<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-KA
(AMENDMENT NO. 1 TO FORM 8-K FILED JULY 24, 1996)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
July 9, 1996
VAN DE KAMP'S, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 33-97752 43-1721518
(State or Other Jurisdiction Commission (IRS Employer
of Incorporation) File Number Identification No.)
1000 St. Louis Union Station
St. Louis, Missouri 63103
(Address of Principal Executive Offices)
(314) 241-0303
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 9, 1996, Van de Kamp's, Inc., a Delaware corporation, (the "Company")
completed an acquisition (the "Acquisition") of substantially all of the assets
of the frozen foods division of The Quaker Oats Company ("Quaker Oats"). These
assets include the CELESTE(R) frozen pizza business and the AUNT JEMIMA(R)
frozen breakfast products business of Quaker Oats ("CELESTE/AUNT JEMINA"). As
part of the Acquisition, the Company purchased the trademarks associated with
the CELESTE(R) name and was granted an exclusive, perpetual, transferrable,
royalty-free license of the AUNT JEMIMA(R) trademark for use in the frozen
breakfast products business. Other assets acquired include the Jackson,
Tennessee manufacturing facility, manufacturing equipment, inventories and
certain intangibles. The Company intends to continue to utilize this facility
for the CELESTE/AUNT JEMINA businesses. The purchase price of approximately
$188 million is subject to adjustments upon completion of an audit of
inventory as of the closing of the acquisition.
The Company financed the Acquisition and related costs with an equity
contribution by VDK Holdings, Inc., the Company's parent, of $40 million and
with additional senior secured bank borrowings totaling $155 million.
Approximately $135 million of this bank debt was incurred through an amendment
to the Company's existing senior bank facility. Pursuant to this amendment, The
Chase Manhattan Bank N.A. acts as agent for the following lenders: The Chase
Manhattan Bank; Banque Nationale de Paris; Banque Paribas; Caisse Nationale de
Credit Agricole; Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch; Dresdner Bank AG, New York and Grand Cayman
Branches; Federal Street Partners, First Bank National Association; The First
National Bank of Boston; First Union National Bank of North Carolina; Fleet
National Bank; Harris Trust and Savings Bank; Merrill Lynch Senior Floating Rate
Fund, Inc.; Midland Bank PLC; New York Life Insurance Company; Pilgrim America
Prime Rate Trust; Prime Income Trust; Senior High Income Portfolio, Inc.; and
Van Kampen American Capital Prime Rate Income Trust. In addition, the Company
borrowed $20 million senior secured convertible loan from The Chase Manhattan
Bank, N.A., which is secured by cash collateral posted by VDK Holdings, Inc. In
the event the Company has not disposed of certain assets by July 9, 1997 the
cash collateral will be contributed as equity to the company and the senior
secured convertible loan will be repaid with the cash collateral.
-2-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the Business Acquired. The audited Combined
Statements of Certain Assets and Liabilities, Revenues and Expenses,
Changes in Equity and Cash Flows of the frozen foods division of The
Quaker Oats Company, as of and for the twelve months ended June 30, 1996,
1995 and 1994 together with the report of independent accountants thereon,
are included on pages 6 through 18 herein.
(b) Pro forma Financial Information. The pro forma statement of operations of
Van de Kamp's, Inc. for the year ended June 30, 1996 and the pro forma
balance sheet as of June 30, 1996 together with notes are included on
pages 19 through 25 herein.
(c) Exhibits. The following exhibits were filed along with the Form 8-K (the
"Original 8-K") dated July 9, 1996 as filed with the Securities and
Exchange Commission on July 24 1996.
EXHIBIT NO. EXHIBIT DESCRIPTION
---------- -------------------
2.1 Asset Purchase and Sale Agreement, dated as of May 15,
1996 between Van de Kamp's, Inc. and The Quaker Oats
Company (the text of which and exhibits to which are
incorporated by reference to Exhibit 2.1 to a list of
contents of the schedules to which was filed with the
original 8-K).
2.2 Supplement No. 1 to Asset Purchase and Sale Agreement,
dated as of July 9, 1996, between Van de Kamp's, Inc. and
The Quaker Oats Company (incorporated by reference to
Exhibit 2.2 to the original 8-K).
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VAN DE KAMP'S, INC.
Dated: September 23, 1996 By: /s/ Timothy B. Andersen
-----------------------------
Timothy B. Andersen
Chief Financial Officer and duly
authorized officer
-4-
<PAGE>
ITEM 7(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The following financial statements of the frozen foods division of The Quaker
Oats Company are included in item 7(a):
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Report of Independent Accountants 6
Combined Financial Statements:
Statements of Certain Assets and Liabilities
as of June 30, 1996, 1995 and 1994 7
Statements of Revenues and Expenses
for the twelve months ended June 30, 1996,
1995 and 1994 8
Statements of Changes in Equity for the twelve months ended June 30, 1996
1995 and 1994 9
Statements of Cash Flows for the twelve months ended June 30, 1996, 1995 and
1994 10
Notes to the Financial Statements 11-18
</TABLE>
-5-
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The Quaker Oats Company
and The Board of Directors
of Van de Kamp's, Inc.
