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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
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File No. 0-20539
PRO-FAC COOPERATIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 16-6036816
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
90 Linden Oaks, PO Box 682, Rochester, NY 14603
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 383-1850
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Cumulative Preferred Stock
Liquidation Preference $25.00/Share
Par Value $1.00/Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to ITEM 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of September 1, 2001
Class A Common Stock: $10,002,370
(Based upon par value of shares since there is no
market for the Registrant's common stock)
Number of common shares outstanding at September 1, 2001:
Class A Common Stock: 2,000,474
FORM 10-K ANNUAL REPORT - Fiscal Year 2001
PRO-FAC COOPERATIVE, INC.
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. Description of Business
Cautionary Statement on Forward-Looking Statements.......................................... 3
General Development of Business............................................................. 3
Narrative Description of Business........................................................... 5
Financial Information About Industry Segments............................................... 7
Packaging and Distribution.................................................................. 7
Trademarks.................................................................................. 7
Raw Material Sources........................................................................ 8
Environmental Matters....................................................................... 8
Seasonality of Business..................................................................... 9
Practices Concerning Working Capital........................................................ 9
Significant Customers....................................................................... 9
Backlog of Orders........................................................................... 9
Business Subject to Government Contracts.................................................... 9
Competitive Conditions...................................................................... 9
Market and Industry Data.................................................................... 10
New Products and Research and Development................................................... 10
Employees................................................................................... 10
ITEM 2. Description of Properties....................................................................... 10
ITEM 3. Legal Proceedings............................................................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders............................................. 12
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters........................ 13
ITEM 6. Selected Financial Data......................................................................... 14
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 15
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk...................................... 25
ITEM 8. Financial Statements and Supplementary Data..................................................... 26
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 63
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............................................. 64
ITEM 11. Executive Compensation.......................................................................... 67
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................. 69
ITEM 13. Certain Relationships and Related Transactions.................................................. 71
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 73
Signatures...................................................................................... 79
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, Pro-Fac Cooperative, Inc.("Pro-Fac" or the "Cooperative")
makes oral and written statements that may constitute "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995
(the "Act") or by the Securities and Exchange Commission ("SEC") in its rules,
regulations, and releases. The Cooperative desires to take advantage of the
"safe harbor" provisions in the Act for forward-looking statements made from
time to time, including, but not limited to, the forward-looking information
contained in the Management's Discussion and Analysis of Financial Condition and
Results of Operations and other statements made in this Form 10-K and in other
filings with the SEC.
The Cooperative cautions readers that any such forward-looking statements made
by or on behalf of the Cooperative are based on management's current
expectations and beliefs but are not guarantees of future performance. Actual
results could differ materially from those expressed or implied in the
forward-looking statements. The factors that could impact the Cooperative
include:
* the impact of strong competition in the food industry;
* the impact of changes in consumer demand; ss. the impact of weather on the
volume and quality of raw product;
* the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
* the continuation of the Cooperative's success in integrating operations
(including the realization of anticipated synergies in operations and the
timing of any such synergies) and the availability of acquisition and
alliance opportunities;
* the Cooperative's ability to achieve the gains in productivity and
improvements in capacity utilization; and
* the Cooperative's ability to service debt.
GENERAL DEVELOPMENT OF BUSINESS
Pro-Fac Cooperative, Inc. is an agricultural cooperative corporation formed in
1960 under the Cooperative Corporation Laws of New York to process and market
crops grown by its members. Unless the context otherwise requires, the terms
"Cooperative" and "Pro-Fac" refer to Pro-Fac Cooperative, Inc. and its
subsidiaries. The Cooperative conducts business under the name of Agrilink. In
addition, the board of directors of Agrilink Foods, Inc., a wholly owned
subsidiary of the Cooperative, and Pro-Fac conduct joint meetings, coordinate
their activities, and act on a consolidated basis. Although Pro-Fac Cooperative,
Inc. continues to be the legal name of the Cooperative, with the same structure
and regulations required by bank credit agreements and bond indentures, and with
the same stock symbol, "PFACP," it is presented as Agrilink for all other
communications. Pro-Fac's Class A Cumulative preferred stock is listed on the
Nasdaq National Market system.
Pro-Fac crops include fruits (cherries, apples, blueberries, peaches, and
plums), vegetables (snap beans, beets, cucumbers, peas, sweet corn, carrots,
cabbage, squash, asparagus, potatoes, turnip roots, and leafy greens), and
popcorn. Only growers of crops marketed through Pro-Fac (or associations of such
growers) can become members of Pro-Fac; a grower becomes a member of Pro-Fac
through the purchase of common stock. Class A members own shares of Class A
common stock and are members who deliver raw product for sale and processing at
the facilities of Agrilink Foods. There are approximately 604 Class A members,
consisting of individual growers or associations of growers, located principally
in the states of New York, Delaware, Pennsylvania, Illinois, Michigan,
Washington, Oregon, Iowa, Nebraska, Florida, and Georgia.
Agrilink Foods, Inc. ("Agrilink Foods"), incorporated in New York in 1961, is a
producer and marketer of processed food products. Agrilink Foods has four
primary product lines including: vegetables, fruits, snacks, and canned meals.
The majority of each of the product lines' net sales is within the United
States. In addition, all of Agrilink Foods' operating facilities, excluding one
in Mexico, are within the United States.
On November 3, 1994, Pro-Fac acquired Agrilink Foods, and Agrilink Foods became
a wholly owned subsidiary of Pro-Fac. Pro-Fac and Agrilink Foods have a
long-standing contractual relationship pursuant to which Pro-Fac provides crops
and financing to Agrilink Foods, Agrilink Foods provides marketing and
management to Pro-Fac, and Pro-Fac shares in the profits and losses of Agrilink
Foods.
Upon consummation of the acquisition, Pro-Fac and Agrilink Foods entered into
the Pro-Fac Marketing and Facilitation Agreement (the "Pro-Fac Marketing
Agreement").
The Pro-Fac Marketing Agreement provides for Pro-Fac to supply crops and
additional financing to Agrilink Foods, for Agrilink Foods to provide market and
management services to Pro-Fac, and for Pro-Fac to share in the profits and
losses of Agrilink Foods. Pro-Fac is required to reinvest into Agrilink Foods at
least 70 percent of any additional patronage income derived from the earnings of
Agrilink Foods. To preserve the independence of Agrilink Foods, the Pro-Fac
Marketing Agreement also requires that certain of the directors of Agrilink
Foods be individuals who are not employees or shareholders of, or otherwise
affiliated with, Pro-Fac or Agrilink Foods ("Disinterested Directors") and
requires that certain decisions, including the volume of and the amount to be
paid for crops received from Pro-Fac, be approved by the Disinterested
Directors.
Under the Pro-Fac Marketing Agreement, Agrilink Foods manages the business and
affairs of Pro-Fac and provides all personnel support and administrative support
required. Pro-Fac pays Agrilink Foods a quarterly fee of $25,000 for these
services.
Additional patronage income received by Pro-Fac is deductible to Pro-Fac for
federal tax purposes only to the extent distributed to its members. Pro-Fac may
make this distribution to its members through a combination of cash and retains
as long as a minimum of 20 percent of the amount is paid in cash as required by
federal tax law. Pro-Fac has historically paid its members between 20 percent
and 30 percent of additional patronage income in cash and the remaining portion
in retains. Funds made available by the distribution of retains to members in
lieu of cash have historically been reinvested by Pro-Fac in Agrilink Foods. See
further discussion of the relationship with Pro-Fac in NOTE 2 to the Notes to
Consolidated Financial Statements.
Agripac, Inc.: PF Acquisition II, Inc. ("PF II") was a subsidiary of Pro-Fac
until February 15, 2001. PF II was incorporated in January 1999. Pro-Fac owned
100 percent of the common stock of PF II, while PFA Northwest Growers
Cooperative, Inc., an Oregon cooperative, owned 100 percent of the PF II
preferred stock. PF II conducted business under the name AgriFrozen Foods
("AgriFrozen").
On February 23, 1999, PF II acquired the frozen vegetable business of Agripac,
Inc. ("Agripac"), an Oregon cooperative. On January 4, 1999, Agripac filed a
voluntary petition under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Oregon. On January 22, 1999 Agripac, as
debtor-in-possession, filed a motion with the Bankruptcy Court for authority to
sell substantially all of the assets comprising its frozen food processing
business. The bankruptcy court confirmed the sale of Agripac's frozen food
processing assets to AgriFrozen by an order entered on February 18, 1999.
In order to consummate the acquisition, AgriFrozen (i) entered into a credit
facility with CoBank, ACB ("CoBank") (the "CoBank Credit Facility") providing
for $30 million of term loan borrowings and a revolving credit facility (the
"CoBank Revolving Credit Facility") of $55 million in fiscal 2000 and $50
million in each year thereafter and (ii) issued a $12 million Subordinated
Promissory Note to CoBank. Neither Pro-Fac nor Agrilink Foods guaranteed the
debts of AgriFrozen or otherwise pledged any of their respective properties as
security for the CoBank financing. Neither Pro-Fac nor Agrilink Foods guaranteed
the debts of AgriFrozen or otherwise pledged any of their respective properties
as security for AgriFrozen's indebtedness. All of AgriFrozen's indebtedness was
expressly without recourse to Pro-Fac and Agrilink Foods. See further discussion
at "Credit Agreement and Subordinated Note Agreement of AgriFrozen" at NOTE 8 to
the "Notes to Consolidated Financial Statements."
The contractual relationship between AgriFrozen and Pro-Fac is defined in a
marketing and facilitation agreement between the two companies (the "AgriFrozen
Marketing Agreement"). Under that agreement, AgriFrozen purchased raw products
from Pro-Fac and processed and marketed the finished products. AgriFrozen paid
Pro-Fac commercial market value ("CMV") for the crops supplied by Pro-Fac. In
addition, in any year in which AgriFrozen had earnings, AgriFrozen was required
to distribute such earnings to Pro-Fac for distribution to Class B members of
Pro-Fac. However, in the event AgriFrozen experienced any losses, AgriFrozen
deducted the losses from the total CMV payable. The agreement permitted
AgriFrozen to pay 20 percent of any additional earnings in cash and retain 80
percent as working capital.
On January 22, 2001, AgriFrozen Foods announced that it was closing its frozen
vegetable business facilities in Woodburn, Oregon and Walla Walla and Grandview,
Washington. AgriFrozen employed approximately 600 full time employees at its
various locations. There were approximately 150 growers who historically
supplied crops to AgriFrozen. The closings were due to the decision by
AgriFrozen's board not to plant or process crops for the 2001growing season. The
combination of the uncertainty of continued funding of the operations of
AgriFrozen by its lender, current industry trends showing a decline in private
label and industrial frozen vegetable sales and pricing, and the highly
competitive nature of the food business were the basis for this action.
On February 15, 2001, Pro-Fac abandoned its ownership interest in AgriFrozen. On
February 16, 2001, Agrilink Foods completed the purchase of the frozen vegetable
inventory of AgriFrozen. AgriFrozen's lender sold the inventory to Agrilink
Foods pursuant to a private sale under the Uniform Commercial Code after
AgriFrozen voluntarily surrendered the inventory to the lender. The purchase
price was $31.6 million of which $10.0 million was paid to the lender on April
1, 2001, and the remaining balance was paid on August 1, 2001. In addition,
under a related agreement between Agrilink Foods and AgriFrozen, Agrilink Foods
funded certain operating costs and expenses of AgriFrozen, primarily in storing
and converting the purchased inventory to finished goods, during a transition
period ending on June 30, 2001. Such expenses are estimated to be approximately
$7.1 million, of which $6.0 million has been funded as of June 30, 2001. This
funding is net of reimbursement by AgriFrozen of the proceeds from available
receivables not pledged to the lender. Agrilink Foods incurred fees of
approximately $0.8 million related to this transaction which were expensed when
incurred.
On July 19, 2001, Pro-Fac repurchased its Class B common stock and special
membership interests. These securities were held by the former Agripac, Inc.
members who subscribed to become grower/members of Pro-Fac supplying raw product
to the AgriFrozen Foods processing facilities.
Acquisition of Dean Foods Vegetable Company: On September 24, 1998, Agrilink
Foods acquired the Dean Foods Vegetable Company ("DFVC"), the frozen and canned
vegetable business of Dean Foods Company ("Dean Foods"), by acquiring all the
outstanding capital stock of Dean Foods Vegetable Company and Birds Eye de
Mexico SA de CV (the "DFVC Acquisition"). In connection with the DFVC
Acquisition, Agrilink Foods sold its aseptic business to Dean Foods. Agrilink
Foods paid $360 million in cash, net of the sale of the aseptic business, and
issued to Dean Foods a $30 million unsecured subordinated promissory note due
November 22, 2008 (the "Dean Foods Subordinated Promissory Note"), as
consideration for the DFVC Acquisition. (This note was subsequently sold to
Great Lakes Kraut Company, a joint venture of Agrilink Foods, in December 2000.)
Agrilink Foods had the right, exercisable until July 15, 1999, to require Dean
Foods, jointly with Agrilink Foods, to treat the DFVC Acquisition as an asset
sale for tax purposes under Section 338(h)(10) of the Internal Revenue Code. On
April 15, 1999, Agrilink Foods paid $13.2 million to Dean Foods and exercised
the election.
After the DFVC Acquisition, DFVC was merged with and into Agrilink Foods. DFVC
was one of the leading processors of vegetables in the United States, selling
its products under well-known brand names, such as Birds Eye, Birds Eye Voila!,
Freshlike and Veg-All, and various private labels. Agrilink Foods believes that
the DFVC Acquisition strengthened its competitive position by: (i) enhancing its
brand recognition and market position, (ii) providing opportunities for cost
savings and operating efficiencies and (iii) increasing its product and
geographic diversification.
Concurrently with the DFVC Acquisition, Agrilink Foods refinanced its then
existing indebtedness (the "Refinancing"), including its 12 1/4 percent Senior
Subordinated Notes due 2005 (the "Old Notes") and its then existing bank debt.
On August 24, 1998, Agrilink Foods commenced a tender offer (the "Tender Offer")
for all the Old Notes and a consent solicitation to certain amendments under the
indenture governing the Old Notes to eliminate substantially all the restrictive
covenants and certain events of default therein. Substantially all of the $160
million aggregate principal amount of the Old Notes were tendered and purchased
by Agrilink Foods for aggregate consideration of approximately $184 million,
including accrued interest of $2.9 million. Agrilink Foods also terminated its
then existing bank facility (including seasonal borrowings) and repaid $176.5
million, excluding interest owed and breakage fees outstanding thereunder.
Agrilink Foods recognized an extraordinary charge of $18.0 million (net of
income taxes) in the first quarter of fiscal 1999 relating to this refinancing.
In order to consummate the DFVC Acquisition and the Refinancing and to pay the
related fees and expenses, Agrilink Foods: (i) entered into a new credit
facility (the "Credit Facility") providing for $455 million of term loan
borrowings (the "Term Loan Facility") and up to $200 million of revolving credit
borrowings (the "Revolving Credit Facility"), (ii) entered into and drew upon a
$200 million bridge loan facility (the "Bridge Facility") and (iii) issued the
$30 million Subordinated Promissory Note to Dean Foods. The Bridge Facility was
repaid during November of 1998 principally with the proceeds from a new Senior
Subordinated Note Offering (the "Notes"). See NOTE 8 to the "Notes to
Consolidated Financial Statements - Debt - Senior Subordinated Notes - 11-7/8
Percent due 2008." Debt issue costs of $5.5 million associated with the Bridge
Facility were expensed during the quarter ended December 26, 1998.
The Credit Facility and the Notes restrict the ability of Pro-Fac to amend the
Pro-Fac Marketing Agreement. The Credit Facility and the Notes also restrict the
amount of dividends and other payments that may be made by Agrilink Foods to
Pro-Fac.
NARRATIVE DESCRIPTION OF BUSINESS
The Cooperative sells products in three principal categories: (i) "branded"
products, which are sold under various trademarks, (ii) "private label"
products, which are sold to grocers who in turn use their own brand names on the
products and (iii) "food service" products, which are sold to food service
institutions such as restaurants, caterers, bakeries, and schools. In fiscal
2001, approximately 64 percent of the Cooperative's net sales were branded and
the remainder divided between private label and food service/industrial. The
Cooperative's branded products are listed under the "Trademarks" section of this
report. The Cooperative's private label products include canned and frozen
vegetables, salad dressings, salsa, applesauce, fruit fillings and toppings,
Southern frozen vegetable specialty products, and frozen breaded and battered
products which are sold to customers such as Albertson's, Fleming, Piggly
Wiggly, Wal-Mart/Sam's, Safeway, SuperValu, BJ's, Wegmans, and Winn-Dixie. The
Cooperative's food service/industrial products include salad dressings, fruit
fillings and toppings, canned and frozen vegetables, frozen Southern
specialties, frozen breaded and battered products, and canned and frozen fruit,
which are sold to customers such as Alliant Food Service, Gordon Food Service,
Pocahontas, PYA Monarch, Church's, Denny's, Food Service of America, KFC, MBM
Corporation, McDonald's, and SYSCO.
The Cooperative has four primary product lines: vegetables, fruits, snacks, and
canned meals. A description of the Cooperative's four primary product lines
follows:
Vegetables: The vegetable product line consists of canned and frozen vegetables,
chili beans, and various other products. Additional products include value-added
items such as frozen vegetable blends, and Southern-specialty products such as
black-eyed peas, okra, Southern squash, frozen meal starters with pasta or
potatoes and sauce and complete frozen meals in a bag. Branded products within
the vegetable product line include Birds Eye, Birds Eye Voila!, Birds Eye Simply
Grillin', Freshlike, Veg-All, McKenzies, and Brooks Chili Beans. In fiscal 2001,
ongoing vegetable product line net sales represented approximately 74 percent of
the Cooperative's total continuing net sales. Within this product line net sales
of approximately 62 percent represented branded products, 16 percent represented
private label products and 22 percent represented food service/industrial
products.
Agrilink Foods is a major supplier of frozen vegetables for Sam's Club stores
across the United States and the exclusive supplier in a significant portion of
Sam's Clubs. The Company is also a 50 percent partner with Flanagan Brothers,
Inc. in Great Lakes Kraut Company, LLC, a New York limited liability company.
This joint venture includes the Silver Floss and Krrrrisp Kraut brands.
On June 23, 2000, Agrilink Foods sold its pickle business based in Tacoma,
Washington to Dean Pickle and Specialty Products Company, a subsidiary of Dean
Foods. This business included pickle, pepper, and relish products sold primarily
under the Nalley and Farman's brand names. Agrilink Foods continues to contract
pack Nalley and Farman's pickle products for a period of two years, beginning
June 23, 2000, at the existing Tacoma processing plant which Agrilink Foods
operates. Under a related agreement, the Cooperative supplies raw cucumbers
grown in the Northwestern United States to Dean Pickle and Specialty Products
Company, for a minimum 10-year period at market pricing.
On December 17, 1999, Agrilink Foods sold its Cambria, Wisconsin processing
facility to Del Monte. This facility was primarily utilized for canning
operations.
On November 8, 1999, Agrilink Foods sold its Midwest private label canned
vegetable business to Seneca Foods. Included in this transaction was the
Arlington, Minnesota facility. This sale did not include Agrilink Foods' retail
branded canned vegetables Veg-All and Freshlike.
On September 24, 1998, Agrilink Foods acquired the DFVC frozen and canned
vegetable businesses. DFVC was one of the leading processors of vegetables in
the United States selling its products under well-known brands such as Birds
Eye, Freshlike, and Veg-All, and various private labels.
Fruits: The fruit product line consists of canned and frozen fruits including
fruit fillings and toppings. Branded products within the fruit category include
Comstock and Wilderness. The Cooperative is a major supplier of branded and
private label fruit fillings to retailers and food service institutions such as
restaurants, caterers, bakeries, and schools. In fiscal 2001, fruit product line
net sales represented approximately 9 percent of the Cooperative's total
continuing net sales. Within this product line net sales of approximately 53
percent represented branded products, 17 percent represented private label
products, and 30 percent represented food service/industrial products.
Snacks: The snacks product line consists of several varieties of potato chips
including regular and kettle fried, as well as popcorn, cheese curls, snack
mixes, and other corn-based snack items. Kettle fried potato chips produce a
potato chip that is thicker and crisper than other potato chips. Items within
this product line are marketed primarily in the Pacific Northwest, Midwest and
Mid-Atlantic states. Branded products within the snack category include Tim's
Cascade Chips, Snyder of Berlin, Husman, La Restaurante, Erin's, Beehive,
Pops-Rite, and Super Pop. In fiscal 2001 snacks net sales represented
approximately 8 percent of the Cooperative's total continuing net sales. Within
this product line, net sales of approximately 89 percent represented branded
products, 9 percent represented private label products, and 2 percent
represented food service/industrial products.
Effective June 24, 2000, Agrilink Foods acquired the Flavor Destinations
trademark for snack items and manufactures and markets this regional brand
through its Tim's Cascade Chips business in Auburn, Washington.
Effective July 21, 1998, Agrilink Foods acquired J.A. Hopay Distributing Co.,
Inc. ("Hopay") of Pittsburgh, Pennsylvania. Hopay was a former distributor for
Snyder of Berlin products.
Canned Meals: The canned meal product line includes canned meat products such as
chilies, stews, soups, and various other ready-to-eat prepared meals. Items
within this product line are marketed primarily in the Pacific Northwest.
Branded products within the canned meal category include Nalley. In fiscal 2001
canned meals net sales represented approximately 5 percent of the Cooperative's
total continuing net sales. Within this product line, net sales of approximately
79 percent represented branded products, 18 percent represented private label
products, and 3 percent represented food service/industrial products.
Other: Agrilink Foods' other product line primarily represents salad dressings.
Branded products within this category include Bernstein's and Nalley. In fiscal
2001, other net sales represented approximately 4 percent of the Cooperative's
total continuing net sales.
On January 29, 1999, the Company sold the Adams brand peanut butter operations
to the J. M. Smucker Company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of the Cooperative is principally conducted in four industry
segments: vegetables, fruits, canned meals, and snacks. The financial statements
for the fiscal years ended June 30, 2001, June 24, 2000, and June 26, 1999,
which are included in this report, reflect the information relating to those
segments for each of the Cooperative's last three fiscal years.
PACKAGING AND DISTRIBUTION
The food products produced by the Cooperative are distributed to various
consumer markets in all 50 states. International sales account for a small
portion of the Cooperative's activities. Vegetables, fruits, and canned meals
are primarily sold through food brokers who sell primarily to supermarket chains
and various institutional entities. Snack products are primarily marketed
through distributors (some of which are owned and operated by the Cooperative)
who sell directly to retail outlets in the Midwest, Mid-Atlantic and Pacific
Northwest. Customer brand operations encompass the sale of products under
private labels to chain stores and under the controlled labels of buying groups.
The Cooperative has developed central storage and distribution facilities that
permit multi-item single shipment to customers in key marketing areas.
Agrilink Foods maintains a multiyear logistic agreement with American President
Lines ("APL") under which APL Logistics provides freight management, packaging
and labeling services, and distribution support to and from production
facilities owned by Agrilink Foods in and around Coloma, Michigan.
Agrilink Foods also maintains a long-term logistics agreement with Americold
under which Americold manages the Montezuma, Georgia frozen food distribution
facility and all frozen food transportation operations of Agrilink Foods in
Georgia and New York.
TRADEMARKS
The major brand names under which the Cooperative markets its products are
trademarks of the Cooperative. Such brand names are considered to be of material
importance to the business of the Cooperative since they have the effect of
developing brand identification and maintaining consumer loyalty. There are U.S.
federal trademark registrations for substantially all of the trademarks. These
trademark registrations are of perpetual duration so long as they are
periodically renewed. It is the Cooperative's intent to maintain its trademark
registrations. The major brand names utilized by the Cooperative are:
Product Line Brand Name
Vegetables Birds Eye, Voila!, Birds Eye Simply Grillin'(1), Birds Eye Fresh(1) , Freshlike, Veg-All, Brooks,
Chill-Ripe, Comstock, Greenwood, McKenzie's, McKenzie's Gold King, Southern Farms, Southland, Nalley,
Pixie, Thank You, Silver Floss(2), Krrrrisp Kraut(2)
Fruits Birds Eye, Chill-Ripe, Comstock, Globe, McKenzies, Orchard Farm, Orchard Fresh, Pixie, Southern Farms,
Thank You, Squeezle Sauz(1) , West Bay, Wilderness, Tropic Isle
Product Line Brand Name
Snacks Snyder of Berlin, Thunder Crunch, Tim's Cascade Style Potato Chips, La Restaurante, Erin's, Husman,
Naturally Good, Beehive, Pops-Rite, Savoral, Super Pop, Flavor Destinations
Canned Meals Nalley, Mariners Cove, Riviera
Other Bernstein's, Nalley
(1) Application filed and U.S. federal registration pending.
(2) Represent trademarks of Great Lakes Kraut Company, LLC. The Company owns a
50 percent interest in this joint venture.
RAW MATERIAL SOURCES
Of the commodity types supplied by Pro-Fac, approximately 60 percent was
received from Class A members of the Cooperative. Agrilink Foods also purchased
on the open market some crops of the same type and quality as those purchased
from Pro-Fac. Such open market purchases may occur at prices higher or lower
than those paid to Pro-Fac for similar products. See further discussion of the
relationship with Agrilink Foods in NOTE 2 to the "Notes to Consolidated
Financial Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This situation typically results in depressed selling
prices and reduced profitability on the inventory produced from that year's
crops. Excessive rain or drought conditions can produce low crop yields and a
shortage situation. This typically results in higher selling prices and
increased profitability. While the national supply situation controls the
pricing, the supply can differ regionally because of variations in weather.
The Cooperative purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Cooperative has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur.
ENVIRONMENTAL MATTERS
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods and the emission of wastes and odors inherent in the
heating of foods during preparation are subject to various federal, state, and
local environmental laws and regulations. Such laws and regulations have had an
important effect on the food processing industry as a whole, requiring
substantially all firms in the industry to incur material expenditures for
modification of existing processing facilities and for construction of new waste
treatment facilities. The Cooperative is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position or financial condition.
Among the various programs for the protection of the environment which have been
adopted by the Cooperative to date, the most important for the operations of the
Cooperative are the waste water discharge permit programs administered by the
environmental protection agencies in those states in which the Cooperative does
business and by the federal Environmental Protection Agency. Under these
programs, permits are required for processing facilities which discharge certain
wastes into streams and other bodies of water, and the Cooperative is required
to meet certain discharge standards in accordance with compliance schedules
established by such agencies. The Cooperative has received permits for all
facilities for which permits are required. Each year the Cooperative submits
applications for renewal permits as required for the facilities.
While the Cooperative cannot predict with certainty the effect of any proposed
or future environmental legislation or regulations on its processing operations,
management of the Cooperative believes that the waste disposal systems which are
now in operation or which are being constructed or designed are sufficient to
comply with all currently applicable laws and regulations.
The Cooperative is cooperating with environmental authorities in remedying
various minor environmental matters at several of its plants. Such actions are
being conducted pursuant to procedures approved by the appropriate environmental
authorities at a cost that is not expected to be material.
Expenditures related to environmental programs and facilities have not had, and
are not expected to have, a material effect on the earnings of the Cooperative.
In fiscal 2001, total capital expenditures of Pro-Fac were $26.2 million of
which approximately $0.6 million was devoted to the construction of
environmental facilities. The Cooperative estimates that the environmental
capital expenditures will be approximately $0.8 million for the 2002 fiscal
year. However, there can be no assurance that expenditures will not be higher.
SEASONALITY OF BUSINESS
From a sales point of view, the business of the Cooperative is not highly
seasonal, since the demand for its products is fairly constant throughout the
year. Exceptions to this general rule include some products that have higher
sales volume in the cool weather months (such as canned and frozen fruits and
vegetables, chili, and fruit fillings and toppings), and others that have higher
sales volume in the warm weather months (such as potato chips and salad
dressings). Since many of the raw materials processed by Agrilink Foods are
agricultural crops, production of these products is predominantly seasonal,
occurring during and immediately following the harvest seasons of such crops.
PRACTICES CONCERNING WORKING CAPITAL
Agrilink Foods must maintain substantial inventories throughout the year of
finished products produced from seasonal raw materials. These inventories are
generally financed through seasonal borrowings. Agrilink Foods' Revolving Credit
Facility is used primarily for seasonal borrowing, the amount of which
fluctuates during the year. Both the maintenance of substantial inventories and
the practice of seasonal borrowing are common to the food processing industry.
SIGNIFICANT CUSTOMERS
The Cooperative's industry segments are not dependent upon the business of a
single customer or a few customers. The Cooperative does not have any customers
to whom sales are made in an amount which equals 10 percent or more of the
Cooperative's net sales.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Cooperative. Orders are filled shortly after receipt from inventories of
packaged and processed foods.
BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of the Cooperative is subject to
renegotiation of contracts with, or termination by, any governmental agency.
COMPETITIVE CONDITIONS
All products of the Cooperative, particularly branded products, compete with
those of other national and major regional food processors under highly
competitive conditions. The principal methods of competition in the food
industry are a ready availability of a broad line of products, product quality,
price, and advertising and sales promotion.
Quality of product and uniformity of quality are important methods of
competition. Sourcing of product from the members of Pro-Fac allows control over
the quality and uniformity of much of the raw product that is purchased. The
members of Pro-Fac generally operate relatively large production operations with
emphasis on mechanized growing and harvesting techniques. This factor is also an
advantage in producing uniform, high-quality food products.
The Cooperative's pricing is generally competitive with that of other food
processors for products of comparable quality. Branded products are marketed
under national and regional brands. In fiscal 2001, marketing programs for
national brands focused primarily on Birds Eye Voila!, Birds Eye Baby Vegetables
and Birds Eye Simply Grillin'. National advertising campaigns can include
television, magazines, coupons, and in-store promotions. Marketing programs for
regional brands are focused on local tastes and preferences as a means of
developing consumer brand loyalty. Regional advertising campaigns included
magazines, coupons, and in-store promotions.
Although the relative importance of the above factors may vary between
particular products or customers, the above description is generally applicable
to all of the products of the Cooperative in the various markets in which they
are distributed.
Profit margins for fruits and vegetables are subject to industry supply and
demand fluctuations, attributable to changes in growing conditions, acreage
planted, inventory carryover, and other factors. The Cooperative has endeavored
to protect against changing growing conditions through geographical expansion of
its sources of supply.
The percentage of ongoing sales under brand names owned and promoted by the
Cooperative amount to approximately 64 percent; sales to the food
service/industrial represent approximately 20 percent; and private label sales
currently represent approximately 16 percent.
It is difficult to estimate the number of competitors in the markets served by
the Cooperative. Nearly all products sold by the Cooperative compete with the
nationally advertised brands of leading food processors, including Del Monte,
Green Giant, Heinz, Frito-Lay, and Kraft, and similar major brands, as well as
with the branded and private label products of a number of regional processors,
many of which operate only in portions of the marketing area served by the
Cooperative.
MARKET AND INDUSTRY DATA
Unless otherwise stated in this report, industry and market share data used
throughout this Form 10-K was derived from industry sources believed by the
Cooperative to be reliable, including information provided by Information
Resources, Inc. Such data was obtained or derived from consultants' reports and
industry publications. Consultants' reports and industry publications generally
state that the information contained therein has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The Cooperative has not independently verified
such industry, market share, and brand awareness data and makes no
representation to its accuracy.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
Agrilink Foods operates a technical center located in Green Bay, Wisconsin that
is responsible for new product development, quality assurance, and engineering.
Approximately 27 employees are employed within this facility. Agrilink Foods
follows a four-stage new product development process as follows: screening,
feasibility, development, and commercialization. This new product development
process ensures input from consumers, customers, and internal functional areas
before a new product is brought to market.
