UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Registration Statement (Form S-4) Number 33-56517
AGRILINK FOODS, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 16-0845824
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
90 Linden Oaks, PO Box 20670, Rochester, NY 14602-6070
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (716) 383-1850
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 30, 1999.
Common Stock: 10,000
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM I. FINANCIAL STATEMENTS
Agrilink Foods, Inc.
Consolidated Statement of Operations
(Dollars in Thousands)
<CAPTION>
Quarter Ended
September 25, September 26,
1999 1998
<S> <C> <C>
Net sales $ 278,186 $182,579
Cost of sales (197,355) (135,882)
--------- ---------
Gross profit 80,831 46,697
Selling, administrative, and general expenses (60,550) (34,867)
Income from Great Lakes Kraut Company 491 636
Gain on sale of aseptic operations 0 64,202
--------- ---------
Operating income before dividing with Pro-Fac 20,772 76,668
Interest expense (19,323) (8,336)
--------- ---------
Pretax income before dividing with Pro-Fac and before extraordinary item 1,449 68,332
Pro-Fac share of income before extraordinary item (724) (5,658)
--------- ---------
Income before taxes and before extraordinary item 725 62,674
Tax provision (309) (24,334)
--------- ---------
Income before extraordinary item 416 38,340
Extraordinary item relating to the early extinguishment of debt 0 (16,366)
(net of income taxes and after dividing with Pro-Fac)
--------- ---------
Net Income $ 416 $ 21,974
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
September 25, June 26, September 26,
1999 1999 1998
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 10,831 $ 6,540 $ 9,057
Accounts receivable trade, net 106,871 81,430 105,374
Accounts receivable, other 14,396 6,184 23,038
Income taxes refundable 2,880 9,360 0
Current deferred tax asset 15,565 15,565 13,129
Inventories -
Finished goods 345,877 247,389 349,451
Raw materials and supplies 74,077 46,181 45,829
---------- --------- ---------
Total inventories 419,954 293,570 395,280
---------- --------- ---------
Current investment in CoBank 1,602 2,403 1,330
Prepaid manufacturing expense 114 18,217 98
Prepaid expenses and other current assets 21,327 17,989 17,288
---------- --------- ---------
Total current assets 593,540 451,258 564,594
Investment in CoBank 19,693 19,693 22,377
Investment in Great Lakes Kraut Company 7,170 6,679 7,223
Property, plant and equipment, net 337,278 339,753 317,025
Assets held for sale at net realizable value 1,172 890 2,711
Goodwill and other intangible assets, net 262,059 260,733 321,022
Other assets 21,556 21,655 24,418
Note receivable due from Pro-Fac 9,400 9,400 9,400
---------- --------- ---------
Total assets $1,251,868 $1,110,061 $1,268,770
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable $ 126,800 $ 18,900 $ 94,000
Current portion of obligations under capital leases 208 208 256
Current portion of long-term debt 16,580 8,670 1,023
Accounts payable 108,007 103,615 96,478
Income taxes payable 0 0 12,420
Accrued interest 11,059 5,476 690
Accrued employee compensation 13,555 13,717 14,329
Other accrued expenses 76,230 60,242 96,209
Current liability due to Pro-Fac 22,861 15,067 27,254
---------- --------- ---------
Total current liabilities 375,300 225,895 342,659
Obligations under capital leases 568 568 503
Long-term debt 660,640 668,316 687,087
Deferred income tax liabilities 23,174 23,174 35,341
Other non-current liabilities 27,886 28,224 26,626
---------- --------- ---------
Total liabilities 1,087,568 946,177 1,092,216
---------- --------- ---------
Commitments and contingencies
Shareholder's Equity:
Common stock, par value $.01;
10,000 shares outstanding, owned by Pro-Fac 0 0 0
Additional paid-in capital 167,071 167,071 167,071
Accumulated (deficit)/retained earnings (2,008) (2,424) 10,096
Accumulated other comprehensive income:
Minimum pension liability adjustment (763) (763) (608)
Cumulative foreign currency adjustment 0 0 (5)
---------- --------- ---------
Total shareholder's equity 164,300 163,884 176,554
---------- --------- ---------
Total liabilities and shareholder's equity $1,251,868 $1,110,061 $1,268,770
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
Quarter Ended
September 25, September 26,
1999 1998
------------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 416 $ 21,974
Adjustments to reconcile net income to net cash used in operating activities -
Extraordinary item relating to the early extinguishment of debt (net of income taxes and
after dividing with Pro-Fac) 0 16,366
Gain on sale of aseptic operations (0) (64,202)
Depreciation 7,446 4,385
Amortization of goodwill and other intangibles 2,105 926
Amortization of debt issue costs and discount on subordinated promissory note 1,025 200
Equity in undistributed earnings of Great Lakes Kraut Company (491) (636)
Change in assets and liabilities:
Accounts receivable (33,653) (40,670)
Inventories (108,281) (63,732)
Income taxes refundable/(payable) 6,480 18,940
Accounts payable and other accrued expenses 25,454 (13,163)
