UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended June 24, 2000
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 333-70143
AGRILINK FOODS, INC.
(Exact name of registrant as specified in its charter)
New York 16-0845824
(State of incorporation) (IRS Employer Identification Number)
90 Linden Oaks, PO Box 20670, Rochester, NY 14602-0670
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 383-1850 Securities
Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered
Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant:
NONE
Number of common shares outstanding at August 26, 2000:
Common Stock: 10,000
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FORM 10-K ANNUAL REPORT - 2000
AGRILINK FOODS, INC.
TABLE OF CONTENTS
PART I
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PAGE
ITEM 1. Description of Business
Cautionary Statement on Forward-Looking Statements................................................... 3
General Development of Business...................................................................... 3
Narrative Description of Business ................................................................... 4
Financial Information About Industry Segments........................................................ 6
Packaging and Distribution........................................................................... 6
Trademarks........................................................................................... 7
Raw Material Sources................................................................................. 7
Environmental Matters................................................................................ 7
Seasonality of Business.............................................................................. 8
Practices Concerning Working Capital................................................................. 8
Significant Customers................................................................................ 8
Backlog of Orders.................................................................................... 8
Business Subject to Government Contracts............................................................. 8
Competitive Conditions............................................................................... 9
Market and Industry Data............................................................................. 9
New Products and Research and Development............................................................ 9
Employees............................................................................................ 10
ITEM 2. Description of Properties................................................................................ 10
ITEM 3. Legal Proceedings........................................................................................ 11
ITEM 4. Submission of Matters to a Vote of Security Holders...................................................... 11
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters................................. 12
ITEM 6. Selected Financial Data.................................................................................. 12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 13
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk............................................... 23
ITEM 8. Financial Statements and Supplementary Data.............................................................. 24
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 48
PART III
ITEM 10. Directors and Executive Officers of the Registrant....................................................... 49
ITEM 11. Executive Compensation................................................................................... 51
ITEM 12. Security Ownership of Certain Beneficial Owners and Management........................................... 53
ITEM 13. Certain Relationships and Related Transactions........................................................... 53
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 55
Signatures............................................................................................... 59
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange
Commission ("SEC") in its rules, regulations, and releases. The Company desires
to take advantage of the "safe harbor" provisions in the Act for forward-looking
statements made from time to time, including, but not limited to, the
forward-looking information contained in the Management's Discussion and
Analysis (pages 13 to 23) and other statements made in this Form 10-K 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 changes in consumer demand;
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 the realization of anticipated synergies in operations and the
timing of any such synergies) 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.
GENERAL DEVELOPMENT OF BUSINESS
Agrilink Foods, Inc. (the "Company" or "Agrilink Foods"), incorporated in New
York in 1961, is a producer and marketer of processed food products. The terms
"Company" and "Agrilink Foods" mean "Agrilink Foods, Inc." and its subsidiaries
unless the context indicates otherwise. 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.
Agrilink Foods is a wholly-owned subsidiary of Pro-Fac Cooperative, Inc.
("Pro-Fac"). Pro-Fac is an agricultural cooperative corporation formed in 1960
under the Cooperative Corporation Laws of New York to process and market crops
grown by its members. On March 1, 2000, the Cooperative announced it will being
doing business as Agrilink. In addition, the board of directors of Agrilink
Foods, Inc., a wholly-owned subsidiary of the Cooperative, and Pro-Fac have
agreed to conduct joint meetings, coordinate their activities, and to act on a
consolidated basis. Although Pro-Fac Cooperative, Inc. will continue to be the
legal entity of the Cooperative, with the same structure and regulations
required by bank credit agreements and bond indentures, and with the same stock
symbol, "PFACP," it will be presented as Agrilink for all other communications.
Pro-Fac and Agrilink Foods operate under the guidance of the Pro-Fac Marketing
and Facilitation Agreement (the "Pro-Fac Marketing Agreement").
The Pro-Fac Marketing Agreement provides for Pro-Fac to supply crops and
additional financing to Agrilink Foods, for Agrilink Foods to provide market and
management services to Pro-Fac, and for Pro-Fac to share in the profits and
losses of Agrilink Foods. Pro-Fac is required to reinvest at least 70 percent of
any additional patronage income in Agrilink Foods. To preserve the independence
of Agrilink Foods, the Pro-Fac Marketing Agreement also requires that certain
directors of Agrilink Foods be
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individuals who are not employees or shareholders of, or otherwise affiliated
with, Pro-Fac or the Company ("Disinterested Directors") and requires that
certain decisions, including the volume of and the amount to be paid for crops
received from Pro-Fac, be approved by the Disinterested Directors. See further
discussion of the relationship with Pro-Fac in NOTE 2 to the "Notes to
Consolidated Financial Statements."
Under the Pro-Fac Marketing Agreement, Agrilink Foods manages the business and
affairs of Pro-Fac and provides all personnel and administrative support
required. Pro-Fac pays Agrilink Foods a quarterly fee of $25,000 for these
services.
Dean Foods Vegetable Company: On September 24, 1998, Agrilink Foods 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 Foods
sold its aseptic business to Dean Foods. Agrilink Foods paid $360 million in
cash, net of the sale of the aseptic business, and issued to Dean Foods a $30
million unsecured subordinated promissory note due November 22, 2008 (the "Dean
Foods Subordinated Promissory Note"), as consideration for the 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, Birds Eye Voila!,
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.
Concurrently with the DFVC Acquisition, Agrilink Foods 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 Foods commenced a tender offer (the "Tender Offer")
for all the Old Notes and a 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 Foods for aggregate consideration of approximately $184 million,
including accrued interest of $2.9 million. Agrilink Foods also terminated its
then existing bank facility (including seasonal borrowings) and repaid $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 Foods: (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 (the "New Notes"). See NOTE 5 to the "Notes to
Consolidated Financial Statements - Debt - Senior Subordinated Notes - 11-7/8
Percent due 2008." Debt issue costs of $5.5 million associated with the Bridge
Facility were expensed during the quarter ended December 26, 1998.
The New Credit Facility and the New Notes restrict the ability of Pro-Fac to
amend the Pro-Fac Marketing and Facilitation Agreement. The New Credit Facility
and New Notes also restrict the amount of dividends and other payments that may
be made by the Company to Pro-Fac.
NARRATIVE DESCRIPTION OF BUSINESS
The Company sells products in three principal categories: (i) "branded"
products, which are sold under various Company trademarks, (ii) "private label"
products, which are sold to grocers who in turn use their own brand names on the
products and (iii) "food service" products, which are sold to food service
institutions such as restaurants, caterers, bakeries, and schools. In fiscal
2000, approximately 64 percent of the Company's net sales were branded and the
remainder divided between private label and food service/industrial. The
Company's branded products are listed under the "Trademarks" section of this
report. The Company's private label products include
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canned and frozen vegetables, salad dressings, salsa, fruit fillings and
toppings, Southern frozen vegetable specialty products, and frozen breaded, and
battered products which are sold to customers such as Albertson's, Kroger,
Fleming, Piggly Wiggly, Safeway, Wal-Mart/Sam's, SuperValu, Topco, Wegmans and
Winn-Dixie. The Company's food service/industrial products include salad
dressings, fruit fillings and toppings, canned and frozen vegetables, frozen
Southern specialties, frozen breaded and battered products, and canned and
frozen fruit, which are sold to customers such as Alliant Food Service,
Borden's, Church's, Disney, Food Service of America, KFC, MBM, McDonald's, PYA,
and SYSCO.
The Company has four primary product lines: vegetables, fruits, snacks, and
canned meals. A description of the Company's four primary product lines follows:
Vegetables: The vegetable product line consists of canned and frozen vegetables,
chili beans, and various other products. Additional products include value-added
items such as frozen vegetable blends, and Southern-specialty products such as
black-eyed peas, okra, Southern squash, Southern specialty side dishes, and
stewed tomatoes. Branded products within the vegetable product line include
Birds Eye, Birds Eye Voila!, Freshlike, Veg-All, McKenzies, and Brooks Chili
Beans. In fiscal 2000 vegetable product line net sales represented approximately
68 percent of the Company's total net sales. Within this product line net sales
of approximately 61 percent represented branded products, 18 percent represented
private label products and 21 percent represented food service/industrial
products.
On June 23, 2000, Agrilink Foods sold its pickle business based in Tacoma,
Washington to Dean Pickle and Specialty Products Company, subsidiary of Dean
Foods. This business included pickle, pepper, and relish products sold primarily
under the Nalley and Farman's brand names. Agrilink Foods will continue to
contract pack Nalley and Farman's pickle products for a period of two years at
the existing Tacoma processing plant which Agrilink Foods will operate. Under a
related agreement, the Cooperative will supply raw cucumbers grown in the
Northwestern United States to Dean Pickle and Specialty Products Company, for a
minimum 10-year period at market pricing.
On December 17, 1999, the Company sold its Cambria, Wisconsin processing
facility to Del Monte. This facility was primarily utilized for canning
operations.
On November 8, 1999, the Company sold its Midwest private label canned vegetable
business to Seneca Foods. Included in this transaction was the Arlington,
Minnesota facility. This sale did not include the Company's retail branded
canned vegetables Veg-All and Freshlike.
On September 24, 1998, Agrilink Foods acquired the DFVC frozen and canned
vegetable businesses. DFVC was one of the leading processors of vegetables in
the United States selling its products under well-known brands such as Birds
Eye, Freshlike, and Veg-All, and various private labels.
Effective March 30, 1998, the Company acquired the majority of assets and the
business of DelAgra Corp. of Bridgeville, Delaware. DelAgra Corp. was a producer
of private label frozen vegetables.
In the fall of 1997, the Company was named the sole supplier of frozen
vegetables for all Sam's club stores across the United States. Shipments began
in the fourth quarter of fiscal 1998, and full distribution occurred in fiscal
1999.
Effective July 1, 1997, the Company and Flanagan Brothers, Inc. of Bear Creek,
Wisconsin contributed all their assets involved in sauerkraut production to form
a new sauerkraut company. This new company, Great Lakes Kraut Company, LLC,
operates as a New York limited liability company with ownership and earnings
divided equally between the two companies. This joint venture includes the
Silver Floss and Krrrrisp Kraut brands.
Fruits: 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 Company is a major supplier of branded and private
label fruit fillings to retailers and food service institutions such as
restaurants, caterers, bakeries, and schools. In fiscal 2000, fruit product line
net sales represented approximately 9 percent of the Company's total net sales.
Within this product line, net sales of approximately 55 percent represented
branded products, 13 percent represented private label products, and 32 percent
represented food service/industrial products.
Snacks: The snacks product line consists of several varieties of potato chips
including regular and kettle fried, as well as popcorn, cheese curls, snack
mixes, and other corn-based snack items. Kettle fried potato chips produce a
potato chip that is thicker and crisper
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than other potato chips. Items within this product line are marketed primarily
in the Pacific Northwest, Midwest and Mid-Atlantic states. Branded products
within the snacks category include Tim's Cascade Chips, Snyder of Berlin,
Husman, La Restaurante, Erin's, Beehive, Pops-Rite, and Super Pop. In fiscal
2000 snacks net sales represented approximately 7 percent of the Company's total
net sales. Within this product line, net sales of approximately 93 percent
represented branded products, 5 percent represented private label products, and
2 percent represented food service/industrial products.
Effective June 24, 2000, Agrilink Foods acquired the Flavor Destinations
Trademark for snack items and will manufacture and market this regional brand
through its Tim's Cascade Chips business in Auburn, Washington.
Effective July 21, 1998, the Company acquired J.A. Hopay Distributing Co., Inc.
("Hopay") of Pittsburgh, Pennsylvania. Hopay was a former distributor for Snyder
of Berlin products.
Effective March 10, 1998, the Company acquired the majority of the assets and
the business of C&O Distributing Company ("C&O") of Canton, Ohio. C&O was a
former distributor for Snyder of Berlin products.
Canned Meals: The canned meal product line includes canned meat products such as
chilies, stews, soups, and various other ready-to-eat prepared meals. Items
within this product line are marketed primarily in the Pacific Northwest.
Branded products within the canned meal category include Nalley. Within this
product line, net sales of approximately 75 percent represented branded
products, 20 percent represented private label products, and 5 percent
represented food service/industrial products. In fiscal 2000 canned meals net
sales represented approximately 5 percent of the Company's total net sales.
Other: The Company's other product line primarily represents salad dressings.
Branded products within this category include Bernstein's and Nalley. In fiscal
2000, other net sales represented approximately 5 percent of the Company's total
net sales.
On January 29, 1999, the Company sold the Adams brand peanut butter operations
to the J. M. Smucker Company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of the Company is principally conducted in four industry segments:
vegetables, fruits, canned meals, and snacks. The financial statements for the
fiscal years ended June 24, 2000, June 26, 1999, and June 27, 1998, which are
included in this report, reflect the information relating to those segments for
each of the Company's last three fiscal years.
PACKAGING AND DISTRIBUTION
The food products produced by the Company are distributed to various consumer
markets in all 50 states. International sales account for a small portion of the
Company's activities. Vegetables, fruits, and canned meals are primarily sold
through food brokers who sell primarily to supermarket chains and various
institutional entities. Snack products are primarily marketed through
distributors (some of which are owned and operated by the Company) who sell
directly to retail outlets in the Midwest, Mid-Atlantic and Pacific Northwest.
Customer brand operations encompass the sale of products under private labels to
chain stores and under the controlled labels of buying groups. The Company has
developed central storage and distribution facilities that permit multi-item
single shipment to customers in key marketing areas.
Effective March 31, 1998, the Company entered into a multiyear logistic
agreement under which GATX Logistics provides 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.
On June 27, 1997, Americold acquired the Company's frozen foods distribution
center in Montezuma, Georgia. In addition, the two companies entered into a
long-term logistics agreement under which Americold manages this facility and
all frozen food transportation operations of Agrilink Foods in Georgia and New
York.
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TRADEMARKS
The major brand names under which the Company markets its products are
trademarks of the Company. Such brand names are considered to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. There are
trademark registrations for substantially all of the trademarks. These trademark
registrations are of perpetual duration so long as they are periodically
renewed. It is the Company's intent to maintain its trademark registrations. The
major brand names utilized by the Company are:
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Product Line Brand Name
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Vegetables Birds Eye, Voila!(1), Freshlike, Veg-All, Brooks, Chill-Ripe, Comstock, Greenwood, McKenzie's, McKenzie's
Gold King, Southern Farms, Southland, Farman's, Nalley, Pixie, Thank You, Silver Floss(2), Krrrrisp Kraut(2)
Fruits Birds Eye, Chill-Ripe, Comstock, Globe, McKenzies, Orchard Farm, Orchard Fresh, Pixie, Southern Farms,
Thank You, West Bay, Wilderness, Tropic Isle
Snacks Snyder of Berlin, Thunder Crunch, Tim's Cascade Chips, La Restaurante, Erin's, Husman, Naturally Good,
Beehive, Pops-Rite, Savoral, Super Pop, Flavor Destinations
Canned Meals Nalley, Mariners Cove, Riviera
Other Bernstein's, Nalley
<FN>
(1) An application has been filed and registration is pending.
(2) Represent trademarks of Great Lakes Kraut Company, LLC. The Company owns a 50 percent interest in this joint venture.
</FN>
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RAW MATERIAL SOURCES
The Company acquired approximately 55 percent of the raw agricultural products
supplied by Pro-Fac from members of the Cooperative. The Company also purchased
on the open market some crops of the same type and quality as those purchased
from Pro-Fac. Such open market purchases may occur at prices higher or lower
than those paid to Pro-Fac for similar products. See further discussion of the
relationship with Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial
Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This situation typically results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
The Company purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Company has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur.
ENVIRONMENTAL MATTERS
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods and the emission of wastes and odors inherent in the
heating of foods during preparation are subject to various federal, state, and
local environmental laws and regulations. Such laws and regulations have had an
important effect on the food processing industry as a whole, requiring
substantially all firms in the industry to incur material expenditures for
modification of existing processing facilities and for construction of new waste
treatment facilities. The Company is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position or financial condition.
<PAGE>
Among the various programs for the protection of the environment which have been
adopted by the Company to date, the most important for the operations of the
Company are the waste water discharge permit programs administered by the
environmental protection agencies in those states in which the Company does
business and by the federal Environmental Protection Agency. Under these
programs, permits are required for processing facilities which discharge certain
wastes into streams and other bodies of water, and the Company is required to
meet certain discharge standards in accordance with compliance schedules
established by such agencies. The Company has received permits for all
facilities for which permits are required. Each year the Company submits
applications for renewal permits as required for the facilities.
While the Company cannot predict with certainty the effect of any proposed or
future environmental legislation or regulations on its processing operations,
management of the Company believes that the waste disposal systems which are now
in operation or which are being constructed or designed are sufficient to comply
with all currently applicable laws and regulations.
The Company is cooperating with environmental authorities in remedying various
minor environmental matters at several of its plants. Such actions are being
conducted pursuant to procedures approved by the appropriate environmental
authorities at a cost that is not expected to be material.
Expenditures related to environmental programs and facilities have not had, and
are not expected to have, a material effect on the earnings of the Company. In
fiscal 2000, total capital expenditures of the Company were $25.4 million of
which approximate $0.1 million was devoted to the construction of environmental
facilities. The Company estimates that environmental capital expenditures will
be approximately $0.5 million for the 2001 fiscal year. However, there can be no
assurance that expenditures will not be higher.
