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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
--------------------
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1999
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)
<TABLE>
<S> <C>
New York 16-0845824
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
90 Linden Oaks, PO Box 20670, Rochester, NY 14602-0670
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code (716) 383-1850
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or 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 the number of shares outstanding of each of the issuer's classes of
common stock as of May 1, 1999
Common Stock: 10,000
Page 1 of 23 Pages
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- --------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 352,185 $ 163,150 $ 911,467 $ 542,219
Cost of sales (243,706) (118,238) (634,151) (389,078)
--------- --------- --------- ---------
Gross profit 108,479 44,912 277,316 153,141
Selling, administrative, and general expense (86,776) (34,308) (213,746) (108,561)
Gains on sales of assets, net 532 0 64,734 0
Restructuring (5,000) 0 (5,000) 0
Income from Great Lakes Kraut LLC 728 512 2,417 1,472
--------- --------- --------- ---------
Operating income before dividing with Pro-Fac 17,963 11,116 125,721 46,052
Interest expense (19,366) (7,716) (46,315) (23,323)
Amortization of debt issue costs associated with the
Bridge Facility 0 0 (5,500) 0
--------- --------- --------- ---------
Pretax (loss)/income before dividing with Pro-Fac and
before extraordinary item (1,403) 3,400 73,906 22,729
Pro-Fac share of loss/(income) before extraordinary item 2,188 (1,700) (7,470) (11,365)
--------- --------- --------- ---------
Income before taxes and before extraordinary item 785 1,700 66,436 11,364
Tax provision (892) (774) (26,601) (5,171)
--------- --------- --------- ---------
(Loss)/income before extraordinary item (107) 926 39,835 6,193
Extraordinary item relating to the early extinguishment
of debt (net of income taxes and after dividing with Pro-Fac) 0 0 (16,366) 0
--------- --------- --------- ---------
Net (loss)/income $ (107) $ 926 $ 23,469 $ 6,193
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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AGRILINK FOODS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 27, June 27, March 28,
1999 1998 1998
--------- --------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,464 $ 5,046 $ 2,856
Accounts receivable trade, net 100,592 55,046 55,012
Accounts receivable, other 5,753 3,575 1,391
Current deferred tax asset 13,129 4,642 8,198
Inventories -
Finished goods 283,428 111,153 120,656
Raw materials and supplies 43,501 30,433 32,698
----------- ----------- -----------
Total inventories 326,929 141,586 153,354
----------- ----------- -----------
Current investment in CoBank 3,198 1,994 2,502
Prepaid manufacturing expense 7,607 8,404 3,674
Prepaid expenses and other current assets 19,382 12,989 12,002
Current receivable from Pro-Fac 0 0 216
----------- ----------- -----------
Total current assets 484,054 233,282 239,205
Investment in CoBank 19,699 22,377 22,534
Investment in Great Lakes Kraut LLC 9,001 6,584 8,056
Property, plant and equipment, net 335,727 194,615 207,278
Assets held for sale at net realizable value 920 2,662 2,582
Goodwill and other intangible assets, net 297,989 94,744 94,465
Other assets 22,356 12,175 13,682
Note receivable due from Pro-Fac 9,400 0 0
----------- ----------- -----------
Total assets $ 1,179,146 $ 566,439 $ 587,802
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable $ 73,900 $ 0 $ 57,800
Current portion of obligations under capital leases 256 256 558
Current portion of long-term debt 8,731 8,071 8,070
Accounts payable 59,967 70,125 39,955
Income taxes payable 1,924 3,943 4,722
Accrued interest 10,456 8,559 3,867
Accrued employee compensation 13,083 8,598 10,041
Other accrued expenses 86,597 19,013 18,076
Current liability due to Pro-Fac 16,587 6,642 0
----------- ----------- -----------
Total current liabilities 271,501 125,207 143,089
Obligations under capital leases 503 503 817
Long-term debt 675,551 229,937 227,488
Deferred income tax liabilities 35,341 33,154 40,902
Other non-current liabilities 25,696 23,053 22,874
----------- ----------- -----------
Total liabilities 1,008,592 411,854 435,170
----------- ----------- -----------
Commitments and contingencies
Shareholder's Equity:
Common stock, par value $.01;
10,000 shares outstanding, owned by Pro-Fac 0 0 0
Accumulated other comprehensive income:
Minimum pension liability adjustment (608) (608) 0
Additional paid-in capital 167,071 167,071 158,317
Retained earnings (accumulated deficit) 4,091 (11,878) (5,685)
----------- ----------- -----------
Total shareholder's equity 170,554 154,585 152,632
----------- ----------- -----------
Total liabilities and shareholder's equity $ 1,179,146 $ 566,439 $ 587,802
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
(DOLLARS IN THOUSANDS) March 27, March 28,
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 23,469 $ 6,193
Adjustments to reconcile net income to net cash used in operating activities -
Extraordinary item relating to the early extinguishment of debt 16,366 0
Gains on sales of assets (64,734) 0
Loss on disposal of assets 353 0
Amortization of goodwill and other intangibles 6,632 2,802
Amortization of debt issue costs (including fees associated with the Bridge Facility) 6,969 600
Depreciation 19,974 13,673
Equity in undistributed earnings of Great Lakes Kraut LLC (2,417) (1,472)
Equity in undistributed earnings of CoBank (520) (715)
Change in assets and liabilities:
Accounts receivable (22,766) (4,929)
Inventories (276) (40,634)
Income taxes payable 8,444 (430)
Accounts payable and other accrued expenses (66,768) (13,329)
Due to/(from) Pro-Fac 2,203 (4,526)
Other assets and liabilities (1,985) (12,679)
--------- ---------
Net cash used in operating activities (75,056) (55,446)
--------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (13,411) (10,645)
Proceeds from disposals 94,913 511
Proceeds from investment in CoBank 1,994 946
Cash paid for acquisitions (443,531) (810)
--------- ---------
Net cash used in investing activities (360,035) (9,998)
--------- ---------
Cash Flows From Financing Activities:
Net proceeds from notes payable 73,900 57,800
Proceeds from issuance of long-term debt 677,507 8,810
Proceeds from Great Lakes Kraut LLC 0 3,000
Payments on long-term debt (287,313) (4,146)
Cash paid for debt issuance costs (19,085) 0
Dividends paid to Pro-Fac (7,500) 0
--------- ---------
Net cash provided by financing activities 437,509 65,464
--------- ---------
Net change in cash and cash equivalents 2,418 20
Cash and cash equivalents at beginning of period 5,046 2,836
--------- ---------
Cash and cash equivalents at end of period $ 7,464 $ 2,856
========= =========
</TABLE>
(Table continued on next page)
4
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AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
(Table Continued from Previous Page) March 27, March 28,
1999 1998
--------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Acquisition of Erin's Gourmet Popcorn
Inventories $ 33
Property, plant and equipment 26
Goodwill 554
---------
$ 613
=========
Acquisition of Dean Foods Vegetable Company
Accounts receivable $ 24,201
Inventories 195,674
Prepaid expenses and other current assets 1,939
Current deferred tax asset 6,300
Property, plant and equipment 158,310
Assets held for sale 49
Goodwill and other intangible assets 213,504
Accounts payable (40,865)
Accrued employee compensation (8,437)
Other accrued expenses (80,384)
Long-term debt (2,752)
Subordinated promissory note (30,000)
Other assets and liabilities, net 3,066
---------
$ 440,605
=========
Acquisition of J.A. Hopay Distributing Co., Inc.
Accounts receivable $ 420
Inventories 153
Property, plant and equipment 51
Goodwill and other intangible assets 3,303
Other accrued expenses (251)
Obligation for covenant not to compete (1,363)
---------
$ 2,313
=========
Acquisition of C&O Distributing Company
Property, plant and equipment $ 54
Goodwill 756
---------
$ 810
=========
Investment in Great Lakes Kraut LLC
Inventories $ 2,175
Prepaid expenses and other current assets 409
Property, plant and equipment 6,966
Other accrued expenses (62)
---------
$ 9,488
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, and in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
these periods. Agrilink Foods, Inc. ("Agrilink" or the "Company") is a wholly
owned subsidiary of Pro-Fac Cooperative, Inc. ("Pro-Fac" or the "Cooperative").
These financial statements should be read in conjunction with the financial
statements and accompanying notes contained in the Company's Form 10-K/A-1 for
the fiscal year ended June 27, 1998.
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.
RECLASSIFICATION: Certain items for fiscal 1998 have been reclassified to
conform with the current presentation.
ADOPTION OF SFAS NO. 130: Effective June 28, 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." Comprehensive income is defined as the change in equity of a business
during a period from transactions and other events and circumstances from
non-owner sources. Under SFAS No. 130, the term "comprehensive income" is used
to describe the total of net earnings plus other comprehensive income which for
the Company includes foreign currency translation adjustments and minimum
pension liability adjustments. The adoption of SFAS No. 130 did not have a
material effect on the Company's results of operations or financial position.
ADOPTION OF SFAS NO. 131: Effective June 28, 1998 the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect the Company's results of operations
or financial position.
