PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Birds Eye Foods, Inc.
Consolidated Statements of Operations, Accumulated Earnings/(Deficit), and
Comprehensive Income
(Dollars in Thousands)
(Unaudited)
Three Months Ended
----------------------------------------------
Successor Successor Predecessor
Three Months Ended August 19, 2002- June 30, 2002 -
September 27, 2003 September 28, 2002 August 18, 2002
------------------ ------------------- ------------------
Net sales $ 192,491 $102,439 $ 99,216
Cost of sales (150,719) (78,810) (76,255)
--------- -------- ---------
Gross profit 41,772 23,629 22,961
Selling, administrative, and general expense (26,518) (15,272) (15,156)
Income from Great Lakes Kraut Company, LLC 0 263 277
--------- -------- ---------
Operating income 15,254 8,620 8,082
Interest expense (10,460) (6,151) (7,531)
--------- -------- ---------
Pretax income from continuing operations 4,794 2,469 551
Tax provision (1,918) (1,012) (226)
--------- -------- ---------
Income before discontinued operations 2,876 1,457 325
Discontinued operations, net of tax (4) 18 (240)
--------- -------- ---------
Net income 2,872 1,475 85
Accumulated earnings/(deficit) at beginning of period 20,756 0 (126,623)
--------- -------- ---------
Accumulated earnings/(deficit) at end of period $ 23,628 $ 1,475 $(126,538)
========= ======== =========
Net income $ 2,872 $ 1,475 $ 85
Other comprehensive income:
Unrealized loss on hedging activity, net of taxes (521) (236) 0
--------- -------- ---------
Comprehensive income $ 2,351 $ 1,239 $ 85
========= ======== =========
Accumulated other comprehensive loss
at beginning of period $ (10,909) $ 0 $ (367)
Unrealized loss on hedging activity, net of taxes (521) (236) 0
--------- -------- ---------
Accumulated other comprehensive loss
at end of period $ (11,430) $ (236) $ (367)
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
Birds Eye Foods, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
Successor Successor
September 27, June 28,
2003 2003
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $100,674 $153,756
Accounts receivable trade, net of allowances for doubtful accounts 63,884 58,230
Accounts receivable, other 8,753 1,841
Income taxes refundable 0 407
Inventories, net 281,371 206,584
Current net investment in CoBank 1,643 2,464
Prepaid manufacturing expense 0 12,053
Prepaid expenses and other current assets 11,134 12,239
Assets held for sale 12,344 13,501
Current deferred tax asset 15,508 15,508
-------- --------
Total current assets 495,311 476,583
Investment in CoBank 3,038 3,038
Property, plant and equipment, net 197,041 195,199
Goodwill 37,050 37,050
Intangible assets, net 167,859 168,321
Other assets 23,216 24,547
Note receivable due from Pro-Fac Cooperative, Inc. 1,011 712
Non-current deferred tax asset 3,933 3,933
-------- --------
Total assets $928,459 $909,383
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 704 $ 704
Current portion of long-term debt 6,200 19,611
Current portion of Termination and Transitional Services Agreements with
Pro-Fac Cooperative, Inc. 9,407 9,403
Accounts payable 83,666 67,150
Income taxes payable 2,298 0
Accrued interest 10,064 4,106
Accrued employee compensation 7,912 10,225
Other accrued expenses 43,812 39,979
Growers payable due to Pro-Fac Cooperative, Inc. 15,274 8,504
-------- --------
Total current liabilities 179,337 159,682
Obligations under capital leases 1,707 1,833
Long-term debt 458,941 459,970
Long-term portion of Termination and Transitional Services Agreements with
Pro-Fac Cooperative, Inc. 20,733 24,031
Other non-current liabilities 53,906 52,330
-------- --------
Total liabilities 714,624 697,846
-------- --------
Commitments and contingencies
Shareholder's Equity:
Common stock, par value $.01; 11,000 shares
authorized, issued and outstanding 0 0
Additional paid-in capital 201,637 201,690
Accumulated earnings 23,628 20,756
Accumulated other comprehensive (loss)/income:
Unrealized (loss)/gain on hedging activity (173) 348
Minimum pension liability adjustment (11,257) (11,257)
-------- --------
Total shareholder's equity 213,835 211,537
-------- --------
Total liabilities and shareholder's equity $928,459 $909,383
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
Birds Eye Foods, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Three Months Ended
-----------------------------------
Successor Successor Predecessor
Three Months Ended August 19, 2002- June 30, 2002 -
September 27, 2003 September 28, 2002 August 18, 2002
------------------ ------------------ ---------------
Cash Flows From Operating Activities:
Net income $ 2,872 $ 1,475 $ 85
Adjustments to reconcile net income to net cash used
in operating activities-
Depreciation 5,594 3,838 3,833
Amortization of certain intangible assets 462 143 144
Amortization of debt issue costs, amendment costs,
debt discounts and premiums, and interest in-kind 1,687 1,168 1,201
Equity in undistributed earnings of Great Lakes
Kraut Company, LLC 0 (187) (277)
Transitional Services Agreement with Pro-Fac
Cooperative, Inc. (131) 0 0
Change in assets and liabilities:
Accounts receivable (12,566) (9,074) 1,818
Inventories and prepaid manufacturing expense (63,453) (25,209) (33,170)
Income taxes refundable/(payable) 3,092 821 (75)
Accounts payable and other accrued expenses 23,772 33,654 (10,972)
Due to/(from) Pro-Fac Cooperative, Inc., net 6,770 (9,904) 8,649
Other assets and liabilities, net 2,178 751 909
-------- --------- --------
Net cash used in operating activities (29,723) (2,524) (27,855)
-------- --------- --------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (7,562) (1,792) (2,187)
Proceeds from disposals 1,971 0 0
Advances to Great Lakes Kraut Company, LLC, net 0 (1,117) (1,512)
Proceeds from investment in CoBank 821 0 1,115
Issuance of note receivable to Pro-Fac Cooperative,
Inc., net (300) 0 0
-------- --------- --------
Net cash used in investing activities (5,070) (2,909) (2,584)
-------- --------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 0 270,000 0
Net proceeds from new revolving credit facility 0 16,400 0
Birds Eye Holdings, Inc. (redemption)/contribution (51) 175,591 0
Net (payments)/proceeds on prior revolving credit
facility 0 (22,000) 22,000
Payments on long-term debt (14,112) (400,800) (292)
Payments on Termination Agreement with Pro-Fac
Cooperative, Inc. (4,000) (6,120) 0
Payments on capital lease (126) (77) (38)
Cash paid for debt issuance costs 0 (22,314) 0
Cash paid for transaction fees 0 (6,000) 0
-------- --------- --------
Net cash (used in)/provided by financing activities (18,289) 4,680 21,670
-------- --------- --------
Net change in cash and cash equivalents (53,082) (753) (8,769)
Cash and cash equivalents at beginning of period 153,756 5,917 14,686
-------- --------- --------
Cash and cash equivalents at end of period $100,674 $ 5,164 $ 5,917
======== ========= ========
Supplemental Schedule of Non-Cash Financing Activities:
Birds Eye Holdings, Inc. investment $ 0 $ 32,100 $ 0
======== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
BIRDS EYE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING
POLICIES
The Company: Birds Eye Foods, Inc., formerly Agrilink Foods, Inc., (the
"Company" or "Birds Eye Foods"), incorporated in 1961, is a producer and
marketer of processed food products. Three primary segments in which the Company
markets its products include: branded frozen, branded dry, and non-branded
products. The majority of each of the segment's net sales is within the United
States. In addition, all of the Company's operating facilities, excluding one in
Mexico, are within the United States.