We have audited the accompanying combined statements of certain assets and
liabilities of the Frozen Food Business of The Quaker Oats Company (the
"Business," as described in Footnote 1) as of June 30, 1996, 1995 and 1994, and
the related combined statements of revenues and expenses, changes in equity, and
cash flows for the twelve months then ended. These financial statements are the
responsibility of the preparers of these statements and the Business' management
(collectively referred to as "management"). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed more fully in Note 3, the Business was sold to Van de Kamp's, Inc.,
a Delaware corporation, on July 9, 1996.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, certain assets and liabilities of the Business
as of June 30, 1996, 1995 and 1994, and its revenues and expenses, changes in
equity and cash flows for the twelve months then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
August 30, 1996
-6-
<PAGE>
THE QUAKER OATS COMPANY
FROZEN FOOD BUSINESS
COMBINED STATEMENTS OF CERTAIN ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
DOLLARS IN MILLIONS 1996 1995 1994
- ----------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
ASSETS
- -----------------------------------------------------
Current assets:
Trade accounts receivable - net of allowance
of $0.8, $0.6 and $0.6 in June 1996, 1995
and 1994, respectively $ 9.1 $ 8.6 $ 8.9
Inventories:
finished goods 4.2 3.9 5.7
Raw materials 0.9 0.9 1.0
Packaging materials and supplies 0.7 0.4 0.5
----- ----- -----
Total inventories 5.8 5.2 7.2
Deferred income taxes 1.4 1.0 1.3
Other current assets -- 0.2 --
----- ----- -----
Total Current Assets 16.3 15.0 17.4
Property:
Land 0.3 0.3 0.3
Buildings and improvements 14.2 14.3 14.1
Machinery and equipment 57.4 55.4 53.7
----- ----- -----
Gross Property 71.9 70.0 68.1
Less accumulated depreciation 33.0 29.9 31.5
----- ----- -----
Property - Net 38.9 40.1 36.6
----- ----- -----
Total Assets $55.2 $55.1 $54.0
===== ===== =====
LIABILITIES AND EQUITY
- -----------------------------------------------------
Current liabilities:
Accounts payable $ 5.5 $ 6.2 $ 7.2
Accrued payroll and vacation 1.7 1.6 1.7
Accrued advertising and merchandising 4.2 4.2 6.0
Other accrued liabilities 1.1 0.5 0.6
----- ----- -----
Total Current Liabilities 12.5 12.5 15.5
Deferred Income Taxes 7.0 6.1 5.8
Equity - Net Investments by The Quaker Oats Company 35.7 36.5 32.7
----- ----- -----
Total Liabilities and Equity $55.2 $55.1 $54.0
===== ===== =====
</TABLE>
The accompanying notes to the combined financial statements are an integral part
of these statements.
-7-
<PAGE>
THE QUAKER OATS COMPANY
FROZEN FOOD BUSINESS
COMBINED STATEMENTS OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
----------------------------
DOLLARS IN MILLIONS 1996 1995 1994
- ---------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net sales $161.4 $182.4 $178.1
Cost of goods sold 86.6 96.6 92.5
------ ------ ------
Gross profit 74.8 85.8 85.6
Selling, general and administrative expenses 61.0 77.3 75.7
Interest expense - net 2.7 2.5 2.8
------ ------ ------
Income before income taxes 11.1 6.0 7.1
Provision for income taxes 4.4 2.4 2.8
------ ------ ------
Net Income $ 6.7 $ 3.6 $ 4.3
====== ====== ======
</TABLE>
The accompanying notes to the combined financial statements are an integral part
of these statements.
-8-
<PAGE>
THE QUAKER OATS COMPANY
FROZEN FOOD BUSINESS
COMBINED STATEMENTS OF CHANGES IN EQUITY
NET INVESTMENT BY THE QUAKER OATS COMPANY
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
----------------------------
DOLLARS IN MILLIONS 1996 1995 1994
- ---------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Beginning Balance $36.5 $32.7 $37.7
Net income 6.7 3.6 4.3
(Net Remittances to) Net Advances from
The Quaker Oats Company (7.5) 0.2 (9.3)
----- ----- -----
Ending Balance $35.7 $36.5 $32.7
===== ===== =====
</TABLE>
The accompanying notes to the combined financial statements are an integral part
of these statements.