During the third quarter of fiscal 1999, the Company announced a restructuring
of its nationwide operations to a one-company organization. Accordingly, the
approach used for making operating decisions and assessing performance is now
based upon product lines.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company does not engage in interest rate
speculation. Derivative financial instruments are utilized to hedge interest
rate risks and are not held for trading purposes.
The Company enters into interest rate swap agreements to limit exposure to
interest rate movements. Net payments or receipts are accrued into prepaid
expenses and other current assets and/or other accrued expenses and are recorded
as adjustments to interest expense. Interest rate instruments are entered into
for periods no greater than the life of the underlying transaction being hedged.
Management anticipates that all interest rate derivatives will be held to
maturity. Any gains or losses on prematurely terminated interest rate
derivatives will be recognized over the remaining life, if any, of the
underlying transaction as an adjustment to interest expense.
NOTE 2. ACQUISITIONS
ERIN'S GOURMET POPCORN: On January 5, 1999, the Company announced that it
acquired the assets of Erin's Gourmet Popcorn ("Erin's"), a Seattle-based,
ready-to-eat popcorn manufacturer. The acquisition was accounted for as a
purchase. The purchase price was approximately $0.6 million. Intangibles of
approximately $0.6 million were recorded in conjunction with this transaction
and are being amortized over 3 to 30 years.
6
<PAGE>
<PAGE>
The effects of the Erin's acquisition are not material, and accordingly, have
been excluded from the pro forma information presented below.
DEAN FOODS VEGETABLE COMPANY: On September 24, 1998, Agrilink acquired the Dean
Foods Vegetable Company ("DFVC"), the frozen and canned vegetable business of
Dean Foods Company ("Dean Foods"), by acquiring all the outstanding capital
stock of Dean Foods Vegetable Company and Birds Eye de Mexico SA de CV (the
"Acquisition"). In connection with the Acquisition, Agrilink sold its aseptic
business to Dean Foods. Agrilink paid $360 million in cash, net of the sale of
the aseptic business, and issued to Dean Foods a $30 million unsecured
subordinated promissory note due November 22, 2008 (the "Dean Foods Subordinated
Promissory Note"), as consideration for the Acquisition. The Company has the
right, exercisable until July 15, 1999, to require Dean Foods, jointly with the
Company, to treat the Acquisition as an asset sale for tax purposes under
Section 338(h)(10) of the Internal Revenue Code. On April 15, 1999, the Company
paid $13.2 million to Dean Foods and exercised the election.
After the Acquisition, DFVC was merged into the Company. DFVC has been one of
the leading processors of vegetables in the United States, selling its products
under well-known brand names, such as Birds Eye, Freshlike and Veg-All, and
various private labels. The Company believes that the Acquisition strengthens
its competitive position by: (i) enhancing its brand recognition and market
position, (ii) providing opportunities for cost savings and operating
efficiencies and (iii) increasing its product and geographic diversification.
The Acquisition was accounted for under the purchase method of accounting. Under
purchase accounting, tangible and identifiable intangible assets acquired and
liabilities assumed were recorded at their respective fair values. Goodwill
associated with the Acquisition is being amortized over 30 years.
The following unaudited pro forma financial information presents a summary of
consolidated results of operations of the Company and the acquired Dean Foods
Vegetable Company as if the acquisition had occurred at the beginning of the
1998 fiscal year.
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 27, 1999 March 28, 1998
-------------- ---------------
<S> <C> <C>
Net sales $1,008.5 $914.3
Income (loss) before extraordinary items $ 29.6 $ (1.7)
Net income (loss) $ 13.2 $ (1.7)
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and include adjustments for additional depreciation expense and
amortization and interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect at the beginning of the 1998 fiscal year, or of
the future operations of the consolidated entities.
Concurrently with the Acquisition, Agrilink refinanced its existing indebtedness
(the "Refinancing"), including its 12 1/4 percent Senior Subordinated Notes due
2005 (the "Old Notes") and its then existing bank debt. On August 24, 1998,
Agrilink commenced a tender offer (the "Tender Offer") for all the Old Notes and
consent solicitation to certain amendments under the indenture governing the Old
Notes to eliminate substantially all the restrictive covenants and certain
events of default therein. Substantially all of the $160 million aggregate
principal amount of the Old Notes were tendered and purchased by Agrilink for
aggregate consideration of approximately $184 million, including accrued
interest of $2.9 million. Agrilink also terminated its then existing bank
facility (including seasonal borrowings) and repaid the $176.5 million,
excluding interest owed and breakage fees outstanding thereunder. The Company
recognized an extraordinary item of $46.4 million (net of income taxes and after
dividing with Pro-Fac) in the first quarter of fiscal 1999 relating to this
refinancing.
In order to consummate the Acquisition and the Refinancing and to pay the
related fees and expenses, Agrilink: (i) entered into a new credit facility (the
"New Credit Facility") providing for $455 million of term loan borrowings (the
"Term Loan Facility") and up to $200 million of revolving credit borrowings (the
"Revolving Credit Facility"), (ii) entered into and drew upon a $200 million
bridge loan facility (the "Bridge Facility") and (iii) issued the $30 million
Subordinated Promissory Note to Dean Foods. The Bridge Facility was repaid
during November of 1998 principally with the proceeds from a new Senior
Subordinated Note Offering (see NOTE 4 - "Debt - 11 7/8 Percent Senior
Subordinated Notes"). Debt issue costs of $5.5 million associated with the
Bridge Facility were expensed during the quarter ended December 26, 1998.
7
<PAGE>
<PAGE>
J.A. HOPAY DISTRIBUTING CO, INC.: Effective July 21, 1998, the Company acquired
J.A. Hopay Distributing Co., Inc. ("Hopay") of Pittsburgh, Pennsylvania. The
acquisition was accounted for as a purchase. The purchase price (net of
liabilities assumed) was approximately $2.3 million. Intangibles of
approximately $3.3 million were recorded in conjunction with this transaction
and are being amortized over 5 to 30 years.
The effects of the Hopay acquisition are not material and, accordingly, have
been excluded from the above pro forma presentation.
NOTE 3. AGREEMENTS WITH PRO-FAC
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.
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 (before dividing with Pro-Fac) of the Company. In
years in which the Company has losses on Pro-Fac Products, the Company reduces
the CMV it would otherwise pay to Pro-Fac by up to 90 percent of such losses,
but in no case by more than 50 percent of all pretax losses (before dividing
with Pro-Fac) of the Company. Additional patronage income is paid to Pro-Fac for
services provided to 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. Under the Agreement, Pro-Fac is required to reinvest at least 70 percent
of the additional patronage income in Agrilink.
Amounts received by Pro-Fac from Agrilink for the nine months ended March 27,
1999 and March 28, 1998 include: commercial market value of crops delivered,
$61.5 million and $59.7 million, respectively; and additional proceeds from
profit/(loss) sharing provisions, $5.8 million and $11.4 million, respectively.
In the first quarter of fiscal 1999, the Company reclassified a $9.4 million
demand receivable due from Pro-Fac reflecting the conversion of such receivable
to a non-interest bearing long-term obligation due from Pro-Fac having a 10-year
maturity.
Agrilink declared and paid a dividend of $7.5 million to its parent, Pro-Fac, in
the third quarter of fiscal 1999.
NOTE 4. DEBT
SUMMARY OF LONG-TERM DEBT:
<TABLE>
<CAPTION>
March 27, June 27, March 28,
1999 1998 1998
------- ------- --------
<S> <C> <C> <C>
Bank Debt $446,800 $ 72,400 $ 69,900
Senior Subordinated Notes 200,015 160,000 160,000
Subordinated Promissory Note 30,407 0 0
Other 7,060 5,608 5,658
-------- ------- --------
Total Debt 684,282 238,008 235,558
Less Current Portion (8,731) (8,071) (8,070)
-------- ------- --------
Total Long-Term Debt $675,551 $229,937 $227,488
======== ======== ========
</TABLE>
8
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<PAGE>
NEW CREDIT FACILITY (BANK DEBT): In connection with the Acquisition, the Company
entered into the New Credit Facility with Harris Bank as Administrative Agent
and Bank of Montreal as Syndication Agent, and the lenders thereunder. The New
Credit Facility consists of the $200 million Revolving Credit Facility and the
$455 million Term Loan Facility. The Term Loan Facility is comprised of the Term
A Facility, which has a maturity of five years, the Term B Facility, which has a
maturity of six years, and the Term C Facility, which has a maturity of seven
years. The Revolving Credit Facility has a maturity of five years.
The New Credit Facility bears interest, at the Company's option, at the
Administrative Agent's alternate base rate or the 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 loans under the Revolving Credit
Facility and the Term A Facility, (y) 2.75 percent for loans under the Term B
Facility and (z) 3.00 percent for loans under the Term C Facility and (ii) in
the case of LIBOR loans, (x) 2.75 percent for loans under the Revolving Credit
Facility and the Term A Facility, (y) 3.75 percent for loans under the Term B
Facility and (z) 4.00 percent for loans under the Term C Facility. The
Administrative Agent's "alternate base rate" is defined as the greater of: (i)
the prime commercial rate as announced by the Administrative Agent or (ii) the
Federal Funds rate plus 0.50 percent. In addition, the Company pays a commitment
fee calculated at a rate of 0.50 percent per annum on the daily average unused
commitment under the Revolving Credit Facility.
