<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
November 1, 1999
AURORA FOODS INC.
(Exact Name of Registrant as Specified in Its Charter)
333-50681
---------
Commission File Number
DELAWARE 94-3303521
-------- ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation)
456 Montgomery Street, Suite 2200
San Francisco, CA 94104
(Address of Principal Executive Office, Including Zip Code)
(415) 982-3019
(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 November 1, 1999, Aurora Foods Inc. (the "Company") (NYSE: AOR), a leading
producer and marketer of premium branded foods completed the acquisition (the
"Acquisition") of substantially all of the assets of the Lender's(R) bagels
business ("Lender's") from The Eggo Company ("Eggo"), a subsidiary of the
Kellogg Company ("Kellogg's"). These assets include (i) Lender's(R) and
associated trademarks, (ii) the manufacturing facilities located in Mattoon, IL
and West Seneca, NY, plus substantially all of the equipment for the manufacture
of Lender's(R) products currently located in Kellogg's West Haven, Connecticut
facility, (iii) proprietary formulations for Lender's(R) 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 Lender's(R)
business. The purchase price of approximately $275 million was based on arms'
length negotiations between the Company and Eggo.
The Company financed the Acquisition and related costs with additional senior
bank borrowings of $275 million. The additional senior secured bank debt was
incurred under the Company's Fifth Amended and Restated Credit Agreement (the
"Credit Agreement"). Pursuant to this amendment, The Chase Manhattan Bank acts
as administrative agent for the lenders listed in the Credit Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION.
(a) Financial Statements of the Business Acquired. The Statement of
Acquired Assets and Liabilities as of December 31, 1998 (audited) and
September 30, 1999 (unaudited) and the Statement of Operations for the
year ended December 31, 1998 (audited) and nine months ended September
30, 1999 together with the report of independent accountants thereon
are included on pages 5 through 17 herein.
(b) Pro Forma Financial Information. The pro forma statement of operations
of Aurora Foods Inc. for the year ended December 31, 1998 and the
nine months ended September 30, 1999 and the pro forma balance sheet
as of September 30, 1999 together with notes are included on pages 18
through 24 herein.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AURORA FOODS INC.
(Registrant)
By: /s/ M. Laurie Cummings
----------------------
M. Laurie Cummings
Chief Financial Officer and Secretary
Date: January 11, 2000
3
<PAGE>
Item 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The following financial statements of the Lender's (R) business of Kellogg's are
included in item 7(a):
Report of Independent Accountants 7
Financial Statements
Statement of Acquired Assets and
Liabilities as of September 30, 1999
and December 31, 1998 8
Statement of Operations for the year
ended December 31, 1998 and nine
months ended September 30, 1999 9
Notes to the financial statements 10-17
4
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Financial Statements
September 30, 1999 and
December 31, 1998
5
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Index to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Report of independent accountants 7
Financial statements:
Statement of acquired assets and liabilities as of
September 30, 1999 and December 31, 1998 8
Statement of operations for the nine months
ended September 30, 1999 and the year ended
December 31, 1998 9
Notes to financial statements 10-17
</TABLE>
6
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Kellogg Company
In our opinion, the accompanying statement of acquired assets and liabilities
and the related statement of operations of the Lender's Bagels Business (a
wholly-owned subsidiary of Kellogg Company) (the "Company") present fairly, in
all material respects, the acquired assets and liabilities at December 31, 1998,
and the results of operations for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States 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 audit provides a reasonable basis
for the opinion expressed above.