The Change in Control (the "Transaction"): On August 19, 2002 (the "Closing
Date"), pursuant to the terms of the Unit Purchase Agreement dated as of June
20, 2002 (the "Unit Purchase Agreement"), by and among Pro-Fac Cooperative,
Inc., a New York agricultural cooperative ("Pro-Fac"), Birds Eye Foods, at the
time a New York corporation and a wholly-owned subsidiary of Pro-Fac and
Vestar/Agrilink Holdings LLC, a Delaware limited liability company
("Vestar/Agrilink Holdings"), Vestar/Agrilink Holdings and its affiliates
indirectly acquired control of the Company. See NOTE 2 to the "Notes to
Consolidated Financial Statements" for additional disclosures regarding the
Transaction.
The term "successor" refers to Birds Eye Foods and all of its subsidiaries
following the Transaction. The term "predecessor" refers to Birds Eye Foods
prior to the change in control on August 19, 2002.
Basis of Presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") for interim financial
information and with the requirements of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information required by GAAP
for complete financial statement presentation. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations, and cash
flows have been included. Operating results for the three months ended September
27, 2003 are not necessarily the results to be expected for the interim periods
or the full year. These financial statements should be read in conjunction with
the financial statements and accompanying notes contained in the Company's Form
10-K Equivalent for the fiscal year ended June 28, 2003.
Consolidation: The consolidated financial statements include the Company and its
wholly-owned subsidiaries after elimination of intercompany transactions and
balances. Investments in affiliates owned more than 20 percent but not in excess
of 50 percent are recorded under the equity method of accounting.
Reclassification: Certain items for fiscal 2003 have been reclassified to
conform with the current period presentation.
Trade Accounts Receivable: The Company accounts for trade receivables at
outstanding billed amounts, net of allowances for doubtful accounts. The Company
estimates its allowance for doubtful accounts as a percentage of receivables
overdue. Also included in the allowance in their entirety are those accounts
that have filed for bankruptcy, been sent to collections, and any other accounts
management believes are not collectible based on historical losses. The Company
periodically reviews the accounts included in the allowance to determine those
to be written off. Generally, after a period of one year, or through legal
counsel's advice, accounts are written off. It is not Company policy to accrue
or collect interest on past due accounts.
The Company's allowance for doubtful accounts is approximately $1.0 million at
September 27, 2003, and $1.0 million at June 28, 2003.
NOTE 2. THE TRANSACTION
On June 20, 2002, Pro-Fac Cooperative, Inc., a New York agricultural
cooperative, Birds Eye Foods, at the time a New York corporation and a
wholly-owned subsidiary of Pro-Fac and Vestar/Agrilink Holdings LLC, a Delaware
limited liability company, entered into a Unit Purchase Agreement. The
transactions contemplated in and consummated pursuant to the Unit Purchase
Agreement, are referred to herein collectively as the "Transaction." On
August 19, 2002, pursuant to the Unit Purchase Agreement:
(i) Pro-Fac contributed to the capital of Agrilink Holdings LLC, a Delaware
limited liability company ("Holdings LLC"), all of the shares of Birds Eye Foods
common stock owned by Pro-Fac, constituting 100 percent of the issued and
outstanding shares of Birds Eye Foods capital stock, in consideration for Class
B common units of Holdings LLC, representing a 40.72 percent common equity
ownership at the Closing Date; and
5
(ii) Vestar/Agrilink Holdings and certain co-investors (collectively, "Vestar")
contributed cash in the aggregate amount of $175.0 million to the capital of
Holdings LLC, in consideration for preferred units, Class A common units, and
warrants which were immediately exercised to acquire additional Class A common
units. After exercising the warrants, Vestar owned, as of the Closing Date,
56.24 percent of the common equity of Holdings LLC. The co-investors are either
under common control with, or have delivered an unconditional voting proxy to,
Vestar/Agrilink Holdings. The Class A common units entitle the owner thereof -
Vestar - to two votes for each Class A common unit held. All other Holdings LLC
common units entitle the holder(s) thereof to one vote for each common unit
held. Accordingly, Vestar has a voting majority of all common units.
(iii) Immediately following Pro-Fac's contribution of its Birds Eye Foods common
stock to Holdings LLC, Holdings LLC contributed those shares valued at $32.1
million to Birds Eye Holdings, Inc., formerly Agrilink Holdings, Inc.,
("Holdings, Inc."), a Delaware corporation and a direct, wholly-owned subsidiary
of Holdings LLC, and Birds Eye Foods became an indirect, wholly-owned subsidiary
of Holdings LLC.
(iv) As part of the Transaction, executive officers of Birds Eye Foods, and
certain other members of Birds Eye Foods management, entered into subscription
agreements with Holdings LLC to acquire, with a combination of cash and
promissory notes issued to Holdings LLC, an aggregate of approximately $1.3
million of Class C common units and Class D common units of Holdings LLC,
representing approximately 3.04 percent of the common equity ownership at the
Closing Date. Additional units have been issued subsequent to the Closing Date.
See NOTE 10 to the "Notes to Consolidated Financial Statements" for further
description. As of September 27, 2003, an additional approximately $0.5 million
of Class C common units and Class D common units, representing less than 1
percent of the common equity ownership, remained unissued.
The Transaction was accounted for under the purchase method of accounting in
accordance with Statement of Financial Accounting Standards ("SFAS") 141,
"Business Combinations." Under purchase accounting, tangible and identifiable
intangible assets acquired and liabilities assumed were recorded at their
respective fair values. The final allocation of purchase price has been
presented in the financial statements and is based on valuations and other
studies which provided the basis for such an allocation.
Holdings, Inc. has pushed down its purchase accounting to Birds Eye Foods. In
accordance with generally accepted accounting principles, the excess investment
made by Holdings, Inc. over the fair value of the identifiable assets and
liabilities of the Company is approximately $37.1 million (after the affect of
the Veg-All disposition) and is reflected as goodwill in the accompanying
unaudited consolidated balance sheet as of September 27, 2003.
As of August 19, 2002, management formulated a plan to exit certain portions of
its business. In connection with the Transaction, management determined that
approximately 171 employees would be terminated and announced the benefit
arrangements to those employees. These activities surrounded the Company's
decision to exit the popcorn and applesauce businesses and relocate its
marketing function to Rochester, New York. As a result, approximately $2.0
million in severance costs and other related exit costs were accrued for in
purchase accounting in accordance with Emerging Issues Task Force ("EITF") 95-3,
"Recognition of Liabilities in Connection with a Purchase Business Combination."
Approximately $1.3 million has been liquidated as of September 27, 2003.
