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Table of Contents

As filed with the Securities and Exchange Commission on March 15, 2013

Registration No. 333-185565

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Pinnacle Foods Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   2000   35-2215019
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification Number)

 

 

399 Jefferson Road

Parsippany, New Jersey 07054

(973) 541-6620

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

M. Kelley Maggs, Esq.

Senior Vice President, Secretary and General Counsel

399 Jefferson Road

Parsippany, New Jersey 07054

(973) 541-6620

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

Richard A. Fenyes, Esq.

Edward P. Tolley III, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017-3954

(212) 455-2000

 

Kirk A. Davenport II, Esq.

Ian D. Schuman, Esq.

Latham & Watkins LLP

885 Third Avenue, Suite 1000

New York, New York 10022-4834

(212) 906-1200

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting  company)   Smaller reporting company ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

 

Amount to be

Registered(1)

 

Proposed Maximum

Aggregate Offering
Price per Share(1)(2)

 

Proposed Maximum

Aggregate Offering
Price(2)

 

Amount of

Registration Fee

Common Stock, par value $0.01 per share

 

33,350,000

 

$20.00

 

$667,000,000

 

$90,978.80(3)

 

 

(1) Includes shares/offering price of shares of common stock that the underwriters have the option to purchase. See “Underwriting (Conflicts of Interest).”
(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.
(3) $86,273 of such fee was previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

Subject to Completion, dated March 15, 2013.

PROSPECTUS

29,000,000 Shares

 

LOGO

Pinnacle Foods Inc.

Common Stock

 

 

 

This is an initial public offering of shares of common stock of Pinnacle Foods Inc. We are offering shares of our common stock.

Prior to this offering, there has been no public market for our common stock. We currently expect that the initial public offering price of our common stock will be between $18.00 and $20.00 per share. Our common stock has been approved for listing on The New York Stock Exchange (the “NYSE”) under the symbol “PF.” After the completion of this offering, affiliates of The Blackstone Group L.P. will continue to own a majority of the voting power of all outstanding shares of our common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Principal Stockholders.”

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 16 to read about factors you should consider before buying shares of our common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions

   $         $     

Proceeds, before expenses, to us(1)

   $         $     

 

(1)

We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting (Conflicts of Interest).”

To the extent that the underwriters sell more than 29,000,000 shares of our common stock, the underwriters have the option to purchase up to an additional 4,350,000 shares from us at the initial public offering price, less the underwriting discounts and commissions, within 30 days of the date of this prospectus.

The underwriters expect to deliver the shares against payment in New York, New York on or about                     , 2013.

 

 

Barclays   BofA Merrill Lynch
Credit Suisse
  Goldman, Sachs & Co.
    Morgan Stanley
      UBS Investment Bank

 

 

 

Blackstone Capital Markets
  BMO Capital Markets
    C.L. King & Associates
      Janney Montgomery Scott
        Macquarie Capital
          Piper Jaffray
            Stephens Inc.
              Stifel

 

 

Prospectus dated                     , 2013.


Table of Contents

LOGO


Table of Contents

You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize be delivered to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date stated in this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

 

Table of Contents

 

     Page  

Market and Industry Data

     ii   

Trademarks, Service Marks and Tradenames

     ii   

Prospectus Summary

     1   

Risk Factors

     16   

Special Note Regarding Forward-Looking Statements

     30   

Use of Proceeds

     32   

Dividend Policy

     33   

Dilution

     34   

Capitalization

     36   

Selected Historical Consolidated Financial Data

     37   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42   

Business

     73   

Management

     88   

Principal Stockholders

     115   

Certain Relationships and Related Party Transactions

     117   

Description of Indebtedness

     121   

Description of Capital Stock

     126   

Shares Eligible for Future Sale

     134   

Certain United States Federal Income Tax Consequences to Non-U.S. Holders

     136   

Certain ERISA Considerations

     139   

Underwriting (Conflicts of Interest)

     140   

Legal Matters

     147   

Experts

     147   

Where You Can Find More Information

     147   

Index to Consolidated Financial Statements

     F-1   

 

 

Unless otherwise indicated or the context otherwise requires, financial data in this prospectus reflects the consolidated business and operations of Pinnacle Foods Inc. and its consolidated subsidiaries.

The consolidated financial statements included in this prospectus are presented in U.S. Dollars rounded to the nearest thousand, with amounts in this prospectus rounded to the nearest million. Therefore, discrepancies in the tables between totals and the sums of the amounts listed may occur due to such rounding. The accounting policies set out in the audited consolidated financial statements contained elsewhere in this prospectus have been consistently applied to all periods presented.

 

 

 

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Table of Contents

MARKET AND INDUSTRY DATA

We obtained the industry, market and competitive position data used throughout this prospectus from internal company surveys and management estimates as well as from industry and general publications and research, surveys and studies conducted by third parties. We believe these internal company surveys and management estimates are reliable; however, no independent sources have verified such surveys and estimates. Third-party industry and general publications, research, studies and surveys generally state that the information contained therein has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified any of the data from third-party sources and cannot guarantee its accuracy and completeness.

We use data provided by Symphony IRI Group, Inc. (“SIG”). Unless we indicate otherwise, retail sales, market share, category and other industry data (other than household penetration which is for the 52-week period ended December 23, 2012) used throughout this prospectus for all categories and segments are for U.S. brands and for the 52-week period ended December 30, 2012. This data includes retail sales in supermarkets with at least $2 million in total annual sales but excludes sales in mass merchandisers, club stores, drug stores, convenience stores and dollar stores. Retail sales are dollar sales estimated by SIG and represent the value of units sold through supermarket cash registers for the relevant period. Market share is our percentage of the overall category and is calculated using retail dollar sales. In the second half of fiscal 2012, SIG began including in their data Wal-Mart Stores, Inc. (“Wal-Mart”) and other retailers not previously measured, and we plan to begin using this expanded data in fiscal 2013.

We view shelf-stable pickles, table syrup, frozen and refrigerated bagels, frozen pancakes/waffles/French toast and pie/pastry fruit fillings as distinct categories. We view the cake/brownie mixes and frostings category as consisting of cake and cupcake mixes, brownie mixes and frostings. We view the frozen vegetables category as consisting of frozen plain vegetables, frozen prepared vegetables and select frozen side dishes including vegetables. We view the frozen complete bagged meals category as consisting of frozen full-calorie multi-serve dinners, excluding non-bag items. We view the frozen prepared seafood category as consisting of frozen prepared fish/seafood and frozen prepared shrimp. We view the single-serve frozen dinners and entrées category as consisting of full-calorie single-serve frozen dinners and entrées and select frozen handheld entrees. We view the frozen pizza-for-one category as consisting of total frozen pizza of 12 ounces per unit or less (for single serve packages, or individual units within multi-serve packages), excluding French bread crust and diet-positioned varieties. We view the canned meat category as consisting of shelf-stable prepared chili, shelf-stable lunch meats, shelf-stable Vienna Sausage and shelf-stable potted meats.

We view our business as comprised of 12 major product categories, which are categories in which our brands’ net sales exceed $50 million and which collectively comprise over 93% of our North American Retail net sales.

Although we believe that this information is reliable, we cannot guarantee its accuracy and completeness, nor have we independently verified it. Although we are not aware of any misstatements regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

TRADEMARKS, SERVICE MARKS AND TRADENAMES

We own a number of registered and common law trademarks in the United States, Canada and other countries, including Amazing Glazes®, Appian Way®, Birds Eye®, Bernstein’s®, Brooks®, C&W®, CasaRegina®, Celeste®, Chocolate Lovers®, Comstock®, Country Kitchen®, Duncan Hines®, Erin’s Gourmet

 

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Popcorn®, Farmer’s Garden®, Freshlike®, Fun Frosters™, Frosting Creations®, Hartford House®, Hawaiian Style Bowls®, Hearty Bowls™, Hearty Hero®, Hungry-Man®, Hungry-Man Sports Grill®, Hungry-Man Steakhouse™, Husman’s®, It’s Good to be Full®, Lender’s®, Log Cabin®, Lunch Bucket®, Magic Minis®, McKenzie’s®, Milwaukee’s®, Moist Deluxe®, Mrs. Butterworth’s®, Mrs. Paul’s®, Nalley®, Open Pit®, Ovals®, Riviera®, Satisfy Your Craving®, Signature Desserts®, Simple Mornings®, Simply Classic™, Snack’mms®, So Moist. So Delicious. And So Much More.®, Stackers®, Snyder of Berlin®, Steamfresh®, Taste the Juicy Crunch™, That’s the Tastiest Crunch I’ve Ever Heard!®, The Original TV Dinner™, Tim’s Cascade Snacks®, Treet®, Van de Kamp’s®, Vlasic® and Wilderness®. We also have applications pending with the United States Patent and Trademark Office for a number of trademarks, including ParchmentBake™, Lil’ Griddles™, Power Lunch™, Thick N Rich™, It’s Always Vegetable Season™, Nobody Brings the Bite Like Vlasic™ and Discover the Wonder of Vegetables™. We own the trademark Snyder of Berlin while an unrelated third party owns the trademark Snyder of Hanover. Per a court order, the use of the trademark must include the word “Snyder” in combination with the words “of Berlin.” We protect our trademarks by obtaining registrations where appropriate and opposing any infringement in key markets. We also own a design trademark registration in the United States, Canada, and other countries on the Vlasic stork.

We manufacture and market certain of our frozen food products under the Swanson brand pursuant to two royalty-free, exclusive and perpetual trademark licenses granted by Campbell Soup Company. We manufacture and market certain of our frozen breakfast products under the Aunt Jemima brand pursuant to a royalty-free, exclusive (as to frozen breakfast products only) and perpetual license granted by The Quaker Oats Company, a subsidiary of PepsiCo Inc. We have a license agreement granting us an exclusive, royalty bearing, perpetual license to use certain Armour trademarks in the United States. Under the license agreement, Smithfield Foods, Inc., as successor to ConAgra, Inc., the licensor, grants us a license for the use of various Armour trademarks in conjunction with shelf-stable products within the United States. We own and maintain Armour registrations in many other countries. We also manufacture and market frozen complete bagged meals under the Voila! trademark pursuant to a royalty-free exclusive and perpetual license granted by Voila Bakeries, Inc. In 2011, we applied for a patent for our new Duncan Hines Frosting Creations™ products.

Solely for convenience, the trademarks, service marks, and tradenames referred to in this prospectus are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and tradenames. All trademarks, service marks and tradenames appearing in this prospectus are the property of their respective owners.

 

iii


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PROSPECTUS SUMMARY

This summary highlights certain significant aspects of our business and this offering. This is a summary of information contained elsewhere in this prospectus, is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and the consolidated financial statements and the notes thereto, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of certain factors such as those set forth in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Unless the context otherwise requires, all references herein to the “Company,” “we,” “our” or “us” refer to Pinnacle Foods Inc. and its consolidated subsidiaries. The historical financial statements and financial data included in this prospectus are those of Pinnacle Foods Inc. and its consolidated subsidiaries.

 

 

Our Company

We are a leading manufacturer, marketer and distributor of high-quality, branded food products in North America, with annual net sales of $2.5 billion in fiscal 2012. Our brands are leaders in many of their respective categories, and we hold the #1 or #2 market share position in 10 of the 12 major product categories in which we compete. Our brand portfolio enjoys strong household penetration in the United States, where our products can be found in over 85% of U.S. households. Our products are sold through supermarkets, grocery wholesalers and distributors, mass merchandisers, super centers, convenience stores, dollar stores, drug stores and warehouse clubs in the United States and Canada, as well as in military channels and foodservice locations. Given our diverse portfolio of iconic brands with attractive market positions, our business generates significant and stable cash flows that we believe will enable us to pay regular dividends to our shareholders, reduce our debt and drive value creation through both reinvestment in our existing brands and periodic strategic acquisitions.

From fiscal 2008 through fiscal 2012, we grew our net sales and Adjusted EBITDA by approximately 59% and 91%, respectively, and expanded our Adjusted EBITDA margin by 2.9 percentage points. Over the same period, our earnings increased from a net loss of $28.6 million in 2008 to net earnings of $52.6 million in fiscal 2012. See “—Summary Historical Consolidated Financial Data” for our definition of Adjusted EBITDA and a reconciliation of our net earnings (loss) to Adjusted EBITDA. On December 23, 2009, we acquired all of the common stock of Birds Eye Foods, Inc. (the “Birds Eye Acquisition”), a transaction that significantly expanded our presence in frozen foods and positioned Pinnacle as the 5th largest frozen food manufacturer in the United States. At the time of the Birds Eye Acquisition, the Birds Eye Foods Inc. (“Birds Eye”) portfolio included an expanding platform of healthy, high-quality frozen vegetables and frozen meals, as well as a portfolio of primarily branded shelf-stable foods that were complimentary to our existing product offerings. In fiscal 2010, all aspects of the Birds Eye business were fully integrated with Pinnacle.

In addition to reinvestment in our brands and making periodic strategic acquisitions, we have also deployed our significant cash flows to reduce our debt. Our cash flow generation has enabled us to pay down approximately $350 million of the $3.0 billion of debt we incurred in connection with the acquisition of the Company by affiliates of The Blackstone Group L.P. in April 2007 and the Birds Eye Acquisition in December 2009.

 

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Our operations are managed and reported in three operating segments: the Birds Eye Frozen Division, the Duncan Hines Grocery Division and the Specialty Foods Division. The Birds Eye Frozen Division and the Duncan Hines Grocery Division, which collectively represent our North American Retail operations, include the following brands:

 

Birds Eye Frozen Division

 

Industry Category

   Market Share
52  Weeks Ended 12/30/12
    Category
Rank (1)
 

Major Pinnacle Brands:

      

Birds Eye

  Frozen vegetables      27.2     #1   

Birds Eye Voila!

  Frozen complete bagged meals      25.1     #2 (2) 

Van de Kamp’s

  Frozen prepared seafood      18.8     #2   

Mrs. Paul’s

      

Lender’s

  Frozen and refrigerated bagels      45.7     #1   

Celeste

  Frozen pizza for one      11.3     #4   

Hungry-Man

  Full-calorie single-serve frozen dinners and entrées      8.5     #3   

Aunt Jemima

  Frozen pancakes/waffles/French toast      8.5     #2   

 

(1)

Rank among branded manufacturers, excluding private label.

(2) 

Pinnacle is the #2 competitor and Birds Eye Voila! is the #1 ranked individual brand in the frozen complete bagged meals category.

 

Duncan Hines Grocery Division

 

Industry Category

   Market Share
52  Weeks Ended 12/30/12
    Category
Rank (1)
 

Major Pinnacle Brands:

      

Duncan Hines

  Cake/brownie mixes and frostings      25.8     #2   

Vlasic

  Shelf-stable pickles      31.3     #1   

Mrs. Butterworth’s

  Table syrup      17.6     #2   

Log Cabin

      

Armour

  Canned meat      18.5     #2   

Brooks

      

Nalley

      

Comstock

  Pie/pastry fruit fillings      36.0     #1   

Wilderness

      

 

(1) 

Rank among branded manufacturers, excluding private label.

In addition to our North American Retail operations, the Specialty Foods Division consists of a regional presence in snack products (including Tim’s Cascade and Snyder of Berlin), as well as our foodservice and private label businesses. As part of our ongoing strategic focus over the last several years, we have deemphasized certain low-margin foodservice businesses, particularly foodservice pickles in fiscal 2012, and private label businesses for the benefit of our higher margin branded food products. We believe that this effort will be substantially completed in 2013.

Within our divisions, we actively manage our portfolio by segregating our business into Leadership Brands and Foundation Brands. Our Leadership Brands enjoy a combination of higher growth and margins, greater potential for value-added innovation and enhanced responsiveness to consumer marketing than do our Foundation Brands and, as a result, we focus our investment spending and brand-building activities on our Leadership Brands. By contrast, we manage our Foundation Brands for revenue and market share stability and for cash flow generation to support investment in our Leadership Brands, reduce our debt and fund other corporate priorities. As a result, we focus spending for our Foundation Brands on brand renovation and targeted consumer and trade programs.

Our Leadership Brands are comprised of Birds Eye, Birds Eye Voila!, Duncan Hines, Vlasic, Van de Kamp’s, Mrs. Paul’s, Mrs. Butterworth’s and Log Cabin. Historically, our Leadership Brands have received

 

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approximately 80% of our marketing investment and the majority of our innovation investment. Our Birds Eye and Birds Eye Voila! brands combined have annual retail revenue across all retail channels in excess of $1 billion, and our remaining Leadership Brands collectively have annual retail revenue of approximately $900 million across all retail channels. In fiscal 2012, our Leadership Brands accounted for approximately 55% and 70% of our consolidated net sales and gross profit, respectively, and approximately 65% and 74% of our North American Retail net sales and gross profit, respectively.

Competitive Strengths

We believe the following competitive strengths differentiate us from our competitors and contribute to our ongoing success:

Actively Managed Portfolio of Iconic Food Brands with Leading Market Positions

We actively manage our diverse portfolio of iconic food brands that participate in attractive product categories. Our well-recognized brand portfolio enjoys strong household penetration in the United States, where our products can be found in over 85% of U.S. households. Our brands are leaders in their respective categories, holding the #1 or #2 market share position in 10 of the 12 major product categories in which we compete.

