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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                      to                                     

Commission file number 001-14255

AURORA FOODS INC.

(Exact Name of Registrant as Specified in Its Charter)

11432 Lackland Road, St. Louis, MO 63146

(Address of Principal Executive Office, Including Zip Code)

(314) 801-2300

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  ¨  No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2002, based upon the closing price of the Common Stock as reported on the New York Stock Exchange on such date, was approximately $60,019,471.

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock as of the latest practicable date.

Documents incorporated by reference:

Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2003 Annual Meeting of Stockholders is incorporated herein by reference in Parts II and III.

PART I

ITEM 1:    BUSINESS

Aurora Foods Inc. (the “Company”) is a leading producer and marketer of premium branded food products including Duncan Hines^® baking mix products, Lender’s^® bagel products, Mrs. Butterworth’s^® and Log Cabin^® syrup products, Van de Kamp’s^® and Mrs. Paul’s^® frozen seafood products, Aunt Jemima^® frozen breakfast products, Celeste^® frozen pizza and Chef’s Choice^® frozen skillet meals. The Company’s brands are among the most widely recognized food brands in the United States and have leading market positions. The Company groups its brands into three operating segments: retail, food service and other distribution channels.

Significant Events

2002 Performance

The Company’s poor operating performance for 2002 resulted in approximately $50 million less cash generation than in the prior year. Both net sales and gross profit were approximately $70 million less than the prior year due primarily to unfavorable product mix and higher trade promotions costs. The Company’s liquidity was limited, and during the second quarter the Company secured commitments for approximately $63 million of additional financing. As a result of its performance, the Company was in violation of its bank loan covenants several times during 2002, and under the amendments negotiated with its lenders to achieve compliance, the Company agreed to new terms and conditions. See “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 9 to the financial statements included in this Form 10-K.

Divestiture Activities

As part of the agreements to obtain additional financing in 2002 and to amend the provisions of the Company’s senior debt facilities during 2002 and early 2003, the Company has agreed to make repayments of a portion of its outstanding senior secured borrowings from the net cash proceeds received from sales of assets or businesses owned by the Company. Required repayments from sales of assets or businesses are $100 million by June 30, 2003, an additional $125 million by September 30, 2003, and an additional $100 million by March 31, 2004. Failure to meet the required repayments of senior secured debt would result in significant cash and interest rate penalties for the Company.

During 2002, the Company engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. as joint financial advisors to assist it in reviewing a range of strategic alternatives, including the sale of one or more of the Company’s lines of business, with the net cash proceeds from any such sale being used to repay senior secured debt. J.P. Morgan Securities Inc. is an affiliate of JP Morgan Chase Bank, Administrative Agent and lead Lender under the Company’s senior secured debt agreements. The focus of the divestiture process has been on the Company’s frozen foods businesses, including Van de Kamp’s and Mrs. Paul’s frozen seafood, Aunt Jemima frozen breakfast, Celeste frozen pizza and Chef’s Choice frozen skillet meals. The divestiture process is proceeding according to plan. The Company is in the process of receiving and evaluating final bids for the various frozen foods businesses, and expects to complete one or more asset sales in the near future.

Due to the uncertainty inherent in the divestiture process, the Company cannot assure that it will be able to reach final agreements to sell one or more of its lines of business, nor can it guarantee that cash proceeds from the asset sales, if they were to occur, would be sufficient to meet all required debt repayments. Also see Notes 1 and 9 to the consolidated financial statements included in this Form 10-K.

New York Stock Exchange Listing

The Company has been a public company listed on the New York Stock Exchange since July 1998. The continued listing standards of the New York Stock Exchange provide that a company can be delisted if its

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average closing stock price is below $1.00 over a consecutive 30 trading day period. On November 15, 2002, the Company received notice from the New York Stock Exchange that the Company’s average closing stock price of its Common Stock was below $1.00 during the preceding consecutive 30 trading day period.

The Board of Directors will be seeking stockholder approval to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s Common Stock at the Company’s Annual Meeting of Stockholders on May 6, 2003. If the reverse stock split is approved by the stockholders, the Board of Directors may subsequently effect, in its sole discretion, the reverse stock split based upon any of the following ratios: one-for-ten; one-for-fifteen; or one-for-twenty. In addition, the Board of Directors will also have the discretion to determine if and when to effect the reverse stock split and reserves the right to abandon the reverse stock split even if approved by the stockholders. The Company expects that, if stockholders approve and the Board of Directors elects to implement the reverse stock split, the reverse stock split would be consummated within six months of the date of the Annual Meeting. If the Board of Directors determines to implement the reverse stock split, the Company will publicly announce in a press release and post on its website at www.aurorafoods.com which of the approved ratios the Board of Directors has elected to effect prior to the effective date of the reverse stock split.

There can also be no assurance that the Company will continue to meet other quantitative and qualitative continued listing standards of the New York Stock Exchange, including, but not limited to the standard that total stockholders’ equity may not be less than $50 million and total market capitalization may not be less than $50 million over a 30-day trading period. On March 7, 2003, the Company received notice from the New York Stock Exchange that the Company was not in compliance with the stockholders’ equity and market capitalization listing criteria. The Company intends to meet with the Exchange to present its plan for achieving compliance with these listing criteria before March 31, 2003. The Exchange will review the Company’s plan to determine whether to allow the Company to cure these deficiencies in accordance with its plan. Accordingly, even if the Board of Directors effects a reverse stock split to cure the deficiency relating to the market price of the Company’s Common Stock, a failure to meet other continued listing standards may nevertheless result in a delisting of the Company’s Common Stock from the New York Stock Exchange.

Special Committee Investigation; Restatement of Financial Results

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, on February 11, 2000, the Company’s Board of Directors, after discussions with the Company’s auditors, PricewaterhouseCoopers LLP, formed a special committee (the “Special Committee”) to conduct an investigation into the Company’s application of its accounting policies. The Special Committee retained legal counsel, which retained an independent accounting firm to assist in the investigation.

Prior to the issuance of the Company’s financial statements as of and for the year ended December 31, 1999, it was determined that the results reported in the Company’s Form 10-K as of and for the year ended December 31, 1998 as well as the unaudited interim results reported in the Company’s Forms 10-Q as of and for the periods ended September 30, 1998, March 31, 1999, June 30, 1999 and September 30, 1999 were misstated. Upon further investigation, it was determined that liabilities that existed for certain trade promotion and marketing activities and other expenses (primarily sales returns and allowances, distribution and consumer marketing) were not properly recognized as liabilities and that certain assets were overstated (primarily accounts receivable, inventories and fixed assets). In addition, certain activities were improperly recognized as sales. As a result, the financial statements as of and for the year ended December 31, 1998 as well as the unaudited quarterly financial data as of and for the interim periods ended September 30, 1998, March 31, 1999, June 30, 1999 and September 30, 1999 were restated. See “Item 3: Legal Proceedings.”

Management Changes

On February 17, 2000 the following members of senior management resigned: Ian R. Wilson, Chairman and Chief Executive Officer, James B. Ardrey, Vice Chairman, Ray Chung, Executive Vice President and M. Laurie

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Cummings, Chief Financial Officer. Mr. Wilson and Mr. Ardrey also resigned from the Board of Directors. The Board appointed Richard C. Dresdale, President of Fenway Partners, Inc. as Chairman of the Board, David E. De Leeuw, Managing Director of McCown De Leeuw & Co., Inc., as Vice Chairman, Peter Lamm, Chairman and Chief Executive Officer of Fenway Partners, Inc. as acting President and Chief Executive Officer and Andrea Geisser, Managing Director of Fenway Partners, Inc. as acting Vice President—Finance, acting Treasurer and acting Secretary, effective February 18, 2000.

On April 3, 2000, the Company announced that it had hired James T. Smith as President and Chief Executive Officer of the Company, and Christopher T. Sortwell as Executive Vice President and Chief Financial Officer. Mr. Smith and Mr. Sortwell were also elected to the Board of Directors of the Company.

On March 20, 2002, the Company announced that it had hired William R. McManaman as Executive Vice President and Chief Financial Officer of the Company, succeeding Mr. Sortwell, who resigned his position with the Company. Mr. Sortwell also resigned from the Board of Directors.

On August 28, 2002, the Company announced that Dale F. Morrison, a member of the Company’s Board of Directors, was named Chairman and interim Chief Executive Officer of the Company, succeeding Mr. Smith, who resigned his position with the Company. Mr. Smith also resigned from the Board of Directors. Mr. Morrison is also Chief Executive Officer of Fenway Partners Resources, Inc., an affiliate of Fenway Partners Capital Fund, L.P. and Fenway Partners Capital Fund II, L.P., which are shareholders of the Company. See Note 20 to the financial statements included in this Form 10-K.

On October 9, 2002, the Company announced that it had hired William Parker as Senior Vice President of Sales for the Company. In January 2003, Mr. Parker resigned his position with the Company.

On October 21, 2002, the Company announced that it had hired Eric Brenk as Senior Vice President of Operations for the Company.

See “Directors and Executive Officers of the Company” in the Aurora Foods Inc. Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2003 Annual Meeting of Stockholders.

Headquarters

In February 2000, the Company relocated its corporate headquarters from San Francisco, California to the then frozen food division corporate office in St. Louis, Missouri. During the third quarter of 2000, the Company closed its office in Columbus, Ohio and consolidated its administrative offices and functions in St. Louis, Missouri. During the third quarter of 2001, the Company relocated its corporate offices to 11432 Lackland Road, St. Louis, Missouri, 63146 in order to provide office space for its expanded St. Louis operations. In addition, the Company leased dedicated space for its product development center in an adjacent building. Both facilities were leased for a period of ten years.

