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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION FILE NO. 333-70143
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AGRILINK FOODS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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NEW YORK 2030 16-0845824
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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AND ITS GUARANTORS
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PRO-FAC COOPERATIVE, INC. NEW YORK 2030 16-6036816
KENNEDY ENDEAVORS, INCORPORATED WASHINGTON 2096 91-1350382
LINDEN OAKS CORPORATION DELAWARE 9999 52-2043917
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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90 LINDEN OAKS
P.O. BOX 20670
ROCHESTER, NEW YORK 14602
(716) 383-1850
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
EARL L. POWERS
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
AGRILINK FOODS, INC.
90 LINDEN OAKS, P.O. BOX 20670
ROCHESTER, NEW YORK 14602
(716) 383-1850
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
J. D. WEINBERG, ESQ.
HOWARD, SMITH & LEVIN LLP
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SEEKING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1999
AGRILINK FOODS, INC.
Exchange offer of
$200,000,000 of our 11 7/8% Senior Subordinated Notes due 2008
for all of our outstanding 11 7/8% Senior Subordinated Notes due 2008
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED
THE EXCHANGE NOTES
The terms of the new 11 7/8% Senior Subordinated Notes due 2008 that we are
offering hereby (which we call our Exchange Notes) are substantially
identical to the terms of our already outstanding 11 7/8% Senior
Subordinated Notes due 2008 (which we call our Initial Notes). The
difference between them is that the Exchange Notes will be freely
transferable and will not have any covenants regarding exchange and
registration rights.
MATERIAL TERMS OF THE EXCHANGE OFFER
This exchange offer expires 5 p.m., New York City time, on ,
1999, unless extended.
This exchange offer is subject to certain customary conditions, including
the condition that this exchange offer not violate any applicable law or
any applicable interpretation of the staff of the Securities and Exchange
Commission.
Tenders of Initial Notes may be withdrawn any time prior to the expiration
of this exchange offer.
All Initial Notes that are validly tendered and not withdrawn will be
exchanged for Exchange Notes.
We will not receive any proceeds from this exchange offer.
All broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act.
We do not intend to apply for listing of the Exchange Notes on any
securities exchange or to arrange for them to be quoted on any quotation
system.
INVESTING IN THE EXCHANGE NOTES INVOLVES CERTAIN RISKS. SEE 'RISK FACTORS'
BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is , 1999
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TABLE OF CONTENTS
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Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 10
Where You Can Find More Information........................................................................ 16
Forward-Looking Information................................................................................ 17
Market and Industry Data................................................................................... 17
The Company and Pro-Fac.................................................................................... 18
The Transactions........................................................................................... 18
Use of Proceeds............................................................................................ 20
Capitalization............................................................................................. 20
The Exchange Offer......................................................................................... 21
Unaudited Pro Forma Financial Data of the Company.......................................................... 30
Selected Historical and Unaudited Pro Forma Consolidated Financial Data of Agrilink and DFVC............... 35
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 39
Business................................................................................................... 56
Description of Certain Indebtedness........................................................................ 58
Description of Notes....................................................................................... 62
Certain U.S. Federal Income Tax Considerations............................................................. 97
Plan of Distribution....................................................................................... 97
Legal Matters.............................................................................................. 98
Experts.................................................................................................... 98
Index to Consolidated Financial Statements and Other Information........................................... F-1
</TABLE>
------------------------
Our principal executive offices are located at 90 Linden Oaks, P.O. Box.
20670, Rochester, New York 14602. Our telephone number is 716-383-1850.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus or incorporated by reference in this prospectus. We
are not making offers to exchange Notes or soliciting offers to exchange Notes
in any jurisdiction in which such an offer or solicitation is not authorized or
in which the person making such offer or solicitation is not qualified to do so
or to anyone to whom it is unlawful to make such offer or solicitation.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
appearing elsewhere or incorporated by reference in this prospectus. Unless the
context otherwise requires, as used in this prospectus, 'we,' 'our,' 'us,' and
the 'Company' mean Agrilink Foods, Inc. and its direct and indirect
subsidiaries; 'Agrilink' means Agrilink Foods, Inc.; and 'Pro-Fac' means our
parent corporation, Pro-Fac Cooperative, Inc. For purposes of the financial and
other information, references to 'fiscal years' and 'fiscal quarters' mean a
last Saturday of June fiscal year end and last Saturday of the relevant month
fiscal quarter end for the Company and Pro-Fac, and a last Sunday of May fiscal
year end and last Sunday of August fiscal quarter end for Dean Foods Vegetable
Company and its subsidiaries (collectively, 'DFVC'). Other references to years
mean calendar years.
THE COMPANY
We are a leading producer and marketer of diversified processed food
products, including frozen and canned vegetables and fruits, fruit fillings and
toppings, canned chilies and stews, salad dressings, pickles and snack foods.
Many of our brand name products enjoy leading national or regional market
shares, including Birds Eye, Freshlike and Veg-All frozen and canned vegetables,
Comstock, Wilderness and Thank You fruit fillings and toppings, Nalley chilies
and stews and Bernstein's salad dressings. We also sell our products to
supermarkets, warehouse clubs and mass merchandisers under private labels and to
food service institutions such as restaurants, caterers, bakeries and schools.
We operate 29 strategically located processing facilities throughout the United
States and in Mexico, which provide us access to diverse sources of raw
agricultural products. We distribute our finished products to over 13,000
customer distribution points through a nationwide network of distribution
centers and food brokers and a regional direct sales force.
We are a wholly owned subsidiary of Pro-Fac, a New York agricultural
cooperative corporation formed in 1960 to process and market crops grown by its
members. In 1994 we entered into the Pro-Fac Marketing and Facilitation
Agreement (as amended, the 'Marketing Agreement') with Pro-Fac. The Marketing
Agreement provides for Pro-Fac to supply crops and additional financing to us,
for us to provide marketing and management services to Pro-Fac and for Pro-Fac
to share in our profits or losses. See 'The Company and Pro-Fac.'
THE TRANSACTIONS
The Acquisition of DFVC
On September 24, 1998, we acquired (the 'Acquisition') DFVC, the frozen and
canned vegetable business of Dean Foods Company ('Dean Foods'), by acquiring
from Dean Foods all the outstanding capital stock of Dean Foods Vegetable
Company and Birds Eye de Mexico SA de CV ('Birds Eye Mexico'). In connection
with the Acquisition, we sold our aseptic business to Dean Foods. We paid $360.0
million in cash, net of the sale of the aseptic business, and issued to Dean
Foods a $30.0 million unsecured subordinated promissory note due November 22,
2008 (the 'Subordinated Promissory Note'), as consideration for the Acquisition.
We have the right, until July 15, 1999, to require Dean Foods, jointly with us,
to treat the Acquisition as an asset sale for tax purposes under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the 'Code'). Upon
exercising that election, which we intend to do, we will pay an additional $13.2
million to Dean Foods.
After the Acquisition, Dean Foods Vegetable Company was merged into us (the
'Merger'), and Dean Foods Vegetable Company became a division of ours known as
'Agrilink Foods Vegetable Company' or 'AFVC.' DFVC has been one of the leading
processors of vegetables in the United States, selling its products under brand
names such as Birds Eye, Freshlike and Veg-All,
3
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and private labels. We believe that the Acquisition strengthens our competitive
position by enhancing our brand recognition and market position, providing
opportunities for cost savings and operating efficiencies, and increasing our
product and geographic diversification.
The Refinancing
Concurrently with the Acquisition, we refinanced our then existing
indebtedness, which included our 12.25% Senior Subordinated Notes due 2005 (the
'Old Notes') and our then existing bank debt. We conducted a tender offer for
all the Old Notes and a consent solicitation to certain amendments of the
indenture governing the Old Notes. Substantially all of the $160.0 million
aggregate principal amount of the Old Notes were tendered and were purchased by
us for an aggregate amount of approximately $184.0 million, including accrued
interest of $2.9 million. The amendments to the indenture governing the Old
Notes were adopted. We also terminated our old credit facility and repaid the
$176.5 million of indebtedness outstanding thereunder. We refer to the
Acquisition, the Merger, the sale of the aseptic business and the refinancing
of our then existing indebtedness collectively as the 'Transactions.'
In order to consummate the Transactions and pay the related fees and
expenses, we:
entered into and drew upon the new credit facility providing for a $455.0
million term loan facility and up to $200.0 million of revolving credit
borrowings under a revolving credit facility;
entered into and drew upon a $200.0 million bridge loan facility; and
issued the $30.0 million Subordinated Promissory Note to Dean Foods.
We repaid the bridge facility on November 18, 1998, principally with the
proceeds of the offering of the Initial Notes (the 'Initial Notes Offering').
RECENT DEVELOPMENTS
In December 1998, we and Pro-Fac announced that Pro-Fac has entered into a
letter of intent for Pro-Fac to acquire the frozen vegetable processing business
of Agripac, Inc., an Oregon cooperative. Agripac, which processes both frozen
and canned vegetables in the Northwest, reported approximately $180.0 million in
aggregate sales for its fiscal 1998 (including both frozen and canned
vegetables). Agripac operates 8 plant facilities located in the states of Oregon
and Washington and employs approximately 600 people. It currently sources from
approximately 190 growers in the Northwest. On January 4, 1999, Agripac filed a
voluntary petition under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court.
PF Acquisition II, Inc., a new subsidiary of Pro-Fac formed in January
1999, will, if the transaction is consummated, acquire substantially all
of the assets of the frozen vegetable (and not canned) processing business of
Agripac for a purchase price of approximately $90.0 million. As a condition to
consummation of the transaction, PF Acquisition must enter into crop delivery
contracts with Agripac growers acceptable to PF Acquisition. In order to
consummate the transaction, neither we nor Pro-Fac will loan or otherwise
contribute any funds (other than in a de minimus amount) to PF Acquisition or
guarantee or otherwise secure with our or Pro-Fac's assets the approximately
$90.0 million of indebtedness to be incurred by PF Acquisition in connection
with the transaction.
The transaction is subject to numerous conditions, including the Bankruptcy
Court's approval of the proposed transaction, Agripac's receiving sufficient
financing for the acquisition and for working capital, finalization of
agreements, board approval, regulatory approval and due diligence. We anticipate
that we will enter into an administrative services agreement with PF Acquisition
to provide it with certain administrative and managerial support in exchange for
a management fee.
4
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SUMMARY OF THE EXCHANGE OFFER
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Registration Rights Agreement................ We issued the Initial Notes on November 18, 1998 to Warburg Dillon
Read LLC and Nesbitt Burns Securities Inc. (the 'Initial
Purchasers'). The Initial Purchasers placed the Initial Notes with
institutional investors in transactions exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) and/or Regulation S under the Securities Act and
applicable state securities laws. In connection with this private
placement, the Company, Pro-Fac and the Initial Purchasers entered
into the Registration Rights Agreement, which provides, among
other things, for the Exchange Offer.
The Exchange Offer........................... We are offering Exchange Notes in exchange for an equal principal
amount of Initial Notes. As of this date, there is $200,000,000
aggregate principal amount of Initial Notes outstanding. Initial
Notes may be tendered only in integral multiples of $1,000.
Resale of Exchange Notes..................... We believe that the Exchange Notes issued in the Exchange Offer
may be offered for resale, resold or otherwise transferred by you
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
you are acquiring the Exchange Notes in the ordinary course of
your business;
you are not participating, do not intend to participate, and
have no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes; and
you are not an 'affiliate' of ours.
If any of the foregoing are not true and you transfer any Exchange
Note without registering such Exchange Note and delivering a
prospectus meeting the requirements of the Securities Act, or
without an exemption from registration of your Exchange Notes from
such requirements, you may incur liability under the Securities
Act. We do not assume or indemnify you against such liability.
Each broker-dealer that is issued Exchange Notes for its own
account in exchange for Initial Notes that were acquired by such
broker-dealer as a result of market making or other trading
activities must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with
any resale of the Exchange Notes. A broker-dealer may use this
prospectus for an offer to resell, resale or other retransfer of
the Exchange Notes. Subject to certain limitations, we will take
steps to ensure that the issuance of the Exchange Notes will
comply with state securities or 'blue sky' laws.
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Consequences of Failure to Exchange Initial
Notes...................................... If you do not exchange your Initial Notes for Exchange Notes, you
will no longer be able to compel us to register the Initial Notes
under the Securities Act. In addition, you will not be able to
offer or sell the Initial Notes unless they are registered under
the Securities Act (and we will have no obligation to register
them, except for some limited exceptions), or unless you offer or
sell them under an exemption from the requirements of, or a
transaction not subject to, the Securities Act.
Expiration of the Exchange Offer............. The Exchange Offer will expire at 5:00 p.m., New York City Time,
on , 1999 (the 'Expiration Date'), unless
we decide to extend the Expiration Date.
Conditions to the Exchange Offer............. The Exchange Offer is not subject to any condition other than
certain customary conditions, including that:
the Exchange Offer does not violate any applicable law or
applicable interpretation of law of the staff of the
Securities and Exchange Commission;
no litigation materially impairs our ability to proceed with
the Exchange Offer; and
we obtain all the governmental approvals we deem necessary for
the Exchange Offer.
Procedures for Tendering Initial Notes....... If you wish to accept the Exchange Offer, you must complete, sign
and date the Letter of Transmittal, or a facsimile of the Letter
of Transmittal, and transmit it together with all other documents
required by the Letter of Transmittal (including the Initial Notes
to be exchanged) to IBJ Whitehall Bank & Trust Company, as
exchange agent (the 'Exchange Agent') at the address set forth on
the cover page of the Letter of Transmittal. In the alternative,
you can tender your Initial Notes by following the procedures for
book-entry transfer, as described in this document.
Guaranteed Delivery Procedures............... If you wish to tender your Initial Notes and you cannot get your
required documents to the Exchange Agent by the Expiration Date,
you may tender your Initial Notes according to the guaranteed
delivery procedure under the heading 'The Exchange
Offer -- Guaranteed Delivery Procedures.'
Special Procedure for Beneficial
Holders.................................... If you are a beneficial holder whose Initial Notes are registered
in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your Initial Notes in the
Exchange Offer, you should contact the registered holder promptly
and instruct the registered holder to tender your Initial Notes on
your behalf. If you are a beneficial holder and you wish to tender
your Initial Notes on your own behalf, you must, prior to
delivering the Letter of Transmittal and your Initial Notes to the
Exchange Agent, either
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make appropriate arrangements to register ownership of your
Initial Notes in your own name or obtain a properly completed bond
power from the registered holder.
Withdrawal Rights............................ You may withdraw the tender of your Initial Notes at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw, you must send a written or facsimile transmission of
your notice of withdrawal to the Exchange Agent at its address set
forth herein under 'The Exchange Offer -- Exchange Agent' by 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Initial Notes and Delivery of
Exchange Notes............................. Subject to certain conditions, we will accept any and all Initial
Notes that are properly tendered in the Exchange Offer and not
withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. We will deliver the Exchange Notes promptly after
the Expiration Date.
Tax Considerations........................... We believe that the exchange of Initial Notes for Exchange Notes
will not be a taxable exchange for federal income tax purposes,
but you should consult your tax adviser about the tax consequences
of this exchange. See 'Certain U.S. Federal Income Tax
Considerations.'
Exchange Agent............................... IBJ Whitehall Bank & Trust Company is serving as exchange agent in
connection with the Exchange Offer.
Fees and Expenses............................ We will bear all expenses related to consummating the Exchange
Offer and complying with the Registration Rights Agreement.
Use of Proceeds.............................. We will not receive any cash proceeds from the issuance of the
Exchange Notes. We used the proceeds from the sale of the Initial
Notes, together with borrowings under the Revolving Credit
Facility, to repay our outstanding obligations under the bridge
facility.
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
Notes Offered................................ $200,000,000 aggregate principal amount of 11 7/8% Senior
Subordinated Notes due 2008 issued by Agrilink Foods, Inc. The
form and terms of the Exchange Notes are the same as the form and
terms of the Initial Notes, except that the Exchange Notes will be
registered under the Securities Act and, therefore, will not bear
legends restricting their transfer and will not be entitled to
registration under the Securities Act. The Exchange Notes will
evidence the same debt as the Initial Notes and both the Initial
Notes and the Exchange Notes are governed by the same indenture.
Maturity..................................... November 1, 2008.
Interest Payment Dates....................... May 1 and November 1 of each year, commencing May 1, 1999.
Interest on the Exchange Notes............... The Exchange Notes will accrue interest at 11 7/8% per year, from
either the last date we paid interest on the
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Initial Notes that you exchanged, or, if no interest has been paid
on the Initial Notes, from November 18, 1998.
Sinking Fund................................. None.
Optional Redemption.......................... We have the right to redeem the Exchange Notes, in whole or in
part at any time and from time to time, on or after November 1,
2003, at the redemption prices described in this prospectus under
the heading 'Description of Notes -- Optional Redemption of the
Notes,' plus accrued and unpaid interest, if any, to the date of
redemption. We also have the right to redeem up to 35% of the
aggregate principal amount of the Notes originally issued, at any
time prior to November 1, 2001, at a redemption price equal to
111.875% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, with the net proceeds of
one or more Equity Offerings; provided, however, that at least
$130.0 million in aggregate principal amount of the Notes remains
outstanding following each such redemption.
Change of Control............................ Upon the occurrence of a Change of Control, we will be required to
offer to purchase all or any part of each holder's Notes at a
price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of purchase. We may not
have the financial resources necessary, or me may not be permitted
by our debt or other agreements (including the new credit
facility), to purchase the Notes upon a Change of Control.
Subordination................................ The Exchange Notes will be unsecured and will be subordinated in
right of payment to all existing and future senior indebtedness of
Agrilink, including the borrowings under the new credit facility.
At December 26, 1998, we had approximately $693.5 million of
indebtedness outstanding (excluding seasonal working capital
borrowings under the revolving credit facility), of which
approximately $463.1 million constituted senior indebtedness. In
addition, we maintain significant borrowings for seasonal working
capital needs, which also constitute senior indebtedness to which
the Exchange Notes are subordinated. At December 26, 1998,
seasonal working capital borrowings under the revolving credit
facility were $85.0 million.
Guarantees................................... The Exchange Notes will be unconditionally guaranteed (the 'Note
Guarantees'), jointly and severally, by each of Pro-Fac and
certain of Agrilink's subsidiaries (the 'Subsidiary Guarantors'
and, together with Pro-Fac, the 'Guarantors'). Each Note Guarantee
will be unsecured and subordinated to such Guarantor's guarantee
of Agrilink's obligations under the new credit facility and to all
other senior indebtedness of such Guarantor.
Restrictive Covenants........................ The indenture under which the Exchange Notes will be issued will
contain covenants for your benefit which,
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among other things and subject to certain exceptions, restrict our
ability to:
incur additional indebtedness;
issue capital stock of certain subsidiaries;
pay dividends, make distributions or make other restricted
payments;
create liens;
enter into certain transactions with affiliates; and
consolidate, merge, or sell substantially all of our assets.
Absence of a Public Market for the Notes..... The Exchange Notes are new securities and there is currently no
established market for them.
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RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our unaudited consolidated ratios of
earnings to fixed charges on a historical basis and on a pro-forma basis,
adjusted to give effect to the Transactions and the Initial Notes Offering and
the application of the net proceeds therefrom as if they had occurred at the
dates referenced under 'Unaudited Pro Forma Financial Data of the Company.' For
the fiscal year ended June 24, 1995, the ratio was derived from the sum of the
results of operations for both the predecessor and successor entities relating
to the change of control of the Company in November 1994.
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FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------------------------------------- ---------------------------------
JUNE 27, 1998 DECEMBER 26, 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, ------------------ DECEMBER 27, ------------------
1994 1995 1996 1997 ACTUAL PRO FORMA 1997 ACTUAL PRO FORMA
-------- -------- -------- -------- ------ --------- ------------ ------ ---------
(DOLLARS IN MILLIONS)
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Ratio of earnings
to fixed charges
(coverage
deficiency)..... 1.95x 1.30x $(18.7) 1.20x 1.39x 1.05x 1.59x 1.13x 1.06x
</TABLE>
For purposes of calculating these ratios, we determined our earnings by
adding fixed charges to income (or loss) before taxes and before cumulative
effect of an accounting change and extraordinary item. Fixed charges consist of
interest expense and the interest component of rental expense. For fiscal 1996
earnings before fixed charges were insufficient to cover fixed charges and the
dollar amount of the coverage deficiency, instead of the ratio, is provided. We
excluded the $64.2 million gain on the sale of the aseptic business and the $5.5
million expense for the amortization of debt issue costs associated with the
bridge facility in calculating the ratio of earnings to fixed charges at
December 26, 1998.
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RISK FACTORS
You should carefully consider the following factors together with the other
matters set forth herein or incorporated by reference herein before deciding
whether to exchange your Initial Notes for Exchange Notes in the Exchange Offer.
FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
If you do not exchange your Initial Notes for Exchange Notes pursuant to
the Exchange Offer, you will continue to be subject to the restrictions on
transfer of your Initial Notes, as set forth in the legend on your Initial
Notes. The restrictions on transfer of your Initial Notes arise because we
issued the Initial Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Initial Notes may not be offered or sold,
unless registered under the Securities Act and applicable state securities laws,
or pursuant to an exemption from such requirements. We do not intend to register
the Initial Notes under the Securities Act.
After completion of the Exchange Offer, holders of Initial Notes who do not
tender their Initial Notes in the Exchange Offer will no longer be entitled to
any exchange or registration rights under the Registration Rights Agreement,
except under limited circumstances. To the extent Initial Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Initial
Notes would be adversely affected.
OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS MAY HAVE ADVERSE
CONSEQUENCES
We are highly leveraged and have significant debt service requirements. At
December 26, 1998, we had $693.5 million of indebtedness outstanding, not
including borrowings under our $200.0 million revolving credit facility. At
December 26, 1998, we had $85.0 million of indebtedness outstanding under the
revolving credit facility, representing seasonal working capital borrowings, and
we had issued $14.2 million of letters of credit under the revolving credit
facility.
Our substantial level of debt has important consequences, including the
following:
1. Our ability to obtain additional financing for working capital, capital
expenditures, general corporate purposes or other purposes may be
impaired. For example, the Indenture and the new credit facility contain
covenants imposing a number of significant operating and financial
restrictions on our business and on Pro-Fac which:
(a) limit our ability to:
incur additional indebtedness,
incur or maintain liens,
enter into transactions with affiliates,
sell or dispose of assets, and
merge, consolidate or sell substantially all of our or Pro-Fac's
assets, and
(b) require us and Pro-Fac to maintain specified levels with regard to
EBITDA, interest coverage, fixed charges coverage, leverage and
net worth.
2. A substantial portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing funds available to us for our operations, capital expenditures
or other purposes. For example:
We must make interest payments on the Notes in the amount of
approximately $23.8 million each year;
We are required to make interest payments under the new credit
facility of approximately $42.6 million each year under the term
loan facility and approximately $83,000 each year per each $1 million
borrowed under the revolving credit facility, assuming our interest
rates do not change; and
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We are required to make quarterly principal repayments under the term
loan facility beginning in the third quarter of fiscal 1999 in the
amounts of: $0.4 million in fiscal 1999, $8.3 million in fiscal 2000,
$10.8 million in each of fiscal 2001, 2002 and 2003, $13.3 million in
fiscal 2004, $198.2 million in fiscal 2005 and $202.4 million in
fiscal 2006. We would not be presently be able to make the payments
due in fiscal 2005 or 2006 out of our current cash flow and may be
unable to pay such principal amounts when they become due unless we
are able to refinance our indebtedness.
3. We are more highly leveraged than several of our competitors, requiring
us to devote a greater percentage of our cash flow to payment of debt,
rather than reinvestment into our business, than our competitors devote,
which may place us at a competitive disadvantage.
4. Certain of our loans under the new credit facility have variable or
floating interest rates. Of the $455.0 million principal amount of loans
outstanding under our term loan facility and the up to $200.0 million
principal amount of working capital loans that may be outstanding from
time to time under our revolving credit facility, we have effectively
fixed the applicable interest rates for $250.0 million of such loans for
three years through interest rate hedges. Accordingly, we remain
vulnerable to increases in interest rates, and correspondingly, our
interest costs, for the unfixed portion of the interest due for this
floating rate debt.
For these reasons, our substantial degree of leverage may limit our flexibility
in planning for or reacting to changing market conditions, reduce our ability to
withstand competitive pressures and make us more vulnerable to a downturn in
general economic conditions or in our business.
THE NOTES AND THE NOTE GUARANTEES ARE SUBORDINATED TO OTHER INDEBTEDNESS
The payment of principal of, and interest or other amounts on, the Notes is
subordinated to the prior payment in full of all of our existing and future
senior indebtedness, including all amounts owing under the new credit facility.
The Note Guarantees are similarly subordinated to all existing and future senior
indebtedness of the Guarantors, including their guarantees of the new credit
facility. Consequently, in the event we or a Guarantor undergo a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding, our or their
assets will be available to pay obligations on the Notes or the Note Guarantees
only after all of our or their senior indebtedness has been paid in full. There
may not be sufficient assets remaining to pay amounts due on the Notes after
such senior indebtedness has been paid. In addition, in the event certain
defaults occur in respect of specified senior indebtedness, we and the
Guarantors will be prohibited from paying principal, premium, interest or other
amounts on account of the Notes or any Note Guarantee.
The Notes and the Note Guarantees are not secured. Accordingly, the Notes
are effectively subordinated to all of our and the Guarantors' senior or secured
indebtedness, including the new credit facility. At December 26, 1998, we had
approximately $463.1 million of senior indebtedness outstanding, excluding the
seasonal working capital borrowings under the revolving credit facility, which
also constitute senior indebtedness. At December 26, 1998, $85.0 million of
seasonal working capital borrowings were outstanding under the $200.0 million
revolving credit facility and $14.2 million of letters of credit were issued
thereunder. Substantially all of such senior indebtedness is secured.
Pro-Fac does not have any independent operations or any significant assets
other than the capital stock of Agrilink. It is dependent upon the receipt of
payments under the Marketing Agreement described below under ' -- Our
Relationship With Pro-Fac Exposes Us to Risks Including Potential Conflicts of
Interest,' and dividends or other distributions from Agrilink to fund its
obligations, including its obligations under its Note Guarantee. In addition,
the assets and operations of the Subsidiary Guarantors are an insubstantial
portion of the assets and operations of the Company as a whole. If Agrilink is
not able to make interest or principal payments on the Notes, then it is
unlikely that Pro-Fac or the Subsidiary Guarantors would be able to meet their
obligations under their Note Guarantees.
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RESTRICTIONS IMPOSED BY TERMS OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR
OPERATING FLEXIBILITY AND DEFAULT COULD IMPAIR OUR OPERATIONS
The Indenture and the new credit facility contain covenants imposing a
number of significant operating and financial restrictions on our business and
on Pro-Fac. These covenants, among other things, limit our ability to:
incur additional indebtedness,
incur or maintain liens,
pay dividends or other distributions,
redeem capital stock of Pro-Fac and Agrilink,
make other restricted payments,
enter into transactions with affiliates,
sell or dispose of assets, and
merge, consolidate or sell all or substantially all of our or Pro-Fac's
assets.
In addition, we and Pro-Fac are required under the new credit facility to
maintain specified levels with regard to EBITDA, interest coverage, fixed
charges coverage, leverage and net worth. While these provisions are designed to
protect the holders of Notes and other indebtedness, they may also negatively
affect our ability to react to changes in market conditions or to take advantage
of business opportunities we believe to be desirable.
Our or Pro-Fac's failure to comply with these provisions in the Indenture
or the new credit facility would result in a default thereunder. A default under
the new credit facility would allow the lenders to terminate their loan
commitments under the revolving credit facility. Because we are highly dependent
on the revolving credit facility for liquidity, the termination of the revolving
credit facility could significantly impair our operations. In addition, our
creditors under the Indenture and the new credit facility could require
acceleration of the payment of principal and interest on those notes or loans
upon such a default, causing all amounts owed thereunder to be immediately due
and payable. If we are unable to repay our indebtedness under the new credit
facility, the lenders could foreclose upon their collateral. Our assets may not
be sufficient to repay our obligations under the new credit facility, other
senior indebtedness or the Notes.
DIFFICULTY IN INTEGRATING DFVC
Although we have acquired six businesses or product lines since June 1995,
our acquisition of DFVC represents by far our largest acquisition, virtually
doubling our size. The integration and consolidation of DFVC into our business
will require substantial management, financial and other resources to be
diverted from other aspects of our business, including our day-to-day operations
for at least several months following the Acquisition. We may not realize some
or all of the cost savings that we anticipate as a result of the Acquisition,
for example, we may not realize the cost savings we anticipate from the
insourcing from DFVC of product we currently purchase from outside vendors
because we may not be able to achieve necessary production levels. Although we
have established a reserve of $11.0 million for restructuring initiatives
relating to the elimination of duplicative administrative costs in conjunction
with the Acquisition, the reserve may not be adequate to cover such costs or
other costs related to the Transactions. Our inability to integrate and manage
DFVC successfully, or to achieve a substantial portion of the anticipated cost
savings within the time frame we anticipate due to administrative burdens,
economic conditions, changes in personnel or other causes, could have a material
adverse effect on our business, financial condition or results of operations.
OUR RELATIONSHIP WITH PRO-FAC EXPOSES US TO RISKS INCLUDING POTENTIAL CONFLICTS
OF INTEREST
Pro-Fac is an agricultural cooperative of over 600 members formed for the
purpose of developing and maintaining markets for its members' crops. The
principal reason Pro-Fac purchased us was to provide a long-term reliable market
for its members' crops. We paid Pro-Fac
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$44.7 million in fiscal 1996, $51.4 million in fiscal 1997 and $58.5 million in
fiscal 1998 for crops purchased from Pro-Fac's members pursuant to the Marketing
Agreement. We expect that our payments to Pro-Fac members will increase as a
result of our increased needs due to the Acquisition. Pro-Fac's members'
interest in marketing their crops will at times conflict with our interest in
maximizing our profits. In addition, as our owner and through its
representatives on Agrilink's board of directors, Pro-Fac has significant
influence over our operations, including the acquisition and disposition of
crops (including their quantity) and other assets and the making of capital
expenditures.
Pro-Fac is considering merging us into Pro-Fac with Pro-Fac as the
survivor. The Indenture permits such a merger, subject to Pro-Fac assuming our
obligations under the Notes and the Indenture and the satisfaction of certain
other conditions. In the event of our merger into Pro-Fac, the Marketing
Agreement will cease to be in effect. The Indenture, as applicable after such
merger, includes provisions that, among other things, require a majority of
'Disinterested Directors' (directors who are neither members of, nor affiliated
with, Pro-Fac) to approve the final determination of the prices that Pro-Fac
(as the survivor of the merger) will pay to its members for their crops.
OUR DEPENDENCE ON PRO-FAC; PRO-FAC COULD LOSE ITS COOPERATIVE STATUS
AND SUFFER ADVERSE TAX CONSEQUENCES
The crops purchased from Pro-Fac represented approximately 72% of all raw
agricultural crops purchased by Agrilink in fiscal 1996, 71% in 1997 and 76% in
1998. Although the percentage of our crop needs that we purchase from Pro-Fac is
initially expected to decrease while we integrate DFVC into our operations, we
anticipate that we will return to purchasing a similar percentage of our raw
agricultural products from Pro-Fac. Pro-Fac anticipates adding new members over
the next two years in order to meet the increased demand due to the Acquisition.
However, Pro-Fac may not be able to add new members in that time frame. In such
event, our need for additional raw materials will likely not be able to be
fulfilled by current Pro-Fac members. The inability of Pro-Fac to supply our raw
agricultural product requirements could cause Pro-Fac to lose its cooperative
status and suffer adverse tax consequences. Pro-Fac's loss of cooperative status
would constitute a default under the new credit facility and could have other
material adverse effects on our business, financial condition or results of
operations.
RISKS OF THE FOOD INDUSTRY
Food processors are subject to the risks of adverse changes in general
economic conditions; evolving consumer preferences and nutritional and
health-related concerns; changes in food distribution channels and increasing
buying power of large supermarket chains, warehouse clubs, mass merchandisers,
supercenters and other retail outlets that tend to resist price increases and
have stringent inventory and management requirements; federal, state and local
food processing controls; consumer product liability claims; and risks of
product tampering. The occurrence of any such change could have a material
adverse effect on our business, financial condition or results of operations.
PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD ADVERSELY AFFECT OUR BUSINESS
The packaging, marketing and distribution of food products entails an
inherent risk of product liability and product recall and resultant adverse
publicity. We may be subject to significant liability if the consumption of any
of our products causes injury, illness or death. We could be required to recall
certain of our products in the event of contamination or damage to the products.
In February 1997, we issued a nationwide recall of one of our products because
it had the potential to be contaminated with Listeria monocytogenes, a highly
infectious organism. We may be obligated to perform further recalls in the
future. In addition, we cannot guarantee that product liability claims will not
be asserted against us in the future, or that such claims will not create
adverse publicity that will have a material adverse effect on our ability to
successfully market our products and on our business, financial condition and
results of operations.
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LACK OF AVAILABILITY OF RAW MATERIALS DUE TO SEASONALITY AND OTHER FACTORS
Many of the raw materials we process are agricultural crops, and the
production of our products using these crops is predominantly seasonal. As a
result, we need access to working capital financing to meet our production
requirements during these periods. Also, the canned and frozen vegetable portion
of our business can be positively or negatively affected by weather conditions
nationally because of the weather's impact on crop yields. Favorable weather
conditions can produce high crop yields and an oversupply situation in a given
year. Oversupply typically will result in depressed selling prices and reduced
profitability on our products produced from that year's crops. Excessive rain or
drought conditions can produce low crop yields and a shortage situation.
Shortages typically result in higher selling prices and increased profitability
for our products; however, shortages could result in supply being insufficient
to meet our requirements. While the overall national supply situation controls
pricing, the supply can differ regionally because of variations in weather.
COMPLIANCE WITH ENVIRONMENTAL LAWS IMPOSES COSTS AND POTENTIAL LIABILITIES ON US
We are subject to various federal, state and local laws and regulations
relating to the protection of the environment. These environmental laws and
regulations govern the disposal of solid and liquid waste material, which
results from the preparation and processing of foods, and emissions into the
atmosphere, including odors inherent in the heating of foods during preparation.
These environmental 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, as well as operation and closure of
existing, waste treatment and related facilities. We cannot predict what
environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted or
whether new environmental conditions may be found to exist. Enactment of more
stringent laws or regulations, more strict interpretation of existing laws and
regulations or identification of new conditions may require additional
expenditures by the Company, which expenditures may be material.
WE MAY BE UNABLE TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, we will be required to offer to purchase all of
the outstanding Notes at 101% of their principal amount, plus any accrued and
unpaid interest on them to the purchase date. A Change of Control under the
Indenture will result in a default under the new credit facility. We may not
have, or may not have access to, sufficient funds, or we may not be
contractually permitted under the terms of our outstanding indebtedness
(including the new credit facility), to pay the required purchase price for all
Notes tendered by holders.
YEAR 2000 TECHNOLOGY PROBLEMS COULD CAUSE BUSINESS INTERRUPTIONS
Certain portions of our software identify years with two digits instead of
four. If not corrected, this would cause problems because the software may
recognize the year 2000 as the year 1900. We engage in a significant amount of
business and reporting activities that depend on accurate date information, such
as inventory control including monitoring dated food products. As a result, such
'Year 2000' problems could result in system failures or inaccurate reporting
that disrupts our operations. Prior to the Acquisition, we and DFVC separately
undertook full analyses of our respective business applications and related
software. We each identified certain portions of such software that we will be
required to modify or replace so that our computer systems will be cleared of
potential Year 2000 problems. The modifications and replacements of those
systems are being and will continue to be made in conjunction with our overall
information systems initiatives.
We are contacting non-information technology vendors to ensure that any of
their products that are currently in use by us can adequately deal with the Year
2000 issue. Areas we are addressing include full reviews of manufacturing
equipment, telephone and voice mail systems, security systems and other
office/site support systems. We also may be vulnerable to business
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interruptions caused by uncorrected Year 2000 problems of our customers and
significant suppliers of raw materials, products or services. We have initiated
formal communications with our significant suppliers and customers to determine
the extent to which we may be vulnerable to their failure to remedy their own
Year 2000 issues.
We do not believe that we have any material exposure to significant
business interruption as a result of the Year 2000 issue. We expect that the
costs of addressing our potential Year 2000 problems will not have a material
adverse impact on our financial position, results of operations or cash flows in
future periods. However, we cannot guarantee that all of our Year 2000 issues
will be remedied and will not cause significant business interruptions or costs,
that the systems of customers or suppliers on which our business or systems rely
will be timely converted or that a failure to convert by customers or suppliers,
or a conversion that is incompatible with our systems, would not have material
adverse effect on our business and the results of our operations.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are new securities for which there currently is no
market. We do not intend to apply for listing of the Exchange Notes on any
securities exchange or for quotation through an automated quotation system. It
is not certain that any market for the Exchange Notes will develop or that any
such market would be liquid. The market for 'high yield' securities, such as the
Exchange Notes, is volatile and unpredictable. This volatility and
unpredictability may have an adverse effect on the liquidity of, and prices for,
such securities. The Exchange Notes could trade at prices that may be lower than
their initial offering price as a result of many factors, including prevailing
interest rates and our operating results.
FRAUDULENT TRANSFER LAWS MAY LIMIT NOTEHOLDERS' RIGHTS
Under fraudulent transfer laws, a court could take certain actions
detrimental to you if it found that, at the time the Initial Notes or guarantees
of Pro-Fac or of our subsidiaries were issued:
we or a Guarantor issued the Initial Notes or a guarantee with the intent
of hindering, delaying or defrauding current or future creditors; or
we or a Guarantor received less than fair consideration or reasonably
equivalent value for incurring the indebtedness represented by the Initial
Notes or a guarantee,
and, at the same time, the court found that:
we or a Guarantor were insolvent or rendered insolvent by issuing the
Initial Notes or the guarantee;
we or a Guarantor were engaged (or about to engage) in a business or
transaction for which our assets were unreasonably small; or
we or a Guarantor intended to incur indebtedness beyond our ability to
pay, or believed or should have believed that we would incur indebtedness
beyond our ability to pay.
If a court made these findings, it could:
void all or part of our obligations, or a Guarantor's obligations, to the
holders of Exchange Notes; or
subordinate our obligations, or a Guarantor's obligations, to the holders
of Exchange Notes to other indebtedness of ours or of the Guarantor.
The effect of the court's action would be to entitle the other creditors to
be paid in full before any payment could be made on the Exchange Notes. The
court could take other action detrimental to the holders of Exchange Notes,
including in certain circumstances invalidating the Exchange Notes or a
guarantee of payment of the Exchange Notes by one of our subsidiaries. In that
event, there would be no assurance that any repayment on the Exchange Notes
would ever be recovered by the holders of Exchange Notes.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act, registering the Exchange Offer. This prospectus, which is part
of the registration statement, does not contain all of the information included
in the registration statement. Also, any statement made in this prospectus
concerning the contents of any contract, agreement or other document is not
necessarily complete. If we have filed any such contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
We and Pro-Fac are required to file periodic reports and other information
with the SEC under the Securities Exchange Act. In accordance therewith, we and
Pro-Fac file reports and other information with the Commission. In addition, we
have agreed to file with the SEC financial and other information for public
availability and to deliver to the trustee, IBJ Whitehall Bank & Trust Company,
for forwarding to you, copies of all reports that we file with the SEC without
any cost to you.
You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that we file, at the
SEC's public reference room at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549-1004, and at the SEC's Midwest Regional Office located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
its Northeast Regional Office located at 7 World Trade Center, Suite 1300, New
York, New York 10048. You can request copies of these documents, upon payment of
a duplicating fee, by writing to the SEC at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our and
Pro-Fac's SEC filings are also available to the public on the SEC's Internet
site (http://www.sec.gov).
The SEC allows us to 'incorporate by reference' the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is considered to
be part of this prospectus, and later information filed with the SEC will update
and supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act prior to the Expiration Date of the
Exchange Offer.
Our Annual Report on Form 10-K/A-1 for the year ended June 27, 1998;
Pro-Fac's Annual Report on Form 10-K/A-1 for the year ended June 27, 1998;
Our and Pro-Fac's Current Reports on Form 8-K dated October 5, 1998;
Our Quarterly Report on Form 10-Q for the quarter ended September 26,
1998;
Pro-Fac's Quarterly Report on Form 10-Q for the quarter ended September
26, 1998;
Our and Pro-Fac's Current Reports on Form 8-K dated December 3, 1998;
Our Quarterly Report on Form 10-Q for the six months ended December 26,
1998; and
Pro-Fac's Quarterly Report on Form 10-Q for the six months ended December
26, 1998.
These filings are available at the SEC's offices and internet site
described above. They are also available to holders of Initial Notes, without
charge, directly from us. You may request a copy of these filings by writing or
telephoning us at the following address: Agrilink Foods, Inc., 90 Linden Oaks,
P.O. Box 20670, Rochester, New York 14602, Attention: Vice President --
Communications; telephone: (716) 383-1850.
IN ORDER TO ENSURE TIMELY DELIVERY OF ANY COPIES OF FILINGS REQUESTED FROM
US, PLEASE WRITE OR TELEPHONE US NO LATER THAN , 1999 (FIVE BUSINESS
DAYS PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER).
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FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements, which are statements
other than statements of historical facts. We have based these forward-looking
statements on our current expectations and projections about future events,
based on the information currently available to us. Such forward-looking
statements are principally contained in the sections 'Prospectus Summary,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' 'Unaudited Pro Forma Financial Data of the Company' and 'Business,'
and in the unaudited pro forma financial data and management's discussion and
analysis of financial condition and results of operations for Pro-Fac or in
statements using the phrases 'expects' or 'anticipates' located elsewhere
herein. The forward-looking statements include, among other things, our
expectations and estimates about the Company's and Pro-Fac's business
operations, strategy, future costs savings and integration of the acquired
businesses following the Acquisition and the Offering, and our expectations and
estimates about the Company's and Pro-Fac's future financial performance,
including their financial position, cash flows from operations, capital
expenditures and the ability to refinance indebtedness.
The forward-looking statements are subject to risks, uncertainties and
assumptions about us and about the future, and could prove not to be correct.
Important factors that could cause actual results to differ materially from our
expectations are discussed in this prospectus, including in conjunction with the
forward-looking statements included in this prospectus and under 'Risk Factors.'
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 products;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer
acceptance;
the extent to which anticipated cost savings in connection with our
acquisition of Dean Foods Vegetable Company and its subsidiaries will be
realized and the timing of any such realization;
our ability to integrate the Dean Foods Vegetable Company into our
business;
our success in integrating other acquired operations and the availability
to us of acquisition and alliance, as well as disposition, opportunities;
and
our ability to achieve gains in productivity and improvements in capacity
utilization.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus may not occur.
MARKET AND INDUSTRY DATA
Industry and market share data used in this prospectus, unless otherwise
stated, was derived from industry data published by Information Resources Inc.
We have not independently verified such industry and market share data and,
although we believe it to be reliable, we cannot guarantee that it is accurate
or complete.
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THE COMPANY AND PRO-FAC
On November 3, 1994, Pro-Fac, a New York agricultural cooperative
corporation formed in 1960 to process and market crops grown by its members,
acquired the Company (known as Curtice-Burns Foods, Inc. until September 1997).
Upon consummation of the acquisition, Pro-Fac and Agrilink entered into the
Marketing Agreement. The Marketing Agreement provides for Pro-Fac to supply
crops and additional financing to the Company, for the Company to provide
marketing and management services to Pro-Fac and for Pro-Fac to share in the
profits or losses of the Company. Under the Marketing Agreement, the Company
pays Pro-Fac the Commercial Market Value for all crops supplied by Pro-Fac.
Commercial Market Value 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.
In addition, under the Marketing Agreement, Agrilink is required to have
Disinterested Directors (persons who are neither members of, nor affiliated
with, Pro-Fac) on its board of directors. The volume and type of crops to be
purchased by the Company under the Marketing Agreement are determined pursuant
to its annual profit plan which requires the approval of a majority of the
Disinterested Directors. 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% of
such earnings, but in no case more than 50% of pre-tax earnings. In years in
which the Company has losses on Pro-Fac Products, the Company reduces the
Commercial Market Value it would otherwise pay to Pro-Fac by 90% of such losses,
but in no case by more than 50% of all pre-tax losses. Additional patronage
income is paid to Pro-Fac for services provided, 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. Pro-Fac is required to
reinvest back into the Company at least 70% of the additional patronage income
received. The capital of Pro-Fac consists of common stock, preferred stock and
retained earnings allocated to members. Common stock is purchased by members
related to crops delivered. The majority of the preferred stock originated from
the conversion at par value of retained earnings allocated to members. Pro-Fac
Class A Cumulative Preferred Stock is listed under the symbol 'PFACP' on the
Nasdaq National Market System. Retained earnings allocated to members are
allocated to the accounts of members within 8.5 months of the end of each fiscal
year. See Pro-Fac's consolidated financial statements, management's discussion
and analysis of financial condition and results of operations and summary
selected historical and unaudited condensed consolidated pro forma financial
data set forth in the back of this prospectus.
Pro-Fac is considering merging the Company into Pro-Fac, with Pro-Fac
surviving such merger and the Company ceasing to exist. The Indenture will
permit such a merger of the Company into Pro-Fac, subject to Pro-Fac assuming
the obligations of the Company under the Notes and the Indenture and the
satisfaction of certain other conditions. In the event of a merger of the
Company into Pro-Fac, the Marketing Agreement will cease to be in effect. The
Indenture, as applicable after such merger, would include provisions, among
other things, requiring a majority of the Disinterested Directors to approve the
final determination of Commercial Market Value. See 'Description of Notes'
including ' -- Payments Pursuant to the Pro-Fac Marketing Agreement;
Reinvestments by Pro-Fac; Borrowings by Pro-Fac.'
THE TRANSACTIONS
THE ACQUISITION
On September 24, 1998, we acquired DFVC, the frozen and canned vegetable
business of Dean Foods, by acquiring all the outstanding capital stock of Dean
Foods Vegetable Company and Birds Eye Mexico. In connection with the
Acquisition, we sold our aseptic business to Dean Foods. We paid $360.0 million
in cash, net of the sale of the aseptic business, and issued to Dean Foods the
$30.0 million 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 Code. The Company
intends to exercise that election, because the Company anticipates that it
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would allow the Company to reduce its future tax liability through increased
depreciation and amortization deductions resulting from the stepped up basis for
the assets acquired from Dean Foods and the deductibility of goodwill. Upon
exercising that election, the Company will pay an additional $13.2 million to
Dean Foods.
After the Acquisition, Dean Foods Vegetable Company was merged into us, and
Dean Foods Vegetable Company became our AFVC division. DFVC has been one of the
leading processors of vegetables in the United States, selling its products
under brand names such as Birds Eye, Freshlike and Veg-All, and private labels.
We believe that the Acquisition strengthens our competitive position by:
enhancing our brand recognition and market position,
providing opportunities for cost savings and operating efficiencies, and
increasing our product and geographic diversification.
For its fiscal year ending May 31, 1998, DFVC had net sales (adjusted to conform
to our presentation) of $620.2 million and EBITDA of $58.9 million.
THE REFINANCING
Concurrently with the Acquisition, we refinanced our then existing
indebtedness, including consummating the tender offer and solicitation and
entering into the new credit facility and the bridge facility. Substantially all
of the $160.0 million aggregate principal amount of the Old Notes were tendered
and purchased by Agrilink for aggregate consideration of approximately $184.0
million, including accrued interest of $2.9 million. We terminated the old
credit facility and repaid the $176.5 million of indebtedness outstanding
thereunder.
In order to consummate the Transactions and pay the related fees and
expenses, we:
entered into and drew upon the new credit facility providing for the
$455.0 million term loan facility and the $200.0 million revolving credit
facility,
entered into and drew upon the $200.0 million bridge facility and
issued our $30.0 million Subordinated Promissory Note to Dean Foods.
The bridge facility was repaid principally with the proceeds of the Initial
Notes Offering. The bridge facility was provided by affiliates of the Initial
Purchasers: UBS AG, Stamford Branch (an affiliate of Warburg Dillon Read LLC)
and Bank of Montreal, Chicago branch and Harris Trust and Savings Bank (each an
affiliate of Nesbitt Burns Securities Inc.). In addition, Warburg Dillon Read
LLC acted as our financial advisor in connection with the Acquisition, as agent
in connection with the bridge facility and as dealer manager in connection with
the tender offer and solicitation.
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The following table sets forth the approximate cash sources and uses of
funds in connection with the Transactions and the Initial Notes Offering on a
pro forma basis as if they had occurred on June 27, 1998:
<TABLE>
<CAPTION>
PRO FORMA CASH SOURCES OF FUNDS PRO FORMA CASH USES OF FUNDS
- ------------------------------------------------------ ---------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
New credit facility(1)....................... $444.0 Cash consideration for the
Acquisition(3)........................ $360.0
Initial Notes Offering(2).................... 200.0 Repayment of old credit facility(1)....... 72.3
Purchase of the Old Notes................. 160.0
Tender offer and solicitation premium..... 21.1
Transactions and Initial Notes Offering
discount, fees and expenses............. 30.6
------ ------
Total cash sources of funds............. $644.0 Total cash uses of funds.............. $644.0
------ ------
------ ------
</TABLE>
- ------------
(1) On December 26, 1998, $455.0 million of the term loan facility was
outstanding, reflecting $444.0 million in borrowings made in order to
consummate the Transactions and $11.0 million in borrowings made to
refinance seasonal working capital borrowings under the old credit facility.
In addition, as of such date, $85.0 million was outstanding under the
revolving credit facility to fund seasonal working capital needs and $14.2
million face amount of letters of credit were issued under the revolving
credit facility. See 'Description of Certain Indebtedness -- New Credit
Facility.'
(2) The net proceeds from the sale of the Initial Notes, together with
borrowings under the revolving credit facility, were used to repay all the
indebtedness outstanding ($200.0 million plus accrued interest) under the
bridge facility. See 'Use of Proceeds.'
(3) Net of the sale of the aseptic business. In addition, the non-cash
consideration for the Acquisition included the $30.0 million Subordinated
Promissory Note issued by Agrilink.
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer. The full amount
of the net proceeds to us from the sale of the Initial Notes of $194.5 million
(before deducting expenses payable by us, estimated to be $1.0 million),
together with borrowings under the revolving credit facility, was used to repay
all $200.0 million aggregate principal amount of indebtedness, plus accrued
interest, outstanding under the bridge facility. The indebtedness under the
bridge facility was drawn at the closing of the Acquisition and the refinancing
of our then existing indebtedness and used for those purposes. The outstanding
indebtedness under the bridge facility accrued interest at an approximate rate
per annum of 10.5%.
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 26, 1998. This table should be read in conjunction with our
consolidated financial statements and the related notes, 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
and 'Unaudited Pro Forma Financial Data of the Company' included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 26, 1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Long-term debt, including current maturities:
New credit facility:
Revolving credit facility(1)....................................................... $ 85.0
Term loan A........................................................................ 50.0
Term loan B........................................................................ 200.0
Term loan C........................................................................ 205.0
Notes................................................................................... 200.0
Subordinated Promissory Note............................................................ 30.4
Other long-term debt.................................................................... 8.1
-------
Total long-term debt............................................................... $ 778.5
Shareholder's equity......................................................................... 178.2
-------
Total capitalization............................................................... $ 956.7
-------
-------
</TABLE>
- ------------
(1) On December 26, 1998, an additional $14.2 million face amount of letters of
credit were issued under the revolving credit facility. See 'Description of
Certain Indebtedness -- New Credit Facility.'
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the Initial Notes in a private offering on November 18, 1998, to
the Initial Purchasers pursuant to a purchase agreement dated as of November 13,
1998 by and among Agrilink, Pro-Fac and the Initial Purchasers (the 'Purchase
Agreement'). The Initial Purchasers subsequently resold the Initial Notes to
qualified institutional buyers in reliance, and subject to the restrictions
imposed under, Rule 144A under the Securities Act.
Under the Registration Rights Agreement which we and the Initial Purchasers
entered into in connection with the private offering of the Initial Notes, we
and the Guarantors are required to file, no more than 60 days following the date
the Initial Notes were originally issued (the 'Issue Date'), the registration
statement of which this prospectus is a part providing for a registered exchange
offer of new notes identical in all material respects to the Initial Notes,
except that such new notes will be freely transferable and will not have any
covenants regarding exchange and registration rights. Under the Registration
Rights Agreement, we and Pro-Fac are required to, and are required to cause the
Subsidiary Guarantors to:
use reasonable best efforts to cause the registration statement to be
declared effective no later than 120 days after the Issue Date,
keep the Exchange Offer open for not less than 20 business days (or longer
if required by applicable law) after the date that notice of the Exchange
Offer is mailed to holders of the Initial Notes and
use reasonable best efforts to consummate the Exchange Offer as promptly
as practicable, but no later than 45 days after the registration statement
is declared effective.
The Registration Rights Agreement also provides that, under certain
circumstances, we and Pro-Fac will, and will cause the Subsidiary Guarantors to,
file with the Commission a shelf registration statement (the 'Shelf Registration
Statement') relating to the offer and sale of Initial Notes by holders of
Initial Notes who satisfy certain conditions regarding the provision to us of
information in connection with the Shelf Registration Statement.
The Exchange Offer being made by this prospectus is intended to satisfy
your exchange and registration rights under the Registration Rights Agreement.