January 5, 2000
Battle Creek, Michigan
7
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Statement of Acquired Assets and Liabilities
(amounts in thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Current assets:
Inventories $ 12,257 $ 13,341
----------- -----------
Total current assets 12,257 13,341
----------- -----------
Property, net 64,722 68,022
Other assets 315,305 324,560
----------- -----------
380,027 392,582
----------- -----------
Total assets $ 392,284 $ 405,923
=========== ===========
Current liabilities:
Accrued salaries and wages $ 172 $ 66
Accrued vacation 963 910
Accrued advertising and promotion 9,098 8,759
Other 132 140
----------- -----------
Total current liabilities 10,365 9,875
----------- -----------
Employee benefits 2,241 2,005
----------- -----------
Total liabilities 12,606 11,880
----------- -----------
Net assets $ 379,678 $ 394,043
=========== ===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Statement of Operations
(amounts in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Net sales $ 139,994 $ 181,864
Costs of goods sold 80,868 109,033
---------- ----------
Gross profit 59,126 72,831
Selling and administrative expense 11,398 17,031
Advertising and promotion expense 31,382 51,856
Amortization expense 9,169 12,225
---------- ----------
Income (loss) before income taxes 7,177 (8,281)
Income tax expense (benefit) 2,684 (3,097)
---------- ----------
Net income (loss) $ 4,493 $ (5,184)
========== ==========
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Basis of Presentation
On November 1, 1999, Kellogg Company ("Kellogg") sold certain assets and
the related business of Lender's Bagels brand ("Lender's Bagels Business"
or the "Business") to Aurora Foods, Inc. ("Aurora"). The Lender's Bagels
Business produces bagels at manufacturing facilities located in Mattoon,
Illinois and West Seneca, New York. The accompanying Statement of Acquired
Assets and Liabilities as of September 30, 1999 and December 31, 1998
includes only those assets of the Business which will be transferred to
Aurora in accordance with the Asset Purchase Agreement dated as of
September 24, 1999. The accompanying Statement of Operations for the nine-
months ended September 30, 1999 and for the year ended December 31, 1998
includes the results of operations attributed to certain assets not being
transferred to Aurora. The accompanying financial statements do not reflect
the impact of the transaction described above.
Kellogg does not account for the Lender's Bagels Business as a separate
entity. Accordingly, the information included in the accompanying
statements have been obtained from Kellogg's consolidated financial
records. The Statement of Operations includes allocations of certain
Kellogg selling and administrative expenses as discussed in Note 2.
Kellogg's management believes the allocations are reasonable; however,
these allocated expenses are not necessarily indicative of expenses that
would have been incurred by the Lender's Bagels Business on a stand-alone
basis.
Acquired assets and liabilities and the results of operations of the
Lender's Bagels Business are presented in the accompanying statements in
accordance with accounting principles generally accepted in the United
States. The unaudited information for the nine-month period ended September
30, 1999 contains all adjustments, consisting only of normal recurring
items, necessary for a consistent presentation of the results of operations
for the nine-month period. Results of operations for interim periods are
not necessarily indicative of results to be expected for an entire year.
2. Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of costs (principally average) or
market with cost determined using the first-in, first-out method.
Costs of Goods Sold
Cost is primarily determined by the average cost method. The cost of
products sold includes allocations of costs to the Lender's Bagels Business
activities, including warehousing, utilities, insurance, and employee
costs. These costs are allocated to the Lender's Bagels Business based
primarily on gross sales, number of employees, usage, and square footage.
10
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
Advertising and Promotion Expense
Advertising and promotion expense represents specifically identified
promotional, advertising, and other marketing expenses related to the
Lender's Bagels Business. The costs of advertising are generally expensed
as incurred. Advertising expense for the nine months ended September 30,
1999 and the year ended December 31, 1998 was $1,647 and $19,549,
respectively.
Revenue Recognition
The Business recognizes revenue upon shipment to customers. Revenues are
presented net of cash discounts and certain marketing allowances.
Selling and Administrative Expense
Certain selling and administrative expenses are specifically identifiable
and others are allocated to the Lender's Bagels Business, primarily based
upon gross sales, an estimate of actual time and effort spent, number of
employees, or square footage. Such allocated expenses represent those
charges that are attributable to the Lender's Bagels Business and include
expenses such as human resources, research and development, finance and
accounting, information technology, selling, and other general
administrative expenses.