The Cooperative also focuses on the development of related products or
modifications of existing products for the Cooperative's brands and customized
products for the Cooperative's private label and food service businesses.
The amount expensed during the last three fiscal years on Cooperative-sponsored
and customer-sponsored research activities relating to the development of new
products or the improvement of existing products has not been material.
During fiscal 1999, Birds Eye Voila!, a frozen all-in-one meal product that
includes vegetables, starch (pasta or potatoes), seasonings, and bite sized
pieces of protein (chicken, beef, turkey, or shrimp), in a variety of flavors,
was introduced. Fiscal 2001 net sales for Birds Eye Voila! were approximately
$108.1 million and fiscal 2000 net sales for Birds Eye Voila! were $104.5
million. During fiscal 2001, the Company introduced Birds Eye Simply Grillin', a
preseasoned blend of top quality Birds Eye vegetables in a foil tray. Net sales
for Simply Grillin' were approximately $11.3 million in fiscal 2001. A national
advertising campaign for Simply Grillin' has been initiated during the first
quarter of fiscal 2002.
EMPLOYEES
As of June 30, 2001, the Cooperative had 4,685 full-time employees, of whom
3,401 were engaged in production and the balance in management, sales and
administration. As of that date, the Cooperative also employed approximately
3,360 seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions. The Cooperative believes its current relationship with its employees is
good.
ITEM 2. DESCRIPTION OF PROPERTIES
All plants, warehouses, office space and other facilities used by the
Cooperative in its business are either owned by Agrilink Foods or leased from
unaffiliated third parties. All of the properties owned by Agrilink Foods are
subject to mortgages in favor of their respective primary lender. In general,
the properties include offices, processing plants and warehouse space. Some
processing plants are located in rural areas that are convenient for the
delivery of crops. The Cooperative also has dispersed warehouse locations to
facilitate the distribution of finished products. Agrilink Foods believes that
their facilities are in good condition and suitable for operations.
Agrilink Foods' Alton, New York property is held for sale.
The following table describes all material facilities leased or owned by the
Cooperative (other than the properties held for sale, certain public warehouses
leased by the Cooperative from unaffiliated third parties from time to time, and
facilities owned by Agrilink Foods' joint venture, Great Lakes Kraut Company,
LLC). Except as otherwise noted, each facility set forth below is owned by the
Cooperative.
FACILITIES UTILIZED BY THE COOPERATIVE
Type of Property (By Product Line) Location Square Feet
- ---------------------------------- -------- -----------
Vegetables:
Warehouse Sodus, MI 243,138
Freezing plant, dry storage warehouse, and office Barker, NY 123,600
Freezing plant Bergen, NY 138,554
Cold storage and repackaging plant and public storage warehouse Brockport, NY 404,410
Canning plant and warehouse, freezing plant Oakfield, NY 263,410
Freezing plant, cold storage, repackaging plant, and office Montezuma, GA 591,300
Freezing plant, cold storage, and office Alamo, TX 114,446
Freezing plant, cold storage, and office Bridgeville, DE 104,383
Freezing plant and repackaging plant Celaya, Mexico 318,620
Freezing plant and distribution center Darien, WI 348,800
Freezing plant, repackaging plant and warehouse Fairwater, WI 178,298
Repackaging plant and distribution center Fulton, NY 263,268
Freezing and canning plant and office Green Bay, WI 492,446
Freezing plant and repackaging plant(1) Oxnard, CA 39,082
Repackaging plant(1) San Antonio, TX 20,445
Freezing plant and warehouse Uvalde, TX 146,625
Freezing plant, repackaging plant and warehouse Watsonville, CA 207,600
Freezing plant, repackaging plant and warehouse Waseca, MN 258,475
Labeling plant and distribution center(1) Fond du Lac, WI 330,000
Receiving and grading station (1) Mount Vernon, WA 110,806
Receiving and grading station (1) Aurora, WA 6,800
Warehouse, tank yards, and office Enumclaw, WA 87,313
Plant, warehouse, and tank yards Tacoma, WA 295,468
Fruits:
Canning plant and warehouse Red Creek, NY 153,076
Canning plant and warehouse Fennville, MI 350,000
Canning plant and warehouse Lawton, MI 142,000
Snacks:
Manufacturing plant Ridgway, IL 50,000
Plant, warehouse, distribution center, and office Algona, WA 107,000
Plant, warehouse, and office Berlin, PA 190,225
Plant, warehouse, distribution center, and office(1) Auburn, WA 23,000
Plant, warehouse and distribution center Auburn, WA 27,442
Plant, warehouse, and office, Cincinnati, OH 113,576
Distribution center Elwood City, PA 8,000
Distribution center Monessen, PA 10,000
Distribution center Coraopolis, PA 15,000
Distribution center Canton, OH 8,200
Distribution center(1) Canal Fulton, OH 14,000
Distribution center(1) Altoona, PA 10,000
Distribution center(1) Ashland, KY 10,760
Distribution center(1) Bristol, TN 11,500
Distribution center(1) Knoxville, TN 12,500
Distribution center(1) Dayton, OH 9,200
Type of Property (By Product Line) Location Square Feet
- ---------------------------------- -------- -----------
Canned Meals:
Canning plant, warehouse and distribution center Tacoma, WA 313,488
Other:
Office building, manufacturing plant and warehouse Tacoma, WA 372,164
Parking lot and yards (1) Tacoma, WA 305,470
Office Building - Fuller Building (1) Tacoma, WA 60,000
Headquarters office (1) Rochester, NY 76,372
(1)Leased from third parties, although certain related equipment is owned by the
Cooperative.
ITEM 3. LEGAL PROCEEDINGS
The Cooperative is party to legal proceedings from time to time in the normal
course of its business. In the opinion of management, any liability that might
be incurred upon the resolution of these proceedings will not, in the aggregate,
have a material adverse effect on either of these businesses, financial
condition, and results of operations. Further, no such proceedings are known to
be contemplated by governmental authorities. The Cooperative maintains general
liability insurance coverage in amounts deemed to be adequate by management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no trading market for the Cooperative's common stock. Only
member/growers of the Cooperative can own shares of common stock. As of June 30,
2001, there were 604 members of Pro-Fac holding shares of Pro-Fac Class A Common
Stock and 153 members holding shares of Pro-Fac Class B Common Stock. The Class
B common stock held by former members of Agripac was repurchased on July 19,
2001.
In fiscal 2001 and 2000, dividends on Class A Common Stock were paid at a rate
of 5.0 percent. No dividends were paid on Class B common stock. Further
information required by this item is contained in NOTE 14 to the "Notes to
Consolidated Financial Statements," at "Quarterly Financial Data," and at
"Selected Financial Data."
During fiscal 2001, the Cooperative issued shares of its Class A Cumulative
Preferred Stock in exchange for shares for its Non-cumulative Preferred Stock,
on a share-for-share basis. Such exchanges are exempt from registration under
section 3(a)(9) of the Securities Act of 1933. The dates and amounts of the
exchanges are set forth below:
Date Number of Shares Value of Shares
January 14, 2001 1,731 $ 43,275
April 28, 2001 262 6,550
June 25, 2001 99 2,475
------- ---------
Total 2,092 $ 52,300
======= =========
The Credit Facility restricts the amount of dividends and other distributions
that may be made by Pro-Fac to its stockholders. The Notes restrict the amount
of dividends and other payments that may be made by Agrilink Foods. See further
discussion at "Liquidity and Capital Resources."
In addition, New York Cooperative Law restricts the amount of annual dividends
on common stock to 12 percent per annum.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Capital Stock Data)
Fiscal Year Ended June
----------------------------------------------------------------
2001* 2000 1999** 1998 1997
------------ --------- ---------- ----------- ----------
Consolidated summary of operations:
Net sales $1,339,211 $1,306,659 $1,292,021 $ 742,161 $ 755,464
Cost of sales (956,182) (919,029) (928,262) (546,578) (563,722)
----------- ---------- ---------- ---------- ----------
Gross profit 383,029 387,630 363,759 195,583 191,742
Selling, administrative, and general expenses (298,283) (288,511) (293,646) (141,739) (145,214)
Gains on sales of assets 0 6,635 64,734 0 3,565
Restructuring 0 0 (5,000) 0 0
Income from joint venture 1,779 2,418 2,787 1,893 0
---------- ---------- ---------- ---------- ----------
Operating income 86,525 108,172 132,634 55,737 50,093
Interest expense (85,073) (83,511) (67,420) (30,767) (36,473)
Amortization of debt issue costs 0 0 (5,500) 0 0
---------- ---------- ---------- ---------- ----------
Pretax income before extraordinary item, cumulative effect of an
accounting change, dividends, and allocation of net proceeds 1,452 24,661 59,714 24,970 13,620
Tax provision (968) (8,497) (24,746) (7,840) (5,529)
----------- ---------- ---------- ---------- ----------
Income before extraordinary item, cumulative effect of an
accounting change, dividends and allocation of net proceeds 484 16,164 34,968 17,130 8,091
Extraordinary item relating to the early extinguishment of debt
(net of income taxes) 0 0 (18,024) 0 0
Cumulative effect of an accounting change (net of income taxes) 0 0 0 0 4,606
---------- ---------- ---------- ---------- ----------
Net income $ 484 $ 16,164 $ 16,944 $ 17,130 $ 12,697
========== ========== ========== ========== ==========
Allocation of Net Proceeds:
Net income $ 484 $ 16,164 $ 16,944 $ 17,130 $ 12,697
Dividends on Class A common and preferred stock (8,123) (7,410) (6,734) (6,328) (5,503)
----------- ---------- ---------- ---------- ----------
Net proceeds (7,639) 8,754 10,210 10,802 7,194
Allocation (to)/from earned surplus 7,639 (3,832) (10,210) (4,662) (3,661)
---------- ---------- ---------- ---------- ----------
Net proceeds available to Class A members $ 0 $ 4,922 $ 0 $ 6,140 $ 3,533
========== ========== ========== ========== ==========
Allocation of net proceeds available to Class A members:
Payable to Class A members currently (30% of qualified proceeds
available to Class A members in fiscal 2000 and 25% in
fiscal 1998 and 1997) $ 0 $ 1,477 $ 0 $ 1,535 $ 883
Allocated to Class A members but retained by the Cooperative:
Qualified retains 0 3,445 0 4,605 2,650
---------- ---------- ---------- ---------- ----------
Net proceeds available to Class A members $ 0 $ 4,922 $ 0 $ 6,140 $ 3,533
========== ========= ========== ========== ==========
CMV related to Class A members $ 69,013 $ 69,623 $ 62,154 $ 58,530 $ 51,445
========== ========== ========== ========== ==========
CMV related to Class B members $ 9,423 $ 14,060
========== ==========
Total net proceeds allocated to Class A members as a
percent of CMV*** 0.00% 7.07% 0.00% 10.51% 6.87%
========== ========== ========== ========== ==========
Total net proceeds allocated to Class B members as a
percent of CMV**** 0.00% 0.00% 0.00% 0.00% 0.00%
========== ========== ========== ========== ==========
Balance Sheet Data:
- ------------------
Working capital $ 243,628 $ 260,481 $ 237,331 $ 94,103 $ 75,950
Ratio of current assets to current liabilities 2.1:1 1.9:1 1.9:1 1.7:1 1.6:1
Total assets $1,061,351 $1,187,266 $1,196,479 $ 569,240 $ 546,677
Debt to equity ratio***** 4.2:1 4.4:1 4.7:1 1.7:1 1.8:1
Class A common stock $ 11,287 $ 10,665 $ 9,979 $ 9,129 $ 8,944
Class B cumulative redeemable Preferred $ 239 $ 237 $ 261 $ 270 $ 315
Shareholders' and members' capitalization, redeemable stock,
and common stock $ 153,315 $ 159,843 $ 152,111 $ 141,369 $ 132,663
Total long-term debt and senior subordinated notes (excludes
current portion and capital leases) $ 631,128 $ 679,205 $ 702,322 $ 229,937 $ 229,829
Capital Stock Data Cash dividends paid per share:
Class A Common $ .25 $ .25 $ .25 $ .25 $ 0.00
Non-Cumulative Preferred $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50
Class A Cumulative Preferred $ 1.72 $ 1.72 $ 1.72 $ 1.72 $ 1.72
Class B Cumulative Preferred $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Average Class A common stock investment per Class A member $ 18,688 $ 17,037 $ 15,471 $ 14,399 $ 14,333
Number of Class A Common Stock members: 604 626 645 634 624
Number of Class B Common Stock members:****** 153 150 0 0 0
* See NOTE 3 to "Notes to Consolidated Financial Statements." Information
includes the activities of AgriFrozen until February 15, 2001. In
addition, fiscal 2001 consists of 53 weeks.
** Includes nine months of operating results from the September 28, 1998
DFVC Acquisition.
*** Payment to Class A members for CMV was 100 percent of deliveries in
fiscal 2001 and 1999.
**** Payment to Class B members for CMV was 63.50 percent in fiscal 2001 and
89.16 percent of deliveries in fiscal 2000.
***** For purposes of this calculation, debt includes both current and non-
current debt, and equity includes common stock and redeemable preferred
stock.
****** On July 19, 2001, Pro-Fac repurchased all Class B common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to outline the significant reasons for changes
in the Consolidated Statement of Operations, Net Proceeds and Comprehensive
Income from fiscal 1999 through fiscal 2001.
Pro-Fac Cooperative, Inc.'s ("Pro-Fac" or the "Cooperative") wholly-owned
subsidiary, Agrilink Foods, Inc. ("Agrilink Foods") has four primary product
lines including: vegetables, fruits, snacks and canned meals. The Cooperative's
former subsidiary, AgriFrozen, had vegetables as its one primary product line.
The majority of each of the product lines' net sales are within the United
States. In addition, all of the Cooperative's operating facilities, excluding
one facility in Mexico, are within the United States.
The vegetable product line consists of canned and frozen vegetables, chili
beans, and various other products. Branded products within the vegetable
category include Birds Eye, Birds Eye Voila!, Birds Eye Simply Grillin',
Freshlike, Veg-All, McKenzies, and Brooks Chili Beans. The fruit product line
consists of canned and frozen fruits including fruit fillings and toppings.
Branded products within the fruit category include Comstock and Wilderness. The
snack product line consists of potato chips, popcorn and other corn-based snack
items. Branded products within the snack category include Tim's Cascade Chips,
Snyder of Berlin, Husman, La Restaurante, Erin's, Beehive, Pops-Rite, Super Pop,
and Flavor Destinations. The canned meal product line includes canned meat
products such as chilies, stews, soups, and various other ready-to-eat prepared
meals. Branded products within the canned meal category include Nalley. The
Cooperative's other product line primarily represents salad dressings. Brand
products within this category include Bernstein's, and Nalley.
The following tables illustrate the Cooperative's results of operations by
product line for the fiscal years ended June 30, 2001, June 24, 2000, and June
26, 1999, and the Cooperative's total assets by product line at June 30, 2001,
June 24, 2000, and June 26, 1999.
EBITDA1,2
(Dollars in Millions)
Fiscal Years Ended
----------------------------------------------------------
June 30, 2001 June 24,2000 June 26, 1999
-------------- ------------------ ----------------
% of % of % of
$ Total $ Total $ Total
----- ----- ----- ----- ------ -----
Vegetables 85.9 66.9 93.8 65.7 64.2 60.0
Fruits 14.1 11.0 15.7 11.0 10.8 10.1
Snack 9.4 7.3 9.8 6.9 5.8 5.4
Canned meals 8.1 6.3 8.6 6.0 8.4 7.9
Other 4.3 3.4 6.5 4.5 5.3 4.9
----- ----- ----- ----- ----- ------
Continuing segments 121.8 94.9 134.4 94.1 94.5 88.3
Businesses sold or closed3 6.5 5.1 8.5 5.9 12.6 11.7
----- ----- ----- ----- ----- ------
Total 128.3 100.0 142.9 100.0 107.1 100.0
===== ===== ===== ===== ===== ======
1 Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
is defined as the sum of pretax income before dividends, allocation of net
proceeds, extraordinary item, interest expense, amortization of debt issue
costs associated with the Bridge Facility, depreciation and amortization of
goodwill and other intangibles.
EBITDA should not be considered as an alternative to net income or cash
flows from operations or any other generally accepted accounting principles
measure of performance or as a measure of liquidity.
EBITDA is included herein because the Cooperative believes EBITDA is a
financial indicator of a Cooperative's ability to service debt. EBITDA as
calculated by the Cooperative may not be comparable to calculations as
presented by other companies.
2 Excludes the gains on sales of assets, the restructuring charge, and the
extraordinary item relating to the early extinguishment of debt. See NOTES
1 and 3 to the "Notes to Consolidated Financial Statements."
3 Represents the operating results of operations sold or no longer part of
the Cooperative. See NOTE 3 to the "Notes to Consolidated Financial
Statements."
Net Sales
(Dollars in Millions)
Fiscal Years Ended
------------------------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
-------------------- ------------------ --------------------
% of % of % of
$ Total $ Total $ Total
------- ----- ------- ----- ------- -----
Vegetables 970.2 72.4 836.7 64.0 769.5 59.6
Fruits 120.4 9.0 114.4 8.8 115.8 9.0
Snack 97.9 7.3 90.9 7.0 91.4 7.1
Canned meals 64.2 4.8 62.3 4.8 66.4 5.1
Other 50.6 3.8 56.0 4.3 74.8 5.8
------- ----- ------- ------ ------- -----
Continuing segments 1,303.3 97.3 1,160.3 88.9 1,117.9 86.6
Businesses sold or closed 1 35.9 2.7 146.4 11.1 174.1 13.4
------- ----- ------- ------ ------- -----
Total 1,339.2 100.0 1,306.7 100.0 1,292.0 100.0
======= ===== ======= ====== ======= =====
1 Includes net sales of operations sold or no longer part of the Cooperative.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
Operating Income1
(Dollars in Millions)
Fiscal Years Ended
----------------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
----------------- ---------------- ----------------
% of % of % of
$ Total $ Total $ Total
---- ----- ------ ----- ------ -----
Vegetables 55.7 64.4 65.4 64.5 43.9 60.1
Fruits 11.4 13.2 13.9 13.7 8.4 11.5
Snack 5.6 6.5 6.7 6.6 3.3 4.5
Canned meals 6.6 7.6 6.7 6.6 6.5 8.9
Other 1.9 2.2 4.6 4.5 3.7 5.1
---- ----- ----- ----- ----- -----
Continuing segments 81.2 93.9 97.3 95.9 65.8 90.1
Businesses sold or closed 2 5.3 6.1 4.2 4.1 7.2 9.9
---- ----- ----- ----- ----- -----
Total3 86.5 100.0 101.5 100.0 73.0 100.0
==== ===== ===== ===== ===== =====
1 Excludes the gains on sales of assets, the restructuring charge, and the
extraordinary item relating to the early extinguishment of debt. See NOTES
1 and 3 to the "Notes to Consolidated Financial Statements."
2 Represents the operating results of the operations sold or no longer part
of the Cooperative. See NOTE 3 to the "Notes to Consolidated Financial
Statements."
3 Operating income less interest expense (including the amortization of debt
issue costs associated with the Bridge Facility) of $85.1 million, $83.5
million, and $72.9 million for the years ended June 30, 2001, June 24,
2000, and June 26, 1999, respectively, results in pretax income before
extraordinary item, dividends, and allocation of net proceeds. Management
does not allocate interest expense to product lines when evaluating product
line performance.
Total Assets
(Dollars in Millions)
As of Fiscal Years Ended
-------------------------------------------------------------------------
June 30,2001 June 24, 2000 June 26, 1999
-------------------- --------------------- ---------------------
% of % of % of
$ Total $ Total $ Total
------- ----- -------- ----- ------- -----
Vegetables 839.8 79.1 867.1 73.0 880.8 73.6
Fruits 71.9 6.8 79.4 6.7 90.2 7.5
Snacks 47.0 4.4 43.5 3.7 40.9 3.4
Canned Meals 45.3 4.3 45.7 3.8 46.2 3.9
Other 57.2 5.3 52.2 4.4 43.1 3.6
------- ----- -------- ----- ------- -----
Continuing segments 1,061.2 99.9 1,087.9 91.6 1,101.2 92.0
Businesses sold or closed1 0.0 0.0 99.1 8.4 94.4 7.9
Assets held for sale 0.1 0.1 0.3 0.0 0.9 0.1
------- ----- -------- ----- ------- -----
Total 1,061.3 100.0 1,187.3 100.0 1,196.5 100.0
======= ===== ======== ===== ======= =====
1 Includes the assets of operations sold or no longer part of the
Cooperative. See NOTE 3 to the "Notes to Consolidated Financial
Statements."
CHANGES FROM FISCAL 2001 TO FISCAL 2000
During fiscal 2001, net sales from continuing segments showed an increase of
$143.0 million, or 12.3 percent. Approximately $90.6 million of the net sales
improvement was attributable to an increase in frozen vegetable net sales, and
an additional $44.1 million was associated with various co-pack agreements. The
Cooperative's overall market share, for the 52-week period ending June 24, 2001,
for frozen vegetables approximated 31.4 percent and represented an improvement
of 1.6 points over the prior year. The Cooperative's overall market share
includes branded retail unit sales, as reported by Information Resources, Inc.,
and management's estimate of the Cooperative's private label share based upon
factory shipments.
Excluding the gain on sales of assets (net of tax), net income decreased $11.4
million from fiscal 2000. While the Cooperative continues to benefit from a
significant improvement in net sales, it has also experienced a significant
increase in its manufacturing costs. Increased manufacturing costs were
primarily associated with significantly higher freight and utility costs
throughout the nation and lower than anticipated crop intake in the eastern part
of the country. To mitigate the increase in manufacturing costs, management has
focused efforts on controlling warehousing expenses, increased branded pricing,
acquired lower cost inventory from the lender to AgriFrozen, and has initiated
reductions in selling, administrative, and general expenses. Management actions
have included reductions in certain marketing programs and various employee
incentive programs. Management continues to focus its efforts on cost savings
initiatives to reduce its overall spending.
Management also utilizes an evaluation of EBITDA from continuing segments as a
measure of performance. Excluding businesses sold or no longer part of the
Cooperative, EBITDA from continuing segments decreased $12.6 million, or 9.4
percent, to $121.8 million in fiscal 2001 from $134.4 million in fiscal 2000. A
detailed accounting of the significant reasons for changes in net sales and
EBITDA by product line follows.
Vegetable net sales increased $133.5 million or 16.0 percent. Significant
components associated with this growth include: (a) an improvement in net sales
within the brand business of approximately $58.2 million; and (b) increases in
net sales within the nonbranded business of approximately $75.3 million.
Within the branded businesses, the increase in Birds Eye frozen vegetables net
sales accounted for approximately $42.0 million of the $58.2 million increase.
$27.4 million was a result of volume improvements and $14.6 million was due to
pricing initiatives announced in the second half of fiscal 2001. For the 52-week
period ending June 24, 2001, the total frozen vegetable category retail unit
sales, as reported by Information Resources, Inc., were down slightly, 3.1
percent, while the Birds Eye brand retail unit sales for the same time period
increased 1.9 percent. Unit sales of the Cooperative's largest competitor, as
reported by Information Resources, Inc., decreased 9.1 percent during this same
time period. Net sales for the Birds Eye Voila! product line increased $3.6
million over the prior year, while Voila! remained the leading brand with 32.7
percent of the home meal replacement category.
In addition, in the fourth quarter of fiscal 2001, Agrilink Foods initiated a
national launch of its most recent new product, Simply Grillin'. Simply Grillin'
is a preseasoned blend of top quality grilled Birds Eye vegetables in a foil
tray. Net sales associated with this new product were $11.3 million. Marketing
and promotional spending incurred with this introduction amounted to $5.9
million. Management estimates that Simply Grillin' will achieve $35 million of
net sales in fiscal 2002.
Agrilink Foods' non-branded vegetable business experienced volume increases in
private label and food service frozen vegetables which accounted for $27.1
million of net sales growth. The $27.1 million of net sales growth resulted from
the following: (a) increases in Agrilink Foods' recurring private label and food
service business of $25.0 million; (b) net sales increases of $26.2 million
associated with the inventory purchased from AgriFrozen Foods; (c) offset by
reductions of $24.1 million associated with the conversion of a major club store
customer from a private label to brand product line.
Further, various co-pack agreements for canned vegetables in the Midwest and for
pickles in the Northwest accounted for an additional $44.1 million of the
nonbranded net sales increase. While these co-pack agreements typically yield
lower margins than Agrilink Foods' other product lines, they do provide for
greater utilization of manufacturing facilities.
Although vegetables experienced a significant increase in net sales, EBITDA
declined $7.9 million. The reduction in EBITDA was primarily driven by increased
manufacturing costs as discussed above.
Net sales for the fruit product line increased $6.0 million, or 5.2 percent,
while EBITDA decreased $1.6 million, or 10.2 percent. The net sales improvement
was led by increases in private label net sales of $4.7 million and additional
co-pack agreements resulting in net sales increases of $1.8 million. Modest
declines were highlighted in all other categories. Increased manufacturing costs
and continued competitive pressures within the applesauce category, however,
negatively impacted EBITDA.
Net sales for the snack product line increased $7.0 million, or 7.7 percent.
Improvements in net sales within the potato chip category increased $8.4
million, while the popcorn product line decreased $1.4 million. The increases
within the potato chip category were associated with geographic expansion. The
improvements in EBITDA associated with growth in the potato chip category
amounted to $1.4 million, while declines in the popcorn category negatively
impacted EBITDA by approximately $1.8 million. The popcorn category continues to
be negatively impacted by competitive pressures and changes in product mix.
Net sales for canned meals increased $1.9 million, or 3.0 percent, while EBITDA
decreased $0.5 million, or 5.8 percent. EBITDA decreased as a result of changes
in product mix and increased manufacturing costs associated with raw
ingredients, including beef and utility increases experienced in the Northwest.
All of Agrilink Foods' canned meal products are produced at the Agrilink Foods'
Tacoma, Washington location.
The other product line net sales, primarily represented by salad dressings,
decreased $5.4 million, or 9.6 percent, while EBITDA decreased $2.2 million, or
33.8 percent. The majority of the net sales decline was associated with the loss
of a private label customer. The reduction in EBITDA was associated with both
the decline in unit volume associated with reductions in private label volume
and increases in manufacturing costs associated with packaging ingredients and
utility increases experienced in the Northwest. All of Agrilink Foods' dressing
products are produced at Agrilink Foods' Tacoma, Washington location.
Operating Income: Operating income from continuing segments decreased from $97.3
million in fiscal 2000 to $81.2 million in fiscal 2001. This represents a
decrease of $16.1 million or 16.5 percent. Declines in operating income within
the vegetable, fruit, snacks, canned meals, and all other product lines were
$9.7 million, $2.5 million, $1.1 million, $0.1 million and $2.7 million,
respectively. Significant variances as highlighted above, primarily result from
increased manufacturing costs, competitive pressures, and changes in product
mix.
Gains on Sales of Assets: On June 23, 2000, Agrilink Foods sold its pickle
business based in Tacoma, Washington to Dean Pickle and Specialty Products
Company. This business included pickle, pepper, and relish products sold
primarily under the Nalley and Farman's brand names. Agrilink received proceeds
of approximately $10.3 million which were applied to bank loans ($4.0 million of
which was applied to the Term Loan Facility and $6.3 million of which was
applied to the Agrilink Foods' Revolving Credit Facility). A gain of
approximately $4.3 million was recognized on this transaction.
On July 21, 2000, Agrilink Foods sold the machinery and equipment utilized in
the production of pickles and other related products to Dean Pickle and
Specialty Products Company. No significant gain or loss was recognized on this
transaction. Proceeds of approximately $5.0 million were applied to bank loans.
This transaction did not include any other products carrying the Nalley brand
name. Agrilink Foods continues to contract pack Nalley and Farman's pickle
products for a period of two years, beginning June 23, 2000, at the existing
Tacoma processing plant which Agrilink Foods operates. Under a related
agreement, the Cooperative supplies raw cucumbers grown in the Northwestern
United States to Dean Pickle and Specialty Products Company, for a minimum
10-year period at market pricing.
On December 17, 1999 Agrilink Foods announced they had completed the sale of the
Cambria, Wisconsin processing facility to Del Monte. The Cooperative received
proceeds of approximately $10.5 million which were applied to bank loans. A gain
of approximately $2.3 million was recognized on this transaction. The sale also
included an agreement for Del Monte to produce a portion of Agrilink Foods'
product needs during the 2000 packing season.
Income From Joint Venture: This amount represents earnings received from the
investment in Great Lakes Kraut Company, LLC, a joint venture formed between
Agrilink Foods and Flanagan Brothers, Inc. The decrease of $0.6 million over the
prior year is attributable to a volume decline, resulting competitive pressures,
and an increase in manufacturing costs. See further discussion at NOTE 5 to the
"Notes to Consolidated Financial Statements."
Interest Expense: Interest expense increased $1.6 million from the prior year to
$85.1 million. The increase is the result of an increase in the weighted average
interest rate of 45 basis points resulting from both amendments to the Agrilink
Foods' credit facility during September 2000 and general interest rate increases
on unhedged borrowings experienced in the first six months of fiscal 2001. In
addition, interest expense was negatively impacted by the amortization of fees
paid in conjunction with the September 2000 amendments to the Agrilink Foods'
credit facility. The increases were offset by lower average outstanding balances
during the fiscal year of approximately $62.6 million, primarily due to required
repayments and mandatory prepayments of short-term debt associated with
businesses sold and the elimination of AgriFrozen business activity resulting
from Pro-Fac's abandonment of its equity interest in AgriFrozen on February 15,
2001.
Tax Provision: The tax provision of $1.0 million in fiscal 2001 represents a
reduction of $7.5 million from the prior year as a result of the change in
earnings before taxes In fiscal 2000, the sale of certain intangibles in
conjunction with the pickle sale negatively impacted the Cooperative's effective
tax rate. The Cooperative's effective tax rate has historically been negatively
impacted by the non-deductibility of certain amounts of goodwill. The
Cooperative's effective tax rate is also impacted by the net proceeds
distributed to members. A further discussion of tax matters is included at NOTE
9 to the "Notes to Consolidated Financial Statements."
CHANGES FROM FISCAL 1999 TO FISCAL 2000
During fiscal 2000, total net sales decreased $14.7 million or 1.1 percent, to
$1,306.7 million from $1,292.0 million in fiscal 1999. Excluding businesses
sold, net sales increased by $42.4 million, or 3.8 percent, to $1,160.3 million
from $1,117.9 million in fiscal 1999. The Cooperative's overall market share,
for the 52-week period ending June 25, 2000, for frozen vegetables approximated
29.8 percent. The Cooperative's overall market share includes branded retail
unit sales, as reported by Information Resources, Inc., and management's
estimate of the Cooperative's private label share based upon factory shipments.
Net income for fiscal 2000 of $16.2 million, however, represented a $0.8 million
decrease over fiscal 1999 net income of $17.0 million. Comparability of net
income is, however, difficult because fiscal 1999 was impacted by gains on sales
of assets, a restructuring charge, the amortization of debt issue costs
associated with the Bridge Facility, and the extraordinary item relating to the
early extinguishment of debt. In addition, fiscal 2000 results reflect 12 months
of interest expense versus 9 months in the prior year for the additional debt
associated with the DFVC Acquisition which occurred on September 24, 1998 and
additional debt associated with the Agripac acquisition which occurred on
February 23, 1999. Accordingly, management believes, to summarize results, an
evaluation of EBITDA by continuing business segments is appropriate. Overall
EBITDA from continuing segments increased $39.9 million, or 42.2 percent, to
$134.4 million. A detailed accounting of the significant reasons for changes in
net sales and EBITDA by product line follows.