-9-
<PAGE>
THE QUAKER OATS COMPANY
FROZEN FOOD BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
----------------------------
DOLLARS IN MILLIONS 1996 1995 1994
- ------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
- ------------------------------------
Net income $ 6.7 $ 3.6 $ 4.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2.9 2.7 2.5
Loss on disposition of property 0.1 0.9 1.5
Long-term deferred income tax liability 0.9 0.3 0.4
(Increase) decrease in trade accounts receivable (0.5) 0.3 5.6
(Increase) decrease in inventories (0.6) 2.0 (0.7)
(Increase) decrease in current deferred income
tax asset (0.4) 0.3 0.3
Decrease (increase) in other current assets 0.2 (0.2) --
(Decrease) increase in accounts payable (0.7) (1.0) 1.0
Increase (decrease) in other accrued liabilities 0.7 (2.0) 0.8
----- ----- -----
Net Cash Provided by Operating Activities 9.3 6.9 15.7
----- ----- -----
Cash Flows from Investing Activities:
- ------------------------------------
Additions to property (1.8) (7.1) (6.4)
----- ----- -----
Net Cash Used in Investing Activities (1.8) (7.1) (6.4)
----- ----- -----
Cash Flows from Financing Activities:
- ------------------------------------
(Net remittances to) net advances from The Quaker
Oats Company (7.5) 0.2 (9.3)
----- ----- -----
Net Cash (Used in) Provided by Financing Activities (7.5) 0.2 (9.3)
----- ----- -----
Net Change in Cash $ -- $ -- $ --
===== ===== =====
</TABLE>
The accompanying notes to the combined financial statements are an integral part
of these statements.
-10-
<PAGE>
THE QUAKER OATS COMPANY
FROZEN FOOD BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1
PRINCIPLES OF COMBINATION
The financial statements include the operations and certain assets and
liabilities of the Frozen Foods Business (the "Business") of The Quaker Oats
Company ("Quaker Oats"), a New Jersey corporation. The Business includes only
the following frozen food products: waffles, pancakes, french toast and pancake
batter under the brand name Aunt Jemima and selected private label brands; and
pizza products under the brand name Celeste and selected private label brands.
Refer to Note 2, "Basis of Presentation," for further discussion regarding the
preparation of the financial statements. The Business has operations in the
United States and Canada. In addition, there is an export operation which is
immaterial to the financial statements. All significant intercompany
transactions have been eliminated.
On July 9, 1996, Quaker Oats completed the sale of certain assets, liabilities
and obligations of the Business to Van de Kamp's, Inc. ("Van de Kamp's"), a
privately-held Delaware corporation located in St. Louis, Missouri. Refer to
Note 3, "Sale of Business," for further discussion.
NOTE 2
BASIS OF PRESENTATION
As a result of the Business' relationship with Quaker Oats, the financial
position and results of operations are not necessarily indicative of what
actually would have occurred had the Business been a stand-alone entity.
Additionally, these financial statements are not necessarily indicative of the
future financial position or results of operations of the Business.
COMBINED STATEMENTS OF CERTAIN ASSETS AND LIABILITIES
The Combined Statements of Certain Assets and Liabilities consist of the items
sold to or assumed by Van de Kamp's as well as other assets and liabilities
specifically identifiable or allocable to the Business during the periods
presented that were not sold to Van de Kamp's.
The assets and liabilities sold to or assumed by Van de Kamp's include: a) real
property at the Jackson, Tennessee manufacturing facility and any and all
buildings, plants, facilities, installations, fixtures and other structures and
improvements located thereon or attached thereto ("Real Property"); b)
machinery, equipment, furniture, tools, spare parts, maintenance equipment and
supplies, and computer hardware, peripherals and software, in each case owned by
Quaker Oats and located on the Real Property or used primarily in connection
with the Business; c) inventories, including raw materials, ingredients, work-
in-process, finished goods and packaging materials owned by Quaker Oats, used in
connection with the Business, and located on the Real Property or at certain
distribution centers and other facilities owned by Quaker Oats; d) certain
coupon liabilities; and e) certain accrued vacation liabilities.
-11-
<PAGE>
Other specifically identifiable assets and liabilities related to the Business
that were not sold to Van de Kamp's include: trade accounts receivable, current
and deferred income taxes and other miscellaneous assets and liabilities.
Allocated items include various accounts payable. Management believes that the
methods used for allocating these items were reasonable.
COMBINED STATEMENTS OF REVENUES AND EXPENSES
The Combined Statements of Revenues and Expenses reflect substantially all of
the Business' costs associated with the normal course of business. These costs
include direct expenses and certain expenses incurred by Quaker Oats on the
Business' behalf. Refer to Note 5, "Supplementary Expenses Information," for
further discussion.
ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements in conformity with Generally
Accepted Accounting Principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures 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 may differ from these estimates.