The Lender's Bagels Business is operated as a subsidiary of Kellogg and, as
such, the Business benefits from its association with a much larger
organization. Certain administrative and other services are provided to the
Lender's Bagels Business 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 Kellogg's corporate related expenses such
as selling, executive compensation, accounting, and general corporate
expenses.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
additions and improvements are capitalized and costs for repairs and
maintenance are charged to operations as incurred.
Depreciation expense for the nine months ended September 30, 1999 and the
year ended December 31, 1998 was $4,184 and $5,197, respectively.
Income Taxes
The taxable income or loss of the Lender's Bagels Business was included in
the consolidated tax return of Kellogg Company. Separate income tax returns
were not prepared or filed for the Lender's Bagels Business. Income tax
benefits resulting from tax losses of the Business have been realized by
Kellogg in its consolidated income tax return. The calculation of tax
provisions requires certain assumptions, allocations and estimates which
management believes are reasonable to accurately reflect tax reporting for
the Business as a stand-alone entity.
11
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 those
estimates.
3. Intangible Assets
On December 16, 1996, Kellogg Company purchased certain assets and
liabilities of the Lender's Bagels Business from Kraft Foods, Inc. for $466
million in cash, including related acquisition costs. The acquisition was
accounted for as a purchase. Intangible assets included in the allocation
of the purchase price consisted of goodwill and trademarks of $329 million
and non-compete covenants of $20 million. The goodwill and trademarks are
being amortized over 40 years and the non-compete covenants are being
amortized over 5 years.
4. Related Party Transactions
The financial statements include significant transactions with Kellogg
Company involving functions and services that were provided to the Lender's
Bagels Business. These services include information systems support,
certain centralized accounting functions, legal services, benefits
administration, quality control, executive office and facilities. The costs
of these functions, included in selling and administrative expenses,
approximated $9,375 and $13,898 for the nine months ended September 30,
1999 and the year ended December 31, 1998, respectively.
In conjunction with the sale of the Lender's Bagels Business, transitional
service agreements have been executed between Kellogg and Aurora which
provide for continuation of certain accounting, human resource, and
computer and administrative services for a limited period of time. These
agreements expire in 2000 and are generally cancelable by Aurora upon 30
days notice.
12
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
5. Income Taxes
The differences between the U.S. Federal statutory tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
U.S. statutory rate 35.0% (35.0)%
State income taxes, net of federal tax 2.4% (2.4)%
--------- ---------
Effective income tax rate 37.4% (37.4)%
========= =========
</TABLE>
6. Employee Benefits
Pension Benefits
Employees of the Business participate in the Kellogg Company pension plan,
which provides retirement benefits for its employees. Benefits are
generally negotiated amounts for each year of service. Plan funding
strategies are influenced by tax regulations.
13
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
6. Employee Benefits (continued)
The components of pension expense are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Service cost $ 829 $ 908
Interest cost 217 185
Expected return on plan assets (350) (173)
Recognized losses 25 16
---------- ----------
Total pension expense $ 721 $ 936
========== ==========
</TABLE>
The weighted average actuarial assumptions are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Discount rate 7.7% 7.0%
Long-term rate of compensation increase 5.0% 5.0%
Long-term rate of return on plan assets 10.5% 10.5%
</TABLE>
In accordance with the Asset Purchase Agreement, no assets or liabilities
related to these pension plans are being acquired by Aurora.
14
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
6. Employee Benefits (continued)
Non-Pension Postretirement Benefits
The Business provides health care and other benefits to substantially
retired employees, their covered dependents, and beneficiaries. Generally,
employees are eligible for these benefits when one of the following
service/age requirements is met; 30 years and any age; 20 years and age
55;5 years and age 62. Plan assets consist primarily of equity securities
with smaller holdings of bonds.