SEASONALITY OF BUSINESS
From the point of view of sales, the business of the Company is not highly
seasonal, since the demand for its products is fairly constant throughout the
year. Exceptions to this general rule include some products that have higher
sales volume in the cool weather months (such as canned and frozen fruits and
vegetables, chili, and fruit fillings and toppings), and others that have higher
sales volume in the warm weather months (such as potato chips and salad
dressings). Since many of the raw materials processed by the Company are
agricultural crops, production of these products is predominantly seasonal,
occurring during and immediately following the harvest seasons of such crops.
PRACTICES CONCERNING WORKING CAPITAL
The Company must maintain substantial inventories throughout the year of
finished products produced from seasonal raw materials. These inventories are
generally financed through seasonal borrowings.
The Revolving Credit Facility is used primarily for seasonal borrowings, the
amount of which fluctuates during the year.
Both the maintenance of substantial inventories and the practice of seasonal
borrowing are common to the food processing industry.
SIGNIFICANT CUSTOMERS
The Company's principal industry segments are not dependent upon the business of
a single customer or a few customers. The Company does not have any customers to
whom sales are made in an amount which equals 10 percent or more of the
Company's net sales.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Company. Orders are filled shortly after receipt from inventories of packaged
and processed foods.
BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of the Company is subject to renegotiation
of contracts with, or termination by, any governmental agency.
<PAGE>
COMPETITIVE CONDITIONS
All products of the Company, particularly branded products, compete with those
of other national and major regional food processors under highly competitive
conditions. The principal methods of competition in the food industry are a
ready availability of a broad line of products, product quality, price, and
advertising and sales promotion.
Quality of product and uniformity of quality are important methods of
competition. The Company's relationship with Pro-Fac gives the Company local
sources of supply, thus allowing the Company to exercise control over the
quality and uniformity of much of the raw product that it purchases. The members
of Pro-Fac generally operate relatively large production operations with
emphasis on mechanized growing and harvesting techniques. This factor is also an
advantage in producing uniform, high-quality food products.
The Company's pricing is generally competitive with that of other food
processors for products of comparable quality. The branded products of the
Company are marketed under national and regional brands. In fiscal 2000,
marketing programs for national brands focused primarily on Birds Eye Voila! and
Birds Eye Baby Vegetables. The national advertising campaign included
television, magazines, coupons, and in-store promotions. Marketing programs for
regional brands are focused on local tastes and preferences as a means of
developing consumer brand loyalty. Regional advertising campaigns included
magazines, coupons, and in-store promotions.
Although the relative importance of the above factors may vary between
particular products or customers, the above description is generally applicable
to all of the products of the Company in the various markets in which they are
distributed.
Profit margins for fruits and vegetables are subject to industry supply and
demand fluctuations, attributable to changes in growing conditions, acreage
planted, inventory carryover, and other factors. The Company has endeavored to
protect against changing growing conditions through geographical expansion of
its sources of supply.
The percentage of sales under brand names owned and promoted by the Company
amount to approximately 64 percent; food service/industrial represent
approximately 20 percent; and private label sales currently represent
approximately 16 percent.
It is difficult to estimate the number of competitors in the markets served by
the Company. Nearly all products sold by the Company compete with the nationally
advertised brands of leading food processors, including Del Monte, Green Giant,
Heinz, Frito-Lay, Kraft, and similar major brands, as well as with the branded
and private label products of a number of regional processors, many of which
operate only in portions of the marketing area served by the Company.
MARKET AND INDUSTRY DATA
Unless otherwise stated in this report, industry and market share data used
throughout this Form 10-K was derived from industry sources believed by the
Company to be reliable. Such data was obtained or derived from consultants'
reports and industry publications. Consultants' reports and industry
publications generally state that the information contained therein has been
obtained from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. The Company has not
independently verified such data and makes no representation to its accuracy.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
The Company, operates a technical center located in Green Bay, Wisconsin that is
responsible for new product development, quality assurance, and engineering.
Approximately 25 employees are employed within this facility. The Company
follows a four-stage new product development process as follows: screening,
feasibility, development, and commercialization. This new product development
process ensures input from consumers, customers, and internal functional areas
before a new product is brought to market.
The Company also focuses on the development of related products or modifications
of existing products for the Company's brands and customized products for the
Company's private label and food service businesses.
The amount expensed during the last three fiscal years on Company-sponsored and
customer-sponsored research activities relating to the development of new
products or the improvement of existing products has not been material.
During fiscal 1999, Birds Eye Voila!, a frozen all-in-one meal product that
includes vegetables, pasta, seasonings, and bite sized pieces of grilled chicken
breast in a variety of flavors was introduced. Fiscal 2000 net sales for Birds
Eye Voila! were approximately $102.5. Fiscal 1999 net sales for Birds Eye Voila!
were $74.8 million which reflects nine months of activity due to the date of the
DFVC Acquisition.
<PAGE>
EMPLOYEES
As of June 24, 2000, the Company had 5,289 full-time employees, of whom 3,703
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 2,134
seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions. The Company believes its current relationship with its employees is
good.
ITEM 2. DESCRIPTION OF PROPERTIES
All plants, warehouses, office space and other facilities used by the Company in
its business are either owned by Agrilink Foods or one of its subsidiaries or
leased from unaffiliated third parties. All of the properties owned by Agrilink
Foods are subject to mortgages in favor of its primary lender. In general, the
properties include offices, processing plants and warehouse space. Some
processing plants are located in rural areas that are convenient for the
delivery of crops. The Company also has dispersed warehouse locations to
facilitate the distribution of finished products. Agrilink Foods believes that
its facilities are in good condition and suitable for the operations of the
Company.
The Company's Alton, New York property is held for sale.
The following table describes all material facilities leased or owned by the
Company (other than the properties held for sale, certain public warehouses
leased by the Company from unaffiliated third parties from time to time, and
facilities owned by the Company's joint venture, Great Lakes Kraut Company,
LLC). Except as otherwise noted, each facility set forth below is owned by the
Company.
<TABLE>
FACILITIES UTILIZED BY THE COMPANY
Type of Property (By Product Line) Location Square Feet
<CAPTION>
<S> <C> <C>
Vegetables:
Warehouse Sodus, MI 243,138
Warehouse and office, public storage facility (1) Vineland, NJ 191,710
Freezing plant, warehouse, office and dry storage Barker, NY 123,600
Freezing plant Bergen, NY 138,554
Cold storage and repack facility and public storage warehouse Brockport, NY 429,052
Canning plant and warehouse, freezing plant Oakfield, NY 263,410
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 591,300
Office, freezing plant and cold storage Alamo, TX 114,446
Office, freezing plant and cold storage Bridgeville, DE 104,383
Freezing plant and repack plant Celaya, Mexico 318,620
Freezing plant and distribution center Darien, WI 348,800
Freezing plant, repack and warehouse Fairwater, WI 178,298
Repack plant and distribution center Fulton, NY 263,268
Canning and freezing plant and office Green Bay, WI 492,446
Canning plant and warehouse Hortonville, WI 78,000
Freezing plant and repack plant(1) Oxnard, CA 39,082
Repack plant(1) San Antonio, TX 20,445
Freezing plant and warehouse Uvalde, TX 146,625
Freezing plant, repack and warehouse Watsonville, CA 207,600
Freezing plant, repack and warehouse Waseca, MN 258,475
Labeling plant and distribution center(1) Fond du Lac, WI 330,000
Receiving and grading station (1) Cornelius, OR 11,700
Receiving and grading station (1) Mount Vernon, WA 110,806
Receiving and grading station (1) Aurora, WA 6,800
Office building, warehouse and tank yards Enumclaw, WA 87,313
Plant, warehouse, and tank yards Tacoma, WA 295,468
Fruits:
Canning plant and warehouse Red Creek, NY 153,076
Manufacturing plant and warehouse Fennville, MI 350,000
Canning plant and warehouse Lawton, MI 142,000
</TABLE>
<PAGE>
<TABLE>
FACILITIES UTILIZED BY THE COMPANY (Continued)
Type of Property (By Product Line) Location Square Feet
<CAPTION>
<S> <C> <C>Snacks:
Manufacturing plant Ridgway, IL 50,000
Distribution and warehouse North Bend, NE 50,000
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center (1) Auburn, WA 34,000
Plant, warehouse and distribution center Auburn, WA 37,442
Office, plant and warehouse Cincinnati, OH 113,576
Distribution center Elwood City, PA 8,000
Distribution center Monessen, PA 10,000
Distribution center Coraopolis, PA 15,000
Distribution center Canton, OH 8,200
Canned Meals:
Canning plant, warehouse and distribution center Tacoma, WA 313,488
Other:
Office building, manufacturing plant and warehouse Tacoma, WA 372,164
Parking lot and yards (1) Tacoma, WA 305,470
Office Building - Fuller Building (1) Tacoma, WA 60,000
Headquarters office (1) Rochester, NY 76,372
<FN>
(1)Leased from third parties, although certain related equipment is owned by the
Company.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal proceedings from time to time in the normal
course of its business. In the opinion of management, any liability that the
Company might incur upon the resolution of these proceedings will not, in the
aggregate, have a material adverse effect on the Company's business, financial
condition, and results of operations. Further, no such proceedings are known to
be contemplated by governmental authorities. The Company maintains general
liability insurance coverage in amounts deemed to be adequate by management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
All of the capital stock of the Company is owned by Pro-Fac Cooperative, Inc.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Agrilink Foods, Inc.
FIVE YEAR SELECTED FINANCIAL DATA
<CAPTION>
(Dollars in Thousands)
Fiscal Year Ended June
----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated Summary of Operations:
Net sales $ 1,182,627 $ 1,210,506 $ 719,665 $ 730,823 $ 739,094
Cost of sales (809,633) (854,768) (524,082) (539,081) (562,926)
----------- ----------- ----------- ----------- ----------
Gross profit 372,994 355,738 195,583 191,742 176,168
Selling, administrative, and general expenses (279,337) (287,672) (141,837) (145,392) (156,067)
Gains on sales of assets 6,635 64,734 0 3,565 0
Restructuring (including disposals) 0 (5,000) 0 0 (5,871)
Income from joint venture 2,418 2,787 1,893 0 0
----------- ----------- ----------- ----------- ----------
Operating income before dividing with Pro-Fac 102,710 130,587 55,639 49,915 14,230
Interest expense (78,054) (65,339) (30,633) (35,030) (41,998)
Amortization of debt issue costs associated with the
Bridge Facility 0 (5,500) 0 0 0
----------- ----------- ----------- ----------- ----------
Pretax income/(loss) before dividing with Pro-Fac and
before extraordinary item and cumulative effect of
an accounting change 24,656 59,748 25,006 14,885 (27,768)
Pro-Fac share of (income)/loss before extraordinary
item and cumulative effect of an accounting change (12,328) (1,658) (12,503) (7,442) 9,037
----------- ----------- ----------- ----------- ----------
Income/(loss) before taxes, extraordinary item, and
cumulative effect of an accounting change 12,328 58,090 12,503 7,443 (18,731)
Tax (provision)/benefit (5,904) (24,770) (5,689) (3,668) 6,853
----------- ----------- ----------- ----------- ----------
Income/(loss) before extraordinary item and
cumulative effect of an accounting change 6,424 33,320 6,814 3,775 (11,878)
Extraordinary item relating to the early extinguishment
of debt (net of income taxes and after dividing
with Pro-Fac) 0 (16,366) 0 0 0
Cumulative effect of an accounting change (net of
income taxes and after dividing with Pro-Fac) 0 0 0 1,747 0
----------- ----------- ----------- ----------- ----------
Net income/(loss) $ 6,424 $ 16,954 $ 6,814 $ 5,522 $ (11,878)
=========== =========== =========== =========== ==========
Balance Sheet Data:
Working capital $ 254,094 $ 225,363 $ 108,075 $ 84,060 $ 107,875
Ratio of current assets to current liabilities 2.2:1 2.0:1 1.9:1 1.8:1 2.0:1
Total assets $ 1,098,887 $ 1,110,061 $ 568,971 $ 542,561 $ 634,250
Long-term debt and senior-subordinated notes
(excludes current portion) $ 644,712 $ 668,316 $ 229,937 $ 222,829 $ 309,683
Other Statistics:
Average number of employees:
Regular 5,510 6,040 3,620 3,507 3,886
Seasonal 2,152 2,838 1,125 1,068 1,478
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to outline the significant reasons for changes
in the Consolidated Statement of Operations from fiscal 1998 through fiscal
2000.
Agrilink Foods, Inc. ("Agrilink Foods" or the "Company") has four primary
product lines including: vegetables, fruits, snacks and canned meals. The
majority of each of the product lines' net sales are within the United States.
In addition, all of 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, and various other products. Branded products within the vegetable
category include Birds Eye, Birds Eye Voila!, Freshlike, Veg-All, McKenzies, and
Brooks Chili Bean. 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, Super Pop, and Flavor Destinations. 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 this category
include Bernstein's and Nalley.
The following tables illustrate the Company's results of operations by product
line for the fiscal years ended June 24, 2000, June 26, 1999, and June 27, 1998,
and the Company's total assets by product line at June 24, 2000, June 26, 1999,
and June 27, 1998.
<TABLE>
EBITDA1,2
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
% of % of % of
$ Total $ Total $ Total
----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Vegetables 93.8 69.4 64.2 61.7 20.3 26.3
Fruits 15.7 11.6 10.8 10.4 21.0 27.2
Snacks 9.8 7.3 5.8 5.5 8.3 10.7
Canned Meals 8.6 6.4 8.4 8.1 8.6 11.1
Other 6.5 4.8 5.3 5.1 1.8 2.3
----- ----- ----- ----- ---- -----
Continuing segments 134.4 99.5 94.5 90.8 60.0 77.6
Businesses sold3 0.7 0.5 9.6 9.2 17.3 22.4
----- ----- ----- ----- ---- -----
Total 135.1 100.0 104.1 100.0 77.3 100.0
===== ===== ===== ===== ==== =====
<FN>
1 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is
defined as the sum of pretax income before dividing with Pro-Fac and before
extraordinary item, interest expense, amortization of debt issue costs
associated with the Bridge Facility, depreciation and amortization of
goodwill and other intangibles.
EBITDA should not be considered as an alternative to net income or cash flows
from operations or any other generally accepted accounting principles measure
of performance or as a measure of liquidity.
EBITDA is included herein because the Company believes EBITDA is a financial
indicator of a company's ability to service debt. EBITDA as calculated by
Agrilink Foods may not be comparable to calculations as presented by other
companies.
2 Excludes the gains on sales of assets, restructuring charges, and the
extraordinary item relating to the early extinguishment of debt. See NOTES 1
and 3 to the "Notes to Consolidated Financial Statements."
3 Represents the operating results of operations sold. See NOTE 3 to the "Notes
to Consolidated Financial Statements."
</FN>
</TABLE>
<PAGE>
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
---------------------- ---------------------- ----------------------
% of % of % of
$ Total $ Total $ Total
------- ----- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Vegetables 800.7 67.7 734.7 60.7 233.1 32.4
Fruits 110.4 9.3 111.5 9.2 119.7 16.6
Snacks 87.3 7.4 87.9 7.3 83.7 11.6
Canned Meals 60.3 5.1 64.2 5.3 64.0 8.9
Other 54.5 4.6 73.0 6.0 58.6 8.2
------- ----- ------- ----- ----- ------
Continuing segments 1,113.2 94.1 1,071.3 88.5 559.1 77.7
Businesses sold1 69.4 5.9 139.2 11.5 160.6 22.3
------- ----- ------- ----- ----- -----
Total 1,182.6 100.0 1,210.5 100.0 719.7 100.0
======== ===== ======= ===== ===== =====
<FN>
1 Includes net sales of operations sold. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
---------------------------------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
--------------------- ------------------- --------------------
% of % of % of
$ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C>
Vegetables 65.4 68.0 43.9 61.9 11.4 20.5
Fruits 13.9 14.4 8.4 11.8 17.1 30.7
Snacks 6.7 7.0 3.3 4.7 6.1 11.0
Canned Meals 6.7 7.0 6.5 9.2 6.8 12.2
Other 4.6 4.8 3.7 5.2 (0.3) (0.5)
---- ----- ---- ------ ---- -----
Continuing segments 97.3 101.2 65.8 92.8 41.1 73.9
Businesses sold2 (1.2) (1.2) 5.1 7.2 14.5 26.1
---- ----- ---- ------ ---- -----
Total3 96.1 100.0 70.9 100.0 55.6 100.0
==== ===== ==== ====== ==== =====
<FN>
1 Excludes the gains on sales of assets, the restructuring charge, and the
extraordinary item relating to the early extinguishment of debt. See NOTES 1
and 3 to the "Notes to Consolidated Financial Statements."
2 Represents the operating results of the operations sold. See NOTE 3 to the
"Notes to Consolidated Financial Statements."
3 Operating income less interest expense (including the amortization of debt
issue costs associated with the Bridge Facility) of $78.1 million, $70.8
million, and $30.6 million for the years ended June 24, 2000, June 26, 1999,
and June 27, 1998, respectively, results in pretax income before dividing
with Pro-Fac and before extraordinary item. Management does not allocate
interest expense and corporate overhead to product lines when evaluating
product line performance.