Upon consummation of the Acquisition, the Company drew $455 million under the
Term Loan Facility, consisting of $100 million, $175 million and $180 million of
loans under the Term A Facility, Term B Facility and Term C Facility,
respectively. Additionally, the Company drew $93 million under the Revolving
Credit Facility for seasonal working capital needs and $14.3 million under the
Revolving Credit Facility was issued for letters of credit. During December
1998, the Company's primary lender exercised its right under the New Credit
Facility to transfer $50 million from the Term A Facility to the Term B and Term
C Facilities in increments of $25 million.
The Term Loan Facility is subject to the following amortization schedule.
<TABLE>
<CAPTION>
Fiscal Year Term Loan A Term Loan B Term Loan C Total
- ----------- ----------- ----------- ----------- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
1999 $ 0.0 $ 0.1 $ 0.1 $ 0.2
2000 7.5 0.4 0.4 8.3
2001 10.0 0.4 0.4 10.8
2002 10.0 0.4 0.4 10.8
2003 10.0 0.4 0.4 10.8
2004 10.3 0.4 0.4 11.1
2005 0.0 194.9 0.4 195.3
2006 0.0 0.0 199.5 199.5
------ ------ ------ ------
$ 47.8 $197.0 $202.0 $446.8
====== ====== ====== =======
</TABLE>
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility. During the third quarter of
fiscal 1999, the Company made mandatory prepayments of $8.0 million from
proceeds of the sale of the peanut butter operations. In addition, during the
third quarter principal payments of $0.1 million were made on each of the Term
Loan A and Term Loan B facilities in the third quarter of fiscal 1999.
The Company's obligations under the New Credit Facility are secured by a
first-priority lien on: (i) substantially all existing or after-acquired assets,
tangible or intangible, (ii) the capital stock of certain of Pro-Fac's
(excluding PF Acquisition II, Inc., which is a subsidiary of Pro-Fac) current
and future subsidiaries, and (iii) all of the Company's rights under the
agreement to acquire DFVC (principally indemnification rights) and the Pro-Fac
Marketing and Facilitation Agreement. The Company's obligations under the New
Credit Facility are guaranteed by Pro-Fac (excluding PF Acquisition II, Inc.)
and certain of the Company's current and future, if any, subsidiaries.
The New Credit Facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities, including, but not limited
to: (i) limitations on the incurrence of indebtedness and liens, (ii)
limitations on sale-leaseback transactions, consolidations, mergers, sale of
assets, transactions with affiliates and investments and (iii) limitations on
dividend and other distributions. The New Credit Facility also contains
financial covenants requiring Pro-Fac to maintain a minimum level of
9
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<PAGE>
consolidated EBITDA, a minimum consolidated interest coverage ratio, a minimum
consolidated fixed charge coverage ratio, a maximum consolidated leverage ratio
and a minimum level of consolidated net worth. According to the Credit
Agreement, the assets, liabilities, and results of operations of PF Acquisition
II, Inc., which is a subsidiary of Pro-Fac, shall not be consolidated with
Pro-Fac for purposes of determining compliance with the covenants. Pro-Fac and
the Company are in compliance with all covenants, restrictions and requirements
under the terms of the New Credit Facility.
INTEREST RATE PROTECTION AGREEMENTS: The Company has entered into a three-year
interest rate swap agreement with the Bank of Montreal in the notional amount of
$150 million. The swap agreement provides for an interest rate of 4.96 percent
over the term of the swap payable by the Company in exchange for payments at the
published three-month LIBOR. In addition, the Company entered into a separate
interest rate swap agreement with the Bank of Montreal in the notional amount of
$100 million for an initial period of three years, which may be extended, at the
Company's option, for an additional two-year period. This swap agreement
provides for an interest rate of 5.32 percent over the term of the swap, payable
by the Company in exchange for payments at the published three-month LIBOR. The
Company entered into these agreements in order to manage its interest rate risk
by exchanging its floating rate interest payments for fixed rate interest
payments.
SENIOR SUBORDINATED NOTES - 11 7/8 PERCENT (DUE 2008): To extinguish the
Subordinated Bridge Facility, the Company issued Senior Subordinated Notes (the
"New Notes") for $200 million aggregate principal amount due November 1, 2008.
Interest on the New Notes accrues at the rate of 11 7/8 percent per annum and is
payable semiannually in arrears on May 1 and November 1.
The New Notes represent general unsecured obligations of the Company,
subordinated in right of payment to certain other debt obligations of the
Company (including the Company's obligations under the New Credit Facility). The
New Notes are guaranteed by Pro-Fac and certain of the Company's current and
future, if any, subsidiaries.
The New Notes contain customary covenants and restrictions on the Company's
ability to engage in certain activities, including, but not limited to: (i)
limitations on the incurrence of indebtedness and liens; (ii) limitations on
consolidations, mergers, sales of assets, transactions with affiliates; and
(iii) limitations on dividends and other distributions. The Company is in
compliance with all covenants, restrictions, and requirements under the New
Notes.
SUBORDINATED BRIDGE FACILITY: To complete the Acquisition, the Company entered
into a Subordinated Bridge Facility (the "Bridge Facility"). During November
1998, the net proceeds from the sale of the New Notes, together with borrowings
under the Revolving Credit Facility, were used to repay all the indebtedness
outstanding ($200 million plus accrued interest) under the Bridge Facility. The
outstanding indebtedness under the Bridge Facility accrued interest at an
approximate rate per annum of 10 1/2 percent. Debt issuance costs associated
with the Bridge Facility of $5.5 million were fully amortized during the quarter
ended December 26, 1998.
SUBORDINATED PROMISSORY NOTE: As partial consideration for the Acquisition, the
Company issued to Dean Foods a Subordinated Promissory Note for $30 million
aggregate principal amount due November 22, 2008. Interest on the Subordinated
Promissory Note is payable quarterly in arrears commencing December 31, 1998, at
a rate per annum of 5 percent until November 22, 2003, and at a rate of 10
percent thereafter. Interest accruing through November 22, 2003 is required to
be paid in kind through the issuance by the Company of additional subordinated
promissory notes identical to the Subordinated Promissory Note. The Company
satisfied this requirement through the issuance of two additional promissory
notes each for approximately $0.4 million on December 31, 1998 and March 31,
1999. Interest accruing after November 22, 2003 is payable in cash. The
Subordinated Promissory Note may be prepaid at the Company's option without
premium or penalty.
The Subordinated Promissory Note is expressly subordinate to the New Notes and
the New Credit Facility and contains no financial covenants. The Subordinated
Promissory Note is guaranteed by Pro-Fac.
SENIOR SUBORDINATED NOTES - 12 1/4 PERCENT (DUE 2005): In conjunction with the
Acquisition, the Company repurchased $159,985,000 principal amount of its Old
Notes, of which $160 million aggregate principal amount was previously
outstanding. The Company paid a total of approximately $184 million to
repurchase the Old Notes, including interest accrued thereon of $2.9 million.
Holders who tendered consented to certain amendments to the indenture relating
to the Old Notes, which eliminated or amended substantially all the restrictive
covenants and certain events of default contained in such indenture. The Company
may repurchase the remaining Old Notes in the future in open market
transactions, privately negotiated purchases or otherwise.
10
<PAGE>
<PAGE>
NOTE 5. OTHER MATTERS
RESTRUCTURING: During the third quarter of fiscal 1999, the Company began
implementation of a corporate-wide restructuring program. The overall objectives
of the plan are to reduce expenses, improve productivity, and streamline
operations. The total restructuring charge amounted to $5.0 million and was
primarily comprised of employee termination benefits (which will improve annual
earnings by approximately $8.0 million). Efforts will focus on the consolidation
of operating functions and the elimination of approximately five percent of the
work force. Reductions in personnel will include operational and administrative
positions. The majority of such termination benefits will be liquidated during
the next 12 months.
SALE OF CANNED VEGETABLE BUSINESS: In March, 1999 a letter of intent was signed
by Agrilink with Hoopeston Foods, Inc. ("Hoopeston") for Hoopeston to acquire
the assets of the private label canned vegetable business. Hoopeston would
acquire three processing facilities located in Arlington, Minnesota, Hortonville
and Cambria, Wisconsin, and the machinery and equipment used in the Fond du Lac,
leased Wisconsin facility.
The transaction is subject to certain conditions, including negotiation and
finalization of agreements, further due diligence, and board and regulatory
approval.
SALE OF ADAMS BRAND PEANUT BUTTER OPERATIONS: On January 29, 1999, the Company
sold the Adams brand peanut butter operations to the J.M. Smucker Company. The
Company received proceeds of approximately $13.5 million which were applied to
the New Credit Facility. A gain of approximately $3.5 million was recognized on
this transaction.
ARLINGTON CANNED VEGETABLE FACILITY FIRE: In January 1999, a plant operated by
the Company in Arlington, Minnesota, was damaged by fire. All material costs
associated with the repairs and business interruption are anticipated to be
covered under the Company's insurance policies.