We have prioritized our investment spending and brand-building activities behind our Leadership Brands, given their higher growth and margins, greater potential for value-added innovation and enhanced responsiveness to consumer marketing, as compared to that of our Foundation Brands. We manage our Foundation Brands for stability in sales, market share and cash flow, with a focus on ongoing quality upgrades, competitive pricing and strong merchandising and trade programs. Our brand prioritization strategy is focused on ensuring that the strong, stable cash flows from our Foundation Brands are deployed for reinvestment in marketing and on-trend innovation for our higher-margin Leadership Brands, as well as for debt reduction and other corporate priorities. From fiscal 2008 through fiscal 2012, net sales of our Leadership Brands grew at a compounded annual growth rate, or CAGR, of 2%, compared to our Foundation Brands, which were flat. Gross profit margin for our Leadership Brands was 30% of net sales in fiscal 2012, compared to 20% of net sales for our Foundation Brands in fiscal 2012.

Strong Innovation and Marketing Capabilities Focused on Leadership Brands

Since 2009, we have substantially enhanced our organizational capabilities in the areas of new product innovation and consumer marketing. We have improved our in-house innovation capabilities by augmenting and upgrading our innovation team, with the construction of a new state-of-the-art Research and Development (“R&D”) facility in our Parsippany, New Jersey headquarters. This facility co-locates our sales, marketing and operations teams with our entire company-wide R&D team, and better enables us to leverage the innovation experience of senior management. Additionally, we have increased investment in consumer insights and employee innovation training. Our Renewal Rate, which we define as gross sales from products introduced within the last three years as a percentage of current year gross sales, has nearly doubled since the Birds Eye Acquisition to 9.4% in fiscal 2012, compared to 5.0% in fiscal 2009 for Pinnacle before the Birds Eye Acquisition. Gross sales represents net sales before returns, discounts, trade, slotting and coupon redemption expenses and other allowances. Recent examples of successfully launched innovations include Duncan Hines Frosting Creations custom-flavor frosting system, Duncan Hines Decadent cake mixes, Vlasic Farmer’s Garden artisan-quality pickles, Birds Eye Chef’s Favorites enhanced vegetable side dishes and Birds Eye Voila! family size complete bagged meals. We intend to continue to invest in innovation that enables us to further differentiate our brands in the marketplace.

To complement our accelerated innovation efforts, we have also focused and enhanced our marketing investments behind our Leadership Brands. We have partnered with best-in-class branded consumer advertising,

 

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digital and media agencies to develop high impact marketing programs implemented across television, print, social and digital media. From fiscal 2008 through fiscal 2011, our consumer marketing investments behind our Leadership Brands increased at a CAGR of 6%, while investment spending declined 14% in fiscal 2012 due to our planned shift of investment spending into trade promotions during a period of heightened competitive activity and significant consumer price sensitivity. We intend to increase marketing investments behind our Leadership Brands over time, as the volume trends and promotional environment in the broader food industry normalize.

Operational Excellence Driving Continued Gross Margin Improvement

Our operational excellence program, a company-wide core productivity initiative called Maximizing Value through Productivity (MVP) is designed to generate annual core productivity savings in procurement, manufacturing and logistics in the range of 3% to 3.5% of our annual Cost of products sold. In fiscal 2012, we realized core MVP productivity savings of 3.1%. In addition, in fiscal 2012, our supply chain footprint consolidation initiatives also drove significant, incremental productivity savings of 0.9% of Cost of products sold. These productivity savings, combined with selective retail price increases and our active commodity hedging program, have been instrumental in mitigating input cost inflation in periods of significant inflationary pressure, such as fiscal 2012, and driving gross margin expansion in periods of more modest inflation. We also pursue other initiatives to drive incremental improvement in our gross margin, including improving our product mix through new product innovation and low-margin SKU rationalization, increasing the effectiveness of our trade promotional spending and realizing synergies from acquisitions. Furthermore, our gross margin benefits from our diversified input cost basket in which no single commodity accounted for more than 9% of our total Cost of products sold in fiscal 2012.

In fiscal 2011, we completed two manufacturing plant consolidations designed to optimize our manufacturing footprint and reduce our supply chain costs. In fiscal 2012, we initiated the consolidation of a third manufacturing plant and terminated the use of a third party storage facility. The combined ongoing annualized benefit to Cost of products sold from these projects is estimated at approximately $28 million, with fiscal 2012 benefiting by approximately $16 million and 2013 expected to benefit by an additional $7 million. The remaining $5 million in incremental ongoing annualized savings are expected to be realized in 2014. From fiscal 2008 through fiscal 2012, we have expanded our gross margin as percentage of net sales by 1.9 percentage points and our Adjusted gross margin as percentage of net sales by 3.1 percentage points. See “—Summary Historical Consolidated Financial Data” for our definition of Adjusted gross profit and a reconciliation of our gross profit to Adjusted gross profit.

Strong Free Cash Flow Conversion

Our business generates an attractive Adjusted EBITDA margin and also benefits from modest capital expenditure and working capital requirements and approximately $1 billion in net operating loss carryovers (“NOLCs”), which combined have resulted in strong and stable unlevered free cash flows. Our Adjusted EBITDA margin benefits from the quality of our brand portfolio and our lean and nimble organization structure, with selling, general and administrative expenses, excluding marketing investment and one-time items, consistently representing approximately 8% of net sales. Our well-maintained manufacturing facilities and strategic use of co-packers limit our maintenance capital expenditure requirements, and our significant NOLCs and other tax attributes minimize our cash taxes.

We believe our strong free cash flows will enable us to maximize shareholder value through paying a regular dividend, reducing our indebtedness, strategically deploying our capital to fund innovation and organic growth opportunities and financing value-enhancing acquisitions.

 

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Proven M&A Expertise with Significant Opportunity

We have substantial experience in sourcing, executing and integrating value-enhancing acquisitions. We maintain a highly-disciplined approach to M&A, focusing on opportunities that add new iconic brands to our portfolio and/or allow for strong synergy realization.

In December 2009, we completed the $1.3 billion purchase of Birds Eye. The Birds Eye Acquisition added approximately $1 billion in net sales, including the Birds Eye and Birds Eye Voila! brands, enhanced our operating margins, and added scale to our frozen food business, making us the 5th largest frozen food manufacturer in the United States. The integration of Birds Eye was largely completed within six months of the acquisition, and the synergies we achieved exceeded our original estimates. Similarly, in 2006, we completed the acquisition of Armour and successfully integrated the business within four months. The Armour acquisition added approximately $225 million in net sales and was immediately accretive to our operating margins.

Our strong existing platforms in the Birds Eye Frozen and Duncan Hines Grocery segments facilitate a large addressable market and broad set of potential acquisition targets. We believe our scale, management depth, integration expertise and access to capital will allow us to consider both small and large acquisitions in the future and to seamlessly integrate them to drive maximum value creation.

Experienced, Hands-On Management Team and Board of Directors

Our management team has a demonstrated history of delivering strong operating results. From fiscal 2008 through fiscal 2012, we have enhanced our business mix through active portfolio management, including focused innovation and marketing and the successful integration of a transformative, value-enhancing acquisition that dramatically increased the scale and scope of our business. Our management team, which has been strengthened with the recent addition of several highly-experienced executives, has extensive food industry experience and includes several executives who have managed significantly larger businesses and have led numerous acquisition integrations. Our management team is complimented by an experienced Board of Directors, which includes several individuals with a proven track record of successfully managing and acquiring consumer businesses.

Our Strategy

We intend to profitably grow our business and create shareholder value through the following strategic initiatives:

Drive Growth Through Focus on Leadership Brands

Our Leadership Brands are among our highest-growth and highest-margin businesses and enjoy greater potential for value-added innovation and enhanced responsiveness to consumer marketing. Our brand prioritization strategy is focused on ensuring that the strong, stable cash flows from our Foundation Brands are, among other uses, reinvested in marketing and on-trend innovation for our higher-margin Leadership Brands. We believe our formalized innovation processes, upgraded R&D capabilities, increased investments in consumer insights, and partnership with best-in-class branded consumer advertising, digital and media agencies will enable us to continue to introduce successful new products and drive brand growth through high-impact marketing programs. We believe this strategy, which will focus the majority of our consumer marketing investments and new product innovation efforts on our Leadership Brands, will drive higher-margin revenue growth across our portfolio.

Expand Margins By Leveraging Productivity and Efficient Organization Structure

We believe we are well-positioned to continue to expand our margins. Our company-wide focus on productivity, which includes both our core productivity initiative, MVP, and our supply chain footprint consolidation

 

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initiatives, along with selective pricing actions and our active commodity hedging program, are intended to mitigate input cost inflation in periods of significant inflationary pressure and more than offset input cost inflation in periods of modest input cost inflation. In addition, our focus on improving our product mix, enhancing the effectiveness of our trade promotions, realizing synergies from acquisitions and leveraging our efficient organizational structure are expected to further drive margin expansion over time. We believe our lean, nimble structure and efficient internal processes will continue to enhance our decision-making and speed of execution. Our flat structure, which has enabled us to hold our overhead costs (i.e., selling, general and administrative expenses, excluding marketing investment and one-time items) at approximately 8% of net sales, allows for a high level of connectivity between senior management and our operations and customers, ensuring senior management engagement in key business decisions.

Deliver Strong Free Cash Flow Through Tight Working Capital Management, Focused Capital Spending and Minimal Cash Taxes

We believe we are well-positioned to profitably grow our business and generate strong free cash flow through our combination of attractive Adjusted EBITDA margins, modest working capital requirements, limited maintenance capital expenditures and low cash taxes that result from our approximately $1 billion in NOLCs and other tax attributes, which we believe will result in minimal cash taxes through 2015 and modest annual cash tax savings beyond 2015. Our well-maintained manufacturing facilities and strategic use of co-packers limit our capital expenditure requirements, and our ongoing focused management of working capital also benefits our free cash flow.

Acquire Value-Enhancing Food Brands

We intend to proactively pursue value-enhancing acquisitions in the packaged food industry, utilizing a disciplined approach to identify and evaluate attractive acquisition candidates. We believe we can leverage our scale, management depth and integration expertise, along with our access to capital, to continue our track record of making value-accretive acquisitions. We believe the combination of consolidating selling, general and administrative functions, leveraging our scale in procurement, optimizing supply chain and manufacturing operations, cross-marketing brands across categories and further developing retailer relationships will continue to enable us to drive acquisition synergies in future transactions we may pursue.

Return Value to Shareholders Through Debt Reduction and Regular Dividend Payments

We believe our capital structure and strong free cash flow enables us not only to invest in our Leadership Brands to drive organic growth and fund value-enhancing acquisitions, but also to continue to strengthen our balance sheet through debt reduction and to return capital to our shareholders through regular dividend payments. Upon the consummation of this offering, we intend to pay a regular quarterly cash dividend of approximately $0.18 per share. See “Dividend Policy.”

Risks Related to Our Business and this Offering

Investing in our common stock involves substantial risk, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the packaged food industry. Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our common stock.

 

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Corporate History and Information

Pinnacle Foods Inc. was incorporated in Delaware on July 28, 2003 under the name “Crunch Holding Corp.”

On April 2, 2007, Pinnacle Foods Inc. was acquired by, and became a wholly owned subsidiary of, Peak Holdings LLC, an entity controlled by investment funds affiliated with The Blackstone Group L.P. (“Blackstone”). We refer to this merger transaction and related financing transactions as the Blackstone Transaction. As a result of the Blackstone Transaction, Blackstone currently owns through Peak Holdings LLC approximately 98% of the common stock of Pinnacle Foods Inc. In connection with this offering, we expect that Peak Holdings LLC will be dissolved. After giving effect to the dissolution of Peak Holdings LLC and this offering, Blackstone will beneficially own approximately 70.6% of our issued and outstanding common stock (assuming no exercise of the underwriters’ option to purchase additional shares) or 68.0% of our issued and outstanding common stock (assuming full exercise of the underwriters’ option to purchase additional shares).

On November 18, 2009, our indirect wholly-owned subsidiary Pinnacle Foods Group LLC entered into a Stock Purchase Agreement with Birds Eye Holdings LLC and Birds Eye, pursuant to which Pinnacle Foods Group LLC acquired all of the issued and outstanding common stock of Birds Eye from Birds Eye Holdings LLC. At the closing of the Birds Eye Acquisition on December 23, 2009, Pinnacle Foods Group LLC purchased all of the outstanding shares of Birds Eye’s common stock, par value $0.01 per share, for $670.0 million in cash, together with the assumption of Birds Eye’s debt of $670.4 million, resulting in the total acquisition cost of $1,340.4 million.

Our principal executive offices are located at 399 Jefferson Road, Parsippany, New Jersey 07054, and our telephone number is (973) 541-6620. We maintain a website at www.pinnaclefoods.com. The information contained on our website or that can be accessed through our website neither constitutes part of this prospectus nor is incorporated by reference herein.

 

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Table of Contents

Organizational Structure

The following diagram illustrates our organizational structure after giving effect to the consummation of this offering, the dissolution of Peak Holding LLC and the repayment with proceeds of this offering of certain indebtedness.

 

LOGO

 

 

(1)

In connection with the dissolution of Peak Holdings LLC, Blackstone and the other equity holders of Peak Holdings LLC (including certain of our directors and officers) will receive shares of our common stock, and in certain instances, equity awards with respect to our common stock, in respect of their ownership in Peak Holdings LLC. The allocation of shares of our common stock among Blackstone and the other equity holders of Peak Holdings LLC will be determined based upon the valuation of us derived from the initial public offering price.

(2)

Includes the equity awards to be received in connection with the dissolution of Peak Holdings LLC assuming the midpoint of the estimated price range set forth on the cover of this prospectus. The actual number of shares and equity awards to be issued in connection with the dissolution of Peak Holdings LLC will be determined based upon the valuation of us derived from the initial public offering price.

(3)

Pinnacle Foods Finance LLC is the borrower under our senior secured credit facilities which, as adjusted to reflect this offering, will consist of a $795.2 million term loan B facility, $637.9 million of which will mature in October 2016, subject to springing maturities as described under “Description of Indebtedness,” and $157.3 million of which will mature in April 2014, $398.0 million of Tranche E term loans which will mature in October 2018, subject to springing maturities as described under “Description of Indebtedness,” $448.9 million of Tranche F term loans which will mature in October 2018, subject to springing maturities as described under “Description of Indebtedness,” and a $150.0 million revolving credit facility that mature in April 2017, subject to springing maturities as described under “Description of Indebtedness.” Pinnacle Foods Finance LLC and Pinnacle Foods Finance Corp. are co-issuers of $400.0 million aggregate principal amount of 8.25% Senior Notes due 2017. Pinnacle Foods Finance Corp. was formed solely to act as a co-issuer of the notes, has only nominal assets and does not conduct any operations. See “Description of Indebtedness.”

(4)

The obligations under the senior secured credit facilities are fully and unconditionally guaranteed by Peak Finance Holdings LLC and, subject to certain exceptions, each existing and future direct or indirect wholly-owned domestic subsidiary of Pinnacle Foods Finance LLC. The notes are guaranteed on a full, unconditional, joint and several basis by each of Pinnacle Food Finance LLC’s wholly-owned domestic subsidiaries, other than Pinnacle Foods Finance Corp.

 

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Table of Contents

The Offering

 

Common stock offered

29,000,000 shares.

 

Underwriters’ option to purchase additional shares of common stock

4,350,000 shares.

 

Common stock to be outstanding immediately after this offering

112,881,939 shares (or 117,231,939 shares if the underwriters exercise in full their option to purchase additional shares).

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions, will be approximately $520.7 million (or approximately $598.8 million, if the underwriters exercise in full their option to purchase additional shares), based on the assumed initial public offering price of $19.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. For sensitivity analysis as to the offering price and other information, see “Use of Proceeds.”

 

  We intend to use a portion of the net proceeds from this offering to redeem $465 million in aggregate principal amount of our 9.25% Senior Notes due 2015 at a redemption price of 100%. We intend to use the remaining net proceeds, together with cash on hand, to repay $86 million of our senior secured term loan B facility maturing in April 2014 (the “Tranche B Non-Extended Term Loans”). We will pay the fees and expenses related to this offering (other than underwriting discounts and commissions) and the use of proceeds therefrom (including the payment of accrued and unpaid interest) with cash generated from operations.

 

Risk factors

See “Risk Factors” beginning on page 16 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Dividend policy

We intend to pay a regular quarterly cash dividend of approximately $0.18 per share on our common stock, subject to the discretion of our Board of Directors and our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant. Our ability to pay dividends on our common stock is limited by the covenants of our senior secured credit facilities and the indentures governing our senior notes and may be further restricted by the terms of any future debt or preferred securities. We do not currently believe that the restrictions contained in our existing indebtedness will impair our ability to pay regular quarterly cash dividends as described above. See “Dividend Policy” and “Description of Indebtedness.”

 

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Table of Contents

NYSE ticker symbol

“PF”

 

Conflicts of interest

Affiliates of Blackstone Advisory Partners L.P. own (through their investment in Peak Holdings LLC) in excess of 10% of our issued and outstanding common stock. Because Blackstone Advisory Partners L.P. is an underwriter and its affiliates own in excess of 10% of our issued and outstanding common stock, Blackstone Advisory Partners L.P. is deemed to have a “conflict of interest” under Rule 5121 (“Rule 5121”) of the Financial Industry Regulatory Authority, Inc. Accordingly, this offering is being made in compliance with the requirements of Rule 5121. Pursuant to that rule, the appointment of a “qualified independent underwriter” is not required in connection with this offering as the members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any member that has a conflict of interest and meet the requirements of paragraph (c)(12)(E) of Rule 5121. Blackstone Advisory Partners L.P. will not confirm sales of the securities to any account over which it exercises discretionary authority without the specific written approval of the account holder. See “Underwriting (Conflicts of Interest).”