Vegetable net sales increased $67.2 million or 8.7 percent. The vegetable
product line accounts for a $29.6 million increase of the overall EBITDA. These
improvements are impacted by both the results of the DFVC Acquisition, including
its impact on the percentage of branded sales for Agrilink Foods and the
reduction in product costs resulting from synergistic savings. As a result of
the date of the DFVC Acquisition, the operating results of the acquisition have
been included for 12 months in fiscal 2000 and for 9 months in fiscal 1999. In
addition, as anticipated at the acquisition date, a greater percentage of
Agrilink Foods' sales now come from its branded products. The inclusion of the
Birds Eye, Freshlike, and Veg-All brands for 12 months during fiscal 2000 versus
nine months of results in fiscal 1999 resulted in incremental sales of
approximately $90.2 million. Agrilink Foods' branded products yield a higher
margin than its private label and food service categories and the EBITDA
improvement associated with this increase in branded sales was approximately
$12.6 million. Agrilink Foods' earnings also benefited from a reduction in
product costs during fiscal 2000 primarily associated with the synergistic
savings achieved from the DFVC Acquisition and other consolidation efforts.
Specifically, Agrilink Foods benefited from the insourcing of product previously
purchased from outside suppliers, staffing reductions, and shipping
consolidations.
Market conditions within the frozen vegetable category caused by lower consumer
demand and retail consolidation did, however, offset the increases outlined
above and accounted for approximately $23.0 million in net sales declines.
According to industry data, for the 52-week period ended June 25, 2000, there
was an overall decrease in the total frozen vegetable category of 4.0 percent in
unit volume, and for the same 52-week period, the decrease in the frozen
vegetable private label category was 4.7 percent in unit volume.
Net sales from the fruit product line decreased $1.4 million, or 1.2 percent, to
$114.4 million in fiscal 2000 from $115.8 million in fiscal 1999. EBITDA,
however, increased approximately $4.9 million. Increases in net sales and
earnings were achieved within the pie filling category due to a return to
Agrilink Foods' historical pricing strategy. However, net sales within the
applesauce category decreased from the prior year due to competitive pricing
within the industry. Due to relatively competitive margins within the applesauce
category, however, this reduction in net sales did not have a significant impact
on earnings. In addition, fiscal 1999 results also included spending $0.9
million for a new product launch. No such costs were incurred in fiscal 2000.
Snacks showed an increase in EBITDA of $4.0 million primarily due to
improvements within the potato chip category. During fiscal 2000, a greater
percentage of sales were associated with the potato chip category which carries
a higher margin than Agrilink Foods' popcorn product line. Declines in the
popcorn category resulted from both a decrease in volume and pricing resulting
from increased competition. In addition, fiscal 1999 results were impacted by a
strike at the Snyder of Berlin facility. This action resulted in incremental
costs of approximately $2.5 million in fiscal 1999. The matter was settled in
the first quarter of fiscal 2000. Management believes its current relationship
with these employees is good.
While canned meals showed a decline in net sales of $4.1 million in fiscal 2000
primarily attributable to a decline in volume in private label chili, EBITDA
showed a modest increase of $0.2 million resulting from production efficiencies
and a reduction in raw product costs including beef.
The other product line, while consisting of dressings, also includes sales from
the production of canned products primarily for use by the military and other
governmental operations. While these governmental contracts yield lower margins
than Agrilink Foods' other product lines, they do provide for greater
utilization of seasonal manufacturing facilities. The majority of the $18.8
million decrease in net sales is associated with the decline in government
demand for such canned products. The improvements in EBITDA of $1.2 million over
fiscal 1999 resulted from the changes in product mix within the dressing
category and reductions in raw product costs, including various oils.
Operating Income: Operating income of $108.2 million in fiscal 2000 decreased
approximately $24.4 million from $132.6 million in fiscal 1999. Excluding the
impact of businesses sold and other non-recurring items, operating income from
continuing operations increased from $65.8 million in fiscal 1999 to $97.3
million in fiscal 2000. This represents an improvement of $31.5 million or 47.9
percent. Improvements in operating income within the vegetable, fruit, snacks,
canned meals, and all other produt lines were $21.5 million, $5.5 million, $3.4
million, $0.2 million, and $0.9 million, respectively. These increases are
attributable to the date of and benefits from the DFVC Acquisition and other
repositioning efforts.
Additionally, while Agrilink Foods experienced significant benefits from its
efforts in 1999 to consolidate warehouses and other logistics operations, the
decline in sales resulting from the current industry trend caused inventory
levels to increase. Storage and handling costs associated with the increase in
inventory approximated $13 million.
Gains on Sales of Assets: On June 23, 2000, Agrilink Foods sold its pickle
business based in Tacoma, Washington to Dean Pickle and Specialty Products
Company. This business included pickle, pepper, and relish products sold
primarily under the Nalley and Farman's brand names. Agrilink received proceeds
of approximately $10.3 million which were applied to bank loans ($4.0 million of
which was applied to the Term Loan Facility and $6.3 million of which was
applied to the Agrilink Foods' Revolving Credit Facility). A gain of
approximately $4.3 million was recognized on this transaction.
This transaction did not include any other products carrying the Nalley brand
name. Agrilink Foods continues to contract pack Nalley and Farman's pickle
products for a period of two years, beginning June 23, 2000, at the existing
Tacoma processing plant which Agrilink Foods operates. Under a related
agreement, the Cooperative supplies raw cucumbers grown in the Northwestern
United States to Dean Pickle and Specialty Products Company, for a minimum
10-year period at market pricing.
On December 17, 1999 Agrilink Foods announced they had completed the sale of the
Cambria, Wisconsin processing facility to Del Monte. The Cooperative received
proceeds of approximately $10.5 million which were applied to bank loans. A gain
of approximately $2.3 million was recognized on this transaction. The sale
includes an agreement for Del Monte to produce a portion of Agrilink Foods'
product needs during the 2000 packing season.
On January 29, 1999, Agrilink Foods sold the Adams brand peanut butter
operations to the J.M. Smucker Company. Agrilink Foods received proceeds of
approximately $13.5 million which were applied to outstanding bank loans. A gain
of approximately $3.5 million was recognized on this transaction.
In conjunction with the DFVC Acquisition, Agrilink Foods sold its aseptic
business to Dean Foods. The purchase price of $80 million was based upon an
appraisal completed by an independent appraiser. The gain on the sale was
approximately $61.2 million.
Restructuring: Implementation of a corporate-wide restructuring program resulted
in a charge of $5.0 million in the third quarter of fiscal 1999. See NOTE 1 to
the "Notes to Consolidated Financial Statements."
Income from Joint Venture: This amount represents earnings received from the
investment in Great Lakes Kraut Company, LLC, a joint venture formed between
Agrilink Foods and Flanagan Brothers, Inc. on July 1, 1997. The decrease of $0.4
million over the prior year is attributable to the sale of assets. See further
discussion at NOTE 5 to the "Notes to Consolidated Financial Statements."
Interest Expense: Interest expense increased $16.1 million to $83.5 million in
fiscal 2000 from $67.4 million in fiscal 1999. The increase in interest is
associated with debt utilized to finance the DFVC and Agripac acquisitions and
higher levels of seasonal borrowings to fund additional working capital
requirements associated with the increase in the Cooperative's size. As a result
of the date of the DFVC Acquisition, interest expense has been included for 12
months in fiscal 2000 and 9 months in fiscal 1999. In addition, as a result of
the Agripac acquisition, interest expense has been included for 12 months in
fiscal 2000 and 4 months in fiscal 1999. This increase is also associated with
an overall increase in prevailing interest rates which occurred over the last
year.
Amortization of Debt Issue Costs Associated with the Bridge Facility: In order
to consummate the DFVC Acquisition, Agrilink Foods entered into a $200 million
bridge loan facility (the "Bridge Facility"). The Bridge Facility was repaid
with the proceeds from the new senior subordinated note offering (see NOTE 8 to
the "Notes to Consolidated Financial Statements" - "Debt - Senior Subordinated
Notes 11-7/8 Percent due 2008"). Debt issuance costs associated with the Bridge
Facility were $5.5 million and were fully amortized during the second quarter of
fiscal 1999.
Tax Provision: The tax provision of $8.5 million in fiscal 2000 represents a
reduction of $16.2 million from the prior year. Of this decrease, $25.2 million
is attributable to the provision associated with the fiscal 1999 gain on sale of
the aseptic operations and the tax benefit of $2.1 million associated with the
amortization of debt issue costs also in fiscal 1999. In fiscal 2000, the sale
of certain intangibles in conjunction with the pickle sale negatively impacted
the Cooperative's effective tax rate. As previously outlined, the Cooperative's
effective tax rate has historically been negatively impacted by the
non-deductibility of certain amounts of goodwill. The Cooperative's effective
tax rate is also impacted by the net proceeds distributed to members. A further
discussion of tax matters is included at NOTE 9 to the "Notes to Consolidated
Financial Statements."
Extraordinary Item Relating to the Early Extinguishment of Debt: Concurrently
with the DFVC Acquisition, Agrilink Foods refinanced its then existing
indebtedness, including its 12 1/4 percent Senior Subordinated Notes due 2005
and its then existing bank debt. Premiums and breakage fees associated with
early redemptions and other fees incurred amounted to $18.0 million (net of
income taxes of $10.4 million).
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the Consolidated
Statement of Cash Flows for fiscal 2001 compared to fiscal 2000.
Net cash provided by operating activities of $50.2 million in fiscal 2001
increased $58.6 million from the fiscal 2000 net cash used in operations of $8.4
million. This change primarily resulted from a reduction in inventory resulting
from the sale of the private label canned vegetable and pickle businesses in
November 1999 and June 2000, respectively. In addition, reductions in the fiscal
2001 inventory intake resulted from poor agricultural conditions in the eastern
part of the country. The reduction in inventory levels also impacted the cash
used to liquidate accounts payable and other accruals. The change in accounts
receivable is offset by a change in accruals associated with promotional
activity recorded within accounts payable and accrued expenses.
The purchase of inventory by Agrilink Foods from AgriFrozen had no significant
impact on operating cash flow as the increase in inventories was offset by a
corresponding increase in accounts payable. The purchase price of the AgriFrozen
inventory was $31.6 million, of which $10.0 million was paid on April 1, 2001,
and the remaining balance was paid on August 1, 2001. See NOTE 4 to the "Notes
to Consolidated Financial Statements.
Net cash used in investing activities was significantly impacted by the sale of
the Cambria, Wisconsin facility and the private label canned vegetable and
pickle business dispositions in fiscal 2000. The activities accounted for
approximately $63.2 million in proceeds in fiscal 2000. Proceeds from disposals
in fiscal 2001 amounted to $5.8 million and were primarily associated with the
sale of equipment utilized in production of pickles and other related products
to Dean Pickle and Specialty Products. The Company's investment in property,
plant and equipment remained relatively unchanged during fiscal 2001, decreasing
$0.8 million. Property, plant and equipment purchases were for general operating
purposes.
Net cash used in financing activities decreased by $2.2 million. The change was
primarily due to lower levels of borrowings under Agrilink Foods' Revolving
Credit Facility.
AGRILINK FOODS DEBT
Credit Facility (Bank Debt): In connection with the DFVC Acquisition, Agrilink
Foods entered into a Credit Facility with Harris Bank as Administrative Agent,
the Bank of Montreal as Syndication Agent, and the lenders thereunder. The
Credit Facility consists of a $200 million Revolving Credit Facility and a $455
million Term Loan Facility. The Term Loan Facility is comprised of the Term A
Facility, which has a maturity of five years, the Term B Facility, which has a
maturity of six years, and the Term C Facility, which has a maturity of seven
years. The Revolving Credit Facility has a maturity of five years. All previous
bank debt was repaid in conjunction with the execution of the Credit Facility.
The Credit Facility bears interest, at Agrilink Foods' option, at the
Administrative Agent's alternate base rate or the London Interbank Offered Rate
("LIBOR") plus, in each case, applicable margins of: (i) in the case of
alternate base rate loans, (x) 1.25 percent for loans under the Revolving Credit
Facility and the Term A Facility, (y) 3.00 percent for loans under the Term B
Facility and (z) 3.25 percent for loans under the Term C Facility and (ii) in
the case of LIBOR loans, (x) 3.00 percent for loans under the Revolving Credit
Facility and the Term A Facility, (y) 4.00 percent for loans under the Term B
Facility and (z) 4.25 percent for loans under the Term C Facility. The
Administrative Agent's "alternate base rate" is defined as the greater of: (i)
the prime commercial rate as announced by the Administrative Agent or (ii) the
Federal Funds rate plus 0.50 percent. The fiscal 2001 weighted-average rate of
interest applicable to the Term Loan Facility was 9.97 percent. In addition,
Agrilink Foods pays a commitment fee calculated at a rate of 0.50 percent per
annum on the daily average unused commitment under the Revolving Credit
Facility.
Upon consummation of the DFVC Acquisition, Agrilink Foods drew $455 million
under the Term Loan Facility, consisting of $100 million, $175 million and $180
million of loans under the Term A Facility, Term B Facility and Term C Facility,
respectively. Additionally, Agrilink Foods drew $93 million under the Revolving
Credit Facility for seasonal working capital needs and $14.3 million under the
Revolving Credit Facility was issued for letters of credit. During December
1998, Agrilink Foods' primary lender exercised its right under the Credit
Facility to transfer $50 million from the Term A Facility to the Term B and Term
C Facilities in increments of $25 million.
Utilizing outstanding balances at June 30, 2001, the Term Loan Facility is
subject to the following amortization schedule:
(Dollars in Millions)
Fiscal Year Term Loan A Term Loan B Term Loan C Total
- ----------- ----------- ----------- ----------- -----
2002 $ 10.0 $ 0.4 $ 0.4 $ 10.8
2003 10.0 0.4 0.4 10.8
2004 6.4 0.4 0.4 7.2
2005 0.0 189.0 0.4 189.4
2006 0.0 0.0 193.4 193.4
------- ------ ------- -------
$ 26.4 $190.2 $195.0 $ 411.6
======= ====== ====== =======
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the Credit Facility. During fiscal 2001, Agrilink Foods
made mandatory prepayments of $3.2 million from proceeds of the pickle machinery
and equipment. In addition, during fiscal 2001, principal payments of $13.5
million were made on the Term Loan facilities.
Agrilink Foods' obligations under the Credit Facility are collateralized by a
first-priority lien on: (i) substantially all existing or after-acquired assets,
tangible or intangible, (ii) the capital stock of certain of Pro-Fac's current
and future subsidiaries (excluding AgriFrozen), and (iii) all of Agrilink Foods'
rights under the agreement to acquire DFVC (principally indemnification rights)
and the Marketing and Facilitation Agreement between Agrilink Foods and Pro-Fac.
Agrilink Foods' obligations under the Credit Facility are guaranteed by Pro-Fac
(excluding AgriFrozen) and certain of Agrilink Foods' subsidiaries.
The Credit Facility contains customary covenants and restrictions on Agrilink
Foods' ability to engage in certain activities, including, but not limited to:
(i) limitations on the incurrence of indebtedness and liens, (ii) limitations on
sale-leaseback transactions, consolidations, mergers, sale of assets,
transactions with affiliates and investments and (iii) limitations on dividend
and other distributions. The Credit Facility also contains financial covenants
requiring Pro-Fac to maintain a minimum level of consolidated EBITDA, a minimum
consolidated interest coverage ratio, a minimum consolidated fixed charge
coverage ratio, a maximum consolidated leverage ratio and a minimum level of
consolidated net worth. Under the Credit Facility, the assets, liabilities, and
results of operations of AgriFrozen are not consolidated with Pro-Fac for
purposes of determining compliance with the covenants. In August 2001, September
2000, and August 1999, Agrilink Foods entered into amendments to the original
covenants. In conjunction with these amendments, Agrilink Foods incurred fees of
approximately $1.5 million, $1.7 million and $2.6 million, respectively. These
fees are being amortized over the remaining life of the Credit Facility.
The August 2001 amendment imposes contingent fees and possible increases in
interest rates under the Credit Facility based in part on the ability of the
Company to raise equity, and deleverage its balance sheet within certain
timeframes. To this end, the Company has engaged a financial advisor to assist
it in raising a minimum of $100 million through a private placement of an as yet
unspecified class of securities of the Company. The amount of such contingent
fees is also impacted by EBITDA which the Company achieves for its fiscal year
ending in June 2002.
Senior Subordinated Notes - 11 7/8 Percent (due 2008): To extinguish the
Subordinated Bridge Facility used to consummate the DFVC Acquisition, Agrilink
Foods issued Senior Subordinated Notes ("the Notes") for $200 million aggregate
principal amount due November 1, 2008. Interest on the Notes accrues at the rate
of 11-7/8 percent per annum and is payable semiannually in arrears on May 1 and
November 1.
The Notes represent general unsecured obligations of Agrilink Foods,
subordinated in right of payment to certain other debt obligations of Agrilink
Foods (including Agrilink Foods' obligations under the Credit Facility). The
Notes are guaranteed by Pro-Fac and certain of Agrilink Foods' subsidiaries.
The Notes contain customary covenants and restrictions on Agrilink Foods'
ability to engage in certain activities, including, but not limited to: (i)
limitations on the incurrence of indebtedness and liens; (ii) limitations on
consolidations, mergers, sales of assets, transactions with affiliates; and
(iii) limitations on dividends and other distributions. Agrilink Foods is in
compliance with all covenants, restrictions, and requirements under the Notes.
Subordinated Bridge Facility: To complete the DFVC Acquisition, Agrilink Foods
entered into a Subordinated Bridge Facility (the "Bridge Facility"). During
November 1998, the net proceeds from the sale of the Notes, together with
borrowings under the Revolving Credit Facility, were used to repay all the
indebtedness outstanding ($200 million plus accrued interest) under the Bridge
Facility. The outstanding indebtedness under the Bridge Facility accrued
interest at an approximate rate per annum of 10 1/2 percent. Debt issuance costs
associated with the Bridge Facility of $5.5 million were fully amortized during
the second quarter of fiscal 1999.
Subordinated Promissory Note: As partial consideration for the DFVC Acquisition,
Agrilink Foods issued to Dean Foods a Subordinated Promissory Note for $30
million aggregate principal amount due November 22, 2008. Interest on the note
is accrued quarterly in arrears commencing December 31, 1998, at a rate per
annum of 5 percent until November 22, 2003, and at a rate of 10 percent
thereafter. As the stated rates on the note are below market value, Agrilink
Foods has imputed the appropriate discount utilizing an effective interest rate
of 11-7/8 percent. Interest accruing through November 22, 2003 is required to be
paid in kind through the issuance by Agrilink Foods of additional subordinated
promissory notes identical to the note. Agrilink Foods satisfied this
requirement in fiscal 2001 through the issuance of five additional promissory
notes each for approximately $0.4 million. Interest accruing after November 22,
2003 is payable in cash. The notes may be prepaid at Agrilink Foods' option
without premium or penalty.
The note is expressly subordinate to the Credit Facility and the Notes and
contains no financial covenants. The note is guaranteed by Pro-Fac.
On December 1, 2000, Dean Foods sold the Subordinated Note to Great Lakes Kraut
Company, LLC, a joint venture between the Company and Flanagan Brothers, Inc.
This sale did not affect the terms of the note.
Senior Subordinated Notes - 12 1/4 Percent Due 2005 ("Old Notes"): In
conjunction with the DFVC Acquisition, Agrilink Foods repurchased $159,985,000
principal amount of its Old Notes, of which $160 million aggregate principal
amount was previously outstanding. Agrilink Foods paid a total of approximately
$184 million to repurchase the Old Notes, including interest accrued thereon of
$2.9 million. Holders who tendered consented to certain amendments to the
indenture relating to the Old Notes, which eliminated or amended substantially
all the restrictive covenants and certain events of default contained in such
indenture. Agrilink Foods may repurchase the remaining Old Notes in the future
in open market transactions, privately negotiated purchases or otherwise.
AGRIFROZEN DEBT
Credit Agreement and Subordinated Note Agreement of AgriFrozen: With respect to
AgriFrozen's Credit Facility, AgriFrozen was not in compliance with certain
financial tests and ratios, and certain restrictions and limitations, which
constituted defaults under the loan agreement. The lender to AgriFrozen was
unwilling to commit to extend further credit to AgriFrozen. In part, because of
these issues and as a result of continued pressure on the private
label/industrial business sectors served by AgriFrozen, the board of directors
of AgriFrozen decided in January 2001 to cease operations. Subsequently,
AgriFrozen surrendered its inventory assets to the lender.
AgriFrozen's obligations are not guaranteed by Pro-Fac or Agrilink Foods and are
expressly non-recourse as to Pro-Fac and Agrilink Foods. In addition, neither
Pro-Fac nor Agrilink Foods pledged any of their respective properties as
security for AgriFrozen's indebtedness. As such, the current circumstances of
AgriFrozen's debt and liquidity are not expected to have a material affect on
the business of Pro-Fac or Agrilink Foods. In addition, on February 15, 2001,
Pro-Fac abandoned its ownership interest in AgriFrozen and, accordingly,
eliminated all balances related to AgriFrozen, including debt effective that
date. In conjunction with this action, Pro-Fac recognized a loss of $1,000,
which represented its investment in AgriFrozen.
OTHER MATTERS
Capital Expenditures: Agrilink Foods anticipates that capital expenditures for
fiscal years 2002 and 2003 will be approximately $20 million to $25 million per
annum. Agrilink Foods believes that cash flow from operations and borrowings
under bank facilities will be sufficient to meet its liquidity requirements for
the foreseeable future.
Short- and Long-Term Trends: Throughout fiscal 2001 and 2000, the Cooperative
has focused on its core businesses and growth opportunities. During the fourth
quarter of fiscal 2001, Agrilink Foods initiated a national launch of its most
recent new product, Birds Eye Simply Grillin'. Simply Grillin' is a preseasoned
blend of top quality Birds Eye vegetables in a foil tray. Net sales associated
with this new product were $11.3 million. Management estimates that Birds Eye
Simply Grillin' will achieve $35 million of net sales in fiscal 2002. During
fiscal 1999, Agrilink Foods acquired the frozen and canned vegetable business of
Dean Foods. Agrilink Foods believes that the DFVC Acquisition strengthened its
competitive position by: (i) enhancing its brand recognition and market
position, (ii) providing opportunities for cost savings and operating
efficiencies and (iii) increasing its product and geographic diversification. A
complete description of the acquisition and disposal activities completed is
outlined at NOTE 3 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This results in depressed selling prices and reduced
profitability on the inventory produced from that year's crops. Excessive rain
or drought conditions can produce low crop yields and a shortage situation. This
typically results in higher selling prices and increased profitability. While
the national supply situation controls the pricing, the supply can differ
regionally because of variations in weather.
The crop and yield resulting from the 2000 growing season, while significantly
lower than anticipated in the eastern part of the country, proved to be adequate
throughout the industry. However, the weather conditions which significantly
impacted corn yields did result in higher pricing for this commodity.
For the 2001 crop season, dry weather conditions in the Company's New York and
Midwest growing regions may negatively impact production costs. Management has
initiated cost reduction steps, and is actively pursuing additional cost
reduction initiatives in order to fully offset any crop-related production cost
increases.
Supplemental Information on Inflation: The changes in costs and prices within
the Company's business due to inflation were not significantly different from
inflation in the United States economy as a whole. Levels of capital investment,
pricing and inventory investment were not materially affected by changes caused
by inflation.
New Accounting Pronouncements: In July 2000, the Emerging Issues Task Force
("EITF") of the Financial Accounting Standards Board reached a consensus on
Issue 00-14, "Accounting for Certain Sales Incentives." The consensus addresses
the recognition, measurement, and income statement classification for sales
incentives that a company offers to its customers. Accordingly, coupon expense,
now classified as selling, general and administrative expense, will be
reclassified as a reduction of gross sales and all prior periods will also be
reclassified to reflect this modification. The adoption of EITF Issue 00-14 is
not expected to materially impact the Cooperative's financial statements. The
Cooperative estimates that its coupon expense is approximately $6.5 to $8.5
million per year. The Cooperative must adopt EITF Issue 00-14 in the third
quarter of fiscal 2002, however, Agrilink Foods anticipates it will adopt this
pronouncement in the first quarter of fiscal 2002.
In April 2001, the EITF reached a final consensus on Issue 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." The consensus addresses the accounting
treatment and income statement classification for certain sales incentives,
including cooperative advertising arrangements, buydowns, and slotting fees. The
consensus requires that such amounts, now classified by the Cooperative as
selling, general, and administrative expense, be reclassified as a reduction of
gross sales. These guidelines will become effective for the Cooperative during
the third quarter of fiscal 2002. The Cooperative is currently reviewing this
pronouncement to determine the dollar value of the reclassification. The
adoption of EITF 00-25 will not impact the Cooperative's profitability.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses the financial accounting and
reporting of goodwill and other intangible assets and supercedes APB Opinion No.
17, "Intangible Assets." The statement will modify how an entity initially
accounts for goodwill and other intangible assets, assesses for subsequent
impairment, and the requirement to amortize these assets. The provisions of SFAS
No. 142 must be adopted for fiscal years beginning after December 15, 2001, with
early application permitted for companies with fiscal years beginning after
March 15, 2001. The Cooperative is currently assessing the impact of
implementation on its results of operations and financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Cooperative, as a result of its operating and financing activities, is
exposed to changes in foreign currency exchange rates, certain commodity prices,
and interest rates, which may adversely affect its results of operations and
financial position. In seeking to minimize the risks and/or costs associated
with such activities, the Cooperative may enter into derivative contracts.
Foreign Currency: Agrilink Foods manages its foreign currency related risk
primarily through the use of foreign currency forward contracts. The contracts
held by the Agrilink Foods are denominated in Mexican pesos.
Agrilink Foods has entered into foreign currency forward contracts that are
designated as cash flow hedges of exchange rate risk related to forecasted
foreign currency-denominated intercompany sales. At June 30, 2001, Agrilink
Foods had cash flow hedges for the Mexican peso with maturity dates ranging from
July 2001 to May 2002. The fair value of these open contracts was an after-tax
gain of approximately $0.6 million recorded in accumulated other comprehensive
income in shareholder's equity. Amounts deferred to accumulated other
comprehensive income will be reclassified into cost of goods sold. For the year
ended June 30, 2001, approximately $0.3 million has been reclassified from other
comprehensive income to cost of goods sold. Hedge ineffectiveness was
insignificant.
Foreign Currency
Forward
-----------------
Contract amounts 124 million Pesos
Weighted average settlement exchange rate 10.7966%
Commodity Prices: Agrilink Foods is exposed to commodity price risk related to
forecasted purchases of soybean oil, an ingredient in the manufacture of salad
dressings and mayonnaise. To mitigate this risk, Agrilink Foods designates
soybean oil forward contracts as cash flow hedges of its forecasted soybean oil
purchases. Agrilink Foods maintained soybean oil contracts that hedged
approximately 70 percent of its planned soybean oil requirements during fiscal
2001. These contracts were either sold or expired during fiscal 2001, and a loss
of $0.2 million was recorded in cost of goods sold.
Agrilink Foods is also exposed to commodity price risk related to forecasted
purchases of flour in its manufacturing process. To mitigate this risk, Agrilink
Foods designates a swap agreement as a cash flow hedge of its forecasted flour
purchases. Agrilink Foods maintained flour contracts that hedged approximately
59 percent of its planned flour requirements during fiscal 2001. The contracts
expired during fiscal 2001, and an immaterial loss was recorded in cost of goods
sold.
Agrilink Foods is also exposed to commodity price risk related to forecasted
purchases of corrugated (unbleached kraftliner) in its manufacturing process. To
mitigate this risk, Agrilink Foods designates a swap agreement as a cash flow
hedge of its forecasted corrugated purchases. Agrilink Foods hedged
approximately 80 percent of its planned corrugated requirements. The agreement
had no fair value and terminated on June 30, 2001.
Interest Rates: Agrilink Foods is exposed to interest rate risk primarily
through its borrowing activities. The majority of the Company's long-term
borrowings are variable rate instruments. Agrilink Foods entered into two
interest rate swap contracts under which the company agrees to pay an amount
equal to a specified fixed rate of interest times a notional principal amount,
and to receive in return an amount equal to a specified variable rate of
interest times the same notional principal amount. The notional amounts of
the contract are not exchanged and no other cash payments are made. Two interest
rate swap contracts were entered into with a major financial institution in
order to minimize credit risk.
The first interest rate swap contract required payment of a fixed rate of
interest (4.96 percent) and the receiving of a variable rate of interest
(three-month LIBOR of 4.85 percent as of June 30, 2001) on $150 million notional
amount of indebtedness. Agrilink Foods had a second interest rate swap contract
to pay a fixed rate of interest (5.32 percent) and receive a variable rate of
interest (three-month LIBOR of 4.85 percent as of June 30, 2001) on $100 million
notional amount of indebtedness. Approximately 61 percent of the underlying debt
is being hedged with these interest rate swaps.
Agrilink Foods designates these interest rate swap contracts as cash flow
hedges. The fair value of the cash flow hedge is generally deferred to other
comprehensive income and reclassified into interest expense over the life of the
hedge. However, to the extent that any of these contracts are not considered
effective in offsetting the change in the value of the interest payments being
hedged, any changes in fair value relating to the ineffective portion of these
contracts are immediately recognized in income. At June 30, 2001, these interest
rate swap contracts were not considered effective, and the fair value of the
contracts, an after-tax loss of $0.4 million, was reported in earnings.
The following is a summary of Agrilink Foods' interest rate swap agreements:
June 30, 2001
---------------------
Interest Rate Swap:
Variable to Fixed - notional amount $250 million
Average pay rate 4.96 - 5.32%
Average receive rate Floating rate - 4.85%
Maturities through October 2001
In a declining interest rate market, the benefits of the hedge position are
minimized, however, Agrilink Foods continues to monitor market conditions to
adjust its hedging position as it considers necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
ITEM Page
Pro-Fac Cooperative, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................... 27
Report of Independent Accountants....................................................................................... 28
Consolidated Financial Statements:
Consolidated Statements of Operations, Net Proceeds, and Comprehensive Income for the years ended June 30, 2001,
June 24, 2000, and June 26, 1999.................................................................................... 29
Consolidated Balance Sheets as of June 30, 2001 and June 24, 2000..................................................... 30
Consolidated Statements of Cash Flows for the years ended June 30, 2001, June 24, 2000, and June 26, 1999............. 31
Consolidated Statements of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
for the years ended June 30, 2001, June 24, 2000, and June 26, 1999................................................. 33
Notes to Consolidated Financial Statements............................................................................ 34
Selected Quarterly Financial Data..................................................................................... 63
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begin on the page following the "Report of
Independent Accountants." These statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The Cooperative's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and the
proper safeguarding and use of its assets. Such controls are monitored through
the internal and external audit programs.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants, who were responsible for conducting their examination
in accordance with generally accepted auditing standards. Their resulting report
is on the subsequent page.
The Board of Directors exercises its responsibility for these financial
statements. The independent accountants and internal auditors of the Cooperative
have full and free access to the Board. The Board periodically meets with the
independent accountants and the internal auditors, without management present,
to discuss accounting, auditing and financial reporting matters.
/s/ Dennis M. Mullen /s/ Earl L. Powers
- ------------------------------------ ----------------------------------------
Dennis M. Mullen Earl L. Powers
President and Executive Vice President Finance and
Chief Executive Officer Chief Financial Officer
Agrilink Foods, Inc. Agrilink Foods, Inc.
Treasurer
Pro-Fac Cooperative, Inc.
August 3, 2001
Report of Independent Accountants
To the Shareholders and
Board of Directors of
Pro-Fac Cooperative, Inc.