</FN>
</TABLE>
<PAGE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
--------------------- -------------------- ----------------------
% of % of % of
$ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C>
Vegetables 876.3 79.7 885.2 79.7 300.8 52.9
Fruits 80.0 7.2 91.1 8.3 87.4 15.4
Snacks 44.0 4.0 41.5 3.7 43.1 7.6
Canned Meals 45.9 4.2 46.7 4.2 49.7 8.7
Other 52.4 4.8 43.6 3.9 47.4 8.3
------- ----- ------- ----- ----- -----
Continuing segments 1,098.6 99.9 1,108.1 99.8 528.4 92.9
Businesses sold1 0.0 0.0 1.1 0.1 37.9 6.6
Assets held for sale 0.3 0.1 0.9 0.1 2.7 0.5
------- ----- ------- ----- ----- -----
Total 1,098.9 100.0 1,110.1 100.0 569.0 100.0
======= ===== ======= ===== ===== =====
<FN>
1 Includes the assets of the operations sold. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
CHANGES FROM FISCAL 1999 TO FISCAL 2000
Net income for fiscal 2000 of $6.4 million represented a $10.6 million decrease
over fiscal 1999 net income of $17.0 million. Comparability of net income is,
however, difficult because fiscal 1999 was impacted by gains on sales of assets,
a restructuring charge, the amortization of debt issue costs associated with the
Bridge Facility, and the extraordinary item relating to the early extinguishment
of debt. In addition, fiscal 2000 results reflect 12 months of interest expense
in the current year versus 9 months in the prior year for the additional debt
associated with the DFVC Acquisition which occurred on September 24, 1998.
Accordingly, management believes, to summarize results, an evaluation of EBITDA
from continuing operations, as presented on page 13 in the EBITDA table included
in this report, is more appropriate because it allows the business to be
reviewed in a more consistent manner.
While a further description of net sales and operating income for each of its
product lines is outlined below, in summary, EBITDA from continuing segments
increased $39.9 million, or 42.2 percent, to $134.4 million in fiscal 2000 from
$94.5 million in the prior fiscal year.
The vegetable product line accounts for a $29.6 million increase of the overall
EBITDA. The improvement was impacted by both the results of the DFVC
Acquisition, including its impact on the percentage of branded sales for the
Company and the reduction in product costs resulting from synergistic savings.
As a result of the date of the DFVC Acquisition, the operating results of the
acquisition have been included for 12 months in fiscal 2000 and for 9 months in
fiscal 1999. In addition, as anticipated at the acquisition date, a greater
percentage of the Company's sales now come from its branded products. The
Company's branded products yield a higher margin than its private label and food
service categories. The Company has also benefited from a reduction in product
costs during fiscal 2000 primarily associated with the synergistic savings
achieved from the DFVC Acquisition and other consolidation efforts.
Specifically, the Company has benefited from the insourcing of product
previously purchased from outside suppliers, staffing reductions, and shipping
consolidations. Market conditions within the frozen vegetable category caused by
lower consumer demand and retail consolidation have, however, offset the
increases outlined above. According to industry data, for the 52-week period
ended June 25, 2000, there has been an overall decrease in the total frozen
vegetable category of 4.0 percent in unit volume. For the same 52-week period
ended June 25, 2000, the decrease in the frozen vegetable private label category
was 4.7 percent in unit volume. As management does not anticipate an improvement
in the current market conditions in the immediate future, efforts will continue
to be focused on cost savings initiatives and innovative go-to-market
strategies.
The Company's fruit category showed an increase of approximately $4.9 million.
This improvement results from a return to the Company's historical pricing
strategy and a reduction in promotional spending in fiscal 2000. Fiscal 1999
results also included spending of $0.9 million for a new product launch. No such
costs were incurred in fiscal 2000.
Snacks showed an increase of $4.0 million due to changes in product mix. During
fiscal 2000, a greater percentage of sales were associated with the potato chip
category which carries a higher margin than the Company's popcorn product line.
In addition, fiscal 1999 results were impacted by a strike at the Snyder of
Berlin facility. This action resulted in incremental costs of approximately $2.5
million in the prior year. The matter was settled in the first quarter of fiscal
2000. Management believes its current relationship with these employees is good.
<PAGE>
Canned meals showed a modest increase of $0.2 million due primarily to
production efficiencies and a reduction in raw product costs within the chili
category.
The other product line, which is primarily comprised of salad dressings, showed
an improvement of $1.2 million due to changes in product mix and benefits from
reductions in raw product costs.
Net Sales: Total net sales decreased $27.9 million or 2.3 percent, to $1,182.6
million in fiscal 2000 from $1,210.5 million in fiscal 1999. Excluding
businesses sold, net sales increased by $41.9 million, or 3.9 percent, to
$1,113.2 million in fiscal 2000 from $1,071.3 million in fiscal 1999.
The increase in net sales from continuing operations is primarily attributable
to an increase of $66.0 million within the vegetable product line. The inclusion
of the Birds Eye, Freshlike, and Veg-All brands for 12 months during fiscal 2000
versus nine months of results in fiscal 1999 resulted in incremental sales of
approximately $86.2 million. Excluding this impact, vegetable net sales have
declined $20.2 million and, as highlighted above, this decline is primarily
attributable to lower consumer demand and retail consolidations which occurred
throughout the year.
Net sales for the fruit product line decreased $1.1 million in fiscal 2000 to
$110.4 million from $111.5 million in fiscal 1999. While the Company's pie
filling category exceeded the prior year, decreases were highlighted within its
applesauce category due to competitive pricing within the industry.
Net sales for snacks decreased by $0.6 million in fiscal 2000. Improvements were
highlighted in the potato chip category, however, these amounts were offset by
declines in popcorn due to both a decrease in volume and pricing.
Net sales for canned meals declined $3.9 million in fiscal 2000 primarily
attributable to a decline in sales volume in private label chili.
The other product line, while it primarily consists of dressings, also includes
sales from the production of canned products primarily for use by the military
and other governmental operations. The majority of the $18.5 million decrease in
the other product line is associated with the decline in government demand for
these items.
Operating Income: Operating income of $102.7 million in fiscal 2000 decreased
approximately $27.9 million from $130.6 million in fiscal 1999. Excluding the
impact of businesses sold and other non-recurring items as identified on page
14, operating income from continuing operations increased from $65.8 million in
fiscal 1999 to $97.3 million in fiscal 2000. This represents an improvement of
$31.5 million or 47.9 percent. As highlighted in the discussion of EBITDA from
continuing segments, the increase is attributable to the date of and benefits
from the DFVC Acquisition and other repositioning efforts.
Additionally, while the Company experienced significant benefits from its
efforts in fiscal 1999 to consolidate warehouses and other logistics operations,
the decline in sales resulting from the current industry trend has caused
inventory levels to increase. Storage and handling costs associated with the
increase in inventory approximate $13 million. Management has taken significant
steps to mitigate those costs for fiscal 2001 by both reducing crop intake and
adopting innovative go-to-market strategies.
Gains on Sales of Assets: On June 23, 2000, the Company sold its pickle business
based in Tacoma, Washington to Dean Pickle and Specialty Products. This business
included pickle, pepper, and relish products sold primarily under the Nalley and
Farman's brand names. The Company received proceeds of approximately $10.3
million which were applied to bank loans ($4.0 million of which was applied to
the Term Loan Facility and $6.3 million of which was applied to the Company's
Revolving Credit Facility). A gain of approximately $4.3 million was recognized
on this transaction.
On July 21, 2000, the Company sold the machinery and equipment utilized in
production of pickles and other related products to Dean Pickle and Specialty
Products. No significant gain or loss was recognized on this transaction. The
proceeds of approximately $3.2 million were applied to the Term Loan Facility.
This transaction did not include any other products carrying the Nalley brand
name. Agrilink Foods will continue to contract pack Nalley and Farman's pickle
products for a period of two years at the existing Tacoma processing plant which
Agrilink Foods will operate.
<PAGE>
Under a related agreement, the Cooperative will supply raw cucumbers grown in
the Northwestern United States to Dean Pickle and Specialty Products for a
minimum 10-year period at market pricing.
On December 17, 1999 Agrilink Foods announced they had completed the sale of the
Company's Cambria, Wisconsin processing facility to Del Monte. The Company
received proceeds of approximately $10.5 million from the sale of its Cambria,
Wisconsin facility which were applied to bank loans. A gain of approximately
$2.3 million was recognized on this transaction. The sale includes an agreement
for Del Monte to produce a portion of Agrilink Foods' product needs during the
2000 packing season.
Restructuring: Implementation of a corporate-wide restructuring program resulted
in a charge of $5.0 million in the third quarter of fiscal 1999. See NOTE 1 to
the "Notes to Consolidated Financial Statements."
Income From Joint Venture: This amount represents earnings received from the
investment in Great Lakes Kraut Company, LLC, a joint venture formed between
Agrilink Foods and Flanagan Brothers, Inc. on July 1, 1997. The decrease of $0.4
million over the prior year is attributable to the sale of assets. See further
discussion at NOTE 3 to the "Notes to Consolidated Financial Statements."
Interest Expense: Interest expense increased $12.8 million to $78.1 million in
fiscal 2000 from $65.3 million in fiscal 1999. The increase in interest is,
therefore, associated with debt utilized 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. As a result of
the date of the DFVC Acquisition interest expense has been included for 12
months in fiscal 2000 and 9 months in fiscal 1999. In addition, this increase is
associated with an overall increase in prevailing interest rates which occurred
over the last year.
Amortization of Debt Issue Costs Associated with the Bridge Facility: In order
to consummate the DFVC Acquisition, Agrilink Foods entered into a $200 million
bridge loan facility (the "Bridge Facility"). The Bridge Facility was repaid
with the proceeds from the new senior subordinated note offering (see NOTE 5 to
the "Notes to Consolidated Financial Statements" - "Debt - Senior Subordinated
Notes 11-7/8 Percent due 2008"). Debt issuance costs associated with the Bridge
Facility were $5.5 million and were fully amortized during the second quarter of
fiscal 1999.
Pro-Fac Share of Income Before Extraordinary Item: The Company's contractual
relationship with Pro-Fac is defined in the Pro-Fac Marketing Agreement. Under
the Pro-Fac Marketing 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.
In fiscal 2000, 90 percent of earnings on patronage products exceeded 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.
As the gain on the sale of the aseptic operations was a non-patronage
transaction, the Pro-Fac share of earnings in fiscal 1999 was recorded at 90
percent of the earnings on patronage products.
Tax Provision: The tax provision of $5.9 million in fiscal 2000 represents a
reduction of $18.9 million from the prior year. Of this decrease, $25.2 million
is attributable to the provision associated with the fiscal 1999 gain on sale of
the aseptic operations and the tax benefit of $2.1 million associated with the
amortization of debt issue costs also in fiscal 1999. In fiscal 2000, the sale
of certain intangibles in conjunction with the pickle sale negatively impacted
the Company's effective tax rate. As previously outlined, the Company's
effective tax rate has historically been negatively impacted by the
non-deductibility of certain amounts of goodwill. A further discussion of tax
matters is included at NOTE 6 to the "Notes to Consolidated Financial
Statements."
Extraordinary Item Relating to the Early Extinguishment of Debt: Concurrently
with the DFVC Acquisition, Agrilink Foods refinanced its then 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).
<PAGE>
CHANGES FROM FISCAL 1998 TO FISCAL 1999
On September 24, 1998, Agrilink Foods 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 Foods sold its aseptic business to Dean
Foods. Agrilink Foods paid $360 million in cash, net of the sale of the aseptic
business, and issued to Dean Foods a $30 million unsecured subordinated
promissory note due November 22, 2008 (the "Dean Foods Subordinated Promissory
Note"), as consideration for the DFVC Acquisition.
After the DFVC Acquisition, DFVC was merged into the Company. This entity 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, Birds Eye Voila!,
Freshlike and Veg-All, and various private labels. The Company believes that the
DFVC Acquisition has strengthened 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.
Net income for fiscal 1999 of $17.0 million represented a $10.2 million increase
over fiscal 1998 net income of $6.8 million. Comparability of net income is,
however, difficult because fiscal 1999 was impacted by acquisitions, gains on
sales of assets, a restructuring charge, an increase in interest expense and
depreciation expense associated with the DFVC Acquisition, the amortization of
debt issue costs associated with the Bridge Facility, and the extraordinary item
relating to the early extinguishment of debt. Accordingly, management believes
that, to summarize results, an evaluation of EBITDA from continuing operations,
as presented on page 13 in the EBITDA table included in this report, is more
appropriate because it allows the business to be reviewed in a more consistent
manner. While a further description of net sales and operating income for each
of its product lines is outlined below, in summary, EBITDA from continuing
operations increased a net $34.5 million or 57.5 percent, to $94.5 million in
the current fiscal year from $60.0 million in the prior fiscal year.
The vegetable product line accounts for a $43.9 million increase of the overall
EBITDA increase and is primarily attributable to the DFVC Acquisition. While
this product line benefited from the inclusion of the Birds Eye, Freshlike, and
Veg-All brands, the category was negatively impacted by market conditions within
the frozen private label segment as a result of lower demand, industry
oversupply, and resulting declines in pricing.
The Company's fruit category showed a decrease of approximately $10.2 million
primarily due to a change in the Company's pricing and promotional strategy
within this product line.
Snacks were impacted by competitive pricing within the popcorn product line as
an increase in production from foreign countries such as Argentina which reduced
selling prices. In addition, the potato chip category was negatively impacted by
a strike at the Snyder of Berlin facility during the spring of 1999 which
resulted in additional costs of approximately $2.5 million.
Canned meals showed a modest decline due primarily to the recognition in fiscal
1998 of a favorable settlement of an outstanding tax claim regarding meat
products.
The other product category showed an improvement due primarily to reductions in
costs and promotional spending.
Net Sales: Total net sales increased $490.8 million or 68.2 percent, to $1,210.5
million in fiscal 1999 from $719.7 million in fiscal 1998. Excluding businesses
sold, net sales increased by $512.2 million, or 91.6 percent, to $1,071.3
million in fiscal 1999 from $559.1 million in fiscal 1998.
The increase in net sales from continuing operations is primarily attributable
to the $501.6 million increase within the vegetable product line as a result of
the DFVC Acquisition. In addition, during fiscal 1998, the Company became the
sole supplier of frozen vegetables for the Sam's national club stores. Full
distribution under this contract was achieved in fiscal 1999. These improvements
within the preexisting vegetable operations were offset by a decline in the
frozen private label segment. Beginning in January of 1999 and continuing
through fiscal 1999, the private label frozen vegetable segment, as reported by
several sources, has experienced a decline in unit sales of between 7 and 10
percent.
Net sales for the fruit product line decreased $8.2 million in fiscal 1999 to
$111.5 million from $119.7 million in fiscal 1998. As a result of a change in
pricing and promotional strategy, the Company experienced a decline in its
branded pie filling volume and an
<PAGE>
increase in its private label volume throughout fiscal 1999. Management returned
its historic pricing and promotional strategy and improvements in this product
line occurred.
Net sales for snacks increased by $4.2 million in fiscal 1999 as a result of
unit volume primarily within the potato chip category.
The other product line showed an increase of $14.4 million. This increase is
attributable to sales from the production of canned products primarily for use
by the military and other governmental operations. This business was obtained
through the DFVC acquisition and, thus, there were no such sales in fiscal 1998.
This increase was offset by declines within the salad dressings category caused
by competitive pressures.
Operating Income: Operating income of $130.6 million in fiscal 1999 increased
approximately $75.0 million from $55.6 million in fiscal 1998. Excluding the
impact of businesses sold and other non-recurring items as identified on page
14, operating income from continuing operations increased from $41.1 million in
fiscal 1998 to $65.8 million in fiscal 1999. This represented an improvement of
$24.7 million or 60.1 percent.
Vegetables showed improvements of $32.5 million or 285.1 percent. The vegetable
product line obtained through the DFVC Acquisition accounted for $54.7 million
of this increase, while preexisting vegetable operations showed a decline of
$22.2 million. The preexisting vegetable operations showed margin erosion
resulting from the downward trend in the private label frozen vegetable market
as previously highlighted. In addition, the reduction in the volume of frozen
vegetable product repackaged and sold resulted in a higher per unit cost.
Additionally, incremental warehousing costs (storage, handling, and shipping) of
approximately $5.0 million were incurred to consolidate the operations of the
Company's frozen vegetable business as part of the DFVC Acquisition.
Fruits showed a decline of $8.7 million from $17.1 million in fiscal 1998 to
$8.4 million in fiscal 1999. Pie filling accounted for a decline of $6.1 million
due to the change in pricing and promotional strategy discussed above.
Applesauce showed declines of $1.4 million due to the reduction in pricing
resulting from an increased industry supply. The remaining decline resulted from
incremental costs associated with a new product launch in fiscal 1999.
Snacks showed a decline of $2.8 million from $6.1 million in fiscal 1998 to $3.3
million in fiscal 1999. The decline resulted from costs associated with the
strike at the Snyder of Berlin facility of approximately $2.5 million and the
competitive pressures within the popcorn category.
Canned meals showed a modest decline due primarily to the recognition in fiscal
1998 of a favorable settlement of an outstanding tax claim regarding meat
products.
The other product category showed an improvement due primarily to canned
products sold to the military as highlighted above and reductions in costs and
promotional spending.
Gains on Sales of Assets: In conjunction with the DFVC Acquisition, the Company
sold its aseptic business to Dean Foods. The purchase price of $80 million was
based upon an appraisal completed by an independent appraiser. The gain
recognized on the sale was approximately $61.2 million.
On January 29, 1999, the Company sold the Adams brand peanut butter operation to
the J.M. Smucker Company. The Company received proceeds of approximately $13.5
million which were applied to outstanding bank loans. A gain of approximately
$3.5 million was recognized on this transaction.