If we fail to fulfill such registration and exchange obligations, you, as a
holder of outstanding Initial Notes, are entitled to receive 'Additional
Interest' until we have fulfilled such obligations, in the amount of $.05 per
week per $1,000 principal amount of Notes constituting Transfer Restricted
Securities for the first 90-days, and an additional $.05 per week per $1,000
principal amount of Notes constituting Transfer Restricted Securities for each
subsequent 90-day period until we have fulfilled such obligations, up to a
maximum amount of Additional Interest of $.30 per week per $1,000 principal
amount of Notes constituting Transfer Restricted Securities. All amounts of
accrued Additional Interest will be payable in cash on the same interest payment
dates as the Notes. 'Transfer Restricted Securities' means each Initial Note or
Exchange Note until:
the date on which such Initial Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer;
if such Exchange Note is received by a broker-dealer in exchange for an
Initial Note in the Exchange Offer, then the date on which such Exchange
Note is sold to a purchaser who receives from such broker-dealer a copy of
this prospectus;
the date on which such Initial Note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or
the date on which such Initial Note could be resold pursuant to Rule 144
under the Act.
For a more complete understanding of your exchange and registration rights,
you should refer to the Registration Rights Agreement, which is included as an
exhibit to the registration statement of which this prospectus is a part, and a
copy of which is available as set forth under the heading 'Where You Can Find
More Information.'
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EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, we believe that you may offer for
resale, resell and otherwise transfer the Exchange Notes issued to you pursuant
to the Exchange Offer in exchange for your Initial Notes without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that you can represent that:
you are not an 'affiliate' (as defined in Rule 405 of the Securities Act)
of Agrilink or any Guarantor;
you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes;
you are acquiring the Exchange Notes in the ordinary course of your
business; and
you are not an Initial Purchaser who acquired Initial Notes directly from
us in the initial offering to resell pursuant to Rule 144A, Regulation S
or any other available exemption under the Securities Act.
If you are not able to make these representations, you are a 'Restricted
Holder.' As Restricted Holder, you will not be able to participate in the
Exchange Offer and may only sell your Initial Notes pursuant to a registration
statement containing the selling security holder information required by Item
507 of Regulation S-K under the Securities Act, or pursuant to an exemption from
the registration requirement of the Securities Act.
In addition, each broker-dealer (other than a Restricted Holder) that
receives Exchange Notes for its own account in exchange for Initial Notes, where
such Initial Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (a 'Participating
Broker-Dealer'), must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. Based upon
interpretations by the staff of the Commission, we believe that Exchange Notes
issued pursuant to the Exchange Offer to Participating Broker-Dealers may be
offered for resale, resold and otherwise transferred by a Participating
Broker-Dealer upon compliance with the prospectus delivery requirements, but
without compliance with the registration requirements, of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Initial Notes. We have agreed that, for a period
of 180 days after the date the registration statement is declared effective by
the Commission, we will make this prospectus available to any broker-dealer for
use in connection with any such resale. By acceptance of this Exchange Offer,
each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer
agrees to notify us prior to using this prospectus in connection with the sale
or transfer of Exchange Notes. See 'Plan of Distribution.'
To the extent Initial Notes are tendered and accepted in the Exchange
Offer, the principal amount of outstanding Initial Notes will decrease with a
resulting decrease in the liquidity in the market for the Initial Notes. Initial
Notes that are still outstanding following the consummation of the Exchange
Offer will continue to be subject to certain transfer restrictions.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all Initial Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. As of the date of this prospectus, an aggregate of $200.0
million principal amount of the Initial Notes is outstanding. We will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Initial Notes accepted in the Exchange Offer. You may
tender some or all of your Initial Notes pursuant to the Exchange Offer.
However, Initial Notes may be tendered only in integral multiples of $1,000.
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<PAGE>
By tendering Initial Notes in exchange for Exchange Notes and by executing
the Letter of Transmittal, you will be required to represent, among other
things, that:
you are not an 'affiliate' (as defined in Rule 405 of the Securities Act)
of Agrilink or any Guarantor;
you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes; and
you are acquiring the Exchange Notes in the ordinary course of your
business.
Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See 'Plan of Distribution.'
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Initial Notes, except that:
the offering of the Exchange Notes has been registered under the
Securities Act;
the Exchange Notes will not be subject to transfer restrictions; and
the Exchange Notes will be issued free of any covenants regarding exchange
and registration rights (including that they will not provide for
Additional Interest).
The Exchange Notes will evidence the same debt as the Initial Notes and
will be entitled to the benefits of the Indenture under which the Initial Notes
were, and the Exchange Notes will be, issued.
This prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of Initial Notes on or about
, 1999. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Initial Notes being tendered. However, the
Exchange Offer is subject to certain customary conditions, which we may waive,
and to the terms and provisions of the Registration Rights Agreement. See
' -- Certain Conditions to the Exchange Offer.'
You do not have any appraisal or dissenters' rights under law or the
Indenture in connection with the Exchange Offer. We intend to conduct the
Exchange Offer in accordance with the applicable requirements of the Securities
Exchange Act and the rules and regulations of the Commission thereunder.
If we do not accept for exchange any tendered Initial Notes because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Initial Notes will be returned,
without expense to you, as promptly as practicable after the Expiration Date.
If you tender Initial Notes in the Exchange Offer you will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Initial
Notes pursuant to the Exchange Offer. We will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
' -- Fees and Expenses.'
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' means 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the Exchange
Offer, in which case the term 'Expiration Date' shall mean the latest date and
time to which the Exchange Offer is extended.
We have the right to delay accepting any Initial Notes, to extend the
Exchange Offer or, if any of the conditions set forth below under 'Certain
Conditions to the Exchange Offer' shall not have been satisfied, to terminate
the Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the exchange agent. We also have the right to amend the terms of
the Exchange Offer in any manner. If we delay acceptance of any Initial Notes,
or terminate or amend the Exchange Offer, we will make a public announcement
thereof as promptly as practicable. If we believe that we have made a material
amendment of the terms of the Exchange
23
<PAGE>
<PAGE>
Offer, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of such amendment and we will extend the
Exchange Offer to the extent required by law. We will notify the exchange agent
of any extension of the Exchange Offer in writing or orally (which we will
promptly confirm in writing). Unless otherwise required by applicable law or
regulation, we will make a public announcement of any extension of the
Expiration Date before 9:00 a.m., New York City time, on the first business day
after the previously-scheduled expiration date.
Without limiting the manner in which we may choose to make public
announcements of any delay, extension, termination or amendment of the Exchange
Offer, we shall have no obligation to publish, advise or otherwise communicate
any such public announcement, other than by making a timely press release
thereof.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Initial Notes surrendered in exchange
therefor or, if no interest has been paid on the Initial Notes, from November
18, 1998. The Exchange Notes will bear interest at a rate of 11.875% per year.
Interest on the Exchange Notes will be payable semiannually on May 1 and
November 1 of each year, beginning May 1, 1999.
PROCEDURES FOR TENDERING
Each holder of Initial Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Initial Notes and any other required documents, to the exchange agent
prior to 5:00 p.m., New York City time, on the Expiration Date (unless such
tender is being effected pursuant to the procedure for book-entry transfer
described below).
Any financial institution that is a participant in the book-entry transfer
facility system of The Depository Trust Company (the 'Depositary' or 'DTC') may
make book-entry delivery of the Initial Notes by causing DTC to transfer such
Initial Notes into the exchange agent's account and to deliver an Agent's
Message (as described below) on or prior to the Expiration Date in accordance
with DTC's procedures for such transfer and delivery. If delivery of Initial
Notes is effected through book-entry transfer into the exchange agent's account
at DTC and an Agent's Message is not delivered, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents must be transmitted to and received or confirmed by the
exchange agent at its addresses set forth herein under ' -- Exchange Agent'
prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
The term 'Agent's Message' means a message, transmitted by DTC to and
received by the exchange agent and forming a part of a confirmation of the
book-entry tender of Initial Notes into the exchange agent's account at DTC,
which states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by, and makes the representations and warranties contained
in, the Letter of Transmittal and that we may enforce the Letter of Transmittal
against such participant.
The tender (as set forth above) by a holder of Initial Notes will
constitute an agreement between such holder and us in accordance with the terms
and subject to the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
the holders.
The method of delivery of Initial Notes, the Letter of Transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, sufficient
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<PAGE>
time should be allowed to assure timely delivery. NO LETTER OF TRANSMITTAL OR
INITIAL NOTES SHOULD BE SENT TO US.
Only a holder of Initial Notes may tender such Initial Notes in the
Exchange Offer. The term 'holder' with respect to the Exchange Offer means any
person in whose name Initial Notes are registered on the register maintained by
the trustee or any other person who has obtained a properly completed bond power
from the registered holder, or any person whose Initial Notes are held of record
by DTC who desires to deliver such Initial Notes by book-entry transfer at DTC.
Any beneficial holder whose Initial Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Initial Notes, either
make appropriate arrangements to register ownership of the Initial Notes in such
holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal must be
guaranteed by:
a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
a commercial bank or trust company having an office or correspondent in
the United States; or
an 'eligible guarantor institution' within the meaning of Rule 17Ad-15
under the Securities Exchange Act (an 'Eligible Institution')
unless the Initial Notes tendered pursuant thereto are tendered
by a registered holder who has not completed the box entitled 'Special
Issuance Instructions' or 'Special Delivery Instructions' on the Letter of
Transmittal; or
for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Initial Notes listed therein, such Initial Notes must
be endorsed or accompanied by appropriate bond powers which authorize such
person to tender the Initial Notes on behalf of the registered holder, and, in
either case, signed as the name of the registered holder or holders appears on
the Initial Notes.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Initial Notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all Initial Notes not
properly tendered or any Initial Notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any irregularities or conditions of tender as to particular Initial Notes. Our
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Initial Notes must be cured within such time as we shall determine. Neither
we, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Initial
Notes nor shall we, the exchange agent or any other person incur any liability
for failure to give such notification. Tenders of Initial Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Initial Notes received by the exchange agent that are not properly tendered,
and as to which the defects or irregularities have not been cured or waived,
will be returned without cost by the exchange agent to the
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tendering holder of such Initial Notes unless otherwise provided in the Letter
of Transmittal as soon as practicable following the Expiration Date.
In addition, we reserve the right in our sole discretion to:
purchase or make offers for any Initial Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under ' -- Certain
Conditions to the Exchange Offer,' to terminate the Exchange Offer, and
to the extent permitted by applicable law, purchase Initial Notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
Exchange Offer.
By tendering, each holder of Initial Notes will represent to us that, among
other things:
the Exchange Notes acquired pursuant to the Exchange Offer in exchange for
such holder's Initial Notes are being obtained in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such
person is the holder;
that neither the holder nor any other person receiving such Exchange Notes
has an arrangement or understanding with any person to participate in the
distribution of the Exchange Notes; and
that neither the holder nor any such other person receiving such Exchange
Notes is an 'affiliate' of ours, within the meaning of Rule 405 under the
Securities Act or, if the holder or such person is an affiliate, then such
holder or such other person will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
we will accept, promptly after the Expiration Date, all Initial Notes properly
tendered and will issue the Exchange Notes promptly after acceptance of the
Initial Notes. See ' -- Certain Conditions to the Exchange Offer.' For each
Initial Note accepted for exchange, the holder of such Initial Notes will
receive an Exchange Note having a principal amount equal to that of the
surrendered Initial Note.
For purposes of the Exchange Offer, we shall be deemed to have accepted
properly tendered Initial Notes for exchange when, as and if we have given oral
or written notice thereof to the Exchange Agent, with written confirmation of
any oral notice to be given promptly thereafter.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the exchange agent of certificates for such Initial Notes and
a properly completed and duly executed Letter of Transmittal and all other
required documents or a timely book-entry confirmation of such Initial Notes
into the exchange agent's account at DTC. If any tendered Initial Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Initial Notes are submitted for a greater principal amount than the
holder desired to exchange, such unaccepted or non-exchanged Initial Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Initial Notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the book-entry procedures described below, such non-exchanged
Initial Notes will be credited to an account maintained with such book-entry
transfer facility) as promptly as practicable after the Expiration Date.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the Initial Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of Initial
Notes by causing DTC to transfer such Initial Notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. However,
although delivery of Initial Notes may be effected through book-entry transfer
at DTC, the Letter of
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Transmittal (or a facsimile thereof or an Agent's Message in lieu thereof), with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the exchange agent at one of the
addresses set forth below under ' -- Exchange Agent' on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and who cannot deliver their
Initial Notes, the Letter of Transmittal, or any other required documents to the
exchange agent prior to the Expiration Date, or holders who cannot complete the
procedure for book-entry transfer on a timely basis, may effect a tender if:
The tender is made through an Eligible Institution;
Prior to the Expiration Date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Initial Notes, the
certificate number or numbers of such Initial Notes and the principal
amount of Initial Notes tendered, stating that the tender is being made
thereby, and guaranteeing that, within three business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Initial Notes to be
tendered in proper form for transfer and any other documents required by
the Letter of Transmittal, will be deposited by the Eligible Institution
with the exchange agent; and
Such properly completed and executed Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing all tendered
Initial Notes in proper form for transfer (or confirmation of a book-entry
transfer into the exchange agent's account at DTC of Initial Notes
delivered electronically) and all other documents required by the Letter
of Transmittal are received by the exchange agent within three business
days after the Expiration Date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Initial Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Initial Notes in the Exchange Offer, a facsimile
transmission or letter notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must:
specify the name of the person having deposited the Initial Notes to be
withdrawn (the 'Depositor');
include a statement that the Depositor is withdrawing its election to have
Initial Notes exchanged and identify the Initial Notes to be withdrawn
(including the certificate number or numbers and principal amount of such
Initial Notes);
be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Initial Notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the trustee with respect to the
Initial Notes to register the transfer of such Initial Notes into the name
of the Depositor withdrawing the tender; and
specify the name in which any such Initial Notes are to be registered, if
different from that of the Depositor.
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If Initial Notes have been tendered pursuant to the procedures for
book-entry transfer set forth in ' -- Procedures for Tendering' and
' -- Book-Entry Transfer,' the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Initial
Notes, in which case a notice of withdrawal will be effective if delivered to
the exchange agent by written, telegraphic, telex or facsimile transmission.
All questions as to the validity, form and eligibility (including time of
receipt) for such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any Initial Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Initial Notes so withdrawn are validly re-tendered. Properly withdrawn
Initial Notes may be re-tendered by following one of the procedures described
above under ' -- Procedures for Tendering' at any time prior to the Expiration
Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is not subject to any conditions, other than that:
the Exchange Offer does not violate applicable law or any applicable
interpretation of the staff of the Commission; and
there is no injunction, order or decree issued by any court or any
governmental agency that would prohibit, prevent or otherwise materially
impair our ability to proceed with the Exchange Offer.
There can be no assurance that any such condition will not occur. Holders of
Initial Notes will have certain rights against us under the Registration Rights
Agreement should we fail to consummate the Exchange Offer. If we determine that
we may terminate the Exchange Offer, as set forth above, we may:
refuse to accept any Initial Notes and return any Initial Notes that have
been tendered to the holders thereof;
extend the Exchange Offer and retain all Initial Notes tendered prior to
the Expiration Date, subject to the rights of such holders of tendered
Initial Notes to withdraw their tendered Initial Notes; or
waive such termination event with respect to the Exchange Offer and accept
all properly tendered Initial Notes that have not been withdrawn.
If such waiver constitutes a material change in the Exchange Offer, we will
disclose such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Initial Notes, and we will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Initial Notes, if the Exchange Offer would otherwise expire
during such period.
28
<PAGE>
<PAGE>
EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company, the trustee under the Indenture, has
been appointed as exchange agent for the Exchange Offer. Questions and requests
for assistance and inquiries for additional copies of this prospectus or of the
Letter of Transmittal should be directed to the exchange agent addressed as
follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Delivery:
IBJ Whitehall Bank & Trust Company IBJ Whitehall Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing Window,
Attention: Reorganization Operations Subcellar One (SC-1)
(REGISTERED OR CERTIFIED MAIL RECOMMENDED)
</TABLE>
Facsimile Transmission Number:
(212) 858-2611
(FOR ELIGIBLE
INSTITUTIONS ONLY)
Confirm by Telephone:
(212) 858-2103
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
We will pay the cash expenses to be incurred in connection with soliciting
tenders pursuant to the Exchange Offer. Such expenses include fees and expenses
of the exchange agent and the trustee, accounting and legal fees and printing
costs, among others.
TRANSFER TAXES
Holders who tender their Initial Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct us to register Exchange Notes in the name of, or request that Initial
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder, will be responsible for the
payment of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Initial Notes on the date of the exchange. Accordingly, we will not recognize
any gain or loss for accounting purposes. The expenses of the Exchange Offer and
the unamortized expenses relating to the issuance of the Initial Notes will be
amortized over the term of the Exchange Notes.
29
<PAGE>
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA OF THE COMPANY
The following unaudited pro forma condensed consolidated financial data
(the 'Pro Forma Financial Data') of the Company is derived from the historical
consolidated financial statements of Agrilink and DFVC included elsewhere
herein, adjusted to give effect to the Transactions and the Initial Notes
Offering and the application of the net proceeds therefrom. The Pro Forma
Financial Data reflect the assumption that we will elect to treat the
Acquisition as an asset sale for tax purposes under Section 338(h)(10) of the
Code. The Unaudited Pro Forma Consolidated Statements of Operations of Agrilink
give effect to the Transactions and the Initial Notes Offering and the
application of the net proceeds therefrom as if they had occurred as of June 29,
1997. No adjustment was made to the Pro Forma Financial Data to conform DFVC's
last Sunday of May fiscal year end to our last Saturday of June fiscal year end.
The Pro Forma Financial Data do not purport to represent what our results of
operations would actually have been had the Transactions and the Initial Notes
Offering in fact occurred on such date or what our results of operations will be
for any future period. The Pro Forma Financial Data do not give effect to any
transactions other than the Transactions and the Initial Notes Offering and the
application of the net proceeds therefrom as discussed in the notes to the Pro
Forma Financial Data set forth below.
The Acquisition will be accounted for using the purchase method of
accounting. Under purchase accounting, tangible and identifiable intangible
assets acquired and liabilities assumed will be recorded at their respective
fair values. Information regarding the fair values of assets being acquired is
not currently available. Accordingly, no allocation of the excess of purchase
cost over net assets acquired has been made for purposes of this pro forma
presentation. The valuations and other studies which will provide the basis for
such an allocation have not progressed to a stage where there is sufficient
information to make a final allocation in the accompanying Pro Forma Financial
Data. Accordingly, the purchase accounting adjustments made in connection with
the Pro Forma Financial Data are preliminary and have been made solely for
purposes of developing the Pro Forma Financial Data. Once an allocation is
determined, in accordance with generally accepted accounting principles, any
remaining excess of purchase cost over net assets acquired will be recorded as
goodwill. We expect that significant goodwill will be recorded as a result of
the Acquisition.
Likewise, the preliminary value recorded for the aseptic business disposal,
and the resulting gain and other effects on the Pro Forma Financial Data, are
based on an appraised value range given to us by an independent appraiser.
If the value ascribed to the aseptic business is determined to be different than
that recorded in the Pro Forma Financial Data for any reason, the change in such
value would have a corresponding effect on the Pro Forma Financial Data.
The pro forma adjustments are based on available information and upon
assumptions that our management believes are reasonable under the circumstances.
The Pro Forma Financial Data and accompanying notes should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' the historical consolidated financial statements of
Agrilink and DFVC, including the notes thereto, and other financial information
pertaining to us that is incorporated by reference herein.
For unaudited pro forma condensed consolidated financial data of Pro-Fac,
see 'Unaudited Pro Forma Financial Data of Pro-Fac and Consolidated Subsidiary'
at the back of this prospectus.
30
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 27, 1998
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------
ASEPTIC TRANSACTIONS
BUSINESS AND INITIAL
AGRILINK DFVC DISPOSAL NOTES OFFERING
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(a) ADJUSTMENTS TOTAL
------------ ------------ -------------- -------------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 719.7 $ 541.2 $(97.9) $ 79.0 (b) $1,242.0
Cost of sales.............................. (524.1) (397.6) 81.3 (25.0)(c) (865.4)
------------ ------------ ------- ------- --------
Gross profit.......................... 195.6 143.6 (16.6) 54.0 376.6
Selling, administrative and general........ (141.9) (104.9) 0.1 (41.7)(d) (288.4)
Income from Great Lakes Kraut Company...... 1.9 -- -- -- 1.9
Amortization of unallocated excess of
purchase cost over net assets acquired... -- -- -- (10.4)(e) (10.4)
------------ ------------ ------- ------- --------
Operating income before extraordinary
items and before dividing with
Pro-Fac............................. 55.6 38.7 (16.5) 1.9 79.7
Total interest expense..................... (30.6) (9.2) 1.4 (34.5)(f) (72.9)
------------ ------------ ------- ------- --------
Pre-tax income before extraordinary
items and before dividing with
Pro-Fac............................. 25.0 29.5 (15.1) (32.6) 6.8
Pro-Fac share of income.................... (12.5) -- 7.6 1.5 (g) (3.4)
------------ ------------ ------- ------- --------
Income before taxes................... 12.5 29.5 (7.5) (31.1) 3.4
(Provision) benefit for taxes.............. (5.7) (11.8) 3.4 12.1 (h) (2.0)
------------ ------------ ------- ------- --------
Income (loss) before extraordinary
items............................... $ 6.8 $ 17.7 $ (4.1) $(19.0) $ 1.4
------------ ------------ ------- ------- --------
------------ ------------ ------- ------- --------
</TABLE>
- ------------
(a) To reflect the sale of the aseptic business to Dean Foods. In conjunction
with this transaction, we recognized a gain. Such gain has not been
reflected in the unaudited Pro Forma Condensed Consolidated Statement of
Operations, as the gain is considered non-recurring.
(b) Represents a reclassification of promotional expenses of DFVC to conform
presentation to that of the Company. Such amount is equal to the adjustment
of selling, administrative and general expenses in pro forma adjustment (d)
below.
(c) To reflect the net of (dollars in millions):
<TABLE>
<S> <C>
Cost savings anticipated under existing contracts with the suppliers of product packaging......... $ 2.5
Reclassification of warehousing expenses of DFVC to conform presentation to that of the Company.
Such amount is equal to the adjustment of selling, administrative and general expenses in pro
forma adjustment (d) below...................................................................... (27.5)
------
$(25.0)
------
------
</TABLE>
(d) To reflect the net of (dollars in millions):
<TABLE>
<S> <C>
Reclassification of promotional expenses of DFVC to conform presentation to that of the Company.
Such amount is equal to the adjustment to the net sales in pro forma adjustment (b) above....... $(79.0)
Reclassification of warehousing expenses to conform presentation to that of the Company. Such
amount is equal to the adjustment to the net sales in pro forma adjustment (c) above............ 27.5
To reflect the anticipated cost reductions under the plan formulated by management to eliminate
duplicate administrative costs, including primarily sales and marketing functions, finance
functions and logistics functions. Because both our and DFVC personnel contact the
same customers, it is anticipated that no material negative impact to sales will occur. The plan
outlined is to be executed within one year from the consummation date of the Acquisition........ 9.8
------
$(41.7)
------
------
</TABLE>
(e) To reflect $10.4 million of additional goodwill amortization relating to
the Acquisition assuming an amortization period of 20 years. Depreciation
and amortization recorded subsequent to the Acquisition will be determined
based upon the fair values of acquired assets and their related lives as
ultimately recorded under purchase accounting.
(footnotes continued on next page)
31
<PAGE>
<PAGE>
(footnotes continued from previous page)
(f) To reflect the net adjustment to interest expense as follows (dollars in
millions):
<TABLE>
<S> <C>
Notes at an interest rate of 11.875%.............................................................. $ 23.8
Borrowings under the new credit facility (at the rates applicable upon the syndication thereof)... 40.1
Subordinated Promissory Note at an interest rate of 5.0% (non-cash)............................... 1.5
Amortization of debt issuance costs............................................................... 3.2
Less historical interest expense net adjustment................................................... (33.3)
Less amortization of debt issuance costs related to debt repaid................................... (0.8)
------
$ 34.5
------
------
</TABLE>
The elimination of debt issuance costs and premiums to be paid to
extinguish existing debt was recognized as an extraordinary item ($18.0
million, net of a $10.5 million tax benefit and before allocation to
Pro-Fac) in our statement of operations for the first fiscal quarter of
1999. Such charge has not been reflected in the unaudited Pro Forma
Condensed Consolidated Statement of Operations.
Fees associated with obtaining commitments for the bridge facility have not
been reflected in the unaudited Pro Forma Consolidated Statement of
Operations as they are considered nonrecurring. Such fees, which will be
reflected in our 1999 second fiscal quarter, are estimated to be
approximately $5.6 million (before allocation to Pro-Fac and before taxes).
(g) To reflect the anticipated effect of the earnings split with Pro-Fac for
pro forma adjustments assuming that the sharing of earnings provision under
the Marketing Agreement will continue.
(h) To reflect the income tax effect of the pro forma adjustments based on an
assumed statutory income tax rate of 39.0%.
32
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 26, 1998
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------
TRANSACTIONS
AND
ASEPTIC INITIAL
BUSINESS NOTES
AGRILINK DFVC DISPOSAL OFFERING
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(a) ADJUSTMENTS TOTAL
------------ ------------ -------------- --------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $559.3 $106.4 $(24.9) $ 15.5 (b) $ 656.3
Cost of sales......................... (390.4) (81.2) 20.8 (4.9)(c) (455.7)
------------ ------------ ------- --------- -------
Gross profit..................... 168.9 25.2 (4.1) 10.6 200.6
Selling, administrative and general... (127.0) (25.9) -- (4.4)(d) (157.3)
Income from Great Lakes Kraut
Company............................. 1.7 -- -- -- 1.7
Gain on the sale of the Aseptic
Business............................ 64.2 -- -- (64.2)(e) --
Amortization of unallocated excess of
purchase cost over net assets
acquired............................ -- -- -- (2.4)(f) (2.4)
------------ ------------ ------- --------- -------
Operating income before
extraordinary items and before
dividing with Pro-Fac.......... 107.8 (0.7) (4.1) (60.4) 42.6
Total interest expense................ (26.9) (2.0) 0.4 (9.3)(g) (37.8)
Amortization of debt issue costs
associated with the Bridge
Facility....................... (5.5) -- -- 5.5(h) --
------------ ------------ ------- --------- -------
Pre-tax income (loss) before
extraordinary items and before
dividing with Pro-Fac.......... 75.4 (2.7) (3.7) (64.2) 4.8
Pro-Fac share of (income) loss........ (9.7) -- 1.9 5.4 (i) (2.4)
------------ ------------ ------- --------- -------
Income before taxes.............. 65.7 (2.7) (1.8) (58.8) 2.4
(Provision) benefit for taxes......... (25.7) 1.1 0.8 22.9(e)(j) (0.9)
------------ ------------ ------- --------- -------
Income (loss) before
extraordinary items............ $ 40.0 $ (1.6) $ (1.0) $(35.9) $ 1.5
------------ ------------ ------- --------- -------
------------ ------------ ------- --------- -------
</TABLE>
- ------------
<TABLE>
<S> <C> <C>
(a) To reflect the sale of the aseptic business to Dean Foods which was completed in conjunction with the
Acquisition.
(b) Represents a reclassification of promotional expenses of DFVC to conform presentation to that of the Company.
Such amount is equal to the adjustment of selling, administrative and general expenses in pro forma adjustment
(d) below.
(c) To reflect the net of (dollars in millions):
Cost savings anticipated under existing contracts with the suppliers of product packaging......... $ 1.2
Reclassification of warehousing expenses of DFVC to conform presentation to that of the Company.
Such amount is equal to the adjustment of selling, administrative and general expenses in pro
forma adjustment (d) below........................................................................ (6.1)
------
$ (4.9)
------
------
(d) To reflect the net of (dollars in millions):
Reclassification of promotional expenses of DFVC to conform presentation to that of the Company.
Such amount is equal to the adjustment to the net sales in pro forma adjustment (b) above......... $(15.5)
Reclassification of warehousing expenses to conform presentation to that of the Company. Such
amount is equal to the adjustment to the net sales in pro forma adjustment (c) above.............. 6.1
To reflect the anticipated cost reductions under the plan formulated by management to eliminate
duplicate administrative costs, including primarily sales and marketing functions, finance
functions and logistics functions. Because both our and DFVC personnel contact the same
customers, it is anticipated that no material negative impact to sales will occur. The plan
outlined is to be executed within one year from the consummation date of the Acquisition.......... 5.0
------
$ (4.4)
------
------
</TABLE>
(footnotes continued on next page)
33
<PAGE>
<PAGE>
(footnotes continued from previous page)
<TABLE>
<S> <C> <C>
(e) To eliminate the gain recognized on the sale of the aseptic business to Dean Foods (net of income taxes of
$25.0 million). Such income has not been reflected in the unaudited Pro Forma Condensed Consolidated Statement
of Operations, as the gain is considered nonrecurring.
(f) To reflect $2.4 million of additional goodwill amortization relating to the Acquisition assuming an
amortization period of 20 years. Depreciation and amortization recorded by us subsequent to the Acquisition
will be determined based upon the fair values of acquired assets and their related lives as ultimately recorded
under purchase accounting.
(g) To reflect the net adjustment to interest expense as follows (dollars in millions):
Notes at an interest rate of 11.875%.............................................................. $ 5.9
Borrowings under the new credit facility (at the rates applicable upon the syndication thereof)... 10.3
Subordinated Promissory Note at an interest rate of 5.0% (non-cash)............................... 0.4
Amortization of debt issuance costs............................................................... 0.8
Less historical interest expense net adjustment................................................... (7.9)
Less amortization of debt issuance costs related to debt repaid................................... (0.2)
------
$ 9.3
------
------
The elimination of debt issuance costs and premiums to be paid to extinguish existing debt have been recognized
as an extraordinary item in our Statement of Operations for the first fiscal quarter of 1999. See
'Unaudited Consolidated Statement of Operations' of Agrilink included elsewhere herein. Such charge has not
been reflected in the unaudited Pro Forma Condensed Consolidated Statement of Operations.
(h) To eliminate fees associated with obtaining the bridge facility. Such charge has not been reflected in the
unaudited Pro Forma Condensed Consolidated Statement of Operations as the expense is considered nonrecurring.
(i) To reflect the anticipated effect of the earnings split with Pro-Fac for pro forma adjustments assuming that
the sharing of earnings provision under the Marketing Agreement will continue.
(j) To reflect the income tax effect of the pro forma adjustments based on an assumed statutory income tax rate of
39.0%.
</TABLE>
34
<PAGE>
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA OF AGRILINK AND DFVC
AGRILINK
The following selected historical consolidated and unaudited pro forma
financial data of the Company should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,' the
historical consolidated financial statements of Agrilink and DFVC and the
related notes and the 'Unaudited Pro Forma Financial Data of the Company' and
the related notes, each as included elsewhere herein. The selected historical
consolidated financial data for each of the years ended June 25, 1994, June 24,
1995, June 29, 1996, June 28, 1997 and June 27, 1998 and as of the end of each
such periods have been derived from our audited consolidated financial
statements and reflect our operations and financial position at the dates and
for the periods indicated. The selected historical consolidated financial data
for the six months ended December 27, 1997 and December 26, 1998 and as of the
end of each of such periods have been derived from our financial statements
included elsewhere herein which are unaudited but which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of our results of operations and
financial position at the dates and for the periods indicated. The selected
unaudited pro forma financial data have been derived from our audited
consolidated financial statements for the year ended and as of June 27, 1998,
our unaudited consolidated financial statements for the six months ended and as
of December 26, 1998, DFVC's audited consolidated financial statements for the
year ended and as of May 31, 1998 and DFVC's unaudited consolidated financial
statements for the quarter ended and as of August 30, 1998. No adjustment was
made to the unaudited pro forma financial data to conform DFVC's last Sunday of
May fiscal year end to our last Saturday of June fiscal year end, or our and
DFVC's differing fiscal quarter ends. The selected unaudited pro forma financial
data give effect to the Transactions and the Initial Notes Offering and the
application of the net proceeds therefrom as described under 'The Transactions'
and 'Use of Proceeds,' as if they had occurred at the dates referenced under
'Unaudited Pro Forma Financial Data of the Company.' The pro forma financial
data reflect the assumption that we will elect to treat the Acquisition as an
asset sale for tax purposes under Section 338(h)(10) of the Code. The selected
unaudited pro forma financial data do not purport to represent what our results
of operations or financial position actually would have been if the transactions
referred to therein had been consummated on the date or for the periods
indicated or what such results will be for any future date or any future period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
JUNE 27, 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, --------------------
1994 1995(1) 1996 1997 ACTUAL PRO FORMA
--------- -------- -------- -------- ------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 829.1 $ 748.5 $ 739.1 $ 730.8 $ 719.7 $1,242.0
Cost of sales....................... (592.6) (530.1) (562.9) (539.1) (524.1) (865.4)
--------- -------- -------- -------- ------- ---------
Gross profit.................... 236.5 218.4 176.2 191.7 195.6 376.6
Selling, administrative and
general........................... (187.0) (159.9) (156.1) (145.4) (141.9) (288.4)
Income from Great Lakes Kraut
Company........................... -- -- -- -- 1.9 1.9
Gain on sale of Finger Lakes
Packaging......................... -- -- -- 3.6 -- --
Restructuring (including net
(losses) gains from
disposal)(2)...................... 7.8 (8.4) (5.9) -- -- --
Change in control expenses(3)....... (3.5) (2.2) -- -- -- --
Gain on assets net of additional
costs incurred as a result of a
fire.............................. -- 4.1 -- -- -- --
Amortization of unallocated excess
of purchase cost over net assets
acquired.......................... -- -- -- -- -- (10.4)
Gain on the sale of the Aseptic
Business.......................... -- -- -- -- -- --
--------- -------- -------- -------- ------- ---------
Operating income................ 53.8 52.0 14.2 49.9 55.6 79.7
Total interest expense.............. (18.2) (32.4) (42.0) (35.0) (30.6) (72.9)
Amortization of debt issue costs
associated with the Bridge
Facility.......................... -- -- -- -- -- --
--------- -------- -------- -------- ------- ---------
Pre-tax income (loss) before
dividing with Pro-Fac............. 35.6 19.6 (27.8) 14.9 25.0 6.8
Pro-Fac share of (income) loss...... (16.8) (9.6) 9.0 (7.4) (12.5) (3.4)
--------- -------- -------- -------- ------- ---------
<CAPTION>
SIX MONTHS ENDED
--------------------------------
DECEMBER DECEMBER 26, 1998
27, --------------------
1997 ACTUAL PRO FORMA
--------- ------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 379.1 $ 559.3 $ 656.3
Cost of sales....................... (270.8) (390.4) (455.7)
--------- ------- ---------
Gross profit.................... 108.3 168.9 200.6
Selling, administrative and
general........................... (74.3) (127.0) (157.3)
Income from Great Lakes Kraut
Company........................... 1.0 1.7 1.7
Gain on sale of Finger Lakes
Packaging......................... -- -- --
Restructuring (including net
(losses) gains from
disposal)(2)...................... -- -- --
Change in control expenses(3)....... -- -- --
Gain on assets net of additional
costs incurred as a result of a
fire.............................. -- -- --
Amortization of unallocated excess
of purchase cost over net assets
acquired.......................... -- -- (2.4)
Gain on the sale of the Aseptic
Business.......................... -- 64.2 --
--------- ------- ---------
Operating income................ 35.0 107.8 42.6
Total interest expense.............. (15.6) (26.9) (37.8)
Amortization of debt issue costs
associated with the Bridge
Facility.......................... -- (5.5) --
--------- ------- ---------
Pre-tax income (loss) before
dividing with Pro-Fac............. 19.4 75.4 4.8
Pro-Fac share of (income) loss...... (9.7) (9.7) (2.4)
--------- ------- ---------
</TABLE>
(table continued on next page)
35
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
JUNE 27, 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, --------------------
1994 1995(1) 1996 1997 ACTUAL PRO FORMA
--------- -------- -------- -------- ------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes and
cumulative effect of an accounting
change and extraordinary item..... 18.8 10.0 (18.8) 7.5 12.5 3.4
Tax (provision) benefit............. (8.7) (6.0) 6.9 (3.7) (5.7) (2.0)
--------- -------- -------- -------- ------- ---------
Income (loss) before cumulative
effect of an accounting change and
extraordinary item................ 10.1 4.0 (11.9) 3.8 6.8 1.4
Cumulative effect of an accounting
change, net(4).................... -- -- -- 1.7 -- --
Extraordinary item relating to the
early extinguishment of debt (net
of income taxes and after dividing
with Pro-Fac)..................... -- -- -- -- -- --
--------- -------- -------- -------- ------- ---------
Net income (loss)................... $ 10.1 $ 4.0 $ (11.9) $ 5.5 $ 6.8 $ 1.4
--------- -------- -------- -------- ------- ---------
--------- -------- -------- -------- ------- ---------
SELECTED FINANCIAL DATA:
EBITDA(5)........................... $ 79.6 $ 75.6 $ 43.7 $ 76.7 $ 77.3 $ 131.0
EBITDA margin(6).................... 9.6% 10.1% 5.9% 10.5% 10.7% 10.5%
Depreciation and amortization(7).... 25.8 23.6 29.5 26.8 21.7 51.3
Capital expenditures(8)............. 19.5 32.6 18.0 16.9 14.1 25.3
Ratio of earnings to fixed charges
(coverage deficiency)(9).......... 1.95x 1.30x (18.7) 1.20x 1.39x 1.05x
BALANCE SHEET DATA:
Working capital..................... $ 104.0 $ 144.2 $ 107.9 $ 84.1 $ 108.1
Total assets........................ 446.9 672.3 634.3 542.6 566.4
Total debt.......................... 271.6 357.6 319.4 232.3 238.8
Shareholder's equity................ 80.9 141.1 139.2 146.4 154.6
<CAPTION>
SIX MONTHS ENDED
--------------------------------
DECEMBER DECEMBER 26, 1998
27, --------------------
1997 ACTUAL PRO FORMA
--------- ------- ---------
<S> <C> <C> <C>
Income (loss) before taxes and
cumulative effect of an accounting
change and extraordinary item..... 9.7 65.7 2.4
Tax (provision) benefit............. (4.4) (25.7) (0.9)
--------- ------- ---------
Income (loss) before cumulative
effect of an accounting change and
extraordinary item................ 5.3 40.0 1.5
Cumulative effect of an accounting
change, net(4).................... -- -- --
Extraordinary item relating to the
early extinguishment of debt (net
of income taxes and after dividing
with Pro-Fac)..................... -- (16.4) --
--------- ------- ---------
Net income (loss)................... $ 5.3 $ 23.6 $ 1.5
--------- ------- ---------
--------- ------- ---------
SELECTED FINANCIAL DATA:
EBITDA(5)........................... $ 46.0 $ 62.2 $ 68.5
EBITDA margin(6).................... 12.1% 11.1% 10.4%
Depreciation and amortization(7).... 11.0 18.6 25.9
Capital expenditures(8)............. 6.8 8.6 11.8
Ratio of earnings to fixed charges
(coverage deficiency)(9).......... 1.59x 1.13x 1.06x
BALANCE SHEET DATA:
Working capital..................... $ 90.4 $ 210.9
Total assets........................ 610.3 1,272.1
Total debt.......................... 294.3 778.5
Shareholder's equity................ 151.7 178.2
</TABLE>
- ------------
(1) Represents the sum of the results of operations for both the predecessor and
successor entities relating to the change of control of the Company in
November 1994.
(2) During fiscal 1994, we sold the oats operations of National Oats realizing a
gain of $10.9 million (before dividing such gain with Pro-Fac and before
taxes), which was offset by a $3.1 million charge (before dividing such
charge with Pro-Fac and before taxes) to adjust previous estimates recorded
regarding restructuring activities. During fiscal 1995, we sold certain
assets of the Nalley's United States Chips and Snacks business. The
restructuring expenses of $8.4 million (before dividing such charge with
Pro-Fac and before taxes) reflect the impact of this sale and other
expenses. During fiscal 1996, we initiated a company-wide restructuring
program. The restructuring charge amounted to $5.9 million (before dividing
such charge with Pro-Fac and before taxes). This amount consisted of
employee termination benefits of $4.0 million and $1.9 million for strategic
consulting expenses.
(3) We expensed $3.5 million and $2.2 million (before dividing such charge with
Pro-Fac and before taxes) in fiscal 1994 and 1995, respectively, for legal,
accounting, investment banking and other expenses in connection with the
change of control issue surrounding the sale of the Company to Pro-Fac.
(4) Represents cumulative effect of an accounting change, to include in prepaid
expenses and other current assets, manufacturing spare parts previously
charged directly to expense, net of split with Pro-Fac.
(5) EBITDA is defined as the sum of pre-tax income (loss) before dividing with
Pro-Fac and before the cumulative effect of an accounting change,
extraordinary item, interest expense, amortization of debt issue costs
associated with the bridge facility and 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 we believe EBITDA is
a financial indicator of a company's ability to service debt. EBITDA as
calculated by us may not be comparable to calculations as presented by other
companies. EBITDA (actual and pro forma) at December 26, 1998 excludes the
$64.2 million gain on the sale of the aseptic business. Had the gain on the
sale of the aseptic business been included, actual EBITDA at December 26,
1998 would have been $126.4 million.
(6) EBITDA margin is defined as EBITDA divided by net sales.
(7) Amortization of intangibles for fiscal 1994 is defined as the sum of
amortization of goodwill and intangibles, including the amount of the
finance receivable relating to goodwill recognized by Pro-Fac. Through the
provisions of the earnings split, amortization of intangibles has been
recognized equally between Agrilink and Pro-Fac in the amount of $1.7
million for fiscal 1994.
(8) For fiscal 1994, includes our capital expenditures of $9.5 million and
Pro-Fac's capital expenditures of $10.0 million.
(9) For purposes of calculating ratio of earnings to fixed charges, earnings are
determined by adding fixed charges to income (loss) before taxes and before
cumulative effect of an accounting change. Fixed charges consist of interest
expense and the interest component of rental expense. For fiscal 1996,
earnings before fixed charges were insufficient to cover fixed charges and
the dollar amount of coverage deficiency, instead of the ratio, is
disclosed. The $64.2 million gain on the sale of the aseptic business and
the $5.5 million expense for the amortization of debt issue costs associated
with the bridge facility have been excluded in calculating the ratio of
earnings to fixed charges at December 26, 1998.
------------------------
PRO-FAC
See 'Pro-Fac Cooperative, Inc. and Consolidated Subsidiary -- Selected
Historical and Unaudited Pro Forma Financial Data' at the back of this
prospectus.
36
<PAGE>
<PAGE>
DFVC
The following table sets forth selected historical consolidated financial
data of DFVC for the periods indicated. The selected historical consolidated
financial data for each of the years ended May 26, 1996, May 25, 1997 and May
31, 1998 and as of the end of each of such periods have been derived from DFVC's
audited consolidated financial statements included elsewhere herein and reflect
the operations and financial positions of DFVC at the dates and for the periods
indicated. The selected historical consolidated financial data for the three
months ended August 30, 1998 and August 24, 1997 and as of the end of each of
such periods have been derived from DFVC's financial statements included
elsewhere herein which are unaudited but which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations and financial
position of DFVC at the dates and for the periods indicated. The information
below should be read in conjunction with DFVC's consolidated financial
statements and related notes thereto appearing elsewhere herein and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' appearing elsewhere herein. On September 24, 1998, DFVC was merged
into Agrilink, and DFVC ceased preparing separate financial statements. DFVC's
results after that date are included in our financial statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL QUARTER ENDED
--------------------------------- --------------------
MAY 26, MAY 25, MAY 31, AUGUST 24, AUGUST 30,
1996 1997 1998 1997 1998
--------- -------- -------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales(1)........................................ $646.6 $ 622.0 $ 620.2 $ 123.3 $ 121.9
Cost of sales(2).................................... (491.7) (438.4) (424.0) (95.3) (87.3)
------- ------- ------- ---------- ----------
Gross profit................................... 154.9 183.6 196.2 28.0 34.6
Selling, administrative and general(3).............. (150.3) (149.8) (158.7) (31.1) (35.5)
Special charge(4)................................... (37.3) (9.6) -- -- --
Other income........................................ 0.6 0.6 1.2 0.2 0.2
------- ------- ------- ---------- ----------
Operating income............................... (32.1) 24.8 38.7 (2.9) (0.7)
Total interest expense.............................. (12.0) (10.3) (9.2) (2.1) (2.0)
------- ------- ------- ---------- ----------
Pre-tax income (loss).......................... (44.1) 14.5 29.5 (5.0) (2.7)
Tax (provision)/benefit............................. 17.2 (5.8) (11.8) 2.0 1.1
------- ------- ------- ---------- ----------
Net income (loss).............................. $(26.9) $ 8.7 $ 17.7 $ (3.0) $ (1.6)
------- ------- ------- ---------- ----------
------- ------- ------- ---------- ----------
Selected Financial Data:
EBITDA(5)........................................... $ 29.8 $ 56.2 $ 58.9 $ 2.4 $ 4.6
EBITDA margin(6).................................... 4.6% 9.0% 9.5% 1.9% 3.8%
Depreciation and amortization....................... 24.6 21.8 20.2 5.3 5.3
Capital expenditures................................ 15.6 15.4 11.3 4.4 3.2
Balance Sheet Data:
Working capital..................................... $162.1 $ 141.9 $ 125.1 $ 134.2 $ 133.2
Total assets........................................ 425.3 396.2 359.8 394.3 394.1
Total debt.......................................... 4.4 3.7 3.0 3.5 2.8
Shareholder's equity(7)............................. 339.3 310.2 279.7 295.0 285.7
</TABLE>
- ------------
(1) Represents net sales after reclassification of promotional expenses of $76.7
million, $72.7 million, $79.0 million, $13.8 million and $15.5 million in
fiscal 1996, 1997, 1998, the first quarter of fiscal 1998 and the first
quarter of fiscal 1999, respectively, to conform presentation to that of the
Company.
(2) Represents cost of sales after reclassification of warehousing expenses of
$42.2 million, $32.8 million, $27.5 million, $6.1 million and $6.1 million
in fiscal 1996, 1997, 1998, the first quarter of fiscal 1998 and the first
quarter of fiscal 1999, respectively, to conform presentation to that of the
Company.
(3) Represents selling, administrative and general expenses after
reclassification of promotional expenses (see Note 1 above), warehousing
expenses (see Note 2 above), and amortization of $1.1 million, $1.1 million
and $1.2 million in fiscal 1996, 1997 and 1998, respectively, to conform
presentation to that of the Company.
(footnotes continued on next page)
37
<PAGE>
<PAGE>
(footnotes continued from previous page)
(4) In May 1996, DFVC adopted a plan to reduce costs, rationalize production
capacity and provide for projected severance costs which resulted in a
restructuring charge before taxes of $37.3 million in fiscal 1996. This
amount provided for employee termination benefits of $2.2 million, $5.7
million in plant closings and $29.4 million relating to the disposition of
assets. In fiscal 1997, DFVC recorded additional restructuring charges of
$9.6 million before taxes. This amount provided for $0.7 million of employee
termination benefits and $8.9 million relating to plant closings.
(5) EBITDA is defined as the sum of pre-tax income (loss), interest expense,
depreciation and amortization of goodwill and other intangibles, and the
special charge (see Note 4 above). 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 we believe EBITDA is
a financial indicator of a company's ability to service debt. EBITDA as
calculated by us for DFVC may not be comparable to calculations as presented
by other companies.
(6) EBITDA margin is defined as EBITDA divided by net sales.
(7) Represents shareholder's equity after reclassification of intercompany
amounts of $36.7 million, $24.8 million, $33.5 million, $24.6 million and
$35.5 million in fiscal 1996, 1997, 1998, the first quarter of fiscal 1998
and the first quarter of fiscal 1999.
38
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- AGRILINK
Prior to the Acquisition, we had three primary business units: Curtice
Burns Foods ('CBF'), Nalley Fine Foods ('Nalley') and our Snack Food Group. Each
business unit offers different products. The majority of each business units'
net sales are within the United States. In addition, all of the operating
facilities of those business units are within the United States. A fourth
business unit, AFVC, which has a processing facility located in Mexico, was
added in connection with the Acquisition.
The CBF business unit produces products in several food categories,
including fruit fillings and toppings; aseptically-produced products (prior to
the sale of the aseptic business); canned and frozen fruits and vegetables and
popcorn. The Nalley business unit produces canned meat products (such as chilies
and stews), pickles, salad dressings, salsa and syrup. Agrilink'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 part of the Acquisition, Agrilink sold the
aseptic business to Dean Foods. In January 1999, we announced that we had sold
our peanut butter business, which had been part of the Nalley business unit. The
sale of the peanut butter business did not constitute a significant transaction.
The following tables illustrate Agrilink's results of operations by
business unit for the fiscal years ended June 29, 1996, June 28, 1997 and June
27, 1998, and the three- and six-month periods ended December 27, 1997 and
December 26, 1998, and Agrilink's total assets by business at June 28, 1997,
June 27, 1998, December 27, 1997 and December 26, 1998. In fiscal 1996, we sold
our Nalley Canada Ltd. subsidiary and Nalley's United States Chips and Snacks
business. In fiscal 1997, we sold our Finger Lakes Packaging Company, Inc.
('Finger Lakes Packaging') subsidiary and a portion of our canned vegetable
business.
NET SALES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------- --------------------------------------
JUNE 29, JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26,
1996 1997 1998 1997 1998
-------------- -------------- -------------- -------------- -------------------
% OF % OF % OF % OF % OF
$ TOTAL $ TOTAL $ TOTAL $ TOTAL $ TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBF.................... $431.2 58.4% $440.2 60.2% $469.0 65.2% $114.6 56.5% $115.4 30.6%
AFVC................... -- -- -- -- -- -- -- -- 198.3 52.7
Nalley Fine Foods...... 189.2 25.6 182.4 25.0 182.1 25.3 41.9 20.7 40.8 10.8
Snack Foods Group...... 63.7 8.6 67.3 9.2 68.6 9.5 17.2 8.4 18.6 4.9
------ ----- ------ ----- ------ ----- ------ ----- ------ --------
Subtotal ongoing
operations......... 684.1 92.6 689.9 94.4 719.7 100.0 173.7 85.6 373.1 99.0
Businesses sold(1)..... 55.0 7.4 40.9 5.6 -- -- 29.0 14.4 3.6 1.0
------ ----- ------ ----- ------ ----- ------ ----- ------ ---------
Total................ $739.1 100.0% $730.8 100.0% $719.7 100.0% $202.7 100.0% $376.7 100.0%
------ ----- ------ ----- ------ ----- ------ ----- ------ ---------
------ ----- ------ ----- ------ ----- ------ ----- ------ ---------
<CAPTION>
SIX MONTHS ENDED
--------------------------------
DECEMBER 27, DECEMBER 26,
1997 1998
--------------- --------------
% OF % OF
$ TOTAL $ TOTAL
----- ----- ------ -----
<S> <C> <C> <C> <C>
CBF.................... $202.3 53.4% $212.1 37.9%
AFVC................... -- -- 198.3 35.4
Nalley Fine Foods...... 84.8 22.4 79.8 14.3
Snack Foods Group...... 34.5 9.1 36.7 6.6
------ ----- ------ ----
Subtotal ongoing
operations......... 321.6 84.9 526.9 94.2
Businesses sold(1)..... 57.5 15.1 32.4 5.8
------ ----- ------ ----
Total................ $379.1 100.0% $559.3 100.0%
------ ----- ------ ----
------ ----- ------ ----
</TABLE>
- ------------
(1) Includes the sales of Finger Lakes Packaging, the portion of the canned
vegetable business sold, Nalley Canada Ltd. and Nalley's United States Chips
and Snacks business. See Note 3 to the 'Notes to Consolidated Financial
Statements' of Agrilink included elsewhere herein. Includes the net sales of
the aseptic and peanut butter businesses for the three- and six-month
periods ended December 27, 1997 and December 26, 1998. See Notes 2 and 5 to
the 'Unaudited Consolidated Financial Statements' of Agrilink included
elsewhere herein.
39
<PAGE>
<PAGE>
OPERATING INCOME(1)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED(2) SIX MONTHS ENDED(2)
------------------------------ --------------------------- ---------------------------
JUNE 29, JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26, DECEMBER 27, DECEMBER 26,
1996 1997 1998 1997 1998 1997 1998
-------- -------- -------- ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CBF..................................... $ 26.5 $ 40.5 $ 47.1 $ 16.1 $ 11.5 $ 22.2 $ 17.6
AFVC.................................... -- -- -- -- 15.5 -- 15.5
Nalley Fine Foods....................... (2.9) 10.8 10.4 3.6 3.2 6.9 4.9
Snack Foods Group....................... 4.1 5.9 6.9 1.9 2.0 4.0 4.3
Corporate............................... (6.8) (10.5) (8.8) (3.7) (1.2) (5.7) (2.5)
-------- -------- -------- ----- ----- ----- -----
Subtotal ongoing operations........... 20.9 46.7 55.6 17.9 31.0 27.4 39.8
Businesses sold and other
nonrecurring(3)....................... (6.7) 3.2 -- 4.2 0.1 7.5 3.8
-------- -------- -------- ----- ----- ----- -----
Total(4).............................. $ 14.2 $ 49.9 $ 55.6 $ 22.1 $ 31.1 $ 34.9 $ 43.6
-------- -------- -------- ----- ----- ----- -----
-------- -------- -------- ----- ----- ----- -----
</TABLE>
- ------------
(1) Excludes cumulative effect of an accounting change in fiscal 1997. See Note
1 to the 'Notes to Consolidated Financial Statements' of Agrilink included
elsewhere herein.
(2) Excludes the gain on the sale of the aseptic business.
(3) In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the portion of the canned
vegetable business sold. In fiscal 1997, such amount includes the operating
earnings and gain on the sale of Finger Lakes Packaging, operating
activities of the portion of the canned vegetable business sold, final
settlement of an insurance claim and a loss on the disposal of property held
for sale. See Note 3 to the 'Notes to Consolidated Financial Statements' of
Agrilink included elsewhere herein. For the three- and six-month periods
ended December 27, 1997 and December 26, 1998, such amount represents the
operating earnings of the aseptic and peanut butter businesses. See Notes 2
and 5 to the 'Notes to Unaudited Consolidated Financial Statements' of
Agrilink included elsewhere herein.
