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
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from to
File No. 0-20539
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 16-6036816
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
90 Linden Oaks, PO Box 682, Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 383-1850
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Cumulative Preferred Stock
Liquidation Preference $25.00/Share
Par Value $1.00/Share
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
as of August 26, 2000
Class A Common Stock: $10,664,905
Class B Common Stock: $ 0
(based upon par value of shares since there is no market for the Registrant's
common stock)
Number of common shares outstanding at August 26, 2000:
Class A Common Stock: 2,132,981
Class B Common Stock: 723,229
FORM 10-K ANNUAL REPORT - 2000
PRO-FAC COOPERATIVE, INC.
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. Description of Business
Cautionary Statement on Forward-Looking Statements.......................................... 3
General Development of Business............................................................. 3
Narrative Description of Business........................................................... 5
Financial Information About Industry Segments............................................... 7
Packaging and Distribution.................................................................. 7
Trademarks.................................................................................. 7
Raw Material Sources........................................................................ 7
Environmental Matters....................................................................... 8
Seasonality of Business..................................................................... 8
Practices Concerning Working Capital........................................................ 9
Significant Customers....................................................................... 9
Backlog of Orders........................................................................... 9
Business Subject to Government Contracts.................................................... 9
Competitive Conditions...................................................................... 9
Market and Industry Data.................................................................... 10
New Products and Research and Development................................................... 10
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......................................................................... 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 14
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk...................................... 25
ITEM 8. Financial Statements and Supplementary Data..................................................... 25
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 55
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............................................. 56
ITEM 11. Executive Compensation.......................................................................... 59
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................. 61
ITEM 13. Certain Relationships and Related Transactions.................................................. 63
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 65
Signatures...................................................................................... 69
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Pro-Fac Cooperative, Inc. ("Pro-Fac" or the
"Cooperative") 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 Cooperative 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 14 to 24) and other statements made in this Form 10-K and in
other filings with the SEC.
The Cooperative cautions readers that any such forward-looking statements made
by or on behalf of the Cooperative 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
Cooperative'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 Cooperative'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 Cooperative's ability to achieve the gains in productivity and
improvements in capacity utilization; and
the Cooperative's ability to service debt.
GENERAL DEVELOPMENT OF BUSINESS
Pro-Fac Cooperative, Inc. 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. Unless the context otherwise requires, the terms
"Cooperative" and "Pro-Fac" refer to Pro-Fac Cooperative, Inc. and its
subsidiaries. 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's Class A Cumulative preferred stock is listed on the Nasdaq National
Marketing System.
Pro-Fac crops include fruits (cherries, apples, blueberries, peaches, and
plums), vegetables (snap beans, beets, cucumbers, peas, sweet corn, carrots,
cabbage, squash, asparagus, potatoes, turnip roots, and leafy greens), and
popcorn. Only growers of crops marketed through Pro-Fac (or associations of such
growers) can become members of Pro-Fac; a grower becomes a member of Pro-Fac
through the purchase of common stock. Pro-Fac's membership is divided into two
separate classes. Members owning shares of Class A common stock are Class A
members, and members owning shares of Class B common stock are Class B members.
Class A members are members who deliver raw product for sale and processing at
the facilities of Agrilink Foods. There are approximately 626 Class A members,
consisting of individual growers or of associations of growers, located
principally in the states of New York, Delaware, Pennsylvania, Illinois,
Michigan, Washington, Oregon, Iowa, Nebraska, Florida, and Georgia.
There are approximately 150 Class B members who deliver raw product for sale and
processing at AgriFrozen Foods, a subsidiary of Pro-Fac. These growers are
located in the states of Oregon and Washington.
Agrilink Foods, Inc. ("Agrilink Foods"), incorporated in New York in 1961, is a
producer and marketer of processed food products. Agrilink Foods 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 Agrilink Foods' operating facilities, excluding one
in Mexico, are within the United States.
On November 3, 1994, Pro-Fac acquired Agrilink Foods, and Agrilink Foods became
a wholly-owned subsidiary of Pro-Fac. Pro-Fac and Agrilink Foods have a
long-standing contractual relationship pursuant to which Pro-Fac provides crops
and financing to Agrilink Foods, Agrilink Foods provides a market and management
to Pro-Fac, and Pro-Fac shares in the profits of Agrilink Foods. Upon
consummation of the acquisition, Pro-Fac and Agrilink Foods entered into the
Pro-Fac Marketing and Facilitation Agreement (the "Pro-Fac Marketing
Agreement").
The Pro-Fac Marketing Agreement provides for Pro-Fac to supply crops and
additional financing to Agrilink Foods, for Agrilink Foods to provide a 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 of
the directors of Agrilink Foods be individuals who are not employees or
shareholders of, or otherwise affiliated with, Pro-Fac or Agrilink Foods
("Disinterested Directors") and requires that certain decisions be approved by
the Disinterested Directors.
Additional patronage income received by Pro-Fac is deductible to Pro-Fac for
federal tax purposes only to the extent distributed to its members. Pro-Fac may
make this distribution to its members through a combination of cash and retains
as long as a minimum of 20 percent of the amount is paid in cash as required by
federal tax law. Pro-Fac has historically paid its members between 20 percent
and 30 percent of additional patronage income in cash and the remaining portion
in retains. Funds made available by the distribution of retains to members in
lieu of cash have historically been reinvested by Pro-Fac in Agrilink Foods. See
further discussion of the relationship with Pro-Fac in NOTE 2 to the "Notes to
Consolidated Financial Statements."
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.
Agrilink Foods had the right, exercisable until July 15, 1999, to require Dean
Foods, jointly with Agrilink Foods, 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, Agrilink Foods paid $13.2 million to Dean Foods and exercised
the election.
After the DFVC Acquisition, DFVC was merged into Agrilink Foods. 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. Agrilink Foods 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 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 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.
Agrilink Foods recognized an extraordinary charge of $18.0 million (net of
income taxes) 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 Agreement. The New Credit Facility and the New Notes
also restrict the amount of dividends and other payments that may be made by
Agrilink Foods to Pro-Fac.
Agripac, Inc.: PF Acquisition II, Inc. ("PF II") is also a subsidiary of
Pro-Fac. PF II was incorporated in January 1999. Pro-Fac owns 100 percent of the
common stock of PF II, while PFA Northwest Growers Cooperative, Inc., an Oregon
Cooperative, Inc., owns 100 percent of PF II preferred stock.
On February 23, 1999, PF II acquired the frozen vegetable business of Agripac,
Inc. ("Agripac"), an Oregon cooperative. PF II conducts business under the name
AgriFrozen Foods ("AgriFrozen").
On January 4, 1999, Agripac filed a voluntary petition under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Oregon. On January 22, 1999 Agripac, as debtor-in-possession, filed a motion
with the Bankruptcy Court for authority to sell substantially all of the assets
comprising its frozen food processing business. The bankruptcy court confirmed
the sale of Agripac's frozen food processing assets to AgriFrozen by an order
entered on February 18, 1999.
The contractual relationship between AgriFrozen and Pro-Fac is defined in a
marketing and facilitation agreement between the two companies (the "AgriFrozen
Marketing Agreement"). Under that agreement, AgriFrozen purchases raw products
from Pro-Fac and processes and markets the finished products. AgriFrozen will
pay Pro-Fac commercial market value ("CMV") for the crops supplied by Pro-Fac.
In addition, in any year in which AgriFrozen has earnings, AgriFrozen will
distribute such earnings to members of Pro-Fac. However, in the event AgriFrozen
experiences any losses, AgriFrozen deducts the losses from the total CMV payable
to Pro-Fac. The agreement permits AgriFrozen to pay 20 percent of any additional
earnings in cash and retain 80 percent as working capital.
NARRATIVE DESCRIPTION OF BUSINESS
The Cooperative sells products in three principal categories: (i) "branded"
products, which are sold under various 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 59 percent of the Cooperative's net sales were branded and
the remainder divided between private label and food service/industrial. The
Cooperative's branded products are listed under the "Trademarks" section of this
report. The Cooperative's private label products include 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,
Wal-Mart/Sam's, Safeway, SuperValu, Topco, Wegmans and Winn-Dixie. The
Cooperative'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 Cooperative has four primary product lines: vegetables, fruits, snacks, and
canned meals. A description of the Cooperative'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 70 percent of the Cooperative's total net sales. Within this
product line net sales of approximately 56 percent represented branded products,
17 percent represented private label products and 27 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, a 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, Agrilink Foods sold its Cambria, Wisconsin processing
facility to Del Monte. This facility was primarily utilized for canning
operations.
On November 8, 1999, Agrilink Foods 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 Agrilink Foods' 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, Agrilink Foods 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, Agrilink Foods 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, Agrilink Foods 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 Cooperative 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 Cooperative'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 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 snack category include Tim's
Cascade Chips, Snyder of Berlin, Husman, La Restaurante, Erin's, Pops-Rite, and
Super Pop. In fiscal 2000 snacks net sales represented approximately 7 percent
of the Cooperative'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, Agrilink Foods 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, Agrilink Foods 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 Cooperative's total net sales.
Other: Agrilink Foods' 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 4 percent of the Cooperative'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 Cooperative 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 Cooperative's last three fiscal years.
PACKAGING AND DISTRIBUTION
The food products produced by the Cooperative are distributed to various
consumer markets in all 50 states. International sales account for a small
portion of the Cooperative'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 Cooperative)
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 Cooperative has developed central storage and distribution facilities that
permit multi-item single shipment to customers in key marketing areas.
Effective March 31, 1998, Agrilink Foods 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 Agrilink Foods in and around Coloma, Michigan. The agreement included
the sale of Agrilink Foods' labeling equipment and distribution center.
On June 27, 1997, Americold acquired Agrilink Foods' 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.
TRADEMARKS
The major brand names under which the Cooperative markets its products are
trademarks of the Cooperative. Such brand names are considered to be of material
importance to the business of the Cooperative 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 Cooperative's intent to maintain its trademark registrations.
The major brand names utilized by the Cooperative are:
Product Line Brand Name
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, Husman, La Restaurante, Erin's, 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. Agrilink Foods owns a 50 percent interest in this joint venture.
</FN>
RAW MATERIAL SOURCES
Agrilink Foods acquired approximately 55 percent of the raw agricultural
products supplied by Pro-Fac from Class A members of the Cooperative. AgriFrozen
acquired approximately 62 percent of the raw agricultural products supplied by
Pro-Fac from Class B members of the Cooperative. Agrilink Foods and AgriFrozen
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 Agrilink
Foods and AgriFrozen 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 Cooperative purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Cooperative 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 Cooperative is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position or financial condition.
Among the various programs for the protection of the environment which have been
adopted by the Cooperative to date, the most important for the operations of the
Cooperative are the waste water discharge permit programs administered by the
environmental protection agencies in those states in which the Cooperative 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 Cooperative is required
to meet certain discharge standards in accordance with compliance schedules
established by such agencies. The Cooperative has received permits for all
facilities for which permits are required. Each year the Cooperative submits
applications for renewal permits as required for the facilities.
While the Cooperative cannot predict with certainty the effect of any proposed
or future environmental legislation or regulations on its processing operations,
management of the Cooperative 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 Cooperative 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 Cooperative.
In fiscal 2000, total capital expenditures of Pro-Fac were $27.0 million of
which approximate $0.1 million was devoted to the construction of environmental
facilities. The Cooperative estimates that the environmental capital
expenditures will be approximately $0.6 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 Cooperative 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 Agrilink Foods and
AgriFrozen 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
Agrilink Foods and AgriFrozen must maintain substantial inventories throughout
the year of finished products produced from seasonal raw materials. These
inventories are generally financed through seasonal borrowings.
A Revolving Credit Facility is available to Agrilink Foods and is used primarily
for seasonal borrowing, the amount of which fluctuates during the year. A
short-term line of credit is also available to AgriFrozen and is also used
primarily for seasonal borrowings, the amount of which fluctuates. AgriFrozen's
obligations under its line of credit are not guaranteed by Pro-Fac or Agrilink
Foods and are expressly non-recourse as to Pro-Fac and Agrilink Foods.
Both the maintenance of substantial inventories and the practice of seasonal
borrowing are common to the food processing industry.
SIGNIFICANT CUSTOMERS
The Cooperative's industry segments are not dependent upon the business of a
single customer or a few customers. The Cooperative does not have any customers
to whom sales are made in an amount which equals 10 percent or more of the
Cooperative's net sales.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Cooperative. 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 Cooperative is subject to
renegotiation of contracts with, or termination by, any governmental agency.
COMPETITIVE CONDITIONS
All products of the Cooperative, 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. Sourcing of product from the members of Pro-Fac allows control over
the quality and uniformity of much of the raw product that is purchased. 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 Cooperative's pricing is generally competitive with that of other food
processors for products of comparable quality. Branded products 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 Cooperative 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 Cooperative 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 Cooperative
amount to approximately 59 percent; sales to the food service/industrial
represent approximately 25 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 Cooperative. Nearly all products sold by the Cooperative compete with the
nationally advertised brands of leading food processors, including Del Monte,
Green Giant, Heinz, Frito-Lay, and 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
Cooperative.
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
Cooperative 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 Cooperative has not
independently verified such industry, market share, and brand awareness data and
makes no representation to its accuracy.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
Agrilink Foods 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. Agrilink Foods
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 Cooperative also focuses on the development of related products or
modifications of existing products for the Cooperative's brands and customized
products for the Cooperative's private label and food service businesses.
The amount expensed during the last three fiscal years on Cooperative-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's 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 million. 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.
EMPLOYEES
As of June 24, 2000, the Cooperative had 5,781 full-time employees, of whom
4,106 were engaged in production and the balance in management, sales and
administration. As of that date, the Cooperative also employed approximately
2,914 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 Cooperative 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
Cooperative in its business are either owned by Agrilink Foods, AgriFrozen, or
leased from unaffiliated third parties. All of the properties owned by Agrilink
Foods and AgriFrozen are subject to mortgages in favor of their respective
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 Cooperative also has dispersed
warehouse locations to facilitate the distribution of finished products.
Agrilink Foods and AgriFrozen believe that their facilities are in good
condition and suitable for operations.
Agrilink Foods' Alton, New York property is held for sale.
The following table describes all material facilities leased or owned by the
Cooperative (other than the properties held for sale, certain public warehouses
leased by the Cooperative from unaffiliated third parties from time to time, and
facilities owned by Agrilink Foods' joint venture, Great Lakes Kraut Company,
LLC). Except as otherwise noted, each facility set forth below is owned by the
Cooperative.
FACILITIES UTILIZED BY THE COOPERATIVE
Type of Property (By Product Line) Location Square Feet
- ---------------------------------- -------- -----------
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
FACILITIES UTILIZED BY THE COOPERATIVE
Type of Property (By Product Line) Location Square Feet
- ---------------------------------- -------- -----------
Vegetables (Continued):
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, warehouse, and office 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
Freezing plant and warehouse Salem, OR 110,000
Frozen repacking facility, warehouse, and distribution center (1) Woodburn, OR 385,000
Office building Salem, OR 8,981
Freezing plant, warehouse, and office Walla Walla, WA 102,000
Freezing and repackaging plant (1) Grandview, WA 62,069
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 farm Enumclaw, WA 87,313
Freezing and repackaging plant, office and dry storage Woodburn, OR 388,000
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
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
Cooperative.
