UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
File Number 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 Place, PO Box 682, Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (716) 383-1850
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1998.
Common Stock - 1,841,555
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc.
Consolidated Statement of Operations and Net Proceeds
(Dollars in Thousands)
Quarter Ended
September 26, September 27,
1998 1997
Net sales $182,579 $176,397
Cost of sales (135,882) (130,748)
-------- ---------
Gross profit 46,697 45,649
Selling, administrative, and general expense (34,883) (32,922)
Income from Great Lakes Kraut Company 636 164
Gain on sale of aseptic operations 64,202 0
-------- --------
Operating income 76,652 12,891
Interest expense (8,336) (7,770)
-------- --------
Income before taxes, dividends, allocation of net proceeds, and
extraordinary item 68,316 5,121
Tax provision (25,007) (1,822)
-------- --------
Income before dividends, allocation of net proceeds, and
extraordinary item 43,309 3,299
Extraordinary item relating to the early extinguishment of debt
(net of income taxes) (18,024) 0
-------- --------
Net income $ 25,285 $ 3,299
======== ========
Allocation of net proceeds:
Net income $ 25,285 $ 3,299
Dividends on common and preferred stock (1,978) (1,850)
-------- --------
Net proceeds 23,307 1,449
Allocation to earned surplus (21,302) (788)
-------- --------
Net proceeds available to members $ 2,005 $ 661
======== ========
Net proceeds available to members:
Estimated cash payment $ 501 $ 165
Qualified retains 1,504 496
-------- --------
Net proceeds available to members $ 2,005 $ 661
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Pro-Fac Cooperative, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
September 26, June 27, September 27,
ASSETS 1998 1998 1997
Current assets:
Cash and cash equivalents $ 9,083 $ 5,049 $ 3,997
Accounts receivable trade, net 98,911 55,046 65,053
Accounts receivable, other 11,053 3,575 3,845
Current deferred tax assets 13,336 4,849 12,312
Inventories -
Finished goods 349,451 111,153 140,056
Raw materials and supplies 45,829 30,433 25,413
---------- -------- --------
Total inventories 395,280 141,586 165,469
---------- -------- --------
Current investment in CoBank 1,330 1,994 631
Prepaid manufacturing expense 98 8,404 84
Prepaid expenses and other current assets 17,288 12,989 8,464
---------- -------- --------
Total current assets 546,379 233,492 259,855
Investment in CoBank 22,377 22,377 24,320
Investment in Great Lakes Kraut Company 7,223 6,584 6,585
Property, plant and equipment, net 317,025 194,615 209,216
Assets held for sale at net realizable value 2,711 2,662 3,259
Goodwill and other intangible assets, net 327,650 94,744 95,503
Other assets 24,477 12,234 7,525
---------- -------- --------
Total assets $1,247,842 $566,708 $606,263
========== ======== ========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Notes payable $ 94,000 $ 0 $ 64,000
Current portion of obligations under capital leases 256 256 558
Current portion of long-term debt 1,023 8,071 8,073
Accounts payable 84,945 70,158 39,175
Income taxes payable 13,212 4,046 5,386
Accrued interest 690 8,559 3,960
Accrued employee compensation 14,329 8,598 7,981
Other accrued expenses 89,746 19,013 21,681
Dividends payable 0 52 0
Amount due members 29,946 20,636 27,808
---------- -------- --------
Total current liabilities 328,147 139,389 178,622
Obligations under capital leases 503 503 817
Long-term debt 463,700 69,937 70,528
Senior subordinated notes 15 160,000 160,000
Subordinated bridge facility 200,000 0 0
Subordinated promissory note 30,000 0 0
Deferred income tax liabilities 34,644 32,457 39,591
Other non-current liabilities 26,623 23,053 22,962
---------- -------- --------
Total liabilities 1,083,632 425,339 472,520
Commitments and contingencies ---------- -------- --------
Class B cumulative redeemable preferred stock; liquidation preference $10 per
share, authorized - 500,000 shares; issued
and outstanding 27,043, 27,043, and 31,435 shares, respectively 270 270 314
Common stock, par value $5, authorized - 5,000,000 shares
September 26, June 27, September 27,
1998 1998 1997
Shares issued 1,834,805 1,825,863 1,749,580
Shares subscribed 737,935 160,629 44,808
--------- --------- ---------
Total subscribed and issued 2,572,740 1,986,492 1,794,388
Less subscriptions receivable in installments (737,935) (160,629) (44,808)
--------- --------- ---------
Total issued and outstanding 1,834,805 1,825,863 1,749,580 9,174 9,129 8,748
========= ========= =========
Shareholders' and members' capitalization:
Retained earnings allocated to members 31,264 29,765 32,409
Non-qualified allocation to members 2,660 2,660 2,960
Accumulated other comprehensive income:
Minimum pension liability adjustment (608) (608) 0
Cumulative foreign currency adjustment (5) 0 0
Non-cumulative preferred stock, par value $25; authorized - 5,000,000 shares;
issued and outstanding - 45,001, 45,001, and 53,797, respectively 1,125 1,125 1,345
Class A cumulative preferred stock, liquidation preference
$25 per share; authorized - 49,500,000 shares; issued and
outstanding 3,503,199, 3,503,199, and 3,215,709 shares, respectively 87,580 87,580 80,393
Earned surplus 32,750 11,448 7,574
---------- -------- --------
Total shareholders' and members' capitalization 154,766 131,970 124,681
---------- -------- --------
Total liabilities and capitalization $1,247,842 $566,708 $606,263
========== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
Pro-Fac Cooperative Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
Quarter Ended
September 26, September 27,
1998 1997
------------ -----------
Cash flows from operating activities:
Net income $ 25,285 $ 3,299
Amounts payable to members (501) (165)
Adjustments to reconcile net income to net cash used in operating activities:
Gain on the sale of the aseptic operations (64,202) 0
Extraordinary item relating to the early extinguishment of debt 18,024 0
Amortization of goodwill and other intangibles 926 990
Amortization of debt issue costs 200 199
Depreciation 4,385 4,597
Equity in undistributed earnings of Great Lakes Kraut Company (636) (164)
Change in assets and liabilities:
Accounts receivable (22,222) (17,442)
Inventories (72,038) (52,739)
Accounts payable and other accrued expenses (22,938) (9,959)
Amounts due to members 9,310 12,017
Income taxes payable 19,629 (286)
Other assets and liabilities (34) (2,299)
-------- -------