In our opinion, the consolidated financial statements listed under Item 8 of
this Form 10-K present fairly, in all material respects, the financial position
of Pro-Fac Cooperative, Inc. and its subsidiaries at June 30, 2001 and June 24,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Cooperative's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein for the fiscal years ended June 30, 2001, June 24, 2000, and June 26,
1999 when read in conjunction with the related consolidated financial
statements.
PRICEWATERHOUSECOOPERS LLP
/s/ PricewaterhouseCoopers LLP
Rochester, New York
August 3, 2001, except for the eighth paragraph of NOTE 8, for which the
date is September 5, 2001.
FINANCIAL STATEMENTS
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary - Agrilink Foods, Inc.
Consolidated Statements of Operations, Net Proceeds, and Comprehensive Income
(Dollars in Thousands)
Fiscal Years Ended
------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Net sales $ 1,339,211 $ 1,306,659 $ 1,292,021
Cost of sales (956,182) (919,029) (928,262)
------------ ----------- -----------
Gross profit 383,029 387,630 363,759
Selling, administrative, and general expenses (298,283) (288,511) (293,646)
Gains on sales of assets 0 6,635 64,734
Restructuring 0 0 (5,000)
Income from joint venture 1,779 2,418 2,787
----------- ----------- -----------
Operating income 86,525 108,172 132,634
Interest expense (85,073) (83,511) (67,420)
Amortization of debt issue costs associated with the Bridge Facility 0 0 (5,500)
----------- ----------- -----------
Pretax income before extraordinary item, dividends, and
allocation of net proceeds 1,452 24,661 59,714
Tax provision (968) (8,497) (24,746)
------------ ----------- -----------
Income before extraordinary item, dividends, and allocation of net proceeds 484 16,164 34,968
Extraordinary item relating to the early extinguishment of debt (net of
income taxes) 0 0 (18,024)
----------- ----------- -----------
Net income $ 484 $ 16,164 $ 16,944
=========== =========== ===========
Allocation of Net Proceeds:
Net income $ 484 $ 16,164 $ 16,944
Dividends on common and preferred stock (8,123) (7,410) (6,734)
------------ ----------- -----------
Net (deficit)/proceeds (7,639) 8,754 10,210
Allocation from/(to) earned surplus 7,639 (3,832) (10,210)
----------- ----------- -----------
Net proceeds available to members $ 0 $ 4,922 $ 0
=========== =========== ===========
Allocation of net proceeds available to members:
Payable to members currently (30% of qualified proceeds
available to members in fiscal 2000) $ 0 $ 1,477 $ 0
Allocated to members but retained by the Cooperative:
Qualified retains 0 3,445 0
----------- ----------- -----------
Net proceeds available to members $ 0 $ 4,922 $ 0
=========== =========== ===========
Net income $ 484 $ 16,164 $ 16,944
Other comprehensive income:
Unrealized gain on hedging activity, net of taxes 618 0 0
Minimum pension liability (48) 238 (155)
----------- ----------- -----------
Comprehensive income $ 1,054 $ 16,402 $ 16,789
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary - Agrilink Foods, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS
June 30, 2001 June 24, 2000
Current assets:
Cash and cash equivalents $ 7,656 $ 4,994
Accounts receivable, trade (net of allowances for doubtful accounts of $843 and $998, respectively) 85,543 101,065
Accounts receivable co-pack activity and other 7,949 10,488
Income taxes refundable 938 9,869
Inventories 313,856 341,931
Current investment in CoBank 3,998 2,927
Prepaid manufacturing expense 22,427 26,364
Prepaid expenses and other current assets 19,603 19,688
Current deferred tax asset 2,202 12,176
---------- ----------
Total current assets 464,172 529,502
Investment in CoBank 10,660 16,203
Investment in joint venture 8,018 6,775
Property, plant, and equipment, net 305,531 348,359
Assets held for sale at net realizable value 120 339
Goodwill and other intangible assets (net of accumulated amortization of $38,108 and
$28,248, respectively) 248,777 258,545
Other assets 24,073 27,543
---------- ----------
Total assets $1,061,351 $1,187,266
========== ==========
LIABILITIES AND SHAREHOLDERS' AND MEMBERS' CAPITALIZATION
Current liabilities:
Notes payable - Agrilink Foods $ 0 $ 5,700
Notes payable - AgriFrozen Foods 0 44,100
Current portion of obligations under capital leases 316 218
Current portion of long-term debt 15,599 16,583
Accounts payable 117,931 91,672
Accrued interest 9,253 11,398
Accrued employee compensation 10,081 11,216
Other accrued expenses 49,345 66,397
Dividends payable 36 41
Amounts due Class A members 17,983 21,696
---------- ----------
Total current liabilities 220,544 269,021
Obligations under capital leases 571 520
Long-term debt 631,128 679,205
Deferred income tax liabilities 26,376 36,825
Other non-current liabilities 29,417 33,852
Non-controlling interest in AgriFrozen Foods 0 8,000
---------- ----------
Total liabilities 908,036 1,027,423
---------- ----------
Commitments and contingencies
Class B cumulative redeemable preferred stock, liquidation preference $10 per
share, authorized 500,000 shares; issued and outstanding 23,923
and 23,664 shares, respectively 239 237
Class A common stock, par value $5, authorized 5,000,000 shares
June 30, 2001 June 24, 2000
------------- -------------
Shares issued 2,257,479 2,132,981
Shares subscribed 97,243 233,977
--------- ---------
Total subscribed and issued 2,354,722 2,366,958
Less subscriptions receivable in installments (97,243) (233,977)
--------- ---------
Total issued and outstanding 2,257,479 2,132,981 11,287 10,665
========= =========
Class B common stock, par value $5, authorized 1,600,000 shares;
issued and outstanding 723,229 and 723,229 shares, respectively 0 0
Shareholders' and members' capitalization:
Retained earnings allocated to members 10,699 16,591
Non-qualified allocation to members 0 300
Non-cumulative preferred stock, par value $25, authorized 5,000,000
shares; issued and outstanding 32,308 and 34,400 shares, respectively 808 860
Class A cumulative preferred stock, liquidation preference $25 per share;
authorized 10,000,000 shares; issued and outstanding 4,495,443 and
4,249,007 shares, respectively 112,386 106,225
Special membership interests 0 0
Earned surplus 17,851 25,490
Accumulated other comprehensive income:
Unrealized gain on hedging activity 618 0
Minimum pension liability adjustment (573) (525)
---------- ----------
Total shareholders' and members' capitalization 141,789 148,941
---------- ----------
Total liabilities and capitalization $1,061,351 $1,187,266
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary - Agrilink Foods, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Fiscal Years Ended
-------------------------------------------------------
June 30, 2001 June 24, 2000 June 26. 1999
------------- ------------- -------------
Cash Flows from Operating Activities:
Net income $ 484 $ 16,164 $ 16,944
Estimated cash payments to Class A members 0 (1,477) 0
Adjustments to reconcile net income to net cash (used in)/provided by
operating activities:
Extraordinary item relating to the early extinguishment of debt
(net of income taxes) 0 0 18,024
Interest-in-kind on subordinated promissory note 2,069 1,571 782
Gains on sales of assets 0 (6,635) (64,734)
Loss on disposal of assets 0 0 353
Amortization of goodwill and other intangible assets 9,860 8,768 9,396
Amortization of debt issue costs and amendment costs and discount on
subordinated promissory note 5,217 4,805 7,678
Depreciation 31,911 32,605 24,752
Provision for deferred taxes 3,358 13,636 9,949
Provision for losses on accounts receivable 610 201 208
Equity in undistributed earnings of joint venture (1,243) (96) (95)
Equity in undistributed earnings of CoBank (97) (412) (520)
Change in assets and liabilities, net of effects of business dispositions:
Accounts receivable 11,573 (10,992) 32
Inventories and prepaid manufacturing expense (20,570) (66,754) 34,388
Income taxes payable/refundable 8,931 1,426 (5,231)
Accounts payable and accrued expenses 8,518 (15,746) (52,639)
Amounts due Class A members (3,713) 1,651 (591)
Other assets and liabilities (6,708) 12,860 (15,983)
---------- ---------- ---------
Net cash provided by/(used in) operating activities 50,200 (8,425) (17,287)
--------- ---------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant, and equipment (26,170) (26,983) (23,787)
Proceeds from disposals of property, plant, and equipment 5,326 63,955 93,486
Proceeds from sales of idle facilities 494 405 1,427
Proceeds from investment in CoBank 4,259 3,378 2,795
Cash paid for acquisitions 0 (250) (516,052)
--------- ---------- ---------
Net cash (used in)/ provided by investing activities (16,091) 40,505 (442,131)
---------- ---------- ---------
Cash Flows from Financing Activities:
Net (payments on)/proceeds from short-term debt (3,600) (5,100) 54,900
Proceeds from issuance of long-term debt 0 0 719,263
Payments on long-term debt (18,084) (18,470) (287,574)
Payments on capital leases (449) (239) (283)
Cash paid for debt issuance costs and amendments (1,730) (2,624) (19,354)
Issuance of stock, net of repurchases 622 662 844
Cash portion of non-qualified conversion (83) (445) (153)
Cash dividends paid (8,123) (7,410) (6,734)
---------- ---------- ---------
Net cash (used in)/provided by financing activities (31,447) (33,626) 460,909
---------- ---------- ---------
Net change in cash and cash equivalents 2,662 (1,546) 1,491
Cash and cash equivalents at beginning of period 4,994 6,540 5,049
--------- ---------- ---------
Cash and cash equivalents at end of period $ 7,656 $ 4,994 $ 6,540
========= ========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 80,301 $ 72,702 $ 65,760
========= ========== =========
Income taxes, net $ 7,620 $ 6,622 $ 14,742
========= ========== =========
Acquisition of Flavor Destinations trademark:
Goodwill and other intangible assets $ 0 $ 250 $ 0
========= ========== =========
Acquisition of Agripac, Inc.:
Accounts receivable $ 0 $ 0 $ 12,563
Inventories 0 0 39,055
Property, plant, and equipment 0 0 30,327
Prepaid expenses and other current assets 0 0 1,063
Discount on subordinated note 0 0 8,157
Other non-current assets 0 0 4,000
Other accrued expenses 0 0 (10,644)
Other non-current liabilities 0 0 (4,000)
Non-controlling interest 0 0 (8,000)
--------- ---------- ---------
0 0 72,521
Escrow 0 0 6,413
--------- ---------- ---------
0 0 78,934
Discount on subordinated note 0 0 (8,157)
--------- ---------- ---------
$ 0 $ 0 $ 70,777
========= ========== =========
The accompanying notes are an integral part of these financial statements.
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary - Agrilink Foods, Inc.
Consolidated Statements of Cash Flows (Continued)
(Dollars in Thousands)
Fiscal Years Ended
-----------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- --------------
Acquisition of Erin's Gourmet Popcorn:
Inventories $ 0 $ 0 $ 33
Property, plant, and equipment 0 0 26
Goodwill and other intangible assets 0 0 554
--------- --------- ---------
$ 0 $ 0 $ 613
========= ========= =========
Acquisition of Dean Foods Vegetable Company:
Accounts receivable $ 0 $ 0 $ 24,201
Current deferred tax asset 0 0 30,645
Inventories 0 0 195,674
Prepaid expenses and other current assets 0 0 6,374
Property, plant, and equipment 0 0 157,227
Assets held for sale 0 0 49
Goodwill and other intangible assets 0 0 178,377
Accounts payable 0 0 (40,865)
Accrued employee compensation 0 0 (8,437)
Other accrued expenses 0 0 (74,845)
Long-term debt 0 0 (2,752)
Subordinated promissory note 0 0 (22,590)
Other assets and liabilities, net 0 0 (2,453)
--------- --------- ---------
$ 0 $ 0 $ 440,605
========= ========= =========
Acquisition of J.A. Hopay Distributing Co., Inc.:
Accounts receivable $ 0 $ 0 $ 420
Inventories 0 0 153
Property, plant, and equipment 0 0 51
Goodwill and other intangible assets 0 0 3,303
Other accrued expenses 0 0 (251)
Obligation for covenant not to compete 0 0 (1,363)
--------- --------- ----------
$ 0 $ 0 $ 2,313
========= ========= =========
Supplemental schedule of non-cash investing and financing activities:
Conversion of retains to preferred stock $ 5,975 $ 13,732 $ 4,648
========= ========= =========
Net proceeds allocated to members but retained by the Cooperative $ 0 $ 3,445 $ 0
========= ========= =========
Capital lease obligations incurred $ 448 $ 171 $ 320
========= ========= =========
The accompanying notes are an integral part of these financial statements.
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary - Agrilink Foods, Inc.
Consolidated Statements of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
(Dollars in Thousands)
Fiscal Years Ended
--------------------------------------------
June 30, June 24, June 26,
2001 2000 1999
---------- ----------- -----------
Retained earnings allocated to members:
Qualified retains:
Balance at beginning of period $ 16,591 $ 25,573 $ 29,765
Net proceeds allocated to members 0 3,445 0
Converted to preferred stock (5,892) (12,427) (4,191)
Cash paid in lieu of fractional shares 0 0 (1)
---------- ---------- ----------
Balance at end of period $ 10,699 $ 16,591 $ 25,573
---------- ---------- ----------
Non-qualified retains:
Balance at beginning of period $ 300 $ 2,050 $ 2,660
Distribution of non-qualified retains
Cash paid (83) (445) (153)
Converted to preferred stock (217) (1,305) (457)
---------- ---------- -----------
Balance at end of period 0 300 2,050
---------- ---------- ----------
Total retains allocated to members at end of period $ 10,699 $ 16,891 $ 27,623
---------- ---------- ----------
Non-cumulative preferred stock:
Balance at beginning of period $ 860 $ 991 $ 1,125
Conversion to cumulative preferred stock (52) (131) (134)
---------- ---------- ----------
Balance at end of period $ 808 $ 860 $ 991
---------- ---------- ----------
Cumulative preferred stock:
Balance at beginning of period $ 106,225 $ 92,362 $ 87,580
Converted from non-cumulative preferred stock 52 131 134
Converted from non-qualified retains 217 1,305 457
Converted from qualified retains 5,892 12,427 4,191
---------- ---------- ----------
Balance at end of period $ 112,386 $ 106,225 $ 92,362
---------- ---------- ----------
Earned surplus:
Balance at beginning of period $ 25,490 $ 21,658 $ 11,448
Allocation (from)/to earned surplus (7,639) 3,832 10,210
---------- ---------- ----------
Balance at end of period $ 17,851 $ 25,490 $ 21,658
---------- ---------- ----------
Accumulated other comprehensive income:
Balance at beginning of period $ (525) $ (763) $ (608)
Minimum pension liability adjustment (48) 238 (155)
Unrealized gain on hedging activity 618 0 0
---------- ---------- ----------
Balance at end of period 45 (525) (763)
---------- ---------- ----------
Total shareholders' and members' capitalization $ 141,789 $ 148,941 $ 141,871
========== ========== ==========
Redeemable stock:
Class B cumulative preferred stock:
Balance at beginning of period $ 237 $ 261 $ 270
(Repurchased)/issued, net 2 (24) (9)
---------- ---------- ----------
Balance at end of period $ 239 $ 237 $ 261
========== ========== ==========
Common stock:
Balance at beginning of period $ 10,665 $ 9,979 $ 9,129
Issued/(repurchased), net 622 686 850
---------- ---------- ----------
Balance at end of period $ 11,287 $ 10,665 $ 9,979
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PRO-FAC COOPERATIVE, INC. AND CONSOLIDATED SUBSIDIARY
AGRILINK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pro-Fac is an agricultural cooperative which processes and markets crops grown
by its members through its wholly-owned subsidiary Agrilink Foods, Inc.
("Agrilink Foods") and until February 15, 2001, through a former subsidiary, PF
Acquisition II, Inc. (PFII) in which it had a controlling interest. PFII
conducted business under the name AgriFrozen Foods, Inc. ("AgriFrozen"). Unless
the context otherwise requires, the terms "Cooperative" and "Pro-Fac" refer to
Pro-Fac Cooperative, Inc. and its subsidiary, Agrilink Foods.
Agrilink Foods has four primary product lines including: vegetables, fruits,
snacks, and canned meals. The majority of each of the product lines' net sales
is within the United States. In addition, all of the Cooperative's operating
facilities, excluding one in Mexico, are within the United States. The
Cooperative conducts business under the name of Agrilink. In addition, the board
of directors of Agrilink Foods and Pro-Fac conduct joint meetings, coordinate
their activities, and act on a consolidated basis. Although Pro-Fac Cooperative
continues to be the legal name of the Cooperative, with the same structure and
regulations required by bank credit agreements and bond indentures, and with the
same stock symbol, "PFACP," it is presented as Agrilink for all other
communications.
Basis of Presentation: The accompanying consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") which requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassification: Prior year information is reclassified whenever necessary to
conform with the current year's presentation.
Fiscal Year: The fiscal year of Pro-Fac ends on the last Saturday in June.
Fiscal 2001 comprised 53 weeks. Fiscal 2000 and 1999 comprised 52 weeks.
Consolidation: The consolidated financial statements include the Cooperative and
its subsidiary, Agrilink Foods, and until February 15, 2001, AgriFrozen. The
financial statements are after elimination of intercompany transactions and
balances. Investments in affiliates, owned more than 20 percent but not in
excess of 50 percent, are recorded under the equity method of accounting.
New Accounting Pronouncements: In December 1999, the Securities and Exchange
Commission (the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on
the recognition, presentation and disclosure of revenue in the financial
statements filed with the SEC. SAB No.101 outlines the basic criteria that must
be met to recognize revenue and provides guidance for disclosure related to
revenue recognition policies. The Cooperative adopted SAB No. 101 during the
fourth quarter of fiscal 2001, and management believes the adoption of this
pronouncement did not have a material impact on the Cooperative's financial
statements or results of operations.
In July 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a final consensus on Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs." The EITF addresses the income
statement classification for shipping and handling costs and revenues. Issue
00-10 became effective during the fourth quarter of fiscal 2001. Accordingly,
freight expense, previously classified as a reduction to gross sales, is now
classified as a component of cost of sales and all prior periods have been
reclassified to reflect this modification. Freight expense was $59.0 million,
$53.2 million, and $53.1 million in fiscal 2001, 2000, and 1999, respectively.
The adoption of EITF Issue 00-10 did not have a material affect on the
Cooperative's financial statements and results of operations.
In January 2001, the EITF reached a partial consensus on Issue 00-22,
"Accounting for Points and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be Delivered in
the Future" which address the recognition, measurement and income statement
classification for certain sales incentives (e.g., volume purchase rebates and
free or discounted goods). These guidelines became effective for the Cooperative
during the third quarter of fiscal 2001 and had no impact on the Cooperative's
financial position or results of operations.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses the financial accounting and
reporting of goodwill and other intangible assets and supercedes APB Opinion No.
17, "Intangible Assets." The statement will modify how an entity initially
accounts for goodwill and other intangible assets, assesses for subsequent
impairment, and the requirement to amortize these assets. The provisions of SFAS
No. 142 must be adopted for fiscal years beginning after December 15, 2001, with
early application permitted for companies with fiscal years beginning after
March 15, 2001. The Cooperative is currently assessing the impact of
implementation on its results of operations and financial position.
In July 2000, the EITF reached a consensus on Issue 00-14, "Accounting for
Certain Sales Incentives." The consensus addresses the recognition, measurement,
and income statement classification for sales incentives that a company offers
to its customers. Accordingly, coupon expense, now classified as selling,
general and administrative expense, will be reclassified as a reduction of gross
sales and all prior periods will also be reclassified to reflect this
modification. The adoption of EITF Issue 00-14 is not expected to materially
impact the Cooperative's financial statements. The Cooperative estimates that
its coupon expense is approximately $6.5 to $8.5 million per year. The
Cooperative must adopt EITF Issue 00-14 by the third quarter of fiscal 2002 with
earlier application permitted
In April 2001, the EITF reached a final consensus on Issue 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." The consensus addressees the accounting
treatment and income statement classification for certain sales incentives,
including cooperative advertising arrangements, buydowns, and slotting fees. The
consensus requires that slotting fees, now classified by the Cooperative as
selling, general, and administrative expense, be reclassified as a reduction of
gross sales. These guidelines will become effective for the Cooperative during
the third quarter of fiscal 2002. The adoption of EITF 00-25 is not expected to
materially impact the Cooperative's financial statements.
Restructuring: During the third quarter of fiscal 1999, Agrilink Foods began
implementation of a corporate-wide restructuring program. The overall objectives
of the plan were to reduce expenses, improve productivity, and streamline
operations. The total restructuring charge amounted to $5.0 million and was
primarily comprised of employee termination benefits. Efforts focused on the
consolidation of operating functions and the elimination of approximately 5
percent of the work force. Reductions in personnel included operational and
administrative positions. All remaining termination benefits were liquidated in
fiscal 2001.
Extraordinary Item Relating to the Early Extinguishment of Debt: During fiscal
1999, Agrilink Foods refinanced its existing indebtedness, including its 12 1/4
percent Senior Subordinated Notes due 2005 and its then existing bank debt.
Premiums and breakage fees associated with early redemptions and other fees
incurred amounted to $18.0 million (net of applicable income taxes of $10.4
million). See NOTE 3 to the "Notes to Consolidated Financial Statements."
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with original maturities of three months or less. There were no such
short-term investments at June 30, 2001 and June 24, 2000.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method. The Company provides inventory reserves for
obsolete or slow moving inventory based on changes in consumer demand and other
economic conditions. Reserves recorded at June 30, 2001 and June 24, 2000 were
$3,135,000 and $3,385,000, respectively.
Investment in CoBank: The Company's investment in CoBank is required as a
condition of borrowing. These securities are not physically issued by CoBank,
but rather the Company is notified as to their monetary value. The investment is
carried at cost plus the Company's share of the undistributed earnings of CoBank
(that portion of patronage refunds not distributed currently in cash).
Earnings on the Company's investment in CoBank in fiscal year 2001, 2000, and
1999 amounted to $138,000, $590,000, and $743,000, respectively.
Prepaid Manufacturing Expense: Allocation of manufacturing overhead to finished
goods produced is on the basis of a production period; thus at the end of each
period, manufacturing costs incurred by seasonal plants, subsequent to the end
of previous pack operations, are deferred and included in the accompanying
balance sheet. Such costs are applied to inventory during the next production
period and recognized as an element of cost of goods sold.
Property, Plant, and Equipment and Related Lease Arrangements: Property, plant,
and equipment are depreciated over the estimated useful lives of the assets
using the straight-line method, half-year convention, over 4 to 35 years.
Lease arrangements are capitalized when such leases convey substantially all of
the risks and benefits incidental to ownership. Capital leases are amortized
over either the lease term or the life of the related assets, depending upon
available purchase options and lease renewal features.
Assets held for sale are separately classified on the balance sheet. The
recorded value represents an estimate of net realizable value.
Goodwill and Other Intangibles: Goodwill and other intangible assets include the
cost in excess of the fair value of net tangible assets acquired in purchase
transactions and acquired non-competition agreements and trademarks. Goodwill
and other intangible assets, stated net of accumulated amortization, are
amortized on a straight-line basis over 3 to 35 years. Under the current
guidance of SFAS No. 121, the Cooperative periodically assesses whether there
has been a permanent impairment in the value of goodwill. This is accomplished
by determining whether the estimated, undiscounted future cash flows from
operating activities exceed the carrying value of goodwill as of the assessment
date. If the cash flows are less than the carrying value, an impairment charge
would be recognized for the difference between the estimated fair value and
carrying value.
Other Assets: Other assets are primarily comprised of debt issuance costs. Debt
issuance costs are amortized over the term of the debt. Amortization expense
incurred, including $5,500,000 of fees associated with the Bridge Facility in
fiscal 1999 were approximately $2,759,000, $2,758,000, and $7,678,000, in fiscal
2001, 2000, and 1999, respectively.
Derivative Financial Instruments: The Cooperative does not engage in interest
rate speculation. Derivative financial instruments are utilized to hedge
interest rate risk, commodity price risk, and foreign currency related risk and
are not held for trading purposes. Refer to NOTE 7 for additional disclosures of
the Cooperative's hedging activities.
Income Taxes: Income taxes are provided on income for financial reporting
purposes. Deferred income taxes resulting from temporary differences between
financial reporting and tax reporting are appropriately classified in the
balance sheet.
Pension: The Cooperative and its subsidiary have several pension plans and
participate in various union pension plans which on a combined basis cover
substantially all employees. Charges to income with respect to plans sponsored
by the Cooperative and its subsidiaries are based upon actuarially determined
costs. Pension liabilities are funded by periodic payments to the various
pension plan trusts.
Casualty Insurance: The Cooperative is insured for workers compensation and
automobile liability through a primarily self-insured program. The Cooperative
accrues for the estimated losses from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from unreported
incidents is based on an analysis of historical claims data. The accrual for
casualty insurance at June 30, 2001 and June 24, 2000 was $3.8 million and $5.2
million, respectively.
Revenue Recognition: The Cooperative recognizes revenue on shipments on the date
the merchandise is received by the customer and title transfers. Product sales
are reported net of applicable cash discounts, and sales allowances and
discounts.
Shipping and Handling Expense: Shipping and handling expenses are included as a
component of cost of sales.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The costs of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal year 2001, 2000, and 1999 amounted to approximately $37.5
million, $43.6 million, and $38.2 million, respectively.
Environmental Expenditures: Environmental expenditures that pertain to current
operations are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that do not contribute to current
or future revenues are expensed. Liabilities are recorded when remedial
activities are probable, and the cost can be reasonably estimated.
Income from Joint Venture: Represents earnings received from the investment in
Great Lakes Kraut Company, LLC, a joint venture formed between Agrilink Foods
and Flanagan Brothers, Inc. See NOTE 5 to the "Notes to Consolidated Financial
Statements" for additional information.
Earnings Per Share Data Omitted: Earnings per share amounts are not presented as
earnings are not distributed to members in proportion to their common stock
holdings. Earnings (representing those earnings derived from patronage-sourced
business) are distributed to members in proportion to the dollar value of
deliveries under Pro-Fac contracts rather than based on the number of shares of
common stock held.
Comprehensive Income: Under SFAS No. 130, the Cooperative is required to display
comprehensive income and its components as part of the financial statements.
Comprehensive income is comprised of net earnings and other comprehensive
income/(loss), which includes certain changes in equity that are excluded from
net earnings. The Cooperative includes adjustments for minimum pension
liabilities and unrealized holding gains and losses on hedging transactions in
other comprehensive income/(loss).
Disclosures About Fair Value of Financial Instruments: The following methods and
assumptions were used by the Cooperative in estimating its fair value
disclosures for financial instruments:
Cash and Cash Equivalents, Accounts Receivable, and Notes Payable: The
carrying amount approximates fair value because of the short maturity
of these instruments.
Long-Term Investments: The carrying value of the investment in CoBank
was $14.7 million at June 30, 2001. As there is no market price for
this investment, a reasonable estimate of fair value is not possible.
Long-Term Debt: The fair value of the long-term debt is estimated
based on the quoted market prices for the same or similar issues or on
the current rates offered for debt of the same remaining maturities.
See NOTE 8 to the "Notes to Consolidated Financial Statements."
NOTE 2. AGREEMENTS WITH AGRILINK FOODS AND AGRIFROZEN
Agrilink Foods: The contractual relationship between Pro-Fac and Agrilink Foods
is defined in the Pro-Fac Marketing and Facilitation Agreement (the
"Agreement"). Under the Agreement, Agrilink Foods pays Pro-Fac the commercial
market value ("CMV") for all crops supplied by Pro-Fac. CMV is defined as the
weighted average price paid by other commercial processors for similar crops
sold under preseason contracts and in the open market in the same or competing
market area. Although CMV is intended to be no more than the fair market value
of the crops purchased by Agrilink Foods, it may be more or less than the price
Agrilink Foods would pay in the open market in the absence of the Agreement. For
the fiscal years ended 2001, 2000, and 1999, the CMV for all crops supplied by
Pro-Fac amounted to $69.0 million, $69.6 million, and $62.2 million,
respectively. The crops purchased by Agrilink Foods from Pro-Fac Class A members
represented approximately 60 percent, 55 percent, and 71 percent of the raw
agricultural crops purchased by Agrilink Foods from Pro-Fac in fiscal 2001,
2000, and 1999, respectively.
Under the Agreement, Agrilink Foods is required to have on its board of
directors individuals who are neither members of, nor affiliated with Pro-Fac
("Disinterested Directors"). The number of Disinterested Directors must at least
equal the number of directors who are members of Pro-Fac. The volume and type of
crops to be purchased by Agrilink Foods from Pro-Fac under the Agreement are
determined pursuant to its annual profit plan, which requires the approval of a
majority of the Disinterested Directors. In addition, under the agreement, in
any year in which Agrilink Foods has earnings on products which were processed
from crops supplied by Pro-Fac ("Pro-Fac Products"), Agrilink Foods pays to
Pro-Fac, as additional patronage income, 90 percent of such earnings, but in no
case more than 50 percent of all pretax earnings of Agrilink Foods (before
dividing with Pro-Fac). In years in which Agrilink Foods has losses on Pro-Fac
Products, Agrilink Foods reduces the CMV it would otherwise pay to Pro-Fac by 90
percent of such losses, but in no case by more than 50 percent of all pretax
losses of Agrilink Foods (before dividing with Pro-Fac). Additional patronage
income is paid to Pro-Fac for services provided to Agrilink Foods, including the
provision of a long term, stable crop supply, favorable payment terms for crops,
and the sharing of risks of losses of certain operations of the business.
Earnings and losses are determined at the end of the fiscal year, but are
accrued on an estimated basis during the year. For fiscal years 2001 and 2000
such additional patronage income amounted to $0.7 million and $12.3 million,
respectively. During fiscal 1999, there was no additional patronage income.
Under the Agreement, Pro-Fac is required to reinvest at least 70 percent of the
additional Patronage income in Agrilink Foods. Since Pro-Fac's acquisition of
Agrilink Foods in 1994, Pro-Fac has invested an additional $39.0 million in
Agrilink Foods.
In the first quarter of fiscal 1999, Agrilink Foods reclassified a $9.4 million
demand receivable due from Pro-Fac reflecting the conversion of such receivable
to a non-interest bearing, long-term obligation due from Pro-Fac having a
10-year maturity.
AgriFrozen: The contractual relationship between Pro-Fac and AgriFrozen was
defined in a Marketing and Facilitation Agreement between Pro-Fac and
AgriFrozen. Under the agreement, AgriFrozen purchased raw products from Pro-Fac
and processed and marketed the finished products. AgriFrozen paid Pro-Fac CMV
for the crops supplied by Pro-Fac. In addition, in any year in which AgriFrozen
had earnings AgriFrozen would distribute such earnings to Pro-Fac for
distribution to Class B members of Pro-Fac. In the event AgriFrozen experienced
any losses on products, AgriFrozen would deduct the losses from the total CMV
payable. As a result of the closing of AgriFrozen facilities, as discussed in
NOTE 3 to the "Notes to Consolidated Financial Statements," it is expected that
the Marketing and Facilitation Agreement between Pro-Fac and AgriFrozen will be
terminated at some point after June 30, 2001. It is not expected that there will
be any further CMV payments or any additional earnings distributed to Class B
members.
The board of directors of AgriFrozen resigned effective February 15, 2001.
Amounts received by Class B members of Pro-Fac from AgriFrozen for the year
ended March 24, 2001 and March 25, 2000, for the commercial market value of
crops delivered was $5.9 million and $12.4 million, respectively. In fiscal 2000
and 2001, AgriFrozen incurred losses, and in accordance with the agreement, the
losses reduced the CMV payable to members.