ALTON WAREHOUSE: In January 1999, a warehouse owned by the Company in Alton, New
York, was damaged when excessive snowfall caused the roof to collapse. All
material costs associated with the repairs are anticipated to be covered under
the Company's insurance policies.
NOTE 6. SUBSIDIARY GUARANTORS
Kennedy Endeavors, Incorporated and Linden Oaks Corporation ("Subsidiary
Guarantors"), wholly-owned subsidiaries of the Company, have jointly and
severally, fully and unconditionally guaranteed, on a senior subordinated basis,
the obligations of the Company with respect to the Company's 11 7/8 percent
Senior Subordinated Notes due 2008 and the New Credit Facility. The covenants in
the New Notes and the New Credit Facility do not restrict the ability of the
Subsidiary Guarantors to make cash distributions to the Company.
Separate financial statements and other disclosures concerning the Subsidiary
Guarantors are not presented because management has determined that such
financial statements and other disclosures are not material. Accordingly, set
forth below is certain summarized financial information derived from unaudited
historical financial information for the Subsidiary Guarantors, on a combined
basis.
11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended Nine Months Ended
------------------------ -------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Summarized Statement of Operations:
Net sales $ 8,237 $ 2,841 $ 14,565 $ 8,708
Gross profit 6,067 1,192 9,204 3,771
Income from continuing operations 5,515 369 6,569 1,270
Net income 3,576 225 4,219 775
Summarized Balance Sheet:
Current assets $ 1,985 $ 2,011 $ 1,985 $ 2,011
Noncurrent assets 219,508 7,227 219,508 7,227
Current liabilities 2,649 691 2,649 691
</TABLE>
On March 2, 1999, the Company transferred trademarks valued at $222.6 million to
Linden Oaks Corporation. By consolidating the trademarks into a separate
subsidiary, Agrilink will be able to monitor more closely and efficiently the
benefits associated with its trademarks. The royalty fees that are earned by
Linden Oaks Corporation in connection with the trademarks are insignificant with
respect to the Company's Consolidated Statement of Operations.
ITEM 2. 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 Unaudited Consolidated Statement of Operations in the third quarter and
first nine months of fiscal 1999 versus such periods in fiscal 1998.
Agrilink Foods, Inc. ("Agrilink" or the "Company") has four primary product
lines: Vegetables, Fruits, Snacks and Canned Meals. The majority of each of the
product lines' net sales are within the United States. In addition, the
Company's operating facilities, except for one facility in Mexico, are within
the United States.
The vegetable product line consists of canned and frozen vegetables, chili
beans, pickles, and various other products. Branded products within the
vegetable product line include Birdseye, Veg-All, McKenzies and Brooks Chili
Beans. The fruit product line consists of canned and frozen fruits including
fruit fillings and toppings. Branded products within the fruit category include
Comstock and Wilderness. The snacks product line consists of potato chips,
popcorn and other corn-based snack items. Branded products within the snacks
category include Tim's Cascade Chips, Snyder of Berlin, La Restaurante, and
Mathews. The canned meal product line includes canned meat products such as
chilies, stews, soups, and various other ready-to-eat prepared meals. Branded
products within the canned meals category include Nalley's.
12
<PAGE>
<PAGE>
The following tables illustrate the results of operations by product line for
the three- and nine-month periods ended March 27, 1999 and March 28, 1998, and
the Company's total assets by product line as of March 27, 1999 and March 28,
1998.
NET SALES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------- -----------------------------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
-------------------- ------------------- ------------------- -------------------
% of % of % of % of
$ Total $ Total $ Total $ Total
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vegetables 273.0 77.6 66.3 40.6 628.7 69.0 205.0 37.8
Fruits 22.0 6.2 22.1 13.6 90.4 10.0 96.6 17.8
Snacks 23.2 6.6 19.6 12.0 67.6 7.4 62.1 11.5
Canned Meals 18.6 5.3 16.2 9.9 51.3 5.6 51.7 9.5
Other 12.5 3.5 13.2 8.1 37.8 4.1 43.5 8.0
------ ----- ------ ----- ------ ----- ------ -----
Continuing segments 349.3 99.2 137.4 84.2 875.8 96.1 458.9 84.6
Businesses sold(1) 2.9 .8 25.8 15.8 35.7 3.9 83.3 15.4
------ ----- ------ ----- ------ ----- ------ -----
Total $352.2 100.0% $163.2 100.0% $911.5 100.0% $542.2 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
(1) Includes net sales of operations sold. See NOTES 2 and 5 to the "Notes to
Consolidated Financial Statements."
OPERATING INCOME(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------- --------------------------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
% of % of % of % of
$ Total $ Total $ Total $ Total
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vegetables 17.7 79.0 4.2 37.8 42.5 64.4 12.3 26.8
Fruits 1.6 7.1 3.2 28.8 10.8 16.4 17.0 36.9
Snacks 1.1 4.9 1.3 11.7 4.9 7.4 5.8 12.6
Canned Meals 2.4 10.7 1.8 16.2 5.7 8.6 7.5 16.2
Other .5 2.2 (.3) (2.7) 1.6 2.4 .8 1.6
------- ----- ------- ----- ------- ----- ------- -----
Continuing segments 23.3 103.9 10.2 91.8 65.5 99.2 43.4 94.1
Corporate overhead (.6) (2.7) (2.6) (23.4) (3.0) (4.5) (8.3) (18.0)
------- ----- ------- ----- ------- ----- ------- -----
Continuing operations 22.7 101.2 7.6 68.4 62.5 94.7 35.1 76.1
Businesses sold(2) (.3) (1.2) 3.5 31.6 3.5 5.3 11.0 23.9
------- ----- ------- ----- ------- ----- ------- -----
Total(3) $ 22.4 100.0% $ 11.1 100.0% $ 66.0 100.0% $ 46.1 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
(1) Excludes the gain on sales of assets and the restructuring charge. See
NOTES 2 and 5 to the "Notes to Consolidated Financial Statements."
(2) Represents the operating results of the operations sold. See NOTES 2 and 5
to the "Notes to Consolidated Financial Statements."
(3) Operating income less interest expense and amortization of debt issue costs
associated with the Bridge Facility of $19.4 million and $7.7 million for
the three months ended March 27, 1999 and March 28, 1998, respectively; and
$51.8 million and $23.3 million for the nine months ended March 27, 1999
and March 28, 1998, respectively, results in pretax income before dividing
with Pro-Fac and before extraordinary item. Management does not allocate
interest expense and corporate overhead to product lines when evaluating
product line performance.
13
<PAGE>
<PAGE>
EBITDA(1, 2)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ ------------------------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vegetables 23.4 76.7 7.4 45.0 61.7 66.6 20.7 33.1
Fruits 2.2 7.2 4.0 24.2 12.4 13.4 19.9 31.9
Snacks 1.7 5.6 1.9 11.5 6.7 7.2 7.4 11.8
Canned Meals 2.9 9.5 2.2 13.3 7.3 7.9 8.8 14.1
Other .9 3.0 (.4) (2.4) 2.9 3.1 1.7 2.7
----- ----- ----- ----- ----- ----- ----- -----
Continuing segments 31.1 102.0 15.1 91.6 91.0 98.2 58.5 93.6
Corporate overhead (.6) (2.0) (2.6) (15.8) (2.9) (3.1) (8.2) (13.1)
----- ----- ----- ----- ----- ----- ----- -----
Continuing operations 30.5 100.0 12.5 75.8 88.1 95.1 50.3 80.5
Businesses sold(3) 0.0 0.0 4.0 24.2 4.5 4.9 12.2 19.5
----- ----- ----- ----- ----- ----- ----- -----
Total $30.5 100.0% $16.5 100.0% $92.6 100.0% $62.5 100.0%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(1) Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
is defined as the sum of pretax income before dividing with Pro-Fac and
before extraordinary item, interest expense, amortization of debt issue
costs associated with the Bridge Facility, depreciation and amortization of
goodwill and other intangibles.
EBITDA should not be considered as an alternative to net income or cash
flows from operations or any other generally accepted accounting principles
measure of performance or as a measure of liquidity.
EBITDA is included herein because the Company believes EBITDA is a
financial indicator of a company's ability to service debt. EBITDA as
calculated by Agrilink may not be comparable to calculations as presented
by other companies.
(2) Excludes the gains on the sales of assets and the restructuring charge. See
NOTES 2 and 5 to the "Notes to Consolidated Financial Statements."
(3) Represents the operating results of operations sold. See NOTES 2 and 5 to
the "Notes to Consolidated Financial Statements."