NOTE 3
SALE OF THE BUSINESS
On May 15, 1996, Quaker Oats entered into an agreement ("Agreement") to sell
certain assets, liabilities and obligations of the Business to Van de Kamp's.
The sale was completed on July 9, 1996. The assets sold include, as discussed in
Note 2, the Real Property, various machinery and equipment, and inventory. In
addition, books and records, certain contracts and certain intellectual property
including trademarks, copyrights and trade names used exclusively in the
Business, excluding the Aunt Jemima trademark, were transferred to Van de
Kamp's. Quaker Oats licensed the Aunt Jemima trademark to Van de Kamp's in
connection with the manufacture and sale of the following frozen food products:
waffles, pancakes, french toast, pancake batter, biscuits, muffins, strudel,
croissants and all other frozen breakfast products, except for frozen cereals.
The liabilities assumed by Van de Kamp's include, as discussed in Note 2,
certain coupon and accrued vacation liabilities. The balances of assets sold and
liabilities assumed by Van de Kamp's in the Agreement were as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
DOLLARS IN MILLIONS 1996 1995 1994
- ------------------------------------------------------ -------- -------- -------
<S> <C> <C> <C>
Inventory - net of last-in, first-out (LIFO) reserve $ 5.8 $ 5.2 $ 7.2
Property - net $38.9 $40.1 $36.6
Accrued vacation liability $(1.4) $(1.2) $(1.3)
Coupon liability $(0.6) $(0.2) $(1.3)
</TABLE>
-12-
<PAGE>
Quaker Oats has no financial interest in the Business after July 8, 1996 except
to settle certain outstanding liabilities and collect outstanding receivables
that were not sold to Van de Kamp's. In addition, Quaker Oats is liable after
the sale to Van de Kamp's for certain employee benefit plan obligations that
were not transferred to or assumed by Van de Kamp's.
Van de Kamp's and Quaker Oats are currently negotiating an agency arrangement
whereby Quaker Oats may provide sales presentation services for Van de Kamp's
products in the foodservice channel in exchange for a sales-based commission.
NOTE 4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES - Inventories were valued at the lower of cost or market, using the
cost methods described below, and include the cost of raw materials, packaging,
labor and overhead. The percentage of year-end inventories valued using each of
the methods was as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
LIFO 98% 97% 96%
Average quarterly cost 2% 3% 4%
</TABLE>
If the LIFO method of valuing these inventories was not used, total inventories
would have been $1.4 million, $1.4 million and $2.2 million higher than reported
at June 30, 1996, 1995 and 1994, respectively.
COMMODITY FUTURES AND OPTIONS CONTRACTS - Commodity futures and options
contracts were used in the management of commodity price exposures. Realized and
unrealized gains and losses on commodity futures and options contracts that
hedged commodity price exposures were deferred in inventory and subsequently
included in the cost of goods sold as the inventory was sold.
PROPERTY AND DEPRECIATION - Property, plant and equipment were reported at cost
and depreciated on a straight-line basis over their estimated useful lives.
Useful lives were 50 years for building and improvements and 3 to 17 years for
machinery and equipment. Depreciation expense for the years ended June 30, 1996,
1995 and 1994 was $2.9 million, $2.7 million and $2.5 million, respectively.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the Business'
operations in Canada were translated at exchange rates in effect as of the
balance sheet dates, while income and expenses were translated at average rates
for the periods presented. Translation gains and losses were not material.
-13-
<PAGE>
NOTE 5
SUPPLEMENTARY EXPENSE INFORMATION
The Business conducted its operations as an integrated component of Quaker's
U.S. and Canadian Foods Business. Certain shared expenses were directly charged
or allocated to the Business by Quaker. Except for the cost of goods sold,
advertising and marketing expenses, and a portion of research and development
expenses, the remaining operating and general and administrative expenses were
allocated to the Business by Quaker Oats. Management believes that the methods
used for allocating these expenses were reasonable.
Selling general and administrative expenses were as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
DOLLARS IN MILLIONS 1996 1995 1994
- -------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Advertising and marketing $45.2 $59.8 $62.8
Research and development (a) (b) 1.1 0.8 1.1
Shared operating expenses (a) (b) 11.9 14.3 9.1
Bonus and profit sharing (b) 1.8 1.6 2.2
Corporate overhead allocations (b) (c) 1.0 0.8 0.5
- -------------------------------------------------- ----- ----- -----
Total selling, general and administrative expenses $61.0 $77.3 $75.7
- -------------------------------------------------- ----- ----- -----
</TABLE>
(A) SHARED OPERATING EXPENSES - Quaker Oats allocated to the Business a portion
of shared operating expenses including broker selling expenses, certain other
marketing expenses, certain other product research expenses, and general and
administrative services. These expenses were allocated to the Business on a
basis that approximates actual services provided as determined by various
measures. The Business also participated in Quaker Oats's consolidated risk
management programs for property and casualty insurance. The Business was
charged for annual premiums, reported losses and an estimate of incurred but not
reported losses.
