<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 8-K-A
(Amendment No. 1 to Form 8-K Filed January 30, 1998)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) January 16, 1998
AURORA FOODS INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 33-24715 13-3921934
(State or Other (Commission File (IRS Employer
Jurisdiction of Incorporation Number) Identification No.)
445 Hutchinson Ave. Ste. 960, Columbus, Ohio 43235
(Address of Principal Executive Offices) (Zip Code)
(614) 436-8600
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changes Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 16, 1998, Aurora Foods Inc. a Delaware corporation (the "Company"),
completed the acquisition (the "Acquisition") of substantially all of the assets
of the Duncan Hines business from The Procter & Gamble Company ("P&G") and
certain of its affiliates. These assets include (i) Duncan Hines and associated
trademarks, (ii) substantially all of the equipment for the manufacture of
Duncan Hines products currently located in P&G's Jackson, Tennessee facility,
(iii) proprietary formulations for Duncan Hines products, (iv) other product
specifications and customer lists and (v) rights under certain contracts,
licenses, purchase orders and other arrangements and permits. The Company
intends to use the acquired assets in its operation of the Duncan Hines
business. The purchase price of approximately $445 million was based on arm's
length negotiations between the Company and P&G.
To finance the acquisition of the Duncan Hines business and related costs, the
Company incurred an early extinguishment of its existing senior secured term
debt and senior secured revolving debt facility, which totaled $76.5 million.
The Company borrowed $450.0 million of senior secured bank debt under a Second
Amended and Restated Credit Agreement, and received a capital contribution from
Aurora Foods Holdings Inc., the Company's parent, of $93.8 million. As a result
of the early extinguishment, the Company will record an extraordinary charge of
$1.8 million, net of income taxes of $1.2 million, for the write-off of deferred
loan acquisition costs in 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the Business Acquired (the Duncan Hines
business of P&G). The audited Statement of Equipment and Goodwill as of June
30, 1997 and 1996 and the audited Statements of Direct Revenues and Direct
Expenses for the years ended June 30, 1997, 1996, and 1995 together with
the report of independent accountants. The unaudited Statement of Equipment and
Goodwill as of December 31, 1997 and the unaudited Statements of Direct Revenues
and Direct Expenses for the six month period ended December 31, 1997 and the
three month period ended September 30, 1997.
(b) Pro forma Financial Information. The pro forma statement of operations
of Aurora Foods Inc. for the year ended December 27, 1997 and the pro forma
balance sheet as of December 27, 1997 together with notes are included on pages
10 through 17 herein.
(c) Exhibits. The following exhibits were filed along with the form 8-K
("the original 8-K") dated January 16, 1998 and filed with the Securities and
Exchange Commission on January 30, 1998.
2.1 Asset Sale and Purchase dated November 26, 1997 between
MBW Investors LLC and the Procter & Gamble Company and
joined solely for the purpose stated therein by the
Procter & Gamble Manufacturing Company, the Procter &
Gamble Distributing Company and Procter & Gamble, Inc.
(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)
99.1 Lenders under the Second Amended and Restated Credit
Agreement (incorporated by reference to exhibit 99.1 to
the original 8-K).
-2-
<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.
Dated: March 31, 1998 AURORA FOODS INC.
By: /s/ DIRK GRIZZLE
---------------------
DIRK GRIZZLE
Chief Financial Officer
-3-
<PAGE>
Item 7 (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The following financial statements of the Duncan Hines Business of P&G are
included in item 7 (a):
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 5
Financial Statements:
Statement of Equipment and Goodwill as of December 31, 1997 (unaudited)
and as of June 30, 1997 and 1996 6
Statement of Direct Revenues and Direct Expenses for the years ended
June 30, 1997, 1996 and 1995 and for the six month period ended
December 31, 1997 (unaudited) and for the three month period ended
September 30, 1997 (unaudited) 7
Notes to the Financial Statements 8-9
</TABLE>
-4-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Management of
The Procter & Gamble Company:
We have audited the accompanying statement of equipment and goodwill as of June
30, 1997 and 1996 and statements of direct revenues and direct expenses of the
Duncan Hines Business of The Procter & Gamble Company ("Procter & Gamble") for
the years ended June 30, 1997, 1996, and 1995 (collectively, the "statements").