</FN>
ITEM 3. LEGAL PROCEEDINGS
The Cooperative is party to legal proceedings from time to time in the normal
course of its business. In the opinion of management, any liability that might
be incurred upon the resolution of these proceedings will not, in the aggregate,
have a material adverse effect on either of these businesses, financial
condition, and results of operations. Further, no such proceedings are known to
be contemplated by governmental authorities. The Cooperative 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCK HOLDER MATTERS
There is no trading market for the Cooperative's common stock. Only
member/growers of the Cooperative can own shares of common stock. As of June 24,
2000, there were 626 members of Pro-Fac holding shares of Pro-Fac Class A Common
Stock and 150 members holding shares of Pro-Fac Class B Common Stock. In fiscal
2000 and 1999, dividends on Class A Common Stock were paid at a rate of 5.0
percent.
The information required by this item is contained in NOTE 9 to the "Notes to
Consolidated Financial Statements," at "Quarterly Financial Data," and at
"Selected Financial Data."
During fiscal 2000, the Cooperative issued shares of its Class A Cumulative
Preferred Stock in exchange for shares for its Non-cumulative Preferred Stock,
on a share-for-share basis. Such exchanges are exempt from registration under
section 3(a)(9) of the Securities Act of 1933. The dates and amounts of the
exchanges are set forth below:
Date Number of Shares Value of Shares
January 8, 2000 2,106 $ 52,650
April 8, 2000 1,297 32,425
June 23, 2000 1,832 45,800
------- ---------
Total 5,235 $ 130,875
======= =========
The New Credit Facility restricts the amount of dividends and other
distributions that may be made by Pro-Fac to its stockholders. The New Notes
restrict the amount of dividends and other payments that may be made by Agrilink
Foods. See further discussion at "Liquidity and Capital Resources."
The AgriFrozen CoBank Credit Facility and CoBank Subordinated Promissory Note
restrict the amount of dividends and other distributions that may be made by
AgriFrozen on Class B common stock.
In addition, New York Cooperative Law restricts the amount of annual dividends
on common stock to 12 percent per annum.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Capital Stock Data)
Fiscal Year Ended June
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- ----------- ---------- ----------
Consolidated summary of operations:
Net sales $1,268,542 $1,238,946 $ 719,665 $ 730,823 $ 739,094
Cost of sales (882,861) (877,438) (524,082) (539,081) (562,926)
---------- --------- ---------- ---------- ----------
Gross profit 385,681 361,508 195,583 191,742 176,168
Selling, administrative, and general expenses (286,562) (291,395) (141,739) (145,214) (150,901)
Gains on sales of assets 6,635 64,734 0 3,565 0
Restructuring 0 (5,000) 0 0 (5,871)
Income from joint venture 2,418 2,787 1,893 0 0
---------- ---------- ---------- ---------- ----------
Operating income 108,172 132,634 55,737 50,093 19,396
Interest expense (83,511) (67,420) (30,767) (36,473) (41,998)
Amortization of debt issue costs 0 (5,500) 0 0 0
---------- ---------- ---------- ---------- ----------
Pretax income/(loss) before extraordinary item, cumulative
effect of an accounting change, dividends, and allocation of
net proceeds 24,661 59,714 24,970 13,620 (22,602)
Tax (provision)/benefit (8,497) (24,746) (7,840) (5,529) 13,071
---------- ---------- ---------- ---------- ----------
Income/(loss) before extraordinary item, cumulative effect of an
accounting change, dividends and allocation of net proceeds 16,164 34,968 17,130 8,091 (9,531)
Extraordinary item relating to the early extinguishment of debt
(net of income taxes) 0 (18,024) 0 0
Cumulative effect of an accounting change (net of income taxes) 0 0 0 4,606 0
---------- ---------- ---------- --------- ----------
Net income/(loss) $ 16,164 $ 16,944 $ 17,130 $ 12,697 $ (9,531)
========== ========== ========== ========= ==========
Allocation of Net Proceeds:
- --------------------------
Net income/(loss) $ 16,164 $ 16,944 $ 17,130 $ 12,697 $ (9,531)
Dividends on Class A common and preferred stock (7,410) (6,734) (6,328) (5,503) (8,993)
---------- ---------- ---------- --------- ----------
Net proceeds/(deficit) 8,754 10,210 10,802 7,194 (18,524)
Allocation (to)/from earned surplus (3,832) (10,210) (4,662) (3,661) 18,524
---------- ---------- ---------- --------- ----------
Net proceeds available to Class A members $ 4,922 $ 0 $ 6,140 $ 3,533 $ 0
========== ========== ========== ========= ==========
Allocation of net proceeds available to Class A members:
- -------------------------------------------------------
Payable to Class A members currently (30% of qualified
proceeds available to Class A members in fiscal 2000 and
25% in fiscal 1998 and 1997) $ 1,477 $ 0 $ 1,535 $ 883 $ 0
Allocated to Class A members but retained by the Cooperative:
- ------------------------------------------------------------
Qualified retains 3,445 0 4,605 2,650 0
---------- ---------- --------- --------- ----------
Net proceeds available to Class A members $ 4,922 $ 0 $ 6,140 $ 3,533 $ 0
========== ========== ========= ========= ==========
CMV related to Class A members $ 69,623 $ 62,154 $ 58,530 $ 51,445 $ 44,701
========== ========== ========= ========== ==========
CMV related to Class B members $ 14,060
==========
Total net proceeds allocated to Class A members as a
percent of CMV* 7.07% 0.00% 10.51% 6.87% 0.00%
========== ========== ========= ========== ==========
Total net proceeds allocated to Class B members as a
percent of CMV** 0.00% 0.00% 0.00% 0.00% 0.00%
========== ========== ========= ========== ==========
Balance Sheet Data:
- ------------------
Working capital $ 260,481 $ 237,331 $ 94,103 $ 75,950 $ 103,361
Ratio of current assets to current liabilities 1.9:1 1.9:1 1.7:1 1.6:1 1.9:1
Total assets $1,187,266 $1,196,479 $ 569,240 $ 546,677 $ 637,297
Debt to equity ratio*** 4.4:1 4.7:1 1.7:1 1.8:1 2.7:1
Class A common stock $ 10,665 $ 9,979 $ 9,129 $ 8,944 $ 9,185
Class B cumulative redeemable Preferred $ 237 $ 261 $ 270 $ 315 $ 334
Shareholders' and members' capitalization, redeemable stock,
and common stock $ 159,843 $ 152,111 $ 141,369 $ 132,663 $ 126,700
Total long-term debt and senior subordinated notes (excludes
current portion and capital leases) $ 679,205 $ 702,322 $ 229,937 $ 229,829 $ 327,683
Capital Stock Data
Cash dividends paid per share:
Class A Common $ .25 $ .25 $ .25 $ 0.00 $ .25
Non-Cumulative Preferred $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50
Class A Cumulative Preferred $ 1.72 $ 1.72 $ 1.72 $ 1.72 $ 1.29
Class B Cumulative Preferred $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Average Class A common stock investment per Class A member $ 17,037 $ 15,471 $ 14,399 $ 14,333 $ 14,419
Number of Class A Common Stock members: 626 645 634 624 637
Number of Class B Common Stock members: 150 0 0 0 0
<FN>
* Payment to the members for CMV was 100 percent of deliveries in fiscal 1999
and 90 percent of deliveries in fiscal 1996.
** Payment to the Class B members for CMV was 89.16 percent of deliveries in fiscal 2000.
*** For purposes of this calculation, debt includes both current and
non-current debt, and equity includes common stock and redeemable preferred
stock.
</FN>
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 and Net Proceeds from fiscal 1998
through fiscal 2000.
Pro-Fac Cooperative, Inc.'s ("Pro-Fac" or the "Cooperative") wholly-owned
subsidiary, Agrilink Foods, Inc. ("Agrilink Foods") has four primary product
lines including: vegetables, fruits, snacks and canned meals. The Cooperative's
subsidiary, AgriFrozen, has vegetables as its one primary product line. The
majority of each of the product lines' net sales are within the United States.
In addition, all of the Cooperative's operating facilities, excluding one
facility 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 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 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 Cooperative's other product line
primarily represents salad dressings. Brand products within this category
include Bernstein's, and Nalley.
The following tables illustrate the Cooperative's results of operations by
product line for the fiscal years ended June 24, 2000, June 26, 1999, and June
27, 1998, and the Cooperative's total assets by product line at June 24, 2000,
June 26, 1999, and June 27, 1998.
EBITDA1,2
(Dollars in Millions)
Fiscal Years Ended
June 24, 2000 June 26, 1999 June 27, 1998
-------------------- --------------------- --------------------
% of % of % of
$ Total $ Total $ Total
----- ----- ------ ----- ------ -----
Vegetables 101.6 71.1 67.2 62.7 20.3 26.3
Fruits 15.7 11.0 10.8 10.1 21.0 27.2
Snack 9.8 6.9 5.8 5.4 8.3 10.7
Canned meals 8.6 6.0 8.4 7.9 8.6 11.1
Other 6.5 4.5 5.3 4.9 1.8 2.3
----- ----- ------ ----- ----- ------
Continuing segments 142.2 99.5 97.5 91.0 60.0 77.6
Businesses sold3 0.7 0.5 9.6 9.0 17.3 22.4
----- ----- ------ ----- ----- ------
Total 142.9 100.0 107.1 100.0 77.3 100.0
===== ===== ====== ===== ===== =====
<FN>
1 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is
defined as the sum of pretax income before dividends, allocation of net
proceeds, 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 Cooperative believes EBITDA is a
financial indicator of a Cooperative's ability to service debt. EBITDA as
calculated by the Cooperative may not be comparable to calculations as
presented by other companies.
2 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."
3 Represents the operating results of operations sold. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
Net Sales
(Dollars in Millions)
Fiscal Years Ended
June 24, 2000 June 26, 1999 June 27, 1998
-------------------- --------------------- --------------------
% of % of % of
$ Total $ Total $ Total
------- ----- ------- ----- ----- -----
Vegetables 886.6 69.9 763.1 61.6 233.1 32.4
Fruits 110.4 8.7 111.5 9.0 119.7 16.6
Snack 87.3 6.9 87.9 7.1 83.7 11.6
Canned meals 60.3 4.7 64.2 5.2 64.0 8.9
Other 54.5 4.3 73.0 5.9 58.6 8.2
------- ------ ------- ----- ----- -----
Continuing segments 1,199.1 94.5 1,099.7 88.8 559.1 77.7
Businesses sold1 69.4 5.5 139.2 11.2 160.6 22.3
------- ------ ------- ----- ----- -----
Total 1,268.5 100.0 1,238.9 100.0 719.7 100.0
======= ====== ======= ===== ===== =====
<FN>
1 Includes net sales of operations sold. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
Operating Income1
(Dollars in Millions)
Fiscal Years Ended
June 24, 2000 June 26, 1999 June 27, 1998
-------------------- --------------------- ------------------
% of % of % of
$ Total $ Total $ Total
----- ----- ------ ----- ------ -----
Vegetables 70.8 69.8 46.0 63.0 11.5 20.6
Fruits 13.9 13.7 8.4 11.5 17.1 30.7
Snack 6.7 6.6 3.3 4.5 6.1 11.0
Canned meals 6.7 6.6 6.5 8.9 6.8 12.2
Other 4.6 4.5 3.7 5.1 (0.3) (0.5)
----- ------ ------ ------ ----- ------
Continuing segments 102.7 101.2 67.9 93.0 41.2 74.0
Businesses sold2 (1.2) (1.2) 5.1 7.0 14.5 26.0
----- ------ ------ ------ ----- ------
Total3 101.5 100.0 73.0 100.0 55.7 100.0
===== ====== ====== ===== ===== =====
<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 $83.5 million, $72.9
million, and $30.7 million for the years ended June 24, 2000, June 26, 1999,
and June 27, 1998, respectively, results in pretax income before
extraordinary item, dividends, and allocation of net proceeds. Management
does not allocate interest expense and corporate overhead to product lines
when evaluating product line performance.
</FN>
Total Assets
(Dollars in Millions)
As of Fiscal Years Ended
----------------------------------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
-------------------- --------------------- ---------------------
% of % of % of
$ Total $ Total $ Total
------- ----- ------- ----- ------ -----
Vegetables 966.2 81.4 974.1 81.4 300.8 52.8
Fruits 79.4 6.7 90.2 7.5 87.5 15.4
Snacks 43.5 3.7 40.9 3.4 43.1 7.6
Canned Meals 45.7 3.8 46.2 3.9 49.8 8.7
Other 52.2 4.4 43.1 3.6 47.4 8.3
------- ----- ------- ----- ----- -----
Continuing segments 1,187.0 100.0 1,194.5 99.8 528.6 92.8
Businesses sold1 0.0 0.0 1.1 0.1 37.9 6.7
Assets held for sale 0.3 0.0 0.9 0.1 2.7 0.5
------- ----- ------- ----- ----- -----
Total 1,187.3 100.0 1,196.5 100.0 569.2 100.0
======= ===== ======= ===== ===== =====
<FN>
1 Includes the assets of operations sold. See NOTE 3 to the "Notes to Consolidated Financial Statements."
</FN>
CHANGES FROM FISCAL 1999 TO FISCAL 2000
Net income for fiscal 2000 of $16.2 million represented a $0.8 million or 4.7
percent 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 Subordinated 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 and additional debt associated with the Agripac
Acquisition which occurred on February 23, 1999. Accordingly, management
believes, to summarize results, an evaluation of EBITDA from continuing
operations, as presented on page 14 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 $44.7 million, or 45.8 percent, to $142.2 million in fiscal 2000 from
$97.5 million in the prior fiscal year.
The vegetable product line accounts for $34.4 million increase of the overall
EBITDA. The improvement was impacted by the date and the results of the DFVC
Acquisition, including its impact on the overall percentage of branded sales for
the Cooperative 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 DFVC Acquisition date,
a greater percentage of the Cooperative's sales now come from its branded
products. The Cooperative's branded products yield a higher margin than its
private label and food service categories. The Cooperative 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 Cooperative has benefited from the
insourcing of product previously purchased from outside suppliers, staffing
reductions, and shipping consolidations. Also, as a result of the Agripac
Acquisition, the operating results of this acquisition have been included for 12
months in fiscal 2000 and 4 months in fiscal 1999. 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 last 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 total frozen vegetable private label category was 4.7 percent 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 fruit category showed an increase of approximately $4.9 million. This
improvement results from a return to 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 Cooperative'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.
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 increased $29.6 million or 2.4 percent, to $1,268.5
million in fiscal 2000 from $1,238.9 million in fiscal 1999. Excluding
businesses sold, net sales increased by $99.4 million, or 9.0 percent, to
$1,199.1 million in fiscal 2000 from $1,099.7 million in fiscal 1999.
The increase in net sales from continuing operations is primarily attributable
to an increase of $123.5 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. In addition, AgriFrozen accounted for
additional net sales of $57.7 million. Excluding this impact, vegetable net
sales have declined $20.4 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 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 $108.2 million in fiscal 2000 decreased
approximately $24.4 million from $132.6 million in fiscal 1999. Excluding the
impact of businesses sold and other non-recurring items as identified on page
15, operating income from continuing operations increased from $67.9 million in
fiscal 1999 to $102.7 million in fiscal 2000. This represents an improvement of
$34.8 million or 51.3 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 Cooperative 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 approximated $13 million in fiscal 2000. 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, Agrilink sold its pickle business
based in Tacoma, Washington to Dean Pickle and Specialty Products Company. This
business included pickle, pepper, and relish products sold primarily under the
Nalley and Farman's brand names. Agrilink 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
Agrilink Foods' Revolving Credit Facility). A gain of approximately $4.3 million
was recognized on this transaction.