NOTE 3. ACQUISITIONS, DISPOSALS, AND CLOSINGS
Fiscal 2001 -
Closing of AgriFrozen: On January 22, 2001, AgriFrozen announced that it was
closing its frozen vegetable business facilities in Woodburn, Oregon and Walla
Walla and Grandview, Washington. AgriFrozen employed approximately 600 full time
employees at its various locations. There were approximately 150 growers who
historically supplied crops to AgriFrozen. The closings were due to
the decision by AgriFrozen's board not to plant or process crops for the 2001
growing season. The combination of the uncertainty of continued funding of the
operations of AgriFrozen by its lender, current industry trends showing a
decline in private label and industrial frozen vegetable sales and pricing, and
the highly competitive nature of the food business were the basis for this
action.
On February 15, 2001, Pro-Fac abandoned its ownership interest in AgriFrozen.
Neither Pro-Fac nor Agrilink Foods guaranteed the debts of AgriFrozen or
otherwise pledged any of their respective properties as security for
AgriFrozen's indebtedness. All of AgriFrozen's indebtedness was expressly
without recourse to Pro-Fac and Agrilink Foods. See further discussion at
"Credit Agreement and Subordinated Note Agreement of AgriFrozen" at NOTE 8 to
the "Notes to Consolidated Financial Statements".
At the request of AgriFrozen's lenders, Agrilink Foods submitted a proposal to
purchase the inventory of AgriFrozen. The acquisition of the inventory was
completed on February 16, 2001. Refer to NOTE 4, "Inventories" for additional
detail of the purchase.
Fiscal 2000 -
Sale of Pickle Business: On June 23, 2000, Agrilink Foods sold its pickle
business based in Tacoma, Washington to Dean Pickle and Specialty Products
Company. This business included pickle, pepper, and relish products sold
primarily under the Nalley and Farman's brand names. Agrilink Foods received
proceeds of approximately $10.3 million which were applied to bank loans ($4.0
million of which was applied to the Term Loan Facility and $6.3 million of which
was applied to Agrilink Foods' Revolving Credit Facility). A gain of
approximately $4.3 million was recognized on this transaction.
On July 21, 2000, Agrilink Foods sold the machinery and equipment utilized in
the production of pickles and other related products to Dean Pickle and
Specialty Products Company. No significant gain or loss was recognized on this
transaction. Net proceeds of approximately $5.0 million were applied to bank
loans, $3.2 million of which was applied to the Term Loan Facility and $1.8
million of which was applied to the Revolving Credit Facility.
This transaction did not include any other products carrying the Nalley brand
name, including prepared canned meal products. Agrilink Foods continues to
contract pack Nalley and Farman's pickle products for a period of two years,
beginning June 23, 2000, at the existing Tacoma processing plant which Agrilink
Foods operates.
Under a related agreement, the Cooperative supplies raw cucumbers grown in the
Northwestern United States to Dean Pickle and Specialty Products Company for a
minimum 10-year period at market pricing.
Sale of Midwest Private Label Canned Vegetable Business: On November 8, 1999,
Agrilink Foods completed the sale of its Midwest private label canned vegetable
business to Seneca Foods. Included in this transaction was the Arlington,
Minnesota facility. Agrilink Foods received proceeds of approximately $42.4
million which were applied to borrowings outstanding under Agrilink Foods'
Revolving Credit Facility. In addition, Seneca Foods issued to Agrilink Foods a
$5.0 million unsecured subordinated promissory note due February 8, 2009. This
transaction did not include Agrilink Foods' retail branded canned vegetables,
Veg-All and Freshlike. No significant gain or loss was recognized on this
transaction.
On December 17, 1999, Agrilink Foods completed the sale of the Cambria,
Wisconsin processing facility to Del Monte. Agrilink received proceeds of
approximately $10.5 million which were applied to bank loans ($6.0 million of
which was applied to the Term Loan Facility and $4.5 million of which was
applied to Agrilink's Revolving Credit Facility). A gain of approximately $2.3
million was recognized on this transaction. The sale also included an agreement
for Del Monte to produce a portion of Agrilink Foods' product needs during the
2000 packing season.
Fiscal 1999 -
Acquisition of Agripac Frozen Vegetable Business: On February 23, 1999, PF
Acquisition II, Inc., which did business under the name AgriFrozen Foods
("AgriFrozen"), acquired the frozen vegetable business of Agripac, Inc.
("Agripac"), an Oregon cooperative. AgriFrozen was formed in January 1999 under
the corporation laws of New York State. AgriFrozen was formed to acquire
substantially all of the assets of Agripac related to its frozen vegetable
processing business. On January 4, 1999 Agripac filed a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Oregon. On January 22, 1999, Agripac, as debtor-in-possession, filed
a motion with the Bankruptcy Court for authority to sell substantially all of
the assets comprising its frozen food processing business. The bankruptcy court
confirmed the sale of Agripac's frozen food processing assets to AgriFrozen by
an order entered on February 18, 1999.
The purchase price for the assets was $80.5 million. AgriFrozen paid an
additional $7.8 million in related expenses, including $6.4 million to prior
member-growers of Agripac to obtain crop delivery agreements with AgriFrozen,
and transaction expenses and miscellaneous costs totaling $1.4 million.
AgriFrozen incurred an additional $1.2 million in severance costs associated
with the acquisition and the implementation of AgriFrozen's business plan. In
connection with, and as a condition to the consummation of the acquisition,
AgriFrozen entered into a sufficient number of crop delivery contracts with
prior member growers of Agripac acceptable to AgriFrozen.
The acquisition was accounted for under the purchase method of accounting. Under
purchase accounting tangible and identifiable intangible assets acquired are
recorded at their respective fair values. Final allocations of purchase price
were made within one year of the acquisition date.
In order to consummate the acquisition, AgriFrozen (i) entered into a credit
facility with CoBank, ACB ("CoBank") (the "CoBank Credit Facility") providing
for $30 million of term loan borrowings and a revolving credit facility (the
"CoBank Revolving Credit Facility") of $55 million in fiscal 2000 and $50
million in each year thereafter and (ii) issued a $12 million Subordinated
Promissory Note to CoBank. Neither Pro-Fac nor Agrilink Foods guaranteed the
debts of AgriFrozen or otherwise pledged any of their respective properties as
security for the CoBank financing. All of AgriFrozen's indebtedness is expressly
without recourse to Pro-Fac and Agrilink Foods.
Phase I environmental audits were performed on the facilities acquired from
Agripac, including lease properties. A number of environmental conditions
requiring remedial action were identified, but none of them individually, or in
the aggregate, were expected to exceed $4.0 million debt reduction for
environmental remediation to be provided by CoBank.
As part of its business strategy, AgriFrozen maintained an administrative
services agreement with Agrilink Foods to provide it with certain management
consulting and administrative services.
The effects of the Agripac acquisition are not material and accordingly, have
been excluded from the pro forma information presented below. The operations
from Agripac have been included in the Cooperative's Statement of Operations
since the acquisition date. See discussion of closing of this facility as
highlighted above.
Sale of Adams Brand Peanut Butter Operations: On January 29, 1999, Agrilink
Foods sold the Adams brand peanut butter operations to the J.M. Smucker Company.
Agrilink Foods received proceeds of approximately $13.5 million which were
applied to outstanding bank loans. A gain of approximately $3.5 million was
recognized on this transaction.
Acquisition of Erin's Gourmet Popcorn: On January 5, 1999, Agrilink Foods
acquired the assets of Erin's Gourmet Popcorn ("Erin's"), a Seattle-based,
ready-to-eat popcorn manufacturer. The acquisition was accounted for as a
purchase. The purchase price was approximately $0.6 million. Intangibles of
approximately $0.6 million were recorded in conjunction with this transaction
and are being amortized over 3 to 30 years. The effects of the Erin's
acquisition are not material, and accordingly, have been excluded from the pro
forma information presented below. The operations from Erin's have been included
in the Company's Statement of Operations since the acquisition date.
Acquisition of Dean Foods Vegetable Company: On September 24, 1998, Agrilink
Foods acquired the Dean Foods Vegetable Company ("DFVC"), the frozen and canned
vegetable business of Dean Foods Company ("Dean Foods"), by acquiring all the
outstanding capital stock of Dean Foods Vegetable Company and Birds Eye de
Mexico SA de CV (the "DFVC Acquisition"). In connection with the DFVC
Acquisition, Agrilink Foods sold its aseptic business to Dean Foods. Agrilink
Foods paid $360 million in cash, net of the sale of the aseptic business, and
issued to Dean Foods a $30 million unsecured subordinated promissory note due
November 22, 2008 (the "Dean Foods Subordinated Promissory Note"), as
consideration for the DFVC Acquisition. This note was subsequently sold to Great
Lakes Kraut Company, a joint venture of the Company, in December 2000. Agrilink
Foods had the right, exercisable until July 15, 1999, to require Dean Foods,
jointly with Agrilink Foods, to treat the DFVC Acquisition as an asset sale for
tax purposes under Section 338(h)(10) of the Internal Revenue Code. On April 15,
1999, Agrilink Foods paid $13.2 million to Dean Foods and exercised the
election.
After the DFVC Acquisition, DFVC was merged into Agrilink Foods. DFVC was one of
the leading processors of vegetables in the United States, selling its products
under well-known brand names, such as Birds Eye, Freshlike and Veg-All, and
various private labels. Agrilink Foods believes that the DFVC Acquisition
strengthened its competitive position by: (i) enhancing its brand recognition
and market position, (ii) providing opportunities for cost savings and operating
efficiencies and (iii) increasing its product and geographic diversification.
The DFVC Acquisition was accounted for under the purchase method of accounting.
Under purchase accounting, tangible and identifiable intangible assets acquired
and liabilities assumed were recorded at their respective fair values. Goodwill
associated with the DFVC Acquisition is being amortized over 30 years.
The following unaudited pro forma financial information presents a summary of
consolidated results of operations of Pro-Fac and DFVC as if the acquisition had
occurred at the beginning of the 1999 fiscal year.
(Dollars in Millions)
Fiscal Year Ended
June 26, 1999
-----------------
Net sales $1,336.0
Income before extraordinary items $ 25.1
Net income $ 7.1
These unaudited pro forma results have been prepared for comparative purposes
only and include adjustments for additional depreciation expense and
amortization and interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect at the beginning of the 1999 fiscal year, or of
the future operations of the consolidated entities.
Concurrently with the DFVC Acquisition, Agrilink Foods refinanced its then
existing indebtedness (the "Refinancing"), including its 12 1/4 percent Senior
Subordinated Notes due 2005 (the "Old Notes") and its then existing bank debt.
On August 24, 1998, Agrilink Foods commenced a tender offer (the "Tender Offer")
for all the Old Notes and consent solicitation to certain amendments under the
indenture governing the Old Notes to eliminate substantially all the restrictive
covenants and certain events of default therein. Substantially all of the $160
million aggregate principal amount of the Old Notes were tendered and purchased
by Agrilink Foods for aggregate consideration of approximately $184 million,
including accrued interest of $2.9 million. Agrilink Foods also terminated its
then existing bank facility (including seasonal borrowings) and repaid $176.5
million, excluding interest owed and breakage fees outstanding thereunder.
Agrilink Foods recognized an extraordinary item of $18.0 million (net of income
taxes) in the first quarter of fiscal 1999 relating to this refinancing.
In order to consummate the DFVC Acquisition and the Refinancing and to pay the
related fees and expenses, Agrilink Foods: (i) entered into a new credit
facility (the "Credit Facility") providing for $455 million of term loan
borrowings (the "Term Loan Facility") and up to $200 million of revolving credit
borrowings (the "Revolving Credit Facility"), (ii) entered into and drew upon a
$200 million bridge loan facility (the "Bridge Facility") and (iii) issued the
$30 million Subordinated Promissory Note to Dean Foods (This note was
subsequently sold to Great Lakes Kraut Company, a joint venture of Agrilink
Foods, in December 2000). The Bridge Facility was repaid during November of 1998
principally with the proceeds from a new Senior Subordinated Note Offering (the
"Notes"). See NOTE 8 - "Debt - Senior Subordinated Notes 11-7/8 Percent (due
2008)." Debt issue costs of $5.5 million associated with the Bridge Facility
were expensed during the quarter ended December 26, 1998.
Acquisition of J.A. Hopay Distributing Co, Inc.: Effective July 21, 1998,
Agrilink Foods acquired J.A. Hopay Distributing Co., Inc. ("Hopay") of
Pittsburgh, Pennsylvania. Hopay distributed snack products for Snyder of Berlin,
one of the Company's businesses included within its snack foods unit. The
acquisition was accounted for as a purchase. The purchase price (net of
liabilities assumed) was approximately $2.3 million. Intangibles of
approximately $3.3 million were recorded in conjunction with this transaction
and are being amortized over 5 to 30 years.
The effects of the Hopay acquisition are not material and, accordingly, have
been excluded from the above pro forma presentation. The operations from Hopay
have been included in the Cooperative's Statement of Operations since the
acquisition date.
NOTE 4. INVENTORIES
The major classes of inventories are as follows:
(Dollars in Thousands)
June 30, June 24,
2001 2000
------------- ----------
Finished goods $ 279,991 $ 290,195
Raw materials and supplies 33,865 51,736
---------- ----------
Total inventories $ 313,856 $ 341,931
========== ==========
On February 16, 2001, Agrilink Foods completed the purchase of the frozen
vegetable inventory of AgriFrozen. AgriFrozen's lender sold the inventory to
Agrilink Foods pursuant to a private sale under the Uniform Commercial Code
after AgriFrozen voluntarily surrendered the inventory to the lender. The
purchase price was $31.6 million of which $10.0 million was paid to the lender
on April 1, 2001, and the remaining balance was paid on August 1, 2001. The
$21.6 million is included in accounts payable at June 30, 2001. In addition,
under a related agreement between Agrilink Foods and AgriFrozen, Agrilink Foods
funded certain operating costs and expenses of AgriFrozen, primarily in storing
and converting the purchased inventory to finished goods, during a transition
period which ended on June 30, 2001. Total expenses were estimated to be
approximately $7.1 million, of which $6.0 million has been funded as of June 30,
2001. This funding is net of the proceeds of available receivables not pledged
to the lender. Agrilink Foods incurred fees of approximately $0.8 million
related to this transaction which were expensed during the second half of fiscal
2001.
NOTE 5. INVESTMENT IN JOINT VENTURE
Formation of Sauerkraut Company: On July 1, 1997, Agrilink Foods and Flanagan
Brothers, Inc. of Bear Creek, Wisconsin contributed all their assets involved in
sauerkraut production to form a new sauerkraut company. This new company, Great
Lakes Kraut Company, LLC, operates as a New York limited liability company with
ownership and earnings divided equally between the two companies. The joint
venture is accounted for using the equity method of accounting. Summarized
financial information of Great Lakes Kraut Company, LLC is as follows:
Condensed Statement of Earnings
(Dollars in Thousands)
Fiscal Years Ended
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Net sales $ 30,688 $ 36,126 $ 33,335
Gross profit $ 6,744 $ 9,150 $ 9,392
Operating income $ 3,105 $ 5,488 $ 6,267
Net income $ 3,559 $ 4,836 $ 5,575
Condensed Balance Sheet
(Dollars in Thousands)
June 30,2001 June 24, 2000
------------ -------------
Current assets $ 13,050 $ 12,464
Noncurrent assets $ 33,158 $ 22,081
Current liabilities $ 12,763 $ 13,158
Noncurrent liabilities $ 15,049 $ 4,579
On December 1, 2000, Great Lakes Kraut Company, LLC purchased the Subordinated
Promissory Note issued by Agrilink Foods to Dean Foods in conjunction with the
acquisition of Dean Foods Vegetable Company. Great Lakes Kraut Company, LLC paid
$10 million for the Subordinated Promissory Note with proceeds from bank
financing.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 30, 2001 and June 24, 2000:
(Dollars in Thousands)
June 30, 2001 June 24, 2000
---------------------------------------- -----------------------------------------
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
---------- --------- -------- ---------- ---------- ----------
Land $ 14,019 $ 0 $ 14,019 $ 18,943 $ 0 $ 18,943
Land improvements 7,627 0 7,627 7,828 0 7,828
Buildings 108,991 395 109,386 114,428 395 114,823
Machinery and equipment 300,741 1,115 301,856 307,890 936 308,826
Construction in progress 12,249 0 12,249 14,499 0 14,499
--------- ------- -------- --------- -------- ---------
443,627 1,510 445,137 463,588 1,331 464,919
Less accumulated depreciation (138,922) (684) (139,606) (115,856) (704) (116,560)
--------- ------- -------- --------- -------- ---------
Net $ 304,705 $ 826 $305,531 $ 347,732 $ 627 $ 348,359
========= ======= ======== ========= ======== =========
Obligations under capital leases1 $ 887 $ 738
Less current portion (316) (218)
------- --------
Long-term portion $ 571 $ 520
======= ========
1 Represents the present value of net minimum lease payments calculated at
the Cooperative's incremental borrowing rate at the inception of the
leases, which ranged from 6.3 to 9.8 percent.
Interest capitalized in conjunction with construction amounted to approximately
$0.6 million, $0.7 million, and $0.3 million in fiscal 2001, 2000, and 1999,
respectively.
The following is a schedule of future minimum lease payments together with the
present value of the minimum lease payments related to capitalized leases, both
as of June 24, 2000:
(Dollars in Thousands)
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
- ------------------------ ------- ---------- -----------
2002 400 5,422 5,822
2003 325 3,984 4,309
2004 193 2,974 3,167
2005 89 2,258 2,347
2006 35 1,249 1,284
Later years 0 2,309 2,309
------- --------- ---------
Net minimum lease payments 1,042 $ 18,196 $ 19,238
========= =========
Less amount representing interest (155)
-------
Present value of minimum lease payments $ 887
=======
Total rent expense related to operating leases (including lease arrangements of
less than one year which are not included in the previous table) amounted to
$16.6 million, $18.7 million, and $15.4 million for fiscal years 2001, 2000, and
1999, respectively.
NOTE 7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 25, 2000, the Cooperative adopted FASB SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires the
recognition of all derivative financial instruments as either assets or
liabilities in the balance sheet and measurement of those instruments at fair
value. Changes in the fair values of those derivatives will be reported in
earnings or other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. The accounting for gains and
losses associated with changes in the fair value of a derivative and the effect
on the consolidated financial statements will depend on its hedge designation
and whether the hedge is highly effective in achieving offsetting changes in the
fair value or cash flow of the asset or liability hedged. Under the provisions
of SFAS No. 133, the method that will be used for assessing the effectiveness of
a hedging derivative, as well as the measurement approach for determining the
ineffective aspects of the hedge, must be established at the inception of the
hedge.
The Cooperative, as a result of its operating and financing activities, is
exposed to changes in foreign currency exchange rates, certain commodity prices,
and interest rates, which may adversely affect its results of operations and
financial position. In seeking to minimize the risks and/or costs associated
with such activities, the Cooperative may enter into derivative contracts.
The adoption of SFAS No. 133 did not materially affect the Cooperative's results
of operations, other comprehensive income, or financial position.
Foreign Currency: Agrilink Foods manages its foreign currency related risk
primarily through the use of foreign currency forward contracts. The contracts
held by Agrilink Foods are denominated in Mexican pesos.
Agrilink Foods has entered into foreign currency forward contracts that are
designated as cash flow hedges of exchange rate risk related to forecasted
foreign currency-denominated intercompany sales. At June 30, 2001, Agrilink
Foods had cash flow hedges for the Mexican peso with maturity dates ranging from
July 2001 to May 2002 for 124 million pesos.
At June 30, 2001, the fair value of the open contracts was an after-tax gain of
approximately $0.6 million recorded in accumulated other comprehensive income in
shareholder's equity. Amounts deferred to accumulated other comprehensive income
will be reclassified into cost of goods sold. For the year ended June 30, 2001,
approximately $0.3 million has been reclassified from other comprehensive income
to cost of goods sold. Hedge ineffectiveness was insignificant.
Commodity Prices: Agrilink Foods is exposed to commodity price risk related to
forecasted purchases of soybean oil, an ingredient in the manufacture of salad
dressings and mayonnaise. To mitigate this risk, Agrilink Foods designated
soybean oil forward contracts as cash flow hedges of its forecasted soybean oil
purchases. Agrilink Foods maintained soybean oil contracts that hedged
approximately 70 percent of its planned soybean oil requirements during fiscal
2001. These contracts were either sold or expired during fiscal 2001, and a loss
of $0.2 million recorded in cost of goods sold.
Agrilink Foods is also exposed to commodity price risk related to forecasted
purchases of flour in its manufacturing process. To mitigate this risk, Agrilink
Foods designated a swap agreement as a cash flow hedge of its forecasted flour
purchases. Agrilink Foods maintained flour contracts that hedged approximately
59 percent of its planned flour requirements during fiscal 2001. The contracts
expired during fiscal 2001, and an immaterial loss was recorded in cost of goods
sold.
Agrilink Foods is also exposed to commodity price risk related to forecasted
purchases of corrugated (unbleached kraftliner) in its manufacturing process. To
mitigate this risk, Agrilink Foods designated a swap agreement as a cash flow
hedge of its forecasted corrugated purchases. Agrilink Foods hedged
approximately 80 percent of its planned corrugated requirements. This agreement
had no fair value and terminated on June 30, 2001.
Interest Rates: Agrilink Foods is exposed to interest rate risk primarily
through its borrowing activities. The majority of Agrilink Foods' long-term
borrowings are variable rate instruments. Agrilink Foods entered into two
interest rate swap contracts under which Agrilink Foods agrees to pay an amount
equal to a specified fixed rate of interest times a notional principal amount,
and to receive in return an amount equal to a specified variable rate of
interest times the same notional principal amount. The notional amounts of the
contract are not exchanged and no other cash payments are made. Two interest
rate swap contracts were entered into with a major financial institution in
order to minimize credit risk.
The first interest rate swap contract required payment of a fixed rate of
interest (4.96 percent) and the receiving of a variable rate of interest
(three-month London Interbank Offered Rate ("LIBOR") of 4.85 percent as of June
30, 2001) on $150 million notional amount of indebtedness. Agrilink Foods had a
second interest rate swap contract to pay a fixed rate of interest (5.32
percent) and receive a variable rate of interest (three-month LIBOR of 4.85
percent as of June 30, 2001) on $100 million notional amount of indebtedness.
Approximately 61 percent of the underlying debt is being hedged with these
interest rate swaps.
Agrilink Foods designates these interest rate swap contracts as cash flow
hedges. The fair value of the cash flow hedge is generally deferred to other
comprehensive income and reclassified to interest expense over the life of the
swap contracts. However, to the extent that any of these contracts are not
considered effective in offsetting the change in the value of the interest
payments being hedged, any changes in fair value relating to the ineffective
portion of these contracts are immediately recognized in income. At June 30,
2001, these interest rate swap contracts were not considered effective, and the
fair value of the contracts was an after-tax loss of $0.4 million and was
reported in earnings.
NOTE 8. DEBT
The following is a summary of long-term debt outstanding:
(Dollars in Thousands)
June 30, June 24,
2001 2000
---------- ----------
Term Loan Facility - Agrilink Foods $ 411,600 $ 428,300
Term Loan Facility - AgriFrozen 0 30,000
Senior Subordinated Notes 200,015 200,015
Subordinated Promissory Note (net of discount) - Agrilink Foods 29,660 26,144
Subordinated Promissory Note (net of discount) - AgriFrozen 0 4,493
Other 5,452 6,836
---------- ----------
Total debt 646,727 695,788
Less current portion (15,599) (16,583)
---------- ----------
Total long-term debt $ 631,128 $ 679,205
========== ==========
AGRILINK FOODS DEBT
Credit Facility (Bank Debt): In connection with the DFVC Acquisition, Agrilink
Foods entered into a Credit Facility with Harris Bank as Administrative Agent
and Bank of Montreal as Syndication Agent, and the lenders thereunder. The
Credit Facility consists of a $200 million Revolving Credit Facility and a $455
million Term Loan Facility. The Term Loan Facility is comprised of the Term A
Facility, which has a maturity of five years, the Term B Facility, which has a
maturity of six years, and the Term C Facility, which has a maturity of seven
years. The Revolving Credit Facility has a maturity of five years. All previous
bank debt was repaid in conjunction with the execution of the Credit Facility.
The Credit Facility bears interest, at Agrilink Foods' option, at the
Administrative Agent's alternate base rate or the LIBOR plus, in each case,
applicable margins of: (i) in the case of alternate base rate loans, (x) 1.25
percent for loans under the Revolving Credit Facility and the Term A Facility,
(y) 3.00 percent for loans under the Term B Facility and (z) 3.25 percent for
loans under the Term C Facility and (ii) in the case of LIBOR loans, (x) 3.00
percent for loans under the Revolving Credit Facility and the Term A Facility,
(y) 4.00 percent for loans under the Term B Facility and (z) 4.25 percent for
loans under the Term C Facility. The Administrative Agent's "alternate base
rate" is defined as the greater of: (i) the prime commercial rate as announced
by the Administrative Agent or (ii) the Federal Funds rate plus 0.50 percent.
The fiscal 2001 weighted-average rate of interest applicable to the Term Loan
Facility was 9.97 percent. In addition, Agrilink Foods pays a commitment fee
calculated at a rate of 0.50 percent per annum on the daily average unused
commitment under the Revolving Credit Facility.
Utilizing outstanding balances at June 30, 2001, the Term Loan Facility is
subject to the following amortization schedule:
(Dollars in Millions)
Fiscal Year Term Loan A Term Loan B Term Loan C Total
- ----------- ----------- ----------- ----------- -----
2002 $ 10.0 $ 0.4 $ 0.4 $ 10.8
2003 10.0 0.4 0.4 10.8
2004 6.4 0.4 0.4 7.2
2005 0.0 189.0 0.4 189.4
2006 0.0 0.0 193.4 193.4
------- ------- -------- -------
$ 26.4 $ 190.2 $ 195.0 $ 411.6
======= ======= ======== =======
The Term Loan Facility is subject to mandatory prepayment under various
scenarios as defined in the Credit Facility. During fiscal 2001, Agrilink Foods
made mandatory prepayments of $3.2 million from proceeds of the sale of pickle
machinery and equipment. In addition, during fiscal 2001, principal payments of
$13.5 million were made on the Term Loan Facilities.
Agrilink Foods' obligations under the Credit Facility are collateralized by a
first-priority lien on: (i) substantially all existing or after-acquired assets,
tangible or intangible, (ii) the capital stock of certain of Pro-Fac's
(excluding AgriFrozen, a former subsidiary of Pro-Fac), current and future
subsidiaries and (iii) all of Agrilink Foods' rights under the agreement to
acquire DFVC (principally indemnification rights) and the Marketing and
Facilitation Agreement between Agrilink Foods and Pro-Fac. Agrilink Foods'
obligations under the Credit Facility are guaranteed by Pro-Fac (excluding
AgriFrozen) and certain of Agrilink Foods' subsidiaries.
The Credit Facility contains customary covenants and restrictions on Agrilink
Foods' ability to engage in certain activities, including, but not limited to:
(i) limitations on the incurrence of indebtedness and liens, (ii) limitations on
sale-leaseback transactions, consolidations, mergers, sale of assets,
transactions with affiliates and investments and (iii) limitations on dividend
and other distributions. The Credit Facility also contains financial covenants
requiring Pro-Fac to maintain a minimum level of consolidated EBITDA, a minimum
consolidated interest coverage ratio, a minimum consolidated fixed charge
coverage ratio, a maximum consolidated leverage ratio and a minimum level of
consolidated net worth. Under the Credit Agreement, the assets, liabilities, and
results of operations of AgriFrozen, a former subsidiary of Pro-Fac, were not
consolidated with Pro-Fac for purposes of determining compliance with the
covenants. In August 2001, September 2000, and August 1999, Agrilink Foods
negotiated amendments to the original covenants. In conjunction with these
amendments, Agrilink Foods incurred fees of approximately $1.5 million, $1.7
million and $2.6 million, respectively. These fees are being amortized over the
remaining life of the Credit Facility. Pro-Fac and Agrilink Foods are in
compliance with all covenants, restrictions, and requirements under the terms of
the Credit Facility as amended.
The August 2001 amendment imposes contingent fees and possible increases in
interest rates under the Credit Facility based in part on the ability of the
Company to raise equity, and deleverage its balance sheet within certain
timeframes. To this end, the Company has engaged a financial advisor to assist
it in raising a minimum of $100 million through a private placement of an as yet
unspecified class of securities of the Company. The amount of such contingent
fees is also impacted by EBITDA which the Company achieves for its fiscal year
ending in June 2002.
Senior Subordinated Notes - 11-7/8 Percent (due 2008): To extinguish the
Subordinated Bridge Facility, Agrilink Foods issued Senior Subordinated Notes
(the "Notes") for $200 million aggregate principal amount due November 1, 2008.
Interest on the Notes accrues at the rate of 11-7/8 percent per annum and is
payable semiannually in arrears on May 1 and November 1.
The Notes represent general unsecured obligations of Agrilink Foods,
subordinated in right of payment to certain other debt obligations of Agrilink
Foods (including Agrilink Foods' obligations under the Credit Facility). The
Notes are guaranteed by Pro-Fac and certain of Agrilink Foods' subsidiaries.
The Notes contain customary covenants and restrictions on Agrilink Foods'
ability to engage in certain activities, including, but not limited to: (i)
limitations on the incurrence of indebtedness and liens; (ii) limitations on
consolidations, mergers, sales of assets, transactions with affiliates; and
(iii) limitations on dividends and other distributions. Agrilink Foods is in
compliance with all covenants, restrictions, and requirements under the Notes.
Subordinated Bridge Facility: To complete the DFVC Acquisition, Agrilink Foods
entered into a Subordinated Bridge Facility (the "Bridge Facility"). During
November 1998, the net proceeds from the sale of the Notes, together with
borrowings under the Revolving Credit Facility, were used to repay all the
indebtedness outstanding ($200 million plus accrued interest) under the Bridge
Facility. The outstanding indebtedness under the Bridge Facility accrued
interest at an approximate rate per annum of 10 1/2 percent. Debt issuance costs
associated with the Bridge Facility of $5.5 million were fully amortized during
the second quarter of fiscal 1999.
Subordinated Promissory Note: As partial consideration for the DFVC Acquisition,
Agrilink Foods issued to Dean Foods a Subordinated Promissory Note for $30
million aggregate principal amount due November 22, 2008. Interest on the
Subordinated Promissory Note is accrued quarterly in arrears commencing December
31, 1998, at a rate per annum of 5 percent until November 22, 2003, and at a
rate of 10 percent thereafter. As the rates on the Note are below market value,
Agrilink Foods has imputed the appropriate discount utilizing an effective
interest rate of 11-7/8 percent. Interest accruing through November 22, 2003 is
required to be paid in kind through the issuance by Agrilink Foods of additional
subordinated promissory notes identical to the Subordinated Promissory Note.
Agrilink Foods satisfied this requirement in fiscal 2001 through the issuance of
five additional promissory notes each for approximately $0.4 million. Interest
accruing after November 22, 2003 is payable in cash. The Subordinated Promissory
Note may be prepaid at Agrilink Foods's option without premium or penalty.
The Subordinated Promissory Note is expressly subordinate to the Notes and the
Credit Facility and contains no financial covenants. The Subordinated Promissory
Note is guaranteed by Pro-Fac.
On December 1, 2000, Dean Foods sold the Subordinated Promissory Note to Great
Lakes Kraut Company, LLC, a joint venture between Agrilink Foods and Flanagan
Brothers, Inc. This sale did not affect the terms of the note.
Senior Subordinated Notes - 12 1/4 Percent Due 2005 ("Old Notes"): In
conjunction with the DFVC Acquisition, Agrilink Foods repurchased $159,985,000
principal amount of its Old Notes, of which $160 million aggregate principal
amount was previously outstanding. Agrilink Foods paid a total of approximately
$184 million to repurchase the Old Notes, including interest accrued thereon of
$2.9 million. Holders who tendered consented to certain amendments to the
indenture relating to the Old Notes, which eliminated or amended substantially
all the restrictive covenants and certain events of default contained in such
indenture. Agrilink Foods may repurchase the remaining Old Notes in the future
in open market transactions, privately negotiated purchases or otherwise.