Due to Pro-Fac 7,799 12,870
Other assets and liabilities (4,219) (3,026)
---------- ----------
Net cash used in operating activities (95,919) (109,768)
---------- --------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (8,314) (4,094)
Proceeds from disposals 273 83,000
Proceeds from investment in CoBank 801 664
Cash paid for acquisitions 0 (442,918)
---------- ----------
Net cash used in investing activities (7,240) (363,348)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from issuance of short-term debt 107,900 177,000
Repayment of short-term debt 0 (83,000)
Proceeds from issuance of long-term debt 0 677,100
Payments on long-term debt (450) (276,450)
Cash paid for debt issuance costs 0 (17,523)
---------- ----------
Net cash provided by financing activities 107,450 477,127
---------- ----------
Net change in cash and cash equivalents 4,291 4,011
Cash and cash equivalents at beginning of period 6,540 5,046
---------- ----------
Cash and cash equivalents at end of period $ 10,831 $ 9,057
========== ==========
<FN>
(Table continued on next page)
</FN>
</TABLE>
<PAGE>
Agrilink Foods, Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Table continued from previous page)
<TABLE>
Quarter Ended
September 25, September 26,
1999 1998
------------------ -------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Acquisition of Dean Foods Vegetable Company -
Accounts receivable $ 24,201
Current deferred tax asset 30,645
Inventories 195,674
Prepaid expenses and other current assets 6,374
Property, plant and equipment 154,527
Assets held for sale at net realizable value 49
Goodwill and other intangible assets 182,010
Accounts payable (40,865)
Accrued employee compensation (8,437)
Other accrued expenses (75,778)
Long-term debt (2,752)
Subordinated promissory note (22,590)
Other assets and liabilities, net (2,453)
----------
$ 440,605
==========
Acquisition of J.A. Hopay Distributing Co., Inc. -
Accounts receivable $ 420
Inventories 153
Property, plant and equipment 51
Goodwill and other intangible assets 3,303
Other accrued expenses (251)
Obligation for covenant not to compete (1,363)
----------
$ 2,313
==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Agrilink Foods, Inc. (the "Company" or "Agrilink"), incorporated in New York in
1961, is a producer and marketer of processed food products. The Company has
four primary product lines including: vegetables, fruits, snacks, and canned
meals. The majority of each of the product lines' net sales is within the United
States. In addition, all of the Company's operating facilities, excluding one in
Mexico, are within the United States. The Company is a wholly-owned subsidiary
of Pro-Fac Cooperative, Inc. ("Pro-Fac" or the Cooperative").
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. These financial statements should be read in conjunction with the
financial statements and accompanying notes contained in the Company's Form 10-K
for the fiscal year ended June 26, 1999.
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 1999 have been reclassified to
conform with the current presentation.
NOTE 2. ACQUISITIONS
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
"DFVC Acquisition"). In connection with the DFVC 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 DFVC Acquisition. The Company had the right,
exercisable until July 15, 1999, to require Dean Foods, jointly with the
Company, to treat the DFVC Acquisition as an asset sale for tax purposes under
Section 338(h)(10) of the Internal Revenue Code. On April 15, 1999, the Company
paid $13.2 million to Dean Foods and exercised the election.
After the DFVC Acquisition, DFVC was merged into the Company. DFVC has been one
of the leading processors of vegetables in the United States, selling its
products under well-known brand names, such as Birds Eye, Freshlike and Veg-All,
and various private labels. The Company believes that the DFVC 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 DFVC Acquisition was accounted for under the purchase method of accounting.
Under purchase accounting, tangible and identifiable intangible assets acquired
and liabilities assumed were recorded at their respective fair values. Goodwill
associated with the DFVC Acquisition is being amortized over 30 years.
The following unaudited pro forma financial information presents a summary of
consolidated results of operations of the Company and the acquired Dean Foods
Vegetable Company as if the acquisition had occurred at the beginning of the
1999 fiscal year.
Three Months Ended
September 26, 1998
Net sales $ 279.7
Income before extraordinary item $ 28.2
Net income $ 11.8
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
<PAGE>
operations which actually would have resulted had the combination been in effect
at the beginning of the 1999 fiscal year, or of the future operations of the
consolidated entities.
Concurrently with the DFVC Acquisition, Agrilink refinanced its existing
indebtedness (the "Refinancing"), including its 12 1/4 percent Senior
Subordinated Notes due 2005 (the "Old Notes")
and its then existing bank debt.