Unless we indicate otherwise or the context otherwise requires, all information in this prospectus:

 

   

assumes (1) no exercise of the underwriters’ option to purchase additional shares of our common stock; (2) an initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus;

 

   

gives effect to the 55.2444-for-1 stock split of our common stock, which occurred on March 12, 2013;

 

   

gives effect to 83,869,232 shares of our common stock (including 1,455,361 shares of restricted stock issued in respect of unvested Class B PIUs of Peak Holdings LLC) issued to Blackstone and other equity holders of Peak Holdings LLC (including certain of our directors and officers) in connection with the dissolution of Peak Holdings LLC; and

 

   

does not reflect (1) 426,653 shares of common stock issuable upon the exercise of 426,653 options outstanding as of March 8, 2013, at a weighted average exercise price of $10.01 per share, of which 181,865 were then vested and exercisable, (2) approximately 2,400,000 shares of common stock issuable upon the exercise of approximately 2,400,000 options which are expected to be granted under our new 2013 Omnibus Incentive Plan in connection with this offering, the actual number of which will be determined based on the actual price of the shares of our common stock in this offering, (3) 81,945 shares of restricted stock which we intend to issue to certain holders of Class B PIUs of Peak Holdings LLC and (4) 7,362,694 shares of common stock available for future issuance under our new 2013 Omnibus Incentive Plan, which we intend to adopt in connection with this offering. See “Management—Compensation Discussion and Analysis—Compensation Arrangements to be Adopted in connection with this Offering.”

 

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Table of Contents

Summary Historical Consolidated Financial Data

The table below presents our summary historical consolidated financial data as of the dates and for the periods indicated. We derived the summary historical consolidated financial data for each of the fiscal years ended December 26, 2010, December 25, 2011 and December 30, 2012 and the summary consolidated balance sheet data as of December 25, 2011 and December 30, 2012 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated balance sheet data as of December 26, 2010 from our audited consolidated balance sheet, which is not included in this prospectus. Share and per share data in the table below has been retroactively adjusted to give effect to the 55.2444-for-one stock split which occurred on March 12, 2013.

Our historical results are not necessarily indicative of future operating results. Because the data in this table is only a summary and does not provide all of the data contained in our consolidated financial statements, the information should be read in conjunction with “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 

Statement of Operations Data:

     

Net sales

  $ 2,436.7      $ 2,469.6      $ 2,478.5   

Cost of products sold

    1,834.4        1,854.7        1,893.9   
 

 

 

   

 

 

   

 

 

 

Gross profit

    602.3        614.9        584.6   

Operating expenses

     

Marketing and selling expenses

    172.3        171.6        169.7   

Administrative expenses

    110.0        80.5        89.4   

Research and development expenses

    9.4        8.0        12.0   

Goodwill impairment charges

    —          122.9        —     

Other expense (income), net

    45.5        48.6        29.8   
 

 

 

   

 

 

   

 

 

 

Total operating expenses

    337.2        431.6        300.9   
 

 

 

   

 

 

   

 

 

 

Earnings before interest and taxes

    265.1        183.3        283.7   

Interest expense

    236.0        208.3        198.5   

Interest income

    0.3        0.2        0.1   
 

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes

    29.4        (24.8     85.3   

Provision (benefit) for income taxes

    7.4        22.1        32.7   
 

 

 

   

 

 

   

 

 

 

Net earnings (loss)

  $ 22.0      $ (46.9   $ 52.6   
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents

($ in millions)

   (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 
                    

Net earnings (loss) per share:

      

Basic

   $ 0.32      $ (0.58   $ 0.65   

Diluted

   $ 0.30      $ (0.58   $ 0.61   

Weighted average shares outstanding:

      

Basic

     68,434,982        81,315,848        81,230,630   

Diluted

     73,638,195        81,315,848        86,494,546   

Cash Flow:

      

Net cash provided by (used in):

      

Operating activities

   $ 257.0      $ 204.2      $ 202.9   

Investing activities

     (81.3     (109.4     (77.7

Financing activities

     (134.3     (59.0     (184.1

Balance sheet data (at end of period):

      

Cash and cash equivalents

   $ 115.3      $ 151.0      $ 92.3   

Working capital (1)

     344.4        408.7        404.1   

Total assets

     4,491.6        4,451.6        4,400.0   

Total debt (2)

     2,803.5        2,756.0        2,608.9   

Total liabilities

     3,596.5        3,606.3        3,511.3   

Total shareholders’ equity

     895.1        845.4        888.7   

Other Financial Data:

      

North American Retail net sales

   $  2,023.9      $  2,066.9      $  2,081.7   

Adjusted gross profit (3)

     698.5        694.0        674.9   

Adjusted EBITDA (4)

     446.9        449.7        426.1   

Capital expenditures

     81.3        117.3        78.3   

 

(1)

Working capital excludes notes payable, revolving debt facility and current portion of long-term debt.

(2)

Total debt includes notes payable, revolving debt facility and current portion of long-term debt.

(3)

Adjusted gross profit is defined as gross profit before depreciation, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments noted in the table below. Our management uses Adjusted gross profit as an operating performance measure. We believe that the presentation of Adjusted gross profit is useful to investors because it is consistent with our definition of Adjusted EBITDA (defined below), a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, we also use targets based on Adjusted gross profit as one of the components used to evaluate our management’s performance. Adjusted gross profit is not defined under United States Generally Accepted Accounting Principles (“GAAP”), should not be considered in isolation or as substitutes for measures of our performance prepared in accordance with GAAP and is not indicative of gross profit as determined under GAAP.

The following table provides a reconciliation from our gross profit to Adjusted gross profit for the fiscal years ended December 26, 2010, December 25, 2011 and December 30, 2012.

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended
December 30,
2012
 

Gross profit

    $602.3        $614.9        $584.6   

Depreciation expense (a)

    53.5        65.0        73.0   

Non-cash items (b)

    38.2        3.0        (1.2

Acquisition, merger and other restructuring charges (c)

    4.3        9.9        16.9   

Other adjustment items (d)

    0.2        1.3        1.6   
 

 

 

   

 

 

   

 

 

 

Adjusted gross profit

    $698.5        $694.0        $674.9   
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents

 

  (a)

Includes accelerated depreciation from plant closures of $0.7 million for fiscal year 2010, $14.1 million for fiscal year 2011 and $21.0 million for fiscal year 2012.

  (b)

Non-cash items are comprised of the following:

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended
December 30,
2012
 

Non-cash compensation charges (1)

    $0.4        $0.2        $0.1   

Unrealized losses (gains) resulting from hedging activities (2)

    0.7        1.6        (1.3

Other impairment charges (3)

    —          1.3        —     

Effects of adjustments related to the application of purchase accounting (4)

    37.1        —          —     
 

 

 

   

 

 

   

 

 

 

Total non-cash items

    $38.2        $3.0        $(1.2
 

 

 

   

 

 

   

 

 

 

 

  (1)

Represents non-cash compensation charges related to the granting of equity awards.

  (2)

Represents non-cash gains and losses resulting from mark-to-market obligations under derivative contracts.

  (3)

For fiscal year 2011, represents a plant asset impairment on the previously announced closure of the Tacoma, Washington facility of $1.3 million.

  (4)

For fiscal year 2010, represents expense related to the write-up to fair market value of inventories acquired as a result of the Birds Eye Acquisition.

 

  (c)

Acquisition, merger and other restructuring charges are comprised of the following:

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended
December 30,
2012
 

Restructuring charges, integration costs and other business optimization expenses (1)

    $4.1        $9.3        $16.9   

Employee severance and recruiting (2)

    0.2        0.6        —     
 

 

 

   

 

 

   

 

 

 

Total acquisition, merger and other restructuring charges

    $4.3        $9.9        $16.9   
 

 

 

   

 

 

   

 

 

 

 

  (1)

For fiscal year 2010, primarily represents integration costs related to the Birds Eye Acquisition. For fiscal year 2011, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington and Fulton, New York facilities. For fiscal year 2012, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington, Fulton, New York and Millsboro, Delaware facilities.

  (2)

Represents severance costs paid or accrued to terminated employees.

 

  (d)

Other adjustment items are comprised of the following:

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended
December 30,
2012
 

Other (1)

    $0.2        $1.3        $1.6   
 

 

 

   

 

 

   

 

 

 

Total other adjustments

    $0.2        $1.3        $1.6   
 

 

 

   

 

 

   

 

 

 

 

  (1)

For fiscal year 2010, represents miscellaneous other cost. For fiscal year 2011 and fiscal year 2012, primarily represents the recall of Aunt Jemima product, net of insurance recoveries.

 

(4)

Adjusted EBITDA is defined as net earnings (loss) before interest expense, taxes, depreciation and amortization (“EBITDA”) and other adjustments noted in the table below. Our management uses Adjusted EBITDA as an operating performance measure. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets for Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans.

 

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Table of Contents
  EBITDA and Adjusted EBITDA do not represent net earnings or loss or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, Adjusted EBITDA includes certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that vary greatly and are difficult to predict. Because not all companies use identical calculations, these presentations of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies. In addition, under the credit agreement governing our senior secured credit facilities and the indentures governing our senior notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to a ratio based on Adjusted EBITDA. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Covenant Compliance.”

 

  The following table provides a reconciliation from our net earnings (loss) to EBITDA and Adjusted EBITDA for the fiscal years ended December 26, 2010, December 25, 2011 and December 30, 2012.

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended

December 30,
2012
 

Net earnings (loss)

    $22.0        $(46.9)        $52.6   

Interest expense, net

    235.7        208.1         198.4   

Income tax expense (benefit)

    7.4        22.1         32.7   

Depreciation and amortization expense

    78.1        88.5         98.1   
 

 

 

   

 

 

   

 

 

 

EBITDA

    $343.2        $271.8      

 

 

 

$381.7

 

  

 

 

 

   

 

 

   

 

 

 

Non-cash items (a)

    $71.5        $152.2      

 

 

 

$0.1

 

  

Acquisition, merger and other restructuring charges (b)

    27.5        20.3         23.3   

Other adjustment items (c)

    4.7        5.5         21.0   
 

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

    $446.9        $449.7         $426.1   
 

 

 

   

 

 

   

 

 

 

 

  (a)

Non-cash items are comprised of the following:

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended

December 30,
2012
 

Non-cash compensation charges (1)

    $4.7        $1.1        $0.9   

Unrealized (gains) losses resulting from hedging activities (2)

    0.7        1.6        (1.3

Goodwill impairment charge (3)

    —          122.9        —     

Other impairment charges (4)

    29.0        26.6        0.5   

Effects of adjustments related to the application of purchase accounting (5)

    37.1        —          —     
 

 

 

   

 

 

   

 

 

 

Total non-cash items

    $71.5        $152.2        $0.1   
 

 

 

   

 

 

   

 

 

 

 

  (1)

Represents non-cash compensation charges related to the granting of equity awards.

  (2)

Represents non-cash gains and losses resulting from mark-to-market adjustments of obligations under derivative contracts.

  (3)

For fiscal year 2011, represents goodwill impairments on the Frozen Breakfast ($51.7 million), Private Label ($49.7 million) and Food Service ($21.5 million) reporting units.

  (4)

For fiscal year 2010, represents an impairment for the Hungry-Man tradename ($29.0 million). For fiscal year 2011, represents tradename impairments on Aunt Jemima ($23.7 million), Lenders ($1.2 million) and Bernstein’s ($0.4 million), as well as a plant asset impairment on the previously announced closure of the Tacoma, Washington facility ($1.3 million). For fiscal year 2012, represents tradename impairments of Bernstein’s ($0.5 million).

  (5)

For fiscal year 2010, represents expense related to the write-up to fair market value of inventories acquired as a result of the Birds Eye Acquisition.

 

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  (b)

Acquisition, merger and other restructuring charges are comprised of the following:

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended
December 30,
2012
 

Expenses in connection with an acquisition or other merger costs (1)

    $0.9        $8.8        $2.3   

Restructuring charges, integration costs and other business optimization expenses (2)

    25.5        9.5        20.0   

Employee severance and recruiting (3)

    1.1        2.0        1.0   
 

 

 

   

 

 

   

 

 

 

Total acquisition, merger and other restructuring charges

    $27.5        $20.3        $23.3   
 

 

 

   

 

 

   

 

 

 

 

  (1)

For fiscal year 2010, primarily represents costs related to the Birds Eye Acquisition as well as other expenses related to due diligence investigations. For fiscal year 2011, primarily represents an $8.5 million legal settlement related to the Lehman Brothers Specialty Financing claim described in more detail in Note 12 to our audited consolidated financial statements included elsewhere in this prospectus and in “Business—Legal Proceedings.” For fiscal year 2012, primarily represents expenses related to this offering and due diligence investigations.

  (2)

For fiscal year 2010, primarily represents employee termination benefits and lease termination costs related to the closing of the Rochester, New York office and integration costs related to the Birds Eye Acquisition. For fiscal year 2011, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington and Fulton, New York facilities. For fiscal year 2012, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington, Fulton, New York, Green Bay, Wisconsin and Millsboro, Delaware facilities.

  (3)

For fiscal year 2010, fiscal year 2011 and fiscal year 2012, represents severance costs paid or accrued to terminated employees.

 

  (c)

Other adjustment items are comprised of the following:

 

    (52 weeks)     (52 weeks)     (53 weeks)  

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended
December 30,
2012
 

Management, monitoring, consulting and advisory fees (1)

    $4.5        $4.6        $4.7   

Other (2)

    0.2        0.9        16.3   
 

 

 

   

 

 

   

 

 

 

Total other adjustments

    $4.7        $5.5        $21.0   
 

 

 

   

 

 

   

 

 

 

 

  (1)

Represents management/advisory fees and expenses paid to an affiliate of Blackstone pursuant to the Amended and Restated Transaction and Advisory Fee Agreement (the “Advisory Agreement”), dated as of December 23, 2009, between Pinnacle Foods Finance LLC and an affiliate of Blackstone. We intend to terminate the Advisory Agreement in accordance with its terms in connection with the completion of this offering. See “Use of Proceeds.”

  (2)

For fiscal year 2010, represents miscellaneous other cost. For fiscal year 2011, primarily represents a gain on the sale of the Watsonville, California property and costs for the recall of Aunt Jemima product of $1.1 million, net of insurance recoveries. For fiscal year 2012, primarily represents $14.3 million of the premiums paid on the redemption of $150.0 million of 9.25% Senior Notes due 2015, the redemption of $199.0 million of 10.625% Senior Subordinated Notes due 2017 and the repurchase and retirement of $10.0 million of 9.25% Senior Notes due 2015, and costs for the recall of Aunt Jemima product of $2.1 million, net of insurance recoveries.

 

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RISK FACTORS

An investment in our common stock involves risk. You should carefully consider the following risks as well as the other information included in this prospectus, including “Selected Historical Consolidated Financial Data,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before investing in our common stock. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. However, the selected risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations. In such a case, the trading price of the common stock could decline and you may lose all or part of your investment in our Company.

Risks Related to Our Business

We face significant competition in our industry, which could cause us to lose market share, lower prices, or increase advertising and promotional expenditures. Our success also depends on our ability to predict, identify and interpret changes in consumer preferences and develop and offer new products rapidly enough to meet those changes.

The food products business is highly competitive. Numerous brands and products compete for shelf space and sales, with competition based primarily on product quality, brand recognition and loyalty, price, trade promotion, consumer promotion, customer service, and the ability to identify and satisfy emerging consumer preferences. We compete with a significant number of companies of varying sizes, including divisions, subdivisions, or subsidiaries of larger companies. Many of these competitors have multiple product lines, substantially greater financial and other resources available to them, and may be substantially less leveraged than Pinnacle. In addition, private label is a significant competitor, particularly in the frozen vegetables, shelf-stable pickles, table syrup, frozen and refrigerated bagels, and pie/pastry fruit fillings categories. We may not be able to compete successfully with these companies and private label. Competitive pressures or other factors could cause us to lose market share, which may require us to lower prices, increase marketing and advertising expenditures, or increase the use of discounting or promotional campaigns, each of which would materially and adversely affect our margins and could result in a decrease in our operating results and profitability.

Our success depends on our ability to predict, identify, and interpret the tastes and dietary habits of consumers and to offer products that appeal to those preferences. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. If we do not succeed in offering products that consumers want to buy, our sales and market share will decrease, resulting in reduced profitability. If we are unable to accurately predict which shifts in consumer preferences will be long-lasting, or are unable to introduce new and improved products to satisfy those preferences, our sales will decline. In addition, given the variety of backgrounds and identities of consumers in our consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. As such, we must be successful in developing innovative products across a multitude of product categories. Finally, if we fail to rapidly develop products in faster-growing and more profitable categories, we could experience reduced demand for our products, or fail to expand margins.

We are also subject to the effect that the overall economic conditions have upon consumer sentiment and retail sales.

If we lose one or more of our major customers, or if any of our major customers experience significant business interruption, our results of operations could be adversely affected.

