,
management of the Company believes that the waste disposal systems which are now
in operation or which are being constructed or designed are sufficient to comply
with all currently applicable laws and regulations.
The Company is cooperating with environmental authorities in remedying various
leaks and spills at several of its plants. Such actions are being conducted
pursuant to procedures approved by the appropriate environmental authorities at
a cost that is not expected to be material.
Expenditures related to environmental programs and facilities have not had, and
are not expected to have, a material effect on the earnings of the Company. In
fiscal 1998, total capital expenditures of Pro-Fac and the Company were $14.1
million of which approximately $0.6 million was devoted to the construction of
environmental facilities. The Company estimates that the capital expenditures
for environmental control facilities, principally wastewater treatment
facilities, will be approximately $0.8 million for the 1999 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
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many of the raw materials processed by the Company areagricultural 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 available to the Company under agreements with
the Bank. 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 whom sales are made in an amount which equals 10 percent or more of the
Company's net sales.
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 a ready availability of a broad line of products, product quality,
price, and advertising and sales promotion.
Quality of product and uniformity of quality are 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 operations 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 currently marketed under regional brands and its marketing programs
are focused on local tastes and preferences as a means of developing consumer
brand loyalty. The Company's advertising program utilizes local media, national
magazines, and in-store promotions.
Although the relative importance of the above factors may vary between
particular products or customers, the above description is generally applicable
to all of the products of the Company in the various markets in which they are
distributed.
Profit margins for canned and frozen fruits and vegetables are subject to
industry supply and demand fluctuations, attributable to changes in growing
conditions, acreage planted, inventory carryover, and other factors. The Company
has endeavored to protect against changing growing conditions through
geographical expansion of its sources of supply. The Company has emphasized the
merchandising of its own brands and expanded service and product development for
its high volume private label and food service customers. The percentage of
sales under brand names owned and promoted by the Company (including franchise
brands) amount to approximately 52 percent; sales to the food service industry
(restaurants and institutional customers) represent approximately 23 percent;
private label sales currently represent approximately 15 percent; and sales to
other manufacturers are approximately 10 percent of total sales.
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An estimate of the number of competitors in the markets served by the Company is
very difficult. Currently, 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, Birds Eye, 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.
In conjunction with the Dean Foods Acquisition, the Company will obtain the
Birds Eye brand name. Management believes that the addition of the DFVC branded
products to the Company's portfolio will enhance its existing business and
provide for significant opportunities for growth.
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 food service
businesses. No new products which require the investment of a material amount of
assets have been publicly announced.
EMPLOYEES
As of June 27, 1998, the Company had 3,727 full-time employees, of whom 2,428
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 334
seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions. The Company believes its relationship with its employees is good.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange
Commission ("SEC") in its rules, regulations, and releases. The Company desires
to take advantage of the "safe harbor" provisions in the Act for forward-looking
statements made from time to time, including, but not limited to, the
forward-looking information contained in the Management's Discussion and
Analysis (pages 13 to 20 and other statements made in this Form 10-K/A-1) and in
other filings with the SEC.
The Company cautions readers that any such forward-looking statements made by or
on behalf of the Company are based on management's current expectations and
beliefs but are not guarantees of future performance. Actual results could
differ materially from those expressed or implied in the forward-looking
statements. Among the factors that could impact the Company's ability to achieve
its goals are:
the impact of strong competition in the food industry;
the impact of weather on the volume and quality of raw product;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
the continuation of the Company's success in integrating operations and the
availability of acquisition and alliance opportunities; and
the Company's ability to achieve the gains in productivity and improvements
in capacity utilization.
ITEM 2. DESCRIPTION OF PROPERTIES
All plants, warehouses, office space and other facilities used by the Company in
its business are either owned by Agrilink or one of its subsidiaries or leased
from third parties. All of the properties owned by Agrilink are subject to
mortgages in favor of the Bank. In general, each business unit occupies offices,
processing plants and warehouse space. Some business units have processing
plants located in rural areas that are convenient for the delivery of crops from
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Pro-Fac members and warehouse locations dispersed to facilitate the distribution
of finished products. Agrilink believes that its facilities are in good
condition and suitable for the operations of the Company.
Four of the properties are held for sale. These properties are located in Alton,
New York; Rushville, New York, Mt. Summit, Indiana; and Wall Lake, Iowa.
The following table describes all material facilities leased or owned by the
Company (other than the properties held for sale, certain public warehouses
leased by the Company from third parties from time to time, and facilities owned
by the Company's joint venture, Great Lakes Kraut). Except as otherwise noted,
each facility set forth below is owned by the Company.
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FACILITIES UTILIZED BY THE COMPANY
<S> <C> <C>
Type of Property (By Business Unit) Location Square Feet
CURTICE BURNS FOODS:
Office building, manufacturing plant and warehouse1 Benton Harbor, MI 239,252
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 facility2 Vineland, NJ 191,710
Freezing plant; warehouse; office and dry storage Barker, NY 123,600
Freezing plant Bergen, NY 138,554
Cold storage and repack facility and public storage warehouse Brockport, NY 429,052
Canning plant and warehouse; freezing plant Oakfield, NY 263,410
Canning plant and warehouse Red Creek, NY 153,076
Manufacturing plant Ridgway, IL 50,000
Distribution and warehouse North Bend, NE 50,000
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 591,300
Office, freezing plant and cold storage Alamo, TX 114,446
Manufacturing plant and warehouse Bridgeville, DE 104,383
NALLEY FINE FOODS:
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 412,564
Parking lot and yards2 Tacoma, WA 305,470
Warehouses2 Tacoma, WA 493,556
Receiving and grading station2 Cornelius, OR 11,700
Receiving and grading station2 Mount Vernon, WA 150,373
Office building - Fuller Building2 Tacoma, WA 60,000
SNACK FOODS GROUP:
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center - Tim's2 Auburn, WA 34,000
Plant, warehouse, and distribution center - Matthews2 Auburn, WA 37,442
Office, plant and warehouse Cincinnati, OH 113,576
Distribution center2 Elwood City, PA 13,000
Distribution center2 Monessen, PA 20,000
Distribution center2 Canton, OH 8,200
CORPORATE HEADQUARTERS:
Headquarters office2 (Includes office space for CBF
as well as a Corporate Conference Center) Rochester, NY 62,500
<FN>
1 This facility will be sold to Dean in conjunction with the sale of the
Company's aseptic operations. (The sale of the aseptic operations was
completed on September 23, 1998.)
2 Leased from third parties, although certain related equipment is owned by
the Company.
</FN>
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal proceedings from time to time in the normal
course of its business. In the opinion of management, any liability that the
Company might incur upon the resolution of these proceedings will not, in the
aggregate, have a material adverse effect on the Company's business, financial
condition, and results of operations. Further, no such proceedings are known to
be contemplated by governmental authorities. The Company maintains general
liability insurance coverage in amounts deemed to be adequate by management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
All of the capital stock of the Company is owned by Pro-Fac Cooperative, Inc.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Agrilink Foods, Inc.
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in Thousands)
<CAPTION>
Fiscal Year Ended June
1998 1997 1996 1995* 1994
--------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales $719,665 $730,823 $739,094 $748,525 $829,116
Cost of sales (524,082) (539,081) (562,926) (530,139) (592,621)
-------- -------- -------- -------- --------
Gross profit 195,583 191,742 176,168 218,386 236,495
Selling, administrative, and general expenses (141,837) (145,392) (156,067) (159,937) (186,934)
Income from Great Lakes Kraut Company 1,893 0 0 0 0
Gain on sale of Finger Lakes Packaging 0 3,565 0 0 0
Restructuring (including gains from disposal) 0 0 (5,871) (8,415) 7,768
Change in control expenses 0 0 0 (2,150) (3,500)
Gain on assets net of additional costs incurred as a
result of a fire 0 0 0 4,154 0
-------- -------- -------- -------- --------
Operating income before dividing with Pro-Fac 55,639 49,915 14,230 52,038 53,829
Interest expense (30,633) (35,030) (41,998) (32,414) (18,205)
-------- -------- -------- -------- --------
Pretax income/(loss) before dividing with Pro-Fac and before
cumulative effect of an accounting change 25,006 14,885 (27,768) 19,624 35,624
Pro-Fac share of (income)/loss before cumulative effect of
an accounting change (12,503) (7,442) 9,037 (9,616) (16,849)
-------- -------- -------- -------- --------
Income/(loss) before taxes and cumulative effect of
an accounting change 12,503 7,443 (18,731) 10,008 18,775
Tax (provision)/benefit (5,689) (3,668) 6,853 (6,026) (8,665)
-------- -------- -------- -------- --------
Income/(loss) before cumulative effect of an accounting change 6,814 3,775 (11,878) 3,982 10,110
Cumulative effect of an accounting change before
dividing with Pro-Fac 0 4,606 0 0 0
Pro-Fac share of an accounting change 0 (2,859) 0 0 0
-------- -------- -------- -------- --------
Net income/(loss) $ 6,814 $ 5,522 $(11,878) $ 3,982 $ 10,110
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital $108,075 $ 84,060 $107,875 $144,171 $104,049
Ratio of current assets to current liabilities 1.9:1 1.8:1 2.0:1 2.3:1 1.7:1
Total assets $566,439 $542,561 $634,250 $672,284 $446,938
Long-term debt and senior-subordinated notes (excludes
current portion) $229,937 $222,829 $309,683 $343,665 $ 79,061
Long-term obligations under capital leases (excludes
current portion) $ 503 $ 817 $ 1,125 $ 1,620 $124,973
Other Statistics:
Average number of employees:
Regular 3,620 3,507 3,886 3,838 5,169
Seasonal 1,125 1,068 1,478 1,540 1,596
<FN>
* Represents the results of operations for both the Predecessor and Successor
entities for fiscal 1995.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to outline the significant reasons for changes
in the Consolidated Statement of Operations from fiscal 1996 through fiscal
1998.
Agrilink Foods, Inc. ("Agrilink" or the "Company") has three primary business
units: Curtice Burns Foods ("CBF"), Nalley Fine Foods, and its Snack Food Group.
Each business unit offers different products and is managed separately. The
majority of each of the business units' net sales are within the United States.
In addition, all of the Company's operating facilities are within the United
States.
The CBF business unit produces products in several food categories, including
fruit fillings and toppings; aseptically-produced products; canned and frozen
fruits and vegetables, and popcorn. The Nalley business unit produces canned
meat products (such as chilies and stews), pickles, salad dressings, peanut
butter, salsa, and syrup. The Company's snack foods business unit consists of
the Snyder of Berlin, Husman Snack Foods, and Tim's Cascade Potato Chip
businesses. This business unit produces and markets potato chips and other
salty-snack items. As a part of the acquisition of Dean Foods Vegetable Company
("DFVC") the Company will sell its aseptic operations to Dean Foods. (The sale
of the aseptic operations was completed on September 23, 1998.)
The following tables illustrate the Company's results of operations by business
unit for the fiscal years ended June 27, 1998, June 28, 1997, and June 29, 1996,
and the Company's total assets by business at June 27, 1998 and June 28, 1997.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
6/27/98 6/28/97 6/29/96
% of % of % of
$ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C>
CBF 469.0 65.2 440.2 60.2 431.2 58.4
Nalley Fine Foods 182.1 25.3 182.4 25.0 189.2 25.6
Snack Foods Group 68.6 9.5 67.3 9.2 63.7 8.6
----- ----- ----- ----- ----- -----
Subtotal ongoing operations 719.7 100.0 689.9 94.4 684.1 92.6
Businesses sold1 0.0 0.0 40.9 5.6 55.0 7.4
----- ----- ----- ----- ----- -----
Total 719.7 100.0 730.8 100.0 739.1 100.0
===== ===== ===== ===== ===== =====
<FN>
1 Includes the sales of Finger Lakes Packaging, the portion of the canned
vegetable business sold, Nalley Canada Ltd., and Nalley US chips and Snacks
business. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
6/27/98 6/28/97 6/29/96
% of % of % of
$ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C>
CBF 47.1 84.7 40.5 81.1 26.5 186.6
Nalley Fine Foods 10.4 18.7 10.8 21.7 (2.9) (20.4)
Snack Foods Group 6.9 12.4 5.9 11.8 4.1 28.9
Corporate overhead (8.8) (15.8) (10.5) (21.0) (6.8) (47.9)
---- ----- ----- ----- ---- -----
Subtotal ongoing operations 55.6 100.0 46.7 93.6 20.9 147.2
Businesses sold and other non-recurring2 0.0 0.0 3.2 6.4 (6.7) (47.2)
---- ----- ---- ----- ---- ----
Total 55.6 100.0 49.9 100.0 14.2 100.0
==== ===== ===== ===== ==== =====
<FN>
1 Excludes cumulative effect of an accounting change in fiscal 1997. See NOTE
1 to the "Notes to Consolidated Financial Statements."