On August 24, 1998, Agrilink commenced a tender offer (the "Tender Offer") for
all the Old Notes and consent solicitation to certain amendments under the
indenture governing the Old Notes to eliminate substantially all the restrictive
covenants and certain events of default therein. Substantially all of the $160
million aggregate principal amount of the Old Notes were tendered and purchased
by Agrilink for aggregate consideration of approximately $184 million, including
accrued interest of $2.9 million. Agrilink also terminated its then existing
bank facility (including seasonal borrowings) and repaid the $176.5 million,
excluding interest owed and breakage fees outstanding thereunder. The Company
recognized an extraordinary item of $16.4 million (net of income taxes and after
dividing with Pro-Fac) in the first quarter of fiscal 1999 relating to this
refinancing.
In order to consummate the DFVC 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 "Subordinated Bridge Facility") and (iii) issued the
$30 million Subordinated Promissory Note to Dean Foods. The Subordinated Bridge
Facility was repaid during November of 1998 principally with the proceeds from
the issuance of 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. Debt issue costs of $5.5
million associated with the Bridge Facility were expensed during the quarter
ended December 26, 1998.
NOTE 3. AGREEMENTS WITH PRO-FAC
The Company's contractual relationship with Pro-Fac is defined in the Pro-Fac
Marketing and Facilitation Agreement ("Agreement"). Under the Agreement, the
Company pays Pro-Fac the commercial market value ("CMV") for all crops supplied
by Pro-Fac. CMV is defined as the weighted average price paid by other
commercial processors for similar crops sold under preseason contracts and in
the open market in the same or competing market area. Although CMV is intended
to be no more than the fair market value of the crops purchased by Agrilink, it
may be more or less than the price Agrilink would pay in the open market in the
absence of the Agreement.
Under the Agreement, the Company is required to have on its board of directors
some persons who are neither members of nor affiliated with Pro-Fac
("Disinterested Directors"). The number of Disinterested Directors must at least
equal the number of directors who are members of Pro-Fac. The volume and type of
crops to be purchased by Agrilink under the Agreement are determined pursuant to
its annual profit plan, which requires the approval of a majority of the
Disinterested Directors. In addition, under the Agreement, in any year in which
the Company has earnings on products which were processed from crops supplied by
Pro-Fac ("Pro-Fac Products"), the Company pays to Pro-Fac, as additional
patronage income, 90 percent of such earnings, but in no case more than 50
percent of all pretax earnings (before dividing with Pro-Fac) of the Company. In
years in which the Company has losses on Pro-Fac Products, the Company reduces
the CMV it would otherwise pay to Pro-Fac by up to 90 percent of such losses,
but in no case by more than 50 percent of all pretax losses (before dividing
with Pro-Fac) of the Company. Additional patronage income is paid to Pro-Fac for
services provided to Agrilink, including the provision of a long term, stable
crop supply, favorable payment terms for crops, and the sharing of risks of
losses of certain operations of the business. Earnings and losses are determined
at the end of the fiscal year, but are accrued on an estimated basis during the
year. Under the Agreement, Pro-Fac is required to reinvest at least 70 percent
of the additional patronage income in Agrilink.
Amounts received by Pro-Fac from Agrilink for the three months ended September
25, 1999 and September 26, 1998 include: commercial market value of crops
delivered, $53.3 million and $44.3 million, respectively; and additional
proceeds from profit sharing provisions, $0.7 million and $4.0 million,
respectively.
<PAGE>
NOTE 4. DEBT
Summary of Long-Term Debt:
September 25, June 26, September 26,
1999 1999 1998
Term Loan Facility $ 446,400 $ 446,600 $ 455,000
Senior Subordinated Notes 200,015 200,015 15
Subordinated Promissory Note 24,056 23,372 23,372
Subordinated Bridge Facility 0 0 200,000
Other 6,749 6,999 9,723
---------- ---------- ---------
Total Debt 677,220 676,986 688,110
Less Current Portion (16,580) (8,670) (1,023)
---------- ---------- ---------
Total Long-Term Debt $ 660,640 $ 668,316 $ 687,087
========== ========== =========
NOTE 5. OTHER MATTERS
Sale of Canned Vegetable Business: On September 15, 1999, Agrilink and Seneca
Foods Corporation announced they are in negotiation regarding the purchase by
Seneca of Agrilink's Midwest, private label, canned vegetable business. The
transaction will include reciprocal copacking agreements. The parties are
working toward finalizing the agreement by mid November. This transaction does
not include Agrilink's retail branded canned vegetables, Veg-All and Freshlike.
No significant gain or loss is anticipated on this sale.
Restructuring: During the third quarter of fiscal 1999, the Company began
implementation of a corporate-wide restructuring program. The overall objectives
of the plan are to reduce expenses, improve productivity, and streamline
operations. The total restructuring charge amounted to $5.0 million and was
primarily comprised of employee termination benefits. Efforts have focused on
the consolidation of operating functions and the elimination of approximately
five percent of the work force. Reductions in personnel include operational and
administrative positions. Of this charge, $1.9 million has been liquidated, and
the remaining termination benefits will be liquidated during fiscal 2000.