We have several large customers that account for a significant portion of our sales. Wal-Mart and its affiliates are our largest customers and represented approximately 25% of net sales in each of the fiscal years 2012, 2011 and 2010, respectively. Cumulatively, including Wal-Mart, our top ten customers accounted for

 

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approximately 60% of net sales in fiscal year 2012, 60% of net sales in fiscal year 2011 and 61% of net sales in fiscal year 2010.

We do not have long-term supply contracts with any of our major customers. The loss of one or more major customers, a material reduction in sales to these customers as a result of competition from other food manufacturers, or the occurrence of a significant business interruption of our customers’ operations would result in a decrease in our revenues, operating results, and earnings and could adversely affect the market price of our common stock.

In addition, as the retail grocery trade continues to consolidate and our retail customers grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. If we fail to use our sales and marketing expertise to maintain our category leadership positions to respond to these trends, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, our profitability and financial condition may be adversely affected.

For the manufacturing, co-packing and distribution of many of our products, we primarily rely on single source providers where a significant disruption in a facility or loss of arrangements could affect our business, financial condition, and results of operations.

With the exception of our Birds Eye’s frozen vegetable products which are produced in two facilities (Waseca, Minnesota and Darien, Wisconsin, which has approximately three times the production capacity of the Waseca location), none of our products are produced in significant amounts at multiple manufacturing facilities or co-packers. Significant unscheduled downtime at any of our facilities or co-packers due to equipment breakdowns, power failures, natural disasters, or any other cause could materially adversely affect our ability to provide products to our customers, which would have a material adverse effect on our business, financial condition and results of operations.

We rely upon co-packers for our Duncan Hines cake mixes, brownie mixes, specialty mixes, frosting products and a limited portion of our other manufacturing needs. We believe that there are a limited number of competent, high-quality co-packers in the industry, and if we were required to obtain additional or alternative co-packing agreements or arrangements in the future, we may not be able to do so on satisfactory terms or in a timely manner.

We sell a majority of our products in the United States through one national broker with whom we have a long-term working relationship. In Canada, we use one national broker to distribute the majority of our products. Our business could suffer disruption if either of these brokers were to default in the performance of their obligations to perform brokerage services or fail to effectively represent us to the retail grocery trade.

We are vulnerable to fluctuations in the price and supply of food ingredients, packaging materials, and freight.

The prices of the food ingredients, packaging materials and freight are subject to fluctuations in price attributable to, among other things, changes in supply and demand of crops or other commodities, fuel prices and government-sponsored agricultural and livestock programs. The sales prices to our customers are a delivered price. Therefore, changes in our input costs could impact our gross margins. Our ability to pass along higher costs through price increases to our customers is dependent upon competitive conditions and pricing methodologies employed in the various markets in which we compete. To the extent competitors do not also increase their prices, customers and consumers may choose to purchase competing products or may shift purchases to lower-priced private label or other value offerings which may adversely affect our results of operations.

We use significant quantities of sugar, cucumbers, broccoli, corn, peas, green beans, flour (wheat), poultry, seafood, vegetable oils, shortening, meat, corn syrup and other agricultural products as well as aluminum, glass jars, plastic trays, corrugated fiberboard and plastic packaging materials provided by third-party suppliers. We

 

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buy from a variety of producers and manufacturers, and alternate sources of supply are generally available. However, the supply and price are subject to market conditions and are influenced by other factors beyond our control, such as general economic conditions, unanticipated demand, problems in production or distribution, natural disasters, weather conditions during the growing and harvesting seasons, insects, plant diseases, and fungi. Adverse weather conditions may occur more frequently as a result of climate change and other factors. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of storing raw materials if harvests are accelerated and processing capacity is unavailable, or interrupt or delay our production schedules if harvests are delayed.

We do not have long-term contracts with many of our suppliers, and, as a result, they could increase prices or fail to deliver. The occurrence of any of the foregoing could increase our costs and disrupt our operations.

If our assessments and assumptions about commodity prices, as well as ingredient and other prices and currency exchange rates, prove to be incorrect in connection with our hedging or forward-buy efforts or planning cycles, our costs may be greater than anticipated and our financial results could be adversely affected. Volatility in commodity prices will impact our results of operations.

From time to time, we enter into commodity forward contracts to fix the price of natural gas, diesel fuel, corn, soybean oil and other commodity purchases at a future delivery date. However, such strategies do not fully address commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. Additionally, changes in the value of our commodities derivatives are recorded in the Cost of products sold line in our Consolidated Statements of Operations. Accordingly, volatility in commodities could result in volatility in our results of operations. As of December 30, 2012, the potential change in fair value of commodity derivative instruments, assuming a 10% adverse movement in the underlying commodity prices, would have resulted in an unrealized net loss of $1.0 million.

In addition, certain parts of our foreign operations in Canada expose us to fluctuations in foreign exchange rates. Net sales in Canada accounted for 3.4% of Consolidated Net Sales for fiscal 2012. We seek to reduce our exposure to such foreign exchange risks primarily through the use of foreign exchange-related derivative financial instruments. We enter into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of our functional currency. As of December 30, 2012, a 10% decline in the U.S. dollar relative to the Canadian dollar would have decreased the fair value of our foreign exchange forward contracts by $5.0 million.

We may cease any of our current programs or use other hedging or derivative programs in the future. The extent of our hedges at any given time depends on our assessment of the markets for these commodities, natural gas and diesel fuel, including our assumptions about future prices and currency exchange rates. For example, if we believe market prices for the commodities we use are unusually high, we may choose to hedge less, or even none, of our upcoming requirements. If we fail to hedge and prices or currency exchange rates subsequently increase, or if we institute a hedge and prices or currency exchange rates subsequently decrease, our costs may be greater than anticipated or greater than our competitors’ costs and our financial results could be adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk” for a discussion of our current hedging and derivatives programs.

We may not be able to successfully identify, evaluate and integrate businesses we may acquire in the future and we may not be able to realize anticipated cost savings, revenue enhancements, or other synergies from such acquisitions.

We may not be able to identify and complete acquisitions in the future, and our failure to identify and complete acquisitions could limit our ability to grow our business beyond our existing brands.

 

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Our acquisition strategy involves a number of risks, including the following:

 

   

we may not be able to find suitable businesses to acquire at affordable valuations or on other acceptable terms;

 

   

our acquisition of suitable businesses could be prohibited by U.S. or foreign antitrust laws; and

 

   

we may have to obtain additional equity financing or incur additional debt to finance future acquisitions, and such financing may not be available on terms acceptable to us or at all.

The process of integrating an acquired business, involves risks. These risks include, but are not limited to:

 

   

demands on management related to the significant increase in the size of our business;

 

   

diversion of management’s attention from the management of daily operations;

 

   

difficulties in the assimilation of different corporate cultures and business practices;

 

   

difficulties in conforming the acquired company’s accounting policies to ours;

 

   

retaining the loyalty and business of the customers of acquired businesses;

 

   

retaining employees that may be vital to the integration of acquired businesses or to the future prospects of the combined businesses;

 

   

difficulties and unanticipated expenses related to the integration of departments, information technology systems, including accounting systems, technologies, books and records, and procedures, and maintaining uniform standards, such as internal accounting controls, procedures, and policies;

 

   

costs and expenses associated with any undisclosed or potential liabilities;

 

   

the use of more cash or other financial resources on integration and implementation activities than we expect;

 

   

our ability to avoid labor disruptions in connection with any integration, particularly in connection with any headcount reduction; and

 

   

the incurrence of additional debt and related interest expense, contingent liabilities and amortization expenses related to intangible assets.

Failure to successfully integrate acquired businesses may result in reduced levels of revenue, earnings or operating efficiency than might have been achieved if we had not acquired such businesses.

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt, and prevent us from meeting our obligations under our indebtedness.

We are highly leveraged. As of December 30, 2012, as adjusted for the completion of this offering and the use of proceeds therefrom to repay certain of our outstanding indebtedness, our total indebtedness would have been $2,055.9 million. Our high degree of leverage could have important consequences, including:

 

   

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, and future business opportunities or to pay dividends;

 

   

exposing us to the risk of increased interest rates because certain of our borrowings, including certain borrowings under our senior secured credit facilities, are at variable rates;

 

   

making it more difficult for us to make payments on our indebtedness;

 

   

increasing our vulnerability to general economic and industry conditions;

 

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restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

   

subjecting us to restrictive covenants that may limit our flexibility in operating our business;

 

   

limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and

 

   

placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

Despite our significant leverage, we may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our significant leverage.

Litigation or claims regarding our trademarks and any other proprietary rights or termination of our material licenses may have a significant, negative impact on our business.

We attempt to protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret laws. We consider our trademarks to be of significant importance to our business and devote resources to the establishment and protection of our trademarks and other intellectual property rights. However, our trademark or other intellectual property applications are not always approved. Third parties may also oppose our intellectual property applications, or otherwise challenge our use of our trademark or other intellectual property. The actions we have taken or will take in the future may not be adequate to prevent violation of our trademark or other proprietary rights by others or prevent others from seeking to block sales of our products as an alleged violation of their trademark or other proprietary rights. We may need to initiate future claims or litigation or defend claims or litigation against us to enforce our trademark or other proprietary rights or to defend ourselves against claimed infringement of the trademark or other proprietary rights of others. Any future claims or litigation of this type, even without merit, could result in a material adverse effect on our business, financial condition or results of operations. Any such future claims or litigation may: (a) be expensive and time consuming to defend; (b) cause us to cease making, licensing or using products that incorporate the challenged intellectual property; (c) require us to rebrand our products or redesign our packaging, if feasible; (d) divert management’s attention and resources; or (e) require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property, which, if required, may not be available to us on acceptable terms or at all. Any inability to use our trademarks or other proprietary rights could harm our business and sales through reduced demand for our products and reduced revenues.

As described in greater detail under “Business—Intellectual Property”, we manufacture our Aunt Jemima, Armour, Swanson and Voila! brands under license agreements from various third parties. The loss of these licenses could have a material adverse effect on our business.

We may be unable to drive revenue growth in our key product categories or add products that are in faster growing and more profitable categories.

The food and beverage industry’s overall growth is linked to population growth. Our future results will depend on our ability to drive revenue growth in our key product categories. Because our operations are concentrated in North America, where growth in the food and beverage industry has been moderate, our success also depends in part on our ability to enhance our portfolio by adding innovative new products in faster growing and more profitable categories. Our failure to drive revenue growth in our key product categories or develop innovative products for new and existing categories could materially and adversely affect our profitability, financial condition and results of operations.

We may be subject to product liability claims should the consumption of any of our products cause injury, illness, or death.

We sell food products for human consumption, which involves risks such as product contamination or spoilage, misbranding, product tampering, and other adulteration of food products. Consumption of a

 

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misbranded, adulterated, contaminated, or spoiled product may result in personal illness or injury. We could be subject to claims or lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or exceed our insurance coverage. Even if product liability claims against us are not successful or fully pursued, these claims could be costly and time consuming and may require our management to spend time defending the claims rather than operating our business.

A product that has been actually or allegedly misbranded or becomes adulterated could result in product withdrawals or recalls, destruction of product inventory, negative publicity, temporary plant closings, and substantial costs of compliance or remediation. Any of these events, including a significant product liability judgment against us, could result in a loss of demand for our food products, which could have a material adverse effect on our financial condition, results of operations or cash flows.

Due to the seasonality of the business, our revenue and operating results may vary from quarter to quarter.

Our sales and cash flows are affected by seasonal cyclicality. Sales of frozen foods, including frozen vegetables and frozen complete bagged meals, tend to be marginally higher during the winter months. Seafood sales peak during Lent, in advance of the Easter holiday. Sales of pickles, relishes, barbecue sauces, potato chips and salad dressings tend to be higher in the spring and summer months, and demand for Duncan Hines products, Birds Eye vegetables and our pie and pastry fruit fillings tend to be higher around the Easter, Thanksgiving, and Christmas holidays. Since many of the raw materials we process under the Birds Eye and Vlasic brands are agricultural crops, production of these products is predominantly seasonal, occurring during and immediately following the purchase of such crops. We also increase our Duncan Hines inventories in advance of the peak fall selling season. As a result, our inventory levels tend to be higher during August, September, and October, and thus we require more working capital during these months. We are a seasonal net user of cash in the third quarter of the calendar year.

For these reasons, sequential quarterly comparisons are not a good indication of our performance or how we may perform in the future. If we are unable to obtain access to working capital or if seasonal fluctuations are greater than anticipated, there could be a material adverse effect on our financial condition, results of operations or cash flows.

We face risks associated with certain pension obligations.

We hold investments in equity and debt securities in our qualified defined benefit pension plans. Deterioration in the value of plan assets, resulting from a general financial downturn or otherwise, could cause an increase in the underfunded status of our defined benefit pension plans, thereby increasing our obligation to make contributions to the plans. The underfunding in our pension plans totaled $98.1 million as of December 30, 2012. The decrease in discount rates from approximately 6% in 2008 to approximately 3.9% in fiscal 2012 has had a significant impact to our funding status. We have contributed cash significantly in excess of expense for the last three years to improve the funded status of the plans and intend to continue to do so.

Our obligation to make contributions to the pension plans could reduce the cash available for working capital and other corporate uses and may have a material adverse impact on our operations, financial condition and liquidity.

Our financial well-being could be jeopardized by unforeseen changes in our employees’ collective bargaining agreements or shifts in union policy.

We employed approximately 3,700 people as of December 30, 2012, with approximately 53% of our hourly employees unionized. Due to the seasonality of our pickle and vegetable businesses, our employment fluctuates throughout the year, and thus our average number of employees was approximately 4,400 throughout fiscal 2012.

 

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In September 2012, the collective bargaining agreement expired for 450 of our union employees in Ft. Madison, Iowa. On February 14, 2013, a new collective bargaining agreement, effective through September 2016, was ratified by our Ft. Madison union employees. Our contract with approximately 115 union employees at our Fennville, Michigan plant expired in January 2013. On February 20, 2013, a new collective bargaining agreement, effective through January 2017, was ratified by our Fennville union employees. In addition, in December 2013, the collective bargaining agreement will expire for approximately 480 employees at our Darien, Wisconsin plant.

Failure to extend or renew our collective bargaining agreements or a prolonged work stoppage or strike at any facility with union employees could have a material adverse effect on our business, financial condition, or results of operations. In addition, we may not be able to reach new agreements upon the expiration of our existing collective bargaining agreements and if we do reach new agreements, such agreements may not be on terms that we consider favorable. Furthermore, labor organizing activities could result in additional employees becoming unionized.

We and our third-party co-packers and suppliers are subject to laws and regulations relating to protection of the environment, worker health, and workplace safety. Costs to comply with these laws and regulations, or claims with respect to environmental, health and safety matters, could have a significant negative impact on our business.

Our operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace and the cleanup of contaminated sites. We are required to obtain and comply with environmental permits for many of our operations, and sometimes we are required to install pollution control equipment or to implement operational changes to limit air emissions or wastewater discharges and/or decrease the likelihood of accidental releases of hazardous materials. We could incur substantial costs, including cleanup costs, civil or criminal fines or penalties, and third-party claims for property damage or personal injury as a result of any violations of environmental laws and regulations, noncompliance with environmental permit conditions or contamination for which we may be responsible that is identified or that may occur in the future. Such costs may be material.

Under federal and state environmental laws, we may be liable for the costs of investigation, removal or remediation of certain hazardous or toxic substances, as well as related costs of investigation and damage to natural resources, at various properties, including our current and former properties and the former properties of our predecessors, as well as offsite waste handling or disposal sites that we or our predecessors have used. Liability may be imposed upon us without regard to whether we knew of or caused the presence of such hazardous or toxic substances. Any such locations, or locations that we may acquire in the future, may result in liability to us under such laws or expose us to third party actions such as tort suits based on alleged conduct or environmental conditions. In addition, we may be liable if hazardous or toxic substances migrate from properties for which we may be responsible to other properties.

In addition to regulations applicable to our operations, failure by any of our co-packers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations and could result in potential liability. Even if we were able to obtain insurance coverage or compensation for any losses or damages resulting from the non-compliance of a co-packer or supplier with applicable regulations, our brands and reputation may be adversely affected by negative perceptions of our brands stemming from such compliance failures.

We cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted. We also cannot predict the amount of future expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to environmental claims.

 

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Our operations are subject to regulation by the U.S. Food and Drug Administration (“FDA”), U.S. Department of Agriculture (“USDA”), Federal Trade Commission (“FTC”) and other governmental entities and such regulations are subject to change from time to time which could impact how we manage our production and sale of products. Federal budget cuts could result in furloughs for government employees, including inspectors and reviewers for our plants and products and for our suppliers’ plants and products, which could materially impact our ability to manufacture regulated products.

Our operations are subject to extensive regulation by the FDA, the USDA and other national, state, and local authorities. For example, we are subject to the Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, packaging, and safety of food. Under this program, the FDA regulates manufacturing practices for foods through, among other things, its current “good manufacturing practices” regulations, or cGMPs, and specifies the recipes for certain foods. Our processing facilities and products are subject to periodic inspection by federal, state, and local authorities. In addition, we must comply with similar laws in Canada. In January 2011, the FDA’s Food Safety Modernization Act was signed into law. The law will increase the number of inspections at food facilities in the U.S. in an effort to enhance the detection of food borne illness outbreaks and order recalls of tainted food products. The FTC and other authorities regulate how we market and advertise our products, and we could be the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations. Changes in these laws or regulations or the introduction of new laws or regulations could increase the costs of doing business for us or our customers or suppliers or restrict our actions, causing our results of operations to be adversely affected.