In February 2003, also in connection with the Transaction, the Company announced
that it would be closing and downsizing several vegetable processing facilities
and consolidating production over the ensuing 4 to 15 months to create more
efficient facilities. The announcement was in furtherance of the final
formulation of the exit plan. The facilities impacted include those in Barker,
New York; Bridgeville, Delaware; Green Bay, Wisconsin; Oxnard, California;
Uvalde, Texas; the fresh production operation at Montezuma, Georgia; Lawton,
Michigan; and Fond du Lac, Wisconsin. Subsequent to each closure, the Company
intends to dispose of these properties. In connection with these closings, 309
full-time production employees have been notified of their termination and
benefit arrangements. Additional costs to complete the exit plan include
facility closure costs, lease penalties, and contractual cancellation and
termination fees. The following table reflects the amount recorded as a
liability for the exit plan to close these facilities as well as amounts
liquidated as of September 27, 2003. Adjustments to the liability reflect
additional information previously unavailable and the result of further
negotiations completed by management:
(Dollars in Millions)
Contractual Severance
Penalties and and
Other Costs Related Costs
----------- -------------
Initial liability $ 6.2 $ 2.3
Utilization (1.1) (0.9)
Adjustments 0.7 (0.5)
----- -----
Balance at September 27, 2003 $ 5.8 $ 0.9
===== =====
6
The following pro forma financial information presents a summary of consolidated
results of operations of the Company as if the Transaction had occurred at the
beginning of the period presented.
(Dollars in Thousands)
Predecessor
June 30, 2002 -
August 18,
2002
---------------
Net Sales $ 99,216
Income before discontinued operations 1,072
Net Income 832
These unaudited pro forma results have been prepared for comparative purposes
only and primarily include adjustments for interest expense, taxes,
depreciation, the fair values of operating leases, income from the Transitional
Services Agreement with Pro-Fac and the elimination of the historical share of
income or loss that has been recorded. These results do not purport to be
indicative of the results of operations which actually would have resulted had
the Transaction occurred at the beginning of the 2003 fiscal year, or of the
future operations of the successor company.
NOTE 3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations: As of August 19, 2002, the Company committed to a plan
to sell the popcorn, applesauce, and Veg-All operations previously reported in
the branded dry and non-branded segments, and completed these transactions in
fiscal 2003.
On September 25, 2002, the Company sold its applesauce business to Knouse Foods.
Applesauce had been produced in the Company's Red Creek, New York and Fennville,
Michigan facilities. This sale resulted in the closure of the Red Creek,
New York facility. The Michigan plant will continue to operate as a production
facility.
On March 14, 2003, the Company sold its popcorn business and production facility
in Ridgway, Illinois to Gilster-Mary Lee Corporation.
On June 27, 2003, the Company sold its Veg-All business to Allen Canning
Company. This sale resulted in the closure of the Company's Green Bay facility.
The implementation of SFAS 144 resulted in the classification and separate
financial presentation of those businesses as discontinued operations and their
operations are, therefore, excluded from continuing operations. All prior period
Statements of Operations have been reclassified to reflect the discontinuance of
these operations. No gain or loss was recognized as a result of the disposition
of these businesses and facilities.
The operating results of those businesses classified as discontinued operations
in the Statement of Operations are summarized as follows:
Three Months Ended Three Months Ended
------------------ --------------------------------------
Successor Successor Predecessor
September 27, August 19, 2002 - June 30, 2002 -
2003 September 28, 2002 August 18, 2002
------------------ ------------------ ---------------
Net Sales $61 $5,789 $4,511
=== ====== ======
(Loss)/income before income taxes $(7) $ 30 $ (407)
Income tax benefit/(provision) 3 (12) 167
--- ------ ------
Discontinued operations, net of tax $(4) $ 18 $ (240)
=== ====== ======
Assets Held for Sale: In February 2003, in connection with the Transaction, the
Company announced that it would be closing and downsizing several vegetable
processing facilities and consolidating production over the ensuing 4 to 15
months to create more efficient facilities. Having met the criteria outlined in
SFAS 144, the following properties are classified as assets held for sale on the
Company's Consolidated Balance Sheet as of September 27, 2003: Bridgeville,
Delaware; Green Bay, Wisconsin; Lawton, Michigan; and Uvalde, Texas. The Company
is actively marketing these properties for sale, and intends to dispose of these
properties within one year.
7
On September 26, 2003, the Company sold its fresh production operation at
Montezuma, Georgia to Flint River Foods, LLC for $1.5 million. The facility had
been previously classified as held for sale. NOTE 11 to the "Notes to
Consolidated Financial Statements" describes the discharge of a guarantee in
connection with this sale.
On July 21, 2003, the Company sold equipment at the leased facility in Oxnard,
California to Coastal Green Frozen Foods, LLC for $0.3 million. This equipment
had been previously classified as held for sale.
No gain or loss was recognized as a result of the disposition of these
facilities and equipment.
As a result of the Company's decision to sell the popcorn and applesauce
operations, certain assets were classified as held for sale. Included in held
for sale at September 27, 2003 is the Red Creek, New York facility and the
remaining inventory.
Also included in assets held for sale are facilities located in Alamo, Texas;
Enumclaw, Washington; Sodus, Michigan; and Alton, New York. These facilities are
being actively marketed for sale.
The major classes of assets included in the Consolidated Balance Sheets as
assets held for sale at net realizable value are as follows:
(Dollars in Thousands)
Successor Successor
September 27, June 28,
2003 2003
------------- ---------
Inventories $ 32 $ 80
Property, plant and equipment, net 12,312 13,421
------- -------
Total $12,344 $13,501
======= =======
NOTE 4. AGREEMENTS WITH PRO-FAC
In connection with the Transaction, Birds Eye Foods and Pro-Fac entered into
several agreements effective as of the Closing Date, including the following:
(i) Termination Agreement. Pro-Fac and Birds Eye Foods entered into a letter
agreement dated as of the Closing Date (the "Termination Agreement"), pursuant
to which, among other things, the marketing and facilitation agreement between
Pro-Fac and Birds Eye Foods (the "Old Marketing and Facilitation Agreement")
which, until the Closing Date, governed the crop supply and purchase
relationship between Birds Eye Foods and Pro-Fac, was terminated. In
consideration of such termination, Birds Eye Foods agreed to pay Pro-Fac a
termination fee of $10.0 million per year for five years, provided that certain
ongoing conditions are met, including maintaining grower membership levels
sufficient to generate certain minimum crop supply. The $10.0 million payment is
payable in quarterly installments as follows: $4.0 million on each July 1, and
$2.0 million each on October 1, January 1, and April 1. The Termination
Agreement outlined that the first payment in the amount of $4.0 million was to
be paid on the Closing Date and the next payment to be made by October 1, 2002
and quarterly thereafter. The liability for the Termination Agreement has been
reflected at fair value utilizing a discount rate of 11 1/2 percent. The amount
of the obligation under the Termination Agreement was $29.7 million as of
September 27, 2003.
(ii) Amended and Restated Marketing and Facilitation Agreement. Pro-Fac and
Birds Eye Foods entered into an amended and restated marketing and facilitation
agreement dated as of the Closing Date (the "Amended and Restated Marketing and
Facilitation Agreement"). The Amended and Restated Marketing and Facilitation
Agreement replaces the Old Marketing and Facilitation Agreement and provides
that, among other things, Pro-Fac will be Birds Eye Foods' preferred supplier of
crops. Birds Eye Foods will continue to pay the commercial market value ("CMV")
of crops supplied by Pro-Fac, in installments corresponding to the dates of
payment by Pro-Fac to its members for crops delivered. 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 areas. The processes for determining CMV under the Amended and Restated
Marketing and Facilitation Agreement are substantially the same as the processes
used under the Old Marketing and Facilitation Agreement. Birds Eye Foods will
make payments to Pro-Fac of an estimated CMV for a particular crop year, subject
to adjustments to reflect the actual CMV following the end of such year.