Products and Markets

The Company has acquired premium, well recognized brands with strong brand equity that had been under-marketed and under-managed non-core businesses to their previous corporate parents. The Company’s objective has been to renew the growth of its brands by giving them the focus, strategic direction, product development, and dedicated sales and marketing resources they had lacked. Each of the Company’s brands is a leading brand with significant market share and strong consumer awareness. The Company sells its products nationwide to supermarkets and other retail channels. The Company sells its products through food brokers to wholesale and retail grocery accounts. The products are distributed either directly to the customer or through independent wholesalers and distributors. The Company also sells its products in the club store, private label, military, and foodservice distribution channels. Foodservice customers include restaurant chains, business/industry, and schools.

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As supplemental information to the Company’s segment information, the Company’s net sales are generated from the following product lines across all of its operating segments (in thousands):

(1) The 2002 net sales by product line includes an allocation of $17.7 million in net sales adjustments, principally for trade promotion costs, recorded in the first quarter of 2002. The trade promotion adjustments were a result of updated evaluations of the Company’s reserves and assumptions for such costs. The allocation of these items to product lines was completed using ratable allocations based on historical trade promotion levels.

References to market, category and segment sales, market share percentages and market positions reflect U.S. retail supermarket sales dollars for the 52-week period ended December 29, 2002, as gathered by Information Resources Incorporated (“IRI”). It should be noted that beginning in 2001, this IRI information no longer includes sales by Wal-Mart and its affiliates who accounted for approximately 18% and 14% of the Company’s net sales in 2002 and 2001, respectively.

The Company’s branded products are sold under the following tradenames:

Duncan Hines

The Duncan Hines brand was introduced in 1956. The Duncan Hines line consists of cake mix, ready-to-serve frosting, brownie mix, muffin mix and cookie mix. Duncan Hines is the #2 ranked brand with a 19.6% share of the $1.3 billion baking market. This industry has had an average annual decline of 0.2% over the last five years, and 2002 industry performance was consistent, with a decline of 0.4%. The baking market has recently been characterized by an increasing focus on new product introductions. All of the Company’s Duncan Hines products are produced by contract manufacturers.

The Company positions Duncan Hines as a national premium brand that appeals to the consumer who wants a “quality, good as homemade” baking product. The Company’s strategy for Duncan Hines is to leverage the strength of its leading market position in cake mix (34% market share) to increase its market share in other baking products. The Company plans to accomplish this strategy by introducing new products complementary to Duncan Hines cake mix and expanding its low-cost coordinated consumer marketing efforts with other baking products. In 2002 the Company introduced co-branded Butterfinger^® brownie mix along with co-branded M&M^® brownie mix. Additionally, the Company launched corn muffin mix and M&M^® Fun Frosters. In connection with this strategy, during the past year, Duncan Hines brownie market share grew from 4.1% to 19.9%.

Van de Kamp’s and Mrs. Paul’s

The Company manufactures and markets frozen prepared seafood products under the Van de Kamp’s and Mrs. Paul’s brands, which together hold the #1 market share position (34.7%) of the $622 million frozen prepared seafood market, a market which has grown an average of 0.8% over the last five years. The Company

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also manufactures and markets frozen prepared seafood products under the Avalon Bay^® brand through club store channels. The Van de Kamp’s brand dates back to 1915 and the Mrs. Paul’s franchise began in the mid-1940s. The Company’s frozen prepared seafood product line includes breaded and battered fish sticks and fish fillets, “healthy” breaded fish, grilled fish fillets, breaded shrimp, marinated shrimp, shrimp bowls and specialty seafood items, such as crab cakes and clam strips. The prepared seafood segment consists of “fin products” such as pollock, salmon, haddock and cod, and “non-fin products,” consisting primarily of shrimp. The prepared seafood market has been flat over the last year. In 2002, the fin category, in which the Company is the second largest producer with a 39.6% share, declined 7.5% and the non-fin category, in which it is also the second largest producer with a 23.4% share, grew 23.9%. The Company uses a dual brand strategy to emphasize both the regional strengths of its brands and their respective brand positioning. Van de Kamp’s is the leading brand in the West Central United States and is recognized as a fun, contemporary image that appeals to families with young children by offering larger package sizes. The Company has introduced a newly developed package design to communicate the great taste of Van de Kamp’s. Its strategy on Van de Kamp s is to continue to improve the taste of the product offerings while optimizing its cost structure. In late 2002, the Company introduced into test markets two new Van De Kamp’s items, Mini Fish Sandwiches and Catfish Nuggets. The Mrs. Paul’s brand is stronger in the Northeast and Southeast regions of the United States and is the only major brand to use whole fillets. The Company targets Mrs. Paul’s at smaller families with older children by offering larger portion sizes and a quality message focused on ingredients and preparation. Increasingly, Mrs. Paul’s products are focused on the growing non-fin category. The Company’s strategy for Mrs. Paul’s is to introduce new value-added products that take advantage of the growth in the shrimp area, while expanding brand distribution in geographic areas where the brand has not historically had a strong presence. The Company recently introduced two new Mrs. Paul’s Shrimp Bowls into the large and growing shrimp segment.

Lender’s

Lender’s was founded in 1927 and distributes bagels in all scannable sections of the grocery store: frozen, refrigerated, and the fresh bread aisle, as well as supplying various restaurants via its foodservice operation. Lender’s ranks #2 in scannable bagels, with a 25.4% share of the $612 million scannable bagel market, of which frozen bagels, refrigerated bagels and fresh bagels make up 17%, 12% and 71% of the category, compared to 29%, 9% and 62% four years ago. The scannable bagel market has grown 3.2% in the last five years. Over the past year, frozen, refrigerated and fresh bagel markets have declined 15.3%, 2.8% and 0.3%, respectively. The decline in frozen bagels is driven by consumers replacing some frozen bagel purchases with purchases of other, more innovative frozen breakfast products. As a result, retailers have reduced shelf space and distribution for frozen bagels, further contributing to the decline in the frozen bagel market.

Lender’s bagels are offered in a variety of styles: Lender’s Original, Lender’s Premium Refrigerated Bagel Shop, and Lender’s Fresh Bagel Shop. The Company’s strategy for Lender’s is to stem the decline in frozen bagels, maintain its leading position in refrigerated bagels and to grow its position in fresh bagels. In January 2002, the Company broadened its frozen product line to appeal to more consumers by introducing new New York Style Bagels—for those who crave an authentic New York bagel that is crunchy on the outside and chewy on the inside.

Mrs. Butterworth’s and Log Cabin

The Company’s syrup brands include Log Cabin, Mrs. Butterworth’s and Country Kitchen. The Log Cabin brand was introduced in 1888 and the Mrs. Butterworth’s brand was introduced in 1962. The Company’s syrup line consists of original, lite and sugar free varieties. It also sells pancake mix under the Mrs. Butterworth’s brand, representing approximately 5% of its combined net sales of syrup and mixes. Combined, the Company’s syrup brands have the #1 market share position, with a 23.9% share of the $576 million table syrup industry. This market has historically been characterized by slightly declining consumption and has declined an average of 0.4% over the last five years, although the category increased 1.0% in 2002. The syrup market has been recently characterized by an increasing focus on private label brands, sales of which have increased by 15.5% over the last five years.

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The Company positions Log Cabin as the only national branded syrup that contains real maple. Mrs. Butterworth’s, with its grandmother-shaped bottle, is positioned as the buttery-tasting brand that appeals to families with children. The Company’s strategy for syrup is to reduce costs and selectively increase market share in evolving higher-margin sub-segments, such as lite and sugar-free. The Company anticipates significant incremental profitability in the syrup business in 2003 due to a full year of the in-sourcing of syrup production at its St. Elmo, Illinois facility, which began in 2002.

Aunt Jemima

The Company licenses the Aunt Jemima brand from Quaker Oats only for frozen breakfast products. Aunt Jemima was established over a century ago and represents the majority of the Company’s branded frozen breakfast products. The Company offers Aunt Jemima waffles, pancakes and french toast. Aunt Jemima is the #2 ranked brand in frozen breakfast, with a 15.2% share of the $650 million frozen breakfast market. Due to a shift toward alternative breakfast products, this market has declined an average of 1.4% over the last five years, although the category has seen a resurgence in 2002, growing at 3.9%. The frozen breakfast market has been recently characterized by an increasing focus on new product innovation.

Aunt Jemima is positioned as a high-quality, value-priced frozen breakfast brand that appeals to families with children. The Company’s strategy for Aunt Jemima is to leverage its household penetration in waffles (the largest product category in the frozen breakfast market), in which the Company has a #3 market position, by increasing distribution and coordinating marketing efforts of its complementary products, such as french toast and pancakes, where the Company holds the #1 market positions.

Celeste

The Company produces and markets frozen pizza under the Celeste brand, which dates back to the 1930s. The Company offers Mama Celeste’s Pizza for One single-serve pizzas, original, traditional pizzas as well as a fresh baked rising crust pizza. While the Company estimates that Celeste is the #9 pizza brand nationally, with a 2.9% share of the $2.8 billion frozen pizza category, it has a strong regional position as the #1 single-serve pizza in the Northeast and in other select markets. The microwavable Celeste Pizza for One single-serve pizza appeals to consumers seeking convenience and homemade taste. The frozen pizza market, which has grown at an average of 7.3% over the last five years, grew 6.6% in 2002 due to the wide variety of new product offerings.

Celeste is positioned as a homemade, authentic Italian meal in the traditional sense of value: a convenient quality product at an affordable price. The Company’s strategy for Celeste is to capitalize on the strong equity and tradition of the brand to maintain its leadership in single-serve pizzas in the markets in which it competes, to opportunistically expand its geographic distribution and to reduce costs. The Company has recently decreased its focus on larger pizzas to concentrate on its core strength in single-serve pizzas.