NOTE 6. OPERATING SEGMENTS
The Company is organized by product line for management reporting with operating
income being the primary measure of segment profitability. Accordingly, no items
below operating earnings are allocated to segments. The Company's four primary
operating segments are as follows: vegetables, fruits, snacks, and canned meals.
The vegetable product line consists of canned and frozen vegetables, chili
beans, pickles, and various other products. Branded products within the
vegetable category include Birds Eye, Birds Eye Voila!, Veg-All, Freshlike,
McKenzies, Brooks Chili Beans, Farman's and Nalley. The fruit product line
consists of canned and frozen fruits including fruit fillings and toppings.
Branded products within the fruit category include Comstock and Wilderness. The
snack product line consists of potato chips, popcorn and other corn-based snack
items. Branded products within the snack category include Tim's Cascade Chips,
Snyder of Berlin, Husman, La Restaurante, Erin's, Beehive, Pops-Rite, and Super
Pop. The canned meal product line includes canned meat products such as chilies,
stew, and soups, and various other ready-to-eat prepared meals. Branded products
within the canned meal category include Nalley. The Company's other product
lines primarily represent salad dressings. Branded products within the "other
category" include Bernstein's and Nalley.
<PAGE>
The following table illustrates the Company's operating segment information:
<TABLE>
(Dollars in Millions) Quarter Ended
<CAPTION>
September 25, 1999 September 26, 1998
------------------ ------------------
<S> <C> <C>
Net Sales:
Vegetables $ 182.3 $ 78.8
Fruits 23.3 25.1
Snacks 21.4 21.8
Canned Meals 16.6 14.8
Other 14.7 13.4
---------- ----------
Continuing segments 258.3 153.9
Businesses sold or to be sold1 19.9 28.7
---------- ----------
Total $ 278.2 $ 182.6
========== ==========
Operating income:
Vegetables2 $ 13.7 $ 3.4
Fruits 3.3 2.2
Snacks 1.5 2.0
Canned Meals 1.9 1.4
Other 0.9 0.0
---------- ----------
Continuing segments 21.3 9.0
Businesses sold or to be sold1 (0.5) 3.5
---------- ----------
Subtotal 20.8 12.5
Gain on sale of aseptic operations 0.0 64.2
---------- ----------
Operating income before dividing with Pro-Fac 20.8 76.7
Interest expense (19.3) (8.4)
---------- ----------
Pretax income before dividing with Pro-Fac and before extraordinary item $ 1.5 $ 68.3
========== ==========
<FN>
1 Includes the private label canned vegetable business to be sold in fiscal 2000 and the aseptic and peanut butter businesses sold
in fiscal 1999.
2 The vegetable product line includes earnings derived from the Company's investment in Great Lakes Kraut Company of $0.5 million
and $0.6 million in fiscal 2000 and fiscal 1999, respectively.
</FN>
</TABLE>
NOTE 7. SUBSIDIARY GUARANTORS
Kennedy Endeavors, Incorporated and Linden Oaks Corporation, wholly-owned
subsidiaries of the Company ("Subsidiary Guarantors"), and Pro-Fac have jointly
and severally, fully and unconditionally guaranteed, on a senior subordinated
basis, the obligations of the Company with respect to the Company's 11-7/8
percent Senior Subordinated Notes due 2008 ("New Notes") and the New Credit
Facility. The covenants in the New Notes and the New Credit Facility do not
restrict the ability of the Subsidiary Guarantors to make cash distributions to
the Company.
Full financial statements of Pro-Fac are included as an Exhibit to this Form
10-Q. Separate financial statements and other disclosures concerning the
Subsidiary Guarantors are not presented because management has determined that
such financial statements and other disclosures are not material. Accordingly,
set forth below is certain summarized financial information derived from
unaudited historical financial information for the Subsidiary Guarantors, on a
combined basis.
<PAGE>
(Dollars in Millions)
Quarter Ended
September 25, September 26,
1999 1998
------------- --------------
Summarized Statement of Operations:
Net sales $ 18,262 $ 3,331
Gross profit 14,384 1,561
Income from continuing operations 14,132 610
Net income 9,186 396
Summarized Balance Sheet:
Current assets $ 2,511 $ 2,097
Noncurrent assets 215,813 7,080
Current liabilities 5,583 758
On March 2, 1999, the Company transferred trademarks valued at $212.6 million to
Linden Oaks Corporation. By consolidating the trademarks into a separate
subsidiary, Agrilink will be able to monitor more closely and efficiently the
benefits associated with its trademarks. The royalty fees that are earned by
Linden Oaks Corporation in connection with the trademarks are insignificant with
respect to the Company's Consolidated Statement of Operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to outline the significant reasons for changes
in the Unaudited Consolidated Statement of Operations in the first quarter of
fiscal 2000 versus fiscal 1999.