(4) Operating income less interest expense and amortization of debt issue costs
associated with the bridge facility ($24.1 million for the three months
ended December 26, 1998, $8.0 million for the three months ended
December 27, 1997, $32.4 million for the six months ended December 26,
1998 and $15.6 million for the six months ended December 27, 1997) results
in pretax income before dividing with Pro-Fac and before extraordinary item.
Interest expense allocated to business units is not considered a critical
component by management when evaluating success.
EBITDA(1)(2)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED(3) SIX MONTHS ENDED(3)
------------------------------ --------------------------- ---------------------------
JUNE 29, JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26, DECEMBER 27, DECEMBER 26,
1996 1997 1998 1997 1998 1997 1998
-------- -------- -------- ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CBF..................................... $ 44.4 $ 57.1 $ 61.0 $ 19.4 $ 14.7 $ 28.9 $ 23.4
AFVC.................................... -- -- -- -- 23.7 -- 23.7
Nalley Fine Foods....................... 2.3 16.2 16.0 4.9 4.3 9.5 7.4
Snack Foods Group....................... 6.0 7.6 8.8 2.3 2.5 4.9 5.3
Corporate............................... (6.9) (10.1) (8.5) (3.7) (1.1) (5.6) (2.3)
-------- -------- -------- ----- ----- ----- -----
Subtotal ongoing operations........... 45.8 70.8 77.3 22.9 44.1 37.7 57.5
Businesses sold and other
nonrecurring(4)....................... (2.1) 5.9 -- 4.6 0.3 8.3 4.7
-------- -------- -------- ----- ----- ----- -----
Total................................. $ 43.7 $ 76.7 $ 77.3 $ 27.5 $ 44.4 $ 46.0 $ 62.2
-------- -------- -------- ----- ----- ----- -----
-------- -------- -------- ----- ----- ----- -----
</TABLE>
- ------------
(1) EBITDA is defined as the sum of our pretax income (loss) (before dividing
with Pro-Fac and before cumulative effect of an accounting change and
extraordinary item) and interest expense, 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 we believe EBITDA is
a financial indicator of a company's ability to service debt. EBITDA as
calculated by us may not be comparable to calculations as presented by other
companies.
(2) Excludes cumulative effect of an accounting change in fiscal 1997. See Note
1 to the 'Notes to Consolidated Financial Statements' of Agrilink included
elsewhere herein.
(3) Excludes the gain on the sale of the aseptic business.
(4) In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the portion of the canned
vegetable business sold. In fiscal 1997, such amount includes the operating
earnings and gain on the sale of Finger Lakes Packaging, operating
activities of the portion of the canned vegetable business sold, final
settlement of an insurance claim and a loss on the disposal of property held
for sale. See Note 3 to the 'Notes to Consolidated Financial Statements' of
Agrilink included elsewhere herein. For the three- and six-month periods
ended December 27, 1997 and December 26, 1998, such amounts represent the
operating earnings of the aseptic and peanut butter businesses. See Notes 2
and 5 to the 'Notes to Unaudited Consolidated Financial Statements' of
Agrilink included elsewhere herein.
40
<PAGE>
<PAGE>
TOTAL ASSETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------------------- ----------------------------------------------
JUNE 28, 1997 JUNE 27, 1998 DECEMBER 27, 1997 DECEMBER 26, 1998
-------------------- -------------------- -------------------- ----------------------
$ % OF TOTAL $ % OF TOTAL $ % OF TOTAL $ % OF TOTAL
------ ---------- ------ ---------- ------ ---------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CBF.............................. $329.0 60.6% $362.2 63.9% $356.6 58.4% $ 390.6 30.7%
AFVC............................. -- -- -- -- -- -- 621.7 48.9
Nalley Fine Foods................ 144.4 26.6 137.4 24.3 141.0 23.1 137.2 10.8
Snack Foods Group................ 26.7 4.9 28.0 4.9 26.9 4.4 32.2 2.5
Corporate........................ 42.5 7.9 38.8 6.9 46.7 7.7 78.0 6.1
------ ---------- ------ ---------- ------ ---------- -------- ----------
Subtotal ongoing operations.... 542.6 100.0 566.4 100.0 571.2 93.6 1,259.7 99.0
Businesses sold(1)............... -- -- -- -- 39.1 6.4 12.4 1.0
------ ---------- ------ ---------- ------ ---------- -------- ----------
Total.......................... $542.6 100.0% $566.4 100.0% $610.3 100.0% $1,272.1 100.0%
------ ---------- ------ ---------- ------ ---------- -------- ----------
------ ---------- ------ ---------- ------ ---------- -------- ----------
</TABLE>
- ------------
(1) Includes the assets of the aseptic and peanut butter businesses. See Notes 2
and 5 to the 'Unaudited Consolidated Financial Statements' of Agrilink
included elsewhere herein.
41
<PAGE>
<PAGE>
CHANGES FROM SECOND QUARTER FISCAL 1998 TO SECOND QUARTER FISCAL 1999
Net income for the second quarter of fiscal 1999 of $1.6 million
represented a $2.3 million decrease as compared to the second quarter of fiscal
1998 net income of $3.9 million. Net income for the second quarter of fiscal
1999 was significantly impacted by the increase in interest expense associated
with the Acquisition and the amortization of debt issue costs associated with
the bridge facility. Accordingly, management believes an evaluation of EBITDA is
appropriate as it allows the operations of the business to be reviewed in a more
consistent manner. Excluding the operating results from businesses sold, EBITDA
for the continuing business increased $21.2 million, or 92.6%, to $44.1 million
in the second quarter of the current fiscal year from $22.9 million in the
second quarter of the prior fiscal year. This increase primarily results from
the inclusion of the AFVC business unit in the fiscal 1999 year-to-date results.
The Acquisition was completed on September 24, 1998. EBITDA of AFVC of
approximately $23.7 million was offset by a minor decrease of approximately $2.5
million at our preexisting operations. The decline at CBF of $4.7 million was
primarily attributable to a decrease in volume within the fruit category
(approximately $3.9 million), and a $0.4 million decrease within the vegetable
category attributable to product mix. The decline of EBITDA at Nalley of $0.6
million was primarily attributable to product mix. The EBITDA within the Snack
Foods Group increased $0.2 million due to increases in net sales. The decline in
corporate overhead results primarily from a reduction in incentive costs.
Net sales. Total net sales for the quarter increased $174.0 million, or
85.8%, to $376.7 million in the second fiscal quarter of fiscal 1999 from $202.7
million in the second quarter of fiscal 1998. Excluding businesses sold, net
sales increased by $199.4 million to $373.1 million in the second quarter of
fiscal 1999 from $173.7 million in the second quarter of fiscal 1998. The
increase in net sales from ongoing operations came primarily from the addition
of the AFVC business unit which reported net sales of $198.3 million. Net sales
for the remaining business units were relatively consistent with that of the
prior fiscal year. We did, however, experience reductions within the fruit
category at CBF which were offset by increases within the vegetable category.
Gross profit. Gross profit of $122.1 million in the quarter ended December
26, 1998 increased approximately $59.5 million, or 95.0%, from $62.6 million in
the quarter ended December 27, 1997. Excluding the impact of businesses sold,
gross profit increased $65.1 million or 115.6%. Gross profit at AFVC was
approximately $67.6 million for the second quarter of fiscal 1999. Gross profit
for the remaining businesses declined $2.5 million primarily attributable to
changes in product mix and product costs.
Selling, administrative and general expenses. Selling, administrative and
general expenses have increased $50.6 million as compared with the second
quarter of the prior fiscal year. The inclusion of AFVC accounted for $52.2
million of such increase. This amount was offset by a reduction in incentive
costs recorded within the quarter.
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 5, 'Other
Matters -- Formation of New Sauerkraut Company' to the 'Notes to Unaudited
Consolidated Financial Statements' of Agrilink included elsewhere herein.
Interest expense. Interest expense increased $10.6 million to $18.6 million
in the second quarter of fiscal 1999 from $8.0 million in the second quarter of
fiscal 1998. This increase is associated with debt from the Acquisition and
higher levels of seasonal borrowings at the existing operations due to an
earlier intake of crops (and therefore the resultant increase in inventory).
Amortization of debt issue costs associated with the bridge facility. In
order to consummate the Acquisition, we entered into the $200 million
bridge facility. The bridge facility was repaid with the proceeds from the
Initial Notes Offering (see Note 4, 'Debt -- 11 7/8 Percent Senior Subordinated
Notes (due 2008)' to the 'Notes to Unaudited Consolidated Financial Statements'
of Agrilink included elsewhere herein). Debt issuance costs associated with the
bridge facility were $5.5 million and were fully amortized during the quarter.
Provision for taxes. The provision for taxes decreased $1.8 million to $1.4
million in the second quarter of fiscal 1999 from $3.2 million in the second
quarter of fiscal 1998. Of this
42
<PAGE>
<PAGE>
decrease, $2.1 million is attributable to the benefit recorded in conjunction
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.
CHANGES FROM FIRST SIX MONTHS FISCAL 1998 TO FIRST SIX MONTHS FISCAL 1999
Net income for the first six months of fiscal 1999 of $23.6 million
represented an $18.3 million increase over the first six months of fiscal 1998
net income of $5.3 million. Net income for the first half of fiscal 1999 was
impacted by the gain on the sale of the aseptic business, the increase in
interest expense associated with the 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 is appropriate as it allows the operations of the business
to be reviewed in a more consistent manner. Total EBITDA for the first six
months of fiscal 1999 (excluding the extraordinary charge relating to the early
extinguishment of debt) was $62.2 million as compared to $46.0 million in the
first six months of fiscal 1998. Excluding the operating results from businesses
sold and the gain from businesses sold, EBITDA for the continuing business
increased $19.8 million, or 52.5%, to $57.5 million in the first six months of
the current fiscal year from $37.7 million in the first six months of the prior
fiscal year. This increase primarily results from the inclusion of the AFVC
business unit in fiscal 1999. EBITDA of AFVC of approximately $23.7 million was
offset by a decrease within our preexisting operations of approximately $3.9
million. A decline at CBF of $5.5 million was primarily due to reductions within
the fruit category (approximately $5.7 million) as a result of changes in
product mix. The decline at Nalley of $2.1 million was due primarily to the
recognition of a favorably settled outstanding tax claim with the state of
Washington for $1.4 million in the first six months of the prior fiscal year and
a reduction in the dressing and canned product lines due to competitive
pressures. The EBITDA within the Snack Foods Group increased $0.4 million due to
increases in net sales. The decline in corporate overhead results primarily from
a reduction in incentive costs.
Net sales. Total net sales for the first six months increased $180.2
million, or 47.5%, to $559.3 million in the fiscal first six months of fiscal
1999 from $379.1 million in the first six months of fiscal 1998. Excluding
businesses sold, net sales increased by $205.3 million, or 63.8%, to $526.9
million in the first six months of fiscal 1999 from $321.6 million in the first
six months of fiscal 1998.
The increase in net sales came primarily from the addition of the AFVC
business unit which reported net sales of $198.3 million.
Our preexisting operations accounted for an increase of $7.0 million. Net
sales for CBF increased $9.8 million. This increase was attributable to
improvements in volume primarily within vegetables (approximately $17.4 million)
offset by a decrease within the fruit category due to changes in product mix
(approximately $6.1 million). Net sales for the remaining categories at CBF were
relatively consistent with that of the first six months of the prior fiscal
year.
Net sales for Nalley decreased $5.0 million as compared with the first six
months of the prior fiscal year as gains in the pickle category were offset by
reductions in the dressing and canned product lines. Within the pickle category,
net sales for the first six months of fiscal 1999 increased $1.4 million as a
result of increased volume in the food service channel. Competitive pressures on
volume and price resulted in a $4.4 million decrease in net sales for dressings
and a $2.0 million decrease in the canned category.
Net sales for the Snack Foods Group increased by $2.2 million, or 6.4%, to
$36.7 million in the first six months of fiscal 1999 as a result of new
business.
Gross profit. Gross profit of $168.8 million in the first six months ended
December 26, 1998 increased approximately $60.6 million, or 56.0%, from $108.2
million in the first six months ended December 27, 1997. Excluding the impact of
businesses sold, gross profit increased $65.7 million or 68.2%.
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Gross profit at AFVC was approximately $67.6 million for the six months
ended December 27, 1998.
The decrease in gross profit at the CBF business unit (excluding the
aseptic business) was $1.4 million primarily attributable to changes in product
mix and product costs. Overall, gross profit at Nalley (excluding the peanut
butter business) decreased $1.9 million due primarily to the reductions in net
sales outlined above. Increases in net sales within the Snack Foods Group
resulted in margin improvements of $1.4 million.
Selling, administrative and general expenses. Selling, administrative and
general expenses have increased $52.7 million as compared with the first six
months of the prior fiscal year. The inclusion of AFVC accounted for $52.2
million of such increase.
Gain on sale of aseptic business. In conjunction with the Acquisition, we
sold our aseptic business to Dean Foods. A gain of approximately $64.2 million
was recognized on this disposal reflecting a preliminary value for this business
of approximately $83 million (based upon an appraised value range given to
us by an independent appraiser). This amount was used to offset borrowings
necessary to complete the Acquisition.
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 5, 'Other
Matters -- Formation of New Sauerkraut Company' to the 'Notes to Unaudited
Consolidated Financial Statements' of Agrilink included elsewhere herein.
Interest expense. Interest expense increased $11.3 million to $26.9 million
in the first six months of fiscal 1999 from $15.6 million in the first six
months of fiscal 1998. This increase is associated with debt from the
Acquisition and higher levels of seasonal borrowings at the existing operations
due to an earlier intake of crops (and therefore the resultant increase in
inventory).
Amortization of debt issue costs associated with the bridge facility. In
order to consummate the Acquisition, we entered into the $200 million
bridge facility. The bridge facility was repaid with the proceeds from the
Initial Notes Offering (see Note 4, 'Debt -- 11 7/8 Percent Senior Subordinated
Notes due 2008' to the 'Notes to Unaudited Consolidated Financial Statements' of
Agrilink included elsewhere herein). Debt issuance costs associated with the
bridge facility were $5.5 million and were fully amortized during the second
quarter.
Provision for taxes. The provision for taxes increased $21.3 million to
$25.7 million in the first six months of fiscal 1999 from $4.4 million in the
first six months of fiscal 1998. Of this net increase, $25.0 million is
attributable to the provision associated with the gain on the sale of the
aseptic business. 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, we refinanced our existing indebtedness,
including our 12.25 percent Senior Subordinated Notes due 2005 and our 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).
CHANGES FROM FISCAL 1997 TO FISCAL 1998
Net income for fiscal 1998 of $6.8 million represented a $1.3 million or
23.6% 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% to $77.3
million, while operating income increased $8.9 million or 19.1% to $55.6 million
from the prior year's $46.7 million. These improvements reflected the benefits
from numerous initiatives including: (i) increase in volume and new customers in
many of our product lines; (ii) the continuing benefits from structural changes
made within the organization including the
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consolidation of operations and facilities and (iii) 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% to
$719.7 in fiscal year 1998 from $730.8 million in the prior year. Excluding the
net sales of businesses sold by us, net sales increased by $29.8 million or 4.3%
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%, from the
prior year. Such increases resulted from changes in volume, product mix, new
customers and improvements in prices. 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. In
connection with the Acquisition, the Company sold its aseptic business to Dean
Foods.
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 (on December 10, 1998, the Company announced it had reached an
agreement in principle to sell its peanut butter business). 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 dressing. 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% 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% 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% to 27.2%. This
increase is attributable to improved margins in many of our 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 weakened pricing within the industry. As highlighted under ' -- Liquidity and
Capital Resources -- Short- and Long-Term Trends,' the vegetable portion of our
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% to 19.7%. This decrease is primarily due to: (i) reductions in
selling expenses of $1.4 million; (ii) reductions in incentive costs of $1.2
million; and (iii) 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 us and Flanagan
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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% 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, 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.
Provision for taxes. The provision for taxes increased $2.0 million or
54.1% 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. Our
effective tax rate in fiscal 1998 was 45.5% 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: (i) a reduction in debt by $86.8 million which included the sales of
Finger Lakes Packaging, 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); (ii) the implementation of structural changes within
the organization, including the consolidation of the operations of Brooks Foods
and Southern Frozen Foods into CBF; and (iii) 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 our 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% to $730.8
million in fiscal 1997 from $739.1 million in fiscal 1996. Excluding business
sold, net sales increased $5.8 million or 0.8% 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% 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% 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%, 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.
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Gross profit. Gross profit of $191.7 million in fiscal 1997 increased $15.5
million or 8.8% from $176.2 million in fiscal 1996. As a percentage of net
sales, gross profit increased from 23.8% to 26.2%. This increase was
attributable to improved margins in all of our 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
our 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 we operate were
below that of the prior year and, therefore, pricing levels within the
commodities markets in which we compete were increased. The increase in pricing
favorably impacted gross profit by $9.5 million.
Gross profit increased at Nalley by $4.0 million in 1997. This improvement
was primarily attributable to operating improvements, primarily the elimination
of start-up costs on the 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 decreased $10.7 million in 1997 as compared with the prior
year. As a percentage of net sales, selling, administrative and general expenses
decreased from 21.1% to 19.9%. This decrease is net of the inclusion of expenses
(approximately $5.6 million) relating to our incentive program. Payments under
the incentive programs in fiscal 1997 were 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. 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.
Gain on sale of Finger Lakes Packaging. On October 9, 1996, we completed
the sale of Finger Lakes Packaging 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. We 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% 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, 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. Our
effective tax rate in fiscal 1997 was 49.3% 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 our historic financial statements.
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RESULTS OF OPERATIONS -- PRO-FAC
See 'Pro-Fac Cooperative, Inc. and Consolidated Subsidiary -- Management's
Discussion and Analysis of Financial Condition and Results of Operations' at the
back of this prospectus.
RESULTS OF OPERATIONS -- DFVC
The purpose of this discussion is to outline the significant reasons for
changes in the Consolidated Statements of Operations of DFVC from fiscal 1996
through fiscal 1998 and for the first quarter of each of fiscal 1998 and 1999.
The financial data included in this discussion correspond to the financial data
of DFVC included herein under 'Selected Historical Consolidated and Unaudited
Pro Forma Financial Data of Agrilink and DFVC -- DFVC,' which have been adjusted
to conform to our presentation. See 'Selected Historical Consolidated and
Unaudited Pro Forma Financial Data of Agrilink and DFVC -- DFVC.' DFVC's results
of operations will no longer be separately reported as they now form a part of
the Company's consolidated financial statements.
CHANGES FROM FIRST QUARTER FISCAL 1998 TO FIRST QUARTER FISCAL 1999
Net loss for the three months ended August 30, 1998 was $1.6 million, a
reduction of $1.4 million, or 46.7%, from a net loss of $3.0 million for the
three months ended August 24, 1997. Total EBITDA was $4.6 million for the first
fiscal quarter of 1999 as compared to $2.4 million in the first quarter of the
prior fiscal year. Improvements resulted from the net increase in gross profit
due to the introduction of new products with higher profit margins offset by the
increase in promotional and marketing expenses to support such product launches.
Net sales. Total net sales decreased $1.4 million, or 1.1%, to $121.9
million in the quarter ended August 30, 1998 from $123.3 million in the first
quarter of the prior fiscal year. The variance is primarily attributable to a
decline in private label food service and industrial unit sales volume of
approximately $8.7 million due to competitive market conditions. Offsetting this
decrease was an increase of approximately $7.3 million in branded sales
resulting from new product introductions including Chicken Voila! and Birds Eye
Baby Vegetables.
Gross profit. Gross profit was $34.6 million in the quarter ended August
30, 1998, an increase of $6.6 million, or 23.6%, from $28.0 million in the first
quarter of the prior fiscal year. As a percentage of net sales, gross profit
increased from 22.7% in the quarter ended August 24, 1997 to 28.4% in the
quarter ended August 30, 1998. The increase is primarily attributable to
favorable pricing for branded retail. The introduction of new products with
higher profit margins, such as Chicken Voila! and Birds Eye Baby Vegetables also
strengthened profit margins.
Selling, administrative and general Expenses. Selling, administrative and
general expenses increased $4.4 million, or 14.1%, to $35.5 million in the
quarter ended August 30, 1998 from $31.1 million in the first quarter of the
prior fiscal year. As a percentage of net sales, selling, administrative and
general expenses increased from 25.2% in the quarter ended August 24, 1997 to
29.1% in the quarter ended August 30, 1998. This increase is primarily due to
increases within promotional and marketing expenses to support the new product
introductions discussed above.
Interest expense. Interest expense decreased $0.1 million, or 4.8%, to $2.0
million in the quarter ended August 30, 1998 from $2.1 million in the quarter
ended August 24, 1997. Interest expense was allocated to DFVC by Dean Foods
based on a formula which takes into consideration the percentage of certain
assets and liabilities in relation to the total for Dean Foods.
Provision for taxes. The benefit for taxes decreased $0.9 million, or
45.0%, to $1.1 million in the quarter ended August 30, 1998 from $2.0 million in
the quarter ended August 24, 1997. This decrease was a result of the improvement
in earnings described above. DFVC's effective tax rate in the current and prior
year was approximately 40.0%.
CHANGES FROM FISCAL 1997 TO FISCAL 1998
Net income for fiscal 1998 of $17.7 million represented an increase of $9.0
million, or 103.0%, over the prior year's net income of $8.7 million. Total
EBITDA was $58.9 million as compared to $46.6 million in the prior year. Fiscal
1997 earnings, however, included a $9.6 million charge to
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provide for employee and asset relocation costs associated with plant
consolidations. Excluding this special charge, EBITDA for fiscal 1998 increased
approximately $2.7 million or 4.8%, while net income increased approximately
$3.2 million. Improvements resulted from the benefits of the restructuring
initiatives implemented in the prior year.
Net sales. Total net sales for the year decreased $1.8 million or 0.3% to
$620.2 million in fiscal 1998 from $622.0 million in the prior year. Competitive
market conditions were largely responsible for lower private label unit sales
volume. Improved pricing for branded retail partially offset the decline in
private label unit sales volume.
Gross profit. Gross profit of $196.2 million in fiscal 1998 increased $12.6
million or 6.9% from $183.6 million in fiscal 1997. As a percentage of net
sales, gross profit increased from 29.5% in fiscal 1997 to 31.6% in fiscal 1998.
The increase is primarily attributable to favorable pricing for branded retail.
During 1998, DFVC also introduced new products with higher profit margins such
as Baby Vegetables and eliminated several products with low profit margins.
Selling, administrative and general Expenses. Selling, administrative, and
general expenses increased $8.9 million, or 5.9%, to $158.7 million in fiscal
1998 from $149.8 million in the prior fiscal year. As a percentage of net sales,
selling, administrative and general expenses increased from 24.1% in fiscal 1997
to 25.6% in fiscal 1998. This increase is primarily due to increases of
approximately $6.3 million within promotional expenses to support new product
introductions, such as Baby Vegetables, and existing product lines.
Interest expense. Interest expense decreased $1.1 million, or 10.7%, to
$9.2 million in fiscal 1998 from $10.3 million in fiscal 1997. This decrease is
due to improvements in working capital management resulting from operating
efficiencies benefited by both restructuring initiatives and the strategic plan
outlined in fiscal 1997.
Provision for taxes. The provision for taxes increased $6.0 million or
103.4% to $11.8 million in fiscal 1998 from $5.8 million in fiscal 1997. This
increase was a result of the improvement in earnings described above. DFVC's
effective tax rate in fiscal 1998 was 40.0%. A further summary of tax matters is
included at Note 7 to the 'Notes to Consolidated Financial Statements' of DFVC
included elsewhere herein.
CHANGES FROM FISCAL 1996 TO FISCAL 1997
Net income for fiscal 1997 of $8.7 million represented a $35.6 million
increase over the fiscal 1996 net loss of $26.9 million. Total EBITDA was $46.6
million as compared to $(7.5) million in the prior fiscal year. Both the fiscal
1996 and fiscal 1997 results, however, included a special charge of $37.3
million and $9.6 million, respectively, related to the adoption of a strategic
plan to reduce costs, rationalize production capacity, and provide for employee
severance. Excluding the special charge in both years, fiscal 1997 EBITDA was
$56.2 million, representing an increase of $26.4 million, from fiscal 1996
EBITDA of $29.8 million. Excluding the special charge in both years, fiscal 1997
net income was approximately $14.5 million, representing an increase of $18.6
million from the fiscal 1996 net loss of approximately $4.1 million. The
improved results principally resulted from favorable manufacturing variances,
including reductions in procurement costs, increased operating efficiencies,
lower warehousing costs, and reduced operating expenses. Many of these
improvements resulted from the restructuring initiatives implemented. In
addition, fiscal 1996 results were negatively impacted by weather-related higher
costs associated with the poor 1995 Midwest harvest, industry-wide excess
inventory levels and highly competitive market conditions that prevailed
throughout fiscal 1996.
Net sales. Total net sales for the year decreased $24.6 million or 3.8% to
$622.0 million in fiscal 1997 from $646.6 million in the prior year. The
decrease in net sales is principally due to a decline in private label sales and
planned reductions in products used in the business. Competitive market
conditions were largely responsible for lower private label unit sales volume
and a slight decline in branded retail unit sales volume. Partially offsetting
the decline in branded retail and private label unit sales volume, were improved
pricing for both frozen and canned vegetables over the prior year and an
increase in bulk frozen sales.
Gross profit. Gross profit of $183.6 million in fiscal 1997 increased $28.7
million or 18.5% from $154.9 million in fiscal 1996. As a percentage of net
sales, gross profit increased from 24.0%
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in fiscal 1996 to 29.5% in fiscal 1997. The increase is attributable to lower
product costs resulting from the restructuring initiatives implemented in fiscal
1996 and fiscal 1997. These efforts improved procurement practices, increased
operating efficiencies and lowered warehouse/delivery expense. These cost
savings were, however, partially offset by lower sales volume experiences in
fiscal 1997 as a result of deliberate inventory rationalization and product
reductions.
Selling, administrative and general expenses. Selling, administrative, and
general expenses decreased $0.5 million to $149.8 million in fiscal 1997 from
$150.3 million in fiscal 1996. This change is primarily due to reductions in
general and administrative costs relating to improvements in working capital
management resulting from operating efficiencies benefited by restructuring and
the strategic plan outlined. As a percentage of net sales, selling,
administrative and general expenses increased from 23.2% in fiscal 1996 to 24.0%
in fiscal 1997.
Interest expense. Interest expense decreased $1.7 million or 14.2% to $10.3
million in fiscal 1997 from $12.0 million in fiscal 1996. This decrease was
primarily due to lower weighted average interest rates during fiscal 1997 in
comparison to fiscal 1996.
Special charge. Special charges of $9.6 million and $37.3 million were
recognized in fiscal 1997 and 1996, respectively. The fiscal 1996 charge was
part of a plan to reduce costs, rationalize production capacity, and provide for
projected severance costs. The plan included the elimination of more than 200
manufacturing and administrative positions, closure of five manufacturing
facilities, and the disposition of certain assets held by two other facilities.
In fiscal 1997, DFVC recorded an additional charge of $9.6 million to provide
for employee and asset relocation costs associated with plant consolidations.
Provision for taxes. The provision for taxes increased $23.0 million to
$5.8 million in fiscal 1997 from a benefit of $17.2 million in fiscal 1996. The
benefit for taxes recognized in fiscal 1996 reflected the fiscal 1996 net loss
and the impact of the special charge to earnings. DFVC's effective tax rate in
fiscal 1997 was 40.0%. A further summary of tax matters is included in Note 7 to
the 'Notes to Consolidated Financial Statements' of DFVC included elsewhere
herein.
LIQUIDITY AND CAPITAL RESOURCES
Agrilink. The following discussion highlights the major variances in the
'Unaudited Consolidated Statement of Cash Flows' included elsewhere herein for
our first six months of fiscal 1999 compared to our first six months of fiscal
1998 and 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 used in operating activities increased $27.4 million in the first
six months of fiscal 1999 over the first six months of the prior fiscal year.
This increase primarily results from a variance within accounts receivable and
accounts payable due to the timing of liquidation of outstanding balances. Such
variances have been impacted by the inclusion of operating activities of AFVC.
In addition, the variance within income taxes payable was impacted by the
provision recorded on the gain from the sale of the aseptic business.
Net cash used in investing activities increased significantly due to the
Acquisition offset by the subsequent sale of the aseptic business and the
disposal of an idle facility held for sale. The purchase of property, plant and
equipment increased $1.8 million to $8.6 million for the six months ended
December 26, 1998 from $6.8 million for the six months ended December 27, 1997
and was for general operating purposes.
Net cash provided by financing activities also increased significantly due
to the 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 Unaudited
Consolidated Financial Statements' of Agrilink included elsewhere herein.
In addition, seasonal borrowings increased during the first six months of
fiscal 1999 due to both the earlier intake of crops and the resultant increase
in inventory levels and the operating activities associated with the
Acquisition.
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: (i) an increase of
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$8.0 million in inventory to support additional business regarding the Sam's
national club stores as described below; (ii) an increase of $4.0 million of
inventory associated with the acquisition of DelAgra; and (iii) 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, we 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
us to implement full distribution, this contract did not significantly impact
fiscal 1998 earnings. However, the Company anticipates this arrangement will
have a favorable impact on fiscal 1999 earnings, although there can be no
assurance it will do so.
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, 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
old credit facility. 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% 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 in 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.
Pro-Fac. See 'Pro-Fac Cooperative, Inc. and Consolidated
Subsidiary -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources' at the back of this
prospectus.
DFVC. The following discussion highlights the major variances in the
'Unaudited Condensed Consolidated Statement of Cash Flows' of DFVC, included
elsewhere herein, for DFVC's first quarter of fiscal 1999 compared to its first
quarter of fiscal 1998 and in the 'Consolidated Statement of Changes in Cash
Flows' included in the consolidated financial statements of DFVC, included
elsewhere herein, for fiscal 1998 compared to fiscal 1997.
Operating activities used $1.0 million of cash in the first quarter of
fiscal 1999 compared to providing $17.7 million in the first quarter of fiscal
1998. This change was primarily attributable to an increase in inventory of
$29.1 million due to timing of crop intake and an increase in accounts
receivable of $5.9 million. These uses of funds were partially offset by an
increase within accounts payable and other accrued expenses of approximately
$15.5 million resulting from the timing and liquidation of outstanding
obligations.
Net cash used in investing activities decreased by approximately $1.2
million in the first quarter of fiscal 1999 due to a decrease in the purchase of
property, plant and equipment. Capital spending decreased by approximately $1.2
million, or 27.3%, to $3.2 million in the first quarter of fiscal 1999 from $4.4
million in the first quarter of fiscal 1998. Capital spending for both quarters
was for general operating purposes.
Financing activities for DFVC primarily resulted from advances and payments
between the operating entity and its former parent, Dean Foods. Dean Foods
maintained a centralized cash management system, whereby substantially all cash
receipts and disbursements were recorded at the corporate level. Net cash
provided by financing activities of $4.4 million in the first quarter of fiscal
1999 represented the repatriation to Dean Foods of cash flows generated by
operating activities as compared to $13.2 million used in financing activities
in the first quarter of fiscal 1998.
Net cash provided by operating activities increased in fiscal 1998 to $72.5
million from $49.3 million in the prior year. This improvement was primarily due
to an increase in cash of
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approximately $22.6 million resulting from the timing and liquidation of
outstanding obligations within accounts payable and other accrued expenses.
Net cash used in investing activities decreased by approximately $4.2
million in fiscal 1998, primarily due to purchasing activities surrounding
property, plant and equipment. The purchase of property, plant and equipment
decreased by $4.1 million or 26.6% to $11.3 million in fiscal 1998 from $15.4
million in fiscal 1997 and was for general operating purposes.
Financing activities for DFVC in fiscal 1998 and 1997 primarily resulted
from advances and payments between the operating entity and its former parent,
Dean Foods. Dean Foods maintained a centralized cash management system, whereby
substantially all cash receipts and disbursements were recorded at the corporate
level. Net cash used in financing activities of $61.6 million in fiscal 1998
represented the repatriation to Dean Foods of excess cash flow generated by
operating activities as compared to $34.2 million used in financing activities
in fiscal 1997.
New credit facility. In connection with the Acquisition, we entered into
the new credit facility, which consists of the revolving credit facility and the
term loan facility. The term loan facility consists 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. Upon consummation of the
Acquisition, we drew $455 million of the term loan facility, consisting of
$100.0 million, $175.0 million and $180.0 million of loans under the Term A
facility, Term B facility and Term C facility, respectively. Additionally, as of
December 26, 1999, $85.0 million was drawn under the revolving credit facility
in connection with seasonal working capital needs and an additional $14.2
million of such facility was used as credit support in the form of letters of
credit. During December 1998, our primary lender exercised its right under the
new credit facility to transfer $50.0 million from the Term A facility to the
Term B and Term C facilities in increments of $25.0 million. Principal
repayments under the term loan facility will amortize in quarterly installments
commencing in the third quarter of fiscal 1999 through the respective final
maturities of the tranches comprising the term loan facility in the amounts of
$0.4 million, $8.3 million, $10.8 million, $10.8 million, $10.8 million, $13.3
million, $198.2 million and $202.4 million during the fiscal years 1999 through
2006 (inclusive), respectively.
The new credit facility bears interest, at our option, at the
administrative agent's alternate base rate (which is equal to the greater of:
(i) the prime commercial rate as announced by the administrative agent and (ii)
the Federal Funds rate plus 0.50%) 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% for the revolving credit facility
and Term A facility, (y) 2.75% for the Term B facility and (z) 3.00% for the
Term C facility and (ii) in the case of LIBOR loans, (x) 2.75% for the revolving
credit facility and Term A facility, (y) 3.75% for the Term B facility and (z)
4.00% for the Term C facility. In addition, we pay a commitment fee calculated
at a rate of 0.50% per annum on the daily average unused commitment under the
revolving credit facility. For a more detailed description of the new credit
facility, see 'Description of Certain Indebtedness -- New Credit Facility'
included elsewhere herein.
Interest Rate Protection Agreements. We are subject to market risk from
exposure to changes in interest rates based on its financing activities. We have
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, we have entered into two interest rate swap
agreements with the Bank of Montreal. The agreements provide for fixed interest
rate payments by us in exchange for payments received at the three-month LIBOR
rate.
The following is a summary of our interest rate swap agreements:
<TABLE>
<S> <C>
Interest Rate Swap:
Variable to Fixed -- notional amount............................................. $250,000,000
Average pay rate................................................................. 4.96 - 5.32%
Average receive rate............................................................. 5.28%
Maturities....................................................................... 2001
</TABLE>
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We have 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 our hedge position, it is our belief that on a long-term basis,
the possibility of interest rates increasing exceeds the likelihood of interest
rates decreasing. We will, however, monitor market conditions to adjust its
position as it considers necessary.
Capital expenditures. We anticipate that capital expenditures for fiscal
years 1999 and 2000, including capital expenditures relating to DFVC, will be
approximately $25.0 million per annum.
Based on the current level of operations, we believe that we will be able
to meet the debt service requirements on our indebtedness (including the Notes)
and meet our working capital needs and fund our capital expenditures and other
operating expenses out of cash flow from operations and available borrowings
under the revolving credit facility. However, there can be no assurance that our
business will generate cash flow at levels sufficient to meet these
requirements. In addition, under the new credit facility, we have scheduled
principal amortization payments of the term loans of $198.2 million in fiscal
2005 and $202.4 million in fiscal 2006. See 'Description of Certain
Indebtedness -- New Credit Facility.' We may be unable to repay such principal
amounts under the new credit facility due in fiscal 2005 and fiscal 2006 unless
it is able to refinance such indebtedness. See 'Risk Factors -- Our Substantial
Leverage and Debt Service Requirements May Have Adverse Consequences.'
Short- and long-term trends. Throughout fiscal 1998 and 1997 we have
focused on our 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.
As a result of the financings entered into in connection with the
Acquisition, we are highly leveraged. We will therefore be heavily focused on
managing our operations with a view toward making timely payments of scheduled
debt repayments. Such leverage and demands on us could have significant adverse
effects. See 'Risk Factors -- Our Substantial Leverage and Debt Service
Requirements May Have Adverse Consequences.'
The vegetable and fruit portions of our business, which includes AFVC and
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 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.
In the first quarter of fiscal 1998, we 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.
Additional Payment to Dean Foods. We expect to pay an additional $13.2
million to Dean Foods in connection with our anticipated election to treat the
Acquisition as an asset sale for tax purposes under Section 338(h)(10) of the
Code and to fund such payment by borrowing that amount under the revolving
credit facility. We anticipate that such election would allow us to reduce our
future tax liability through increased depreciation and amortization deductions
resulting from the stepped up basis for the assets acquired from Dean Foods and
deductibility of goodwill.
Supplemental information on inflation. The changes in costs and prices
within our 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.
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OTHER MATTERS
Restructuring. During the fourth quarter of fiscal 1996, we initiated 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. There were not
any 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.
During the fourth quarter of fiscal 1996, DFVC initiated a restructuring
program to reduce costs, rationalize production capacity and provide for
projected severance costs. The restructuring charge of $37.3 million recorded by
DFVC in fiscal 1996 consisted of: (a) approximately $2.2 million in employee
termination benefits, (b) approximately $5.7 million relating to plant closing
costs and (c) approximately $29.4 million in noncash asset write-offs. An
additional $9.6 million of restructuring charges were incurred by DFVC in fiscal
1997, consisting primarily of $8.9 million relating to plant closures and
approximately $0.7 million in employee termination benefits. At May 31, 1998,
the remaining reserve attributable to employee termination benefits, which is
expected to be used for continuing severance benefits, was $2.1 million. A
reserve of $2.5 million outstanding on May 31, 1998 relates to a litigation
settlement that is not being assumed by the Company in connection with the
Acquisition.
1998 growing season. The effect of the calendar 1998 growing season on
fiscal 1999 financial results cannot be estimated until early calendar 1999 when
harvesting is complete and national supplies can be determined.
Year 2000 and information services reorganization. A full inventory and
analysis of our business applications and related software was performed, and we
have determined that we will be required to modify or replace certain portions
of our software so that our computer systems will be Year 2000 compliant. These
modifications and replacements are being and will continue to be made in
conjunction with our overall information systems initiatives. No major delay in
these initiatives is anticipated.
In addition, we are 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 our financial position, results of operations or cash flows in future
periods. Accordingly, the cost of the project is being funded through operating
cash flows.
We have 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 assurance that the systems of other companies on which our 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 our systems, would not have material
adverse effect on us. Accordingly, we plan to devote the necessary resources to
resolve all significant Year 2000 issues in a timely manner.
We expect 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), we do not believe any material exposure to significant business
interruption exists. In the event some of the remaining elements of our Year
2000 compliance project are delayed, procedures have been developed to ensure
alternative workaround initiatives are completed.
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In June 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 $50.0 million, is
for SCT's OnSite outsourcing services, ADAGE ERP software and implementation
services and assistance in solving the Year 2000 issue.
We have verified that AFVC's general ledger, payroll and human resources
systems are Year 2000 compliant. The software utilized by AFVC for such
functions, however, is contracted directly to Dean Foods. Dean Foods will
provide these systems to us for a six-month transition period following the
Acquisition to allow us to transfer these systems to our Year 2000 compliant
software. We have reviewed and verified the current status of AFVC's remaining
software and its Year 2000 compliance implementation plan and has confirmed that
AFVC is prepared to bring all of its other functions into Year 2000 compliance
no later than the fall of 1999.
See also 'Risk Factors -- Year 2000 Technology Problems Could Cause
Business Interruptions.'
Product Recall. In February 1997, we issued a nationwide recall of all
'Tropic Isle' brand fresh frozen coconut produced in Costa Rica because it had
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 our insurance policies.
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BUSINESS
We are a leading producer and marketer of diversified processed food
products. Our broad product offering includes frozen and canned vegetables and
fruits, fruit fillings and toppings, canned chilies and stews, salad dressings,
pickles and snack foods. Many of our brand name products enjoy leading national
or regional market shares, including Birds Eye, Freshlike and Veg-All frozen and
canned vegetables, Comstock, Wilderness and Thank You fruit fillings and
toppings, Nalley chilies and stews and Bernstein's salad dressings. We also
market our products to supermarkets, warehouse clubs and mass merchandisers
under private labels and to food service institutions including restaurants,
caterers, bakeries and schools. Finished products are well-diversified among
branded (60% of fiscal 1998 pro forma net sales), private label (17%) and food
service and industrial products (23%). For fiscal 1998, we had pro forma net
sales of $1.2 billion and pro forma EBITDA of $131.0 million. See 'Summary
Selected Historical and Unaudited Pro Forma Financial Data.'
We operate 29 strategically located processing facilities throughout the
United States and in Mexico, which provide access to diversified sources of raw
agricultural products. We distribute finished products to over 13,000 customer
distribution points through a nationwide network of distribution centers and
food brokers and a regional direct sales force. Snack products are marketed
through direct store distributors (some of which are owned and operated by us)
that ship directly to retail outlets. Our customers include supermarket chains
throughout the United States, including Kroger, A&P and Publix, as well as food
service providers such as Sysco, Alliant Food Service and U.S. Foodservice. No
single customer accounted for more than 5% of our fiscal 1998 pro forma gross
sales.
We are a wholly-owned subsidiary of Pro-Fac, a New York agricultural
cooperative corporation formed in 1960 to process and market crops grown by its
members. In 1994, Pro-Fac and Agrilink entered into the Marketing Agreement. The
Marketing Agreement provides for Pro-Fac to supply crops and additional
financing to Agrilink, for Agrilink to provide marketing and management services
to Pro-Fac and for Pro-Fac to share in the profits or losses of Agrilink. See
'The Company and Pro-Fac.'
OPERATIONS
We operate throughout the United States and in Western Canada through four
primary business units: CBF, Nalley Fine Foods, Snack Foods Group and, with the
Acquisition, AFVC.
Curtice Burns Foods. CBF, headquartered in Rochester, New York, consists of
our Comstock Michigan Fruit, Southern Frozen Foods and Brooks Foods business
units, which were consolidated on September 18, 1997, and are now called Curtice
Burns Foods. CBF produces products in several food categories, including fruit
fillings and toppings, canned and frozen fruits and vegetables and popcorn. Our
branded pie fillings are ranked first nationally in the branded market, with a
55% share of that market. The vegetables and fruits processed by CBF include
corn, cherries, beans, peas, cucumbers, blueberries, apples, potatoes, cabbage,
beets and asparagus. In fiscal 1998, excluding the aseptic business,
approximately 44% of CBF's net sales represented branded products, approximately
22% represented private label products and approximately 34% represented food
service/industrial products. Brand names of CBF's products 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. Additional products include value-added items such as canned
specialty fruits, frozen vegetable blends, Southern-specialty products such as
black-eyed peas, okra and Southern squash and Southern specialty side dishes.
Canned beans and tomato products are sold in several Midwestern states under the
Brook's label. This product category includes value-added items such as Chili
Hot Beans and stewed tomatoes. CBF also supplies branded and private label fruit
fillings to retailers and food service institutions such as restaurants,
caterers, bakeries and schools. In fiscal 1998, CBF had net sales and unit
operating income of $469.0 million and $47.1 million, respectively. The aseptic
business accounted for net sales and operating income of approximately $97.9
million and $16.5 million, respectively, in fiscal 1998.
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AFVC. The AFVC business unit became our newest and largest business unit
upon consummation of the Acquisition and the Merger. AFVC is a producer and
marketer of canned and frozen vegetables and is based in Green Bay, Wisconsin.
AFVC is one of the largest processors of frozen vegetables in the United States.
The vegetables processed by AFVC include corn, beans, peas, broccoli, spinach,
cauliflower and carrots. In fiscal 1998, approximately 60% of DFVC's net sales
were branded and the remainder were split between private label and other
business. Branded products include Birds Eye frozen vegetables, Freshlike canned
and frozen vegetables and Veg-All canned mixed vegetables. Birds Eye is the
second leading frozen vegetable brand in terms of market share in the United
States. We intend to use the Birds Eye label's strength as leverage to continue
to acquire market share through the introduction of new products. In June 1997,
DFVC introduced Baby Vegetables, a line of gourmet frozen vegetables under the
Birds Eye brand. In fiscal 1998, Baby Vegetables accounted for approximately
$31.0 million in retail sales. In March 1998, DFVC introduced Chicken Voila!
under the Birds Eye brand as a ready meal solutions product for time-constrained
consumers who are willing to pay for value-added convenience products. DFVC also
entered the $1.1 billion fresh pre-cut vegetables market in 1998 under the Birds
Eye brand. We will continue to market AFVC'S private label vegetables primarily
to large retail grocery chains and wholesalers. AFVC's other business segment
consists of food service, industrial and export sales, which together accounted
for 24% of DFVC's fiscal 1998 sales. The food service business primarily sells
to major food service providers such as Alliant, Sysco and U.S. Foodservice.
Industrial customers include Campbell Soup Company, ConAgra and Stillwell. AFVC
will continue to export predominantly private label products to Canada, the Far
East, Europe and Mexico. In fiscal 1998, DFVC had net sales (adjusted to conform
to our presentation) and operating income of approximately $620.2 million and
$38.7 million, respectively.
Nalley Fine Foods. The Nalley Fine Foods business unit markets canned meat
products such as chilies and stews, pickles, salsa, salad dressings and syrup.
Nalley's products are primarily branded, accounting for approximately 74% of
Nalley's fiscal 1998 net sales. However, private label and food service accounts
for a growing percentage of Nalley's business. Several of Nalley's branded
products have leading market shares in the fast-growing Pacific Northwest region
(defined as the principal metropolitan areas of the states of Idaho, Oregon,
Utah and Washington), such as Nalley chili with a 57% market share, and Nalley
and Farman's pickles with a 47% market share, based on dollar sales. In the
Pacific Northwest, our Nalley and Bernstein's brands of salad dressings have a
combined market share of approximately 13%. In January 1999, we announced that
we had sold Nalley's peanut butter business. In fiscal 1998, Nalley had net
sales and unit operating income of $182.1 million and $10.4 million,
respectively.
Snack Foods Group. Our Snack Foods Group consists of Snyder of Berlin
(Snyder) and Husman Snack Foods (Husman), which produce and distribute their
snack food products primarily in the Mid-Atlantic and Midwest regions of the
country, and Tim's Cascade Chips (Tim's), which produces and distributes
kettle-fried chips, popcorn, cheese curls and snack mix in the Pacific
Northwest. In fiscal 1998, the Snack Foods Group had net sales and unit
operating income of $68.6 million and $6.9 million, respectively.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The businesses of the Company, Pro-Fac and DFVC are principally conducted
in one industry segment, the processing and sale of various food products. The
financial statements for the fiscal years 1996, 1997 and 1998, which are
included elsewhere herein, reflect the information relating to that segment for
the last three fiscal years for each of the Company, Pro-Fac and DFVC.
PRO-FAC COOPERATIVE, INC.
We are a wholly-owned subsidiary of Pro-Fac, an agricultural cooperative
formed under New York State law to process and market crops grown by its
members. Only growers of crops marketed through Pro-Fac, or associations of such
growers, can become members of Pro-Fac. A grower becomes a member of Pro-Fac
through the purchase of common stock of Pro-Fac.
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Pro-Fac's approximately 600 members are located principally in Florida, Georgia,
Illinois, Iowa, Michigan, Nebraska, New York, Oregon, Pennsylvania and
Washington.
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
In connection with the Acquisition, we have 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 $200.0 million revolving credit facility and the $455.0 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 our option, at the
administrative agent's alternate base rate or LIBOR plus, in each case,
applicable margins of:
1. in the case of alternate base rate loans:
1.00% for loans under the revolving credit facility and the Term
A facility,
2.75% for loans under the Term B facility, and
3.00% for loans under the Term C facility, and
2. in the case of LIBOR loans:
2.75% for loans under the revolving credit facility and the Term
A facility,
3.75% for loans under the Term B facility, and
4.00% for loans under the Term C facility.
The administrative agent's 'alternate base rate' is defined as the greater of:
1. the prime commercial rate as announced by the administrative agent,
and
2. the Federal Funds rate plus 0.50%.
In addition, we will pay a commitment fee calculated at a rate of 0.50% per
annum on the daily average unused commitment under the revolving credit
facility. Upon consummation of the Acquisition, we drew $455.0 million under the
term loan facility, consisting of $100.0 million, $175.0 million and $180.0
million of loans under the Term A facility, Term B facility and Term C facility,
respectively. Additionally, we drew $93.0 million under the revolving credit
facility for seasonal working capital needs and $14.3 million under that
facility was used for credit support in the form of letters of credit. During
December 1998, our primary lender exercised its right under the new credit
facility to transfer $50.0 million from the Term A facility to the Term B and
Term C facilities in increments of $25.0 million.
Beginning with the reporting period ending March 31, 1999, the applicable
margins for the new credit facility will be subject to possible reductions based
on the ratio of consolidated debt to EBITDA (each as defined in the new credit
facility).
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The term loan facility is subject to the following amortization schedule:
<TABLE>
<CAPTION>
FISCAL TERM TERM TERM
YEAR LOAN A LOAN B LOAN C TOTAL
- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1999 $ 0.0 $ 0.2 $ 0.2 $ 0.4
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 12.5 0.4 0.4 13.3
2005 -- 197.8 0.4 198.2
2006 -- -- 202.4 202.4
------ ------ ------ ------
$50.0 $200.0 $205.0 $455.0
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
We may be unable to pay the amounts due in fiscal 2005 and 2006 unless we
are able to refinance our indebtedness. Our ability to make scheduled payments
of principal or interest or to refinance our indebtedness (including the Notes)
will depend on our future operating performance, which will be subject to
economic, financial, competitive and other factors beyond our control. If we are
unable to generate sufficient cash flow from operations to meet our principal
and interest payment obligations and to meet other cash requirements, we may be
required to sell assets, reduce capital expenditures, refinance all or a portion
of our existing debt (including the Notes) or obtain additional financing. We
may not be able to complete any such asset sales or refinancing, or obtain
additional financing, on terms acceptable to us. Factors which could affect our
access to the capital markets, or the cost of such capital, include changes in
interest rates, general economic conditions and the perception in the capital
markets of our business, results of operation, leverage, financial condition and
business prospects.
The term loan facility is subject to mandatory prepayment with:
1. 100% of the net cash proceeds from the issuance of debt, subject to
certain exceptions;
2. 100% of the net cash proceeds from asset dispositions, subject to
certain exceptions;
3. a percentage of our excess cash flow (as defined in the new credit
facility) equal to:
75% if the leverage ratio (as defined in the new credit facility)
computed as of the last day of the immediately preceding fiscal
year is at least 4.5 to 1.0,
66 2/3% if the leverage ratio as of such day is less than 4.5 to
1.0, and
0%, subsequent to the end of fiscal 1999, if the leverage ratio
is less than 3.0 to 1.0 as of the last day of the most recently
completed two consecutive fiscal quarters;
4. 50% of the net cash proceeds of any equity offering unless,
subsequent to the end of fiscal 1999, the leverage ratio is less
than 3.0 to 1.0 as of the last day of the most recently completed
two consecutive fiscal quarters, and
5. any pension or other employee benefit plan reversions.
Our obligations under the new credit facility are secured by a
first-priority lien on:
substantially all existing or after-acquired assets, tangible or
intangible,
the capital stock of certain of Pro-Fac's current and future subsidiaries,
including Agrilink, and
all of our rights (principally indemnification rights) under the agreement
to acquire DFVC and the Marketing Agreement. Our obligations under the new
credit facility will be guaranteed by Pro-Fac and certain of our current
and future subsidiaries.
The new credit facility contains customary covenants and restrictions on
our ability to engage in certain activities, including, but not limited to:
limitations on the incurrence of indebtedness and liens,
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limitations on sale-leaseback transactions, consolidations, mergers, sale
of assets, transactions with affiliates and investments, and
limitations on dividends 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. Our
and Pro-Fac's ability to comply with these provisions will depend on our future
performance, which may be affected by prevailing economic, financial and
business factors beyond our control.
INTEREST RATE PROTECTION AGREEMENTS
We have entered into a three-year interest rate swap agreement with the
Bank of Montreal in the notional amount of $150.0 million. The swap agreement
provides for an interest rate of 4.96% over the term of the swap payable by us
in exchange for payments at published three-month LIBOR. In addition, we entered
into a separate interest rate swap agreement with Bank of Montreal in the
notional amount of $100.0 million for an initial period of three years, which
may be extended, at our option, for an additional two year period. The swap
agreement provides for an interest rate of 5.32% over the term of the swap,
including the two-year extension period if we elect to extend, payable by us in
exchange for payments at published three-month LIBOR. We entered into these
agreements in order to manage our interest rate risk by exchanging our floating
rate interest payments for fixed rate interest payments.
The following is a summary of our interest rate swap agreements:
<TABLE>
<S> <C>
Interest Rate Swap:
Variable to Fixed -- notional amount..................................... $250,000,000
Average pay rate......................................................... 4.96 - 5.32%
Average receive rate..................................................... 5.28%
Maturities............................................................... 2001
</TABLE>
SUBORDINATED PROMISSORY NOTE
As partial consideration for the Acquisition, we issued to Dean Foods the
Subordinated Promissory Note for $30.0 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%
until November 22, 2003, and at a rate of 10% thereafter. Interest accruing
through November 22, 2003 is required to be paid in kind through the issuance by
us of additional subordinated promissory notes identical to the Subordinated
Promissory Note in the principal amount of the interest due. In December 1998,
we satisfied this requirement through the issuance of an additional promissory
note for $0.4 million. Interest accruing after November 22, 2003 is payable in
cash. The Subordinated Promissory Note may be prepaid at our option without
premium or penalty.