Revolving Credit Facility ("Notes Payable"): Borrowings under Agrilink Foods'
Revolving Credit Facility (excluding AgriFrozen) were as follows:
(Dollars in Thousands)
Fiscal Years Ended
--------------------------------------------------------------------
June 30,2001 June 24, 2000 June 26, 1999
------------ ------------- -------------
Balance at end of period $ 0 $ 5,700 $ 18,900
Rate at fiscal year end 0.0% 9.375% 8.2%
Maximum outstanding during the period $ 121,000 $ 156,100 $ 116,200
Average amount outstanding during the period $ 76,900 $ 90,800 $ 76,700
Weighted average interest rate during the period 9.2% 8.5% 7.8%
Agrilink Foods also maintains a Letter of Credit Facility which provides for the
issuance of letters of credit through September 2001. As of June 30, 2001, there
were $13.4 million in letters of credit outstanding. Management anticipates
timely renewals of the Letter of Credit facilities.
Other Debt: Other debt of $5.5 million carries rates up to 10 percent at June
30, 2001.
Maturities: Total long-term debt maturities during each of the next five fiscal
years for debt associated with Agrilink Foods are as follows: 2002, $15.6
million; 2003, $11.1 million; 2004, $7.5 million; 2005, $189.4 million; and 2006
$ 193.4 million. Provisions of the Term Loan require annual payments on the last
day of each September of each year (commencing September 30, 1999) in an amount
equal to the "annual cash sweep" (equivalent to approximately 75 percent of net
income adjusted for certain cash and non-cash items) for the preceding fiscal
year. As of June 30, 2001, there were no obligations under this provision.
Provisions of the Term Loan Facility also require that net cash proceeds from
the sale of businesses be applied to the Term Loan Facility.
Fair Value: The estimated fair value of Agrilink Foods' long-term debt
outstanding was approximately $629.3 million and $615.5 million at June 30, 2001
and June 24, 2000, respectively. The fair value for long-term debt was estimated
using either quoted market prices for the same or similar issues or the current
rates offered to Agrilink Foods for debt with similar maturities.
AGRIFROZEN DEBT
Credit Agreement and Subordinated Note Agreement of AgriFrozen: With respect to
AgriFrozen's Credit Facility, AgriFrozen was not in compliance with certain
financial tests and ratios, and certain restrictions and limitations, which
constituted defaults under the loan agreement. The lender to AgriFrozen was
unwilling to commit to extend further credit to AgriFrozen. In part, because of
these issues and as a result of continued pressure on the private
label/industrial business sectors served by AgriFrozen, the board of directors
of AgriFrozen decided in January 2001 to cease operations. Subsequently,
AgriFrozen surrendered its inventory assets to the lender.
AgriFrozen's obligations are not guaranteed by Pro-Fac or Agrilink Foods and are
expressly non-recourse as to Pro-Fac and Agrilink Foods. In addition, neither
Pro-Fac nor Agrilink Foods pledged any of their respective properties as
security for AgriFrozen's indebtedness. As such, the current circumstances of
AgriFrozen's debt and liquidity are not expected to have a material affect on
the business of Pro-Fac or Agrilink Foods. In addition, on February 15, 2001,
Pro-Fac abandoned its ownership interest in AgriFrozen
and, accordingly, eliminated all balances related to AgriFrozen, including debt
effective that date. In conjunction with this action, Pro-Fac recognized a loss
of $1,000, which represented its investment in AgriFrozen.
NOTE 9. TAXES ON INCOME
Taxes on income before extraordinary item include the following:
(Dollars in Thousands)
Fiscal Years Ended
------------------------------------------------
June 30,2001 June 24, 2000 June 26, 1999
------------ ------------- -------------
Federal -
Current $ (2,563) $(4,929) $ 12,781
Deferred 3,013 12,734 8,972
-------- ------- --------
450 7,805 21,753
State and foreign -
Current 173 (210) 2,016
Deferred 345 902 977
-------- ------- --------
518 692 2,993
-------- ------- --------
$ 968 $ 8,497 $ 24,746
======== ======= ========
A reconciliation of the consolidated effective tax rate to the amount computed
by applying the federal income tax rate to income before taxes and extraordinary
item is as follows:
Fiscal Years Ended
-----------------------------------
June 30 June 24, June 26,
2001 2000 1999
---------- ---------- ---------
Statutory federal rate 35.0% 35.0% 35.0%
State and foreign income taxes, net of federal income tax effect (30.6) 2.9 3.5
Allocation to members 0.0 (7.0) 0.0
Goodwill amortization 51.1 5.1 5.9
Dividend received deduction (2.5) (0.2) (0.4)
Meals and entertainment 12.3 0.8 0.6
Other, net 1.4 (2.2) (2.0)
----- ---- ----
Effective Tax Rate 66.7% 34.4% 42.6%
===== ==== ====
The consolidated deferred tax (liabilities)/assets consist of the following:
(Dollars in Thousands)
June 30, 2001 June 24, 2000
Liabilities:
Depreciation $(42,473) $(41,033)
Goodwill and other intangible assets (6,832) (5,796)
Prepaid manufacturing expense (8,724) (10,152)
Investment in joint venture (1,555) (1,727)
Discount on Subordinated Promissory Notes (2,180) (5,208)
-------- --------
(61,764) (63,916)
-------- --------
Assets:
Non-qualified retains 0 105
Inventories 9,770 12,922
Credits and operating loss carryforwards 15,026 7,820
Insurance accruals 2,921 3,259
Pension/OPEB accruals 10,883 10,752
Other 4,881 10,161
-------- --------
Total deferred tax assets 43,481 45,019
-------- --------
Net deferred liabilities (18,283) (18,897)
Valuation allowance (5,891) (5,752)
-------- --------
Total $(24,174) $(24,649)
======== ========
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryforward period. A valuation allowance is provided when it is more likely
than not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable
income, and the projected future taxable income over the periods in which the
temporary differences comprising the deferred tax assets will be deductible.
During fiscal 2001, the Cooperative recorded a valuation allowance in the amount
of $0.1 million. The valuation allowance was established for foreign net
operating losses and state tax credits generated during the fiscal year. During
fiscal 2000, the Cooperative increased the valuation allowance in the amount of
$4.3 million. This valuation allowance was primarily established for state net
operating losses and credits generated during the year. As the Cooperative
cannot assure that realization of these credits is more likely than not to
occur, a valuation allowance has been established.
During fiscal 1999, Agrilink Foods utilized the $5.5 million of net operating
loss carryforwards ($1.9 million of tax). The benefits for these net operating
losses had been recorded in previous years.
In January 1995, the Boards of Directors of Agrilink Foods and Pro-Fac approved
appropriate amendments to the Bylaws of Agrilink Foods to allow Agrilink Foods
to qualify as a cooperative under Subchapter T of the Internal Revenue Code. In
August 1995, Agrilink Foods and Pro-Fac received a favorable ruling from the
Internal Revenue Service approving the change in tax treatment effective for
fiscal 1996. This ruling also confirmed that the change in Agrilink Foods tax
status would have no effect on Pro-Fac's ongoing treatment as a cooperative
under Subchapter T of the Internal Revenue Code of 1986.
NOTE 10. PENSIONS, PROFIT SHARING, AND OTHER EMPLOYEE BENEFITS
Pensions: The Cooperative has primarily noncontributory defined benefit plans
covering most employees. The benefits for these plans are based primarily on
years of service and employees' pay near retirement. The Cooperative's funding
policy is consistent with the funding requirements of Federal law and
regulations. Plan assets consist principally of common stocks, corporate bonds
and US government obligations. For purposes of this disclosure, all
defined-benefit pension plans have been combined.
The Cooperative also participates in several union sponsored pension plans. It
is not possible to determine the Cooperative's relative share of the accumulated
benefit obligations or net assets for these plans. Contributions to these plans
are paid when incurred and billed by the sponsoring union or plan.
The following table sets forth the changes in the plans' projected benefit
obligation and plan assets and the plans' funded status and amounts recognized
in the Cooperative's financial statements at June 30, 2001 and June 24, 2000.
(Dollars in Thousands)
Pension Benefits
------------------------------------------
Fiscal Years Ended
------------------------------------------
June 30,2001 June 24, 2000
------------ -------------
Change in benefit obligation:
Benefit obligation at beginning of period $ 101,695 $ 110,833
Service cost 4,907 6,520
Interest cost 7,729 7,592
Plan participants' contributions 125 160
Plan amendments 0 2,296
Actuarial gain (3,122) (16,122)
Benefits paid (6,317) (9,584)
---------- ----------
Benefit obligation at end of period 105,017 101,695
---------- ----------
Change in plan assets:
Fair value of plan assets at beginning of period 111,956 108,183
Actual (loss)/return on plan assets (11,025) 12,941
Employer contribution 281 256
Plan participants' contributions 125 160
Benefits paid (6,317) (9,584)
---------- ----------
Fair value of plan assets at end of period 95,020 111,956
---------- ----------
Plan funded status (9,997) 10,261
Unrecognized prior service cost 1,987 2,181
Unrecognized actuarial gain (9,081) (29,217)
---------- ----------
Accrued benefit liability net of additional minimum pension liability $ (17,091) $ (16,775)
========== ==========
Amounts recognized in the statement of financial position:
Accrued benefit liability $ (17,664) $ (17,300)
Accumulated other comprehensive income - minimum pension liability 573 525
---------- ----------
Net amount recognized $ (17,091) $ (16,775)
========== ==========
Weighted-average assumptions:
Discount rate 7.8% 8.0%
Expected return on plan assets 9.5% 9.5%
Rate of compensation increase 4.5/3.0% 4.5%
Net periodic benefit cost in fiscal years 2001, 2000 and 1999 is comprised of
the following:
Pension Benefits
--------------------------------------------------
Fiscal Years Ended
--------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Components of net periodic benefit cost:
Service cost $ 4,907 $ 6,520 $ 4,727
Interest cost 7,729 7,592 6,953
Expected return on plan assets (10,424) (10,604) (10,528)
Amortization of prior service cost 193 (16) (15)
Amortization of gain (1,810) (51) (741)
------- -------- -------
Net periodic benefit cost - Cooperative plans 595 3,441 396
Net periodic benefit cost - union plans 819 762 876
------- -------- -------
Total periodic benefit cost $ 1,414 $ 4,203 $ 1,272
======= ======== =======
The Cooperative maintains a non-tax qualified Supplemental Executive Retirement
Plan which provides additional retirement benefits to two prior executives who
retired prior to November 4, 1994. In December 2000, the Cooperative adopted an
additional SERP to provide additional retirements benefits to a current
executive officer of the Cooperative.
The Cooperative maintains an Excess Benefit Retirement Plan which serves to
provide employees with the same retirement benefit they would have received from
the Cooperative's retirement plan under the career average base pay formula, but
for changes required under the 1986 Tax Reform Act and the compensation
limitation under Section 401(a)(17) of the Internal Revenue Code having been
revised in the 1992 Omnibus Budget Reform Act. This benefit plan was amended in
December 2000.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for retirement plans with accumulated benefit obligations in
excess of plan assets were:
(Dollars in Thousands)
Master Salaried Excess Benefit Supplemental Executive Supplemental Executive
Retirement Plan Retirement Plan Retirement Plan No.1 Retirement Agreement No.2
Fiscal Years Ended Fiscal Years Ended Fiscal Years Ended Fiscal Years Ended
------------------- ------------------ ---------------------- -------------------------
6/30/01 6/24/00 6/30/01 6/24/00 6/30/01 6/24/00 6/30/01 6/24/00
-------- ------- ------- ------- ------ ------- ------- -------
Projected benefit obligation $38,234 N/A $1,089 $1,159 $1,716 $1,729 $353 N/A
Accumulated benefit obligation 32,527 N/A 879 834 1,716 1,729 353 N/A
Plan assets 30,299 N/A 0 0 0 0 0 N/A
Postretirement Benefits Other Than Pensions: The Cooperative sponsors benefit
plans that provide postretirement medical and life insurance benefits for
certain current and former employees. For the most part, current employees are
not eligible for the postretirement medical coverage. Generally, other than
pensions, the Cooperative does not pay retirees' benefit costs. Various
exceptions exist, which have evolved from union negotiations, early retirement
incentives and existing retiree commitments from acquired companies.
The Cooperative has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The following table sets forth the changes in the plans' projected benefit
obligation and plan assets and the plans' funded status and amounts recognized
in the Cooperative's financial statements at June 30, 2001 and June 24, 2000.
(Dollars in Thousands)
Other Benefits
----------------------------------------
Fiscal Years Ended
----------------------------------------
June 30, 2001 June 24, 2000
------------- -------------
Change in benefit obligation:
Benefit obligation at beginning of period $ 5,658 $ 6,507
Service cost 170 184
Interest cost 429 433
Decrease due to sale 0 (295)
Plan amendments (891) 0
Actuarial loss/(gain) 1,578 (715)
Benefits paid (611) (456)
---------- ----------
Benefit obligation at end of period 6,333 5,658
---------- ----------
Change in plan assets:
Fair value of assets at beginning of period 0 0
Employer contribution 611 456
Benefits paid (611) (456)
---------- ----------
Fair value of assets at end of period 0 0
---------- ----------
Plan funded status (6,333) (5,658)
Unrecognized prior service cost (892) 0
Unrecognized actuarial loss 2,276 717
---------- ----------
Accrued benefit liability (4,949) (4,941)
Amounts recognized in the statement of financial position:
Accrued benefit liability $ (4,949) $ (4,941)
========== ==========
Weighted-average assumptions:
Discount rate 7.8% 8.0%
Expected return on plan assets N/A N/A
Rate of compensation increase 3.0% 4.5%
Other Benefits
-----------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Components of net periodic benefit cost:
Service cost $ 170 $ 184 $ 90
Interest cost 429 433 250
Amortization of loss 20 159 0
--------- -------- ---------
Net periodic benefit cost $ 619 $ 776 $ 340
========= ======== =========
For measurement purposes, an 8.0 percent rate of increase in the per capita cost
of covered health care benefits was assumed for fiscal 2001. The rate was
assumed to decrease gradually to 5.0 percent for 2007 and remain at that level
thereafter.
The assumed health care trend rates can have a significant effect on the amounts
reported for the postretirement benefits plan. A one-percentage point change in
the assumed health care trend rates would have the following effect:
1-Percentage 1-Percentage
Point Increase Point Decrease
Effect on total of service and interest cost components for fiscal 2001 $ 58 $ (51)
Effect on postretirement benefit obligation at June 30, 2001 $ 432 $ (379)
Agrilink Foods 401(k) Plan: Under the Agrilink Foods 401(k) Plan ("401(k)"),
Agrilink Foods contributes matching contributions to the plan for the benefit of
employees who elect to defer a portion of their salary into the plan. During
fiscal 2001, 2000, and 1999,
Agrilink Foods allocated approximately $1.2 million, $1.1 million, and $0.9
million, respectively, in the form of matching contributions to the plan.
In addition, Agrilink Foods also maintains a Non- Qualified 401(k) Plan in which
Agrilink Foods allocates matching contributions for the benefit of "highly
compensated employees" as defined under Section 414(q) of the Internal Revenue
Code. During fiscal 2001, 2000, and 1999, Agrilink Foods allocated $0.3 million,
$0.2 million, and $0.2 million, respectively in the form of matching
contributions to this plan.
Long-Term Incentive Plan: On June 24, 1996, the Cooperative introduced a
long-term incentive program, the Agrilink Foods Equity Value Plan, which it has
amended from time to time. The Equity Value Plan provides performance units to a
select group of management. The future value of the performance units is
determined by Agrilink Foods' performance on earnings and debt repayment.
Units issued in 1996 through 1999 vest 25 percent each year after the first
anniversary of the grant, becoming 100 percent vested on the fourth anniversary
of grant. For units granted in 1996, the appreciated value of units in excess of
the initial grant price is paid as cash compensation on the tenth anniversary of
grant. The total units granted in 1996 were 248,511 at $13.38. For units granted
in 1997, 1998 and 1999, the final value of the performance units is determined
on the fourth anniversary of grant. One-third of the appreciated value of units
in excess of the initial grant price is paid as cash compensation over each of
the subsequent three years. The total units granted from 1997 through 1999 were
402,715 at $26.00 per unit in 1999, 308,628 at $21.88 per unit in 1998, and
176,278 at $25.04 per unit in 1997.
For units granted in 2001 and 2000, the final value of the performance units is
discretionary. Units granted in 2001 and 2000 vest 100 percent on the fourth
anniversary of grant. The total units granted in 2001 and 2000 were 400,000 and
371,806, respectively.
Units forfeited since the inception of the plan include 4,474 at $17.67; 13,205
at $26.00, 9,418 at $21.88, 18,362 at $25.04, and 27,165 at $13.38.
The value of the grants from the Agrilink Foods Equity Value Plan will be based
on Agrilink's future earnings and debt repayment.
Nothing has been charged to income under these plans.
Employee Stock Purchase Plan: During fiscal 1996 the Cooperative introduced an
Employee Stock Purchase Plan which affords employees the opportunity to purchase
semi-annually, in cash or via payroll deduction, shares of Class B Cumulative
Pro-Fac Preferred Stock to a maximum value of 5 percent of salary. The purchase
price of such shares is par value, $10 per share. During fiscal 2001, 2000, and
1999, 23,923, 23,664, and 26,061 shares, respectively, were held by employees,
and there were no shares subscribed to as of June 30, 2001.
NOTE 11. OPERATING SEGMENTS
The Cooperative accounts for segments using Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise" (SFAS 131).
SFAS No. 131 establishes requirements for reporting information about operating
segments and establishes standards for related disclosures about products and
services, and geographic areas. SFAS No. 131 also replaces the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of reportable
segments. As management makes the majority of its operating decisions based upon
the Cooperative's significant product lines, The Cooperative has elected to
utilize significant product lines in determining its operating segments. The
Cooperative's four primary operating segments are as follows: vegetables, fruit,
snacks, and canned meals.
The vegetable product line consists of canned and frozen vegetables, chili
beans, and various other products. Branded products within the vegetable
category include Birds Eye, Birds Eye Voila!, Birds Eye Simply Grillin'
Freshlike, Veg-All, McKenzies, and Brooks Chili Beans. The fruit product line
consists of canned and frozen fruits including fruit fillings and toppings.
Branded products within the fruit category include Comstock and Wilderness. The
snack product line consists of potato chips, popcorn and other corn-based snack
items. Branded products within the snacks category include Tim's Cascade Chips,
Snyder of Berlin, Husman, La Restaurante, Erin's, Beehive, Pops-Rite, Super Pop,
and Flavor Destinations. The canned meal product line includes canned meat
products such as chilies, stew, and soups, and various other ready-to-eat
prepared meals. Branded products within the canned meals category include
Nalley. Other product lines primarily represent salad dressings. Branded
products within the "other category" include Bernstein's and Nalley.
The following table illustrates the Cooperative's operating segment information:
(Dollars in Millions) Fiscal Years Ended
--------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Net Sales:
Vegetables $ 970.2 $ 836.7 $ 769.5
Fruits 120.4 114.4 115.8
Snacks 97.9 90.9 91.4
Canned Meals 64.2 62.3 66.4
Other 50.6 56.0 74.8
---------- ---------- ---------
Continuing segments 1,303.3 1,160.3 1,117.9
Businesses sold or closed1 35.9 146.4 174.1
---------- ---------- ---------
Total $ 1,339.2 $ 1,306.7 $ 1,292.0
========== ========== =========
Operating income:
Vegetables2 $ 55.7 $ 65.4 $ 43.9
Fruits 11.4 13.9 8.4
Snacks 5.6 6.7 3.3
Canned Meals 6.6 6.7 6.5
Other 1.9 4.6 3.7
---------- ---------- ---------
Continuing segments operating income 81.2 97.3 65.8
Businesses sold or closed1 5.3 4.2 7.2
---------- ---------- ---------
Total 86.5 101.5 73.0
Gains on sales of assets 0.0 6.7 64.7
Restructuring expense 0.0 0.0 (5.0)
---------- ---------- ---------
Total consolidated operating income 86.5 108.2 132.7
Interest expense (85.1) (83.5) (67.4)
Amortization of debt issue costs associated with the Bridge Facility 0.0 0.0 (5.5)
---------- ---------- ---------
Pretax income before extraordinary item, dividends and allocation of net proceeds $ 1.4 $ 24.7 $ 59.8
========== ========== =========
Total Assets:
Vegetables $ 839.8 $ 867.1 $ 880.8
Fruits 71.9 79.4 90.2
Snacks 47.0 43.5 40.9
Canned Meals 45.3 45.7 46.2
Other 57.2 52.2 43.1
----------- ---------- ---------
Continuing segments 1,061.2 1,087.9 1,101.2
Businesses sold or closed1 0.0 99.1 94.4
Assets held for sale 0.1 0.3 0.9
----------- ---------- ---------
Total $ 1,061.3 $ 1,187.3 $ 1,196.5
=========== ========== =========
Depreciation expense:
Vegetables $ 22.4 $ 22.3 $ 16.7
Fruits 2.6 1.7 2.3
Snacks 3.1 2.4 1.7
Canned Meals 0.9 1.2 1.2
Other 1.7 1.2 1.0
----------- ---------- ---------
Continuing segments 30.7 28.8 22.9
Businesses sold or closed1 1.2 3.8 1.9
----------- ---------- ---------
Total $ 31.9 $ 32.6 $ 24.8
========== ========== =========
Amortization Expense:
Vegetables $ 7.8 $ 6.1 $ 5.4
Fruits 0.1 0.1 0.1
Snacks 0.6 0.8 0.9
Canned meals 0.7 0.7 0.7
Other 0.7 0.7 0.6
----------- ---------- ---------
Continuing segments 9.9 8.4 7.7
Businesses sold or closed1 0.0 0.4 1.7
----------- ---------- ---------
Total $ 9.9 $ 8.8 $ 9.4
=========== ========== =========
(Dollars in Millions) Fiscal Years Ended
-------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Capital expenditures:
Vegetables $ 14.8 $ 19.8 $ 17.8
Fruits 2.7 1.6 1.3
Snacks 4.4 2.3 2.0
Canned Meals 2.5 1.1 0.6
Other 0.7 0.2 0.3
-------- ---------- ---------
Continuing Segments 25.1 25.0 22.0
Businesses sold or closed1 1.1 2.0 1.8
-------- ---------- ---------
Total $ 26.2 $ 27.0 $ 23.8
======== ========== =========
1 Includes activities of businesses sold or no longer part of the
Cooperative. See NOTE 3 in the "Notes to Consolidated Financial
Statements."
2 The vegetable product line includes earnings derived from Agrilink Foods'
investment in Great Lakes Kraut Company, LLC of $1.8 million, $2.4 million,
and $2.8 million in fiscal 2001, 2000, and fiscal 1999, respectively. See
NOTE 5 to the "Notes to Consolidated Financial Statements" - "Investment in
Joint Venture."
NOTE 12. COMMON STOCK AND CAPITALIZATION
The following table illustrates the Cooperative's shares authorized, issued, and
outstanding at June 30, 2001 and June 24, 2000.
Shares Issued and Outstanding
Fiscal Years Ended
Par Shares --------------------------------
Value Authorized June 30, 2001 June 24, 2000
----- ---------- ------------- -------------
Class A Common Stock $ 5.00 5,000,000 2,257,479 2,132,981
Class B Common Stock $ 5.00 1,600,000 723,229 723,229
Non-Cumulative Preferred Stock $25.00 5,000,000 32,308 34,400
Class A Cumulative Preferred Stock $ 1.00 10,000,000 4,495,443 4,249,007
Class B Cumulative Preferred Stock $ 1.00 9,500,000 0 0
Class C Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class D Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class E Cumulative Preferred Stock $ 1.00 10,000,000 0 0
Class B, Series I 10% Cumulative Preferred Stock $ 1.00 500,000 23,923 23,664
On March 4, 1999, the Cooperative authorized up to $15,000,000 of special
membership interests which shall have a stated value in liquidation equal to
such interests' face amount.
Common Stock: The Common Stock purchased by members is related to the crop
delivery of each member. Regardless of the number of shares held, each member
has one vote. As of June 30, 2001, there were 604 holders of the Class A Common.
Common Stock may be transferred to another grower only with approval of the
Pro-Fac Board of Directors. If a member ceases to be a producer of agricultural
products which is marketed through the Cooperative, then it must sell its Common
Stock to another grower within the members' pool that is acceptable to the
Cooperative. If no such grower is available to purchase the stock, then the
member must sell its Common Stock to the Cooperative at par value. There is no
established public trading market for the Common Stock of the Cooperative.
In fiscal 2001, 2000, and 1999 dividends on Class A Common Stock were paid at a
rate of 5.0 percent. Subsequent to June 30, 2001, the Cooperative declared a
cash dividend at a rate of 5.0 percent on the Class A Common Stock. These
dividends amounted $0.6 million and were paid in July 2001.
At June 30, 2001 and June 24, 2000, there were outstanding subscriptions, at par
value, of 97,243 and 233,977 shares for Class A Common Stock, respectively.
These shares are issued as subscription payments are received.
As of June 30, 2001, the Cooperative had 153 holders of Class B common stock. No
dividends were paid on the Class B common stock, and there were no outstanding
subscriptions.
On July 19, 2001, Pro-Fac repurchased its Class B common stock and special
membership interests. These securities were held by the former Agripac, Inc.
members who subscribed to become grower/members for Pro-Fac supplying raw
product to the AgriFrozen Foods processing facilities.
Preferred Stock: Except for the Class B, Series I, 10 Percent Cumulative
Preferred Stock, all preferred stock outstanding originated from the conversion
at par value of retains at the discretion of Pro-Fac's board of directors.
Preferred Stock is non-voting, except that the holders of preferred and common
stock are entitled to vote as separate classes on certain matters which would
affect or subordinate the rights of the class.
On August 23, 1995, the Cooperative commenced an offer to exchange one share of
its Class A Cumulative Preferred Stock (liquidation preference $25 per share)
for each of its existing Non-cumulative Preferred Stock (liquidation preference
$25 per share). Pro-Fac's Class A Cumulative Preferred Stock is listed under the
symbol PFACP on the Nasdaq National Market system. As of June 30, 2001, the
number of Class A Cumulative Preferred Stock record holders was 1,816.
The Class B, Series I, 10 Percent Cumulative Preferred Stock (the "Class B
Stock") is issued to employees pursuant to an Employee Stock Purchase Plan. At
least once a year, Pro-Fac plans to offer to repurchase at least 5 percent of
the outstanding shares of Class B Stock.
The dividend rates for the preferred stock outstanding are as follows:
Non-Cumulative Preferred Stock $1.50 per share paid annually at the discretion of the Board.
Class A Cumulative Preferred Stock $1.72 per share annually, paid in four quarterly installments of
$.43 per share.
Class B, Series I, 10 Percent Cumulative Preferred Stock $1.00 per share paid annually.
Subsequent to June 30, 2001, the Cooperative declared a cash dividend of $1.50
per share on the Non-cumulative Preferred Stock and $.43 per share on the Class
A Cumulative Preferred Stock. These dividends amounted to $2.0 million and were
paid in July 2001.
Retained Earnings Allocated to Members ("Retains"): Retains arise from patronage
income, and are allocated to the accounts of members within 8.5 months of the
end of each fiscal year.
Qualified Retains: Qualified retains are freely transferable. At the
discretion of the Board of Directors qualified retains may mature into
preferred stock in December of the fifth year after allocation. Qualified
retains are taxable income to the member in the year the allocation is
made.
Non-Qualified Retains: Non-qualified retains may not be sold or purchased.
At the discretion of the Board of Directors the non-qualified retains
allocation may be redeemed in five years through partial payment in cash
and issuance of preferred stock. The non-qualified retains will not be
taxable to the member until the year of redemption.
Non-qualified retains may be subject to later adjustment if such is deemed
necessary by the Board of Directors because of events which may occur after
the retains were allocated.
Beginning with the retains issued in 1995, retains maturing into preferred
stock, as determined by the Board of Directors, will mature in shares of Class A
Cumulative Preferred Stock.
Earned Surplus: Earned surplus consists of accumulated income after distribution
of earnings allocated to members, dividends and after state and federal income
taxes. Earned surplus is reinvested in the business in the same fashion as
retains.
NOTE 13. SUBSIDIARY GUARANTORS
Kennedy Endeavors, Incorporated and Linden Oaks Corporation, wholly owned
subsidiaries of Agrilink Foods ("Subsidiary Guarantors") and Pro-Fac, have
jointly and severally, fully and unconditionally guaranteed, on a senior
subordinated basis, the obligations of Agrilink Foods with respect to Agrilink
Foods' 11 7/8 percent Senior Subordinated Notes due 2008 and the Credit
Facility. The covenants in the Notes and the Credit Facility do not restrict the
ability of the Subsidiary Guarantors to make cash distributions to Agrilink
Foods.
Presented below is condensed consolidating financial information for (i)
Agrilink Foods; (ii) the Guarantor Subsidiaries; (iii) the Non-Guarantor
Subsidiaries; and (iv) Pro-Fac Cooperative as of June 30, 2001, June 24, 2000
and for the fiscal years ended June 30, 2001, June 24, 2000, and June 26, 1999.
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
Guarantor Subsidiaries in accordance with SEC Financial Reporting Release No.
55.
