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EX-31.1 - SECTION 302 CEO CERTIFICATION - Pinnacle Foods Finance LLCdex311.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - Pinnacle Foods Finance LLCdex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - Pinnacle Foods Finance LLCdex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - Pinnacle Foods Finance LLCdex322.htm
EX-10.40 - LEASE - WOODCREST ROAD ASSOCIATES, L.P. AND PINNACLE FOODS GROUP LLC - Pinnacle Foods Finance LLCdex1040.htm
EX-10.41 - EMPLOYMENT OFFER LETTER - MARK L SCHILLER - Pinnacle Foods Finance LLCdex1041.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 333-148297

 

 

Pinnacle Foods Finance LLC

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-8720036

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1 Bloomfield Avenue

Mt. Lakes, New Jersey

  07046
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (973) 541-6620

 

 

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   ¨    No  x

(The Registrant believes it is a voluntary filer and it has filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*     Yes  ¨    No  ¨

 

* The registrant has not yet been phased into the interactive data requirements

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

As of August 9, 2010, there were outstanding 100 shares of common stock, par value $0.01 per share, of the Registrant.

 

 

 


TABLE OF CONTENTS

FORM 10-Q

 

             Page
No.
PART I – FINANCIAL INFORMATION   1

ITEM 1:

  FINANCIAL STATEMENTS   1
  CONSOLIDATED STATEMENTS OF OPERATIONS   2
  CONSOLIDATED BALANCE SHEETS   3
  CONSOLIDATED STATEMENTS OF CASH FLOWS   4
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY   5
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   6
  1.   Summary of Business Activities   6
  2.   Interim Financial Statements   6
  3.   Acquisition   7
  4.   Fair Value Measurements   9
  5.   Other Expense (Income), net   12
  6.   Inventories   12
  7.   Goodwill and Other Assets   13
  8.   Restructuring Charges   15
  9.   Debt and Interest Expense   16
  10.   Pension and Retirement Plans   21
  11.   Financial Instruments   24
  12.   Commitments and Contingencies   30
  13.   Related Party Transactions   31
  14.   Segments   32
  15.   Income Taxes   34
  16.   Recently Issued Accounting Pronouncements   35
  17.   Guarantor and Nonguarantor Statements   36

ITEM 2:

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   45
  RESULTS OF OPERATIONS   48
  LIQUIDITY AND CAPITAL RESOURCES   57
  INFLATION   65
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS   65

ITEM 3:

  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK   66

ITEM 4:

  CONTROLS AND PROCEDURES   72
PART II – OTHER INFORMATION   73

ITEM 1:

  LEGAL PROCEEDINGS   73

ITEM 1A:

  RISK FACTORS   73

ITEM 2:

  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   73

ITEM 3:

  DEFAULTS UPON SENIOR SECURITIES   73

ITEM 4:

  RESERVED TO THE NEW VOTING REPORTING RULES   73

ITEM 5:

  OTHER INFORMATION   73

ITEM 6:

  EXHIBITS   73
SIGNATURES   79


PART I – FINANCIAL INFORMATION

 

ITEM 1: FINANCIAL STATEMENTS

Unaudited consolidated financial statements begin on the following page

 

1


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands of dollars)

 

     Three months ended          Six months ended
     June 27,
2010
   June 28,
2009
         June 27,
2010
   June 28,
2009

Net sales

   $ 576,080    $ 408,822         $ 1,232,516    $ 836,230

Cost of products sold

     434,142      318,152           934,848      658,145
                                

Gross profit

     141,938      90,670           297,668      178,085
 

Operating expenses

                

Marketing and selling expenses

     38,490      30,602           91,327      64,957

Administrative expenses

     26,562      15,974           60,492      29,503

Research and development expenses

     2,202      1,107           4,548      2,117

Other (income) expense, net

     4,286      4,197           8,809      8,394
                                

Total operating expenses

     71,540      51,880           165,176      104,971
                                
 

Earnings before interest and taxes

     70,398      38,790           132,492      73,114
 

Interest expense

     53,503      28,658           108,714      58,268

Interest income

     70      9           157      13
                                

Earnings before income taxes

     16,965      10,141           23,935      14,859

Provision for income taxes

     2,791      7,616           5,831      14,434
                                

Net earnings

   $ 14,174    $ 2,525         $ 18,104    $ 425
                                

See accompanying Notes to Unaudited Consolidated Financial Statements

 

2


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

(thousands of dollars)

 

     June 27,
2010
    December 27,
2009
 

Current assets:

    

Cash and cash equivalents

   $ 142,827      $ 73,874   

Accounts receivable, net

     155,623        158,004   

Inventories, net

     296,646        389,967   

Other current assets

     28,603        26,960   

Deferred tax assets

     35,657        25,670   
                

Total current assets

     659,356        674,475   

Plant assets, net

     421,666        412,208   

Tradenames

     1,658,812        1,658,812   

Other assets, net

     218,352        233,823   

Goodwill

     1,559,180        1,559,180   
                

Total assets

   $ 4,517,366      $ 4,538,498   
                

Current liabilities:

    

Short-term borrowings

   $ 378      $ 1,232   

Current portion of long-term obligations

     4,336        38,228   

Accounts payable

     108,169        130,360   

Accrued trade marketing expense

     39,669        49,048   

Accrued liabilities

     152,586        130,035   

Accrued income taxes

     2,353        455   
                

Total current liabilities

     307,491        349,358   

Long-term debt (includes $129,310 and $109,237 owed to related parties)

     2,855,496        2,849,251   

Pension and other postretirement benefits

     78,454        82,437   

Other long-term liabilities

     34,508        39,383   

Deferred tax liabilities

     352,890        343,716   
                

Total liabilities

     3,628,839        3,664,145   

Commitments and contingencies

    

Shareholder’s equity:

    

Pinnacle Common stock: par value $.01 per share, 100 shares authorized, issued 100 shares

     —          —     

Additional paid-in-capital

     693,052        693,196   

Notes receivable from officers

     —          (565

Retained earnings

     243,417        225,313   

Accumulated other comprehensive (loss) income

     (47,942     (43,591
                

Total shareholder’s equity

     888,527        874,353   
                

Total liabilities and shareholder’s equity

   $ 4,517,366      $ 4,538,498   
                

See accompanying Notes to Consolidated Financial Statements

 

3


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands of dollars)

 

     Six months ended  
     June 27,
2010
    June 28,
2009
 

Cash flows from operating activities

    

Net earnings from operations

   $ 18,104      $ 425   

Non-cash charges (credits) to net earnings

    

Depreciation and amortization

     38,677        32,472   

Amortization of discount on term loan

     1,374        —     

Amortization of debt acquisition costs

     6,582        2,367   

Amortization of deferred mark-to-market adjustment on terminated swaps

     1,829        2,394   

Change in value of financial instruments

     1,251        110   

Stock-based compensation charge

     410        453   

Postretirement healthcare benefits

     (24     (13

Pension expense net of contributions

     (464     1,316   

Other long-term liabilities

     1,276        1,151   

Other long term assets

     156        (1,297

Deferred income taxes

     (3,957     15,037   

Changes in working capital

    

Accounts receivable

     2,487        (3,278

Inventories

     93,685        4,935   

Accrued trade marketing expense

     (9,441     (3,653

Accounts payable

     (8,070     14,933   

Accrued liabilities

     13,327        1,475   

Other current assets

     (4,650     (1,432
                

Net cash provided by operating activities

     152,552        67,395   
                

Cash flows from investing activities

    

Capital expenditures

     (37,534     (31,145
                

Net cash used in investing activities

     (37,534     (31,145
                

Cash flows from financing activities

    

Change in bank overdrafts

     (14,305     —     

Repayment of capital lease obligations

     (876     (138

Repayment of notes receivable from officers

     565        —     

Equity contributions

     350        250   

Repurchases of equity

     (904     (5

Debt acquisition costs

     (17     —     

Borrowings under revolving credit facility

     —          32,208   

Repayments of revolving credit facility

     —          (58,208

Proceeds from short-term borrowings

     497        —     

Repayments of short-term borrowings

     (1,350     (163

Repayments of long term obligations

     (30,143     (6,250
                

Net cash used in financing activities

     (46,183     (32,306
                

Effect of exchange rate changes on cash

     118        122   

Net change in cash and cash equivalents

     68,953        4,066   

Cash and cash equivalents - beginning of period

     73,874        4,261   
                

Cash and cash equivalents - end of period

   $ 142,827      $ 8,327   
                

Supplemental disclosures of cash flow information:

    

Interest paid

   $ 84,074      $ 65,128   

Interest received

     157        13   

Income taxes paid

     5,858        578   

Non-cash investing activity:

    

Capital lease activity

     (1,998     (1,227

See accompanying Notes to Unaudited Consolidated Financial Statements

 

4


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (unaudited)

(thousands of dollars, except share amounts)

                           Retained     Accumulated        
               Additional     Notes     earnings     Other     Total  
     Common Stock    Paid In     Receivable     (Accumulated     Comprehensive     Shareholder’s  
     Shares    Amount    Capital     From Officers     Deficit)     (Loss) Income     Equity  

Balance at December 28, 2008

   100    $ —      $ 427,323      $ —        $ (77,290   $ (42,460   $ 307,573   

Equity contributions:

                

Cash

           250              250   

Repurchases of equity

           (5           (5

Equity related compensation

           453              453   

Comprehensive income:

                

Net earnings

               425          425   

Swap mark to market adjustments, net of income tax benefit of $43

                 (6,026     (6,026

Amortization of deferred mark-to-market adjustment on terminated swaps

                 2,394        2,394   

Foreign currency translation

                 (732     (732
                      

Total comprehensive loss

                   (3,939
                                                    

Balance at June 28, 2009

   100    $ —      $ 428,021      $ —        $ (76,865   $ (46,824   $ 304,332   
                                                    

Balance at December 27, 2009

   100    $ —      $ 693,196      $ (565   $ 225,313      $ (43,591   $ 874,353   

Equity contribution:

                

Cash

           350              350   

Repurchases of equity

           (904           (904

Equity related compensation

           410              410   

Collection of notes receivable from officers

             565            565   

Comprehensive income:

                

Net earnings

               18,104          18,104   

Swap mark to market adjustments, net of tax benefit of $2,886

                 (4,283     (4,283

Amortization of deferred mark-to-market adjustment on terminated swaps, net of tax provision of $2,459

                 (630     (630

Foreign currency translation, net of tax benefit of $151

                 557        557   

Net gain on Pension and OPEB actuarial assumptions, net of tax provision of $3,769

                 5        5   
                      

Total comprehensive income

                   13,753   
                                                    

Balance at June 27, 2010

   100    $ —      $ 693,052      $ —        $ 243,417      $ (47,942   $ 888,527   
                                                    
                

For the three months ended June 27, 2010 and June 28, 2009, total comprehensive income was $12,768 and $3,408

See accompanying Notes to Unaudited Consolidated Financial Statements

 

5


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands of dollars, except share amounts and where noted in millions)

1. Summary of Business Activities

Business Overview

Pinnacle Foods Finance LLC (hereafter referred to as the “Company” or “PFF”) is a leading manufacturer, marketer and distributor of high quality, branded convenience food products, the products and operations of which are managed and reported in three operating segments: (i) Birds Eye Frozen, (ii) Duncan Hines Grocery and (iii) Specialty Foods. Our United States retail frozen vegetables (Birds Eye®), single-serve frozen dinners and entrées (Hungry-Man®, Swanson®), multi-serve frozen dinners and entrées (Birds Eye Voila!®), frozen seafood (Van de Kamp’s®, Mrs. Paul’s®), frozen breakfast (Aunt Jemima®), bagels (Lender’s®), and frozen pizza (Celeste®) are reported in the Birds Eye Frozen Division. Our baking mixes and frostings (Duncan Hines®), shelf-stable pickles, peppers and relish (Vlasic®), barbeque sauces (Open Pit®), pie fillings (Comstock®, Wilderness®), syrups (Mrs. Butterworth’s® and Log Cabin®), salad dressing (Bernstein’s®), canned meat (Armour®, Nalley®, Brooks®) and all Canadian Operations are reported in the Duncan Hines Grocery Division. The Specialty Foods Division consists of snack products (Tim’s Cascade® and Snyder of Berlin®) and our food service and private label businesses.