Chef’s Choice

The Company sells skillet meals under the Chef’s Choice brand. Skillet meals are complete entrees in a single package that can be cooked in a skillet in less than fifteen minutes. Established in the early 1990s, Chef’s Choice introduced the first premium frozen skillet meal to address consumer demand for great tasting, restaurant-quality meals that are easy to prepare. The Company currently offers fifteen flavor varieties ranging from Asian stir-fry to Italian pastas and featuring shrimp, chicken or beef. Chef’s Choice is the #4 brand with an 11.7% share of the $350 million frozen skillet meals industry. This relatively new market, which has grown an average of 65.4% over the last five years, decreased 22.1% in 2002 due largely to the continued proliferation of other frozen food product options, and the introduction of refrigerated and shelf stable all-in-one meals.

The Company’s Chef’s Choice products are premium meals that include more protein and higher quality ingredients than other competitors’ offerings. Its strategy with Chef’s Choice is to expand the top selling shrimp and chicken meals geographically to increase the Company’s national presence. The Company also seeks to optimize its product offering and manufacturing processes to decrease costs, while maintaining its position as the

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leader in product quality. In 2002, the Company introduced two new items, Jambalaya and Sausage, Egg & Potato, in an effort to address consumer demand for variety.

Industry

The U.S. food industry is relatively stable with growth driven primarily by modest population increases and new products. Over the last ten years, food companies have been divesting non-core business lines and making strategic acquisitions.

Increasingly, consumers want great tasting, nutritious food that is convenient to prepare and can be served as a meal occasion. The Company believes its brands to be premium tasting products in their various segments and categories. The Company targets consumers between the ages of 25 and 54, and particularly households with children. There are approximately 41 million children between the ages of 5 and 14, which represent a growing target market for the Company.

The Company competes in several categories of the retail food industry and in the food service, club, military and private label distribution channels. The Company has been expanding its presence in foodservice and club channels, which the Company believes offer further growth opportunities.

Financial Information About Industry Segments

See “Item 15(a) 1. Consolidated Financial Statements of the Company” incorporated herein by reference.

Trademarks

The Company’s principal trademarks are Duncan Hines^®, Lender’s^®, Log Cabin^®, Mrs. Butterworth’s^®, Van de Kamp’s^®, Mrs. Paul’s^®, Aunt Jemima^®, Celeste^®, and Chef’s Choice^®. The trademarks are important to the maintenance of the Company’s brands. The Company licenses, for use on frozen breakfast products, the Aunt Jemima^® trademark pursuant to a perpetual, royalty-free, license agreement with The Quaker Oats Company (“Quaker Oats”). The license agreement requires the Company to obtain the approval of Quaker Oats for any material change to any labels, packaging, advertising, and promotional materials bearing the Aunt trademark. Quaker Oats can only withhold approval if such proposed use violates the terms of the license agreement. The Company also licenses the Chef’s Choice^® trademark pursuant to a perpetual, royalty free license agreement with Perdue Holdings, Inc. The registrations for the Company’s trademarks expire from time to time and the Company renews them in the ordinary course of business prior to the expiration dates.

Competition

The food industry is highly competitive. Numerous brands and products compete for shelf space and sales, with competition based primarily on brand recognition and loyalty, price, quality and convenience. The Company competes with a significant number of companies of varying sizes, including divisions or subsidiaries of larger companies. A number of these competitors have broader product lines, substantially greater financial and other resources available to them, lower per unit financing costs and/or longer operating histories.

Production

The Company produces its Van de Kamp’s and Mrs. Paul’s frozen seafood products primarily at its Erie, Pennsylvania, and Jackson, Tennessee manufacturing facilities. The Company produces its Aunt Jemima frozen breakfast products at its Jackson, Tennessee and Erie, Pennsylvania facilities and its Celeste frozen pizza products at the Jackson, Tennessee facility. The Company produces its Lender’s frozen, refrigerated and fresh bagel products at its Mattoon, Illinois facility. The Company’s Chef’s Choice products have been packaged at the Yuba City, California facility, however production will be relocated to contract manufacturers with the scheduled

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closure of Yuba City in early 2003. Log Cabin and Mrs. Butterworth’s syrup are now primarily manufactured at the Company’s St. Elmo, Illinois facility. Duncan Hines cake mixes, brownie mixes, specialty mixes and frosting products are produced by contract manufacturers pursuant to co-pack agreements. All of the Company’s cake mixes, brownie mixes, specialty mixes and frosting production equipment including co-milling, blending and packaging equipment is located at the contract manufacturers’ facilities. These Duncan Hines agreements currently expire in 2003 and contain automatic renewal provisions for one year unless cancelled by either party. It is the Company’s intention to maintain long-term relationships with contract manufacturer partners.

Quality Control

Quality control processes at the Company’s principal manufacturing facilities and at the production facilities where the Company’s products are contract manufactured emphasize applied research and technical services directed at product improvement.

The Company’s products and the facilities where the products are manufactured are also subject to various laws and regulations administered by the Federal Food and Drug Administration, the United States Department of Agriculture, and other federal, state, and local governmental agencies relating to the quality of products, safety and sanitation. The Company believes that it complies with such laws and regulations in all material respects.

Customers

Sales of the Company’s products to Wal-Mart and affiliates approximated 18% and 14% of total net sales in 2002 and 2001, respectively. Sales to the Company’s largest 10 and largest 20 customers were approximately 52% and 68%, respectively, of total sales in 2002, and 50% and 64%, respectively, of total sales in 2001. The Company believes that its concentration of business with its largest customers is representative of the food industry. The loss of the Company’s largest customer would have a significant impact on the Company’s business. The specific timing of significant customers’ merchandising activities for the Company’s products can impact quarterly sales and operating results when comparing from year to year.

Seasonality

The Company experiences some seasonality in its businesses primarily due to increased demand for its seafood products during Lent and to increased demand for its Duncan Hines products during the Thanksgiving, Christmas and Easter holiday baking seasons. As a result, the first and fourth quarters generally experience higher levels of sales. There are no material backlogs of orders from customers.

Raw Materials and Supplies

The principal raw materials used by the Company are corn syrup, flour, sugar, fish, shrimp, eggs, cheese, vegetable oils, shortening and other agricultural products. The Company also uses significant quantities of corrugated, fiberboard and plastic packaging materials. All such materials and supplies are available from numerous independent suppliers. The procurement process is managed by purchasing the necessary raw materials directly from various suppliers. The Company’s objective is to meet both the Company’s production needs and its quality standards, while achieving the lowest aggregate cost to the Company. The Company also procures ingredients through its contract manufacturer partners. Current market prices for certain raw material commodities and fuel costs are higher than recent historical levels, which will impact the Company’s operating results in 2003.

Research and Development

The Company maintains its research and development department in St. Louis, Missouri. This department substantially expanded in 2001 and is responsible for all of the food research and product development for the Company. The Company uses food technology consultants where appropriate. The Company’s research and

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development resources are focused on new product development, existing product enhancement, and cost optimization. Exploratory research is conducted in new business areas to assure a continuous pipeline of new and improved products. Cost optimization is accomplished through improvements in formulation, manufacturing process, and packaging.

Employees

As of December 31, 2002, the Company had approximately 1,650 employees. There are no employees covered by a collective bargaining agreement. Management of the Company believes it generally has good relations with its employees and has not experienced any work stoppages or strikes.

Business History

The Company was incorporated in Delaware on June 19, 1998, as the successor to Aurora Foods Holdings Inc. (“Holdings”) and its subsidiary, AurFoods Operating Co., Inc. (formerly known as Aurora Foods Inc.) (“AurFoods”), both of which were incorporated in Delaware in December 1996. AurFoods was wholly-owned by Holdings, which in turn was wholly-owned by MBW Investors LLC (“MBW LLC”). AurFoods was formed for the purpose of acquiring the Mrs. Butterworth’s syrup business (“MBW”) from Conopco, Inc., a subsidiary of Unilever United States, Inc. (“Conopco” or the “Predecessor”). AurFoods subsequently acquired the Log Cabin syrup business (“LC”) from Kraft Foods, Inc. (“Kraft”) in July 1997 and the Duncan Hines baking mix business (“DH”) from The Procter & Gamble Company (“P&G”) in January 1998.

Van de Kamp’s, Inc. (“VDK”) was a wholly-owned subsidiary of VDK Holdings, Inc., a Delaware corporation (“VDK Holdings”), and was incorporated in Delaware in July 1995 for the purpose of acquiring the Van de Kamp’s frozen seafood business and the frozen dessert business (subsequently sold) from The Pillsbury Company in September 1995. VDK then acquired the Mrs. Paul’s frozen seafood business from the Campbell Soup Company in May 1996 and the Aunt Jemima frozen breakfast and Celeste frozen pizza businesses from Quaker Oats in July 1996. VDK Holdings was wholly-owned by VDK Foods LLC (“VDK LLC”). On April 8, 1998, MBW LLC and VDK LLC formed Aurora/VDK LLC (“New LLC”). MBW LLC contributed all of the capital stock of Holdings and VDK LLC contributed all of the capital stock of VDK Holdings to New LLC (the “Contribution”).

On July 1, 1998, Holdings, AurFoods, VDK Holdings and VDK merged with and into the Company, and the Company consummated an initial public offering of 12,909,372 shares of its Common Stock (the “IPO”). Concurrently with the IPO, New LLC also sold 1,590,628 shares of the Company’s Common Stock to the public at a price of $21.00 per share. The sale of stock by New LLC and the IPO are together herein referred to as the “Equity Offerings.” Also, concurrently with the IPO, the Company issued $200.0 million aggregate principal amount of 8.75% senior subordinated notes due 2008 (the “New Notes”) and borrowed $225.0 million of senior secured term debt and $99.0 million out of a total of $175.0 million of available senior secured revolving debt.

On April 1, 1999, the Company acquired 100% of the stock in Sea Coast Foods, Inc. (“Sea Coast”), from Galando Investment Limited Partnership, Carey-On Limited Partnership, Joseph A. Galando, Barbara J. Galando, Stanley J. Carey and Mary K. Carey. Sea Coast markets the line of Chef’s Choice frozen skillet meals.