These statements are the responsibility of Procter & Gamble's management. Our
responsibility is to express an opinion on these 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 audit to obtain
reasonable assurance about whether the statements referred to above are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements referred to above. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements referred to above. We believe that our audits provide a
reasonable basis for our opinion.
The assets and operations covered by the statements referred to above are a part
of The Procter & Gamble Company and have no separate legal status or existence.
As described in Notes 1 and 2 to the statements, the statements referred to
above have been prepared from Procter & Gamble's consolidated financial records
and allocations of certain costs and expenses have been made. These allocations
are not necessarily indicative of the costs and expenses that would have been
incurred by the Duncan Hines Business on a stand-alone basis.
In our opinion, the statements referred to above present fairly, in all material
respects, the equipment and goodwill as of June 30, 1997 and 1996 and the direct
revenues and direct expenses of the Duncan Hines Business of The Procter &
Gamble Company for the years ended June 30, 1997, 1996, and 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Cincinnati, Ohio
March 20, 1998
-5-
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
STATEMENT OF EQUIPMENT AND GOODWILL
AS OF DECEMBER 31, 1997 AND JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31,
1997 JUNE 30, JUNE 30,
(AMOUNTS IN THOUSANDS) (UNAUDITED) 1997 1996
<S> <C> <C> <C>
EQUIPMENT - NET $18,065 $19,349 $20,502
GOODWILL 3,914 3,914 3,914
--------- ------- -------
TOTAL $21,979 $23,263 $24,416
========= ======= =======
</TABLE>
See accompanying notes.
-6-
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
STATEMENTS OF DIRECT REVENUES AND DIRECT EXPENSES
FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995, FOR
THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30, YEAR ENDED JUNE 30,
1997 1997 ------------------------------------
(AMOUNTS IN THOUSANDS) (UNAUDITED) (UNAUDITED) 1997 1996 1995
<S> <C> <C> <C> <C> <C>
DIRECT REVENUES:
Gross revenues $154,519 $68,831 $253,548 $277,721 $281,303
Less:
Trade spending (15,822) (6,816) (19,646) (16,357) (14,775)
Coupon expense (2,194) (1,135) (2,900) (3,378) (5,388)
--------- -------- --------- --------- ---------
Net direct revenues 136,503 60,880 231,002 257,986 261,140
--------- -------- --------- --------- ---------
COSTS OF PRODUCTS SOLD:
Product costs 85,139 39,469 144,261 153,791 153,015
Delivery costs 6,398 3,003 11,787 13,388 14,267
--------- -------- --------- --------- ---------
Total costs of products sold 91,537 42.472 156,048 167,179 167,282
--------- -------- --------- --------- ---------
GROSS MARGIN 44,966 18,408 74,954 90,807 93,858
--------- -------- --------- --------- ---------
DIRECT MARKETING:
Consumer promotional expense 1,184 526 3,376 5,186 4,498
Advertising expense 6,549 2,999 9,957 13,798 12,276
Other marketing expenses 1,119 498 2,520 4,049 3,245
--------- -------- --------- --------- ---------
Total direct marketing expenses 8,852 4,023 15,853 23,033 20,019
--------- -------- --------- --------- ---------
DIRECT SELLING, ADMINISTRATIVE
AND OTHER 4,131 1,670 10,041 10,791 9,962
--------- -------- --------- --------- ---------
EXCESS OF DIRECT REVENUES
OVER DIRECT EXPENSES $ 31,983 $ 12,715 $ 49,060 $ 56,983 $ 63,877
========= ======== ========= ========= =========
</TABLE>
See accompanying notes to the financial statements.
-7-
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
On January 16, 1998, The Procter & Gamble Company (Procter & Gamble) sold
certain assets and the related business of the Duncan Hines brand ("Duncan Hines
Business"). The Duncan Hines Business produces baking goods which are
manufactured at Procter & Gamble's Jackson, TN. Plant, which also produces other
food products for Procter & Gamble that are unrelated to the Duncan Hines
Business. The accompanying statements present the equipment and goodwill that
Procter & Gamble sold as of December 31, 1997 and June 30, 1997 and 1996 and
direct revenues, costs of products sold, direct marketing expenses and direct
selling, administrative and other expenses for the years ended June 30, 1997,
1996, and 1995, the three-month period ended September 30, 1997 and the six-
month period ended December 31, 1997 for the Duncan Hines Business. Results of
operations for interim periods are not necessarily indicative of results to be
expected for an entire year.