Components of postretirement benefits is as follows:
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
Service cost $ 351 $ 439
Interest cost 235 365
Recognized loss (gain) (33) 46
----- ------
Postretirement benefit expense $ 553 $ 850
===== ======
The weighted average actuarial assumptions are as follows:
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
Discount rate 7.8 % 7.0 %
15
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
6. Employee Benefits (continued)
The aggregate change in accumulated postretirement benefits obligation,
change in plan assets, and funded status is as funded status is as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Accumulated benefit obligation at beginning of year $ 2,138 $ 1,864
Service cost 161 153
Interest cost 112 137
Net acturial loss (gain) 958 (16)
------- -------
Accumulated benefit obligation at end of year $ 3,369 $ 2,138
======= =======
</TABLE>
The postretirement benefit obligation of the Business is unfunded as of
September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Funded status $(3,369) $(2,138)
Unrecognized net loss 1,128 133
------- -------
Accrued postretirement benefit cost $(2,241) $(2,005)
======= =======
</TABLE>
The assumed health care cost trend rate was 6.0% for 1999 and 7.0% for
1998, decreasing gradually to 5.0% by 2003 and remaining at that level
thereafter. These trend rates reflect the company's prior experience and
management's expectations that the future rates will decline. A one
percentage point change in assumed health care cost trend rates would have
the following effects:
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Effect on total of service and interest cost components $ 68 $ 73
Effect on postretirement benefit obligation $ 768 $ 536
</TABLE>
16
<PAGE>
Lender's Bagels Business
(a wholly-owned subsidiary of
Kellogg Company)
Notes to Financial Statements (amounts in thousands)
- --------------------------------------------------------------------------------
7. Supplemental Financial Statement Data
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Raw materials and supplies $ 5,040 $ 5,167
Finished goods and materials in process 7,217 8,174
--------- ---------
Inventories 12,257 13,341
--------- ---------
Land 1,469 1,469
Buildings 14,526 14,324
Machinery and equipment 62,489 60,165
Construction-in-progress 836 2,196
Accumulated depreciation (14,598) (10,132)
--------- ---------
Property, net 64,722 68,022
--------- ---------
Goodwill 179,239 179,239
Trademarks 150,000 150,000
Covenant-not-compete 20,000 20,000
Accumulated amortization (33,934) (24,679)
--------- ---------
Other assets, net $ 315,305 $ 324,560
========= =========
</TABLE>
17
<PAGE>
ITEM 7(b): PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements of the Company are based
on the audited and unaudited historical financial statements of (i) the Company,
(ii) Van de Kamp's, Inc. which merged with the Company on April 8, 1998 (the
"Merger"), (iii) the Duncan Hines business and (iv) the Lender's (R) bagel
business, acquired by the Company on November 1, 1999. The audited historical
financial statements of the Company are incorporated by reference to the
financial statements of the Company and notes thereto included in the annual
report on Form 10-K of Aurora Foods Inc. for the year ended December 31, 1998.
The unaudited historical financial statements of Van de Kamp's, Inc. for the
three months ended March 31, 1998 and the Duncan Hines business are incorporated
by reference to the Company's Form S-1/A, filed June 29, 1998 for the Company's
initial sale of common stock to the public (the "Equity Offering"). The audited
historical financial statements of Kellogg's Lender's (R) bagel business are
included elsewhere in this Form 8-K/A.
The unaudited pro forma statement of operations for the year ended December 31,
1998 has been prepared to give effect to (i) the Merger, (ii) the Equity
Offering, (iii) the Duncan Hines Acquisition, (iv) the Company's sale
of $200 million aggregate principal amount of 8 3/4% senior subordinated notes
due 2008 for which the proceeds were used to retire Van de Kamp's Inc. senior
and subordinate outstanding debt, (the "Refinancings"), in reference to Form S-4
filed by the Company on July 21, 1998 and (v) the Acquisition as if each had
occurred on January 1, 1998. The unaudited pro forma statement of operations
for the nine month period ended September 30, 1999 and the unaudited pro forma
balance sheet has been prepared to give effect to the Acquisition as if it
occurred on January 1, 1999 and as of September 30, 1999, respectively.
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 transaction, which pro forma effect is given, been consummated
as of the date or for the period indicated.
