Aurora Foods Inc. (NYSE: AOR) yesterday announced continued operating-performance improvement with strong sales and unit-volume growth during the second quarter of 2001.
For the three months that ended June 30, 2001, unit volume and net sales increased 3.8% and 2.4%, respectively, compared with year-ago levels. Net sales grew to $219.9 million, led by Log Cabin and Mrs. Butterworth’s Syrups (up 18.5%), Duncan Hines (up 8.9%), Celeste Pizza (up 5.8%) and Aunt Jemima Frozen Breakfast (up 4.3%).
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Aurora also reported that adjusted EBITDA, or earnings before interest, taxes, depreciation, amortization and other special items, rose 3.6% to $33.5 million versus year-ago levels. The net loss for the quarter narrowed to $9.0 million, or $0.13 per share, a significant improvement compared with the year-ago loss of $18.9 million, or $0.28 per share.
The Company said that EBITDA and net income for the second quarter were negatively affected by an unexpected $4.0 million adjustment in marketing spending, which arose from the discovery at quarter close of a programming error in the Company’s promotion spending tracking system. The computer systems have been corrected and all appropriate charges have been reflected in this statement. The Company also said that it could not provide any guidance on the expected second-half EBITDA growth until it completed a detailed analysis of its second six-month business programs with its corrected system, with the possibility of modifying them as necessary. The Company indicated this analysis would take two to three weeks to complete and would provide an update on its second six months at that time.
The Company said that in addition to the $4.0 million marketing spending adjustment, EBITDA for the quarter as compared to target was negatively impacted by net volume declines and unfavorable brand, channel and SKU volume mix, offset by significant reductions in marketing spending.
“The growth trend in net sales, both versus year ago and the first quarter, is a major indicator of the improving health of our business,” said James T. Smith, Chairman and Chief Executive Officer of Aurora Foods. “Our brands are much stronger today as evidenced by the fact that seven of our nine brands have higher market shares.”
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By GlobalDataThe Company reported that absolute consumer consumption of its brands has successively improved in each of the last four three-month IRI periods, driven, in part, by substantial distribution gains at the retail level. There were especially strong results on Duncan Hines, the Company’s largest brand, with major gains on cake mix, frosting and brownies, behind the strategy of building on cake to grow market share on frosting and brownies.
The Company said that despite the $4.0 million marketing spending adjustment, absolute marketing spending was $8.3 million below year ago, behind growing volume, offsetting negative brand, channel and SKU volume mix. Total Company unit volume, excluding Lender’s retail, was up 9.0% versus year ago, highlighting the significance of Lender’s disappointing performance. “We have learned a great deal about this business over the last six months. We are now even more convinced that the trends in this business are reversible and that Lender’s can become a major contributor to the Company’s earnings growth,” said Mr. Smith. “For starters, we are seeing distribution improvements in each of the last three monthly IRI periods, and second-quarter volume on fresh Lender’s was up 20% versus year ago.”
The Company also reported that it recorded a net pre-tax gain of $3.1 million related to the receipt of shares from former management in excess of those required to be distributed to class members as part of the May 2001 settlement of shareholder class action claims, as well as the accrual of other legal and consolidation costs. This gain is not included in adjusted EBITDA. Interest expense for the quarter was a net $30.4 million and includes a $4.9 million non-cash charge related to the recognition of a longstanding and now ineffective interest rate hedge under FAS 133. Recognition of this expense in the second quarter will result in lower future recorded interest. Overall, Aurora will continue to benefit from the reduction in market interest rates.
For the six months that ended June 30, 2001, sales rose to $503.5 million, compared with $496.7 million in the same year-ago period, while the net loss was $16.8 million, or $0.24 per share, compared with a net loss of $47.5 million, or $0.71 per share, in 2000.
Finally, the Company indicated that it entered the second half of this year in significantly better financial condition. July unit volume will be at least 10% above year ago, and ending June inventories have been reduced from $124 million year ago to $85 million currently. The inventory reduction temporarily increased per-unit fixed manufacturing costs, but following quarters will benefit from a more normal flow of business through the Company’s production facilities.
Attached are Aurora’s financial tables for its second quarter 2001 as well as IRI/Nelson dollar-consumption and share trends.
About Aurora Foods Inc.