On November 1, 1999, the Company acquired all the assets and certain liabilities of the Lender’s Bagel business (“Lender’s”) from The Eggo Company, a subsidiary of the Kellogg Company (“Kellogg’s”).

ITEM 2:    PROPERTIES

The Company owns five and operates four manufacturing facilities and leases facilities for its corporate office and product development center, described in the following table. The Company’s corporate offices are at

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11432 Lackland Road, St. Louis, Missouri, 63146. The Company also leases office space in Columbus, Ohio, pursuant to a lease which expires in 2004. Subsequent to consolidating its administrative functions in 2000, the Company has sublet this space.

The Company is currently seeking to sell the facility in Yuba City, California. All of the Company’s equipment, which is located at its facilities as well as the facilities of certain of its contract manufacturing partners, is generally in good physical condition, well maintained and suitable for the manufacture of the particular product line for which it is used. The Company’s equipment generally operates with some available capacity. All of the Company’s Duncan Hines products are produced at facilities of contract manufacturing partners.

ITEM 3:    LEGAL PROCEEDINGS

During 2000, the Company was served with eighteen complaints in purported class action lawsuits filed in the U.S. District Court for the Northern District of California. The complaints received by the Company alleged that, among other things, as a result of accounting irregularities, the Company’s previously issued financial statements were materially false and misleading and thus constituted violations of federal securities laws by the Company and the directors and officers who resigned on February 17, 2000 (Ian R. Wilson, James B. Ardrey, Ray Chung and M. Laurie Cummings). The actions (the “Securities Actions”) alleged that the defendants violated Sections 10(b) and/or Section 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. The Securities Actions complaints sought damages in unspecified amounts. These Securities Actions purported to be brought on behalf of purchasers of the Company’s securities during various periods, all of which fell between October 28, 1998 and April 2, 2000.

On April 14, 2000, certain of the Company’s current and former directors were named as defendants in a derivative lawsuit filed in the Superior Court of the State of California, in the County of San Francisco, alleging breach of fiduciary duty, mismanagement and related causes of action based upon the Company’s restatement of its financial statements. The case was then removed to federal court in San Francisco.

On January 16, 2001 the Company announced that it reached a preliminary agreement to settle the securities class action and derivative lawsuits pending against the Company and its former management team in the U.S. District Court in the Northern District of California. On March 1, 2001, Stipulations of Settlement for the Securities class action and derivative lawsuits were entered into in the U.S. District Court in the Northern District of California to fully resolve, discharge and settle the claims made in each respective lawsuit. On May 11, 2001, the United States District Court for the Northern District of California approved the settlement.

Under the terms of the agreement, Aurora was required to pay the class members $26 million in cash and $10 million in common stock of the Company. On March 2, 2001, the Company entered into definitive

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agreements with certain members of former management to transfer between approximately 3 million and 3.6 million shares of common stock of the Company to the Company, in consideration for a resolution of any civil claims that the Company may have, and partially conditioned upon future events and circumstances. The cash component of the settlement was funded entirely by the Company’s insurance in the fourth quarter of 2001. Members of the class had the opportunity to opt out of the settlement agreement, and bring separate claims against the Company. Separate claims representing an immaterial number of shares did opt out of the settlement agreement.

Pursuant to the settlement and the definitive agreements, the Company received 3,051,303 shares of its common stock from former management. During May, 2001, the Company distributed 465,342 shares of its common stock as settlement for the first $2.5 million of the common stock component of the settlement. On September 6, 2002, the Company distributed 5,319,149 shares of common stock to the settlement class as settlement for the remaining $7.5 million of the common stock portion of the settlement, following completion of the claims processing by the third-party claims administrator appointed by the court. This distribution was comprised of the remaining 2,586,041 shares held in treasury that had been received from former management, and 2,733,108 additional shares issued by the Company. This distribution, in conjunction with the distribution of 465,342 shares in May 2001, finalized the Company’s obligations under the shareholder settlement agreement. In addition, the Company has agreed to implement certain remedial measures, including the adoption of an audit committee charter, the reorganization of the Company’s finance department, the establishment of an internal audit function and the institution of a compliance program, as consideration for resolution of the derivative litigation.

The staff of the Securities and Exchange Commission (the “SEC”) and the United States Attorney for the Southern District of New York (the “U.S. Attorney”) also initiated investigations relating to the events that resulted in the restatement of the Company’s financial statements for prior periods (“Prior Events”). The SEC and the U.S. Attorney requested that the Company provide certain documents relating to the Company’s historical financial statements. On September 5, 2000, the Company received a subpoena from the SEC to produce documents in connection with the Prior Events. The SEC also requested certain information regarding some of the Company’s former officers and employees, correspondence with the Company’s auditors and documents related to financial statements, accounting policies and certain transactions and business arrangements.

On January 23, 2001 the U.S. Attorney announced indictments alleging financial accounting fraud against members of former management and certain former employees of the Company. Each of the individuals indicted pled guilty to the charges against them. The U.S. Attorney did not bring charges against the Company.

In a cooperation agreement with the U.S. Attorney, the Company confirmed that it would implement an extensive compliance program, which includes an internal audit function, a corporate code of conduct, a comprehensive policies and procedures manual, employee training and education on policies and procedures and adequate disciplinary mechanisms for violations of policies and procedures.

In addition, the Company consented to the entry of an order by the SEC requiring compliance with requirements for accurate and timely reporting of quarterly and annual financial results, and the maintenance of internal control procedures in connection with a civil action by the SEC concerning accounting irregularities at the Company in 1998 and 1999. Aurora did not either admit or deny any wrongdoing, and the SEC did not seek any monetary penalty. The Company also committed to continue to cooperate with the SEC in connection with its actions against certain former members of management and former employees.

The Company has substantially implemented the requirements of each of the settlements with the shareholder class, the U.S. Attorney and the SEC.

During the first quarter of 2002, the Company lost a dispute in arbitration associated with termination of a contract in 2000 and recorded additional expense of approximately $730,000. The total award and related costs of approximately $1.5 million were paid in April 2002.

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The Company is a defendant in an action filed by a former employee in the U. S. District Court in the Eastern District of Missouri. The plaintiff alleged breach of contract, fraud and negligent misrepresentation as well as state law securities claims, and alleged damages in the amount of $3.7 million. In the first quarter of 2002, the plaintiff’s federal and state securities law claims were dismissed and the remaining claims were remanded to the Circuit Court for the City of St. Louis. Since the remand, the plaintiff has added a claim for breach of fiduciary duty. The case is set for trial in September 2003. The Company intends to defend the claims vigorously.

The Company is also subject to litigation in the ordinary course of business.

In the opinion of management, it is remote that the ultimate outcome of any existing litigation will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

ITEM 4:    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the security holders during the fourth quarter of 2002.

Executive Officers of the Registrant

Information regarding executive officers is contained in Item 10 of Part III of this Report (General Instruction G) and is incorporated herein by reference.

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PART II

ITEM 5:    MARKET FOR THE COMPANY’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company’s common stock is traded on the New York Stock Exchange under the symbol AOR. The table below states the high and low closing prices by quarter on the New York Stock Exchange during the years ended December 31, 2001 and 2002:

As of March 17, 2003, there were approximately 1,380 holders of record of the Company’s common stock. The Company has not paid any cash dividends since its inception. The terms of the Senior Bank Facilities restrict the Company’s ability to declare dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 9 to the Company’s consolidated financial statements. See “Item 1. Significant Events” concerning the Company’s continued listing on the New York Stock Exchange.

The information appearing under “Amend the 2000 Equity Incentive Plan—Equity Compensation Plan Information” in the Company’s Notice of Annual Meeting and Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2003 Annual Meeting of Stockholders (the “2003 Proxy Statement”), is incorporated herein by reference.

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ITEM 6:    SELECTED FINANCIAL DATA

The selected financial data presented below, as of and for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 is derived from the Company’s audited financial statements. The selected financial data should be read in conjunction with the Company’s financial statements and notes thereto included elsewhere in this Form 10-K. The comparability of the selected financial data presented below is significantly affected by changes of accounting methods in 2000 and 2002, the merger of VDK with the Company and by the acquisitions and related financings completed by the Company during its history. See “Business—Business History,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 7:    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                    RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the historical financial information included in the financial statements and notes thereto. Unless otherwise noted, fiscal years in this discussion refer to the Company’s December-ending fiscal years.

Critical Accounting Policies and Estimates

The accounting policies utilized by the Company in the preparation of the consolidated financial statements reflecting its financial position and results of operations necessarily require management to make estimates and use assumptions that affect the reported amounts in these financial statements and as a result they are subject to an inherent degree of uncertainty. Actual amounts may differ from those estimates under different assumptions or conditions and as additional information becomes available in future periods. The Company’s accounting policies are in accordance with U.S. generally accepted accounting principles (GAAP). The most significant accounting policies that involve a higher degree of judgment and complexity and that management believes are important to a more complete understanding of its financial position and results of operations are outlined below. Additional accounting policies that are also used in the preparation of the Company’s financial statements are outlined in the notes to the Company’s consolidated financial statements included in this Form 10-K.

Customer returns, allowances and trade promotional costs.    Trade promotions and allowances represent significant expenditures for the Company and are critical to the support of the Company’s business. Allowances and promotional expenses are given to customers to promote the sale of the Company’s products. Such costs include, for example, amounts paid to obtain favorable display positions in retailers’ stores, amounts paid to

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incent retailers to offer temporary price reductions in the sale of the Company’s products to consumers and amounts paid to customers for shelf space in retail stores (slotting fees). The total of all returns, allowances, price discounts and trade promotions (included in net sales) recorded during 2002 was approximately $324 million, compared to $307 million during 2001. These expenses have been reflected as a reduction of net sales in accordance with EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products). Amounts for customer returns, allowances and trade promotion are calculated, using estimated performance for specific events and recorded when the product is sold or in the period during which the promotions occur, depending on the nature of the allowance and event. Settlement of these liabilities typically occurs in subsequent periods through payment to a customer or deduction taken by a customer from amounts otherwise due to the Company. As a result, the amounts are dependent on the relative success of the events and the actions and level of deductions taken by our customers for amounts they determine are due to them. Final resolution of amounts appropriately deducted by customers may take extended periods of time.