14
<PAGE>
<PAGE>
TOTAL ASSETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
March 27, March 28,
1999 1998
------------------- -----------------
% of % of
$ Total $ Total
-------- ----- ------ -----
<S> <C> <C> <C> <C>
Vegetables 895.3 75.9 274.5 46.7
Fruits 87.6 7.4 89.5 15.2
Snacks 37.4 3.2 38.6 6.6
Canned Meals 46.9 4.0 47.9 8.1
Other 42.7 3.6 46.4 7.9
-------- ----- ------ -----
Continuing segments 1,109.9 94.1 496.9 84.5
Corporate 68.3 5.8 43.2 7.3
Businesses sold(1) 0.0 0.0 43.2 7.3
Assets held for sale .9 .1 4.5 .9
-------- ----- ------ -----
Total $1,179.1 100.0% $587.8 100.0%
======== ===== ====== =====
</TABLE>
(1) Includes the assets of the operations sold. See NOTES 2 and 5 to the "Notes
to Consolidated Financial Statements."
CHANGES FROM THIRD QUARTER FISCAL 1999 TO THIRD QUARTER FISCAL 1999
The net loss for the third quarter of fiscal 1999 of $0.1 million represents a
$1.0 million decrease as compared to the third quarter of fiscal 1998 net income
of $0.9 million. The net loss for the third quarter of fiscal 1999 was
significantly impacted by the increase in interest expense associated with the
DFVC Acquisition and the $5.0 million restructuring charge recorded.
Accordingly, management believes an evaluation of EBITDA, on a continuing
operations basis, as presented on page 14, is more appropriate as it allows the
operations of the business to be reviewed in a consistent manner. EBITDA from
continuing operations increased $18.0 million, or 144.0 percent, to $30.5
million in the third quarter of the current fiscal year from $12.5 million in
the third quarter of the prior fiscal year. This change is primarily
attributable to the increase within the vegetable product line as a result of
the DFVC Acquisition.
NET SALES: Total net sales for the quarter increased $189.0 million, or 115.8
percent, to $352.2 million in the third quarter of fiscal 1999 from $163.2
million in the third quarter of fiscal 1998. Excluding businesses sold, net
sales increased by $211.9 million to $349.3 million in the third quarter of
fiscal 1999 from $137.4 million in the third quarter of fiscal 1998. This change
is primarily attributable to an increase of $200.1 million within the vegetable
product line as a result of the DFVC Acquisition and an increase of $6.6 million
due to net improvements in unit volume.
Net sales within snacks increased $3.6 million as a result of unit volume.
Canned meals increased $2.4 million primarily attributable to the introduction
of Nalley's Meals-for-Now. Meals-for-Now is a new line that offers a complete
ready-to-eat meal in a can.
GROSS PROFIT: Gross profit of $108.5 million in the quarter ended March 27, 1999
increased approximately $63.6 million, or 141.6 percent, from $44.9 million in
the quarter ended March 28, 1998. Excluding the impact of businesses sold, gross
profit increased $69.9 million or 182.3 percent. This change is primarily
attributable to an increase of $75.5 million within the vegetable product line
as a result of the DFVC Acquisition. This increase was offset by a reduction
within the preexisting vegetable operations due to sales mix and competitive
pricing resulting from higher industry stock levels.
15
<PAGE>
<PAGE>
SELLING, ADMINISTRATIVE, AND GENERAL EXPENSES: Selling, administrative, and
general expenses have increased $52.5 million as compared with the third quarter
of the prior fiscal year. The DFVC Acquisition accounted for $54.4 million of
such increase. The offsetting decrease is impacted by reductions in the
Company's incentive programs.
GAINS ON SALES OF ASSETS: In conjunction with the Acquisition, the Company sold
its aseptic business to Dean Foods. The final purchase price of $80 million was
determined in the third quarter of fiscal 1999 based upon a final appraisal
performed by an independent appraiser. The gain on the sale was appropriately
adjusted to reflect the final purchase price.
On January 29, 1999, the Company sold the Adams brand peanut butter operation to
the J.M. Smucker Company. The Company received proceeds of approximately $13.5
million which were applied to the New Credit Facility. A gain of approximately
$3.5 million was recognized on this transaction.
RESTRUCTURING: Implementation of a corporate-wide restructuring program resulted
in a charge of $5.0 million in the third quarter of fiscal 1999. See NOTE 5 to
the "Notes to Consolidated Financial Statements."
INCOME FROM GREAT LAKES KRAUT LLC: This amount represents earnings received from
the investment in Great Lakes Kraut LLC, a joint venture formed between Agrilink
and Flanagan Brothers, Inc. on July 1, 1997. The increase of $0.2 million is
attributable to improvements in these operations.
INTEREST EXPENSE: Interest expense increased $11.7 million to $19.4 million in
the third quarter of fiscal 1999 from $7.7 million in the third quarter of
fiscal 1998. This increase is associated with debt to finance the DFVC
Acquisition and higher levels of seasonal borrowings to fund changes in
operating activities.
PROVISION FOR TAXES: The provision for taxes increased $0.1 million to $0.9
million in the third quarter of fiscal 1999 from $0.8 million in the third
quarter of fiscal 1998. Agrilink's effective tax rate is negatively impacted by
the non-deductibility of certain amounts of goodwill. The provision was also
impacted by the change in fiscal 1999 earnings.
CHANGES FROM FIRST NINE MONTHS FISCAL 1999 TO FIRST NINE MONTHS FISCAL 1998
Net income for the first nine months of fiscal 1999 of $23.5 million represented
a $17.3 million increase over the first nine months of fiscal 1998 net income of
$6.2 million. Comparability of these results is difficult as net income for
fiscal 1999 has been impacted by gains on the sale of assets, the restructuring
charge, the increase in interest expense associated with the DFVC Acquisition,
the amortization of debt issue costs associated with the Bridge Facility, and
the extraordinary item relating to the early extinguishment of debt.
Accordingly, management believes an evaluation of EBITDA, on a continuing basis,
as presented on page 14, is more appropriate as it allows the operations of the
business to be reviewed in a more consistent manner. EBITDA from continuing
operations increased $37.8 or 75.1 percent, to $88.1 million in the first nine
months of the current fiscal year from $50.3 million in the first nine months of
the prior fiscal year. This change is primarily attributable to the increase
within the vegetable product line as a result of the DFVC Acquisition offset by
a decline in preexisting vegetable operations attributable to a reduction due
to sales mix and competitive pricing. In addition, the fruit product line
decreased as a result of changes in pricing and product mix.
NET SALES: Total net sales for the first nine months increased $369.3 million,
or 68.1 percent, to $911.5 million in the first nine months of fiscal 1999 from
$542.2 million in the first nine months of fiscal 1998. Excluding businesses
sold, net sales increased by $416.9 million, or 90.8 percent, to $875.8 million
in the first nine months of fiscal 1999 from $458.9 million in the first nine
months of fiscal 1998.
The increase in net sales is primarily attributable to the $398.3 million
increase within the vegetable product line as a result of the DFVC Acquisition.
In addition, preexisting vegetable operations accounted for the remaining
increase of $25.4 million. This increase was attributable to net improvements in
volume.
16
<PAGE>
<PAGE>
Net sales for the fruit product line decreased $6.2 million as a result of
changes in pricing and product mix, which included a reduction in branded volume
and an increase in private label volume.
Net sales for snacks increased by $5.5 million in the first nine months of
fiscal 1999 as a result of unit volume.
GROSS PROFIT: Gross profit of $277.3 million in the nine months ended March 27,
1999 increased approximately $124.2 million, or 81.1 percent, from $153.1
million in the first nine months ended March 28, 1998. Excluding the impact of
businesses sold, gross profit increased $135.3 million or 100.5 percent.
This change is primarily attributable to an increase of $143.2 million within
the vegetable product line as a result of the DFVC Acquisition. This increase
was offset by a decline of $6.9 million in the fruit product line due to changes
in pricing and product mix. See "Net Sales" section above. Increases in net
sales within snacks resulted in margin improvements of $1.3 million.
SELLING, ADMINISTRATIVE, AND GENERAL EXPENSES: Selling, administrative, and
general expenses have increased $105.2 million as compared with the first nine
months of the prior fiscal year. The increase is primarily attributable to the
DFVC Acquisition which accounted for $106.6 million of such increase. The
offsetting decrease is impacted by reductions in the Company's incentive
programs.
GAINS ON SALES OF ASSETS: In conjunction with the Acquisition, the Company sold
its aseptic business to Dean Foods. The final purchase price of $80 million was
determined in the third quarter of fiscal 1999 based upon a final appraisal
performed by an independent appraiser. The gain on the sale was appropriately
adjusted to reflect the final purchase price.
On January 29, 1999, the Company sold the Adams brand peanut butter operation to
the J.M. Smucker Company. The Company received proceeds of approximately $13.5
million which were applied to the New Credit Facility. A gain of approximately
$3.5 million was recognized on this transaction.
RESTRUCTURING: Implementation of a corporate-wide restructuring program resulted
in a charge of $5.0 million in the third quarter of fiscal 1999. See NOTE 5 to
the "Notes to Consolidated Financial Statements."
INCOME FROM GREAT LAKES KRAUT LLC: This amount represents earnings received from
the investment in Great Lakes Kraut LLC, a joint venture formed between Agrilink
and Flanagan Brothers, Inc. on July 1, 1997. The increase of $1.0 million is
attributable to improvements in these operations.
INTEREST EXPENSE: Interest expense increased $23.0 million to $46.3 million in
the first nine months of fiscal 1999 from $23.3 million in the first nine months
of fiscal 1998. This increase is associated with debt to finance the DFVC
Acquisition and higher levels of seasonal borrowings to fund changes in
operating activities.