Agrilink Foods, Inc. ("Agrilink" or the "Company") has four primary product
lines: Vegetables, fruits, snacks and canned meals. The majority of each of the
product lines' net sales are within the United States. In addition, the
Company's operating facilities, excluding one in Mexico, are within the United
States.
The vegetable product line consists of canned and frozen vegetables, chili
beans, pickles, and various other products. Branded products within the
vegetable product line include Birds Eye, Birds Eye Voila!, Freshlike, Veg-All,
McKenzies, Brooks Chili Beans, Farman's and Nalley. The fruit product line
consists of canned and frozen fruits including fruit fillings and toppings.
Branded products within the fruit category include Comstock and Wilderness. The
snack product line consists of potato chips, popcorn and other corn-based snack
items. Branded products within the snack category include Tim's Cascade Chips,
Snyder of Berlin, Husman, La Restaurante, Erin's, Beehive, Pops-Rite, and Super
Pop. The canned meal product line includes canned meat products such as chilies,
stews, soups, and various other ready-to-eat prepared meals. Branded products
within the canned meal category include Nalley. The Company's other product line
primarily represents salad dressings. Brand products within the "other" category
include Bernstein's and Nalley.
The following tables illustrate the results of operations by product line for
the three-month period ended September 25, 1999 and September 26, 1998.
<PAGE>
EBITDA1, 2
(Dollars in Millions)
Quarter Ended
September 25, September 26,
1999 1998
% of % of
$ Total $ Total
------ ----- ------- ------
Vegetables $ 20.6 67.9% $ 5.9 33.1%
Fruits 3.7 12.2 2.7 15.2
Snacks 2.4 7.9 2.7 15.2
Canned Meals 2.3 7.5 1.9 10.7
Other 1.4 4.6 0.4 2.2
------ ----- ------- -----
Continuing segments 30.4 100.1 13.6 76.4
Businesses sold or to be sold3 (0.1) (0.1) 4.2 23.6
------ ----- ------- ------
Total $ 30.3 100.0% $ 17.8 100.0%
====== ===== ======= ======
1 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is
defined as the sum of pretax income before dividing with Pro-Fac and before
extraordinary item, interest expense, depreciation and amortization of
goodwill and other intangibles.
EBITDA should not be considered as an alternative to net income or cash flows
from operations or any other generally accepted accounting principles measure
of performance or as a measure of liquidity.
EBITDA is included herein because the Company believes EBITDA is a financial
indicator of a company's ability to service debt. EBITDA as calculated by
Agrilink may not be comparable to calculations as presented by other
companies.
2 Excludes the gain on sale of aseptic operations. See NOTE 2 to the "Notes
to Consolidated Financial Statements."
3 Represents the operating results of the private label canned vegetable
business to be sold in fiscal 2000 and the operating results of the aseptic
and peanut butter operations sold in fiscal 1999. See NOTES 2 and 5 to the
"Notes to Consolidated Financial Statements."
Net Sales
(Dollars in Millions)
Quarter Ended
September 25, September 26,
1999 1998
------------------- ------------------
% of % of
$ Total $ Total
---------- -------- ---------- ------
Vegetables $182.3 65.5% $ 78.8 43.2%
Fruits 23.3 8.4 25.1 13.8
Snacks 21.4 7.7 21.8 11.9
Canned Meals 16.6 5.9 14.8 8.1
Other 14.7 5.3 13.4 7.3
------ ----- ------- ------
Continuing segments 258.3 92.8 153.9 84.3
Businesses sold or to be sold1 19.9 7.2 28.7 15.7
------ ----- ------- ------
Total $278.2 100.0% $ 182.6 100.0%
====== ===== ======= ======
1 Represents net sales of the private label canned vegetable business to be
sold in fiscal 2000 and net sales of the aseptic and peanut butter
operations sold in fiscal 1999. See NOTES 2 and 5 to the "Notes to
Consolidated Financial Statements."
<PAGE>
Operating Income1
(Dollars in Millions)
Quarter Ended
September 25, September 26,
1999 1998
------------------- ------------------
% of % of
$ Total $ Total
------ ------ ------- -----
Vegetables $ 13.7 65.9% $ 3.4 27.2%
Fruits 3.3 15.9 2.2 17.6
Snacks 1.5 7.2 2.0 16.0
Canned Meals 1.9 9.1 1.4 11.2
Other 0.9 4.3 0.0 0.0
------ ----- ------- -----
Continuing segments 21.3 102.4 9.0 72.0
Businesses sold or to be sold2 (0.5) (2.4) 3.5 28.0
------ ----- ------- -----
Total $ 20.8 100.0% $ 12.5 100.0%
====== ===== ======= =====
1 Excludes the gain on sale of aseptic operations. See NOTE 2 to the "Notes
to Consolidated Financial Statements."