18
<PAGE>
AURORA FOODS INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Aurora Duncan Hines Van de Kamp's Van de Kamp's
Year Ended Stub Period Inc. Stub Period Three Months
December 31, January 1 - 15, April 1 - 8, Ended March 31
1998 1998 1998 1998
----------- --------------- ---------------- ---------------
(audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 789,193 $ 4,951 $ 6,839 $ 145,267
Cost of goods sold 317,547 3,322 2,845 54,371
----------- ----------- ----------- -----------
Gross profit 471,646 1,629 3,994 90,896
----------- ----------- ----------- -----------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 74,703 726 13,542
Trade promotions 173,467 2,148 41,621
Consumer marketing 56,683 333 493 12,638
----------- ----------- ----------- -----------
Total brokerage, distribution and marketing expenses 304,853 333 3,367 67,801
Amortization of goodwill and other intangibles 30,048 298 3,202
Selling, general and administrative expenses 25,043 144 544 4,594
Incentive plan expense 56,583 69,000
Transition expenses 10,357 0
----------- ----------- ----------- -----------
Total operating expenses 426,884 477 4,209 144,597
----------- ----------- ----------- -----------
Operating income (loss) 44,762 1,152 (215) (53,701)
Interest expense,net 64,487 7,249
Amortization of deferred financing expense 1,872 472
Other bank and financing expenses 263 44
----------- ----------- ----------- -----------
(Loss) income before income taxes and extraordinary item (21,860) 1,152 (215) (61,466)
Income tax expense (benefit) 14,306 (19,464)
----------- ----------- ----------- -----------
Net (loss) income before extraordinary item $ (36,166) $ 1,152 $ (215) $ (42,002)
=========== =========== =========== ===========
Basic and diluted (loss) per share before
extraordinary item $ (.54)
===========
Weighted average number of shares outstanding 67,000
===========
Pro forma as adjusted basic and diluted (loss) per share
before extraordinary item
Pro forma as adjusted weighted average number of shares
outstanding
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
for Merger, Equity Lender's(R)
Offering, Duncan Year Ended
Hines Acquisition Company December 31,
and Refinancings Pro Forma 1998
---------------------- ----------- --------------
(unaudited) (unaudited) (audited)
<S> <C> <C> <C>
Net sales $ 734 (a) $ 946,984 $ 181,864
Cost of goods sold (316)(b) 377,769 109,033
----------- ----------- -----------
Gross profit 1,050 569,215 72,831
----------- ----------- -----------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 647 (c) 89,618
Trade promotions 548 (a) 217,784 32,307
Consumer marketing 89 (a) 70,236 19,549
----------- ----------- -----------
Total brokerage, distribution and marketing expenses 1,284 377,638 51,856
Amortization of goodwill and other intangibles 557 (d) 34,105 12,225
Selling, general and administrative expenses 30,325 17,031
Incentive plan expense (4,260)(e) 121,323
Transition expenses 10,357
----------- ----------- -----------
Total operating expenses (2,419) 573,748 81,112
----------- ----------- -----------
Operating income (loss) 3,469 (4,533) (8,281)
Interest expense,net (14,228)(f) 57,508
Amortization of deferred financing expense 145 (f) 2,489
Other bank and financing expenses 307
----------- ----------- -----------
(Loss) income before income taxes and extraordinary item 17,552 (64,837) (8,281)
Income tax expense (benefit) 27,470 (g) 22,312 (3,097)
----------- ----------- -----------
Net (loss) income before extraordinary item $ (9,918) $ (87,149) $ (5,184)
=========== =========== ===========
Basic and diluted (loss) per share before
extraordinary item
Weighted average number of shares outstanding
Pro forma as adjusted basic and diluted (loss) per share
before extraordinary item
Pro forma as adjusted weighted average number of shares
outstanding
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjustments Company
for Lender's(R) Pro Forma
Acquisition As Adjusted
--------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales 24,834 (h) $ 1,153,682
Cost of goods sold (23,451)(i) 463,351
----------- -----------
Gross profit 48,285 690,331
----------- -----------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 49,572 (h,i,j) 139,190
Trade promotions (9,046)(k) 241,045
Consumer marketing 9,046 (k) 98,831
----------- -----------
Total brokerage, distribution and marketing expenses 49,572 479,066
Amortization of goodwill and other intangibles (7,496)(l) 38,834