The Subordinated Promissory Note is expressly subordinate to the Notes and
the new credit facility and contains no financial covenants. The Subordinated
Promissory Note is guaranteed by Pro-Fac on a subordinated basis to the same
extent that the Subordinated Promissory Note is subordinated to the Notes and
the new credit facility.
The Subordinated Promissory Note is subject to a mandatory early redemption
at any time that the aggregate amount of credit available under the new credit
facility is increased above $700.0 million in connection with the financing of
an acquisition by us of the assets, stock or business of another person, if, or
as soon as, the Subordinated Promissory Note may be redeemed without breaching
or creating a default under the terms of the Notes. In addition, principal and
interest on the Subordinated Promissory Note may be declared due and payable
earlier than its expressed maturity, but no payment may be made until all
'senior indebtedness' (which, as defined in the Subordinated Promissory Note,
includes the Notes and the new credit facility) is
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paid in full. Accordingly, the Subordinated Promissory Note may be repaid in
full prior to its expressed maturity and prior to payment of the Notes only if
permitted by the Indenture.
12 1/4% SENIOR SUBORDINATED NOTES DUE 2005
In connection with the Acquisition and the refinancing of our indebtedness,
we repurchased $159,985,000 of our Old Notes, of which $160.0 million principal
amount was previously outstanding. We paid a total of approximately $184.0
million to purchase the Old Notes, including interest accrued thereon of $2.9
million. Holders who sold their Old Notes to us consented to certain amendments
to the indenture governing the Old Notes, which eliminated or amended
substantially all the restrictive covenants and certain events of default
contained in such indenture. We may repurchase the remaining Old Notes in the
future in open market transactions, privately negotiated purchases or otherwise.
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DESCRIPTION OF NOTES
The Initial Notes were, and the Exchange Notes will be, issued pursuant to
the Indenture among us, the Guarantors and IBJ Whitehall Bank and Trust Company,
as trustee. The term 'Notes' as used in this Description of Notes refers to all
notes issued or to be issued under the Indenture, including the Initial Notes
and the Exchange Notes. Capitalized terms used and not otherwise defined have
the meanings set forth under ' -- Certain Definitions.' For purposes of this
Description of Notes section only, references to 'we,' 'our,' 'us,' 'Agrilink'
or the 'Company' means Agrilink Foods, Inc. and not its subsidiaries.
The following is a summary of certain terms and provisions of the Notes.
The summary does not purport to be complete and is subject to the provisions of
the Indenture, including the definitions of certain terms therein and the terms
made part of the Indenture by the Trust Indenture Act. For a more complete
understanding of the terms of the Notes, holders of the Notes should refer to
the Indenture, which has been filed as Exhibit 4.1 to the registration statement
of which this prospectus is a part.
GENERAL
The Notes are senior subordinated unsecured obligations of ours, limited to
an aggregate principal amount of $200.0 million. The Notes are subordinated in
right of payment to all of our existing and future Senior Indebtedness
(including our obligations under the New Credit Facility). More information is
provided below under ' -- Subordination.' The Notes are unconditionally
guaranteed by each Guarantor, jointly and severally, on a senior subordinated
basis. Each such guarantee is subordinated to the Guarantor's guarantee of our
obligations under the New Credit Facility as well as to all other Senior
Indebtedness of such Guarantor.
The Notes bear interest at a rate of 11 7/8%, payable on May 1 and
November 1 of each year, to holders of record at the close of business on the
April 15 (as to May 1 payments) or October 15 (as to November 1 payments),
immediately preceding the interest payment date. The first interest payment will
be made on May 1, 1999. The Notes will mature on November 1, 2008. The Notes
were issued in fully registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. Principal, premium, if any, and
interest on the Notes is payable at our office or agency maintained for such
purpose within the City and State of New York (which initially shall be the
office of the trustee at One State Street, New York, New York 10004) or by wire
transfer of immediately available funds or, in the case of certificated
securities only, by mailing a check to the registered address of the holder.
More detail is provided in ' -- Book-Entry, Delivery and Form of Securities,'
below.
SUBORDINATION
Our payment of principal of, and premium (if any) and interest (including
Additional Interest) on, the Notes is subordinated to our prior payment when due
of all amounts owing in respect of all of our existing and future Senior
Indebtedness. Each Guarantor's obligation to make any payment on the Notes under
its Note Guarantee is also subordinated to its prior payment when due of all
amounts in respect of its existing and future Senior Indebtedness. At December
26, 1998, on a consolidated basis, we had approximately $463.1 million of Senior
Indebtedness outstanding (excluding seasonal working capital borrowings under
the revolving credit facility). We also maintain significant borrowings during
each fiscal year to finance seasonal working capital needs, which also
constitute Senior Indebtedness. At December 26, 1998, on a consolidated basis,
we had an additional $85.0 million of seasonal working capital indebtedness
outstanding, and we had issued $14.2 million of letters of credit, under our
$200.0 million revolving credit facility. Substantially all of our Senior
Indebtedness is secured. Subject to certain limitations, we and our Subsidiaries
(including the Subsidiary Guarantors) may incur additional Indebtedness,
including Senior Indebtedness. For a description of our ability to incur
additional Indebtedness, see ' -- Certain Covenants -- Limitations on Additional
Indebtedness' below.
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If there is any payment or distribution of our assets, of any kind or
character, to our creditors in the following situations:
a total or partial liquidation or dissolution of us, or
a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us, whether voluntary or involuntary (including any
assignment for the benefit of creditors and proceedings for marshaling of
our assets and liabilities),
then the holders of all of our Senior Indebtedness then outstanding will be
entitled to payment in full in cash (including interest accruing subsequent to
the filing of petition of bankruptcy or insolvency) before the holders of Notes
are entitled to receive any payment from us on or with respect to the Notes.
Until the holders of all of our Senior Indebtedness receive payment in full in
cash, any distribution to which the holders of Notes would be entitled from us
will instead be made to holders of our Senior Indebtedness. Additionally, if
there is any payment or distribution of the assets of any Guarantor to its
creditors in the same situations, the same restrictions will apply to payments
under the Note Guarantee of such Guarantor.
If any default occurs in the payment of any principal of, or interest or
other amount due on, any of our Designated Senior Indebtedness, no payment of
any kind or character shall be made by us or on our behalf with respect to the
Notes, unless and until one or more of the following conditions are met:
such payment default shall have been cured or waived in accordance with
the instruments governing such Designated Senior Indebtedness, or shall
otherwise have ceased to exist,
such Designated Senior Indebtedness has been discharged or paid in full in
cash in accordance with its terms, or
the holders of such Designated Senior Indebtedness have waived the
benefits of this provision.
Additionally, if there is any payment default in connection with any Guarantor's
Designated Senior Indebtedness, no payment may be made by or on behalf of such
Guarantor under its Note Guarantee until one or more of the above conditions are
met as to such Guarantor. Immediately after any of the above conditions are met,
we (or such Guarantor) must resume making any and all required payments,
including missed payments, in respect of our (or such Guarantor's) obligations
under the Notes or the Note Guarantee.
In addition, no payment may be made by us or on our behalf in respect of
our obligations under the Notes whenever:
an event of default (other than a payment default) has occurred and is
continuing under the terms of any of our Designated Senior Indebtedness
that entitles the holders to immediately accelerate the maturity of such
Designated Senior Indebtedness, either without further notice (except a
notice to accelerate) or upon the expiration of any applicable grace
period, whether or not such acceleration has actually occurred, and
the receipt by us and the trustee from the representative of the holders
of such Designated Senior Indebtedness of written notice of such
non-payment default.
Analogously, a Guarantor may not make payments in respect of its Note Guarantee
when the same conditions are met as to Designated Senior Indebtedness of the
Guarantor. The period for which no payment may be made by us or the Guarantor
because of a non-payment default is limited to the period that commences on the
date the trustee receives the written notice and ends on the earliest to occur
of the following:
such non-payment default has been cured or waived or has ceased to exist,
179 consecutive days, commencing on the date the written notice was
received by the trustee, have elapsed,
receipt of written notice by the trustee from the representative of
holders of such Designated Senior Indebtedness terminating such period,
whether or not such non-payment default has been cured or waived or has
ceased to exist, and
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such Designated Senior Indebtedness has been discharged or paid in full in
cash.
Unless there is a payment default, immediately after the end of the non-payment
default period, we (or the Guarantor) must resume making any and all required
payments, including any missed payments, in respect of our obligations under the
Notes (or the Note Guarantees). If there is a payment default, no payment in
respect of the Notes may be made, even if the non-payment default period has
ended. Not more than one non-payment default period may be commenced in any
period of 360 consecutive days. Additionally, no non-payment default or event of
default with respect to the Designated Senior Indebtedness of us or the
Guarantor, as the case may be, which was the subject of a written notice to the
trustee commencing such a non-payment default period shall be or serve as the
basis for the giving of a subsequent notice (whether or not within a period of
360 consecutive days) unless such non-payment default or event of default shall
have been cured or waived for a period of at least 90 consecutive days after the
date of the notice commencing the non-payment default period. In no event may
the total number of days of any such non-payment default period or periods
exceed 179 days in the aggregate during any 360-consecutive-day period.
Notwithstanding the foregoing, Noteholders may receive and retain Permitted
Junior Securities and payment from the money or the proceeds held in any
defeasance trust described under ' -- Satisfaction and Discharge of Indenture;
Defeasance' below, and no such receipt or retention will be contractually
subordinated in right of payment to any Senior Indebtedness or subject to the
restrictions described in this 'Subordination' section.
If any payment or distribution of our, or a Guarantor's, assets are
received by the trustee or the holders of Notes at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution must be segregated from other funds or assets and held in trust for
the benefit of the holders of our, or such Guarantor's, Senior Indebtedness.
Such funds or assets shall be paid or delivered to the holders of such Senior
Indebtedness who remain unpaid or unprovided for, ratably according to the
aggregate amounts of our, or such Guarantor's, Senior Indebtedness remaining
unpaid that is held or represented by each Senior Indebtedness holder. Such
funds or assets, together with any concurrent payment or distribution to such
holders, shall be applied to the payment of the Senior Indebtedness remaining
unpaid to the extent necessary to provide for the payment in full in cash of all
such Senior Indebtedness.
If we fail to make any payment on the Notes when due or within any
applicable grace period, whether or not such failure is on account of the
subordination provisions referred to above, such failure would constitute an
Event of Default under the Indenture and would enable the holders of Notes to
accelerate the maturity of the Notes. See ' -- Events of Default.'
By reason of these subordination provisions, in the event of bankruptcy,
liquidation, insolvency or other similar proceedings, our creditors who are
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Notes. In addition, our creditors (other than Noteholders) who are not
holders of Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness yet may recover more, ratably, than the holders of the Notes.
GUARANTEES
Our payment obligations under the Notes are jointly and severally
guaranteed by Pro-Fac and by each Subsidiary Guarantor. Each Note Guarantee is
an unsecured senior subordinated obligation of the Guarantor providing it, and
ranks junior in right of payment to all existing and future Senior Indebtedness
of such Guarantor, including such Guarantor's guarantee of our obligations under
the New Credit Facility. The Indenture provides that the obligations of each
Guarantor under its Note Guarantee is limited to an amount not to exceed the
maximum amount that can be guaranteed by such Guarantor without constituting a
fraudulent conveyance under applicable law.
Subject to the satisfaction of certain conditions, the Indenture permits us
to merge with and into Pro-Fac, with Pro-Fac as the surviving corporation (the
'Pro-Fac Merger'). Upon the consummation of the Pro-Fac Merger, Pro-Fac will
assume all of our obligations under the
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Indenture and the Notes, and Pro-Fac's Note Guarantee will be released. See
' -- Certain Covenants -- Limitations on Mergers and Certain Other Transactions'
for more information. Accordingly, unless the context otherwise requires, on and
after consummation of the Pro-Fac Merger, references to us, as well as
references to Pro-Fac, in this Description of Notes shall be deemed to be
references to Pro-Fac as the surviving corporation of the Pro-Fac Merger.
No Guarantor (other than a Subsidiary Guarantor whose Note Guarantee is to
be released) may consolidate with or merge with or into another person or
entity, whether or not such Guarantor is the surviving person or entity and
whether or not such person or entity is affiliated with such Guarantor unless:
the person or entity formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all of the
obligations of such Guarantor under the Notes and the Indenture pursuant
to a supplemental indenture in form and substance satisfactory to the
trustee;
immediately after giving effect to such transaction, no Default or Event
of Default exists; and
immediately after giving effect to any such transaction involving a
Subsidiary Guarantor, the Coverage Ratio Incurrence Condition would be
met;
provided, however, that the foregoing shall not apply to the Pro-Fac Merger (the
Pro-Fac Merger being governed by the covenant described under ' -- Limitation on
Mergers and Certain Other Transactions.')
Separate financial statements of the Subsidiary Guarantors are not included
herein because each of the Subsidiary Guarantors are jointly and severally
liable with respect to our obligations under the Notes, and the aggregate net
assets, earnings and equity of us and the Subsidiary Guarantors are
substantially equivalent to our net assets, earnings and equity on a
consolidated basis with all of our subsidiaries.
OPTIONAL REDEMPTION OF THE NOTES
The Notes may not be redeemed prior to November 1, 2003, except in the
limited circumstances described in the next paragraph. Beginning November 1,
2003, they are redeemable at our option, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount), together with
accrued and unpaid interest, if any, to the redemption date, if redeemed during
the twelve-month period beginning November 1:
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- ----------
<S> <C>
2003............................................................................. 105.938%
2004............................................................................. 103.958%
2005............................................................................. 101.979%
2006 and thereafter.............................................................. 100.000%
</TABLE>
In addition, at any time prior to November 1, 2001, we may redeem up to 35%
of the aggregate principal amount of the Notes originally issued with the net
cash proceeds of one or more Equity Offerings, at a redemption price equal to
111.875% of the principal amount thereof, plus any accrued and unpaid interest
and Additional Interest to the redemption date. Such redemption must occur
within 60 days of the closing date of any such Equity Offering and, immediately
after the redemption, at least $130.0 million aggregate principal amount of the
Notes must remain outstanding.
If less than all of the Notes are redeemed at any time, selection of the
Notes to be redeemed will be made by the trustee from among the outstanding
Notes on a pro rata basis, by lot or by any other method permitted in the
Indenture. Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to the registered address of each holder
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whose Notes are to be redeemed. On and after the redemption date, interest will
cease to accrue on the Notes or portions thereof called for redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require us to repurchase all or any portion of such holder's
Notes for a cash price equal to 101% of the principal amount of the Notes, plus
accrued and unpaid interest and Additional Interest, if any, to the date of
repurchase. Within 30 days following any Change of Control, we will mail to the
trustee (who shall mail to each holder at our expense) a notice regarding such
Change of Control. The notice will include:
a description of the transaction or transactions that constitute the
Change of Control,
an offer to repurchase (the 'Change of Control Offer') all Notes properly
tendered (in integral multiples of $1,000), pursuant to the procedures and
for the price required by the Indenture, on a specified date (which shall
be a business day not earlier than 30 days or later than 60 days from the
date such notice is mailed), and
a description of the procedures that holders must follow to accept the
Change of Control Offer and the price that they will be paid for their
Notes.
We are required to keep the Change of Control Offer open for at least 20
business days or for such longer period as is required by law.
The occurrence of a Change of Control will result in an event of default
under the New Credit Facility, and may result in an event of default under the
terms of other Indebtedness of ours or our Subsidiaries, which would permit the
lenders thereunder to require immediate repayment of such Indebtedness in full.
If we make a Change of Control Offer, we may not have sufficient funds available
to pay for all or any of the Notes delivered by holders of Notes seeking to
accept the Change of Control Offer. In addition, we may not be able to obtain
the consents necessary to consummate the Change of Control Offer from the
lenders under agreements governing our outstanding Indebtedness (including the
New Credit Facility) which may prohibit us from making or completing the Change
of Control Offer. Our obligation to make a Change of Control Offer will be
satisfied if a third party makes the offer instead of us, so long as the third
party complies with all of the requirements applicable to a Change of Control
Offer as if it were being made by us and so long as it purchases all Notes
properly tendered and not withdrawn in connection with its offer.
A Change of Control includes the sale of 'all or substantially all' of our
assets or of the assets of Pro-Fac. The determination of what constitutes 'all
or substantially all' will depend upon the circumstances of any such sale and
will be subject to interpretation under applicable legal precedent. In addition,
the requirement that we make a Change of Control Offer may in certain
circumstances make more difficult or discourage a sale or takeover of us and, as
a result, the removal of incumbent management. The Change of Control feature,
however, is not part of a plan by management to adopt a series of antitakeover
provisions. Rather, the Change of Control feature is the result of negotiations
between us and the Initial Purchasers. Subject to the limitations discussed
below, we could enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of our
Indebtedness outstanding at such time or otherwise affect our capital structure
or credit ratings.
We will comply with the applicable tender offer rules, including the
requirements of Rule 14e-1 under the Securities Exchange Act and any other
applicable laws and regulations, in connection with the purchase of Notes
pursuant to a Change of Control Offer.
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CERTAIN COVENANTS
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
In general, we will not, and we will not permit any of our Restricted
Subsidiaries to, directly or indirectly, incur any Indebtedness (including
without limitation Acquired Indebtedness). However, we and our Restricted
Subsidiaries may incur Permitted Indebtedness, as defined below. In addition, we
may incur additional Indebtedness if, after giving effect to the incurrence of
such Indebtedness:
no Default or Event of Default shall have occurred and be continuing at
the time or as a consequence of the incurrence of such Indebtedness, and
our Consolidated Interest Coverage Ratio on the date we incur such
Indebtedness would be at least 2.0 to 1.0. Our Consolidated Interest
Coverage Ratio would be determined on a pro forma basis as if we had
incurred such additional Indebtedness, and applied the net proceeds
therefrom, on the first day of the four-quarter period immediately
preceding our actual incurrence of such Indebtedness.
'Permitted Indebtedness' means any of the following:
1. Our Indebtedness under the New Credit Facility and the related
guarantees of the Subsidiary Guarantors, the aggregate principal
amount of which at any time outstanding may not exceed:
(a) under the term loan facility, $455.0 million, less any
required permanent repayments actually made thereunder (but
excluding any such repayment to the extent refinanced and
replaced at the time of payment), and
(b) under the revolving credit facility, the greater of:
$200.0 million, less any required permanent repayments
actually made (accompanied by a corresponding permanent
commitment reduction) in respect of the revolving credit
facility (but excluding any such repayment and commitment
reductions to the extent refinanced and replaced at the
time of payment), and
the sum of 80% of the book amount of all accounts
receivable owned by us and our Restricted Subsidiaries
plus 50% of the book value of all inventory owned by us
and our Restricted Subsidiaries, both such amounts
computed in accordance with GAAP as of the end of our
latest fiscal month;
2. Indebtedness under the Notes, the Note Guarantees and the
Indenture;
3. Existing Indebtedness;
4. Indebtedness under Hedging Obligations, provided that:
such Hedging Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by the
'Limitations on Additional Indebtedness' covenant, and
the notional principal amount of such Hedging Obligations at the
time incurred does not exceed the principal amount of the
Indebtedness to which such Hedging Obligations relate;
5. our Indebtedness to a Subsidiary Guarantor and Indebtedness of any
Subsidiary Guarantor to us or any other Subsidiary Guarantor;
provided, however, that upon either:
any occurrence of any event which results in any such Subsidiary
Guarantor ceasing to be a Subsidiary Guarantor, including the
issuance (other than of directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock, or
the transfer or other disposition of any such Indebtedness
(except to us or a Subsidiary Guarantor),
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then the provisions of this Point (5) shall no longer be
applicable to such Indebtedness and such Indebtedness shall be
deemed to be incurred and shall be treated as an incurrence for
purposes of the 'Limitations on Additional Indebtedness'
covenant at the time the Subsidiary Guarantor in question ceased
to be a Subsidiary Guarantor or at the time such transfer or
other disposition occurred;
6. Indebtedness in respect of bid, performance or surety bonds or
insurance of self-reinsurance obligations (including to secure
worker's compensation and other similar insurance coverage) issued
for our account in the ordinary course of business consistent with
past practice, including our guarantees or obligations with
respect to letters of credit supporting such bid, performance or
surety obligations or such insurance or self-insurance obligations
(in each case other than for an obligation for money borrowed);
7. Indebtedness in respect of Non-Recourse Purchase Money
Indebtedness incurred by us or any Restricted Subsidiary;
8. Refinancing Indebtedness;
9. Indebtedness in respect of our guaranty of revolving credit
indebtedness incurred by Great Lakes Kraut Company in an aggregate
principal amount at any time outstanding not to exceed $10.0
million; and
10. Indebtedness incurred by us or any Subsidiary Guarantor, other
than Indebtedness permitted pursuant to any of the above
provisions for Permitted Indebtedness, with an aggregate principal
face or stated amount not in excess of a total of $25.0 million
outstanding at any time.
PAYMENTS PURSUANT TO THE PRO-FAC MARKETING AGREEMENT; REINVESTMENTS BY PRO-FAC;
BORROWINGS BY PRO-FAC
As promptly as practicable, and in any event within 10 business days, after
receipt from us of any payment for crops and other services pursuant to the
Pro-Fac Marketing Agreement that is in excess of the Commercial Market Value,
Pro-Fac will invest in us an amount equal to 70% of such excess in cash as
common equity interests (other than Disqualified Capital Stock). We will not,
without the consent of the holders of at least 75% in principal amount of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the Notes):
amend the calculation of amounts payable to Pro-Fac under the Pro-Fac
Marketing Agreement in a manner which would increase the payments made to
Pro-Fac,
amend the Pro-Fac Marketing Agreement to allow Affiliate Transactions
involving Pro-Fac to be approved by less than a majority of the
Disinterested Directors, or
amend the provisions of the Indenture that contain the provisions in this
paragraph or the definition of 'Commercial Market Value.'
We may make demand loans to Pro-Fac for working capital purposes in amounts
up to a total of $40.0 million outstanding at any time. Each loan will bear
interest at a rate equal to the rate that would have applied if such loan had
been made under the revolving credit facility. The total loan balance must be
reduced to zero for a period of not less than 15 consecutive days in each fiscal
year. Except for such demand loans, and except for Pro-Fac's guarantee of the
Notes and of our obligations under the New Credit Facility, the Indenture does
not permit Pro-Fac to incur any other Indebtedness as long as Pro-Fac has the
right to borrow under the Pro-Fac Marketing Agreement.
The foregoing restrictions shall not apply on and after the consummation of
the Pro-Fac Merger. On and after the consummation of the Pro-Fac Merger, any
payment for crops to any member of Pro-Fac in cash or property (other than
Capital Stock) that exceeds Commercial Market Value shall be deemed to be a
Restricted Payment under the Indenture. In addition,
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Pro-Fac will cause its certificate of incorporation and/or by-laws to be amended
no later than the consummation of the Pro-Fac Merger to require:
that there shall be at least two Disinterested Directors on the board of
directors of Pro-Fac at all times,
the formation and maintenance of a committee of the board of directors of
Pro-Fac to recommend Commercial Market Value, which committee shall
include at least two Disinterested Directors at all times,
approval by a majority of the Disinterested Directors of the annual profit
plan of Pro-Fac (including the raw product section of the profit plan) and
the final determination of Commercial Market Value, and
precluding the further amendment of the certificate of incorporation and
by-laws of Pro-Fac concerning the three points above without the consent
of the holders of at least 75% in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Neither we nor Pro-Fac will amend the provisions described in this paragraph or
the definition of 'Commercial Market Value' without the consent of the holders
of at least 75% in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes).
LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
We will not permit any Restricted Subsidiary, directly or indirectly, to
issue or sell any shares of its Capital Stock (including options, warrants or
other rights to purchase shares of such Capital Stock) except:
to us or a Wholly-Owned Restricted Subsidiary,
if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary,
or
to the extent such shares represent directors' qualifying shares or shares
required by applicable law to be held by a person or entity other than us
or a Wholly-Owned Restricted Subsidiary.
The proceeds of any sale of Capital Stock permitted under the second and third
bullet points above will be treated as 'Net Available Proceeds' and must be
applied in a manner consistent with the provisions of the covenant described
under ' -- Limitations on Asset Sales.'
LIMITATIONS ON LAYERING DEBT
Neither we nor any Guarantor will incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness of ours or
of such Guarantor, as the case may be, unless such Indebtedness by its terms has
the same rank of priority in right of payment with, or is subordinated to, the
Notes or the Note Guarantee of such Guarantor, as the case may be.
LIMITATIONS ON RESTRICTED PAYMENTS
I. We will not, and we will not permit any of our Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment (except as permitted
below) if at the time of such Restricted Payment:
1. a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence of such Restricted Payment,
2. we would be unable to meet the Coverage Ratio Incurrence Condition,
or
3. the amount of such Restricted Payment, when added to the aggregate
amount of all other Restricted Payments (except as expressly
provided in Paragraph II, below) made
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on or after June 28, 1998 (the first day of our last completed
fiscal quarter ending immediately prior to the original issue date
of the Initial Notes), exceeds the sum of:
(a) 50% of our Consolidated Net Income (taken as one accounting
period) from June 28, 1998 to the end of our most recently
ended fiscal quarter for which financial statements are
available at the time of such Restricted Payment (or, if such
aggregate Consolidated Net Income shall be a deficit, minus
100% of such deficit), plus
(b) the net cash proceeds from the issuance and sale (other
than to a Subsidiary of ours or of Pro-Fac) after November
18, 1998 (the original issue date of the Initial Notes) of:
our Capital Stock that is not Disqualified Capital Stock
(excluding amounts contributed to us pursuant to Point (e)
below and excluding Capital Stock purchased with the
proceeds of loans from us or any of our Subsidiaries), or
our debt securities that have been converted into our
Capital Stock that is neither Disqualified Capital Stock
nor is then held by a Subsidiary of ours, plus
(c) to the extent that any Restricted Investment that was made
after November 18, 1998 is sold for cash or otherwise
liquidated or repaid for cash, the lesser of:
the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any), and
the initial amount of such Restricted Investment,
plus
(d) the amount of any Restricted Investment outstanding in an
Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary in accordance
with the definition of 'Unrestricted Subsidiary,' plus
(e) 40% of the aggregate contributions by Pro-Fac to us pursuant
to the covenant entitled ' -- Payments Pursuant to the Pro-Fac
Marketing Agreement; Reinvestments by Pro-Fac; Borrowings by
Pro-Fac' subsequent to November 18, 1998 but prior to the
consummation of the Pro-Fac Merger, plus
(f) $7.5 million.
The provisions described in Points (2) and (3) above will not prohibit:
A. the payment of any dividend by us or any Restricted Subsidiary
within 60 days after the date of its declaration, if such
payment would have complied with the provisions of the Indenture
at the date of its declaration;
B. the redemption, repurchase, retirement or other acquisition of
any of our Capital Stock in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a
Subsidiary of ours or of Pro-Fac) of other Capital Stock of ours
(other than any Disqualified Capital Stock);
C. the defeasance, redemption, repurchase or other retirement of
Subordinated Indebtedness in exchange for, or out of the
proceeds of, the substantially concurrent issue and sale of our
Capital Stock (other than Disqualified Capital Stock, Capital
Stock sold to a Subsidiary of ours or of Pro-Fac and Capital
Stock purchased with the proceeds of loans from us or any of our
Subsidiaries);
D. prior to the consummation of the Pro-Fac Merger, the payment in
any fiscal year of amounts required to fund Pro-Fac's reasonable
operating expenses, not in excess of a total of $250,000, as
adjusted to reflect changes in the Consumer Price Index between
November 18, 1998 and the date of any such payment;
E. the payments of dividends or distributions to Pro-Fac, or any
payment to members of Pro-Fac on and after the consummation of
the Pro-Fac Merger, solely in the
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amounts and at the times necessary to permit Pro-Fac to
purchase, redeem, acquire, cancel or otherwise retire for value
Capital Stock of Pro-Fac that is:
held by officers, directors or employees or former officers,
directors or employees (or their transferees, estates or
beneficiaries under their estates), or a trust established for
the benefit of any of the foregoing, of us, Pro-Fac, or our
Subsidiaries, upon death, disability, retirement, severance or
termination of employment or service, or pursuant to any
agreement under which such Capital Stock or related rights
were issued, or
held by members or former members of Pro-Fac, upon their
departure as members of Pro-Fac or upon their discontinuance
of one or more crops; provided that the amount of such
payments under this point does not exceed in the aggregate
$2.0 million in any fiscal year;
or
F. Restricted Investments the amount of which, together with the
amount of all other Restricted Investments made pursuant to this
Point (F) after November 18, 1998, does not exceed $15.0
million.
II. Each Restricted Payment permitted pursuant to the preceding Points (A),
(D) and (F) and, except to the extent deducted in determining Consolidated Net
Income in any period, the Restricted Payments permitted pursuant to Point (E),
shall be included only once in calculating whether the conditions of Point (3)
above have been met with respect to any subsequent Restricted Payments. If a
transaction meets the criteria of more than one of the types of Restricted
Payments described in Points (A) through (F) above, or of the exceptions in the
definition of 'Restricted Payment,' we, in our sole discretion, shall classify
such transaction and shall be required to include it in only one of such Points
or exceptions. If an issuance of our Capital Stock is applied to make a
Restricted Payment pursuant to Points (B) and (C), then, in calculating whether
the conditions of Point (3) above have been met with respect to any subsequent
Restricted Payments, the proceeds of any such issuance shall be included under
such Point (3) only to the extent such proceeds are not applied as provided in
this sentence.
III. No later than the date of making any Restricted Payment, we shall
deliver to the trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant 'Limitations on Restricted Payments' were computed.
Such computation shall be based upon our latest available financial statements.
LIMITATIONS ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries to,
create or otherwise cause or allow to exist or become effective any Payment
Restriction with respect to any of our Restricted Subsidiaries, except for:
any Payment Restriction in effect on November 18, 1998 under the New
Credit Facility or any similar Payment Restriction under any similar
credit facility (provided that such similar Payment Restrictions are not,
taken as a whole, materially more restrictive than those in effect under
the New Credit Facility on November 18, 1998), or any amendment,
restatement, renewal, replacement or refinancing of any of the foregoing;
Payment Restrictions under any agreement evidencing any Acquired
Indebtedness permitted to be incurred, provided that such agreement was in
effect at the time of the incurrence of such Acquired Indebtedness and was
not created in contemplation of such incurrence, and provided that such
Payment Restriction is not extended to apply to any assets not previously
subject thereto;
Payment Restrictions arising in connection with Refinancing Indebtedness,
provided that they are not, taken as a whole, materially more restrictive
than those under the agreement creating or evidencing the Indebtedness
being refunded or refinanced;
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Payment Restrictions arising by reason of customary provisions restricting
assignments, subletting or other transfers contained in leases, licenses
and similar agreements entered into in the ordinary course of business;
and
Payment Restrictions arising under applicable law.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, in one transaction or a series of related transactions,
sell, lease, transfer or otherwise dispose of any properties or assets to, or
purchase any property or assets from or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an 'Affiliate Transaction'), unless:
1. such Affiliate Transaction is on terms that are no less favorable
to us or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by us or such
Restricted Subsidiary with an unrelated person or entity, and
2. We deliver to the trustee:
A. with respect to any Affiliate Transaction (or series of related
transactions) that:
involves Pro-Fac (including any amendment to or waiver under
the Pro-Fac Marketing Agreement and any agreement for the
purchase of crops entered into pursuant to the Pro-Fac
Marketing Agreement) that is prior to the consummation of the
Pro-Fac Merger, or
involves aggregate payments in excess of $1.0 million,
an officers' certificate certifying that such Affiliate
Transaction complies with Point (1) above and which sets forth
and authenticates a resolution that has been adopted by a vote
of a majority of the Disinterested Directors approving such
Affiliate Transaction, and
B. with respect to any Affiliate Transaction (or series of
related transactions) involving aggregate payments in
excess of $5.0 million (other than those occurring prior to
the consummation of the Pro-Fac Merger and relating to the
Pro-Fac Marketing Agreement or any agreement for the
purchase of crops entered into pursuant to the Pro-Fac
Marketing Agreement):
an officers' certificate certifying that such Affiliate
Transaction complies with Point (1) above and which sets
forth and authenticates a resolution that has been adopted
by a vote of a majority of the Disinterested Directors
approving such Affiliate Transaction, and
an opinion by an Independent Financial Advisor as to the
fairness to us or such Subsidiary from a financial point
of view of such Affiliate Transaction (or series of
related transactions).
Notwithstanding the foregoing, the following shall not be deemed to be
Affiliate Transactions:
transactions exclusively between or among (i) us and one or more
Restricted Subsidiaries or (ii) two or more Restricted Subsidiaries,
provided, in each case, that none of our Affiliates (other than
another Restricted Subsidiary) owns Capital Stock of any such
Restricted Subsidiary,
transactions between us or any Restricted Subsidiary and any
qualified employee stock ownership plan established for the benefit
of our employees, or the establishment or maintenance of any such
plan,
reasonable director, officer and employee compensation and other
benefit and indemnification arrangements entered into in the ordinary
course of business and consistent with past practice,
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transactions permitted by the 'Limitations on Restricted Payments'
covenant or excluded from the definition of 'Restricted Payments,'
the pledge of Capital Stock of Unrestricted Subsidiaries to support
the Indebtedness of such Unrestricted Subsidiaries,
transactions between us or any Restricted Subsidiary and any
Affiliate of ours or of such Restricted Subsidiary that is a joint
venture, provided that no direct or indirect holder of an equity
interest in such joint venture (other than us or a Restricted
Subsidiary) is an Affiliate of ours or of such Restricted Subsidiary;
and
except as set forth in Point (2)(A) above, the Pro-Fac Marketing
Agreement and any transaction effected pursuant thereto.
LIMITATIONS ON LIENS
We shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, incur or permit to exist any Lien of any nature whatsoever on any
of our property or the property of any Restricted Subsidiary (including Capital
Stock of a Restricted Subsidiary), or any proceeds, income or profit therefrom,
whether owned on November 18, 1998 or thereafter acquired, which secures
Indebtedness that is not Senior Indebtedness unless, contemporaneously
therewith, effective provision is made to secure the Notes equally and ratably
with (or if such Lien secures Indebtedness that is subordinated to the Notes,
prior to) such Indebtedness for so long as such Indebtedness is secured by a
Lien.
The foregoing restrictions shall not apply to
1. Liens existing on November 18, 1998 securing Indebtedness outstanding on
that date;
2. Liens in favor of us;
3. Liens to secure Non-Recourse Purchase Money Indebtedness;
4. Liens securing Acquired Indebtedness permitted to be incurred under the
Indenture, provided that the Liens do not extend to any property or
assets not subject to such Lien at the time of incurrence of the
Acquired Indebtedness (other than improvements on property or assets
originally subject to such Lien);
5. Liens on property of a person or entity existing at the time such person
or entity is acquired or merged with or into or consolidated with us or
any such Restricted Subsidiary (and not created in anticipation or
contemplation thereof); or
6. Liens to secure Refinancing Indebtedness of Indebtedness secured by
Liens referred to in the foregoing Points (4) and (5), provided that
such Liens do not extend to any additional property or assets (other
than improvements on property or assets originally subject to such
Liens).
LIMITATIONS ON ASSET SALES
(a) We will not, and we will not permit any of our Restricted Subsidiaries
to, consummate any Asset Sale unless:
(i) We or such Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of
the assets included in such Asset Sale (evidenced by the delivery
by us to the trustee of an officers' certificate so certifying),
(ii) immediately after giving effect to such Asset Sale, no Default or
Event of Default shall have occurred and be continuing, and
(iii) at least 80% of the consideration received by us or such
Restricted Subsidiary in connection therewith is in the form of
cash paid at the closing of such Asset Sale.
The following amounts (without duplication) shall be deemed to be cash for
purposes of Point (iii) above and, in the case of the first bullet point below,
shall also be deemed to constitute a
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repayment of, and a permanent reduction in, the amount of such Indebtedness for
purposes of the following Paragraph (b):
Indebtedness (other than Subordinated Indebtedness) of ours or of such
Restricted Subsidiary that is expressly assumed by the transferee in such
Asset Sale and with respect to which we or such Restricted Subsidiary is
unconditionally released, and
any Cash Equivalents, or other notes, securities or items of property
received from such transferee that are promptly (but in any event within
15 days) converted by us or such Restricted Subsidiary to cash (to the
extent of the cash actually so received),
If at any time any non-cash consideration received by us or any of our
Restricted Subsidiaries in connection with any Asset Sale is converted into or
sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then the date of such conversion or
disposition shall be deemed to constitute the date of an Asset Sale hereunder
and the Net Available Proceeds thereof shall be applied in accordance with this
covenant. A transfer of assets by us to a Restricted Subsidiary or by a
Restricted Subsidiary to us or to another Restricted Subsidiary will not be
deemed to be an Asset Sale. In addition, a transfer of assets that is excluded
from the definition of 'Restricted Payment,' or that constitutes a Restricted
Investment that is permitted under ' -- Limitations on Restricted Payments,'
will not be deemed to be an Asset Sale.
(b) If we or any Restricted Subsidiary engages in an Asset Sale, no later
than 270 days after such Asset Sale we or such Restricted Subsidiary shall:
(i) apply all or any of the Net Available Proceeds therefrom to repay
amounts outstanding under the New Credit Facility or any other
Senior Indebtedness; provided that if such Net Available Proceeds
are applied to any revolving credit debt, then the related loan
commitment must be permanently reduced by the amount of such
revolving credit debt so repaid, and/or
(ii) invest all or any part of the Net Available Proceeds therefrom in
the purchase of fixed assets to be used by us and our Restricted
Subsidiaries in a related business (together with any short-term
assets incidental thereto), or the making of a related business
investment.
The amount of such Net Available Proceeds not applied or invested as provided in
this Paragraph (b) will constitute 'Excess Proceeds.'
(c) The Indenture provides that when the aggregate amount of Excess
Proceeds equals or exceeds $10.0 million, we will be required to make an offer
to purchase, from all holders of the Notes, an aggregate principal amount of
Notes equal to the amount of such Excess Proceeds as follows:
(i) We will make an offer to purchase (a 'Net Proceeds Offer') from
all holders of the Notes, in accordance with the procedures set
forth in the Indenture, the maximum principal amount (in multiples
of $1,000) of Notes that may be purchased out of the amount (the
'Payment Amount') of such Excess Proceeds.
(ii) The offer price for the Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Notes
tendered pursuant to the Net Proceeds Offer, plus accrued and
unpaid interest and Additional Interest, if any, to the date such
Net Proceeds Offer is consummated. To the extent that the
aggregate price paid for all Notes tendered pursuant to a Net
Proceeds Offer is less than the Payment Amount, we may use the
shortfall, or a portion thereof, for general corporate purposes
(subject to the limitations of the 'Limitations on Restricted
Payments' covenant).
(iii) If the aggregate offer price of Notes validly tendered and not
withdrawn by holders thereof in connection with the Net Proceeds
Offer exceeds the Payment Amount, Notes to be purchased will be
selected on a pro rata basis (with such adjustments as
appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof will be purchased).
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(iv) Upon completion of such Net Proceeds Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds in respect of
such Net Proceeds Offer shall be deemed to be zero.
(d) Notwithstanding the foregoing, in the event that any other Indebtedness
of the Company which has the same rank of priority in right of payment with the
Notes (the 'Other Indebtedness') requires an offer to purchase to be made to
repurchase such Other Indebtedness upon the consummation of an Asset Sale, we
may apply the Excess Proceeds otherwise required to be applied to a Net Proceeds
Offer to offer to purchase such Other Indebtedness and to a Net Proceeds Offer
so long as the amount of such Excess Proceeds applied to purchase the Notes is
not less than the Note Portion of Excess Proceeds (as defined below). All such
offers required as to a particular Asset Sale shall be made concurrently, and
the purchase dates shall be the same.
For purposes of this covenant, 'Note Portion of Excess Proceeds' means:
1. the amount of the Excess Proceeds in respect of such Net Proceeds
Offer if we are not concurrently offering to purchase any Other
Indebtedness, and
2. if we are concurrently offering to purchase Other Indebtedness, an
amount equal to the product of:
the Excess Proceeds in respect of such Net Proceeds Offer, and
a fraction, the numerator of which is the principal amount of all
Notes tendered pursuant to such Net Proceeds Offer (the 'Note
Amount') and the denominator of which is the sum of the Note
Amount and the lesser of the aggregate principal face amount or
accreted value as of the relevant purchase date of all Other
Indebtedness tendered pursuant to a concurrent offer to purchase
such Other Indebtedness made at the time of such Net Proceeds
Offer.
We will not permit any Subsidiary to enter into or suffer to exist any
agreement that would place any restriction of any kind (other than pursuant to
law or regulation) on our ability to make a Net Proceeds Offer following any
Asset Sale. We will comply with Rule 14e-1 under the Securities Exchange Act and
any other securities laws and regulations thereunder, if applicable, in the
event that an Asset Sale occurs and we are required to purchase Notes as
described above.
LIMITATIONS ON MERGERS AND CERTAIN OTHER TRANSACTIONS
We will not, in a single transaction or a series of related transactions:
(i) consolidate or merge with or into (other than a merger with a
Wholly-Owned Restricted Subsidiary solely for the purpose of
changing the Company's jurisdiction of incorporation to another
State of the United States; provided that the conditions below
are complied with), or sell, lease, transfer, convey or otherwise
dispose of or assign all or substantially all of the assets of us
or us and our Subsidiaries (taken as a whole), or permit any of
our Restricted Subsidiaries to do so if such transaction would
result in the transfer of all or substantially all of the assets
of us and our Subsidiaries (taken as a whole), or assign any of
our obligations under the Notes and the Indenture, to any person
or entity, or
(ii) adopt a Plan of Liquidation,
unless, in either case:
(a) the person or entity formed by or surviving such consolidation or
merger (if other than Agrilink) or to which such sale, lease,
conveyance or other disposition or assignment shall be made (or,
in the case of a Plan of Liquidation, any person or entity to
which assets are transferred) (collectively, the 'Successor'), is
a corporation or a cooperative corporation organized and existing
under the laws of any State of the United States or the District
of Columbia, and the Successor assumes by supplemental indenture
in a form satisfactory to the trustee all of the obligations of
the Company under the Notes and the Indenture;
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(b) immediately prior to and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in
Point (a) above and the incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default
shall have occurred and be continuing; provided however, that in
the case of the Pro-Fac Merger, this Point (b) shall be deemed to
be satisfied if immediately after giving effect to the Pro-Fac
Merger and the assumption of the obligations set forth in Point
(a) above and the incurrence of any Indebtedness to be incurred
in connection therewith, no Default or Event of Default shall
have occurred and be continuing; and
(c) immediately after giving effect to such transaction and the
assumption of the obligations set forth in Point (a) above and
the incurrence of any Indebtedness to be incurred in connection
therewith, and the use of any net proceeds therefrom on a pro
forma basis:
in the case of the Pro-Fac Merger only, the Consolidated
Coverage Ratio shall be at least equal to or greater than
the Consolidated Coverage Ratio immediately prior to the
consummation of the Pro-Fac Merger and the assumption of
the obligations set forth in Point (a) above and the incurrence
of any Indebtedness to be incurred in connection therewith, and
in the case of any other such transaction, we or the Successor,
as the case may be, could meet the Coverage Ratio Incurrence
Condition; and
(d) each Guarantor, unless it is the other party to the transactions
described above, shall have, by amendment to its guarantee,
confirmed that its guarantee of the Notes shall apply to the
obligations of us or the Successor under the Notes and the
Indenture. For purposes of this covenant, any Indebtedness of
the Successor which was not our Indebtedness immediately prior
to the transaction shall be deemed to have been incurred in
connection with such transaction.
ADDITIONAL NOTE GUARANTEES
If we or any of our Subsidiaries shall acquire or create another Subsidiary
other than:
a Foreign Subsidiary, so long as such Foreign Subsidiary is not a
guarantor of any of our Senior Indebtedness,
a Subsidiary that has been designated as an Unrestricted Subsidiary, or
an Immaterial Subsidiary,
then such newly acquired or created Subsidiary will be required to execute a
Note Guarantee, in accordance with the terms of the Indenture.
REPORTS
Whether or not required by the rules and regulations of the SEC, so long as
any Notes are outstanding, we and Pro-Fac will each file with the SEC, to the
extent such filings are accepted by the SEC, all quarterly and annual reports
and other information, documents and reports that would be required to be filed
with the SEC pursuant to Section 13 of the Securities Exchange Act if the
Company or Pro-Fac, as the case may be, were required to file under such
section. We and Pro-Fac will furnish all such information to the trustee and to
the holders of Notes within 15 days after filing it with the SEC. In addition,
we and Pro-Fac will each make such information available to prospective
purchasers of the Notes, securities analysts and broker-dealers who request it
in writing. We and Pro-Fac have each agreed that, for so long as any Notes
remain outstanding, we each will furnish to the holders and beneficial holders
of Notes and to prospective purchasers of Notes designated by the holders of
Transfer Restricted Securities and to broker dealers, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act. On and after consummation of the Pro-Fac Merger, only Pro-Fac,
as successor corporation to us, shall be required to comply with this covenant.
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EVENTS OF DEFAULT
An 'Event of Default' is defined in the Indenture as:
(i) our failure to pay interest or Additional Interest on any of
the Notes when it becomes due and payable and the continuance
of any such failure for 30 days (whether or not such payment
is prohibited by the subordination provisions of the
Indenture);
(ii) our failure to pay the principal or premium, if any, on any
of the Notes when it becomes due and payable (including,
without limitation, the failure to make a payment to purchase
Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer), upon acceleration or otherwise (whether or
not such payment is prohibited by the subordination
provisions of the Indenture);
(iii) our failure to comply with any of our agreements or covenants
described above under 'Certain Covenants -- Limitations on
Mergers and Certain Other Transactions,' or in respect of our
obligations to make a Change of Control Offer or an Asset
Sale as described in 'Change of Control' and 'Certain
Covenants -- Limitations on Asset Sales,' respectively, or
Pro-Fac's failure to comply with the provisions described in
'Certain Covenants -- Payments Pursuant to the Pro-Fac
Marketing Agreement; Reinvestments by Pro-Fac; Borrowings by
Pro-Fac';
(iv) failure by us or any Guarantor to comply with any other
covenant in the Indenture and the continuance of such failure
for 60 days after we have been given notice of it by the
trustee or by the holders of at least 25% of the aggregate
principal amount of the Notes then outstanding;
(v) failure either by us or by any of our Restricted Subsidiaries
to make any principal payment at final maturity after the
expiration of any applicable grace period in respect of any
of our or such Restricted Subsidiary's Indebtedness, or the
acceleration of the maturity of such Indebtedness thereof
because of a default, in an aggregate outstanding principal
amount of $7.5 million or more;
(vi) one or more final, non-appealable judgments or orders for the
payment of money that exceed $7.5 million in the aggregate
have been entered by a court or courts of competent
jurisdiction against us or any Restricted Subsidiary and such
judgment or judgments have not been satisfied, stayed,
annulled or rescinded within 60 days of being entered;
(vii) certain events of bankruptcy, insolvency or reorganization
involving us, Pro-Fac, or any Significant Subsidiary; and
(viii) except as permitted by the Indenture, any Note Guarantee
ceases to be in full force and effect or any Note Guarantee
is declared to be null and void and unenforceable or is found
to be invalid, or any Guarantor repudiates its obligations
under any Note Guarantee.
In the case of an Event of Default occurring by reason of any willful
action (or inaction) by us or on our behalf with the intention of avoiding
payment of the premium that we would have had to pay if we had instead elected
to redeem the Notes, an equivalent premium shall be immediately due and payable,
to the extent permitted by law, upon the acceleration of the Notes. If an Event
of Default occurs prior to November 1, 2003 by reason of any willful action (or
inaction) by us or on our behalf with the intention of circumventing the
prohibition on redemption of the Notes prior to November 1, 2003, then an
additional premium in an amount equal to 10.0% shall be immediately due and
payable, to the extent permitted by law, upon acceleration of the Notes.
If an Event of Default (other than an Event of Default specified in Point
(vii) above with respect to us), shall have occurred and be continuing, the
trustee, by written notice to us, or the holders of at least 25% in aggregate
principal amount of the Notes then outstanding by written notice to both us and
the trustee, may declare all amounts owing under the Notes to be
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immediately due and payable. Upon such declaration of acceleration, the
aggregate principal of, premium, if any, and interest on the outstanding Notes
shall be immediately due and payable. If an Event of Default specified in Point
(vii) with respect to us shall have occurred, all outstanding Notes shall become
due and payable without any further action or notice. In certain cases, the
holders of a majority in aggregate principal amount of the Notes then
outstanding may waive an existing Default or Event of Default and its
consequences, except a default in the payment of principal of, premium, if any,
and interest on the Notes.
The holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, holders of
a majority in principal amount of the Notes then outstanding may direct the
trustee in its exercise of any trust or power, provided that such direction does
not conflict with the terms of the Indenture. The trustee may withhold from the
holders notice of any continuing Default or Event of Default (except any Default
or Event of Default in payment of principal of, premium, if any, or interest or
Additional Interest on the Notes) if the trustee determines that withholding
such notice is in the holders' interest.
We are required to deliver to the trustee annually a statement regarding
compliance with the Indenture and, upon any of our officers becoming aware of
any Default or Event of Default, a statement specifying such Default or Event of
Default and the action we are taking or propose to take with respect thereto.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
We may terminate our and the Guarantors' obligations under the Indenture at
any time by delivering all outstanding Notes to the trustee for cancellation and
paying all sums payable by us thereunder. We, at our option, and the Guarantors:
(i) will be discharged from any and all obligations with respect to
the Notes (except for certain of our obligations to register the
transfer or exchange of such Notes, replace stolen, lost or
mutilated Notes, maintain paying agencies and hold moneys for
payment in trust), or
(ii) need not comply with certain of the restrictive covenants under
the Indenture, provided that we have deposited with the trustee,
in trust, U.S. Legal Tender or U.S. Government Obligations or a
combination thereof that, through the payment of interest and
premium thereon and principal amount at maturity in respect
thereof in accordance with their terms, will be sufficient to pay
all the principal amount at maturity of the Notes, and interest
and premium on the Notes on the dates such payments are due, as
well as the trustee's fees and expenses.
To exercise either option, we are required to deliver to the trustee:
1. an opinion of counsel and, in connection with a discharge pursuant
to Point (i) above, confirmation of such counsel that:
we have received a ruling from, or a ruling has been published by,
the Internal Revenue Service, or
since the date of the Indenture there has been a change in the
applicable federal income tax law,
stating, in either case, that the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of the deposit and related defeasance and that they will be
subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such
option had not been exercised,
2. subject to certain qualifications, an opinion of counsel to the
effect that funds so deposited will not violate the Investment
Company Act of 1940 and will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of
the New York Debtor and Creditor Law, and
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3. an officers' certificate and an opinion of counsel each stating
that we have complied with all conditions precedent to the
defeasance.
TRANSFER AND EXCHANGE
A holder will be able to register the transfer or exchange of its Notes
only in accordance with the provisions of the Indenture. The Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. Without our prior consent, the Registrar is not required:
to register the transfer of or exchange any Note selected for redemption,
or
to register the transfer of or exchange any Note for a period of 15 days
before the mailing of a notice of redemption and ending on the date of
such mailing.
The registered holder of a Note will be treated as the owner of such Note for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture, the Notes and the Note
Guarantees may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding. Any existing
Default under, or compliance with any provision of, the Indenture (other than
any continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest or Additional Interest on the Notes (except as set
forth in Point (B)(iv) below)) may be waived with the consent of the holders of
a majority in principal amount of the Notes then outstanding. Such consents may
be obtained in connection with a tender offer or exchange offer for Notes. The
following exceptions apply:
(A) no such modification or amendment may, without the consent of the
holders of 75% in aggregate principal amount of Notes then
outstanding, amend or modify our obligation under the caption
'Change of Control' or the definitions related thereto in a manner
that could adversely affect the rights of any holder of the Notes;
and
(B) without the consent of each holder affected, neither we nor the
trustee may:
(i) reduce the principal amount of Notes whose holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption
of the Notes;
(iii) reduce the rate of or change the time for payment of interest
on any Note;
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes
(except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that
resulted from such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or of the right of holders of
Notes to receive payments of principal of or premium, if any,
or interest on the Notes;
(vii) waive a redemption payment with respect to any Note;
(viii) take any action that would subordinate the Notes or the
Note Guarantees to any other Indebtedness of us or any
of the Guarantors, respectively (except as provided
under 'Subordination' above), or otherwise affect the
ranking of the Notes or the Note Guarantees; or
(ix) release any Guarantor from any of its payment obligations
under its Note Guarantee or the Indenture otherwise than in
accordance with the Indenture.
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We, the Guarantors and the trustee may amend or supplement the Indenture or
the Notes without the consent of any holder, to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of our obligations to holders
in the case of a merger or acquisition, or to make any change that does not
adversely affect the rights of any holder.
CONCERNING THE TRUSTEE
IBJ Whitehall Bank & Trust Company is the trustee under the Indenture and
has been appointed by us as registrar and paying agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the trustee, should
it become a creditor of ours, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee is permitted to engage in other transactions; however,
if it acquires any conflicting interest (as defined in the Indenture), it must
eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
occurs and is not cured, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in
the conduct of his own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder, unless such holder shall have offered to the
trustee security and indemnity satisfactory to the trustee.
GOVERNING LAW
Each of the Indenture, the Notes and the Note Guarantees provides that it
will be governed by, and construed in accordance with, the laws of the State of
New York.
BOOK-ENTRY, DELIVERY AND FORM OF SECURITIES
The Exchange Notes will be issued in the form of one or more Global
Exchange Notes. The Global Exchange Notes will be deposited with, or on behalf
of, DTC and registered in the name of DTC or its nominee. Except as set forth
below, the Global Exchange Notes may be transferred, in whole and not in part,
only to DTC or another nominee of DTC. Investors may hold their beneficial
interests in the Global Exchange Notes directly through DTC if they have an
account with DTC or indirectly through organizations which have accounts with
DTC.