On July 21, 2000, Agrilink Foods sold the machinery and equipment utilized in
the production of pickles and other related products to Dean Pickle and
Specialty Products Company. No significant gain or loss was recognized on this
transaction. 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. 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 Agrilink Foods announced they had completed the sale of the
Cambria, Wisconsin processing facility to Del Monte. The Cooperative received
proceeds of approximately $10.5 million 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 $16.1 million to $83.5 million in
fiscal 2000 from $67.4 million in fiscal 1999. The increase in interest is,
therefore, associated with debt utilized to finance the DFVC and Agripac
acquisitions and higher levels of seasonal borrowings to fund additional working
capital requirements associated with the increase in the Cooperative'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, as a
result of the Agripac acquisition, interest expense has been included for 12
months in fiscal 2000 and 4 months in fiscal 1999. This increase is also
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.
Tax Provision: The tax provision of $8.5 million in fiscal 2000 represents a
reduction of $16.2 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 Cooperative's effective tax rate. As previously outlined, the Cooperative's
effective tax rate has historically been negatively impacted by the
non-deductibility of certain amounts of goodwill. The Cooperative's effective
tax rate is also impacted by the net proceeds distributed to members. 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 $18.0 million (net of
income taxes of $10.4 million).
CHANGES FROM FISCAL 1998 TO FISCAL 1999
The Cooperative's fiscal 1999 results were significantly impacted by two
acquisitions. These include the acquisition of the Dean Foods Vegetable Company
("DFVC") and the acquisition of Agripac, Inc. ("Agripac").
On September 24, 1998, Agrilink Foods acquired 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 Acquisition, DFVC was merged
into Agrilink Foods. 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.
On February 23, 1999, the Cooperative, through its subsidiary AgriFrozen,
acquired the frozen vegetable processing of Agripac. The Cooperative owns 100
percent of the common stock of AgriFrozen; and the Northwest Grows Cooperative,
Inc., an Oregon cooperative, owns all of AgriFrozen's preferred stock.
The Cooperative believes that these acquisitions 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 $0.1 million decrease
over fiscal 1998 net income of $17.1 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 acquisitions, the amortization of debt
issue costs associated with the Subordinated 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 14 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 $37.5 million or 62.5
percent, to $97.5 million in fiscal 1999 from $60.0 million in fiscal 1998.
The vegetable product line accounts for $46.9 million of the overall EBITDA
increase and is primarily attributable to the DFVC and Agripac acquisitions.
While this product line has benefited from the inclusion of the Birds Eye,
Freshlike, and Veg-All brands, the category has been negatively impacted by
market conditions within the frozen private label segment as a result of lower
demand, industry oversupply, and subsequent declines in pricing.
The fruit category showed a decrease of approximately $10.2 million or 48.6
percent and was primarily due to a change in the Agrilink Foods' 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 $519.2 million or 72.1 percent, to $1,238.9
million in fiscal 1999 from $719.7 million in fiscal 1998. Excluding businesses
sold, net sales increased by $540.6 million, or 96.7 percent, to $1,099.7
million in fiscal 1999 from $559.1 million in fiscal 1998.
The increase in net sales from continuing operations is primarily attributable
to an increase of $554.5 million and $28.4 million within the vegetable product
line as a result of the DFVC and Agripac acquisitions, respectively. In
addition, during fiscal 1998, Agrilink Foods 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 were offset by a
decline in the frozen private label segment. Beginning in January of 1999 and
continuing through fiscal 1999, the frozen private label frozen vegetable
segment, as reported by several sources, 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, Agrilink Foods experienced a decline in its
branded pie filling volume and an increase in its private label volume
throughout fiscal 1999. Management returned to its historic pricing and
promotional strategy in fiscal 2000, 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.
All "other" product categories 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 $132.6 million in fiscal 1999 increased
approximately $76.9 million from $55.7 million in fiscal 1998. Excluding the
impact of businesses sold, as identified on page 15, operating income from
continuing operations increased from $41.2 million in fiscal 1998 to $67.9
million in fiscal 1999. This represents an improvement of $26.7 million or 64.8
percent.
Vegetables showed improvements of $34.5 million or 300.0 percent. The vegetable
product lines obtained through the DFVC and Agripac acquisitions accounted for
$54.7 million and $2.1 million of this increase, respectively, while preexisting
vegetable operations showed a decline of $22.3 million. The preexisting
vegetable operations experienced margin erosion resulting from the downward
trend in the private label frozen vegetable market highlighted above. 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 Agrilink Foods' frozen vegetable
business as part of the DFVC Acquisition.
Fruits showed a decline of $8.7 million or 50.9 percent 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 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 or 45.9 percent 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, Agrilink
Foods 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 on
the sale was approximately $61.2 million.
On January 29, 1999, Agrilink Foods sold the Adams brand peanut butter operation
to the J.M. Smucker Company. Agrilink Foods 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 $36.6 million to $67.4 million in
fiscal 1999 from $30.8 million in fiscal 1998. This increase is associated with
debt utilized to finance the DFVC and Agripac acquisitions and higher levels of
seasonal borrowings to fund changes in operating activities due to the increase
in the Cooperative's size.
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 received 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.
Tax Provision: The provision for taxes increased $16.9 million to $24.7 million
in fiscal 1999 from $7.8 million in fiscal 1998. Of this net increase, $25.2
million is attributable to the provision associated with the gains on sales 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. The
Cooperative's effective tax rate is impacted by the net proceeds distributed to
members and the non-deductibility of certain amounts of goodwill and certain
other intangible assets. 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 $18.0 million (net of
income taxes of $10.4 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 $8.4 million in fiscal 2000 decreased
$8.9 million from the fiscal 1999 balance of $17.3 million. This decrease
primarily results from variances within accounts payable and other accruals due
to the timing of liquidation of outstanding balances. This variance is offset by
an increase in inventories due to the decline in net sales resulting from lower
consumer demand and retail consolidation.
Net cash used in investing activities was significantly impacted by the DFVC and
Agripac acquisitions in fiscal 1999. The purchase of property, plant and
equipment increased $3.2 million to $27.0 million in fiscal 2000 from $23.8
million in fiscal 1999. The increase was primarily utilized to support
additional operating facilities acquired in conjunction with the DFVC and
Agripac acquisitions 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.
The financing activities in fiscal 1999 were significantly impacted by the DFVC
and Agripac acquisitions and the activities completed concurrently with the
acquisition to refinance existing indebtedness.
AGRILINK FOODS DEBT
New Credit Facility (Bank Debt): In connection with the DFVC Acquisition,
Agrilink Foods entered into the New Credit Facility with Harris Bank as
Administrative Agent, the 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 Agrilink Foods' 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 interest
rate of interest applicable to the Term Loan Facility was 9.51 percent. In
addition, Agrilink Foods 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, Agrilink Foods 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, Agrilink Foods 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, Agrilink Foods' 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, scheduled principal
payments of $8.3 million were made on the Term Loan facilities during fiscal
2000.
Agrilink Foods' 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), and (iii) all of
Agrilink Foods' rights under the agreement to acquire DFVC (principally
indemnification rights) and the Marketing and Facilitation Agreement between
Agrilink Foods and Pro-Fac. Agrilink Foods' obligations under the New Credit
Facility are guaranteed by Pro-Fac (excluding AgriFrozen) and certain of
Agrilink Foods' subsidiaries.
The New Credit Facility contains customary covenants and restrictions on
Agrilink Foods' 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 are not
consolidated with Pro-Fac for purposes of determining compliance with the
covenants. In August of 1999, Agrilink Foods negotiated an amendment to the
original covenants. In conjunction with these amendments, Agrilink Foods has
incurred fees of approximately $2.6 million. This is being amortized over the
remaining life of the New Credit Facility. Pro-Fac and Agrilink Foods are in
compliance with all covenants, restrictions and requirements under the terms of
the New Credit Facility as amended.
Senior Subordinated Notes - 11 7/8 Percent (due 2008): To extinguish the
Subordinated Bridge Facility used to consummate the DFVC Acquisition, Agrilink
Foods issued Senior Subordinated Notes ("New Notes") for $200 million aggregate
principal amount due November 1, 2008. Interest on the New Notes accrues at the
rate of 11-7/8 percent per annum and is payable semiannually in arrears on May 1
and November 1.
The New Notes represent general unsecured obligations of Agrilink Foods,
subordinated in right of payment to certain other debt obligations of Agrilink
Foods (including Agrilink Foods' obligations under the New Credit Facility). The
New Notes are guaranteed by Pro-Fac and certain of Agrilink Foods' subsidiaries.
The New Notes contain customary covenants and restrictions on Agrilink Foods'
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. Agrilink Foods is in
compliance with all covenants, restrictions, and requirements under the New
Notes.
Subordinated Bridge Facility: To complete the DFVC Acquisition, Agrilink Foods
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.
Dean Foods Subordinated Promissory Note: As partial consideration for the DFVC
Acquisition, Agrilink Foods issued to Dean Foods the Dean Foods Subordinated
Promissory Note for $30 million aggregate principal amount due November 22,
2008. Interest on the 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 stated rates on the note are below market
value, Agrilink Foods 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 Agrilink Foods
of additional subordinated promissory notes identical to the note. Agrilink
Foods 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 notes may be prepaid at Agrilink
Foods' option without premium or penalty.
The note is expressly subordinate to the New Credit Facility and the New Notes
and contains no financial covenants. The note is guaranteed by Pro-Fac.
Senior Subordinated Notes - 12 1/4 Percent Due 2005 ("Old Notes"): In
conjunction with the DFVC Acquisition, Agrilink Foods repurchased $159,985,000
principal amount of its Old Notes, of which $160 million aggregate principal
amount was previously outstanding. Agrilink Foods 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. Agrilink Foods may repurchase the remaining Old Notes in the future
in open market transactions, privately negotiated purchases or otherwise.
AGRIFROZEN DEBT
CoBank Credit Facility(Bank Debt): In connection with the acquisition of
Agripac's frozen vegetable processing business, AgriFrozen entered a credit
facility with CoBank. The CoBank Credit Facility consists of a $30 million Term
Loan Facility and a Revolving Credit Facility both of which mature on June 29,
2002. The Revolving Credit Facility is $55 million for fiscal 2000 and $50
million in each year thereafter.
The CoBank Term Loan Facility bears interest, at AgriFrozen's option, at a fixed
or variable rate. The fixed rate represents the CoBank cost of funds plus 4.19
percent. The variable rate represents the CoBank "National Variable Rate," which
is a reference rate established by CoBank. In addition, AgriFrozen is obligated
to pay a commitment fee calculated at a rate of 0.50 percent per annum on the
amount by which the CoBank Revolving Credit Facility commitment exceeds the
greater of (i) $50 million or (ii) the average daily aggregate of advances.
There is an interest cap, which includes the fees on the CoBank Revolving Credit
Facility. The interest rate cap was $1.9 million for the initial period ending
June 26, 1999 and is $5.5 million for each subsequent fiscal year.
AgriFrozen's obligations under the CoBank Credit Facility are collateralized by
a first-priority lien on substantially all existing or after acquired assets,
tangible or intangible, of AgriFrozen.
AgriFrozen's obligations under the CoBank Credit Facility are not guaranteed by
Pro-Fac or Agrilink Foods and are expressly nonrecourse as to Pro-Fac and
Agrilink Foods.
The CoBank Credit Facility contains customary covenants and restrictions on
AgriFrozen'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, sale of assets, acquisitions and
transactions with affiliates and third parties (iii) limitations on dividends
and other distributions and (iv) limitations on capital expenditures and
administrative expenses. The CoBank Credit Facility also contains financial
covenants that are effective beginning in fiscal 2000. The covenants require
AgriFrozen to maintain a minimum level of EBITDA and a maximum leverage ratio.
AgriFrozen is in compliance with or has obtained waivers for its covenants,
restrictions, and requirements under the terms of the CoBank Credit Facility.
CoBank Subordinated Promissory Note: As partial consideration for the
acquisition of Agripac's frozen vegetable processing business, AgriFrozen issued
to CoBank the CoBank Subordinated Promissory Note for $12 million aggregate
principal amount. Interest on the note is payable quarterly in arrears
commencing February 22, 2004 through February 22, 2009 at a rate per annum of 5
percent, and at a rate of 7 percent thereafter. As the stated rates on the note
are below market value, AgriFrozen has imputed the appropriate discount
utilizing an effective interest rate of 13 percent. Interest accruing for the
period from February 22, 2004 through February 22, 2009 is payable in kind
through the issuance by AgriFrozen of additional subordinated promissory notes
identical to the note. Quarterly principal payments are due commencing March 31,
2009 each equal to 1/40 of the principal balance on March 31, 2009 with a final
lump-sum payment due February 22, 2014. The note may be prepaid at AgriFrozen's
option without premium or penalty.
The note is expressly subordinate to the CoBank Credit Facility. The note is
collateralized by the assets of AgriFrozen, but it is not guaranteed by Pro-Fac
or Agrilink Foods and is expressly non-recourse as to Pro-Fac and Agrilink
Foods.
Capital Expenditures: Agrilink Foods anticipates that capital expenditures for
fiscal years 2001 and 2002 will be approximately $25 million per annum.
AgriFrozen anticipates that capital expenditures for fiscal years 2001 and 2002
will be approximately $3.0 million per annum. Both Agrilink Foods and AgriFrozen
believe that cash flow from operations and borrowings under their respective
bank facilities will be sufficient to meet their respective liquidity
requirements for the foreseeable future.
Short- and Long-Term Trends: Throughout fiscal 2000 and 1999, the Cooperative
has focused on its core businesses and growth opportunities. During fiscal 1999,
Agrilink Foods acquired the frozen and canned vegetable business of Dean Foods.
On February 23, 1999, the Cooperative along with Northwest Growers Cooperative,
Inc., an Oregon cooperative, purchased the Agripac frozen vegetable processing
business. The Cooperative believes that these acquisitions have 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.
Management believes that a decrease in consumer demand has resulted in an
increased supply of vegetables throughout the industry. Accordingly, this
increase in supply, along with the decline of 4.7 percent in unit volume within
the private label frozen vegetable category has negatively impacted the
Cooperative'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 Cooperative'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 and AgriFrozen are
currently investigating the impact of this pronouncement.
Year 2000 Readiness Disclosure: The Cooperative has not experienced any
significant Year 2000 related system failures nor, to management's knowledge,
have any of Pro-Fac's suppliers. The Cooperative 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 Agrilink Foods' Year 2000 compliance project
were covered under its service agreement with Systems and Computer Technology
Corporation ("SCT"). Agrilink Foods' 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.
Prior to AgriFrozen's acquisition of Agripac's frozen vegetable processing
business, the Cooperative conducted an analysis of Agripac's associated computer
hardware and software systems. Based on this analysis, AgriFrozen replaced its
computer hardware with year 2000 ready hardware and has entered into a sublease
with Agrilink Foods pursuant to which it licenses Agrilink Foods' software
systems. Costs of $0.7 million associated with AgriFrozen's Year 2000 compliance
project were primarily covered under its service agreement with EDS or internal
resources. These amounts have been funded through AgriFrozen's operating cash
flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management: The Cooperative is subject to market risk from
exposure to changes in interest rates based on its financing activities.