Net cash used in operating activities (104,812) (61,952)
-------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,094) (3,231)
Proceeds from disposals 83,000 375
Proceeds from investment in CoBank 664 316
Cash paid for acquisitions (445,918) 0
-------- -------
Net cash used in investing activities (366,348) (2,540)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of short-term debt 177,000 64,000
Payments on short-term debt (83,000) 0
Proceeds from issuance of long-term debt 677,100 2,000
Proceeds from Great Lakes Kraut Company 0 3,000
Payments on long-term debt (276,450) (1,303)
Cash paid for debt issuance costs (17,523) 0
Issuances/(repurchases) of common stock 45 (196)
Cash dividends paid (1,978) (1,850)
-------- -------
Net cash provided by financing activities 475,194 65,651
-------- -------
Net change in cash and cash equivalents 4,034 1,159
Cash and cash equivalents at beginning of period 5,049 2,838
-------- -------
Cash and cash equivalents at end of period $ 9,083 $ 3,997
======== =======
(Table continued on next page)
(Table continued from previous page)
Quarter Ended
September 26, September 27,
1998 1997
------------- ------------
Supplemental disclosure of cash flow information:
Acquisition of Dean Foods Vegetable Company
Accounts receivable $ 28,701
Inventories 191,619
Prepaid expenses and other current assets 2,871
Current deferred tax asset 6,300
Property, plant and equipment 131,648
Goodwill and other intangible assets 230,609
Accounts payable (37,802)
Accrued employee compensation (8,437)
Other accrued expenses (66,748)
Long-term debt (2,752)
Subordinated promissory note (30,000)
Other assets and liabilities, net (2,404)
--------
$443,605
========
Acquisition of J.A. Hopay Distributing Co., Inc.
Accounts receivable $ 420
Inventories 153
Property, plant and equipment 51
Goodwill and other intangible assets 3,303
Other accrued expenses (251)
Obligation for covenant not to compete (1,363)
--------
$ 2,313
========
Investment in Great Lakes Kraut Company
Inventories $ 2,175
Prepaid expenses and other current assets 409
Property, plant and equipment 6,966
Other accrued expenses (62)
--------
$ 9,488
========
The accompanying notes are an integral part of these consolidated financial
statements.
PRO-FAC COOPERATIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
these periods. The following summarizes the significant accounting policies
applied in the preparation of the accompanying financial statements. These
financial statements should be read in conjunction with the financial statements
and accompanying notes contained in the Pro-Fac Cooperative, Inc. ("Pro-Fac" or
the "Cooperative") Form 10-K/A-1 for the fiscal year ended June 27, 1998.
Consolidation: The consolidated financial statements include the Cooperative and
its wholly-owned subsidiary, Agrilink Foods, Inc. ("Agrilink" or "the Company")
after elimination of intercompany transactions and balances. Investments in
affiliates, owned more than 20 percent but not in excess of 50 percent, are
recorded under the equity method of accounting.
Reclassification: Certain items for fiscal 1998 have been reclassified to
conform with the current presentation.
Adoption of SFAS No. 130: Effective June 28, 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." Comprehensive income is defined as the change in equity of a business
during a period from transactions and other events and circumstances from
non-owner sources. Under SFAS No. 130, the term "comprehensive income" is used
to describe the total of net earnings plus other comprehensive income which for
the Company includes foreign currency translation adjustments and minimum
pension liability adjustments. The adoption of SFAS No. 130 did not have a
material effect on the Company's results of operations or financial position.
Adoption of SFAS No. 131: Effective June 28, 1998 the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect the Company's results of operations
or financial position.
Derivative Financial Instruments: The Company does not engage in interest rate
speculation. Derivative financial instruments are utilized to hedge interest
rate risks and are not held for trading purposes.
The Company enters into interest rate swap agreements to limit exposure to
interest rate movements. Net payments or receipts are accrued into prepaid
expenses and other current assets and/or other accrued expenses and are recorded
as adjustments to interest expense. Interest rate instruments are entered into
for periods no greater than the life of the underlying transaction being hedged.
Management anticipates that all interest rate derivatives will be held to
maturity. Any gains or losses on prematurely terminated interest rate
derivatives will be recognized over the remaining life, if any, of the
underlying transaction as an adjustment to interest expense.
NOTE 2. ACQUISITION OF DEAN FOODS VEGETABLE COMPANY
On September 24, 1998, Agrilink acquired the Dean Foods Vegetable Company
("DFVC"), the frozen and canned vegetable business of Dean Foods Company ("Dean
Foods"), by acquiring all the outstanding capital stock of Dean Foods Vegetable
Company and Birds Eye de Mexico SA de CV (the "Acquisition"). In connection with
the Acquisition, Agrilink sold its aseptic business to Dean Foods. Agrilink paid
$360 million in cash, net of the sale of the Aseptic Business, and issued to
Dean Foods a $30 million unsecured subordinated promissory note due November 22,
2008 (the "Subordinated Promissory Note"), as consideration for the Acquisition.
The Company has the right, exercisable until July 15, 1999, to require Dean
Foods, jointly with the Company, to treat the Acquisition as an asset sale for
tax purposes under Section 338(h)(10) of the Internal Revenue Code. In order to
exercise that election, the Company will pay $13.2 million to Dean Foods. The
Company intends to exercise that election.
After the Acquisition, DFVC was merged into the Company, and Dean Foods
Vegetable Company became a business unit of the Company known as Agrilink Foods
Vegetable Company ("AFVC"). DFVC has been one of the leading processors of
vegetables in the United States, selling its products under well-known brand
names, such as Birds Eye, Freshlike and Veg-All, and private labels. The Company
believes that the Acquisition strengthens its competitive position by: (i)
enhancing its brand recognition and market position, (ii) providing
opportunities for cost savings and operating efficiencies and (iii) increasing
its product and geographic diversification.