Exchange Notes that are issued as described below under ' -- Certificated
Notes' will be issued in definitive form. Upon the transfer of an Exchange Note
of any series in definitive form, such Exchange Note will, unless the Global
Exchange Notes for such series have previously been exchanged for Notes in
definitive form, be exchanged for an interest in a Global Exchange Note
representing the principal amount of Notes being transferred.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, is a member of the Federal
Reserve System, and is a 'clearing corporation' within the meaning of the New
York Uniform Commercial Code and a 'clearing agency' registered pursuant to the
provisions of Section 17A of the Securities Exchange Act. DTC was created to
hold securities of institutions that have accounts with DTC ('participants') and
to facilitate the clearance and settlement of securities transactions among its
participants through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for the physical movement of
securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, whether directly or indirectly.
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Upon the issuance of the Global Exchange Notes in exchange for the Initial
Notes pursuant to the Exchange Offer, DTC will credit, on its internal system,
the principal amounts of the beneficial interests represented by the Global
Exchange Notes to the accounts of the persons who surrendered Initial Notes for
exchange. Ownership of beneficial interests in the Global Exchange Notes will be
limited to participants or persons who hold interests through participants.
Ownership of beneficial interests in the Global Exchange Notes will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants). Investors may hold their interests in the Global Exchange Notes
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system. The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in the Global Exchange
Notes.
So long as DTC or its nominee is the registered holder and owner of the
Global Exchange Notes, DTC or such nominee will be considered the sole legal
owner and holder of the related Notes for all purposes of such Exchange Notes
and the Indenture. Except as set forth below, owners of beneficial interests in
the Global Exchange Notes will not be entitled to have the Exchange Notes
represented by the Global Exchange Notes registered in their names, will not
receive or be entitled to receive physical delivery of certificated Exchange
Notes in definitive form and will not be considered to be the owners or holders
of any Exchange Notes under the Global Exchange Notes. The Company understands
that under existing industry practice, in the event an owner of a beneficial
interest in the Global Exchange Notes desires to take any action that DTC, as
the holder of the Global Exchange Notes, is entitled to take, DTC would
authorize the participants to take such action, and that the participants would
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of and interest on Exchange Notes represented by the
Global Exchange Notes registered in the name of and held by DTC or its nominee
will be made to DTC or its nominee as the registered owner and holder of the
Global Exchange Notes.
We expect that DTC or its nominee, upon receipt of any payment of principal
of or interest on the Global Exchange Notes, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Exchange Notes as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in the Global Exchange Notes held through such participants
will be governed by standing instructions and customary practices and will be
the responsibility of such participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Global Exchange Notes for any Exchange
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Exchange Notes owning
through such participants.
Unless and until it is exchanged in whole or in part for certificated
Exchange Notes in definitive form, each Global Exchange Note may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the trustee nor we will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
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CERTIFICATED NOTES
The Exchange Notes of any series represented by the Global Exchange Notes
with respect to such series are exchangeable for certificated Notes in
definitive form of like tenor as such Notes in denominations of U.S. $1,000 and
integral multiples thereof if:
DTC notifies us that it is unwilling or unable to continue as DTC of such
Global Exchange Notes or if at any time DTC ceases to be a clearing agency
registered under the Securities Exchange Act and we do not appoint a
successor depository within 90 days,
we, in our discretion at any time, determine not to have all of the
Exchange Notes of such series represented by such Global Exchange Notes,
or
an Event of Default has occurred and is continuing.
Any Exchange Note that is exchangeable pursuant to the preceding provisions is
exchangeable for certificated Exchange Notes issuable in authorized
denominations and registered in such names as DTC shall direct. The Global
Exchange Notes are not otherwise exchangeable, except for a Global Exchange Note
of the same aggregate denomination to be registered in the name of DTC or its
nominee. Certificated Exchange Notes will not be issued in exchange for
beneficial interests in the Global Exchange Notes in any other circumstances
except as described above.
REGISTRATION RIGHTS
On November 18, 1998, we, Pro-Fac and the Initial Purchasers entered into
the Registration Rights Agreement. Holders of Exchange Notes are not entitled to
any registration rights with respect to the Exchange Notes. We have agreed for a
period of 180 days after the date the registration statement is declared
effective by the SEC to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any Exchange Notes. The registration statement of which this prospectus is a
part constitutes the registration statement for the Exchange Offer which is the
subject of the Registration Rights Agreement. Upon the closing of the Exchange
Offer, subject to certain limited exceptions, holders of untendered Initial
Notes will not retain any rights under the Registration Rights Agreement.
For a discussion of the terms of the Exchange Offer pursuant to the
Registration Rights Agreement, see 'The Exchange Offer.'
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture or
the Registration Rights Agreement without charge by contacting us at 90 Linden
Oaks, P.O. Box 20670, Rochester, New York 14602, Attention: Vice
President -- Communications, or by telephone at 716-383-1850.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
'Acquired Indebtedness' means:
(a) with respect to any person or entity that becomes a Restricted
Subsidiary after November 18, 1998, Indebtedness of such person or
entity and its Subsidiaries existing at the time such person or
entity becomes a Restricted Subsidiary, provided that was not
incurred in connection with, or in contemplation of, their
becoming a Restricted Subsidiary, and
(b) with respect to us or any of our Restricted Subsidiaries:
any Indebtedness of a person or entity (other than us or a
Restricted Subsidiary) existing at the time such person or entity
is merged with or into us or a Restricted Subsidiary, or
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Indebtedness assumed by us or any of our Restricted Subsidiaries
in connection with the acquisition of an asset or assets from
another person or entity, which Indebtedness was not, in any
case, incurred by such other person or entity in connection
with, or in contemplation of, such merger or acquisition.
For purposes of the Pro-Fac Merger only, Indebtedness of Pro-Fac existing at the
time the Company is merged with and into Pro-Fac, but not incurred in connection
with, or in contemplation of, the Pro-Fac Merger, shall be deemed incurred at
the time of the consummation of the Pro-Fac Merger, but the incurrence thereof
shall not require compliance with the covenant described under ' -- Certain
Covenants -- Limitations on Additional Indebtedness.'
'Affiliate' of any specified person or entity means:
(i) any other person or entity directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified person or entity, and
(ii) with respect to us and Pro-Fac, any member of Pro-Fac that is a
director of Pro-Fac or that has beneficial ownership of more than
1% of the outstanding voting securities of Pro-Fac.
For purposes of this definition, 'control' (as well as 'controlling,'
'controlled by' and under 'common control with'), means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a person or entity, whether through the ownership of voting
securities, by agreement or otherwise. Beneficial ownership of 10% or more of
the voting securities of a person or entity is deemed to be control.
'Asset Sale' means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any person or entity other than us or any of
our Restricted Subsidiaries (including, without limitation, by means of a Sale
and Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a 'transfer'), directly or indirectly, in one
transaction or a series of related transactions, of:
any Capital Stock of any Restricted Subsidiary, or
any other properties or assets of ours or of any of our Restricted
Subsidiaries, other than transfers of cash, Cash Equivalents, accounts
receivable, inventory or other properties or assets in the ordinary course
of business.
The term 'Asset Sale' shall not include any of the following:
any transfer of properties or assets (including Capital Stock) that is
governed by, and made in accordance with, the provisions described under
'Covenants -- Limitations on Mergers and Certain Other Transactions';
any transfer of properties or assets to an Unrestricted Subsidiary, if
permitted under the 'Limitations on Restricted Payments' covenant;
sales of damaged, worn-out or obsolete equipment or assets that, in our
reasonable judgment, are either no longer used or useful in our or our
Subsidiaries' business, provided that the proceeds thereof are used to
purchase replacement or similar assets for use in our or our Subsidiaries'
business; and
any transfers that would otherwise be Asset Sales, if after giving effect
to such transfers the aggregate Fair Market Value of the properties or
assets transferred in such transaction or any such series of related
transactions does not exceed $500,000.
'Attributable Indebtedness,' when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, the present value
(discounted at a rate equivalent to our then-current weighted average cost of
funds for borrowed money as at the time of determination, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in any such Sale and Leaseback
Transaction.
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'Capital Stock' of any person or entity means:
any and all shares or other equity interests (including, for example,
common stock, preferred stock and partnership interests) in such person or
entity, and
all rights to purchase, warrants or options (whether or not currently
exercisable), participations or other equivalents of or interests (however
designated) in such shares or other interests in such person or entity.
'Capitalized Lease Obligations' of any person or entity means the
obligations of such person or entity to pay rent or other amounts under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP. The amount of such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.
'Cash Equivalents' means:
1. marketable obligations with a maturity of 360 days or less issued
or directly and fully guaranteed or insured by the U.S. or any
agency or instrumentality thereof (provided that the full faith and
credit of the U.S. is pledged in support thereof);
2. U.S. dollar denominated time deposits and certificates of deposit
of any financial institution:
(a) that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500
million, or
(b) whose short-term commercial paper rating or that of its
parent company is at least A-1 or the equivalent thereof
from S&P or P-1 or the equivalent thereof from Moody's (any
such bank, an 'Approved Bank'), with a maturity of 360 days
or less from the date of their acquisition;
3. commercial paper issued by any Approved Bank or by the parent
company of any Approved Bank and commercial paper issued by, or
guaranteed by, any industrial or financial company with a
short-term commercial paper rating of at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof
by Moody's, or guaranteed by any industrial company with a long
term unsecured debt rating of at least A or A2, or the equivalent
of each thereof, from S&P or Moody's, and in each case maturing no
more than 360 days from the date of acquisition;
4. repurchase obligations with a term of not more than seven days for
underlying securities of the types described in Point (1), entered
into with any commercial bank meeting the specifications of Point
(2)(a); and
5. investments in money market or other mutual funds substantially all
of whose assets comprise securities of the types described in
Points (1) through (4).
'Change of Control' means the occurrence of any of the following:
1. the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of ours or Pro-Fac's
assets to any person, entity or group (used in this definition as
such term is used in Section 13(d)(3) of the Securities Exchange
Act); provided, however, that the Pro-Fac Merger shall not
constitute a Change of Control;
2. the consummation of any transaction the result of which is that any
person, entity or group owns, directly or indirectly:
more than 50% of the voting power of our or Pro-Fac's voting stock
(except that Pro-Fac's owning that much of our voting stock is not
a Change of Control), or
more than 30% of the voting power of our voting stock if Pro-Fac
owns, directly or indirectly, a lesser percentage of the voting
power of our voting stock than such other person, entity or
group;
3. the first date on which any person, entity or group shall have
elected, or caused to be elected, a sufficient number of its or
their nominees to our or Pro-Fac's board of
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directors such that the nominees so elected (regardless of when
elected) shall collectively constitute a majority of our or
Pro-Fac's board of directors; or
4. for a period of 120 consecutive days:
prior to consummation of the Pro-Fac Merger, the number of
Disinterested Directors on our board of directors is less than the
greater of two and the number of our directors who are also
directors, members or affiliates of Pro-Fac, and
on and after consummation of the Pro-Fac Merger, the number of
Disinterested Directors on Pro-Fac's board of directors is less
than two.
'Commercial Market Value' means Commercial Market Value determined in
accordance with the Pro-Fac Marketing Agreement (as in effect on November 18,
1998).
'Consolidated Amortization Expense' for any period means our and our
Restricted Subsidiaries' amortization expense for such period (to the extent
included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
'Consolidated Depreciation Expense' for any period means our and our
Restricted Subsidiaries' depreciation expense for such period (to the extent
included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
'Consolidated Income Tax Expense' for any period means our and our
Restricted Subsidiaries' provision for taxes based on income and profits to the
extent such income or profits were included in computing Consolidated Net Income
for such period.
'Consolidated Interest Coverage Ratio' means, with respect to any
determination date, the ratio of:
EBITDA for the four full fiscal quarters immediately preceding the
determination date (for any determination, the 'Reference Period'), to
Consolidated Interest Expense for such Reference Period.
In making such computations:
1. EBITDA and Consolidated Interest Expense shall be calculated on a
pro forma basis assuming that:
the Indebtedness to be incurred or the Disqualified Capital Stock
to be issued (together with all other Indebtedness incurred or
Disqualified Capital Stock issued after the first day of the
relevant Reference Period determined pursuant to the covenant
described under ' -- Certain Covenants -- Limitations on
Additional Indebtedness' through and including the date of
determination), and (if applicable) the application of the net
proceeds therefrom and from any other such Indebtedness or
Disqualified Capital Stock, including the refinancing of other
Indebtedness, had been incurred on the first day of such Reference
Period and, in the case of Acquired Indebtedness, on the
assumption that the related transaction (whether by means of
purchase, merger or otherwise) also had occurred on such date with
EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the
Securities Act) attributable to the assets which are the subject
of such acquisition being included in such pro forma calculation,
and
any acquisition or disposition by us or any Restricted Subsidiary
of any properties or assets outside the ordinary course of
business or any repayment of any principal amount of any
Indebtedness of us or any Restricted Subsidiary prior to the
stated maturity thereof, in either case since the first day of
such Reference Period through and including the date of
determination, had been consummated on such first day of such
Reference Period;
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2. the Consolidated Interest Expense attributable to interest on any
Indebtedness required to be computed on a pro forma basis in
accordance with the covenant described under ' -- Certain
Covenants -- Limitations on Additional Indebtedness' and which:
bears a floating interest rate, shall be computed as if the rate
in effect on the date of computation had been the applicable rate
for the entire period, and
was not outstanding during the period for which the computation
is being made but which bears, at our option, a fixed or floating
rate of interest, shall be computed by applying, at our option,
either the fixed or floating rate;
3. the Consolidated Interest Expense attributable to interest on any
Indebtedness under a revolving credit facility required to be
computed on a pro forma basis in accordance with the covenant
described under ' -- Certain Covenants -- Limitations on Additional
Indebtedness' shall be computed based upon the average daily
balance of such Indebtedness during the applicable period, provided
that such average daily balance shall be reduced by the amount of
any repayment during the applicable period which permanently
reduced the commitments or amounts available to be reborrowed under
such revolving credit facility;
4. notwithstanding Points (2) and (3), interest on Indebtedness
determined on a floating rate basis, to the extent such interest is
covered by agreements relating to Hedging Obligations, shall be
deemed to have accrued at the rate per annum resulting after giving
effect to the operation of such agreements; and
5. if after the first day of the applicable Reference Period and
before the date of determination, we have permanently retired any
Indebtedness out of the net proceeds of the issuance and sale of
shares of our Capital Stock (other than Disqualified Capital Stock)
within 60 days of such issuance and sale, Consolidated Interest
Expense shall be calculated on a pro forma basis as if such
Indebtedness had been retired on the first day of such period.
'Consolidated Interest Expense' for any period means the sum, without
duplication, of our and our consolidated Restricted Subsidiaries' total interest
expense for such period, determined on a consolidated basis in accordance with
GAAP and including, without limitation:
imputed interest on Capitalized Lease Obligations and Attributable
Indebtedness;
commissions, discounts and other fees and charges owed with respect to
letters of credit securing financial obligations and bankers' acceptance
financing;
the net costs associated with Hedging Obligations;
amortization of other financing fees and
expenses;
the interest portion of any deferred payment obligations;
amortization of debt discount or premium, if any;
all other non-cash interest expense;
capitalized interest,
all cash dividend payments (and non-cash dividend payments in the case of
a Restricted Subsidiary) on any series of preferred stock of us or any
Restricted Subsidiary;
all interest payable with respect to discontinued operations; and
all interest on any Indebtedness of any other person or entity guaranteed
by us or any Restricted Subsidiary to the extent paid by us or such
Restricted Subsidiary.
'Consolidated Net Income' for any period means our and our consolidated
Restricted Subsidiaries' net income (or loss) for such period determined on a
consolidated basis in accordance
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with GAAP; provided that there shall be excluded from such net income (to the
extent otherwise included therein), without duplication:
1. the net income (or loss) of any person or entity (other than a
Restricted Subsidiary) in which any person or entity other than us
and our Restricted Subsidiaries has an ownership interest, except
to the extent that any such income has actually been received by us
and our Restricted Subsidiaries (unless and to the extent such
Restricted Subsidiary is subject to Point (3) below) in the form of
cash dividends or distributions during such period;
2. except to the extent includible in our consolidated net income
pursuant to Point (1), the net income (or loss) of any person or
entity that accrued prior to the date that:
such person or entity becomes a Restricted Subsidiary or is merged
into or consolidated with us or any Restricted Subsidiary, or
the assets of such person or entity are acquired by us or any
Restricted Subsidiary;
3. the net income of any Restricted Subsidiary during such period to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of that income:
is not permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary
during such period, or
would be subject to any taxes payable on such dividend or
distribution;
4. any gain (or, only in the case of a determination of Consolidated
Net Income as used in EBITDA, any loss), together with any related
provisions for taxes on any such gain (or, if applicable, the tax
effects of such loss), realized during such period by us or any
Restricted Subsidiary upon:
the acquisition of any securities, or the extinguishment of any
Indebtedness, of us or any Restricted Subsidiary, or
any Asset Sale by us or any of our Restricted Subsidiaries;
provided, however, that there shall be excluded from
Consolidated Net Income for all purposes any loss realized by us
or any Restricted Subsidiary upon the acquisition of any
securities, or the extinguishment of any Indebtedness, of us or
any Restricted Subsidiary, or the write-off of deferred
financing costs, in connection with the Acquisition and the sale
of the Aseptic Business and all refinancings of Indebtedness
consummated in connection therewith;
5. any extraordinary gain (or, only in the case of a determination of
Consolidated Net Income as used in EBITDA, any extraordinary loss),
together with any related provision for taxes on any such
extraordinary gain (or, if applicable, the tax effects of such
extraordinary loss), realized by us or any Restricted Subsidiary
during such period;
6. any restructuring charges recognized during such period in an
amount not to exceed $7.0 million in the aggregate after November
18, 1998 so long as such restructuring charges are recognized by
November 18, 2000; and
7. in the case of a successor to us by consolidation, merger or
transfer of our assets, any earnings of the successor prior to such
merger, consolidation or transfer of assets;
and provided, further, that any gain in excess of return of capital referred to
in Points (4) and (5) that relates to a Restricted Investment and which is
received in cash by us or a Restricted Subsidiary during such period shall be
included in our Consolidated Net Income.
'Consolidated Net Worth' means, with respect to any person or entity as of
any date, the consolidated equity of the common stockholders of such person or
entity and its consolidated Subsidiaries determined in accordance with GAAP as
of such date, less all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going
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concern business made within 12 months after the acquisition of such business)
subsequent to November 18, 1998 in the book value of any asset owned by such
person or entity or a Subsidiary of such person or entity.
'Coverage Ratio Incurrence Condition' would be met at any specified time
only if we (or our Successor, as the case may be) would be able to incur $1.00
of additional Indebtedness at such specified time pursuant to the Consolidated
Interest Coverage Ratio test set forth in the covenant described under
' -- Certain Covenants -- Limitations on Additional Indebtedness.'
'Default' means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
'Designated Senior Indebtedness' means:
Indebtedness under the New Credit Facility, and
any other Indebtedness constituting Senior Indebtedness that, at the date
of determination, has an aggregate principal amount outstanding of at
least $25.0 million and that is specifically designated by us, in the
instrument creating or evidencing such Senior Indebtedness or in an
Officer's Certificate delivered to the trustee, as 'Designated Senior
Indebtedness.'
'Disinterested Directors' means:
prior to consummation of the Pro-Fac Merger, our directors who are not
employees, shareholders (at the time of becoming directors) or otherwise
Affiliates (other than by reason of being a director) of either us or
Pro-Fac, and
on and after consummation of the Pro-Fac Merger, directors of Pro-Fac who
are not employees, shareholders (at the time of becoming directors) or
otherwise Affiliates (other than by reason of being a director of Pro-Fac)
of Pro-Fac.
'Disqualified Capital Stock' means any Capital Stock of a person or entity
or any of its Subsidiaries that:
is convertible, puttable or exchangeable, is, or upon the happening of any
event or the passage of time would be, required to be redeemed or
repurchased by such person or entity or any to its Subsidiaries, whether
or not at the option of the holder thereof, or
matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, in whole or in part,
on or prior to the final maturity date of the Notes. However, in the case of
Pro-Fac, Disqualified Capital Stock shall not include:
retained earnings allocated to members of Pro-Fac,
common stock of Pro-Fac issued to members of Pro-Fac and
Class B Preferred Stock (having substantially the same terms as in effect
on November 18, 1998) of Pro-Fac issued to officers, directors or
employees of Pro-Fac.
'EBITDA' for any period means, without duplication, the sum of the amounts
for such period of:
1. Consolidated Net Income, plus
2. each of the following, to the extent they were deducted in
determining Consolidated Net Income for such period (and without
duplication):
Consolidated Income Tax Expense,
Consolidated Amortization Expense (but only to the extent not
included in Consolidated Interest Expense),
Consolidated Depreciation Expense,
Consolidated Interest Expense, and
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all other non-cash items reducing the Consolidated Net Income
(excluding any such non-cash charge that results in an accrual
of a reserve for cash charges in any future period) for such
period, in each case determined on a consolidated basis in
accordance with GAAP,
plus
3. as to us, for any period that includes a fiscal quarter beginning
on or prior to consummation of the Pro-Fac Merger, the Pro-Fac
share of earnings (loss) as determined in accordance with the
Pro-Fac Marketing Agreement for such period through the date of
consummation of the Pro-Fac Merger, minus
4. the aggregate amount of all non-cash items, determined on a
consolidated basis, to the extent such items increased Consolidated
Net Income for such period.
'Equity Offering' means an underwritten primary offering of Capital Stock
(other than Disqualified Capital Stock) of us or of Pro-Fac (to the extent that
the net cash proceeds thereof are contributed to our equity capital (other than
as Disqualified Capital Stock)) pursuant to:
a registration statement filed with the SEC, or
a private placement pursuant to an available exemption from registration
under the Securities Act to the extent such Capital Stock is not sold to
us, Pro-Fac, or any Subsidiary or any Affiliate (without giving effect to
Point (ii) in the definition of Affiliate) of us or Pro-Fac.
'Existing Indebtedness' means all of the Indebtedness of us and our
Restricted Subsidiaries that is outstanding on November 18, 1998 and any
additional promissory notes issued in accordance with the terms of the
Subordinated Promissory Note as in effect on such date.
'Fair Market Value' of any asset or item means the fair market value of
such asset or item as determined in good faith by, and evidenced by a duly
adopted resolution of, our board of directors.
'Foreign Subsidiary' means any Subsidiary of ours that is not incorporated
or organized in the United States.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on November 18, 1998.
'Guarantee' means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, for example, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
'Hedging Obligations' of any person or entity means the obligations of such
person or entity pursuant to:
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or entity
against fluctuations in interest rates,
agreements or arrangements designed to protect such person or entity
against fluctuations in foreign currency exchange rates in the conduct of
its operations, or
any forward contract, commodity swap agreement, commodity option agreement
or other similar agreement or arrangement designed to protect such person
or entity against fluctuations in commodity prices,
which were entered into in the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation.
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'Immaterial Subsidiary' means any Restricted Subsidiary of ours that has,
in the aggregate with all other Immaterial Subsidiaries, assets, revenues and
net income comprising less than 2.00% of our and our Subsidiaries' assets,
revenues and net income taken as a whole.
'incur' means, with respect to any Indebtedness or Obligation, incur,
create, issue, assume, Guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
Obligation; provided that:
the Indebtedness of a person or entity existing at the time such person or
entity became a Restricted Subsidiary shall be deemed to have been
incurred by such Restricted Subsidiary, and
neither the accrual of interest nor the accretion of accreted value shall
be deemed to be an incurrence of Indebtedness.
'Indebtedness' of any person or entity at any date means, without
duplication:
1. all of its liabilities, contingent or otherwise, for borrowed
money (whether or not the recourse of the lender is to the whole
of its assets or only to a portion thereof);
2. all of its obligations evidenced by bonds, debentures, notes or
other similar instruments;
3. all of its obligations in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect
thereto);
4. all of its obligations to pay the deferred and unpaid purchase
price of property or services, except trade payables and accrued
expenses incurred by it in the ordinary course of business in
connection with obtaining goods, materials or services and which
payable is not overdue by more than 60 days according to the
original terms of sale unless such payable is being contested in
good faith;
5. the maximum fixed redemption or repurchase price of all of its
Disqualified Capital Stock;
6. all of its Capitalized Lease Obligations;
7. all Indebtedness of others secured by a Lien on any of its assets,
whether or not such Indebtedness is assumed by it;
8. all Indebtedness of others guaranteed by it, to the extent of its
Guarantee; provided that Indebtedness of us or our Restricted
Subsidiaries that is guaranteed by us or our Restricted
Subsidiaries shall only be counted once in the calculation of the
amount of Indebtedness of us and our Restricted Subsidiaries on a
consolidated basis;
9. all of its Attributable Indebtedness; and
10. to the extent not otherwise included in this definition, its
Hedging Obligations.
The amount of Indebtedness of any person or entity at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above, the maximum liability of such person or entity for any such contingent
obligations at such date and, in the case of Point (7), the lesser of:
the Fair Market Value of any asset subject to a Lien securing the
Indebtedness of others on the date that the Lien attaches, and
the amount of the Indebtedness secured.
For purposes Point (5), the 'maximum fixed redemption or repurchase price' of
any Disqualified Capital Stock that does not have a fixed redemption or
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if it were purchased or redeemed on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture.
If such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock (or any equity security for which it may be exchanged
or converted), such fair market value shall be determined in good faith by the
board of directors of such person or entity, which determination shall be
evidenced by a duly adopted resolution of its board of directors.
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'Independent Financial Advisor' means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of our board of directors, qualified to perform the task for
which it has been engaged and disinterested and independent with respect to us
and our Affiliates.
'Investments' of any person or entity means:
all of its investments in any other person or entity in the form of loans,
advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business) or similar credit extensions constituting Indebtedness of such
other person or entity, and any Guarantee of Indebtedness of any other
person or entity,
all of its purchases (or other acquisitions for consideration) of
Indebtedness, Capital Stock or other securities of any other person or
entity, and
all other items that would be classified as investments (including without
limitation purchases of assets outside the ordinary course of business) on
its balance sheet prepared in accordance with GAAP.
'Lien' means, with respect to any asset or property, any mortgage, deed of
trust, lien (statutory or other), pledge, lease, easement, restriction,
covenant, charge, security interest or other encumbrance of any kind or nature
in respect of such asset or property, including any conditional sale or other
title retention agreement, any lease in the nature thereof, any option or other
agreement to sell, and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction (other than cautionary filings in respect of operating leases).
'Moody's' means Moody's Investors Service, Inc., and its successors.
'Net Available Proceeds' means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to us or any Restricted Subsidiary), net of:
brokerage commissions and other fees and expenses (including fees and
expenses of legal counsel, accountants and investment banks) related to
such Asset Sale,
provisions for all taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax
sharing arrangements),
amounts required to be paid to any person or entity (other than us or any
Restricted Subsidiary) owning a beneficial interest in the properties or
assets subject to the Asset Sale or having a Lien therein, and
appropriate amounts to be provided by us or any Restricted Subsidiary as a
reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by us or any Restricted
Subsidiary after such Asset Sale, including pensions and other
postemployment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale, all as reflected in an officers' certificate
delivered to the trustee; provided, however, that any amounts remaining
after adjustments, revaluations or liquidations of such reserves shall
constitute Net Available Proceeds.
'New Credit Facility' means the Credit Agreement dated as of September 23,
1998 by and among us, Pro-Fac, the other guarantors, Harris Trust and Savings
Bank, individually and as Administrative Agent, Bank of Montreal, individually
and as a Syndication Agent, and the other lenders party thereto, together with
any guarantees, security agreements or other collateral documents and any other
related documents, as any of the foregoing may be subsequently amended,
restated, refinanced, or replaced from time to time, and shall include
agreements in respect of Hedging Obligations designed to protect against
fluctuations in interest rates and entered into with respect to loans under such
Credit Agreement.
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'Non-Recourse Purchase Money Indebtedness' means Indebtedness of us or any
of our Restricted Subsidiaries incurred:
to finance the purchase of any assets of us or any of our Restricted
Subsidiaries within 90 days of such purchase,
to the extent the amount of Indebtedness thereunder does not exceed 100%
of the purchase cost of such assets,
to the extent the purchase cost of such assets is or should be included in
'additions to property, plant and equipment' in accordance with GAAP, and
to the extent that such Indebtedness is non-recourse to us or any of our
Restricted Subsidiaries or any of their respective assets other than the
assets so purchased.
'Obligation' means any principal, interest, penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
'Payment Restriction' with respect to a Subsidiary of any person or entity,
means any encumbrance, restriction or limitation on the ability of:
1. such Subsidiary to:
pay dividends or make other distributions on its Capital Stock or
make payments on any obligation, liability or Indebtedness owed to
such person or entity or any other Subsidiary of such person or
entity,
make loans or advances to such person or entity or any other
Subsidiary of such person or entity,
Guarantee any Indebtedness of such person or entity or any other
Subsidiary of such person or entity, or
transfer any of its properties or assets to such person or
entity or any other Subsidiary of such person or entity (other
than customary restrictions on transfers of property subject to
a Lien permitted under the Indenture),
or
2. such person or entity, or any other Subsidiary of such person or
entity, to receive or retain any such dividends, distributions or
payments, loans or advances, guarantee, or transfer of properties
or assets.
'Permitted Junior Securities' means any of our securities provided for by a
plan of reorganization or readjustment that are subordinated in right of payment
to all Senior Indebtedness that may at the time be outstanding to substantially
the same extent as, or to a greater extent than, the Notes are subordinated to
Senior Indebtedness.
'Plan of Liquidation' with respect to any person or entity, means a plan
that provides for or contemplates, or the effectuation of which is preceded or
accompanied by:
the sale, lease, conveyance or other disposition of all or substantially
all of the assets of such person or entity otherwise than as an entirety
or substantially as an entirety; and
the distribution of all or substantially all of the proceeds of such sale,
lease, conveyance or other disposition and all or substantially all of the
remaining assets of such person or entity to holders of Capital Stock of
such person or entity.
'Pro-Fac Marketing Agreement' means the Marketing and Facilitation
Agreement between us and Pro-Fac in the form existing as of November 18, 1998,
as such agreement may be amended, restated, renewed, extended or replaced in
accordance with the Indenture.
'Refinancing Indebtedness' means our or a Restricted Subsidiary's
Indebtedness:
1. issued in exchange for, or
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2. the proceeds from the issuance and sale or disbursement of which
are used substantially concurrently to repay, redeem, refund,
refinance, discharge or otherwise retire for value, in whole or in
part (collectively, 'repay'), or
3. constituting an amendment, modification or supplement to, or a
deferral or renewal of (collectively, an 'amendment'),
any of our or such Restricted Subsidiary's Indebtedness (the 'Refinanced
Indebtedness') in a principal amount not in excess of the principal amount of:
1. the Refinanced Indebtedness (or, if such Refinancing Indebtedness
refinances Indebtedness under a revolving credit facility or other
agreement providing a commitment for subsequent borrowings, with a
maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement), plus
2. the amount of accrued but unpaid interest thereon and the amount of
any reasonably determined prepayment premium necessary to
accomplish such refinancing and such reasonable fees and expenses
incurred in connection therewith.
However, the foregoing will constitute Refinancing Indebtedness only if the
following conditions are met:
1. the Refinancing Indebtedness is the obligation of the same person
or entity as that of the Refinanced Indebtedness;
2. such Refinancing Indebtedness is, by its terms:
expressly equal in rank of priority in right of payment with the
Notes if the Refinanced Indebtedness had the same rank of priority
in right of payment with the Notes, and
expressly subordinated to the Notes at least to the same extent
as the Refinanced Indebtedness if such Refinanced Indebtedness
was subordinated to the Notes;
3. the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes
has a Weighted Average Life to Maturity at the time such
Refinancing Indebtedness is incurred that is equal to or greater
than the Weighted Average Life to Maturity of the portion of the
Refinanced Indebtedness being repaid that is scheduled to mature on
or prior to the maturity date of the Notes; and
4. the Refinancing Indebtedness is secured only to the extent, if at
all, and by the assets (which may include after-acquired assets),
that the Refinanced Indebtedness is secured.
'Restricted Debt Payment' means any purchase, redemption, defeasance
(including in substance or legal defeasance) or other acquisition or retirement
for value, directly or indirectly, by us or a Restricted Subsidiary, prior to
the scheduled maturity or prior to any scheduled repayment of principal or
sinking fund payment, as the case may be, in respect of Subordinated
Indebtedness.
'Restricted Investment' means any Investment by us or any Restricted
Subsidiary (other than investments in Cash Equivalents) in any person or entity
that is not us or a Restricted Subsidiary, including in any Unrestricted
Subsidiary, but shall not include:
1. Investments by us or any Restricted Subsidiary in a person or
entity, if as a result of such Investment:
such person or entity becomes a Restricted Subsidiary that is
engaged in a related business or
such person or entity is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, us or a Restricted Subsidiary that is
engaged in a related business;
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2. loans by us or any Restricted Subsidiary to our or its employees,
the proceeds of which are applied to purchase Capital Stock of
Pro-Fac in amount not to exceed $2.0 million at any time
outstanding;
3. the guaranty by us of revolving credit indebtedness incurred by
Great Lakes Kraut Company in an aggregate principal amount at any
time outstanding not to exceed $10.0 million; or
4. demand loans for working capital purposes from us to Pro-Fac made
prior to consummation of the Pro-Fac Merger, not exceeding $40.0
million at any time outstanding, which will be reduced to zero for
a period of not less than 15 consecutive days in each fiscal year.
'Restricted Payment' means, with respect to any person or entity:
the declaration or payment of any dividend (other than a dividend declared
and paid on a pro rata basis by a Wholly-Owned Restricted Subsidiary to
holders of its Capital Stock, or by a Subsidiary other than a Wholly-Owned
Restricted Subsidiary to its shareholders, but only to the extent of the
dividends actually received by us or a Restricted Subsidiary), or the
making of any other payment or distribution of cash, securities or other
property or assets in respect of such person or entity's Capital Stock
(except that a dividend payable solely in Capital Stock, other than
Disqualified Capital Stock, of such person or entity shall not constitute
a Restricted Payment);
any payment on account of the purchase, redemption, retirement or other
acquisition for value of the Capital Stock of us or any any Restricted
Subsidiary, or any other payment or distribution made in respect thereof,
either directly or indirectly (other than a payment solely in Capital
Stock that is not Disqualified Capital Stock, and excluding any such
payment to the extent actually received by us or a Restricted Subsidiary);
any Restricted Investment; or
any Restricted Debt Payment.
Notwithstanding anything to the contrary, the allocation of retains to Pro-Fac's
members on and after consummation of the Pro-Fac Merger shall not be deemed a
Restricted Payment.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'S&P' means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., and its successors.
'Sale and Leaseback Transactions' means, with respect to any person or
entity, an arrangement with any bank, insurance company or other lender or
investor or to which such lender or investor is a party, providing for the
leasing by such person or entity of any property or asset of such person or
entity which has been or is being sold or transferred by such person or entity
to such lender or investor or to any person or entity to whom funds have been or
are to be advanced by such lender or investor on the security of such property
or asset.
'Senior Indebtedness' means, with respect to us or any Guarantor, all
Indebtedness and other Obligations specified below payable directly or
indirectly by us or such Guarantor, as the case may be, whether outstanding on
November 18, 1998 or thereafter created, incurred or assumed by us or such
Guarantor:
the principal of and interest on, and all other Indebtedness and
Obligations related to, the New Credit Facility (including, without
limitation, all loans, letters of credit and unpaid drawings with respect
thereto and other extensions of credit under the New Credit Facility, and
all expenses, fees, reimbursements, indemnities and other amounts owing
pursuant to the New Credit Facility),
amounts payable in respect of any Hedging Obligations,
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all Indebtedness not prohibited by the 'Limitations on Additional
Indebtedness' covenant that is not expressly equal in rank of priority in
right of payment with, or subordinated to, the Notes or the Note
Guarantees,
all Capital Lease Obligations outstanding on November 18, 1998, and
all Refinancing Indebtedness permitted under the Indenture of Indebtedness
specified in each of the above points.
Notwithstanding anything to the contrary, Senior Indebtedness will not include:
any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in
right of payment to any item of Senior Indebtedness,
any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business,
Indebtedness incurred (but only to the extent incurred) in violation of
the Indenture as in effect at the time of the incurrence,
any of our Indebtedness that, when incurred, was without recourse to us,
any Indebtedness to any employee of our or any of our Subsidiaries,
any liability for taxes owned or owing by us,
any Indebtedness represented by our Old Notes and any Guarantee thereof by
Pro-Fac or any Subsidiary Guarantor, or
any Subordinated Indebtedness.
'Senior Subordinated Indebtedness' of us means the Notes and any other
Indebtedness of ours (including the Old Notes) that specifically provides that
such Indebtedness is to have the same rank of priority in right of payment with
the Notes and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of ours which is not Senior Indebtedness.
'Senior Subordinated Indebtedness' of any Guarantor has a correlative meaning.
'Significant Subsidiary' means any Subsidiary of ours that would be a
'Significant Subsidiary' as defined in Article 1, Rule 1-02 of Regulation S-X
under the Securities Act, as such Regulation is in effect on November 18, 1998,
except that all references to '10 percent' in such definition shall be changed
to '2 percent'.
'Subordinated Indebtedness' means Indebtedness of us or any Restricted
Subsidiary that is subordinated in right of payment to the Notes or to the Note
Guarantee of such Restricted Subsidiary, including the Subordinated Promissory
Note and any additional promissory notes issued in accordance with the terms
thereof as in effect on November 18, 1998.
'Subsidiary' of any person or entity means:
any corporation of which at least a majority of the aggregate voting power
of all classes of its Voting Stock is owned by such person or entity
directly or through one or more other Subsidiaries of such person or
entity, and
any entity other than a corporation in which such person or entity,
directly or indirectly, owns at least a majority of its Voting Stock
entitling the holder thereof to vote or otherwise participate in the
selection of its governing body, partners, managers or others that control
its management and policies.
Unless otherwise specified, 'Subsidiary' means a Subsidiary of the Company.
'Unrestricted Subsidiary' means:
any Subsidiary that at the time of determination shall be designated an
Unrestricted Subsidiary by our board of directors in the manner provided
below and
any Subsidiary of an Unrestricted Subsidiary.
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Our board of directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary, and any such designation shall be deemed to be a
Restricted Investment by us and the Restricted Subsidiaries at the time of and
immediately upon such designation in the amount of the Consolidated Net Worth of
such designated Subsidiary and its consolidated Subsidiaries, provided that such
designation shall be permitted only if
1. we and the Restricted Subsidiaries would be able to make the
Restricted Investment deemed made pursuant to such designation at
such time,
2. no portion of the Indebtedness or any other obligation (contingent
or otherwise) of such Subsidiary:
is Guaranteed by us or any Restricted Subsidiary,
is recourse to us or any Restricted Subsidiary, or
subjects any property or asset of ours or any Restricted
Subsidiary, directly or indirectly, contingently or otherwise,
to the satisfaction thereof,
and
3. no default or event of default with respect to any Indebtedness of
such Subsidiary would permit any holder of any Indebtedness of ours
or any Restricted Subsidiary to declare such Indebtedness of ours
or any Restricted Subsidiary due and payable prior to its maturity.
Our board of directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, and any such designation shall be deemed to be an
incurrence by us and the Restricted Subsidiaries of the Indebtedness (if any) of
such Subsidiary so designated for purposes of the ' -- Limitations on Additional
Indebtedness' covenant as of the date of such designation, provided that such
designation shall be permitted only if immediately after giving effect to such
designation and the incurrence of any such additional Indebtedness deemed to
have been incurred thereby:
we would meet the Coverage Ratio Incurrence Condition and
no Default or Event of Default shall have occurred and be continuing.
Any such designation by our board of directors shall be evidenced to the trustee
by the filing with the trustee of a certified copy of the duly adopted
resolution of our board of directors giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions and setting forth the underlying calculations of such
certificate.
'Voting Stock' with respect to any person or entity, means securities of
any class of Capital Stock of such person or entity entitling the holders
thereof (whether at all times or only so long as no senior class of stock or
other relevant equity interest has voting power by reason of any contingency) to
vote in the election of members of the board of directors of such person or
entity.
'Weighted Average Life to Maturity,' when applied to any Indebtedness at
any date, means the number of years obtained by dividing:
1. the sum of the products obtained by multiplying:
the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment,
by
2. the then outstanding principal amount of such Indebtedness.
'Wholly-Owned Restricted Subsidiary' means a Restricted Subsidiary of which
100% of the Capital Stock (except for directors' qualifying shares or certain
minority interests owned by other person or entities solely due to local law
requirements that there be more than one stockholder, but which interest is not
in excess of what is required for such purpose) is owned directly by us or
through one or more Wholly-Owned Restricted Subsidiaries.
96
<PAGE>
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax consequences to holders of Initial Notes who exchange their
Initial Notes for Exchange Notes pursuant to the Exchange Offer. This discussion
is based on currently existing provisions of the Internal Revenue Code of 1986,
as amended (the 'Code'), existing, temporary and proposed Treasury regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as in effect or proposed on the date hereof and all of which are subject to
change, possibly with retroactive effect, or different interpretations. This
discussion is limited to holders of Initial Notes who hold the Notes as capital
assets, within the meaning of section 1221 of the Code. Moreover, this
discussion is for general information only and does not address all of the tax
consequences that may be relevant to holders of Initial Notes and Exchange Notes
in light of their personal circumstances or to certain types of holders of
Initial Notes and Exchange Notes (such as certain financial institutions,
insurance companies, tax-exempt entities, dealers in securities or persons who
have hedged the risk of owning a Note). In addition, this discussion does not
address any tax consequences arising under the laws of any state, locality or
foreign jurisdiction, or any estate or gift tax considerations.
EXCHANGE OFFER
The exchange of Initial Notes for Exchange Notes pursuant to the Exchange
Offer should not be treated as an exchange or other taxable event for United
States Federal income tax purposes. Accordingly, there should be no United
States Federal income tax consequences to holders who exchange Initial Notes for
Exchange Notes pursuant to the Exchange Offer and any such holder should have
the same adjusted tax basis and holding period in the Exchange Notes as it had
in the Initial Notes immediately before the exchange.
PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that:
it is not an 'affiliate' (as defined in Rule 405 of the Securities Act) of
us or any Subsidiary Guarantor
it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes, and
it is acquiring the Exchange Notes in the ordinary course of its business.
A Restricted Holder will not be able to participate in the Exchange Offer and
may only sell its Initial Notes pursuant to a registration statement containing
the selling security holder information required by Item 507 of Regulation S-K
under the Securities Act, or pursuant to an exemption from the registration
requirement of the Securities Act.
Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. Based upon interpretations by the staff of the Commission,
we believe that Exchange Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by all persons subject to the
prospectus delivery requirements of the Securities Act, including Participating
Broker-Dealers, in connection with resales of Exchange Notes received in
exchange for Initial Notes where such Initial Notes were acquired as a result of
market-making activities or other trading activities. Agrilink has agreed that,
for a period of 180 days after the registration statement has been declared
effective by the Commission, it will make this prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in connection
with any such resale. If we are not so notified by any Participating
Broker-Dealers that they may be subject to such requirements or if it is later
notified by all such Participating Broker-Dealers that they are no longer
subject to such requirements, we will not be required to maintain the
effectiveness of the registration statement or to amend or supplement this
prospectus following the consummation of
97
<PAGE>
<PAGE>
the Exchange Offer or following such date of notification, as the case may be.
We believe that during such period of time, delivery of this prospectus, as it
may be amended or supplemented, will satisfy the prospectus delivery
requirements of a Participating Broker-Dealer engaged in market-making or other
trading activities.
Based on interpretations by the staff of the Commission, we believe that
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold, and otherwise transferred by a Holder thereof (other than a Restricted
Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers (including Participating Broker-Dealers). Exchange Notes
received by Participating Broker-Dealers for their own accounts pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange Notes.
Any Participating Broker-Dealer that resells Exchange Notes may be deemed to be
an 'underwriter' within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an 'underwriter' within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act, as set forth in the Registration
Rights Agreement.
By acceptance of the Exchange Offer, each Participating Broker-Dealer that
receives Exchange Notes pursuant to the Exchange Offer hereby agrees to notify
us prior to using the Prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and agrees that, upon receipt of notice from us
of the happening of any event that makes any statement in the prospectus untrue
in any material respect or which requires the making of any changes in the
prospectus in order to make the statements therein not misleading (which notice
we agree to deliver promptly to such Participating Broker-Dealer), such
Participating Broker-Dealer will suspend use of the prospectus until we have
amended or supplemented the prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented prospectus to such
Participating Broker-Dealer.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon on behalf of
Agrilink by Howard, Smith & Levin LLP, New York, New York.
EXPERTS
The consolidated financial statements of Agrilink and the consolidated
financial statements of Pro-Fac at June 27, 1998 and June 28, 1997 and for each
of the three years in the period ended June 27, 1998, included elsewhere in the
Prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of DFVC at May 31, 1998, May 25, 1997
and May 26, 1996 and for each of the three years in the period ended May 31,
1998, included elsewhere in the Prospectus, have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
98
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AGRILINK FOODS, INC. -- CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-2
Consolidated Statement of Operations and Accumulated Deficit for the years ended June 27, 1998, June 28,
1997, and June 26, 1996................................................................................ F-3
Consolidated Balance Sheets as of June 27, 1998 and June 28, 1997........................................ F-4
Consolidated Statements of Cash Flows for the years ended June 27, 1998, June 28, 1997, and June 26,
1996................................................................................................... F-5
Notes to Consolidated Financial Statements............................................................... F-7
Unaudited Consolidated Statement of Operations for the six months ended December 26, 1998 and December
27, 1997............................................................................................... F-23
Unaudited Consolidated Balance Sheets as of December 26, 1998 and December 27, 1997...................... F-24
Unaudited Consolidated Statement of Cash Flows for the six months ended December 26, 1998 and December
27, 1997............................................................................................... F-25
Notes to Unaudited Consolidated Financial Statements..................................................... F-27
DEAN FOODS VEGETABLE COMPANY -- FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-34
Consolidated Statements of Income for the years ended May 31, 1998, May 25, 1997 and May 26, 1996........ F-35
Consolidated Balance Sheets as of May 31, 1998, May 25, 1997 and May 26, 1996............................ F-36
Consolidated Statements of Cash Flows for the years ended May 31, 1998, May 25, 1997 and May 26, 1996.... F-37
Notes to Consolidated Financial Statements............................................................... F-38
Unaudited Condensed Consolidated Statements of Income for the three months ended August 30, 1998 and
August 24, 1997........................................................................................ F-47
Unaudited Condensed Consolidated Balance Sheets as of August 30, 1998 and August 24, 1997................ F-48
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended August 30, 1998 and
August 24, 1997........................................................................................ F-49
Notes to Unaudited Condensed Consolidated Financial Statements........................................... F-50
PRO-FAC COOPERATIVE, INC. AND CONSOLIDATED SUBSIDIARY
Report of Independent Accountants........................................................................ F-51
Consolidated Statement of Operations and Net Proceeds for the years ended June 27, 1998, June 28, 1997
and June 29, 1996...................................................................................... F-52
Consolidated Balance Sheets as of June 27, 1998 and June 28, 1997........................................ F-53
Consolidated Statement of Cash Flows for the years ended June 27, 1998, June 28, 1997 and June 29,
1996................................................................................................... F-54
Consolidated Statement of Changes in Shareholders' and Members' Capitalization and Redeemable Stock for
the years ended June 27, 1998, June 28, 1997 and June 29, 1996......................................... F-56
Notes to Consolidated Financial Statements............................................................... F-57
Unaudited Consolidated Statement of Operations and Net Proceeds for the six months ended December 26,
1998 and December 27, 1997............................................................................. F-76
Unaudited Consolidated Balance Sheets as of December 26, 1998 and December 27, 1997...................... F-77
Unaudited Consolidated Statement of Cash Flows for six months ended December 26, 1998 and December 27,
1997................................................................................................... F-79
Notes to Unaudited Consolidated Financial Statements..................................................... F-81
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... F-89
Selected Historical and Unaudited Pro Forma Financial Data............................................... F-102
Unaudited Pro Forma Financial Data....................................................................... F-104
</TABLE>
The Company's obligations under the New Credit Agreement and the Notes are
guaranteed by Kennedy Endeavors, Incorporated and Linden Oaks Corporation each a
wholly-owned subsidiary of the Company, in addition to Pro-Fac. All subsidiaries
of the Company are inactive and consequently maintain no assets or are active
but maintain insignificant assets. Financial information of the Company and the
Subsidiary Guarantors is substantially the same as that presented in the
Consolidated Financial Statements of the Company.
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
AGRILINK FOODS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and accumulated deficit and of
cash flows 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 in the period 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 1997.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
July 31, 1998
F-2
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
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
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
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(table continued on next page)
F-5
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
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)
----------- ----------- -----------
Cash paid for acquisition................................... $ 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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Agrilink Foods, Inc. ('Agrilink' or the 'Company') is a producer and
marketer of processed food products, including canned and frozen fruits and
vegetables, canned desserts and condiments, fruit fillings and toppings, canned
chilies and stews, salad dressings, pickles, peanut butter and snack foods. 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
F-7
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 years 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.
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.
F-8
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 years 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 the Bank 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.
Long-Term Debt
The fair value of 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.
F-9
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-10
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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:
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
1998
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Net sales..................................................... $27,620
Gross profit.................................................. $ 7,439
Operating income.............................................. $ 4,411
Net income.................................................... $ 3,786
CONDENSED BALANCE SHEET
(DOLLARS IN
THOUSANDS)
Current assets................................................ $10,648
Noncurrent assets............................................. $18,884
Current liabilities........................................... $ 6,463
Noncurrent liabilities........................................ $ 6,261
</TABLE>
F-11
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-12
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
<CAPTION>
JUNE 27, 1998 JUNE 28, 1997
------------------------------ -------------------------------
OWNED LEASED OWNED LEASED
ASSETS ASSETS TOTAL ASSETS ASSETS TOTAL
-------- ------ -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<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 leases(1)........... $ 759 $ 1,375
Less current portion.......................... (256) (558)
------ -------
Long-term portion............................. $ 503 $ 817
------ -------
------ -------
</TABLE>
- ------------
(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.
F-13
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<CAPTION>
TOTAL
FISCAL YEAR ENDING LAST CAPITAL OPERATING FUTURE
SATURDAY IN JUNE LEASES LEASES COMMITMENT
- -------------------------------------------------------------------- ------- --------- ----------
(DOLLARS IN THOUSANDS)
<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.
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
F-14
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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 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
F-15
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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>
F-16
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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>
The deferred tax (liabilities)/assets consist of the following at June 27,
1998 and June 28, 1997:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
----------- -----------
<S> <C> <C>
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)
----------- -----------
----------- -----------
</TABLE>
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-
F-17
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Pension cost for fiscal years ended 1998, 1997, and 1996 includes the
following components:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <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
----------- ----------- -----------
</TABLE>
(table continued on next page)
F-18
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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%
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>
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>
<CAPTION>
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
-----------------------------------------
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
<S> <C> <C> <C>
Projected benefit obligation.......... $ 1,939 $ 1,843 $ 1,913
Accumulated benefit obligation........ 1,939 1,843 1,913
Plan assets........................... 0 0 0
<CAPTION>
EXCESS BENEFIT
RETIREMENT PLAN
--------------------------------------------
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ------------ -----------
<S> <C> <C> <C>
Projected benefit obligation.......... $ 850 $ 652 $ 453
Accumulated benefit obligation........ 651 575 315
Plan assets........................... 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.
F-19
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plan's funded status was as follows:
<TABLE>
<CAPTION>
OTHER BENEFITS
-----------------------------------------
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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
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>
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>
<CAPTION>
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>
F-20
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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' or the 'Plan'), 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.