Consumer coupons.    Costs associated with the redemption of consumer coupons are recorded at the later of the time coupons are circulated or the related products are sold by the Company, and are reflected as a reduction of net sales. The total cost for redemption of consumer coupons was approximately $11.2 million in 2002, compared to approximately $14.2 million in 2001. The Company’s liability for coupon redemption costs at the end of a period is based upon redemption estimates using historical trends experienced by the Company. Costs associated with the production and insertion of the Company’s consumer coupons are recorded as a component of consumer promotion expense.

Inventories are valued at the lower of cost or market value and have been reduced by an estimated allowance for excess, obsolete and unsaleable inventories. The estimate is based on managements’ review of inventories on hand and its age, compared to estimated future usage and sales.

Goodwill, intangible and other long-lived assets.    Goodwill and other intangible assets are accounted for in accordance with Statement of Financial Accounting Standards No. 142 (“FAS 142”), Goodwill and Other Intangible Assets. FAS 142 requires the cessation of amortization of goodwill and other indefinite-lived intangibles. The Company performs annual impairment tests for these assets as well as interim impairment tests in the event of certain triggering events. At the adoption of FAS 142 on January 1, 2002, the Company determined that, in addition to goodwill, the Company’s tradenames are also indefinite-lived assets. The remaining intangible assets consisting primarily of formulas and recipes, and customer lists are classified as finite-lived assets and are being amortized over their remaining useful lives. The Company periodically assesses the net realizable value of its other noncurrent assets, including property, plant and equipment, and recognizes an impairment if the recorded value of these assets exceeds the undiscounted cash flows expected in future periods.

Derivative financial instruments have been used by the Company, as required by its senior secured debt agreement, to limit its exposure to significant increases in interest rates. The fair value of these derivatives, representing a liability to the Company of $15.8 million, based on price quotations from JPMorgan Chase Bank, the counterparty to the arrangements, has been reflected as a liability in the Company’s balance sheet as of December 31, 2002. Changes in interest rates subsequent to December 31, 2002 will impact the recorded amounts of liability and expense in future periods and will also impact the amount of this liability which will ultimately be required to be paid in cash.

Deferred tax assets have been recorded by the Company in prior periods, a significant portion of which represented net operating loss carryforwards and the tax benefits recorded on adoption of FAS 142. As of December 31, 2002, management determined that it was no longer more likely than not that the Company would be able to realize its deferred tax assets. This conclusion was reached after consideration of the expected changes and results arising from the Company’s divestiture process and projections of taxable income in future periods. Consequently, the Company recorded a valuation allowance to fully reserve the Company’s net deferred tax assets.

Revenue recognition.    Revenue is recognized upon shipment of product and transfer of title to customers.

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Accounting Changes

Effective as of January 1, 2000, the Company adopted the consensus reached in EITF 00-14, Accounting for Certain Sales Incentives. This consensus had the effect of accelerating the recognition of certain marketing expenses as well as requiring that certain items previously classified as distribution, promotion and marketing expenses now be classified as reductions of revenue. As a result of this change in accounting, the cumulative after tax effect of the change on prior years (to December 31, 1999) of $12,161,000 has been recognized as an expense in the Statement of Operations for the year ended December 31, 2000.

Effective January 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 133 (“FAS 133”), Accounting for Derivative Instruments and Hedging Activities, and recorded a cumulative adjustment from adoption, net of tax, of $2,277,000 in Other Comprehensive Loss. See Note 16 to the consolidated financial statements included in this Form 10-K.

Effective January 1, 2002, the Company adopted the consensus reached in EITF 00-25 and 01-09, which required that certain items, which had been classified as trade promotions expense in prior years, be reclassified as reductions of net sales. Adoption of the consensus had no impact on cash flow or the reported amounts of operating income for any period. Following this change, all payments made by the Company to direct and indirect customers to promote and facilitate the sale of the Company’s products are reflected as reductions of net sales. Prior year amounts in the accompanying statement of operations have been reclassified to conform with this new presentation.

On January 1, 2002, the Company adopted FAS 142. FAS 142 generally requires that (1) recorded amounts of goodwill no longer be amortized, on a prospective basis, (2) the amount of goodwill recorded on the balance sheet of the Company be evaluated annually for impairment using a two-step method, (3) other identifiable intangible assets be categorized as to whether they have indefinite or finite lives, (4) intangibles having indefinite lives no longer be amortized on a prospective basis, and (5) the amount of intangibles having indefinite lives on the balance sheet of the Company be evaluated annually for impairment using a one-step method.

During the first quarter of 2002, the Company determined that all identifiable intangibles have definite lives with the exception of all of the Company’s tradenames. Amortization of the tradenames ceased January 1, 2002 and the carrying values were tested for impairment as of that date using a one-step test comparing the fair value of the asset to its net carrying value. The Company determined the fair value of the tradenames based on valuations performed by outside parties using the excess earnings approach. The fair value of all tradenames exceeded their net carrying value except for the Lender’s and Celeste tradenames. The net carrying value for these two tradenames was in excess of their fair value by $155.6 million, which was recorded, net of tax of $60.7 million, as a cumulative effect of a change in accounting principle.

The two-step method used to evaluate recorded amounts of goodwill for possible impairment involves comparing the total fair value of each reporting unit, as defined, to the recorded book value of the reporting unit. If the book value of the reporting unit exceeds the fair value of the reporting unit, a second step is required. The second step involves comparing the fair value of the reporting unit less the fair value of all identifiable net assets that exist (the “residual”) to the book value of goodwill. Where the residual is less than the book value of goodwill for the reporting unit, an adjustment of the book value down to the residual is required.

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Results of the first step of the Company’s impairment test of goodwill, completed during the second quarter of 2002, indicated goodwill impairment in two of the Company’s reporting units. Independent valuations using the discounted cash flow and market comparable approaches indicated the fair value of each reporting unit exceeded the book value for each reporting unit except for the Company’s seafood and Chef’s Choice businesses, primarily in the retail segment, due principally to changes in business conditions and performance relative to expectations at the time of acquisition. Based on the results of the first step, the Company recorded an estimated goodwill impairment charge, as of January 1, 2002, for the seafood and Chef’s Choice reporting units, in the statement of operations as a cumulative effect of a change in accounting principle. The results from the first quarter of 2002 were restated in the second quarter to reflect this estimated charge.

The Company completed the second step of its goodwill impairment test for the seafood and Chef’s Choice reporting units during the fourth quarter of 2002. The results of the second step indicated that the book value of goodwill for the seafood and Chef’s Choice reporting units, as of January 1, 2002, exceeded the fair value of those two reporting units, less the fair value of all identifiable net assets, by $94.1 million. Consequently, the Company has recorded an additional charge in the statement of operations as a cumulative effect of a change in accounting principle. The final goodwill impairment charge of $94.1 million, net of tax of $21.6 million, has been recorded in the statement of operations as a cumulative effect of a change in accounting principle effective as of January 1, 2002. The results from the first quarter of 2002, previously restated in the Company’s  Form 10-Q for the second quarter, are further restated below to reflect the final goodwill impairment charge associated with the adoption of FAS 142.

The adoption of FAS 142 resulted in total impairment charges to goodwill and tradenames of $249.6 million, which has been recorded, net of tax of $82.3 million, as a cumulative effect of a change in accounting principle, effective as of January 1, 2002.

The following table summarizes the restated results for the quarter ended March 31, 2002 (in thousands except per share amounts):

Effective January 1, 2002, with the adoption of FAS 142, the Company reclassified $1.6 million of other intangibles to goodwill to comply with new intangible asset classification guidelines in FAS 142.

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The following schedule shows net loss and net loss per share adjusted to exclude the Company’s amortization expense related to goodwill and indefinite lived intangibles (net of tax effects) as if such amortization expense had been discontinued in 2001 and 2000 (in thousands):

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Results of Operations

The following tables set forth the historical results of operations for the periods indicated as well as the percentage which the historical items in the Statements of Operations bear to net sales. Certain amounts from prior years have been reclassified to conform to the Company’s current year presentation.

Consolidated Statements of Operations

(in thousands except per share amounts)

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Consolidated Statements of Operations

(as a percentage of Net Sales)

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In 2002 and 2001, the Company managed its business in three operating segments, which are based on the distribution of its products: Retail, Food Service and Other distribution channels, as described in Note 24 to the financial statements included in this Form 10-K. This organization structure was put in place following the Company’s consolidation of administration in St. Louis in late 2000. The following discussion and analysis of the results of operations, comparing 2002 to 2001 and 2001 to 2000, is based on those segments and that organization structure where appropriate. Amounts for calendar 2000 have been recast from the previously reported segmentation for comparative purposes. References in the discussion to market, category or segment sales, market shares percentages and market positions reflect United States retail supermarket information for the 52-week period ending in late December 2002, 2001 and 2000, as gathered by Information Resources Incorporated (“IRI”). It should be noted that beginning in fiscal 2001, this IRI information no longer includes sales by Wal-Mart and its affiliates who accounted for approximately 18% and 14% of the Company’s net sales in 2002 and 2001, respectively.

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

Results for the year ended December 31, 2002 include pretax adjustments of $20.1 million recorded during the first quarter of 2002 principally from changes in estimates. These adjustments consisted primarily of net sales adjustments of $17.7 million, principally for trade promotion costs, along with a charge to cost of sales of approximately $1 million for unresolved inventory disputes and $1.1 million charged to selling, general and administrative costs, principally associated with an executive’s severance. The trade promotion adjustments were a result of updated evaluations of the Company’s reserves and assumptions for such costs. Settlement of trade promotion costs has historically occurred when a customer deducts, from amounts otherwise due to the Company, amounts the customer determines are due to it. Final resolution of the amounts appropriately deducted has taken extended periods of time. The Company is in the process of changing its promotion payment strategies to reduce both the amounts that are settled through subsequent deduction by its customers and the resulting estimation required in establishing appropriate reserves for incurred costs.