Commodity committees of Pro-Fac will meet with Birds Eye Foods management to
establish CMV guidelines, review calculations, and report to a joint CMV
committee of Pro-Fac and Birds Eye Foods. Amounts paid by Birds Eye Foods to
Pro-Fac for the CMV of crops supplied for the three months ended September 27,
2003 and September 28, 2002 were $44.9 million and $40.0 million, respectively.
The Amended and Restated Marketing and Facilitation Agreement also provides that
Birds Eye Foods will continue to provide to Pro-Fac services relating to
planning, consulting, sourcing and harvesting crops from Pro-Fac members in a
manner consistent with past practices. In
8
addition, for a period of five years from the Closing Date, Birds Eye Foods may
provide Pro-Fac with services related to the expansion of the market for the
agricultural products of Pro-Fac members (at no cost to Pro-Fac other than
reimbursement of Birds Eye Foods' incremental and out-of-pocket expenses related
to providing such services as agreed to by Pro-Fac and Birds Eye Foods).
Under the Amended and Restated Marketing and Facilitation Agreement, Birds Eye
Foods determines the amount of crops which Birds Eye Foods will acquire from
Pro-Fac for each crop year. If the amount to be purchased by Birds Eye Foods
during a particular crop year does not meet (i) a defined crop amount and (ii) a
defined target percentage of Birds Eye's needs for each particular crop, then
certain shortfall payments will be made by Birds Eye Foods to Pro-Fac. The
defined crop amounts and targeted percentages were set based upon the needs of
Birds Eye Foods in the 2001 crop year (fiscal 2002). The shortfall payment
provisions of the agreement include a maximum shortfall payment, determined for
each crop, that can be paid over the term of the Amended and Restated Marketing
and Facilitation Agreement. The aggregate shortfall payment amounts for all
crops covered under the agreement cannot exceed $20.0 million over the term of
the agreement.
Unless terminated earlier, the Amended and Restated Marketing and Facilitation
Agreement will continue in effect until August 19, 2012. Birds Eye Foods may
terminate the Amended and Restated Marketing and Facilitation Agreement prior to
August 19, 2012 upon the occurrence of certain events, including in connection
with a change in control transaction affecting Birds Eye Foods or Holdings Inc.
However, in the event Birds Eye Foods terminates the Amended and Restated
Marketing and Facilitation Agreement as a result of a change in control
transaction within three years of the Closing Date, Birds Eye Foods must pay to
Pro-Fac a termination fee of $20.0 million (less the total amount of any
shortfall payments previously paid to Pro-Fac under the Amended and Restated
Marketing and Facilitation Agreement). Also, if, during the first three years
after the Closing Date, Birds Eye Foods sells one or more portions of its
business, and if the purchaser does not continue to purchase the crops
previously purchased by Birds Eye Foods with respect to the transferred
business, then such failure will be taken into consideration when determining if
Birds Eye Foods is required to make any shortfall payments to Pro-Fac. After
such three-year period, Birds Eye Foods may sell portions of its business and
the volumes of crop purchases previously made by Birds Eye Foods with respect to
such transferred business will be disregarded for purposes of determining
shortfall payments.
(iii) Transitional Services Agreement. Pro-Fac and Birds Eye Foods entered into
a transitional services agreement (the "Transitional Services Agreement") dated
as of the Closing Date, pursuant to which Birds Eye Foods agreed to provide
Pro-Fac certain administrative and other services for a period of 24 months from
the Closing Date. Birds Eye Foods will generally provide such services at no
charge to Pro-Fac, other than reimbursement of the incremental and out-of-pocket
costs associated with performing those services for Pro-Fac. The value of the
services to be provided to Pro-Fac has been estimated at approximately $1.1
million. The amount of the obligation outstanding under the Transitional
Services Agreement as of September 27, 2003 was approximately $0.5 million. This
obligation will be reduced on a straight-line basis over the term of the
agreement and as services are provided. Also pursuant to the Transitional
Services Agreement, the general manager of Pro-Fac may also be an employee of
Birds Eye Foods, in which case he will report to the chief executive officer of
Birds Eye Foods with respect to his duties for Birds Eye Foods, and to the
Pro-Fac board of directors with respect to duties performed by him for Pro-Fac.
All other individuals performing services under the Transitional Services
Agreement are employees of Birds Eye Foods and report only to the chief
executive officer or other representatives of Birds Eye Foods.
(iv) Credit Agreement. As of the Closing Date, Birds Eye Foods and Pro-Fac
entered into a Credit Agreement (the "Credit Agreement") pursuant to which Birds
Eye Foods agreed to make available to Pro-Fac loans in an aggregate principal
amount of up to $5.0 million (the "Credit Facility"). Pro-Fac is permitted to
draw down up to $1.0 million per year under the Credit Facility, unless Birds
Eye Foods is prohibited from making such advances under the terms of certain
third party indebtedness of Birds Eye Foods. The amount of the Credit Facility
will be reduced, on a dollar-for-dollar basis, to the extent of certain
distributions made by Holdings LLC to Pro-Fac in respect of its ownership in
Holdings LLC. Pro-Fac has pledged all of its Class B Common Units in Holdings
LLC as security for advances under the Credit Facility. The Credit Facility
bears interest at the rate of 10 percent per annum. As of September 27, 2003,
there was approximately $1.0 million outstanding under this Credit Agreement.
NOTE 5. INVENTORIES
The major classes of inventories are as follows:
(Dollars in Thousands)
Successor Successor
September 27, June 28,
2003 2003
--------------- ------------
Finished goods $254,346 $185,983
Raw materials and supplies 27,025 20,601
-------- --------
Total inventories $281,371 $206,584
======== ========
9
NOTE 6. ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill not be amortized, but instead be
tested at least annually for impairment and expensed against earnings when its
implied fair value is less than its carrying amount.