The Acquisition was accounted for under the purchase method of accounting. Under
purchase accounting, tangible and identifiable intangible assets acquired and
liabilities assumed will be recorded at their respective fair values. The
valuations and other studies which will provide the basis for such an allocation
have not progressed to a stage where there is sufficient information to make a
final allocation in the accompanying financial statements. Accordingly, the
purchase accounting adjustments made in the accompanying financial statements
are preliminary. Once an allocation is determined, in accordance with generally
accepted accounting principles, any remaining excess of purchase cost over net
assets acquired will be adjusted through goodwill.
Due to insignificance, the results of operations of AFVC for the period
September 24 through 26, 1998 have not been included in the Company's
Consolidated Statement of Operations for the three months ended September 26,
1998.
Concurrently with the Acquisition, Agrilink refinanced its existing indebtedness
(the "Refinancing"), including its 12.25 percent Senior Subordinated Notes due
2005 (the "Old Notes") and its then existing bank debt. On August 24, 1998,
Agrilink commenced a tender offer (the "Tender Offer") for all the Old Notes and
consent solicitation to certain amendments under the indenture governing the Old
Notes to eliminate substantially all the restrictive covenants and certain
events of default therein. Substantially all of the $160 million aggregate
principal amount of the Old Notes were tendered and purchased by Agrilink for
aggregate consideration of approximately $184 million, including accrued
interest of $2.9 million. Agrilink also terminated its existing bank facility
(including seasonal borrowings) and repaid the $176.5 million, excluding
interest owed and breakage fees outstanding thereunder.
In order to consummate the Acquisition and the Refinancing and to pay the
related fees and expenses, Agrilink: (i) entered into a new credit facility (the
"New Credit Facility") providing for $455 million of term loan borrowings (the
"Term Loan Facility") and up to $200 million of revolving credit borrowings (the
"Revolving Credit Facility"), (ii) entered into a $200 million bridge loan
facility (the "Bridge Facility") and (iii) issued a $30 million Subordinated
Promissory Note to Dean Foods. The Bridge Facility will be repaid principally
with the proceeds from a new long-term take-out financing. The Bridge Facility
was provided by Warburg Dillon Read LLC, as Arranger and Syndication Agent; and
UBS AG, Stamford Branch, as Administrative Agent; and the Bank of Montreal and
Harris Trust and Savings Bank as additional lenders.
NOTE 3. AGREEMENTS WITH AGRILINK
The contractual relationship between Agrilink and Pro-Fac is defined in the
Pro-Fac Marketing and Facilitation Agreement ("Agreement"). Under the Agreement,
the Company pays Pro-Fac the commercial market value ("CMV") for all crops
supplied by Pro-Fac. CMV is defined as the weighted average price paid by other
commercial processors for similar crops sold under preseason contracts and in
the open market in the same or competing market area. Although CMV is intended
to be no more than the fair market value of the crops purchased by Agrilink, it
may be more or less than the price Agrilink would pay in the open market in the
absence of the Agreement.
Under the Agreement, the Company is required to have on its board of directors
some persons who are neither members of nor affiliated with Pro-Fac
("Disinterested Directors"). The number of Disinterested Directors must at least
equal the number of directors who are members of Pro-Fac. The volume and type of
crops to be purchased by Agrilink under the Agreement are determined pursuant to
its annual profit plan, which requires the approval of a majority of the
Disinterested Directors. In addition, under the Agreement, in any year in which
the Company has earnings on products which were processed from crops supplied by
Pro-Fac ("Pro-Fac Products"), the Company pays to Pro-Fac, as additional
patronage income, up to 90 percent of such earnings, but in no case more than 50
percent of all pretax earnings (before dividing with Pro-Fac) of the Company. In
years in which the Company has losses on Pro-Fac Products, the Company reduces
the CMV it would otherwise pay to Pro-Fac by up to 90 percent of such losses,
but in no case by more than 50 percent of all pretax losses (before dividing
with Pro-Fac) of the Company. Additional patronage income is paid to Pro-Fac for
services provided to Agrilink, including the provision of a long term, stable
crop supply, favorable payment terms for crops and the sharing of risks of
losses of certain operations of the business. Earnings and losses are determined
at the end of the fiscal year, but are accrued on an estimated basis during the
year. Under the Agreement, Pro-Fac is required to reinvest at least 70 percent
of the additional Patronage income in Agrilink.
NOTE 4. DEBT
New Credit Facility: In connection with the Acquisition, the Company has entered
into the New Credit Facility with Harris Bank as Administrative Agent and Bank
of Montreal as Syndication Agent, and the lenders thereunder. The Credit
Facility consists of the $200 million Revolving Credit Facility and the $455
million Term Loan Facility. The Term Loan Facility is comprised of the Term A
Facility, which has a maturity of five years, the Term B Facility, which has a
maturity of six years, and the Term C Facility, which has a maturity of seven
years. The Revolving Credit Facility has a maturity of five years.
The New Credit Facility bears interest, at the Company's option, at the
Administrative Agent's alternate base rate or the London Interbank Offered Rate
("LIBOR") plus, in each case, applicable margins of: (i) in the case of
alternate base rate loans, (x) 1.00 percent for loans under the Revolving Credit
Facility and the Term A Facility, (y) 2.25 percent for loans under the Term B
Facility and (z) 2.50 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) 3.25 percent for loans under the Term B
Facility and (z) 3.50 percent for loans under the Term C Facility. The
Administrative Agent's "alternate base rate" is defined as the greater of: (i)
the prime commercial rate as announced by the Administrative Agent or (ii) the
Federal Funds rate plus 0.50 percent. In addition, the Company will pay a
commitment fee calculated at a rate of 0.50 percent per annum on the daily
average unused commitment under the Revolving Credit Facility.
Beginning with the reporting period ending March 31, 1999, the applicable
margins for the New Credit Facility will be subject to possible reductions based
on the ratio of consolidated debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA") (each as defined in the New Credit
Facility).
Upon consummation of the Acquisition, the Company drew $455 million under the
Term Loan Facility, consisting of $100 million, $175 million and $180 million of
loans under the Term A Facility, Term B Facility and Term C Facility,
respectively. Additionally, the Company drew $93 million under the Revolving
Credit Facility for seasonal working capital needs and $14.3 million under the
Revolving Credit Facility was issued for letters of credit.