Procter & Gamble does not account for the Duncan Hines Business as a separate
entity. Accordingly, the information included in the accompanying statements of
direct revenues and direct expenses has been obtained from Procter & Gamble's
consolidated financial records. The statements of direct revenues and direct
expenses include allocations of certain Procter & Gamble selling,
administrative, and other expenses, as discussed in Note 2. Procter & Gamble
management believes the allocations are reasonable; however, these allocated
expenses are not necessarily indicative of expenses that would have been
incurred by the Duncan Hines Business on a stand-alone basis, since certain
other selling, administrative, and other expenses are provided to the Duncan
Hines Business that are not included in the accompanying statements as discussed
in Note 2.
In addition, the statements of direct revenues and direct expenses include
allocations of certain Jackson Plant costs, as discussed in Note 2. Procter &
Gamble management believes these allocations are reasonable; however, these
allocated costs may not necessarily be indicative of costs that would have been
incurred by the Duncan Hines Business on a stand-alone basis, since these
allocated costs are based on the structure of the Jackson Plant operations and
related activities, as managed and operated by Procter & Gamble.
Equipment and goodwill and direct revenues and direct expenses are presented in
the accompanying statements in accordance with generally accepted accounting
principles. The unaudited information for the three-month period ended
September 30, 1997 and the six-month period ended December 31, 1997 contains all
adjustments, consisting only of normal recurring accruals, necessary for a
consistent presentation of the direct revenues and direct expenses for the
three-month and six-month periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - Revenue from the sale of products is recognized at the
time the products are shipped.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures. Although these estimates are based on
-8-
<PAGE>
management's best knowledge of current events and actions Procter & Gamble may
undertake in the future, actual results ultimately may differ from the
estimates.
Equipment - Equipment cost and the related accumulated depreciation were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 JUNE 30, JUNE 30,
(UNAUDITED) 1997 1996
<S> <C> <C> <C>
Equipment cost $51,604 $51,793 $50,038
Accumulated depreciation 33,539 32,444 29,536
------- ------- -------
Net book value $18,065 $19,349 $20,502
======== ======= =======
</TABLE>
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which primarily range from 4 to 19 years.
Goodwill - Goodwill represents the cost of acquisition in excess of tangible
assets and identifiable intangible assets received. Since the goodwill was
acquired prior to November 1970 it is not being amortized.
Coupon Expense - Coupon expense represents deductions from direct revenues for
coupons related to Duncan Hines products. The expense is based on expected
redemption rates of issued coupons based on historical data.
Costs of Products Sold - Inventories are valued at cost, which is not in excess
of current market. Cost is primarily determined by the average cost method.
The cost of products sold include allocations of costs to the Duncan Hines
Business activities, including warehousing, utilities, insurance, and employee
costs. These plant costs are allocated between the Duncan Hines Business and
other food products that are produced at the Jackson Plant based primarily on
number of employees, usage, and square footage.
Direct Marketing - Direct marketing represents specifically identified
promotional, advertising, and other marketing expenses related to the Duncan
Hines Business.
Direct Selling, Administrative & Other - Certain selling, administrative and
other direct expenses are specifically identifiable and others are allocated to
the Duncan Hines Brand based primarily on an estimate of actual time and effort
spent, number of employees, and square footage. Such allocated expenses
represent those charges that are attributable to the Duncan Hines Business and
include Procter & Gamble's Food and Beverage Sector and the Duncan Hines
Category related expenses such as human resources, public affairs, research and
development, finance and accounting, selling, and other general administrative
expenses. Certain other selling, administrative, and other expenses are provided
to the Duncan Hines Business by Procter & Gamble that are not directly
attributable or specifically identifiable to the business and, therefore, are
excluded from direct selling, administrative, and other expenses in the
accompanying statements. Such expenses primarily include Procter & Gamble's
Corporate and North American region related expenses such as selling, human
resources, executive compensation, management systems, finance and accounting,
research and development, and general corporate expenses.