Agrilink Foods 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, Agrilink Foods entered into
two interest rate swap agreements with the Bank of Montreal. The agreements
provide for fixed interest rate payments by Agrilink Foods in exchange for
payments received at the three-month LIBOR rate. See further discussion at NOTE
5 "Debt - Interest Rate Protection Agreements" to the "Notes to Consolidated
Financial Statements."
The following is a summary of Agrilink Foods' 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
Agrilink Foods 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, Agrilink Foods 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 Agrilink Foods' hedge position, it is Agrilink Foods' position that
on a long-term basis, the possibility of interest rates increasing exceeds the
likelihood of interest rates decreasing. Agrilink Foods 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
ITEM Page
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................... 26
Report of Independent Accountants....................................................................................... 27
Consolidated Financial Statements:
Consolidated Statements of Operations, Net Proceeds, and Comprehensive Income for the years ended June 24, 2000,
June 26, 1999, and June 27, 1998.................................................................................... 28
Consolidated Balance Sheets as of June 24, 2000 and June 26, 1999..................................................... 29
Consolidated Statements of Cash Flows for the years ended June 24, 2000, June 26, 1999, and June 27, 1998............. 30
Consolidated Statements of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
for the years ended June 24, 2000, June 26, 1999, and June 27, 1998................................................. 32
Notes to Consolidated Financial Statements............................................................................ 33
Selected Quarterly Financial Data..................................................................................... 54
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begin 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 Cooperative'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 Cooperative
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
Agrilink Foods, Inc. Agrilink Foods, Inc.
Treasurer
Pro-Fac Cooperative, Inc.
August 1, 2000
Report of Independent Accountants
To the Shareholders and
Board of Directors of
Pro-Fac Cooperative, Inc.
In our opinion, the consolidated financial statements listed under Item 8 of
this Form 10-K present fairly, in all material respects, the financial position
of Pro-Fac Cooperative, 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 in the period ended June 24, 2000, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Cooperative's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with 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 this 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 related consolidated financial
statements.
PRICEWATERHOUSECOOPERS LLP
/s/ PricewaterhouseCoopers LLP
Rochester, New York
August 1, 2000
FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries - Agrilink Foods, Inc. and AgriFrozen Foods, Inc.
Consolidated Statements of Operations, Net Proceeds, and Comprehensive Income
(Dollars in Thousands)
Fiscal Years Ended
------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Net sales $ 1,268,542 $1,238,946 $ 719,665
Cost of sales (882,861) (877,438) (524,082)
----------- ---------- ----------
Gross profit 385,681 361,508 195,583
Selling, administrative, and general expenses (286,562) (291,395) (141,739)
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 108,172 132,634 55,737
Interest expense (83,511) (67,420) (30,767)
Amortization of debt issue costs associated with the Bridge Facility 0 (5,500) 0
----------- ---------- ----------
Pretax income before extraordinary item, dividends, and
allocation of net proceeds 24,661 59,714 24,970
Tax provision (8,497) (24,746) (7,840)
----------- ---------- ----------
Income before extraordinary item, dividends, and allocation of net proceeds 16,164 34,968 17,130
Extraordinary item relating to the early extinguishment of debt (net of
income taxes) 0 (18,024) 0
----------- ---------- ----------
Net income $ 16,164 $ 16,944 $ 17,130
=========== ========== ==========
Allocation of Net Proceeds:
Net income $ 16,164 $ 16,944 $ 17,130
Dividends on common and preferred stock (7,410) (6,734) (6,328)
----------- ---------- ----------
Net proceeds 8,754 10,210 10,802
Allocation to earned surplus (3,832) (10,210) (4,662)
----------- ----------- ----------
Net proceeds available to members $ 4,922 $ 0 $ 6,140
=========== ========== ==========
Allocation of net proceeds available to members:
Payable to members currently (30% of qualified proceeds
available to members in fiscal 2000 and 25% in fiscal 1998) $ 1,477 $ 0 $ 1,535
Allocated to members but retained by the Cooperative:
Qualified retains 3,445 0 4,605
----------- ---------- ----------
Net proceeds available to members $ 4,922 $ 0 $ 6,140
=========== ========== ==========
Net income $ 16,164 $ 16,944 $ 17,130
Other comprehensive income:
Minimum pension liability 238 (155) (608)
----------- ---------- ----------
Comprehensive income $ 16,402 $ 16,789 $ 16,522
=========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries - Agrilink Foods, Inc. and AgriFrozen Foods, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS
June 24, 2000 June 26, 1999
------------- -------------
Current assets:
Cash and cash equivalents $ 4,994 $ 6,540
Accounts receivable, trade (net of allowances for doubtful accounts of $998 and $1,607, respectively) 101,065 88,249
Accounts receivable, other 10,488 9,848
Income taxes refundable 9,869 11,295
Current deferred tax assets 12,176 16,160
Inventories -
Finished goods 290,195 281,005
Raw materials and supplies 51,736 50,057
---------- ----------
Total inventories 341,931 331,062
---------- ----------
Current investment in CoBank 2,927 2,403
Prepaid manufacturing expense 26,364 22,075
Prepaid expenses and other current assets 19,688 27,883
---------- ----------
Total current assets 529,502 515,515
Investment in CoBank 16,203 19,693
Investment in Great Lakes Kraut Company, LLC 6,775 6,679
Property, plant, and equipment, net 348,359 367,255
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 27,543 25,714
---------- ----------
Total assets $1,187,266 $1,196,479
========== ==========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Notes payable $ 49,800 $ 54,900
Current portion of obligations under capital leases 218 208
Current portion of long-term debt 16,583 8,670
Accounts payable 89,612 107,159
Accrued interest 11,398 5,974
Accrued employee compensation 11,216 15,127
Other accrued expenses 66,397 64,603
Dividends payable 41 45
Amounts due AgriFrozen growers 2,060 1,453
Amounts due Class A members 21,696 20,045
---------- ----------
Total current liabilities 269,021 278,184
Obligations under capital leases 520 568
Long-term debt 679,205 702,322
Deferred income tax liabilities 36,825 23,072
Other non-current liabilities 33,852 32,222
Non-controlling interest in AgriFrozen 8,000 8,000
---------- ----------
Total liabilities 1,027,423 1,044,368
---------- ----------
Commitments and contingencies
Class B cumulative redeemable preferred stock, liquidation preference $10 per
share, authorized 500,000 shares; issued and outstanding 23,664
and 26,061, respectively 237 261
Class A common stock, par value $5, authorized 5,000,000 shares
June 24, 2000 June 26, 1999
------------- -------------
Shares issued 2,132,981 1,995,740
Shares subscribed 233,977 384,649
--------- ---------
Total subscribed and issued 2,366,958 2,380,389
Less subscriptions receivable in installments (233,977) (384,649)
--------- ---------
Total issued and outstanding 2,132,981 1,995,740 10,665 9,979
========= =========
Class B common stock, par value $5, authorized 2,000,000 shares;
issued and outstanding 723,229 and 0, respectively 0 0
Shareholders' and members' capitalization:
Retained earnings allocated to members 16,591 25,573
Non-qualified allocation to members 300 2,050
Non-cumulative Preferred Stock, par value $25, authorized 5,000,000
shares; issued and outstanding 34,400 and 39,635, respectively 860 991
Class A Cumulative Preferred Stock, liquidation preference $25 per share;
authorized 10,000,000 shares; issued and outstanding 4,249,007 and
3,694,495, respectively 106,225 92,362
Special membership interests 0 0
Earned surplus 25,490 21,658
Accumulated other comprehensive income:
Minimum pension liability adjustment (525) (763)
---------- ----------
Total shareholders' and members' capitalization 148,941 141,871
---------- ----------
Total liabilities and capitalization $1,187,266 $1,196,479
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries - Agrilink Foods, Inc. and AgriFrozen Foods, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Fiscal Years Ended
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Cash Flows from Operating Activities:
Net income $ 16,164 $ 16,944 $ 17,130
Amount payable to members currently (1,477) 0 (1,535)
Adjustments to reconcile net income to net cash (used in)/provided by
operating activities:
Extraordinary item relating to the early extinguishment of debt
(net of income taxes) 0 18,024 0
Interest-in-kind on Subordinated Promissory Note 1,571 782 0
Gains on sales of assets (6,635) (64,734) 0
Loss on disposal of assets 0 353 0
Amortization of goodwill and other intangible assets 8,768 9,396 3,581
Amortization of debt issue costs 4,805 7,678 800
Depreciation 32,605 24,752 18,009
Provision for deferred taxes 13,636 9,949 752
Provision for losses on accounts receivable 201 208 17
Equity in undistributed earnings of CoBank (412) (520) (715)
Change in assets and liabilities:
Accounts receivable (10,992) 32 (9,311)
Inventories and prepaid manufacturing expenses (66,754) 34,388 (25,654)
Income taxes payable/refundable 1,426 (5,231) (1,626)
Accounts payable and accrued expenses (16,353) (52,639) 18,145
Amounts due to members 1,651 (591) 4,845
Other assets and liabilities 13,371 (16,078) (11,360)
--------- ---------- ---------
Net cash (used in)/provided by operating activities (8,425) (17,287) 13,078
--------- ---------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant, and equipment (26,983) (23,787) (14,056)
Proceeds from disposals of property, plant, and equipment 63,955 93,486 12,794
Proceeds from sales of idle facilities 405 1,427 0
Proceeds from investment in CoBank 3,378 2,795 1,611
Cash paid for acquisitions (250) (516,052) (7,423)
--------- ---------- ---------
Net cash provided by/(used in) investing activities 40,505 (442,131) (7,074)
--------- ---------- ---------
Cash Flows from Financing Activities:
Net (payments on)/proceeds from note payable (5,100) 54,900 0
Proceeds from issuance of long-term debt 0 719,263 11,180
Payments on long-term debt (18,470) (287,574) (8,076)
Payments on capital leases (239) (283) (616)
Cash paid for debt issuance costs and amendments (2,624) (19,354) 0
Issuance of stock, net of repurchases 662 844 140
Cash paid in lieu of fractional shares 0 0 (9)
Cash portion of non-qualified conversion (445) (153) (84)
Cash dividends paid (7,410) (6,734) (6,328)
--------- ---------- ---------
Net cash (used in)/provided by financing activities (33,626) 460,909 (3,793)
--------- ---------- ---------
Net change in cash and cash equivalents (1,546) 1,491 2,211
Cash and cash equivalents at beginning of period 6,540 5,049 2,838
--------- ---------- ---------
Cash and cash equivalents at end of period $ 4,994 $ 6,540 $ 5,049
========= ========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 78,087 $ 70,005 $ 30,319
========= ========== =========
Income taxes, net $ 6,622 $ 14,742 $ 8,714
========= ========== =========
Acquisition of Flavor Destinations trademark:
Goodwill and other intangible assets $ 250 $ 0 $ 0
========= ========== =========
Acquisition of Agripac, Inc.:
Accounts receivable $ 0 $ 12,563 $ 0
Inventories 0 39,055 0
Property, plant, and equipment 0 30,327 0
Prepaid expenses and other current assets 0 1,063 0
Discount on subordinated note 0 8,157 0
Other non-current assets 0 4,000 0
Other accrued expenses 0 (10,644) 0
Other non-current liabilities 0 (4,000) 0
Non-controlling interest 0 (8,000) 0
--------- ---------- ---------
0 72,521 0
Escrow 0 6,413 0
--------- ---------- ---------
0 78,934 0
Discount on subordinated note 0 (8,157) 0
--------- ---------- ---------
$ 0 $ 70,777 $ 0
========= ========== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries - Agrilink Foods, Inc. and AgriFrozen Foods, Inc.
Consolidated Statements of Cash Flows (Continued)
(Dollars in Thousands)
Fiscal Years Ended
-------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
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
========= ========= =========
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 0 157,227 0
Assets held for sale 0 49 0
Goodwill and other intangible assets 0 178,377 0
Accounts payable 0 (40,865) 0
Accrued employee compensation 0 (8,437) 0
Other accrued expenses 0 (74,845) 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:
Conversion of retains to preferred stock $ 13,732 $ 4,648 $ 6,967
========= ========= =========
Net proceeds allocated to members but retained by the Cooperative $ 3,445 $ 0 $ 4,605
========= ========= =========
Capital lease obligations incurred $ 171 $ 320 $ 222
========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries
Consolidated Statements of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
(Dollars in Thousands)
Fiscal Years Ended
---------------------------------------------
June 24, June 26, June 27,
2000 1999 1998
---------- ----------- -----------
Retained earnings allocated to members:
Qualified retains:
Balance at beginning of period $ 25,573 $ 29,765 $ 31,920
Net proceeds allocated to members 3,445 0 4,605
Converted to preferred stock (12,427) (4,191) (6,751)
Cash paid in lieu of fractional shares 0 (1) (9)
---------- ---------- ----------
Balance at end of period 16,591 25,573 29,765
---------- ---------- ----------
Non-qualified retains:
Balance at beginning of period $ 2,050 $ 2,660 $ 2,960
Distribution of non-qualified retains -
Cash paid (445) (153) (84)
Converted to preferred stock (1,305) (457) (216)
---------- ----------- ----------
Balance at end of period 300 2,050 2,660
---------- ---------- ----------
Total retains allocated to members at end of period $ 16,891 $ 27,623 $ 32,425
---------- ---------- ----------
Non-cumulative preferred stock:
Balance at beginning of period $ 991 $ 1,125 $ 1,345
Conversion to cumulative preferred stock (131) (134) (220)
---------- ---------- ----------
Balance at end of period $ 860 $ 991 $ 1,125
---------- ---------- ----------
Cumulative preferred stock:
Balance at beginning of period $ 92,362 $ 87,580 $ 80,393
Converted from non-cumulative preferred stock 131 134 220
Converted from non-qualified retains 1,305 457 216
Converted from qualified retains 12,427 4,191 6,751
---------- ---------- ----------
Balance at end of period $ 106,225 $ 92,362 $ 87,580
---------- ---------- ----------
Earned surplus:
Balance at beginning of period $ 21,658 $ 11,448 $ 6,786
Allocation to earned surplus 3,832 10,210 4,662
---------- ---------- ----------
Balance at end of period $ 25,490 $ 21,658 $ 11,448
---------- ---------- ----------
Accumulated other comprehensive income:
Balance at beginning of period $ (763) $ (608) $ 0
Minimum pension liability adjustment 238 (155) (608)
---------- ---------- ----------
Balance at end of period (525) (763) (608)
---------- ----------- ----------
Total shareholders' and members' capitalization $ 148,941 $ 141,871 $ 131,970
========== ========== ==========
Redeemable stock:
Class B cumulative preferred stock:
Balance at beginning of period $ 261 $ 270 $ 315
(Repurchased)/issued, net (24) (9) (45)
---------- ---------- ----------
Balance at end of period $ 237 $ 261 $ 270
========== ========== ==========
Common stock:
Balance at beginning of period $ 9,979 $ 9,129 $ 8,944
Issued/(repurchased), net 686 850 185
---------- ---------- ----------
Balance at end of period $ 10,665 $ 9,979 $ 9,129
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
PRO-FAC COOPERATIVE, INC. AND CONSOLIDATED SUBSIDIARIES
AGRILINK FOODS, INC. AND AGRIFROZEN FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Pro-Fac is an agricultural cooperative which processes and markets crops grown
by its members through its wholly-owned subsidiary Agrilink Foods, Inc.