The Term Loan Facility will be subject to the following amortization schedule.
Fiscal Year Term Loan A Term Loan B Term Loan C Total
- ----------- ----------- ----------- ----------- -----
(Dollars in millions)
1999 $ 0.0 $ 0.2 $ 0.2 $ 0.4
2000 15.0 0.4 0.4 15.8
2001 20.0 0.4 0.4 20.8
2002 20.0 0.4 0.4 20.8
2003 20.0 0.4 0.4 20.8
2004 25.0 0.4 0.4 25.8
2005 0.0 172.8 0.4 173.2
2006 0.0 0.0 177.4 177.4
------ ------ ------ ------
$100.0 $175.0 $180.0 $455.0
====== ====== ====== ======
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility.
The Company's obligations under the New Credit Facility are secured by a
first-priority lien on: (i) substantially all existing or after-acquired assets,
tangible or intangible, (ii) the capital stock of certain of Pro-Fac's current
and future subsidiaries, and (iii) all of the Company's rights (principally
indemnification rights) under the agreement to acquire DFVC and the Pro-Fac
Marketing and Facilitation Agreement. The Company's obligations under the New
Credit Facility are guaranteed by Pro-Fac and certain of the Company's current
and future subsidiaries, if any.
The New Credit Facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities, including, but not limited
to: (i) limitations on the incurrence of indebtedness and liens, (ii)
limitations on sale-leaseback transactions, consolidations, mergers, sale of
assets, transactions with affiliates and investments and (iii) limitations on
dividend and other distributions. The New Credit Facility also contains
financial covenants requiring Pro-Fac to maintain a minimum level of EBITDA, a
minimum interest coverage ratio, a minimum fixed charge coverage ratio, a
maximum leverage ratio and a minimum level of net worth. The Company is in
compliance with all covenants, restrictions and requirements under the terms of
the New Credit Facility.
Interest Rate Protection Agreements: The Company has entered into a three-year
interest rate swap agreement with the Bank of Montreal in the notional amount of
$150 million. The swap agreement provides for an interest rate of 4.96 percent
over the term of the swap payable by the Company in exchange for payments at the
published three-month LIBOR. In addition, the Company entered into a separate
interest rate swap agreement with the Bank of Montreal in the notional amount of
$100 million for an initial period of three years, which may be extended, at the
Company's option, for an additional two-year period. This swap agreement
provides for an interest rate of 5.32 percent over the term of the swap,
including the two-year extension period if the Company elects to extend, payable
by the Company in exchange for payments at the published three-month LIBOR. The
Company entered into these agreements in order to manage its interest rate risk
by exchanging its floating rate interest payments for fixed rate interest
payments.
Subordinated Bridge Facility: To complete the Acquisition, the Company also
entered into a Subordinated Bridge Facility (the "Bridge Facility"). The Bridge
Facility was provided by Warburg Dillon Read LLC, as Arranger and Syndication
Agent; and UBS AG, Stamford Branch, as Administrative Agent; and the Bank of
Montreal and Harris Trust and Savings Bank as additional lenders. The interest
rate under the Bridge Facility resets monthly on the basis of LIBOR plus a
spread of 5 percent for the first 90 days, which spread increases by an
additional 1 percent each subsequent 90-day period. In no event will the
interest rate exceed 16 percent per annum. The Company anticipates that the
Bridge Facility will be repaid principally with the proceeds of a new long-term
take-out financing. Should the Company be unable to complete its long-term
take-out financing, the Bridge Facility, if not repaid within one year, may
thereafter be converted to permanent financing with consistent interest rates
and a maturity of September, 2006.
Subordinated Promissory Note: As partial consideration for the Acquisition, the
Company issued to Dean Foods a Subordinated Promissory Note for $30 million
aggregate principal amount due November 22, 2008. Interest on the Subordinated
Promissory Note is payable quarterly in arrears commencing December 31, 1998, at
a rate per annum of 5 percent until November 22, 2003, and at a rate of 10
percent thereafter. Interest accruing through November 22, 2003 is required to
be paid in kind through the issuance by the Company of additional subordinated
promissory notes identical to the Subordinated Promissory Note. Interest
accruing after November 22, 2003 is payable in cash. The Subordinated Promissory
Note may be prepaid at the Company's option without premium or penalty.
The Subordinated Promissory Note is expressly subordinate to the Subordinated
Bridge Facility, any long-term take-out financing, and the New Credit Facility
and contains no financial covenants. The Subordinated Promissory Note is
guaranteed by Pro-Fac.
12 1/4 Percent Senior Subordinated Notes (due 2005): In conjunction with the
Acquisition, the Company repurchased $159,985,000 principal amount of its Old
Notes, of which $160 million aggregate principal amount was previously
outstanding. The Company paid a total of approximately $184 million to
repurchase the Old Notes, including interest accrued thereon of $2.9 million.
Holders who tendered consented to certain amendments to the indenture relating
to the Old Notes, which eliminated or amended substantially all the restrictive
covenants and certain events of default contained in such indenture. The Company
may repurchase the remaining Old Notes in the future in open market
transactions, privately negotiated purchases or otherwise.
NOTE 5. OTHER MATTERS
J.A. Hopay Distributing Co, Inc.: Effective July 21, 1998, the Company acquired
J.A. Hopay Distributing Co., Inc. ("Hopay") of Pittsburgh, Pennsylvania. Hopay
distributes snack products for Snyder of Berlin, one of the Company's business
units within its Snack Foods Group. The acquisition was accounted for as a
purchase. The purchase price (net of liabilities assumed) was approximately $2.3
million. Intangibles of approximately $3.3 million were recorded in conjunction
with this transaction and are being amortized over 30 years.
Formation of New Sauerkraut Company: Effective July 1, 1997, the Company and
Flanagan Brothers, Inc. of Bear Creek, Wisconsin, contributed all their
sauerkraut production related assets to form a new sauerkraut company. This new
company, Great Lakes Kraut Company, operates as a New York limited liability
company, with ownership split equally between the two companies. The joint
venture is accounted for using the equity method of accounting.