2 Represents the operating results of the private label canned vegetable
business to be sold in fiscal 2000 and operating results of the aseptic and
peanut butter operations sold in fiscal 1999. See NOTES 2 and 5 to the
"Notes to Consolidated Financial Statements."
CHANGES FROM FIRST QUARTER FISCAL 2000 TO FIRST QUARTER FISCAL 1999
The net income for the first quarter of fiscal 2000 of $0.4 million represents a
$21.6 million decrease as compared to the first quarter of fiscal 1999 net
income of $22.0 million. Comparability of net income is, however, difficult
because the results of the first quarter of fiscal 1999 were impacted by the
gain on sale of aseptic operations and an extraordinary item relating to the
early extinguishment of debt. In addition, fiscal 2000 results have been
impacted by an increase in interest associated with the acquisition of DFVC on
September 24, 1998. Accordingly, management believes, to summarize results, an
evaluation of EBITDA from continuing segments, as presented on page 11, is more
appropriate as it allows the operations of the business to be reviewed in a more
consistent manner.
EBITDA from continuing segments increased $16.8 million, or 123.5 percent, to
$30.4 million in the first quarter of the current fiscal year from $13.6 million
in the first quarter of the prior fiscal year.
The vegetable product line accounts for $14.7 million of the increase in EBITDA
from continuing segments and is primarily attributable to the DFVC Acquisition.
While this operating segment has benefited from the inclusion of the Birds Eye,
Freshlike, and Veg-All brands, the category has been negatively impacted by
market conditions within the frozen private label segment as a result of lower
demand.
The Company's fruit product line showed an improvement of $1.0 million due to
the inclusion in the first quarter of fiscal 1999 results of $0.8 million of
costs associated with a new product launch.
The snack segment was negatively impacted by competitive pricing within the
popcorn product line as a result of an increase in production from foreign
countries, such as Argentina.
Canned meals increased $0.4 million primarily due to improvements in volume
within the chili category.
The other product line showed improvements of $1.0 million due to reductions in
various cost components within the dressing category.
Net Sales: Total net sales for the quarter increased $95.6 million, or 52.4
percent, to $278.2 million in the first quarter of fiscal 2000 from $182.6
million in the first quarter of fiscal 1999. Excluding businesses sold or to be
sold, net sales increased by $104.4 million to $258.3 million in the first
quarter of fiscal 2000 from $153.9 million in the first quarter of fiscal 1999.
This change is attributable to an increase of $103.5 million within the
vegetable product line primarily as a result of the DFVC Acquisition. The Birds
Eye,
<PAGE>
Freshlike, and Veg-All brands accounted for incremental sales of $86.2 million
while the remaining increase was attributable to private label and food service
sales associated with the DFVC Acquisition.
Net sales for the fruit product line decreased $1.8 million in the first quarter
of fiscal 2000 to $23.3 million from $25.1 million in the first quarter of
fiscal 1999 primarily as a result of decreased volume within the private label
apple sauce and pie filling categories.
Canned meals increased $1.8 million primarily attributable to improvements in
volume within the chili category and the introduction of "Meals for Now," a
ready-to-eat, canned meal product, sold under the Nalley label.
The other category, which primarily represents dressings, showed modest
improvements.
Operating Income: Excluding the impact of businesses sold or to be sold and the
gain on sale of aseptic operations, operating income increased from $9.0 million
in the first quarter of fiscal 1999 to $21.3 million in the first quarter of
fiscal 2000. This represents an improvement of $12.3 million or 136.7 percent.
Vegetables showed improvements of $10.3 million or 302.9 percent. The change is
primarily attributable to the inclusion of the operations acquired with the DFVC
Acquisition. Branded products associated with the DFVC Acquisition accounted for
$9.7 million of the increase.
The Company's fruit category showed an improvement of $1.1 million due to the
inclusion in the first quarter of fiscal 1999 of $0.8 million of costs
associated with a new product launch.
Snacks showed a decline of $0.5 million from $2.0 million in the first quarter
of fiscal 1999 to $1.5 million in the first quarter of fiscal 2000. As
highlighted above, the decline resulted from competitive pressures within the
popcorn category.
Canned meals showed an increase of $0.5 million due primarily to the
improvements in volume within the chili category highlighted above.
The other product category showed improvements due to reductions in various cost
components within the dressing category.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have increased $25.7 million as compared with the first quarter
of the prior fiscal year. The increase is primarily attributable to the DFVC
Acquisition and therefore the overall increase of the Company's size.