2 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned
vegetable business, final settlement of an insurance claim, and a loss on
the disposal of property held for sale.
In fiscal 1996, such amount includes restructuring initiatives and
operating activities of both Finger Lakes Packaging and the canned
vegetable business.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
<PAGE>
<TABLE>
EBITDA1,2
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
6/27/98 6/28/97 6/29/96
% of % of % of
$ Total $ Total $ Total
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CBF 61.0 78.9 57.1 74.4 44.4 101.6
Nalley Fine Foods 16.0 20.7 16.2 21.1 2.3 5.3
Snack Foods Group 8.8 11.4 7.6 9.9 6.0 13.7
Corporate (8.5) (11.0) (10.1) (13.1) (6.9) (15.8)
---- ----- ----- ----- ---- -----
Subtotal ongoing operations 77.3 100.0 70.8 92.3 45.8 104.8
Businesses sold and other non recurring3 0.0 0.0 5.9 7.7 (2.1) (4.8)
---- ----- ----- ----- ---- -----
Total 77.3 100.0 76.7 100.0 43.7 100.0
==== ===== ===== ===== ==== =====
<FN>
1 Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
is defined as the sum of pretax income/(loss) of Agrilink before dividing
with Pro-Fac and before cumulative effect of an accounting change, interest
expense, depreciation and amortization of goodwill, and other intangibles.
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 is included herein because the Company believes EBITDA is a
financial indicator of a company's ability to service debt.
2 Excludes cumulative effect of an accounting change. See NOTE 1 to the
"Notes to Consolidated Financial Statements."
3 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned
vegetable business, final settlement of an insurance claim, and a loss on
the disposal of property held for sale.
In fiscal 1996, such amount includes restructuring initiatives and
operating activities of both Finger Lakes Packaging and the canned
vegetable business.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
6/27/98 6/28/97
% of % of
$ Total $ Total
----- ----- ------- -----
<S> <C> <C> <C> <C>
CBF 362.2 63.9 329.0 60.6
Nalley Fine Foods 137.4 24.3 144.4 26.6
Snack Foods Group 28.0 4.9 26.7 4.9
Corporate 38.8 6.9 42.5 7.9
----- ----- ----- -----
Total 566.4 100.0 542.6 100.0
===== ===== ===== =====
</TABLE>
CHANGES FROM FISCAL 1997 TO FISCAL 1998
Net income for fiscal 1998 of $6.8 million represented a $1.3 million or 23.6
percent increase over the prior year's net income of $5.5 million. Total EBITDA
before cumulative effect of an accounting change was $77.3 million as compared
to $76.7 million in the prior year. Excluding the impact of businesses sold and
other non-recurring activities, EBITDA increased $6.5 million or 9.2 percent to
$77.3 million, while operating income increased $8.9 million or 19.1 percent to
$55.6 million from the prior year $46.7 million. These improvements reflected
the benefits from numerous initiatives including: (1) increase in volume and new
customers in many of Agrilink's product lines; (2) the continuing benefits from
<PAGE>
structural changes made within the organization including the consolidation of
operations and facilities; and (3) a decrease in interest expense due to
initiatives undertaken in the prior year to reduce debt and focus on strategic
product lines.
Net Sales: Total net sales for the year decreased $11.1 million or 1.5 percent
to $719.7 in fiscal year 1998 from $730.8 million in the prior year. Excluding
the net sales of businesses sold by the Company, net sales increased by $29.8
million or 4.3 percent to $719.7 million in fiscal year 1998 from $689.9 million
in the prior year.
The increase in net sales for ongoing operations came primarily from the CBF
business unit, which accounted for an increase of $28.8 million. Prior year net
sales include $13.8 million in sauerkraut sales, which are now accounted for by
the joint venture between Agrilink and Flanagan Brothers, Inc. created in fiscal
1998. See NOTE 3, "Acquisitions, Disposals, and Restructuring Formation of New
Sauerkraut Company" to the financial statements of Agrilink included elsewhere
herein. Excluding the impact of sauerkraut sales from the prior year, net sales
from the CBF business unit increased $42.6 million or 10.0 percent from the
prior year. Such increases resulted from changes in volume, product mix, new
customers, and improvements in pricing. The increase was attributable to
increases in net sales from : (i) the vegetable category of $20.2 million, (ii)
the fruit category of $3.0 million, and (iii) the aseptic business of $24.4
million. As part of the acquisition of DFVC, the Company will sell its aseptic
operations to Dean Foods. (The sale of the aseptic operations was completed on
September 23, 1998.)
Net sales for Nalley remained relatively flat with the prior year as gains in
the pickle and canned categories were offset by reductions in dressings and
peanut butter. Within the pickle category, net sales for fiscal 1998 increased
$3.0 million as a result of increased volume in the food service channel.
Competitive pressures on volume and price resulted in a $3.0 million decrease in
net sales for dressings. In addition, peanut butter experienced a $0.6 million
decrease in net sales.
Net sales for the Snack Foods Group increased by $1.3 million or 1.9 percent to
$68.6 million in fiscal 1998 as a result of new business in the Northwest and
product line extensions, including kettle chips within Snyder of Berlin.
Gross Profit: Gross profit of $195.6 million in fiscal 1998 increased $3.9
million or 2.0 percent from $191.7 million in fiscal 1997. Excluding the impact
of businesses sold in fiscal 1997, gross profit increased $8.1 million. As a
percentage of net sales, gross profit increased from 26.2 percent to 27.2
percent. This increase is attributable to improved margins in many of Agrilink's
product lines.
The increase in gross profit at the CBF business unit was $5.0 million. The
fruit category showed improvements of $5.5 million resulting from changes in
pricing and product mix. The vegetable category showed a decline of $0.9
million. However, excluding the impact of the canned vegetable business sold in
1997, the gross profit within the vegetable category improved $1.5 million. This
increase is lower than the increase in net sales described above primarily due
to pricing within the industry. As highlighted under "Liquidity and Capital
Resources - Short- and Long-Term Trends," the vegetable portion of Agrilink's
business can be impacted by the national market. During the third and fourth
quarters of fiscal 1998, pricing was negatively impacted by an oversupply
situation.
Overall, gross profit at Nalley decreased $0.5 million. While production and
purchasing efficiencies yielded benefits, such amounts were offset by volume
declines within the dressing category due to competitive pressures.
Increases in net sales within the Snack Foods Group resulted in profit
improvements of $0.7 million.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $3.6 million as compared with the prior year. As
a percentage of net sales, selling, administrative, and general expenses
declined from 19.9 percent to 19.7 percent. This decrease is primarily due to:
(1) reductions in selling expenses of $1.4 million; (2) reductions in incentive
costs of $1.2 million; and (3) the impact of a favorably settled outstanding tax
claim with the state of Washington for $1.4 million.
Income from Great Lakes Kraut Company: This amount represents earnings received
from the investment in Great Lakes Kraut Company, a joint venture formed between
Agrilink and Flanagan Brothers, Inc. See NOTE 3 - "Other matters - Formation of
New Sauerkraut Company" to the consolidated financial statements of Agrilink
included elsewhere herein.
Interest Expense: Interest expense decreased $4.4 million or 12.6 percent to
$30.6 million in fiscal 1998 from $35.0 million in fiscal 1997. This improvement
is primarily the result of management's focus on debt reduction during fiscal
year 1997. Specific actions taken by management included the sale of Finger
Lakes Packaging Company, Inc., the sale of the canned vegetable business, and
the sale of the Georgia distribution center. The reduction in debt accounted for
$3.5 million of the reduction in interest expense while changes in rate
accounted for the remaining $0.9 million reduction.
<PAGE>
Provision for Taxes: The provision for taxes increased $2.0 million or 54.1
percent to $5.7 million in fiscal 1998 from $3.7 million in fiscal 1997. This
increase was a result of a $5.1 million increase in earnings before tax.
Agrilink's effective tax rate in fiscal 1998 was 45.5 percent which is
negatively impacted by the non-deductibility of goodwill. A further discussion
of tax matters is included at NOTE 6 to the "Notes to Consolidated Financial
Statements" of Agrilink included elsewhere herein.
CHANGES FROM FISCAL 1996 TO FISCAL 1997
Net income for fiscal 1997 of $5.5 million represented a $17.4 million increase
over the prior year's loss of $11.9 million. Total EBITDA before cumulative
effect of an accounting change was $76.7 million for the year ended June 28,
1997 as compared to $43.7 million in the prior year. EBITDA for ongoing
businesses reached $70.8 million as compared to the prior year's $45.8 million.
This significant improvement reflected the benefits from numerous initiatives
including: (1) a reduction in debt by $86.8 million which included the sales of
Finger Lakes Packaging Company, Inc., the portion of the canned vegetable
business sold, the Georgia Distribution facility and idle manufacturing
facilities, and efforts to improve cash flow through better management of
working capital requirements (see NOTES 3 and 5 to the "Notes to Consolidated
Financial Statements" of Agrilink included elsewhere herein); (2) the
implementation of structural changes within the organization, including the
consolidation of the operations of Brooks Foods and Southern Frozen Foods into
CBF; and (3) the consolidation of support services such as human resources and
agricultural services. The reduction in interest expense as a result of the debt
reduction initiatives improved net income by $5.5 million and consolidation
efforts accounted for approximately $2.0 million of the $6.5 million reduction
in selling, administrative, and general expenses.
Structural changes within Agrilink's business units included a review of the
Nalley operations and the consolidation of several other operations. EBITDA for
the Nalley business unit was $16.2 million for the year ended June 28, 1997 as
compared to $2.3 million in the prior year. These results were driven by
organizational changes and the absence of the significant start-up costs for the
new salad dressing line which were incurred throughout fiscal 1996.
Net Sales: Total net sales decreased by $8.3 million or 1.1 percent to $730.8
million in fiscal 1997 from $739.1 million in fiscal 1996. Excluding businesses
sold, net sales increased $5.8 million or 0.8 percent to $689.9 million in
fiscal 1997 from $684.1 million in fiscal 1996.
Net sales from ongoing operations at CBF increased $9.0 million or 2.1 percent
to $440.2 million in fiscal 1997 from $431.2 million in fiscal 1996. This
increase was due to improvements in pricing and increased sales from new
customers.
Net sales from ongoing operations at Nalley decreased by $6.8 million or 3.6
percent to $182.4 million in fiscal 1997 from $189.2 million in fiscal 1996.
While the canned category showed increases of $1.5 million, such gains were
offset by reductions in all other categories of $8.3 million. Such reductions
resulted from competitive pressures on volume and price.
Net sales at the Snack Foods Group increased $3.6 million or 5.7 percent to
$67.3 million in fiscal 1997 from $63.7 million in fiscal 1996. Of this
increase, $0.9 million was attributable to the acquisition of Matthews Candy
Company during the fourth quarter of fiscal 1996. The $2.7 million increase from
the existing remaining business was due to the addition of new customers and
product line extensions. Management believes the acquisition of Matthews
broadened its line of products and, therefore, enhanced its earnings capability.
However, due to the competitive nature of the snack food industry, management is
unable to assess whether such increases within the Snack Foods Group will
continue to be realized.
Gross Profit: Gross profit of $191.7 million in fiscal 1997 increased $15.5
million or 8.8 percent from $176.2 million in fiscal 1996. As a percentage of
net sales, gross profit increased from 23.8 percent to 26.2 percent. This
increase is attributable to improved margins in all of Agrilink's business
units.
The increase in gross profit was benefited by improved/increased pricing at the
CBF business unit. As highlighted under "Liquidity and Capital Resources - Short
- - and Long-Term Trends," the vegetable and fruit portions of Agrilink's business
can be positively or negatively impacted by the national crop yields. The status
of the national supply situation controls pricing. During fiscal 1997, crop
yields of commodities in markets in which Agrilink operates were below that of
the prior year and, therefore, pricing levels within the commodities markets in
which Agrilink competes were increased. The increase in pricing favorably
impacted gross profit by $9.5 million.
<PAGE>
Gross profit increased at Nalley by $4.0 million in 1997. The improvement was
primarily attributable to operating improvements resulting from the elimination
of start-up costs on the new salad dressing line introduced in 1996, reductions
in manufacturing variances, and reductions in promotional expenses.
Increased sales from the Snack Foods Group also improved profitability. The
increase in sales within the Snack Foods Group contributed an increase to gross
profit of $1.5 million.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $10.7 million as compared with the prior year.