Restructuring: Implementation of a corporate-wide restructuring program resulted
in a charge of $5.0 million in the third quarter of fiscal 1999. See NOTE 1 to
the "Notes to Consolidated Financial Statements."
Income from Joint Venture: This amount represents earnings received from the
investment in Great Lakes Kraut Company, LLC, a joint venture formed between
Agrilink Foods and Flanagan Brothers, Inc. on July 1, 1997. The increase of $0.9
million over the prior year is attributable to increases in volume and
improvements in pricing. See further discussion at NOTE 3 to the "Notes to
Consolidated Financial Statements."
Interest Expense: Interest expense increased $34.7 million to $65.3 million in
fiscal 1999 from $30.6 million in fiscal 1998. This increase is associated with
debt utilized to finance the DFVC Acquisition and higher levels of seasonal
borrowings to fund changes in operating activities due to the increase in the
Company's size.
<PAGE>
Amortization of Debt Issue Costs Associated with the Bridge Facility: In order
to consummate the DFVC Acquisition, the Company entered into a $200 million
bridge loan facility (the "Bridge Facility"). The Bridge Facility was repaid
with the proceeds from the new senior subordinated note offering (see NOTE 5 to
the "Notes to Consolidated Financial Statements" - "Debt - Senior Subordinated
Notes 11-7/8 Percent due 2008"). Debt issuance costs associated with the Bridge
Facility were $5.5 million and were fully amortized during the second quarter of
fiscal 1999.
Pro-Fac Share of Income Before Extraordinary Item: The Company's contractual
relationship with Pro-Fac is defined in the Pro-Fac Marketing Agreement. Under
the Pro-Fac Marketing 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. Due to the recognition of the gain on the
sale of the aseptic operations in fiscal 1999, the Pro-Fac share of earnings was
recorded at 90 percent of the earnings on patronage products in the prior year.
The reduction in the Company's preexisting vegetable product line and its fruit
product line, as described above, caused the decline in additional patronage
earnings.
Tax Provision: The provision for taxes increased $19.1 million to $24.8 million
in fiscal 1999 from $5.7 million in fiscal 1998. Of this net increase, $25.2
million is attributable to the provision associated with the gain on sale of
assets. This amount was offset by a $2.1 million tax benefit resulting from the
amortization of debt issue costs associated with the Bridge Facility. The
remaining variance is impacted by the change in earnings before tax. Agrilink
Foods' effective tax rate is negatively impacted by the non-deductibility of
certain amounts of goodwill. A further discussion of tax matters is included at
NOTE 6 to the "Notes to Consolidated Financial Statements."
Extraordinary Item Relating to the Early Extinguishment of Debt: Concurrently
with the DFVC Acquisition, the Company refinanced its then 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 Consolidated
Statement of Cash Flows for fiscal 2000 compared to fiscal 1999.
Net cash used in operating activities of $17.7 million in fiscal 2000 increased
$5.8 million from the fiscal 1999 balance of $11.9 million. This increase
primarily results from an increase in inventories due to the decline in net
sales resulting from lower consumer demand and retail consolidation, offset by
variances within accounts payable and other accruals due to the timing of
liquidation of outstanding balances.
Net cash used in investing activities was significantly impacted by the DFVC
Acquisition in fiscal 1999. The purchase of property, plant and equipment
increased $3.3 million to $25.4 million in fiscal 2000 from $22.1 million in
fiscal 1999. The increase was primarily utilized to support additional operating
facilities acquired in conjunction with the DFVC Acquisition and was for general
operating purposes.
Net cash used in financing activities in fiscal 2000 was primarily associated
with mandatory prepayments, including proceeds from the disposition of assets.
In addition, the Company's outstanding notes payable balance (the Revolving
Credit Facility) was approximately $5.7 million at June 24, 2000. The balance on
this facility at June 26, 1999 was approximately $18.9 million. The reduction
was primarily attributable to changes in operating activities outlined above.
The financing activities in fiscal 1999 were significantly impacted by the DFVC
Acquisition and the activities completed concurrently with the acquisition to
refinance existing indebtedness.
New Credit Facility (Bank Debt): In connection with the DFVC Acquisition, the
Company entered into a new credit facility ("New Credit Facility") with Harris
Bank as Administrative Agent and Bank of Montreal as Syndication Agent, and the
lenders thereunder. The New Credit Facility consists of the $200 million
Revolving Credit Facility and the $455 million Term Loan Facility. The Term Loan
Facility is comprised of the Term A Facility, which has a maturity of five
years, the Term B Facility, which has a maturity of six
<PAGE>
years, and the Term C Facility, which has a maturity of seven years. The
Revolving Credit Facility has a maturity of five years. All previous bank debt
was repaid in conjunction with the execution of the New Credit Facility.
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. The fiscal 2000 weighted-average rate of
interest applicable to the Term Loan Facility was 9.51 percent. In addition, the
Company pays a commitment fee calculated at a rate of 0.50 percent per annum on
the daily average unused commitment under the Revolving Credit Facility.
Upon consummation of the DFVC 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.
Utilizing outstanding balances at June 24, 2000, the Term Loan Facility is
subject to the following amortization schedule:
(Dollars in Millions)
Fiscal Year Term Loan A Term Loan B Term Loan C Total
----------- ----------- ----------- ----------- -----
(Dollars in millions)
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 9.2 0.4 0.4 10.0
2005 0.0 190.5 0.4 190.9
2006 0.0 0.0 195.0 195.0
------- ------ ------ -------
$ 39.2 $192.1 $197.0 $ 428.3
======= ====== ====== =======
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility. During fiscal 2000, Agrilink
Foods made mandatory prepayments of $10.0 million from proceeds of the sale of
the Cambria facility and the pickle operations. In addition, during fiscal 2000,
principal payments of $8.3 million were made on the Term Loan Facilities.
The Company's obligations under the New Credit Facility are collateralized 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 (excluding AgriFrozen Foods, which is a subsidiary of
Pro-Fac); 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 (excluding AgriFrozen Foods, which is a subsidiary of
Pro-Fac).
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. Under the New Credit Facility,
the assets, liabilities, and results of operations of AgriFrozen, Inc., which is
a subsidiary of Pro-Fac, are not consolidated with Pro-Fac for purposes of
determining compliance with the covenants. In August of 1999, the Company
negotiated an amendment to the original covenants. In conjunction with this
amendment, the Company incurred a fee of approximately $2.6 million. This fee is
being amortized over the remaining life of the New Credit Facility. Pro-Fac and
the Company are in compliance with all covenants, restrictions and requirements
under the terms of the New Credit Facility as amended.
<PAGE>
Senior Subordinated Notes - 11-7/8 Percent (due 2008): To extinguish the
Subordinated Bridge Facility, the Company issued Senior Subordinated Notes (the
"New Notes") for $200 million aggregate principal amount due November 1, 2008.
Interest on the New Notes accrues at the rate of 11-7/8 percent per annum and is
payable semiannually in arrears on May 1 and November 1.
The New Notes represent general unsecured obligations of the Company,
subordinated in right of payment to certain other debt obligations of the
Company (including the Company's obligations under the New Credit Facility). The
New Notes are guaranteed by Pro-Fac and certain of the Company's current and
future, if any, subsidiaries.
The New Notes contain customary covenants and restrictions on the Company's
ability to engage in certain activities, including, but not limited to: (i)
limitations on the incurrence of indebtedness and liens; (ii) limitations on
consolidations, mergers, sales of assets, transactions with affiliates; and
(iii) limitations on dividends and other distributions. The Company is in
compliance with all covenants, restrictions, and requirements under the New
Notes.
Subordinated Bridge Facility: To complete the DFVC 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 second quarter of fiscal 1999.
Subordinated Promissory Note: As partial consideration for the DFVC Acquisition,
the Company issued to Dean Foods a Subordinated Promissory Note for $30 million
aggregate principal amount due November 22, 2008. Interest on the Subordinated
Promissory Note is accrued 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. As the rates on the Note are below market value, the Company
has imputed the appropriate discount utilizing an effective interest rate of
11-7/8 percent. Interest accruing through November 22, 2003 is required to be
paid in kind through the issuance by the Company of additional subordinated
promissory notes identical to the Subordinated Promissory Note. The Company
satisfied this requirement through the issuance of six additional promissory
notes each for approximately $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.
Senior Subordinated Notes - 12 1/4 Percent - Due 2005 ("Old Notes"): In
conjunction with the DFVC 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.
Capital Expenditures: The Company anticipates that capital expenditures for
fiscal years 2001 and 2002 will be approximately $25 million per annum. The
Company believes that cash flow from operations and borrowings under bank
facilities will be sufficient to meet its liquidity requirements for the
foreseeable future.
Short- and Long-Term Trends: Throughout fiscal 2000 and 1999, Agrilink Foods has
focused on its core businesses and growth opportunities. During fiscal 1999, the
Company acquired the frozen and canned vegetable business of Dean Foods. The
Company believes that the DFVC Acquisition strengthened 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. A complete description of the
acquisition and disposal activities completed is outlined at NOTE 3 to the
"Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This 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.
<PAGE>
Management believes that the decrease in consumer demand will result in an
increased supply throughout the industry. Accordingly, this increase in supply
along with the current trend of the decline of 4.7 percent in unit volume within
the private label frozen vegetable category has negatively impacted the
Company's margin in the third and fourth quarters of fiscal 2000 and continues
to date.
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 changes caused
by inflation.
OTHER MATTERS:
Recently Issued Accounting Statements: In June 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. In June 1999,
the FASB issued SFAS 137, which deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000, and requires all derivatives be
measured at fair value and recorded on a company's balance sheet as an asset or
liability, depending upon the company's underlying rights or obligations
associated with the derivative instrument. Agrilink Foods currently is
investigating the impact of this pronouncement.
Year 2000 Readiness Disclosure: Agrilink Foods has not experienced any
significant Year 2000 related system failures nor, to management's knowledge,
have any of the Company's suppliers. Agrilink Foods intends to continue to
monitor and test systems for ongoing Year 2000 compliance; however, management
cannot guarantee that the systems of other companies upon which operations rely
could not be affected by issues associated with the Year 2000 conversion.
All material costs associated with the Company's Year 2000 compliance project
were covered under its service agreement with Systems and Computer Technology
Corporation ("SCT"). The Company's ten-year agreement with SCT is currently
valued at $50 million and is for SCT's OnSite outsourcing services, which
includes assistance in solving the Year 2000 issue. These amounts have been
funded through operating cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 entered into two
interest rate swap agreements with the Bank of Montreal. The agreements provide
for fixed interest rate payments by the Company in exchange for payments
received at the three-month LIBOR rate. See further discussion at NOTE 5 to the
"Notes to Consolidated Financial Statements" "Debt - Interest Rate Protection
Agreements."
The following is a summary of the Company's interest rate swap agreements:
June 24, 2000
-------------
Interest Rate Swap:
Variable to Fixed - notional amount $250,000,000
Average pay rate 4.96-5.32%
Average receive rate 6.29%
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.
Foreign Currency: The Cooperative hedges certain foreign currency transactions
by entering into forward exchange contracts. Gains and losses associated with
currency rate changes on forward exchange contracts hedging foreign currency
transactions are recorded in earnings upon settlement. In fiscal 2000, the
Cooperative entered into forward exchange contracts to hedge aggregate foreign
currency exposures of approximately $11.5 million. The forward exchange
contracts have varying maturities ranging from July 2000 to April 2001 with cash
settlements made at maturity based upon rates agreed to at contract inception.
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<S> <C>
ITEM Page
Agrilink Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................... 25
Report of Independent Accountants....................................................................................... 26
Consolidated Financial Statements:
Consolidated Statements of Operations, Accumulated Earnings/(Deficit), and Comprehensive Income
for the years ended June 24, 2000, June 26, 1999, and June 27, 1998................................................. 27
Consolidated Balance Sheets at June 24, 2000 and June 26, 1999........................................................ 28
Consolidated Statements of Cash Flows for the years ended June 24, 2000, June 26, 1999, and June 27, 1998............. 29
Notes to Consolidated Financial Statements............................................................................ 31
</TABLE>
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begins on the page following the "Report of
Independent Accountants." These statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The Company's accounting systems include internal controls designed to provide
reasonable assurance of the reliability of its financial records and the proper
safeguarding and use of its assets. Such controls are monitored through the
internal and external audit programs.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants, who were responsible for conducting their examination
in accordance with generally accepted auditing standards. Their resulting report
is on the subsequent page.
The Board of Directors exercises its responsibility for these financial
statements. The independent accountants and internal auditors of the Company
have full and free access to the Board. The Board periodically meets with the
independent accountants and the internal auditors, without management present,
to discuss accounting, auditing and financial reporting matters.
/s/ Dennis M. Mullen /s/ Earl L. Powers
Dennis M. Mullen Earl L. Powers
President and Executive Vice President Finance and
Chief Executive Officer Chief Financial Officer
August 1, 2000
<PAGE>
Report of Independent Accountants
To the Shareholder and
Board of Directors of
Agrilink Foods, Inc.
In our opinion, the consolidated balance sheets and related consolidated
statements of operations and accumulated retained earnings/(deficit) and of cash
flows listed under Item 8 of this Form 10-K present fairly, in all material
respects, the financial position of Agrilink Foods, Inc. and its subsidiaries at
June 24, 2000 and June 26, 1999, and the results of their operations and their
cash flows for each of the three years ended in the period June 24, 2000, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States 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.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item 14 of the Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein for the fiscal years ended June 24, 2000, June 26, 1999, and June 27,
1998 when read in conjunction with the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
August 1, 2000
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
Agrilink Foods, Inc.