On February 10, 2007, Crunch Holding Corp. (“CHC”), the parent company of Pinnacle Foods Group Inc. (“PFGI”), entered into an Agreement and Plan of Merger with Peak Holdings LLC (“Peak Holdings”), a Delaware limited liability company controlled by affiliates of The Blackstone Group, Peak Acquisition Corp. (“Peak Acquisition”), a wholly owned subsidiary of Peak Holdings, and Peak Finance LLC (“Peak Finance”), an indirect wholly owned subsidiary of Peak Acquisition, providing for the acquisition of CHC. Under the terms of the Agreement and Plan of Merger, the purchase price for CHC was $2,160.2 million in cash less the amount of indebtedness (including capital lease obligations) of CHC and its subsidiaries outstanding immediately prior to the closing and certain transaction costs. Pursuant to the Agreement and Plan of Merger, immediately prior to the closing, CHC contributed all of the outstanding shares of capital stock of its wholly owned subsidiary, PFGI, to a newly-formed Delaware limited liability company, PFF. At the closing, Peak Acquisition merged with and into CHC, with CHC as the surviving corporation, and Peak Finance merged with and into PFF, with PFF as the surviving entity.

As a result of the Merger, CHC became a wholly-owned subsidiary of Peak Holdings. This transaction closed on April 2, 2007 (the “Blackstone Transaction”).

On December 23, 2009 Pinnacle Foods Group LLC (“PFG LLC”), formerly known as PFGI, a subsidiary of PFF, purchased all of the outstanding common stock of Birds Eye Foods, Inc. (“Birds Eye”) (the “Birds Eye Acquisition”). See Note 3, for a full description of the transaction and brands of Birds Eye.

2. Interim Financial Statements

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of June 27, 2010, the results of operations for the three and six months ended June 27, 2010 and June 28, 2009, and the cash flows for the six months ended June 27, 2010 and June 28, 2009. The results of operations are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 27, 2009.

 

6


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

3. Acquisition

Acquisition of Birds Eye Foods, Inc.

On December 23, 2009, our wholly owned subsidiary, Pinnacle Foods Group LLC acquired all of the common stock of Birds Eye. Birds Eye’s product offering includes an expanding platform of healthy, high-quality frozen vegetables and frozen meals and a portfolio of primarily branded specialty foods which are highly-complimentary to Pinnacle’s existing product offerings. Frozen products are marketed under the Birds Eye brand name. Birds Eye markets traditional boxed and bagged frozen vegetables, as well as steamed vegetables using innovative steam-in-packaging technology, under the Birds Eye and Birds Eye Steamfresh brands. Birds Eye’s complete bagged meals, marketed under the Birds Eye Voila! brand, offer consumers value-added meal solutions that include a protein, starch, and vegetables in one convenient package. Birds Eye’s branded specialty food products hold leading market share positions in their core geographic markets, and include Comstock and Wilderness fruit pie fillings and toppings, Brooks and Nalley chili and chili ingredients, and snack foods by Tim’s Cascade and Snyder of Berlin.

The authoritative guidance for business combinations and goodwill and other intangible assets which established accounting and reporting for business combinations requires that all business combinations be accounted for using the purchase method of accounting. The guidance for goodwill and other intangible assets provides that goodwill and other intangible assets with indefinite lives are not to be amortized, but tested for impairment on an annual basis.

In December 2007, the FASB updated the authoritative guidance for business combinations. The guidance still requires business combinations to be accounted for using the purchase method of accounting, but changed the manner of applying the method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. The Birds Eye Acquisition has been accounted for in accordance with these standards.

The cost of the Birds Eye Acquisition consisted of:

 

Stated purchase price

   $ 670,000

Net repayment of Birds Eye’s debt

     670,383
      

Total cost of acquisition

   $ 1,340,383
      

 

7


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The following table summarizes the allocation of the total cost of the Birds Eye Acquisition to the assets acquired and liabilities assumed:

 

Assets acquired:

  

Cash and cash equivalents

   $ 25,637

Account receivable

     67,697

Inventories

     212,612

Other current assets

     2,806

Assets held for sale

     7,402

Deferred tax assets

     797

Plant assets

     146,813

Tradenames

     750,000

Distributor relationships and license agreements

     52,875

Goodwill

     565,013

Other assets

     53
      

Fair value of assets acquired

     1,831,705

Liabilities assumed

  

Accounts payable

     78,652

Accrued liabilities

     59,455

Pension and post retirement benefit plans

     49,307

Capital leases

     1,657

Other long-term liabilities

     14,520

Deferred tax liabilities

     287,731
      

Total cost of acquisition

   $ 1,340,383
      

Based upon the allocation, the value assigned to intangible assets and goodwill totaled $1,367.9 million. Of the total intangible assets, $48.0 million has been assigned to distributor relationships. Distributor relationships are being amortized on an accelerated basis over 30 years, this life was based on an attrition rate based on industry experience which management believes is appropriate in the Company’s circumstances. The Company has also assigned $750.0 million to the value of the tradenames acquired, of which $624.0 million is allocated to the Birds Eye Frozen segment, $90.0 million is allocated to the Duncan Hines Grocery segment and $36.0 million is allocated to the Specialty Foods segment. The values of the tradenames are not subject to amortization but are reviewed annually for impairment. Goodwill, which is also not subject to amortization, totaled $565.0 million, of which $304.6 million is allocated to the Birds Eye Frozen segment, $107.2 million is allocated to the Duncan Hines Grocery segment and $153.2 million is allocated to the Specialty Foods segment. No new tax-deductible goodwill or intangible assets were created as a result of the Birds Eye Acquisition, but historical tax-deductible goodwill and intangible assets in the amount of $79.4 million existed as of the closing of the Birds Eye Acquisition. The above allocation is subject to adjustment, pending the receipt of additional information relative to Birds Eye’s tax matters. The allocation is expected to be finalized during the fourth quarter.

In accordance with the requirements of the purchase method of accounting for acquisitions, inventories obtained in the Birds Eye Acquisition were required to be valued at fair value (net realizable value, which is defined as estimated selling prices less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity), which is $37.6 million higher than historical manufacturing cost. Cost of products sold for the three and six months ended June 27, 2010, and the fiscal year ended December 27, 2009 includes pre-tax charges of $9.7 million, $27.0 million and $0.5 million, respectively, related to the finished products at December 23, 2009, which were subsequently sold. The remaining $10.1 million will be recognized principally in the third quarter of 2010.

 

8


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The Birds Eye Acquisition was financed through borrowings of $850.0 million in term loans (“the Tranche C Term Loans”), $300.0 million of 9.25% Senior Notes due 2015 (the “Senior Notes”), a $260.0 million equity contribution from The Blackstone Group L.P., a $3.1 million investment from members of the board and management, less transaction costs of $0.2 million and $24.1 million in the six months ended June 27, 2010 and fiscal year ended December 27, 2009, respectively, and deferred financing costs of $40.2 million. Included in the transaction costs of $0.2 million for the six months ended June 27, 2010 are primarily legal, accounting and other professional fees. Included in the transaction costs of $24.1 million for the fiscal year ended December 27, 2009 are: $19.3 million in merger, acquisition and advisory fees, $4.0 million in legal, accounting and other professional fees and $0.8 million in other costs. The costs are recorded in Other expense (income), net in the Consolidated Statements of Operations. The Company also incurred $11.8 million in original issue discount, in connection with the Tranche C Term Loans. This is recorded in Long-term debt on the Consolidated Balance Sheet and is being amortized over the life of the loan using the effective interest method which is consistent with the relevant authoritative guidance.

Pro forma Information

The following schedule includes consolidated statements of operations data for the unaudited pro forma results for the six months ended June 28, 2009 as if the Birds Eye Acquisition had occurred as of the beginning of fiscal 2009. The pro forma information includes the actual results with pro forma adjustments for the change in interest expense related to the Birds Eye Acquisition, purchase accounting adjustments related to fixed assets, intangible assets, pension and other post-employment benefit liabilities, and related adjustments to the provision for income taxes.

The unaudited pro forma information is provided for illustrative purposes only. It does not purport to represent what the consolidated results of operations would have been had the Birds Eye Acquisition occurred on the date indicated above, nor does it purport to project the consolidated results of operations for any future period or as of any future date.

 

     Six Months
ended

June 28, 2009
(unaudited)

Net sales

   $ 1,278,009

Earnings before interest and taxes

   $ 138,240

Net earnings

   $ 12,920

4. Fair Value Measurements

In January of 2010, the FASB updated the authoritative guidance for fair value disclosure. The updated guidance requires new disclosures for significant transfers in and out of Level 1 and 2 of the fair value hierarchy and activity within Level 3 of the fair value hierarchy. The update provides amendments to the level of disaggregation that an entity should provide in each class of assets and liabilities, as well as disclosures about the inputs and valuation techniques used to measure fair value. The updated guidance is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted this guidance in the first quarter of 2010 and it did not have a material impact on the Company’s consolidated financial position or results of operations.

 

9


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

In the first quarter of 2009, the Company adopted the authoritative guidance for fair value disclosure as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. The guidance for nonfinancial assets and nonfinancial liabilities defines fair value, establishes a framework for fair value disclosure in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this guidance apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions. The adoption of the authoritative guidance for fair value disclosure, as it relates to nonfinancial assets and nonfinancial liabilities, had no impact on the Company’s consolidated financial statements. The provisions of the authoritative guidance for fair value disclosure will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of the guidance.

The guidance for financial assets and liabilities discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1:

   Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:

   Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:

   Unobservable inputs that reflect the Company’s assumptions.

The Company’s population of financial assets and liabilities subject to recurring fair value measurements and the required disclosures are as follows:

 

     Fair Value
As of
June 27,

2010
   Fair Value Measurements
Using Fair Value Hierarchy
       Fair Value
As of
December 27,

2009
   Fair Value Measurements
Using Fair Value Hierarchy
        Level 1    Level 2   Level 3            Level 1    Level 2    Level 3

Assets

                          

Interest rate derivatives

   $ —      $ —      $ —     $ —          $ 165    $ —      $ 165    $ —  

Foreign currency derivatives

     —        —        —       —            —        —        —        —  

Heating oil derivatives

     —        —        —       —            25      —        25      —  

Diesel fuel derivatives

     140      —        140     —            902      —        902      —  
                                                          

Total assets at fair value

   $ 140    $ —      $ 140   $ —          $ 1,092    $ —      $ 1,092    $ —  
                                                          
 

Liabilities

                          

Interest rate derivatives

   $ 28,996    $ —      $ 28,996   $ —          $ 21,145    $ —      $ 21,145    $ —  

Foreign currency derivatives

     1,634      —        1,634     —            2,522      —        2,522      —  

Natural gas derivatives

     126      —        126     —            57      —        57      —  

Diesel fuel derivatives

     427         427            —        —        —        —  
                                                          

Total liabilities at fair value

   $ 31,183    $ —      $ 31,183   $ —          $ 23,724    $ —      $ 23,724    $ —  
                                                          

The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk.