F-21
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-22
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................ $ 376,703 $ 202,672 $ 559,282 $ 379,069
Cost of sales........................................ (254,563) (140,092) (390,445) (270,840)
------------ ------------ ------------ ------------
Gross profit......................................... 122,140 62,580 168,837 108,229
Selling, administrative, and general expense......... (92,103) (41,463) (126,970) (74,253)
Gain on sale of aseptic operations................... 0 0 64,202 0
Income from Great Lakes Kraut Company LLC............ 1,053 960 1,689 960
------------ ------------ ------------ ------------
Operating income before dividing with Pro-Fac........ 31,090 22,077 107,758 34,936
Interest expense..................................... (18,613) (7,969) (26,949) (15,607)
Amortization of debt issue costs associated with the
Bridge Facility.................................... (5,500) 0 (5,500) 0
------------ ------------ ------------ ------------
Pretax income before dividing with Pro-Fac and before
extraordinary item................................. 6,977 14,108 75,309 19,329
Pro-Fac share of income before extraordinary item.... (4,000) (7,054) (9,658) (9,665)
------------ ------------ ------------ ------------
Income before taxes and before extraordinary item.... 2,977 7,054 65,651 9,664
Tax provision........................................ (1,375) (3,204) (25,709) (4,397)
------------ ------------ ------------ ------------
Income before extraordinary item..................... 1,602 3,850 39,942 5,267
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 income........................................... $ 1,602 $ 3,850 $ 23,576 $ 5,267
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-23
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 26, JUNE 27, DECEMBER 27,
1998 1998 1997
------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 18,340 $ 5,046 $ 6,676
Accounts receivable trade, net.................................... 103,991 55,046 59,209
Accounts receivable, other........................................ 19,732 3,575 2,655
Current deferred tax asset........................................ 13,129 4,642 8,198
Inventories --
Finished goods............................................... 323,984 111,153 138,318
Raw materials and supplies................................... 49,678 30,433 30,277
------------ -------- ------------
Total inventories....................................... 373,662 141,586 168,595
------------ -------- ------------
Current investment in CoBank...................................... 665 1,994 316
Prepaid manufacturing expense..................................... 292 8,404 283
Prepaid expenses and other current assets......................... 19,122 12,989 12,519
------------ -------- ------------
Total current assets.................................... 548,933 233,282 258,451
Investment in CoBank................................................... 22,377 22,377 24,320
Investment in Great Lakes Kraut Company................................ 8,274 6,584 7,545
Property, plant and equipment, net..................................... 312,344 194,615 208,102
Assets held for sale at net realizable value........................... 920 2,662 3,453
Goodwill and other intangible assets, net.............................. 346,267 94,744 94,551
Other assets........................................................... 23,600 12,175 13,910
Note receivable due from Pro-Fac....................................... 9,400 0 0
------------ -------- ------------
Total assets............................................ $1,272,115 $566,439 $610,332
------------ -------- ------------
------------ -------- ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable..................................................... $ 85,000 $ 0 $ 58,700
Current portion of obligations under capital leases............... 256 256 558
Current portion of long-term debt................................. 5,100 8,071 8,071
Accounts payable.................................................. 102,366 70,125 42,533
Income taxes payable.............................................. 8,701 3,943 6,760
Accrued interest.................................................. 4,074 8,559 8,717
Accrued employee compensation..................................... 12,703 8,598 9,265
Other accrued expenses............................................ 90,479 19,013 26,274
Current liability due to Pro-Fac.................................. 29,364 6,642 7,180
------------ -------- ------------
Total current liabilities............................... 338,043 125,207 168,058
Obligations under capital leases....................................... 503 503 817
Long-term debt......................................................... 457,200 69,937 66,188
Senior subordinated notes.............................................. 200,015 160,000 160,000
Subordinated promissory note........................................... 30,407 0 0
Deferred income tax liabilities........................................ 35,341 33,154 40,902
Other non-current liabilities.......................................... 32,445 23,053 22,661
------------ -------- ------------
Total liabilities....................................... 1,093,954 411,854 458,626
------------ -------- ------------
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)................................ 11,698 (11,878) (6,611)
------------ -------- ------------
Total shareholder's equity.............................. 178,161 154,585 151,706
------------ -------- ------------
Total liabilities and shareholder's equity.............. $1,272,115 $566,439 $610,332
------------ -------- ------------
------------ -------- ------------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-24
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income..................................................................... $ 23,576 $ 5,267
Adjustments to reconcile net income to net cash used in operating activities --
Gain on the sale of the aseptic operations................................ (64,202) 0
Extraordinary item relating to the early extinguishment of debt........... 16,366 0
Loss on disposal of assets................................................ 353 0
Amortization of goodwill and other intangibles............................ 5,136 1,956
Amortization of debt issue costs (including fees associated with the
Bridge Facility)........................................................ 6,277 400
Depreciation.............................................................. 13,484 9,102
Equity in undistributed earnings of Great Lakes Kraut Company............. (1,689) (960)
Change in assets and liabilities:
Accounts receivable.................................................. (40,481) (10,390)
Inventories.......................................................... (51,538) (55,865)
Income taxes payable................................................. 15,221 1,608
Accounts payable and other accrued expenses.......................... (19,578) 4,043
Due to Pro-Fac....................................................... 14,980 2,868
Other assets and liabilities......................................... (698) (13,434)
------------ ------------
Net cash used in operating activities............................................... (82,793) (55,405)
------------ ------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment...................................... (8,561) (6,803)
Proceeds from disposals........................................................ 84,427 362
Proceeds from investment in CoBank............................................. 1,329 631
Cash paid for acquisitions..................................................... (445,918) 0
------------ ------------
Net cash used in investing activities............................................... (368,723) (5,810)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of short-term debt...................................... 177,000 58,700
Payments on short-term debt.................................................... (92,000) 0
Proceeds from issuance of long-term debt....................................... 677,507 8,700
Proceeds from Great Lakes Kraut Company........................................ 0 3,000
Payments on long-term debt..................................................... (278,873) (5,345)
Cash paid for debt issuance costs.............................................. (18,824) 0
------------ ------------
Net cash provided by financing activities........................................... 464,810 65,055
------------ ------------
Net change in cash and cash equivalents............................................. 13,294 3,840
Cash and cash equivalents at beginning of period.................................... 5,046 2,836
------------ ------------
Cash and cash equivalents at end of period.......................................... $ 18,340 $ 6,676
------------ ------------
------------ ------------
</TABLE>
(table continued on next page)
F-25
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Acquisition of Dean Foods Vegetable Company:
Accounts receivable....................................................... $ 24,201
Inventories............................................................... 190,501
Prepaid expenses and other current asset.................................. 1,948
Current deferred tax asset................................................ 6,300
Property, plant and equipment............................................. 131,648
Assets held for sale...................................................... 49
Goodwill and other intangible assets...................................... 253,593
Accounts payable.......................................................... (40,840)
Accrued employee compensation............................................. (8,437)
Other accrued expenses.................................................... (80,153)
Long-term debt............................................................ (2,752)
Subordinated promissory note.............................................. (30,000)
Other assets and liabilities, net......................................... (2,453)
------------
$ 443,605
------------
------------
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
------------
------------
Investment in Great Lakes Kraut Company:
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 unaudited consolidated
financial statements.
F-26
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED 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
audited financial statements beginning on page F-2.
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.
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.
F-27
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
ACQUISITION OF 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 '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. In order to
exercise that election, the Company will pay $13.2 million to Dean Foods. The
Company intends to exercise that election.
After the Acquisition, DFVC was merged into the Company, and Dean Foods
Vegetable Company became a business unit of the Company known as Agrilink Foods
Vegetable Company ('AFVC'). DFVC has been one of the leading processors of
vegetables in the United States, selling its products under brand names such as
Birds Eye, Freshlike and Veg-All, and 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 will be recorded at their respective fair values. The
valuations and other studies which will provide the basis for such an allocation
have not progressed to a stage where there is sufficient information to make a
final allocation in the accompanying financial statements. Accordingly, the
purchase accounting adjustments made in the accompanying financial statements
are preliminary. Once an allocation is determined, in accordance with generally
accepted accounting principles, any remaining excess of purchase cost over net
assets acquired will be adjusted through goodwill.
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>
SIX MONTHS ENDED
----------------------------
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
<S> <C> <C>
Net sales....................................................... $656.3 $622.2
Income (loss) before extraordinary items........................ $ 24.8 $ (1.7)
Net income (loss)............................................... $ 8.4 $ (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 12.25 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
F-28
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
'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.
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 due 2008'). Debt issue costs of $5.5 million associated with
the Bridge Facility were expensed during the quarter ended December 26, 1998.
J.A. HOPAY DISTRIBUTING CO, INC.
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, one of the Company's business units within its Snack Foods
Group. 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
F-29
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 six months ended December
26, 1998 and December 27, 1997 include: commercial market value of crops
delivered, $63.0 and $57.1 million, respectively; and additional proceeds from
profit/(loss) sharing provisions, $8.0 million and $9.7 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.
NOTE 4. DEBT
NEW CREDIT FACILITY
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 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 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.
Beginning with the reporting period ending March 31, 1999, the applicable
margins for the New Credit Facility will be subject to possible reductions based
on the ratio of consolidated debt to earnings before interest, taxes,
depreciation and amortization ('EBITDA') (each as defined in the New 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.
F-30
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Term Loan Facility will be 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 $ 0.2 $ 0.2 $ 0.4
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 ..................... 12.5 0.4 0.4 13.3
2005 ..................... 0.0 197.8 0.4 198.2
2006 ..................... 0.0 0.0 202.4 202.4
----------- ----------- ----------- ------
$50.0 $ 200.0 $ 205.0 $455.0
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility.
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 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 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. 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.
11 7/8 PERCENT SENIOR SUBORDINATED NOTES (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.
F-31
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the 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. In December 1998, the Company
satisfied this requirement through the issuance of an additional promissory note
for $0.4 million. 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.
12 1/4 PERCENT SENIOR SUBORDINATED NOTES (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.
NOTE 5. OTHER MATTERS
ERIN'S GOURMET POPCORN
On January 5, 1999, the Company announced that it acquired the assets of
Erin's Gourmet Popcorn, a Seattle-based, ready-to-eat popcorn manufacturer. The
business was merged into
F-32
<PAGE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agrilink's Auburn, Washington snack company, Tim's Cascade Chips. The
acquisition was accounted for as a purchase. The purchase price was
approximately $0.6 million.
AGRIPAC, INC.
On December 15, the Company and Pro-Fac announced that Pro-Fac has entered
into a letter of intent for Pro-Fac to acquire the frozen vegetable business of
Agripac, Inc. ('Agripac'), an Oregon cooperative. Agripac, which processes
frozen and canned vegetables in the Northwest, reported approximately $180
million in aggregate sales for fiscal 1998 (including both frozen and canned
vegetables). Agripac operates eight plant facilities located in the states of
Oregon and Washington and employs approximately 600 people. It currently sources
from approximately 190 growers in the Northwest.
PF Acquisition II, Inc. ('PF Acquisition') was formed in January 1999 under
the corporation laws of New York State. It is a wholly owned subsidiary of
Pro-Fac. The PF Acquisition was formed to acquire substantially all of the
assets of Agripac related to its frozen vegetable (and not canned) processing
business for a purchase price of approximately $90 million. In connection with,
and as a condition to consummation of, the Acquisition, PF Acquisition must
enter into a sufficient number of crop delivery contracts with Agripac growers
acceptable to PF Acquisition. On January 4, 1999, Agripac filed a voluntary
petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the District of Oregon. On January 22, 1999, Agripac, as debtor-in
possession, filed a motion with the Bankruptcy Court for authority to sell
substantially all of its assets relating to its frozen food packaging business
to PF Acquisition. Neither the Company nor Pro-Fac will loan or otherwise
contribute any funds to PF Acquisition, or guarantee or otherwise secure with
the Company's or Pro-Fac's assets the indebtedness of PF Acquisition, in
connection with the acquisition. It is anticipated that the Company will enter
into an administrative services agreement with PF Acquisition to provide it with
certain administrative support in exchange for a management fee.
The closing of the acquisition is subject to numerous conditions, including
the Bankruptcy Court's approval of the proposed sale to PF Acquisition,
Agripac's existing lenders providing sufficient financing for the acquisition
and for working capital, finalization of agreements, board approval, regulatory
approval, and due diligence.
J.M. SMUCKER COMPANY TO PURCHASE ADAMS BRAND PEANUT BUTTER BUSINESS
On January 29, 1999, the Company announced that the Adams brand peanut
butter business was sold to the J.M. Smucker Company.
FORMATION OF NEW SAUERKRAUT COMPANY
Effective July 1, 1997, the Company and Flanagan Brothers, Inc. of Bear
Creek, Wisconsin, contributed all their sauerkraut production related assets to
form a new sauerkraut company. This new company, Great Lakes Kraut Company,
operates as a New York limited liability company, with ownership split equally
between the two companies. The joint venture is accounted for using the equity
method of accounting.
ARLINGTON CANNED VEGETABLE FACILITY FIRE
In January 1999, a plant operated by the Company's AFVC business unit,
located 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's CBF business unit,
located 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.
F-33
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
DEAN FOODS COMPANY
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and of cash flows present fairly, in
all material respects, the financial position of Dean Foods Vegetable Company
and subsidiaries ('DFVC'), a division of Dean Foods Company ('DFC'), at May 31,
1998, May 25, 1997 and May 26, 1996, and the results of their operations and
their cash flows for each of the three years in the period ended May 31, 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.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
August 31, 1998
F-34
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
MAY 31, MAY 25, MAY 26,
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales (Note 2)........................................................... $541,243 $549,286 $569,836
Operating costs and expenses:
Cost of products sold (Note 2).......................................... 397,577 406,703 450,599
Selling, general and administrative expenses (Note 3)................... 106,256 108,809 114,606
Special charge (Note 13)................................................ -- 9,644 37,346
Interest expense -- related parties (Note 3)............................ 9,170 10,270 12,010
Other, net.............................................................. (1,193) (648) (560)
-------- -------- --------
511,810 534,778 614,001
-------- -------- --------
Net income (loss) before income taxes........................................ 29,433 14,508 (44,165)
Provision (benefit) for income taxes (Notes 2 and 7)......................... 11,773 5,803 (17,224)
-------- -------- --------
Net income (loss)............................................................ $ 17,660 $ 8,705 $(26,941)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, MAY 25, MAY 26,
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash (Note 2)........................................................... $ 301 $ 235 $ 227
Accounts receivable, less allowance for doubtful accounts of $500, $500
and $510, respectively (Notes 2 and 3)................................ 32,451 35,315 36,758
Inventories (Notes 2 and 4)............................................. 125,717 143,561 158,390
Deferred tax assets (Notes 2 and 7)..................................... 12,868 15,450 18,697
Prepaid Slotting (Note 2)............................................... 5,092 3,677 3,576
Other................................................................... 3,837 4,648 6,791
-------- -------- --------
Total current assets............................................... 180,266 202,886 224,439
-------- -------- --------
Property, plant and equipment, net (Notes 2 and 5)........................... 133,276 145,374 150,595
Other assets:
Goodwill, net of amortization of $2,570, $1,978 and $1,397, respectively
(Note 2).............................................................. 20,673 21,265 21,846
Other intangible assets, net of amortization of $2,965, $2,293 and
$1,634, respectively (Note 2)......................................... 23,130 23,802 24,462
Other................................................................... 2,400 2,844 3,971
-------- -------- --------
Total assets....................................................... $359,745 $396,171 $425,313
-------- -------- --------
-------- -------- --------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable........................................................ $ 22,422 $ 28,432 $ 26,237
Accounts payable to related parties (Note 3)............................ 23,943 11,220 15,521
Accrued liabilities (Notes 8 and 13).................................... 32,244 31,869 35,408
Current portion of note payable to related parties (Note 3)............. 5,370 5,056 8,633
Current portion of long-term debt (Note 9).............................. 503 712 692
-------- -------- --------
Total current liabilities.......................................... 84,482 77,289 86,491
-------- -------- --------
Long-term liabilities:
Long-term debt (Note 9)................................................. 2,450 2,995 3,669
Note payable to related parties (Note 3)................................ 4,208 8,501 12,505
Deferred income taxes (Notes 2 and 7)................................... 19,151 19,152 17,329
Other................................................................... 3,257 2,824 2,664
-------- -------- --------
Total long-term liabilities........................................ 29,066 33,472 36,167
-------- -------- --------
Commitments and contingencies (Note 15)...................................... -- -- --
-------- -------- --------
Equity:
Investments by and advances from DFC (Note 3)........................... 246,197 285,410 302,655
-------- -------- --------
Total equity....................................................... 246,197 285,410 302,655
-------- -------- --------
Total liabilities and equity....................................... $359,745 $396,171 $425,313
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
MAY 31, MAY 25, MAY 26,
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)........................................................ $ 17,660 $ 8,705 $(26,941)
Adjustments to reconcile net income (loss) to net cash provided from
operations:
Depreciation and amortization....................................... 19,167 20,658 23,494
Deferred income taxes............................................... 2,581 5,070 (13,211)
Other current assets................................................ 10,485 8,195 4,981
Other long-term assets.............................................. 444 1,127 (666)
Special charge...................................................... -- 9,644 37,346
Other............................................................... 7,765 3,622 (6,287)
Change in working capital items:
Decrease in accounts receivable................................ 2,864 1,443 6,807
(Increase) decrease in inventories............................. 17,844 14,829 12,534
Increase in other current assets............................... (11,089) (6,153) (9,830)
Increase (decrease) in accounts payable and other accrued
expense...................................................... 4,745 (17,890) (2,647)
-------- -------- --------
Net cash provided from operations................................... 72,466 49,250 25,580
-------- -------- --------
Cash flows from investing activities:
Capital expenditures..................................................... (11,253) (15,373) (15,585)
Proceeds from dispositions of property, plant and equipment.............. 459 316 763
Acquisitions, net of cash received....................................... -- -- (21,748)
-------- -------- --------
Net cash used in investing activities............................... (10,794) (15,057) (36,570)
-------- -------- --------
Cash flows from financing activities:
Repayments of long-term debt............................................. (754) (654) (636)
Net repayments of notes payable to related parties....................... (3,979) (7,581) (17,614)
Increase (decrease) in advances from DFC (Note 3)........................ (56,873) (25,950) 29,429
-------- -------- --------
Net cash provided from (used in) financing activities............... (61,606) (34,185) 11,179
-------- -------- --------
Net increase in cash.......................................................... 66 8 189
Cash, beginning of year....................................................... 235 227 38
-------- -------- --------
Cash, end of year............................................................. $ 301 $ 235 $ 227
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Dean Foods Vegetable Company and its subsidiaries ('DFVC') is a division of
Dean Foods Company ('DFC') and is principally engaged in the processing,
distribution and sales of frozen and canned vegetables in the United States. As
part of a reorganization of DFC in fiscal 1994, the vegetable businesses within
DFC were combined with the Birds Eye Frozen Vegetable business to form DFVC. The
Birds Eye Frozen Vegetable business was acquired from the All-American Gourmet
Company, a wholly-owned subsidiary of Kraft General Foods, Inc., on December 27,
1993.
The accompanying consolidated financial statements reflect the 'carve-out'
financial position, results of operations and cash flows of DFVC and its
majority owned subsidiaries for the periods presented. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial information included herein does not necessarily
reflect what the consolidated financial position and results of operations of
DFVC would have been had it operated as a stand alone entity during the periods
covered, and may not be indicative of future operations or financial position.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DFVC's fiscal year ends on the last Sunday in May. There were 53 weeks in
the fiscal year ended May 1998, whereas there were 52 weeks in fiscal 1997 and
1996.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND TEMPORARY CASH INVESTMENTS
DFVC considers temporary cash investments with an original maturity of
three months or less to be cash equivalents.
RECEIVABLES
Accounts receivable are presented net of certain promotional and marketing
allowances.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for finished frozen and canned products
and by the first-in, first-out (FIFO) method for all other inventories. The FIFO
method would approximate the actual cost. Market for raw materials is based on
replacement costs and for other inventory classifications on net realizable
value.
PREPAID SLOTTING
Slotting allowances are capitalized and amortized over twelve months.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Major renewals and
betterments are capitalized while repairs and maintenance which do not improve
or extend useful life are expensed currently. Upon sale, retirement, abandonment
or other disposition of property, the cost and
F-38
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
related accumulated depreciation are eliminated from the accounts and any gain
or loss is reflected in income.
For financial statement purposes, depreciation is calculated by the
straight-line method over the following useful lives: buildings and
improvements, 10 to 40 years; machinery and equipment, 3 to 12 years;
transportation equipment, 4 years. For income tax purposes, depreciation is
calculated using accelerated methods for certain assets.
Certain land, buildings, and machinery and equipment having a net carrying
value of $6,796 were mortgaged or otherwise encumbered against related debt of
$503 at May 31, 1998.
GOODWILL AND INTANGIBLE ASSETS
Excess of cost over fair market value of net identifiable assets of
acquired companies and other intangible assets are amortized on a straight-line
basis over estimated useful lives not exceeding forty years.
LONG-LIVED ASSETS
DFVC continually reviews intangible assets and property plant and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. An estimate of the
undiscounted future cash flows or, in the case of goodwill, undiscounted
operating earnings, over the remaining life of the asset is compared to the
carrying amount to determine whether an impairment exists. DFVC believes that no
indicators of impairment of long-lived assets existed at May 31, 1998.
INCOME TAXES
DFVC is included in the consolidated U.S. federal and state income tax
returns of DFC. The provision for income taxes has been determined as if DFVC
had filed separate tax returns under its existing structure for the periods
presented. Accordingly, the effective tax rate of DFVC in future years could
vary from its historical effective rates depending on DFVC's future legal
structure and tax elections. All income taxes are settled with DFC on a current
basis through the 'Investments by and advances from DFC' account.
Provision has been made for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes.'
REVENUE RECOGNITION
Revenues are recognized when products are shipped.
COST OF PRODUCTS SOLD
Cost of products sold includes raw materials, labor and overhead.
ADVERTISING EXPENSES
DFVC expenses all costs associated with advertising as incurred or when the
advertising takes place. Advertising expense was $13,918, $14,252 and $15,344
for the years ended 1998, 1997 and 1996, respectively.
F-39
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of DFVC's financial instruments, which primarily
include cash, accounts receivable, accounts payable and accrued expenses,
approximates fair value due to the relatively short maturity of such
instruments.
CONCENTRATIONS OF CREDIT RISK
Financing instruments, which potentially subject DFVC to significant
concentrations of credit risk, consist principally of trade accounts receivable.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across many
geographic areas. DFVC had gross sales in excess of 10% to one customer in 1998
amounting to approximately $55,700.
NOTE 3. RELATED PARTY TRANSACTIONS
DFC provides DFVC certain purchasing, credit, legal, accounting, treasury
and tax services. An allocation of the estimated costs, which in the opinion of
DFC management approximates actual costs, of these services is charged directly
to DFVC each month by DFC corporate using varying historical allocation bases.
The allocation process is consistent with the methodology used by DFC corporate
to allocate costs of similar services provided to its other business units. In
the opinion of management, these allocated costs are reasonable; however, the
terms of these transactions may differ from those that would result from
transactions among unrelated parties. The allocated costs of these services,
which aggregated $2,808, $2,648 and $2,743 for the fiscal years ended May 1998,
1997 and 1996, respectively, were reflected in selling, general and
administrative expenses in the accompanying consolidated statements of income.
DFC maintains a transportation and distribution division that is used by
DFVC and other of DFC's divisions. DFVC is charged for shipments at estimated
standard carrier rates which may differ from prices that would result from
transactions among unrelated parties. The allocated costs for these services,
which aggregated $11,330, $8,950 and $9,307 for the fiscal years ended May 1998,
1997 and 1996, respectively, were reflected in selling, general and
administrative expenses in the accompanying consolidated statements of income.
DFVC incurs an annual charge for interest expense from DFC based on a
formula which takes into consideration its percentage of certain assets and
liabilities in relation to the total for DFC of these assets and liabilities
(net invested capital). Management believes that the basis used for allocating
corporate interest is reasonable; however, the terms of these transactions may
differ from those that would result from transactions among unrelated parties.
Interest expense is reflected as a separate component in the accompanying
consolidated statements of income.
DFC maintains a centralized cash management system and substantially all
cash receipts and disbursements are recorded at the corporate level. DFVC is
charged or credited for the net of cash receipts and disbursements each month.
DFVC and DFC's other divisions engage in transactions with certain of the
same customers. In certain instances, due to the resulting collections from
these customers, related party receivables and payables arise. Related party
payables also arise from DFVC's relationship with DFC's transportation and
distribution division. Also, DFVC has related party notes payable to DFC. All of
these relationships are reflected in the accompanying consolidated balance
sheet.
F-40
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The aforementioned related party activity is primarily settled through the
Investments by and advancements from DFC account. The following table sets forth
the net activity in the Investments by and advances from DFC account for the
fiscal years ended May 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year......................................... $285,410 $302,655 $300,167
Net income (loss).................................................. 17,660 8,705 (26,941)
(Charges) advances from DFC, net................................... (56,873) (25,950) 29,429
-------- -------- --------
Balance, end of year............................................... $246,197 $285,410 $302,655
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 4. INVENTORIES
Inventories at May 31, 1998, May 25, 1997 and May 26, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Raw materials...................................................... $ 15,126 $ 16,167 $ 18,960
Work-in-process.................................................... 31,518 43,520 50,986
Finished goods..................................................... 84,474 92,011 92,913
-------- -------- --------
FIFO Inventory..................................................... 131,118 151,698 162,859
LIFO Reserve....................................................... (5,401) (8,137) (4,469)
-------- -------- --------
LIFO Inventory..................................................... $125,717 $143,561 $158,390
-------- -------- --------
-------- -------- --------
</TABLE>
During fiscal 1998 and 1997, LIFO inventory quantities were reduced
resulting in a partial liquidation of the LIFO basis, the effect of which was
not significant.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at May 31, 1998, May 25, 1997 and May 26,
1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Land............................................................... $ 8,114 $ 8,574 $ 8,444
Buildings and improvements......................................... 69,324 68,028 64,259
Machinery and equipment............................................ 182,821 192,423 184,332
Transportation equipment........................................... 1,782 1,980 1,988
Construction in progress........................................... 5,416 11,047 10,589
-------- -------- --------
267,457 282,052 269,612
Less: Accumulated depreciation..................................... (134,181) (136,678) (119,017)
-------- -------- --------
$133,276 $145,374 $150,595
-------- -------- --------
-------- -------- --------
</TABLE>
F-41
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6. OPERATING LEASES
DFVC leases manufacturing, warehouse and office facilities and certain
equipment. Future minimum lease payments required under leases having initial or
remaining noncancelable leases terms in excess of one year are set forth below.
Sublease rental income is not significant.
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1999............................................................................... $ 948
2000............................................................................... 908
2001............................................................................... 829
2002............................................................................... 124
2003............................................................................... 45
Thereafter......................................................................... 52
---------
Total minimum rentals.............................................................. $ 2,906
---------
---------
</TABLE>
Rental expense under all operating leases for the years ended 1998, 1997
and 1996 was $3,499, $3,602 and $4,263, respectively.
NOTE 7. INCOME TAXES
The provision (benefit) for income taxes for the fiscal years ended May
1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal........................................................... $ 7,583 $ 605 $ (3,311)
State............................................................. 1,609 128 (702)
------- ------ --------
9,192 733 (4,013)
------- ------ --------
Deferred tax expense (benefit):
Federal........................................................... 2,129 4,183 (10,899)
State............................................................. 452 887 (2,312)
------- ------ --------
2,581 5,070 (13,211)
------- ------ --------
Provision (benefit) for income taxes................................... $11,773 $5,803 $(17,224)
------- ------ --------
------- ------ --------
</TABLE>
The effective tax rate differs from the prevailing statutory federal rate
for the fiscal years ended May 1998, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ------
<S> <C> <C> <C>
Statutory federal tax rate.................................................... 35.0% 35.0% (35.0)%
State, net of federal benefit................................................. 4.6 4.6 (4.4)
Other, net.................................................................... 0.4 0.4 0.4
---- ---- ------
Effective tax rate............................................................ 40.0% 40.0% 39.0%
---- ---- ------
---- ---- ------
</TABLE>
F-42
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
</TABLE>
The components of the deferred income tax assets and liabilities at May 31,
1998, May 25, 1997 and May 26, 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ------
<S> <C> <C> <C>
Deferred tax assets (net):
Accounts receivable............................................ $ (478) $ 108 $ 1,395
Inventory...................................................... 3,698 4,215 4,611
Employee benefits.............................................. 1,871 2,344 3,743
Vacation pay................................................... 658 538 1,095
Marketing accruals............................................. 6,604 4,542 4,220
Future benefit of special charge............................... (525) 1,009 3,576
Other.......................................................... 1,040 2,694 57
-------- -------- --------
Total deferred tax assets (net)..................................... $ 12,868 $ 15,450 $ 18,697
-------- -------- --------
-------- -------- --------
Deferred tax liabilities (net):
Fixed assets................................................... $(13,115) $(15,138) $(14,560)
Deferred compensation.......................................... 302 362 913
Intangibles.................................................... (6,299) (5,662) (5,251)
Future benefit of special charge............................... (361) 960 1,216
Other.......................................................... 322 326 353
-------- -------- --------
Total deferred tax liabilities (net)................................ $(19,151) $(19,152) $(17,329)
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 8. ACCRUED LIABILITIES
The components of accrued liabilities at May 31, 1998, May 25, 1997 and May
26, 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Special charge (Note 13)............................................... $ 4,597 $ 5,793 $10,357
Accrued payroll and employee benefits.................................. 8,176 7,942 7,619
Accrued bonuses........................................................ 2,508 3,529 2,049
Workers' compensation liability........................................ 3,929 4,159 4,494
Accrued coupons and marketing.......................................... 5,676 5,780 4,918
Other.................................................................. 7,358 4,666 5,971
------- ------- -------
$32,244 $31,869 $35,408
------- ------- -------
------- ------- -------
</TABLE>
NOTE 9. DEBT
The long-term obligations outstanding at May 31, 1998, May 25, 1997 and
May 26, 1996 primarily relate to a $2,450 floating interest rate industrial
revenue bond which matures on February 1, 2000. The average borrowing rates
during fiscal 1998, 1997 and 1996 were 3.76%, 3.52% and 3.73%, respectively. The
obligation is guaranteed by DFC.
DFVC also has a note payable which matures in various installments through
December 1, 1998 and bears interest at 9.00%. The long-term portion of the notes
payable was $473 and $983 at May 25, 1997 and May 26, 1996, respectively.
F-43
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10. PENSION LIABILITIES
DFVC's salaried employees are included in DFC-sponsored defined benefit
plans which cover substantially all of the salaried employees of the divisions
of DFC. DFVC's hourly employees are included in DFC-sponsored defined benefit or
multi-employer union plans. Net periodic pension expense is based upon
determinations made by independent actuaries. The funded status of the plans
relative to DFVC's participation is not separately determined and accordingly,
no pension obligation other than current expense allocations are included in the
accompanying financial statements.
The DFC-sponsored plans covering defined benefit plans are based on
employees' years of service and compensation during employment with DFVC. The
majority of pension benefits are based upon the participant's highest average
'total compensation' paid during any sixty consecutive months out of the last
180 months of service accumulated for each year of service. DFVC through DFC
makes contributions to the defined benefit plans at least equal to the minimum
funding requirements under the Employee Retirement Income Security Act of 1974
(ERISA). Plan assets are primarily invested in bonds, stocks and real estate.
DFVC's pension cost for these defined benefit plans was $3,218, $1,397 and
$1,905 for the fiscal years ended May 1998, 1997 and 1996, respectively.
The DFC-sponsored multi-employer plans principally cover production
workers. DFVC's pension expense under these plans was $868, $951 and $1,162 for
the fiscal years ended May 1998, 1997 and 1996, respectively.
NOTE 11. PROFIT SHARING PLAN
DFC maintains noncontributory profit sharing plans for certain of DFVC's
employees. DFVC contributions under these plans are made at the discretion of
DFC's Board of Directors. Expense for these plans was $1,405, $1,317 and $1,295
in 1998, 1997 and 1996, respectively. In addition, certain DFVC employees
participate in DFC employee stock option plans.
NOTE 12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
DFC sponsors healthcare and life insurance benefit plans for certain of
DFVC's retired employees and eligible dependents. Employees are eligible for
such benefits subject to minimum age and service requirements. Eligible
employees that retire before the normal retirement age, along with their
dependants, are entitled to benefits on a shared contribution basis.
Substantially all benefits terminate at age sixty-five. DFC maintains the right
to modify or eliminate these benefits.
The net postretirement benefit expense for active employees is based on an
actuarial valuation. For purposes of these financial statements, the net
postretirement benefit expense for retired employees of DFVC participating in
the DFC-sponsored plans was computed based on the active employees at DFVC.
Management believes that this method of allocation is reasonable.
The net postretirement benefit expense for 1998, 1997 and 1996 was not
significant.
The accumulated postretirement benefit obligation for active employees of
DFVC included in DFC-sponsored plans was approximately $665, $655 and $565 at
May 31, 1998, May 25, 1997 and May 26, 1996, respectively. The accumulated
benefit obligation for retirees of DFVC included in DFC-sponsored plans was
approximately $1,400, $1,250 and $1,000 at May 31, 1998, May 25, 1997 and May
26, 1996, respectively. The accumulated postretirement benefit obligation was
determined by an actuarial valuation which used a discount rate of 7.25% in 1998
and 8.00% in 1997 and 1996, respectively, and an assumed compensation increase
of 5.00% for each year. The health care cost trend rates were assumed to be
7.00% in 1998, gradually declining to 5.00% over four years
F-44
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
and remaining at that level thereafter. In 1997, the cost trend rates were
assumed to be 7.50%, gradually declining to 5.00% over five years. In 1996, the
cost trend rates were assumed to be 8.00%, gradually declining to 5.00% over six
years. A one percentage point increase in the assumed health care cost trend
rates would not significantly impact the accumulated postretirement benefit
obligation or the net periodic benefit expense in any of the three years ended
May 31, 1998. The short-term and long-term portions of the postretirement
benefit obligation as of May 31, 1998, May 25, 1997 and May 26, 1996 were
reflected in the accompanying consolidated balance sheets.
NOTE 13. SPECIAL CHARGE
In May 1996, DFVC adopted a plan to reduce costs, rationalize production
capacity and provide for projected severance costs which reduced fiscal 1996
income before taxes by $37,346. The implementation of the plan included the
elimination of more than 200 manufacturing and administrative positions, closure
of five manufacturing facilities and the disposition of certain assets held by
two other facilities. In fiscal 1997, DFVC recorded an additional charge of
$9,644 to provide for employee and asset relocation costs associated with plant
consolidation.
As of May 1998, DVFC had disposed of or closed five manufacturing
facilities and eliminated 413 positions. The remaining reserves are anticipated
to be used for continuing severance benefits and certain exit costs related to a
facility in the process of being closed.
The following table sets forth the activity for the special charge reserve
for 1998, 1997 and 1996 and the reserve balances at May 31, 1998, May 25, 1997
and May 26, 1996 which are included in accrued liabilities in the accompanying
balance sheets.
<TABLE>
<CAPTION>
EMPLOYEE
PLANT ASSET RELATED
CLOSURE COSTS WRITE-OFFS COSTS TOTAL
------------- ---------- -------- --------
<S> <C> <C> <C> <C>
1996 charge..................................................... $ 5,677 $ 29,450 $ 2,219 $ 37,346
Cash payments................................................... (753) -- (51) (804)
Non-cash charges................................................ -- (26,185) -- (26,185)
------------- ---------- -------- --------
Balance at May 26, 1996......................................... 4,924 3,265 2,168 10,357
Provision....................................................... 8,935 -- 709 9,644
Cash payments................................................... (9,733) -- -- (9,733)
Non-cash charges................................................ 42 (3,253) (1,264) (4,475)
------------- ---------- -------- --------
Balance at May 25, 1997......................................... 4,168 12 1,613 5,793
Cash payments................................................... (10,021) -- (1,060) (11,081)
Non-cash charges................................................ -- (5,782) -- (5,782)
Net transfers (to) from DFC..................................... 8,353 5,770 1,544 15,667
------------- ---------- -------- --------
Balance at May 31, 1998......................................... $ 2,500 $ -- $ 2,097 $ 4,597
------------- ---------- -------- --------
------------- ---------- -------- --------
</TABLE>
NOTE 14. BUSINESS ACQUISITIONS
In August 1995, DFVC purchased substantially all of the assets of a frozen
vegetable processor and distributor with annual sales of approximately $40.0
million. The acquisition was accounted for by the purchase method and the
purchase price of $21.7 million was allocated primarily to inventory and fixed
assets. The results of operations of the acquisition have been included in the
consolidated financial statements of DFVC from the acquisition date. On a pro
forma basis, the results of operations (unaudited) of the company acquired would
not have had a material effect on DFVC's net income in fiscal 1996.
F-45
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 15. COMMITMENTS AND CONTINGENCIES
DFVC is involved in litigation and in administrative proceedings and
investigations in various jurisdictions relating to certain civil,
environmental, product liability and employment matters. It is DFVC's policy to
accrue for legal and environmental matters when it is probable that a liability
has been incurred and an amount is reasonably estimable. DFVC believes that
recorded reserves are sufficient to provide for exposures meeting this
definition.
An action has been brought against DFVC for damages and lost profits
related to an alleged breach of contract. The plaintiff filed a suit claiming
that DFVC had entered into an outputs or requirements contract subject to the
Uniform Commercial Code related to the hauling of vegetable 'by-product' from
the Hartford, Michigan processing plant of DFVC and that the closure of the
Hartford, Michigan facility was not in good faith. DFVC terminated its
relationship with the plaintiff upon the closure of the Hartford facility as
part of the rationalization of production capacity discussed in Note 13. In
August 1998, a final judgment against DFVC was rendered in favor of the
plaintiff in the amount of $2.5 million. At May 31, 1998, management believes
that DFVC had adequate reserves allocated to this contingency in the special
charge reserve discussed in Note 13.
NOTE 16. SUBSEQUENT EVENT
On July 25, 1998, Agrilink Foods, Inc. ('Agrilink'), a wholly-owned
subsidiary of Pro-Fac Cooperative, Inc., acquired from DFC substantially all of
the net operating assets of DFVC for cash of approximately $400.0 million and
Agrilink's aseptic food business. Agrilink's aseptic food business has annual
sales of approximately $100.0 million. Upon completion of this transaction, DFC
will no longer actively sell products in the frozen and canned vegetables
markets.
F-46
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED AUGUST 30, 1998 AND AUGUST 24, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
AUGUST 30, AUGUST 24,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................................................ $106,440 $109,575
Costs of products sold................................................................... 81,199 89,166
Selling, general and administrative expenses............................................. 26,126 23,476
Interest expense......................................................................... 2,002 2,077
Other income............................................................................. 180 201
---------- ----------
Loss before income taxes................................................................. (2,707) (4,943)
Income tax benefit....................................................................... (1,083) (1,977)
---------- ----------
Net loss................................................................................. $ (1,624) $ (2,966)
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-47
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 30, 1998 AND AUGUST 24, 1997
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 24,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 575 $ 385
Accounts receivable, less allowance for doubtful accounts of $500 in 1998 and
1997............................................................................... 28,317 25,273
Inventories......................................................................... 166,009 154,762
Other current assets................................................................ 21,862 27,853
---------- ----------
Total Current Assets........................................................... 216,763 208,273
---------- ----------
Properties:
Property, plant and equipment, net.................................................. 131,855 138,769
Other assets............................................................................. 45,521 47,306
---------- ----------
Total Assets................................................................... $394,139 $394,348
---------- ----------
---------- ----------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................................ $ 83,224 $ 73,366
Accounts payable to related parties................................................. 27,008 11,965
Current portion of note payable to related parties.................................. 5,438 5,143
Current portion of long-term debt................................................... 344 731
---------- ----------
Total Current Liabilities...................................................... 116,014 91,205
---------- ----------
Long-term liabilities
Long-term debt...................................................................... 2,449 2,794
Note payable to related parties..................................................... 3,087 7,455
Deferred income taxes............................................................... 22,386 22,476
---------- ----------
Total Long-Term Liabilities.................................................... 27,922 32,725
---------- ----------
Equity -- Investments by and advances from DFC........................................... 250,203 270,418
---------- ----------
Total Liabilities and Equity................................................... $394,139 $394,348
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-48
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 30, 1998 AND AUGUST 24, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
AUGUST 30, AUGUST 24,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net cash (used by)/provided from operations.............................................. $ (956) $ 17,673
---------- ----------
Cash flows from investing activities:
Capital expenditures................................................................ (3,187) (4,356)
---------- ----------
Net cash used in investing activities.................................................... (3,187) (4,356)
---------- ----------
Cash flows from financing activities:
Repayment of long-term debt......................................................... (159) (182)
Net repayments of notes payable to related parties.................................. (1,054) (959)
Increase (decrease) in advances from DFC............................................ 5,630 (12,026)
---------- ----------
Net cash provided by (used for) financing activities..................................... 4,417 (13,167)
---------- ----------
Increase in cash......................................................................... 274 150
Cash -- beginning of period.............................................................. 301 235
---------- ----------
Cash -- end of period.................................................................... $ 575 $ 385
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-49
<PAGE>
<PAGE>
DEAN FOODS VEGETABLE COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Dean Foods Vegetable Company and its subsidiaries ('DFVC') is a division of
Dean Foods Company ('DFC') and is principally engaged in the processing,
distribution and sales of frozen and canned vegetables in the United States. As
part of a reorganization of DFC in fiscal 1994, the vegetable businesses within
DFC were combined with the Birds Eye Frozen Vegetable business to form DFVC. The
Birds Eye Frozen Vegetable business was acquired from the All-American Gourmet
Company, a wholly-owned subsidiary of Kraft General Foods, Inc., on December 27,
1993.
The accompanying unaudited condensed consolidated financial statements
reflect the 'carve-out' financial position, results of operations and cash flows
of DFVC and its majority owned subsidiaries for the periods presented. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The unaudited condensed consolidated financial information
included herein does not necessarily reflect what the consolidated financial
position and results of operations of DFVC would have been had it operated as a
stand alone entity during the periods covered, and may not be indicative of
future operations or financial position.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. UNAUDITED QUARTERLY INFORMATION
In the opinion of DFC, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the unaudited condensed
consolidated financial statements have been included herein. Certain information
and footnote disclosures normally included in the financial statements have been
omitted. These unaudited condensed consolidated financial statements should be
read in conjunction with DFC's Consolidated Financial Statements for the year
ended May 31, 1998.
NOTE 3. INVENTORIES
The following is an unaudited tabulation of inventories by class at August
30, 1998 and August 24, 1997.
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 24,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies..................................................... $ 12,989 $ 14,207
Materials in process........................................................... 49,017 50,329
Finished goods................................................................. 108,937 97,613
---------- ----------
170,943 162,149
Less: Excess of current cost over stated value of last-in, first-out
inventories.................................................................. 4,934 7,387
---------- ----------
Total inventories......................................................... $166,009 $154,762
---------- ----------
---------- ----------
</TABLE>
NOTE 4. SALE OF DFVC
On September 24, 1998, Agrilink Foods, Inc. ('Agrilink'), a wholly-owned
subsidiary of Pro-Fac Cooperative, Inc., acquired from DFC substantially all of
the net operating assets of DFVC for consideration of approximately $360.0
million in cash, net of the sale to DFC of Agrilink's aseptic business and the
issuance to DFC by Agrilink of a $30.0 million subordinated promissory note due
November 22, 1998.
F-50
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
PRO-FAC COOPERATIVE, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and net proceeds, of cash flows
and statements of changes in shareholders' and members' capitalization and
redeemable stock present fairly, in all material respects, the financial
position of Pro-Fac Cooperative, Inc. and its subsidiary 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 in the period ended June 27, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Cooperative's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Cooperative changed its method of accounting for spare parts in 1997.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
July 31, 1998
F-51
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND NET PROCEEDS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<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............................. (141,739) (145,214) (151,671)
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)
Interest income........................................................... 0 0 770
--------- --------- ---------
Operating income.......................................................... 55,737 50,093 19,396
Interest expense.......................................................... (30,767) (36,473) (41,998)
--------- --------- ---------
Pretax income/(loss) before dividends and allocation of net proceeds...... 24,970 13,620 (22,602)
Tax (provision)/benefit................................................... (7,840) (5,529) 13,071
--------- --------- ---------
Income/(loss) before cumulative effect of an accounting change, dividends,
and allocation of net proceeds.......................................... 17,130 8,091 (9,531)
Cumulative effect of an accounting change................................. 0 4,606 0
--------- --------- ---------
Net income/(loss).......................................... $ 17,130 $ 12,697 $ (9,531)
--------- --------- ---------
--------- --------- ---------
Allocation of net proceeds:
Net income/(loss).................................................... $ 17,130 $ 12,697 $ (9,531)
Dividends on common and preferred stock.............................. (6,328) (5,503) (8,993)
--------- --------- ---------
Net proceeds/(deficit)............................................... 10,802 7,194 (18,524)
Allocation (to)/from earned surplus.................................. (4,662) (3,661) 18,524
--------- --------- ---------
Net proceeds available to members.......................... $ 6,140 $ 3,533 $ 0
--------- --------- ---------
--------- --------- ---------
Allocation of net proceeds available to members:
Payable to members currently (25% of qualified proceeds available to
members in fiscal 1998 and 1997, respectively)..................... $ 1,535 $ 883 $ 0
Allocated to members but retained by the Cooperative:
Qualified retains............................................... 4,605 2,650 0
--------- --------- ---------
Net proceeds available to members.......................... $ 6,140 $ 3,533 $ 0
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 5,049 $ 2,838
Accounts receivable, trade, less allowances for bad
debts of $774 and $970, respectively.............. 55,046 48,661
Accounts receivable, other......................... 3,575 2,795
Current deferred tax assets........................ 4,849 12,312
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....................... 233,492 197,045
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........................................... 12,234 7,700
-------- --------
Total assets............................... $566,708 $546,677
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' AND MEMBERS'
CAPITALIZATION
Current liabilities:
Current portion of obligations under capital
leases............................................ $ 256 $ 558
Current portion of long-term debt.................. 8,071 8,075
Accounts payable................................... 70,158 49,256
Income taxes payable............................... 4,046 5,672
Accrued interest................................... 8,559 8,663
Accrued employee compensation...................... 8,598 11,063
Other accrued expenses............................. 19,065 21,956
Dividends payable.................................. 0 61
Amounts due members................................ 20,636 15,791
-------- --------
Total current liabilities.................. 139,389 121,095
Obligations under capital leases....................... 503 817
Long-term debt......................................... 69,937 69,829
Senior subordinated notes.............................. 160,000 160,000
Deferred income tax liabilities........................ 32,457 39,591
Other non-current liabilities.......................... 23,053 22,682
-------- --------
Total liabilities.......................... 425,339 414,014
-------- --------
Commitments and contingencies
Class B Cumulative Redeemable Preferred Stock,
liquidation preference $10 per share, authorized
500,000 shares; issued and outstanding 27,043 and
31,435, respectively................................. 270 315
Common stock, par value $5, authorized -- 5,000,000
shares
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
--------- ---------
<S> <C> <C> <C> <C>
Shares issued............. 1,825,863 1,788,815
Shares subscribed......... 160,629 54,557
--------- ---------
Total subscribed
and issued...... 1,986,492 1,843,372
Less subscriptions
receivable in
installments............ (160,629) (54,557)
--------- ---------
Total issued and
outstanding..... 1,825,863 1,788,815 9,129 8,944
--------- ---------
--------- ---------
Shareholders' and members'
capitalization:
Retained earnings allocated to members............. 29,765 31,920
Non-qualified allocation to members................ 2,660 2,960
Minimum pension liability adjustment............... (608) 0
Non-cumulative Preferred Stock, par value $25,
authorized -- 5,000,000 shares; issued and
outstanding -- 45,001 and 53,797, respectively.... 1,125 1,345
Class A Cumulative Preferred Stock, liquidation
preference $25 per share; authorized 49,500,000
shares; issued and outstanding 3,503,199 and
3,215,709, respectively........................... 87,580 80,393
Earned surplus..................................... 11,448 6,786
-------- --------
Total shareholders' and members'
capitalization............................ 131,970 123,404
-------- --------
Total liabilities and capitalization....... $566,708 $546,677
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss)......................................................... $ 17,130 $ 12,697 $ (9,531)
Amount payable to members currently....................................... (1,535) (883) 0
Adjustments to reconcile net income/(loss) to net cash 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............................... 752 4,557 (8,212)
Provision for losses on accounts receivable.......................... 0 445 528
Equity in undistributed earnings of the Bank......................... (715) (1,143) (1,532)
Change in assets and liabilities:
Accounts receivable............................................. (6,762) (3,983) 13,482
Inventories..................................................... (25,654) (1,636) 33,347
Income taxes payable............................................ (1,626) 2,272 12,395
Accounts payable and accrued expenses........................... 15,613 (922) (15,027)
Amounts due to members.......................................... 4,845 7,033 (5,935)
Other assets and liabilities.................................... (11,360) 530 (1,385)
-------- --------- --------
Net cash provided by operating activities...................................... 13,078 38,368 54,304
-------- --------- --------
Cash flows from investing activities:
Purchase of property, plant, and equipment................................ (14,056) (13,691) (19,453)
Proceeds from disposals................................................... 12,794 68,716 4,408
Proceeds from sales of idle facilities.................................... 0 4,465 597
Proceeds from investment in Bank.......................................... 1,611 315 0
Cash paid for acquisition................................................. (7,423) 0 (5,785)
-------- --------- --------
Net cash (used in)/provided by investing activities............................ (7,074) 59,805 (20,233)
-------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................................. 11,180 0 5,400
Payments on long-term debt................................................ (8,076) (97,854) (25,056)
Payments on capital leases................................................ (616) (503) (825)
Issuance of stock, net of repurchases..................................... 140 (260) 124
Cash paid in lieu of fractional shares.................................... (9) 0 (6)
Cash portion of non-qualified conversion.................................. (84) (88) (122)
Cash dividends paid....................................................... (6,328) (5,503) (8,865)
-------- --------- --------
Net cash used in financing activities.......................................... (3,793) (104,208) (29,350)
-------- --------- --------
Net change in cash and cash equivalents........................................ 2,211 (6,035) 4,721
Cash and cash equivalents at beginning of period............................... 2,838 8,873 4,152
-------- --------- --------
Cash and cash equivalents at end of period..................................... $ 5,049 $ 2,838 $ 8,873
-------- --------- --------
-------- --------- --------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)................................. $ 30,319 $ 36,907 $ 41,508
-------- --------- --------
-------- --------- --------
Income taxes, net.................................................... $ 8,714 $ (1,300) $ (9,206)
-------- --------- --------
-------- --------- --------
</TABLE>
(table continued on next page)
F-54
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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
-------- --------- --------
-------- --------- --------
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)
-------- --------- --------
Cash paid for acquisition....................................... $ 0 $ 0 $ 5,785
-------- --------- --------
-------- --------- --------
Supplemental schedule of non-cash investing and financing activities:
Conversion of retains to preferred stock.................................. $ 6,967 $ 3,275 $ 2,379
-------- --------- --------
-------- --------- --------
Net proceeds allocated to members but retained by the Cooperative......... $ 4,605 $ 2,650 $ 0
-------- --------- --------
-------- --------- --------
Capital lease obligations incurred........................................ $ 0 $ 206 $ 113
-------- --------- --------
-------- --------- --------
Notes from Nalley Canada Ltd. forgiven in acquisition..................... $ 0 $ 4,986 $ 0
-------- --------- --------
-------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
AND MEMBERS' CAPITALIZATION AND REDEEMABLE STOCK
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Retained earnings allocated to members:
Qualified retains:
Balance at beginning of period.......................................... $ 31,920 $ 32,318 $ 34,250
Net proceeds allocated to members....................................... 4,605 2,650 0
Converted to preferred stock............................................ (6,751) (3,048) (1,926)
Cash paid in lieu of fractional shares.................................. (9) 0 (6)
-------- -------- --------
Balance at end of period................................................ 29,765 31,920 32,318
-------- -------- --------
Non-qualified retains:
Balance at beginning of period.......................................... 2,960 3,275 3,851
Distribution of 1992, 1991, and 1990 non-qualified retains:
Cash paid.......................................................... (84) (88) (122)
Converted to preferred stock....................................... (216) (227) (454)
-------- -------- --------
Balance at end of period................................................ 2,660 2,960 3,275
-------- -------- --------
Total retains allocated to members at end of period.......................... 32,425 34,880 35,593
-------- -------- --------
Non-cumulative preferred stock:
Balance at beginning of period.......................................... 1,345 2,645 76,083
Conversion to cumulative preferred stock................................ (220) (1,300) (73,438)
-------- -------- --------
Balance at end of period................................................ 1,125 1,345 2,645
-------- -------- --------
Cumulative preferred stock:
Balance at beginning of period.......................................... 80,393 75,818 0
Converted from non-cumulative preferred stock........................... 220 1,300 73,438
Converted from non-qualified retains.................................... 216 227 454
Converted from qualified retains........................................ 6,751 3,048 1,926
-------- -------- --------
Balance at end of period................................................ 87,580 80,393 75,818
-------- -------- --------
Earned surplus (unallocated and apportioned):
Balance at beginning of period.......................................... 6,786 3,125 21,649
Allocation to/(from) earned surplus..................................... 4,662 3,661 (18,524)
Minimum pension liability adjustment.................................... (608) 0 0
-------- -------- --------
Balance at end of period................................................ 10,840 6,786 3,125
-------- -------- --------
Total shareholders' and members' capitalization.............................. $131,970 $123,404 $117,181
-------- -------- --------
-------- -------- --------
Redeemable stock:
Class B cumulative preferred stock:
Balance at beginning of period.......................................... $ 315 $ 334 $ 0
Issued/(repurchased), net............................................... (45) (19) 334
-------- -------- --------
Balance at end of period................................................ $ 270 $ 315 $ 334
-------- -------- --------
-------- -------- --------
Common stock:
Balance at beginning of period.......................................... $ 8,944 $ 9,185 $ 9,395
(Repurchased)/issued, net............................................... 185 (241) (210)
-------- -------- --------
Balance at end of period................................................ $ 9,129 $ 8,944 $ 9,185
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Pro-Fac Cooperative, Inc. ('Pro-Fac' or the 'Cooperative') is an
agricultural cooperative which processes and markets crops grown by its members
through its wholly-owned subsidiary Agrilink Foods, Inc. ('Agrilink' or the
'Company').
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 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 Pro-Fac ends on the last Saturday in June. Fiscal 1998
and 1997 each comprised 52 weeks and fiscal 1996 comprised 53 weeks.
CONSOLIDATION
The consolidated financial statements include the Cooperative and its
wholly-owned subsidiary, Agrilink, 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 income taxes of $1.1 million) was $4.6 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 historical 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 27, 1998
or June 28, 1997.
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.
F-57
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Cooperative's investment in the Bank in fiscal years 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 costs 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.
Lease arrangements are capitalized when such leases convey substantially
all of the risks and benefits incidental to ownership. Capital leases are
amortized over either the lease term or the life of the related assets,
depending upon available purchase options and lease renewal features.
OTHER ASSETS
Other assets are primarily comprised of debt issuance costs. The 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 non-patronage income for financial reporting
purposes. Deferred income taxes resulting from temporary differences between
financial reporting and tax reporting as well as from the issuance of
non-qualified retains are appropriately classified in the balance sheet.
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
F-58
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 earnings are not
distributed to members in proportion to their common stock holdings. Earnings
(representing those earnings derived from patronage-sourced business) are
distributed to members in proportion to the dollar value of deliveries under
Pro-Fac contracts rather than based on the number of shares of common stock
held.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that pertain to current operations are expensed
or capitalized consistent with the Company's capitalization policy. Expenditures
that result from the remediation of an existing condition caused by past
operations that do not contribute to current or future revenues are expensed.