Operating results by segment were as follows (in thousands):

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Net Sales in 2002 decreased $70.3 million, or 8.3% from 2001, as a result of increased trade spending levels, the first quarter adjustments discussed above and unfavorable mix of products and distribution channel sales as a result of higher sales of lower price products. Net sales in 2002 as compared to 2001 were impacted by retail volume decreases of approximately 2.4% in seafood products, bagels, frozen pizza, skillet meals and syrups, which were offset in part by increased volume sales of frozen breakfast and baking products. The seafood sales decline resulted from stronger than expected industry sales of private label shrimp, which reduced sales and consumption of traditional fish products during the Lent season. Shrimp prices were significantly below historical levels. These seafood declines in the Mrs. Paul’s brand were offset by sales of its new shrimp bowls meals, resulting in no volume change for the brand. However, the Company reduced its seafood consumer marketing and advertising in 2002 and increased trade spending, primarily to place and promote the new shrimp bowls, which lowered net sales. Lender’s bagel volume was down 12.4% as increased sales of refrigerated bagels were more than offset by lower frozen and fresh sales. The decline in frozen pizza sales is due to the Company not offering the magnitude of certain promotional events in 2002, as compared to 2001. Skillet meals net sales were lower due to significant market segment contraction as a result of increased competition from other meal segments. Sales of syrup products decreased from the prior year on slightly lower volume, unfavorable product mix and increased trade expenses, which are reflected in net sales. Retail frozen breakfast products volume increased 7.8% primarily due to increased pancake and waffle sales and favorable product pricing in comparison to major competitors. Duncan Hines volumes increased 7.5%, however net sales dollars were relatively flat due to product mix and increased promotional costs.

Food service net sales decreased $0.2 million from prior year levels primarily as a result of a decline in sales of bagel products offset in part by increased sales of frozen breakfast products. Net sales in other distribution channels increased $1.7 million, primarily due to increased sales of baking and syrup products in drug, discount, and convenience stores and increased private label seafood and bagel sales. This was offset in part by lower volume sales of higher than average per unit seafood products in club stores, principally due to distribution losses.

Gross Profit decreased $70.0 million or 20.2% to $277.4 million in 2002 from $347.4 million in 2001. In addition to the previously described first quarter adjustments, gross profit in 2002 as compared to 2001 was impacted by the decline in net sales described above. In addition, gross profit was impacted by a shift in the mix of sales to lower margin products, increased inventory obsolescence costs and additional depreciation expenses associated with capital expenditures, offset in part by reduced costs in syrup production as production was moved from contract manufacturers to a Company owned facility, reduced overall raw materials prices and reduced manufacturing costs as a result of closing the West Seneca facility. The Company recorded expenses of $10.8 million in 2002 for excess and obsolete inventory, as compared to $2.9 million in 2001. These charges were recorded primarily in the third and fourth quarters, due to inventory which had become aged, primarily due to certain distribution losses in seafood and declining sales of certain Chef’s Choice products, as well as the Company’s transition plan to reduce operating complexity, reduce inventories and eliminate a significant number of low volume product offerings. Depreciation expense in 2002 increased to $28.0 million, an increase of approximately $1.3 million over 2001, primarily due to capital expenditures. The cost of raw materials was lower with price decreases in meats, dairy, vegetables, bread, corrugate packaging materials and significant cost savings on purchases of seafood and shrimp raw materials, offset in part by higher costs of flour, oils and shortening, flavorings and plastic packaging materials. The 2001 results included one-time gains associated with the renegotiation of employee benefits at the West Seneca, New York facility, and with the termination of an unprofitable contract production agreement. Gross profit as a percentage of net sales declined from 41.2% in 2001 to 35.9% in 2002, as cost of goods sold remained relatively flat and net sales declined as described above.

Brokerage and Distribution expenses decreased $0.7 million in 2002 to $117.1 million, due to decreases in brokerage expenses of approximately $1.8 million as the Company increased the level of off-invoice trade allowances in 2002 which lowered brokerage commissions, offset in part by increased warehousing costs of $1.2 million as average inventory levels increased during 2002 as compared to 2001.

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Consumer Marketing expenses, which include the costs of advertising and other events and expenses to promote the Company’s products directly with the consumer, decreased $11.5 million or 30.9% to $25.7 million in 2002 from $37.2 million in 2001. This decrease was due to the lower levels of spending in 2002 on seafood, bagel and syrup products that was redeployed to trade spending reflected in net sales.

Amortization Expense decreased $34.3 million due to the elimination of amortization of goodwill and certain other intangible assets following the adoption of FAS 142. See Note 2 to the consolidated financial statements included in this Form 10-K.

Selling, General and Administrative expenses increased $1.0 million to $59.0 million in 2002 from $58.0 million in 2001. The increase was principally due to severance costs associated with a former executive officer, additional expense associated with an arbitration settlement and increased compensation related expenses due to increased headcount as compared to 2001. These amounts were offset in part by decreases in expenses for incentive compensation, market research and share data as the Company reduced expenditures for these items and negotiated lower rates, decreased depreciation and decreases in expenses for relocation and consulting services.

Goodwill and Tradename Impairment Charges.    The Company completed its annual impairment tests for goodwill and other indefinite-lived intangible assets as of December 31, 2002. Based on the results of those tests, the Company recorded a charge of $67.1 million for goodwill and tradename impairment for three of its business units. See Note 7 the financial statements included in this Form 10-K.

Plant Closure and Asset Impairment Charges.    During the second quarter, the Company closed its West Seneca, New York, Lender’s bagel manufacturing facility and recorded charges of $32.4 million in 2002. During the fourth quarter of 2002, the Company announced its intention to close its Yuba City, California facility and recorded a charge of $6.7 million. During the fourth quarter of 2002, the Company completed a strategic assessment of its existing capacity in relation to the Company’s future operational plans. Based upon that assessment, the Company recorded a charge of approximately $14.1 million in the statement of operations for fixed assets determined to be permanently impaired. The impaired fixed assets represent a broad range of fixed assets across all business lines located at various facilities. See Note 12 to the financial statements included in this Form 10-K.

Operating Income decreased $147.8 million in 2002 as compared to 2001. Operating income in 2002 was impacted negatively by the goodwill and tradename impairment charges and plant closure and asset impairment charges, offset in part by reduced amortization expense in 2002 resulting from the adoption of FAS 142. Excluding the impact of those items, operating income declined $61.8 million in 2002 as compared to 2001, which is primarily due to increased trade spending levels and the impact of the first quarter charge.

Interest and Financing Expenses.    Net interest expense, decreased to $92.5 million in 2002 from $103.2 million in 2001 primarily due to lower interest rates on variable rate debt as compared to the prior year. This benefit was offset in part by increases in the margin that the Company pays above floating market rates pursuant to its senior secured debt agreement, as amended, and higher levels of indebtedness from the additional financing obtained in June 2002.

The benefit of lower interest rates to the Company is partially limited by the Company’s interest rate swap agreement and interest rate collar agreement. The interest rate swap agreement functions to lock the interest rate on $150 million of debt at a LIBOR rate of 6.01% plus the applicable margin paid by the Company on its senior secured debt. The interest rate collar agreement functions to lock the interest rate on $150 million of debt at a LIBOR rate of 6.5% plus the applicable margin paid by the Company on its senior secured debt when the three-month LIBOR rate is less than 4.55% or between 5.38% and 7.40%.

Net market adjustments associated with the Company’s derivative instruments, which were not effective as hedges as determined by FAS 133, resulted in $12.1 million of expense in 2002, compared to $10.6 million in 2001. See Note 16 to the financial statements included in this Form 10-K.

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During 2002, the Company expensed $1.8 million related to the value of warrants issued on May 1, 2002. See Note 9 to the financial statements included in this Form 10-K.

Amortization of deferred financing expenses increased $4.2 million to $7.7 million in 2002, compared to $3.5 million in 2001. During the second quarter of 2002, the Company expensed approximately $1.9 million of previously deferred financing costs related to credit agreement amendments which were replaced by the June 27, 2002 amendment. During the fourth quarter, the Company expensed approximately $1.9 million of deferred financing costs related to the June 27, 2002 credit agreement amendment that was replaced by the February 21, 2003 amendment.

Income Tax Expense.    The Company recorded income tax expense in 2002 of $146.8 million as compared to income tax benefit of $6.8 million in 2001. During the fourth quarter of 2002, the Company established a valuation allowance of $185.6 million on its net deferred tax assets. The establishment of this valuation allowance was offset in part by deferred tax benefits recorded earlier in 2002. See Note 17 to the financial statements included in this Form 10-K.

Cumulative Effect of Change in Accounting.    Effective January 1, 2002, the Company adopted FAS 142, Goodwill and Other Intangible Assets. As a result, the Company recorded a cumulative effect of a change in accounting principle of $167.4 million, net of tax in the accompanying statement of operations. See Note 2 to the financial statements included in this Form 10-K.