As outlined in SFAS No. 142, certain intangibles with a finite life, however,
are required to continue to be amortized. These intangibles are being amortized
on a straight-line basis over approximately 1 to 14 years. The following
schedule sets forth the major classes of intangible assets held by the Company:
(Dollars in Thousands)
Successor Successor
September 27, June 28,
2003 2003
----------------------------- ----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized intangible assets:
Covenants not to compete $ 588 $ (191) $ 588 $ (139)
Customer relationships 8,000 (1,000) 8,000 (778)
Other 10,406 (844) 10,406 (656)
-------- ------- --------- -------
Total $ 18,994 $(2,035) $ 18,994 $(1,573)
-------- ======= --------- =======
Unamortized intangible assets:
Trademarks $150,900 $ 150,900
-------- ---------
Total $169,894 $ 169,894
======== =========
The aggregate amortization expense associated with intangible assets was
approximately $0.5 million for the three months ended September 27, 2003. The
aggregate amortization expense was $0.1 million for the predecessor period
June 30, 2002 through August 18, 2002, and $0.1 million for the successor period
August 19, 2002 through September 28, 2002. The aggregate amortization expense
for each of the five succeeding fiscal years is estimated as follows:
(Dollars in Thousands)
Aggregate
Annual
Fiscal Amortization
Year Expense
- ---- -------
2005 $1,778
2006 1,778
2007 1,650
2008 1,639
2009 1,639
10
NOTE 7. DEBT
Summary of Long-Term Debt:
- --------------------------
(Dollars in Thousands)
Successor Successor
September 27, June 28,
2003 2003
--------------- ------------
Term Loan Facility $ 254,884 $ 268,650
Senior Subordinated Notes 206,757 207,086
Other 3,500 3,845
---------- ----------
Total debt 465,141 479,581
Less current portion (6,200) (19,611)
---------- ----------
Total long-term debt $ 458,941 $ 459,970
========== ==========
Bank Debt: In connection with the Transaction, Birds Eye Foods and certain of
its subsidiaries entered into a senior secured credit facility (the "Senior
Credit Facility") in the amount of $470.0 million with a syndicate of banks and
other lenders arranged and managed by JPMorgan Chase Bank ("JPMorgan Chase
Bank"), as administrative and collateral agent. The Senior Credit Facility is
comprised of (i) a $200.0 million senior secured revolving credit facility (the
"Revolving Credit Facility") and (ii) a $270.0 million senior secured B term
loan (the "Term Loan Facility"). The Revolving Credit Facility has a maturity of
five years and allows up to $40.0 million to be available in the form of letters
of credit. As of September 27, 2003, the interest rate under the Term Loan
Facility was approximately 3.87 percent on LIBOR loans and 5.75 percent on base
rate loans.
The Term Loan Facility requires payments in quarterly installments in the amount
of $675,000 until September 30, 2007. Beginning December 31, 2007, the quarterly
payments are $64,125,000. The Term Loan Facility matures in August 2008 upon
which the balance will be due. The Term Loan Facility is also subject to
mandatory prepayments under various scenarios as defined in the Senior Credit
Agreement. Provisions of the Senior Credit Agreement require that annual
payments, within 105 days after the end of each fiscal year, in the amount of
"excess cash flow" be utilized to prepay the commitment at an applicable
percentage that corresponds to the Company's Consolidated Leverage Ratio. The
amount of "excess cash flow" for the year ended June 28, 2003 was $13.1 million
and was paid on September 26, 2003.
The Senior Credit Facility contains customary covenants and restrictions on the
Company's activities, including but not limited to: (i) limitations on the
incurrence of indebtedness; (ii) limitations on sale-leaseback transactions,
liens, investments, loans, advances, guarantees, acquisitions, asset sales, and
certain hedging agreements; and (iii) limitations on transactions with
affiliates and other distributions. The Senior Credit Facility also contains
financial covenants requiring the Company to maintain a maximum average debt to
EBITDA ratio, a maximum average senior debt to EBITDA ratio, and a minimum
EBITDA to interest expense ratio. The Company is in compliance with all
covenants, restrictions, and requirements under the terms of the Senior Credit
Facility.
The Company's obligations under the Senior Credit Facility are guaranteed by
Holdings, Inc. and certain of the Company's subsidiaries. See NOTE 9 to the
"Notes to Consolidated Financial Statements."
Senior Subordinated Notes: Birds Eye Foods has outstanding $200.0 million of
11 7/8 percent Senior Subordinated Notes (the "Notes"), due 2008. In connection
with the Transaction, the Company recorded the Notes at estimated fair value of
$208.2 million. The $8.2 million premium is being amortized against interest
expense over the life of the Notes.
NOTE 8. OPERATING SEGMENTS
The Company is organized by product line for management reporting. In the fourth
quarter of fiscal 2003, the Company changed its segments to conform to new
internal management reporting used to monitor and manage financial performance.
The Company now has three primary segments in which it operates: branded frozen,
branded dry, and non-branded. Historical segment information has been
reclassified to conform with this change.
The Company's branded frozen family of products includes traditional frozen
vegetables as well as value added products marketed under recognizable brand
names such as Birds Eye, Birds Eye Voila!, Birds Eye Simply Grillin', Birds Eye
Hearty Spoonfuls, Freshlike and McKenzie's. The Company's branded dry family of
products includes a wide variety of product offerings, including fruit fillings
and toppings (Comstock and Wilderness), chili and chili ingredients (Nalley and
Brooks), salad dressings (Bernstein's and Nalley), snacks (Tim's, Snyder of
Berlin and Husman) and canned vegetables (Freshlike). Birds Eye Foods also
produces many products for the non-branded markets which include private label,
food service and industrial markets. The Company's private label products
include frozen and canned
11
vegetables, salad dressings, salsa, chili products, fruit fillings and toppings,
Southern frozen vegetable specialty products, and frozen breaded and battered
products. The Company's food service/industrial products include frozen and
canned vegetables, salad dressings, fruit fillings and toppings, Southern frozen
vegetable specialty products, canned specialties, frozen breaded and battered
products, and frozen and canned fruit.
The following table illustrates the Company's operating segment information:
(Dollars in Millions)
Three Months Ended Three Months Ended
------------------ -----------------------------------------
Successor Successor Predecessor
September 27, August 19, 2002 - June 30,2002 -
2003 September 28, 2002 August 18, 2002
---- ------------------ ---------------
Net Sales:
Branded frozen $ 66.7 $ 36.9 $35.8
Branded dry 51.7 27.9 23.6
Non-branded 74.1 37.6 39.9
------ ------ -----
Total continuing segments $192.5 $102.4 $99.3
====== ===== =====
Operating income:
Branded frozen $ 10.6 $ 2.4 $ 4.7
Branded dry 9.2 6.6 4.7
Non-branded (4.5) (0.4) (1.3)
------- ------ -----
Continuing segment operating income 15.3 8.6 8.1
Interest expense (10.5) (6.2) (7.5)
------ ------- -----
Pretax income from continuing operations $ 4.8 $ 2.4 $ 0.6
====== ====== =====
NOTE 9. GUARANTEES AND INDEMNIFICATIONS
In certain instances when Birds Eye Foods sells businesses or assets, the
Company may retain certain liabilities for known exposures and provide
indemnification to the buyer with respect to future claims for certain unknown
liabilities existing, or arising from events occurring, prior to the sale date,
including liabilities for taxes, legal matters, environmental exposures, labor
contingencies, product liability, and other obligations. The terms of the
indemnifications vary in duration, from one to three years for certain types of
indemnities, to terms for tax indemnifications that are generally aligned to the
applicable statute of limitations for the jurisdiction in which the tax is
imposed, and to terms for certain liabilities (i.e., warranties of title and
environmental liabilities) that typically do not expire. The maximum potential
future payments that the Company could be required to make under these
indemnifications are either contractually limited to a specified amount or
unlimited. The maximum potential future payments that the Company could be
required to make under these indemnifications are not determinable at this time,
as any future payments would be dependent on the type and extent of the related
claims, and all relevant defenses, which are not estimable. Historically, costs
incurred to resolve claims related to these indemnifications have not been
material to the Company's financial position, results of operations or cash
flows.