Gain on Sale of Aseptic Operations: In conjunction with the DFVC Acquisition,
the Company sold its aseptic operation to Dean Foods. The final purchase price
of $80 million was determined in the third quarter of fiscal 1999 based upon a
final appraisal performed by an independent appraiser.
Income from Great Lakes Kraut LLC: This amount represents earnings received from
the investment in Great Lakes Kraut LLC, a joint venture formed between Agrilink
and Flanagan Brothers, Inc. on July 1, 1997. There has been no significant
change in the operations of the joint venture for the first quarter of fiscal
2000 compared with the prior year.
Interest Expense: Interest expense increased $11.0 million to $19.3 million in
the first quarter of fiscal 2000 from $8.3 million in the first quarter of
fiscal 1999. This increase is associated with additional debt to finance the
DFVC Acquisition and higher levels of seasonal borrowings to fund additional
working capital requirements associated with the increase in the Company's size.
Pro-Fac Share of Income Before Extraordinary Item: The Company's contractual
relationship with Pro-Fac is defined in the Pro-Fac Marketing and Facilitation
Agreement (the "Agreement"). 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 commercial market value 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. Earnings and losses
are determined at the end of the fiscal year, but are accrued on an estimated
basis during the year.
<PAGE>
In fiscal 2000, it is currently estimated that 90 percent of earnings on
patronage products will exceed 50 percent of all pretax earnings of the Company;
accordingly, the Pro-Fac share of income has been recognized at a maximum of 50
percent of pretax earnings of the Company.
Due to the recognition of the gain on the sale of the aseptic operations, the
Pro-Fac share of earnings was recorded at 90 percent of the earnings on
patronage products in the first quarter of fiscal 1999.
Tax Provision: The provision for taxes decreased $24.0 million to $0.3 million
in the first quarter of fiscal 2000 from $24.3 million in the first quarter of
fiscal 1999. Of this decrease, $25.0 million is attributable to the provision in
the first quarter of fiscal 1999 associated with the gain on sale of the aseptic
operations. The remaining variance was impacted by 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 DFVC Acquisition, the Company refinanced its existing indebtedness,
including its 12 1/4 percent Senior Subordinated Notes due 2005 and its then
existing bank debt. Premiums and breakage fees associated with early redemptions
and other fees incurred amounted to $16.4 million (net of income taxes of $10.4
million and after allocation to Pro-Fac of $1.7 million).
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Unaudited
Consolidated Statement of Cash Flows" for the first quarter of fiscal 2000
compared to the first quarter of fiscal 1999.
Net cash used in operating activities decreased $13.8 million over the first
quarter of the prior fiscal year. This decrease primarily results from variances
within accounts payable and other accruals due to the timing of liquidation of
outstanding balances offset by an increase in inventories due to the harvesting
of crops and related production activities during this time.
Net cash used in investing activities in the first quarter of fiscal 1999 was
impacted by the DFVC Acquisition and the sale of the aseptic operations. The
purchase of property, plant and equipment increased $4.2 million to $8.3 million
for the first quarter of fiscal 2000 from $4.1 million for the first quarter of
fiscal 1999. The increase was primarily utilized to support an additional 14
operating facilities acquired in conjunction with the DFVC Acquisition.
Net cash provided by financing activities in the first quarter of fiscal 1999
was significantly impacted by the DFVC Acquisition and the activities completed
concurrent with the acquisition to refinance existing indebtedness.
Borrowings: Under the Company's New Credit Facility, Agrilink is able to borrow
up to $200 million for seasonal working capital purposes under the Revolving
Credit Facility. The Revolving Credit Facility may also be utilized in the form
of letters of credit.
As of September 25, 1999, (i) cash borrowings outstanding under the Revolving
Credit Facility were $126.8 million, (ii) there were $14.0 million in letters of
credit outstanding, and (iii) additional availability under the Revolving Credit
Facility, after taking into account the amount of borrowings and letters of
credit outstanding, was $59.2 million. The Company believes that the cash flow
generated by operations and the amounts available under the Revolving Credit
Facility provide adequate liquidity to fund working capital needs and capital
expenditures.
Certain financing arrangements require that Pro-Fac and Agrilink meet certain
financial tests and ratios and comply with certain restrictions and limitations.
As of September 25, 1999, Pro-Fac and the Company are in compliance with all
such covenants, restrictions, and limitations.
Interest Rate Risk Management: The Company is subject to market risk from
exposure to changes in interest rates based on its financing activities. The
Company has entered into certain financial instrument transactions to maintain
the desired level of exposure to the risk of interest rate fluctuations and to
minimize interest expense. More specifically, the Company has entered into two
interest rate swap agreements with the Bank of Montreal. The agreements provide
for fixed interest rate payments by the Company in exchange for payments
received at the three-month LIBOR rate.