We seek to comply with applicable regulations through a combination of employing internal personnel to ensure quality-assurance compliance (for example, assuring that food packages contain only ingredients as specified on the package labeling) and contracting with third-party laboratories that conduct analysis of products for the nutritional-labeling requirements. Compliance with federal, state and local regulations is costly and time-consuming. Failure to comply with applicable laws and regulations or maintain permits and licenses relating to our operations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could result in increased operating costs resulting in a material adverse effect on our operating results and business. For example, on January 27, 2012, we issued a voluntary recall for certain Aunt Jemima frozen pancakes due to potential cross contamination with soy protein which may cause allergic reactions for people who have a soy allergy. The cost of this recall, net of insurance recoveries, was $3.2 million ($2.1 million in fiscal 2012 and $1.1 million in fiscal 2011).

In addition, current budget cuts proposed by the federal government could result in furloughs for government employees, including inspectors and reviewers for our plants and products and for our suppliers’ plants and products. Such furloughs could materially impact our ability to manufacture regulated products, which could have a material adverse effect on our business.

Our business operations could be disrupted if our information technology systems fail to perform adequately.

The efficient operation of our business depends on our information technology systems, some of which are managed by third-party service providers. We rely on our information technology systems to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, cyber attacks and viruses. Any such damage or interruption could have a material adverse effect on our business.

 

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We have a significant amount of goodwill and intangible assets on our Consolidated Balance Sheets that are subject to impairment based upon future adverse changes in our business and the overall economic environment.

At December 30, 2012, the carrying value of goodwill and tradenames was $1,441.5 million and $1,604.0 million, respectively. We evaluate the carrying amount of goodwill and indefinite-lived intangible assets for impairment on an annual basis, in December, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. We have recorded impairment charges in recent years, including a $0.5 million tradename impairment to our Bernstein’s tradename in fiscal 2012 and $148.2 million of goodwill and tradename impairments in fiscal 2011. The value of goodwill and intangible assets will be derived from our business operating plans and is susceptible to an adverse change in demand, input costs, general changes in the business, or changes in the overall economic environment and could require an impairment charge in the future.

If we are unable to retain our key management personnel, our future performance may be impaired and our financial condition could suffer as a result.

Our success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. Departure by certain of our executive officers could have a material adverse effect on our business, financial condition, or results of operations. We do not maintain key-man life insurance on any of our executive officers. The services of such personnel may not continue to be available to us.

We may not be able to utilize all of our net operating loss carryovers.

If there is an unfavorable adjustment from an United States Internal Revenue Service (“IRS”) examination (whether as a result of a change in law or IRS policy or otherwise) that reduces any of our NOLCs, cash taxes may increase and impact our ability to pay dividends or make interest payments on our indebtedness. As of December 30, 2012, we had NOLCs for U.S. federal income tax purposes of $1.1 billion. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to annual limitations on its ability to utilize its pre-change NOLCs to offset future taxable income. Certain of our existing NOLCs are subject to annual limitations under Section 382 of the Code. In addition, if we undergo an ownership change in the future, our ability to utilize NOLCs could be further limited by Section 382 of the Code. This offering could increase the risk of an ownership change, and future shifts in ownership of our common stock (including future sales by Blackstone) may cause an ownership change. These limitations and/or our failure to generate sufficient taxable income may result in the expiration of the NOLCs before they are utilized. For further detail on our NOLCs, see Note 15 “Taxes on Earnings” to our audited consolidated financial statements included elsewhere in this prospectus.

Affiliates of Blackstone control us and their interests may conflict with ours or yours in the future.

Immediately following the dissolution of Peak Holdings LLC and this offering of common stock, affiliates of Blackstone will beneficially own approximately 70.6% of our common stock, or approximately 68.0% if the underwriters exercise in full their option to purchase additional shares. As a result, affiliates of Blackstone will have the ability to elect all of the members of our Board of Directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests. In addition, Blackstone may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you. For example, Blackstone could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets. Blackstone is in the business of making investments in companies and may from time to time acquire and hold

 

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interests in businesses that compete directly or indirectly with us. Our amended and restated certificate of incorporation will provide that none of Blackstone, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Blackstone also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as Blackstone continues to own a significant amount of our combined voting power, even if such amount is less than 50%, it will continue to be able to strongly influence or effectively control our decisions and, so long as Blackstone and its affiliates collectively own at least 5% of our outstanding common stock, appoint individuals to our Board of Directors under a stockholders agreement which we expect to adopt in connection with this offering. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.” In addition, Blackstone will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our Company or a change in the composition of our Board of Directors and could preclude any unsolicited acquisition of our Company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of our Company and ultimately might affect the market price of our common stock.

Risks Related to this Offering and Ownership of Our Common Stock

No market currently exists for our common stock, and an active, liquid trading market for our common stock may not develop, which may cause our common stock to trade at a discount from the initial offering price and make it difficult for you to sell the common stock you purchase.

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our Company will lead to the development of a trading market on The New York Stock Exchange or otherwise or how active and liquid that market may become. If an active and liquid trading market does not develop or continue, you may have difficulty selling any of our common stock that you purchase. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. The market price of our common stock may decline below the initial offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all.

You will incur immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

Prior stockholders have paid substantially less per share of our common stock than the price in this offering. The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of outstanding common stock prior to completion of the offering. Based on our net tangible book value as of December 30, 2012 and upon the issuance and sale of 29,000,000 shares of common stock by us at an assumed initial public offering price of $19.00 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), if you purchase our common stock in this offering, you will pay more for your shares than the amounts paid by our existing stockholders for their shares and you will suffer immediate dilution of approximately $19.51 per share in net tangible book value. Dilution is the amount by which the offering price paid by purchasers of our common stock in this offering will exceed the pro forma net tangible book value per share of our common stock upon completion of this offering. If the underwriters exercise their option to purchase additional shares, or if outstanding options to purchase our common stock are exercised, you will experience additional dilution. You may experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our employees, executive officers and directors under our 2013 Omnibus Incentive Plan or other omnibus incentive plans. See “Dilution.”

 

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Our stock price may change significantly following the offering, and you may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.

The trading price of our common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. We and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or above the initial public offering price due to a number of factors such as those listed in “—Risks Related to Our Business” and the following:

 

   

results of operations that vary from the expectations of securities analysts and investors;

 

   

results of operations that vary from those of our competitors;

 

   

changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

 

   

changes in economic conditions for companies serving our markets;

 

   

changes in market valuations of, or earnings and other announcements by, companies serving our markets;

 

   

declines in the market prices of stocks generally, particularly those of packaged food companies;

 

   

strategic actions by us or our competitors;

 

   

announcements by us, our competitors or our vendors of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;

 

   

changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the packaged food company environment;

 

   

changes in business or regulatory conditions;

 

   

future sales of our common stock or other securities;

 

   

investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;

 

   

the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

   

announcements relating to litigation;

 

   

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

 

   

the development and sustainability of an active trading market for our stock;

 

   

changes in accounting principles; and

 

   

other events or factors, including those resulting from manufacturing system failures and disruptions, natural disasters, war, acts of terrorism or responses to these events.

These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

 

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We may decide not to pay dividends on our common stock, and our indebtedness could limit our ability to pay dividends on our common stock.

After completion of this offering, we intend to pay a regular quarterly cash dividend of approximately $0.18 per share on our common stock, subject to the discretion of our Board of Directors and our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant. For more information, see “Dividend Policy.” We may decide not to pay a dividend in the future or discontinue paying any dividend if we do commence paying dividends.

If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.

After this offering, the sale of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of this offering we will have a total of 112,881,939 shares of common stock outstanding (or 117,231,939 shares if the underwriters exercise in full their option to purchase additional shares). Of the outstanding shares, the 29,000,000 shares sold in this offering (or 33,350,000 shares if the underwriters exercise in full their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including our directors, executive officers and other affiliates (including affiliates of Blackstone) may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

The remaining 83,881,939 shares, representing 74.3% of our total outstanding shares of common stock following this offering, will be “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, as described in “Shares Eligible for Future Sale.”

In connection with this offering, we, our directors and executive officers, and holders of substantially all of our common stock prior to this offering have each agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common stock (including any shares of our common stock or restricted stock received in connection with the dissolution of Peak Holdings LLC) or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. See “Underwriting (Conflicts of Interest)” for a description of these lock-up agreements.

In connection with this offering, certain of our employees who hold equity awards issued by Peak Holdings LLC, our parent company, will receive shares of our common stock and restricted stock. Such shares and restricted stock generally will be subject to a 180-day transfer restriction.

 

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In addition, 181,865 shares of common stock will be eligible for sale upon exercise of vested options. As soon as practicable following this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and the shares of common stock subject to issuance under the 2013 Omnibus Incentive Plan to be adopted in connection with this offering. Any such Form S-8 registration statements will automatically become effective upon filing. We expect that the initial registration statement on Form S-8 will cover 11,300,000 shares of common stock. Once these shares are registered, they can be sold in the public market upon issuance, subject to restrictions under the securities laws applicable to resales by affiliates.

Upon the expiration of the lock-up agreements described above, 82,773,430 shares held by our affiliates would be subject to volume, manner of sale and other limitations under Rule 144. In addition, pursuant to a registration rights agreement to be entered into in connection with this offering, we will grant Blackstone the right, subject to certain conditions, to require us to register the sale of their shares of our common stock under the Securities Act and we will grant Blackstone and certain members of management piggyback registration rights providing them the right to have us include the shares of our common stock they own in any registration by the Company. By exercising their registration rights and selling a large number of shares, the selling stockholders could cause the prevailing market price of our common stock to decline. Following completion of this offering, the shares covered by registration rights would represent approximately 73.3% of our outstanding common stock (or 70.6%, if the underwriters exercise in full their option to purchase additional shares). Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”

As restrictions on resale end or if these stockholders exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.

These provisions provide for, among other things:

 

   

a classified Board of Directors with staggered three-year terms;

 

   

the ability of our Board of Directors to issue one or more series of preferred stock;

 

   

advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;

 

   

certain limitations on convening special stockholder meetings;

 

   

the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class, if Blackstone and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors; and

 

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that certain provisions may be amended only by the affirmative vote of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class, if Blackstone and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors.

These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. See “Description of Capital Stock.”

We will be a “controlled company” within the meaning of the NYSE rules and the rules of the United States Securities and Exchange Commission (“SEC”). As a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

After completion of this offering, affiliates of Blackstone will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of the Board of Directors consist of “independent directors” as defined under the rules of the NYSE;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our nominating/corporate governance committee and compensation committee will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

In addition, on June 20, 2012, the SEC adopted Rule 10C-1 under the Exchange Act (“Rule 10C-1”) to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) pertaining to compensation committee independence and the role and disclosure of compensation consultants and other advisers to the compensation committee. The NYSE has since adopted amendments to its existing listing standards to comply with provisions of Rule 10C-1, and on January 11, 2013, the SEC approved such amendments. The amended listing standards require, among others, that:

 

   

compensation committees be composed of fully independent directors, as determined pursuant to new and existing independence requirements;

 

   

compensation committees be explicitly charged with hiring and overseeing compensation consultants, legal counsel and other committee advisers; and

 

   

compensation committees be required to consider, when engaging compensation consultants, legal counsel or other advisers, certain independence factors, including factors that examine the relationship between the consultant or adviser’s employer and us.

As a “controlled company”, we will not be subject to these compensation committee independence requirements.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” All statements, other than statements of historical facts included in this prospectus, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, financing needs, plans or intentions relating to acquisitions, business trends and other information referred to under “Prospectus Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” are forward-looking statements. When used in this prospectus, the words “estimates,” “expects,” “contemplates”, “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth above under “Risk Factors,” and the following risks, uncertainties and factors:

 

   

competition;

 

   

our ability to predict, identify, interpret and respond to changes in consumer preferences;

 

   

the loss of any of our major customers;

 

   

our reliance on single source provider for the manufacturing, co-packing and distribution of many of our products;

 

   

fluctuations in price and supply of food ingredients, packaging materials and freight;

 

   

volatility in commodity prices and our failure to mitigate the risks related to commodity price fluctuation and foreign exchange risk through the use of derivative instruments;

 

   

costs and timeliness of integrating future acquisitions or our failure to realize anticipated cost savings, revenue enhancements or other synergies therefrom;

 

   

our substantial leverage;

 

   

litigation or claims regarding our intellectual property rights or termination of our material licenses;

 

   

our inability to drive revenue growth in our key product categories or to add products that are in faster growing and more profitable categories;

 

   

potential product liability claims;

 

   

seasonality;

 

   

the funding of our defined benefit pension plans;

 

   

changes in our collective bargaining agreements or shifts in union policy;

 

   

changes in the cost of compliance with laws and regulations, including environmental, worker health and workplace safety laws and regulations;

 

   

our failure to comply with FDA, USDA or FTC regulations and the impact of governmental budget cuts;

 

   

disruptions in our information technology systems;

 

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future impairments of our goodwill and intangible assets;

 

   

difficulty in the hiring or the retention of key management personnel;

 

   

changes in tax statutes, tax rates, or case laws which impact tax positions we have taken; and

 

   

Blackstone controlling us.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this prospectus apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $520.7 million from the sale of 29,000,000 shares of our common stock in this offering, assuming an initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions. If the underwriters exercise in full their option to purchase additional shares, the net proceeds to us will be approximately $598.8 million.

We intend to use a portion of the net proceeds from this offering to redeem $465 million in aggregate principal amount of our 9.25% Senior Notes due April 1, 2015 at a redemption price of 100%. Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and Macquarie Capital (USA) Inc., or certain of their affiliates, are holders of our 9.25% Senior Notes due 2015 and as a result will receive a portion of the proceeds of this offering. See “Underwriting (Conflicts of Interest).”

We intend to use the remaining net proceeds, together with cash on hand, to repay $86 million of the Tranche B Non-Extended Term Loans. As of December 30, 2012, there was $243.3 million of the Tranche B Non-Extended Term Loans outstanding. The Tranche B Non-Extended Term Loans mature on April 2, 2014. Blackstone Advisory Partners L.P., or certain of its affiliates, are lenders under our Tranche B Non-Extended Term Loans due 2014 and, as a result, will receive a portion of the proceeds from this offering. See “Underwriting (Conflicts of Interest).”

Borrowings under the Tranche B Non-Extended Term Loans had a weighted average interest rate of 2.74% for the fiscal year ended December 30, 2012. Borrowings under the Tranche B Non-Extended Term Loans bear interest, at our option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus ½ of 1% and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-month interest period plus 1% or (b) a LIBOR rate determined by reference to the BBA LIBOR rate for the interest period relevant to such borrowing. The margin for the Tranche B Non-Extended Term Loans is based on a total leverage based grid and is currently 1.50%, in the case of base rate loans, and 2.50%, in the case of LIBOR rate loans. See “Description of Indebtedness—Senior Secured Credit Agreement.”

We will pay the fees and expenses related to this offering (other than underwriting discounts and commissions) and the use of proceeds therefrom (including the payment of accrued and unpaid interest) with cash generated from operations.

To the extent we raise more proceeds in this offering than currently estimated, we will redeem additional Tranche B Non-Extended Term Loans. To the extent we raise less proceeds in this offering than currently estimated, we will first reduce the amount of Tranche B Non-Extended Term Loans that will be repaid and then, if necessary, we will reduce the amount of our 9.25% Senior Notes due 2015 that will be redeemed.

In connection with this offering, we intend to terminate the Advisory Agreement in accordance with its terms. Upon completion of this offering, pursuant to and in connection with the terms of the Advisory Agreement, we will pay a termination fee equal to approximately $15.1 million to Blackstone Management Partners L.L.C., an affiliate of Blackstone and of Blackstone Advisory Partners L.P., with available cash on hand.

An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) our net proceeds from this offering by $18.0 million. A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share, based on the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $27.4 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions.

 

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DIVIDEND POLICY

We have never declared or paid dividends to the holders of our common stock, including in the fiscal years 2012, 2011 and 2010. After completion of this offering, we intend to pay a regular quarterly cash dividend of approximately $0.18 per share on our common stock, subject to the discretion of our Board of Directors and our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant.

Because we are a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of our subsidiaries or covenants under any existing and future outstanding indebtedness we or our subsidiaries incur. In particular, the ability of our subsidiaries to distribute cash to Pinnacle Foods Inc. to pay dividends is limited by covenants in our senior secured credit facilities and the indentures governing our senior notes. See “Description of Indebtedness” for a description of the restrictions on our ability to pay dividends. We do not currently believe that the restrictions contained in our existing indebtedness will impair our ability to pay regular quarterly cash dividends as described above.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the adjusted net tangible book value per share of our common stock after this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value per share attributable to the shares of common stock held by existing stockholders.

Our net tangible book deficit as of December 30, 2012 was approximately $576.9 million, or $7.10 per share of our common stock. We calculate net tangible book value per share by taking the amount of our total tangible assets, reduced by the amount of our total liabilities, and then dividing that amount by the total number of shares of common stock outstanding.

After giving effect to our sale of the shares in this offering at an assumed initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions, our adjusted net tangible book deficit on December 30, 2012 would have been $56.3 million, or $0.51 per share of our common stock. This amount represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $6.59 per share to existing stockholders and an immediate and substantial dilution in net tangible book value of $19.51 per share to new investors purchasing shares in this offering at the assumed initial public offering price.