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

Operating results by segment were as follows (in thousands):

Net Sales grew $21.1 million in 2001, or 2.6% from 2000, with overall total unit volume growth of 5.2% in 2001 from prior year levels. Net sales dollars grew slower than unit volume increases due to the relatively stronger sales growth in the lower priced food service and other distribution segments. The retail segment decrease of 0.1% in net sales in 2001 resulted from a net unit volume increase of 3.8%, offset by increased trade promotions spending, primarily in seafood, frozen breakfast and bagels. Net sales and volume increased in baking mixes and frosting and breakfast products, offset primarily by lower net sales for seafood, bagels and syrups. Retail baking mixes and frosting net sales increased 11.6% from the prior year, with strong volume

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increases across the product lines pushing Duncan Hines from the #3 position into the #2 position in the United States baking mix and frosting category. The increases resulted from new product introduction, new consumer advertising and promotion as well as improved trade promotion planning and execution. The volume gains were offset in part by a slight shift in the Company’s mix of unit sales to lower priced products, which lowered the overall net sales per unit. Retail net sales of breakfast product rose 1.9% in 2001 from the prior year, and volumes increased 3.2%, principally due to increased pancake sales. Aunt Jemima branded products moved from #3 to #2 in volume and dollar sales in the frozen breakfast category. Retail seafood sales volume in 2001 increased 3.9% from the prior year principally due to the introduction of new shrimp products, although net sales declined 0.6% from the prior year due to increased trade promotions spending. Retail net sales of bagels declined 17.5% in 2001 from 2000, primarily due to consumption declines in the frozen category. Trade promotions spending increased for bagels in the second half of 2001 as brand support strategies changed in response to the declining volumes. Syrup and mix net sales in 2001 declined 3.1% from prior year levels, as the Company reduced certain aggressive promotional practices utilized in prior years, which had increased market shares, but which had significantly reduced the overall profitability for the syrup brands. This decline was also in line with the trends in the market category.

Total food service net sales increased 4.3% in 2001 from 2000 levels due to strong volume gains in frozen breakfast, syrup and bagels. Net sales through other distribution channels increased $19.7 million or 22.9% to $105.5 million in 2001 from $85.8 million in 2000. The increases were primarily the result of syrup and baking mix and frosting volume increases in club stores and increased export sales, along with product mix changes to relatively higher priced products.

Gross Profit increased $15.0 million or 4.5% to $347.4 million in 2001 from $332.4 million in 2000. Overall variable margins increased due to plant efficiencies. The net cost of raw materials was generally stable with costs for the increased sales of higher cost shrimp products and higher costs of cheese offset by lower sugar costs. Gross profit was favorably impacted by lower fixed manufacturing costs due to improved plant efficiencies and gains associated with the cancellation of an unprofitable contract production agreement and the renegotiation of employee benefits at the West Seneca, New York facility, offset in part by increased consulting costs associated with obtaining the plant efficiencies. Depreciation expense of $26.7 million increased approximately $3.1 million in 2001 from 2000 amounts due to capital expenditures and a shortening of the estimated lives of certain assets associated with syrup production assets at contract manufacturing facilities, as the Company anticipates moving production to its facility in St. Elmo, Illinois.

Brokerage and Distribution expenses increased $0.1 million in 2001 to $117.7 million, but decreased to 14.0% of net sales in 2001 from 14.3% of net sales in 2000. Freight and warehousing expenses decreased on a per unit basis, as the Company continued to work to improve its distribution economics. In addition, total brokerage costs in 2001 declined from 2000 reflecting the full year effect of the Company’s consolidation to a national retail broker in the second quarter of 2000. During the second quarter of 2001, this broker filed for bankruptcy and the business was absorbed by Acosta, which the Company selected as its new national retail broker. The change in brokers did cause some temporary disruption on selected brands, but did not have a significant impact on overall sales. The change did, however, result in delays in processing customer trade promotion payments and deductions.

Consumer Marketing expenses, which include the costs of advertising and other events and expenses to promote the Company’s products directly with the consumer, were essentially unchanged in 2001 from prior year levels. Increased spending in 2001 as compared to 2000 to support bagels and baking mixes and frosting was offset by reductions in the support for syrups which had been higher in 2000, to support new product introduction.

Selling, General and Administrative expenses increased $7.9 million to $58.0 million in 2001 from $50.1 million in 2000. The increase was principally due to external consulting fees paid to support product, production and internal system initiatives along with salary, variable compensation and related costs associated with an increase in the number of corporate employees needed to support the business. Bonus expense increased approximately $3.4 million, reflecting higher payments for improved operating performance.

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Other Financial, Legal and Accounting income in 2001 of $3.8 million reflects a gain related to the receipt of shares of common stock from former management, valued in excess of amounts required to be distributed, net of other related costs. The shares received and required distribution by the Company are part of the settlement reached following the investigation in 2000 and early 2001 into the Company’s accounting practices in 1998 and 1999, the resulting restatement of results for those periods, related litigation and governmental proceedings, defaults under its loan agreements, indenture and related matters. (See Part I, Item 3: Legal Proceedings and Note 13 to the consolidated financial statements included in this Form 10-K.) During 2000, the Company incurred financial, legal and accounting expenses, including charges to obtain waivers of its events of default and charges related to amending its financing facilities. Such costs totaled $47.4 million in 2000. These costs included a $17.7 million non-cash charge associated with the issuance of common stock to certain holders of the Company’s senior subordinated debt.

Columbus Consolidation Costs.    During the third quarter of 2000, the Company consolidated its administrative office and functions in St. Louis, Missouri and closed its office in Columbus, Ohio. Expenses totaling $0.7 million and $6.9 million in 2001 and 2000, respectively, represent amounts for the involuntary termination of approximately 50 sales, marketing, finance, information systems, purchasing and customer service employees of $2.7 million, a non-cash charge for abandoned leasehold improvements and capitalized software that will no longer be used of $3.1 million, and estimated unrecovered office lease costs after consolidation and other items of $1.8 million. All payments related to the consolidation have been made with the exception of $0.6 million, related to unused office space.

Transition Expenses.    During 2000, the Company incurred approximately $3.0 million primarily related to the integration of the Chef’s Choice and Lender’s businesses and the dry grocery administrative consolidation. These expenses represent one-time costs incurred to integrate operations and acquired businesses.

Operating Income increased $67.9 million to $92.9 million in 2001 from $25.0 million in 2000. Operating income in 2000 was significantly affected by the $47.4 million of other financial, legal and accounting expenses and the Columbus consolidation costs and transition expenses. Before giving effect to other financial, legal and accounting items, Columbus consolidation costs and transition expenses, operating income increased to $89.8 million in 2001 from $82.2 million in 2000.

Interest and Financing Expenses.    Interest expense, net of interest income, decreased $6.6 million in 2001 to $103.0 million from $109.6 million in 2000 as the Company benefited from lower market interest rates on its floating rate senior debt and lower outstanding balances. This benefit was offset in part by increases in the margin that the Company pays above floating market rates pursuant to its senior secured debt agreement, as amended.

The benefit of lower interest rates to the Company is partially limited by the Company’s interest rate swap agreement and interest rate collar agreement. The interest rate swap agreement functions to lock the interest rate on $150 million of debt at a LIBOR rate of 6.01% plus the applicable margin paid by the Company on its senior secured debt. The interest rate collar agreement functions to lock the interest rate on $150 million of debt at a LIBOR rate of 6.5% plus the applicable margin paid by the Company on its senior secured debt when the three-month LIBOR rate is less than 4.55% or between 5.38% and 7.40%.

During 2001, in accordance with the new accounting standard applicable to derivative instruments and hedging activities, the Company recorded expense of $10.6 million as the adjustment to the value of certain of its interest rate derivative agreements which are not effective as interest rate hedges. Approximately $1.6 million of this amount was paid in cash in 2001 and the balance of approximately $9.0 million will either be paid in cash or reversed and reflected as income in future periods, depending on future changes in prevailing market interest rates and the terms of the derivatives.

Income Tax Benefit.    The income tax benefit recorded in 2001 and 2000 was 28.0% and 36.2%, respectively, of the pretax loss. The rate in 2001 reflects a reduction in the deferred state tax benefits associated with the anticipated apportionment of income to the various states in which the Company is subject to tax.

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Plant Closure Charges

On May 2, 2002, the Company announced its intention to close its West Seneca, New York, Lender’s bagel manufacturing facility. As a result of this decision, production at West Seneca ceased on May 31, 2002, with the formal closing on July 2, 2002. The closing resulted in the elimination of all 204 jobs. Impacted employees received severance pay in accordance with the Company’s policies and union agreements. The Company recorded charges of $32.4 million during 2002 in connection with the shutdown of the West Seneca facility. The non-cash portion of the charges was approximately $28.2 million and is attributable to the write-down of property, plant and equipment, with the remaining $4.2 million of cash costs related to severance and other employee related costs of $3.0 million, and other costs necessary to maintain and dispose of the facility of $1.2 million. As of December 31, 2002, the Company had paid approximately $2.9 million of severance and other employee related costs and $0.6 million of other costs for disposal of the facility. The remaining costs of $0.7 million are included in accrued expenses at December 31, 2002 and are expected to be paid in early fiscal 2003. The Company completed the sale of the West Seneca facility in December 2002, receiving net cash proceeds from the sale of approximately $2.4 million.

On October 30, 2002, the Company announced its intention to close its Yuba City, California facility where the Company manufactured specialty seafood and Chef’s Choice products. As a result of this decision, production at Yuba City facility ceased in early 2003. The closing resulted in the elimination of all 155 jobs. Impacted employees received severance pay in accordance with the Company’s policies. As a result the Company recorded a charge of $6.7 million during the fourth quarter of 2002. The non-cash portion of the charge of approximately $4.9 million is attributable to the write-down of property, plant and equipment. The remaining $1.8 million of cash costs is related to severance and other employee related costs of $0.9 million and other costs necessary to maintain and dispose of the facility of $0.9 million. As of December 31, 2002, the Company had not paid any cash costs related to the closing of this facility. These costs are included in accrued expenses at December 31, 2002 and the Company expects to pay a majority of the remaining costs in fiscal 2003.

Liquidity and Capital Resources

For the year ended December 31, 2002 the Company generated cash of $2.6 million from operating activities compared to $94.5 million for the year ended December 31, 2001. The $91.9 million decline in cash generation primarily resulted from poorer operating performance in 2002 and a $43.3 million net swing in cash used by working capital. The Company’s operating loss of $55.0 million in 2002 included non-cash charges of $154.2 million for depreciation and amortization, goodwill and tradename impairment charges and plant closure and asset impairment charges. The 2001 operating income of $92.8 million included depreciation and amortization charges of $76.7 million. The reduction in operating income, net of the above non-cash charges, was $70.3 million. This decline was primarily due to higher trade spending in 2002 and the first quarter adjustments. The Company anticipates that operating earnings will grow in 2003 primarily as a result of improved trade spending efficiency and cost reductions, offset in part by anticipated price increases for certain raw materials and costs of fuel.