Below are descriptions of the techniques used to estimate the fair value of financial instruments on the Company’s financial statements as of June 27, 2010.

 

10


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The valuations of these instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate and foreign exchange forward curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of the authoritative guidance for fair value disclosure, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The Company had no fair value measurements based upon significant unobservable inputs (Level 3) as of June 27, 2010 or December 27, 2009.

 

11


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

5. Other Expense (Income), net

 

     Three months ended        Six months ended
     June 27,
2010
    June 28,
2009
       June 27,
2010
   June 28,
2009

Other expense (income), net consists of:

             

Amortization of intangibles/other assets

   $     4,293      $     4,197       $     8,585    $     8,394

Birds Eye Acquisition merger-related costs

     (7     —           224      —  
                               

Total other expense (income), net

   $ 4,286      $ 4,197       $ 8,809    $ 8,394
                               

Birds Eye Acquisition merger-related costs. In connection with the Birds Eye Acquisition, as described in Note 3, the Company incurred costs of ($7) and $224 in the three and six months ended June 27, 2010. These costs relate primarily to legal, accounting and other professional fees.

6. Inventories

 

     June 27,
2010
   December 27,
2009

Raw materials, containers and supplies

   $ 46,818    $ 40,912

Finished product

     249,828      349,055
             

Total

   $ 296,646    $ 389,967
             

The Company has various purchase commitments for raw materials, containers, supplies and certain finished products incident to the ordinary course of business. Such commitments are not at prices in excess of current market.

In the fourth quarter of 2009, in connection with the Birds Eye Acquisition, inventories were required to be valued at fair value, which is $37.6 million higher than historical manufacturing cost. Cost of products sold for the three and six months ended June 27, 2010 and the fiscal year ended December 27, 2009 includes pre-tax charges of $9.7 million, $27.0 million and $0.5 million, respectively, related to the finished products at December 23, 2009, which were subsequently sold. The remaining $10.1 million will be recognized principally in the third quarter of 2010.

 

12


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

7. Goodwill and Other Assets

Goodwill by segment is as follows:

 

     Birds Eye
Frozen
   Duncan Hines
Grocery
   Specialty
Foods
   Total

Balance, December 27, 2009

   $     575,958    $     739,475    $     243,747    $     1,559,180
                           

Balance, June 27, 2010

   $ 575,958    $ 739,475    $ 243,747    $ 1,559,180
                           

The authoritative guidance for business combinations requires that all business combinations be accounted for at fair value under the acquisition method of accounting. The authoritative guidance for goodwill and other intangible assets provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate.

The Blackstone Transaction was accounted for in accordance with the authoritative guidance for business combinations and resulted in $996,546 in goodwill for PFF, as of April 2, 2007.

The Birds Eye Acquisition was accounted for in accordance the authoritative guidance for business combinations and resulted in $565,013 in goodwill, as of December 27, 2009.

In the first quarter of 2010, we implemented a reorganization of the Company’s products into three operating segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods. Our United States retail frozen vegetables (Birds Eye®), single-serve frozen dinners and entrées (Hungry-Man®, Swanson®), multi-serve frozen dinners and entrées (Birds Eye Voila!®), frozen seafood (Van de Kamp’s®, Mrs. Paul’s®), frozen breakfast (Aunt Jemima®), bagels (Lender’s®), and frozen pizza (Celeste®) are reported in the Birds Eye Frozen Division. Our baking mixes and frostings (Duncan Hines®), shelf-stable pickles, peppers and relish (Vlasic®), barbeque sauces (Open Pit®), pie fillings (Comstock®, Wilderness®), syrups (Mrs. Butterworth’s® and Log Cabin®), salad dressing (Bernstein’s®), canned meat (Armour®, Nalley®, Brooks®) and all Canadian Operations are reported in the Duncan Hines Grocery Division. The Specialty Foods Division consists of snack products (Tim’s Cascade® and Snyder of Berlin®) and our food service and private label businesses.

As a result of the reorganization, the goodwill reallocation by segment resulted in $575,958 allocated to the Birds Eye Frozen segment, $739,475 allocated to the Duncan Hines Grocery segment and $243,747 allocated to the Specialty Foods segment.

The authoritative guidance for accounting for goodwill states that impairment is to be tested on an annual basis, unless an event occurs that could potentially reduce the fair value of a reporting unit below its book value. The Company’s reorganization into new segments constituted such a change and goodwill was tested for impairment during the first quarter which resulted in no impairment charges.

 

13


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Other Assets, net

 

     June 27, 2010
     Weighted Avg
Life
   Gross Carrying
Amount
   Accumulated
Amortization
    Net

Amortizable intangibles

          

Recipes

   10    $ 52,810    $ (17,163   $ 35,647

Customer relationships - Distributors

   36      125,438      (13,463     111,975

Customer relationships - Food Service

   7      36,143      (23,359     12,784

Customer relationships - Private Label

   7      9,214      (6,863     2,351

License

   7      4,875      (375     4,500
                        

Total amortizable intangibles

      $ 228,480    $ (61,223   $ 167,257

Deferred financing costs

        80,745      (30,415     50,330

Notes receivable (Roskam Baking)

        704      —          704

Other

        61      —          61
              

Total other assets, net

           $ 218,352
              
     December 27, 2009
     Weighted Avg
Life
   Gross Carrying
Amount
   Accumulated
Amortization
    Net

Amortizable intangibles

          

Recipes

   10    $ 52,810    $ (14,523   $ 38,287

Customer relationships - Distributors

   36      125,305      (10,154     115,151

Customer relationships - Food Service

   7      36,143      (21,655     14,488

Customer relationships - Private Label

   7      9,213      (6,316     2,897

License

   7      4,875      —          4,875
                        

Total amortizable intangibles

      $ 228,346    $ (52,648   $ 175,698

Deferred financing costs

        80,730      (23,833     56,897

Foreign currency swap (See Note 11)

        165      —          165

Notes receivable (Roskam Baking)

        1,009      —          1,009

Other

        54      —          54
              

Total other assets, net

           $ 233,823
              

Amortization during the three and six months ended June 27, 2010 was $4,293 and $8,585, respectively. Estimated amortization expense for each of the next five years and thereafter is as follows: remainder of 2010 - $8,593, 2011 - $16,167, 2012 - $15,808, 2013 - $15,471, 2014 - $12,188 and thereafter - $99,032. Amortization during the three and six months ended June 28, 2009 was $4,197 and $8,394, respectively.

Deferred financing costs, which relate to the Senior Secured Credit Facility, Senior Notes and Senior Subordinated Notes entered into in connection with the Blackstone Transaction, amounted to $40,567. Deferred financing costs in connection with the Birds Eye Acquisition, amounted to $40,253. Amortization of the deferred financing costs during the three and six months ended June 27, 2010 was $3,122 and $6,582, respectively. Amortization of the deferred financing costs during the three and six months ended June 28, 2009 was $1,183 and $2,367, respectively.

In February 2009, the Company entered into an agreement with Roskam Baking, which began co-packing certain Duncan Hines products in April 2009. This agreement included a provision to loan Roskam $1,900. As of June 27, 2010 the balance of the notes receivable is $1,254, of which $550 is recorded on the Consolidated Balance Sheet in Other Current Assets and $704 is recorded in Other Assets, net. This loan is being paid back to the Company based on cases produced and will be paid back in no longer than 5 years.

 

14


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

8. Restructuring Charges

Rochester, NY Office

The Rochester, NY office is the former headquarters of Birds Eye Foods, Inc. which was acquired by PFG on December 23, 2009, as described in Note 3. In connection with the consolidation of activities into PFG’s New Jersey offices, the Rochester office will be closed. Notification letters under the Worker Adjustment and Retraining Notification (WARN) Act of 1988 were issued in the first quarter of 2010. Activities related to the closure of the Rochester office began in the 2nd quarter of 2010 and will result in the elimination of approximately 200 positions.

In accordance with the authoritative guidance with respect to accounting for costs associated with exit or disposal activities, the full cost of termination benefits of $7,587 related to employees who will not be retained beyond the minimum retention period were recorded in the first quarter and the full cost of termination benefits of $4,526 related to employees who will be retained beyond the minimum retention period will be recorded in the future service periods. Of the $4,526, $1,146 was recorded in the first quarter, $1,756 was recorded in the second quarter, $1,298 is expected to be recorded in the 3rd quarter and $326 is expected to be recorded in the 4th quarter.

The total cost of termination benefits recorded in the first quarter of 2010 was $8,733 and was recorded in the segments as follows: Birds Eye Frozen segment $6,172, Duncan Hines Grocery segment $1,591 and Specialty Foods segment $970. The total cost of termination benefits recorded in the second quarter of 2010 was $1,756 and was recorded in the segments as follows: Birds Eye Frozen segment $1,241, Duncan Hines Grocery segment $319 and Specialty Foods segment $196. The total cost of termination benefits for the six months ended June 27, 2010 was $10,489 and was recorded in the segments as follows: Birds Eye Frozen segment $7,413, Duncan Hines Grocery segment $1,910 and Specialty Foods segment $1,166.

The following table summarizes restructuring charges accrued as of June 27, 2010. These amounts are recorded in our Consolidated Balance Sheets, of which $6,729 is recorded in Accrued liabilities and $2,407 is recorded in Other long-term liabilities.

 

     Restructuring
Reserve
 

Balance as of December 27, 2009

   $ —     

Expense

     10,489   

Payments

     (1,353
        

Balance as of June 27, 2010

   $ 9,136   
        

 

15


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

9. Debt and Interest Expense

 

     June 27,
2010
    December 27,
2009
 

Short-term borrowings

    

- Revolving Credit Facility

   $ —        $ —     

- Notes payable

     378        1,232   
                

Total short-term borrowings

     378        1,232   
                

Long-term debt

    

- Senior Secured Credit Facility - Term Loans

   $ 1,199,422      $ 1,221,875   

- Senior Secured Credit Facility - Tranche C Term Loans

     842,310        850,000   

- 9.25% Senior Notes

     625,000        625,000   

- 10.625% Senior Subordinated Notes

     199,000        199,000   

- Unamortized discount on long term debt

     (10,348     (11,722

- Capital lease obligations

     4,448        3,326   
                
     2,859,832        2,887,479   

Less: current portion of long-term obligations

     4,336        38,228   
                

Total long-term debt

   $ 2,855,496      $ 2,849,251   
                

 

Interest expense

   Three months ended          Six months ended
   June 27,
2010
   June 28,
2009
         June 27,
2010
   June 28,
2009

Third party interest expense

   $ 44,501    $ 22,720         $ 90,205    $ 45,654

Related party interest expense

     872      284           1,399      918

Amortization of debt acquisition costs

     3,122      1,183           6,658      2,367

Amortization of deferred mark-to-market adjustment on terminated swap (Note 11)

     796      1,082           1,829      2,394

Interest rate swap losses (Note 11)

     4,212      3,389           8,623      6,935
                                

Total interest expense

   $ 53,503    $ 28,658         $ 108,714    $ 58,268
                                

As part of the Blackstone Transaction as described in Note 1, Peak Finance LLC entered into a $1,375.0 million credit agreement (the “Senior Secured Credit Facility”) in the form of (i) term loans in an initial aggregate amount of $1,250.0 million (the “Term Loans”) and (ii) revolving credit commitments in the initial aggregate amount of $125.0 million (the “Revolving Credit Facility”). Peak Finance LLC merged with and into PFF on April 2, 2007 at the closing of the Blackstone Transaction. The term loan matures April 2, 2014. The Revolving Credit Facility matures April 2, 2013.