Selling, general and administrative expenses (4,206)(m,j) 43,150
Incentive plan expense 121,323
Transition expenses 10,357
----------- -----------
Total operating expenses 37,870 692,730
----------- -----------
Operating income (loss) 10,415 (2,399)
Interest expense,net 23,733 (n) 81,241
Amortization of deferred financing expense 881 (n) 3,370
Other bank and financing expenses 307
----------- -----------
(Loss) income before income taxes and extraordinary item (14,199) (87,317)
Income tax expense (benefit) (5,814)(o) 13,401
----------- -----------
Net (loss) income before extraordinary item $ (8,384) $ (100,717)
=========== ===========
Basic and diluted (loss) per share before
extraordinary item
Weighted average number of shares outstanding
Pro forma as adjusted basic and diluted (loss) per share
before extraordinary item $ (1.50)
===========
Pro forma as adjusted weighted average number of shares
outstanding 67,000
===========
</TABLE>
19
<PAGE>
AURORA FOODS INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Pro Forma Adjustments for Merger, Equity Offering, Duncan Hines Acquisition and Refinancings
--------------------------------------------------------------------------------------------
a Adjustment to net sales reflect the following:
---------------------------------------------
Reclassification of trade spending expense, netted against sales by P&G, to trade
promotions $ 548
Reclassification of cash discounts, netted against sales by P&G, to brokerage and
distribution 97
Reclassification of coupon expense, netted against sales by P&G, to consumer
marketing 89
----------
$ 734
==========
b Adjustment to cost of goods sold reflect the following:
---------------------------------------------
Reclassification of warehousing and shipping expense, included in cost of goods sold by
P&G, to brokerage and distribution $ (158)
Reclassification of delivery expense, included in cost of goods sold by P&G, to
brokerage and distribution (233)
Depreciation (1) 75
----------
$ (316)
==========
--------------------------------------------------------------------------------------------------------------
(1) Represents adjustment to reflect pro forma depreciation expense based on acquired
machinery and equipment at fair market value and estimated remaining useful lives.
c Adjustment reflects (i) brokerage expense for the January 1 - 15, 1998 period at the
contractual rates which the Company will be charged under its existing contracts with its
broker network for the sale of Duncan Hines products, and (ii)the reclassification of cash
discounts of $0.1 million, warehousing and shipping expense of $0.2 million and delivery
expense of $0.2 million from (a) and (b) above.
d Reflects goodwill amortization expense as a result of the Merger and the Duncan Hines
Acquisition. Goodwill will be amortized over a forty year period and intangibles will be
amortized over periods ranging from five to forty years.
e Reflects an adjustment to incentive plan expense based on the value of the Company at the Equity
Offering.
f The adjustment to interest expense and amortization of deferred financing costs reflects
the pro forma debt levels and applicable interest rates as if the Duncan Hines Acquisition
and Refinancings had occurred January 1, 1998.
g Reflects an adjustment to the income tax provision, based upon the Company's effective rate
from continuing operations for the year ended December 31, 1998.
Pro Forma Adjustments for Acquisition
-------------------------------------
h Adjustments to net sales reflect the reclassification of distribution fees and cash discounts,
netted against sales by Kellogg's, to brokerage and distribution
I Adjustments to cost of goods sold reflect the following:
-------------------------------------------------------
Adjustment to exclude the manufacturing overhead costs of the Kellogg's plant,
which was allocated to the Lender's (r) bagel business by Kellogg's and not acquired
by the Company $ (5,000)
Depreciation (1) 2,081
Reclassification of freight and warehousing, included in cost of goods sold by
Kellogg's, to brokerage and distribution (20,532)
----------
$ (23,451)
==========
--------------------------------------------------------------------------------------------------------------
(1) Represents adjustment to reflect pro forma depreciation expense based on acquired machinery
and equipment at fair market value and estimated remaining useful lives.