("Agrilink Foods") and through its subsidiary AgriFrozen Foods, Inc.
("AgriFrozen") in which it has a controlling interest. Unless the context
otherwise requires, the terms "Cooperative" and "Pro-Fac" refer to Pro-Fac
Cooperative, Inc. and its subsidiaries.
Agrilink Foods 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. AgriFrozen has vegetables as its one primary
product line. The majority of each of the product lines' net sales are within
the United States. In addition, all of the Cooperative's operating facilities,
excluding one in Mexico, are within the United States.
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 Pro-Fac ends on the last Saturday in June.
Fiscal 2000, 1999, and 1998 each comprised 52 weeks.
Consolidation: The consolidated financial statements include the Cooperative and
its subsidiaries, Agrilink Foods and AgriFrozen. The financial statements are
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, Agrilink Foods 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 $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 will be liquidated within the next 12 months.
Extraordinary Item Relating to the Early Extinguishment of Debt: During fiscal
1999, Agrilink Foods 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 $18.0 million (net of applicable income taxes of $10.4
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 $3,385,000, and $8,401,000, respectively. Reductions to the
reserve were recorded in fiscal 2000 as related inventory was disposed,
primarily associated with AgriFrozen.
Investment in CoBank: The Cooperative's investment in CoBank is required as a
condition of borrowings. These securities are not physically issued by CoBank,
but rather the Cooperative is notified as to their monetary value. The
investment is carried at cost plus the Cooperative's share of the undistributed
earnings of CoBank (that portion of patronage refunds not distributed currently
in cash).
Earnings on the Cooperative's investment in CoBank in fiscal year 2000, 1999,
and 1998 amounted to $590,000, $743,000, and $1,023,000, respectively.
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 Cooperative
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. The
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 $2,758,000, $7,678,000, and $800,000 in fiscal
2000, 1999, and 1998, respectively.
Income Taxes: Income taxes are provided on non-patronage income for financial
reporting purposes. Deferred income taxes resulting from temporary differences
between financial reporting and tax reporting as well as from the issuance of
non-qualified retains are appropriately classified in the balance sheet.
Pension: The Cooperative 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 Cooperative 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 Cooperative does not engage in interest
rate speculation. Derivative financial instruments are utilized to hedge
interest rate risks and are not held for trading purposes.
Agrilink Foods has entered 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 Cooperative
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
Cooperative'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.
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 issues 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 and AgriFrozen are
currently investigating the impact of this pronouncement.
Casualty Insurance: The Cooperative is insured for workers compensation and
automobile liability through a primarily self-insured program. The Cooperative
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 Cooperative's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that do not contribute to current
or future revenues are expensed. Liabilities are recorded when remedial
activities are probable, and the cost can be reasonably estimated.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The cost of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal 2000, 1999, and 1998 amounted to $43,597,000, $38,192,000,
and $9,878,000, respectively.
Earnings Per Share Data Omitted: Earnings per share amounts are not presented as
earnings are not distributed to members in proportion to their common stock
holdings. Earnings (representing those earnings derived from patronage-sourced
business) are distributed to members in proportion to the dollar value of
deliveries under Pro-Fac contracts rather than based on the number of shares of
common stock held.
Disclosures About Fair Value of Financial Instruments: The following methods and
assumptions were used by the Cooperative in estimating the fair value
disclosures for financial instruments:
Cash and Cash Equivalents 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 $19.1 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 AGRILINK FOODS AND AGRIFROZEN
Agrilink Foods: The contractual relationship between Pro-Fac and Agrilink Foods
is defined in the Pro-Fac Marketing and Facilitation Agreement (the "Pro-Fac
Marketing Agreement"). Under the Pro-Fac Marketing Agreement, Agrilink Foods
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 Pro-Fac Marketing Agreement.
Under the Pro-Fac Marketing Agreement, Agrilink Foods paid Pro-Fac $69.6
million, $62.2 million, and $58.5 million as CMV for crops purchased from
Pro-Fac in fiscal years 2000, 1999, and 1998, respectively. The crops purchased
by Agrilink Foods from Pro-Fac Class A members represented approximately 55
percent, 71 percent, and 76 percent of the raw agricultural crops purchased by
Agrilink Foods from Pro-Fac in fiscal 2000, 1999, and 1998, respectively.
Under the Pro-Fac Marketing Agreement, Agrilink Foods is required to have on its
board of directors individuals 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 Pro-Fac Marketing Agreement are determined pursuant to its
annual profit plan, which requires the approval of a majority of the
Disinterested Directors of Agrilink Foods. In addition, in any year in which
Agrilink Foods has earnings on products which were processed from crops supplied
by Pro-Fac ("Pro-Fac Products"), Agrilink Foods pays to Pro-Fac up to 90 percent
of such earnings, but in no case more than 50 percent of all pretax earnings
(before dividing with Pro-Fac) of Agrilink Foods. In years in which Agrilink
Foods has losses on Pro-Fac Products, Agrilink Foods reduces the CMV it would
otherwise pay to Pro-Fac by up to 90 percent of such losses, but in no case by
more than 50 percent of all pretax losses (before dividing with Pro-Fac) of
Agrilink Foods. 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 in losses of
certain operations of the business. For fiscal years ended 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 Pro-Fac Marketing Agreement, Pro-Fac is required to reinvest at least
70 percent of the additional patronage income in Agrilink Foods. Subsequent to
the acquisition date, Pro-Fac has invested an additional $29.9 million in
Agrilink Foods.
AgriFrozen: The contractual relationship between Pro-Fac and AgriFrozen is
defined in a marketing and facilitation agreement between Pro-Fac and AgriFrozen
(the "AgriFrozen Marketing Agreement"). Under this agreement, AgriFrozen
purchases raw products from Pro-Fac and processes and markets the finished
products. AgriFrozen will pay Pro-Fac CMV for the crops supplied by Pro-Fac. In
addition, in any year in which AgriFrozen has earnings, AgriFrozen will
distribute such earnings to members of Pro-Fac. However, in the event AgriFrozen
experiences any losses, AgriFrozen will deduct the losses from the total CMV
payable. The agreement permits AgriFrozen to pay 20 percent in cash and retain
80 percent of its earnings on Pro-Fac products as working capital.
Under the AgriFrozen Marketing Agreement, AgriFrozen paid Pro-Fac $14.0 million
in CMV for crops purchased in fiscal 2000.
Under the AgriFrozen Marketing Agreement, the board of directors of AgriFrozen
is required to consist of: (i) at least three and as many as five directors who
are individuals who currently serve as directors of Pro-Fac and who are chosen
by Pro-Fac's board of directors; (ii) one director who is nominated by the
president of Agrilink Foods from among Agrilink Foods' management employees; and
(iii) any number of disinterested directors who are to be elected from
individuals suggested by the president of Agrilink Foods. Disinterested
directors are persons who are neither employees, shareholders, nor otherwise
affiliated with Pro-Fac or AgriFrozen, but may include a disinterested director
of Agrilink Foods.
NOTE 3. ACQUISITIONS AND DISPOSALS
Fiscal 2000 -
Sale of Pickle Business: On June 23, 2000, Agrilink Foods sold its pickle
business based in Tacoma, Washington to Dean Pickle and Specialty Products
Company. This business included pickle, pepper, and relish products sold
primarily under the Nalley and Farman's brand names. Agrilink Foods 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 Agrilink Foods' Revolving Credit Facility). A gain of
approximately $4.3 million was recognized on this transaction.
On July 21, 2000, Agrilink Foods sold the machinery and equipment utilized in
the production of pickles and other related products to Dean Pickle and
Specialty Products Company. 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 Company for
a minimum 10-year period at market pricing.
Sale of Midwest Private Label Canned Vegetable Business: On November 8, 1999,
Agrilink Foods completed the sale of its Midwest private label canned vegetable
business to Seneca Foods. Included in this transaction was the Arlington,
Minnesota facility. Agrilink Foods received proceeds of approximately $42.4
million which were applied to borrowings outstanding under Agrilink Foods'
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 Agrilink Foods' 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 Cambria,
Wisconsin processing facility to Del Monte. Agrilink 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 Agrilink'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 -
Acquisition of Agripac Frozen Vegetable Business: On February 23, 1999, PF
Acquisition II, Inc., which does business under the name AgriFrozen Foods
("AgriFrozen"), acquired the frozen vegetable business of Agripac, Inc.
("Agripac"), an Oregon cooperative.
AgriFrozen was formed in January 1999 under the corporation laws of New York
State. AgriFrozen was formed to acquire substantially all of the assets of
Agripac related to its frozen vegetable processing business. On January 4, 1999
Agripac filed a voluntary petition under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the District of Oregon. On January 22,
1999 Agripac, as debtor-in-possession, filed a motion with the Bankruptcy Court
for authority to sell substantially all of the assets comprising its frozen food
processing business. The bankruptcy court confirmed the sale of Agripac's frozen
food processing assets to AgriFrozen by an order entered on February 18, 1999.
The purchase price for the assets was $80.5 million. AgriFrozen paid an
additional $7.8 million in related expenses, including $6.4 million to prior
member-growers of Agripac to obtain crop delivery agreements with AgriFrozen,
and transaction expenses and miscellaneous costs totaling $1.4 million.
AgriFrozen incurred an additional $1.2 million in severance costs associated
with the acquisition and the implementation of AgriFrozen's business plan. In
connection with, and as a condition to the consummation of the acquisition,
AgriFrozen entered into a sufficient number of crop delivery contracts with
prior member growers of Agripac acceptable to AgriFrozen.
The acquisition was accounted for under the purchase method of accounting. Under
purchase accounting tangible and identifiable intangible assets acquired are
recorded at their respective fair values. Final allocations of purchase price
were made within one year of the acquisition date.
In order to consummate the acquisition, AgriFrozen (i) entered into a credit
facility with CoBank, ACB ("CoBank) (the "CoBank Credit Facility") providing for
$30 million of term loan borrowings and a revolving credit facility (the "CoBank
Revolving Credit Facility") of $55 million in fiscal 2000 and $50 million in
each year thereafter and (ii) issued a $12 million Subordinated Promissory Note
to CoBank. Neither Pro-Fac nor Agrilink Foods guaranteed the debts of AgriFrozen
or otherwise pledged any of their respective properties as security for the
CoBank financing. All of AgriFrozen's indebtedness is expressly without recourse
to Pro-Fac and Agrilink Foods.
Phase I environmental audits were performed on the facilities acquired from
Agripac, including lease properties. A number of environmental conditions
requiring remedial action have been identified, but none of them individually,
or in the aggregate, are expected to exceed $4.0 million debt reduction for
environmental remediation to be provided by CoBank.
As part of its business strategy, AgriFrozen has also entered into an
administrative services agreement with Agrilink Foods to provide it with certain
management consulting and administrative services.
The effects of the Agripac acquisition are not material and accordingly, have
been excluded from the pro forma information presented below. The operations
from Agripac have been included in the Company's Statement of Operations since
the acquisition date.
Sale of Adams Brand Peanut Butter Operations: On January 29, 1999, Agrilink
Foods sold the Adams brand peanut butter operations to the J.M. Smucker Company.
Agrilink Foods 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, Agrilink Foods
acquired the assets of Erin's Gourmet Popcorn ("Erin's"), a Seattle-based,
ready-to-eat popcorn manufacturer. The acquisition was accounted for as a
purchase. The purchase price was approximately $0.6 million. Intangibles of
approximately $0.6 million were recorded in conjunction with this transaction
and are being amortized over 3 to 30 years.
The effects of the Erin's acquisition are not material, and accordingly, have
been excluded from the pro forma information presented below. The operations
from Erin's have been included in the Company's Statement of Operations since
the acquisition date.
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. Agrilink Foods had the right,
exercisable until July 15, 1999, to require Dean Foods, jointly with Agrilink
Foods, 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, Agrilink
Foods paid $13.2 million to Dean Foods and exercised the election.
After the DFVC Acquisition, DFVC was merged into Agrilink Foods. 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. Agrilink Foods believes that the DFVC Acquisition
strengthens its competitive position by: (i) enhancing its brand recognition and
market position, (ii) providing opportunities for cost savings and operating
efficiencies and (iii) increasing its product and geographic diversification.
The DFVC Acquisition was accounted for under the purchase method of accounting.
Under purchase accounting, tangible and identifiable intangible assets acquired
and liabilities assumed were recorded at their respective fair values. Goodwill
associated with the DFVC Acquisition is being amortized over 30 years.
The following unaudited pro forma financial information presents a summary of
consolidated results of operations of Pro-Fac 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 $1,336.0
Income before extraordinary items $ 25.1
Net income $ 7.1
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.
Agrilink Foods recognized an extraordinary item of $18.0 million (net of income
taxes) 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 - "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,
Agrilink Foods 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, Agrilink Foods
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 Agrilink Foods in and around
Coloma, Michigan. The agreement included the sale of Agrilink Foods'
labeling equipment and distribution center. Agrilink Foods 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, Agrilink Foods 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 received 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, Agrilink Foods
acquired the majority of assets and the business of C&O Distributing Company of
Canton, Ohio. C&O distributed snack products for Snyder of Berlin, one of
Agrilink Foods' 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, Agrilink Foods 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
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:
(Dollars in Thousands)
June 24, 2000 June 26, 1999
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
---------- ---------- ----------- ---------- ---------- --------
Land $ 18,943 $ 0 $ 18,943 $ 19,864 $ 0 $ 19,864
Land improvements 7,828 0 7,828 7,907 0 7,907
Buildings 114,428 395 114,823 112,229 395 112,624
Machinery and equipment 307,890 936 308,826 296,658 827 297,485
Construction in progress 14,499 0 14,499 19,507 0 19,507
--------- ------- -------- --------- -------- ---------
463,588 1,331 464,919 456,165 1,222 457,387
Less accumulated depreciation (115,856) (704) (116,560) (89,568) (564) (90,132)
--------- ------- -------- --------- -------- ---------
Net $ 347,732 $ 627 $348,359 $ 366,597 $ 658 $ 367,255
========= ======= ======== ========= ======== =========
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
Cooperative's incremental borrowing rate at the inception of the leases,
which ranged from 6.3 to 9.8 percent.
</FN>
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 $ 8,621 $ 8,915
2002 222 6,265 6,487
2003 147 5,036 5,183
2004 121 2,559 2,680
2005 89 1,925 2,014
Later years 35 10,954 10,989
------- -------- --------
Net minimum lease payments 908 $ 35,360 $ 36,268
======== ========
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
$18,671,000, $15,352,000, and $12,250,000 for fiscal years 2000, 1999, and 1998,
respectively.