Dividends: Subsequent to quarter end, the Cooperative declared a cash dividend
of $.43 per share on the Class A Cumulative Preferred Stock. These dividends
approximate $1.5 million and will be paid on October 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this review is to highlight the more significant changes in the
major items in the Consolidated Statement of Operations and Net Proceeds in the
first quarter of fiscal 1999 versus the first quarter of 1998.
Pro-Fac Cooperative, Inc.'s ("Pro-Fac" or the "Cooperative") wholly-owned
subsidiary, Agrilink Foods, Inc. ("Agrilink" or the "Company") has four primary
business units: Curtice Burns Foods ("CBF"), Agrilink Foods Vegetable Company
("AFVC"), Nalley Fine Foods ("Nalley"), and its Snack Foods group. Each business
unit offers different products and is managed separately. The majority of each
of the business units' net sales are within the United States. In addition, all
of the Company's operating facilities, except for one facility in Mexico, are
within the United States.
The CBF business unit produces products in several food categories, including
fruit fillings and toppings; canned and frozen fruits and vegetables, and
popcorn. The AFVC business unit was acquired on September 24, 1998 and produces
canned and frozen vegetables. The Nalley business unit produces canned meat
products such as chilies and stews, pickles, salad dressings, peanut butter, and
syrup. The snack foods business unit consists of the Snyder of Berlin, Husman
Snack Foods, and Tim's Cascade Potato Chip businesses. This business unit
produces and markets potato chips and other snack items.
The following tables illustrate the results of operations by business unit for
the quarters ended September 26, 1998 and September 27, 1997, and the total
assets by business unit as of September 26, 1998 and September 27, 1997. As the
acquisition of AFVC was completed on September 24, 1998, the operating
activities of AFVC for the period September 24 through September 26, 1998 have
not been included in the results shown below due to insignificance.
Net Sales
(Dollars in Millions)
Quarter Ended
September 26, September 27,
1998 1997
% of % of
$ Total $ Total
------ ----- ------ ------
CBF $ 96.7 53.0% $ 87.7 49.7%
Nalley Fine Foods 42.8 23.4 46.9 26.6
Snack Foods Group 18.2 10.0 17.3 9.8
------ ----- ------ -----
Subtotal ongoing operations 157.7 86.4 151.9 86.1
Businesses sold1 24.9 13.6 24.5 13.9
------ ----- ------ -----
Total $182.6 100.0% $176.4 100.0%
====== ===== ====== =====
1 Includes the net sales of the aseptic business. See NOTE 2 to the "Notes to
Consolidated Financial Statements."
Operating Income1
(Dollars in Millions)
Quarter Ended
September 26, September 27,
1998 1997
% of % of
$ Total $ Total
----- ----- ----- -----
CBF $ 6.1 48.8% $ 6.1 47.3%
Nalley Fine Foods 2.2 17.6 3.7 28.7
Snack Foods Group 2.3 18.4 2.1 16.2
Corporate (1.3) (10.4) (1.9) (14.7)
------ ----- ----- -----
Subtotal ongoing operations 9.3 74.4 10.0 77.5
Businesses sold2 3.2 25.6 2.9 22.5
----- ----- ----- -----
Total3 $12.5 100.0% $12.9 100.0%
===== ===== ===== =====
1 Excludes the gain on the sale of the aseptic business.
2 Represents the operating earnings of the aseptic business.
3 Operating income less interest expense of $8.3 million and $7.8 million, for
the first quarter of fiscal 1999 and 1998, respectively, results in income
before taxes, dividends, allocation of net proceeds and extraordinary item.
Interest expense allocated to business units is not considered a critical
component by management when evaluating success.
EBITDA1,2
(Dollars in Millions)
Quarter Ended
September 26, September 27,
1998 1997
% of % of
$ Total $ Total
----- ----- ----- -----
CBF $ 8.9 50.0% $ 9.5 51.4%
Nalley Fine Foods 3.6 20.2 5.1 27.6
Snack Foods Group 2.8 15.7 2.6 14.1
Corporate (1.3) (7.2) (1.9) (10.4)
----- ----- ----- -----
Subtotal ongoing operations 14.0 78.7 15.3 82.7
Businesses sold3 3.8 21.3 3.2 17.3
----- ----- ----- -----
Total $17.8 100.0% $18.5 100.0%
===== ===== ===== =====
1 Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
is defined as the sum of income before taxes, dividends, allocation of net
proceeds, extraordinary item, and interest expense, depreciation and
amortization of goodwill and other intangibles.
EBITDA should not be considered as an alternative to net income or cash flows
from operations or any other generally accepted accounting principles measure
of performance or as a measure of liquidity.
EBITDA is included herein because the Cooperative believes EBITDA is a
financial indicator of a company's ability to service debt. EBITDA as
calculated by the Cooperative may not be comparable to calculations as
presented by other companies.
2 Excludes the gain on the sale of the aseptic business.
3 Represents the operating earnings of the aseptic business.
Total Assets
(Dollars in Millions)
Quarter Ended
September 26, September 27,
1998 1997
% of % of
$ Total $ Total
------- ----- ------ -----
CBF $ 405.0 32.5% $346.7 57.1%
AFVC 592.0 47.4 0.0 0.0
Nalley Fine Foods 154.9 12.4 155.8 25.7
Snack Foods Group 32.1 2.6 26.5 4.4
Corporate 63.8 5.1 49.6 8.2
--------- ----- ------ -----
Subtotal ongoing operations 1,247.8 100.0 578.6 95.4
Businesses sold1 0.0 0.0 27.7 4.6
-------- ----- ------ -----
Total $1,247.8 100.0% $606.3 100.0%
======== ===== ====== =====
1 Includes the assets of the aseptic business. See NOTE 2 to the "Notes to
Consolidated Financial Statements."
CHANGES FROM FIRST QUARTER FISCAL 1999 TO FIRST QUARTER FISCAL 1998
Net income for the first quarter of fiscal 1999 of $25.3 million represented a
$22.0 million increase over the first quarter of fiscal 1998 net income of $3.3
million. Total EBITDA for the first quarter of fiscal 1999 before the
extraordinary charge relating to the early extinguishment of debt was $82.0
million as compared to $18.5 million in the first fiscal quarter of fiscal 1998.