j Reclassification of broker commissions, included in selling, general and administrative expenses
by Kellogg's, to brokerage and distribution in the amount of $4,206.
k Reclassification of consumer marketing, included in trade promotions by Kellogg's, to
consumer marketing.
l Reflects adjustment to goodwill and intangibles amortization expense (see pro forma adjustment
(a) per the pro forma balance sheet).
m Although not reflected in the pro forma statement of operations, the Company anticipates
annual savings of approximately $9.8 million as a result of the elimination of redundant
administrative functions by consolidating the Lender's (R) bagel business with the frozen foods
division in St. Louis.
n The adjustment to interest expense and amortization of deferred financing costs reflects
the pro forma as adjusted debt levels and applicable interest rates as if the Acquisition had
occurred January 1, 1998.
o Reflects an adjustment to the income tax provision, based upon the Company's effective rate
from continuing operations for the year ended December 31, 1998.
</TABLE>
20
<PAGE>
AURORA FOODS INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Aurora Lender's
Nine Months Nine Months
Ended Ended
September 30, September 30, Pro Forma Pro Forma
1999 1999 Adjustments As Adjusted
---------------- --------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 721,036 $ 139,994 19,395 (a) $ 880,425
Cost of goods sold 292,467 80,868 (18,456)(b) 354,879
---------- ---------- -------- ----------
Gross profit 428,569 59,126 37,851 525,546
---------- ---------- -------- ----------
Brokerage, distribution and marketing expenses:
Brokerage and distribution 69,289 38,077 (a,b,c) 107,366
Trade promotions 152,687 29,735 (8,326)(d) 174,096
Consumer marketing 54,039 1,647 8,326 (d) 64,012
---------- ---------- -------- ----------
Total brokerage, distribution and marketing expenses 276,015 31,382 38,077 345,474
Amortization of goodwill and other intangibles 26,896 9,169 (5,662)(e) 30,403
Selling, general and administrative expenses 23,315 11,398 (2,416)(c,f) 32,297
Transition expenses 9,478 _ 9,478
---------- ---------- -------- ----------
Total operating expenses 335,704 51,949 29,999 417,652
---------- ---------- -------- ----------
Operating income 92,865 7,177 7,852 107,894
Interest expense, net 47,130 17,799 (g) 64,929
Amortization of deferred financing expense 1,380 661 (g) 2,041
Other bank and financing expenses 222 10,608 222
---------- ---------- -------- ----------
Income before income taxes 44,133 7,177 (10,608) 40,702
Income tax expense 17,182 2,684 (3,787)(h) 16,079
---------- ---------- -------- ----------
Net income $ 26,951 $ 4,493 $(6,821) $ 24,623
========== ========== ======== ==========
Basic and diluted earnings per share $ 0.40
Weighted average number of shares outstanding 67,021
Pro forma as adjusted basic and diluted earnings
per share $ 0.37
Pro forma as adjusted weighted average number of shares
outstanding 67,021
</TABLE>
21
<PAGE>
AURORA FOODS INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Pro Forma Adjustments for Acquisition
-------------------------------------
a Adjustments to net sales reflect the reclassification of distribution fees and cash discounts,
netted against sales by Kellogg's, to brokerage and distribution
b Adjustments to cost of goods sold reflect the following:
-------------------------------------------------------
Adjustment to exclude the manufacturing overhead costs of the Kellogg's plant,
which was allocated to the Lender's (r) bagel business by Kellogg's and not acquired
by the Company $(3,750)
Depreciation (1) 1,560
Reclassification of freight and warehousing, included in cost of goods sold by
Kellogg's, to brokerage and distribution (16,266)
-------------
$(18,456)
=============
--------------------------------------------------------------------------------------------------------------
(1) Represents adjustment to reflect pro forma depreciation expense based on acquired
machinery and equipment at fair market value and estimated remaining useful lives.