The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $ 19.00   

Net tangible book value (deficit) per share as of December 30, 2012

   $ (7.10  

Increase in tangible book value per share attributable to new investors

   $ 6.59     
  

 

 

   

Adjusted net tangible book value (deficit) per share after this offering

     $ (0.51
    

 

 

 

Dilution per share to new investors

     $ 19.51   
    

 

 

 

Dilution is determined by subtracting adjusted net tangible book value per share of common stock after the offering from the initial public offering price per share of common stock.

If the underwriters exercise in full their option to purchase additional shares, the adjusted tangible book value per share after giving effect to the offering would be $0.19 per share. This represents an increase in adjusted net tangible book value (or a decrease in net tangible book value deficit) of $7.30 per share to the existing stockholders and dilution in adjusted net tangible book value of $18.81 per share to new investors.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions, a $1.00 increase or decrease in the assumed initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease the net tangible book value attributable to new investors purchasing shares in this offering by $6.84 per share and the dilution to new investors by $19.26 per share.

 

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The following table summarizes, as of December 30, 2012, the differences between the number of shares purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid. The table below assumes an initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, for shares purchased in this offering and excludes underwriting discounts and commissions:

 

     Shares Purchased      Total Consideration      Avg / Share  
     Number      %      Amount      %     

Existing stockholders

     83,881,939         74.3%       $ 687,013,253         55.5%       $ 8.19   

New investors

     29,000,000         25.7%         551,000,000         44.5%       $ 19.00   
  

 

 

       

 

 

       
     112,881,939         100.0%       $ 1,238,013,253         100.0%      
  

 

 

       

 

 

       

If the underwriters were to fully exercise the underwriters’ option to purchase 4,350,000 additional shares of our common stock, the percentage of shares of our common stock held by existing stockholders who are directors, officers or affiliated persons would be 73.3% and the percentage of shares of our common stock held by new investors would be 25.7%.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions, a $1.00 increase or decrease in the assumed initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease total consideration paid by new investors and total consideration paid by all stockholders by approximately $27.4 million.

To the extent that we grant options to our employees in the future and those options are exercised or other issuances of common stock are made, there will be further dilution to new investors.

 

35


Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 30, 2012:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to (1) the sale by us of approximately 29,000,000 shares of our common stock in this offering, after deducting estimated underwriting discounts and commissions; (2) the application of the estimated net proceeds from the offering at an assumed initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, as described in “Use of Proceeds”; (3) the payment of $15.1 million to Blackstone Management Partners L.L.C. in connection with the termination of the Advisory Agreement; and (4) the payment of estimated fees and expenses (other than underwriting discounts and commissions) in connection with this offering and the use of proceeds therefrom.

You should read this table in conjunction with the information contained in “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Indebtedness,” as well as the consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

     As of December 30,
2012
 
     Actual     As adjusted  
     ($ in millions, except
par value and share
numbers)
 

Cash and cash equivalents

   $ 92.3      $ 42.9   
  

 

 

   

 

 

 

Long-term debt, including current portion of long-term debt:

    

Senior Secured Credit Facilities:

    

Revolving Credit Facility

     —          —     

Tranche B Non-Extended Term Loans due 2014

     243.3        157.3   

Tranche B Extended Term Loans due 2016

     637.9        637.9   

Tranche E Term Loans due 2018

     398.0        398.0   

Tranche F Term Loans due 2018

     448.9        448.9   

9.25% Senior Notes due 2015

     465.0        —     

8.25% Senior Notes due 2017

     400.0        400.0   

Unamortized discount on long term debt

     (7.2     (7.2

Capital lease obligations

     21.0        21.0   
  

 

 

   

 

 

 

Total long-term debt

   $ 2,606.9      $ 2,055.9   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, $ 0.01 par value, (200,000,000 shares authorized; 81,210,672 shares issued and outstanding, actual, respectively; 500,000,000 shares authorized and 112,881,939 shares issued and outstanding, as adjusted, respectively)

     —          —     

Additional paid-in capital

   $ 697.3      $ 1,214.0   

Retained Earnings

     253.0        237.9   

Accumulated other comprehensive (loss) income

     (61.6     (61.6
  

 

 

   

 

 

 

Total stockholders’ equity

     888.7        1,390.3  (2) 
  

 

 

   

 

 

 

Total capitalization

   $ 3,495.6      $ 3,446.2   
  

 

 

   

 

 

 

 

(1) 

To the extent we change the number of shares of common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the $19.00 per share assumed initial public offering price, representing the midpoint of the estimated price range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of total stockholders’ equity and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price per share of the common stock, assuming no change in the number of shares of common stock to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of total stockholders’ equity and total capitalization by approximately $27.4 million. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase (decrease) our net proceeds from this offering and our total stockholders’ equity and total capitalization by approximately $18.0 million. To the extent we raise more proceeds in this offering than currently estimated, we will redeem additional Tranche B Non-Extended Term Loans. To the extent we raise less proceeds in this offering than currently estimated, we will first reduce the amount of Tranche B Non-Extended Term Loans that will be repaid, and then, if necessary, we will reduce the amount of our 9.25% Senior Notes due 2015 that will be redeemed.

(2) 

Does not reflect the expected write-off of deferred financing fees associated with our 9.25% Senior Notes due 2015 and the Tranche B Non-Extended Term Loans of approximately $4.2 million.

 

36


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Set forth below is our selected historical consolidated financial data as of the dates and for the periods indicated.

The selected financial data as of December 25, 2011 and December 30, 2012 and for each of the fiscal years ended December 26, 2010, December 25, 2011 and December 30, 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected financial data as of December 28, 2008, December 27, 2009 and December 26, 2010 and for the fiscal year ended December 28, 2008 and December 27, 2009 have been derived from our audited consolidated financial statements, which are not included in this prospectus. Share and per share data for the fiscal years ended December 28, 2008, December 27, 2009, December 26, 2010, December 25, 2011 and December 30, 2012 has been retroactively adjusted to give effect to the 55.2444-for-one stock split which occurred on March 12, 2013.

Our historical results are not necessarily indicative of future operating results. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

 

($ in millions, other than per share and share data)

   (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 
Statement of Operations Data:                               

Net sales

   $  1,556.4      $  1,642.9      $  2,436.7      $  2,469.6      $  2,478.5   

Cost of products sold

     1,217.9        1,263.6        1,834.4        1,854.7        1,893.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     338.5        379.3        602.3        614.9        584.6   

Operating expenses

          

Marketing and selling

     111.4        123.8        172.3        171.6        169.7   

Administrative expenses

     47.8        62.7        110.0        80.5        89.4   

Research and development expenses

     3.5        4.6        9.4        8.0        12.0   

Goodwill impairment charges

     —          —          —          122.9        —     

Other expense (income), net

     24.4        42.2        45.5        48.6        29.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     187.1        233.3        337.2        431.6        300.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before interest and taxes

     151.4        146.0        265.1        183.3        283.7   

Interest expense

     153.3        121.2        236.0        208.3        198.5   

Interest income

     0.3        0.1        0.3        0.2        0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes

     (1.6     24.9        29.4        (24.8     85.3   

Provision (benefit) for income taxes

     27.0        (277.7     7.4        22.1        32.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

   $ (28.6   $ 302.6      $ 22.0      $ (46.9   $ 52.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) per share:

          

Basic

   $ (0.57   $ 6.09      $ 0.32      $ (0.58   $ 0.65   

Diluted

   $ (0.57   $ 5.51      $ 0.30      $ (0.58   $ 0.61   

Weighted average shares outstanding:

          

Basic

     49,710,659        49,709,367        68,434,982        81,315,848        81,230,630   

Diluted

     49,710,659        54,902,353        73,638,195        81,315,848        86,494,546   

Cash Flow:

          

Net cash provided by (used in):

          

Operating activities

   $ 16.8      $ 116.2      $ 257.0      $ 204.2      $ 202.9   

Investing activities

     (32.6     (1,366.8     (81.3     (109.4     (77.7

Financing activities

     14.2        1,319.8        (134.3     (59.0     (184.1

Balance sheet data (at end of period):

          

Cash and cash equivalents

   $ 4.3      $ 73.9      $ 115.3      $ 151.0      $ 92.3   

Working capital (1)

     131.2        364.6        344.4        408.7        404.1   

Total assets

     2,632.2        4,538.5        4,491.6        4,451.6        4,400.0   

Total debt (2)

     1,785.4        2,888.7        2,803.5        2,756.0        2,608.9   

Total liabilities

     2,324.6        3,664.1        3,596.5        3,606.3        3,511.3   

Total shareholders’ equity

     307.6        874.4        895.1        845.4        888.7   

Other Financial Data:

          

Adjusted gross profit (3)

   $ 375.8      $ 670.6      $ 698.5      $ 694.0      $ 674.9   

Adjusted EBITDA (4)

     223.0        390.8        446.9        449.7        426.1   

Capital expenditures

     32.6        52.0        81.3        117.3        78.3   

 

The selected financial data presented above is impacted by the Blackstone Transaction and by the Birds Eye Acquisition.

 

37


Table of Contents
(1) 

Working capital excludes notes payable, revolving debt facility and current portion of long-term debt.

(2)

Total debt includes notes payable, revolving debt facility and current portion of long-term debt.

(3) 

Adjusted gross profit is defined as gross profit before depreciation, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments noted in the table below. Our management uses Adjusted gross profit as an operating performance measure. We believe that the presentation of Adjusted gross profit is useful to investors because it is consistent with our definition of Adjusted EBITDA (defined below), a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, we also use targets based on Adjusted gross profit as one of the components used to evaluate our management’s performance. Adjusted gross profit is not defined under GAAP, should not be considered in isolation or as substitutes for measures of our performance prepared in accordance with GAAP and is not indicative of gross profit as determined under GAAP.

The following table provides a reconciliation from our gross profit to Adjusted gross profit for the fiscal years ended December 28, 2008, December 27, 2009, December 26, 2010, December 25, 2011 and December 30, 2012.

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 

Gross profit

  $ 338.5      $ 379.3      $ 602.3      $ 614.9      $ 584.6   

Depreciation expense (a)

    38.7        43.5        53.5        65.0        73.0   

Acquired gross profit- Birds Eye Acquisition (b)

    —          246.3        —          —          —     

Non-cash items (c)

    (2.0     0.8        38.2        3.0        (1.2

Acquisition, merger and other restructuring charges (d)

    0.6        0.6        4.3        9.9        16.9   

Other adjustment items(e)

    —          —          0.2        1.3        1.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross profit

  $ 375.8      $ 670.6      $ 698.5      $ 694.0      $ 674.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) 

Includes accelerated depreciation from plant closures of $0.7 million for fiscal year 2010, $14.1 million for fiscal year 2011 and $21.0 million for fiscal year 2012.

  (b) 

Represents the acquired gross profit for Birds Eye for the period of fiscal year 2009 prior to the Birds Eye Acquisition, calculated consistent with our definition of Adjusted gross profit.

  (c) 

Non-cash items are comprised of the following:

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 

Non-cash compensation charges (1)

    $0.1        $0.5        $0.4        $0.2        $0.1   

Unrealized losses (gains) resulting from hedging activities (2)

    (2.1     (0.2     0.7        1.6        (1.3

Other impairment charges (3)

    —          —          —          1.3        —     

Effects of adjustments related to the application of purchase accounting (4)

    —          0.5        37.1        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-cash items

    $(2.0     $0.8        $38.2        $3.0        $(1.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1)

Represents non-cash compensation charges related to the granting of equity awards.

  (2) 

Represents non-cash gains and losses resulting from mark-to-market obligations under derivative contracts.

  (3) 

For fiscal year 2011, represents a plant asset impairment on the previously announced closure of the Tacoma, Washington facility of $1.3 million.

  (4) 

For fiscal year 2009 and fiscal year 2010, represents expense related to the write-up to fair market value of inventories acquired as a result of the Birds Eye Acquisition.

 

  (d) 

Acquisition, merger and other restructuring charges are comprised of the following:

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal  year
ended
December  30,
2012
 

Restructuring charges, integration costs and other business optimization expenses (1)

    $0.4        $0.4        $4.1        $9.3        $16.9   

Employee severance and recruiting (2)

    0.2        0.2        0.2        0.6        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total acquisition, merger and other restructuring charges

    $0.6        $0.6        $4.3        $9.9        $16.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Table of Contents

 

  (1) 

For fiscal year 2008, represents consultant expenses incurred to optimize our distribution network. For fiscal year 2009, represents consultant expense incurred to execute yield and labor savings in our plants. For fiscal year 2010, primarily represents integration costs related to the Birds Eye Acquisition. For fiscal year 2011, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington and Fulton, New York facilities. For fiscal year 2012, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington, Fulton, New York and Millsboro, Delaware facilities.

  (2) 

Represents severance costs paid or accrued to terminated employees.

 

  (e) 

Other adjustment items are comprised of the following:

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 

Other (1)

    —          —          $0.2        $1.3        $1.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other adjustments

    —          —          $0.2        $1.3        $1.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) 

For fiscal year 2010, represents miscellaneous other cost. For fiscal year 2011 and fiscal year 2012, primarily represents the recall of Aunt Jemima product, net of insurance recoveries.

 

(4) 

Adjusted EBITDA is defined as net earnings (loss) before interest expense, taxes, depreciation and amortization (“EBITDA”) and other adjustments noted in the table below. Our management uses Adjusted EBITDA as an operating performance measure. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets for Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans.

EBITDA and Adjusted EBITDA do not represent net earnings or loss or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, Adjusted EBITDA includes certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that vary greatly and are difficult to predict. Because not all companies use identical calculations, these presentations of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies. In addition, under the credit agreement governing our senior secured credit facilities and the indentures governing our senior notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to a ratio based on Adjusted EBITDA. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Covenant Compliance.”

The following table provides a reconciliation from our net earnings (loss) to EBITDA and Adjusted EBITDA for the fiscal years ended December 28, 2008, December 27, 2009, December 26, 2010, December 25, 2011 and December 30, 2012.

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 

Net earnings (loss)

    $(28.6     $302.6        $22.0        $(46.9     $52.6   

Interest expense, net

    153.0        121.1        235.7        208.1        198.4   

Income tax expense (benefit)

    27.0        (277.7     7.4        22.1        32.7   

Depreciation and amortization expense

    62.5        65.5        78.1        88.5        98.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    $213.9        $211.5        $343.2        $271.8        $381.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquired EBITDA- Birds Eye Acquisition (a)

    —          $142.3        —          —          —     

Non-cash items (b)

    $3.8        4.7        $71.5        $152.2        $0.1   

Acquisition, merger and other restructuring charges (c)

    2.7        29.8        27.5        20.3        23.3   

Other adjustment items (d)

    2.6        2.5        4.7        5.5        21.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

    $223.0        $390.8        $446.9        $449.7        $426.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) 

Represents the acquired EBITDA for Birds Eye for the period of fiscal year 2009 prior to the Birds Eye Acquisition, calculated consistent with our definition of Adjusted EBITDA.

 

39


Table of Contents
  (b) 

Non-cash items are comprised of the following:

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended
December 30,
2012
 

Non-cash compensation charges (1)

    $0.8        $3.2        $4.7        $1.1        $0.9   

Unrealized (gains) losses resulting from hedging activities (2)

    (2.1     (0.3     0.7        1.6        (1.3

Goodwill impairment charge (3)

    —          —          —          122.9        —     

Other impairment charges (4)

    15.1        1.3        29.0        26.6        0.5   

Non-cash gain on litigation settlement (5)

    (10.0     —          —          —          —     

Effects of adjustments related to the application of purchase accounting (6)

    —          0.5        37.1        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-cash items

    $3.8        $4.7        $71.5        $152.2        $0.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) 

Represents non-cash compensation charges related to the granting of equity awards.

  (2) 

Represents non-cash gains and losses resulting from mark-to-market adjustments of obligations under derivative contracts.

  (3) 

For fiscal year 2011, represents goodwill impairments on the Frozen Breakfast ($51.7 million), Private Label ($49.7 million) and Food Service ($21.5 million) reporting units.

  (4) 

For fiscal year 2008, represents impairment charges for the Van de Kamp’s ($8.0 million), Mrs. Paul’s ($5.6 million), Lenders ($0.9 million) and Open Pit tradenames ($0.6 million). For fiscal year 2009, represents an impairment charge for the Swanson tradename ($1.3 million). For fiscal year 2010, represents an impairment for the Hungry-Man tradename ($29.0 million). For fiscal year 2011, represents tradename impairments on Aunt Jemima ($23.7 million), Lenders ($1.2 million) and Bernstein’s ($0.4 million), as well as a plant asset impairment on the previously announced closure of the Tacoma, Washington facility ($1.3 million). For fiscal year 2012, represents tradename impairment of Bernstein’s ($0.5 million).

  (5)

For fiscal year 2008, represents the excess of the accrued liability established in purchase accounting over the amount of the cash payment in the litigation settlement.

  (6) 

For fiscal year 2009 and fiscal year 2010, represents expense related to the write-up to fair market value of inventories acquired as a result of the Birds Eye Acquisition.