The Company used $4.6 million for working capital in 2002, as compared to the $38.7 million generated in 2001. The net swing in cash used for accounts payable of $50.3 million accounted for a majority of the change in cash used in 2002. Accounts payable balances declined by $27.4 million as production levels in the latter part of 2002 were significantly lower than in 2001. In addition, in 2002 the Company utilized its revolving credit agreement to reduce its accounts payable balance. Reduction of accrued expenses, primarily for bonus accruals in 2002 and promotional and coupon marketing programs in 2001 was a significant use of cash in both years. Conversely, reductions in accounts receivable served as a significant source of liquidity. Looking ahead, reductions in inventory levels are expected to generate liquidity, however no significant annual changes in other working capital items is anticipated. Historical seasonal changes in working capital requirements are still to be expected.

Net cash used in investing activities for the year ended December 31, 2002 was $18.9 million compared to $24.9 million during 2001. In 2002, capital expenditures were $23.1 million, of which $8.1 million related to the

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Company’s St. Elmo, Illinois syrup production facility and distribution center. In 2002 the Company received proceeds of $4.2 million from the sales of assets, primarily related to its West Seneca, New York facility which was closed during the year. Capital expenditures for 2001 totaled $25.0 million, of which approximately $10 million represented an investment in the St. Elmo facility. The Company anticipates that capital expenditures for 2003 will be slightly lower than in 2002.

In light of the lower amount of cash provided by operations in 2002, on June 27, 2002, the Company secured commitments for $62.6 million, before discounts, of additional financing. The financing consisted of $37.6 million (before discount of $2.6 million) from the Company’s senior secured lenders and $25.0 million (before a cash discount of $0.75 million) from certain entities affiliated with the Company’s major shareholders. These funds were used for general operating purposes including providing working capital. At December 31, 2002, the Company’s debt principally consisted of $663.9 million of senior secured debt, $400 million of subordinated notes and the $25.0 million of senior unsecured notes. During 2002 the Company made $38.0 million in scheduled amortization payments on its senior secured debt and increased its borrowings under the revolver by $25.9 million. In addition, it decreased its sales of receivables by a net $18.5 million to $14.8 million.

The Company used the cash generated from operations in 2001 to reduce its debt. During 2001, the Company made $33.0 million in scheduled amortization payments on its senior debt and reduced its borrowings under the revolver by $32.3 million. In addition, it reduced its sales of receivables by a net $5.3 million to $33.3 million at December 31, 2001.

The Company’s principal future sources of liquidity, in addition to cash generated by operations, are its revolving credit facility under its senior secured lending agreement and its ongoing sale of receivables under its receivable sales facility.

The Company and its lenders amended the senior secured lending facility on February 26, 2002 to provide for revised financial covenants for the Company through March 31, 2003, to affirm the right of the Company to continue to sell receivables under the receivable sales agreement, and to provide flexibility for the Company to undertake a potential refinancing of its receivable sales facility. The amended covenants provided more operating latitude to the Company relative to those under which the Company operated in 2001. There was no requirement for asset sales, nor was there a penalty for the failure to sell assets. The restrictive covenants, as defined for 2002, did not permit additional indebtedness, except for nominal amounts and obligations incurred in the normal course of business, limited capital expenditures to $30.0 million, did not permit the payment of cash dividends and required the Company to maintain ratios of interest and fixed charge coverages and total and senior debt leverage.

In March 2002, the Company received a waiver of a specific technical provision of the senior secured debt agreement which would have otherwise required the Company to prepay approximately $20 million of this facility.

As discussed above, on June 27, 2002, the Company secured commitments for $62.6 million of additional financing and further amended the senior secured debt agreement. The amendment to the senior secured debt agreement revised certain of the financial covenants for future periods through September 30, 2003, and provided for the exclusion of fees and expenses associated with the amendment for purposes of the financial covenant calculations at June 30, 2002 and future periods. The amendment also provided for an excess leverage fee of 1.5% of average borrowings under the term loans and revolving credit facility for the period September 30, 2002 through September 30, 2003 and additional pay-in-kind interest of 1% per year on the average borrowings under the term loans and revolving credit facility from the date of the amendment until the date net cash proceeds of $200 million are received, in each case, payable only in the event the Company did not realize net cash proceeds of $200 million from the sale of assets prior to September 30, 2003. The amendment also reduced the maximum amount of receivables subject to sale under the receivable sales agreement from $42.0 million to $30.0 million.

At December 31, 2002, the Company was not in compliance with certain financial covenants of its senior secured debt agreement.

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On February 21, 2003 the Senior Secured Debt Facility was further amended. The amendment included provisions that:

With the waiver and amendment of the senior secured debt agreement on February 21, 2003, the Company was in compliance with the senior secured debt agreement, as amended, and anticipates remaining in compliance throughout fiscal 2003.

During 2002, the Company engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. as joint financial advisors to assist it in reviewing a range of strategic alternatives, including the sale of one or more of the Company’s lines of business, with the net cash proceeds from any such sale being used to repay senior secured debt. J.P. Morgan Securities Inc. is an affiliate of JP Morgan Chase Bank, Administrative Agent and lead Lender under the Company’s senior secured debt agreements. The focus of the divestiture process has been on the Company’s frozen foods businesses, including Van de Kamp’s and Mrs. Paul’s frozen seafood, Aunt Jemima frozen breakfast, Celeste frozen pizza and Chef’s Choice frozen skillet meals. The divestiture process is proceeding according to plan. The Company is in the process of receiving and evaluating final bids for the various frozen foods businesses, and expects to complete one or more asset sales in the near future. Due to the uncertainty inherent in the divestiture process, the Company cannot assure that it will be able to reach final agreements to sell one or more of its lines of business, nor can it guarantee that cash proceeds from the asset sales, if they were to occur, would be sufficient to meet all required debt repayments. Also see Notes 1 and 9 to the consolidated financial statements included in this Form 10-K.

The Company was helped by the declining interest rate environment in 2002. Because of the structure of its interest rate hedges, the Company receives a portion of the benefit from declining interest rates and is only subject to a portion of the effect of interest rate increases. Cash interest expense excluding bank fees in 2002 fell 6.7 percent to $94.1 million as compared to $100.9 million in 2001.

The second major source of effective financing for the Company is its receivable sales facility. In April 2000, the Company entered into an agreement to sell, on a periodic basis, specified accounts receivable in amounts of up to $60 million. The incremental liquidity provided by this receivable sales facility was required to

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deal with the extraordinary costs resulting from the restatements. The facility has subsequently been amended to reduce the maximum amount of receivable sales to $30 million and currently extends to September 30, 2003. Under terms of the receivable sales agreement, receivables are sold at a discount that effectively yields an interest rate to the purchaser of prime plus 2.5% to 3.0%. The Company sells receivables on a weekly or twice weekly basis and generates the ability to sell additional receivables as previously sold receivables are collected. As such, the receivables sale facility effectively acts in a manner similar to a secured revolving credit facility, although it is reflected on the balance sheet as a reduction in accounts receivable and not as debt, since the credit risk associated with the collection of accounts receivable sold has been transferred to the purchaser. Pursuant to terms of the February 21, 2003 amendment to the senior secured debt facility, the first $25.0 million of proceeds from sales of assets or businesses in excess of $200.0 million can be retained by the Company to eliminate the liquidity provided by sales of receivables pursuant to this agreement. During 2002, the Company reduced the net amounts sold under the receivable sales facility by $18.5 million dollars. Also see Note 20 to the consolidated financial statements included in this Form 10-K.

As of March 17, 2003 the Company has $19.4 million available for borrowings under its revolving credit agreement and has sold a net $15.9 million of accounts receivable.

The Company remains highly leveraged. At March 17, 2003, the Company had outstanding approximately $1.08 billion in aggregate principal indebtedness for borrowed money. The degree to which the Company is leveraged results in significant cash interest expense and principal repayment obligations and such interest expense may increase with respect to its senior secured credit facilities based on changes in prevailing interest rates. This leverage may, among other things, affect the ability of the Company to obtain additional financing, or adjust to changing market conditions. Absent the previously noted waivers and amendments to the Company’s senior secured debt agreement and the additional financing obtained in 2002, the Company would not have been able to remain in compliance with provisions of its debt agreements or fund its debt service obligations.

Based on the Company’s plans, management believes that cash generated from operations as well as cash available under its revolving credit agreement and its receivable sales facility will be adequate in 2003 to fund its operating and capital expenditure requirements and its debt service obligations. The Company’s ability to access its available liquidity under the revolver and receivable sale facility are dependent on the Company’s continued compliance with the covenants in the senior secured debt agreement. Demand for the food products that the Company sells is historically stable, and the Company believes that it will grow its operating earnings as costs continue to be reduced as a result of the 2002 plant closings and from future operating efficiencies, as well as from improvements in its trade spending efficiency, offset in part by increased prices for certain raw materials commodities and fuel costs in 2003. Capital expenditures are anticipated to decline from 2002 levels, and the Company expects overall working capital requirements to decline. Even with the expected continued favorable market interest rates, cash interest expense is likely to remain about flat as debt amortization payments continue to reduce debt, offset by increases in the Company’s effective interest rates due to the higher interest rate spread paid by the Company as a result of the February 21, 2003 amendment to the senior secured debt agreement. Cash generated from asset sales will be used to pay down senior secured debt.

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Commitments and Contractual Obligations

A summary of the non-cancelable contractual obligations of the Company as of December 31, 2002 is as follows (in thousands):