The Company enters into agreements with indemnification provisions in the
ordinary course of business with its customers, suppliers, service providers and
business partners. In such instances, the Company usually indemnifies, holds
harmless and agrees to reimburse the indemnified party for claims, actions,
liabilities, losses and expenses in connection with any Birds Eye Foods
infringement of third party intellectual property or proprietary rights, or when
applicable, in connection with any personal injuries or property damage
resulting from any Birds Eye Foods' products sold or services provided.
Additionally, the Company may from time to time agree to indemnify and hold
harmless its providers of services from claims, actions, liabilities, losses and
expenses relating to their services to Birds Eye Foods, except to the extent
finally determined to have resulted from the fault of the provider of services
relating to such services. The level of conduct constituting fault of the
service provider will vary from agreement to agreement and may include conduct
which is defined in terms of negligence, gross negligence, willful misconduct,
omissions or other culpable behavior. The terms of these indemnification
provisions are generally not limited. The maximum potential future payments that
the Company could be required to make under these indemnification provisions are
unlimited. The maximum potential future payments that the Company could be
required to make under these indemnification provisions are not determinable at
this time, as any future payments would be dependent on the type and extent of
the related claims, and all relevant defenses to the claims, which are not
estimable. Historically, costs incurred to resolve claims related to these
indemnification provisions have not been material to the Company's financial
position, results of operations or cash flows.
The Company has by-laws, policies, and agreements under which it indemnifies its
directors and officers from liability for certain events or occurrences while
the directors or officers are, or were, serving at Birds Eye Foods' request in
such capacities. Furthermore, the Company is incorporated in the state of
Delaware which requires corporations to indemnify their officers and directors
under certain circumstances. The term of the indemnification period is for the
director's or officer's lifetime. The maximum potential amount of future
payments that the Company could be required to make under these indemnification
provisions is unlimited, but would be affected by all relevant defenses to the
claims.
12
Birds Eye Foods entered into an agreement to provide a guarantee in September
1995 on behalf of the City of Montezuma to renovate a sewage treatment plant
operated in Montezuma, Georgia. Birds Eye Foods issued a guarantee of the loan
in an original amount of approximately $3.3 million including interest. See NOTE
11 to the "Notes to Consolidated Financial Statements" regarding the discharge
of this guarantee in October 2003. As of September 27, 2003, the outstanding
loan amount, including interest, was $2.0 million.
Subsidiary Guarantors: Kennedy Endeavors, Incorporated, Linden Oaks Corporation
(wholly-owned subsidiaries of the Company), and Pro-Fac (Pro-Fac files periodic
reports under the Security Exchange Act of 1934, Commission File Number 0-20539)
have jointly and severally, fully and unconditionally guaranteed, on a senior
subordinated basis, the obligations of the Company with respect to the Company's
11 7/8 percent Senior Subordinated Notes due 2008 (the "Notes"). In addition,
Birds Eye Holdings, Inc., Kennedy Endeavors, Incorporated, GLK Holdings, Inc.,
BEMSA Holdings, Inc., and Linden Oaks Corporation ("Subsidiary Guarantors") have
jointly and severally, fully and unconditionally guaranteed the obligations of
the Company with respect to the Company's Senior Credit Facility. Prior to the
Transaction, the Company's obligations under the Senior Credit Facilities with
Harris Trust and Savings Bank were fully and unconditionally guaranteed by
Kennedy Endeavors Incorporated and Linden Oaks Corporation. The covenants in the
Notes and the Senior Credit Facility do not restrict the ability of the
Subsidiary Guarantors to make cash distributions to the Company.
Presented below is condensed consolidating financial information for (i) Birds
Eye Foods, (ii) the subsidiary guarantors, and (iii) non-guarantor subsidiaries.
The condensed consolidating financial information has been presented to show the
nature of assets held, results of operations, and cash flows of the Company and
its Subsidiary Guarantors and non-guarantor subsidiaries in accordance with
Securities and Exchange Commission Financial Reporting Release No. 55.
Successor
Statement of Operations
Three Months Ended September 27, 2003
--------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
----------- ---------- ------------ ------- ------------
(Dollars in Thousands)
Net sales $ 187,758 $ 6,147 $ 0 $(1,414) $ 192,491
Cost of sales (146,794) (5,533) 0 1,608 (150,719)
--------- ------- ------ ------- ---------
Gross profit 40,964 614 0 194 41,772
Selling, administrative, and general expense (25,612) (906) 0 0 (26,518)
Other (expense)/income (10,402) 10,596 (194) 0
Income from subsidiaries 9,022 643 0 (9,665) 0
--------- ------- ------ ------- ---------
Operating income 13,972 10,947 0 (9,665) 15,254
Interest (expense)/income (14,478) 2,571 1,447 0 (10,460)
--------- ------- ------ ------- ---------
Pretax (loss)/income from continuing operations (506) 13,518 1,447 (9,665) 4,794
Tax benefit/(provision) 3,382 (5,300) 0 0 (1,918)
--------- ------- ------ ------- ---------
Income before discontinued operations 2,876 8,218 1,447 (9,665) 2,876
Discontinued operations (net of a tax benefit
of $3) (4) 0 0 0 (4)
--------- ------- ------ ------- ---------
Net income $ 2,872 $ 8,218 $1,447 $(9,665) $ 2,872
========= ======= ====== ======= =========
13
Successor
Balance Sheet
September 27, 2003
-------------------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
----------- ---------- ------------ ------- ------------
(Dollars in Thousands)
Assets
Cash and cash equivalents $ 100,159 $ 515 $ 0 $ 0 $100,674
Accounts receivable, net 69,015 3,622 0 0 72,637
Inventories -
Finished goods 253,899 447 0 0 254,346
Raw materials and supplies 26,108 917 0 0 27,025
---------- --------- ------- --------- --------
Total inventories 280,007 1,364 0 0 281,371
Other current assets 38,913 1,716 0 0 40,629
---------- --------- ------- --------- --------
Total current assets 488,094 7,217 0 0 495,311
Property, plant and equipment, net 178,152 18,889 0 0 197,041
Investment in subsidiaries 310,869 12,581 0 (323,450) 0
Goodwill and other intangible
assets, net 43,813 161,096 0 0 204,909
Other assets 30,880 103,412 28,336 (131,430) 31,198
---------- --------- ------- --------- --------
Total assets $1,051,808 $ 303,195 $28,336 $(454,880) $928,459
========== ========= ======= ========= ========
Liabilities and Shareholder's Equity
Current portion of long-term debt $ 6,200 $ 0 $ 0 $ 0 $ 6,200
Current portion of Termination and