NOTE 5. DEBT
The following is a summary of long-term debt outstanding:
(Dollars in Thousands)
June 24, 2000 Total
-------------------------------------------- June 26,
Agrilink AgriFrozen Total 1999
------------ ---------- --------- -----------
Bank Debt $ 428,300 $ 30,000 $ 458,300 $ 476,600
Senior Subordinated Notes 200,015 0 200,015 200,015
Subordinated Promissory Notes (net of discount) 26,144 4,493 30,637 27,378
Other 6,836 0 6,836 6,999
----------- -------- ---------- -----------
Total Debt 661,295 34,493 695,788 710,992
Less Current Portion (16,583) 0 (16,583) (8,670)
----------- -------- ---------- -----------
Total Long-Term Debt $ 644,712 $ 34,493 $ 679,205 $ 702,322
=========== ======== ========== ===========
AGRILINK FOODS DEBT
New Credit Facility (Bank Debt): In connection with the DFVC Acquisition,
Agrilink Foods 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 Agrilink Foods' 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,
Agrilink Foods 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
- ----------- ----------- ----------- ----------- -----
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.
Agrilink Foods' 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
(excluding AgriFrozen), current and future subsidiaries and (iii) all of
Agrilink Foods' rights under the agreement to acquire DFVC (principally
indemnification rights) and the Marketing and Facilitation Agreement between
Agrilink Foods and Pro-Fac. Agrilink Foods' obligations under the New Credit
Facility are guaranteed by Pro-Fac (excluding AgriFrozen) and certain of
Agrilink Foods' subsidiaries.
The New Credit Facility contains customary covenants and restrictions on
Agrilink Foods' 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 are not
consolidated with Pro-Fac for purposes of determining compliance with the
covenants. In August of 1999, Pro-Fac negotiated an amendment to the original
covenants. In conjunction with this amendment, Pro-Fac 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 Agrilink Foods are in compliance with
all covenants, restrictions and requirements under the terms of the New Credit
Facility as amended.
Interest Rate Protection Agreements: Agrilink Foods 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 Agrilink Foods in
exchange for payments at the published three-month LIBOR. In addition, Agrilink
Foods 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 Agrilink Foods in exchange for payments at the
published three-month LIBOR. Agrilink Foods entered into these agreements in
order to manage its interest rate risk by exchanging its floating rate interest
payments for fixed rate interest payments.
Agrilink Foods 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, Agrilink Foods 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, Agrilink Foods issued Senior Subordinated Notes
("New Notes") for $200 million aggregate principal amount due November 1, 2008.
Interest on the New Notes accrues at the rate of 11-7/8 percent per annum and is
payable semiannually in arrears on May 1 and November 1.
The New Notes represent general unsecured obligations of Agrilink Foods,
subordinated in right of payment to certain other debt obligations of Agrilink
Foods (including Agrilink Foods' obligations under the New Credit Facility). The
New Notes are guaranteed by Pro-Fac and certain of Agrilink Foods' subsidiaries.
The New Notes contain customary covenants and restrictions on Agrilink Foods'
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. Agrilink Foods is in
compliance with all covenants, restrictions, and requirements under the New
Notes.
Subordinated Bridge Facility: To complete the DFVC Acquisition, Agrilink Foods
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.
Dean Foods Subordinated Promissory Note: As partial consideration for the DFVC
Acquisition, Agrilink Foods issued to Dean Foods the Dean Foods Subordinated
Promissory Note for $30 million aggregate principal amount due November 22,
2008. Interest on the 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 stated rates on the note are below market
value, Agrilink Foods 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 Agrilink Foods
of additional subordinated promissory notes identical to the note. Agrilink
Foods 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 notes may be prepaid at Agrilink
Foods' option without premium or penalty.
The note is expressly subordinate to the New Credit Facility and the New Notes
and contains no financial covenants. The note is guaranteed by Pro-Fac.
Senior Subordinated Notes - 12 1/4 Percent Due 2005 ("Old Notes"): In
conjunction with the DFVC Acquisition, Agrilink Foods repurchased $159,985,000
principal amount of its Old Notes, of which $160 million aggregate principal
amount was previously outstanding. Agrilink Foods 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. Agrilink Foods 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 Agrilink Foods'
Revolving Credit Facility (excluding AgriFrozen) were as follows:
(Dollars in Thousands)
Fiscal Years Ended
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
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%
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 of letters of credit outstanding. Management anticipates
timely renewals of the Letter of Credit facilities.
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 for debt associated with Agrilink Foods 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) in 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 were no obligations under this
provision. Provisions of the Term Loan Facility also require that net cash
proceeds from the sale of businesses be applied to the Term Loan Facility.
Fair Value: The estimated fair value of Agrilink Foods' 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 Agrilink Foods for debt with similar maturities.
AGRIFROZEN DEBT
CoBank Credit Facility (Bank Debt): In connection with the acquisition of
Agripac's frozen vegetable processing business, AgriFrozen entered into a CoBank
credit facility with CoBank, ACB ("CoBank"). The CoBank Credit Facility consists
of a $30 million Term Loan Facility and a Revolving Credit Facility both of
which mature on June 29, 2002. The Revolving Credit Facility commitment is $55
million for fiscal 2000 and in each year thereafter it is $50 million.
The CoBank term loan facility bears interest, at the option of AgriFrozen, at a
fixed or variable rate. The fixed rate represents the CoBank cost of funds plus
4.19 percent. The variable rate is CoBank's "National Variable Rate," which is a
reference rate established by CoBank. In addition, AgriFrozen is obligated to
pay a commitment fee calculated at a rate of 0.50 percent per annum on the
amount by which the CoBank revolving credit facility commitment exceeds the
greater of (i) $50 million or (ii) the average daily aggregate of the revolving
credit facility advances. There is an interest cap, which includes the fees on
the CoBank Revolving Credit Facility. The interest rate cap was $1.9 million for
the initial period ending June 26, 1999 and is $5.5 million for each subsequent
fiscal year.
AgriFrozen's obligations under the CoBank Credit Facility are collateralized by
a first-priority lien on substantially all existing or after acquired assets,
tangible or intangible, of AgriFrozen.
AgriFrozen's obligations under the CoBank Credit Facility are not guaranteed by
Pro-Fac or Agrilink Foods and are expressly nonrecourse as to Pro-Fac and
Agrilink Foods.
The CoBank Credit Facility contains customary covenants and restrictions on
AgriFrozen'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, sale of assets, acquisitions and
transactions with affiliates and third parties (iii) limitations on dividends
and other distributions and (iv) limitations on capital expenditures and
administrative expenses. The CoBank Credit Facility also contains financial
covenants that are effective beginning in fiscal 2000. The covenants require
AgriFrozen to maintain a minimum level of EBITDA and a maximum leverage ratio.
AgriFrozen is in compliance with or has obtained waivers or amendments for its
covenants, restrictions, and requirements under the terms of the CoBank Credit
Facility.
CoBank Subordinated Promissory Note: As partial consideration for the
acquisition of Agripac's frozen vegetable processing business, AgriFrozen issued
to CoBank the CoBank Subordinated Promissory Note for $12 million aggregate
principal amount. Interest on the note is payable quarterly in arrears
commencing February 22, 2004 until February 22, 2009 at a rate per annum of 5
percent, and at a rate of 7 percent thereafter. As the stated rates on the note
are below market value, AgriFrozen has imputed the appropriate discount
utilizing an effective interest rate of 13 percent. Interest accruing for the
period from February 22, 2004 until February 22, 2009 is payable in kind through
the issuance by AgriFrozen of additional subordinated promissory notes identical
to the note. Quarterly principal payments are due commencing March 31, 2009 each
equal to 1/40 of the principal balance on March 31, 2009 with a final lump-sum
payment due February 22, 2014. The note may be prepaid at AgriFrozen's option
without premium or penalty.
The note is expressly subordinate to the CoBank Credit Facility. The note is
collateralized by the assets of AgriFrozen, but it is not guaranteed by Pro-Fac
or Agrilink Foods and is expressly non-recourse as to Pro-Fac and Agrilink
Foods.
Revolving Credit Facility ("Notes Payable"): Borrowings under AgriFrozen's
Revolving Credit Facility were as follows:
(Dollars in Thousands)
Fiscal Years Ended
June 24, 2000 June 26, 1999
Balance at end of period $ 44,100 $ 36,000
Rate at fiscal year end 11.00% 9.25%
Maximum outstanding during the period $ 51,000 $ 36,970
Average amount outstanding during the period $ 42,482 $ 11,548
Weighted average interest rate during the period 10.01% 9.25%
Fair Value: The estimated fair value of AgriFrozen's long-term debt outstanding
was approximately $34.5 and $34.0 million at June 24, 2000 and June 26, 1999,
respectively. The fair value for long-term debt was estimated using the current
rates offered to AgriFrozen for debt with similar maturities.
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 $ (4,929) $12,781 $ 6,214
Deferred 12,734 8,972 1,201
-------- ------- --------
7,805 21,753 7,415
State and foreign -
Current (210) 2,016 874
Deferred 902 977 (449)
-------- ------- --------
692 2,993 425
-------- ------- --------
$ 8,497 $24,746 $ 7,840
======== ======= ========
A reconciliation of the consolidated effective tax rate to the amount computed
by applying the federal income tax rate to income before taxes and extraordinary
item is as follows:
Fiscal Years Ended
--------------------------------
June 24, June 26, June 27,
2000 1999 1998
-------- -------- --------
Statutory federal rate 35.0% 35.0% 35.0%
State and foreign income taxes, net of federal income tax effect 2.9 3.5 2.3
Allocation to members (7.0) 0.0 (8.6)
Goodwill amortization 5.1 5.9 3.9
Dividend received deduction (0.2) (0.4) (1.2)
Other, net (1.4) (1.4) 0.0
---- ---- ----
Effective Tax Rate 34.4% 42.6% 31.4%
==== ==== ====
The consolidated deferred tax (liabilities)/assets consist of the following:
(Dollars in Thousands)
June 24, 2000 June 26, 1999
Liabilities:
Depreciation $ (41,033) $ (28,468)
Goodwill and other intangible assets (5,796) (1,379)
Prepaid manufacturing expense (10,152) (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 (5,208) (2,882)
---------- ----------
(63,916) (43,379)
---------- ----------
Assets:
Non-qualified retains 105 697
Inventories 12,922 9,182
Credits and operating loss carryforwards 7,820 1,538
Accrued employee compensation 1,795 5,316
Insurance accruals 3,259 4,422
Pension/OPEB accruals 10,752 7,353
Restructuring reserve 661 1,556
Promotional reserves 371 867
Other 7,334 6,945
---------- ----------
45,019 37,876
---------- ----------
Net deferred liabilities (18,897) (5,503)
Valuation allowance (5,752) (1,409)
---------- ----------
$ (24,649) $ (6,912)
========== ==========
During fiscal 2000, the Cooperative increased the valuation allowance in the
amount of $4.3 million. This valuation allowance was primarily established for
state net operating losses and credits generated during the year. As the
Cooperative cannot assure that realization is more likely than not to occur, a
valuation allowance has been recorded.
During fiscal 1999, Agrilink Foods 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 Agrilink Foods
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. This ruling also confirmed that the change in Agrilink Foods tax
status would have no effect on Pro-Fac's ongoing treatment as a cooperative
under Subchapter T of the Internal Revenue Code of 1986.
NOTE 7. PENSIONS, PROFIT SHARING, AND OTHER EMPLOYEE BENEFITS
Pensions: The Cooperative 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 Cooperative'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 Cooperative also participates in several union sponsored pension plans. It
is not possible to determine the Cooperative's relative share of the accumulated
benefit obligations or net assets for these plans.
Pension cost for fiscal years ended 2000 and 1999 includes the following
components:
(Dollars in Thousands)
Pension Benefits
Fiscal Years Ended
June 24, 2000 June 26, 1999
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%
Pension Benefits
--------------------------------------------------
Fiscal Years Ended
--------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
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
======== ========= =======
The Cooperative maintains a non-tax qualified Supplemental Executive Retirement
Plan which provides additional retirement benefits to two prior executives who
retired prior to November 4, 1994.
On January 28, 1992, the Cooperative adopted a Non-Qualified Excess Benefit
Retirement Plan which serves to provide employees with the same retirement
benefit they would have received from Agrilink Foods' 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:
(Dollars in Thousands)
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
------------- ------------- ------------- -------------
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
Postretirement Benefits Other Than Pensions: Generally, other than pensions, the
Cooperative 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 Cooperative has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The plan's funded status was as follows:
(Dollars in Thousands)
Other Benefits
Fiscal Years Ended
June 24, 2000 June 26, 1999
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%
Other Benefits
--------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
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 cost $ 776 $ 340 $ 194
========= ======== =========
For measurement purposes, an 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 Cooperative 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:
1-Percentage 1-Percentage
Point Increase Point Decrease
Effect on total of service and interest cost components $ 47,913 $ (43,868)
Effect on postretirement benefit obligation $ 283,765 $ (260,670)
Retirement Savings and Incentive Plan: Under the Retirement Savings and
Incentive Plan ("RSIP"), the Cooperative makes an incentive contribution to the
RSIP if certain pre-established earnings goals are achieved. In addition, the
Cooperative 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 Cooperative allocated $1,076,000,
$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 Cooperative 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 Cooperative
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 Cooperative 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 Agrilink's future earnings and debt repayment.
Employee Stock Purchase Plan: During fiscal 1996 the Cooperative introduced an
Employee Stock Purchase Plan which affords employees the opportunity to purchase
semi-annually, in cash or via payroll deduction, shares of Class B Cumulative
Pro-Fac Preferred Stock to a maximum value of 5 percent of salary. The purchase
price of such shares is par value, $10 per share. During fiscal 2000, 1999, and
1998, 23,664, 26,061, and 27,043 shares, respectively, were held by employees,
and there were no shares subscribed to as of June 24, 2000.
NOTE 8. OPERATING SEGMENTS
During fiscal 1999, the Cooperative 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 Cooperative's significant product lines, The Cooperative has elected to
utilize significant product lines in determining its operating segments. The
Cooperative's four primary operating segments are as follows: vegetables, fruit,
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. Other product lines primarily
represent salad dressings. Branded products within the "other category" include
Bernstein's and Nalley.
The following table illustrates the Cooperative's operating segment information:
(Dollars in Millions) Fiscal Years Ended
--------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Net Sales:
Vegetables $ 886.6 $ 763.1 $ 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 1,199.1 1,099.7 559.1
Businesses sold 69.4 139.2 160.6
---------- ---------- ---------
Total $ 1,268.5 $ 1,238.9 $ 719.7
========== ========== =========
Operating income:
Vegetables1 $ 70.8 $ 46.0 $ 11.5
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 102.7 67.9 41.2
Businesses sold (1.2) 5.1 14.5
---------- ---------- ---------
Total 101.5 73.0 55.7
Gains on sales of assets 6.7 64.7 0.0
Restructuring expense 0.0 (5.0) 0.0
---------- ---------- ---------
Total consolidated operating income 108.2 132.7 55.7
Interest expense (83.5) (67.4) (30.7)
Amortization of debt issue costs associated with the Bridge Facility 0.0 (5.5) 0.0
---------- ---------- ---------
Pretax income before extraordinary item, dividends and allocation of
net proceeds $ 24.7 $ 59.8 $ 25.0
========== ========== =========
Total Assets:
Vegetables $ 966.2 $ 974.1 $ 300.8
Fruits 79.4 90.2 87.5
Snacks 43.5 40.9 43.1
Canned Meals 45.7 46.2 49.8
Other 52.2 43.1 47.4
---------- ---------- ---------
Continuing segments 1,187.0 1,194.5 528.6
Businesses sold 0.0 1.1 37.9
Assets held for sale 0.3 0.9 2.7
---------- ---------- ---------
Total $ 1,187.3 $ 1,196.5 $ 569.2
========== ========== =========
Depreciation expense:
Vegetables $ 24.6 $ 15.7 $ 8.2
Fruits 1.7 2.4 3.6
Snacks 2.4 1.7 1.6
Canned Meals 1.2 1.2 1.0
Other 1.2 1.0 1.4
---------- ---------- ---------
Continuing segments 31.1 22.0 15.8
Businesses sold 1.5 2.8 2.2
---------- ---------- ---------
Total $ 32.6 $ 24.8 $ 18.0
========== ========== =========
Amortization Expense:
Vegetables $ 6.1 $ 5.4 $ 0.6
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 7.7 2.9
Businesses sold 0.4 1.7 0.7
----------- ---------- ---------
Total $ 8.8 $ 9.4 $ 3.6
=========== ========== =========
(Dollars in Millions) Fiscal Years Ended
--------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Capital expenditures:
Vegetables $ 21.4 $ 19.5 $ 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 26.6 23.7 12.2
Businesses sold 0.4 0.1 1.9
----------- ---------- ---------
Total $ 27.0 $ 23.8 $ 14.1
=========== ========== =========
<FN>
1 The vegetable product line includes earnings derived from Agrilink Foods'
investment in Great Lakes Kraut Company, LLC of $2.4 million, $2.8 million
and $1.9 million in fiscal 2000, fiscal 1999, and fiscal 1998, respectively.