Aurora Foods Inc., which is based in St. Louis, is a leading producer and marketer of premium branded food products including Duncan Hines® baking mixes, Log Cabin® and Mrs. Butterworth’s® syrups, Lender’s® bagels, Van de Kamp’s® and Mrs. Paul’s® frozen seafood, Aunt Jemima® frozen breakfast products, Celeste® frozen pizza and Chef’s Choice® skillet meals. Aurora’s products can be found in all Retail classes of trade, and Foodservice, and command strong positions in their respective categories and/or markets.
Statements contained in this press release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements contained in this release and that may affect the Company’s prospects in general are described in the Company’s filing with the Securities and Exchange Commission.
AURORA FOODS INC.
CONSOLIDATED
INCOME STATEMENTS
(Dollars and shares in thousands)
Three Months Ended June 30,
2001 2000
Net sales $219,898 $214,721
Cost of goods sold (108,904) (101,458)
Gross profit 110,994 113,263
Brokerage, distribution and
marketing expenses:
Brokerage and distribution (25,516) (25,114)
Trade promotions (38,291) (41,806)
Consumer marketing (4,876) (8,293)
Total brokerage, distribution
and marketing expenses (68,683) (75,213)
Amortization of goodwill and other
intangibles (11,322) (10,729)
Selling, general and administrative
expenses (15,651) (12,095)
Other financial, legal, accounting
and consolidation expenses 3,066 (15,037)
Transition expenses — (19)
Total operating expenses (92,590) (113,093)
Operating income 18,404 170
Interest expense, net (30,362) (27,176)
Amortization of deferred financing
expense (867) (735)
Other bank and financing expenses (37) (101)
Loss before income taxes (12,862) (27,842)
Income tax benefit 3,864 8,909
Net loss (8,998) (18,933)
Preferred dividends (308) —
Net loss available to
common stockholders $(9,306) $(18,933)
Basic and diluted loss per share
available to common stockholders $(0.13) $(0.28)
Weighted average number of shares
outstanding 72,675 67,050
EBITDA (1) $36,583 $17,301
ADJUSTED EBITDA (2) $33,517 $32,356
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization.
(2) Adjusted EBITDA represents earnings before interest, taxes,
depreciation and amortization and before the accounting change, other
financial, legal accounting and consolidation expenses, and transition
expenses.
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.
AURORA FOODS INC.
CONSOLIDATED
INCOME STATEMENTS
(Dollars and shares
in thousands)
Six Months Ended June 30,
2001 2000
Net sales $503,490 $496,729
Cost of goods sold (242,838) (239,860)
Gross profit 260,652 256,869
Brokerage, distribution and marketing
expenses:
Brokerage and distribution (58,429) (59,077)
Trade promotions (91,815) (96,207)
Consumer marketing (23,881) (26,264)
Total brokerage, distribution
and marketing expenses (174,125) (181,548)
Amortization of goodwill and other
intangibles (22,523) (21,480)
Selling, general and administrative
expenses (31,384) (26,672)
Other financial, legal, accounting
and consolidation expenses 3,066 (24,638)
Transition expenses — (1,384)
Total operating expenses (224,966) (255,722)
Operating income 35,686 1,147
Interest expense, net (58,232) (51,547)
Amortization of deferred financing
expense (1,734) (1,443)
Other bank and financing expenses (74) (188)
Loss before income taxes and
cumulative effect of
change in accounting (24,354) (52,031)
Income tax benefit 7,599 16,649
Net loss before cumulative effect
of change in accounting (16,755) (35,382)
Cumulative effect of change in
accounting, net of tax $5,722 — (12,161)
Net loss (16,755) (47,543)
Preferred dividends (615) —
Net loss available to common
stockholders $(17,370) $(47,543)
Basic and diluted loss per share
available to common stockholders:
Loss before cumulative effect of
change in accounting $(0.24) $(0.53)
Cumulative effect of change in
accounting, net of tax — (0.18)
Net loss available to common
stockholders $(0.24) $(0.71)
Weighted average number of shares
outstanding 73,395 67,050
EBITDA (1) $71,620 $35,104
ADJUSTED EBITDA (2) $68,554 $61,125
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization.
(2) Adjusted EBITDA represents earnings before interest, taxes,
depreciation and amortization and before the accounting change, other
financial, legal accounting and consolidation expenses, and
transition expenses.
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.
AURORA FOODS INC.