As part of the Birds Eye Acquisition on December 23, 2009, as described in Note 3, the Company entered into an amendment to the Senior Secured Credit Facility in the form of (i) incremental term loans in the amount of $850.0 million (the “Tranche C Term Loans”) and (ii) an incremental revolving credit facility the amount of $25.0 million, bringing our total revolving credit commitment to $150.0 million. In connection with the Tranche C Term Loans, the Company also incurred $11.8 million in original issue discount fees. These fees are recorded in Long-term debt on the Consolidated Balance Sheet and will be amortized over the life of the loan using the effective interest method.

There were no borrowings outstanding under the Revolving Credit Facility as of June 27, 2010 and December 27, 2009.

The total combined amount of the Term Loans and the Tranche C Term Loans that were owed to affiliates of the Blackstone Group as of June 27, 2010 and December 27, 2009, was $129,310 and $109,237, respectively.

 

16


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The Company’s borrowings under the Senior Secured Credit Facility, as amended, bear interest at a floating rate and are maintained as base rate loans or as Eurocurrency rate loans. Base rate loans bear interest at the base rate plus the applicable base rate margin, as defined in the Senior Secured Credit Facility. The base rate is defined as the higher of (i) the prime rate and (ii) the Federal Reserve reported overnight funds rate plus 1/2 of 1%. Eurocurrency rate loans bear interest at the adjusted Eurocurrency rate, as described in the Senior Secured Credit Facility, plus the applicable Eurocurrency rate margin. Solely with respect to Tranche C Term Loans, the Eurocurrency rate shall be no less than 2.50% per annum. Solely with respect to Tranche C Term Loans, the base rate shall be no less than 3.50% per annum.

The applicable margins with respect to the Company’s Senior Secured Credit Facility vary from time to time in accordance with the terms thereof and agreed upon pricing grids based on the Company’s leverage ratio as defined in the credit agreement. The applicable margins with respect to the Senior Secured Credit Facility are currently:

Applicable Margin (per annum)

 

Revolving Credit Facilty and Letters of Credit     Term Loans     Tranche C Term Loans  

Eurocurrency

Rate for

Revolving Loans

and Letter of

Credit Fees

  Base Rate for
Revolving Loans
    Commitment
Fees Rate
    Eurocurrency
Rate for Term
Loans
    Base Rate for
Term Loans
    Eurocurrency
Rate for -

Term Loan C
    Base Rate for -
Term Loan C
 
2.25%   1.25   0.50   2.50   1.50   5.00   4.00

The obligations under the Senior Secured Credit Facility are unconditionally and irrevocably guaranteed by each of the Company’s direct or indirect domestic subsidiaries (collectively, the "Guarantors"). In addition, the Senior Secured Credit Facility is collateralized by first priority or equivalent security interests in (i) all the capital stock of, or other equity interests in, each direct or indirect domestic subsidiary of the Company and 65% of the capital stock of, or other equity interests in, each direct foreign subsidiaries of the Company, or any of its domestic subsidiaries and (ii) certain tangible and intangible assets of the Company and those of the Guarantors (subject to certain exceptions and qualifications).

A commitment fee of 0.50% per annum is applied to the unused portion of the Revolving Credit Facility. For the three months and six months ended June 27, 2010, the weighted average interest rate on the term loan was 4.79% and 4.83%, respectively. For the three months and six months ended June 28, 2009, the weighted average interest rate on the term loan was 3.17% and 3.25%, respectively. For the three and six months ended June 28, 2009, the weighted average interest rate on the Revolving Credit Facility was 3.30% and 3.29%, respectively. As of June 27, 2010 and June 28, 2009, the Eurodollar interest rate on the term loan facility was 5.18% and 3.07% respectively.

The Company pays a fee for all outstanding letters of credit drawn against the Revolving Credit Facility at an annual rate equivalent to the Applicable Margin then in effect with respect to Eurodollar loans under the Revolving Credit Facility, less the fronting fee payable in respect of the applicable letter of credit. The fronting fee is equal to 0.125% per annum of the daily maximum amount then available to be drawn under such letter of credit. The fronting fees are computed on a quarterly basis in arrears. Total letters of credit issued under the Revolving Credit Facility cannot exceed $50,000 as of March 24, 2010 (previously $25,000). As of June 27, 2010 and December 27, 2009, the Company had utilized $33,503 and $22,072, respectively of the Revolving Credit Facility for letters of credit. As of June 27, 2010, there were no borrowings under the Revolving Credit Facility, therefore, of the $150,000 Revolving Credit Facility available, the Company had an unused balance of $116,497 available for future borrowing and letters of credit. As of December 27, 2009, there were no borrowings under the Revolving Credit Facility, therefore, of the $150,000 Revolving Credit Facility available, the Company had an unused balance of $127,928 available for future borrowing and letters of credit. The remaining amount that can be used for letters of credit as of June 27, 2010 and December 27, 2009 was $16,497 and $2,928, respectively.

 

17


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

In accordance with the “Excess Cash Flow” requirements of the Senior Secured Credit Facility the Company made a mandatory prepayment of the Term Loans of $27.0 million in March 2010. Under the terms of the Senior Secured Credit Facility, Excess cash flow is determined by taking consolidated net income (as defined) and adjusting it for certain items, including (1) all non cash charges and credits included in arriving at consolidated net income, (2) changes in working capital, (3) capital expenditures (to the extent they were not financed with debt), (4) the aggregate amount of principle payments of indebtedness and (5) certain other items defined in the Senior Secured Credit Facility. The next excess cash flow payment will be made in March 2011.

The Term Loans mature in quarterly 0.25% installments from September 2007 to December 2013 with the remaining balance due in April 2014. The aggregate maturities of the term loan outstanding as of June 27, 2010 are no payment in 2010, $2.5 million in 2011, $12.5 million in 2012, $12.5 million in 2013 and $1,171.9 million in 2014. The Tranche C Term Loans matures in quarterly 0.25% installments from January 2010 to December 2013 with the remaining balance due in April 2014. The aggregate maturities of the Tranche C Term Loans outstanding as of December 27, 2009 are no payment in 2010, $7.2 million in 2011, $8.5 million in 2012, $8.5 million in 2013 and $818.1 million in 2014.

On April 2, 2007, as part of the Blackstone Transaction described in Note 1, the Company issued $325.0 million of 9.25% Senior Notes (the “Senior Notes”) due 2015, and $250.0 million of 10.625% Senior Subordinated Notes (the “Senior Subordinated Notes”) due 2017. On December 23, 2009, as part of the Birds Eye Acquisition described in Note 3, the Company issued an additional $300 million of 9.25% Senior Notes due in 2015 (the “Additional Senior Notes”). The Senior Notes and the Additional Senior Notes are collectively referred to herein as Senior Notes. The Senior Notes are general unsecured obligations of the Company, effectively subordinated in right of payment to all existing and future senior secured indebtedness of the Company and guaranteed on a full, unconditional, joint and several basis by the Company’s wholly-owned domestic subsidiaries that guarantee other indebtedness of the Company. The Senior Subordinated Notes are general unsecured obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company and guaranteed on a full, unconditional, joint and several basis by the Company’s wholly-owned domestic subsidiaries that guarantee other indebtedness of the Company. See Note 17 of the Consolidated Financial Statements for Guarantor and Nonguarantor Financial Statements.

 

18


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The Company may redeem some or all of the Senior Notes at any time prior to April 1, 2011, and some or all of the Senior Subordinated Notes at any time prior to April 1, 2012, in each case at a price equal to 100% of the principal amount of notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the redemption date, subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date. The “Applicable Premium” is defined as the greater of (1) 1.0% of the principal amount of such note and (2) the excess, if any, of (a) the present value at such redemption date of (i) the redemption price of such Senior Note at April 1, 2011 or Senior Subordinated Note at April 1, 2012, plus (ii) all required interest payments due on such Senior Note through April 1, 2011 or Senior Subordinated Note through April 1, 2012 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate plus 50 basis points over (b) the principal amount of such note.

The Company may redeem the Senior Notes or the Senior Subordinated Notes at the redemption prices listed below, if redeemed during the twelve-month period beginning on April 1st of each of the years indicated below:

Senior Notes

 

Year

   Percentage  

2011

   104.625

2012

   102.313

2013 and thereafter

   100.000

Senior Subordinated Notes

 

Year

   Percentage  

2012

   105.313

2013

   103.542

2014

   101.771

2015 and thereafter

   100.000

In addition, until April 1, 2010, the Company was able to redeem up to 35% of the aggregate principal amount of Senior Notes or Senior Subordinated Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus a premium equal to the rate per annum on the Senior Notes or Senior Subordinated Notes, as the case may be, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date, subject to the right of holders of Senior Notes or Senior Subordinated Notes of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds received by the Company from one or more equity offerings; provided that (i) at least 50% of the aggregate principal amount of Senior Notes or Senior Subordinated Notes, as the case may be, originally issued under the applicable indenture remains outstanding immediately after the occurrence of each such redemption and (ii) each such redemption occurs within 90 days of the date of closing of each such equity offering.

In December 2007, the Company repurchased $51.0 million in aggregate principal amount of the 10.625% Senior Subordinated Notes at a discounted price of $44.2 million. The Company currently has outstanding $199.0 million in aggregate principal amount of Senior Subordinated Notes.

As market conditions warrant, the Company and its subsidiaries, affiliates or significant shareholders (including The Blackstone Group L.P. and its affiliates) may from time to time, in their sole discretion, purchase, repay, redeem or retire any of the Company’s outstanding debt or equity securities (including any publicly issued debt or equity securities), in privately negotiated or open market transactions, by tender offer or otherwise.

 

19


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The estimated fair value of the Company’s long-term debt, including the current portion, as of June 27, 2010, is as follows:

 

     June 27, 2010

Issue

   Recorded
Amount
   Fair
Value

Senior Secured Credit Facility - Term Loans

   $ 1,199,422    $ 1,118,461

Senior Secured Credit Facility - Tranche C Term Loans

     842,310      842,310

9.25% Senior Notes

     625,000      635,938

10.625% Senior Subordinated Notes

     199,000      208,453
             
   $ 2,865,732    $ 2,805,162
             

The fair value is based on the quoted market price for such notes and borrowing rates currently available to the Company for loans with similar terms and maturities.

 

20


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

10. Pension and Retirement Plans

Pinnacle Foods Pension Plan

The Company maintains a noncontributory defined benefit pension plan (“Pinnacle Foods Pension Plan”) that covers eligible union employees and provides benefits generally based on years of service and employees’ compensation. The Pinnacle Foods Pension Plan is funded in conformity with the funding requirements of applicable government regulations. Plan assets consist principally of cash equivalent, equity and fixed income common collective trusts. Plan assets do not include any of the Company’s own equity or debt securities.

As a result of the negotiations for a new collective bargaining agreement with the union at our Imlay City location, effective May 11, 2010 pension benefits were frozen for certain participants. This resulted in a curtailment loss of $992 that was recorded in the second quarter of 2010.

In fiscal 2010, the Company expects to make contributions of $5.6 million to the Pinnacle Foods Pension Plan, of which $1.9 million and $2.5 million were made in the three and six months ended June 27, 2010, respectively. The Company made contributions to the pension plan totaling $2.8 million in fiscal 2009, of which $0.6 million and $1.0 million were made in the three and six months ended June 28, 2009, respectively.