(B) EMPLOYEES - Employees at the Jackson, Tennessee facility were employed by
Quaker Oats and their compensation was paid by Quaker Oats. These employees
also participated in certain employee benefit plans. The Business was directly
charged for actual salary costs and allocated fringe benefit costs. The
allocated fringe benefit costs were allocated based on actual salary costs.
Employees who were primarily employed in the Business on July 8, 1996, other
than certain nontransferred employees as provided in the Agreement, were
transferred to Van de Kamp's on the date of sale.
(C) CORPORATE OVERHEAD ALLOCATIONS - Quaker Oats provided certain corporate
general and administrative services to the Business including personnel, legal,
finance, facility management and utilities. These expenses were allocated to
the Business on a basis that approximates actual services provided as determined
by various measures.
-14-
<PAGE>
NOTE 6
INTEREST EXPENSE
Quaker Oats incurred financial costs related to debt for total company
operations. The portion of net interest expense allocated to the Business was
based on the ratio of the Business' net assets to the net assets of Quaker
Oats's U.S. and Canadian Business. Net interest expense for the years ended June
30, 1996, 1995 and 1994 was $2.7 million, $2.5 million and $2.8 million,
respectively.
NOTE 7
INCOME TAXES
The U.S. operations of the Business were included in the consolidated Federal
income tax return of Quaker Oats. The Canadian operations of the Business were
included in the consolidated tax return of Quaker Oats's Canadian subsidiary.
The Business calculated the current and deferred taxes, for purposes of these
financial statements, as if it filed a separate combined tax return, except that
if any items were subject to limitations in the Business' tax calculations, such
limitations were determined on the basis of the Quaker Oats consolidated group.
Deferred income taxes were provided when tax laws and financial accounting
standards differed with respect to the amount of income calculated for a given
year and the bases of assets and liabilities. Income taxes were ultimately paid
by and were the responsibility of Quaker Oats. There was no tax sharing
agreement between the Business and Quaker Oats. Quaker Oats will retain
liability for all taxes of the Business for operating activity through July 8,
1996:
The provision for income taxes on income was as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
DOLLARS IN MILLIONS 1996 1995 1994
- ---------------------------- -------- -------- --------
<S> <C> <C> <C>
Currently payable -
Federal $ 3.1 $ 1.3 $ 1.5
Canadian 0.1 0.1 0.1
State 0.7 0.4 0.5
- ---------------------------- ----- ----- -----
Total currently payable $ 3.9 $ 1.8 $ 2.1
- ---------------------------- ----- ----- -----
Deferred - net
Federal $ 0.4 $ 0.5 $ 0.7
Canadian -- 0.1 (0.1)
State 0.1 -- 0.1
- ---------------------------- ----- ----- -----
Total deferred - net $ 0.5 $ 0.6 $ 0.7
- ---------------------------- ----- ----- -----
Provision for income taxes $ 4.4 $ 2.4 $ 2.8
- ---------------------------- ----- ----- -----
</TABLE>
-15-
<PAGE>
The components of the deferred income tax provision were as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
DOLLARS IN MILLIONS 1996 1995 1994
- ------------------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Accelerated tax depreciation $ 0.9 $ 0.3 $ 0.4
Accrued expenses (0.4) 0.4 0.3
Other -- (0.1) --
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for deferred income taxes $ 0.5 $ 0.6 $ 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sources of pretax income were as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
DOLLARS IN MILLIONS 1996 1995 1994
- ------------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
U.S. sources $11.0 $ 5.5 $ 6.9
Canadian sources 0.1 0.5 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $11.1 $ 6.0 $ 7.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation of the statutory Federal income tax rate to the
effective income tax rate was as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision based
on the U.S. Federal
statutory rate $ 3.9 35% $ 2.1 35% $ 2.5 35%
State and local income
taxes - net of Federal
income tax benefit 0.5 5% 0.3 5% 0.3 5%
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income
taxes $ 4.4 40% $ 2.4 40% $ 2.8 40%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Combined Statement of Certain Assets and Liabilities included the following
deferred tax assets and deferred tax liabilities:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Depreciation -- $(7.0) -- $(6.1) -- $(5.8)
Accrued expenses $1.3 -- $0.9 -- $1.3 --
Other 0.1 -- 0.1 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total $1.4 $(7.0) $1.0 $(6.1) $1.3 $(5.8)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
NOTE 8
FINANCIAL INSTRUMENTS
Financial instruments were primarily used to reduce the impact of commodity
price fluctuations. The main financial instruments used were commodity futures
and options contracts.