AMORTIZATION OF DEBT ISSUE COSTS ASSOCIATED WITH THE BRIDGE FACILITY: In order
to consummate the DFVC Acquisition, the Company entered into a $200 million
bridge loan facility (the "Bridge Facility"). The Bridge Facility was repaid
with the proceeds from the new senior subordinated note offering (see NOTE 4 -
"Debt - 11 7/8 Percent Senior Subordinated Notes due 2008"). Debt issuance costs
associated with the Bridge Facility were $5.5 million and were fully amortized
during the second quarter of fiscal 1999.
PROVISION FOR TAXES: The provision for taxes increased $21.4 million to $26.6
million in the first nine months of fiscal 1999 from $5.2 million in the first
nine months of fiscal 1998. Of this net increase, $25.2 million is attributable
to the provision associated with the gain on the sale of assets. The amount was
offset by a $2.1 million benefit associated with the amortization of debt issue
costs associated with the Bridge Facility. The remaining variance results from
the change in earnings before tax. Agrilink's effective tax rate is negatively
impacted by the non-deductibility of certain amounts of goodwill.
EXTRAORDINARY ITEM RELATING TO THE EARLY EXTINGUISHMENT OF DEBT: Concurrently
with the Acquisition, the Company refinanced its existing indebtedness,
including its 12 1/4 percent Senior Subordinated Notes due 2005 and its then
existing bank debt. Premiums and breakage fees associated with early redemptions
and other fees incurred amounted to $16.4 million (net of income taxes of $10.4
million and after allocation to Pro-Fac of $1.7 million).
17
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Unaudited
Consolidated Statement of Cash Flows" for the first nine months of fiscal 1999
compared to the first nine months of fiscal 1998.
Net cash used in operating activities increased $19.6 million over the prior
fiscal year. This increase primarily results from variances within accounts
receivable and accounts payable due to the timing of liquidation of outstanding
balances and an increase in estimated tax payments. The net change in operating
activities has also been impacted by the inclusion of operating activities from
the DFVC Acquisition.
Net cash used in investing activities increased significantly due to the DFVC
Acquisition offset by the subsequent sale of assets, including the disposal of
an idle facility held for sale. The purchase of property, plant and equipment
increased $2.8 million to $13.4 million for the nine months ended March 27, 1999
from $10.6 million for the nine months ended March 28, 1998 and was for general
operating purposes.
Net cash provided by financing activities also increased significantly due to
the DFVC Acquisition and the activities completed concurrent with the
Acquisition to refinance existing indebtedness. See further discussion at
"Liquidity and Capital Resources" below and at NOTE 4 - "Debt" to the "Notes to
Consolidated Financial Statements" included herein.
In addition, seasonal borrowings increased during the first nine months of
fiscal 1999 due to funding additional working capital requirements associated
with the DFVC Acquisition.
NEW CREDIT FACILITY (BANK DEBT): In connection with the Acquisition, the Company
entered into the New Credit Facility with Harris Bank as Administrative Agent
and Bank of Montreal as Syndication Agent, and the lenders thereunder. The New
Credit Facility consists of the $200 million Revolving Credit Facility and the
$455 million Term Loan Facility. The Term Loan Facility is comprised of the Term
A Facility, which has a maturity of five years, the Term B Facility, which has a
maturity of six years, and the Term C Facility, which has a maturity of seven
years. The Revolving Credit Facility has a maturity of five years.
The New Credit Facility bears interest, at the Company's option, at the
Administrative Agent's alternate base rate or LIBOR plus, in each case,
applicable margins of: (i) in the case of alternate base rate loans, (x) 1.00
percent for loans under the Revolving Credit Facility and the Term A Facility,
(y) 2.75 percent for loans under the Term B Facility and (z) 3.00 percent for
loans under the Term C Facility and (ii) in the case of LIBOR loans, (x) 2.75
percent for loans under the Revolving Credit Facility and the Term A Facility,
(y) 3.75 percent for loans under the Term B Facility and (z) 4.00 percent for
loans under the Term C Facility. The Administrative Agent's "alternate base
rate" is defined as the greater of: (i) the prime commercial rate as announced
by the Administrative Agent or (ii) the Federal Funds rate plus 0.50 percent. In
addition, the Company pays a commitment fee calculated at a rate of 0.50 percent
per annum on the daily average unused commitment under the Revolving Credit
Facility.
Upon consummation of the Acquisition, the Company drew $455 million under the
Term Loan Facility, consisting of $100 million, $175 million and $180 million of
loans under the Term A Facility, Term B Facility and Term C Facility,
respectively. Additionally, the Company drew $93 million under the Revolving
Credit Facility for seasonal working capital needs and $14.3 million under the
Revolving Credit Facility was issued for letters of credit. During December
1998, the Company's primary lender exercised its right under the New Credit
Facility to transfer $50 million from the Term A Facility to the Term B and Term
C Facilities in increments of $25 million.
18
<PAGE>
<PAGE>
The Term Loan Facility is subject to the following amortization schedule.
<TABLE>
<CAPTION>
Fiscal Year Term Loan A Term Loan B Term Loan C Total
- ----------- ----------- ----------- ----------- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
1999 $ 0.0 $ 0.1 $ 0.1 $ 0.2
2000 7.5 0.4 0.4 8.3
2001 10.0 0.4 0.4 10.8
2002 10.0 0.4 0.4 10.8
2003 10.0 0.4 0.4 10.8
2004 10.3 0.4 0.4 11.1
2005 0.0 194.9 0.4 195.3
2006 0.0 0.0 199.5 199.5
------ ------ ------ ------
$ 47.8 $197.0 $202.0 $446.8
====== ====== ====== ======
</TABLE>
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility. During the third quarter of
fiscal 1999, the Company made mandatory prepayments of $8.0 million from
proceeds of the sale of the peanut butter operations. In addition, during the
third quarter principal payments of $0.1 million were made on each of the Term
Loan A and Term Loan B facilities.
The Company's obligations under the New Credit Facility are secured by a
first-priority lien on: (i) substantially all existing or after-acquired assets,
tangible or intangible, (ii) the capital stock of certain of Pro-Fac's
(excluding PF Acquisition II, Inc., which is a subsidiary of Pro-Fac) current
and future subsidiaries, and (iii) all of the Company's rights under the
agreement to acquire DFVC (principally indemnification rights) and the Pro-Fac
Marketing and Facilitation Agreement. The Company's obligations under the New
Credit Facility are guaranteed by Pro-Fac (excluding PF Acquisition II, Inc.),
and certain of the Company's current and future, if any, subsidiaries.
The New Credit Facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities, including, but not limited
to: (i) limitations on the incurrence of indebtedness and liens, (ii)
limitations on sale-leaseback transactions, consolidations, mergers, sale of
assets, transactions with affiliates and investments and (iii) limitations on
dividend and other distributions. The New Credit Facility also contains
financial covenants requiring Pro-Fac to maintain a minimum level of
consolidated EBITDA, a minimum consolidated interest coverage ratio, a minimum
consolidated fixed charge coverage ratio, a maximum consolidated leverage ratio
and a minimum level of consolidated net worth. According to the Credit
Agreement, the assets, liabilities, and results of operations of PF Acquisition
II, Inc., which is a subsidiary of Pro-Fac, shall not be consolidated with
Pro-Fac for purposes of determining compliance with the covenants. Pro-Fac and
the Company are in compliance with all covenants, restrictions and requirements
under the terms of the New Credit Facility.
SENIOR SUBORDINATED NOTES - 11 7/8 PERCENT (DUE 2008): To extinguish the Bridge
Facility, the Company issued Senior Subordinated Notes (the "New Notes") for
$200 million aggregate principal amount due November 1, 2008. Interest on the
New Notes accrues at the rate of 11 7/8 percent per annum and is payable
semiannually in arrears on May 1 and November 1.
The New Notes represent general unsecured obligations of the Company,
subordinated in right of payment to certain other debt obligations of the
Company (including the Company's obligations under the New Credit Facility). The
New Notes are guaranteed by Pro-Fac and certain of the Company's current and
future, if any, subsidiaries.
The New Notes contain customary covenants and restrictions on the Company's
ability to engage in certain activities, including, but not limited to: (i)
limitations on the incurrence of indebtedness and liens; (ii) limitations on
consolidations, mergers, sales of assets, transactions with affiliates; and
(iii) limitations on dividends and other distributions. The Company is in
compliance with all covenants, restrictions, and requirements under the New
Notes.
SUBORDINATED BRIDGE FACILITY: To complete the Acquisition, the Company entered
into the Bridge Facility. During November 1998, the net proceeds from the sale
of the New Notes, together with borrowings under the Revolving Credit Facility,
were used to repay all the indebtedness outstanding ($200 million plus accrued
interest) under the Bridge Facility. The outstanding indebtedness under the
Bridge Facility accrued interest at an approximate rate per annum of 10 1/2
percent. Debt issuance costs associated with the Bridge Facility of $5.5 million
were fully amortized during the quarter ended December 26, 1998.