Transitional Services Agreements
with Pro-Fac Cooperative, Inc. 9,407 0 0 0 9,407
Accounts payable 82,559 1,107 0 0 83,666
Accrued interest 10,064 0 0 0 10,064
Intercompany loans 314 (314) 0 0 0
Other current liabilities 62,712 7,288 0 0 70,000
---------- --------- ------- --------- --------
Total current liabilities 171,256 8,081 0 0 179,337
Long-term debt 487,277 0 0 (28,336) 458,941
Long-term portion of Termination
and Transitional Services
Agreements with Pro-Fac
Cooperative, Inc. 20,733 0 0 0 20,733
Other non-current liabilities 158,707 0 0 (103,094) 55,613
---------- --------- ------- --------- --------
Total liabilities 837,973 8,081 0 (131,430) 714,624
Shareholder's equity 213,835 295,114 28,336 (323,450) 213,835
---------- --------- ------- --------- --------
Total liabilities and
shareholder's equity $1,051,808 $ 303,195 $28,336 $(454,880) $928,459
========== ========= ======= ========= ========
14
Successor
Statement of Cash Flows
Three Months Ended September 27, 2003
--------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
----------- ---------- ------------ ------- ------------
(Dollars in Thousands)
Cash Flows From Operating Activities:
Net income $ 2,872 $ 8,218 $ 1,447 $(9,665) $ 2,872
Adjustments to reconcile net income
to cash (used in)/provided by
operating activities -
Depreciation 5,206 388 0 0 5,594
Amortization of certain intangible assets 274 188 0 0 462
Amortization of debt issue costs,
amendment costs, debt discounts and
premiums, and interest in-kind 3,134 0 (1,447) 0 1,687
Transitional Services Agreement with
Pro-Fac Cooperative, Inc. (131) 0 0 0 (131)
Equity in earnings of subsidiaries (9,022) (643) 0 9,665 0
Change in working capital (40,552) 345 0 0 (40,207)
--------- ------- ------- ------- ---------
Net cash (used in)/provided by operating
activities (38,219) 8,496 0 0 (29,723)
--------- ------- ------- ------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (7,394) (168) 0 0 (7,562)
Proceeds from disposals 1,971 0 0 0 1,971
Proceeds from investment in CoBank 821 0 0 0 821
Issuance of note receivable to Pro-Fac
Cooperative, Inc., net (300) 0 0 0 (300)
Dividends received 7,950 0 0 (7,950) 0
--------- ------- ------- ------- ---------
Net cash provided by/(used in) investing
activities 3,048 (168) 0 (7,950) (5,070)
--------- ------- ------- ------- ---------
Cash Flows From Financing Activities:
Birds Eye Holdings, Inc. redemption (51) 0 0 0 (51)
Payments on long-term debt (14,112) 0 0 0 (14,112)
Payments on Termination Agreement with
Pro-Fac Cooperative, Inc. (4,000) 0 0 0 (4,000)
Payments on capital lease (126) 0 0 0 (126)
Dividends paid 0 (7,950) 0 7,950 0
--------- ------- ------- ------- ---------
Net cash used in financing activities (18,289) (7,950) 0 7,950 (18,289)
--------- ------- ------- ------- ---------
Net change in cash and cash equivalents (53,460) 378 0 0 (53,082)
Cash and cash equivalents at
beginning of period 153,619 137 0 0 153,756
--------- ------- ------- ------- ---------
Cash and cash equivalents at
end of period $ 100,159 $ 515 $ 0 $ 0 $ 100,674
========= ======= ======= ======= =========
15
Successor
Statement of Operations
August 19, 2002 - September 28, 2002
--------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
----------- ---------- ------------ ------- ------------
(Dollars in Thousands)
Net sales $ 100,507 $ 2,285 $0 $ (353) $ 102,439
Cost of sales (77,253) (1,922) 0 365 (78,810)
--------- ------- -- ------- ---------
Gross profit 23,254 363 0 12 23,629
Selling, administrative, and general
expense (14,874) (398) 0 0 (15,272)
Other (expense)/income (5,309) 5,321 0 (12) 0
Income from former joint venture and
subsidiaries 4,153 0 0 (3,890) 263
--------- ------- -- ------- ---------
Operating income 7,224 5,286 0 (3,890) 8,620
Interest (expense)/income (7,285) 1,134 0 0 (6,151)
--------- ------- -- ------- ---------
Pretax (loss)/income from continuing
operations (61) 6,420 0 (3,890) 2,469
Tax benefit/(provision) 1,518 (2,530) 0 0 (1,012)
--------- ------- -- ------- ---------
Income before discontinued operations 1,457 3,890 0 (3,890) 1,457
Discontinued operations (net of a tax
provision of $12) 18 0 0 0 18
--------- ------- -- ------- ---------
Net income $ 1,475 $ 3,890 $0 $(3,890) $ 1,475
========= ======= == ======= =========
Predecessor
Statement of Operations
June 30, 2002 - August 18, 2002
-------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
----------- ---------- ------------ ------- ------------
(Dollars in Thousands)
Net sales $ 96,740 $ 2,476 $ 1,069 $(1,069) $ 99,216
Cost of sales (74,322) (1,611) (1,432) 1,110 (76,255)
-------- ------- ------- ------- --------
Gross profit/(loss) 22,418 865 (363) 41 22,961
Selling, administrative, and general
expense (14,668) (488) 0 0 (15,156)
Other (expense)/income (5,507) 5,507 41 (41) 0
Income from former joint venture and
subsidiaries 4,543 0 0 (4,266) 277
-------- ------- ------- ------- --------
Operating income/(loss) 6,786 5,884 (322) (4,266) 8,082
Interest (expense)/income (8,853) 1,322 0 0 (7,531)
-------- ------- ------- ------- --------
Pretax (loss)/income from continuing
operations (2,067) 7,206 (322) (4,266) 551
Tax benefit/(provision) 2,392 (2,572) (46) 0 (226)
-------- ------- ------- ------- --------
Income/(loss) before discontinued operations 325 4,634 (368) (4,266) 325
Discontinued operations (net of a tax
benefit of $167) (240) 0 0 0 (240)
-------- ------- ------- ------- --------
Net income/(loss) $ 85 $ 4,634 $ (368) $(4,266) $ 85
======== ======= ======= ======= ========
16
Successor
Balance Sheet
June 28, 2003
---------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
----------- ---------- ------------ ------- ------------
(Dollars in Thousands)
Assets
Cash and cash equivalents $ 153,619 $ 137 $ 0 $ 0 $153,756
Accounts receivable, net 56,441 3,630 0 0 60,071
Inventories -
Finished goods 185,423 560 0 0 185,983
Raw materials and supplies 19,813 788 0 0 20,601
---------- ---------- ------- --------- --------
Total inventories 205,236 1,348 0 0 206,584
Other current assets 59,323 (3,151) 0 0 56,172
---------- ---------- ------- --------- --------
Total current assets 474,619 1,964 0 0 476,583
Property, plant, and equipment, net 187,819 7,380 0 0 195,199
Investment in subsidiaries 298,030 11,939 0 (309,969) 0
Goodwill and other intangible assets, net 44,088 161,283 0 0 205,371
Other assets 31,919 102,545 26,889 (129,123) 32,230
---------- ---------- ------- --------- --------
Total assets $1,036,475 $ 285,111 $26,889 $(439,092) $909,383
========== ========== ======= ========= ========
Liabilities and Shareholder's Equity
Current portion of long-term debt $ 19,611 $ 0 $ 0 $ 0 $ 19,611
Current portion of Termination and
Transitional Services Agreements with
Pro-Fac Cooperative, Inc. 9,403 0 0 0 9,403
Accounts payable 65,826 1,324 0 0 67,150
Accrued interest 4,106 0 0 0 4,106
Intercompany loans 1,987 (1,987) 0 0 0
Other current liabilities 56,718 2,694 0 0 59,412
---------- ---------- ------- --------- --------
Total current liabilities 157,651 2,031 0 0 159,682
Long-term debt 486,859 0 0 (26,889) 459,970
Long-term portion of Termination and