Excluding the operating results and gain from businesses sold, EBITDA for the
continuing business decreased $1.3 million, or 8.5 percent, to $14.0
million in the first quarter of the current fiscal year from $15.3 million in
the first quarter of the prior fiscal year. This decline was impacted by a
decrease at CBF of $0.6 million due to changes in product mix within the fruit
category (approximately $1.1 million); and increase in advertising associated
with the launch of Breakfast Toppers (approximately $0.5 million). These
decreases were offset by an increase within the vegetable category of $1.0
million attributable to improvements in volume. The decline at Nalley of $1.5
million was due primarily to the recognition of a favorably settled outstanding
tax claim with the state of Washington for $1.4 million in the first quarter of
the prior fiscal year. The EBITDA within the Snack Foods Group increased $0.2
million due to increases in net sales.
Net Sales: Total net sales for the quarter increased $6.2 million, or 3.5
percent, to $182.6 million in the first fiscal quarter of fiscal 1999 from
$176.4 million in the first quarter of fiscal 1998. Excluding businesses sold,
net sales increased by $5.8 million, or 3.8 percent, to $157.7 million in the
first quarter of fiscal 1999 from $151.9 million in the first quarter of fiscal
1998.
The increase in net sales for ongoing operations came primarily from the CBF
business unit which reported an increase in net sales of $9.0 million. This
increase was attributable to improvements in volume primarily within frozen
vegetables. Net sales for the remaining categories at CBF were relatively
consistent with that of the first quarter of the prior fiscal year.
Net sales for Nalley for the first quarter of the current fiscal year decreased
$4.1 million as compared with the first quarter of the prior fiscal year as
gains in the pickle category were offset by reductions in the dressings and
canned product lines. Within the pickle category, net sales for the first
quarter of fiscal 1999 increased $0.6 million as a result of increased volume in
the food service channel. Competitive pressures on volume and price resulted in
a $2.6 million decrease in net sales for dressings and a $2.0 million decrease
in the canned category. Net sales for the peanut butter category were flat with
that of the first quarter of the prior fiscal year.
Net sales for the Snack Foods Group increased by $0.9 million, or 5.2 percent,
to $18.2 million in the first quarter of fiscal 1999 as a result of new business
in the Northwest and product line extensions, including Snyder of Berlin's
kettle chips.
Gross Profit: Gross profit of $46.7 million in the quarter ended September 26,
1998 increased approximately $1.1 million, or 2.4 percent, from $45.6 million in
the quarter ended September 27, 1997. Excluding the impact of businesses sold,
gross profit increased $0.7 million or 1.8 percent.
The increase in gross profit at the CBF business unit (excluding the aseptic
business) was $1.0 million. The vegetable category showed improvements of $2.1
million resulting from increases in volume, while the fruit category showed a
decline of $0.7 million attributable to product mix and decreases within other
categories of $0.4 million due to changes in volume.
Overall, gross profit at Nalley decreased $0.8 million due primarily to the
reductions in net sales outlined above. The Nalley gross margin percentage has,
however, improved over the prior year to 35.9 percent from 34.4 percent in the
first quarter of fiscal 1998.
Increases in net sales within the Snack Foods Group resulted in margin
improvements of $0.5 million.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have increased $1.9 million as compared with the first quarter
of the prior fiscal year. As a percentage of net sales, selling, administrative,
and general expenses increased to 19.1 percent in the first quarter of fiscal
1999 from 18.7 percent in the first quarter of fiscal 1998. This increase is
primarily due to the impact of a favorably settled outstanding tax claim with
the state of Washington for $1.4 million recognized in the first quarter of
fiscal 1998. All remaining expenses were relatively flat with that of the prior
year.
Income from Great Lakes Kraut Company: This amount represents earnings received
from the investment in Great Lakes Kraut Company, a joint venture formed between
Agrilink and Flanagan Brothers, Inc. See NOTE 5 - "Other Matters - Formation of
New Sauerkraut Company" to the "Notes to Consolidated Financial Statements"
included herein.
Gain on Sale of Aseptic Operations: In conjunction with the Acquisition, the
Company sold its aseptic business to Dean Foods. A gain of approximately $64.2
million was recognized on this disposal reflecting a value for this business of
approximately $83 million (based upon an appraised value given to the Company by
an independent appraiser). This amount was used to offset borrowings necessary
to complete the Acquisition.
Interest Expense: Interest expense increased $0.5 million, or 6.4 percent, to
$8.3 million in the first quarter of fiscal 1999 from $7.8 million in the first
quarter of fiscal 1998. The increase is impacted by higher levels of seasonal
borrowings in the first quarter of fiscal 1999 due to the earlier intake of
crops in the current year and therefore the resultant increase in inventory
levels.
Provision for Taxes: The provision for taxes increased $23.2 million to $25.0
million in the first quarter of fiscal 1999 from $1.8 million in the first
quarter of fiscal 1998. Of this increase, $25.0 million is attributable to the
provision associated with the gain on the sale of the aseptic business. The
remaining variance is impacted by the change in earnings. The Cooperative's
effective tax rate is impacted by the net proceeds distributed to members and
the non-deductibility of certain amounts of goodwill.
Extraordinary Item Relating to the Early Extinguishment of Debt: Concurrently
with the Acquisition, the Company refinanced its existing indebtedness,
including its 12.25 percent Senior Subordinated Notes due 2005 and its then
existing bank debt. Premiums and breakage fees associated with early redemptions
and other fees incurred amounted to $18.0 million (net of applicable income
taxes of $10.4 million).
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Consolidated
Statement of Changes in Cash Flows" for the first quarter of fiscal 1999
compared to the first quarter of fiscal 1998.
Net cash used in operating activities increased $42.9 million over the first
quarter of the prior fiscal year. This increase is primarily due to variances
within inventory including: (1) an increase of $1.5 million in inventory to
support additional business regarding the Sam's national club stores; (2) an
increase of $2.5 million associated with the acquisition of DelAgra; and changes
in growing areas, early harvesting of crops and the size of the crop intake, and
other changes in inventory necessary to support operations (approximately $15.3
million).