19
<PAGE>
<PAGE>
SUBORDINATED PROMISSORY NOTE: As partial consideration for the Acquisition, the
Company issued to Dean Foods a Subordinated Promissory Note for $30 million
aggregate principal amount due November 22, 2008. Interest on the Subordinated
Promissory Note is payable quarterly in arrears commencing December 31, 1998, at
a rate per annum of 5 percent until November 22, 2003, and at a rate of 10
percent thereafter. Interest accruing through November 22, 2003 is required to
be paid in kind through the issuance by the Company of additional subordinated
promissory notes identical to the Subordinated Promissory Note. The Company
satisfied this requirement through the issuance of two additional promissory
notes each for approximately $0.4 million on December 31, 1998 and March 31,
1999. Interest accruing after November 22, 2003 is payable in cash. The
Subordinated Promissory Note may be prepaid at the Company's option without
premium or penalty.
The Subordinated Promissory Note is expressly subordinate to the New Notes and
the New Credit Facility and contains no financial covenants. The Subordinated
Promissory Note is guaranteed by Pro-Fac.
SENIOR SUBORDINATED NOTES - 12 1/4 PERCENT (DUE 2005): In conjunction with the
Acquisition, the Company repurchased $159,985,000 principal amount of its Old
Notes, of which $160 million aggregate principal amount was previously
outstanding. The Company paid a total of approximately $184 million to
repurchase the Old Notes, including interest accrued thereon of $2.9 million.
Holders who tendered consented to certain amendments to the indenture relating
to the Old Notes, which eliminated or amended substantially all the restrictive
covenants and certain events of default contained in such indenture. The Company
may repurchase the remaining Old Notes in the future in open market
transactions, privately negotiated purchases or otherwise.
INTEREST RATE RISK MANAGEMENT: The Company is subject to market risk from
exposure to changes in interest rates based on its financing activities. The
Company has entered into certain financial instrument transactions to maintain
the desired level of exposure to the risk of interest rate fluctuations and to
minimize interest expense. More specifically, the Company has entered into two
interest rate swap agreements with the Bank of Montreal. The agreements provide
for fixed interest rate payments by the Company in exchange for payments
received at the three-month LIBOR rate. See further discussion at NOTE 4 "Debt -
Interest Rate Protection Agreements" to the "Notes to Consolidated Financial
Statements" included herein.
The following is a summary of the Company's interest rate swap agreements:
<TABLE>
<CAPTION>
March 27, 1999
--------------
<S> <C>
Interest Rate Swap:
Variable to Fixed - notional amount $250,000,000
Average pay rate 4.96-5.32%
Average receive rate 5.07%
Maturities through 2001
</TABLE>
The Company has the option of extending one of the interest rate swap
agreements, with a notional amount of $100,000,000 and expiration date of
October 5, 2001, for an additional two years through October 5, 2003.
While there is potential that interest rates will fall, and hence minimize the
benefits of the Company's hedge position, it is the Company's position that on a
long-term basis, the possibility of interest rates increasing exceeds the
likelihood of interest rates decreasing. The Company will, however, monitor
market conditions to adjust its position as it considers necessary.
OTHER MATTERS
RESTRUCTURING: During the third quarter of fiscal 1999, the Company began
implementation of a corporate-wide restructuring program. The overall objectives
of the plan are to reduce expenses, improve productivity, and streamline
operations. The total restructuring charge amounted to $5.0 million and was
primarily comprised of employee termination benefits (which will improve annual
earnings by approximately $8.0 million). Efforts will focus on the consolidation
of operating functions and the elimination of approximately five percent of the
work force. Reductions in personnel will include operational and administrative
positions. The majority of such termination benefits will be liquidated during
the next 12 months.
Snyder of Berlin Facility Strike:
In April 1999, approximately 160 workers at the Company's Snyder of Berlin
facility, in Berlin, Pennsylvania went out on strike. The Snyder facility
employs a total of approximately 370 people, approximately 160 are members of
the union. The Company is currently producing the snack products otherwise
produced at the Snyder facility at outside locations. Sales of the Company's
Snyder products represent less than 4% of the Company's total business. The
Company is negotiating with the union. To date the strike has not had a
material impact on the Company's financial condition or operations.
20
<PAGE>
<PAGE>
SHORT- AND LONG-TERM TRENDS: The vegetable and fruit portions of the business
can be positively or negatively affected by weather conditions nationally and
the resulting impact on crop yields. Favorable weather conditions can produce
high crop yields and an oversupply situation. This results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
The crop and yield resulting from the 1998 growing season has resulted in an
increased vegetable supply throughout the industry. Accordingly, pricing has
been negatively impacted during the third quarter. Management believes this
trend will continue during the fourth quarter.
YEAR 2000 READINESS DISCLOSURE: A full inventory and analysis of business
applications and related software was performed and the Company 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-information technology 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 the Company 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 timely converted, 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.
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.
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 11 to 20) and other statements made in this Form 10-Q 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;
21
<PAGE>
<PAGE>
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
(including whether the anticipated cost savings in connection with
acquisitions will be realized and the timing of any such realization),
and the availability of acquisition and alliance opportunities;
the Company's ability to achieve gains in productivity and improvements
in capacity utilization; and
the Company's ability to service debt.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
4.1(1) Indenture, dated as of November 18, 1998,
between Agrilink Foods, Inc., the Guarantors
named therein and IBJ Schroder Bank & Trust
Company, Inc. as Trustee.
4.2(1) Form of 11 7/8 Senior Subordinated Notes due
2008 (included as Exhibit B to Exhibit 4.1).
4.3(1) Registration Rights Agreement, dated as of
November 18, 1998, among Agrilink Foods, Inc.
Pro-Fac Cooperative, Inc., Warburg Dillon Read
LLC, and Nesbitt Burns Securities Inc.
10.1(2) Credit Agreement among Agrilink Foods, Inc.,
Pro-Fac Cooperative, Inc., and Harris Trust
and Savings Bank, and Bank of Montreal,
Chicago Branch, and the Lenders from time to
time party hereto, dated September 23, 1998.
10.2(2) $200,000,000 Senior Subordinated Credit
agreement among Agrilink Foods, Inc., Pro-Fac
Cooperative, Inc., and Warburg Dillon Read LLC
and UBS AG, Stamford Branch, and the Lenders
from time to time party hereto, dated
September 23, 1998.
10.3(2) Subordinated Promissory Note among Agrilink
Foods, Inc. and Dean Foods Company, dated as
of September 23, 1998.
10.4 Service Agreement among Agrilink Foods, Inc.,
and PF Acquisition II, Inc., dated as of
February 22, 1999.
10.5 Amendment to Marketing and Facilitation Agreement
between Agrilink Foods, Inc. and Pro-Fac dated
September 23, 1998.
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference from Registrant's Form S-4 filed January 5, 1999.
(2) Incorporated by reference from Registrant's fiscal 1999 first quarter report
on Form 10-Q filed November 6, 1998.
(b) The following reports on Form 8-K were filed during the period to which
this report relates:
<TABLE>
<CAPTION>
Date Item
---- -----------------------------
<S> <C>
March 4, 1999 Item 5 - Other Events
</TABLE>
22
<PAGE>
<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.
<TABLE>
<S> <C>
AGRILINK FOODS, INC.
Date: May 10, 1999 By: /s/ Earl L. Powers
_______________________ ___________________________________________
EARL L. POWERS
VICE PRESIDENT FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
23
<PAGE>
<PAGE>
SERVICE AGREEMENT
THIS AGREEMENT is made as of this 22 day of February, 1999 by and between
PF ACQUISITION II, INC., a New York corporation with offices at Salem,
Oregon (the "Company") and AGRILINK FOODS, INC., a New York corporation, with
offices at 90 Linden Place, Rochester New York ("AFI").
WITNESSETH:
WHEREAS, the Company has been formed by Pro-Fac Cooperative, Inc. (the sole
shareholder of AFI) to acquire substantially all of the frozen food business
assets of Agripac, Inc., an Oregon cooperative corporation and debtor and
debtor-in-possession, and to engage in processing, production, distribution and
sale of frozen vegetables; and
WHEREAS, the Company has requested and AFI has agreed to provide certain
administrative and executive consulting services to the Company, on the terms
and conditions set forth below; and
WHEREAS, the Company and AFI have negotiated and entered into this
Agreement on an arms-length basis and with the consent of their respective third
party institutional lenders;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. SERVICES TO THE COMPANY. AFI hereby agrees during the
term of this agreement to provide to the Company (collectively,
the "Services"):
(a) general selling and administrative services, including by way of
example and not limitation, financial, accounting, purchasing, human resources,
research and development, agricultural, employee benefits, quality assurance,
computer and information systems, order entry, and customer and engineering
services, as more fully described in Exhibit 1(a); and
(b) executive management consulting services and advice as requested from
time to time by the Company (provided that the Company shall at all times retain
responsibility for and the absolute right to make all policy, business and other
decisions); and
(c) such other services as the parties may, during the term of this
Agreement, determine, which shall be set forth in Exhibit 1(a) as amended from
time to time by mutual agreement of the parties hereto;
(d) AFI shall indemnify, defend and hold the Company harmless from and
against any claims, liabilities, loss, costs or expense, including reasonable
attorney's fees and expenses resulting from AFI's gross negligence or wilful
misconduct in its performance pursuant to this Agreement.