* * * * * *
-9-
<PAGE>
ITEM 7 (b): PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
acquisitions of the Log Cabin syrup business, the Duncan Hines business and the
financings, and the application of the net proceeds therefrom as though the
transactions occurred as of January 1, 1997 for the Pro Forma Statement of
Operations and as of December 27, 1997 for the Pro Forma Balance Sheet. On July
1, 1997, Aurora acquired substantially all of the assets of the Log Cabin syrup
business from Kraft Foods, Inc. ("Kraft"). On January 16, 1998, Aurora acquired
substantially all of the assets of the Duncan Hines business from P&G and
certain of its affiliates.
The unaudited pro forma statement of operations is a combination of the
following (as presented on the next page): (a) audited Statement of Operations
for the year ended December 27, 1997 of the Company, (b) unaudited Statement of
Operations of the Log Cabin syrup business for the six months ended June 28,
1997, and (c) unaudited Statement of Direct Revenues and Direct Expenses of the
Duncan Hines business for the twelve months ended December 31, 1997. The
following unaudited pro forma balance sheet is based on the audited balance
sheet of the Company as of December 27, 1997 and Statement of Equipment and
Goodwill of the Duncan Hines business of P&G prepared to effect the acquisition
of the Duncan Hines business by the Company as of December 27, 1997.
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.
-10-
<PAGE>
AURORA FOODS INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 27, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
(1)
Aurora Log Cabin Duncan Hines Pro forma
Year Ended Six Months Twelve Months ---------------------------
December 27, Ended Ended Adjustments
1997 June 28, 1997 December 31, 1997 (Note 1) Combined
--------- ------------- ----------------- --------- ------------
(audited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 143,020 51,222 233,150 33,316 (a) 460,708
Cost of goods sold 45,729 18,067 160,577 (11,528)(b) 212,845 (h)
--------- ------------- ----------------- --------- ------------
Gross profit 97,291 33,155 72,573 44,844 247,863
Brokerage, distribution and marketing:
Brokerage and distribution 17,096 3,239 0 24,943 (c) 45,278
Trade promotions 26,075 9,457 0 25,809 (a) 61,341
Consumer marketing 15,142 597 16,450 2,984 (a) 35,173
--------- ------------- ----------------- --------- ------------
Total brokerage, distribution and
marketing expenses 58,313 13,293 16,450 53,736 141,792
Amortization of goodwill and other intangibles 5,938 675 0 13,386 (d) 19,999
Selling, general and administrative expenses 5,229 3,637 7,995 0 (e) 16,861 (h)
Incentive compensation expense 2,300 0 0 0 2,300
Transition related expenses 2,113 0 0 (2,113)(f) 0
--------- ------------- ----------------- --------- ------------
Total operating expenses 15,580 4,312 7,995 11,273 39,160
--------- ------------- ----------------- --------- ------------
Operating income 23,398 15,550 48,128 (20,165) 66,911
Interest income (151) 0 0 (151)
Interest expense 18,393 0 0 38,771 57,164 (g)
Amortization of deferred financing expense 3,059 0 0 (384) 2,675 (g)
Other bank and financing expense 83 0 0 83
--------- ------------- ----------------- --------- ------------
Income before income tax 2,014 15,550 48,128 (58,552) 7,140
Income tax expense 779 6,376 0 (4,406) 2,749 (i)
--------- ------------- ----------------- --------- ------------
Net income (loss) $ 1,235 9,174 48,128 (54,146) 4,391
========= ============= ================= ========= ============
</TABLE>
(1) See Table 1 attached.
-11-
<PAGE>
THE DUNCAN HINES BUSINESS OF
THE PROCTER AND GAMBLE COMPANY
(U.S. AND CANADA ONLY)
STATEMENTS OF DIRECT REVENUES
AND DIRECT EXPENSES
- --------------------------------------------------------------------------------
(Amounts in Thousands)
The following table sets forth the Statement of Direct Revenues and Direct
Expenses of the Duncan Hines business for the periods ended as indicated. The
historical statements of Direct Revenues and Direct Expenses for the year ended
June 30, 1997 and six months ended December 31, 1997 are derived from the
financial statements of the Duncan Hines business included elsewhere in this
Form 8-KA. The Statement of Direct Revenues and Direct Expenses for the six
months ended June 30, 1996 are derived from the Duncan Hines business financial
information which are not included in this Form 8-KA.