In addition, cash used in operating activities increased over the prior year due
to the timing of liquidation of outstanding accounts payable and accrued
expenses.
Net cash used in investing activities increased significantly due to the
acquisition of DFVC offset by the subsequent sale of the aseptic business. The
purchase of property, plant and equipment increased $0.9 million to $4.1 million
for the quarter ended September 26, 1998 from $3.2 million for the quarter ended
September 27, 1997 and was for general operating purposes.
Net cash provided by financing activities also increased significantly due to
the acquisition of DFVC and the activities completed concurrent with the
Acquisition to refinance existing indebtedness. See further discussion at
"Liquidity and Capital Resources" below and at NOTE 4 - "Debt" to the "Notes to
Consolidated Financial Statements" included herein.
New Credit Facility: In connection with the Acquisition, the Company entered
into the New Credit Facility with Harris Bank as Administrative Agent and Bank
of Montreal as Syndication Agent, and the lenders thereunder. The Credit
Facility consists of the $200 million Revolving Credit Facility and the $455
million Term Loan Facility. The Term Loan Facility is comprised of the Term A
Facility, which has a maturity of five years, the Term B Facility, which has a
maturity of six years, and the Term C Facility, which has a maturity of seven
years. The Revolving Credit Facility has a maturity of five years.
The New Credit Facility bears interest, at the Company's option, at the
Administrative Agent's alternate base rate or 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) 2.25 percent for loans under the Term B Facility and (z) 2.50 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) 3.25 percent for loans under the Term B Facility and (z) 3.50 percent for
loans under the Term C Facility. The Administrative Agent's "alternate base
rate" is defined as the greater of: (i) the prime commercial rate as announced
by the Administrative Agent or (ii) the Federal Funds rate plus 0.50 percent. In
addition, the Company will pay a commitment fee calculated at a rate of 0.50
percent per annum on the daily average unused commitment under the Revolving
Credit Facility.
Beginning with the reporting period ending March 31, 1999, the applicable
margins for the New Credit Facility will be subject to possible reductions based
on the ratio of consolidated debt to EBITDA (each as defined in the New Credit
Facility).
Upon consummation of the Acquisition, the Company drew $455 million under the
Term Loan Facility, consisting of $100 million, $175 million and $180 million of
loans under the Term A Facility, Term B Facility and Term C Facility,
respectively. Additionally, the Company drew $93 million under the Revolving
Credit Facility for seasonal working capital needs and $14.3 million under the
Revolving Credit Facility was issued for letters of credit.
The Term Loan Facility will be subject to the following amortization schedule.
Fiscal Year Term Loan A Term Loan B Term Loan C Total
- ----------- ----------- ----------- ----------- -----
(Dollars in millions)
1999 $ 0.0 $ 0.2 $ 0.2 $ 0.4
2000 15.0 0.4 0.4 15.8
2001 20.0 0.4 0.4 20.8
2002 20.0 0.4 0.4 20.8
2003 20.0 0.4 0.4 20.8
2004 25.0 0.4 0.4 25.8
2005 0.0 172.8 0.4 173.2
2006 0.0 0.0 177.4 177.4
------ ------ ------ ------
$100.0 $175.0 $180.0 $455.0
====== ====== ====== ======
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the New Credit Facility.
The Company's obligations under the New Credit Facility are secured by a
first-priority lien on: (i) substantially all existing or after-acquired assets,
tangible or intangible, (ii) the capital stock of certain of Pro-Fac's current
and future subsidiaries, and (iii) all of the Company's rights (principally
indemnification rights) under the agreement to acquire DFVC and the Pro-Fac
Marketing and Facilitation Agreement. The Company's obligations under the New
Credit Facility are guaranteed by Pro-Fac and certain of the Company's current
and future subsidiaries, if any.
The New Credit Facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities, including, but not limited
to: (i) limitations on the incurrence of indebtedness and liens, (ii)
limitations on sale-leaseback transactions, consolidations, mergers, sale of
assets, transactions with affiliates and investments and (iii) limitations on
dividend and other distributions. The New Credit Facility also contains
financial covenants requiring Pro-Fac to maintain a minimum level of EBITDA, a
minimum interest coverage ratio, a minimum fixed charge coverage ratio, a
maximum leverage ratio and a minimum level of net worth. The Company is in
compliance with all covenants, restrictions and requirements under the terms of
the New Credit Facility.
Subordinated Bridge Facility: To complete the Acquisition, the Company also
entered into a Subordinated Bridge Facility (the "Bridge Facility"). The Bridge
Facility was provided by Warburg Dillon Read LLC, as Arranger and Syndication
Agent; and UBS AG, Stamford Branch, as Administrative Agent; and the Bank of
Montreal and Harris Trust and Savings Bank as additional lenders. The interest
rate under the Bridge Facility resets monthly on the basis of LIBOR plus a
spread of 5 percent for the first 90 days, which spread increases by an
additional 1 percent each subsequent 90-day period. In no event will the
interest rate exceed 16 percent per annum. The Company anticipates that the
Bridge Facility will be repaid principally with the proceeds of a new long-term
take-out financing. Should the Company be unable to complete its long-term
take-out financing, the Bridge Facility, if not repaid within one year, may
thereafter be converted to permanent financing with consistent interest rates
and a maturity of September, 2006.
Subordinated Promissory Note: As partial consideration for the Acquisition, the
Company issued to Dean Foods a Subordinated Promissory Note for $30 million
aggregate principal amount due November 22, 2008. Interest on the Subordinated
Promissory Note is payable quarterly in arrears commencing December 31, 1998, at
a rate per annum of 5 percent until November 22, 2003, and at a rate of 10
percent thereafter. Interest accruing through November 22, 2003 is required to
be paid in kind through the issuance by the Company of additional subordinated
promissory notes identical to the Subordinated Promissory Note. Interest
accruing after November 22, 2003 is payable in cash. The Subordinated Promissory
Note may be prepaid at the Company's option without premium or penalty.
The Subordinated Promissory Note is expressly subordinate to the Subordinated
Bridge Facility, any long-term take-out financing, and the New Credit Facility
and contains no financial covenants. The Subordinated Promissory Note is
guaranteed by Pro-Fac.