CONSOLIDATED
BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
2001 2000
ASSETS:
Cash & cash equivalents $2,710 $525
Accounts receivable, net 73,391 121,193
Accounts receivable sold (28,606) (38,565)
Inventories 84,755 104,319
Prepaid expenses and other assets 11,841 6,496
Current deferred tax assets 18,797 17,133
Total current assets 162,888 211,101
Property, plant and equipment, net 229,585 239,107
Deferred tax asset 47,353 40,045
Goodwill and other intangible assets, net 1,249,140 1,268,942
Other assets 32,219 35,091
Total assets $1,721,185 $1,794,286
LIABILITIES & STOCKHOLDERS’ EQUITY:
Current portion of senior secured term debt $32,926 $32,926
Accounts payable 47,214 50,456
Accrued liabilities 74,387 87,840
Total current liabilities 154,527 171,222
Senior secured term debt 494,202 510,665
Senior secured revolving debt facility 146,400 160,000
Senior subordinated notes 401,721 401,837
Other liabilities 12,122 5,848
Total liabilities 1,208,972 1,249,572
Commitments and contingent liabilities
Stockholders’ equity
Preferred stock 37 37
Common stock 742 741
Paid-in capital 685,359 685,091
Treasury stock (13,266) —
Promissory notes (120) (227)
Accumulated deficit (158,298) (140,928)
Accumulated other comprehensive loss (2,241) —
Total stockholders’ equity 512,213 544,714
Total liabilities and stockholders’ equity $1,721,185 $1,794,286
AURORA FOODS INC.
CONSOLIDATED
CASH FLOW STATEMENT
(IN THOUSANDS)
Six Months Ended June 30,
2001 2000
Cash from operations:
Net loss $(16,755) $(47,543)
Adjustments to reconcile net loss
to cash from operations:
Depreciation and amortization expense 37,552 35,357
Deferred income taxes (7,599) (16,649)
Recognition of loss on derivatives 4,901 —
Receipt of shares from former management (15,654) —
Recognition of liability to
shareholder class 10,000 —
Non-cash restructuring cost — 3,050
Cumulative effect of change in
accounting, net of tax — 12,161
Net loss on sale of fixed assets
and other, net 189 —
Changes to operating assets and liabilities:
Receivables 47,803 15,999
Accounts receivable sold (9,959) 20,418
Inventories 19,564 (659)
Prepaid expenses and other
current assets (5,330) 9,261
Accounts payable (3,857) (32,764)
Accrued expenses (20,952) (30,143)
Other non-current liabilities (2,712) (489)
Net cash provided by (used in)operations 37,191 (32,001)
Cash flows from investing activities:
Asset additions (5,269) (6,973)
Proceeds from asset sales 66 1,175
Changes to other non-current assets
and liabilities — (2,497)
Payment for acquisition of
businesses — (7,984)
Net cash (used for) investment
activities (5,203) (16,279)
Cash (used for) provided by financing
activities:
Senior secured revolving
(repayments) borrowings, net (13,600) 65,000
Repayment of borrowings (16,462) (11,517)
Capital contributions, net of
officer promissory notes 259 237
Debt issuance and equity raising costs — (132)
Net cash (used for) provided by
financing activities (29,803) 53,588
Net change in cash 2,185 5,308
Beginning cash and cash equivalents 525 315
Ending cash and cash equivalents $2,710 $5,623
Aurora Foods – IRI Consumption
% Change in Dollars vs. Year Ago
Through 6-10-01
Total Total
Aurora Aurora
Past Brands Excluding
Lender’s
3 Months +1.5% +3.7%
6 Months +0.5% +2.4%
9 Months -2.9% -1.8%
12 Months -3.4% -2.0%
Aurora Foods IRI Dollar Market Shares
Through 6-10-01
Past Past Past
3 Months 9 Months 12 Months
Van de Kamps 22.9 22.9 22.3
Mrs. Paul’s 16.8 16.4 16.3
TOTAL SEAFOOD 39.7 39.3 38.6
Frozen Breakfast 13.8 13.9 13.9
Frozen Pizza 3.3 3.1 3.1
Skillet Meals 15.1 13.4 14.2
Lender’s 29.6 30.4 30.8
Log Cabin 15.7 14.6 14.7
Mrs. Butterworth’s 11.7 10.2 10.7
TOTAL SYRUPS 27.4 24.7 25.2
Duncan Hines 19.0 17.8 17.5