Liabilities are recorded when remedial activities are probable, and the cost can
be reasonably estimated.
ADVERTISING
Production costs of commercials and programming are charged to operations
in the year first aired. The cost of other advertising promotion and marketing
programs are charged in the year incurred. Advertising expense incurred in
fiscal 1998, 1997, and 1996 amounted to $9,878,000, $8,736,000, and $9,831,000,
respectively.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Cooperative in
estimating the 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.
F-59
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Investments
The carrying value of the investment in the Bank 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.
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 AGRILINK
Effective November 3, 1994, Pro-Fac acquired Agrilink.
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, a seasonal loan facility, and a
letter-of-credit facility. All obligations under the Notes and the Credit
Agreement have been guaranteed by Pro-Fac.
The contractual relationship between Pro-Fac and the Company is defined in
the Pro-Fac Marketing and Facilitation Agreement (the '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, Agrilink 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 of Agrilink. In addition, in any year in which the
Company has earnings on products which were processed from crops supplied by
Pro-Fac ('Pro-Fac Products'), the Company pays to Pro-Fac up to 90 percent of
such earnings, but in no case more than 50 percent of all pretax earnings
(before dividing with Pro-Fac) of the Company. In years in which the Company has
losses on Pro-Fac Products, the Company reduces the CMV it would otherwise pay
to Pro-Fac by up to 90 percent of such losses, but in no case by more than 50
percent of all pretax losses (before dividing with Pro-Fac) of the Company.
Additional patronage income is paid to Pro-Fac for services provided to
Agrilink, including the provision of a long-term, stable crop supply, favorable
payment terms for crops and the sharing of risks in losses of certain operations
of the business. For 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).
F-60
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 of
approximately $0.6 million and $0.9 million for a covenant not to compete were
received 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:
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Net sales.............................................. $ 27,620
Gross profit........................................... $ 7,439
Operating income....................................... $ 4,411
Net income............................................. $ 3,786
</TABLE>
F-61
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
1998
----------------------
(DOLLARS IN THOUSANDS)
<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 will manage
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 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.
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.
F-62
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 from this sale 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.
F-63
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<CAPTION>
JUNE 27, 1998 JUNE 28, 1997
------------------------------ ------------------------------
OWNED LEASED OWNED LEASED
ASSETS ASSETS TOTAL ASSETS ASSETS TOTAL
-------- ------ -------- -------- ------ --------
(DOLLARS IN THOUSANDS)
<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 leases(1)............. $ 759 $1,375
Less current portion............................ (256) (558)
------ ------
Long-term portion............................... $ 503 $ 817
------ ------
------ ------
</TABLE>
- ------------
(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.
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>
<CAPTION>
TOTAL
FISCAL YEAR ENDING LAST CAPITAL OPERATING FUTURE
SATURDAY IN JUNE LEASES LEASES COMMITMENT
- ------------------------------------------------------------------------------ ------- --------- ----------
(DOLLARS IN THOUSANDS)
<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.
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
F-64
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 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
Short-term borrowings for the three years ended June 27, 1998 were as
follows:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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 $34,300 $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.
F-65
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$71.8 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 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
F-66
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 cumulative effect of an accounting change include
the following:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal --
Current............................................ $ 6,214 $ 658 $ (4,884)
Deferred........................................... 1,201 4,409 (7,349)
----------- ----------- -----------
7,415 5,067 (12,233)
State and foreign --
Current............................................ 874 314 25
Deferred........................................... (449) 148 (863)
----------- ----------- -----------
425 462 (838)
----------- ----------- -----------
$ 7,840 $ 5,529 $ (13,071)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
A reconciliation of the consolidated effective tax rate to the amount
computed by applying the federal income tax rate to income before taxes and
cumulative effect of an accounting change, is as follows:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision/(benefit) at 35% in 1998,
34% in 1997 and 1996................................................. $8,740 $4,631 $ (7,697)
State income taxes, net of federal income tax effect................... 571 484 (834)
Allocation to members.................................................. (2,149) (230) 0
Goodwill amortization.................................................. 961 1,041 784
Dividend received deduction............................................ (305) (472) (521)
Other (net)............................................................ 22 75 (95)
-------- -------- --------
Subtotal............................................................... 7,840 5,529 (8,363)
Tax benefits resulting from prior years' exempt status................. 0 0 (4,708)
-------- -------- --------
Total............................................................. $7,840 $5,529 $(13,071)
-------- -------- --------
-------- -------- --------
Effective Tax Rate..................................................... 31.4% 40.6% (57.7)%
-------- -------- --------
-------- -------- --------
</TABLE>
F-67
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated deferred tax (liabilities)/assets consist of the following
at June 27, 1998 and June 28, 1997:
<TABLE>
<CAPTION>
FISCAL FISCAL
1998 1997
-------- --------
<S> <C> <C>
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:
Non-qualified retains............................................ 904 1,006
Inventory........................................................ 2,089 2,322
Accounts receivable.............................................. 0 377
Capital and operating loss carryforwards......................... 6,573 10,159
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 3,315
-------- --------
26,357 32,720
-------- --------
Net deferred liabilities......................................... (22,058) (21,067)
Valuation allowance.............................................. (5,550) (6,212)
-------- --------
$(27,608) $(27,279)
-------- --------
-------- --------
</TABLE>
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 the 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
F-68
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a favorable ruling from the Internal Revenue Service approving the change in tax
treatment effective for fiscal 1996. This ruling also confirmed that the change
in Agrilink tax status would have no affect on Pro-Fac's ongoing treatment as a
cooperative under Subchapter T of the Internal Revenue Code of 1986.
In August of 1993, the Internal Revenue Service issued a determination
letter which concluded that the Cooperative was exempt from federal income tax
to the extent provided by Section 521 of the Internal Revenue Code, 'Exemption
of Farmers' Cooperative from Tax.' Unlike a nonexempt cooperative, a tax-exempt
cooperative is entitled to deduct cash dividends it pays on its capital stock in
computing its taxable income. The exempt status was retroactive to fiscal year
1986. In conjunction with this ruling, the Cooperative had filed for tax refunds
for fiscal years 1986 to 1992 in the amount of approximately $8.8 million and
interest payments of approximately $5.2 million. Accordingly, a refund amount of
$10.1 million for tax and interest have been reflected in the financial
statements of the Cooperative as of June 24, 1995. In addition, refund amounts
of $3.9 million for tax and interest have been reflected in the financial
statement of the Cooperative as of June 29, 1996. These refunds and interest for
the fiscal years 1986 to 1991 were received in March of 1996. The refund and
interest for fiscal year 1992 was received in June of 1997.
As a result of the acquisition of Agrilink Foods, the Cooperative's tax
exempt status has ceased.
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.
F-69
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension cost for fiscal years ended 1998, 1997, and 1996 includes the
following components:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
FISCAL FISCAL FISCAL
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <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 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%
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 benefit cost.............................................. $ 337 $ (149) $ 2,699
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-70
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<CAPTION>
SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN EXCESS BENEFIT RETIREMENT PLAN
--------------------------------------- ---------------------------------------
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
1998 1997 1996 1998 1997 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:
<TABLE>
<CAPTION>
OTHER BENEFITS
-----------------------------------------
FISCAL FISCAL FISCAL
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<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
</TABLE>
F-71
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OTHER BENEFITS
-----------------------------------------
FISCAL FISCAL FISCAL
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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>
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>
<CAPTION>
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' or the 'Plan'), 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
F-72
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. COMMON STOCK AND CAPITALIZATION
COMMON STOCK
The common stock purchased by members is related to the crop delivery of
each member. Regardless of the number of shares held, each member has one vote.
As of June 27, 1998, there were 634 holders of the common stock. Common stock
may be transferred to another grower only with approval of the Pro-Fac Board of
Directors. If a member ceases to be a producer of agricultural products which he
markets through the Cooperative, then he must sell his common stock to another
grower acceptable to the Cooperative. If no such grower is available to purchase
the stock, then the member must provide one year's advance written notice of his
intent to withdraw, after which the Cooperative must purchase his common stock
at par value. There is no established public trading market for the common stock
of the Cooperative.
In fiscal 1998 and fiscal 1996, dividends on common stock were paid at a
rate of 5.0 percent. No dividends on common stock were paid in fiscal 1997.
At June 27, 1998 and June 28, 1997, there were outstanding subscriptions,
at par value, for 160,629 and 54,557 shares of common stock, respectively. These
shares are issued as subscription payments are received.
PREFERRED STOCK
Except for the Class B Cumulative Preferred Stock all preferred stock
originated from the conversion at par value of retains. This stock is
non-voting, except that the holders of preferred and common stock would be
entitled to vote as separate classes on certain matters which would affect or
subordinate the rights of the class.
At the Cooperative's annual meeting in January 1995, shareholders approved
an amendment to the certificate of incorporation to authorize the creation of
five additional classes of preferred stock.
On August 23, 1995, the Cooperative commenced an offer to exchange one
share of its Class A Cumulative Preferred Stock (liquidation preference $25 per
share) for each of its existing Non-cumulative Preferred Stock (liquidation
preference $25 per share). Pro-Fac's Class A Cumulative Preferred Stock is
listed under the symbol PFACP on the National Market System of the National
Association of Securities Dealers Automated Quotation System ('Nasdaq'). As of
June 27, 1998, the number of Class A Cumulative Preferred Stock record holders
was 1,841.
F-73
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to June 27, 1998, the Cooperative declared a cash dividend of
$1.50 per share on the Non-cumulative Preferred Stock and $.43 per share on the
cumulative preferred stock. These dividends amounted to $1.6 million.
In June 1995, the Board approved, pursuant to its authority under the
Charter Amendment the creation of a new series of preferred stock, to be
designated the 'Class B, Series 1, 10 percent cumulative preferred stock' (the
'Class B Stock'). These shares will be issued to employees of Agrilink pursuant
to an Employee Stock Purchase Plan. At least once a year Pro-Fac plans to offer
to repurchase at least 5 percent of the outstanding shares of Class B Stock.
The dividend rates for the preferred stock are as follows:
<TABLE>
<S> <C>
Non-cumulative preferred...................... $1.50 per share paid annually at the
discretion of the Board.
Class A Cumulative Preferred.................. $1.72 per share annually, paid in four
quarterly installments of $.43 per share.
Class B Cumulative Preferred.................. $1.00 per share paid annually.
</TABLE>
Because dividends on the Non-cumulative Preferred Stock are payable
annually and dividends on the Cumulative Preferred Stock are paid quarterly, the
exchange of Non-cumulative Preferred Stock for Cumulative Preferred Stock on
October 10, 1995 resulted in the payment of 1 3/4 years of dividends to the
holders of exchanged shares in fiscal 1996.
RETAINED EARNINGS ALLOCATED TO MEMBERS ('RETAINS')
Retains arise from patronage income and are allocated to the accounts of
members within 8.5 months of the end of each fiscal year.
Qualified Retains
Qualified retains are freely transferable and normally mature into
preferred stock in December of the fifth year after allocation. Qualified
retains are taxable income to the member in the year the allocation is made.
Non-Qualified Retains
Non-qualified retains may not be sold or purchased. The present intention
of the Board of Directors is that the non-qualified retains allocation be
redeemed in five years through partial payment in cash and issuance of preferred
stock. The non-qualified retains will not be taxable to the member until the
year of redemption. Non-qualified retains may be subject to later adjustment if
such is deemed necessary by the Board of Directors because of events which may
occur after the retains were allocated.
Beginning with the retains issued in 1995, the maturity of all future
retains will result in the issuance of Class A Cumulative Preferred Stock.
EARNED SURPLUS (UNALLOCATED AND APPORTIONED)
Earned surplus consists of accumulated income after distribution of
earnings allocated to members, dividends and after state and federal income
taxes. Earned surplus is reinvested in the business in the same fashion as
retains.
F-74
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. 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
report 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.
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.
F-75
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS AND NET PROCEEDS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................ $ 376,703 $ 202,672 $ 559,282 $ 379,069
Cost of sales........................................ (254,563) (140,092) (390,445) (270,840)
------------ ------------ ------------ ------------
Gross profit......................................... 122,140 62,580 168,837 108,229
Selling, administrative, and general expense......... (92,118) (41,462) (127,001) (74,220)
Gain on sale of aseptic operations................... 0 0 64,202 0
Income from Great Lakes Kraut Company................ 1,053 960 1,689 960
------------ ------------ ------------ ------------
Operating income..................................... 31,075 22,078 107,727 34,969
Interest expense..................................... (18,613) (7,971) (26,949) (15,741)
Amortization of debt issue costs associated with the
Bridge Facility.................................... (5,500) 0 (5,500) 0
------------ ------------ ------------ ------------
Income before taxes, dividends, allocation of net
proceeds, and extraordinary item................... 6,962 14,107 75,278 19,228
Tax provision........................................ (1,893) (3,681) (26,900) (5,503)
------------ ------------ ------------ ------------
Income before dividends, allocation of net proceeds,
and extraordinary item............................. 5,069 10,426 48,378 13,725
Extraordinary item relating to the early
extinguishment of debt (net of income taxes)....... 0 0 (18,024) 0
------------ ------------ ------------ ------------
Net income........................................... $ 5,069 $ 10,426 $ 30,354 $ 13,725
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Allocation of net proceeds:
Net income...................................... $ 5,069 $ 10,426 $ 30,354 $ 13,725
Dividends on common and preferred stock......... (1,524) (1,403) (3,502) (3,253)
------------ ------------ ------------ ------------
Net proceeds.................................... 3,545 9,023 26,852 10,472
Allocation to earned surplus.................... (1,083) (3,373) (22,385) (4,161)
------------ ------------ ------------ ------------
Net proceeds available to members............... $ 2,462 $ 5,650 $ 4,467 $ 6,311
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net proceeds available to members:
Estimated cash payment.......................... $ 616 $ 1,413 $ 1,117 $ 1,578
Qualified retains............................... 1,846 4,237 3,350 4,733
------------ ------------ ------------ ------------
Net proceeds available to members............... $ 2,462 $ 5,650 $ 4,467 $ 6,311
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-76
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 26, JUNE 27, DECEMBER 27,
1998 1998 1997
------------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 18,434 $ 5,049 $ 6,678
Accounts receivable trade, net............................................... 103,991 55,046 59,209
Accounts receivable, other................................................... 19,732 3,575 2,637
Current deferred tax assets.................................................. 13,336 4,849 12,312
Inventories --
Finished goods.......................................................... 323,984 111,153 138,318
Raw materials and supplies.............................................. 49,678 30,433 30,277
------------- ---------- -------------
Total inventories.................................................. 373,662 141,586 168,595
------------- ---------- -------------
Current investment in CoBank................................................. 665 1,994 316
Prepaid manufacturing expense................................................ 292 8,404 283
Prepaid expenses and other current assets.................................... 19,122 12,989 12,519
------------- ---------- -------------
Total current assets............................................... 549,234 233,492 262,549
Investment in CoBank.............................................................. 22,377 22,377 24,320
Investment in Great Lakes Kraut Company........................................... 8,274 6,584 7,545
Property, plant and equipment, net................................................ 312,344 194,615 208,102
Assets held for sale at net realizable value...................................... 920 2,662 3,453
Goodwill and other intangible assets, net......................................... 346,267 94,744 94,551
Other assets...................................................................... 23,659 12,234 13,928
------------- ---------- -------------
Total assets....................................................... $ 1,263,075 $ 566,708 $ 614,448
------------- ---------- -------------
------------- ---------- -------------
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Notes payable................................................................ $ 85,000 $ 0 $ 58,700
Current portion of obligations under capital leases.......................... 256 256 558
Current portion of long-term debt............................................ 5,100 8,071 8,071
Accounts payable............................................................. 102,508 70,158 42,589
Income taxes payable......................................................... 8,911 4,046 7,287
Accrued interest............................................................. 4,074 8,559 8,717
Accrued employee compensation................................................ 12,703 8,598 9,265
Other accrued expenses....................................................... 90,479 19,013 26,269
Dividends payable............................................................ 17 52 20
Amount due members........................................................... 31,550 20,636 22,345
------------- ---------- -------------
Total current liabilities.......................................... 340,598 139,389 183,821
Obligations under capital leases.................................................. 503 503 817
Long-term debt.................................................................... 457,200 69,937 66,188
Senior subordinated notes......................................................... 200,015 160,000 160,000
Subordinated promissory note...................................................... 30,407 0 0
Deferred income tax liabilities................................................... 34,644 32,457 39,591
Other non-current liabilities..................................................... 32,443 23,053 22,661
------------- ---------- -------------
Total liabilities.................................................. 1,095,810 425,339 473,078
------------- ---------- -------------
(table continued on next page)
</TABLE>
F-77
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
DECEMBER 26, JUNE 27, DECEMBER 27,
1998 1998 1997
------------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commitments and contingencies
Class B cumulative redeemable preferred stock; liquidation preference $10 per
share, authorized -- 500,000 shares; issued and outstanding 28,634, 27,043, and
33,053 shares, respectively..................................................... 286 270 331
DECEMBER 26, JUNE 27, DECEMBER 27,
1998 1998 1997
------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Common stock, par value $5,
authorized -- 5,000,000 shares
Shares issued...................... 1,853,481 1,825,863 1,749,647
Shares subscribed.................. 858,955 160,629 44,741
------------- ---------- -------------
Total subscribed and
issued............ 2,712,436 1,986,492 1,794,388
Less subscriptions receivable in
installments..................... (858,955) (160,629) (44,741)
------------- ---------- -------------
Total issued and
outstanding....... 1,853,481 1,825,863 1,749,647 9,267 9,129 8,748
------------- ---------- -------------
------------- ---------- -------------
Shareholders' and members' capitalization:
Retained earnings allocated to members....................................... 33,122 29,765 36,646
Non-qualified allocation to members.......................................... 2,660 2,660 2,960
Accumulated other comprehensive income:
Minimum pension liability adjustment.................................... (608) (608) 0
Non-cumulative preferred stock, par value $25; authorized -- 5,000,000
shares; issued and outstanding -- 45,001, 45,001, and 53,797,
respectively............................................................... 1,125 1,125 1,345
Class A cumulative preferred stock, liquidation preference $25 per share;
authorized -- 49,500,000 shares; issued and outstanding 3,503,199,
3,503,199, and 3,215,709 shares, respectively.............................. 87,580 87,580 80,393
Earned surplus............................................................... 33,833 11,448 10,947
------------- ---------- -------------
Total shareholders' and members' capitalization.................... 157,712 131,970 132,291
------------- ---------- -------------
Total liabilities and capitalization............................... $ 1,263,075 $ 566,708 $ 614,448
------------- ---------- -------------
------------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-78
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 30,354 $ 13,725
Amounts payable to members..................................................... (1,117) (1,578)
Adjustments to reconcile net income to net cash used in operating activities:
Gain on the sale of the aseptic operations................................ (64,202) 0
Extraordinary item relating to the early extinguishment of debt........... 18,024 0
Loss on disposal of assets................................................ 353 0
Amortization of goodwill and other intangibles............................ 5,136 1,956
Amortization of debt issue costs (including fees associated with the
Bridge Facility)........................................................ 6,277 400
Depreciation.............................................................. 13,484 9,102
Equity in undistributed earnings of Great Lakes Kraut Company............. (1,689) (960)
Change in assets and liabilities:
Accounts receivable.................................................. (40,481) (10,390)
Inventories.......................................................... (51,538) (55,865)
Accounts payable and other accrued expenses.......................... (19,504) 3,905
Amounts due to members............................................... 10,914 6,554
Income taxes payable................................................. 15,328 1,615
Other assets and liabilities......................................... (693) (13,456)
------------ ------------
Net cash used in operating activities............................................... (79,354) (44,992)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment...................................... (8,561) (6,803)
Proceeds from disposals........................................................ 84,427 362
Proceeds from investment in CoBank............................................. 1,329 631
Cash paid for acquisitions..................................................... (445,918) 0
------------ ------------
Net cash used in investing activities............................................... (368,723) (5,810)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of short-term debt...................................... 177,000 58,700
Payments on short-term debt.................................................... (92,000) 0
Proceeds from issuance of long-term debt....................................... 677,507 1,700
Proceeds from Great Lakes Kraut Company........................................ 0 3,000
Payments on long-term debt..................................................... (278,873) (5,345)
Cash paid for debt issuance costs.............................................. (18,824) 0
Issuances/(repurchases) of common stock........................................ 154 (180)
Cash dividends paid............................................................ (3,502) (3,233)
------------ ------------
Net cash provided by financing activities........................................... 461,462 54,642
------------ ------------
Net change in cash and cash equivalents............................................. 13,385 3,840
Cash and cash equivalents at beginning of period.................................... 5,049 2,838
------------ ------------
Cash and cash equivalents at end of period.......................................... $ 18,434 $ 6,678
------------ ------------
------------ ------------
</TABLE>
(table continued on next page)
F-79
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Acquisition of Dean Foods Vegetable Company
Accounts receivable....................................................... $ 24,201
Inventories............................................................... 190,501
Prepaid expenses and other current assets................................. 1,948
Current deferred tax asset................................................ 6,300
Property, plant and equipment............................................. 131,648
Assets held for sale...................................................... 49
Goodwill and other intangible assets...................................... 253,593
Accounts payable.......................................................... (40,840)
Accrued employee compensation............................................. (8,437)
Other accrued expenses.................................................... (80,153)
Long-term debt............................................................ (2,752)
Subordinated promissory note.............................................. (30,000)
Other assets and liabilities, net......................................... (2,453)
------------
$ 443,605
------------
------------
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
------------
------------
Investment in Great Lakes Kraut Company
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 unaudited consolidated
financial statements.
F-80
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED 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. The following summarizes the significant
accounting policies applied in the preparation of the accompanying financial
statements. These financial statements should be read in conjunction with the
financial statements and accompanying notes for the fiscal year ended June 27,
1998 beginning on page F-51.
CONSOLIDATION
The consolidated financial statements include the Cooperative and its
wholly-owned subsidiary, Agrilink Foods, Inc. ('Agrilink' or 'the Company')
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.
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.
F-81
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
ACQUISITION OF 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 '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. In order to
exercise that election, the Company will pay $13.2 million to Dean Foods. The
Company intends to exercise that election.
After the Acquisition, DFVC was merged into the Company, and Dean Foods
Vegetable Company became a business unit of the Company known as Agrilink Foods
Vegetable Company ('AFVC'). DFVC has been one of the leading processors of
vegetables in the United States, selling its products under brand names such as
Birds Eye, Freshlike and Veg-All, and 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 will be recorded at their respective fair values. The
valuations and other studies which will provide the basis for such an allocation
have not progressed to a stage where there is sufficient information to make a
final allocation in the accompanying financial statements. Accordingly, the
purchase accounting adjustments made in the accompanying financial statements
are preliminary. Once an allocation is determined, in accordance with generally
accepted accounting principles, any remaining excess of purchase cost over net
assets acquired will be adjusted through goodwill.
The following unaudited pro forma financial information presents a summary
of consolidated results of operations of the Cooperative and the acquired Dean
Foods Vegetable Company as if the acquisition had occurred at the beginning of
the 1998 fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------
DECEMBER 26, 1998 DECEMBER 27, 1997
----------------- -----------------
<S> <C> <C>
Net sales....................................................... $ 656.3 $ 622.2
Income before extraordinary items............................... $ 33.2 $ (.5)
Net income...................................................... $ 15.2 $ (.5)
</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 12.25 percent Senior
Subordinated Notes due 2005 (the 'Old Notes')
F-82
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 due 2008'). Debt issue costs of $5.5 million associated with
the Bridge Facility were expensed during the quarter ended December 26, 1998.
J.A. HOPAY DISTRIBUTING CO, INC.
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, one of the Company's business units within its Snack Foods
Group. 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 AGRILINK
The contractual relationship between Agrilink and 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, up to 90 percent of such earnings, but in no case more than 50
percent of all pretax earnings (before dividing with Pro-Fac) of the Company. In
years in which the Company has losses on Pro-Fac Products, the Company reduces
the CMV it would otherwise pay to Pro-Fac by up to 90 percent of such losses,
but in no case by
F-83
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 4. DEBT
NEW CREDIT FACILITY
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 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 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.
Beginning with the reporting period ending March 31, 1999, the applicable
margins for the New Credit Facility will be subject to possible reductions based
on the ratio of consolidated debt to earnings before interest, taxes,
depreciation and amortization ('EBITDA') (each as defined in the New 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 will be subject to the following amortization
schedule.
F-84
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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 $ 0.2 $ 0.2 $ 0.4
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.................................. 12.5 0.4 0.4 13.3
2005.................................. 0.0 197.8 0.4 198.2
2006.................................. 0.0 0.0 202.4 202.4
----------- ----------- ----------- ------
$50.0 $ 200.0 $ 205.0 $455.0
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility.
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 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 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. 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.
11 7/8 PERCENT SENIOR SUBORDINATED NOTES (DUE 2008)
To extinguish the Subordinated Bridge Facility, the Company issued Senior
Subordinated Notes ('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.
F-85
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
SUBORDINATED PROMISSORY NOTE
As partial consideration for the Acquisition, the Company issued to Dean
Foods the 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. In December 1998, the Company
satisfied this requirement through the issuance of an additional promissory note
for $0.4 million. 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.
12 1/4 PERCENT SENIOR SUBORDINATED NOTES (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.
F-86
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. OTHER MATTERS
ERIN'S GOURMET POPCORN
On January 5, 1999, the Company announced that it acquired the assets of
Erin's Gourmet Popcorn, a Seattle-based, ready-to-eat popcorn manufacturer. The
business was merged into Agrilink's Auburn, Washington snack company, Tim's
Cascade Chips. The acquisition was accounted for as a purchase. The purchase
price was approximately $0.6 million.
AGRIPAC, INC.
On December 15, the Company and Pro-Fac announced that Pro-Fac has entered
into a letter of intent for Pro-Fac to acquire the frozen vegetable business of
Agripac, Inc. ('Agripac'), an Oregon cooperative. Agripac, which processes
frozen and canned vegetables in the Northwest, reported approximately $180
million in aggregate sales for fiscal 1998 (including both frozen and canned
vegetables). Agripac operates eight plant facilities located in the states of
Oregon and Washington and employs approximately 600 people. It currently sources
from approximately 190 growers in the Northwest.
PF Acquisition II, Inc. ('PF Acquisition') was formed in January 1999 under
the corporation laws of New York State. It is a wholly owned subsidiary of
Pro-Fac. The PF Acquisition was formed to acquire substantially all of the
assets of Agripac related to its frozen vegetable (and not canned) processing
business for a purchase price of approximately $90 million. In connection with,
and as a condition to consummation of, the acquisition, PF Acquisition must
enter into a sufficient number of crop delivery contracts with Agripac growers
acceptable to PF Acquisition. On January 4, 1999, Agripac filed a voluntary
petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the District of Oregon. On January 22, 1999, Agripac, as debtor-in
possession, filed a motion with the Bankruptcy Court for authority to sell
substantially all of its assets relating to its frozen food packaging business
to PF Acquisition. Neither the Company nor Pro-Fac will loan or otherwise
contribute any funds to PF Acquisition, or guarantee or otherwise secure with
the Company's or Pro-Fac's assets the indebtedness of PF Acquisition, in
connection with the acquisition. It is anticipated that the Company will enter
into an administrative services agreement with PF Acquisition to provide it with
certain administrative support in exchange for a management fee.
The closing of the acquisition is subject to numerous conditions, including
the Bankruptcy Court's approval of the proposed sale to PF Acquisition,
Agripac's existing lenders providing sufficient financing for the acquisition
and for working capital, finalization of agreements, board approval, regulatory
approval, and due diligence.
J.M. SMUCKER COMPANY TO PURCHASE ADAMS BRAND PEANUT BUTTER BUSINESS
On January 29, 1999, the Company announced that the Adams brand peanut
butter business was sold to the J.M. Smucker Company.
FORMATION OF NEW SAUERKRAUT COMPANY
Effective July 1, 1997, the Company and Flanagan Brothers, Inc. of Bear
Creek, Wisconsin, contributed all their sauerkraut production related assets to
form a new sauerkraut company. This new company, Great Lakes Kraut Company,
operates as a New York limited liability company, with ownership split equally
between the two companies. The joint venture is accounted for using the equity
method of accounting.
F-87
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ARLINGTON CANNED VEGETABLE FACILITY FIRE
In January 1999, a plant operated by the Company's AFVC business unit,
located 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's CBF business unit,
located 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.
DIVIDENDS
Subsequent to quarter end, the Cooperative declared a cash dividend of $.43
per share on the Class A Cumulative Preferred Stock. These dividends approximate
$1.5 million and were paid on January 29, 1999.
F-88
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
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 and Net Proceeds from fiscal
1996 through fiscal 1998. This discussion is taken from the Annual Report on
Form 10-K/A-1 for the year ended June 27, 1998 and the Quarterly Report on Form
10-Q for the quarter ended December 26, 1998 of Pro-Fac Cooperative, Inc.
('Pro-Fac' or the 'Cooperative') and, to the extent the information in the main
part of the prospectus is more recent than information in this discussion, the
information in this discussion is superseded by such more recent information.
Pro-Fac processes and markets crops grown by its members through its
wholly-owned subsidiary, Agrilink Foods, Inc. ('Agrilink' or the 'Company').
Prior to the Acquisition, Agrilink had three primary business units:
Curtice Burns Foods ('CBF'), Nalley Fine Foods ('Nalley'), and its Snack Foods
Group. Each business unit offers different products. The majority of each
business unit's net sales are within the United States. In addition, all of the
operating facilities of those business units are within the United States. A
fourth business unit, AFVC, which has a processing facility located in Mexico,
was added in connection with the Acquisition.
The CBF business unit produces products in several food categories,
including fruit fillings and toppings; aseptically-produced products (prior to
Agrilink's sale of the aseptic business to Dean Foods in connection with the
Acquisition); canned and frozen fruits and vegetables and popcorn. The Nalley
business unit produces canned meat products (such as chilies and stews),
pickles, salad dressings, 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 part of the Acquisition, Agrilink
sold the aseptic business to Dean Foods. In January 1999, the Company announced
that it had sold its peanut butter business; the sale of the peanut butter
business did not constitute a significant transaction.
The following tables illustrate the Cooperative's results of operations by
business unit for the fiscal years ended June 29, 1996, June 28, 1997 and June
27, 1998 and the three- and six-month periods ended December 27, 1997 and
December 26, 1998, and the Cooperative's total assets by business at June 28,
1997, June 27, 1998, December 27, 1997 and December 26, 1998. In fiscal 1996,
the Company sold its Nalley Canada Ltd. subsidiary and Nalley's United States
Chips and Snacks business. In fiscal 1997, the Company sold its Finger Lakes
Packaging Company, Inc. ('Finger Lakes Packaging') subsidiary and a portion of
its canned vegetable business.
NET SALES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------------------- -----------------------------
JUNE 29, JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26,
1996 1997 1998 1997 1998
------------- ------------- ------------- ------------- -------------
% OF % OF % OF % OF % OF
$ TOTAL $ TOTAL $ TOTAL $ TOTAL $ TOTAL
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBF............................ 431.2 58.4 440.2 60.2 469.0 65.2 114.6 56.5 115.4 30.6
AFVC........................... -- -- -- -- -- -- -- -- 198.3 52.7
Nalley Fine Foods.............. 189.2 25.6 182.4 25.0 182.1 25.3 41.9 20.7 40.8 10.8
Snack Foods Group.............. 63.7 8.6 67.3 9.2 68.6 9.5 17.2 8.4 18.6 4.9
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Subtotal ongoing
operations............... 684.1 92.6 689.9 94.4 719.7 100.0 173.7 85.6 373.1 99.0
Businesses sold(1)............. 55.0 7.4 40.9 5.6 0.0 0.0 29.0 14.4 3.6 1.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total...................... 739.1 100.0 730.8 100.0 719.7 100.0 202.7 100.0 376.7 100.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<CAPTION>
SIX MONTHS ENDED
------------------------------
DECEMBER 27, DECEMBER 26,
1997 1998
------------- -------------
% OF % OF
$ TOTAL $ TOTAL
----- ----- ----- -----
<S> <C> <C> <C> <C>
CBF............................ 202.3 53.4 212.1 37.9
AFVC........................... -- -- 198.3 35.4
Nalley Fine Foods............. 84.8 22.4 79.8 14.3
Snack Foods Group.............. 34.5 9.1 36.7 6.6
----- ----- ----- -----
Subtotal ongoing
operations............... 321.6 84.9 526.9 94.2
Businesses sold(1)............. 57.5 15.1 32.4 5.8
----- ----- ----- -----
Total...................... 379.1 100.0 559.3 100.0
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
- ------------
(1) Includes the sales of Finger Lakes Packaging, the portion of the canned
vegetable business sold, Nalley Canada Ltd. and Nalley's United States Chips
and Snacks business. See Note 3 to the 'Notes to Consolidated Financial
Statements' of Pro-Fac included elsewhere herein. Includes the net sales of
the aseptic and peanut butter businesses for the three- and six-month
periods ended December 27, 1997 and December 26, 1998. See Notes 2 and 5 to
the 'Unaudited Consolidated Financial Statements' of Pro-Fac included
elsewhere herein.
F-89
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
OPERATING INCOME(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED(2) SIX MONTHS ENDED(2)
------------------------------ --------------------------- ---------------------------
JUNE 29, JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26, DECEMBER 27, DECEMBER 26,
1996 1997 1998 1997 1998 1997 1998
-------- -------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CBF................................. $ 26.5 $ 40.5 $ 47.1 $ 16.1 $ 11.5 $ 22.2 $ 17.6
AFVC................................ -- -- -- -- 15.5 -- 15.5
Nalley Fine Foods................... (2.9) 10.8 10.4 3.6 3.2 6.9 4.9
Snack Foods Group................... 4.1 5.9 6.9 1.9 2.0 4.0 4.3
Corporate overhead.................. (1.6) (10.3) (8.7) (3.7) (1.2) (5.6) (2.6)
-------- -------- -------- ----- ----- ----- -----
Subtotal ongoing operations..... 26.1 46.9 55.7 17.9 31.0 27.5 39.7
Businesses sold and other non-
recurring(3)...................... (6.7) 3.2 0.0 4.2 0.1 7.5 3.8
-------- -------- -------- ----- ----- ----- -----
Total(4)........................ $ 19.4 $ 50.1 $ 55.7 $ 22.1 $ 31.1 $ 35.0 $ 43.5
-------- -------- -------- ----- ----- ----- -----
-------- -------- -------- ----- ----- ----- -----
</TABLE>
- ------------
(1) Excludes cumulative effect of an accounting change in fiscal 1997. See Note
1 to the 'Notes to Consolidated Financial Statements' of Pro-Fac included
elsewhere herein.
(2) Excludes the gain on the sale of the aseptic business.
(3) In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the portion of the canned
vegetable business sold. In fiscal 1997, such amount includes the operating
earnings and gain on the sale of Finger Lakes Packaging, operating
activities of the portion of the canned vegetable business sold, final
settlement of an insurance claim and a loss on the disposal of property held
for sale. See Note 3 to the 'Notes to Consolidated Financial Statements' of
Pro-Fac included elsewhere herein. For the three- and six-month periods
ended December 27, 1997 and December 26, 1998, such amount represents the
operating earnings of the aseptic and peanut butter businesses. See Notes 2
and 5 to the 'Notes to Unaudited Consolidated Financial Statements' of
Agrilink included elsewhere herein.
(4) Operating income less interest expense and the amortization of debt issue
costs associated with the bridge facility (of $24.1 million for the three
months ended December 26, 1998, $8.0 million for the three months ended
December 27, 1997, $32.4 million for the six months ended December 26,
1998 and $15.7 million for the six months ended December 27, 1997) results
in income before taxes, dividends, allocation of net proceeds and
extraordinary item. Interest expense allocated to business units is not
considered a critical component by management when evaluating success.
EBITDA(1)(2)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED(3) SIX MONTHS ENDED(3)
------------------------------ --------------------------- ---------------------------
JUNE 29, JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26, DECEMBER 27, DECEMBER 26,
1996 1997 1998 1997 1998 1997 1998
-------- -------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CBF................................. $ 44.4 $ 57.1 $ 61.0 $ 19.4 $ 14.7 $ 28.9 $ 23.4
AFVC................................ -- -- -- -- 23.7 -- 23.7
Nalley Fine Foods................... 2.3 16.2 16.0 4.9 4.3 9.5 7.4
Snack Foods Group................... 6.0 7.6 8.8 2.3 2.5 4.9 5.3
Corporate........................... (1.7) (9.9) (8.5) (3.7) (1.2) (5.6) (2.4)
-------- -------- -------- ----- ----- ----- -----
Subtotal ongoing operations..... 51.0 71.0 77.3 22.9 44.0 37.7 57.4
Businesses sold and other non-
recurring(4)...................... (2.1) 5.9 0.0 4.6 0.3 8.3 4.7
-------- -------- -------- ----- ----- ----- -----
Total........................... $ 48.9 $ 76.9 $ 77.3 $ 27.5 $ 44.3 $ 46.0 $ 62.1
-------- -------- -------- ----- ----- ----- -----
-------- -------- -------- ----- ----- ----- -----
</TABLE>
- ------------
(1) EBITDA is defined as the sum of pretax income (loss) of Pro-Fac (before the
cumulative effect of an accounting change and extraordinary item, dividends
and allocation of net proceeds), and interest expense, 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 Cooperative
believes EBITDA is a financial indicator of a company's ability to service
debt. EBITDA as calculated by the Cooperative may not be comparable to
calculations as presented by other companies.
(2) Excludes cumulative effect of an accounting change in fiscal 1997. See Note
1 to the 'Notes to Consolidated Financial Statements' of Pro-Fac included
elsewhere herein.
(3) Excludes the gain on the sale of the aseptic business.
(4) In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the portion of the canned
vegetable business sold. In fiscal 1997, such amount includes the operating
earnings and gain
(footnotes continued on next page)
F-90
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
(footnotes continued from previous page)
on the sale of Finger Lakes Packaging, operating activities of the portion of
the canned vegetable business sold, final settlement of an insurance claim
and a loss on the disposal of property held for sale. See Note 3 to the
'Notes to Consolidated Financial Statements' of Pro-Fac included elsewhere
herein. For the three- and six-month periods ended December 27, 1997 and
December 26, 1998, such amount represents the operating earnings of the
aseptic and peanut butter businesses. See Notes 2 and 5 to the 'Notes to
Unaudited Consolidated Financial Statements' of Agrilink included elsewhere
herein.
TOTAL ASSETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------- ------------------------------------
JUNE 28, JUNE 27, DECEMBER 27, DECEMBER 26,
1997 1998 1997 1998
-------------- -------------- --------------- -----------------
% OF % OF % OF % OF
$ TOTAL $ TOTAL $ TOTAL $ TOTAL
----- ----- ----- ----- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CBF...................................... 329.0 60.2 362.2 63.9 356.6 58.1 390.6 31.0
AFVC..................................... -- -- -- -- 0.0 0.0 621.7 49.2
Nalley Fine Foods........................ 144.4 26.4 137.4 24.3 141.0 22.9 137.2 10.9
Snack Foods Group........................ 26.7 4.9 28.0 4.9 26.9 4.4 32.2 2.5
Corporate................................ 46.6 8.5 39.1 6.9 50.8 8.2 69.0 5.4
----- ----- ----- ----- ------ ----- -------- -----
Subtotal ongoing operations......... 546.7 100.0 566.7 100.0 575.3 93.6 1,250.7 99.0
Businesses sold(1)....................... -- -- -- -- 39.1 6.4 12.4 1.0
----- ----- ----- ----- ------ ----- -------- -----
Total............................... 546.7 100.0 566.7 100.0 614.4 100.0 1,263.1 100.0
----- ----- ----- ----- ------ ----- -------- -----
----- ----- ----- ----- ------ ----- -------- -----
</TABLE>
- ------------
(1) Includes the assets of the aseptic and peanut butter businesses. See Notes 2
and 5 to the 'Unaudited Consolidated Financial Statements' of Agrilink
included elsewhere herein.
CHANGES FROM SECOND QUARTER FISCAL 1998 TO SECOND QUARTER FISCAL 1999
Net income for the second quarter of fiscal 1999 of $5.1 million
represented a $5.3 million decrease as compared to the second quarter of fiscal
1998 net income of $10.4 million. Net income for the second quarter of fiscal
1999 was significantly impacted by the increase in interest expense associated
with the Acquisition and the amortization of debt issue costs associated with
the bridge facility. Accordingly, management believes an evaluation of EBITDA is
appropriate as it allows the operations of the business to be reviewed in a more
consistent manner. Excluding the operating results from businesses sold, EBITDA
for the continuing business increased $21.1 million, or 92.1%, to $44.0 million
in the second quarter of the current fiscal year from $22.9 million in the
second quarter of the prior fiscal year. This increase primarily results from
the inclusion of the AFVC business unit in the fiscal 1999 year-to-date results.
The Acquisition was completed on September 24, 1998. EBITDA of AFVC of
approximately $23.7 million was offset by a minor decrease of approximately $2.6
million at the Company's preexisting operations. The decline at CBF of $4.7
million was primarily attributable to a decrease in volume within the fruit
category (approximately $3.9 million), and a $0.4 million decrease within the
vegetable category attributable to product mix. The decline of EBITDA at Nalley
of $0.6 million was primarily attributable to product mix. The EBITDA within the
Snack Foods Group increased $0.2 million due to increases in net sales. The
decline in corporate overhead results primarily from a reduction in incentive
costs.
Net sales. Total net sales for the quarter increased $174 million, or
85.8%, to $376.7 million in the second fiscal quarter of fiscal 1999 from $202.7
million in the second quarter of fiscal 1998. Excluding businesses sold, net
sales increased by $199.4 million to $373.1 million in the second quarter of
fiscal 1999 from $173.7 million in the second quarter of fiscal 1998. The
increase in net sales from ongoing operations came primarily from the addition
of the AFVC business unit which
F-91
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
reported net sales of $198.3 million. Net sales for the remaining business units
were relatively consistent with that of the prior fiscal year. The Company did,
however, experience reductions within the fruit category at CBF which were
offset by increases within the vegetable category.
Gross profit. Gross profit of $122.1 million in the quarter ended December
26, 1998 increased approximately $59.5 million, or 95.0%, from $62.6 million in
the quarter ended December 27, 1997. Excluding the impact of businesses sold,
gross profit increased $65.1 million or 115.6 percent. Gross profit at AFVC was
approximately $67.6 million for the second quarter of fiscal 1999. Gross profit
for the remaining businesses declined $2.5 million primarily attributable to
changes in product mix and product costs.
Selling, administrative and general expenses. The selling, administrative
and general expenses have increased $50.7 million as compared with the second
quarter of the prior fiscal year. The inclusion of AFVC accounted for $52.2
million of such increase. This amount was offset by a reduction in incentive
costs recorded within the quarter.
Income from Great Lakes Kraut Company. This amount represents earnings
received from the investment in Great Lakes Kraut Company, a joint venture
formed between the Company and Flanagan Brothers, Inc. See Note 5, 'Other
Matters -- Formation of New Sauerkraut Company' to the 'Notes to Unaudited
Consolidated Financial Statements' of Pro-Fac included elsewhere herein.
Interest expense. Interest expense increased $10.6 million to $18.6 million
in the second quarter of fiscal 1999 from $8.0 million in the second quarter of
fiscal 1998. This increase is associated with debt from the Acquisition and
higher levels of seasonal borrowings at the existing operations due to an
earlier intake of crops (and therefore the resultant increase in inventory).
Amortization of debt issue costs associated with the bridge facility. In
order to consummate the Acquisition, the Company entered into a $200 million
bridge loan facility. The bridge facility was repaid with the proceeds from the
Initial Notes Offering (see Note 4, 'Debt -- 11 7/8 Percent Senior Subordinated
Notes (due 2008)' to the 'Notes to Unaudited Consolidated Financial Statements'
of Pro-Fac included elsewhere herein). Debt issuance costs associated with the
bridge facility were $5.5 million and were fully amortized during the quarter.
Provision for taxes. The provision for taxes decreased $1.8 million to $1.9
million in the second quarter of fiscal 1999 from $3.7 million in the second
quarter of fiscal 1998. Of this decrease, $2.1 million is attributable to the
benefit recorded in conjunction with the amortization of debt issue costs
associated with the bridge facility. The remaining variance results from the
change in earnings before tax. The Cooperative's effective tax rate is impacted
by the net proceeds distributed to members and the non-deductibility of certain
amounts of goodwill.
CHANGES FROM FIRST SIX MONTHS FISCAL 1998 TO FIRST SIX MONTHS FISCAL 1999
Net income for the first six months of fiscal 1999 of $30.4 million
represented a $16.7 million increase over the first six months of fiscal 1998
net income of $13.7 million. Net income for the first half of fiscal 1999 was
impacted by the gain on the sale of the aseptic business, the increase in
interest expense associated with the 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 is appropriate as it allows the operations of the business
to be reviewed in a consistent manner. Total EBITDA for the first six months of
fiscal 1999 (excluding the extraordinary charge relating to the early
extinguishment of debt) was $62.1 million as compared to $46.0 million in the
first six months of fiscal 1998. Excluding the operating results from businesses
sold and the gain from businesses sold, EBITDA for the continuing business
increased $19.7 million, or 52.3%, to $57.4 million in the first six
F-92
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
months of the current fiscal year from $37.7 million in the first six months of
the prior fiscal year. This increase primarily results from the inclusion of the
AFVC business unit in fiscal 1999. EBITDA of AFVC of approximately $23.7 million
was offset by a decrease within the Company's preexisting operations of
approximately $4.0 million. A decline at CBF of $5.5 million was primarily due
to reductions within the fruit category as a result of changes in product mix
(approximately $5.7 million). The decline at Nalley of $2.1 million was due
primarily to the recognition of a favorably settled outstanding tax claim with
the state of Washington for $1.4 million in the first six months of the prior
fiscal year and a reduction in the dressing and canned product lines due to
competitive pressures. The EBITDA within the Snack Foods Group increased $0.4
million due to increases in net sales. The decline in corporate overhead results
primarily from a reduction in incentive costs.
Net sales. Total net sales for the first six months increased $180.2
million, or 47.5%, to $559.3 million in the first six months of fiscal 1999 from
$379.1 million in the first six months of fiscal 1998. Excluding businesses
sold, net sales increased by $205.3 million, or 63.8%, to $526.9 million in the
first six months of fiscal 1999 from $321.6 million in the first six months of
fiscal 1998.
The increase in net sales came primarily from the addition of the AFVC
business unit which reported net sales of $198.3 million.
The Company's preexisting operations accounted for an increase of $7.0
million. Net sales for CBF increased $9.8 million. This increase was
attributable to improvements in volume primarily within vegetables
(approximately $17.4 million) offset by a decrease within the fruit category due
to changes in product mix (approximately $6.1 million). Net sales for the
remaining categories at CBF were relatively consistent with that of the first
six months of the prior fiscal year.
Net sales for Nalley decreased $5.0 million as compared with the first six
months of the prior fiscal year as gains in the pickle category were offset by
reductions in the dressing and canned product lines. Within the pickle category,
net sales for the first six months of fiscal 1999 increased $1.4 million as a
result of increased volume in the food service channel. Competitive pressures on
volume and price resulted in a $4.4 million decrease in net sales for dressings
and a $2.0 million decrease in the canned category.
Net sales for the Snack Foods Group increased by $2.2 million, or 6.4%, to
$36.7 million in the first six months of fiscal 1999 as a result of new
business.
Gross profit. Gross profit of $168.8 million in the first six months ended
December 26, 1998 increased approximately $60.6 million, or 56.0%, from $108.2
million in the first six months ended December 27, 1997. Excluding the impact of
businesses sold, gross profit increased $65.7 million or 68.2%.
Gross profit at AFVC was approximately $67.6 million for the six months
ended December 27, 1998.
The decrease in gross profit at the CBF business unit (excluding the
aseptic business) was $1.4 million primarily attributable to changes in product
mix and product costs. Overall, gross profit at Nalley (excluding the peanut
butter business) decreased $1.9 million due primarily to the reductions in net
sales outlined above. Increases in net sales within the Snack Foods Group
resulted in margin improvements of $1.4 million.
Selling, administrative and general expenses. Selling, administrative and
general expenses have increased $52.8 million as compared with the first six
months of the prior fiscal year. The inclusion of AFVC accounted for $52.2
million of such increase.
Gain on sale of aseptic business. In conjunction with the Acquisition, the
Company sold its aseptic business to Dean Foods. A gain of approximately $64.2
million was recognized on this
F-93
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
disposal reflecting a preliminary value for this business of approximately $83
million (based upon an appraised value range given to the Company by an
independent appraiser). This amount was used to offset borrowings necessary to
complete the Acquisition.
Income from Great Lakes Kraut Company. This amount represents earnings
received from the investment in Great Lakes Kraut Company, a joint venture
formed between the Company and Flanagan Brothers, Inc. See Note 5, 'Other
Matters -- Formation of New Sauerkraut Company' to the 'Notes to Unaudited
Consolidated Financial Statements' of Pro-Fac included elsewhere herein.
Interest expense. Interest expense increased $11.2 million to $26.9 million
in the first six months of fiscal 1999 from $15.7 million in the first six
months of fiscal 1998. This increase is associated with debt from the
Acquisition and higher levels of seasonal borrowings at the existing operations
due to an earlier intake of crops (and therefore the resultant increase in
inventory).
Amortization of debt issue costs associated with the bridge facility. In
order to consummate the Acquisition, the Company entered into a $200 million
bridge loan facility. The bridge facility was repaid with the proceeds from the
Initial Notes Offering (see Note 4, 'Debt -- 11 7/8 Percent Senior Subordinated
Notes due 2008' to the 'Notes to Unaudited Consolidated Financial Statements' of
Pro-Fac included elsewhere herein). Debt issuance costs associated with the
bridge facility were $5.5 million and were fully amortized during the second
quarter.
Provision for taxes. The provision for taxes increased $21.4 million to
$26.9 million in the first six months of fiscal 1999 from $5.5 million in the
first six months of fiscal 1998. Of this net increase, $25.0 million is
attributable to the provision associated with the gain on the sale of the
aseptic business. This 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. The
Cooperative's effective tax rate is impacted by the net proceeds distributed to
members and 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 12.25 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 $18.0 million (net of applicable
income taxes of $10.4 million).
CHANGES FROM FISCAL 1997 TO FISCAL 1998
Net income for fiscal 1998 of $17.1 million represented a $4.4 million, or
34.6%, increase over the prior year's net income of $12.7 million. Total EBITDA
before cumulative effect of an accounting change was $77.3 million as compared
to $76.9 million in the prior year. Excluding the impact of businesses sold and
other non-recurring activities, EBITDA increased $6.3 million, or 8.9%, to
$77.3 million, while operating income increased $8.8 million, or 18.8%, to
$55.7 million from the prior year's $46.9 million. These improvements reflected
the benefits from numerous initiatives including: (i) increase in volume and new
customers in many of Agrilink's product lines; (ii) the continuing benefits from
structural changes made within the organization including the consolidation of
operations and facilities; and (iii) 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%,
to $719.7 million 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%, to $719.7 million in fiscal year 1998 from $689.9
million in the prior year.
F-94
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
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 Pro-Fac 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%, 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. In connection with the Acquisition the Company sold its Aseptic
Business to Dean Foods.
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 (on December 10, 1998, the Company announced it had reached an
agreement in principle to sell its peanut butter business). 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%, 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%, 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 sales, gross profit increased from 26.2% to 27.2%. 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 weakened 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 margin
improvements of $0.7 million.
Selling, administrative and general expenses. Selling, administrative and
general expenses decreased $3.5 million as compared with the prior year. As a
percentage of net sales, selling, administrative and general expenses declined
from 19.9% to 19.7%. This decrease is primarily due to: (i) reductions in
selling expenses of $1.4 million; (ii) reductions in incentive costs of $1.2
million; and (iii) the impact of a favorably settled outstanding tax claim with
the state of Washington for $1.4 million.
F-95
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
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 Pro-Fac included elsewhere herein.
Interest expense. Interest expense decreased $5.7 million, or 15.6%, to
$30.8 million in fiscal 1998 from $36.5 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, the sale of the canned vegetable business and the sale of the
Georgia distribution center. The reduction in debt accounted for $4.2 million of
the reduction in interest expense while changes in rate accounted for the
remaining $1.5 million reduction.
Provision for taxes. The provision for taxes increased $2.3 million, or
41.8%, to $7.8 million in fiscal 1998 from $5.5 million in fiscal 1997. This
increase was a result of an $11.4 million increase in earnings before tax. The
Pro-Fac effective tax rate in fiscal 1998 was 31.4% which is impacted by the net
proceeds distributed to members and the non-deductibility of goodwill. A further
discussion of tax matters is included at Note 6 to the 'Notes to Consolidated
Financial Statements' of Pro-Fac included elsewhere herein.
CHANGES FROM FISCAL 1996 TO FISCAL 1997
Net income for fiscal 1997 of $12.7 million represented a $22.2 million
increase over the prior year's loss of $9.5 million. Total EBITDA before
cumulative effect of an accounting change was $76.9 million for the year ended
June 28, 1997 as compared to $48.9 million in the prior year. EBITDA for ongoing
business reached $71.0 million as compared to the prior year's $51.0 million.
This significant improvement reflected the benefits from numerous initiatives
including: (i) a reduction in debt by $97.9 million which included the sales of
Finger Lakes Packaging, 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 Pro-Fac
included elsewhere herein); (ii) the implementation of structural changes within
the organization, including the consolidation of the operations of Brooks Foods
and Southern Frozen Foods into CBF; and (iii) 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 the 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%, 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%, 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%,
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%, to $182.4 million in fiscal 1997 from $189.2 million in fiscal 1996. While
the canned category showed
F-96
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
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%, 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%, from $176.2 million in fiscal 1996. As a percentage of sales,
gross profit increased from 23.8% to 26.2%. This increase was attributable to
improved margins in all of the 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.