See NOTE 3 to the "Notes to Consolidated Financial Statements" -
"Acquisitions and Disposals - Formation of New Sauerkraut Company."
</FN>
NOTE 9. COMMON STOCK AND CAPITALIZATION
The following table illustrates the Cooperative's shares authorized, issued, and
outstanding at June 24, 2000 and June 26, 1999.
Shares Issued and Outstanding
Fiscal Years Ended
Par Shares --------------------------------
Value Authorized June 24, 2000 June 26, 1999
----- ---------- ------------- -------------
Class A Common Stock $ 5.00 5,000,000 2,132,981 1,995,740
Class B Common Stock $ 5.00 2,000,000 723,229 0
Non-Cumulative Preferred Stock $25.00 5,000,000 34,400 39,635
Class A Cumulative Preferred Stock $ 1.00 10,000,000 4,249,007 3,694,495
Class B Cumulative Preferred Stock $ 1.00 9,500,000 0 0
Class C Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class D Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class E Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class B, Series I 10% Cumulative Preferred Stock $ 1.00 500,000 23,664 26,061
On March 4, 1999, the Cooperative authorized up to $15,000,000 of special
membership interests which shall have a stated value equal to such interests'
face amount.
Common Stock: The Common Stock purchased by members is related to the crop
delivery of each member. Regardless of the number of shares held, each member
has one vote. As of June 24, 2000, there were 626 holders of the Class A Common
Stock and 150 holders of Class B Common Stock. Common Stock may be transferred
to another grower only with approval of the Pro-Fac Board of Directors. If a
member ceases to be a producer of agricultural products which is marketed
through the Cooperative, then it must sell its Common Stock to another grower
within the members' pool that is acceptable to the Cooperative. If no such
grower is available to purchase the stock, then the member must sell its Common
Stock to the Cooperative at par value. There is no established public trading
market for the Common Stock of the Cooperative.
In fiscal 2000, 1999, and 1998 dividends on Class A Common Stock were paid at a
rate of 5.0 percent. There were no dividends paid on the Class B Common Stock.
Subsequent to June 24, 2000, the Cooperative declared a cash dividend at a rate
of 5.0 percent on the Class A Common Stock. These dividends amounted $0.5
million and were paid in July 2000.
At June 24, 2000 and June 26, 1999, there were outstanding subscriptions, at par
value, of 233,977 and 384,649 shares for Class A Common Stock, respectively.
These shares are issued as subscription payments are received. There were no
outstanding subscriptions for the Class B Common Stock.
Preferred Stock: Except for the Class B, Series I, 10 Percent Cumulative
Preferred Stock, all preferred stock outstanding originated from the conversion
at par value of retains at the discretion of Pro-Fac's board of directors.
Preferred Stock is non-voting, except that the holders of preferred and common
stock are entitled to vote as separate classes on certain matters which would
affect or subordinate the rights of the class.
On August 23, 1995, the Cooperative commenced an offer to exchange one share of
its Class A Cumulative Preferred Stock (liquidation preference $25 per share)
for each of its existing Non-cumulative Preferred Stock (liquidation preference
$25 per share). Pro-Fac's Class
A Cumulative Preferred Stock is listed under the symbol PFACP on the Nasdaq
National Market System. As of June 24, 2000, the number of Class A Cumulative
Preferred Stock record holders was 1,831.
The "Class B, Series I, 10 Percent Cumulative Preferred Stock (the "Class B
Stock") is issued to employees pursuant to an Employee Stock Purchase Plan. At
least once a year, Pro-Fac plans to offer to repurchase at least 5 percent of
the outstanding shares of Class B Stock.
The dividend rates for the preferred stock outstanding are as follows:
Non-Cumulative Preferred Stock $1.50 per share paid annually at the discretion of the Board.
Class A Cumulative Preferred Stock $1.72 per share annually, paid in four quarterly
installments of $.43 per share.
Class B, Series I, 10 Percent Cumulative Preferred Stock $1.00 per share paid annually.
Subsequent to June 24, 2000, the Cooperative declared a cash dividend of $1.50
per share on the Non-cumulative Preferred Stock and $.43 per share on the Class
A Cumulative Preferred Stock. These dividends amounted to $1.9 million and were
paid in July 2000.
Retained Earnings Allocated to Members ("Retains"): Retains arise from patronage
income, and are allocated to the accounts of members within 8.5 months of the
end of each fiscal year.
Qualified Retains: Qualified retains are freely transferable. At the
discretion of the Board of Directors qualified retains may mature into
preferred stock in December of the fifth year after allocation.
Qualified retains are taxable income to the member in the year the
allocation is made.
Non-Qualified Retains: Non-qualified retains may not be sold or
purchased. At the discretion of the Board of Directors the
non-qualified retains allocation may be redeemed in five years through
partial payment in cash and issuance of preferred stock. The
non-qualified retains will not be taxable to the member until the year
of redemption.
Non-qualified retains may be subject to later adjustment if such is
deemed necessary by the Board of Directors because of events which may
occur after the retains were allocated.
Beginning with the retains issued in 1995, the maturity of all future retains,
if approved by the Board of Directors, will result in the issuance of Class A
Cumulative Preferred Stock.
Earned Surplus: Earned surplus consists of accumulated income after distribution
of earnings allocated to members, dividends and after state and federal income
taxes. Earned surplus is reinvested in the business in the same fashion as
retains.
NOTE 10. SUBSIDIARY GUARANTORS
Kennedy Endeavors, Incorporated and Linden Oaks Corporation, wholly-owned
subsidiaries of Agrilink Foods ("Subsidiary Guarantors") and Pro-Fac, have
jointly and severally, fully and unconditionally guaranteed, on a senior
subordinated basis, the obligations of Agrilink Foods with respect to Agrilink
Foods' 11 7/8 percent Senior Subordinated Notes due 2008 and the New Credit
Facility. The covenants in the New Notes and the New Credit Facility do not
restrict the ability of the Subsidiary Guarantors to make cash distributions to
Agrilink Foods.
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 38,575 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 11. OTHER MATTERS
Legal Matters: The Cooperative is party to various litigation and claims arising
in the ordinary course of business. Management and legal counsel for the
Cooperative are of the opinion that none of these legal actions will have a
material effect on the financial position of the Cooperative.
Commitments: Agrilink Foods has guaranteed an approximate $3.0 million loan for
Great Lakes Kraut Company, LLC in which Agrilink Foods has a 50 percent
interest.
Agrilink Foods has guaranteed an approximate $1.4 million loan for the City of
Montezuma to renovate a sewage treatment plant operated in Montezuma on behalf
of the City.
Pro-Fac Cooperative, Inc.
Quarterly Financial Data (Unaudited)
Quarterly financial information for the fiscal years ended June 24, 2000 and
June 26, 1999 appears in the following table. All quarters reflect 13-week
periods.
In the opinion of management, all adjustments necessary for a fair presentation
of the unaudited quarterly data have been made.
(Dollars in Thousands Except Per Share)
Quarters Fiscal 2000
1 2 3 4 Total Year
---------- ---------- ----------- ----------- -----------
Net sales $ 296,248 $ 380,485 $ 300,880 $ 290,929 $ 1,268,542
Gross profit $ 84,794 $ 128,241 $ 90,417 $ 82,229 $ 385,681
Income before taxes, dividends,
and allocation of net proceeds $ 1,448 $ 19,113 $ 1,991 $ 2,109 $ 24,661
Net income $ 403 $ 14,480 $ 925 $ 356 $ 16,164
Cash dividends declared per share on
Class A Cumulative Preferred Stock $ .43 $ .43 $ .43 $ .43 $ 1.72
Market price per share on Class A
Cumulative Preferred Stock (Nasdaq)
High $ 19.500 $ 19.125 $ 16.953 $ 16.953 $ 19.500
Low $ 18.500 $ 17.500 $ 13.875 $ 14.875 $ 13.875
(Dollars in Thousands Except Per Share)
Quarters Fiscal 1999
1 2 3 4 Total Year
--------------- --------------- -------------- -------------- ----------
Net sales $ 182,579 $ 376,703 $ 361,235 $ 318,429 $ 1,238,946
Gross profit $ 46,697 $ 122,140 $ 110,388 $ 82,283 $ 361,508
Income before taxes, extraordinary item,
dividends, and allocation of net proceeds $ 68,316 $ 6,962 $ (1,405) $ (14,159) $ 59,714
Net income $ 25,285 $ 5,069 $ (2,841) $ (10,569) $ 16,944
Cash dividends declared per share on
Class A Cumulative Preferred Stock $ .43 $ .43 $ .43 $ .43 $ 1.72
Market price per share on Class A
Cumulative Preferred Stock (Nasdaq)
High $ 20.375 $ 20.000 $ 19.875 $ 19.500 $ 20.375
Low $ 19.000 $ 18.813 $ 18.000 $ 17.500 $ 17.500
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS
MANAGEMENT AND DIRECTORS OF PRO-FAC
Date
Name of Birth Positions
Bruce R. Fox 1947 Director and Chairman of the Board, President
Steven D. Koinzan 1948 Director and Vice Chairman of the Board, Vice President
Tom R. Croner 1942 Director
Earl L. Powers 1944 Treasurer
Stephen R. Wright 1947 Secretary and General Manager
Dale W. Burmeister 1940 Director
Peter R. Call 1956 Director
Glen Lee Chase 1937 Director
Kenneth A. Dahlstedt 1954 Director
Robert DeBadts 1957 Director
Kenneth A. Mattingly 1948 Director
Allan W. Overhiser 1960 Director
Paul E. Roe 1939 Director
Darell Sarff 1949 Director
Bruce R. Fox has been a Director of Pro-Fac since 1974. For information
regarding Mr. Fox, see "Management and Directors of Agrilink Foods."
Steven D. Koinzan has been a Director of Pro-Fac since 1983. For information
regarding Mr. Koinzan, see "Management and Directors of Agrilink Foods."
Tom R. Croner has been a Director of Pro-Fac since 1985 and a member of Pro-Fac
since 1973. He was elected Secretary on March 27, 1995. Mr. Croner is a dairy
and potato farmer (T-Rich Inc.; Berlin, Pennsylvania).
Earl L. Powers has been an officer of Pro-Fac since 1997. For information
regarding Mr. Powers, see "Management and Directors of Agrilink Foods."
Stephen R. Wright has been an officer of Pro-Fac since March 1995, having
previously served as Assistant General Manager since November 1994. For
information regarding Mr. Wright, see "Management and Directors of Agrilink
Foods."
Dale W. Burmeister has been a Director of Pro-Fac since 1992 and a member of
Pro-Fac since 1974. Mr. Burmeister is a fruit and vegetable grower (Lakeshore
Farms, Inc.; Shelby, Michigan).
Peter R. Call was elected a Director of Pro-Fac in February 2000. Mr. Call is a
vegetable, fruit, and grain farmer (My-T Acres, Inc., Batavia, New York).
Glen Lee Chase has been a Director of Pro-Fac since 1989 and a member of Pro-Fac
since 1984. Mr. Chase is a peanut, poultry, grain and vegetable farmer (Chase
Farms Inc.; Oglethorpe, Georgia).
Kenneth A. Dahlstedt was elected a Director of Pro-Fac in February 1998 and has
been a member of Pro-Fac since 1983.
Robert DeBadts was elected a Director of Pro-Fac in January 1997 and has been a
member of Pro-Fac since 1978. Mr. DeBadts is a fruit grower (Lake Breeze Fruit
Farms, Inc.; Sodus, New York).
Kenneth A. Mattingly has been a Director of Pro-Fac since 1993 and a member of
Pro-Fac since 1978. Mr. Mattingly is a vegetable and grain farmer (M-B Farms
Inc.; LeRoy, New York).
Allan W. Overhiser has been a Director of Pro-Fac since March 1994 and a member
of Pro-Fac since 1984. Mr. Overhiser is a fruit farmer (A.W. Overhiser Orchards;
South Haven, Michigan).
Paul E. Roe 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).
Darell Sarff was elected a Director of Pro-Fac in February 1997 and has been a
member of Pro-Fac since 1988. Mr. Sarff is a grain and vegetable farmer (Sarff
Farms; Chandlerville, Illinois).
Term of Office: Directors of Pro-Fac are elected for three-year terms, and
one-third of the directors are elected annually. Officers of Pro-Fac are elected
for one-year terms.
MANAGEMENT AND DIRECTORS OF AGRILINK
Management and Directors: Effective upon consummation of the acquisition of
Agrilink Foods by Pro-Fac, Pro-Fac established a management structure for
Agrilink Foods, 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
Cooperative may in the future expand the Board of Directors, but Pro-Fac has
undertaken to cause the Cooperative 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 Cooperative is less
than the greater of (i) two and (ii) the number of directors who are also
directors, members or affiliates of the Cooperative. 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 officers of the Cooperative.
Year of
Name Birth Positions
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
William D. Rice(4) 1934 Senior Vice President Strategic Development
Earl L. Powers 1944 Executive Vice President and Chief Financial Officer
Stephen R. Wright 1947 Executive Vice President Agriculture and Secretary
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
Paul E. Roe(2) 1939 Director
Walter F. Payne(3) 1936 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>
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1997 and a Director of Agrilink Foods since May 1996. He was Chief
Operating Officer from May 1996 to January 1997 and Executive Vice President
since January 1996. He had been President and Chief Executive Officer of 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 Agrilink Foods, 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, Travel Management's National Advisory Board, and Chase Manhattan
Bank's Northeast Advisory Board.
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.
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 business unit of Agrilink Foods from 1991 to March
1993. Prior to joining Agrilink Foods, he was Controller of various Pillsbury
Company divisions 1987-1990 and various other executive management positions at
the Pillsbury Company 1976-1987.
Stephen R. Wright has been Executive Vice President since November 6, 1996. He
was Senior Vice President - Procurement of Agrilink Foods from November 1994 and
Vice President -- Procurement for Agrilink Foods from 1990 to November, 1994,
having served as Director of Commodities and Administration Services for
Agrilink Foods from 1988 to 1990.