The commodity hedge instruments were used to reduce the risk that raw material
purchases would be adversely affected as commodity prices changed. While the
hedge instruments were subject to the risk of loss from changing commodity
prices, the losses were generally offset by lowered costs of the purchases being
hedged. Quaker Oats, acting on behalf of the Business, did not trade these
instruments with the objective of earning financial gains on the commodity price
fluctuations alone, nor did it trade in commodities for which there were no
underlying exposures. Quaker Oats management believes that its use of
financial instruments to reduce commodity price fluctuation effects was in the
best interest of the Business.
Primarily purchases of flour, corn syrup and soybean oil commodities were hedged
for the Business. For the twelve months ending June 30, 1996, approximately $1.7
million of the cost of goods sold was in hedged flour, corn syrup and soybean
oil. For the twelve months ending June 30, 1995, approximately $0.8 million of
the cost of goods sold was in hedged corn syrup and soybean oil. For the twelve
months ended June 30, 1994, approximately $0.3 million of the cost of goods sold
was in hedged corn syrup. Quaker Oats's strategy is typically to hedge certain
production requirements for various periods up to twelve months. As of June 30,
1995, approximately 25% of the hedgeable production requirements for flour, corn
syrup and soybean oil were hedged for the twelve-months ended June 30, 1996. As
of June 30, 1994, approximately 80% of the hedgeable production requirements
for corn syrup and soybean oil were hedged for the twelve-months ended June 30,
1995. The use of commodity hedge instruments did not have a material impact on
the financial position or results of operation. As of June 30, 1996, no
commodity futures or options contracts were outstanding.
NOTE 9
EQUITY - NET INVESTMENT BY THE QUAKER OATS COMPANY
The Business participated in a centralized cash management program administered
by Quaker Oats. Cash collected from operations was remitted to Quaker Oats and
advances were made by Quaker Oats, as needed, to cover the Business' operating
expenses and capital requirements.
NOTE 10
LITIGATION
The Business is not a party to any pending legal proceedings or environmental
clean-up actions that it believes will have a material adverse effect on its
financial position or results of operations.
-17-
<PAGE>
NOTE 11
SUBSEQUENT EVENT
In April 1995, Quaker Oats initiated a legal action against an equipment vendor
claiming that the oil spray systems within the commercial baking oven equipment
purchased from the vendor were defective, malfunctioned and caused Quaker Oats
direct and incidental damages. The equipment is located on the Real Property.
The Real Property, and machinery and equipment (excluding the defective systems)
were included in the fixed assets sold to Van de Kamp's. Van de Kamp's did not
assume responsibility for such litigation matters pending at the sale date. The
incremental costs incurred by Quaker Oats as a result of the defective systems
were recorded in the Combined Statements of Revenues and Expenses for the years
ended June 30, 1996 and 1995. The cost of the defective systems and the related
outstanding invoices were recorded in "Net Investment by The Quaker Oats
Company" in the Combined Statements of Certain Assets and Liabilities as of June
30, 1996, 1995 and 1994.
On August 9, 1996, Quaker Oats and the vendor agreed, in principle, to a Mutual
Release and Settlement Agreement ("Settlement"). The Settlement was signed by
the parties on August 27, 1996 and consisted of a $650,000 payment from the
vendor to Quaker Oats, the forgiveness by the vendor of all outstanding invoices
for goods and services provided to Quaker Oats and the return of the defective
system by Quaker Oats to the vendor.
-18-
<PAGE>
ITEM 7 (b): PRO FORMA FINANCIAL INFORMATION
The following pro forma financial statements (the "Pro Forma Financial
Statements") give effect to the acquisitions of the Van de Kamp's frozen seafood
business and certain frozen dessert product lines (as discussed below), Mrs.
Paul's, and the frozen foods division of The Quaker Oats Company ("Quaker
Oats"), and the financing and the application of the net proceeds therefrom as
though the transactions occurred as of July 1, 1995 for the Pro Forma Statement
of Operations and June 30, 1996 for the Pro Forma Balance Sheet. On September
19, 1995 (commencement of operations), Van de Kamp's, Inc. acquired the assets
of the Van de Kamp's frozen seafood business and certain frozen dessert product
lines (together, the "Businesses" or "Predecessor") from The Pillsbury Company
and Pet Incorporated. On May 6, 1996, Van de Kamp's, Inc. acquired substantially
all the assets of the Mrs. Paul's frozen food business from Campbell Soup
Company. On July 9, 1996, Van de Kamp's, Inc. acquired certain assets of the
frozen foods division of Quaker Oats.