As a percentage of net sales, selling, administrative, and general expenses
decreased from 21.1 percent to 19.9 percent. This decrease is net of the
inclusion of expenses (approximately $5.6 million) relating to Agrilink's
incentive program. Payments under the incentive programs in fiscal 1997 are
attributable to the significantly improved earnings. The net decrease is
attributed to a $5.8 million decrease in selling ($1.7 million), advertising
($1.0 million), and trade promotions expenses ($3.1 million) resulting from
decreased spending at Nalley's. Reductions in other administrative expenses
accounted for $10.5 million and were primarily attributable to benefits from the
restructuring initiative that began late in fiscal 1996. These initiatives
included the consolidation of the administrative functions at CBF and the sale
of Finger Lakes Packaging Company, Inc.
Gain on Sale of Finger Lakes Packaging Company, Inc.: On October 9, 1996, the
Company completed the sale of Finger Lakes Packaging Company, Inc. to Silgan
Containers Corporation, an indirect, wholly-owned subsidiary of Silgan Holdings,
Inc., headquartered in Stamford, Connecticut. A gain of approximately $3.6
million was recognized on this disposal. Agrilink received proceeds of
approximately $30.0 million which were applied to reduce bank debt. The
transaction also included a long-term supply agreement.
Interest Expense: Interest expense decreased $7.0 million or 16.6 percent to
$35.0 million in fiscal 1997 from $42.0 million in fiscal 1996. This improvement
resulted from both the inventory reduction and cash-flow-management programs
initiated in fiscal 1996. In addition, debt was reduced by the proceeds from the
sale of Finger Lakes Packaging Company, Inc., the canned vegetable business, and
idle facilities.
Provision for Taxes: The provision for taxes increased $10.6 million to $3.7
million in fiscal 1997 from a $6.9 million benefit in fiscal 1996. Agrilink's
effective tax rate in fiscal 1997 was 49.3 percent which was negatively impacted
by the non-deductibility of goodwill. A further discussion of tax matters is
included at NOTE 6 to the "Notes to the Consolidated Financial Statements" of
Agrilink included elsewhere herein.
Cumulative Effect of a Change in Accounting: Effective June 30, 1996, accounting
procedures were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. Management
believes this change is preferable because it provides a better matching of
costs with related revenues when evaluating interim financial statements. The
favorable cumulative effect of the change (net of Pro-Fac's share of $2.9
million and income taxes of $1.1 million) was $1.7 million. Pro forma amounts
for the cumulative effect of the accounting change on prior periods are not
determinable due to the lack of physical inventory counts required to establish
quantities at the respective dates. Management does not believe that the
difference in accounting methodologies for spare parts had any material impact
on Agrilink's historic financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Consolidated
Statement of Changes in Cash Flows" included in the consolidated financial
statements of Agrilink, included elsewhere herein, for fiscal 1998 compared to
fiscal 1997.
Net cash provided by operating activities decreased in fiscal 1998 primarily due
to an increase in inventory of approximately $25.7 million. This increase is
primarily due to: (1) an increase of $8.0 million in inventory to support
additional business regarding the Sam's national club stores as described below;
(2) an increase of $4.0 million of inventory associated with the acquisition of
DelAgra; and (3) changes in growing areas/timing of crop intake and early
harvesting of crops resulting from the 1998 growing season (approximately $11.0
million).
During October of 1997, Agrilink became the sole supplier of frozen vegetables
for the Sam's national club stores. The executed contract extends for a two-year
period and required an $11.0 million prepayment for volume discounts. Due to the
time frame required for the incumbent supplier to exit these operations and for
Agrilink to implement full distribution, this contract did not significantly
impact fiscal 1998 earnings. However, management anticipates this arrangement
will have a favorable impact on fiscal 1999 earnings, although there can be no
assurance it will do so.
<PAGE>
An offsetting increase in cash provided by operating activities resulted from
the changes in accounts payable and accrued expenses due to the timing of
liquidation.
Net cash provided by investing activities decreased significantly in fiscal
1998, primarily due to the sales in fiscal 1997 of Finger Lakes Packaging
Company, Inc., a portion of the canned vegetable business, the Georgia
distribution center, and several idle facilities. In fiscal 1998, the only
significant disposal consisted of the sale of the distribution center in Coloma,
Michigan. All proceeds from asset sales were applied to repay bank debt in
accordance with the terms of the Credit Agreement. In addition, in fiscal 1998,
acquisitions accounted for the use of $7.4 million of investing cash flow. These
proceeds were utilized to purchase DelAgra Corporation of Bridgeville, Delaware
and C&O Distributing Company of Canton, Ohio. The purchase of property, plant,
and equipment decreased by $2.8 million or 16.6 percent to $14.1 million in
fiscal 1998 from $16.9 million in fiscal 1997 and was for general operating
purposes.
Financing activities provided $11.4 million of cash in fiscal 1998 compared to
using $85.6 million in cash for fiscal 1997. Cash used in fiscal 1997 included
$104.9 million of debt repayment which resulted from the cash provided by the
sale of certain assets during the year.
Borrowings: Under the Company's existing Credit Agreement with the Bank,
Agrilink is able to borrow up to $82.0 million for working capital purposes
under the Seasonal Facility, subject to a borrowing base limitation, and obtain
up to $18.0 million in aggregate face amount of letters of credit pursuant to a
Letter of Credit Facility. The borrowing base is defined as the lesser of (i)
the available line and (ii) the sum of 60 percent of eligible accounts
receivable plus 50 percent of eligible inventory.
The Company believes that the cash flow generated by its operations and the
amounts available under the Seasonal Facility should be sufficient to fund its
working capital needs and fund its capital expenditures. See further discussion
at "New Credit Facility" below.
As of June 27, 1998, (i) cash borrowings outstanding under the Seasonal Facility
were zero and (ii) additional availability under the Seasonal Facility, after
taking into account the amount of the borrowing base, was $82.0 million. In
addition to its seasonal financing, as of June 27, 1998, the Company had $39.1
million available for long-term borrowings under the Term Loan Facility.
The existing Credit Agreement and Indenture requires that Pro-Fac and Agrilink
meet certain financial tests and ratios and comply with certain other
restrictions and limitations. As of June 27, 1998, Pro-Fac and Agrilink are in
compliance with all such covenants, restrictions and limitations.
To complete the Dean Foods acquisition, the Company will incur a significant
amount of new borrowings. Management anticipates that the acquisition will be
financed through a combination of bank and subordinated debt. Management
believes the combined activities of the two businesses will provide adequate
cash flow to service debt. See further discussion at "New Credit Facility"
below.
Capital Expenditures: The Company anticipates that capital expenditures for
fiscal years 1999 and 2000, including capital expenditures relating to DFVC,
will be approximately $25.0 million per annum. The Company believes that cash
flow from operations and borrowings under bank facilities will be sufficient to
meet its liquidity requirements for the foreseeable future.
Short- and Long-Term Trends: Throughout fiscal 1998 and 1997, Agrilink has
focused on its core businesses and growth opportunities. A complete description
of the acquisition and disposal activities completed is outlined at NOTE 3 to
the "Notes to Consolidated Financial Statements" of Agrilink included elsewhere
herein.
In addition, on July 27, 1998, the Company announced that it had reached a
definitive agreement with Dean Foods Company ("Dean") of Franklin Park,
Illinois, to acquire Dean's vegetable operations which includes the nationally
known Birds Eye brand and Dean's Freshlike and VegAll brands. The Dean Foods
Vegetable Company ("DFVC") reported revenues of $620.2 million (on a basis
consistent with that reported by Agrilink) and operating earnings of $38.7
million for fiscal 1998. DFVC employs approximately 2,000 full-time employees in
13 plants, located in California, Minnesota, New York, Texas, and Wisconsin. The
acquisition is expected to close in September 1998 and will be accounted for as
a purchase. (The acquisition was completed on September 23, 1998.)
The vegetable and fruit portions of the Company's business, which includes CBF,
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
<PAGE>
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather. The
crop and yields resulting from the 1997 growing season has resulted in an
increased supply throughout the industry. Accordingly, pricing and sales volume
have been negatively impacted in the third and fourth quarters of fiscal 1998.
New Credit Facility: In connection with the acquisition of DFVC, the Company has
received a commitment from a bank to provide a new credit facility (the "New
Credit Facility"), which is expected to consist of a $200.0 million revolving
credit facility (the "Revolving Credit Facility") and a $455.0 million term loan
facility (the "Term Loan Facility"). Such commitment, however, is subject to a
number of conditions, including the execution and delivery of a New Credit
Facility agreement satisfactory to the lender.
The Term Loan Facility is expected to be comprised of a term A facility of
$100.0 million (the "Term Loan A"), which will have a maturity of five years, a
term B facility of $175.0 million (the Term Loan B"), which will have a maturity
of six years, and a term C facility of $180.0 million (the "Term Loan C"), which
will have a maturity of seven years. The Revolving Credit Facility will have a
maturity of five years.
The New Credit Facility will bear interest, at the Company's option, at the
Administrative Agent's alternate base rate or the reserve-adjusted London
Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of: (i)
in the case of alternate base rate loans, (x) 1.00 percent for the Revolving
Credit Facility and Term Loan A, (y) 2.25 percent for Term Loan B, and (z) 2.50
percent for Term Loan C; and (ii) in the case of LIBOR loans, (x) 2.75 percent
for Revolving Credit Facility and Term Loan A, (y) 3.25 percent for Term Loan B,
and (z) 3.50 percent for Term Loan C. The Administrative Agent's "alternate base
rate" is defined as the greater of (a) the prime commercial rate as announced by
the Administrative Agent, or (b) the Federal Funds rate plus 1/2 of 1 percent.
In addition, the Company will pay a commitment fee calculated at a rate of 0.50
percent per annum on the daily average unused commitment under the Revolving
Credit Facility.
Supplemental Information on Inflation: The changes in costs and prices within
the Company's business due to inflation were not significantly different from
inflation in the United States economy as a whole. Levels of capital investment,
pricing and inventory investment were not materially affected by the moderate
inflation.
Other Matters:
Restructuring: During the fourth quarter of fiscal 1996, Agrilink initiated a
corporate-wide restructuring program. Approximately $4.0 million of the
restructuring charge comprised employee termination benefits. There were no
noncash write-offs included in the fiscal 1996 restructuring charge. The cost of
the strategic consulting activities was liquidated through payment in fiscal
1996. The $4.0 million reserve for employee terminations is being liquidated in
accordance with severance agreements reached with such employees. During fiscal
1997, approximately $2.0 million of this reserve was liquidated. During 1998,
all remaining material amounts were liquidated.
Year 2000 and Information Services Reorganization: A full inventory and analysis
of business applications and related software of the Company was performed, and
the Company has determined that it will be required to modify or replace certain
portions of its software so that its computer systems will be Year 2000
compliant. These modifications and replacements are being and will continue to
be made in conjunction with the Company's overall information systems
initiatives. No major delay in these initiatives is anticipated.
In addition, the Company is contacting non-IT vendors to ensure that any of
their products that are currently in use can adequately deal with the change in
century. Areas being addressed include full reviews of manufacturing equipment,
telephone and voice mail systems, security systems, and other office/site
support systems. Based upon preliminary information, the costs of addressing
potential problems are not expected to have a material adverse impact on the
Company's financial position, results of operations, or cash flows in future
periods. Accordingly, the cost of the project is being funded through operating
cash flows.
The Company has initiated formal communications with significant suppliers and
customers to determine the extent to which it is vulnerable to those third
parties' failure to remediate their own Year 2000 issues. However, there can be
no guarantee that the systems of other companies on which the Company's systems
rely will be converted on a timely basis, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have material adverse effect on the Company. Accordingly, the
Company plans to devote the necessary resources to resolve all significant Year
2000 issues in a timely manner.
<PAGE>
The Company expects to complete the Year 2000 project during the fall of 1999.
Based on the progress made to date (which includes compliant systems in place
and in production), the Company does not believe any material exposure to
significant business interruption exists. In the event some of the remaining
elements of the Company's Year 2000 compliance project are delayed, procedures
have been addressed to ensure alternative workaround initiatives are completed.
On June 19, 1997, Systems & Computer Technology Corporation ("SCT") and Agrilink
announced a major outsourcing services and software agreement effective June 30,
1997. The ten-year agreement, valued at approximately $50 million, is for SCT's
OnSite outsourcing services, ADAGE ERP software and implementation services and
assistance in solving the Year 2000 issue.