 

  (c) 

Acquisition, merger and other restructuring charges are comprised of the following:

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal  year
ended
December 30,
2012
 

Expenses in connection with an acquisition or other merger costs (1)

    $0.7        $25.2        $0.9        $8.8        $2.3   

Restructuring charges, integration costs and other business optimization expenses (2)

    1.0        1.0        25.5        9.5        20.0   

Employee severance and recruiting (3)

    1.0        3.6        1.1        2.0        1.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total acquisition, merger and other restructuring charges

    $2.7        $29.8        $27.5        $20.3        $23.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) 

For fiscal year 2008, represents additional costs related to the Blackstone Transaction. For fiscal year 2009 and fiscal year 2010, primarily represents costs related to the Birds Eye Acquisition as well as other expenses related to due diligence investigations. For fiscal year 2011, primarily represents an $8.5 million legal settlement related to the Lehman Brothers Specialty Financing claim described in more detail in Note 12 to our audited consolidated financial statements included elsewhere in this prospectus and in “Business—Legal Proceedings.” For fiscal year 2012, primarily represents expenses related to this offering and due diligence investigations.

  (2) 

For fiscal year 2008, represents expenses incurred to reconfigure the freezer space in our Mattoon, Illinois warehouse, as well as consultant expense incurred to execute labor and yield savings in our plants. For fiscal year 2009, represents consultant expense incurred to execute yield and labor savings in our plants. For fiscal year 2010, primarily represents employee termination benefits and lease termination costs related to the closing of the Rochester, New York office and integration costs related to the Birds Eye Acquisition. For fiscal year 2011, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington and Fulton, New York facilities. For fiscal year 2012, primarily represents restructuring charges and consulting and business optimization expenses related to the closings of the Tacoma, Washington, Fulton, New York, Green Bay, Wisconsin and Millsboro, Delaware facilities.

  (3) 

For fiscal year 2009, principally represents severance and recruiting costs related to the change in the Chief Executive Officer. For fiscal year 2008, fiscal year 2010, fiscal year 2011 and fiscal year 2012, represents severance costs paid or accrued to terminated employees.

 

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  (d) 

Other adjustment items are comprised of the following:

 

($ in millions)

  (52 weeks)
Fiscal year
ended
December 28,
2008
    (52 weeks)
Fiscal year
ended
December 27,
2009
    (52 weeks)
Fiscal year
ended
December 26,
2010
    (52 weeks)
Fiscal year
ended
December 25,
2011
    (53 weeks)
Fiscal year
ended

December 30,
2012
   

 

Management, monitoring, consulting and advisory fees (1)

    $2.6        $2.5        $4.5        $4.6        $4.7     

Other (2)

    —          —          0.2        0.9        16.3     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

Total other adjustments

    $2.6        $2.5        $4.7        $5.5       
$21.0
  
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  (1) 

For fiscal year 2008, represents management/advisory fees and expenses paid to Blackstone. For fiscal year 2009, fiscal year 2010, fiscal year 2011 and fiscal year 2012, represents management/advisory fees and expenses paid to an affiliate of Blackstone pursuant to the Advisory Agreement. We intend to terminate the Advisory Agreement in accordance with its terms in connection with the completion of this offering. See “Use of Proceeds.”

  (2) 

For fiscal year 2010, represents miscellaneous other cost. For fiscal year 2011, primarily represents a gain on the sale of the Watsonville, California property and costs for the recall of Aunt Jemima product of $1.1 million, net of insurance recoveries. For fiscal year 2012, primarily represents $14.3 million of the premiums paid on the redemption of $150.0 million of 9.25% Senior Notes due 2015, the redemption of $199.0 million of 10.625% Senior Subordinated Notes due 2017 and the repurchase and retirement of $10.0 million of 9.25% Senior Notes due 2015, and costs for the recall of Aunt Jemima product of $2.1 million, net of insurance recoveries.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Summary Historical Consolidated Financial Data,” “Selected Historical Consolidated Financial Data” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements. You should read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

Information presented for the fiscal years ended December 30, 2012, December 25, 2011 and December 26, 2010 is derived from our audited consolidated financial statements for those periods included elsewhere in this prospectus.

Overview

We are a leading manufacturer, marketer and distributor of high-quality, branded food products in North America, with annual net sales of $2.5 billion in fiscal 2012. We manage the business in three operating segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods. Our Birds Eye Frozen Division manages our Leadership Brands in the U.S. retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), and frozen prepared seafood (Van de Kamp’s and Mrs. Paul’s) categories, as well as our Foundation Brands in the full-calorie single-serve frozen dinners and entrées (Hungry-Man), frozen pancakes / waffles / French Toast (Aunt Jemima), frozen and refrigerated bagels (Lender’s) and frozen pizza for one (Celeste) categories. Our Duncan Hines Grocery division manages our Leadership Brands in the cake / brownie mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), and table syrups (Mrs. Butterworth’s and Log Cabin) categories, and our Foundation Brands in the canned meat (Armour, Nalley, Brooks), pie and pastry fruit fillings (Comstock, Wilderness), barbecue sauces (Open Pit) and salad dressing (Bernstein’s) categories as well as all Canadian operations. We refer to the sum of our Birds Eye Frozen segment and our Duncan Hines Grocery segment as our North American Retail businesses. Our Specialty Foods Division consists of snack products (Tim’s Cascade and Snyder of Berlin) and our foodservice and private label businesses. Our Leadership Brands historically receive approximately 80% of our marketing investment and a majority of our innovation investment. We manage our Foundation Brands for revenue stability and cash flow to support investment in our Leadership Brands. We support the Foundation Brands with brand renovation spending, as well as targeted consumer and trade programs. Segment performance is evaluated by our 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, including goodwill, which are identified with the operations in each segment or geographic region. Corporate assets consist of prepaid and deferred tax assets. Unallocated corporate expenses consist of corporate overhead such as executive management and finance and legal functions. Product contribution is defined as Adjusted gross profit less direct to consumer advertising and marketing expenses, selling commissions and direct brand marketing overhead expenses. See “Prospectus Summary—Summary Historical Consolidated Financial Data” for our definition of Adjusted gross profit and a reconciliation of our gross profit to Adjusted gross profit.

Business Drivers and Measures

In operating our business and monitoring its performance, we pay attention to trends in the food manufacturing industry and a number of performance measures and operational factors. The industry has experienced volatility in overall commodity prices over the past five years. To date the industry has managed this commodity inflation by increasing retail prices, which has affected consumer buying patterns and led to lower volumes, particularly in the frozen categories. The overall food industry continues to face top line challenges, with overall volume softness and a more challenging environment to fully pass on price increases due to weak

 

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consumer demand. This discussion includes forward-looking statements that are based on our current expectations.

Industry Trends

Growth in our industry is driven primarily by population growth, changes in product selling prices and changes in consumption between out-of-home and in-home eating. With the slow economic recovery since the recession in 2008 and 2009, consumers are looking for value alternatives, which has caused an increase in the percentage of products sold on promotion and a shift from traditional retail grocery to mass merchandisers, club stores and the dollar store channel. We believe we are well positioned in grocery and alternative channels, maintaining strong customer relationships across key retailers in each segment.

Over the long term, the share of food consumed at restaurants and in other foodservice venues had been increasing, with the share of food consumed at home in decline. During the 2008-09 recession, this trend reversed, with consumers eating more at home. Recently, the industry has experienced a decline in the volume of food consumed at home, yet away from home eating venues have not experienced corresponding volume increases.

During 2012 the industry shifted investment spending to trade promotions during a period of heightened competitive activity and significant consumer price sensitivity.

In order to maintain and grow our business, we must successfully react to, and offer products that respond to, evolving consumer trends, such as changing health trends and focus on convenience and products tailored for busy lifestyles. Incremental growth in the industry is principally driven by product and packaging innovation.

Revenue Factors

Our net sales are driven principally by the following factors:

 

   

Gross sales, which change as a function of changes in volume and list price; and

 

   

the costs that we deduct from gross sales to reach net sales, which consist of:

 

   

Cash discounts, returns and other allowances.

 

   

Trade marketing expenses, which include the cost of temporary price reductions (“on sale” prices), promotional displays and advertising space in store circulars.

 

   

New product distribution (slotting) expenses, which are the costs of having certain retailers stock a new product, including amounts retailers charge for updating their warehousing systems, allocating shelf space and in-store systems set-up, among other things.

 

   

Consumer coupon redemption expenses, which are costs from the redemption of coupons we circulate as part of our marketing efforts.

Cost Factors

 

   

Costs recorded in Cost of products sold in the consolidated statement of operations include:

 

   

Raw materials, such as sugar, cucumbers, broccoli, corn, peas, green beans, carrots, flour (wheat), poultry, seafood, vegetable oils, shortening, meat and corn syrup, among others, are available from numerous independent suppliers but are subject to price fluctuations due to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, weather conditions and insects, among others.

 

   

Packaging costs. Our broad array of products entails significant costs for packaging and is subject to fluctuations in the price of aluminum, glass jars, plastic trays, corrugated fiberboard, and plastic packaging materials.

 

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Conversion costs, which include all costs necessary to convert raw materials into finished product. Key components of this cost include direct labor, and plant overhead such as rent, utilities and depreciation.

 

   

Freight and distribution. We use a combination of common carriers and inter-modal rail to transport our products from our manufacturing facilities to distribution centers and to deliver products to our customers from both those centers and directly from our manufacturing plants. Our freight and distribution costs are influenced by fuel costs as well as capacity within the industry.

 

   

Costs recorded in marketing and selling expenses in the consolidated statement of operations include:

 

   

Advertising and other marketing expenses. These expenses represent advertising and other consumer and trade-oriented marketing programs. A key strategy is to continue to invest in marketing and public relations that build brand affinity for our Leadership Brands.

 

   

Brokerage commissions and other overhead expenses.

Working Capital

Our working capital is primarily driven by accounts receivable and inventories, which fluctuate throughout the year due to seasonality in both sales and production. See “—Seasonality.” We will continue to focus on reducing our working capital requirements while simultaneously maintaining our customer service levels and fulfilling our production requirements. We have historically relied on internally generated cash flows and temporary borrowings under our revolving credit facility to satisfy our working capital requirements.

Other Factors

Other factors that have influenced our results of operations and may do so in the future include:

 

   

Interest Expense. As a result of the Blackstone Transaction and the Birds Eye Acquisition, we have significant indebtedness. Although we expect to reduce our leverage over time, including in connection with this offering, we expect interest expense to continue to be a significant component of our expenses. See “—Liquidity and Capital Resources” below.

 

   

Cash Taxes. We have significant tax-deductible intangible asset amortization and federal and state NOLCs, which resulted in minimal federal and state cash taxes in recent years. We expect to continue to realize significant reductions in federal and state cash taxes in the future attributable to amortization of intangible assets and realization of NOLCs.

 

   

Acquisitions and Consolidations. We believe we have the expertise to identify and integrate value-enhancing acquisitions to further grow our business. We have successfully integrated acquisitions in the past. We have, however, incurred significant costs in connection with integrating these businesses and streamlining our operations.

 

   

Impairment of Goodwill, Tradenames and Long-Lived Assets. We test our goodwill and intangible assets annually or more frequently (if necessary) for impairment and have recorded impairment charges in recent years. The value of goodwill and intangibles from the allocation of purchase price from the Blackstone Transaction and the Birds Eye Acquisition is derived from our business operating plans at that time and is therefore susceptible to an adverse change that could require an impairment charge. We incurred an impairment charge of $0.5 million related to our Bernstein’s tradename in the fiscal year ended December 30, 2012. We also incurred impairment charges in both of the fiscal years ended on December 25, 2011 and December 26, 2010, the amounts of which are discussed in greater detail in Note 7 to our audited consolidated financial statements included elsewhere in this prospectus.

 

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Seasonality

Our sales and cash flows are affected by seasonal cyclicality. Sales of frozen foods, including frozen vegetables and frozen complete bagged meals, tend to be marginally higher during the winter months. Seafood sales peak during Lent, in advance of the Easter holiday. Sales of pickles, relishes, barbecue sauces, potato chips and salad dressings tend to be higher in the spring and summer months, and demand for Duncan Hines products, Birds Eye vegetables and our pie and pastry fruit fillings tend to be higher around the Easter, Thanksgiving, and Christmas holidays. Since many of the raw materials we process under the Birds Eye, Vlasic, Comstock and Wilderness brands are agricultural crops, production of these products is predominantly seasonal, occurring during and immediately following the purchase of such crops. We also increase our Duncan Hines inventories in advance of the peak fall selling season. As a result, our inventory levels tend to be higher during August, September, and October, and thus we require more working capital during these months. We are a seasonal net user of cash in the third quarter of the calendar year.

Restructuring Charges

From time to time, we voluntarily undertake consolidation and restructuring activities in order to optimize our manufacturing footprint, reduce our supply chain costs and increase organizational effectiveness.

Pickle supply chain improvements

On May 25, 2012, we announced plans to further improve the efficiency of our supply chain by consolidating our Vlasic pickle production into one plant in Imlay City, Michigan. Our decision to focus on our branded Vlasic business and de-emphasize our lower-margin, un-branded pickle business was the catalyst for this consolidation.

Millsboro, Delaware plant closure related charges

Our pickle production plant, located in Millsboro, Delaware, ended production at year-end fiscal 2012. We recorded employee termination costs of $1.7 million in the fiscal year ended December 30, 2012. We recorded asset retirement obligation charges of $0.8 million in fiscal 2012. In addition, we recorded accelerated depreciation charges of $16.5 million in fiscal 2012. All restructuring charges related to the consolidation of our pickle production are recorded in the Duncan Hines Grocery segment and in the Cost of products sold line in the Consolidated Statements of Operations.

Exit lower-margin un-branded business charge

As a result of exiting the lower-margin un-branded pickle business, we terminated the use of a third party ingredients storage facility. In doing so, we recorded contract termination and other fees of $6.5 million in the fiscal year ended December 30, 2012. In addition, we recorded accelerated depreciation charges at our Imlay City, Michigan plant for assets used in the lower-margin un-branded pickle business. These charges were $1.6 million in fiscal 2012. All restructuring charges related to exiting the lower-margin un-branded pickle business are recorded in the Specialty Foods segment and in the Cost of products sold line in the Consolidated Statements of Operations.

Green Bay, Wisconsin Research Facility

On May 15, 2012, we announced plans to relocate the Birds Eye research and development (“R&D”) team from Green Bay, Wisconsin to our new facility at our Parsippany, New Jersey headquarters. We believe that the relocation will allow for seamless collaboration between marketing, sales, procurement and R&D that will drive superior brand innovation, marketing and productivity. We closed our Green Bay, Wisconsin research facility in December 2012. We recorded employee termination costs of $1.0 million in the fiscal year ended December 30,

 

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2012. We recorded facility shutdown costs of $1.0 million in the fiscal year ended December 30, 2012. In addition, we recorded accelerated depreciation charges of $0.9 million in the fiscal year ended December 30, 2012. All restructuring charges related to the closure of the Green Bay, Wisconsin research facility are recorded in the Birds Eye Frozen segment and in the Research and development line in the Consolidated Statements of Operations.

Rochester, New York Office

The Rochester, New York office was the former headquarters of Birds Eye. In connection with the consolidation of activities into our New Jersey offices, the Rochester office was closed in December 2010. Notification letters under the Worker Adjustment and Retraining Notification Act of 1988 were issued in the first quarter of 2010. Activities related to the closure of the Rochester office began in the second quarter of 2010 and resulted in the elimination of approximately 200 positions. In addition, we recognized lease termination costs in 2010 due to the discontinuation of use of the Birds Eye’s corporate headquarters.

The total cost of termination benefits recorded for the fiscal year ended December 26, 2010 was $11.4 million and was recorded in the segments as follows: $8.0 million in the Birds Eye Frozen Division, $2.1 million in the Duncan Hines Grocery Division and $1.3 million in the Specialty Foods Division.

In addition to the termination benefits, we recorded net lease termination costs of $1.2 million for the fiscal year ended December 26, 2010 related to vacating Birds Eye’s corporate headquarters prior to the expiration of its lease.

Tacoma, Washington Plant

On December 3, 2010, in an effort to improve our supply chain operations, we announced the closure of the Tacoma, Washington plant and the consolidation of production into our Ft. Madison, Iowa plant. We recorded termination costs of $1.5 million in the fiscal year ended December 26, 2010. In addition to termination benefits, we recorded asset retirement obligations of $1.0 million at Tacoma in the fiscal year ended December 26, 2010, which were capitalized and depreciated over the remaining useful life of the plant. In the fiscal year ended December 25, 2011, we recorded additional asset retirement obligation expenses of $0.5 million, which were expensed immediately. We recorded asset impairment charges of $1.3 million in the fiscal year ended December 25, 2011, upon ceasing use of the facility at the end of the second quarter of 2011. We recorded accelerated depreciation costs of $0.3 million and $4.8 million in the fiscal years ended December 30, 2012 and December 25, 2011, respectively. All restructuring charges related to the closure of the Tacoma, Washington plant are recorded in the Duncan Hines Grocery segment and in the Cost of products sold line in the Consolidated Statements of Operations. Severance payments were substantially completed in the second quarter of fiscal 2012.

Fulton, New York Plant

On April 15, 2011, we announced plans to consolidate the Birds Eye Frozen segment’s Fulton, New York plant operations into our Darien, Wisconsin and Waseca, Minnesota facilities in order to locate vegetable processing closer to the crop-growing region and thus reduce the related freight costs. In connection with this project, we made significant capital investments in our Darien, Wisconsin and Waseca, Minnesota plants. We recorded termination costs of $1.7 million in the fiscal year ended December 25, 2011. In addition, we recorded accelerated depreciation costs of $2.6 million and $9.3 million in the fiscal years ended December 30, 2012 and December 25, 2011, respectively. All restructuring charges related to the closure of the Fulton, New York plant are recorded in the Birds Eye Frozen segment and in the Cost of products sold line on the Consolidated Statement of Operations. Severance payments were substantially completed in the third quarter of 2012. The Fulton facility was sold in January 2013.