Transitional Services Agreements
with Pro-Fac Cooperative, Inc. 24,031 0 0 0 24,031
Other non-current liabilities 156,397 0 0 (102,234) 54,163
---------- ---------- ------- --------- --------
Total liabilities 824,938 2,031 0 (129,123) 697,846
Shareholder's equity 211,537 283,080 26,889 (309,969) 211,537
---------- ---------- ------- --------- --------
Total liabilities and
shareholder's equity $1,036,475 $ 285,111 $26,889 $(439,092) $909,383
========== ========== ======= ========= ========
17
Successor
Statement of Cash Flows
August 19, 2002 - September 28, 2002
--------------------------------------------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
Foods, Inc. Guarantors Subsidiaries Entries Consolidated
------------ ---------- ------------- ----------- ------------
(Dollars in Thousands)
Cash Flows From Operating Activities:
Net income $ 1,475 $ 3,890 $0 $(3,890) $ 1,475
Adjustments to reconcile net income to cash
(used in)/provided by operating activities -
Depreciation 3,723 115 0 0 3,838
Amortization of certain intangible assets 49 94 0 0 143
Amortization of debt issue costs, amendment
costs, debt discounts and premiums, and
interest in-kind 1,168 0 0 0 1,168
Equity in undistributed earnings of former
joint venture and subsidiaries (4,077) 0 0 3,890 (187)
Change in working capital (8,638) (323) 0 0 (8,961)
--------- ------- -- ------- ---------
Net cash (used in)/provided by operating activities (6,300) 3,776 0 0 (2,524)
--------- ------- -- ------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (1,779) (13) 0 0 (1,792)
Advances to former joint venture (1,117) 0 0 0 (1,117)
Dividends received 4,530 0 0 (4,530) 0
--------- ------- -- ------- ---------
Net cash provided by/(used in) investing activities 1,634 (13) 0 (4,530) (2,909)
--------- ------- -- ------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 270,000 0 0 0 270,000
Net proceeds from new revolving credit facility 16,400 0 0 0 16,400
Birds Eye Holdings, Inc. contribution 175,591 0 0 0 175,591
Net payments on prior revolving credit facility (22,000) 0 0 0 (22,000)
Payments on long-term debt (400,800) 0 0 0 (400,800)
Payments on Termination Agreement with
Pro-Fac Cooperative, Inc. (6,120) 0 0 0 (6,120)
Payments on capital lease (77) 0 0 0 (77)
Cash paid for debt issuance costs (22,314) 0 0 0 (22,314)
Cash paid for transaction fees (6,000) 0 0 0 (6,000)
Dividends paid 0 (4,530) 0 4,530 0
--------- ------- -- ------- ---------
Net cash provided by/(used in) financing activities 4,680 (4,530) 0 4,530 4,680
--------- ------- -- ------- ---------
Net change in cash and cash equivalents 14 (767) 0 0 (753)
Cash and cash equivalents at beginning of period 4,636 1,281 0 0 5,917
--------- ------- -- ------- ---------
Cash and cash equivalents at end of period $ 4,650 $ 514 $0 $ 0 $ 5,164
========= ======= == ======= =========
18
Predecessor
Statement of Cash Flows
June 30, 2002 - August 18, 2002
--------------------------------------- -------------------------------
Birds Eye Subsidiary Non-Guarantor Eliminating
(Dollars in Thousands) Foods, Inc. Guarantors Subsidiaries Entries Consolidated
------------ ---------- ------------- -------------- ------------
Cash Flows From Operating Activities:
Net income/(loss) $ 85 $ 4,634 $ (368) $(4,266) $ 85
Adjustments to reconcile net income/(loss) to net
cash (used in)/provided by operating activities -
Depreciation 3,741 69 23 0 3,833
Amortization of certain intangible assets 50 94 0 0 144
Amortization of debt issue costs, amendment
costs, debt discounts and premiums, and
interest in-kind 1,201 0 0 0 1,201
Equity in undistributed earnings of former
joint venture and subsidiaries (4,543) 0 0 4,266 (277)
Change in working capital (37,983) 3,890 1,252 0 (32,841)
-------- ------- ------ ------- --------
Net cash (used in)/provided by operating activities (37,449) 8,687 907 0 (27,855)
-------- ------- ------ ------- --------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (2,181) 0 (6) 0 (2,187)
Advances to Great Lakes Kraut Company, LLC (1,512) 0 0 0 (1,512)
Proceeds from investment in CoBank 1,115 0 0 0 1,115
Dividends received 8,750 0 0 (8,750) 0
-------- ------- ------ ------- --------
Net cash provided by/(used in) investing activities 6,172 0 (6) (8,750) (2,584)
-------- ------- ------ ------- --------
Cash Flows From Financing Activities:
Net proceeds from old revolving credit facility 22,000 0 0 0 22,000
Payments on long-term debt (292) 0 0 0 (292)
Payments on capital leases (38) 0 0 0 (38)
Dividends paid 0 (8,750) 0 8,750 0
-------- ------- ------ ------- --------
Net cash provided by/(used in) financing activities 21,670 (8,750) 0 8,750 21,670
-------- ------- ------ ------- --------
Net change in cash and cash equivalents (9,607) (63) 901 0 (8,769)
Cash and cash equivalents at beginning of period 14,243 121 322 0 14,686
-------- ------- ------ ------- --------
Cash and cash equivalents at end of period $ 4,636 $ 58 $1,223 $ 0 $ 5,917
======== ======= ====== ======= ========
19
NOTE 10. OTHER MATTERS
Holdings LLC Unit Issuance: On September 1, 2003, Holdings LLC issued additional
preferred units and Class E units to certain directors of Birds Eye Foods.
Pursuant to the limited liability company agreement of Holdings LLC, additional
classes of units may be issued from time to time, provided consent is obtained
from a majority of the unit holders. The required consent was obtained and 1,332
Class E units and approximately 3 preferred units were issued. See NOTE 2 to the
"Notes to Consolidated Financial Statements."
Legal Matters: Birds Eye Foods is a party to various legal proceedings from time
to time in the normal course of its business. In the opinion of management, any
liability that the Company might incur upon the resolution of these proceedings
will not, in the aggregate, have a material adverse effect on the Company's
business, financial condition, or results of operations. Further, no such
proceedings are known to be contemplated by any governmental authorities. The
Company maintains general liability insurance coverage in amounts deemed to be
adequate by management.
NOTE 11. SUBSEQUENT EVENTS
On October 21, 2003, the Company received a discharge of a guarantee regarding
the renovation of a sewage treatment plant operated in Montezuma, Georgia from
Macon County. The discharge of the guarantee was a result of the sale of the
Company's fresh production plant in Montezuma, Georgia. See NOTE 9 to the "Notes
to Consolidated Financial Statements."
On October 24, 2003, the Company announced an irrevocable notice of partial
redemption sent to holders of its Notes. The aggregate outstanding principal
amount of the Notes being called for redemption is $150.0 million. Upon
redemption, holders whose Notes have been selected for redemption will receive
$1,059.38 per Note plus accrued and unpaid interest thereon. Any of the Notes
selected for redemption will be automatically redeemed on November 24, 2003, and
no further interest will accrue on or after such date. The Notes to be redeemed
will be selected in accordance with and by the trustee under the indenture under
which the Notes were issued.