Consolidated Statements of Operations, Accumulated Earnings/(Deficit), and Comprehensive Income
(Dollars in Thousands)
<CAPTION>
Fiscal Years Ended
------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 1,182,627 $ 1,210,506 $ 719,665
Cost of sales (809,633) (854,768) (524,082)
----------- ----------- ------------
Gross profit 372,994 355,738 195,583
Selling, administrative, and general expenses (279,337) (287,672) (141,837)
Gains on sales of assets 6,635 64,734 0
Restructuring 0 (5,000) 0
Income from joint venture 2,418 2,787 1,893
----------- ----------- ------------
Operating income before dividing with Pro-Fac 102,710 130,587 55,639
Interest expense (78,054) (65,339) (30,633)
Amortization of debt issue costs associated with the Bridge Facility 0 (5,500) 0
----------- ----------- ------------
Pretax income before dividing with Pro-Fac and before extraordinary
item 24,656 59,748 25,006
Pro-Fac share of income before extraordinary item (12,328) (1,658) (12,503)
----------- ----------- ------------
Income before taxes and extraordinary item 12,328 58,090 12,503
Tax provision (5,904) (24,770) (5,689)
----------- ----------- ------------
Income before extraordinary item 6,424 33,320 6,814
Extraordinary item relating to the early extinguishment of debt (net
of income taxes and after dividing with Pro-Fac) 0 (16,366) 0
----------- ----------- ------------
Net income 6,424 16,954 6,814
Accumulated deficit at beginning of period (2,424) (11,878) (11,878)
Dividends to Pro-Fac 0 (7,500) (6,814)
----------- ----------- ------------
Accumulated earnings/(deficit) at end of period $ 4,000 $ (2,424) $ (11,878)
=========== =========== ============
Accumulated other comprehensive income at beginning of period $ (763) $ (608) $ 0
Minimum pension liability adjustment 238 (155) (608)
----------- ----------- ------------
Accumulated other comprehensive income at end of period $ (525) $ (763) $ (608)
=========== =========== ============
Net income $ 6,424 $ 33,320 $ 6,814
Other comprehensive income:
Minimum pension liability 238 (155) (608)
----------- ----------- ------------
Comprehensive income $ 6,662 $ 33,165 $ 6,206
=========== =========== ============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS
June 24, June 26,
2000 1999
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,994 $ 6,540
Accounts receivable trade, net of allowances for doubtful accounts of
$887 and $1,202, respectively 95,499 81,430
Accounts receivable, other 9,855 6,184
Income taxes refundable 7,331 9,360
Current deferred tax asset 11,552 15,565
Inventories -
Finished goods 250,112 247,389
Raw materials and supplies 45,185 46,181
----------- -----------
Total inventories 295,297 293,570
----------- -----------
Current investment in CoBank 2,927 2,403
Prepaid manufacturing expense 20,296 18,217
Prepaid expenses and other current assets 18,706 17,989
----------- -----------
Total current assets 466,457 451,258
Investment in CoBank 15,893 19,693
Investment in Great Lakes Kraut Company, LLC 6,775 6,679
Property, plant, and equipment, net 317,994 339,753
Assets held for sale at net realizable value 339 890
Goodwill and other intangible assets, net of accumulated amortization of $28,248
and $22,031, respectively 258,545 260,733
Other assets 23,484 21,655
Note receivable due from Pro-Fac 9,400 9,400
----------- -----------
Total assets $ 1,098,887 $ 1,110,061
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable $ 5,700 $ 18,900
Current portion of obligations under capital leases 218 208
Current portion of long-term debt 16,583 8,670
Accounts payable 80,687 96,800
Accrued interest 11,398 5,476
Accrued employee compensation 10,114 13,717
Other accrued expenses 64,138 60,242
Due to Pro-Fac 9,141 15,067
Due to AgriFrozen 14,384 6,815
----------- -----------
Total current liabilities 212,363 225,895
Obligations under capital leases 520 568
Long-term debt 644,712 668,316
Deferred income tax liabilities 32,262 23,174
Other non-current liabilities 29,852 28,224
----------- -----------
Total liabilities 919,709 946,177
----------- -----------
Commitments and Contingencies
Shareholder's Equity:
Common stock, par value $.01; 10,000 shares outstanding, owned by Pro-Fac 0 0
Additional paid-in capital 175,703 167,071
Accumulated earnings/(deficit) 4,000 (2,424)
Accumulated other comprehensive income:
Minimum pension liability adjustment (525) (763)
----------- -----------
Total shareholder's equity 179,178 163,884
----------- -----------
Total liabilities and shareholder's equity $ 1,098,887 $ 1,110,061
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<CAPTION>
Fiscal Years Ended
-----------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,424 $ 16,954 $ 6,814
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 0
Gains on sales of assets (6,635) (64,734) 0
Loss on disposal of assets 0 353 0
Amortization of goodwill and other intangibles 8,768 9,396 3,581
Amortization of debt issue costs (including fees associated with
the Bridge Facility) 4,318 7,678 800
Interest in-kind on Subordinated Promissory Note 1,571 782 0
Depreciation 30,313 23,804 18,009
Equity in undistributed earnings of CoBank (102) (520) (715)
Provision for deferred taxes 9,000 9,742 281
Provision for losses on accounts receivable 201 208 17
Change in assets and liabilities:
Accounts receivable (15,276) (2,048) (9,293)
Inventories and prepaid manufacturing (51,802) 33,083 (25,654)
Income taxes payable/refundable 2,029 (3,193) (1,209)
Accounts payable, and accrued expenses (8,477) (51,768) 18,269
Due (from)/to Pro-Fac (5,926) 683 (1,720)
Other assets and liabilities 7,888 (8,695) (11,322)
-------- -------- ---------
Net cash (used in)/provided by operating activities (17,706) (11,909) (2,142)
-------- -------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (25,428) (22,064) (14,056)
Proceeds from disposals 64,360 93,486 12,794
Proceeds from sales of idle facilities 0 1,427 0
Proceeds from investment in CoBank 3,378 2,795 1,611
Cash paid for acquisitions (250) (443,531) (7,423)
-------- -------- ---------
Net cash provided by/(used in) investing activities 42,060 (367,887) (7,074)
-------- -------- ---------
Cash Flows From Financing Activities:
Net proceeds from notes payable (13,200) 18,900 0
Proceeds from issuance of long-term debt 0 677,100 18,180
Payments on long-term debt (18,470) (287,574) (8,076)
Payments on capital leases (238) (282) (616)
Cash paid for debt issuance costs and amendments (2,624) (19,354) 0
Capital contribution by Pro-Fac 8,632 0 8,752
Dividends paid to Pro-Fac 0 (7,500) (6,814)
-------- -------- ---------
Net cash (used in)/provided by financing activities (25,900) 381,290 11,426
-------- -------- ---------
Net change in cash and cash equivalents (1,546) 1,494 2,210
Cash and cash equivalents at beginning of period 6,540 5,046 2,836
-------- -------- ---------
Cash and cash equivalents at end of period $ 4,994 $ 6,540 $ 5,046
======== ======== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for :
Interest (net of amount capitalized) $ 72,132 $ 68,422 $ 30,062
======== ======== =========
Income taxes refunded/(paid), net $ 6,637 $(12,935) $ (6,617)
======== ======== =========
Acquisition of Flavor Destinations Trademark:
Goodwill and other intangible assets $ 250 $ 0 $ 0
Acquisition of Erin's Gourmet Popcorn:
Inventories $ 0 $ 33 $ 0
Property, plant, and equipment 0 26 0
Goodwill and other intangible assets 0 554 0
-------- -------- ---------
$ 0 $ 613 $ 0
======== ======== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Agrilink Foods, Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
<CAPTION>
Fiscal Years Ended
June 24, 2000 June 26, 1999 June 27, 1998
<S> <C> <C> <C>
Acquisition of Dean Foods Vegetable Company:
Accounts receivable $ 0 $24,201 $ 0
Current deferred tax asset 0 30,645 0
Inventories 0 195,674 0
Prepaid expenses and other current assets 0 6,374 0
Property, plant, and equipment 0 154,527 0
Assets held for sale 0 49 0
Goodwill and other intangible assets 0 182,010 0
Accounts payable 0 (40,865) 0
Accrued employee compensation 0 (8,437) 0
Other accrued expenses 0 (75,778) 0
Long-term debt 0 (2,752) 0
Subordinated promissory note 0 (22,590) 0
Other assets and liabilities, net 0 (2,453) 0
-------- -------- --------
$ 0 $440,605 $ 0
======== ======== ========
Acquisition of J.A. Hopay Distributing Co., Inc.:
Accounts receivable $ 0 $ 420 $ 0
Inventories 0 153 0
Property, plant, and equipment 0 51 0
Goodwill and other intangible assets 0 3,303 0
Other accrued expenses 0 (251) 0
Obligation for covenant not to compete 0 (1,363) 0
-------- -------- --------
$ 0 $ 2,313 $ 0
======== ======== ========
Acquisition of DelAgra:
Accounts receivable $ 0 $ 0 $ 403
Inventories 0 0 3,212
Prepaid expenses and other current assets 0 0 81
Property, plant, and equipment 0 0 1,842
Goodwill and other intangible assets 0 0 1,508
Other accrued expenses 0 0 (433)
-------- -------- --------
$ 0 $ 0 $ 6,613
======== ======== ========
Acquisition of C&O Distributing Company:
Property, plant, and equipment $ 0 $ 0 $ 54
Goodwill and other intangible assets 0 0 756
-------- -------- --------
$ 0 $ 0 $ 810
======== ======== ========
Investment in Great Lakes Kraut Company, LLC:
Inventories $ 0 $ 0 $ 2,175
Prepaid expenses and other current assets 0 0 409
Property, plant, and equipment 0 0 6,966
Other accrued expenses 0 0 (62)
-------- -------- --------
$ 0 $ 0 $ 9,488
======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred $ 171 $ 320 $ 222
======== ======== ========
<FN>
The accompanying notes are an integral part of these 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 Foods"), 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"). On March 1, 2000,
the Cooperative announced it will begin doing business as Agrilink. In addition,
the board of directors of Agrilink Foods and Pro-Fac have agreed to conduct
joint meetings, coordinate their activities, and to act on a consolidated basis.
Although Pro-Fac Cooperative will continue to be the legal entity of the
Cooperative, with the same structure and regulations required by bank credit
agreements and bond indentures, and with the same stock symbol, "PFACP," it will
be presented as Agrilink for all other communications.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
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 Foods corresponds with that of its
parent, Pro-Fac, and ends on the last Saturday in June. Fiscal 2000, 1999, and
1998 each comprised 52 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.
Reclassification: Certain items for fiscal 1999 and 1998 have been reclassified
to conform with the current presentation.
Restructuring: During the third quarter of fiscal 1999, 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. The total restructuring charge amounted to $5.0 million and was
primarily comprised of employee termination benefits (which have improved annual
earnings by approximately $8.0 million). Efforts have focused on the
consolidation of operating functions and the elimination of approximately 5
percent of the work force. Reductions in personnel include operational and
administrative positions. Of this charge, $3.3 million has been liquidated to
date, and the remaining termination benefits are anticipated to be liquidated
within the next 12 months.
Extraordinary Item Relating to the Early Extinguishment of Debt: During fiscal
1999, 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). See NOTE 3 to the "Notes to
Consolidated Financial Statements."
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with original maturities of three months or less. There were no such
short-term investments at June 24, 2000 or June 26, 1999.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method. Reserves recorded at June 24, 2000 and June
26, 1999 were $1,106,000 and $2,777,000, respectively. Reductions to the reserve
were recorded in fiscal 2000 as related inventory was disposed.
Investment in CoBank: The Company's investment in CoBank is required as a
condition of borrowing. These securities are not physically issued by CoBank,
but rather 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 CoBank
(that portion of patronage refunds not distributed currently in cash).
Earnings on the Company's investment in CoBank in fiscal year 2000, 1999, and
1998 amounted to $147,000, $743,000, and $1,023,000, respectively.
<PAGE>
Prepaid Manufacturing Expense: 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. 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.
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.
Assets held for sale are separately classified on the balance sheet. The
recorded value represents an estimate of net realizable value.
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 3 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.
Other Assets: Other assets are primarily comprised of debt issuance costs. Debt
issuance costs are amortized over the term of the debt. Amortization expense
incurred, including $5,500,000 of fees associated with the Bridge Facility in
fiscal 1999 were approximately $2,758,000, $7,678,000, and $800,000, in fiscal
2000, 1999, and 1998, respectively.
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.
Derivative Financial Instruments: The Company does not engage in interest rate
speculation. Derivative financial instruments are utilized to hedge interest
rate risks and are not held for trading purposes.
The Company enters into interest rate swap agreements to limit exposure to
interest rate movements. Net payments or receipts are accrued into prepaid
expenses and other current assets and/or other accrued expenses and are recorded
as adjustments to interest expense. Interest rate instruments are entered into
for periods no greater than the life of the underlying transaction being hedged.
Management anticipates that all interest rate derivatives will be held to
maturity. Any gains or losses on prematurely terminated interest rate
derivatives will be recognized over the remaining life, if any, of the
underlying transaction as an adjustment to interest expense.
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.
Foreign Currency: The Cooperative hedges certain foreign currency transactions
by entering into forward exchange contracts. Gains and losses associated with
currency rate changes on forward exchange contracts hedging foreign currency
transactions are recorded in earnings upon settlement. In fiscal 2000, the
Cooperative entered into forward exchange contracts to hedge aggregate foreign
currency exposures of approximately $11.5 million. The forward exchange
contracts have varying maturities ranging from July 2000 to April 2001 with cash
settlements made at maturity based upon rates agreed to at contract inception.
<PAGE>
Recently Issued Accounting Statements: In June 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. In June 1999,
the FASB issued SFAS 137, which deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000, and requires all derivatives be
measured at fair value and recorded on a company's balance sheet as an asset or
liability, depending upon the company's underlying rights or obligations
associated with the derivative instrument. Agrilink Foods currently is
investigating the impact of this pronouncement.
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 24, 2000 and June 26, 1999 was $5.2 million and $6.3
million, respectively.
Environmental Expenditures: Environmental expenditures that pertain to current
operations are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that do not contribute to current
or future revenues are expensed. Liabilities are recorded when remedial
activities are probable, and the cost can be reasonably estimated.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The costs of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal year 2000, 1999, and 1998 amounted to approximately
$43,195,000, $38,158,000, and $9,878,000, 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.
Disclosures About Fair Value of Financial Instruments: The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash and Cash Equivalents, Accounts Receivable, and Notes Payable: The
carrying amount approximates fair value because of the short maturity
of these instruments.
Long-Term Investments: The carrying value of the investment in CoBank
was $18.8 million at June 24, 2000. 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. See
NOTE 5 to the "Notes to Consolidated Financial Statements."
NOTE 2. AGREEMENTS WITH PRO-FAC
Effective November 3, 1994, the Company became a wholly-owned subsidiary of
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
Foods, it may be more or less than the price Agrilink Foods would pay in the
open market in the absence of the Agreement. For the fiscal years ended 2000,
1999, and 1998 the CMV for all crops supplied by Pro-Fac amounted to $69.6
million, $62.2 million, and $58.5 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's board of directors.
The volume and type of crops to be purchased by Agrilink Foods from Pro-Fac
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
<PAGE>
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 Foods, 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 2000 and 1998 such additional patronage
income amounted to $12.3 million and $12.5 million, respectively. During fiscal
1999, there was no additional patronage income. Under the Agreement, Pro-Fac is
required to reinvest at least 70 percent of the additional Patronage income in
Agrilink Foods. Since Pro-Fac's acquisition of Agrilink in 1994, Pro-Fac has
invested an additional $29.9 million in the Company.
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 3. ACQUISITIONS AND DISPOSALS
Fiscal 2000 -
Sale of Pickle Business: On June 23, 2000, the Company sold its pickle business
based in Tacoma, Washington to Dean Pickle and Specialty Products. This business
included pickle, pepper, and relish products sold primarily under the Nalley and
Farman's brand names. The Company received proceeds of approximately $10.3
million which were applied to bank loans ($4.0 million of which was applied to
the Term Loan Facility and $6.3 million of which was applied to the Company's
Revolving Credit Facility). A gain of approximately $4.3 million was recognized
on this transaction.
On July 21, 2000, the Company sold the machinery and equipment utilized in
production of pickles and other related products to Dean Pickle and Specialty
Products. No significant gain or loss was recognized on this transaction. Net
proceeds of approximately $3.2 million were applied to the Term Loan Facility.
This transaction did not include any other products carrying the Nalley brand
name, including prepared canned meal products. Agrilink Foods will continue to
contract pack Nalley and Farman's pickle products for a period of two years at
the existing Tacoma processing plant which Agrilink Foods will operate.
Under a related agreement, the Cooperative will supply raw cucumbers grown in
the Northwestern United States to Dean Pickle and Specialty Products for a
minimum 10-year period at market pricing.
Sale of Midwest Private Label Canned Vegetable Business: On November 8, 1999,
the Company completed the sale of Agrilink Foods' Midwest private label canned
vegetable business to Seneca Foods. Included in this transaction was the
Arlington, Minnesota facility. The Company received proceeds of approximately
$42.4 million which were applied to borrowings outstanding under the Company's
Revolving Credit Facility. In addition, Seneca Foods issued to Agrilink Foods a
$5.0 million unsecured subordinated promissory note due February 8, 2009. This
transaction did not include the Company's retail branded canned vegetables,
Veg-All and Freshlike. No significant gain or loss was recognized on this
transaction.
On December 17, 1999, Agrilink Foods completed the sale of the Company's
Cambria, Wisconsin processing facility to Del Monte. The Company received
proceeds of approximately $10.5 million which were applied to bank loans ($6.0
million of which was applied to the Term Loan Facility and $4.5 million of which
was applied to the Company's Revolving Credit Facility). A gain of approximately
$2.3 million was recognized on this transaction. The sale also includes an
agreement for Del Monte to produce a portion of Agrilink Foods' product needs
during the 2000 packing season.
Fiscal 1999 -
Sale of Adams Brand Peanut Butter Operations: On January 29, 1999, the Company
sold the Adams brand peanut butter operations to the J.M. Smucker Company. The
Company received proceeds of approximately $13.5 million which were applied to
outstanding bank loans. A gain of approximately $3.5 million was recognized on
this transaction.
Acquisition of Erin's Gourmet Popcorn: On January 5, 1999, the Company acquired
the assets of Erin's Gourmet Popcorn ("Erin's"), a Seattle-based, ready-to-eat
popcorn manufacturer. The acquisition was accounted for as a purchase. The
purchase price was approximately $0.6 million. Intangibles of approximately $0.6
million were recorded in conjunction with this transaction and are
<PAGE>
being amortized over 3 to 30 years. The operations from Erin's have been
included in the Company's statement of operations since the acquisition date.
The effects of the Erin's acquisition are not material, and accordingly, have
been excluded from the pro forma information presented below.
Acquisition of Dean Foods Vegetable Company: On September 24, 1998, Agrilink
Foods 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 Foods sold its aseptic business to Dean Foods. Agrilink
Foods paid $360 million in cash, net of the sale of the aseptic business, and
issued to Dean Foods a $30 million unsecured subordinated promissory note due
November 22, 2008 (the "Dean Foods Subordinated Promissory Note"), as
consideration for the 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 has
strengthened 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 DFVC as if the acquisition
had occurred at the beginning of the 1999 fiscal year.
(Dollars in Millions)
Fiscal Year Ended
June 26, 1999
-----------------
Net sales $ 1,307.6
Income before extraordinary items $ 23.4
Net income $ 7.0
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 1999 fiscal year, or of
the future operations of the consolidated entities.
Concurrently with the DFVC Acquisition, Agrilink Foods refinanced its then
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 Foods 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 Foods for aggregate consideration of approximately $184 million,
including accrued interest of $2.9 million. Agrilink Foods also terminated its
then existing bank facility (including seasonal borrowings) and repaid $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 Foods: (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
<PAGE>
Offering. See NOTE 5 - "Debt - Senior Subordinated Notes 11-7/8 Percent (due
2008)." Debt issue costs of $5.5 million associated with the Bridge Facility
were expensed during the quarter ended December 26, 1998.
Acquisition of J.A. Hopay Distributing Co, Inc.: Effective July 21, 1998, the
Company acquired J.A. Hopay Distributing Co., Inc. ("Hopay") of Pittsburgh,
Pennsylvania. Hopay distributed 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 (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. The operations from Hopay
have been included in the Company's statement of operations since the
acquisition date.
Fiscal 1998 -
Sale of 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.
Acquisition of 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 $6.6
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. The operations of DelAgra
Corp. have been included in the Company's Statement of Operations since the
acquisition date.
Acquisition of 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. The operations of C&O have
been included in the Company's Statement of Operations since the acquisition
date.