The following represents the components of net periodic benefit costs:

 

Pension Benefits

   Pinnacle Foods Pension Plan  
   Three months ended         Six months ended  
   June 27,
2010
    June 28,
2009
        June 27,
2010
    June 28,
2009
 

Service cost

   $ 221      $ 452        $ 698      $ 903   

Interest cost

     1,447        1,111          2,589        2,222   

Expected return on assets

     (1,181     (774       (2,051     (1,548

Amortization of:

          

prior service cost

     9        35          44        70   

actuarial loss

     242        344          464        688   

Curtailment loss

     992        —            992        —     
                                  

Net periodic cost

   $ 1,730      $ 1,168        $ 2,736      $ 2,335   
                                  

Birds Eye Foods Pension Plan

The Company’s Birds Eye Foods Pension Plan (“Birds Eye Foods Pension Plan”) consists of hourly and salaried employees and has primarily noncontributory defined-benefit schedules. In September 2001, this plan was amended to freeze benefit accruals for salaried employees effective September 28, 2001. Salaried participants who, on that date, were actively employed and who had attained age 40, completed 5 years of vesting service, and whose sum of age and vesting services was 50 or more, were grandfathered. Grandfathered participants were entitled to continue to earn benefit service in accordance with the provisions of the plan with respect to periods of employment after September 28, 2001 but in no event beyond September 28, 2006. In the first and second quarters of 2010, benefits of certain hourly employees were frozen in connection with the renegotiation of our collective bargaining agreements. The curtailment gain recorded in the three and six months ended June 27, 2010 was $524 and $588, respectively.

The Company maintains an Excess Benefit Retirement Plan which serves to provide employees with the same retirement benefit they would have received from the Company’s retirement plan under the career average base pay formula, but for changes required under the 1986 Tax Reform Act and the compensation limitation under Section 401(a)(17) of the Internal Revenue Code having been revised in the 1992 Omnibus Budget Reform Act. This plan was amended to freeze benefit accruals effective September 28, 2001. Participants who, on that date, were actively employed and who had attained age 40, completed 5 years of vesting service, and whose sum of age and vesting services was 50 or more, were grandfathered. Grandfathered participants were entitled to continue to earn benefit service in accordance with the provisions of the plan with respect to periods of employment after September 28, 2001 but in no event beyond September 28, 2006.

 

21


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

For purposes of this disclosure, all defined-benefit pension plans acquired with Birds Eye Foods have been combined. The benefits for these plans are based primarily on years of service and employees’ pay near retirement. The Company’s funding policy is consistent with the funding requirements of Federal laws and regulations. Plan assets consist principally of common stocks, corporate bonds and US government obligations. Plan assets do not include any of the Company’s own equity or debt securities.

In fiscal 2010, the Company expects to make contributions of $2.7 million to the Birds Eye Foods Pension Plan. Contributions of $0.9 million were made for the Birds Eye Foods Pension Plan in the three and six months ended June 27, 2010.

 

     Birds Eye Foods Pension Plan  

Pension Benefits

  Three months ended         Six months ended  
  June 27,
2010
         June 27,
2010
 

Service cost

  $ 520          $ 1,050   

Interest cost

    2,012            4,111   

Expected return on assets

    (2,082         (4,103

Curtailment gain

    (524         (588
                   

Net periodic (benefit) cost

  $ (74       $ 470   
                   

Pinnacle Foods Other Postretirement Benefits Plan

The Company maintains a postretirement benefits plan (“Pinnacle Foods Other Postretirement Benefits Plan”) that provides health care and life insurance benefits to eligible retirees, covers certain U.S. employees and their dependents and is self-funded. Employees who have 10 years of service after the age of 45 and retire are eligible to participate in the postretirement benefit plan.

 

     Pinnacle Foods
Other Postretirement Benefits Plan
 
     Three months ended          Six months ended  
     June 27,
2010
    June 28,
2009
         June 27,
2010
    June 28,
2009
 

Interest cost

     4        4            9        9   

Amortization of:

            

Net actuarial gain

     (11     (11         (22     (22
                                    

Net periodic benefit

   $ (7   $ (7       $ (13   $ (13
                                    

 

22


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Birds Eye Foods Other Postretirement Benefits Plan

The Company sponsors benefit plans that provide postretirement medical and life insurance benefits for certain current and former employees. For the most part, current employees are not eligible for the postretirement medical coverage. Generally, other than pensions, the Company does not pay retirees’ benefit costs. Various exceptions exist, which have evolved from union negotiations, early retirement incentives and existing retiree commitments from acquired companies.

The Company has not prefunded any of its retiree medical or life insurance liabilities. Consequently there are no plan assets held in a trust, and there is no expected long-term rate of return assumption for purposes of determining the annual expense.

 

    Birds Eye Foods
Other Postretirement Benefits Plan
    Three months ended        Six months ended
    June 27,
2010
       June 27,
2010

Interest cost

  $ 45      $ 89
              

Net periodic cost

  $ 45      $ 89
              

 

23


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

11. Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, foreign exchange rates or commodity prices.

The Company manages interest rate risk based on the varying circumstances of anticipated borrowings and existing variable and fixed rate debt, including the Company’s revolving line of credit. Examples of interest rate management strategies include capping interest rates using targeted interest cost benchmarks, hedging portions of the total amount of debt, or hedging a period of months and not always hedging to maturity, and at other times locking in rates to fix interests costs.

Certain parts of the Company’s foreign operations in Canada expose the Company to fluctuations in foreign exchange rates. The Company’s goal is to reduce its exposure to such foreign exchange risks on its foreign currency cash flows and fair value fluctuations on recognized foreign currency denominated assets, liabilities and unrecognized firm commitments to acceptable levels primarily through the use of foreign exchange-related derivative financial instruments. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar.

The Company purchases raw materials in quantities expected to be used in a reasonable period of time in the normal course of business. The Company generally enters into agreements for either spot market delivery or forward delivery. The prices paid in the forward delivery contracts are generally fixed, but may also be variable within a capped or collared price range. Forward derivative contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company’s manufacturing process.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges in accordance with the authoritative guidance for derivative and hedge accounting involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium.

As of June 27, 2010, the Company had the following interest rate swaps and caps (in aggregate) that were designated as cash flow hedges of interest rate risk:

 

Product

   Number of
Instruments
   Notional
Amount
    Fixed Rate Range  

Index

  

Trade Dates

  

Maturity Dates

Interest Rate Swaps

   8    $ 943,738      1.43%-3.33%   USD-LIBOR-BBA   

Oct 2008 - Mar

2009

  

Jan 2011 - July

2012

Interest Rate Swaps with Floors

   4      —   (1)    2.96%-3.58%   USD-LIBOR-BBA    Jan 2010    Jan 2012 - July 2012

Interest Rate Caps

   2      800,000      2.50%   USD-LIBOR-BBA    Dec 2009    Jan 2011

 

(1) Interest rate swaps with floors are hedging the same debt as the interest rate caps and become effective after the interest rate caps mature. At that point, in January 2011 they will have a notional value of $300,000.

 

24


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

According to the authoritative guidance for derivative and hedge accounting, the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive (loss) income (“AOCI”) on the Consolidated Balance Sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and six months ended June 27, 2010 and the three and six months ended June 28, 2009, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly as Interest expense in the Consolidated Statements of Operations. There was no hedge ineffectiveness on interest rate cash flow hedges recognized in the three and six months ended June 27, 2010 or the three and six months ended June 28, 2009.

Amounts reported in AOCI related to derivatives will be reclassified to Interest expense as interest payments are made on the Company’s variable-rate debt. Due to the counterparty bank declaring bankruptcy in October 2008, the Company discontinued prospectively the hedge accounting on its interest rate derivatives with Lehman Brothers Specialty Financing on the bankruptcy date as those hedging relationships no longer met the authoritative guidance for derivative and hedge accounting. The Company terminated these positions during the fourth quarter of 2008. The Company continues to report the net gain or loss related to the discontinued cash flow hedge in AOCI which is expected to be reclassified into earnings during the original contractual terms of the derivative agreements as the hedged interest payments are expected to occur as forecasted. For the three and six months ended June 27, 2010, $796 and $1,829, respectively, was reclassified as an increase to Interest expense relating to the terminated hedges. For the three and six months ended June 28, 2009, $1,082 and $2,394, respectively, was reclassified as an increase to Interest expense relating to the terminated hedges. During the next twelve months, the Company estimates that an additional $19,532 will be reclassified as an increase to Interest expense relating to both active and terminated hedges.

Cash Flow Hedges of Foreign Exchange Risk

The Company’s operations in Canada have exposed the Company to changes in the US Dollar – Canadian Dollar (USD-CAD) foreign exchange rate. From time to time, the Company’s Canadian subsidiary purchases inventory denominated in US Dollars (USD), a currency other than its functional currency. The subsidiary sells that inventory in Canadian dollars. The subsidiary uses currency forward and collar agreements to manage its exposure to fluctuations in the USD-CAD exchange rate. Currency forward agreements involve fixing the USD-CAD exchange rate for delivery of a specified amount of foreign currency on a specified date. Currency collar agreements involve the sale of Canadian Dollar (CAD) currency in exchange for receiving US dollars if exchange rates rise above an agreed upon rate and sale of USD currency in exchange for receiving CAD dollars if exchange rates fall below an agreed upon rate at specified dates.

As of June 27, 2010, the Company had the following foreign currency exchange contracts (in aggregate) that were designated as cash flow hedges of foreign exchange risk:

 

Product

   Number of
Instruments
   Notional Sold in
Aggregate
   Notional Purchased
in Aggregate
   USD to CAD Exchange
Rates
  

Trade Date

  

Maturity Dates

CAD Forward

   30    $46,575 CAD    $43,325 USD    1.038-1.176    May 2009 -Mar 2010    Jul 2010 -Dec 2011

CAD Collar

   6    $6,000 CAD    $5,310 USD    1.13    May 2009    Jul 2010 -Dec 2010

According to the authoritative guidance for derivative and hedge accounting, the effective portion of changes in the fair value of derivatives designated that qualify as cash flow hedges of foreign exchange risk is recorded in AOCI on the Consolidated Balance Sheet and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portions of the change in fair value of the derivative, as well as amounts excluded from the assessment of hedge effectiveness, are recognized directly in Cost of products sold in the Consolidated Statements of Operations. Hedge ineffectiveness on foreign exchange cash flow hedges amounted to a $16 gain and a $35 gain in the three and six months ended June 27, 2010. Hedge ineffectiveness on foreign exchange cash flow hedges amounted to a $33 gain in the three and six months ended June 28, 2009.

 

25


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Non-designated Hedges of Commodity Risk

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to commodity price risk but do not meet the authoritative guidance for derivative and hedge accounting. From time to time, the Company enters into commodity forward contracts to fix the price of natural gas and diesel fuel purchases at a future delivery date. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in Cost of products sold in the Consolidated Statements of Operations.

As of June 27, 2010, the Company had the following natural gas swaps (in aggregate) and diesel fuel swaps (in aggregate) that were not designated in qualifying hedging relationships:

 

Product

   Number of
Instruments
   Notional Amount    Price    Trade Dates    Maturity Dates

Natural Gas Swap

   2    252,537 MMBTU’s    $4.70 - $5.87 per MMBTU    Jan 2010 - June
2010
   Oct 2010

Diesel Fuel Swap

   6    7,426,602 Gallons    $2.46 - $3.14 per Gallon    Feb 2009 - May
2010
   Jun 2010 - Dec
2010

 

26


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 27, 2010 and December 27, 2009.