<PAGE>
The following is a summary of the Company's interest rate swap agreements:
September 25, 1999
Interest Rate Swap:
Variable to Fixed - notional amount $250,000
Average pay rate 4.96 - 5.32%
Average receive rate 5.31%
Maturities through 2001
The Company had a two-year option to extend the maturity date on one of the
interest rate swap agreements with a notional amount of $100,000,000. On June 8,
1999, the Company sold this option to Bank of Montreal for approximately
$2,050,000. The gain resulting from the sale is being recognized over the
remaining life of the interest rate swap.
While there is potential that interest rates will fall, and hence minimize the
benefits of the Company's hedge position, it is the Company's position that on a
long-term basis, the possibility of interest rates increasing exceeds the
likelihood of interest rates decreasing. The Company will, however, monitor
market conditions to adjust its position as it considers necessary.
OTHER MATTERS
Restructuring: During the third quarter of fiscal 1999, the Company began
implementation of a corporate-wide restructuring program. The overall objectives
of the plan are to reduce expenses, improve productivity, and streamline
operations. The total restructuring charge amounted to $5.0 million and was
primarily comprised of employee termination benefits. Efforts have focused on
the consolidation of operating functions and the elimination of approximately
five percent of the work force. Reductions in personnel include operational and
administrative positions. Of this charge, $1.9 million has been liquidated, and
the remaining termination benefits will be liquidated during fiscal 2000.
Short- and Long-Term Trends: The vegetable and fruit portions of the business
can be positively or negatively affected by weather conditions nationally and
the resulting impact on crop yields. Favorable weather conditions can produce
high crop yields and an oversupply situation. This results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
The effect of the 1999 growing season on fiscal 2000 financial results cannot be
estimated until late 1999 or early calendar 2000 when harvesting is complete and
when local and national supplies can be determined.
Year 2000 Readiness Disclosure: A full inventory and analysis of business
applications and related software was performed and the Company determined that
it will be required to modify or replace certain portions of its software so
that its computer systems will be Year 2000 compliant. These modifications and
replacements have been made for mission critical applications and software and
will continue to be made in conjunction with the Company's overall information
systems initiatives.
In addition, the Company has contacted non-information technology vendors to
ensure that any of their products that are currently in use can adequately deal
with the change in century. To date, Agrilink has received satisfactory
responses.Areas addressed include full reviews of manufacturing equipment,
telephone and voice mail systems, security systems, and other office/site
support systems. Based upon preliminary information, the costs of addressing
potential problems are not expected to have a material adverse impact on the
Company's financial position, results of operations, or cash flows in future
periods. Accordingly, the cost of the project is being funded through operating
cash flows.
The Company has initiated formal communications with significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company. Accordingly, the Company has
devoted the necessary resources to resolve all significant Year 2000 issues in a
timely manner.
<PAGE>
Based on the progress made to date (which includes compliant systems in place
and in production), the Company does not believe any material exposure to
significant business interruption exists. In the event some of the remaining
elements of the Company's Year 2000 compliance project are delayed, procedures
have been addressed to ensure alternative workaround initiatives are completed.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange
Commission ("SEC") in its rules, regulations, and releases. The Company desires
to take advantage of the "safe harbor" provisions in the Act for forward-looking
statements made from time to time, including, but not limited to, the
forward-looking information contained in the Management's Discussion and
Analysis (pages 10 to 15) and other statements made in this Form 10-Q and in
other filings with the SEC.
The Company cautions readers that any such forward-looking statements made by or
on behalf of the Company are based on management's current expectations and
beliefs but are not guarantees of future performance. Actual results could
differ materially from those expressed or implied in the forward-looking
statements. Among the factors that could impact the Company's ability to achieve
its goals are:
the impact of strong competition in the food industry;
the impact of weather on the volume and quality of raw product;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
the continuation of the Company's success in integrating operations
(including whether the anticipated cost savings in connection with
acquisitions will be realized and the timing of any such realization), and
the availability of acquisition and alliance opportunities;
the Company's ability to achieve gains in productivity and improvements in
capacity utilization; and
the Company's ability to service debt.
<TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 10-Q
<S> <C> <C> <C>
(a) Exhibits
Exhibit Number Description
10.1 First Amendment to Credit Agreement
10.2 Second Amendment to Credit Agreement
10.3 Third Amendment to Credit Agreement
10.4 Fourth Amendment to Credit Agreement
10.5 Fifth Amendment to Credit Agreement
27 Financial Data Schedule
99.1 Pro-Fac Cooperative, Inc. Financial Statements for the Quarterly Period Ended September 25, 1999.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the first quarter of fiscal 2000.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AGRILINK FOODS, INC.
Date: July 12, 2000 By:/s/ Earl L. Powers
-------------- ----------------------------------
EARL L. POWERS
EXECUTIVE VICE PRESIDENT FINANCE AND
CHIEF FINANCIAL OFFICER
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE>