Product Recall: In February 1997, Agrilink issued a nationwide recall of all
"Tropic Isle" brand fresh frozen coconut produced in Costa Rica because it has
the potential to be contaminated with Listeria monocytogenes, an organism which
can cause serious and sometimes fatal infections in small children, frail or
elderly people, and others with weakened immune systems. The total estimated
cost of the product recall was $0.5 million. This amount was recognized as an
expense in fiscal 1997. Agrilink received closure of this matter by the FDA on
March 11, 1998. Should any material costs associated with this recall develop,
it is anticipated that such amounts will be covered under Agrilink's insurance
policies.
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<S> <C>
ITEM Page
Agrilink Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements............................................................. 21
Report of Independent Accountants................................................................................ 22
Consolidated Financial Statements:
Consolidated Statement of Operations and Accumulated Deficit for the years ended
June 27, 1998, June 28, 1997, and June 29, 1996.............................................................. 23
Consolidated Balance Sheet at June 27, 1998 and June 28, 1997.................................................. 24
Consolidated Statement of Cash Flows for the years ended June 27, 1998, June 28, 1997, and June 29, 1996....... 25
Notes to Consolidated Financial Statements..................................................................... 27
</TABLE>
<PAGE>
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 PricewaterhouseCoopers LLP,
independent accountants, who were responsible for conducting their examination
in accordance with generally accepted auditing standards. Their resulting report
is on the subsequent 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/ Dennis M. Mullen /s/ Earl L. Powers
Dennis M. Mullen Earl L. Powers
President and Vice President Finance and
Chief Executive Officer Chief Financial Officer
July 31, 1998
<PAGE>
Report of Independent Accountants
To the Shareholder and
Board of Directors of
Agrilink Foods, Inc.
In our opinion, the consolidated balance sheets and related consolidated
statements of operations and accumulated deficit and of cash flows listed under
Item 8 of this Form 10-K/A-1 present fairly, in all material respects, the
financial position of Agrilink Foods, Inc. and its subsidiaries at June 27, 1998
and June 28, 1997, and the results of their operations and their cash flows for
each of the three fiscal years ended June 27, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in NOTE 1 to the consolidated financial statements, the Company
changed its method of accounting for spare parts in fiscal 1997.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item 14 of the Form 10-K/A-1. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein for the fiscal years ended June 27, 1998, June 28, 1997, and June 29,
1996 when read in conjunction with the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
July 31, 1998
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
Agrilink Foods, Inc.
Consolidated Statement of Operations and Accumulated Deficit
(Dollars in Thousands)
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Net sales $719,665 $730,823 $739,094
Cost of sales (524,082) (539,081) (562,926)
-------- -------- --------
Gross profit 195,583 191,742 176,168
Selling, administrative, and general expenses (141,837) (145,392) (156,067)
Income from Great Lakes Kraut Company 1,893 0 0
Gain on sale of Finger Lakes Packaging 0 3,565 0
Restructuring charge 0 0 (5,871)
-------- -------- --------
Operating income before dividing with Pro-Fac 55,639 49,915 14,230
Interest expense (30,633) (35,030) (41,998)
-------- -------- --------
Pretax income/(loss) before dividing with Pro-Fac and before
cumulative effect of an accounting change 25,006 14,885 (27,768)
Pro-Fac share of (income)/loss before cumulative effect of an
accounting change (12,503) (7,442) 9,037
-------- -------- --------
Income/(loss) before taxes and cumulative effect of an accounting change 12,503 7,443 (18,731)
Tax (provision)/benefit (5,689) (3,668) 6,853
-------- -------- --------
Income/(loss) before cumulative effect of an accounting change 6,814 3,775 (11,878)
Cumulative effect of an accounting change before
dividing with Pro-Fac 0 4,606 0
Pro-Fac share of an accounting change 0 (2,859) 0
-------- -------- --------
Net income/(loss) 6,814 5,522 (11,878)
Accumulated deficit at beginning of period (11,878) (11,878) 0
Cash dividends to Pro-Fac (6,814) (5,522) 0
-------- -------- --------
Accumulated deficit at end of period $(11,878) $(11,878) $(11,878)
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
<CAPTION>
ASSETS
6/27/98 6/28/97
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,046 $ 2,836
Accounts receivable trade, less allowances for bad debts of $774 and $970, respectively 55,046 48,661
Accounts receivable, other 3,575 2,813
Current deferred tax asset 4,642 8,198
Inventories -
Finished goods 111,153 87,904
Raw materials and supplies 30,433 27,001
-------- --------
Total inventories 141,586 114,905
-------- --------
Current investment in Bank 1,994 946
Prepaid manufacturing expense 8,404 8,265
Prepaid expenses and other current assets 12,989 6,323
-------- --------
Total current assets 233,282 192,947
Investment in Bank 22,377 24,321
Investment in Great Lakes Kraut Company 6,584 0
Property, plant, and equipment, net 194,615 217,923
Assets held for sale at net realizable value 2,662 3,259
Goodwill and other intangible assets less accumulated amortization of $13,634
and $10,053, respectively 94,744 96,429
Other assets 12,175 7,682
-------- --------
Total assets $566,439 $542,561
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
6/27/98 6/28/97
Current liabilities:
Current portion of obligations under capital leases $ 256 $ 558
Current portion of long-term debt 8,071 8,075
Accounts payable 70,125 49,231
Income taxes payable 3,943 5,152
Accrued interest 8,559 8,540
Accrued employee compensation 8,598 11,063
Other accrued expenses 19,013 21,956
Due to Pro-Fac 6,642 4,312
-------- --------
Total current liabilities 125,207 108,887
Obligations under capital leases 503 817
Long-term debt 69,937 62,829
Senior subordinated notes 160,000 160,000
Deferred income tax liabilities 33,154 40,902
Other non-current liabilities 23,053 22,687
-------- --------
Total liabilities 411,854 396,122
-------- --------
Commitments and Contingencies
Shareholder's Equity:
Common stock, par value $.01; 10,000 shares outstanding, owned by Pro-Fac 0 0
Minimum pension liability adjustment (608) 0
Additional paid-in capital 167,071 158,317
Accumulated deficit (11,878) (11,878)
-------- --------
Total shareholder's equity 154,585 146,439
-------- --------
Total liabilities and shareholder's equity $566,439 $542,561
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 6,814 $ 5,522 $(11,878)
Adjustments to reconcile net income/(loss) to net cash (used in)/provided
by operating activities -
Restructuring and net (gain)/loss from disposals 0 (3,565) 5,871
Cumulative effect of an accounting change 0 (4,606) 0
Amortization of goodwill and other intangibles 3,581 4,092 3,422
Amortization of debt issue costs 800 800 800
Depreciation 18,009 22,680 26,081
Provision/(benefit) for deferred taxes 281 2,787 (6,853)
Provision for losses on accounts receivable 0 445 528
Equity in undistributed earnings of Bank (715) (1,143) (1,532)
Change in assets and liabilities:
Accounts receivable (6,744) (1,856) 11,309
Inventories (25,654) (1,636) 33,347
Income taxes payable (1,209) 205 4,879
Accounts payable and accrued expenses 15,737 (1,751) (15,200)
Payable to Pro-Fac (1,720) 466 2,754
Other assets and liabilities (11,322) 548 (1,514)
-------- -------- --------
Net cash (used in)/provided by operating activities (2,142) 22,988 52,014
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (14,056) (16,876) (18,038)
Proceeds from disposals 12,794 68,716 4,408
Proceeds from sales of idle facilities 0 4,465 597
Proceeds from investment in CoBank 1,611 315 0
Cash paid for acquisitions (7,423) 0 (5,785)
-------- -------- --------
Net cash (used in)/provided by investing activities (7,074) 56,620 (18,818)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 18,180 18,000 5,400
Payments on long-term debt (8,076) (104,854) (43,056)
Payments on capital leases (616) (503) (825)
Capital contribution by Pro-Fac 8,752 7,234 10,000
Cash dividends paid to Pro-Fac (6,814) (5,522) 0
-------- -------- --------
Net cash provided by/(used in) financing activities 11,426 (85,645) (28,481)
-------- -------- --------
Net change in cash and cash equivalents 2,210 (6,037) 4,715
Cash and cash equivalents at beginning of period 2,836 8,873 4,158
-------- -------- --------
Cash and cash equivalents at end of period $ 5,046 $ 2,836 $ 8,873
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for :
Interest (net of amount capitalized) $ 30,062 $ 35,587 $ 41,508
======== ======== ========
Income taxes, net $ 6,617 $ 676 $ (703)
======== ======== ========
Acquisition of DelAgra
Accounts receivable $ 403 $ 0 $ 0
Inventories 3,212 0 0
Prepaid expenses and other current assets 81 0 0
Property, plant, and equipment 1,842 0 0
Goodwill 1,508 0 0
Other accrued expenses (433) 0 0
-------- -------- --------
$ 6,613 $ 0 $ 0
======== ======== ========
Acquisition of C&O Distributing Company:
Property, plant, and equipment $ 54 $ 0 $ 0
Goodwill 756 0 0
-------- -------- --------
$ 810 $ 0 $ 0
======== ======== ========
Investment in Great Lakes Kraut Company
Inventories $ 2,175 $ 0 $ 0
Prepaid expenses and other current assets 409 0 0
Property, plant, and equipment 6,966 0 0
Other accrued expenses (62) 0 0
-------- -------- --------
$ 9,488 $ 0 $ 0
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Acquisition of Packer Foods and Matthews Candy Co.:
Accounts receivable $ 0 $ 0 $ 1,282
Inventories 0 0 3,902
Prepaid expenses and other current assets 0 0 270
Property, plant and equipment 0 0 6,044
Goodwill 0 0 493
Deferred tax asset 0 0 264
Accounts payable 0 0 (4,954)
Other accrued expenses 0 0 (418)
Other non-current liabilities 0 0 (1,098)
-------- -------- --------
$ 0 $ 0 $ 5,785
======== ======== ========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In conjunction with the purchase of certain businesses of Nalley Canada Ltd.
by Agrilink in fiscal 1997, the following non-cash transactions occurred:
Notes forgiven $ 0 $ 4,986 $ 0
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Agrilink is a producer and marketer of processed food products, including canned
and frozen fruits and vegetables, canned desserts and condiments, fruit fillings
and toppings, canned chilies and stews, salad dressings, pickles, peanut butter
and snack foods. The vegetable and fruit product lines account for approximately
49 percent of sales. The Company's products are primarily distributed in the
United States. The Company is a wholly-owned subsidiary of Pro-Fac Cooperative,
Inc. ("Pro-Fac").
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.
Fiscal Year: The fiscal year of Agrilink corresponds with that of its parent,
Pro-Fac, and ends on the last Saturday in June. Fiscal 1998 and 1997 comprised
52 weeks, and fiscal 1996 comprised 53 weeks.
Consolidation: The consolidated financial statements include the Company and its
wholly-owned subsidiaries after elimination of intercompany transactions and
balances. Investments in affiliates, owned more than 20 percent but not in
excess of 50 percent, are recorded under the Equity Method of accounting.
Change in Accounting Principle: Effective June 30, 1996, accounting procedures
were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. Management
believes this change is preferable because it provides a better matching of
costs with related revenues when evaluating interim financial statements. The
favorable cumulative effect of the change (net of Pro-Fac's share of $2.9
million and income taxes of $1.1 million) was $1.7 million. Pro forma amounts
for the cumulative effect of the accounting change on prior periods are not
determinable due to the lack of physical inventory counts required to establish
quantities at the respective dates. Management does not believe that the
difference in accounting methodologies for spare parts had any material impact
on the Cooperative's historic financial statements.
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with maturities of three months or less. There were no such
short-term investments at June 28, 1997 or June 27, 1998.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method. Reserves recorded at June 27, 1998 and June
28, 1997 were $391,000 and $362,000, respectively.
Investment in CoBank ("The Bank"): The Company's 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).
Earnings on the Company's investment in the Bank in fiscal year 1998, 1997, and
1996 amounted to $1,023,000, $1,633,000, and $2,188,000, respectively.
Manufacturing Overhead: Allocation of manufacturing overhead to finished goods
produced is on the basis of a production period; thus at the end of each period,
manufacturing costs incurred by seasonal plants, subsequent to the end of
previous pack operations, are deferred and included in the accompanying balance
sheet under the caption " Prepaid manufacturing expense." Such costs are applied
to finished goods during the next production period and recognized as an element
of cost of goods sold.
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.
<PAGE>
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. Debt
issuance costs are amortized over the term of the debt. Amortization expense
incurred in fiscal 1998, 1997, and 1996 was $800,000.
Income Taxes: Income taxes are provided on income for financial reporting
purposes. Deferred income taxes resulting from temporary differences between
financial reporting and tax reporting are appropriately classified in the
balance sheet.