 

     Tabular Disclosure of Fair Values of Derivative  Instruments
     Asset Derivatives    Liability Derivatives
     Balance Sheet Location    Fair Value
As of

June 27,
2010
   Balance Sheet Location    Fair Value
As of

June 27,
2010

Derivatives designated as hedging instruments

           

Interest Rate Contracts

      $ —      Accrued liabilities    $ 10,239
        —      Other long-term liabilities      18,757

Foreign Exchange Contracts

        —      Accrued liabilities      1,619
        —      Other long-term liabilities      15
                   

Total derivatives designated as hedging instruments

      $ —         $ 30,630
                   

Derivatives not designated as hedging instruments

           

Natural Gas Contracts

      $ —      Accrued liabilities    $ 126

Diesel Fuel Contracts

   Other current assets      140    Accrued liabilities      427
                   

Total derivatives not designated as hedging instruments

      $ 140       $ 553
                   
     Balance Sheet Location    Fair Value
As of
December 27,
2009
   Balance Sheet Location    Fair Value
As of
December 27,
2009

Derivatives designated as hedging instruments

           

Interest Rate Contracts

   Other assets, net    $ 165    Other long-term liabilities    $ 21,145

Foreign Exchange Contracts

        —      Accrued liabilities      2,522
                   

Total derivatives designated as hedging instruments

      $ 165       $ 23,667
                   

Derivatives not designated as hedging instruments

           

Natural Gas Contracts

      $ —      Accrued liabilities    $ 57

Heating Oil Contracts

   Other current assets      25         —  

Diesel Fuel Contracts

   Other current assets      902         —  
                   

Total derivatives not designated as hedging instruments

      $ 927       $ 57
                   

 

27


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

The table below presents the effect of our derivative financial instruments on the Consolidated Statements of Operations and Accumulated other comprehensive (loss) income as of the three and six months ending June 27, 2010 and the three and six months ended June 28, 2009.

 

Tabular Disclosure of the Effect of Derivative Instruments

Gain/(Loss)

                          

Derivatives in Cash Flow Hedging Relationships

   Recognized
in AOCI on
Derivative
(Effective
Portion)
    Effective portion
reclassified from AOCI
to:
   Reclassified
from AOCI
into Earnings

(Effective
Portion)
    Ineffective portion
reclassified from AOCI to:
   Recognized
in Earnings
on Derivative
(Ineffective
Portion)

Interest Rate Contracts

   $ (6,031   Interest expense    $ (5,008   Interest expense    $ —  

Foreign Exchange Contracts

     615      Cost of products sold      (772   Cost of products sold      16
                            

Three months ended June 27, 2010

   $ (5,416      $ (5,780      $ 16
                            

Interest Rate Contracts

   $ (16,639   Interest expense    $ (10,452   Interest expense    $ —  

Foreign Exchange Contracts

     (477   Cost of products sold      (1,365   Cost of products sold      35
                            

Six months ended June 27, 2010

   $ (17,116      $ (11,817      $ 35
                            

Interest Rate Contracts

   $ (1,097   Interest expense    $ (4,471   Interest expense    $ —  

Foreign Exchange Contracts

     (1,588   Cost of products sold      955      Cost of products sold      33
                            

Three months ended June 28, 2009

   $ (2,685      $ (3,516      $ 33
                            

Interest Rate Contracts

   $ (9,696   Interest expense    $ (9,328   Interest expense    $ —  

Foreign Exchange Contracts

     (1,210   Cost of products sold      2,098      Cost of products sold      33
                            

Six months ended June 28, 2009

   $ (10,906      $ (7,230      $ 33
                            

 

Derivatives Not Designated as Hedging Instruments

   Recognized in Earnings
on:
   Recognized in
Earnings on
Derivative
 

Natural Gas Contracts

   Cost of products sold    $ 61   

Diesel Contracts

   Cost of products sold      (1,381
           

Three months ended June 27, 2010

      $ (1,320
           

Natural Gas Contracts

   Cost of products sold    $ (380

Diesel Contracts

   Cost of products sold      (1,046
           

Six months ended June 27, 2010

      $ (1,426
           

Natural Gas Contracts

   Cost of products sold    $ (95

Heating Oil Swaps

   Cost of products sold      157   
           

Three months ended June 28, 2009

      $ 62   
           

Natural Gas Contracts

   Cost of products sold    $ (1,183

Heating Oil Swaps

   Cost of products sold      124   
           

Six months ended June 28, 2009

      $ (1,059
           

 

28


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Credit-risk-related Contingent Features

The Company has an agreement with Barclays that contains a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of June 27, 2010, the fair value of interest rate contracts in a net liability position related to these agreements was $30,019, which includes accrued interest of $1,158 but excludes any adjustment for nonperformance risk of $1,255. For the same counterparty, the fair value of foreign exchange derivative contracts in a net liability position related to these agreements was $1,690 which excludes any adjustment for nonperformance risk of $56. For the same counterparty, the fair value of natural gas contracts in a net liability position related to these agreements was $126. For the same counterparty, the fair value of diesel contracts in a net asset position related to these agreements was $427. If the Company breached any of these provisions, it could be required to settle its obligations under the agreements at their termination value of $32,262. As of June 27, 2010, the Company has not posted any collateral related to these agreements. As of December 27, 2009, the fair value of interest rate contracts in a net liability position related to these agreements was $23,089, which includes accrued interest of $1,044 but excludes any adjustment for nonperformance risk of $983. For the same counterparty, the fair value of foreign exchange derivative contracts in a net liability position related to these agreements was $2,599, which excludes any adjustment for nonperformance risk of $77. For the same counterparty, the fair value of natural gas contracts in a net liability position related to these agreements was $57. For the same counterparty, the fair value of heating oil contracts in a net asset position related to these agreements was $25. If the Company breached any of these provisions, it could be required to settle its obligations under the agreements at their termination value of $25,720. As of December 27, 2009, the Company has not posted any collateral related to these agreements.

The Company also has an agreement with Credit Suisse Group that contains a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of June 27, 2010, the fair value of interest rate contracts in a net liability position related to these agreements was $1,486, which excludes any adjustment for nonperformance risk of $97. As of December 27, 2009, the fair value of interest rate contracts in a net liability position related to these agreements was $83, which does not include any adjustment for nonperformance risk.

 

29


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

12. Commitments and Contingencies

General

From time to time, the Company and its operations are parties to, or targets of, lawsuits, claims, investigations, and proceedings, which are being handled and defended in the ordinary course of business. Although the outcome of such items cannot be determined with certainty, the Company’s general counsel and management are of the opinion that the final outcome of these matters should not have a material effect on the Company’s financial condition, results of operations or cash flows.

Commitment of $3.5 Million Capital Expenditure

In working to resolve an environmental wastewater investigation by the State of Michigan Department of Natural Resources and Environment (MDNRE) at the Company’s Birds Eye Foods Fennville MI production facility, on July 20, 2010, the Company and the MDNRE reached an agreement (“Administrative Consent Order” or “ACO”). Under the terms of the ACO, Birds Eye will construct a new $3.5 million wastewater treatment system at the facility and contribute a minimum of $70 thousand to the hookup of the City’s water supply extension to affected residents.

Lehman Brothers Special Financing

On June 4, 2010 Lehman Brothers Special Financing (LBSF) initiated a claim against the Company in LBSF’s bankruptcy proceeding for an additional payment from the Company of $19.7 million, related to certain derivative contracts which the Company had earlier terminated due to LBSF’s default as a result of its’ bankruptcy filing in 2008. In accordance with the terms of the contracts, following LBSF’s bankruptcy filing, the Company terminated the contracts and paid LBSF approximately $22.3 million. The Company believes that the claim is without merit and intends to vigorously defend against it.

 

30


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

13. Related Party Transactions

At the closing of the Blackstone Transaction, the Company entered into an advisory agreement with an affiliate of The Blackstone Group pursuant to which such entity or its affiliates provide certain strategic and structuring advice and assistance to us. In addition, under this agreement, affiliates of The Blackstone Group provide certain monitoring, advisory and consulting services to the Company for an aggregate annual management fee equal to the greater of $2,500 or 1.0% of Consolidated EBITDA (as defined in the credit agreement governing the Company’s Senior Secured Credit Facility). Affiliates of Blackstone also receive reimbursement for out-of-pocket expenses. Expenses relating to the management fee were $1,125 and $2,250 in the three and six months ended June 27, 2010, respectively. The Company reimbursed the Blackstone group out-of-pocket expenses totaling $55 in the three and six months ended June 27, 2010, respectively. Expenses relating to the management fee were $625 and $1,250 in the three and six months ended June 28, 2009, respectively. The Company reimbursed the Blackstone group out-of-pocket expenses totaling $0 and $20 in three and six months ended June 28, 2009, respectively.

In addition, on April 2, 2007 and pursuant to the agreement of merger, an affiliate of Blackstone received transaction fees totaling $21,600 for services provided by Blackstone and its affiliates related to the Blackstone Transaction.

In connection with the Birds Eye Acquisition, the transaction and advisory fee agreement with an affiliate of Blackstone was amended and restated to include a provision that granted the affiliates a 1% transaction fee based on the transaction purchase price. This fee totaled $14,009. Also, there was an advisory fee with an affiliate for $3,005. These fees are contained within the $24,090 of transaction fees discussed in Note 3 to the Consolidated Financial Statements. Also, as described in Note 3, the Company incurred an original issue discount, in connection with the Tranche C Term Loans. A portion of that discount, $750 related to loans from an affiliate of the Blackstone Group.

Supplier Costs

Graham Packaging, which is owned by affiliates of The Blackstone Group, supplies packaging for some of the Company’s products. Purchases from Graham Packaging were $1,783 and $3,560 for the three and six months ended June 27, 2010, respectively. Purchases from Graham Packaging were $1,727 and $3,442 for the three and six months ended June 28, 2009, respectively.

Customer Purchases

Performance Food Group, which is owned by affiliates of The Blackstone Group, is a food service supplier that purchases products from the Company. Sales to Performance Food Group were $1,516 and $3,086 in the three and six months ended June 27, 2010, respectively. Sales to Performance Food Group were $1,276 and $2,671 in the three and six months ended June 28, 2009, respectively.

Interest Expense

For the three and six months ended June 27, 2010, fees and interest expense recognized in the Consolidated Statement of Operations for debt to the related party Blackstone Advisors L.P. totaled $872 and $1,399, respectively. For the three and six months ended June 28, 2009, fees and interest expense recognized in the Consolidated Statement of Operations for debt to the related party Blackstone Advisors L.P. totaled $284 and $918, respectively.

Notes receivable from officers

In connection with the capital contributions at the time of the Birds Eye Acquisition on December 23, 2009, certain members of the Board of Directors and management purchased ownership units of our ultimate parent Peak Holdings LLC. To fund these purchases, certain members of management signed 30 day notes receivable at a market interest rate. The total of the notes receivable were $565 and were fully paid in January 2010.