<TABLE>
<CAPTION>
Year Ended Six Months Ended Twelve Months Ended
June 30, 1997 December 31, 1996 December 31, 1997 December 31, 1997
(audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
DIRECT REVENUES
Gross Revenues $ 253,548 $ 146,124 $ 154,519 $ 261,943
Less: Trade Spending (19,646) (9,659) (15,822) (25,809)
Less: Redeemed Coupons (2,900) (2,110) (2,194) (2,984)
----------- ----------- ----------- -----------
Net Direct Revenues 231,002 134,355 136,503 233,150
COST OF PRODUCTS SOLD:
Product Cost 144,261 80,361 85,139 149,039
Delivery Cost 11,787 6,647 6,398 11,538
----------- ----------- ----------- -----------
Total Cost of Product Sold 156,048 87,008 91,537 160,577
GROSS MARGIN 74,954 47,347 44,966 72,573
DIRECT MARKETING:
Consumer Promotional Expense 3,376 1,226 1,184 3,334
Advertising Expense 9,957 5,576 6,549 10,930
Other Marketing Expenses 2,520 1,453 1,119 2,186
----------- ----------- ----------- -----------
Total Direct Marketing Expense 15,853 8,255 8,852 16,450
DIRECT SELLING, ADMINISTRATIVE
& OTHER 10,041 6,177 4,131 7,995
----------- ----------- ----------- -----------
EXCESS OF DIRECT REVENUES
OVER DIRECT EXPENSES $ 49,060 $ 32,915 $ 31,983 $ 48,128
=========== =========== =========== ===========
</TABLE>
-12-
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 27, 1997
Note 1. The pro forma statement of operations give effect to the following pro
forma adjustments necessary to reflect the acquisition:
<TABLE>
<CAPTION>
(a) Adjustments to net sales reflect the following:
<S> <C>
Reclassification of amounts accounted for as trade spending, netted
against sales, by P&G to trade promotions by the Company $25,809
Reclassification of amounts accounted for as a deduction
to gross revenues, netted against sales, by P&G to cash discounts
by the Company 4,523
Reclassification of amounts accounted for as redeemed
coupons, netted against sales, by P&G to consumer marketing
by the Company 2,984
-------
$33,316
=======
(b) Adjustments to cost of goods sold reflect the following:
Adjustments to convert Log Cabin cost of goods sold from a Last-in,
First-out Inventory basis for the six month period ended June 30,
1997, prior to July 1, 1997 acquisition by Aurora, to a First-in,
First-out basis to be consistent with the inventory accounting
policy of the Company $ 9
Reclassification of amounts accounted for as cost of sales by
P&G to brokerage and distribution by the Company (11,538)
Depreciation (1) 1
-------
$ (11,528)
=======
(1) Represents adjustment to reflect pro forma depreciation expense after
recording machinery and equipment at fair market value and
depreciation over an estimated remaining useful life.
</TABLE>
The Company entered into a co-pack agreement (the "Agreement") with the Red
Wing Company, Inc. ("Red Wing") on June 9, 1997, pursuant to which Red Wing
will contract manufacture Mrs. Butterworth's Syrup for a period of five
years. In addition, on November 19, 1997, the Company amended the
Agreement, pursuant to which Red Wing will also contract manufacture Log
Cabin Syrup over the remaining life of the Agreement. The Company commenced
transferring production of Mrs. Butterworth's syrup from Conopco Inc., the
prior owner of Mrs. Butterworth's and a subsidiary of Unilever United
States, Inc. to Red Wing in September 1997 and expects to complete the
transition by April 1998. The Company has commenced transferring production
of the Log Cabin syrup from Kraft to Red Wing in February 1998 and expects
to complete the transition by June 1998 .