Pension: The Company and its subsidiaries have several pension plans and
participate in various union pension plans which on a combined basis cover
substantially all employees. Charges to income with respect to plans sponsored
by the Company and its subsidiaries are based upon actuarially determined costs.
Pension liabilities are funded by periodic payments to the various pension plan
trusts.
Goodwill and Other Intangibles: Goodwill and other intangible assets include the
cost in excess of the fair value of net tangible assets acquired in purchase
transactions and acquired non-competition agreements and trademarks. Goodwill
and other intangible assets, stated net of accumulated amortization, are
amortized on a straight-line basis over 5 to 35 years. The Company periodically
assesses whether there has been a permanent impairment in the value of goodwill.
This is accomplished by determining whether the estimated, undiscounted future
cash flows from operating activities exceed the carrying value of goodwill as of
the assessment date. Should aggregate future cash flows be less than the
carrying value, a writedown would be required, measured by the difference
between the discounted future cash flows and the carrying value of goodwill.
Commodities Options Contracts: In connection with the purchase of certain
commodities for anticipated manufacturing requirements, the Company occasionally
enters into options contracts as deemed appropriate to reduce the effect of
price fluctuations. These options contracts are accounted for as hedges and,
accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost. These activities are not significant to the Company's
operations as a whole.
Casualty Insurance: The Company is insured for workers compensation and
automobile liability through a primarily self-insured program. The Company
accrues for the estimated losses from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from unreported
incidents is based on an analysis of historical claims data. The accrual for
casualty insurance at June 27, 1998 and June 28, 1997 was $3.3 million and $2.9
million, respectively.
Earnings Per Share Data Omitted: Earnings per share amounts are not presented,
as subsequent to November 3, 1994, the Company is a wholly-owned subsidiary of
Pro-Fac.
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 costs of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal year 1998, 1997, and 1996 amounted to $9,878,000, $8,376,000,
and $9,831,000, respectively.
Disclosures About Fair Value of Financial Statements: The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash, Accounts Receivable, Accounts Payable, and Other Accrued Expenses:
The carrying amount approximates fair value because of the short maturity
of these instruments.
Long-Term Investments: The carrying value of the investment in CoBank was
$24.4 million at June 27, 1998. As there is no market price for this
investment, a reasonable estimate of fair value is not possible.
<PAGE>
Long-Term Debt: The fair value of the long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current
rates offered for debt of the same remaining maturities.
NOTE 2. AGREEMENTS WITH PRO-FAC
Effective November 3, 1994, the Company became a wholly-owned subsidiary of
Pro-Fac.
In connection with the acquisition, Pro-Fac sold $160.0 million of 12.25 percent
Senior Subordinated Notes (the "Notes") due 2005 and entered into a credit
agreement (the "Credit Agreement") with the Bank, which provided for a term
loan, a term-loan facility, and a letter-of-credit facility. All obligations of
Pro-Fac under the Notes and the Credit Agreement have become obligations of the
Company.
The Company's contractual relationship with Pro-Fac is defined in the Pro-Fac
Marketing and Facilitation Agreement ("Agreement"). Under the 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 Agrilink, it
may be more or less than the price Agrilink would pay in the open market in the
absence of the Agreement. For the fiscal years ended 1998, 1997, and 1996 the
CMV for all crops supplied by Pro-Fac amounted to $58.5 million, $51.4 million,
and $44.7 million, respectively.
Under the Agreement the Company is required to have on its board of directors
some persons who are neither members of, nor affiliated with Pro-Fac
("Disinterested Directors"). The number of Disinterested Directors must at least
equal the number of directors who are members of Pro-Fac. The volume and type of
crops to be purchased by Agrilink under the Agreement are determined pursuant to
its annual profit plan, which requires the approval of a majority of the
Disinterested Directors. In addition, under the agreement, 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, as additional
patronage income, 90 percent of such earnings, but in no case more than 50
percent of all pretax earnings 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 90 percent of such losses, but in no case by more than 50 percent
of all pretax losses of the Company. Additional patronage income is paid to
Pro-Fac for services provided to Agrilink, including the provision of a long
term, stable crop supply, favorable payment terms for crops, and the sharing of
risks of 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. For the fiscal years ended 1998, 1997, and 1996 such additional
patronage income/(loss) amounted to $12.5 million, $10.3 million, and $(9.0)
million, respectively. Under the Indentures related to the Notes, Pro-Fac is
required to reinvest at least 70 percent of the additional Patronage income in
Agrilink.
The capital contribution of Pro-Fac to the Company at acquisition primarily
included the cancellation of indebtedness and capital lease obligations.
Subsequent to the acquisition date, Pro-Fac invested an additional $29.9 million
in the Company (including reinvested Additional Patronage Income).
NOTE 3. ACQUISITIONS, DISPOSALS, AND RESTRUCTURING
Fiscal 1998 -
Nutrition Medical: Effective May 1, 1998, the Company acquired the private label
adult nutrition formula business from Nutrition Medical, Inc. Nutrition Medical
will be paid royalty payments for two years.
Michigan Distribution Center: Effective March 31, 1998, the Company entered into
a multiyear logistics agreement under which GATX Logistics will provide freight
management, packaging and labeling services, and distribution support to and
from production facilities owned by the Company in and around Coloma, Michigan.
The agreement included the sale of the Company's labeling equipment and
distribution center. The Company received proceeds of $12.6 million for the
equipment and facility which were applied to outstanding bank loans. No
significant gain or loss occurred as a result of this transaction.
DelAgra Corp.: Effective March 30, 1998, the Company acquired the majority of
assets and the business of DelAgra Corp. of Bridgeville, Delaware. DelAgra Corp.
is a producer of private label frozen vegetables. The acquisition was accounted
for as a purchase. The purchase price was approximately $6.9 million. Goodwill
<PAGE>
of approximately $0.6 million and $0.9 million for a covenant not to compete
were recorded in conjunction with this transaction. These amounts are being
amortized over 30 and 5 years, respectively.
C&O Distributing Company.: Effective March 9, 1998, the Company acquired the
majority of assets and the business of C&O Distributing Company of Canton, Ohio.
C&O distributes snack products for Snyder of Berlin, one of the Company's
businesses included within its snack foods unit. The acquisition was accounted
for as a purchase. The purchase price was approximately $0.8 million.
Intangibles of approximately $0.8 million were recorded in conjunction with this
transaction and are being amortized over 30 years.
Formation of New Sauerkraut Company: Effective July 1, 1997, the Company and
Flanagan Brothers, Inc. of Bear Creek, Wisconsin contributed all their assets
involved in sauerkraut production to form a new sauerkraut company. This new
company, Great Lakes Kraut Company, operates as a New York limited liability
company with ownership and earnings divided equally between the two companies.
The joint venture is accounted for using the Equity Method of accounting.
Summarized financial information of Great Lakes Kraut Company is as follows:
<TABLE>
Condensed Statement of Earnings
(Dollars in Thousands)
<CAPTION>
1998
<S> <C>
Net sales $27,620
Gross profit $ 7,439
Operating income $ 4,411
Net income $ 3,786
</TABLE>
<TABLE>
Condensed Balance Sheet
(Dollars in Thousands)
<CAPTION>
<S> <C>
Current assets $10,648
Noncurrent assets $18,884
Current liabilities $ 6,463
Noncurrent liabilities $ 6,261
</TABLE>
Fiscal 1997 -
Georgia Frozen Distribution Center: On June 27, 1997, Americold acquired the
Company's frozen foods distribution center in Montezuma, Georgia. In addition,
the two companies entered into a long-term logistics agreement under which
Americold manages its facility and all frozen food transportation operations of
Agrilink in Georgia and New York. The Company received proceeds of approximately
$9.1 million which were applied to outstanding Bank loans. No significant gain
or loss occurred as a result of this transaction.
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced they signed a major
outsourcing services and software agreement effective June 30, 1997. The
ten-year agreement, valued at approximately $50.0 million, is for SCT's, OnSite
outsourcing services and ADAGE ERP software and implementation services.
Sale of New York Canned Vegetable Businesses: On May 6, 1997, Seneca Foods
Corporation ("Seneca") acquired the Agrilink Leicester, New York production
facility and the LeRoy, New York distribution center, as well as the Blue Boy
brand.
Seneca and the Company have also forged a long-term strategic alliance to
combine their agricultural departments into one organization to be managed by
Agrilink. The objective is to maximize sourcing efficiencies of New York State
vegetable requirements for both companies. This agreement initially has a
minimum ten-year term.
The Company received proceeds of approximately $29.4 million which were applied
to outstanding Bank loans. No significant gain or loss occurred as a result of
this transaction.
<PAGE>
Brooks Foods: On April 30, 1997, Hoopeston Foods acquired certain assets from
the Brooks Foods operating facility. The purchase price of approximately $2.1
million was paid with $400,000 in cash and a $1.7 million ten-year note. The
proceeds were applied to outstanding Bank loans. No significant gain or loss
occurred as a result of this transaction. In addition, the two companies entered
into a copack and warehouse agreement under which Hoopeston will produce,
package, and warehouse certain products.
Nalley Canada Ltd.: On June 26, 1995, Agrilink sold Nalley Canada Ltd., located
in Vancouver, British Columbia, to a management group. The operations were sold
for approximately $8.0 million. Approximately, $4.0 million was received in
cash. The remainder of the proceeds were received through a series of long-term
notes with maturities between 1998 and 2005. The notes beared interest at a rate
of 12 1/4 percent.
In April 1997, the Company acquired certain businesses from Nalley Canada Ltd.
The acquired operations include a $12.0 million consumer products business,
which markets throughout the western Provinces of Canada. The purchase price of
approximately $5.0 million was paid through the forgiveness of various long-term
receivables (including interest earned) issued to the Company in connection with
its sale of the stock of Nalley Canada Ltd. in 1995.
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging, Inc. ("Finger Lakes Packaging"), a subsidiary of the
Company to Silgan Containers Corporation, an indirect, wholly-owned subsidiary
of Silgan Holdings, Inc., headquartered in Stamford, Connecticut. A gain of
approximately $3.6 million was recognized on this transaction. The Company
received proceeds of approximately $30.0 million. Proceeds were applied to
outstanding Bank loans. The transaction also included a long-term supply
agreement between Silgan and Agrilink.
Fiscal 1996 -
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 the year ended December 31, 1994, Packer had net sales of $13.0
million, operating income of $300,000, and income before extraordinary items of
$100,000. Packer Foods has been merged into the Company's CBF operations.
Matthews Candy Co.: In the fourth quarter of fiscal 1996, the Company acquired
Matthews Candy Co., a privately owned Washington-based snack food distributor.
The total cost of the acquisition was approximately $0.4 million and was paid in
cash. Matthews Candy Co. has been merged into the Tim's Cascade Chips operation
of the Company's Snack Foods Group.
Fiscal 1996 Restructuring Charge: During the fourth quarter of fiscal 1996, the
Company began implementation of a corporate-wide restructuring program. The
overall objectives of the plan were to reduce expenses, improve productivity,
and streamline operations. Efforts focused on the consolidation of operations
and the elimination of approximately 900 positions. The total fiscal 1996
restructuring charge amounted to $5.9 million. This amount included a
fourth-quarter charge of approximately $4.0 million which was primarily
comprised of employee termination benefits, and approximately $1.9 million for
strategic consulting incurred throughout the year. Reductions in personnel
included both operational and administrative positions.
<PAGE>
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 27, 1998 and June 28, 1997:
<TABLE>
(Dollars in Thousands)
<CAPTION>
June 27, 1998 June 28, 1997
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
<S> <C> <C> <C> <C> <C> <C>
Land $ 5,772 $ 0 $ 5,772 $ 5,755 $ 0 $ 5,755
Land improvements 3,949 0 3,949 2,117 0 2,117
Buildings 71,342 395 71,737 80,739 645 81,384
Machinery and equipment 163,177 990 164,167 167,155 2,397 169,552
Construction in progress 14,421 0 14,421 13,053 0 13,053
-------- ------ -------- -------- ------ --------
258,661 1,385 260,046 268,819 3,042 271,861
Less accumulated depreciation (64,678) (753) (65,431) (52,194) (1,744) (53,938)
-------- ------ -------- -------- ------ --------
Net $193,983 $ 632 $194,615 $216,625 $1,298 $217,923
======== ====== ======== ======== ====== ========
Obligations under capital leases1 $ 759 $1,375
Less current portion (256) (558)
------ ------
Long-term portion $ 503 $ 817
====== ======
<FN>
1 Represents the present value of net minimum lease payments calculated at
the Company's incremental borrowing rate at the inception of the leases,
which ranged from 6.3 to 9.8 percent.