<PAGE>
<PAGE>
2. COMPENSATION.
(a) In consideration for AFI providing such Services, the Company agrees to
pay to AFI at the rate of One Million Dollars ($1,000,000) per annum, such
amount to be payable monthly in arrears in the amounts set forth in the Table
below on the second day of each fiscal month of the Company commencing on March
1, 1999 through and including June 3, 2002, unless this Agreement is earlier
terminated as set forth herein.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Fiscal Monthly Payments Due During Each Fiscal Quarter of the Company
- -----------------------------------------------------------------------------
Due for Fiscal Month 1 Due For Fiscal Month 2 Due for Fiscal Month 3
- -----------------------------------------------------------------------------
<S> <C> <C>
$96,153.84 $76,923.08 $76,923.08
- -----------------------------------------------------------------------------
</TABLE>
(b) In addition, for each fiscal year (as herein defined) of the Company,
the Company shall pay to AFI an amount equal to 40% of the amount by which the
Company's EBITDA (as herein defined) for such fiscal year exceeds $12,000,000
(the "Supplemental Payment"). For purposes of this Agreement, the Company's
"fiscal" year shall be the twelve (12) month period ending on the last Saturday
of June. The first fiscal year of the Company for purposes of the supplemental
payment shall be the fiscal year ending June 24, 2000. In the event of a
termination of this Agreement prior to the end of June 2002, other than as a
result of a breach by AFI of its obligations hereunder, the Supplemental Payment
shall be determined using a ratable portion of $12,000,000 based upon that
portion of the current fiscal year that has expired as of the effective date of
termination. For purposes of this Agreement "EBITDA" shall mean, for each fiscal
year (or portion thereof, as applicable) of the Company, the sum of the amounts
for such period of (i) the net income of the Company (calculated in accordance
with GAAP), plus (ii) in each case to the extent deducted in determining the
Company's net income for such period (and without duplication), (A) the
provision for income taxes of the Company based on income and profits of the
Company, (B) the amortization expense of the Company, (C) the depreciation
expense of the Company, (D) the total interest expense of the Company (including
without limitation imputed interest, commissions and similar fees owed with
respect to letters of credit and bankers' acceptances, net costs associated with
hedging obligations, amortization of financing fees and expenses, the interest
portion of deferred payment obligations, amortization of any debt discount or
premium, all other non-cash expense, and capitalized interest) and (E) all other
non-cash items reducing net income, plus (iii) without duplication, any amounts
payable to AFI under subsections (a) and (b) of Section 2 of this Agreement for
such fiscal year period (regardless of whether actual cash payment of such
amounts is made in such fiscal year period), minus (iv) all non-cash items for
such period to the extent such items increased net income for such period. Any
amount payable by the Company to AFI under this Section 2(b) shall be paid
within 90 days of the end of each such fiscal year.
2
<PAGE>
<PAGE>
(c) To the extent that any payment to AFI is not made in full on or before
the date due, interest shall accrue on the unpaid amount until the date of
payment in full at a rate equal to the average rate of interest then being paid
by the Company to its institutional lenders.
3. TERM. This Agreement shall remain in effect until the end of the fiscal
year of the Company in June 2002, unless extended by further agreement of the
Company and AFI; provided, however, that:
(a) Termination in Event of Company Change in Control. AFI may terminate
this Agreement immediately upon a minimum of one hundred eighty (180) days
written notice to the Company in the event that any of the common stock of the
Company is owned by a person or entity other than Pro-Fac Cooperative, Inc.
(b) Partial Termination. The Services provided under this
Agreement may be terminated in part by mutual agreement of the
Company and AFI which shall specify the Services which are being
terminated.
4. ACCESS TO RECORDS. AFI, through its officers, board of directors and
independent accountants, shall have free access during normal business hours to
all books and records of the Company that AFI may deem necessary or appropriate
for the performance of the Services hereunder or for the determination of
EBITDA.
5. NOTICES. Any notice required to be given under this Agreement shall be
deemed to have been duly given and effective, when delivered by facsimile, hand
or mailed, certified or registered with postage prepaid:
If to the Company to: PF Acquisition II, Inc.
325 Patterson Street, N.W.
Salem, Oregon 97304
Attn: President
Facsimile: (503) 371-5666
If to AFI to: Agrilink Foods, Inc.
90 Linden Place
Rochester, NY 14625
Attn: Dennis M. Mullen, President
Facsimile: (716) 383-1606
or to such other person or address as a party shall submit to the other party in
writing.
6. ASSIGNMENT. This Agreement may not be assigned by either
party without the prior written consent of the other.
3
<PAGE>
<PAGE>
7. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
permitted assigns.
8. ENTIRE AGREEMENT. This Agreement represents the entire agreement between
the parties with respect to the subject matter hereof and may not be amended or
modified without the prior written consent of each party.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
10. RENEGOTIATION. In the event that any statute, law, regulation, rule,
order or interpretation renders any provision of this Agreement illegal, the
parties hereto agree to use their best efforts to remedy the situation by
renegotiating the terms of this Agreement within thirty (30) days after notice
to the other party.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
conflict of law principles thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PF ACQUISITION II, INC.
By: /s/ Earl L. Powers
________________________
Earl L. Powers, Vice President
AGRILINK FOODS, INC.
By: /s/ Earl L. Powers
------------------------
Earl L. Powers, Chief Financial Officer
4
<PAGE>
<PAGE>
Exhibit 1(a)
Detailed Description of Services
Additional Services
None as of February 22, 1999.
5
<PAGE>
<PAGE>
AMENDMENT TO THE MARKETING AND FACILITATION AGREEMENT
This Amendement dated as of September 23, 1998 between Pro-Fac Cooperative,
("Pro-Fac") and Agrilink Foods, Inc. ("Agrilink").
WHEREAS, Pro-Fac entered into the Marketing and Facilitation Agreement (the
"Agreement"), dated November 3, 1994 with Curtice-Burns Foods, Inc., and
WHEREAS, Curtice-Burns Foods, Inc. amended its Certificate of Incorporation
to change its name to Agrilink, and
WHEREAS, Pro-Fac and Agrilink are now desirous of amending the Agreement,
it is agreed as follows:
1. Section 7 of the Agreement is hereby amended to read as follows:
7. Borrowings by Pro-Fac. Agrilink shall to the extent requested by
Pro-Fac lend to Pro-Fac funds for use as Pro-Fac Working Capital in amounts
not exceeding $40,000,000 at any time outstanding, on which Pro-Fac shall pay
the interest to Agrilink at the same rate paid by Agrilink for seasonal
financing. Pro-Fac shall for a period of not less than 15 consecutive days
during each fiscal year repay the entire amount of Pro-Fac Working Capital.
2. Section 25 of the Agreement is hereby amended to read as follows:
25. Term. This agreement shall remain in effect until terminated by
the parties; provided, however, this agreement shall not be terminated so long
as either (a) any indebtedness remains outstanding under the Senior Subordinated
Credit Agreement (the "Credit Agreement") dated September 23, 1998 by and among
Agrilink, Pro-Fac, other Guarantors (as defined in the Credit Agreement),
Warburg Dillon Read LLC, UBS AG, Stamford Branch, and the Lenders (as defined in
the Credit Agreement) or (b) any indebtedness remains outstanding pertaining to
the Refinancing Securities (as defined in the Credit Agreement).
IN WITNESS WHEREOF, the parties have each caused this Amendment to be
entered into and executed as of the date first above written.
<TABLE>
<S> <C>
PRO-FAC COOPERATIVE, INC. AGRILINK FOODS, INC.
By: /s/ Earl L. Powers By: /s/ Dennis M. Mullen
------------------ -------------------
Title: Vice-President Title: President and CEO
----------------- -------------------
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Agrilink
Foods, Inc. Form 10-Q for the period ended March 27, 1999 and is qualified
in its entirety by reference to such financial statement.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> MAR-27-1999
<CASH> 7,464
<SECURITIES> 0
<RECEIVABLES> 106,345
<ALLOWANCES> 0
<INVENTORY> 326,929
<CURRENT-ASSETS> 484,054
<PP&E> 423,788
<DEPRECIATION> 88,061
<TOTAL-ASSETS> 1,179,146
<CURRENT-LIABILITIES> 271,501
<BONDS> 200,015
0
0
<COMMON> 0
<OTHER-SE> 170,554
<TOTAL-LIABILITY-AND-EQUITY> 1,179,146
<SALES> 911,467
<TOTAL-REVENUES> 911,467
<CGS> 634,151
<TOTAL-COSTS> 634,151
<OTHER-EXPENSES> 159,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,815
<INCOME-PRETAX> 66,436
<INCOME-TAX> 26,601
<INCOME-CONTINUING> 39,835
<DISCONTINUED> 0
<EXTRAORDINARY> 16,366
<CHANGES> 0
<NET-INCOME> 23,469
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