The Pro Forma Statement of Operations is a combination of the following (as
presented on the next page): (a) audited Statement of Operations of the
Predecessor for the period July 1, 1995 through September 18, 1995, (b) audited
Statement of Operations of Van de Kamp's, Inc. for the period September 19, 1995
through June 29, 1996, (c) audited Statement of Earnings of Mrs. Paul's for the
period August 1, 1995 through April 30, 1996, (d) unaudited Statement of Income
of Mrs. Paul's for the month of July 1995 and (e) audited Statement of Revenues
and Expenses of the frozen foods division of Quaker Oats for the period July 1,
1995 through June 30, 1996. The following Pro Forma Balance Sheet is based on
the audited balance sheet of the Company as of June 29, 1996 and the amounts of
assets to be acquired and liabilities assumed as included in the Combined
Statement of Certain Assets and Liabilities of the frozen foods business of
Quaker Oats.
The pro forma financial information reflects pro forma adjustments that are
based upon available information and which the Company believes are reasonable.
The pro forma financial information does not necessarily reflect the results of
operations or financial position of the Company that actually would have
resulted had the transactions to which pro forma effect is given been
consummated as of the date or for the period indicated.
-19-
<PAGE>
VAN DE KAMP'S, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 19- JULY 1-
JULY 1- JUNE 29 AUGUST 1- JULY JUNE 30
SEPTEMBER 18 VAN DE APRIL 30 1995 CELESTE/AUNT PRO FORMA COMPANY
PREDECESSOR KAMP'S INC. MRS. PAUL'S MRS. PAUL'S JEMIMA ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ------------ ------------ ------------ -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $21,061 $143,296 $60,235 $4,749 $161,400 $ 9,077 (a) $399,818
Cost of goods sold 10,267 60,367 31,788 2,503 86,600 (10,894) (b,c,d) 180,631
------- -------- ------- ------ -------- -------- --------
Gross profit 10,794 82,929 28,447 2,246 74,800 19,971 219,187
Selling, distribution and
marketing:
Selling and distribution 2,843 15,901 4,482 445 6,232 18,332 (d) 48,235
Trade promotions 3,699 32,516 10,920 564 35,794 0 83,493
Consumer marketing 1,919 11,336 2,955 403 3,174 (657) (e) 19,130
------- -------- ------- ------ -------- -------- --------
Total selling, distribution
and marketing 8,461 59,753 18,357 1,412 45,200 17,675 150,858
Amortization 689 4,223 0 0 0 6,448 (f) 11,360
------- -------- ------- ------ -------- -------- --------
Product profit before
corporate expenses 1,644 18,953 10,090 834 29,600 (4,152) 56,969
General and administrative 1,370 5,267 2,826 599 15,800 (14,173) (g) 11,689
Transition related expenses 0 1,337 0 0 0 (1,337) (h) 0
------- -------- ------- ------ -------- -------- --------
Total operating expenses 10,520 70,580 21,183 2,011 61,000 8,613 173,907
------- -------- ------- ------ -------- -------- --------
Operating income 274 12,349 7,264 235 13,800 11,358 45,280
Interest expense (net) 0 12,334 0 0 2,700 16,802 (i) 31,836
Amortization of deferred
financing expense 0 687 0 0 0 1,106 (j) 1,793
------- -------- ------- ------ -------- -------- --------
Income before income tax 274 (672) 7,264 235 11,100 (6,550) 11,651
Provision for income taxes 396 (233) 2,760 0 4,400 (2,663) (k) 4,660
------- -------- ------- ------ -------- -------- --------
Net income (loss) ($ 122) ($439) $ 4,504 $ 235 $ 6,700 ($3,887) $ 6,991
======= ======== ======= ====== ======== ========== ========
EBITDA (l) $ 63,537
========
</TABLE>
-20-
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(a) Represents a reclassification of distribution and selling expenses to report
sales consistently with Van de Kamp's, Inc., as further discussed in note
(d).
(b) Represents an increase of $1,047 in depreciation expense as a result of
higher depreciable basis of property, plant and equipment as compared to the
prior owners. The average depreciable life for fixed assets is as follows:
Machinery and equipment 8.5 years
Buildings 30 years
Furniture and fixtures 10 years
(c) Includes the reversal of corporate allocated expenses from the prior owners
for indirect fixed plant overhead costs. This reversal is supportable as the
Company already has the plant infrastructure to support the Businesses, Mrs.
Paul's and the frozen foods division of Quaker Oats.
(d) Includes the reclassification of expense described above in note (a) and the
elimination of a corporate allocation from the prior owners of costs
associated with the sales force, sales administration and marketing
overhead. The reversal of these allocations is supportable as the Company
already has established sales force, sales administration and marketing
functions to support the Businesses, Mrs. Paul's and the frozen foods
division of Quaker Oats.
(e) Represents the elimination of Mrs. Paul's research and development costs
($657). The Company records its research and development costs in general
and administrative expense and management believes the amount included in
the general and administrative expense for the period is sufficient.