</FN>
</TABLE>
Interest capitalized in conjunction with construction amounted to approximately
$248,000 and $342,000 in fiscal 1998 and 1997, 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 27, 1998.
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
<S> <C> <C> <C>
1999 $ 356 $ 5,418 $ 5,774
2000 224 3,582 3,806
2001 145 1,977 2,122
2002 78 1,012 1,090
2003 56 204 260
Later years 144 40 184
------ ------- -------
Net minimum lease payments 1,003 $12,233 $13,236
======= =======
Less amount representing interest (244)
------
Present value of minimum lease payments $ 759
======
</TABLE>
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
$12,250,000, $11,204,000, and $10,927,000 for fiscal years 1998, 1997, and 1996,
respectively (including the current portion).
NOTE 5. DEBT
Bank Facility: The Bank Facility includes Term Loan, Seasonal, and Letter of
Credit facilities. The outstanding borrowings under the Term Loan were $72.4
million at June 27, 1998. The Seasonal Facility provides seasonal financing of
up to $82.0 million. The Letter of Credit Facility provides $18.0 million.
Terms: The Bank has extended to a portion of the Term Loan Facility for a
limited period of time certain fixed rates that were in effect with respect
to indebtedness repaid to the Bank on November 3, 1994. The
weighted-average rate of interest applicable to the Term Loan was 7.4
percent per annum for fiscal 1998.
<PAGE>
Borrowings under the Seasonal Facility are payable at the expiration of
that portion of the facility, which is December 1998; except that for 15
consecutive calendar days during each calendar year, the borrowings under
the Seasonal Facility must be zero.
Guarantees and Security: All obligations under the Bank Facility are
guaranteed by Pro-Fac and certain subsidiaries of Agrilink (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.
Certain Covenants: The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to maintain specified levels with regard to working
capital, tangible net worth, fixed charges, the incurrence of additional
debt, and limitations on dividends, investments, acquisitions, and asset
sales. The Company is in compliance with all covenants, restrictions and
requirements under the terms of the borrowing agreement.
Commitment Fees: The Bank assesses commitment fees of 0.35 percent on the
seasonal line and 0.25 percent on the unused portion of the Term Loan.
Seasonal and Letter of Credit Facilities: Seasonal borrowings for the three
years ended June 27, 1998 were as follows:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
<S> <C> <C> <C>
Balance at end of period $ 0 $ 0 $ 0
Rate at fiscal year end 0.0% 0.0% 0.0%
Maximum outstanding during the period $66,000 $65,000 $94,000
Average amount outstanding during the period $51,300 $24,900 $53,700
Weighted average interest rate during the period 7.0% 7.3% 7.4%
</TABLE>
The Letter of Credit Facility provides for the issuance of letters of
credit through December 1998. Management anticipates timely renewals of
both the Seasonal and the Letter of Credit facilities.
Fair Value: Based on an estimated borrowing rate at fiscal year-end 1998 of
7.2 percent for long-term debt with similar terms and maturities, the fair
value of the Company's long-term debt outstanding under the Bank Facility
was approximately $72.5 million at June 27, 1998.
Based on an estimated borrowing rate at fiscal year end 1997 of 8.7 percent
for long-term debt with similar terms and maturities, the fair value of the
Company's long-term debt outstanding under the Bank Facility was
approximately $64.8 million at June 28, 1997.
The Senior Subordinated Notes ("Notes"): The Notes are limited in aggregate
principal amount to $160.0 million and will mature on February 1, 2005. Interest
on the Notes accrues at the rate of 12.25 percent per annum and is payable
semi-annually in arrears on February 1 and August 1.
Guarantees and Security: The Notes represent general unsecured obligations
of the Company, subordinated in right of payment to certain other debt
obligations of the Company (including the Company's obligations under the
Credit Agreement).
Certain Covenants: The Notes also limit the amount and timing of dividends
and other payments ("Restricted Payments") from the Company to Pro-Fac or
to holders of other Agrilink 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 Agrilink's Fixed Charge Coverage Ratio (as defined in
the Indenture, a ratio of cash flow to interest) for the preceding four
<PAGE>
quarters is not at least 1.75 to 1.00. The amount of all dividends and
other Restricted Payments subsequent to the date of the Indenture is
subject to an overall limit that is based on the Company's net income and
the amount of additional equity invested in the Company.
Fair Value: Based on an estimated borrowing rate at 1998 fiscal year-end of
11.2 percent for borrowings with similar terms and maturities, the fair
value of the Notes was $171.4 million at June 27, 1998.
Based on an estimated borrowing rate at 1997 fiscal year end of 11.1
percent for borrowings with similar terms and maturities, the fair value of
the Notes was $174.7 million at June 28, 1997.
Other Debt: Other debt of $5.6 million carries rates up to 10.0 percent at June
27, 1998.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 1999, $8.1 million; 2000, $10.6 million; 2001, $18.6
million; 2002, $13.1 million; and 2003, $13.1 million. Provisions of the Term
Loan require annual payments in the years through 2000 on October 1 of each year
in an amount equal to the "annual cash sweep" (equivalent to approximately 80
percent of net income adjusted for certain cash and non-cash items) for the
preceding fiscal year. As of June 27, 1998, the Company had satisfied its
obligation under this provision. Provisions of the Term Loan also require that
cash proceeds from the sale of businesses be applied to the Term Loan.
NOTE 6. TAXES ON INCOME
Taxes on income before the cumulative effect of a change in accounting include
the following:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal -
Current $4,534 $ 567 $ 0
Deferred 730 2,639 (5,990)
------ ------ -------
5,264 3,206 (5,990)
------ ------ -------
State and foreign -
Current 874 314 0
Deferred (449) 148 (863)
------ ------ -------
425 462 (863)
------ ------ -------
$5,689 $3,668 $(6,853)
====== ====== =======
</TABLE>
A reconciliation of the Company's effective tax rate to the amount computed by
applying the federal income tax rate to income before taxes and cumulative
effect of a change in accounting is as follows:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Income tax provision/(benefit) at 35% in 1998, 34% in 1997 and 1996 $4,376 $2,530 $(6,380)
State income taxes, net of federal income tax effect 571 484 (859)
Goodwill amortization 961 1,041 784
Dividend received reduction (305) (472) (521)
Other, net 86 85 123
------ ------ -------
$5,689 $3,668 $(6,853)
====== ====== =======
Effective Tax Rate 45.5% 49.3% (36.5)%
====== ====== =======
</TABLE>
<PAGE>
The deferred tax (liabilities)/assets consist of the following at June 27, 1998
and June 28, 1997:
Fiscal 1998 Fiscal 1997
----------- -----------
Liabilities
Depreciation $(44,611) $(49,357)
Non-compete agreements (333) (462)
Other receivables (4) (538)
Prepaid manufacturing (3,270) (3,215)
Accounts receivable (197) 0
Other 0 (215)
-------- --------
(48,415) (53,787)
-------- --------
Assets
Inventory 2,089 2,322
Accounts receivable 0 377
Capital and operating loss carryforwards 6,573 6,147
Accrued employee benefits 3,594 3,431
Insurance accruals 1,987 2,058
Pension/OPEB accruals 6,928 7,128
Restructuring reserves 321 1,332
Promotional reserves 1,648 1,592
Other 2,313 2,908
-------- --------
25,453 27,295
-------- --------
Net deferred liabilities (22,962) (26,492)
Valuation allowance (5,550) (6,212)
-------- --------
$(28,512) $(32,704)
======== ========
During fiscal year 1998, the Company utilized $9.2 million of net operating loss
carryforwards ($3.2 million of tax). Additionally, approximately $11.0 million
of net operating loss carryforwards ($3.9 million of tax) were transferred from
Pro-Fac. The benefits for these net operating losses had been recorded in
previous years.
During fiscal year 1997, however, the Company disposed of its Finger Lakes
Packaging subsidiary, its New York canned vegetable operation, and a
distribution center in Georgia. During fiscal year 1998, a distribution center
in Michigan was also disposed of. As a result of these disposals, the Company
utilized $26.8 million of its capital loss carryforward. As the related
valuation allowance was established in conjunction with the acquisition of the
Company by Pro-Fac, the recognition of this capital loss carryforward reduced
goodwill. During fiscal year 1996, the Company sold the stock of its
wholly-owned subsidiary Curtice Burns Meat Snacks, Inc. Substantially all of the
assets of this subsidiary were previously sold. This sale and other sales
resulted in a capital loss of $40.4 million ($15.7 million of tax). As of the
date of sale, a full valuation allowance had been recorded against the capital
loss carryforward as it was more likely than not that a tax benefit would not be
realized. As of June 27, 1998, the Company has $13.6 million of a capital loss
carryforward available. The capital loss carryforward expires in 2001, and any
future recognition of this capital loss carryforward will also reduce goodwill.
In January 1995, the Boards of Directors of Agrilink and Pro-Fac approved
appropriate amendments to the Bylaws of Agrilink to allow the Company to qualify
as a cooperative under Subchapter T of the Internal Revenue Code. In August
1995, Agrilink and Pro-Fac received a favorable ruling from the Internal Revenue
Service approving the change in tax treatment effective for fiscal 1996.
Subsequent to this date, a consolidated return has been filed incorporating
Agrilink and Pro-Fac. Tax expense is allocated to Agrilink based on its
operations.
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.
<PAGE>
Pension cost for fiscal years ended 1998, 1997, and 1996 includes the following
components:
(Dollars in Thousands)
<TABLE>
Pension Benefits
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 86,775 $ 87,674 $ 80,752
Service cost 2,796 2,915 3,162
Interest cost 6,776 6,637 6,703
Plan participants' contributions 168 279 213
Amendments 74 0 (265)
Actuarial loss/(gain) 14,193 (2,171) 2,786
Benefits paid (8,295) (8,559) (5,677)
-------- -------- --------
Benefit obligation at end of period 102,487 86,775 87,674
-------- -------- --------
Change in plan assets:
Fair value of assets at beginning of period 88,979 89,716 74,897
Actual return on Plan assets 25,129 4,884 19,430
Employer contribution 257 2,659 853
Plan participants' contributions 168 279 213
Benefits paid (8,295) (8,559) (5,677)
-------- -------- --------
Fair value of assets at end of period 106,238 88,979 89,716
-------- -------- --------
Plan funded status: 3,751 2,204 2,042
Unrecognized prior service cost (147) (243) (265)
Unrecognized net transition asset or obligation 0 0 0
Unrecognized actuarial loss/(gain) (17,057) (15,421) (18,115)
Union plans (106) (122) (293)
-------- -------- --------
(Accrued benefit liability) prior to additional minimum liability (13,559) (13,582) (16,631)
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost (accrued benefit liability) (14,167) (13,997) (16,835)
Accumulated other comprehensive income 608 415 204
-------- -------- --------
Net amount recognized $(13,559) $(13,582) $(16,631)
======== ======== ========
Weighted-average assumptions:
Discount rate 7.0% 8.0% 7.75%
Expected return on plan assets 10.0% 10.0% 10.0%
Rate of compensation increase 4.5% 4.5% 4.5%
Pension Benefits
Fiscal 1998 Fiscal 1997 Fiscal 1996
Components of net periodic benefit cost:
Service cost $ 2,796 $ 2,915 $ 3,162
Interest cost 6,776 6,637 6,703
Expected return on plan assets (8,708) (8,947) (7,307)
Amortization of prior service cost (22) (22) 0
Amortization of (gain)/loss (593) (802) (64)
Union costs 88 70 205
-------- -------- --------
Net periodic cost/(benefit) $ 337 $ (149) $ 2,699
======== ======== ========
</TABLE>
<PAGE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the two non-qualified retirement plans with accumulated
benefit obligations in excess of plan assets were:
<TABLE>
Supplemental Executive Retirement Plan Excess Benefit Retirement Plan
Fiscal 1998 Fiscal 1997 Fiscal 1996 Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligation $1,939 $1,843 $1,913 $850 $652 $453
Accumulated benefit obligation 1,939 1,843 1,913 651 575 315
Plan assets 0 0 0 0 0 0
</TABLE>
Postretirement Benefits Other Than Pensions: Generally, other than pensions, the
Company does not pay retirees' benefit costs. Isolated exceptions exist, which
have evolved from union negotiations, early retirement incentives and existing
retiree commitments from acquired companies.