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, LLC, 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, LLC
is as follows:
Condensed Statement of Earnings
(Dollars in Thousands)
Fiscal Years Ended
------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Net sales $ 32,200 $ 30,174 $ 27,620
Gross profit $ 9,150 $ 9,392 $ 7,439
Operating income $ 5,488 $ 6,267 $ 4,411
Net income $ 4,836 $ 5,575 $ 3,786
<PAGE>
Condensed Balance Sheet
(Dollars in Thousands)
June 24, 2000 June 26, 1999
------------- -------------
Current assets $ 12,464 $ 14,112
Noncurrent assets $ 22,081 $ 21,669
Current liabilities $ 13,158 $ 13,237
Noncurrent liabilities $ 4,579 $ 5,736
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 24, 2000 and June 26, 1999:
<TABLE>
(Dollars in Thousands)
<CAPTION>
June 24, 2000 June 26, 1999
--------------------------------------- -------------------------------------------
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Land $ 14,143 $ 0 $ 14,143 $ 15,554 $ 0 $ 15,554
Land improvements 7,297 0 7,297 7,907 0 7,907
Buildings 108,055 395 108,450 106,414 395 106,809
Machinery and equipment 287,532 936 288,468 280,241 827 281,068
Construction in progress 13,228 0 13,228 17,599 0 17,599
---------- --------- --------- ---------- --------- ----------
430,255 1,331 431,586 427,715 1,222 428,937
Less accumulated depreciation (112,888) (704) (113,592) (88,620) (564) (89,184)
---------- --------- --------- ---------- --------- ----------
Net $ 317,367 $ 627 $ 317,994 $ 339,095 $ 658 $ 339,753
========== ========= ========= ========== ========= ==========
Obligations under capital leases1 $ 738 $ 776
Less current portion (218) (208)
--------- ---------
Long-term portion $ 520 $ 568
========= =========
<FN>
1 Represents the present value of net minimum lease payments calculated at the
Company's incremental borrowing rate at the inception of the leases, which
ranged from 6.3 to 9.8 percent.
</FN>
</TABLE>
Interest capitalized in conjunction with construction amounted to approximately
$691,000, $259,000, and $248,000 in fiscal 2000, 1999, and 1998, 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 24, 2000:
(Dollars in Thousands)
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
----------------------- ------- ---------- ------------
2001 $ 294 $ 4,690 $ 4,984
2002 222 2,647 2,869
2003 147 1,584 1,731
2004 121 826 947
2005 89 403 492
Later years 35 314 349
------- --------- ---------
Net minimum lease payments 908 $ 10,464 $ 11,372
========= =========
Less amount representing interest (170)
-------
Present value of minimum lease payments $ 738
=======
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
$13,631,000, $13,596,000, and $12,250,000 for fiscal years 2000, 1999, and 1998,
respectively.
<PAGE>
NOTE 5. DEBT
The following is a summary of long-term debt outstanding:
(Dollars in Thousands)
June 24, June 26,
2000 1999
---------- ----------
Bank debt $ 428,300 $ 446,600
Senior Subordinated Notes 200,015 200,015
Subordinated Promissory Note (net of discount) 26,144 23,372
Other 6,836 6,999
---------- ----------
Total debt 661,295 676,986
Less current portion (16,583) (8,670)
---------- ----------
Total long-term debt $ 644,712 $ 668,316
========== ==========
New Credit Facility (Bank Debt): In connection with the DFVC Acquisition, the
Company entered into the New Credit Facility with Harris Bank as Administrative
Agent and Bank of Montreal as Syndication Agent, and the lenders thereunder. The
New Credit Facility consists of a $200 million Revolving Credit Facility and a
$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. All previous
bank debt was repaid in conjunction with the execution of the New Credit
Facility.
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. The fiscal 2000 weighted-average rate of
interest applicable to the Term Loan Facility was 9.51 percent. In addition, the
Company pays a commitment fee calculated at a rate of 0.50 percent per annum on
the daily average unused commitment under the Revolving Credit Facility.
Utilizing outstanding balances at June 24, 2000, the Term Loan Facility is
subject to the following amortization schedule:
(Dollars in Millions)
Fiscal Year Term Loan A Term Loan B Term Loan C Total
----------- ----------- ----------- ----------- -------
(Dollars in millions)
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 9.2 0.4 0.4 10.0
2005 0.0 190.5 0.4 190.9
2006 0.0 0.0 195.0 195.0
------- ------- -------- -------
$ 39.2 $ 192.1 $ 197.0 $ 428.3
======= ======= ======== =======
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility. During fiscal 2000, Agrilink
Foods made mandatory prepayments of $10.0 million from proceeds of the sale of
the Cambria facility and the pickle operations. In addition, during fiscal 2000,
principal payments of $8.3 million were made on the Term Loan Facilities.
The Company's obligations under the New Credit Facility are collateralized 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 (excluding AgriFrozen, Inc., which is a subsidiary of
Pro-Fac), 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 subsidiaries (excluding
AgriFrozen, Inc.).
<PAGE>
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. Under the Credit Agreement, the
assets, liabilities, and results of operations of AgriFrozen, Inc., which is a
subsidiary of Pro-Fac, are not consolidated with Pro-Fac for purposes of
determining compliance with the covenants. In August of 1999, the Company
negotiated an amendment to the original covenants. In conjunction with this
amendment, the Company incurred a fee of approximately $2.6 million. This fee is
being amortized over the remaining life of the New Credit Facility. Pro-Fac and
the Company are in compliance with all covenants, restrictions and requirements
under the terms of the New Credit Facility as amended.
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. 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.
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 interest rate swap life.
Senior Subordinated Notes - 11-7/8 Percent (due 2008): To extinguish the
Subordinated Bridge Facility, the Company issued Senior Subordinated Notes (the
"New Notes") for $200 million aggregate principal amount due November 1, 2008.
Interest on the New Notes accrues at the rate of 11-7/8 percent per annum and is
payable semiannually in arrears on May 1 and November 1.
The New Notes represent general unsecured obligations of the Company,
subordinated in right of payment to certain other debt obligations of the
Company (including the Company's obligations under the New Credit Facility). The
New Notes are guaranteed by Pro-Fac and certain of the Company's 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 DFVC 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 second quarter of fiscal 1999.
Subordinated Promissory Note: As partial consideration for the DFVC Acquisition,
the Company issued to Dean Foods a Subordinated Promissory Note for $30 million
aggregate principal amount due November 22, 2008. Interest on the Subordinated
Promissory Note is accrued 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. As the rates on the Note are below market value, the Company
has imputed the appropriate discount utilizing an effective interest rate of
11-7/8 percent. Interest accruing through November 22, 2003 is required to be
paid in kind through the issuance by the Company of additional subordinated
promissory notes identical to the Subordinated Promissory Note. The Company
satisfied this requirement through the issuance of six additional promissory
notes each for approximately $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.
<PAGE>
Senior Subordinated Notes - 12 1/4 Percent (due 2005, "Old Notes"): In
conjunction with the DFVC 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.
Revolving Credit Facility (Notes Payable): Borrowings under short-term Revolving
Credit Facilities were as follows:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balance at end of period $ 5,700 $ 18,900 $ 0
Rate at fiscal year end 9.375% 8.2% 0.0%
Maximum outstanding during the period $ 156,100 $ 116,200 $ 66,000
Average amount outstanding during the period $ 90,800 $ 76,700 $ 51,300
Weighted average interest rate during the period 8.5% 7.8% 7.0%
</TABLE>
Agrilink Foods also maintains a Letter of Credit Facility which provides for the
issuance of letters of credit through September 2000. As of June 24, 2000, there
were $14.2 million in letters of credit outstanding. Management anticipates
timely renewals of the Letter of Credit facilities.
Fair Value: The estimated fair value of long-term debt outstanding was
approximately $615.5 million and $673.7 million at June 24, 2000 and June 26,
1999, respectively. The fair value for long-term debt was estimated using either
quoted market prices for the same or similar issues or the current rates offered
to the Company for debt with similar maturities.
Other Debt: Other debt of $6.8 million carries rates up to 10 percent at June
24, 2000.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 2001, $16.6 million; 2002, $11.2 million; 2003, $11.1
million; 2004, $10.3 million, and 2005, $190.6 million. Provisions of the Term
Loan require annual payments on the last day of each September of each year
(commencing September 30, 1999) of an amount equal to the "annual cash sweep"
(equivalent to approximately 75 percent of net income adjusted for certain cash
and non-cash items) for the preceding fiscal year. As of June 24, 2000, there
was no obligation under this provision. Provisions of the Term Loan Facility
also require that cash proceeds from the sale of businesses be applied to the
Term Loan Facility.
NOTE 6. TAXES ON INCOME
Taxes on income before extraordinary item include the following:
(Dollars in Thousands)
Fiscal Years Ended
------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Federal -
Current $ (2,886) $13,012 $ 4,534
Deferred 8,098 8,765 730
-------- ------- --------
5,212 21,777 5,264
-------- ------- --------
State and foreign -
Current (210) 2,016 874
Deferred 902 977 (449)
-------- ------- --------
692 2,993 425
-------- ------- --------
$ 5,904 $24,770 $ 5,689
======== ======= ========
<PAGE>
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 extraordinary
item is as follows:
<TABLE>
Fiscal Years Ended
----------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal rate 35.0% 35.0% 35.0%
State and foreign income taxes, net of federal income tax benefit 5.6% 3.5% 4.6%
Goodwill amortization 10.3% 5.9% 7.7%
Dividend received reduction (0.3)% (0.4)% (2.4)%
Other, net (2.7)% (1.4)% 0.6%
----- ---- ----
Effective Tax Rate 47.9% 42.6% 45.5%
===== ==== ====
</TABLE>
<TABLE>
The deferred tax (liabilities)/assets consist of the following:
(Dollars in Thousands)
<CAPTION>
June 24, 2000 June 26, 1999
------------- -------------
<S> <C> <C>
Liabilities
Depreciation $ (39,101) $ (28,468)
Goodwill and other intangible assets (5,796) (1,379)
Prepaid manufacturing expense (7,895) (7,086)
Prepaid expenses and other current assets 0 (1,672)
Investment in Great Lakes Kraut Company, LLC (1,727) (1,892)
Discount on Subordinated Promissory Notes (2,415) (2,882)
---------- ---------
(56,934) (43,379)
---------- ---------
Assets
Inventories 11,190 9,182
Credits and operating loss carryforwards 7,515 1,538
Accrued employee compensation 1,084 5,316
Insurance accruals 3,259 4,422
Pension/OPEB accruals 10,752 7,353
Restructuring reserve 661 1,556
Promotional reserves 374 867
Other 7,141 6,945
---------- ---------
41,976 37,179
---------- ---------
Net deferred liabilities (14,958) (6,200)
Valuation allowance (5,752) (1,409)
---------- ---------
Total $ (20,710) $ (7,609)
========== =========
</TABLE>
During fiscal 2000, the Company recorded a valuation allowance in the amount of
$4.3 million. This valuation allowance was primarily established for state net
operating losses and credit generated during the year. As the Company cannot
assure that realization is more likely than not to occur, a valuation allowance
has been established.
During fiscal year 1999, the Company utilized the $5.5 million of net operating
loss carryforwards ($1.9 million of tax). The benefits for these net operating
losses had been recorded in previous years.
In January 1995, the Boards of Directors of Agrilink Foods and Pro-Fac approved
appropriate amendments to the Bylaws of Agrilink Foods to allow the Company to
qualify as a cooperative under Subchapter T of the Internal Revenue Code. In
August 1995, Agrilink Foods 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 Foods and Pro-Fac. Tax expense is allocated to Agrilink
Foods based on its operations.
<PAGE>
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.
<TABLE>
Pension cost for fiscal years ended 2000, 1999, and 1998 includes the following
components:
(Dollars in Thousands)
<CAPTION>
Pension Benefits
----------------------------------------
Fiscal Years Ended
----------------------------------------
June 24, 2000 June 26, 1999
------------- -------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 110,833 $ 101,504
Service cost 6,520 4,727
Interest cost 7,592 6,953
Plan participants' contributions 160 242
Amendments 2,296 0
Actuarial (gain)/loss (16,122) 4,976
Benefits paid (9,584) (7,569)
---------- ----------
Benefit obligation at end of period 101,695 110,833
---------- ----------
Change in plan assets:
Fair value of assets at beginning of period 108,183 107,253
Actual return on plan assets 12,941 8,000
Employer contribution 256 257
Plan participants' contributions 160 242
Benefits paid (9,584) (7,569)
---------- ----------
Fair value of assets at end of period 111,956 108,183
---------- ----------
Plan funded status: 10,261 (2,650)
Unrecognized prior service cost 2,181 (131)
Unrecognized actuarial gain (29,217) (10,810)
Union plans 0 (31)
---------- ----------
Accrued benefit liability prior to additional minimum liability (16,775) (13,622)
Amounts recognized in the statement of financial position consist of:
Accrued benefit liability (17,300) (14,385)
Accumulated other comprehensive income 525 763
---------- ----------
Net amount recognized $ (16,775) $ (13,622)
========== ==========
Weighted-average assumptions:
Discount rate 8.0% 7.0%
Expected return on plan assets 9.5% 10.0%
Rate of compensation increase 4.5% 4.5%
</TABLE>
<PAGE>
<TABLE>
Pension Benefits
--------------------------------------------------
Fiscal Years Ended
--------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 6,520 $ 4,727 $ 2,796
Interest cost 7,592 6,953 6,776
Expected return on plan assets (10,604) (10,528) (8,708)
Amortization of prior service cost (16) (15) (22)
Amortization of gain (51) (741) (593)
Union costs 37 81 88
-------- -------- -------
Net periodic cost $ 3,478 $ 477 $ 337
======== ======== =======
</TABLE>
The Company maintains a non-tax qualified Supplemental Executive Retirement Plan
which provides additional retirement benefits to two prior executives of the
Company who retired prior to November 4, 1994.
On January 28, 1992, the Company adopted an Excess Benefit Retirement Plan which
serves to provide employees with the same retirement benefit they would have
received from the Company's retirement plan under the career average base pay
formula, but for changes required under the 1986 Tax Reform Act and the
compensation limitation under Section 401(a)(17) of the Internal Revenue Code
having been revised in the 1992 Omnibus Budget Reform Act.
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>
(Dollars in Thousands)
<CAPTION>
Supplemental Executive Retirement Plan Excess Benefit Retirement Plan
-------------------------------------- -----------------------------------
Fiscal Years Ended Fiscal Years Ended
-------------------------------------- -----------------------------------
June 24, 2000 June 26, 1999 June 24, 2000 June 26, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Projected benefit obligation $ 1,729 $ 1,895 $ 1,159 $ 1,128
Accumulated benefit obligation 1,729 1,895 834 855
Plan assets 0 0 0 0
</TABLE>
Postretirement Benefits Other Than Pensions: Generally, other than pensions, the
Company does not pay retirees' benefit costs. Various 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.
<PAGE>
<TABLE>
The plan's funded status was as follows:
(Dollars in Thousands)
<CAPTION>
Other Benefits
----------------------------------------
Fiscal Years Ended
----------------------------------------
June 24, 2000 June 26, 1999
------------- -------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 6,507 $ 2,758
Service cost 184 90
Interest cost 433 250
(Decrease due to sale)/increase due to acquisition (295) 2,065
Actuarial (gain)/loss (715) 1,932
Benefits paid (456) (588)
---------- ----------
Benefit obligation at end of period 5,658 6,507
---------- ----------
Change in plan assets:
Fair value of assets at beginning of period 0 0
Employer contribution 456 588
Benefits paid (456) (588)
---------- ----------
Fair value of assets at end of period 0 0
---------- ----------
Plan funded status: (5,658) (6,507)
Unrecognized actuarial loss 717 1,886
---------- ----------
Accrued benefit liability (4,941) (4,621)
Amounts recognized in the statement of financial position consist of:
Accrued benefit liability (4,941) (4,621)
---------- ----------
Net amount recognized $ (4,941) $ (4,621)
========== ==========
Weighted-average assumptions:
Discount rate 8.0% 7.0%
Expected return on plan assets N/A N/A
Rate of compensation increase 4.5% 4.5%
</TABLE>
<TABLE>
Other Benefits
---------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 184 $ 90 $ 6
Interest cost 433 250 198
Amortization of loss/(gain) 159 0 (10)
--------- -------- ---------
Net periodic benefit cost $ 776 $ 340 $ 194
========= ======== =========
</TABLE>
For measurement purposes, a 8.5 percent rate of increase in the per capita cost
of covered health care benefits was assumed for fiscal 2000. The rate was
assumed to decrease gradually to 5.0 percent for 2007 and remain at that level
thereafter.
The Company sponsors benefit plans that provide postretirement medical and life
insurance benefits for certain current and former employees. For the most part,
current employees are not eligible for the postretirement medical coverage. As
such, the assumed health care trend rates have an insignificant effect on the
amounts reported for the postretirement benefits plan. One-percentage point
change in the assumed health care trend rates would have the following effect:
<TABLE>
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components $ 47,913 $ (43,868)
Effect on postretirement benefit obligation $ 283,765 $ (260,670)
</TABLE>
Retirements Savings and Incentive Plan: Under the Retirement Savings and
Incentive Plan ("RSIP"), the Company makes an incentive contribution to the plan
if certain pre-established earnings goals are achieved. 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 2000, 1999, and 1998 the Company allocated $955,000, $888,000, and
$475,000, respectively, in the form of matching contributions and $0, $0, and
$400,000, respectively, in the form of incentive contributions for the benefit
of its employees.
In addition, Agrilink Foods also maintains a Non-qualified Retirement Savings
Plan in which the Company allocates matching contributions for the benefit of
"highly compensated employees" as defined under Section 414(q) of the Internal
Revenue Code. During fiscal 2000, 1999, and 1998, the Company allocated
$243,000, $208,000, and $131,000 respectively in the form of matching
contributions to this plan.