c Reclassification of broker commissions, included in selling, general and administrative expenses
by Kellogg's, to brokerage and distribution in the amount of $2,416.
d Reclassification of consumer marketing, included in trade promotions by Kellogg's, to
consumer marketing.
e Reflects adjustment to goodwill and intangibles amortization expense (see pro forma adjustment
(a) per the pro forma balance sheet).
f Although not reflected in the pro forma statement of operations, the Company anticipates annual savings of
approximately $9.8 million as a result of the elimination of redundant administrative functions by
consolidating the Lender's(R) bagel business with the frozen foods division in St. Louis.
g The adjustment to interest expense and amortization of deferred financing costs reflects
the pro forma as adjusted debt levels and applicable interest rates as if the Acquisition had
occurred January 1, 1999.
h Reflects an adjustment to the income tax provision at an effective rate of 39.5%, based upon the Company's
effective rate for the year ended December 31, 1999.
</TABLE>
22
<PAGE>
AURORA FOODS INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Adjustments for Company
the Lender's (R) Pro Forma
Aurora Lender's (R) Acquisition As Adjusted
------ ----------- --------------- -----------
ASSETS (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 376 $ 376
Accounts receivable, net 154,978 154,978
Inventories 96,862 12,257 109,119
Prepaid expenses and other assets 16,746 16,746
Current deferred tax assets 25,755 25,755
----------- ---------- --------------- ------------
Total current assets 294,717 12,257 - 306,974
Property, plant and equipment, net 166,183 64,722 31,095 (a) 262,000
Goodwill and other intangibles, net 1,121,598 315,305 (127,665)(a) 1,309,238
Other assets 31,299 - 6,796 (b) 38,095
----------- ---------- --------------- ------------
Total assets $ 1,613,797 $ 392,284 $ (89,774) $ 1,916,307
=========== ========== =============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of senior secured term debt $ 22,756 2,752 (c $ 25,508
Senior secured revolving debt facility 132,350 5,989 (d) 138,339
Accounts payable 72,051 72,051
Accrued liabilities 33,656 10,365 8,915 (e) 52,936
----------- ---------- --------------- ------------
Total current liabilities 260,813 10,365 17,656 288,834
Non-current deferred tax liabilities 40,055 40,055
Other liabilities - 2,241 2,241
Senior secured revolving debt facility - 0
Senior secured term debt 279,573 272,248 (c) 551,821
Senior subordinated notes 402,099 402,099
----------- ---------- --------------- ------------
Total liabilities 982,540 12,606 289,904 1,285,050
----------- ---------- --------------- ------------
Stockholders' equity:
Common stock 670 670
Paid-in-capital 648,100 379,678 (379,678) (f) 648,100
Promissory notes (322) (322)
(Accumulated deficit) (17,191) (17,191)
----------- ---------- --------------- ------------
Total stockholders' equity 631,257 379,678 (379,678) 631,257
----------- ---------- --------------- ------------
Total liabilities and stockholders' equity $ 1,613,797 $ 392,284 $ (89,774) $ 1,916,307
=========== ========== =============== ============
</TABLE>
23
<PAGE>
AURORA FOODS INC.
NOTES TO PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1999
a Reflects the excess or lower of cost relative to book value of the Lender's
(r) assets acquired in connection with the Acquisition. The assets have
been recorded at fair market value, including costs of transportation,
installation and set-up. Goodwill will be amortized on a straight line
basis over a forty year period and other intangibles will be amortized on a
straight line basis over periods ranging from ten to fifteen years.
b Reflects the deferred financing costs incurred in connection with the
financing related to the Acquisition.
c Represents the current and long-term portions of the $275 million in
additional senior secured debt incurred to finance the Acquisition.
d Reflects the additional cash required to fund the Acquisition.
e Reflects an accrual for costs to be incurred in connection with the
installation of Lender's (r) equipment in the Mattoon, Illinois plant.
f Reflects the reduction of the seller's equity as a result of the
Acquisition.
24