(f) Reflects an adjustment to amortization based on actual goodwill and other
intangibles recorded in connection with the acquisitions of the Businesses,
Mrs. Paul's and the frozen foods division of Quaker Oats.
(g) Reflects the reduction in expense ($14,173) the Company will experience as
compared to the general and administrative corporate allocation from
Predecessor, Campbell Soup Company and Quaker Oats. The reduction is
supported by the Company's experience during its current period of ownership
and personnel and expense changes that it has implemented.
(h) Represents certain transition related costs incurred in connection with the
acquisition of the Businesses since September 19, 1995 which are non-
recurring and therefore are excluded for pro forma purposes.
(i) Represents the interest expense that would have been incurred based upon pro
forma debt levels, applicable interest rates and as if the acquisitions had
occurred on July 1, 1995.
-21-
<PAGE>
(j) Represents the amortization of deferred financing costs that would have
been incurred based upon pro forma debt levels.
(k) Represents a reduction in the provision for income taxes as a result of the
pro forma decrease in income before income taxes.
(l) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and extraordinary items and is presented because it is
commonly used by certain investors and analysts to analyze and compare on
the basis of operating performance and to determine a company's ability to
service and incur debt. EBITDA should not be considered in isolation from
or as a substitute for net income, cash flows from operating activities or
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity. Cash flows data are not presented as it is not
practicable to separate cash flows for the Business (as set forth in Van de
Kamp's, Inc. Form S-4, filed November 14, 1995) or Mrs. Paul's (as approved
by the SEC in a letter dated July 1, 1996). EBITDA as defined here is the
same as that required by the Senior Bank Facilities covenant, except that
the Senior Bank Facilities definition also excludes all other non-cash
expenses and any non-cash income or non-cash gains and includes interest
income. The Company did not have any such items for the periods presented.
-22-
<PAGE>
VAN DE KAMP'S, INC.
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
VAN DE CELESTE/AUNT PRO FORMA COMPANY
KAMP'S, INC. JEMIMA ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 4,040 $ 0 $ 1,932 (a) $ 5,972
Receivables 16,756 0 -- 16,756
Inventories 30,202 5,887 1,400 (b) 37,489
Prepaid Expenses 724 0 -- 724
Deferred Tax Asset 3,373 0 -- 3,373
-------- ------- -------- --------
Total current assets 55,095 5,887 3,332 64,314
Property, plant and equipment, net 35,943 38,900 6,569 (c) 81,412
Goodwill and intangibles 203,736 0 138,626 (d) 342,362
Other assets 10,725 0 5,324 (e) 16,049
-------- ------- -------- --------
Total assets $305,499 $44,787 $153,851 $504,137
======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current portion of long-term debt $ 5,000 $ 0 $ 24,500 (f) $ 29,500
Accounts payable and accrued expenses 30,076 2,000 238 (g) 32,314
-------- ------- -------- --------
Total current liabilities 35,076 2,000 24,738 61,814
Senior secured bank debt 83,750 0 130,500 (f) 214,250
Senior subordinated notes 100,000 0 0 100,000
-------- ------- -------- --------
Total long-term borrowing 183,750 0 130,500 314,250
Long-term deferred tax liability 2,997 0 0 2,997
-------- ------- -------- --------
Total liabilities 221,823 2,000 155,238 379,061
Total stockholder's equity 83,676 42,787 ( 1,387) (h) 125,076
-------- ------- -------- --------
Total liabilities and
stockholder's equity $305,499 $44,787 $153,851 $504,137
======== ======= ======== ========
</TABLE>
-23-
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(a) Reflects cash available for operations as a result of Acquisition
financing.
(b) To record inventory on a FIFO basis. To adjust inventory of the frozen
foods division of Quaker Oats from a LIFO basis to FIFO basis to be
consistent with the Company's method of accounting.
(c) Reflects the cost over book value of the property, plant and equipment of
the frozen foods division of Quaker Oats acquired in connection with the
Acquisition. The equipment has been recorded at fair market value.
(d) Reflects the excess of cost over book value of the purchased assets.
Goodwill will be amortized on a straight line basis over a 40 year period
and other intangibles will be amortized over periods ranging from five to
forty years.
(e) Reflects deferred financing costs incurred in connection with the
financing.
(f) Reflects the current and long-term portions of the $135 million in
additional senior secured debt and the $20 million senior secured
convertible loan.
(g) Reflects $956 of interest paid on the senior secured debt partially offset
by an accrual for costs to be incurred in connection with the Acquisition.
(h) Represents the $40 million equity contribution from VDK Holdings, Inc. net
of the elimination of the division equity of the frozen foods division of
Quaker Oats.
-24-