Currently, the Company is negotiating co-pack agreements whereby third
parties will contract manufacture the Duncan Hines cake mix, frosting,
brownies and specialty products. The Company anticipates lower conversion
costs pursuant to the Red Wing Agreement and pending co-pack agreements. In
total, the Company anticipates savings of $12.4 million. The adjustment
related to the anticipated cost savings from the Agreement and pending co-
pack agreements is not reflected in the pro forma statement of operations
as it is not viewed as being directly related to the acquisitions.
-13-
<PAGE>
(c) Adjustment reflects brokerage expense at the contractual rates which the
Company will be charged under its existing contracts with its broker
network for the sale of Log Cabin syrup and Duncan Hines products and the
reclass of $4,523 from (a) above. The Company anticipates savings of $0.7
million from 1997 brokerage costs due to the new contractual rates. In
addition, the Company anticipates lower distribution costs of $3.8 million
going forward. The savings relate to allocations made by the prior owner
of the Duncan Hines business. However, as these potential adjustments are
not viewed as being directly related to the acquisitions, the pro forma
cost savings are not included in the pro forma statement of operations.
(d) Reflects intangible amortization expense as a result of the Duncan Hines
Acquisition. Goodwill will be amortized on straight line basis over a forty
year period and other intangibles will be amortized over periods ranging
from five to forty years.
(e) The Company has formal and informal agreements in place to operate the
business on a stand-alone basis, and at the Duncan Hines Acquisition
Closing Date had completed a thorough analysis of anticipated costs going
forward. Based on these agreements and analysis, the Company developed a
detailed annual operating budget which reflected approximately $11.3
million in factually supportable selling, general and administrative costs,
which is approximately $5.6 million lower than the combined prior
owners costs as set forth below. A substantial portion of these savings
are attributable to a lower headcount relative to the headcount included
in the historical allocations from Kraft and P&G. These direct and
indirect allocations included multiple layers of management which the
Company will not need to replicate. The table below reflects cost savings
resulting from the new personnel infrastructure of the Company to reflect
the Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
<TABLE>
<CAPTION>
<S> <C>
1997 pro forma expenses $16,861
Company's anticipated expenses:
Executive and finance (1) 5,518
Division management and marketing 3,139
Sales 2,640
-------
Total Company pro forma expense $11,297
-------
Difference $(5,564)
</TABLE> =======
(1) Includes aggregate annual expense of $2,654 related to management and
advisory services provided by Dartford and MDC.
However, as these potential adjustments are not viewed as directly related
to the acquisition of Log Cabin or Duncan Hines, the pro forma cost savings
are not included in the unaudited pro forma statement of operations.
(f) Represents one-time costs incurred by the Company to establish operations
including broker conversions and orientations, recruiting fees and costs
related to the MBW and Log Cabin transition service agreements.
-14-
<PAGE>
(g) Pro forma interest expense has been calculated based upon pro forma debt
levels and the applicable interest rates. The table below presents pro
forma interest expense, noted with the respective interest rates or fee,
and pro forma amortization of deferred financing costs:
<TABLE>
<CAPTION>
PRO FORMA INTEREST EXPENSE:
<S> <C>
Series B notes (9.875%) $ 9,875
Series D notes (9.875%) 9,875
Senior term debt:
Tranche A (8.0%) 12,000
Tranche B (8.25%) 12,375
Tranche C (8.50%) 12,750
Commitment fee 375
-------
Pro forma cash interest expense $57,250
Bond premium amortization (1) (86)
-------
Pro forma interest expense $57,164
=======
Pro forma amortization of deferred financing costs $ 2,675
=======
</TABLE>
(1) Amount reflects amortization of bond premium of $2.5 million received
in connection with the Series C notes offering which were exchanged for the
Series D notes.
(h) Pro forma depreciation expense for the total Company included in cost of
goods sold for the year ended December 27, 1997 is $4,961. Pro forma
depreciation expense for the total Company included in selling, general and
administrative is $0.1 million.
(i) Reflects an adjustment to the income tax provision to reflect an effective
rate of 38.5%. The effective rate is an estimate based upon Aurora's
effective rate as of December 27, 1997 and the tax deductible goodwill
created by the Log Cabin and Duncan Hines acquisitions.