Gross profit increased at Nalley by $4.0 million in 1997. This improvement
was primarily attributable to operating improvements, primarily 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 decreased $6.5 million as compared with the prior year. As a
percentage sales, selling, administrative, and general expenses decreased from
20.5% to 19.9%. 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 attributable 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. 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.
In addition, in fiscal 1996, selling, administrative, and general expenses
were offset by a $4.4 million income adjustment related to a reduction in the
amount of CMV paid to the Cooperative members.
Gain on sale of Finger Lakes Packaging. On October 9, 1996, Agrilink
completed the sale of Finger Lakes Packaging 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.
F-97
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
Interest expense. Interest expense decreased $5.5 million, or 13.1%, to
$36.5 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, the canned vegetable business, and idle
facilities.
Provision for taxes. The provision for taxes increased $18.6 million to
$5.5 million in fiscal 1997 from a $13.1 million benefit in fiscal 1996. The
Cooperative's effective tax rate in fiscal 1997 was 40.6% which was impacted by
the net proceeds distributed to members and the non-deductibility of goodwill.
The Cooperative's tax benefit in fiscal 1996 was favorably impacted by tax
benefits resulting from the prior year's exempt status. A further discussion of
tax matters is included at Note 6 to the 'Notes to the Consolidated Financial
Statements' of Pro-Fac 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 income taxes
of $1.1 million) was $4.6 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 Company's historic
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the 'Unaudited
Consolidated Statement of Changes in Cash Flows' included elsewhere herein, for
Pro-Fac's first six months of fiscal 1999 compared to its first six months of
fiscal 1998 and in the 'Consolidated Statement of Changes in Cash Flows'
included in the consolidated financial statements of Pro-Fac, included elsewhere
herein, for fiscal 1998 compared to fiscal 1997.
Net cash used in operating activities in the first six months of fiscal
1999 increased $34.4 million over the first six months of the prior fiscal year.
This increase primarily results from a variance within accounts receivable and
accounts payable due to the timing of liquidation of outstanding balances. Such
variances have been impacted by the inclusion of operating activities of AFVC.
In addition, the variance within income taxes payable was impacted by the
provision recorded on the gain from the sale of the aseptic business.
Net cash used in investing activities increased significantly due to the
Acquisition offset by the subsequent sale of the aseptic business and the
disposal of an idle facility held for sale. The purchase of property, plant and
equipment increased $1.8 million to $8.6 million for the six months ended
December 26, 1998 from $6.8 million for the six months ended December 27, 1997
and was for general operating purposes.
Net cash provided by financing activities also increased significantly due
to the 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 Unaudited
Consolidated Financial Statements' of Pro-Fac included elsewhere herein.
F-98
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
In addition, seasonal borrowings increased during the first six months of
fiscal 1999 due to both the earlier intake of crops and the resultant increase
in inventory levels and the operating activities associated with the
Acquisition.
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: (i) an increase of $8.0 million in inventory to
support additional business regarding the Sam's national club stores as
described below; (ii) an increase of $4.0 million of inventory associated with
the acquisition of DelAgra; and (iii) change 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, the Company 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 the Company to implement full distribution, this contract did
not significantly impact fiscal 1998 earnings. However, the Company anticipates
this arrangement will have a favorable impact on fiscal 1999 earnings, although
there can be no assurance it will do so.
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, 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
old credit facility. 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
increased by $0.4 million, or 2.9%, to $14.1 million in fiscal 1998 from $13.7
million in fiscal 1997 and was for general operating purposes.
Financing activities used $3.8 million of cash in fiscal 1998 compared to
using $104.2 million in cash for fiscal 1997. Cash used in fiscal 1997 included
$97.9 million of debt repayment which resulted from the cash provided by the
sale of certain assets during the year.
Borrowings. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- New
Credit Facility' in the main part of this prospectus.
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.
Based on the current level of operations, the Company believes that it will
be able to meet the debt service requirements on its indebtedness (including the
Notes) and meet its working capital needs and fund its capital expenditures and
other operating expenses out of cash flow from operations and available
borrowings under the Revolving Credit Facility. However, there can be no
assurance that the Company's business will generate cash flow at levels
sufficient to meet these requirements. In addition under the New Credit
Facility, the Company has scheduled principal amortization payments of the Term
Loans of $198.2 million in fiscal 2005 and $202.4 million in fiscal 2006. See
'Description of Certain Indebtedness -- New Credit Facility.' The Company may be
unable to repay such principal amounts under the New Credit Facility due in
fiscal 2005 and fiscal
F-99
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
2006 unless it is able to refinance such indebtedness. See 'Risk Factors -- Our
Substantial Leverage and Debt Service Requirements May Have Adverse
Consequences' in the main part of this Prospectus.
Short- and long-term trends. Throughout fiscal 1998 and 1997 Agrilink has
focused on Agrilink's 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 Pro-Fac included
elsewhere herein.
As a result of the financings entered into in connection with the
Acquisition, the Company is highly leveraged. The Company will therefore be
heavily focused on managing its operations with a view toward making timely
payments of scheduled debt repayments. Such leverage and demands on the Company
could have significant adverse effects. See 'Risk Factors -- Our Substantial
Leverage and Debt Service Requirements May Have Adverse Consequences' in the
main part of this Prospectus.
The vegetable and fruit portions of the business, which includes CBF and
AFVC, 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 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.
In the first quarter of fiscal 1998, 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.
Additional payment to Dean Foods. The Company expects to pay an additional
$13.2 million to Dean Foods in connection with the anticipated election by
Agrilink to treat the Acquisition as an asset sale for tax purposes under
Section 338(h)(10) of the Code and to fund such payment by borrowing that amount
under the Revolving Credit Facility. The Company anticipates that such election
would allow the Company to reduce its future tax liability through increased
depreciation and amortization deductions resulting from the stepped up basis for
the assets acquired from Dean Foods and deductibility of goodwill.
DFVC. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- DFVC' in the main
part of this prospectus.
New credit facility. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- New
Credit Facility' in the main part of this prospectus.
Interest rate protection agreements. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Interest Rate
Protection Agreements' in the main part of this prospectus.
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.
F-100
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
OTHER MATTERS
See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Other Matters' in the main part of this prospectus.
Favorable tax ruling and developments. In August of 1993, the Internal
Revenue Service issued a determination letter which concluded that the
Cooperative was exempt from federal income tax to the extent provided by
Section 521 of the Internal Revenue Code, 'Exemption of Farmers' Cooperative
from Tax.' Unlike a nonexempt cooperative, a tax-exempt cooperative is entitled
to deduct cash dividends it pays on its capital stock in computing its taxable
income. The exempt status was retroactive to fiscal year 1986. In conjunction
with this ruling, the Cooperative filed for tax refunds for fiscal years 1986 to
1992 in the amount of approximately $8.8 million and interest payments of
approximately $5.2 million. A refund amount of $10.1 million for tax and
interest was reflected in the financial statements of the Cooperative as of
June 24, 1995. In addition, a refund amount of $3.9 million for tax and interest
have been reflected in the financial statements of the Cooperative as of June
29, 1996. The refund and interest for the fiscal years 1986 to 1991 was received
in March of 1996. The refund and interest for fiscal year 1992 was received in
June of 1997.
As a result of the acquisition of the Company in 1994, the Cooperative's
exempt status has ceased.
F-101
<PAGE>
<PAGE>
SELECTED HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL DATA
The following selected historical consolidated and unaudited pro forma
financial data with respect to Pro-Fac should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' for Pro-Fac, the historical consolidated financial statements of
Pro-Fac and DFVC and the related notes and the Unaudited Pro Forma Financial
Data of Pro-Fac and the related notes, each as included elsewhere herein. The
selected historical consolidated financial data for each of the years ended
June 25, 1994, June 24, 1995, June 29, 1996, June 28, 1997 and June 27, 1998 and
as of the end of each such periods have been derived from Pro-Fac's audited
consolidated financial statements and reflect the operations and financial
position of Pro-Fac at the dates and for the periods indicated. The selected
historical consolidated financial data for the six months ended December 27,
1997 and December 26, 1998 and as of the end of each of such periods have been
derived from Pro-Fac's financial statements included elsewhere herein which are
unaudited but which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and financial position of Pro-Fac at
the dates and for the periods indicated. The selected unaudited pro forma
financial data have been derived from Pro-Fac's audited consolidated financial
statements for the year ended and as of June 27, 1998, Pro-Fac's unaudited
consolidated financial statements for the six months ended and as of December
26, 1998, DFVC's audited consolidated financial statements for the year ended
and as of May 31, 1998 and DFVC's unaudited consolidated financial statements
for the quarter ended and as of August 30, 1998. No adjustment was made to the
unaudited pro forma financial data to conform DFVC's last Sunday of May fiscal
year end to Pro-Fac's last Saturday of June fiscal year end, or our and DFVC's
differing fiscal quarter ends. The summary selected unaudited pro forma
financial data give effect to the Transactions and the Offering and the
application of the net proceeds therefrom as described under 'The Acquisition'
and 'Use of Proceeds,' as if they had occurred at the dates referenced under
'Unaudited Pro Forma Financial Data of Pro-Fac and Consolidated Subsidiary.' The
pro forma financial data reflect the assumption that Agrilink will elect to
treat the Acquisition as an asset sale for tax purposes under Section 338(h)(10)
of the Code. The summary selected unaudited pro forma financial data do not
purport to represent what Pro-Fac's results of operations or financial position
actually would have been if the transactions referred to therein had been
consummated on the date or for the periods indicated or what such results will
be for any future date or any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED --------------------------------
--------------------------------------------------------------- DECEMBER 26,
JUNE 27, 1998 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, ------------------- DECEMBER 27, --------------------
1994(1) 1995(2) 1996 1997 ACTUAL PRO FORMA 1997 ACTUAL PRO FORMA
-------- -------- -------- -------- ------- --------- ------------ -------- ---------
(DOLLARS IN MILLIONS)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 58.2 $ 522.4 $ 739.1 $ 730.8 $ 719.7 $1,242.0 $379.1 $ 559.3 $ 656.3
Cost of sales.................. (58.2) (384.8) (562.9) (539.1) (524.1) (865.4) (270.8) (390.4) (455.7)
-------- -------- -------- -------- ------- --------- ------ -------- -------
Gross profit................. 0.0 137.6 176.2 191.7 195.6 376.6 108.3 168.9 200.6
Selling, administrative and
general...................... 1.1 (99.3) (151.7) (145.2) (141.8) (288.4) (74.3) (127.0) (157.3)
Income from Great Lakes Kraut
Company...................... -- -- -- -- 1.9 1.9 1.0 1.7 1.7
Gain on sale of Finger Lakes
Packaging.................... -- -- -- 3.6 -- -- -- -- --
Gain on sale of the Aseptic
Business.................... -- -- -- -- -- -- -- 64.2 --
Restructuring(3)............... -- -- (5.9) -- -- -- -- -- --
Additional costs incurred as a
result of fire............... -- (2.3) -- -- -- -- -- -- --
Interest income............... -- 4.4 0.8 -- -- -- -- -- --
Income from Agrilink prior to
acquisition................. 34.2 11.2 -- -- -- -- -- -- --
Amortization of unallocated
excess of purchase cost over
net assets acquired......... -- -- -- -- -- (10.4) -- -- (2.4)
-------- -------- -------- -------- ------- --------- ------ -------- --------
Operating income............. $ 35.3 $ 51.6 $ 19.4 $ 50.1 $ 55.7 $ 79.7 $ 35.0 $ 107.8 $ 42.6
</TABLE>
(table continued on next page)
F-102
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
JUNE 27, 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, -------------------
1994(1) 1995(2) 1996 1997 ACTUAL PRO FORMA
-------- -------- -------- -------- ------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Total interest expense.......... (11.6) (29.1) (42.0) (36.5) (30.8) (73.0)
Amortization of debt issue costs
associated with the Bridge
Facility...................... -- -- -- -- -- --
-------- -------- -------- -------- ------- ---------
Pre-tax income (loss) before
dividends, allocation of net
proceeds, and cumulative
effect of an accounting
change and extraordinary
item........................ $ 23.7 $ 22.5 $ (22.6) $ 13.6 $ 24.9 $ 6.7
Tax (provision) benefit......... 0.8 7.1 13.1 (5.5) (7.8) (4.1)
-------- -------- -------- -------- ------- ---------
Income (loss) before cumulative
effect of an accounting change
and extraordinary item........ 24.5 29.6 (9.5) 8.1 17.1 2.6
Extraordinary item relating to
the early extinguishment of
debt (net of income taxes).... -- -- -- -- -- --
Cumulative effect of an
accounting change(4).......... -- -- -- 4.6 -- --
-------- -------- -------- -------- ------- ---------
Net income (loss)......... $ 24.5 $ 29.6 $ (9.5) $ 12.7 $ 17.1 $ 2.6
-------- -------- -------- -------- ------- ---------
-------- -------- -------- -------- ------- ---------
SELECTED FINANCIAL DATA:
EBITDA(5)....................... $ 37.0 $ 68.1 $ 48.9 $ 76.9 $ 77.3 $ 131.0
EBITDA margin(6)................ 63.6% 13.0% 6.6% 10.5% 10.7% 10.5%
Depreciation and amortization... $ 1.7 $ 16.5 $ 29.5 $ 26.8 $ 21.6 $ 51.3
Capital expenditures............ $ 10.0 $ 28.7 $ 19.5 $ 13.7 $ 14.1 $ 25.3
Ratio of earnings to fixed
charges and preferred
dividends (coverage
deficiency)(7)................ 2.20x 1.49x $ (37.0) 1.09x 1.37x $ (3.0)
BALANCE SHEET DATA:
Working capital................. $ 2.1 $ 138.9 $ 103.4 $ 76.0 $ 94.1
Total assets.................... $296.1 $ 689.7 $ 637.3 $ 546.7 $ 566.7
Total debt...................... $152.6 $ 357.6 $ 337.4 $ 239.3 $ 238.8
Total shareholders' and members'
capitalization(8)............. $123.8 $ 145.2 $ 126.7 $ 132.7 $ 141.4
<CAPTION>
SIX MONTHS ENDED
------------------------------------
DECEMBER
26, 1998
DECEMBER 27, ----------------------
1997 ACTUAL PRO FORMA
------------ --------- ---------
<S> <C>
Total interest expense.......... (15.8) (26.9) (37.8)
Amortization of debt issue costs
associated with the Bridge
Facility...................... -- (5.5) --
------ -------- ---------
Pre-tax income (loss) before
dividends, allocation of net
proceeds, and cumulative
effect of an accounting
change and extraordinary
item........................ $ 19.2 $ 75.4 $ 4.8
Tax (provision) benefit......... (5.5) (27.0) (2.2)
--------- --------- ---------
Income (loss) before cumulative
effect of an accounting change
and extraordinary item........ 13.7 48.4 2.6
Extraordinary item relating to
the early extinguishment of
debt (net of income taxes).... -- (18.0) --
Cumulative effect of an
accounting change(4).......... -- -- --
--------- ---------- ----------
Net income (loss)......... $ 13.7 $ 30.4 $ 2.6
--------- ---------- ----------
--------- ---------- ----------
SELECTED FINANCIAL DATA:
EBITDA(5)....................... $ 46.0 $ 62.1 $ 68.5
EBITDA margin(6)................ 12.1% 11.1% 10.4%
Depreciation and amortization... $ 11.0 $ 18.6 $ 25.9
Capital expenditures............ $ 6.8 $ 8.6 $ 11.8
Ratio of earnings to fixed
charges and preferred
dividends (coverage
deficiency)(7)................ 1.69x 1.36x 1.00x
BALANCE SHEET DATA:
Working capital................. $ 78.7 $ 208.6
Total assets.................... $614.4 $1,263.1
Total debt...................... $294.3 $ 778.5
Total shareholders' and members'
capitalization(8)............. $141.4 $ 167.3
</TABLE>
- ------------
(1) Represents financial information prior to the acquisition of the Company,
Inc. Depreciation and amortization and capital expenditures were recognized
by Pro-Fac through the provisions of the earnings split.
(2) Includes the results of the Company subsequent to the acquisition in
November 1994.
(3) During fiscal 1996, the Company initiated a company-wide restructuring
program. The restructuring charge amounted to $5.9 million (before taxes).
This amount consisted of employee termination benefits of $4.0 million and
$1.9 million for strategic consulting expenses.
(4) Represents cumulative effect of an accounting change to include in prepaid
expenses and other current assets manufacturing spare parts previously
charged directly to expense.
(5) EBITDA is defined as the sum of pre-tax income (loss) of Pro-Fac (before the
cumulative effect of an accounting change, extraordinary item, dividends and
allocation of net proceeds), and 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 Pro-Fac
believes EBITDA is a financial indicator of a company's ability to service
debt. EBITDA as calculated by Pro-Fac may not be comparable to calculations
as presented by other companies. EBITDA (actual and pro forma) at December
26, 1998 excludes the $64.2 million gain on the sale of the aseptic
business. Had the gain on the sale of the aseptic business been included,
EBITDA (actual) at December 26, 1998 would have been $126.3 million.
(6) EBITDA margin is defined as EBITDA divided by net sales.
(7) For purposes of calculating ratio of earnings to fixed charges and preferred
dividends, earnings are determined by adding fixed charges to income (loss)
before taxes and before cumulative effect of an accounting change. Fixed
charges consist of interest expense and the interest component of rental
expense. For fiscal 1996, earnings before fixed charges were insufficient to
cover fixed charges and pre-tax basis preferred dividends, and the dollar
amount of coverage deficiency, instead of the ratio, is disclosed. The $64.2
million gain on the sale of the aseptic business and the $5.5 million
expense for the amortization of debt issue costs associated with the bridge
facility have been excluded in calculating the ratio of earnings to fixed
charges at December 26, 1998.
(8) For purposes of this calculation, equity includes common stock and
redeemable preferred stock.
F-103
<PAGE>
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA OF PRO-FAC AND
CONSOLIDATED SUBSIDIARY
The following unaudited pro forma condensed consolidated financial data
(the 'Pro-Fac Pro Forma Financial Data') of Pro-Fac and its consolidated
subsidiary is derived from the historical consolidated financial statements of
Pro-Fac and DFVC included elsewhere herein, adjusted to give effect to the
Transactions and the Offering and the application of the net proceeds therefrom.
The Pro-Fac Pro Forma Financial Data reflect the assumption that Agrilink will
elect to treat the Acquisition as an asset sale for tax purposes under Section
338(h)(10) of the Code. The Unaudited Pro Forma Consolidated Statements of
Operations of Pro-Fac give effect to the Transactions and the Offering and the
application of the net proceeds therefrom as if they had occurred as of June 29,
1997. No adjustment was made to the Pro-Fac Pro Forma Financial Data to conform
DFVC's last Sunday of May fiscal year end to Pro-Fac's last Saturday of June
fiscal year end. The Pro-Fac Pro Forma Financial Data do not purport to
represent what Pro-Fac's results of operations would actually have been had the
Transactions and the Offering in fact occurred on such dates or what Pro-Fac's
results of operations will be for any future period. The Pro-Fac Pro Forma
Financial Data do not give effect to any transactions other than the
Transactions and the Offering and the application of the net proceeds therefrom
as discussed in the notes to the Pro-Fac Pro Forma Financial Data set forth
below.
The Acquisition will be accounted for using the purchase method of
accounting. Under purchase accounting, tangible and identifiable intangible
assets acquired and liabilities assumed will be recorded at their respective
fair values. Information regarding the fair values of assets being acquired is
not currently available. Accordingly, no allocation of the excess of purchase
cost over net assets acquired has been made for purposes of this pro forma
presentation. The valuations and other studies which will provide the basis for
such an allocation have not progressed to a stage where there is sufficient
information to make a final allocation in the accompanying Pro-Fac Pro Forma
Financial Data. Accordingly, the purchase accounting adjustments made in
connection with the Pro-Fac Pro Forma Financial Data are preliminary and have
been made solely for purposes of developing the Pro-Fac Pro Forma Financial
Data. Once an allocation is determined, in accordance with generally accepted
accounting principles, any remaining excess of purchase cost over net assets
acquired will be recorded as goodwill. Pro-Fac expects that significant goodwill
will be recorded as a result of the Acquisition.
Likewise, the preliminary value recorded for the aseptic business disposal,
and the resulting gain and other effects on the Pro-Fac Pro Forma Financial
Data, are based on an appraised value range given to Agrilink by an independent
appraiser. If the value ascribed to the aseptic business is determined
to be different than that recorded in the Pro-Fac Pro Forma Financial Data
for any reason, the change in such value would have a corresponding effect
on the Pro-Fac Pro Forma Financial Data.
The pro forma adjustments are based on available information and upon
assumptions that management of Pro-Fac believes are reasonable under the
circumstances. The Pro-Fac Pro Forma Financial Data and accompanying notes
should be read in conjunction with 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' relating to Pro-Fac, the
historical consolidated financial statements of Pro-Fac and DFVC, including the
notes thereto, and other financial information pertaining to Pro-Fac and
Agrilink incorporated by reference herein.
F-104
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 27, 1998
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------
ASEPTIC TRANSACTIONS
BUSINESS AND
PRO-FAC DFVC DISPOSAL OFFERING
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(A) ADJUSTMENTS TOTAL
------------ ------------ -------------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................................. $719.7 $541.2 ($97.9) $79.0 (b) $1,242.0
Cost of sales......................................... (524.1) (397.6) 81.3 (25.0)(c) (865.4)
------------ ------------ ------ ----------- --------
Gross profit..................................... 195.6 143.6 (16.6) 54.0 376.6
Selling, administrative and general................... (141.9) (104.9) 0.1 (41.7)(d) (288.4)
Income from Great Lakes Kraut Company................. 1.9 1.9
Amortization of unallocated excess of purchase cost
over -- net assets acquired......................... -- -- -- (10.4)(e) (10.4)
------------ ------------ ------ ----------- --------
Operating income before extraordinary items...... 55.6 38.7 (16.5) 1.9 79.7
Interest expense...................................... (30.7) (9.2) 1.4 (34.5)(f) (73.0)
------------ ------------ ------ ----------- --------
Pretax income before extraordinary items and
dividends and allocation of net proceeds....... 24.9 29.5 (15.1) (32.6) 6.7
(Provision) benefit for taxes......................... (7.8) (11.8) 3.4 12.1 (g) (4.1)
------------ ------------ ------ ----------- --------
Income (loss) before extraordinary items......... $ 17.1 $ 17.7 $(11.7) $(20.5) $ 2.6
------------ ------------ ------ ----------- --------
------------ ------------ ------ ----------- --------
</TABLE>
- ------------
(a) To reflect the sale of the aseptic business to Dean Foods. In
conjunction with this transaction, it is anticipated the Company will recognize
a gain. Such gain has not been reflected in the unaudited Pro Forma Condensed
Consolidated Statement of Operations as the gain is considered nonrecurring.
(b) Represents a reclassification of promotional expenses of DFVC to
conform presentation to that of the Company. Such amount is equal to the
adjustment of selling, administrative and general expenses in pro forma
adjustment (d) below.
(c) To reflect the net of (dollars in millions):
<TABLE>
<S> <C>
Cost savings anticipated under existing contracts with the suppliers of product
packaging......................................................................... $ 2.5
Reclassification of warehousing expenses of DFVC to conform presentation to that of
Agrilink. Such amount is equal to the adjustment of selling, administrative and
general expenses in pro forma adjustment (d) below................................ (27.5)
------
$(25.0)
------
------
</TABLE>
F-105
<PAGE>
<PAGE>
(d) To reflect the net of (dollars in millions):
<TABLE>
<S> <C>
Reclassification of promotional expenses of DFVC to conform presentation to that of
the Company. Such amount is equal to the adjustment to the net sales in pro forma
adjustment (b) above.............................................................. $(79.0)
Reclassification of warehousing expenses to conform presentation to that of the
Company. Such amount is equal to the adjustment to the net sales in pro forma
adjustment (c) above.............................................................. 27.5
To reflect the anticipated cost reductions under the plan formulated by management to
eliminate duplicate administrative costs, including primarily sales and marketing
functions, finance functions and logistics functions. Because both the Company and
DFVC personnel contact the same customers, it is anticipated that no
material negative impact to sales will occur. The plan outlined is to be executed
within one year from the consummation date of the Acquisition..................... 9.8
------
$(41.7)
------
------
</TABLE>
(e) To reflect $10.4 million of additional goodwill amortization relating
to the Acquisition assuming an amortization period of 20 years. Depreciation and
amortization recorded by the Company subsequent to the Acquisition will be
determined based upon the fair values of acquired assets and their related lives
as ultimately recorded under purchase accounting.
(f) To reflect the net adjustment to interest expense as follows (dollars
in millions):
<TABLE>
<S> <C>
Notes at an interest rate of 11.875%................................................. $ 23.8
Borrowings under the new credit facility (at the rates applicable upon syndication
thereof)............................................................................. 40.1
Subordinated Promissory Note at an interest rate of 5.0% (noncash)................ 1.5
Amortization of debt issuance costs.................................................. 3.2
Less historical interest expense net adjustment...................................... (33.3)
Less amortization of debt issuance costs related to debt repaid...................... (0.8)
------
$ 34.5
------
------
</TABLE>
The elimination of debt issuance costs and premiums to be paid to
extinguish existing debt will be recognized as an extraordinary item ($18.0
million net of a $10.5 million tax benefit) in Pro-Fac's statement of operations
for the first fiscal quarter of 1999. Such charge has not been reflected in the
unaudited Pro Forma Condensed Consolidated Statement of Operations.
Fees associated with obtaining commitments for the bridge facility have not
been reflected in the unaudited Pro Forma Consolidated Statement of Operations
as they are considered nonrecurring. Such fees, which will be reflected in
Pro-Fac's 1999 second fiscal quarter, are estimated to be approximately $5.6
million before taxes.
(g) To reflect the income tax effect of the pro forma adjustments based on
an assumed statutory income tax rate of 39.0%.
F-106
<PAGE>
<PAGE>
PRO-FAC COOPERATIVE, INC. AND
CONSOLIDATED SUBSIDIARY -- AGRILINK FOODS, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 26, 1998
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------
ASEPTIC TRANSACTIONS
BUSINESS AND
PRO-FAC DFVC DISPOSAL OFFERING
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(A) ADJUSTMENTS TOTAL
------------ ------------ -------------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales.............................................. $ 559.3 $106.4 $(24.9) $ 15.5 (b) $ 656.3
Cost of sales.......................................... (390.4) (81.2) 20.8 (4.9)(c) (455.7)
------------ ------------ ------- ----------- -------
Gross profit...................................... 168.9 25.2 (4.1) 10.6 200.6
Selling, administrative and general.................... (127.0) (25.9) -- (4.4)(d) (157.3)
Income from Great Lakes Kraut Company.................. 1.7 - -- -- 1.7
Gain on the sale of the Aseptic Business............... 64.2 -- -- (64.2)(e) --
Amortization of unallocated excess of purchase cost
over net assets acquired............................. -- -- -- (2.4)(f) (2.4)
------------ ------------ ------- ----------- -------
Operating income before extraordinary items....... 107.8 (0.7) (4.1) (60.4) 42.6
Interest expense....................................... (26.9) (2.0) 0.4 (9.3)(g) (37.8)
Amortization of debt issue costs associated with the
Bridge Facility...................................... (5.5) -- -- (5.5)(h) --
------------ ------------ ------- ----------- -------
Pre-tax income before extraordinary items and
dividends and allocation of net proceeds........ 75.4 (2.7) (3.7) (64.2) 4.8
(Provision) benefit for taxes.......................... (27.0) 1.1 0.8 23.6(e)(i) (2.2)
------------ ------------ ------- ----------- -------
Income (loss) before extraordinary items.......... $ 48.4 $ (1.6) $ (2.9) $ (40.6) $ 2.6
------------ ------------ ------- ----------- -------
------------ ------------ ------- ----------- -------
</TABLE>
- ------------
(a) To reflect the sale of the aseptic business to Dean Foods which was
completed in conjunction with the transaction.
(b) Represents a reclassification of promotional expenses of DFVC to
conform presentation to that of the Company. Such amount is equal to the
adjustment of selling, administrative and general expenses in pro forma
adjustment (d) below.
(c) To reflect the net of (dollars in millions):
<TABLE>
<S> <C>
Cost savings anticipated under existing contracts with the suppliers of product
packaging........................................................................... $ 1.2
Reclassification of warehousing expenses of DFVC to conform presentation to that of the
Company. Such amount is equal to the adjustment of selling, administrative and general
expenses in pro forma adjustment (d) below.......................................... (6.1)
-----
$(4.9)
-----
-----
</TABLE>
F-107
<PAGE>
<PAGE>
(d) To reflect the net of (dollars in millions):
<TABLE>
<S> <C>
Reclassification of promotional expenses of DFVC to conform presentation to that of
the Company. Such amount is equal to the adjustment to the net sales in pro forma
adjustment (b) above............................................................... $(15.5)
Reclassification of warehousing expenses to conform presentation to that of the
Company. Such amount is equal to the adjustment to the net sales in pro forma
adjustment (c) above............................................................... 6.1
To reflect the anticipated cost reductions achievable under the plan formulated by
management to eliminate duplicate administrative costs, including primarily sales and
marketing functions, finance functions and logistics functions. Because both the
Company and DFVC personnel contact the same customers, it is anticipated
that no material negative impact to sales will occur. The plan outlined is to be
executed within one year from the consummation date of the Acquisition............. 5.0
------
$ (4.4)
------
------
</TABLE>
(e) To eliminate the gain recognized on the sale of the aseptic business to
Dean Foods (net of income taxes of $25.0 million). Such income has not been
reflected in the unaudited Pro Forma Condensed Consolidated Statement of
Operations, as the gain is considered nonrecurring.
(f) To reflect $2.4 million of additional goodwill amortization relating to
the Acquisition assuming an amortization period of 20 years. Depreciation and
amortization recorded by the Company subsequent to the Acquisition will be
determined based upon the fair values of acquired assets and their related lives
as ultimately recorded under purchase accounting.
(g) To reflect the net adjustment to interest expense as follows (dollars
in millions):
<TABLE>
<S> <C>
Notes at an interest rate of 11.875%................................................... $ 5.9
Borrowings under the new credit facility (at the rates applicable upon syndication
thereof)............................................................................... 10.3
Subordinated Promissory Note at an interest rate of 5.0% (non-cash).................... 0.4
Amortization of debt issuance costs.................................................... 0.8
Less historical interest expense net adjustment........................................ (7.9)
Less amortization of debt issuance costs related to debt repaid........................ (0.2)
-----
$ 9.3
-----
-----
</TABLE>
The elimination of debt issuance costs and premiums to be paid to
extinguish existing debt have been recognized as an extraordinary item in the
Statement of Operations for the first fiscal quarter of 1999. See 'Unaudited
Consolidated Statement of Operations' of Pro-Fac included elsewhere herein.
Such charge has not been reflected in the unaudited Pro Forma Condensed
Consolidated Statement of Operations.
(h) To eliminate fees associated with obtaining the bridge facility. Such
charge has not been reflected in the unaudited Pro Forma Condensed Consolidated
Statement of Operations as the expense is considered nonrecurring.
(i) To reflect the income tax effect of the pro forma adjustments based on
an assumed statutory income tax rate of 39.0%.
F-108
<PAGE>
<PAGE>
================================== ==================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER INDIVIDUAL TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY US OR THE GUARANTORS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF US OR THE GUARANTORS SINCE SUCH DATE.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 10
Where You Can Find More Information........................................................................ 16
Forward-Looking Information................................................................................ 17
Market and Industry Data................................................................................... 17
The Company and Pro-Fac.................................................................................... 18
The Transactions........................................................................................... 18
Use of Proceeds............................................................................................ 20
Capitalization............................................................................................. 20
The Exchange Offer......................................................................................... 21
Unaudited Pro Forma Financial Data of the Company.......................................................... 30
Selected Historical and Unaudited Pro Forma Consolidated Financial Data of Agrilink and DFVC............... 35
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 39
Business................................................................................................... 56
Description of Certain Indebtedness........................................................................ 58
Description of Notes....................................................................................... 62
Certain U.S. Federal Income Tax Considerations............................................................. 97
Plan of Distribution....................................................................................... 97
Legal Matters.............................................................................................. 98
Experts.................................................................................................... 98
Index to Consolidated Financial Statements and Other Information........................................... F-1
</TABLE>
------------------------
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE
EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS,
INCLUDING SELLING EXCHANGE NOTES RECEIVED IN EXCHANGE FOR INITIAL NOTES HELD FOR
THEIR OWN ACCOUNT (SEE 'PLAN OF DISTRIBUTION') AND WITH RESPECT TO ANY UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$200,000,000
AGRILINK FOODS, INC.
-------------------------
PROSPECTUS
-------------------------
OFFER TO EXCHANGE ITS
11 7/8% SENIOR SUBORDINATED NOTES
DUE 2008
================================== ==================================
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Agrilink Foods, Inc.
Agrilink Foods, Inc. is a New York corporation. Pursuant to Section 722 of
the New York Business Corporation Law (the 'New York Corporation Law'), Article
V of the By-laws of the Company provides that the Company shall indemnify any
person made, or threatened to be made, a party to any action or proceeding,
whether civil or criminal, by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the Company or serves or
served any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise in any capacity at the request of the Company
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees actually and necessarily incurred as a result of such
action or proceeding or any appeal thereon to the full extent permitted by the
New York Corporation Law. Expenses incurred in defending a civil or criminal
action or proceeding shall be paid by the registrant in advance of the final
disposition of such action or proceeding to the extent, if any, authorized by
the Board in accordance with the provisions of the New York Corporation Law,
upon receipt of an undertaking by or on behalf of the director, officer or
employee to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company as authorized in the by-laws or to
repay such amount to the extent the expenses so advanced by the Company or
allowed by a court exceed the indemnification to which he is entitled. The
Company shall provide such other indemnification to the directors and officers
of the Company as may, from time to time, be provided pursuant to resolutions
duly adopted by the Board of Directors of the Company.
Section 726 of the New York Corporation Law allows the Company to purchase
and maintain insurance to indemnify (i) the Company for any obligation which it
incurs as a result of the indemnification of directors and officers, (ii)
directors and officers in instances in which they may be indemnified by the
Company, and (iii) directors and officers in instances in which they may not
otherwise be indemnified by the Company provided the contract of insurance
covering such directors and officers provides, in a manner acceptable to the
superintendent of insurance of the State of New York, for a retention amount and
for co-insurance. Notwithstanding the foregoing, no such insurance may provide
for any payment, other than cost of defense, to or on behalf of any director or
officer (i) if a judgment or other final adjudication adverse to the insured
director or officer establishes that his acts of active and deliberate
dishonesty were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled or (ii) in relation to any risk the insurance of which is
prohibited under the insurance law of the State of New York.
Pursuant to Section 402(b) of the New York Corporation Law, paragraph 10 of
the Certificate of Incorporation of the Company provides that no director of the
Company shall be personally liable to the Company or its shareholders for
damages for any breach of duty in such capacity except where a judgment or other
final adjudication adverse to said director establishes: (i) that the director's
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law; or (ii) that the director personally gained in fact a
financial profit or other advantage to which the director was not legally
entitled; or (iii) that the director's acts violated Section 719 of the New York
Corporation Law.
The foregoing statements are subject to the detailed provisions of Sections
721 through 726 of the New York Business Corporation Law, Agrilink's By-laws and
its Certificate of Incorporation, as applicable.
Pro-Fac Cooperative
Pro-Fac is a New York cooperative corporation. Sections 721 through 726 of
the New York Business Corporation Law permit the registrant to indemnify its
officers and directors against liabilities. Under Section 722 of the New York
Business Corporation Law, the registrant may indemnify any person made, or
threatened to be made, a party to any action or proceeding, whether civil or
criminal, by reason of the fact that he, his testator or intestate is or was a
director, officer or employee of the
II-1
<PAGE>
<PAGE>
registrant or serves or served any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity at the
request of the registrant against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees actually and necessarily
incurred as a result of such action or proceeding or any appeal thereon, if such
director or officer acted in good faith for a purpose which he reasonably
believed to be in, or, under certain circumstances, not opposed to, the best
interests of the registrant.
Section 726 of the New York Business Corporation Law allows the registrant
to purchase and maintain insurance to indemnify (i) the registrant for any
obligation which it incurs as a result of the indemnification of directors and
officers, (ii) directors and officers in instances in which they may be
indemnified by the registrant, and (iii) directors and officers in instances in
which they may not otherwise be indemnified by the registrant provided the
contract of insurance covering such directors and officers provides, in a manner
acceptable to the superintendent of insurance of the State of New York, for a
retention amount and for co-insurance. Notwithstanding the foregoing, no such
insurance may provide for any payment, other than cost of defense, to or on
behalf of any director or officer (i) if a judgment or other final adjudication
adverse to the insured director or officer establishes that his acts of active
and deliberate dishonesty were material to the cause of action so adjudicated,
or that he personally gained in fact a financial profit or other advantage to
which he was not legally entitled or (ii) in relation to any risk the insurance
of which is prohibited under the insurance law of the State of New York.
The foregoing statements are subject to the detailed provisions of Sections
721 through 726 of the New York Business Corporation Law, Pro-Fac's By-laws and
its Certificate of Incorporation, as applicable.
Kennedy Endeavors, Incorporated
Kennedy Endeavors is a Washington corporation. Section 23B.08.510 of the
Washington Business Corporation Act permits a Washington corporation to
indemnify an individual made a party to a proceeding because the individual is
or was a director against liability incurred in the proceeding if (i) the
individual acted in good faith; and (ii) the individual reasonably believed, in
the case of conduct in the individual's official capacity with the corporation,
that the individual's conduct was in its best interests, and in all other cases,
that the individual's conduct was at least not opposed to its best interests;
and (iii) in the case of any criminal proceeding, the individual had no
reasonable cause to believe the individual's conduct was unlawful. A corporation
may not indemnify a director under this section (i) in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or (ii) in connection with any other
proceeding charging improper personal benefit to the director, whether or not
involving action in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly received by
the director.
Kennedy Endeavors' By-laws permit indemnification to the full extent
permitted by the Washington Business Corporation Act of any person who is or was
a director or officer of Kennedy Endeavors who is or was involved or threatened
to be made so involved in any action, suit or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that such person
is or was serving as a director, officer or employee of Kennedy Endeavors or was
serving at the request of Kennedy Endeavors as a director, officer or employee
of any other corporation.
Section 23B.08.580 of the Washington Business Corporation Act permits a
Washington corporation to purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
corporation, or who, while a director officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the corporation would have power to indemnify
the individual against the same liability under Section 23B.08.510 or 23B.08.520
of the Washington Business Corporation Act.
II-2
<PAGE>
<PAGE>
The foregoing statements are subject to the detailed provisions of Sections
23B.08.500 through 23B.08.590 of the Washington Business Corporation Act,
Kennedy Endeavors' By-laws and its Certificate of Incorporation, as applicable.
Linden Oaks Corporation
Linden Oaks is a Delaware corporation. Section 145 of the Delaware General
Corporation law (the 'DGCL') provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation -- a 'derivative action'), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceedings, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) actually
and reasonably incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise.
Linden Oaks Corporation's By-laws permit indemnification to the fullest
extent permitted under Delaware law of any person who is or was a director or
officer of Linden Oaks Corporation who is or
was involved or threatened to be made so involved in any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person is or was serving as a director, officer or
employee of Linden Oaks Corporation or was serving at the request of Linden Oaks
Corporation as a director, officer or employee of any other enterprise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as Linden Oaks
Corporation, eliminating or limiting, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Section FIFTH of Linden Oaks
Corporation's Certificate of Incorporation provides that no director shall be
personally liable to the corporation or its stockholders for monetary damages
for breach of a fiduciary duty as a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the DGCL (relating to
unlawful dividends, stock purchases and redemptions); or (iv) for any
transaction from which the director derived an improper personal benefit.
Section SIXTH provides that each director, officer, employee and agent of the
corporation shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the DGCL.
The foregoing statements are subject to the detailed provisions of Sections
145 and 102(b)(7) of the DGCL, Linden Oaks Corporation's By-laws and its
Certificate of Incorporation, as applicable.
Liability Insurance
Pro-Fac maintains a directors and officers liability insurance and
corporation reimbursement policy, in such amount as it deems reasonable, against
certain liabilities that may be asserted against, or incurred by, the directors
and officers of each registrant in their capacities as directors or officers of
such registrant, including liabilities under Federal and state securities laws.
Such policy is due for renewal on October 15, 1999.
ITEM 21. EXHIBITS.
(a) Exhibits:
<TABLE>
<C> <S>
4.1 -- 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 -- Form of 11 7/8% Senior Subordinated Notes due 2008 (included as Exhibit B to Exhibit 4.1).*
4.3 -- 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.*
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<C> <S>
5.1 -- Opinion of Howard, Smith & Levin LLP.*
12.1 -- Statement regarding the computation of the ratio of earnings to fixed charges and preferred dividends of
Pro-Fac Cooperative, Inc.'D'
12.2 -- Statement regarding the computation of the ratio of earnings to fixed charges of Agrilink Foods, Inc.'D'
23.1 -- Consent of PricewaterhouseCoopers LLP regarding Agrilink Foods, Inc.'D'
23.2 -- Consent of PricewaterhouseCoopers LLP regarding Pro-Fac Cooperative, Inc.'D'
23.3 -- Consent of PricewaterhouseCoopers LLP regarding Dean Foods Vegetable Company.'D'.
23.4 -- Consent of counsel (included in Exhibit 5.1).*
24.1 -- Powers of Attorney of Agrilink Foods, Inc., Pro-Fac Cooperative, Inc., Kennedy Endeavors, Incorporated and
Linden Oaks Corporation (included in the signature pages hereto).*
25.1 -- Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company.*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
99.4 -- Form of Letter to Clients.*
99.5 -- Form of Exchange Agency Agreement.*
</TABLE>
- ------------
* Previously filed.
'D' Filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rochester,
State of New York, on February 11, 1999.
AGRILINK FOODS, INC.
By: EARL L. POWERS
.................................
NAME: EARL L. POWERS
TITLE: VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* President and Chief Executive Officer February 11, 1999
.........................................
(DENNIS M. MULLEN)
/s/ EARL L. POWERS Vice President, Finance and February 11, 1999
......................................... Chief Financial Officer (Principal
(EARL L. POWERS) Financial Officer and Principal Accounting
Officer)
* Director and Chairman of the Board February 11, 1999
.........................................
(ROBERT V. CALL, JR.)
* Director February 11, 1999
.........................................
(BRUCE R. FOX)
* Director February 11, 1999
.........................................
(CORNELIUS D. HARRINGTON, JR.)
* Director February 11, 1999
.........................................
(STEVEN D. KOINZAN)
* Director February 11, 1999
.........................................
(WALTER F. PAYNE)
Director February 11, 1999
.........................................
(FRANK M. STOTZ)
*By: EARL L. POWERS
.....................................
(EARL L. POWERS)
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rochester,
State of New York, on February 11, 1999.
PRO-FAC COOPERATIVE, INC.
By: /s/ EARL L. POWERS
.................................
NAME: EARL L. POWERS
TITLE: VICE PRESIDENT, FINANCE AND
ASSISTANT TREASURER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Dennis M. Mullen and Earl L. Powers and
each of them, with full power to act alone, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statement filed
by the Registrant pursuant to Rule 462(b) of the Securities Act, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* President and Director February 11, 1999
.........................................
(BRUCE R. FOX)
* Treasurer and Director February 11, 1999
.........................................
(STEVEN D. KOINZAN)
/s/ EARL L. POWERS Vice President, Finance and February 11, 1999
......................................... Assistant Treasurer
(EARL L. POWERS)
* Director February 11, 1999
.........................................
(DALE W. BURMEISTER)
* Director February 11, 1999
.........................................
(ROBERT V. CALL, JR.)
* Director February 11, 1999
.........................................
(GLEN LEE CHASE)
/s/ TOM R. CRONER Secretary and Director February 11, 1999
.........................................
(TOM R. CRONER)
/s/ KENNETH M. DAHLSTEDT Director February 11, 1999
.........................................
(KENNETH M. DAHLSTEDT)
</TABLE>
II-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* Director February 11, 1999
.........................................
(ROBERT A. DEBADTS)
* Director February 11, 1999
.........................................
(KENNETH A. MATTINGLY)
/s/ ALLAN W. OVERHISER Director February 11, 1999
.........................................
(ALLAN W. OVERHISER)
* Director February 11, 1999
.........................................
(PAUL E. ROE)
* Director February 11, 1999
.........................................
(DARELL SARFF)
*By: EARL L. POWERS February 11, 1999
......................................
(EARL L. POWERS)
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rochester,
State of New York, on February 11, 1999.
KENNEDY ENDEAVORS, INCORPORATED
By: /S/ EARL L. POWERS
.................................
NAME: EARL L. POWERS
TITLE: VICE PRESIDENT, FINANCE AND
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
* President February 11, 1999
.........................................
(TIM KENNEDY)
/s/ EARL L. POWERS Director, Vice President, Finance and February 11, 1999
......................................... Secretary
(EARL L. POWERS)
* Director February 11, 1999
.........................................
(ROBERT V. CALL, JR.)
* Director February 11, 1999
.........................................
(DENNIS M. MULLEN)
*By: EARL L. POWERS February 11, 1999
......................................
(EARL L. POWERS)
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rochester,
State of New York, on February 11, 1999.
LINDEN OAKS CORPORATION
By: /s/ TIMOTHY J. BENJAMIN
.................................
NAME: TIMOTHY J. BENJAMIN
TITLE: PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ TIMOTHY J. BENJAMIN President and Director February 11, 1999
.........................................
(TIMOTHY J. BENJAMIN)
* Treasurer February 11, 1999
.........................................
(LINDA K. NELSON)
* Director February 11, 1999
.........................................
(ROBERT CAMPBELL)
/s/ EARL L. POWERS Director February 11, 1999
.........................................
(EARL L. POWERS)
*By: EARL L. POWERS February 11, 1999
......................................
(EARL L. POWERS)
ATTORNEY-IN-FACT
</TABLE>
II-9
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as .................................. 'D'
<PAGE>
<PAGE>
EXHIBIT 12.1
PRO-FAC COOPERATIVE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------------- ----------------
JUNE 27, 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, -------------------- DECEMBER 27,
1994 1995 1996 1997 ACTUAL PRO FORMA 1997
-------- -------- -------- -------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS
Pretax income (loss) before
dividends, allocation of net
proceeds, cumulative effect
of an accounting change, and
extraordinary item........... $ 23.7 $ 22.5 $(22.6) $ 13.6 $24.9 $ 6.7 $19.2
Deduct -- Equity in
undistributed earnings of
CoBank....................... (1.5) (1.3) (1.5) (1.1) (.7) (0.7) 0.0
-------- -------- -------- -------- ------- ---------- ------
Adjusted earnings/(loss)....... 22.2 21.2 (24.1) 12.5 24.2 6.0 19.2
-------- -------- -------- -------- ------- ---------- ------
Fixed charges:
Interest expense.......... 11.6 29.1 42.0 36.5 30.8 73.0 15.8
Rentals(A)................ 0.0 0.8 1.4 1.5 1.6 2.0 0.8
-------- -------- -------- -------- ------- ---------- ------
Total fixed
charges............ 11.6 29.9 43.4 38.0 32.4 75.0 16.6
-------- -------- -------- -------- ------- ---------- ------
Adjusted earnings/(loss) and
fixed charges................ $ 33.8 $ 51.1 $ 19.3 $ 50.5 $56.6 $ 81.0 $35.8
-------- -------- -------- -------- ------- ---------- ------
-------- -------- -------- -------- ------- ---------- ------
Preferred dividends............ $ 3.7 $ 4.3 $ 8.5 $ 5.5 $ 5.8 $ 5.8 $ 2.8
Add -- Adjustment to reflect
preferred dividends on a
pretax basis................. 0.0 0.0 4.4 2.8 3.2 3.2 1.8
-------- -------- -------- -------- ------- ---------- ------
Preferred dividends on a
pretax basis................. 3.7 4.3 12.9 8.3 9.0 9.0 4.6
Fixed charges.................. 11.6 29.9 43.4 38.0 32.4 75.0 16.6
-------- -------- -------- -------- ------- ---------- ------
Total................ $ 15.3 $ 34.2 $ 56.3 $ 46.3 $41.4 $ 84.0 $21.2
-------- -------- -------- -------- ------- ---------- ------
-------- -------- -------- -------- ------- ---------- ------
Ratio of earnings to fixed
charges and preferred
dividends.................... 2.20 1.49 (C) 1.09 1.37 (C) 1.69
-------- -------- -------- -------- ------- ---------- ------
-------- -------- -------- -------- ------- ---------- ------
<CAPTION>
DECEMBER 26, 1998
--------------------------------
ACTUAL PRO FORMA
------------------ ---------
<S> <C> <C>
COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS
Pretax income (loss) before
dividends, allocation of net
proceeds, cumulative effect
of an accounting change, and
extraordinary item........... $ 16.7(B) $ 4.8
Deduct -- Equity in
undistributed earnings of
CoBank....................... 0.0 0.0
------ ---------
Adjusted earnings/(loss)....... 16.7 4.8
------ ---------
Fixed charges:
Interest expense.......... 26.9 37.8
Rentals(A)................ 0.8 1.0
------ ---------
Total fixed
charges............ 27.7 38.8
------ ---------
Adjusted earnings/(loss) and
fixed charges................ $ 44.4 $ 43.6
------ ---------
------ ---------
Preferred dividends............ $ 3.0 $ 3.0
Add -- Adjustment to reflect
preferred dividends on a
pretax basis................. 1.9 1.8
------ ---------
Preferred dividends on a
pretax basis................. 4.9 4.8
Fixed charges.................. 27.7 38.8
------ ---------
Total................ $ 32.6 $ 43.6
------ ---------
------ ---------
Ratio of earnings to fixed
charges and preferred
dividends.................... 1.36 1.00
------ ---------
------ ---------
</TABLE>
- ------------
(A) Rentals deemed representative of the interest factor included in rent
expense.
(B) The $64.2 million gain on the sale of the Aseptic Business and the $5.5
million expense for the amortization of debt issue costs associated with
the Bridge Facility have been excluded in calculating the ratio of earnings
to fixed charges for the six months ended December 26, 1998.
(C) For fiscal 1996, and for fiscal 1998 on a pro forma basis, earnings before
fixed charges were insufficient to cover fixed charges and pre-tax basis
preferred dividends by $37.0 million and $3.0 million, respectively.
<PAGE>
<PAGE>
EXHIBIT 12.2
AGRILINK FOODS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------------- ----------------
JUNE 27, 1998
JUNE 25, JUNE 24, JUNE 29, JUNE 28, -------------------- DECEMBER 27,
1994 1995 1996 1997 ACTUAL PRO FORMA 1997
-------- -------- -------- -------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
Income/(loss) before taxes,
cumulative effect of an
accounting change, and
extraordinary item............. $ 18.8 $ 10.0 $(18.8) $ 7.5 $12.5 $ 3.4 $ 9.7
Fixed charges:
Interest expense............ 18.2 32.4 42.0 35.0 30.6 72.9 15.6
Rentals(B).................. 1.5 1.3 1.4 1.5 1.6 2.0 0.8
-------- -------- -------- -------- ------- ---------- ------
Total fixed charges.... 19.7 33.7 43.4 36.5 32.2 74.9 16.4
-------- -------- -------- -------- ------- ---------- ------
Adjusted earning/(loss) and
fixed charges.................. $ 38.5 $ 43.7 $ 24.6 $ 44.0 $44.7 $ 78.3 $26.1
-------- -------- -------- -------- ------- ---------- ------
-------- -------- -------- -------- ------- ---------- ------
Ratio of earnings to fixed
charges........................ 1.95 1.30 (C) 1.20 1.39 1.05 1.59
-------- -------- -------- -------- ------- ---------- ------
-------- -------- -------- -------- ------- ---------- ------
<CAPTION>
DECEMBER 26, 1998
--------------------------------
ACTUAL PRO FORMA
------------------ ---------
<S> <C> <C>
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
Income/(loss) before taxes,
cumulative effect of an
accounting change, and
extraordinary item............. $ 3.5(A) $ 2.4
Fixed charges:
Interest expense............ 26.9 37.8
Rentals(B).................. 0.8 1.0
------ ---------
Total fixed charges.... 27.7 38.8
------ ---------
Adjusted earning/(loss) and
fixed charges.................. $ 31.2 $41.2
------ ---------
------ ---------
Ratio of earnings to fixed
charges........................ 1.13 1.06
------ ---------
------ ---------
</TABLE>
- ------------
(A) The $64.2 million gain on the sale of the Aseptic Business and the $5.5
million expense for the amortization of debt issue costs associated with
the Bridge Facility have been excluded in calculating the ratio of earnings
to fixed charges for the six months ended December 26, 1998.
(B) Rentals deemed representative of the interest factor included in rent
expense.
(C) For fiscal 1996 earnings before fixed charges were insufficient to cover
fixed charges by $18.7 million.
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to Registration Statement on Form S-4 of Agrilink Foods,
Inc. of our report dated July 31, 1998 relating to the financial statements
of Agrilink Foods, Inc., which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Rochester, New York
February 10, 1999
<PAGE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to Registration Statement on Form S-4 of Agrilink Foods,
Inc. of our report dated July 31, 1998 relating to the financial statements
of Pro-Fac Cooperative, Inc., which appears in such Prospectus. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Rochester, New York
February 10, 1999
<PAGE>
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to Registration Statement on Form S-4 of Agrilink Foods,
Inc. of our report dated August 31, 1998 relating to the financial statements
of Dean Foods Vegetable Company, which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Rochester, New York
February 10, 1999