Long-Term Incentive Plan: On June 24, 1996, the Company introduced a long-term
incentive program, the Agrilink Foods Equity Value Plan, which it has amended
from time to time. The Equity Value Plan 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.
Units issued in 1996 through 1999 vest 25 percent each year after the first
anniversary of the grant, becoming 100 percent vested on the fourth anniversary
of grant. For units granted in 1996, the appreciated value of units in excess of
the initial grant price is paid as cash compensation on the tenth anniversary of
grant. The total units granted in 1996 were 248,511 at $13.38. For units granted
in 1997, 1998 and 1999, the final value of the performance units is determined
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 each of
the subsequent three years. The total units granted from 1997 through 1999 were
402,715 at $26.00 per unit in 1999, 308,628 at $21.88 per unit in 1998, and
176,278 at $25.04 per unit in 1997.
For units granted in 2000, the final value of the performance units is
discretionary. Units granted in 2000 vest 100 percent on the fourth anniversary
of grant. The total units granted in 2000 were 371,806.
Units forfeited since the inception of the plan include 8,731 at $26.00, 9,418
at $21.88, 18,362 at $25.04, and 27,165 at $13.38.
The value of the grants from the Agrilink Foods Equity Value Plan will be based
on the Company's future earnings and debt repayment.
NOTE 8. OPERATING SEGMENTS
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise" (SFAS 131).
SFAS No. 131 establishes requirements for reporting information about operating
segments and establishes standards for related disclosures about products and
services, and geographic areas. SFAS No. 131 also replaces 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 reportable
segments. As management makes the majority of its operating decisions based upon
the Company's significant product lines, the Company has elected to utilize
significant product lines in determining its operating 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, and various other products. Branded products within the vegetable
category include Birds Eye, Birds Eye Voila!, Freshlike, Veg-All, McKenzies, and
Brooks Chili Beans. The fruit product line consists of canned and frozen fruits
including fruit fillings and toppings. Branded products within the fruit
category include Comstock and Wilderness. The snack product line consists of
potato chips, popcorn and other corn-based snack items. Branded products within
the snacks category include Tim's Cascade Chips, Snyder of Berlin, Husman, La
Restaurante, Erin's, Beehive, Pops-Rite, Super Pop and Flavor Destinations. 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 meals 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>
<TABLE>
The following table illustrates the Company's operating segment information:
(Dollars in Millions) Fiscal Years Ended
<CAPTION> --------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales:
Vegetables $ 800.7 $ 734.7 $ 233.1
Fruits 110.4 111.5 119.7
Snacks 87.3 87.9 83.7
Canned Meals 60.3 64.2 64.0
Other 54.5 73.0 58.6
----------- ---------- ---------
Continuing segments 1,113.2 $ 1,071.3 559.1
Businesses sold 69.4 139.2 160.6
----------- ---------- ---------
Total $ 1,182.6 $ 1,210.5 $ 719.7
=========== ========== =========
Operating income:
Vegetables1 $ 65.4 $ 43.9 $ 11.4
Fruits 13.9 8.4 17.1
Snacks 6.7 3.3 6.1
Canned Meals 6.7 6.5 6.8
Other 4.6 3.7 (0.3)
----------- ---------- ---------
Continuing segments operating income 97.3 65.8 41.1
Businesses sold (1.2) 5.1 14.5
----------- ---------- ---------
Subtotal 96.1 70.9 55.6
Gains on sales of assets 6.6 64.7 0.0
Restructuring 0.0 (5.0) 0.0
----------- ---------- ---------
Operating income before dividing with Pro-Fac 102.7 130.6 55.6
Interest expense (78.1) (65.3) (30.6)
Amortization of debt issue costs associated with the Bridge Facility 0.0 (5.5) 0.0
----------- ---------- ---------
Pretax income before dividing with Pro-Fac and before extraordinary item $ 24.6 $ 59.8 $ 25.0
=========== ========== =========
Total Assets:
Vegetables $ 876.3 $ 885.2 $ 300.8
Fruits 80.0 91.1 87.4
Snacks 44.0 41.5 43.1
Canned meals 45.9 46.7 49.7
Other 52.4 43.6 47.4
----------- ---------- ---------
Continuing segments 1,098.6 1,108.1 528.4
Businesses sold 0.0 1.1 37.9
Assets held for sale 0.3 0.9 2.7
----------- ---------- ---------
Total $ 1,098.9 $ 1,110.1 $ 569.0
=========== ========== =========
Depreciation expense:
Vegetables $ 22.3 $ 16.7 $ 9.2
Fruits 1.7 2.3 3.5
Snacks 2.4 1.7 1.6
Canned meals 1.2 1.2 1.0
Other 1.2 1.0 1.4
----------- ---------- ---------
Continuing segments 28.8 22.9 16.7
Businesses sold 1.5 0.9 1.3
----------- ---------- ---------
Total $ 30.3 $ 23.8 $ 18.0
=========== ========== =========
Amortization Expense:
Vegetables $ 6.1 $ 7.0 $ 1.1
Fruits 0.1 0.1 0.3
Snacks 0.8 0.9 0.6
Canned meals 0.7 0.7 0.8
Other 0.7 0.6 0.6
----------- ---------- ---------
Continuing segments 8.4 9.3 3.4
Businesses sold 0.4 0.1 0.2
----------- ---------- ---------
Total $ 8.8 $ 9.4 $ 3.6
=========== ========== =========
</TABLE>
<PAGE>
<TABLE>
(Dollars in Millions) Fiscal Years Ended
--------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Capital expenditures:
Vegetables $ 19.8 $ 17.8 $ 8.0
Fruits 1.6 1.3 1.5
Snacks 2.3 2.0 1.8
Canned meals 1.1 0.6 0.5
Other 0.2 0.3 0.4
----------- ---------- ---------
Continuing segments 25.0 22.0 12.2
Businesses sold 0.4 0.1 1.9
----------- ---------- ---------
Total $ 25.4 $ 22.1 $ 14.1
=========== ========== =========
<FN>
1 The vegetable product line includes earnings derived from the Company's
investment in Great Lakes Kraut Company, LLC of $2.4 million, $2.8 million,
and $1.9 million in fiscal 2000, 1999, and 1998, respectively. See NOTE 3 to
the "Notes to Consolidated Financial Statements" - "Acquisitions and
Disposals - Formation of New Sauerkraut Company."
</FN>
</TABLE>
NOTE 9. 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 Senior
Subordinated Notes - 11-7/8 Percent (due 2008) and the New Credit Facility. The
covenants in the Senior Subordinated Notes - 11-7/8 Percent (due 2008) 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-K. 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.
(Dollars in Thousands)
Fiscal Year Ended
--------------------------------
June 24, June 26, June 27,
2000 1999 1998
-------- -------- --------
Summarized Statement of Operations:
Net sales/royalty income $ 74,163 $ 33,026 $ 12,086
Gross profit 59,072 23,641 5,123
Income from continuing operations 59,343 20,732 1,002
Net income 38,573 13,401 1,002
Summarized Balance Sheet:
Current assets $ 3,258 $ 1,759 $ 2,033
Noncurrent assets 211,107 217,684 7,129
Current liabilities 6,926 8,290 1,267
NOTE 10. OTHER MATTERS
Transactions Between Agrilink Foods and AgriFrozen: Agrilink Foods purchases
frozen vegetables from AgriFrozen Foods ("AgriFrozen"). AgriFrozen is a
subsidiary of Pro-Fac. For fiscal 2000, the net sales amounted to approximately
$22.4 million. At June 24, 2000, AgriFrozen had an accounts receivable from
Agrilink of $10.3 million.
In addition, AgriFrozen entered into an administrative service agreement with
Agrilink Foods. Agrilink Foods provides certain management, consulting, and
administrative services. For the year ended June 24, 2000, AgriFrozen incurred
approximately $1.0 million in service fees related to the agreement.
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.
<PAGE>
Commitments: Agrilink Foods has guaranteed an approximate $3.0 million loan for
the Great Lakes Kraut Company, LLC joint venture in which Agrilink Foods has a
50 percent interest.
The Company has also guaranteed an approximate $1.4 million loan for the City of
Montezuma to renovate a sewage treatment plant operated in Montezuma on behalf
of the City.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Management and Directors: Effective upon the acquisition of Agrilink Foods by
Pro-Fac, Pro-Fac established a management structure for the Company, providing
for a Board of Directors consisting of one management director, Pro-Fac
Directors and Disinterested Directors. The number of Pro-Fac Directors is equal
to the number of Disinterested Directors. The Chairman of the Board is a Pro-Fac
Director. The management and directors are listed below. The Company may in the
future expand the Board of Directors, but Pro-Fac has undertaken to cause the
Company to maintain a Board on which the number of Pro-Fac Directors does not
exceed the number of Disinterested Directors. The Senior Subordinated Notes -
11-7/8 Percent (due 2008) provide that there will be a Change of Control if, for
a period of 120 consecutive days, the number of Disinterested Directors on the
Board of Directors of the Company is less than the greater of (i) two and (ii)
the number of directors who are also directors, members or affiliates of
Pro-Fac. The New Credit Facility provides that there will be a change of control
if the number of Pro-Fac directors exceeds the number of disinterested
directors.
Set forth below is certain information concerning the individuals who serve as
directors and executive officers of the Company.
<TABLE>
Year of
Name Birth Positions
---------------------------------- -------- -------------------------------------------------
<S> <C>
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
Earl L. Powers 1944 Executive Vice President and Chief Financial Officer
Stephen R. Wright 1947 Executive Vice President Agriculture and Secretary
William D. Rice(4) 1934 Senior Vice President Strategic Development
David M. Mehalick 1956 Vice President and Legal Counsel
Bruce R. Fox(2) 1947 Director and Chairman of the Board
Cornelius D. Harrington, Jr.(3) 1927 Director
Steven D. Koinzan(2) 1948 Director and Vice Chairman of the Board
Walter F. Payne(3) 1936 Director
Paul E. Roe(2) 1939 Director
Frank M. Stotz(3) 1930 Director
<FN>
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
(4) Mr. Rice retired from the Company effective June 30, 2000.
</FN>
</TABLE>
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1998 and a Director of the Company since May 1996. He was Chief
Operating Officer from May 1996 to January 1998 and Executive Vice President
since January 1996. He had been President and Chief Executive Officer of Curtice
Burns Foods from March 1993 to May 1996. He was Senior Vice President and
Business Unit Manager Food Service of Curtice Burns Foods from 1991 to 1993, and
Senior Vice President-Custom Pack Sales for Nalley from 1990 to 1991. Prior to
employment with the Company, he was President and Chief Executive Officer of
Globe Products Company. He currently serves on the Board of Directors for
Grocery Manufacturers of America, National Food Processors Association, the
Popcorn Institute, United Way of Greater Rochester, Genesee Valley American
Heart Association, St. Leo College, the Rochester Institute of Technology School
of Food, Hotel and Travel Management's National Advisory Board, and Chase
Manhattan Bank's Northeast Regional Advisory Board.
<PAGE>
Earl L. Powers has been Executive Vice President and Chief Financial Officer
since February 1997. He was Vice President and Corporate Controller from March
1993 to February 1997, and Vice President Finance and Management Information
Systems, Curtice Burns Foods from 1991 to March 1993. Prior to joining the
Company, he was Controller of various Pillsbury Company divisions 1987-1990 and
various other executive management positions at the Pillsbury Company 1976-1987.
William D. Rice has been Senior Vice President Strategic Development since
February 1997 and Secretary of Agrilink Foods since 1989. He was Chief Financial
Officer from 1969 to February 1997. He was Treasurer of Agrilink Foods from 1975
to 1996. He was Vice President-Finance of Agrilink Foods from 1969 to 1991. He
was Assistant Treasurer of Pro-Fac from 1970 to February 1997 (Management Chief
Financial Officer for Pro-Fac). Mr. Rice has retired from the company effective
June 30, 2000.
Stephen R. Wright has been Executive Vice President since November 6, 1996 and
was elected Secretary March 30, 2000. He was Senior Vice President - Procurement
of the Company from November 1994 and Vice President -- Procurement for the
Company from 1990 to November, 1994, having served as Director of Commodities
and Administration Services for the Company from 1988 to 1990.
David M. Mehalick joined the company May 1, 1999 as Vice President and General
Counsel. Prior to employment with the Company, he practiced law in the firm of
Harris Beach & Wilcox from 1981 to 1999.
Bruce R. Fox has been a Director of the Company since the completion of the
Pro-Fac acquisition of Agrilink and in fiscal 2000 was elected Chairman of the
Board. He has been a Director of Pro-Fac since 1974. He was Treasurer of Pro-Fac
from 1984 until March 27, 1995, when he was elected President. He has been a
member of Pro-Fac since 1974. Mr. Fox is a fruit and vegetable grower (N.J. Fox
& Sons, Inc., Shelby, MI).
Cornelius D. Harrington, prior to his retirement, was President of the Bank of
New England-West in Springfield, MA or a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
Massachusetts. He is a former Director of the Farm Credit Bank of Springfield
since January 1994.
Steven D. Koinzan has been a Director of the Company since the completion of the
Pro-Fac acquisition of Agrilink Foods and in fiscal 2000 was elected Vice
Chairman of the board. He has been a Director of Pro-Fac since 1983. He was
Secretary of Pro-Fac from March 1993 until March 27, 1995, when he was elected
Treasurer. He has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn,
field corn and soybean farmer (Koinzan Farms; Norden, Nebraska).
Walter F. Payne has been a Director of the Company since January 1996 and
President and Chief Executive Officer of Blue Diamond Growers since 1992. He
held various positions at Blue Diamond Growers between 1973 and 1992. He is
currently on the Board of Directors of the Almond Board of California and the
International Nut Council, and the National Council of Farmer Cooperatives, and
a member of the Board of Trustees for the Graduate Institute of Cooperative
Leadership.
Paul E. Roe was elected a Director of Agrilink in fiscal 2000. He has been a
Director of Pro-Fac since 1986 and a member of Pro-Fac since 1961. Mr. Roe is a
vegetable, grain and dry bean farmer (Roe Acres, Inc.; Bellona, New York).
Frank M. Stotz has been a Director of the Company since the completion of the
Pro-Fac acquisition of Agrilink Foods. Mr. Stotz retired in 1994 from his
position as Senior Vice President - Finance of Bausch & Lomb Incorporated.
Before joining Bausch & Lomb in that capacity in 1991, Mr. Stotz was a partner
with Price Waterhouse.
Term of Office: All directors of the Company will hold office from the date of
election until the next annual meeting of the shareholder or until their
successors are duly elected and qualified. Each executive officer of the Company
will hold office from the date of election until his successor is elected or
appointed.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by the Company to become a Director or executive
officer.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and three other most highly
compensated executive officers of the Company, earned during fiscal years ended
June 24, 2000, June 26, 1999, and June 27, 1998 (collectively, the "Named
Executive Officers").
<TABLE>
Executive Compensation
Summary Compensation Table
<CAPTION>
RSIP/
Matching
Contributions
Annual Deferred
Compensation1 Profit
Name and Principal Position Year Salary Bonus2 Sharing
---- --------- -------- ------------
<S> <C> <C> <C> <C>
Dennis M. Mullen - 2000 $ 525,000 $ 0 $ 3,173
President and Chief Executive Officer and Director 1999 $ 500,000 $ 0 $ 4,241
1998 $ 432,256 $ 216,000 $ 7,783
Earl L. Powers 2000 $ 283,854 $ 0 $ 4,125
Executive Vice President Finance and Chief Financial Officer 1999 $ 260,096 $ 0 $ 5,124
1998 $ 239,327 $ 140,000 $ 7,106
William D. Rice4 2000 $ 271,014 $ 0 $ 3,752
Senior Vice President Strategic Development 1999 $ 271,014 $ 0 $ 4,781
1998 $ 273,342 $100,000 $ 5,019
David M. Mehalick3 2000 $ 241,867 $ 0 $ 0
Vice President and Legal Counsel 1999 $ 36,923 $ 0 $ 0
Stephen R. Wright 2000 $ 212,160 $ 0 $ 3,120
Executive Vice President Agriculture and Secretary 1999 $ 205,999 $ 0 $ 3,762
1998 $ 200,154 $ 100,000 $ 5,446
<FN>
1 No Named Executive Officer has received personal benefits during the period
in excess of the lesser of $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of the
officers and employees eligible under the Incentive Plan and by the earnings
of the Company and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
3 Mr. Mehalick's employment with the Company began May 1, 1999.
4 Mr. Rice retired from the Company on June 30, 2000.
</FN>
</TABLE>
<PAGE>
<TABLE>
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
----------------- ------------------ ----------------------- --------- -----------
<S> <C> <C> <C> <C>
Dennis M. Mullen 82,850 6/23/2004 $0 $0
Earl L. Powers 34,176 6/23/2004 $0 $0
Stephen R. Wright 22,403 6/23/2004 $0 $0
David M. Mehalick 27,838 6/23/2004 $0 $0
<FN>
(1) On June 29, 2000, the Company issued performance units under the Agrilink
Foods Equity Value Plan ("EVP") to a select group of management. The future
value of the performance units is discretionary. The performance units vest
100 percent 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
2000 performance units is determined on the fourth anniversary of grant.
(2) The value of the June 29, 2000 grants from the Agrilink Foods Equity Value
Plan is discretionary. The beginning value of these performance units was
set at a level requiring improved earnings and debt-repayment performance.