Balance Sheet
June 30, 2001
------------------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
------------- ----------- ------------- ------------- ----------- -------------
(Dollars in Thousands)
Assets
Current assets:
Cash and cash equivalents $ 0 $ 7,624 $ 21 $ 11 $ 0 $ 7,656
Accounts receivable, net 0 90,600 2,892 0 0 93,492
Inventories -
Finished goods 0 279,320 422 249 0 279,991
Raw materials and supplies 0 33,287 417 161 0 33,865
---------- ---------- --------- -------- ---------- ----------
Total inventories 0 312,607 839 410 0 313,856
Other current assets 421 52,729 (4,190) 208 0 49,168
---------- ---------- --------- -------- ---------- ----------
Total current assets 421 463,560 (438) 629 0 464,172
Property, plant and equipment, net 0 297,345 4,531 3,655 0 305,531
Investment in subsidiaries 180,332 308,207 0 0 (488,539) 0
Goodwill and other intangible assets, net 0 53,552 195,225 0 0 248,777
Other assets 59 51,996 110,326 0 (119,510) 42,871
---------- ---------- --------- -------- ---------- ----------
Total assets $ 180,812 $1,174,660 $ 309,644 $ 4,284 $ (608,049) $1,061,351
========== ========== ========= ======== ========== ==========
Liabilities and Shareholder's Equity
Current liabilities:
Current portion of long-term debt $ 0 $ 15,599 $ 0 $ 0 $ 0 $ 15,599
Accounts payable 80 115,493 1,930 428 0 117,931
Accrued interest 0 9,253 0 0 0 9,253
Intercompany loans 0 (1,697) 1,859 (162) 0 0
Other current liabilities 18,017 58,078 968 698 0 77,761
---------- ---------- --------- -------- ---------- ----------
Total current liabilities 18,097 196,726 4,757 964 0 220,544
Long-term debt 0 631,128 0 0 0 631,128
Other non-current liabilities 9,400 166,474 0 0 (119,510) 56,364
---------- ---------- --------- -------- ---------- ----------
Total liabilities 27,497 994,328 4,757 964 (119,510) 908,036
Class B cumulative redeemable preferred stock 239 0 0 0 0 239
Class A common stock 11,287 0 0 0 0 11,287
Shareholder's equity 141,789 180,332 304,887 3,320 (488,539) 141,789
--------- ---------- ---------- --------- ---------- ----------
Total liabilities and shareholders' equity $ 180,812 $1,174,660 $ 309,644 $ 4,284 $ (608,049) $1,061,351
========= ========== ========= ======== ========== ==========
Balance Sheet
June 24, 2000
---------------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
------------- ----------- ------------- ------------- ----------- ------------
(Dollars in Thousands)
Assets
Current assets:
Cash and cash equivalents $ 0 $ 4,785 $ 209 $ 0 $ 0 $ 4,994
Accounts receivable, net 0 103,206 2,148 16,544 (10,345) 111,553
Inventories -
Finished goods 0 249,806 306 40,083 0 290,195
Raw materials and supplies 0 44,613 572 6,551 0 51,736
-------- ---------- --------- ---------- ---------- ----------
Total inventories 0 294,419 878 46,634 0 341,931
Other current assets 2,643 60,789 23 7,569 0 71,024
-------- ---------- --------- ---------- ---------- ----------
Total current assets 2,643 463,199 3,258 70,747 (10,345) 529,502
Property, plant and equipment, net 0 316,098 1,896 30,365 0 348,359
Goodwill and other intangible assets, net 0 49,434 209,111 0 0 258,545
Investment in subsidiaries 179,178 290,009 0 0 (469,187) 0
Other assets 59 55,791 82,670 8,349 (96,009) 50,860
-------- ---------- --------- ---------- ---------- ----------
Total assets $181,880 $1,174,531 $ 296,935 $ 109,461 $ (575,541) $1,187,266
======== ========== ========= ========== ========== ==========
Liabilities and Shareholder's Equity
Current liabilities:
Notes payable $ 0 $ 5,700 $ 0 $ 44,100 $ 0 $ 49,800
Current portion of long-term debt 0 16,583 0 0 0 16,583
Accounts payable 44 93,403 1,668 10,941 (14,384) 91,672
Accrued interest 0 11,398 0 0 0 11,398
Intercompany loans 0 (75) 75 0 0 0
Other current liabilities 12,593 78,428 5,183 3,364 0 99,568
-------- ---------- --------- ---------- ---------- ----------
Total current liabilities 12,637 205,437 6,926 58,405 (14,384) 269,021
Long-term debt 0 644,712 0 34,493 0 679,205
Other non-current liabilities 9,400 145,204 0 16,563 (91,970) 79,197
-------- ---------- --------- ---------- ---------- ----------
22,037 995,353 6,926 109,461 (106,354) 1,027,423
Class B cumulative redeemable preferred stock 237 0 0 0 0 237
Class A common stock 10,665 0 0 0 0 10,665
Total Shareholders' equity 148,941 179,178 290,009 0 (469,187) 148,941
-------- --------- --------- ---------- ---------- ----------
Total liabilities and shareholder's equity $181,880 $1,174,531 $ 296,935 $ 109,461 $(575,541) $1,187,266
======== ========== ========= ========== ========= ==========
Income Statement
Fiscal Year Ended June 30, 2001
----------------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
------------- ----------- ------------- ------------- ----------- -------------
(Dollars in Thousands)
Net sales $ 0 $1,284,835 $ 18,476 $ 78,842 $ (42,942) $1,339,211
Cost of sales 0 (918,055) (10,751) (79,264) 51,888 (956,182)
--------- ---------- --------- -------- --------- ----------
Gross profit 0 366,780 7,725 (422) 8,946 383,029
Other income 0 0 57,563 627 (58,190) 0
Selling, administrative, and general expenses (11) (339,643) (12,966) (3,226) 57,563 (298,283)
Income from joint venture 0 1,779 0 0 0 1,779
--------- ---------- --------- -------- --------- -----------
Operating (loss)/income before dividing with Pro-Fac (11) 28,916 52,322 (3,021) 8,319 86,525
Interest (expense)/income 0 (89,812) 10,037 (5,207) (91) (85,073)
--------- ---------- --------- -------- --------- -----------
Pretax (loss)/income before dividing with Pro-Fac (11) (60,896) 62,359 (8,228) 8,228 1,452
Pro-Fac share of income 732 (732) 0 0 0 0
--------- ---------- --------- --------- --------- -----------
Income/(loss) before taxes 721 (61,628) 62,359 8,228) 8,228 1,452
Tax (provision)/benefit (308) 22,178 (22,163) (675) 0 (968)
--------- ---------- --------- -------- --------- ----------
Net income/(loss) $ 413 $ (39,450) $ 40,196 $ (8,903) $ 8,228 $ 484
========= ========== ========= ======== ========= ==========
Income Statement
Fiscal Year Ended June 24, 2000
---------------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
------------- ----------- ------------- ------------- ----------- ------------
(Dollars in Thousands)
Net sales $ 0 $1,217,110 $ 15,152 $111,935 $ (37,538) $1,306,659
Cost of sales 0 (848,814) (8,505) (99,248) 37,538 (919,029)
--------- ---------- --------- -------- --------- -----------
Gross profit 0 368,296 6,647 12,687 0 387,630
Other income 5 0 59,461 0 (59,466) 0
Selling, administrative and general expenses 0 (329,139) (11,608) (7,230) 59,466 (288,511)
Gain on sale of assets 0 6,635 0 0 0 6,635
Income from joint venture 0 2,418 0 0 0 2,418
--------- ---------- -------- -------- --------- -----------
Operating income before dividing with Pro-Fac 5 48,210 $ 54,500 5,457 0 108,172
Interest (expense)/income 0 (82,897) 4,843 (5,457) 0 (83,511)
--------- ----------- --------- -------- --------- -----------
Pretax income/(loss) before dividing with Pro-Fac 5 (34,687) 59,343 0 0 24,661
Pro-Fac share of income/(loss) 12,328 (12,328) 0 0 0 0
--------- ----------- --------- -------- --------- -----------
Income/(loss) before taxes 12,333 (47,015) 59,343 0 0 24,661
Tax (provision)/benefit (2,593) 14,867 (20,771) 0 0 (8,497)
--------- ----------- --------- -------- --------- ----------
Net income/(loss) $ 9,740 $ (32,148) $ 38,572 $ 0 $ 0 $ 16,164
========= ========== ========= ======== ========= ==========
Income Statement
Fiscal Year Ended June 26, 1999
---------------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
------------- ----------- ------------- ------------- ----------- ------------
(Dollars in Thousands)
Net sales $ 0 $1,248,854 $ 13,026 $ 41,294 $(11,153) $1,292,021
Cost of sales 0 (896,613) (7,278) (35,523) 11,152 (928,262)
--------- ----------- ---------- -------- ---------- ----------
Gross profit 0 352,241 5,748 5,771 (1) 363,759
Other income 0 0 20,240 0 (20,240) 0
Selling, administrative and general expenses (34) (304,321) (5,842) (3,690) 20,241 (293,646)
Gain on sale of assets 0 64,734 0 0 0 64,734
Restructuring 0 (5,000) 0 0 0 (5,000)
Income from joint venture 0 2,787 0 0 0 2,787
--------- ---------- ---------- -------- ---------- ----------
Operating income before dividing with Pro-Fac (34) 110,441 20,146 2,081 0 132,634
Interest (expense)/income 0 (65,677) 338 (2,081) 0 (67,420)
Amortization of debt issue costs associated
with bridge facility 0 (5,500) 0 0 0 (5,500)
--------- ---------- ---------- -------- ---------- ----------
Pretax (loss)/income before dividing with Pro-Fac (34) 39,264 20,484 0 0 59,714
Pro-Fac share of income 1,658 (1,658) 0 0 0 0
--------- ---------- ---------- -------- --------- ----------
Income before taxes and extraordinary item 1,624 37,606 20,484 0 0 59,714
Tax benefit/(provision) 24 (17,601) (7,169) 0 0 (24,746)
--------- ---------- ---------- -------- ---------- ----------
Income before extraordinary item 1,648 20,005 13,315 0 0 34,968
Extraordinary item related to early
extinguishment of debt (net of tax) (1,658) (16,366) 0 0 0 (18,024)
--------- ---------- ---------- -------- ---------- ----------
Net (loss)/income $ (10) $ 3,639 $ 13,315 $ 0 $ 0 $ 16,944
========= ========== ========== ======== ========== ==========
Statement of Cash Flows
Fiscal Year Ended June 30, 2001
----------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
----------- ----------- ------------ ------------- ---------- ------------
(Dollars in Thousands)
Net income/(loss) $ 413 $ (39,450) $ 40,196 $ (8,903) $ 8,228 $ 484
Adjustments to reconcile net income/(loss) to net
cash (used in)/provided by operating activities -
Amortization of goodwill and other intangible assets 0 2,803 7,057 0 0 9,860
Amortization of debt issue costs and amendment costs
and discount on subordinated promissory note 0 4,895 0 322 0 5,217
Interest in-kind on subordinated promissory note 0 2,069 0 0 0 2,069
Depreciation 0 29,831 572 1,508 0 31,911
Equity in undistributed earnings of CoBank 0 (97) 0 0 0 (97)
Equity in undistributed earnings in joint venture 0 (1,243) 0 0 0 (1,243)
Provision for deferred taxes (106) 3,464 0 0 0 3,358
Provision for losses on accounts receivable 0 560 50 0 0 610
Change in assets and liabilities:
Accounts receivable 0 12,022 (794) 10,690 (10,345) 11,573
Inventories 0 (18,933) 39 (4,005) 0 (22,899)
Other assets 1,709 27,769 (61,456) 2,356 (27,027) (56,649)
Accounts payable and accrued interest 36 (20,213) (262) (13,147) 14,384 (19,202)
Other liabilities 5,532 36,394 17,437 10,572 15,273 85,208
---------- --------- -------- -------- -------- --------
Net cash provided by/(used in) operating activities 7,584 39,871 2,839 (607) 513 50,200
Cash flows from investing activities:
Purchase of property, plant, and equipment 0 (21,638) (3,027) (1,505) 0 (26,170)
Proceeds from disposals 0 5,797 0 23 0 5,820
Proceeds from investment in CoBank 0 4,259 0 0 0 4,259
--------- -------- -------- -------- -------- --------
Net cash used in investing activities 0 (11,582) (3,027) (1,482) 0 (16,091)
Cash flows from financing activities:
Net (payments on)/proceeds from short-term debt 0 (5,700) 0 2,100 0 (3,600)
Payments on long-term debt 0 (18,084) 0 0 0 (18,084)
Payments on capital leases 0 (449) 0 0 0 (449)
Issuance of stock, net of repurchases 622 0 0 0 0 622
Cash portion of non-qualified conversion (83) 0 0 0 0 (83)
Cash dividends paid (8,123) 0 0 0 0 (8,123)
Cash paid for debt issuance costs and amendments 0 (1,730) 0 0 0 (1,730)
Capital contributions by Pro-Fac 0 513 0 0 (513) 0
-------- --------- -------- -------- -------- --------
Net cash (used in)/provided by financing activities (7,584) (25,450) 0 2,100 (513) (31,447)
-------- ---------- -------- -------- -------- --------
Net change in cash and cash equivalents 0 2,839 (188) 11 0 2,662
Cash and cash equivalents at beginning of period 0 4,785 209 0 0 4,994
-------- --------- -------- -------- -------- ---------
Cash and cash equivalents at end of period $ 0 $ 7,624 $ 21 $ 11 $ 0 $ 7,656
======== ========= ======== ======== ======== =========
Statement of Cash Flows
Fiscal Year Ended June 24, 2000
----------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
----------- ----------- ------------ ------------- ---------- ------------
(Dollars in Thousands)
Net income/(loss) $ 9,740 $(32,148) $ 38,572 $ 0 $ 0 $ 16,164
Estimated cash payments to Class A members (1,477) 0 0 0 0 (1,477)
Adjustments to reconcile net income/(loss) to net
cash provided by/ (used in) operating activities -
Gain on sale of assets 0 (6,635) 0 0 0 (6,635)
Amortization of goodwill and other intangible assets 0 1,711 7,057 0 0 8,768
Amortization of debt issue costs and amendment costs and
discount on subordinated promissory note 0 4,318 0 487 0 4,805
Interest in-kind on subordinated promissory note 0 1,571 0 0 0 1,571
Depreciation 0 29,983 330 2,292 0 32,605
Equity in undistributed earnings of CoBank 0 (102) 0 (310) 0 (412)
Equity in undistributed earnings of joint venture 0 (96) 0 0 0 (96)
Provision for deferred taxes 4,636 9,000 0 0 0 13,636
Provision for losses on accounts receivable 0 191 10 0 0 201
Change in assets and liabilities:
Accounts receivable 0 (14,356) (920) 754 3,530 (10,992)
Inventories 0 (49,291) (432) (9,142) 0 (58,865)
Other assets (113) 1,571 (112,566) 1,834 86,609 (20,545)
Accounts payable and accrued interest (932) (2,991) 369 127 (3,530) (6,957)
Other liabilities (4,661) 38,626 68,522 (2,586) (77,977) 19,804
-------- -------- --------- ---------- -------- --------
Net cash provided by/(used in) operating activities 7,193 (18,648) 942 (6,544) 8,632 (8,425)
Cash flows from investing activities:
Purchase of property, plant, and equipment 0 (24,608) (820) (1,555) 0 (26,983)
Proceeds from disposals 0 64,360 0 0 0 64,360
Proceeds from investment in CoBank 0 3,378 0 0 0 3,378
Cash paid for acquisitions 0 (250) 0 0 0 (250)
-------- -------- --------- ---------- -------- --------
Net cash provided by/(used in) investing activities 0 42,880 (820) (1,555) 0 40,505
Cash flows from financing activities:
Net (payments on)/proceeds from short-term debt 0 (13,200) 0 8,100 0 (5,100)
Payments on long-term debt 0 (18,470) 0 0 0 (18,470)
Payments on capital leases 0 (238) 0 (1) 0 (239)
Issuance of stock, net of repurchases 662 0 0 0 0 662
Cash portion of non-qualified conversion (445) 0 0 0 0 (445)
Cash dividends paid (7,410) 0 0 0 0 (7,410)
Cash paid for debt issuance costs and amendments 0 (2,624) 0 0 0 (2,624)
Capital contributions by Pro-Fac 0 8,632 0 0 (8,632) 0
-------- -------- --------- ---------- -------- --------
Net cash used in financing activities (7,193) (25,900) 0 8,099 (8,632) (33,626)
-------- -------- --------- ---------- -------- --------
Net change in cash and cash equivalents 0 (1,668) 122 0 0 (1,546)
Cash and cash equivalents at beginning of period 0 6,453 87 0 0 6,540
-------- -------- --------- ---------- -------- ---------
Cash and cash equivalents at end of period $ 0 $ 4,785 $ 209 $ 0 $ 0 $ 4,994
======== ======== ========= ========== ======== ========
Statement of Cash Flows
Fiscal Year Ended June 26, 1999
----------------------------------------------------------------------------
Pro-Fac Agrilink Guarantor Non-Guarantor Eliminating
Cooperative Foods, Inc. Subsidiaries Subsidiaries Entries Consolidated
----------- ----------- ------------ ------------- ----------- ------------
(Dollars in Thousands)
Net (loss)/income $ (10) $ 3,639 $ 13,315 $ 0 $ 0 $ 16,944
Adjustments to reconcile net income to net
cash (used in)/provided by operating activities -
Extraordinary item relating to the early
extinguishment of debt (net of tax) 1,658 16,366 0 0 0 18,024
Gain on sales of assets 0 (64,734) 0 0 0 (64,734)
Loss from disposal of asset held for resale 0 353 0 0 0 353
Amortization of goodwill and other intangibles 0 6,915 2,481 0 0 9,396
Amortization of debt issue costs and amendment
costs and discount on subordinated promissory note 0 7,678 0 0 0 7,678
Interest in-kind on subordinated promissory note 0 782 0 0 0 782
Depreciation 0 23,498 306 948 0 24,752
Equity in undistributed earnings of CoBank 0 (520) 0 0 0 (520)
Equity in undistributed earnings of joint venture 0 (95) 0 0 0 (95)
Provision for deferred taxes 207 9,742 0 0 0 9,949
Provision for losses on accounts receivable 0 198 10 0 0 208
Change in assets and liabilities:
Accounts receivable 0 (2,296) 248 (4,735) 6,815 32
Inventories 0 33,152 26 (1,563) 0 31,615
Other assets (2,322) (49,958) (1,957) (15,095) (7,500) (76,832)
Accounts payable and accrued interest 10 27,550 325 17,629 (6,815) 38,699
Other liabilities 6,497 (24,381) (14,552) (1,102) 0 (33,538)
-------- --------- -------- --------- -------- ----------
Net cash (used in)/provided by operating activities 6,040 (12,111) 202 (3,918) (7,500) (17,287)
Cash flows from investing activities:
Purchase of property, plant, and equipment 0 (21,875) (189) (1,723) 0 (23,787)
Proceeds from disposals 0 93,486 0 0 0 93,486
Proceeds from the sale of idle facilities 0 1,427 0 0 0 1,427
Proceeds from investment in CoBank 0 2,795 0 0 0 2,795
Cash paid for acquisitions 0 (443,531) 0 (72,521) 0 (516,052)
-------- --------- -------- --------- -------- ----------
Net cash used in investing activities 0 (367,698) (189) (74,244) 0 (442,131)
Cash flows from financing activities:
Net proceeds from short-term debt 0 18,900 0 36,000 0 54,900
Proceeds from issuance of long-term debt 0 677,100 0 42,163 0 719,263
Payments on long-term debt 0 (287,574) 0 0 0 (287,574)
Payments on capital leases 0 (282) 0 (1) 0 (283)
Issuance of stock, net of repurchases 844 0 0 0 0 844
Cash portion of non-qualified conversion (153) 0 0 0 0 (153)
Cash dividends paid (6,734) 0 0 0 0 (6,734)
Cash paid for debt issuance costs and amendments 0 (19,354) 0 0 0 (19,354)
Dividends paid to Pro-Fac 0 (7,500) 0 0 7,500 0
-------- --------- -------- --------- -------- ----------
Net cash provided by financing activities (6,043) 381,290 0 78,162 7,500 460,909
-------- --------- -------- --------- -------- ----------
Net change in cash and cash equivalents (3) 1,481 13 0 0 1,491
Cash and cash equivalents at beginning of period 3 4,972 74 0 0 5,049
-------- --------- -------- --------- -------- ----------
Cash and cash equivalents at end of period $ 0 $ 6,453 $ 87 $ 0 $ 0 $ 6,540
======== ========= ======== ========= ======== ==========
NOTE 14. OTHER MATTERS
Legal Matters: The Cooperative is party to various litigation and claims arising
in the ordinary course of business. Management and legal counsel for the
Cooperative are of the opinion that none of these legal actions will have a
material effect on the financial position of the Cooperative.
Commitments: Agrilink Foods has guaranteed an approximate $1.8 million loan for
the City of Montezuma to renovate a sewage treatment plant operated in Montezuma
on behalf of the City.
Pro-Fac Cooperative, Inc.
Quarterly Financial Data (Unaudited)
Quarterly financial information for the fiscal years ended June 30, 2001 and
June 24, 2000 appears in the following table. The fourth quarter of fiscal 2001
reflects 14 weeks and all other quarters reflect 13-week periods.
In the opinion of management, all adjustments necessary for a fair presentation
of the unaudited quarterly data have been made.
(Dollars in Thousands Except Per Share)
Quarters
---------------------------------------------------------------------------------
Fiscal 2001 1 2 3 4 Total Year
---------- ---------- ----------- ----------- -------------
Net sales $ 314,689 $ 392,192 $ 313,220 $ 319,110 $ 1,339,211
Gross profit $ 85,650 $ 116,859 $ 95,116 $ 85,404 $ 383,029
Pretax income/(loss) before dividends,
and allocation of net proceeds $ 62 $ 12,560 $ 179 $ (11,349) $ 1,452
Net (loss)/income $ (781) $ 9,239 $ (541) $ (7,433) $ 484
Cash dividends declared per share on
Class A Cumulative Preferred Stock $ .43 $ .43 $ .43 $ .43 $ 1.72
Market price per share on Class A
Cumulative Preferred Stock (Nasdaq)
High $ 17.625 $ 17.000 $ 16.750 $ 18.500 $ 18.500
Low $ 14.313 $ 15.250 $ 15.250 $ 16.250 $ 14.313
(Dollars in Thousands Except Per Share)
Quarters
---------------------------------------------------------------------------------
Fiscal 2000 1 2 3 4 Total Year
---------- ---------- ----------- ----------- -------------
Net sales $ 307,701 $ 390,481 $ 309,174 $ 299,303 $ 1,306,659
Gross profit $ 85,592 $ 128,932 $ 90,877 $ 82,229 $ 387,630
Pretax income before dividends,
and allocation of net proceeds $ 1,448 $ 19,113 $ 1,991 $ 2,109 $ 24,661
Net income $ 403 $ 14,480 $ 925 $ 356 $ 16,164
Cash dividends declared per share on
Class A Cumulative Preferred Stock $ .43 $ .43 $ .43 $ .43 $ 1.72
Market price per share on Class A
Cumulative Preferred Stock (Nasdaq)
High $ 19.500 $ 19.125 $ 16.953 $ 16.953 $ 19.500
Low $ 18.500 $ 17.500 $ 13.875 $ 14.875 $ 13.875
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS
MANAGEMENT AND DIRECTORS OF PRO-FAC
Date
Name of Birth Positions
- ------------------------ -------- --------------------------------------------------------
Bruce R. Fox 1947 Director and Chairman of the Board, President
Steven D. Koinzan 1948 Director and Vice Chairman of the Board, Vice President
Tom R. Croner 1942 Director
Earl L. Powers 1944 Treasurer
Stephen R. Wright 1947 Secretary and General Manager
Dale W. Burmeister 1940 Director
Peter R. Call 1956 Director
Glen Lee Chase 1937 Director
Kenneth A. Dahlstedt 1954 Director
Robert DeBadts 1957 Director
Kenneth A. Mattingly 1948 Director
Allan W. Overhiser 1960 Director
Paul E. Roe 1939 Director
Darell Sarff 1949 Director
Bruce R. Fox has been a Director of Pro-Fac since 1974. For information
regarding Mr. Fox, see "Management and Directors of Agrilink Foods."
Steven D. Koinzan has been a Director of Pro-Fac since 1983. For information
regarding Mr. Koinzan, see "Management and Directors of Agrilink Foods."
Tom R. Croner has been a Director of Pro-Fac since 1985 and a member of Pro-Fac
since 1973. Mr. Croner is a dairy and potato farmer (T-Rich Inc.; Berlin,
Pennsylvania).
Earl L. Powers has been an officer of Pro-Fac since 1997. For information
regarding Mr. Powers, see "Management and Directors of Agrilink Foods."
Stephen R. Wright has been an officer of Pro-Fac since March 1995 and was
elected as Secretary in June 1999. Mr. Wright previously served as Assistant
General Manager. For information regarding Mr. Wright, see "Management and
Directors of Agrilink Foods."
Dale W. Burmeister has been a Director of Pro-Fac since 1992 and a member of
Pro-Fac since 1974. Mr. Burmeister is a fruit and vegetable grower (Lakeshore
Farms, Inc.; Shelby, Michigan).
Peter R. Call was elected a Director of Pro-Fac in February 2000. Mr. Call is a
vegetable and grain farmer (My-T Acres, Inc., Batavia, New York).
Glen Lee Chase has been a Director of Pro-Fac since 1989 and a member of Pro-Fac
since 1984. Mr. Chase is a peanut, poultry, grain and vegetable farmer (Chase
Farms Inc.; Oglethorpe, Georgia).
Kenneth A. Dahlstedt was elected a Director of Pro-Fac in February 1998 and has
been a member of Pro-Fac since 1983.
Robert DeBadts was elected a Director of Pro-Fac in January 1997 and has been a
member of Pro-Fac since 1978. Mr. DeBadts is a fruit grower (Lake Breeze Fruit
Farms, Inc.; Sodus, New York).
Kenneth A. Mattingly has been a Director of Pro-Fac since 1993 and a member of
Pro-Fac since 1978. Mr. Mattingly is a vegetable and grain farmer (M-B Farms
Inc.; LeRoy, New York).
Allan W. Overhiser has been a Director of Pro-Fac since March 1994 and a member
of Pro-Fac since 1984. Mr. Overhiser is a fruit farmer (A.W. Overhiser Orchards;
South Haven, Michigan).
Paul E. Roe has been a Director of Pro-Fac since 1986 and a member of Pro-Fac
since 1961. Mr. Roe is a vegetable, grain and dry bean farmer (Roe Acres, Inc.;
Bellona, New York).
Darell Sarff was elected a Director of Pro-Fac in February 1997 and has been a
member of Pro-Fac since 1988. Mr. Sarff is a grain and vegetable farmer (Sarff
Farms; Chandlerville, Illinois).
Term of Office: Directors of Pro-Fac are elected for three-year terms, and
one-third of the directors are elected annually. Officers of Pro-Fac are elected
for one-year terms.
MANAGEMENT AND DIRECTORS OF AGRILINK FOODS
Management and Directors: Effective upon consummation of the acquisition of
Agrilink Foods by Pro-Fac, Pro-Fac established a management structure for
Agrilink Foods, providing for a Board of Directors consisting of one management
director, Pro-Fac Directors and Disinterested Directors. The Chairman of the
Board is a Pro-Fac Director. The management and directors are listed below. The
Cooperative may in the future expand the Board of Directors, but Pro-Fac has
undertaken to cause the Cooperative to maintain a Board on which the number of
Pro-Fac Directors does not exceed the number of Disinterested Directors. The
Senior Subordinated Notes - 11-7/8 Percent (due 2008) provide that there will be
a Change of Control if, for a period of 120 consecutive days, the number of
Disinterested Directors on the Board of Directors of the Cooperative is less
than the greater of (i) two and (ii) the number of directors who are also
directors, members or affiliates of the Cooperative. The Credit Facility
provides that there will be a change of control if the number of Pro-Fac
directors exceeds the number of disinterested directors.
Set forth below is certain information concerning the individuals who serve as
directors and officers of Agrilink Foods.
Year of
Name Birth Positions
- ------------------------------ --------- ------------------------------------------------------
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
Earl L. Powers 1944 Executive Vice President and Chief Financial Officer
Stephen R. Wright 1947 Executive Vice President - Agriculture and Secretary
Carl W. Caughran 1953 Executive Vice President - Operations
John R. Clark 1959 Executive Vice President - Logistics
Bernhard H. Frega 1951 Executive Vice President - Sales and Marketing
David M. Mehalick 1956 Vice President and General Counsel
Bruce R. Fox(2) 1947 Director and Chairman of the Board
Steven D. Koinzan(2) 1948 Director and Vice Chairman of the Board
Cornelius D. Harrington, Jr.(3) 1927 Director
Paul E. Roe(2) 1939 Director
Walter F. Payne(3) 1936 Director
James A. Pierson(3) 1937 Director
Frank M. Stotz(3) 1930 Director
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1997 and a Director of Agrilink Foods since May 1996. He was Chief
Operating Officer from May 1996 to January 1997 and Executive Vice President
from January 1996 to May 1996. He had been President and Chief Executive Officer
of Curtice Burns Foods from March 1993 to May 1996. He was Senior Vice President
and Business Unit Manager Food Service of Curtice Burns Foods from 1991 to 1993,
and Senior Vice President-
Custom Pack Sales for Nalley from 1990 to 1991. Prior to employment with
Agrilink Foods, he was President and Chief Executive Officer of Globe Products
Company. He currently serves on the Board of Directors for Grocery Manufacturers
of America, National Food Processors Association, United Way of Greater
Rochester, Genesee Valley American Heart Association, St. Leo College, the
Rochester Institute of Technology School of Food, Hotel, Travel Management's
National Advisory Board, and Chase Manhattan Bank's Northeast Advisory Board.
Earl L. Powers has been Executive Vice President and Chief Financial Officer
since February 1997. He was Vice President and Corporate Controller from March
1993 to February 1997, and Vice President Finance and Management Information
Systems, Curtice Burns Foods business unit of Agrilink Foods from 1991 to March
1993. Prior to joining Agrilink Foods, he was Controller of various Pillsbury
Company divisions 1987-1990 and various other executive management positions at
the Pillsbury Company 1976-1987. He currently serves on the Board of Directors
of Chase Manhattan Bank's Northeast Advisory Board.
David M. Mehalick joined Agrilink Foods May 1, 1999 as Vice President and
General Counsel. Prior to employment with Agrilink Foods, he practiced law in
the firm of Harris Beach & Wilcox from 1981 to 1999.
Carl W. Caughran has been Executive Vice President - Operations since 1999. He
has also served as President and CEO of Nalley Fine Foods from 1996-1999. Prior
to joining the Company, he held various executive positions at Borden Foods,
including Vice President/General Manager of both the Western Snack Group and
Eastern Snack Group.
Stephen R. Wright has been Executive Vice President since November 6, 1996. He
was Senior Vice President - Procurement of Agrilink Foods from November 1994 and
Vice President -- Procurement for Agrilink Foods from 1990 to November, 1994,
having served as Director of Commodities and Administration Services for
Agrilink Foods from 1988 to 1990.
John R. Clark has been Executive Vice President - Logistics since 1999. He has
in excess of 20 years experience in logistics and supply chain management. Prior
positions include vice president/operations for Missouri Nebraska Express in
1984; executive vice president of operations for Dean Foods Transportation Co.
in 1989; and vice president logistics for Dean Foods Vegetable Company (DFVC) in
1992.
Bernhard H. Frega has been Executive Vice President - Sales and Marketing since
1999. He has over twenty-five years experience with Agrilink Foods, including
vice president roles for private label and consumer products for the Comstock
Michigan Fruit Division and was executive vice president and COO of Curtice
Burns from 1995 to 1999.
Bruce R. Fox has been a Director of Agrilink Foods since the completion of the
Pro-Fac acquisition of Agrilink Foods and in fiscal 2000 was elected Chairman of
the Board. He has been a Director of Pro-Fac since 1974. He was Treasurer of
Pro-Fac from 1984 until March 27, 1995, when he was elected President. He has
been a member of Pro-Fac since 1974. Mr. Fox is a fruit and vegetable grower
(N.J. Fox & Sons, Inc., Shelby, MI).
Cornelius D. Harrington, prior to his retirement, was President of the Bank of
New England-West in Springfield, MA and a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
MA. He is a former Director of the Farm Credit Bank of Springfield since January
1994.
Steven D. Koinzan has been a Director of Agrilink Foods since the completion of
the Pro-Fac acquisition of Agrilink Foods and in fiscal 2000 was elected Vice
Chairman of the board. He has been a Director of Pro-Fac since 1983. He was
Secretary of Pro-Fac from March 1993 until March 27, 1995, when he was elected
Treasurer. He has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn,
field corn and soybean farmer (Koinzan Farms; Norden, Nebraska).
Walter F. Payne has been a Director of the Company since January 1996. Mr. Payne
was President and Chief Executive Officer of Blue Diamond Growers from 1992
until 2001, when he retired. He held various positions at Blue Diamond Growers
between 1973 to 1992. Mr. Payne serves on the Boards of Directors of Healthnet
of California, Pacific Coast Building and Products, and Pride Industries. He is
currently Chairman of the California State Chamber of Commerce as well as the
Committee for Small Business and Agriculture for the Federal Reserve Western
District.
James A. Pierson was elected as a Director of the Company during fiscal 2001.
Mr. Pierson retired in 2001 from his position as President and Chief Operating
Officer of CoBank. He held various positions at Farm Credit Banks of
Springfield, Massachusetts between 1975 and 1994, including President and Chief
Executive Officer from 1987 to 1994. He is currently a member of the Bennett
Roundtable of the Farm Foundation and served as a Director of the Farm Credit
System Funding Corporation and the National Council of Farmer Cooperatives.