The Company has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The plan's funded status was as follows:
(Dollars in Thousands)
<TABLE>
Other Benefits
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 2,604 $ 2,695 $ 2,743
Service cost 6 8 23
Interest cost 198 199 222
Actuarial loss/(gain) 322 49 (168)
Benefits paid (372) (347) (125)
------- ------- -------
Benefit obligation at end of period 2,758 2,604 2,695
------- ------- -------
Change in plan assets:
Fair value of assets at beginning of period 0 0 0
Employer contribution 372 347 125
Benefits paid (372) (347) (125)
------- ------- -------
Fair value of assets at end of period 0 0 0
------- ------- -------
Plan funded status: (2,758) (2,604) (2,695)
Unrecognized actuarial gain (46) (378) (443)
------- -------- --------
Accrued benefit liability prior to additional minimum liability (2,804) (2,982) (3,138)
Amounts recognized in the statement of financial position consist of:
Accrued benefit liability (2,804) (2,982) (3,138)
------- ------- -------
Net amount recognized $(2,804) $(2,982) $(3,138)
======= ======= =======
Weighted-average assumptions:
Discount rate 7.0% 8.0% 7.75%
Expected return on plan assets N/A N/A N/A
Rate of compensation increase N/A N/A N/A
Other Benefits
Fiscal 1998 Fiscal 1997 Fiscal 1996
Components of net periodic benefit cost:
Service cost $ 6 $ 8 $ 23
Interest cost 198 199 222
Amortization of (gain)/loss (10) (15) 0
------- ------- -------
Net periodic benefit cost $ 194 $ 192 $ 245
======= ======= =======
</TABLE>
<PAGE>
For measurement purposes, a 9.5 percent rate of increase in the per capita cost
covered health care benefits was assumed for fiscal 1998. The rate was assumed
to decrease gradually to 5.0 percent for 2007 and remain at that level
thereafter.
The Company sponsors benefit plans that provide postretirement medical and life
insurance benefits for certain current and former employees. For the most part,
current employees are not eligible for the postretirement medical coverage. As
such, the assumed health care trend rates have an insignificant effect on the
amounts reported for the postretirement benefits plan. One-percentage point
change in the assumed health care trend rates would have the following effect:
<TABLE>
1-Percentage 1-Percentage
Point Increase Point Decrease
<S> <C> <C>
Effect on total of service and interest cost components $ 7,361 $ (7,435)
Effect on postretirement benefit obligation $113,206 $(108,742)
</TABLE>
Profit Sharing/401(k): Under the prior Deferred Profit Sharing Plan and the
Non-Qualified Profit Sharing Plan, the Company allocated to all salaried exempt
employees a percentage of its earnings in excess of 5.0 percent of the combined
long-term debt and equity (as defined) of Pro-Fac and the Company.
Under the Retirement Savings and Incentive Plan ("RSIP"), the Company makes an
incentive contribution to the Plan if certain pre-established earnings goals are
achieved. The maximum incentive contribution is 3 percent of base salary earned
during the fiscal year. In addition, the Company contributes 401(k) matching
contributions to the Plan for the benefit of employees who elect to defer a
portion of their salary into the plan. During fiscal 1998, 1997 and 1996 the
Company allocated $475,000, $500,000 and $400,000, respectively, in the form of
matching contributions and $400,000, $400,000 and $211,000, respectively, in the
form of incentive contributions for the benefit of its employees.
Long-Term Incentive Plan: On June 24, 1996, the Company introduced a long-term
incentive program, the Agrilink Foods Equity Value Plan, which provides
performance units to a select group of management. The future value of the
performance units is determined by the Company's performance on earnings and
debt repayment. The performance units vest 25 percent each year after the first
anniversary of the grant, becoming 100 percent vested on the fourth anniversary
of grant. One-third of the appreciated value of units in excess of the initial
grant price is paid as cash compensation over the subsequent three years. The
final value of the performance units is determined on the fourth anniversary of
grant. The total units granted were 278,357 at $21.88 per unit in June 1998,
176,278 at $25.04 per unit, and 7,996 at $13.38 per unit in June 1997, and
248,511 at $13.38 per unit in June 1996. Units forfeited during the year
included 27,251 at $13.38 and 19,978 at $25.04. During fiscal 1997,
approximately $1.5 million was allocated to this plan.
The value of the grants from the Agrilink Foods Equity Value Plan will be based
on the Company's future earnings and debt repayment.
Employee Stock Purchase Plan: During fiscal 1996 the Company introduced an
Employee Stock Purchase Plan which affords employees the opportunity to purchase
semi-annually, in cash or via payroll deduction, shares of Class B Cumulative
Pro-Fac Preferred Stock to a maximum value of 5 percent of salary. The purchase
price of such shares is par value, $10 per share. During fiscal 1998, 1997, and
1996, 27,043, 31,435 and 33,364 shares, respectively, were held by employees,
and 580 shares were subscribed to as of June 27, 1998.
NOTE 8. SUBSEQUENT EVENTS AND OTHER MATTERS
Dean Foods Vegetable Company: On July 27, 1998, the Company announced that it
had reached a definitive agreement with Dean Foods Company ("Dean") of Franklin
Park, Illinois, to acquire Dean's vegetable operations which include the
nationally known Birds Eye brand and Dean's Freshlike and VegAll brands. The
Dean Foods Vegetable Company ("DFVC") reported net sales of $620.2 million (on a
basis consistent with that reported by Agrilink) and operating earnings of $38.7
million. DFVC employs approximately 2,000 full-time employees in 13 plants,
located in California, Minnesota, New York, Texas, and Wisconsin. The
acquisition is expected to close in September 1998 and will be accounted for as
a purchase.
Seyfert Foods, Inc.: On May 6, 1998, the Company and Heath Investment Capital,
Inc., announced that they were unable to reach a definitive agreement regarding
the Company's effort to acquire the assets of Seyfert Foods, Inc. of Ft. Wayne,
Indiana.
<PAGE>
J.A. Hopay Distributing Co, Inc.: Effective July 21, 1998, the Company acquired
J.A. Hopay Distributing Co., Inc. of Pittsburgh, Pennsylvania. Hopay distributes
snack products for Snyder of Berlin. The acquisition was accounted for as a
purchase. The purchase price was approximately $3.1 million.
Legal Matters: The Company is party to various litigation and claims arising in
the ordinary course of business. Management and legal counsel for the Company
are of the opinion that none of these legal actions will have a material effect
on the financial position of the Company.
Commitments: The Company's Curtice Burns Foods business unit has guaranteed an
approximate $1.4 million loan for the City of Montezuma to renovate a sewage
treatment plant operated in Montezuma on behalf of the City.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Management and Directors: 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 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.
<TABLE>
Year of
Name Birth Positions
<S> <C> <C>
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
William D. Rice 1934 Senior Vice President Strategic Development and Secretary
Earl L. Powers 1944 Vice President and Chief Financial Officer
Stephen R. Wright 1947 Executive Vice President Agriculture
Robert V. Call, Jr.(2) 1926 Director and Chairman of the Board
Bruce R. Fox(2) 1947 Director
Cornelius D. Harrington, Jr.(3) 1927 Director
Steven D. Koinzan(2) 1948 Director
Walter F. Payne(3) 1936 Director
Frank M. Stotz(3) 1930 Director
<FN>
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
</FN>
</TABLE>
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1997 and a Director of the Company since May 1996. He was Chief
Operating Officer from May 1996 to January 1997 and Executive Vice President
since January 1996. He had been President and Chief Executive Officer of CBF
from March 1993 to May 1996. He was Senior Vice President and Business Unit
Manager Food service of CBF 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 Strategic Development since
February 1997 and Secretary of the Company since 1989. He was Chief Financial
Officer from 1969 to February 1997. He was Treasurer of the Company from 1975 to
1996. He was Vice President-Finance of the Company from 1969 to 1991. He was
Assistant Treasurer of Pro-Fac from 1970 to February 1997 (Management Chief
Financial Officer for Pro-Fac).
Earl L. Powers has been Vice President and Chief Financial Officer since
February 1997. He was Vice President and Corporate Controller from March 1993 to
February 1997, and Vice President Finance and Management Information Systems,
CBF 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.
<PAGE>
Stephen R. Wright has been Executive Vice President since November 6, 1996. He
was Senior Vice President Procurement of the Company from November 1994 and Vice
President -- Procurement for the Company from 1990 to November, 1994, having
served as Director of Commodities and Administration Services for the Company
from 1988 to 1990. He became General Manager of Pro-Fac in March 1995.
Robert V. Call, Jr. has been a Director of the Company since the completion of
the Acquisition. Mr. Call had been a Director of the Predecessor entity since
1986 until completion of the Acquisition (at which time he resigned and was
reappointed). He has been a Director of Pro-Fac since 1962. He was President of
Pro-Fac from 1986 to March 27, 1995, having served as Treasurer from 1973 to
1984. He has been a member of Pro-Fac since 1961. He is a vegetable, fruit and
grain farmer (My-T Acres, Inc., Batavia, NY).
Bruce R. Fox has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1974. He was Treasurer of
Pro-Fac from 1984 until March 27, 1995, when he was elected President. He has
been a member of Pro-Fac since 1974. Mr. Fox is a fruit and vegetable grower
(N.J. Fox & Sons, Inc., Shelby, MI).
Cornelius D. Harrington, prior to his retirement, was President of the Bank of
New England-West in Springfield, MA or a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
MA. He has been a Director of the Farm Credit Bank of Springfield since January
1994.
Steven D. Koinzan has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1983. He was Secretary of
Pro-Fac from March 1993 until March 27, 1995, when he was elected Treasurer. He
has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn, field corn
and soybean farmer (Koinzan Farms; Norden, Nebraska).
Walter F. Payne has been a Director of the Company since January 1996 and
President and Chief Executive Officer of Blue Diamond Growers since 1992. He
held various positions at Blue Diamond Growers between 1973 and 1992. He is
currently on the Board of Directors of the Almond Board of California and the
International Nut Council, a board alternate for the National Council of Farmer
Cooperatives, and a member of the Board of Trustees for the Graduate Institute
of Cooperative Leadership.
Frank M. Stotz has been a Director of the Company since the completion of the
Acquisition. Mr. Stotz retired in 1994 from his position as Senior Vice
President - Finance of Bausch & Lomb Incorporated. Before joining Bausch & Lomb
in that capacity in 1991, Mr. Stotz was a partner with Price Waterhouse. He
joined Price Waterhouse in Chicago in 1954, was admitted to partnership in 1966
and retired from the firm in 1991 to join Bausch & Lomb. From 1980 to 1991, he
was partner in charge of the Rochester office of Price Waterhouse. Mr. Stotz
serves on the Boards of Trustees of St. John Fisher College, The Genesee
Hospital, The Rochester Center for Governmental Research and The Automobile Club
of Rochester. He is also a member of the Bishop's Council of the Catholic
Diocese of Rochester.
Term of Office: All directors of the Company will hold office from the date of
election until the next annual meeting of the shareholder or until their
successors are duly elected and qualified. Each executive officer of the Company
will hold office from the date of election until his successor is elected or
appointed.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by the Company to become a Director or executive
officer.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and three other most highly
compensated executive officers of the Company, earned during fiscal years ended
June 27, 1998, June 28, 1997, and June 29, 1996 (collectively, the "Named
Executive Officers").
Executive Compensation
Summary Compensation Table
<TABLE>
RSIP/
Matching
Contributions
Annual Deferred
Compensation1 Profit
Name and Principal Position Year Salary Bonus2 Sharing
<S> <C> <C> <C> <C>
Dennis M. Mullen - 1998 $432,256 $216,000 $ 7,783
President and Chief Executive Officer and Director 1997 $349,181 $210,000 $ 8,013
1996 $216,107 $ 0 $ 1,465
William D. Rice - 1998 $273,342 $100,000 $ 5,019
Senior Vice President Strategic Development and Secretary 1997 $259,422 $107,000 $ 5,990
1996 $249,642 $ 0 $ 1,656
Earl L. Powers 1998 $239,327 $140,000 $ 7,106
Vice President Finance and Chief Financial Officer 1997 $187,179 $107,000 $ 4,492
1996 $157,990 $ 0 $ 1,642
Stephen R. Wright 1998 $200,154 $100,000 $ 5,446
Executive Vice President Agriculture 1997 $180,043 $ 80,000 $ 4,321
1996 $156,789 $ 0 $ 1,627
<FN>
1 No Named Executive Officer has received personal benefits during the period
in excess of the lesser of $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of
the officers and employees eligible under the Incentive Plan and by the
earnings of the Company and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
</FN>
</TABLE>
<PAGE>
Long-Term Incentive Plan - Awards in Last Fiscal Year
<TABLE>
EstimatedFuture Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
<S> <C> <C> <C> <C>
Dennis M. Mullen 68,723 6/24/2002 $0 $0
William D. Rice 34,078 6/24/2002 $0 $0
Earl L. Powers 29,961 6/24/2002 $0 $0
Stephen R. Wright 21,022 6/24/2002 $0 $0
<FN>
(1) On June 24, 1998, the Company issued performance units under the Agrilink
Foods Equity Value Plan ("EVP") to a select group of management. The future
value of the performance units is determined by the Company's performance
on earnings and debt repayment. The performance units vest 25 percent each
year after the first anniversary of the grant, becoming 100 percent vested
on the fourth anniversary of grant. One-third of the appreciated value of
units in excess of the initial grant price is paid as cash compensation
over the subsequent three years. The final value of the 1998 performance
units is determined on the fourth anniversary of grant.