David M. Mehalick joined Agrilink Foods May 1, 1999 as Vice President and
General Counsel. Prior to employment with Agrilink Foods, he practiced law in
the firm of Harris Beach & Wilcox from 1981 to 1999.
Bruce R. Fox has been a Director of Agrilink Foods since the completion of the
Pro-Fac acquisition of Agrilink Foods 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 and a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
MA. He is a former Director of the Farm Credit Bank of Springfield since January
1994.
Steven D. Koinzan has been a Director of Agrilink Foods 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 Agrilink Foods 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 Agrilink Foods 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 Agrilink Foods 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 Agrilink
Foods 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 Agrilink Foods to become a Director or
executive officer.
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and four other most highly
compensated executive officers of the Cooperative, earned during fiscal years
ended June 24, 2000, June 26, 1999, and June 27, 1998 (collectively, the "Named
Executive Officers").
Executive Compensation
Summary Compensation Table
Annual
Compensation1 RSIP/
--------------------------- Matching
Name and Principal Position Year Salary Bonus2 Contributions
- --------------------------- ---- ----------- --------- -------------
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 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 $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of Agrilink Foods (the "Incentive
Plan"), additional compensation is paid if justified by the activities of the
officers and employees eligible under the Incentive Plan and by the earnings
of Agrilink Foods and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
3 Mr. Mehalick's employment with Agrilink Foods began May 1, 1999.
4 Mr. Rice retired from the Company on June 30, 2000
</FN>
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
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 Cooperative 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>
Retirement Plans: Agrilink Foods' 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 Agrilink Foods'
Pension Plan as of June 24, 2000, of the Executive Officers listed in the
Summary Compensation Table are as follows: Dennis M. Mullen-9, William D.
Rice-28, Earl L. Powers-8, Stephen R. Wright-25 and David M. Mehalick-0.
On January 28, 1992, Agrilink Foods adopted an Excess Benefit Retirement Plan
which serves to provide employees with the same retirement benefit they would
have received from Agrilink Foods' 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.
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 Agrilink Foods' Master Salaried Retirement Plan
and the Excess Benefit Retirement Plan.
Pension Plan Table
Years of Plan Participation
Final ----------------------------------------------------------------
Average Pay 15 20 25 30 35
----------- ---------- --------- --------- --------- ---------
$ 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
Termination Protection Provisions: Agrilink Foods 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
The following table sets forth certain information, as of June 24, 2000, with
respect to (i) each person known by Pro-Fac to own beneficially 5 percent or
more of any class of Pro-Fac's voting securities, (ii) each director and named
executive officer of Pro-Fac and (iii) all directors and officers of Pro-Fac as
a group.
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
- ------------------------------ ---------------------------- ------------------------ ----------
Cherry Central Cooperative, Inc. Common 346,680 16.25%
PO Box 988 Class A Cumulative Preferred 80,126 1.89%
Traverse City, MI 49685
Michigan Blueberry Growers Assoc. Common 116,400 5.46%
PO Drawer B Class A Cumulative Preferred 22,760 0.54%
Grand Junction, MI 49056
Dale E. Burmeister Common 12,874(c) 0.60%
Class A Cumulative Preferred 95(c) 0.00%
Class A Cumulative Preferred 10,348 0.24%
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
- ------------------------------ ---------------------------- ------------------------ ----------
Peter R. Call Common 39,158(d) 1.84%
Class A Cumulative Preferred 26,870(d) 0.64%
Class A Cumulative Preferred 14,194(e) 0.33%
Class A Cumulative Preferred 5,361(f) 0.13%
Class A Cumulative Preferred 8,246 0.19%
Glen Lee Chase Common 9,472(g) 0.44%
Class A Cumulative Preferred 7,672(g) 0.18%
Tom R. Croner Common 3,776(h) 0.18%
Class A Cumulative Preferred 12,822(i) 0.30%
Kenneth A. Dahlstedt Common 6,633 0.31%
Class A Cumulative Preferred 1,277(l) 0.06%
Class A Cumulative Preferred 290 0.01%
Robert DeBadts Common 11,873(j) 0.56%
Class A Cumulative Preferred 11,196(j) 0.26%
Class A Cumulative Preferred 100(k) 0.00%
Bruce R. Fox Common 21,982(m) 1.03%
Class A Cumulative Preferred 9,152(m) 0.22%
Class A Cumulative Preferred 7,428(n) 0.17%
Class A Cumulative Preferred 1,085 0.03%
Class A Cumulative Preferred 820 0.02%
Steven D. Koinzan Common 8,280 0.39%
Class A Cumulative Preferred 4,388 0.10%
David M. Mehalick None 0 0.00%
Kenneth A. Mattingly Common 10,221(o) 0.47%
Class A Cumulative Preferred 9,076(o) 0.21%
Dennis M. Mullen None 0 0.00%
Allan W. Overhiser Common 2,874(p) 0.13%
Class A Cumulative Preferred 1,926(p) 0.05%
Earl L. Powers None 0 0.00%
William D. Rice None 0 0.00%
Paul E. Roe Common 18,715(q) 0.88%
Class A Cumulative Preferred 5,013(q) 0.127%
Darell Sarff Common 2,616 0.13%
Class A Cumulative Preferred 1,284 0.03%
Stephen R. Wright Class A Cumulative Preferred 1,140 0.03%
All directors and officers as a group Common 148,774 6.96%
Class A Cumulative Preferred 139,783 3.29%
(a) Certain of the directors named above may have the opportunity, along with
the other members producing a specific crop, to acquire beneficial
ownership of additional shares of the common stock of Pro-Fac within a
period of approximately 60 days, commencing each year on February 1, if
Pro-Fac determines that a permanent change is required in the total
quantity of that particular crop.
(b) In the above table, each director who has direct beneficial ownership
of common or preferred shares by reason of being the record owner of such
shares has sole voting and investment power with respect to such shares,
while each director who has direct beneficial ownership of common or
preferred shares as a result of owning such shares as a joint tenant has
shared voting and investment power regarding such shares. Each
director who has indirect beneficial ownership of common or preferred
shares resulting from his status as a shareholder or a partner of a
corporation or partnership which is the record owner of such shares has
sole voting and investment power if he controls such corporation or
partnership. If he does not control such corporation or partnership,
he has shared voting and investment power. Pro-Fac does not believe
that the percentage ownership of any such corporation or partnership by a
director is material, since in the aggregate no director beneficially owns
in excess of 5 percent of either the common or preferred shares of Pro-Fac.
(c) Record ownership by Lakeshore Farms, Inc.
(d) Record ownership by My-T Acres, Inc.
(e) Record ownership by My-T Acres, Inc. Employee Profit Sharing Plan
(f) Record ownership by Call Farms, Inc.
(g) Record ownership by Chase Farms, Inc.
(h) Record ownership by Richard Croner & Son
(i) Record ownership by T-Rich, Inc.
(j) Record ownership by Lake Breeze Farm, Inc.
(k) Record ownership jointly with spouse
(l) Record ownership by Ag-Pro, Inc.
(m) Record ownership by N.J. Fox & Sons, Inc.
(n) Record ownership by K. Fox
(o) Record ownership by M-B Farms, Inc.
(p) Record ownership by A.W. Overhiser Orchards
(q) Record ownership by Roe Acres, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance:
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management believes all such transactions were on terms no less favorable to the
Cooperative 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 Agrilink Foods 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, Pro-Fac has made investments in the bank. The
Cooperative made these investments through (i) a capital purchase obligation
equal to a percentage, set annually based on CoBank's capital needs, of its
interest paid to CoBank and (ii) a patronage rebate on interest paid by the
Cooperative to CoBank based on CoBank's earnings, which is paid in cash and
capital certificates. As of June 24, 2000, the amount of the Cooperative's
investment in CoBank was approximately $19.1 million.
Transactions Between Agrilink Foods and AgriFrozen: Agrilink Foods purchases
frozen vegetables from AgriFrozen. 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.
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 Cooperative 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:
(Dollars in Thousands)
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 2000
- ------------------------ -------------------------------------------------------- ---------------------
(Dollars in Thousands)
Dale E. Burmeister........................... Director $ 343
Peter R. Call................................ Director $ 3,711**
Robert V. Call, Jr.*......................... Director $ 3,711**
Glen Lee Chase............................... Director $ 55
Tom R. Croner................................ Director $ 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 R. Fox, Steven D. Koinzan, and Paul E. Roe are directors of both Pro-Fac and Agrilink Foods.
</FN>
DIRECTORS AND OFFICERS LIABILITY INSURANCE
As authorized by New York law and in accordance with the policy of that state,
the Cooperative has obtained insurance from Chubb Group Insurance insuring the
Cooperative 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 Cooperative. 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 Cooperative under this indemnification insurance contract.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The following appears in ITEM 8 of this report:
ITEM Page
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Management's Responsibility for Financial Statements.................................................................... 26
Report of Independent Accountants....................................................................................... 27
Consolidated Financial Statements for the years ended
June 24, 2000, June 26, 1999, and June 27, 1998:
Consolidated Statements of Operations, Net Proceeds, and Comprehensive Income for the years ended June 24, 2000,
June 26, 1999, and June 27, 1998.................................................................................... 28
Consolidated Balance Sheet at June 24, 2000 and June 26, 1999......................................................... 29
Consolidated Statement of Cash Flows for the years ended June 24, 2000, June 26, 1999, and June 27, 1998.............. 30
Consolidated Statements of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
for the years ended June 24, 2000, June 26, 1999, and June 27, 1998................................................. 32
Notes to Consolidated Financial Statements............................................................................ 33
Selected Quarterly Financial Data..................................................................................... 54
(2) The following additional financial data are set forth herein:
SCHEDULE II: Valuation and Qualifying Accounts
SCHEDULE II
Pro-Fac Cooperative, Inc.
Valuation and Qualifying Accounts
Fiscal Years Ended
---------------------------------------------------------
June 24, 2000 June 26, 1999 June 27, 1998
------------- ------------- -------------
Allowance for doubtful accounts
Balance at beginning of period $ 1,607,000 $ 774,000 $ 970,000
Additions charged to expense 201,000 208,000 17,000
Deductions (810,000) (280,000) (213,000)
Increase due to acquisition* 0 905,000 0
------------ ------------- ------------
Balance at end of period $ 998,000 $ 1,607,000 $ 774,000
============ ============= ============
Inventory reserve**
Balance at beginning of period $ 8,401,000 $ 391,000 $ 362,000
Net change (5,016,000) (921,000) 29,000
Increase due to acquisition* 0 8,931,000 0
------------ ------------- ------------
Balance at end of period $ 3,385,000 $ 8,401,000 $ 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 balance acquired in conjunction with the DFVC and Agripac
acquisitions.
** Difference between FIFO cost and market applicable to inventories. Reductions
in 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>
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.
(3) The following exhibits are filed herein or have been previously filed with the Securities and Exchange Commission:
(b) Report on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of fiscal 2000.
(c) EXHIBITS:
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the third fiscal quarter ended March 27, 1999 and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the third fiscal quarter
ended March 27, 1999 and incorporated herein by reference).
4.1 Indenture, dated as of November 18, 1998, between Agrilink Foods, Inc.,
the Guarantors named therein and IBJ Schroder Bank & Trust Company, Inc.,
as Trustee (filed as Exhibit 4.1 to Agrilink Foods, Inc.'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 Agrilink Foods, Inc.' 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 Agrilink Foods, Inc.'s 12.25% Senior
Subordinated Notes due 2005 (filed as Exhibit 4.1 to Agrilink
Foods, Inc.'s Registration Statement on Form S-4 filed
November 14, 1994 (Registration No. 33-56517) and incorporated
herein by reference).
4.4 Second Supplemental Indenture (amending the Indenture
referenced in Exhibit 4.3 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 4.3 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
the Company and Agrilink Foods, Inc. (filed as Exhibit 10.1 to
Agrilink Foods, Inc.'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 Agrilink Foods, Inc. dated September 23, 1998
(filed as Exhibit 10.9 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 Agrilink Foods, Inc.'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
Agrilink Foods, Inc.'s Registration Statement on Form S-4 filed
November 17, 1994 (Registration No. 33-56517) and incorporated herein by reference).
10.5 Master Salaried Retirement Plan, as amended (filed as Exhibit 10.5 to Agrilink Foods, Inc.'s
Registration Statement on Form S-4 filed November 17, 1994 (Registration No. 33-56517)
and incorporated herein by reference).
(c) EXHIBITS (Continued):
Exhibit
Number Description
10.6 Non-Qualified Profit Sharing Plan, as amended (filed as
Exhibit 10.6 to Agrilink Foods, Inc.'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 the Company'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 Agrilink Foods,
Inc.'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, Agrilink Foods, 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 Agrilink Foods, Inc. 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 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 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).
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).
(c) EXHIBITS (Continued):
Exhibit
Number Description
10.21 Service Agreement between Agrilink Foods, Inc. 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).
10.22 Marketing and Facilitation Agreement, dated as of February 22,
1999, between the Company and PF Acquisition II, Inc. (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).
10.23 Credit Agreement among PF Acquisition II, Inc., the Banks
hereto and CoBank, ACB, as Administrative Agent for the lender
thereunder, dated February 22, 1999 (filed as Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the third
fiscal quarter ended March 27, 1999 and incorporated herein by
reference).
10.24 Subordinated Promissory Note between PF Acquisition II, Inc.
and CoBank, ACB, dated February 22, 1999 (filed as Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the
third fiscal quarter ended March 27, 1999 and incorporated
herein by reference).
10.25 Asset Purchase Agreement among PF Acquisition II, Inc., the
Company and Agripac, Inc., Debtor and Debtor-in-Possession
dated February 22, 1999 (filed as Exhibit 10.8 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)
23 Accountant's Consent (filed herewith)
24 Power of Attorney (included on page 69 of this Report)
27 Financial Data Schedule (filed herewith).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: September 15, 2000 BY:/s/ Earl L. Powers
------------------- ------------------
EARL L. POWERS
TREASURER
(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 attorney-in-fact
and agent, 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 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.
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
- -------------------------------------- President
(BRUCE FOX)
/s/ Steven D. Koinzan Vice Chairman of the Board and Director
- -------------------------------------- Vice President
(STEVEN D. KOINZAN)
/s/ Tom R. Croner Director
- --------------------------------------
(TOM R. CRONER)
/s/ Dale W. Burmeister Director
- --------------------------------------
(DALE W. BURMEISTER)
/s/ Peter R. Call Director
- --------------------------------------
(PETER R. CALL)
/s/ Glen Lee Chase Director
(GLEN LEE CHASE)
/s/ Kenneth A. Dahlstedt Director
- --------------------------------------
(KENNETH A. DAHLSTEDT)
/s/ Robert DeBadts Director
- --------------------------------------
(ROBERT DEBADTS)
/s/ Kenneth A. Mattingly Director
- --------------------------------------
(KENNETH A. MATTINGLY)
/s/ Allan W. Overhiser Director
- --------------------------------------
(ALLAN W. OVERHISER)
/s/ Paul E. Roe Director
- --------------------------------------
(PAUL E. ROE)
/s/ Darell Sarff Director
- --------------------------------------
(DARELL SARFF)
/s/ Stephen R. Wright Secretary
- --------------------------------------
(STEPHEN R. WRIGHT)
/s/ Earl L. Powers Treasurer
- -------------------------------------- (Principal Financial Officer and
(EARL L. POWERS) 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.