-15-
<PAGE>
AURORA FOODS INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 27, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
--------------------------
Duncan Adjustments
Assets: Aurora Hines (Note 1) Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash ................................................... $ 4,717 $ 0 $ 5,221 (a) $ 9,938
Accounts receivable, net ............................... 13,836 0 10,226 (b) 24,062
Inventories ............................................ 6,902 0 6,902
Prepaid expenses and other assets ...................... 1,955 0 150 (c) 2,105
Current deferred tax asset ............................. 2,966 0 1,164 (f) 4,130
--------- --------- ----------- ---------
Total current assets ..................... 30,376 0 16,761 47,137
Fixed assets, net ...................................... 14,075 18,065 12,888 (d) 45,028
Deferred charges, goodwill and other intangible assets . 315,241 3,914 403,254 (e) 722,409
Other assets ........................................... 13,047 0 9,440 (f) 22,487
--------- --------- --------- ---------
Total assets ............................. $ 372,739 $ 21,979 $ 442,343 $ 837,061
========= ========= ========= =========
Liabilities and Stockholder's Equity:
Accounts payable and accrued expenses .................. $ 23,852 $ 0 $ 97 (g) $ 23,949
Senior term facility - current ......................... 4,375 0 4,625 (h) 9,000
--------- --------- --------- ---------
Total current liabilities ................ 28,227 0 4,722 32,949
Deferred tax liability ................................. 3,745 0 3,745
Senior secured revolving debt facility ................. 37,500 0 (37,500) (h) 0
Senior secured term debt ............................... 35,625 0 405,375 (h) 441,000
Senior subordinated notes .............................. 202,419 0 202,419
--------- --------- --------- ---------
Total liabilities ........................ 307,516 0 372,597 680,113
Paid in capital ........................................ 64,203 21,979 72,009 (i) 158,191
Promissory notes ....................................... (215) (366) (j) (581)
Retained earnings/(deficit) ............................ 1,235 0 (1,897) (f) (662)
--------- --------- --------- ---------
Stockholder's equity ..................... 65,223 21,979 69,746 156,948
--------- --------- --------- ---------
Total liabilities and stockholder's equity $ 372,739 $ 21,979 $ 442,343 $ 837,061
========= ========= ========= =========
</TABLE>
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<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
AS OF DECEMBER 27, 1997
Note 1: The pro forma balance sheet has been prepared to reflect the
acquisition of the Duncan Hines business of P&G by the Company for an aggregate
purchase price of approximately $445.0 million and the related financing. Pro
forma adjustments are made to reflect:
(a) Reflects equity contributions and debt proceeds received in excess of the
cost of the Duncan Hines business.
(b) Reflects receivable due from P&G related to the reimbursement of costs to
be incurred in relocating machinery and equipment of the Duncan Hines
business.
(c) Reflects prepaid bank fee related to the Second Amended and Restated Credit
Agreement.
(d) Reflects the cost over book value of the property, plant and equipment of
the Duncan Hines business of P&G acquired in connection with the
Acquisition. The equipment has been recorded at fair market value.
(e) Reflects the excess of cost over book value of the
purchased assets. Goodwill will be amortized on a straight-line basis
over a forty year period and other intangibles will be amortized over
periods ranging from five to forty years. The Company will evaluate the net
realizable value of intangible assets on an ongoing basis relying on a
number of factors, including operating results and future undiscounted
cash flows.
(f) Reflects the capitalization of deferred financing costs of $12.5 million
incurred in connection with the financing of the Acquisition, net of the
write-off of deferred financing costs on the existing credit facility of
$3.1 million. The write-off of the $3.1 million, net of tax of $1.2
million, results in a net change of $1.9 million.
(g) Reflects $1.2 million of interest paid with the payoff of the existing
senior secured debt, partially offset by an accrual for costs to be
incurred in connection with the Acquisition.
(h) Reflects the net of (i) the payoff of the existing credit facility and (ii)
the new senior secured bank debt borrowings under a Second Amended and
Restated Credit Agreement.
(i) Represents the $93.8 million equity contribution from Aurora Foods
Holdings Inc., net of the elimination of the equity associated with the
assets of the Duncan Hines business of P&G.
(j) Reflects the additional promissory notes issued to officers of the Company
at the time of the Acquisition.
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