(2) The value of the June 24, 1998 grants from the Agrilink Foods Equity Value
Plan will be based on the Company's future earnings and debt repayment. The
beginning value of these performance units was set at a level requiring
improved earnings and debt-repayment performance. The target payouts shown
above are based on the value of the performance units at fiscal 1998
earnings and debt levels and would yield no payout from the plan at those
levels. If future performance equals fiscal 1998 performance, no payouts
will be made from the plan relative to the options granted on June 24,
1998.
</FN>
</TABLE>
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 27, 1998, of the Executive Officers listed in the
Summary Compensation Table are as follows: Dennis M. Mullen-8, William D.
Rice-26, Earl L. Powers-6, and Stephen R. Wright-24.
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.
<PAGE>
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 $21,943 $ 28,741 $ 35,424 $ 42,278 $ 49,280
150,000 27,193 35,741 44,174 52,778 61,530
175,000 32,443 42,741 52,924 63,278 73,780
200,000 37,693 49,741 61,674 73,778 86,030
225,000 42,943 56,741 70,424 84,278 98,280
250,000 48,193 63,741 79,174 94,778 110,530
275,000 53,443 70,741 87,924 105,278 122,780
300,000 58,693 77,741 96,674 115,778 135,030
325,000 63,943 84,741 105,424 126,278 147,280
350,000 69,193 91,741 114,174 136,778 159,530
375,000 74,443 98,741 122,924 147,278 171,780
400,000 79,693 105,741 131,674 157,778 184,030
Termination Protection Provisions: The Company has adopted a Salary Continuation
Agreement for Mr. Mullen, whereby, two years of salary and benefit continuation
will be provided if Mr. Mullen's employment is involuntarily terminated on or
before December 31, 1998, for reasons other than for "cause" as such term is
defined in the Agreement.
Directors' Compensation: In fiscal 1998, non-employee directors who were
designated by Pro-Fac received an annual stipend of $6,000 per year, plus $200
per day for attending Board or Committee meetings. The Pro-Fac President
receives an annual stipend of $12,000 per year, plus $400 per day for attending
Board or Committee meetings. In fiscal 1998, 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Pro-Fac
Cooperative, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management believes all transactions were on terms no less favorable to the
Company than could have been reached with unaffiliated third parties.
Borrowings by Pro-Fac: The Indenture (as amended) governing the Notes permits
the Company to make demand loans to Pro-Fac for working capital purposes in
amounts not to exceed $20.0 million at any time, each such loan to bear interest
at a rate equal to the rate in effect on the date of such loan under the
Seasonal Facility. The loan balance is required to be reduced to zero for a
period of not less than 45 consecutive days in each fiscal year. Except for the
foregoing provision and except for Pro-Fac's guarantee of the Notes and the
Credit Agreement, as long as Pro-Fac has the right to borrow under the Pro-Fac
Marketing and Facilitation Agreement, the Notes do not permit Pro-Fac to incur
any other indebtedness.
Equity Ownership in CoBank: As part of its historical lending arrangements with
the Bank, which is a cooperative, Pro-Fac made investments in the Bank. Pro-Fac
made these investments through (i) a capital purchase obligation equal to a
percentage, set annually based on the Bank's capital needs, of its interest paid
to the Bank and (ii) a patronage rebate on interest paid by Pro-Fac to the Bank
based on the Bank's earnings, which is paid in cash and capital certificates.
The investments in the Bank represent a percentage of the previous five-years'
average borrowings from the Bank. As of June 27, 1998, the amount of the
Company's investment in the Bank was approximately $24.4 million.
<PAGE>
Purchase of Crops From Pro-Fac: Each of the members of Pro-Fac sells crops to
Pro-Fac pursuant to a general marketing agreement between such member and
Pro-Fac, which crops in turn are sold to the Company pursuant to the Pro-Fac
Marketing and Facilitation Agreement. During fiscal 1998, 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 Agrilink for the following aggregate
amounts:
(Dollars in Thousands)
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 1998
Dale E. Burmeister.......... Director $ 311
Robert V. Call, Jr.......... Director $3,605
Glen Lee Chase.............. Director $ 181
Tom R. Croner............... Director and Secretary $ 159
Kenneth M. Dahlstedt(1)..... Director $ 236
Robert DeBadts.............. Director $ 396
Albert P. Fazio(2).......... Director and Vice President $ 93
Bruce R. Fox................ Director and President $1,010
Steven D. Koinzan........... Director and Treasurer $ 505
Kenneth A. Mattingly........ Director $1,153
Allan W. Overhiser.......... Director $ 71
Paul E. Roe................. Director $ 928
Darell Sarff................ Director $ 196
(1) Mr. Dahlstedt was elected to the Board of Directors of Pro-Fac effective
February 18, 1998.
(2) Mr. Fazio retired from the Board of Directors of Pro-Fac on February 18,
1998.
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 Company. This
insurance has a term expiring on August 15, 1999, at an annual cost of
approximately $80,000. As of this date, no sums have been paid to any officers
or directors of the Company under this indemnification insurance contract.
<PAGE>
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 Appear in ITEM 8 of This Report
<TABLE>
ITEM Page
<S> <C>
Agrilink Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................. 21
Report of Independent Accountants..................................................................................... 22
Consolidated Financial Statements:
Consolidated Statement of Operations and Accumulated Deficit for the years ended
June 27, 1998, June 28, 1997, and June 29, 1996................................................................... 23
Consolidated Balance Sheet at June 27, 1998 and June 28, 1997....................................................... 24
Consolidated Statement of Cash Flows for the years ended June 27, 1998, June 28, 1997, and June 29, 1996............ 25
Notes to Consolidated Financial Statements.......................................................................... 27
</TABLE>
(2) The following additional financial data are set forth herein:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Agrilink Foods, Inc.
Valuation and Qualifying Accounts
For the Three Fiscal Years Ended June 27, 1998
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- -----------
Allowance for doubtful accounts
Balance at beginning of period $ 970,000 $ 836,000 $ 673,000
Additions charged to expense 17,000 446,000 537,000
Deductions (213,000) (312,000) (374,000)
----------- ----------- -----------
Balance at end of period $ 774,000 $ 970,000 $ 836,000
=========== =========== ===========
Inventory reserve*
Balance at beginning of period $ 362,000 $ 485,000 $ 144,000
Net change 29,000 (123,000) 341,000
----------- ----------- -----------
Balance at end of period $ 391,000 $ 362,000 $ 485,000
=========== =========== ===========
Tax valuation allowance**
Balance at beginning of period $ 6,212,000 $17,983,000 $ 7,366,000
Net change (662,000) (11,771,000) 10,617,000
----------- ----------- -----------
Balance at end of period $ 5,550,000 $ 6,212,000 $17,983,000
=========== =========== ===========
* Difference between FIFO cost and market applicable to inventories.
** See further discussion regarding tax matters at NOTE 6 to the "Notes to
Consolidated Financial Statements."
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.
<PAGE>
(3) The following exhibits are filed herein or have been previously
filed with the Securities and Exchange Commission:
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of fiscal 1998.
(c) EXHIBITS:
Exhibit
Number Description
3.3(7) Certificate of Incorporation of Agrilink.
3.4(3) Bylaws of Agrilink.
3.5(7) Certificate of Amendment of the Certificate of
Incorporation
10.1(2) Indenture, dated as of November 3, 1994 (the
"Indenture"), among PFAC, Pro-Fac and IBJ Schroder
Bank & Trust Company ("IBJ"), as Trustee, as
amended by First Supplemental Indenture, dated as
of November 3, 1994, each with respect to Agrilink
12.25 percent Senior Subordinated Notes due 2005
(the "Notes").
10.2(2) Term Loan, Term Loan Facility and Seasonal Loan
Agreement, dated as of November 3, 1994, among
Springfield Bank for Cooperatives (the "Bank"),
Agrilink and PFAC.
10.3(2) Parent Guaranty, dated as of November 3, 1994, by Pro-
Fac in favor of the Bank.
10.4(2) Parent Security Agreement, dated as of November 3,
1994 between Pro-Fac and the Bank.
10.5(2) Mortgage, Open End Mortgage, Deed of Trust, Trust
Deed, Deed to Secure Debt, Purchase Money Mortgage,
Assignment, Security Agreement and Financing
Statement dated November 3, 1994 among PFAC,
Agrilink and the Bank.
10.6(2) Marketing and Facilitation Agreement, dated as of
November 3, 1994, between Pro-Fac and Agrilink.
10.7(2) Management Incentive Plan, as amended.
10.8(2) Supplemental Executive Retirement Plan, as amended.
10.10(2) Master Salaried Retirement Plan, as amended.
10.11(2) Non-Qualified Profit Sharing Plan, as amended.
10.12(2) Excess Benefit Retirement Plan.
10.13(6) Salary Continuation Agreement - Dennis M. Mullen.
10.14(1) Modification A of Term Loan, Term Loan Facility,
and Seasonal Loan Agreement, dated as of January
26, 1995, between Agrilink and the Bank.
10.15(1) Second Amendment to Non-Qualified Profit Sharing Plan.
10.16(3) Modifications B - D of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Agrilink and the Bank.
10.17(4) Modifications E - F of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Agrilink and the Bank.
10.18(4) Equity Value Plan Adopted on June 24, 1996.
10.19(4) Seasonal Loan Agreement Between Pro-Fac and the Bank
Dated June 28, 1996.
10.20(6) Modifications G - K of Term Loan, Term Loan
Facility, and Seasonal Loan Agreement Between
Agrilink and Bank.
10.21(6) OnSite Services Agreement with Systems & Computer
Technology.
10.22(6) Raw Product Supply Agreement with Seneca Foods
Corporation.
10.23(6) Reciprocal Co-Pack Agreement with Seneca Foods
Corporation.
<PAGE>
(c) EXHIBITS (Continued):
Exhibit
Number Description
10.24 Modification L of Term Loan, Term Loan Facility, and
Seasonal Loan Agreement Between Agrilink and the Bank.
10.25 Second Supplemental Indenture Dated November 10, 1997.
10.26 Amendment to Marketing and Facilitation Agreement.
18(5) Accountant's Report Regarding Change in Accounting Method.
21.1(6) List of Subsidiaries.
27(6) Financial Data Schedule.
(1) Incorporated by reference from Registration Statement No. 33-60273.
(2) Incorporated by reference from Registration Statement No. 33-56517, as
amended.
(3) Incorporated by reference from the Registrant's 1995 Annual Report on Form
10-K.
(4) Incorporated by reference from the Registrant's 1996 Annual Report on Form
10-K.
(5) Incorporated by reference from the Registrant's 1997 First Quarter Report
on Form 10-Q.
(6) Incorporated by reference from Registrant's 1997 Annual Report on Form
10-K.
(7) Incorporated by reference from Registrant's First Quarter Report on Form
10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AGRILINK FOODS, INC.
Date: October 1, 1998 By: /s/ Earl L. Powers
Earl L. Powers
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE>
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/ Chairman of the Board; Director
(ROBERT V. CALL, JR.)
*/s/ Director
(BRUCE R. FOX)
*/s/ Director
(CORNELIUS D. HARRINGTON)
*/s/ Director
(STEVEN D. KOINZAN)
*/s/ Director
(WALTER F. PAYNE)
*/s/ Director
(FRANK M. STOTZ)
*/s/ President and Chief Executive Officer
(DENNIS M. MULLEN) and Director
(Principal Executive Officer)
/s/Earl L. Powers Vice President Finance and August 19, 1998
(EARL L. POWERS) Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NO ANNUAL REPORT OR PROXY MATERIAL HAS BEEN SENT TO REGISTRANT'S SHAREHOLDER AND
NONE IS INTENDED TO BE SENT.
Date: October 1, 1998 *By: /s/ Earl L. Powers
--------------- ----------------------
Earl L. Powers, as
Attorney in Fact