Paul E. Roe was elected a Director of Agrilink Foods in fiscal 2000. He has been
a Director of Pro-Fac since 1986 and a member of Pro-Fac since 1961. Mr. Roe is
a vegetable, grain and dry bean farmer (Roe Acres, Inc.; Bellona, New York).
Frank M. Stotz has been a Director of Agrilink Foods since the completion of the
Pro-Fac acquisition of Agrilink Foods. Mr. Stotz retired in 1994 from his
position as Senior Vice President - Finance of Bausch & Lomb Incorporated.
Before joining Bausch & Lomb in that capacity in 1991, Mr. Stotz was a partner
for 25 years with Price Waterhouse (now PricewaterhouseCoopers LLP).
Term of Office: All directors of Agrilink Foods will hold office from the date
of election until the next annual meeting of the shareholder or until their
successors are duly elected and qualified. Each executive officer of Agrilink
Foods will hold office from the date of election until his successor is elected
or appointed.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by Agrilink Foods to become a Director or
executive officer.
Involvement in Certain Legal Proceedings: The following executive officers of
Agrilink Foods were previously officers of PF Acquisition II, Inc., a former
subsidiary of Pro-Fac: Dennis M. Mullen, Earl L. Powers, Stephen R. Wright, and
David M. Mehalick. On June 27, 2001, PF Acquisition II, Inc. filed a petition
under the federal bankruptcy laws.
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and four other most highly
compensated executive officers of the Cooperative, earned during fiscal years
ended June 30, 2001, June 24, 2000, and June 26, 1999 (collectively, the "Named
Executive Officers").
Executive Compensation
Summary Compensation Table
RSIP/
Matching
Annual Contributions
Compensation1 Deferred
--------------------------- Profit
Name and Principal Position Year Salary Bonus2 Sharing
- --------------------------- ---- ----------- --------- -----------
Dennis M. Mullen 2001 $ 600,000 $ 0 $ 9,808
President and Chief Executive Officer and Director 2000 $ 525,000 $ 0 $ 3,173
1999 $ 500,000 $ 0 $ 4,241
Earl L. Powers 2001 $ 305,104 $ 0 $ 4,444
Executive Vice President Finance and Chief Financial Officer 2000 $ 283,854 $ 0 $ 4,125
1999 $ 260,096 $ 0 $ 5,124
David M. Mehalick3 2001 $ 253,067 $ 50,000 $ 7,289
Vice President and General Counsel 2000 $ 241,867 $ 0 $ 0
1999 $ 36,923 $ 0 $ 0
Carl W. Caughran 2001 $ 232,050 $ 0 $ 6,880
Executive Vice President - Operations 2000 $ 218,400 $ 0 $ 3,276
1999 $ 210,600 $ 0 $ 3,120
Stephen R. Wright 2001 $ 222,685 $ 0 $ 6,556
Executive Vice President - Agriculture and Secretary 2000 $ 212,160 $ 0 $ 3,120
1999 $ 205,999 $ 0 $ 3,762
1 No Named Executive Officer has received personal benefits during the period
in excess of the lesser of $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of Agrilink Foods (the "Incentive
Plan"), additional compensation is paid if justified by the activities of the
officers and employees eligible under the Incentive Plan and by the earnings
of Agrilink Foods and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
3 Mr. Mehalick's employment with Agrilink Foods began May 1, 1999.
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts
Under Non-Stock Price Based Plans
(b) (c) ---------------------------------
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
- ----------------- ------------------ ------------------------ --------- -----------
Dennis M. Mullen 91,977 6/27/2005 $0 $0
Earl L. Powers 34,180 6/27/2005 $0 $0
David M. Mehalick 27,840 6/27/2005 $0 $0
Carl Caughran 23,910 6/27/2005 $0 $0
Stephen R. Wright 22,449 6/27/2005 $0 $0
(1) On June 27, 2001, the Company issued performance units under the Agrilink
Foods Equity Value Plan ("EVP") to a select group of management. The future
value of the performance units is discretionary. The performance units vest
100 percent on the fourth anniversary of grant. One-third of the
appreciated value of units in excess of the initial grant price is paid as
cash compensation over the subsequent three years. The final value of the
2001 performance units is determined on the fourth anniversary of grant.
(2) The value of the June 27, 2001 grants from the Agrilink Foods Equity Value
Plan is discretionary. The beginning value of these performance units was
set at a level requiring improved earnings and debt-repayment performance.
The target payouts shown above are based on the value of the performance
units at fiscal 2001 earnings and debt levels and would yield no payout
from the plan at those levels. If future performance equals fiscal 2001
performance, no payouts will be made from the plan relative to the options
granted on June 27, 2001.
Retirement Plans: Agrilink Foods' Master Salaried Retirement Plan (the "Pension
Plan") provides defined retirement benefits for its officers and all salaried
exempt and non-exempt personnel. The compensation upon which the pension
benefits are determined is included in the salary columns of the "Summary
Compensation Table."
For retirement before age 65, the annual benefits are reduced by an amount for
each year prior to age 65 at which such retirement occurs so that if retirement
occurs at age 55, the benefits are 70 percent of those payable at age 65.
The approximate number of years of Plan participation under Agrilink Foods'
Pension Plan as of June 30, 2001, of the Executive Officers listed in the
Summary Compensation Table are as follows: Dennis M. Mullen-11, Earl L.
Powers-9, David M. Mehalick-1, Carl W. Caughran-4, and Stephen R. Wright-26.
Agrilink Foods maintains an Excess Benefit Retirement Plan which serves to
provide employees with the same retirement benefit they would have received from
Agrilink Foods' Master Salaried Retirement Plan under the career average base
pay formula, but for changes required under the 1986 Tax Reform Act and the
compensation limitation under Section 401(a)(17) of the Internal Revenue Code,
which was $150,000 on January 1, 1994, having been revised in the 1992 Omnibus
Budget Reform Act. This benefit plan was amended in December 2000.
In fiscal 2001, Agrilink Foods adopted a non-tax qualified Supplemental
Executive Retirement Plan ("SERP") which provides additional retirement benefits
to Agrilink Foods' Chief Executive Officer. Agrilink Foods has not pre-funded
this liability at June 30, 2001. The projected and accumulated benefit
obligation under the plan at June 30, 2001 was $353,000.
The following table shows the estimated pension benefits payable to a covered
participant, at age 65, at the specified final average pay, and years of
credited service levels under the Agrilink Foods' Master Salaried Retirement
Plan and the Excess Benefit Retirement Plan.
Pension Plan Table
Years of Plan Participation
Final -------------------------------------------------------------
Average Pay 15 20 25 30 35
----------- ------------ --------- --------- --------- ---------
$ 125,000 $ 21,563 $ 28,750 $ 35,938 $ 43,125 $ 50,313
150,000 25,875 34,500 43,125 51,750 60,375
175,000 30,188 40,250 50,313 60,375 70,438
200,000 34,500 46,000 57,500 69,000 80,500
225,000 38,813 51,750 64,688 77,625 90,563
250,000 43,125 57,500 71,875 86,250 100,625
275,000 47,438 63,250 79,063 94,875 110,688
300,000 51,750 69,000 86,250 103,500 120,750
325,000 56,063 74,750 93,438 112,125 130,813
350,000 60,375 80,500 100,625 120,750 140,875
375,000 64,688 86,250 107,813 129,375 150,938
400,000 69,000 92,000 115,000 138,000 161,000
425,000 73,313 97,750 122,188 146,625 171,063
450,000 77,625 103,500 129,375 155,250 181,125
475,000 81,938 109,250 136,563 163,875 191,188
500,000 86,250 115,000 143,750 172,500 201,250
Termination Protection Provisions: Agrilink Foods has adopted a revised Salary
Continuation Agreement for Mr. Mullen on August 22, 2001, whereby, two years of
salary and benefits continuation will be provided if Mr. Mullen's employment is
involuntarily terminated for reasons other than for "cause" as such term is
defined in the Agreement.
Directors' Compensation: In fiscal 2001, non-employee directors as designated by
Pro-Fac received an annual stipend of $20,000 to $25,000 per year. The Pro-Fac
Chairman received an annual stipend of $40,000 per year. All disinterested
directors, Messrs. Harrington, Payne, and Stotz, received an annual rate of
$35,000. Directors received an additional $2,000 for committee chairmanships
when applicable. Effective during fiscal 2001, directors are no longer paid a
per-diem rate for meeting attendance. Mr. Pierson, who joined the Board of
Directors on June 28, 2001 received no payments in fiscal 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 30, 2001, with
respect to (i) each person known by Pro-Fac to own beneficially 5 percent or
more of any class of Pro-Fac's voting securities, (ii) each director and named
executive officer of Pro-Fac and (iii) all directors and officers of Pro-Fac as
a group.
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
- ----------------------------------- ---------------------------- ----------------------- ----------
Cherry Central Cooperative, Inc. Common 346,680 15.36%
PO Box 988 Class A Cumulative Preferred 91,302 2.03%
Traverse City, MI 49685
Michigan Blueberry Growers Assoc. Common 116,400 5.16%
PO Drawer B Class A Cumulative Preferred 19,259 0.43%
Grand Junction, MI 49056
Dale E. Burmeister Common 11,946(c) 0.52%
Class A Cumulative Preferred 657(c) 0.01%
Class A Cumulative Preferred 10,348 0.23%
Amount and Nature of Percent of
Name Title of Class Beneficial Ownership(a) Class(b)
- ----------------------------------- ---------------------------- ----------------------- ----------
Peter R. Call Common 41,006(d) 1.81%
Class A Cumulative Preferred 27,177(d) 0.60%
Class A Cumulative Preferred 14,194(e) 0.32%
Class A Cumulative Preferred 5,361(f) 0.12%
Class A Cumulative Preferred 8,246 0.18%
Carl W. Caughran None 0 0.00%
Glen Lee Chase Common 9,472(g) 0.42%
Class A Cumulative Preferred 8,174(g) 0.18%
John R. Clark None 0 0.00%
Tom R. Croner Common 3,776(h) 0.17%
Class A Cumulative Preferred 13,315(i) 0.30%
Kenneth A. Dahlstedt Common 7,004 0.31%
Common 1,555(l) 0.07%
Class A Cumulative Preferred 330 0.00%
Robert DeBadts Common 12,594(j) 0.56%
Class A Cumulative Preferred 12,732(j) 0.28%
Class A Cumulative Preferred 100(k) 0.00%
Bruce R. Fox Common 22,306(m) 0.99%
Class A Cumulative Preferred 9,253(m) 0.21%
Class A Cumulative Preferred 8,317(n) 0.19%
Class A Cumulative Preferred 1,085 0.02%
Class A Cumulative Preferred 820 0.02%
Bernhard H. Frega None 0 0.00%
Steven D. Koinzan Common 8,280 0.37%
Class A Cumulative Preferred 5,235 0.12%
Kenneth A. Mattingly Common 11,834(o) 0.52%
Class A Cumulative Preferred 11,287(o) 0.25%
David M. Mehalick None 0 0.00%
Dennis M. Mullen None 0 0.00%
Allan W. Overhiser Common 2,970(p) 0.13%
Class A Cumulative Preferred 2,067(p) 0.05%
Earl L. Powers None 0 0.00%
Paul E. Roe Common 19,590(q) 0.87%
Class A Cumulative Preferred 6,538(q) 0.15%
Darell Sarff Common 2,616 0.12%
Class A Cumulative Preferred 1,846 0.04%
Stephen R. Wright Class A Cumulative Preferred 1,140 0.03%
All directors and officers as a group Common 154,949 6.86%
(a) Certain of the directors named above may have the opportunity, along with
the other members producing a specific crop, to acquire beneficial
ownership of additional shares of the common stock of Pro-Fac within a
period of approximately 60 days, commencing each year on February 1, if
Pro-Fac determines that a permanent change is required in the total
quantity of that particular crop.
(b) In the above table, each director who has direct beneficial ownership of
common or preferred shares by reason of being the record owner of such
shares has sole voting and investment power with respect to such shares,
while each director who has direct beneficial ownership of common or
preferred shares as a result of owning such shares as a joint tenant has
shared voting and investment power regarding such shares. Each director who
has indirect beneficial ownership of common or preferred shares resulting
from his status as a shareholder or a partner of a corporation or
partnership which is the record owner of such shares has sole voting and
investment power if he controls such corporation or partnership. If he does
not control such corporation or partnership, he has shared voting and
investment power. Pro-Fac does not believe that the percentage ownership of
any such corporation or partnership by a director is material, since in the
aggregate no director beneficially owns in excess of 5 percent of either
the common or preferred shares of Pro-Fac.
(c) Record ownership by Lakeshore Farms, Inc.
(d) Record ownership by My-T Acres, Inc.
(e) Record ownership by My-T Acres, Inc. Employee Profit Sharing Plan
(f) Record ownership by Call Farms, Inc.
(g) Record ownership by Chase Farms, Inc.
(h) Record ownership by Richard Croner & Son
(i) Record ownership by T-Rich, Inc.
(j) Record ownership by Lake Breeze Farm, Inc.
(k) Record ownership jointly with spouse
(l) Record ownership by Ag-Pro, Inc.
(m) Record ownership by N.J. Fox & Sons, Inc.
(n) Record ownership by K. Fox
(o) Record ownership by M-B Farms, Inc.
(p) Record ownership by A.W. Overhiser Orchards
(q) Record ownership by Roe Acres, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance:
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management believes all such transactions were on terms no less favorable to the
Cooperative than could have been reached with unaffiliated third parties.
Borrowings by Pro-Fac: The Credit Facility and Senior Subordinated Notes -
11-7/8 Percent (due 2008) permit Agrilink Foods to make demand loans to Pro-Fac
for working capital purposes in amounts not to exceed $40.0 million at any time,
each such loan to bear interest at a rate equal to the rate in effect on the
date of such loan under the Revolving Credit Facility. The loan balance is
required to be reduced to zero for a period of not less than 15 consecutive days
in each fiscal year. Except for the foregoing provision and except for Pro-Fac's
guarantee of the Senior Subordinated Notes - 11-7/8 Percent (due 2008) and the
Credit Facility, as long as Pro-Fac has the right to borrow under the Pro-Fac
Marketing and Facilitation Agreement, the Senior Subordinated Notes - 11-7/8
Percent (due 2008) do not permit Pro-Fac to incur any other indebtedness.
Equity Ownership in CoBank: As part of its lending arrangements with CoBank,
which is a cooperative, Pro-Fac has made investments in the bank. The
Cooperative made these investments through (i) a capital purchase obligation
equal to a percentage, set annually based on CoBank's capital needs, of its
interest paid to CoBank and (ii) a patronage rebate on interest paid by the
Cooperative to CoBank based on CoBank's earnings, which is paid in cash and
capital certificates. As of June 30, 2001, the amount of the Cooperative's
investment in CoBank was approximately $14.7 million.
Transactions Between Agrilink Foods and AgriFrozen: Agrilink Foods purchased
frozen vegetables from AgriFrozen. For fiscal 2001, the net sales amounted to
approximately $25.6 million.
In addition, AgriFrozen maintained an administrative service agreement with
Agrilink Foods. Agrilink Foods provided certain management, consulting, and
administrative services. For the year ended June 30, 2001, AgriFrozen incurred
approximately $0.6 million in service fees related to the agreement.
Agrilink Foods purchased the frozen vegetable inventory of AgriFrozen and
entered into a related agreement for storage and converting the inventory to
finished goods on February 16, 2001. Refer to NOTE 4 to the "Consolidated
Financial Statements" for further discussion of the transaction.
Purchase of Crops From Pro-Fac: Each of the members of Pro-Fac sells crops to
Pro-Fac pursuant to a general marketing agreement between such member and
Pro-Fac, which crops in turn are sold to the Cooperative pursuant to the Pro-Fac
Marketing and Facilitation Agreement. During fiscal 2001, the following
directors and executive officers of Pro-Fac directly or indirectly through
entities owned or controlled by such officers and directors, sold crops to
Pro-Fac and provided harvesting, trucking and waste removal services to Agrilink
Foods for the following aggregate amounts:
(Dollars in Thousands)
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 2001
- ------------------------ -------------------------------------------------------- -----------------------
(Dollars in Thousands)
Dale E. Burmeister........................... Director $ 446
Peter R. Call................................ Director $ 4,959
Glen Lee Chase............................... Director $ 213
Tom R. Croner................................ Director and Secretary $ 75
Kenneth A. Dahlstedt......................... Director $ 352
Robert DeBadts............................... Director $ 449
Bruce R. Fox*................................ Director and Chairman of the Board, President $ 1,405
Steven D. Koinzan*........................... Director and Vice Chairman of the Board, Vice President $ 215
Kenneth A. Mattingly......................... Director $ 2,000
Allan W. Overhiser........................... Director $ 50
Paul E. Roe*................................. Director $ 848
Darell Sarff................................. Director $ 65
* Bruce R. Fox, Steven D. Koinzan, and Paul E. Roe are directors of both
Pro-Fac and Agrilink Foods.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
As authorized by New York law and in accordance with the policy of that state,
the Cooperative has obtained insurance from Chubb Group Insurance insuring the
Cooperative against any obligation it incurs as a result of its indemnification
of its officers and directors, and insuring such officers and directors for
liability against which they may not be indemnified by the Cooperative. This
insurance has a term expiring on October 15, 2001, at an annual cost of
approximately $146,000. As of this date, no sums have been paid to any officers
or directors of the Cooperative under this indemnification insurance contract.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The following appears in ITEM 8 of this report:
ITEM Page
Pro-Fac Cooperative, Inc. and Consolidated Subsidiary:
Management's Responsibility for Financial Statements.................................................................... 26
Report of Independent Accountants....................................................................................... 27
Consolidated Financial Statements for the years ended
June 30, 2001, June 24, 2000, and June 26, 1999:
Consolidated Statements of Operations, Net Proceeds, and Comprehensive Income for the years ended June 30, 2001,
June 24, 2000, and June 26, 1999.................................................................................... 28
Consolidated Balance Sheet at June 30, 2001 and June 24, 2000......................................................... 29
Consolidated Statement of Cash Flows for the years ended June 30, 2001, June 24, 2000, and June 26, 1999.............. 30
Consolidated Statements of Changes in Shareholders' and Members' Capitalization and Redeemable Stock
for the years ended June 30, 2001, June 24, 2000, and June 26, 1999................................................. 32
Notes to Consolidated Financial Statements............................................................................ 33
Selected Quarterly Financial Data..................................................................................... 63
(2) The following additional financial data are set forth herein:
SCHEDULE II: Valuation and Qualifying Accounts
SCHEDULE II
Pro-Fac Cooperative, Inc.
Valuation and Qualifying Accounts
Fiscal Years Ended
------------------------------------------------
June 30, 2001 June 24, 2000 June 26, 1999
------------- ------------- -------------
Allowance for doubtful accounts
Balance at beginning of period $ 998,000 $ 1,607,000 $ 774,000
Additions charged to expense 610,000 201,000 208,000
Deductions (613,000) (810,000) (280,000)
Change due to abandonment of PF Acquisition II, Inc.*** (152,000) 0 0
Increase due to acquisition* 0 0 905,000
------------ ----------- -----------
Balance at end of period $ 843,000 $ 998,000 $ 1,607,000
============ =========== ===========
Inventory reserve**
Balance at beginning of period $ 3,385,000 $ 8,401,000 $ 391,000
Net change (250,000) (5,016,000) (921,000)
Increase due to acquisition* 0 0 8,931,000
------------ ----------- -----------
Balance at end of period $ 3,135,000 $ 3,385,000 $ 8,401,000
============ =========== ===========
Tax valuation allowance****
Balance at beginning of period $ 5,752,000 $ 1,409,000 $ 5,550,000
Net change 139,000 4,343,000 (4,141,000)
------------ ----------- -----------
Balance at end of period $ 5,891,000 $ 5,752,000 $ 1,409,000
============ =========== ===========
* Represents balance acquired in conjunction with the DFVC and Agripac
acquisitions.
** Difference between FIFO cost and market applicable to inventories.
Reductions in the reserve in fiscal 2000 were recorded as related inventory
was disposed.
*** See further discussion at NOTE 3 to the "Notes to Consolidated Financial
Statements."
**** See further discussion regarding tax matters at NOTE 9 to the "Notes to
Consolidated Financial Statements."
Schedules other than those listed above are omitted because they are either
not applicable or not required, or the required information is shown in the
financial statements or the notes thereto.
(3) The following exhibits are filed herein or have been previously
filed with the Securities and Exchange Commission:
(b) Reports on Form 8-K:
On March 27, 2001, the Company filed a Form 8-K to report on
financial information presented to attendees at the Lehmann
Brothers high-yield bond leveraged loan conference.
(c) EXHIBITS:
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the third
fiscal quarter ended March 27, 1999 and incorporated herein by
reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the third fiscal quarter ended March 27, 1999
and incorporated herein by reference).
4.1 Indenture, dated as of November 18, 1998, between Agrilink Foods,
Inc., the Guarantors named therein and IBJ Schroder Bank & Trust
Company, Inc., as Trustee (filed as Exhibit 4.1 to Agrilink Foods,
Inc.'s Registration Statement on Form S-4 filed January 5, 1999
(Registration No. 333-70143) and incorporated herein by reference).
4.2 Form of 11-7/8% Senior Subordinated Notes due 2008 (filed as Exhibit
B, to Exhibit 4.1 to Agrilink Foods, Inc.' s Registration Statement on
Form S-4 filed January 5, 1999 (Registration No. 333-70143) and
incorporated herein by reference).
4.3 Indenture, dated as of November 3, 1994, among PFAC, Pro-Fac and IBJ
Schroder Bank & Trust Company, as Trustee, as amended by First
Supplemental Indenture, dated as of November 3, 1994, each with
respect to Agrilink Foods, Inc.'s 12.25% Senior Subordinated Notes due
2005 (filed as Exhibit 4.1 to Agrilink Foods, Inc.'s Registration
Statement on Form S-4 filed November 14, 1994 (Registration No.
33-56517) and incorporated herein by reference).
4.4 Second Supplemental Indenture (amending the Indenture referenced in
Exhibit 4.3 herein) dated November 10, 1997 (filed as Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1998, and incorporated herein by reference).
4.5 Third Supplemental Indenture (amending the Indenture referenced in
Exhibit 4.3 herein) dated September 24, 1998 (filed as Exhibit 10.26
to the Company's Annual Report on Form 10-K for the fiscal year ended
June 26, 1999, and incorporated herein by reference).
10.1 Marketing and Facilitation Agreement, dated as of November 3, 1994,
between the Cooperative and Agrilink Foods, Inc. (filed as Exhibit
10.1 to Agrilink Foods, Inc.'s Registration Statement on Form S-4
filed November 17, 1994 (Registration No. 33-56517) and incorporated
herein by reference).
10.2 Amendment to Marketing and Facilitation Agreement between the
Cooperative and Agrilink Foods, Inc. dated September 23, 1998 (filed
as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the
third fiscal quarter ended March 27, 1999 and incorporated herein by
reference).
10.3 Management Incentive Plan, as amended (filed as Exhibit 10.2 to
Agrilink Foods, Inc.'s Registration Statement on Form S-4 filed
November 17, 1994 (Registration No. 33-56517) and incorporated herein
by reference).
10.4 Supplemental Executive Retirement Plan, as amended (filed as Exhibit
10.3 to Agrilink Foods, Inc.'s Registration Statement on Form S-4
filed November 17, 1994 (Registration No. 33-56517) and incorporated
herein by reference).
10.5 Master Salaried Retirement Plan, as amended (filed as Exhibit 10.5 to
Agrilink Foods, Inc.'s Registration Statement on Form S-4 filed
November 17, 1994 (Registration No. 33-56517) and incorporated herein
by reference).
(c) EXHIBITS (Continued):
Exhibit
Number Description
10.6 Non-Qualified Profit Sharing Plan, as amended (filed as Exhibit 10.6
to Agrilink Foods, Inc.'s Registration Statement on Form S-4 filed
November 17, 1994 (Registration No. 33-56517) and incorporated herein
by reference).
10.7 Second Amendment to Non-Qualified Profit Sharing Plan (filed as
Exhibit 10.14 to the Company's Registration Statement on Form S-1
filed June 15, 1995 (Registration No. 33-60273) and incorporated
herein by reference).
10.8 Agrilink Equity Value Plan adopted June 24, 1996 (filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for the fiscal year
ended June 29, 1996 and incorporated herein by reference).
10.9 Raw Product Supply Agreement with Seneca Foods Corporation (filed as
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 28, 1997 and incorporated herein by reference).
10.10 Reciprocal Co-Pack Agreement with Seneca Foods Corporation (filed as
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 28, 1997 and incorporated herein by reference).
10.11 Credit Agreement among the Cooperative, Agrilink Foods, Inc., and
Harris Trust and Savings Bank, and Bank of Montreal, Chicago Branch,
and the Lenders from time to time party hereto, dated as of September
23, 1998 (filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the first fiscal quarter ended September 26, 1998 and
incorporated herein by reference).
10.12 Subordinated Promissory Note of Agrilink Foods, Inc. to Dean Foods
Company, dated as of September 23, 1998 (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the first fiscal quarter
ended September 26, 1998 and incorporated herein by reference).
10.13 First Amendment to the Credit Agreement referenced in 10.11 herein
(filed as Exhibit 10.1 to the Company's Amended Quarterly Report on
Form 10-Q/A for the first fiscal quarter ended September 25, 1999 and
incorporated herein by reference).
10.14 Second Amendment to the Credit Agreement referenced in 10.11 herein
(filed as Exhibit 10.2 to the Company's Amended Quarterly Report on
Form 10-Q/A for the first fiscal quarter ended September 25, 1999 and
incorporated herein by reference).
10.15 Third Amendment to the Credit Agreement referenced in Exhibit 10.11
herein (filed as Exhibit 10.3 to the Company's Amended Quarterly
Report on Form 10-Q/A for the first fiscal quarter ended September 25,
1999 and incorporated herein by reference).
10.16 Fourth Amendment to the Credit Agreement referenced in Exhibit 10.11
herein (filed as Exhibit 10.4 to the Company's Amended Quarterly
Report on Form 10-Q/A for the first fiscal quarter ended September 25,
1999 and incorporated herein by reference).
10.17 Fifth Amendment to the Credit Agreement referenced in Exhibit 10.11
herein (filed as Exhibit 10.5 to the Company's Amended Quarterly
Report on Form 10-Q/A for the first fiscal quarter ended September 25,
1999 and incorporated herein by reference).
10.18 Service Agreement between Agrilink Foods, Inc. and PF Acquisition II,
Inc., dated as of February 22, 1999 (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the third fiscal quarter
ended March 27, 1999 and incorporated herein by reference).
10.19 Marketing and Facilitation Agreement, dated as of February 22, 1999,
between the Cooperative and PF Acquisition II, Inc. (filed as Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the third
fiscal quarter ended March 27, 1999 and incorporated herein by
reference).
(c) EXHIBITS (Continued):
Exhibit
Number Description
10.20 Credit Agreement among PF Acquisition II, Inc., the Banks hereto and
CoBank, ACB, as Administrative Agent for the lender thereunder, dated
February 22, 1999 (filed as Exhibit 10.6 to the Company's Quarterly
Report on Form 10-Q for the third fiscal quarter ended March 27, 1999
and incorporated herein by reference).
10.21 Subordinated Promissory Note between PF Acquisition II, Inc. and
CoBank, ACB, dated February 22, 1999 (filed as Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the third fiscal quarter
ended March 27, 1999 and incorporated herein by reference).
10.22 Sixth Amendment to the Credit Agreement referenced in Exhibit 10.11
herein (filed as Exhibit 10.1 to the Company's quarterly report on
Form 10-Q for the first quarter ended September 23, 2000, and
incorporated herein by reference).
10.23 Excess Benefit Retirement Plan, as amended (filed as Exhibit 10.27 to
the Company's quarterly report on Form 10-Q for the second quarter
ended December 23, 2000, and incorporated herein by reference).
10.24 Supplemental Executive Retirement Agreement (filed as Exhibit 10.28
to the Company's quarterly report on Form 10-Q for the second quarter
ended December 23, 2000, and incorporated herein by reference).
10.25 Service Agreement By and Between Agrilink Foods and PF Acquisition
II, Inc. (filed as Exhibit 10.29 to the Company's quarterly report on
Form 10-Q for the third quarter ended March 23, 2001, and incorporated
herein by reference).
10.26 Bill of Sale Agreement By and Between Agrilink Foods, Inc. and
CoBank, ACB (filed as Exhibit 10.30 to the Company's quarterly report
on Form 10-Q for the third quarter ended March 23, 2001, and
incorporated herein by reference).
10.27 Salary Continuation Agreement - Dennis M. Mullen (filed herewith).
10.28 Seventh Amendment to the Credit Agreement referenced in Exhibit 10.11
herein (filed herewith).
18 Accountant's Report Regarding Change in Accounting Method (filed as
Exhibit 18 to the Company's Quarterly Report on Form 10-Q for the
first fiscal quarter ended September 28, 1996 and incorporated herein
by reference).
21 List of Subsidiaries (filed as Exhibit 21.1 to the Company's Annual
Report on Form 10-K for the year ended June 24, 2000 and incorporated
herein by reference).
23 Accountant's Consent (filed herewith)
24 Power of Attorney (included on page 78 of this Report)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PRO-FAC COOPERATIVE, INC.
Date: September 10, 2001 BY:/s/ Earl L. Powers
------------------ ---------------------------
EARL L. POWERS
TREASURER
(Principal Financial Officer and
Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints EARL L. POWERS, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities to sign any and all amendments
to this Annual Report on Form 10-K and to file Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE
- ---------------------------------------------------------- -----------------------------------------
/s/ Bruce R. Fox Chairman of the Board and Director September 10, 2001
- ---------------------------------------------------------- President ------------------
(BRUCE FOX)
/s/ Steven D. Koinzan Vice Chairman of the Board and Director September 10, 2001
- ---------------------------------------------------------- Vice President ------------------
(STEVEN D. KOINZAN)
/s/ Tom R. Croner Director September 10, 2001
- ---------------------------------------------------------- ------------------
(TOM R. CRONER)
/s/ Dale W. Burmeister Director September 10, 2001
- ---------------------------------------------------------- ------------------
(DALE W. BURMEISTER)
/s/ Peter R. Call Director September 10, 2001
- ---------------------------------------------------------- ------------------
(PETER R. CALL)
/s/ Glen Lee Chase Director September 10, 2001
- ---------------------------------------------------------- ------------------
(GLEN LEE CHASE)
/s/ Kenneth A. Dahlstedt Director September 10, 2001
- ---------------------------------------------------------- ------------------
(KENNETH A. DAHLSTEDT)
/s/ Robert DeBadts Director September 10, 2001
- ---------------------------------------------------------- ------------------
(ROBERT DeBADTS)
/s/ Kenneth A. Mattingly Director September 10, 2001
- ---------------------------------------------------------- ------------------
(KENNETH A. MATTINGLY)
/s/ Allan W. Overhiser Director September 10, 2001
- ---------------------------------------------------------- ------------------
(ALLAN W. OVERHISER)
/s/ Paul E. Roe Director September 10, 2001
- ---------------------------------------------------------- ------------------
(PAUL E. ROE)
/s/ Darell Sarff Director September 10, 2001
- ---------------------------------------------------------- ------------------
(DARELL SARFF)
/s/ Stephen R. Wright Secretary September 10, 2001
- ---------------------------------------------------------- General Manager ------------------
(STEPHEN R. WRIGHT)
/s/ Earl L. Powers Treasurer September 10, 2001
- ---------------------------------------------------------- (Principal Financial Officer and ------------------
(EARL L. POWERS) Principal Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NO ANNUAL REPORT OR PROXY MATERIAL HAS BEEN SENT TO REGISTRANT'S SHAREHOLDERS,
AND NO PROXY MATERIAL IS INTENDED TO BE SENT. AN ANNUAL REPORT IS INTENDED TO BE
SENT.