12 1/4 Percent Senior Subordinated Notes (due 2005): In conjunction with the
Acquisition, the Company repurchased $159,985,000 principal amount of its Old
Notes, of which $160 million aggregate principal amount was previously
outstanding. The Company paid a total of approximately $184 million to
repurchase the Old Notes, including interest accrued thereon of $2.9 million.
Holders who tendered consented to certain amendments to the indenture relating
to the Old Notes, which eliminated or amended substantially all the restrictive
covenants and certain events of default contained in such indenture. The Company
may repurchase the remaining Old Notes in the future in open market
transactions, privately negotiated purchases or otherwise.
Interest Rate Risk Management: The Company is subject to market risk from
exposure to changes in interest rates based on its financing activities. The
Company has entered into certain financial instrument transactions to maintain
the desired level of exposure to the risk of interest rate fluctuations and to
minimize interest expense. More specifically, the Company has entered into two
interest rate swap agreements with the Bank of Montreal. The agreements provide
for fixed interest rate payments by the Company in exchange for payments
received at the three-month LIBOR rate.
The following is a summary of the Company's interest rate swap agreements by
major type:
October 5, 1998 Maturities through
Interest Rate Swap:
Variable to Fixed - notional amount $250,000,000 2001
Average pay rate 4.96-5.32%
Average receive rate 5.3125%
The Company has the option of extending one of the interest rate swap
agreements, with a notional amount of $100,000,000 and expiration date of
October 5, 2001, for an additional two years through October 5, 2003.
While there is potential that interest rates will fall, and hence minimize the
benefits of the Company's hedge position, it is the Company's position that on a
long-term basis, the possibility of interest rates increasing exceeds the
likelihood of interest rates decreasing. The Company will, however, monitor
market conditions to adjust its position as it considers necessary.
OTHER MATTERS
Short- and Long-Term Trends: The vegetable and fruit portions of the business
can be positively or negatively affected by weather conditions nationally and
the resulting impact on crop yields. Favorable weather conditions can produce
high crop yields and an oversupply situation. This results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
The effect of the 1998 growing season on fiscal 1999 financial results cannot be
estimated until late 1998 or early calendar 1999 when harvesting is complete and
national supplies can be determined.
Year 2000 and Information Services Reorganization: A full inventory and analysis
of business applications and related software was performed and the Company
determined that it will be required to modify or replace certain portions of its
software so that its computer systems will be Year 2000 compliant. These
modifications and replacements are being and will continue to be made in
conjunction with the Company's overall information systems initiatives. No major
delay in these initiatives is anticipated.
In addition, the Company is contacting non-IT vendors to ensure that any of
their products that are currently in use can adequately deal with the change in
century. Areas being addressed include full reviews of manufacturing equipment,
telephone and voice mail systems, security systems, and other office/site
support systems. Based upon preliminary information, the costs of addressing
potential problems are not expected to have a material adverse impact on the
Company's financial position, results of operations, or cash flows in future
periods. Accordingly, the cost of the project is being funded through operating
cash flows.
The Company has initiated formal communications with significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have material adverse effect on the Company. Accordingly, the Company plans
to devote the necessary resources to resolve all significant Year 2000 issues in
a timely manner.
The Company expects to complete the Year 2000 project during the fall of 1999.
Based on the progress made to date (which includes compliant systems in place
and in production), the Company does not believe any material exposure to
significant business
interruption exists. In the event some of the remaining elements of the
Company's Year 2000 compliance project are delayed, procedures have been
addressed to ensure alternative workaround initiatives are completed.
On June 19, 1997, Systems & Computer Technology Corporation ("SCT") and the
Company announced a major outsourcing services and software agreement effective
June 30, 1997. The ten-year agreement, valued at approximately $50 million, is
for SCT's OnSite outsourcing services, ADAGE ERP software and implementation
services and assistance in solving the Year 2000 issue.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange
Commission ("SEC") in its rules, regulations, and releases. The Company desires
to take advantage of the "safe harbor" provisions in the Act for forward-looking
statements made from time to time, including, but not limited to, the
forward-looking information contained in the Management's Discussion and
Analysis (pages 9 to 15 and other statements made in this Form 10-Q) and in
other filings with the SEC.
The Company cautions readers that any such forward-looking statements made by or
on behalf of the Company are based on management's current expectations and
beliefs but are not guarantees of future performance. Actual results could
differ materially from those expressed or implied in the forward-looking
statements. Among the factors that could impact the Company's ability to achieve
its goals are:
the impact of strong competition in the food industry;
the impact of weather on the volume and quality of raw product;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
the continuation of the Company's success in integrating operations and the
availability of acquisition and alliance opportunities;
the Company's ability to achieve the gains in productivity and improvements
in capacity utilization; and
the ability to integrate DFVC into the business of the Company and the
extent to which anticipated cost savings in connection with the Acquisition
will be realized and the timing of any such realization.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
10.1 Credit Agreement Among Agrilink Foods, Inc., Pro-Fac
Cooperative, Inc. and Harris Trust and Savings Bank, and
Bank of Montreal, Chicago Branch, and the Lender from
Time to Time To Parties Hereto, dated as of September
23, 1998
10.2 $200,000,000 Senior Subordinated Credit Agreement Among
Agrilink Foods, Inc., Pro-Fac Cooperative, Inc. and
Warburg Dillon Read LLC and UBS AG, Stamford Branch and
the Lenders From Time to Time Party Hereto, dated
September 23, 1998
10.3 Subordinated Promissory Note Among Agrilink Foods, Inc.
and Dean Foods Company, dated as of September 23, 1998
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the period to which
this report relates:
Date Item
July 28, 1998 Item 5 - Other Events
October 5, 1998 Item 2 - Acquisition or Disposition of Assets
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: November 6, 1998 BY:/s/ Stephen R. Wright
---------------- -----------------------------------
STEPHEN R. WRIGHT
GENERAL MANAGER
Date: November 6, 1998 BY:/s/ Earl L. Powers
---------------- -----------------------------------
EARL L. POWERS
VICE PRESIDENT FINANCE AND
ASSISTANT TREASURER
(Principle Financial Officer and
Principle Accounting Officer)