 

31


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

14. Segments

In the first quarter of 2010, we implemented a reorganization of the Company’s products into three operating segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods. Our United States retail frozen vegetables (Birds Eye®), single-serve frozen dinners and entrées (Hungry-Man®, Swanson®), multi-serve frozen dinners and entrées (Birds Eye Voila!®), frozen seafood (Van de Kamp’s®, Mrs. Paul’s®), frozen breakfast (Aunt Jemima®), bagels (Lender’s®), and frozen pizza (Celeste®) are reported in the Birds Eye Frozen segment. Our baking mixes and frostings (Duncan Hines®), shelf-stable pickles, peppers and relish (Vlasic®), barbeque sauces (Open Pit®), pie fillings (Comstock®, Wilderness®), syrups (Mrs. Butterworth’s® and Log Cabin®), salad dressing (Bernstein’s®), canned meat (Armour®, Nalley®, Brooks®) and all Canadian Operations are reported in the Duncan Hines Grocery segment. The Specialty Foods segment consists of snack products (Tim’s Cascade® and Snyder of Berlin®) and our food service and private label businesses. Segment performance is evaluated by the Company’s Chief Operating Decision Maker and is based on earnings before interest and taxes. Transfers between segments and geographic areas are recorded at cost plus markup or at market. Identifiable assets are those assets which are identified with the operations in each segment or geographic region. Corporate assets consist of prepaid and deferred tax assets and assets held for sale. Unallocated corporate expenses consist of corporate overhead such as executive management, finance and legal functions and the costs to integrate the Birds Eye Foods Acquisition. Prior period amounts have been reclassified for consistent presentation.

 

     Three months ended          Six months ended  
     June 27,
2010
    June 28,
2009
         June 27,
2010
    June 28,
2009
 
SEGMENT INFORMATION            
 

Net sales

           

Birds Eye Frozen

   $ 230,647      $ 98,064         $ 555,047      $ 244,410   

Duncan Hines Grocery

     244,425        229,784           470,565        426,178   

Specialty Foods

     101,008        80,974           206,904        165,642   
                                   

Total

   $ 576,080      $ 408,822         $ 1,232,516      $ 836,230   
                                   

Earnings (loss) before interest and taxes

           

Birds Eye Frozen

   $ 35,623      $ 7,579         $ 65,035      $ 16,733   

Duncan Hines Grocery

     35,185        35,927           72,068        64,327   

Specialty Foods

     7,415        1,336           12,873        1,697   

Unallocated corporate expenses

     (7,825     (6,052        (17,484     (9,643
                                   

Total

   $ 70,398      $ 38,790         $ 132,492      $ 73,114   
                                   

Depreciation and amortization

           

Birds Eye Frozen

   $ 8,085      $ 7,103         $ 17,245      $ 12,001   

Duncan Hines Grocery

     5,860        5,779           11,721        10,850   

Specialty Foods

     4,854        5,003           9,711        9,621   
                                   

Total

   $ 18,799      $ 17,885         $ 38,677      $ 32,472   
                                   

Capital expenditures

           

Birds Eye Frozen

   $ 12,790      $ 13,078         $ 22,223      $ 21,177   

Duncan Hines Grocery

     8,612        5,357           12,464        9,608   

Specialty Foods

     2,774        1,079           4,845        1,587   
                                   

Total

   $ 24,176      $ 19,514         $ 39,532      $ 32,372   
                                   
 

GEOGRAPHIC INFORMATION

           
 

Net sales

           

United States

   $ 567,401      $ 404,627         $ 1,218,736      $ 829,378   

Canada

     22,537        18,652           38,786        33,914   

Intercompany

     (13,858     (14,457        (25,006     (27,062
                                   

Total

   $ 576,080      $ 408,822         $ 1,232,516      $ 836,230   
                                   

 

32


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

      June 27,
2010
   December 27,
2009
SEGMENT INFORMATION      

Total assets

     

Birds Eye Frozen

   $ 2,020,560    $ 2,057,562

Duncan Hines Grocery

     1,972,102      1,945,986

Specialty Foods

     494,945      503,395

Corporate

     29,759      31,555
             

Total

   $ 4,517,366    $ 4,538,498
             

GEOGRAPHIC INFORMATION

     

Long-lived assets

     

United States

   $ 421,635    $ 412,171

Canada

     31      37
             

Total

   $ 421,666    $ 412,208
             

 

33


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

15. Income Taxes

The income tax provision/(benefit) and related effective tax rates for the three and six months ended June 27, 2010 and June 28, 2009 were as follows:

 

     Three Months Ended     Six Months Ended  
     June 27,
2010
    June 28,
2009
    June 27,
2010
    June 28,
2009
 

Current Income Tax Provision/(Benefit)

   $ 2,781      $ 60      $ 9,786      $ (615

Deferred Income Tax Provision/(Benefit)

     10        7,556        (3,955     15,049   
                                

Income Tax Provision

   $ 2,791      $ 7,616      $ 5,831      $ 14,434   
                                

Effective Tax Rate

     16.5     75.1     24.4     97.1

Income taxes are accounted for in accordance with the authoritative guidance for accounting for income taxes under which deferred tax assets and liabilities are determined based on the difference between the financial statement basis and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company regularly evaluates its deferred tax assets for future realization. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change.

Based on a review of both the positive and negative evidence as of December 27, 2009, it was determined that the Company had sufficient positive evidence to outweigh any negative evidence and support that it is more likely that not that substantially all of deferred tax assets will be realized. This resulted in a reversal of $315.6 million of the valuation allowance in the period ended December 27, 2009.

As of June 27, 2010 we maintained a valuation allowance for certain state net operating loss carryovers, state tax credit carryovers, and foreign loss carryovers. As of June 28, 2009 we maintained a full valuation allowance against net federal and state deferred tax assets excluding indefinite lived intangible assets

During the second quarter, the Company recorded an out of period adjustment to correct an error in the tax effects of Accumulated other comprehensive loss as of December 27, 2009 and March 28, 2010. During the three and six months ended June, 27, 2010, this adjustment reduced the provision for income taxes by $4,100 and $3,700, respectively. Accordingly, Accumulated other comprehensive loss was increased by the related effect of this adjustment during the three and six months ended June 27, 2010. This adjustment is not material to any current or prior periods, nor is it expected to be material to the year ended December 26, 2010.

The Company’s liability for unrecognized tax benefits (“UTB”) as of June 27, 2010 is $3,405. The amount, if recognized, that would impact the effective tax rate as of June 27, 2010 was $2,370. The amount of the liability for UTB classified as a long-term liability on the Consolidated Balance Sheet was $2,370. Certain statutes of limitation may expire within the next twelve months, which could cause a decrease of $801 in the UTB liability and a benefit to the provision for income taxes.

 

34


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

16. Recently Issued Accounting Pronouncements

In June 2009, the FASB issued the authoritative guidance for variable interest entities. This guidance clarifies the characteristics that identify a variable interest entity (VIE) and changes how a reporting entity identifies a primary beneficiary that would consolidate the VIE from a quantitative risk and rewards calculation to a qualitative approach based on which variable interest holder has controlling financial interest and the ability to direct the most significant activities that impact the VIE’s economic performance. This guidance requires the primary beneficiary assessment to be performed on a continuous basis. It also requires additional disclosures about an entity’s involvement with VIE, restrictions on the VIE’s assets and liabilities that are included in the reporting entity’s consolidated balance sheet, significant risk exposures due to the entity’s involvement with the VIE, and how its involvement with a VIE impacts the reporting entity’s consolidated financial statements. The authoritative guidance for variable interest entities was effective for fiscal years beginning after November 15, 2009. The Company adopted this guidance in the first quarter of 2010 and it did not have a material impact on the Company’s consolidated financial position or results of operations.

In January 2010, the FASB updated the authoritative guidance for fair value disclosure. The updated guidance requires new disclosures for significant transfers in and out of Level 1 and 2 of the fair value hierarchy and activity within Level 3 of the fair value hierarchy. The update provides amendments to the level of disaggregation that an entity should provide in each class of assets and liabilities, as well as disclosures about the inputs and valuation techniques used to measure fair value. The updated guidance is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted this guidance in the first quarter of 2010 and it did not have a material impact on the Company’s consolidated financial position or results of operations.

 

35


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

17. Guarantor and Nonguarantor Statements

In connection with the Blackstone Transaction described in Note 1 and as a part of the related financings, the Company issued $325 million of 9.25% Senior Notes and $250 million ($199 million outstanding as of December 27, 2009) of 10.625% Senior Subordinated Notes in private placements pursuant to Rule 144A and Regulation S. An additional $300 million of Senior Notes were issued on December 23, 2009 in connection with the Birds Eye Acquisition.

The Senior Notes are general unsecured obligations of the Company, effectively subordinated in right of payment to all existing and future senior secured indebtedness of the Company and guaranteed on a full, unconditional, joint and several basis by the Company’s wholly-owned domestic subsidiaries that guarantee other indebtedness of the Company.

The Senior Subordinated Notes are general unsecured obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company and guaranteed on a full, unconditional, joint and several basis by the Company’s wholly-owned domestic subsidiaries that guarantee other indebtedness of the Company.

The following consolidating financial information presents:

 

  (1) (a) Consolidating balance sheets as of June 27, 2010 and December 27, 2009.

(b) The related consolidating statements of operations for the Company, all guarantor subsidiaries and the non- guarantor subsidiaries for the following:

i. Three and six months ended June 27, 2010.

ii. Three and six months ended June 28, 2009.

(c) The related consolidating statements of cash flows for the Company, all guarantor subsidiaries and the non-guarantor subsidiaries for the following:

i. Six months ended June 27, 2010.

ii. Six months ended June 28, 2009.

 

  (2) Elimination entries necessary to consolidate the Company with its guarantor subsidiaries and non-guarantor subsidiaries.

Investments in subsidiaries are accounted for by the parent using the equity method of accounting. The guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions and include a reclassification entry of net non-current deferred tax assets to non-current deferred tax liabilities.

 

36


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidating Balance Sheet

June 27, 2010

 

     Pinnacle
Foods
Finance LLC
   Guarantor
Subsidiaries
   Nonguarantor
Subsidiaries
   Eliminations
and
Reclassifications
   Consolidated
Total

Current assets:

              

Cash and cash equivalents

   $ —      $ 137,363    $ 5,464    $ —      $ 142,827

Accounts receivable, net

     —        148,159      7,464      —        155,623

Intercompany accounts receivable

     —        55,713      —        (55,713)      —  

Inventories, net

     —        292,303      4,343      —        296,646

Other current assets

     10,543      17,686      374      —        28,603

Deferred tax assets

     —        35,084      573      —        35,657
                                  

Total current assets

     10,543      686,308      18,218      (55,713)      659,356

Plant assets, net

     —        421,635      31      —        421,666

Investment in subsidiaries

     1,690,228      6,162      —        (1,696,390)      —  

Intercompany note receivable

     1,976,175      —        —        (1,976,175)      —  

Tradenames

     —        1,658,812      —        —        1,658,812

Other assets, net

     50,330      168,022      —        —        218,352

Deferred tax assets

     135,395      —        —        (135,395)      —  

Goodwill

     —        1,559,180      —        —        1,559,180
                                  

Total assets

   $ 3,862,671    $ 4,500,119    $ 18,249    $ (3,863,673)    $ 4,517,366
                                  

Current liabilities:

              

Short-term borrowings

   $ —      $ 378    $ —      $ —      $ 378

Current portion of long-term obligations

     2,935      1,401      —        —        4,336

Accounts payable

     —        106,612      1,557      —        108,169

Intercompany accounts payable

     49,814      —        5,899      (55,713)      —  

Accrued trade marketing expense

     —        35,669      4,000      —        39,669

Accrued liabilities

     52,388      99,567      631      —        152,586

Accrued income taxes

     215      2,138      —        —        2,353
                                  

Total current liabilities

     105,352      245,765      12,087      (55,713)      307,491

Long-term debt

     2,852,450      3,046      —        —        2,855,496

Intercompany note payable

     —        1,976,175      —        (1,976,175)      —  

Pension and other postretirement benefits

     —        78,454      —        —        78,454

Other long-term liabilities

     18,772      15,736      —        —        34,508

Deferred tax liabilities

     (2,430)      490,715      —        (135,395)      352,890
                                  

Total liabilities

     2,974,144      2,809,891      12,087      (2,167,283)      3,628,839

Commitments and contingencies

     —        —        —        —        —  

Shareholder’s equity:

              

Pinnacle Common Stock, $.01 par value

   $ —      $ —      $ —      $ —        —  

Additional paid-in-capital

     693,052      1,284,155      2,324      (1,286,479)      693,052

Retained earnings

     243,417      424,965      5,839      (430,804)      243,417

Accumulated other comprehensive (loss) income

     (47,942)      (18,892)      (2,001)      20,893      (47,942)
                                  

Total shareholder’s equity

     888,527      1,690,228      6,162      (1,696,390)      888,527
                                  

Total liabilities and shareholder’s equity

   $ 3,862,671    $ 4,500,119    $ 18,249    $ (3,863,673)    $ 4,517,366
                                  

 

37


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidating Balance Sheet

December 27, 2009

 

     Pinnacle
Foods
Finance LLC
    Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Eliminations
and
Reclassifications
    Consolidated
Total
 

Current asset:

          

Cash and cash equivalents

   $ —        $ 68,249      $ 5,625      $ —        $ 73,874   

Accounts receivable, net

     —          152,961        5,043        —          158,004   

Intercompany accounts receivable

     —          68,227        —          (68,227     —     

Inventories, net

     —          384,787        5,180        —          389,967   

Other current assets

     9,200        17,060        700        —          26,960   

Deferred tax assets

     —          24,839        831        —          25,670   
                                        

Total current assets

     9,200        716,123        17,379        (68,227     674,475   

Plant assets, net

     —          412,171        37        —          412,208   

Investment in subsidiaries

     1,642,385        4,695        —          (1,647,080     —     

Intercompany note receivable

     2,044,797        —          —          (2,044,797     —     

Tradenames

     —          1,658,812        —          —          1,658,812   

Other assets, net

     57,062        176,761        —          —          233,823   

Deferred tax assets

     115,733        —          —          (115,733     —     

Goodwill

     —          1,559,180        —          —          1,559,180   
                                        

Total assets

   $ 3,869,177      $ 4,527,742      $ 17,416      $ (3,875,837   $ 4,538,498   
                                        

Current liabilities:

          

Short-term borrowings

   $ —        $ 1,232      $ —        $ —        $ 1,232   

Current portion of long-term obligations

     37,170        1,058        —          —          38,228   

Accounts payable

     —          129,142        1,218        —          130,360   

Intercompany accounts payable

     60,376        —          7,851        (68,227     —     

Accrued trade marketing expense

     —          46,067        2,981        —          49,048   

Accrued liabilities

     29,150        100,214        671        —          130,035   

Accrued income taxes

     —          455        —          —          455   
                                        

Total current liabilities

     126,696        278,168        12,721        (68,227     349,358   

Long-term debt

     2,846,983        2,268        —          —          2,849,251   

Intercompany note payable

     —          2,044,797        —          (2,044,797     —     

Pension and other postretirement benefits

     —          82,437        —          —          82,437   

Other long-term liabilities

     21,145        18,238        —          —          39,383   

Deferred tax liabilities

     —          459,449        —          (115,733     343,716   
                                        

Total liabilities

     2,994,824        2,885,357        12,721        (2,228,757     3,664,145   

Commitments and contingencies

     —          —          —          —          —     

Shareholder’s equity:

          

Pinnacle Common Stock, $.01 par value

   $ —        $ —        $ —        $ —          —     

Additional paid-in-capital

     693,196        1,284,155        2,324        (1,286,479     693,196   

Notes receivable from officers

     (565     —          —          —          (565

Retained earnings

     225,313        378,809        5,341        (384,150     225,313   

Accumulated other comprehensive (loss) income

     (43,591     (20,579     (2,970     23,549        (43,591
                                        

Total shareholder’s equity

     874,353        1,642,385        4,695        (1,647,080     874,353   
                                        

Total liabilities and shareholder’s equity

   $ 3,869,177      $ 4,527,742      $ 17,416      $ (3,875,837   $ 4,538,498   
                                        

 

38


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidated Statement of Operations

For the three months ended June 27, 2010

 

     Pinnacle
Foods
Finance LLC
    Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
   Eliminations     Consolidated
Total

Net sales

   $ —        $ 567,401      $ 22,537    $ (13,858   $ 576,080

Cost of products sold

     1        428,470        19,397      (13,726     434,142
                                     

Gross profit

     (1     138,931        3,140      (132     141,938

Operating expenses

           

Marketing and selling expenses

     84        36,686        1,720      —          38,490

Administrative expenses

     1,250        24,567        745      —          26,562

Research and development expenses

     9        2,193        —        —          2,202

Intercompany royalties

     —          —          27      (27     —  

Intercompany technical service fees

     —          —          105      (105     —  

Other expense (income), net

     —          4,286        —        —          4,286

Equity in (earnings) loss of investees

     (26,453     (327     —        26,780        —  
                                     

Total operating expenses

     (25,110     67,405        2,597      26,648        71,540
                                     

Earnings before interest and taxes

     25,109        71,526        543      (26,780     70,398

Intercompany interest (income) expense

     (30,474     30,474        —        —          —  

Interest expense

     53,251        252        —        —          53,503

Interest income

     10        60        —        —          70
                                     

Earnings before income taxes

     2,342        40,860        543      (26,780     16,965

Provision (benefit) for income taxes

     (11,832     14,407        216      —          2,791
                                     

Net earnings

   $ 14,174      $ 26,453      $ 327    $ (26,780   $ 14,174
                                     

 

39


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidating Statement of Operations

For the three months ended June 28, 2009

 

     Pinnacle
Foods
Finance LLC
    Guarantor
Subsidiaries
   Nonguarantor
Subsidiary
    Eliminations     Consolidated
Total

Net sales

   $ —        $ 404,627    $ 18,652      $ (14,457   $ 408,822

Cost of products sold

     2        315,923      16,510        (14,283     318,152
                                     

Gross profit

     (2     88,704      2,142        (174     90,670

Operating expenses

           

Marketing and selling expenses

     47        29,175      1,380        —          30,602

Administrative expenses

     795        14,571      608        —          15,974

Research and development expenses

     5        1,102      —          —          1,107

Intercompany royalties

     —          —        15        (15     —  

Intercompany technical service fees

     —          —        159        (159     —  

Other (income) expense, net

     —          4,197      —          —          4,197

Equity in (earnings) loss of investees

     (25,906     15      —          25,891        —  
                                     

Total operating expenses

     (25,059     49,060      2,162        25,717        51,880
                                     

Earnings before interest and taxes

     25,057        39,644      (20     (25,891     38,790

Intercompany interest (income) expense

     (6,101     6,101      —          —          —  

Interest expense

     28,633        24      1        —          28,658

Interest income

     —          9      —          —          9
                                     

Earnings (loss) before income taxes

     2,525        33,528      (21     (25,891     10,141

Provision (benefit) for income taxes

     —          7,622      (6     —          7,616
                                     

Net earnings (loss)

   $ 2,525      $ 25,906    $ (15   $ (25,891   $ 2,525
                                     

 

40


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidated Statement of Operations

For the six months ended June 27, 2010

 

     Pinnacle
Foods
Finance LLC
    Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
   Eliminations     Consolidated
Total

Net sales

   $ —        $ 1,218,736      $ 38,786    $ (25,006   $ 1,232,516

Cost of products sold

     —          926,045        33,470      (24,667     934,848
                                     

Gross profit

     —          292,691        5,316      (339     297,668

Operating expenses

           

Marketing and selling expenses

     168        88,191        2,968      —          91,327

Administrative expenses

     2,545        56,722        1,225      —          60,492

Research and development expenses

     18        4,530        —        —          4,548

Intercompany royalties

     —          —          46      (46     —  

Intercompany technical service fees

     —          —          293      (293     —  

Other expense (income), net

     —          8,809        —        —          8,809

Equity in (earnings) loss of investees

     (46,156     (498     —        46,654        —  
                                     

Total operating expenses

     (43,425     157,754        4,532      46,315        165,176
                                     

Earnings before interest and taxes

     43,425        134,937        784      (46,654     132,492

Intercompany interest (income) expense

     (61,602     61,602        —        —          —  

Interest expense

     108,319        395        —        —          108,714

Interest income

     20        137        —        —          157
                                     

Earnings (loss) before income taxes

     (3,272     73,077        784      (46,654     23,935

Provision (benefit) for income taxes

     (21,376     26,921        286      —          5,831
                                     

Net earnings

   $ 18,104      $ 46,156      $ 498    $ (46,654   $ 18,104
                                     

 

41


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidating Statement of Operations

For the six months ended June 28, 2009

 

     Pinnacle
Foods
Finance LLC
    Guarantor
Subsidiaries
    Nonguarantor
Subsidiary
    Eliminations     Consolidated
Total

Net sales

   $ —        $ 829,378      $ 33,914      $ (27,062   $ 836,230

Cost of products sold

     37        653,721        31,102        (26,715     658,145
                                      

Gross profit

     (37     175,657        2,812        (347     178,085

Operating expenses

          

Marketing and selling expenses

     94        61,606        3,257        —          64,957

Administrative expenses

     1,597        26,804        1,102        —          29,503

Research and development expenses

     10        2,107        —          —          2,117

Intercompany royalties

     —          —          30        (30     —  

Intercompany technical service fees

     —          —          317        (317     —  

Other (income) expense, net

     —          8,394        —          —          8,394

Equity in (earnings) loss of investees

     (46,947     1,265        —          45,682        —  
                                      

Total operating expenses

     (45,246     100,176        4,706        45,335        104,971
                                      

Earnings before interest and taxes

     45,209        75,481        (1,894     (45,682     73,114

Intercompany interest (income) expense

     (13,571     13,571        —          —          —  

Interest expense

     58,355        (88     1        —          58,268

Interest income

     —          10        3        —          13
                                      

Earnings (loss) before income taxes

     425        62,008        (1,892     (45,682     14,859

Provision (benefit) for income taxes

     —          15,061        (627     —          14,434
                                      

Net earnings (loss)

   $ 425      $ 46,947      $ (1,265   $ (45,682   $ 425
                                      

 

42


PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

(thousands of dollars, except share amounts and where noted in millions)

 

Pinnacle Foods Finance LLC

Consolidating Statement of Cash Flows

For the six months ended June 27, 2010

 

     Pinnacle
Foods
Finance LLC
    Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Cash flows from operating activities

          

Net earnings from operations

   $ 18,104      $ 46,156      $ 498      $ (46,654   $ 18,104   

Non-cash charges (credits) to net earnings

          

Depreciation and amortization

     —          38,671        6        —          38,677   

Amortization of discount on term loan

     1,374        —          —          —          1,374   

Amortization of debt acquisition costs

     6,582        —          —          —          6,582   

Amortization of deferred mark-to-market adjustment on terminated swap

     1,829        —          —          —          1,829   

Change in value of financial instruments

     (35     1,286        —          —          1,251   

Equity in loss (earnings) of investees

     (46,156     (498     —          46,654        —     

Stock-based compensation charges

     —          410        —          —          410   

Postretirement healthcare benefits

     —          (24     —          —          (24

Pension expense net of contributions

     —          (464     —          —          (464

Other long-term liabilities

     —          1,276        —          —          1,276   

Other long-term assets

     —          156        —          —          156