The target payouts shown above are based on the value of the performance
units at fiscal 2000 earnings and debt levels and would yield no payout
from the plan at those levels. If future performance equals fiscal 2000
performance, no payouts will be made from the plan relative to the options
granted on June 29, 2000.
</FN>
</TABLE>
Retirement Plans: The Company's Master Salaried Retirement Plan (the "Pension
Plan") provides defined retirement benefits for its officers and all salaried
and clerical personnel. The compensation upon which the pension benefits are
determined is included in the salary columns of the "Summary Compensation
Table."
For retirement before age 65, the annual benefits are reduced by an amount for
each year prior to age 65 at which such retirement occurs so that if retirement
occurs at age 55, the benefits are 70 percent of those payable at age 65.
The approximate number of years of Plan participation under the Company's
Pension Plan as of June 24, 2000, of the Executive Officers listed in the
Summary Compensation Table are as follows: Dennis M. Mullen-10, Earl L.
Powers-9, Stephen R. Wright-26, and David M. Mehalick-0.
On January 28, 1992, the Company adopted an Excess Benefit Retirement Plan which
serves to provide employees with the same retirement benefit they would have
received from the Company's Master Salaried Retirement Plan under the career
average base pay formula, but for changes required under the 1986 Tax Reform Act
and the compensation limitation under Section 401(a)(17) of the Internal Revenue
Code, which was $150,000 on January 1, 1994, having been revised in the 1992
Omnibus Budget Reform Act.
<PAGE>
The following table shows the estimated pension benefits payable to a covered
participant, at age 65, at the specified final average pay, and years of
credited service levels under the Company's Master Salaried Retirement Plan and
the Excess Benefit Retirement Plan.
<TABLE>
Pension Plan Table
Final Years of Plan Participation
Average Pay 15 20 25 30 35
------------ -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 21,476 $ 27,988 $ 34,530 $ 41,120 $ 47,915
150,000 26,726 34,988 43,280 51,620 60,165
175,000 31,976 41,988 52,030 62,120 72,415
200,000 37,226 48,988 60,780 72,620 84,665
225,000 42,476 55,988 69,530 83,120 96,915
250,000 47,726 62,988 78,280 93,620 109,165
275,000 52,976 69,988 87,030 104,120 121,415
300,000 58,226 76,988 95,780 114,620 133,665
325,000 63,476 83,988 104,530 125,120 145,915
350,000 68,726 90,988 113,280 135,620 158,165
375,000 73,976 97,988 122,030 146,120 170,415
400,000 79,226 104,988 130,780 156,620 182,665
</TABLE>
Termination Protection Provisions: The Company has adopted a Salary Continuation
Agreement for Mr. Mullen, whereby, two years of salary and benefits continuation
will be provided if Mr. Mullen's employment is involuntarily terminated for
reasons other than for "cause" as such term is defined in the Agreement. In
addition, this agreement provides Mr. Mullen with a retention bonus in an amount
equal to one year of his base salary as of September 1, 1998 if he continues to
provide services to Agrilink Foods through August 31, 2001 in accordance to the
reasonable terms and conditions of his employment.
Directors' Compensation: In fiscal 2000, non-employee directors who were
designated by Pro-Fac received an annual stipend of $6,000 per year, plus $200
per day for attending Board or Committee meetings. The Pro-Fac President
received an annual stipend of $12,000 per year, plus $400 per day for attending
Board or Committee meetings. In fiscal 2000, all other outside directors,
Messrs. Harrington, Payne, and Stotz received an annual rate of $18,000 in
addition to $600 per day. In fiscal 2000, the Chairman of the Board received a
fixed amount in lieu of the standard attendance fees and annual stipend of
$24,700.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Pro-Fac
Cooperative, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management believes all transactions were on terms no less favorable to the
Company than could have been reached with unaffiliated third parties.
Borrowings by Pro-Fac: The New Credit Facility and Senior Subordinated Notes -
11-7/8 Percent (due 2008) permit the Company to make demand loans to Pro-Fac for
working capital purposes in amounts not to exceed $40.0 million at any time,
each such loan to bear interest at a rate equal to the rate in effect on the
date of such loan under the Revolving Credit Facility. The loan balance is
required to be reduced to zero for a period of not less than 15 consecutive days
in each fiscal year. Except for the foregoing provision and except for Pro-Fac's
guarantee of the Senior Subordinated Notes - 11-7/8 Percent (due 2008) and the
New Credit Facility, as long as Pro-Fac has the right to borrow under the
Pro-Fac Marketing and Facilitation Agreement, the Senior Subordinated Notes -
11-7/8 Percent (due 2008) do not permit Pro-Fac to incur any other indebtedness.
Equity Ownership in CoBank: As part of its lending arrangements with CoBank,
which is a cooperative, the Company has made investments in the bank. The
Company made these investments through (i) a capital purchase obligation equal
to a percentage, set annually based on the bank's capital needs, of its interest
paid to the bank and (ii) a patronage rebate on interest paid to the bank based
on the bank's earnings, which is paid in cash and capital certificates. As of
June 24, 2000, the amount of the Company's investment in the Bank was
approximately $18.8 million.
<PAGE>
Purchase of Crops From Pro-Fac: Each of the members of Pro-Fac sells crops to
Pro-Fac pursuant to a general marketing agreement between such member and
Pro-Fac, which crops in turn are sold to the Company pursuant to the Pro-Fac
Marketing and Facilitation Agreement. During fiscal 2000, the following
directors and executive officers of Pro-Fac, directly or indirectly through
entities owned or controlled by such officers and directors, sold crops to
Pro-Fac and provided harvesting, trucking and waste removal services to Agrilink
Foods for the following aggregate amounts:
<TABLE>
(Dollars in Thousands)
<CAPTION>
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 2000
(Dollars in Thousands)
--------------------------------------------- -------------------------------------------------------- ----------------------
<S> <C> <C>
Dale E. Burmeister........................... Director $ 343
Robert V. Call, Jr........................... Director $ 3,711**
Peter R. Call................................ Director $ 3,711**
Glen Lee Chase............................... Director $ 55
Tom R. Croner................................ Director and Secretary $ 111
Kenneth A. Dahlstedt......................... Director $ 266
Robert DeBadts............................... Director $ 401
Bruce R. Fox***.............................. Director and Chairman of the Board, President $ 1,159
Steven D. Koinzan***......................... Director and Vice Chairman of the Board, Vice President $ 469
Kenneth A. Mattingly......................... Director $ 1,388
Allan W. Overhiser........................... Director $ 64
Paul E. Roe***............................... Director $ 868
Darell Sarff................................. Director $ 95
<FN>
* Robert V. Call, Jr. resigned from the board effective February 2000.
** Robert V. Call, Jr. and Peter R. Call both indirectly sold crops through My-T Acres, Inc.
*** Bruce Fox, Steven D. Koinzan, and Paul E. Roe are directors of both Pro-Fac and Agrilink Foods.
</FN>
</TABLE>
DIRECTORS AND OFFICERS LIABILITY INSURANCE
As authorized by New York law and in accordance with the policy of that state,
the Company has obtained insurance from Chubb Group Insurance insuring the
Company against any obligation it incurs as a result of its indemnification of
its officers and directors, and insuring such officers and directors for
liability against which they may not be indemnified by the Company. This
insurance has a term expiring on October 15, 2000, at an annual cost of
approximately $130,000. As of this date, no sums have been paid to any officers
or directors of the Company under this indemnification insurance contract.
<PAGE>
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The Following Appear in ITEM 8 of This Report
<CAPTION>
ITEM Page
<S> <C>
Agrilink Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................. 25
Report of Independent Accountants..................................................................................... 26
Consolidated Financial Statements:
Consolidated Statement of Operations, Accumulated (Earnings)/Deficit, and Comprehensive Income
for the years ended June 24, 2000, June 26, 1999, and June 27, 1998............................................... 27
Consolidated Balance Sheets at June 24, 2000 and June 26, 1999...................................................... 28
Consolidated Statements of Cash Flows for the years ended June 24, 2000, June 26, 1999, and June 27, 1998........... 29
Notes to Consolidated Financial Statements.......................................................................... 31
</TABLE>
(2) The following additional financial data are set forth herein:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
SCHEDULE II
Agrilink Foods, Inc.
Valuation and Qualifying Accounts
For the Three Fiscal Years Ended June 24, 2000
<CAPTION>
Fiscal Year Ended
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Allowance for doubtful accounts
Balance at beginning of period $ 1,202,000 $ 774,000 $ 970,000
Additions charged to expense 201,000 208,000 17,000
Deductions (516,000) (280,000) (213,000)
Increase due to acquisition* 0 500,000 0
------------ ------------ ------------
Balance at end of period $ 887,000 $ 1,202,000 $ 774,000
============ ============ ============
Inventory reserve**
Balance at beginning of period $ 2,777,000 $ 391,000 $ 362,000
Net change (1,671,000) 290,000 29,000
Increase due to acquisition* 0 2,096,000 0
------------ ------------ ------------
Balance at end of period $ 1,106,000 $ 2,777,000 $ 391,000
============ ============ ============
Tax valuation allowance***
Balance at beginning of period $ 1,409,000 $ 5,550,000 $ 6,212,000
Net change 4,343,000 (4,141,000) (662,000)
------------ ------------ ------------
Balance at end of period $ 5,752,000 $ 1,409,000 $ 5,550,000
============ ============ ============
<FN>
* Represents the balance acquired in conjunction with the DFVC Acquisition.
** Difference between FIFO cost and market applicable to inventories. Reductions to the reserve in fiscal 2000 were recorded
as related inventory was disposed.
*** See further discussion regarding tax matters at NOTE 6 to the "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
Schedules other than those listed above are omitted because they are either not
applicable or not required, or the required information is shown in the
financial statements or the notes thereto.
<PAGE>
(3) The following exhibits are filed herein or have been previously filed
with the Securities and Exchange Commission:
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of fiscal 2000.
<TABLE>
(c) EXHIBITS:
Exhibit
Number Description
<S> <C>
3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.3
to the Company's Quarterly Report on Form 10-Q for the first
fiscal quarter ended September 27, 1997 and incorporated herein
by reference).
3.2 Certificate of Amendment to the Company's Certificate of Incorporation
(filed herewith).
3.3 Bylaws of the Company (filed herewith).
4.1 Indenture, dated as of November 18, 1998, between the
Company, the Guarantors named therein and IBJ Schroder
Bank & Trust Company, Inc., as Trustee (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-4
filed January 5, 1999 (Registration No. 333-70143) and
incorporated herein by reference).
4.2 Form of 11[7/8]% Senior Subordinated Notes due 2008 (filed
as Exhibit B, to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 filed January 5, 1999 (Registration
No. 333-70143) and incorporated herein by reference).
4.3 Indenture, dated as of November 3, 1994, among PFAC,
Pro-Fac and IBJ Schroder Bank & Trust Company, as Trustee,
as amended by First Supplemental Indenture, dated as of
November 3, 1994, each with respect to the Company's
12.25% Senior Subordinated Notes due 2005 (filed as
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 filed November 17, 1994 (Registration No.
33-56517) and incorporated herein by reference).
4.4 Second Supplemental Indenture (amending the Indenture
referenced in Exhibit 4.4 herein) dated November 10, 1997
(filed as Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 27, 1998 and
incorporated herein by reference).
4.5 Third Supplemental Indenture (amending the Indenture
referenced in Exhibit 4.4 herein) dated September 24, 1998
(filed as Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 26, 1999, and
incorporated herein by reference).
10.1 Marketing and Facilitation Agreement, dated as of November
3, 1994, between Pro-Fac and the Company (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-4
filed November 17, 1994 (Registration No. 33-56517) and
incorporated herein by reference).
10.2 Amendment to Marketing and Facilitation Agreement between
the Company and Pro-Fac dated September 23, 1998 (filed as
Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the third fiscal quarter ended March 27, 1999 and
incorporated herein by reference).
10.3 Management Incentive Plan, as amended (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-4
filed November 17, 1994 (Registration No. 33-56517) and
incorporated herein by reference).
10.4 Supplemental Executive Retirement Plan, as amended (filed
as Exhibit 10.3 to the Company's Registration Statement on
Form S-4 filed November 17, 1994 (Registration No.
33-56517) and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
(c) EXHIBITS (Continued):
Exhibit
Number Description
<S> <C>
10.5 Master Salaried Retirement Plan, as amended (filed as
Exhibit 10.5 to the Company's Registration Statement on
Form S-4 filed November 17, 1994 (Registration No.
33-56517) and incorporated herein by reference).
10.6 Non-Qualified Profit Sharing Plan, as amended (filed as
Exhibit 10.6 to the Company's Registration Statement on
Form S-4 filed November 17, 1994 (Registration No.
33-56517) and incorporated herein by reference).
10.7 Second Amendment to Non-Qualified Profit Sharing Plan
(filed as Exhibit 10.14 to Pro-Fac's Registration
Statement on Form S-1 filed June 15, 1995 (Registration
No. 33-60273) and incorporated herein by reference).
10.8 Excess Benefit Retirement Plan (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-4 filed November 17, 1994
(Registration No. 33-56517) and incorporated herein by reference).
10.9 Salary Continuation Agreement - Dennis M. Mullen (filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1999 and incorporated
herein by reference).
10.10 Agrilink Equity Value Plan adopted June 24, 1996 (filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1996 and incorporated
herein by reference).
10.11 OnSite Services Agreement with Systems & Computer
Technology (filed as Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 28,
1997 and incorporated herein by reference).
10.12 Raw Product Supply Agreement with Seneca Foods Corporation
(filed as Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 28, 1997 and
incorporated herein by reference).
10.13 Reciprocal Co-Pack Agreement with Seneca Foods Corporation
(filed as Exhibit 10.23 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 28, 1997 and
incorporated herein by reference).
10.14 Credit Agreement among the Company, Pro-Fac Cooperative,
Inc., and Harris Trust and Savings Bank, and Bank of
Montreal, Chicago Branch, and the Lenders from time to
time party hereto, dated as of September 23, 1998 (filed
as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the first fiscal quarter ended September 26, 1998
and incorporated herein by reference).
10.15 Subordinated Promissory Note of the Company to Dean Foods
Company, dated as of September 23, 1998 (filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for
the first fiscal quarter ended September 26, 1998 and
incorporated herein by reference).
10.16 First Amendment to the Credit Agreement referenced in Exhibit
10.14 herein (filed as Exhibit 10.1 to the Company's Amended Quarterly
Report on Form 10-Q/A for the first fiscal quarter ended September 25,
1999 and incorporated herein by reference).
10.17 Second Amendment to the Credit Agreement referenced in Exhibit 10.14
herein (filed as Exhibit 10.2 to the Company's Amended Quarterly Report
on Form 10-Q/A for the first fiscal quarter ended September 25, 1999 and
incorporated herein by reference).
10.18 Third Amendment to the Credit Agreement referenced in Exhibit 10.14 herein
(filed as Exhibit 10.3 to the Company's Amended Quarterly Report on Form 10-Q/A
for the first fiscal quarter ended September 25, 1999 and incorporated herein
by reference).
10.19 Fourth Amendment to the Credit Agreement referenced in Exhibit 10.14 herein
(filed as Exhibit 10.4 to the Company's Amended Quarterly Report on Form 10-Q/A
for the first fiscal quarter ended September 25, 1999 and incorporated herein
by reference).
</TABLE>
<PAGE>
<TABLE>
(c) EXHIBITS (Continued):
Exhibit
Number Description
<S> <C>
10.20 Fifth Amendment to the Credit Agreement referenced in Exhibit 10.14 herein
(filed as Exhibit 10.5 to the Company's Amended Quarterly Report on Form 10-Q/A
for the first fiscal quarter ended September 25, 1999 and incorporated herein
by reference).
10.21 Service Agreement between the Company and PF Acquisition II, Inc., dated as
of February 22, 1999 (filed as Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the third fiscal quarter ended March 27, 1999 and
incorporated herein by reference).
18 Accountant's Report Regarding Change in Accounting Method filed as Exhibit 18
to the Company's Quarterly Report on Form 10-Q for the first fiscal quarter ended
September 28, 1996 and incorporated herein by reference).
21 List of Subsidiaries (filed herewith)
24 Power of Attorney (included on page 59 of this Report)
27 Financial Data Schedule (filed herewith).
99 Pro-Fac Cooperative, Inc. Audited Financial Statements for the fiscal year
ended June 24, 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: September 15, 2000 By:/s/ Earl L. Powers
Earl L. Powers
Executive Vice President Finance and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Earl L. Powers, 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 to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, 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 or necessary to be done in and about the premises,
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.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/ Bruce R. Fox Chairman of the Board and Director
(BRUCE R. FOX)
/s/ Cornelius D. Harrington Vice Chairman of the Board and Director
(CORNELIUS D. HARRINGTON)
/s/ Steven D. Koinzan Director
(STEVEN D. KOINZAN)
/s/ Walter F. Payne Director
(WALTER F. PAYNE)
/s/ Paul E. Roe Director
(PAUL E. ROE)
/s/ Frank M. Stotz Director
(FRANK M. STOTZ)
/s/ Dennis M. Mullen President and Chief Executive Officer
(DENNIS M. MULLEN) and Director
(Principal Executive Officer)
/s/ Earl L. Powers Executive Vice President Finance and
(EARL L. POWERS) Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NO ANNUAL REPORT OR PROXY MATERIAL HAS BEEN SENT TO REGISTRANT'S SHAREHOLDERS,
AND NO PROXY MATERIAL IS INTENDED TO BE SENT. AN ANNUAL REPORT IS INTENDED TO BE
SENT.