 

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Impairment of Goodwill and Other Long-Lived Assets

In fiscal 2012, as a result of reassessing long-term sales projections, we recognized an impairment of $0.5 million on the Bernstein’s tradename. This charge is recorded in Other expense (income), net in the Consolidated Statements of Operations and is reported in the Duncan Hines Grocery Division.

In fiscal year 2011, we recognized goodwill impairments totaling $122.9 million in our frozen breakfast, private label, and foodservice reporting units. This impairment represents approximately 8% of our consolidated goodwill balance. The impairment of $51.7 million in our frozen breakfast reporting unit was driven by our strategic decision during the fourth quarter to discontinue substantial portions of our low margin products on a prospective basis and the aggressive re-entry of a key competitor. This impairment is reported in the Birds Eye Frozen Division. The impairments of $49.7 million and $21.5 million in our private label and foodservice reporting units, respectively, were driven by the loss of a large customer account during the fourth quarter, our strategic decision to discontinue various lower margin products, as well as compressed operating margins resulting from higher ingredient costs. These impairments are reported in the Specialty Foods Division. All goodwill impairments are recorded in the Goodwill impairment charge line in the Consolidated Statements of Operations. We also recognized an impairment of $23.7 million on the Aunt Jemima tradename, and charges of $1.2 million on other tradenames, which are reported in the Birds Eye Frozen Division and an impairment of $0.4 million on the Bernstein’s tradename that is reported in the Duncan Hines Grocery Division. These impairments are the result of our reassessing the long-term sales projections for the underlying products, which we decreased during our 2011 strategic planning cycle in the fourth quarter as a result of a strategic decision to exit certain products. The charges for tradename impairment are recorded in Other expense (income), net in the Consolidated Statements of Operations.

In fiscal 2010, we experienced declines in sales of our Hungry-Man branded products. Upon reassessing the long-term growth rates at the end of 2010, we recorded an impairment of the tradename asset in the amount of $29.0 million. The charge is recorded in Other expense (income), net in the Consolidated Statements of Operations and is reported in the Birds Eye Frozen segment.

Items Affecting Comparability

During fiscal 2012, our earnings before interest and taxes were impacted by certain items. These items included:

 

   

We recorded restructuring charges totaling $32.0 million related to the closure of manufacturing facilities in Millsboro, Delaware ($26.3 million), Fulton, New York ($2.6 million) and Tacoma, Washington ($0.3 million), and the Green Bay, Wisconsin research facility ($2.8 million). Restructuring charges include severance, depreciation and facility closure costs which are explained in greater detail in Note 8 to the audited consolidated financial statements included elsewhere in this prospectus. In addition, we recorded $8.0 million of restructuring related expenses, which include plant enhancement expenses, removal and transfer of equipment and consulting and engineering costs for restructuring projects. These costs are primarily recorded in Cost of products sold in the Consolidated Statements of Operations.

 

   

We recorded charges, net of insurance recoveries, of $2.1 million, related to the voluntary recall for certain Aunt Jemima frozen pancakes due to potential cross contamination with soy protein which may cause an allergic reaction in people who have a soy allergy. This is explained in greater detail in Note 12 to the audited consolidated financial statements included elsewhere in this prospectus. The charges are primarily recorded as a reduction of Net Sales in the Consolidated Statements of Operations.

 

   

We recorded a redemption premium of $14.3 million related to the early extinguishment of our debt. This is explained in greater detail in Note 5 to the audited consolidated financial statements included elsewhere in this prospectus and is recorded in Other expense (income), net in the Consolidated Statements of Operations.

 

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As described above, during fiscal 2012, we recognized a trade name impairment of $0.5 million which is recorded in Other expense (income), net in the Consolidated Statements of Operations.

During the year ended December 30, 2012, our net earnings were impacted by certain items, which included the following:

 

   

Our refinancings resulted in the recognition of approximately $17.4 million of charges to interest expense during fiscal 2012. See Note 9 to the audited consolidated financial statements included elsewhere in this prospectus for further details.

During fiscal 2011, our earnings before interest and taxes were impacted by certain items. These items included:

 

   

As described above, during 2011, we recognized $122.9 million of goodwill impairment and $25.3 million of trade name impairment totaling $148.2 million. These charges are recorded in Goodwill impairment charge and in Other expense (income), net in the Consolidated Statements of Operations.

 

   

We recorded costs of $11.0 million and $6.6 million, respectively, related to the closure of the Fulton, New York and Tacoma, Washington plants. These costs are recorded in Cost of products sold in the Consolidated Statements of Operations.

 

   

In June 2010, LBSF initiated a claim against us in LBSF’s bankruptcy proceeding related to certain derivative contracts which we had earlier terminated due to LBSF’s default as a result of its bankruptcy filing in 2008. In May 2011, we and LBSF agreed in principle to a settlement of LBSF’s claim. Under the terms of the settlement, we made a payment of $8.5 million during the third quarter of 2011 in return for LBSF’s full release of its claim. This charge is recorded in Other expense (income), net in the Consolidated Statements of Operations.

 

   

We recorded expenses of $1.1 million related to the voluntary recall of certain Aunt Jemima frozen pancakes due to potential cross contamination with soy protein which may cause an allergic reaction in people who have a soy allergy. This is explained in greater detail in Note 12 to the audited consolidated financial statements included elsewhere in this prospectus.

During the year ended December 25, 2011, our net loss was impacted by certain items. These items included:

 

   

As described above, during 2011, we recognized goodwill and trade name impairments totaling $148.2 million. Of these impairments, $100.2 million are not deductible for income tax purposes. Therefore, we realized a very high effective tax rate of (89.1%) during 2011.

During fiscal 2010, our earnings before interest and taxes were impacted by certain items. These items included:

 

   

In accordance with the requirements of the acquisition 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 was $37.6 million higher than historical manufacturing cost. Cost of products sold for the year ended December 26, 2010 includes pre-tax charges of $37.1 million related to the finished products at December 23, 2009 which were subsequently sold. Cost of products sold for the year ended December 27, 2009, includes pre-tax charges of $0.5 million related to the finished products at December 23, 2009, which were subsequently sold.

 

   

In December 2010, we recorded an impairment charge of $29.0 million for our Hungry-Man tradename. The charge is the result of our reassessment of the long-term growth rates for our Hungry-Man branded products and is recorded in Other expense (income), net in the Consolidated Statements of Operations.

 

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We recorded costs of $12.6 million related to the closure of the former headquarters of Birds Eye in Rochester, New York. These costs are recorded in Administrative expenses in the Consolidated Statements of Operations.

 

   

In December 2010, we announced the planned closure of our Tacoma, Washington plant. The full cost of termination benefits of employees that was recorded in the fourth quarter of 2010 was $1.5 million and was paid in the first half of 2011. In addition to termination benefits, we revised the estimated useful lives of the Tacoma plant assets and therefore incurred accelerated depreciation of $0.7 million in the fourth quarter of 2010.

During the year ended December 26, 2010, our net earnings were impacted by certain items. These items included:

 

   

In connection with the refinancing of our Tranche C term loans, we wrote off approximately $17.2 million of original issue costs and discounts. In addition, we incurred approximately $3.2 million of costs related to the issuance of our Tranche D term loans, which were considered to be loan modification costs under the accounting guidance and therefore were expensed. All of these charges are recorded in Interest expense, net in the Consolidated Financial Statements.

 

   

We recorded an out-of-period adjustment to correct an error in the tax effects of Accumulated other comprehensive loss as of December 27, 2009. During the twelve months ended December, 26, 2010, this adjustment reduced the provision for income taxes by $3.7 million. Accordingly, Accumulated other comprehensive loss was increased by the related effect of this adjustment during the twelve months ended December 26, 2010.

Results of Operations:

Consolidated Statements of Operations

The following tables set forth our statement of operations data expressed in dollars and as a percentage of net sales for the fiscal years ended December 30, 2012, December 25, 2011 and December 26, 2010.

 

     Fiscal year ended  
     December 30,
2012
    December 25,
2011
    December 26,
2010
 
     (53 weeks)     (52 weeks)     (52 weeks)  

Net sales

   $ 2,478.5         100.0   $ 2,469.6         100.0   $ 2,436.7         100.0

Cost of products sold

     1,893.9         76.4     1,854.7         75.1     1,834.4         75.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     584.6         23.6     614.9         24.9     602.3         24.7

Operating expenses:

               

Marketing and selling expenses

   $ 169.7         6.8   $ 171.6         6.9   $ 172.3         7.1

Administrative expenses

     89.4         3.6     80.5         3.3     110.0         4.5

Research and development expenses

     12.0         0.5     8.0         0.3     9.4         0.4

Goodwill impairment charge

     —           —          122.9         5.0     —           —     

Other expense (income), net

     29.8         1.2     48.6         2.0     45.5         1.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

   $ 301.0         12.1   $ 431.6         17.5   $ 337.2         13.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Earnings before interest and taxes

   $ 283.7         11.4   $ 183.3         7.4   $ 265.1         10.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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     Fiscal year  
     December 30,
2012
    December 25,
2011
    December 26,
2010
 

Net sales

     (53 weeks     (52 weeks     (52 weeks

Birds Eye Frozen

   $ 1,103.1      $ 1,100.8      $ 1,065.9   

Duncan Hines Grocery

     978.6        966.1        958.0   

Specialty Foods

     396.8        402.7        412.8   
  

 

 

   

 

 

   

 

 

 

Total

   $ 2,478.5      $ 2,469.6      $ 2,436.7   
  

 

 

   

 

 

   

 

 

 

Earnings (loss) before interest and taxes

      

Birds Eye Frozen

   $ 178.2      $ 97.2      $ 114.5   

Duncan Hines Grocery

     120.7        157.3        158.8   

Specialty Foods

     23.5        (40.3     27.1   

Unallocated corporate expenses

     (38.8     (30.9     (35.2
  

 

 

   

 

 

   

 

 

 

Total

   $ 283.6      $ 183.3      $ 265.2   
  

 

 

   

 

 

   

 

 

 

Depreciation and amortization

      

Birds Eye Frozen

   $ 38.7      $ 42.1      $ 34.1   

Duncan Hines Grocery

     41.4        29.3        24.2   

Specialty Foods

     18.1        17.1        19.7   
  

 

 

   

 

 

   

 

 

 

Total

   $ 98.1      $ 88.5      $ 78.0   
  

 

 

   

 

 

   

 

 

 

The following table sets forth (i) adjustments by operating segment made to Earnings (loss) before interest and taxes per operating segment as used in the calculation of Adjusted EBITDA as described below under “—Covenant Compliance—Adjusted EBITDA” and (ii) certain accelerated depreciation charges recorded in fiscal 2012, fiscal 2011 and fiscal 2010 as further described above under “—Restructuring Charges.”

 

     Fiscal year  
     December 30,
2012
    December 25,
2011
    December 26,
2010
 

Adjustments to Earnings (loss) before interest and taxes

     (53 weeks     (52 weeks     (52 weeks

Birds Eye Frozen

   $ 11.2      $ 86.7      $ 59.7   

Duncan Hines Grocery

     10.4        10.6        32.8   

Specialty Foods

     7.0        72.2        10.7   

Unallocated corporate expenses

     15.8        8.5        0.7   

Accelerated depreciation charges

      

Birds Eye Frozen

   $ 3.4      $ 9.3      $ —     

Duncan Hines Grocery

     16.8        4.8        0.7   

Specialty Foods

     1.6        —          —     

Fiscal year ended December 30, 2012 compared to the fiscal year ended December 25, 2011

Net sales

Net sales were $2.48 billion for the fiscal year ended December 30, 2012, an increase of 0.4% compared to net sales of $2.47 billion in the comparable prior-year period. This performance reflected higher net pricing of 1.6%, stemming from pricing actions that were previously initiated, which were more than offset by a 2.3% decline from volume/mix. Also impacting fiscal 2012 performance was a 1.1% increase in net sales resulting from the 2012 fiscal year being a fifty-three week year compared to the fifty-two weeks in the 2011 fiscal year.

Net sales in our North American Retail businesses increased 0.7% from the prior year, reflecting increases in Birds Eye Steamfresh vegetables, seafood, Hungry Man frozen meals, Lender’s bagels, Duncan Hines products and Armour canned meats which were offset by lower sales in Vlasic pickles, Aunt Jemima frozen breakfast products and Celeste pizza. The overall food industry continues to face top line challenges, with overall volume softness and a more challenging environment to fully pass on price increases due to weak consumer demand.

 

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Partially offsetting these factors was the benefit of innovative new products launched during fiscal 2012, such as Duncan Hines Frosting Creations and Vlasic Farmer’s Garden shelf stable artisan-style pickles. Despite the challenging consumer environment, we held or grew market share, as previously defined, on brands representing approximately 64% of our product contribution.

Birds Eye Frozen Division:

Net sales in the fifty-three week fiscal year ended December 30, 2012 were $1,103.1 million, an increase of $2.3 million, or 0.2% from the prior year, reflecting higher net pricing of 1.7%, partially offset by a 1.3% decrease from volume/mix. The Aunt Jemima product recall also reduced sales by 0.2% for the year. Higher sales of Birds Eye Steamfresh vegetables, Hungry Man frozen meals and Lender’s bagels, as well as increased Mrs Paul’s and Van de Kamp’s seafood sales, were offset by lower sales in our Aunt Jemima breakfast products and Celeste pizza.

Duncan Hines Grocery Division:

Net sales in the fifty-three week fiscal year ended December 30, 2012 were $978.6 million, an increase of $12.5 million, or 1.3% from the prior year, reflecting higher net pricing of 1.5%, partially offset by a 0.1% decrease from volume/mix and a 0.1% decrease from foreign exchange. During the year we realized strong sales from our Duncan Hines brand driven by the launch of our new Frosting Creations products. Also positively impacting net sales for the year was expanded distribution of Armour canned meats. These increases were offset by lower sales in our Vlasic and syrup brands. Vlasic was negatively impacted by introductory new distribution costs for its new Farmers Garden artisan-style pickles, which have been well received in the market place.

Specialty Foods Division:

Net sales in the fifty-three week fiscal year ended December 30, 2012 were $396.8 million, a decline of $6.0 million, or 1.5%, from the prior year. The decrease is primarily attributable to lower sales in our Private Label business as we de-emphasized lower margin un-branded products and the exit from the lower-margin un-branded foodservice pickle business during fiscal 2012. The decline reflected a 1.9% increase from higher net pricing, which was more than offset by a 3.4% decrease from volume/mix.

Gross profit

Gross profit for the year ended December 30, 2012 was $584.6 million, or 23.6% of net sales, compared to $614.9 million, or 24.9% of net sales, in the comparable prior-year period. Impacting gross profit in both periods were restructuring charges and restructuring-related expenses. In fiscal 2012 these totaled $37.0 million, comprised of restructuring charges of $30.0 million ($9.0 million in cash and $21.0 million non-cash) and related expenses of $7.0 million. In fiscal 2011, these totaled $25.3 million, comprised of restructuring charges of $17.6 million ($2.2 million in cash and $15.4 million non-cash) and related expenses of $7.7 million. Excluding restructuring charges and related expenses, fiscal 2012 gross profit was $621.6 million, or 25.1% of net sales, compared to $640.2 million, or 25.9% in the prior year, a decrease of 0.8 percentage points. The following table outlines the factors resulting in the decrease in gross profit in fiscal 2012 of $18.6 million, or 0.8% of net sales.

 

     ($ in millions)     % net sales  

Higher net selling prices, net of slotting

   $ 45.2        1.4

Productivity including footprint consolidation savings

     71.0        2.9   

Favorable product mix

     9.1        0.2   

Mark to market gains on financial instruments

     2.9        0.1   

Inflation (principally higher commodity costs)

     (130.6     (5.3

Higher management compensation expense

     (2.2     (0.1

Higher depreciation expense

     (1.1     —     

Lower sales volume

     (12.9     —     
  

 

 

   

 

 

 
   $ (18.6     (0.8 )% 
  

 

 

   

 

 

 

 

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Marketing and selling expenses

Marketing and selling expenses were $169.7 million, or 6.8% of net sales, for the fiscal year ended December 30, 2012, compared to $171.6 million, or 6.9% of net sales, for the fiscal year ended December 25, 2011. During the second half of fiscal 2012, in response to competition in the marketplace, we shifted some planned advertising spending to trade marketing expense. As a result, advertising and other consumer spending in fiscal 2012 declined by $9.6 million but was focused on new product introductions in our Duncan Hines and Birds Eye leadership brands. Also impacting Marketing and selling expenses was $3.9 million of lower management incentive compensation expense in fiscal 2011.

Administrative expenses

Administrative expenses were $89.4 million, or 3.6% of net sales, for the fiscal year ended December 30, 2012, compared to $80.5 million, or 3.3% of net sales, for the comparable prior-year period. This increase was principally due to $4.3 million lower management incentive compensation expense in fiscal 2011. The total impact of lower management incentive compensation expense in fiscal 2011 on all expense lines throughout the Statement of Operations was $10.7 million. Also impacting Administrative expense in fiscal 2012 was higher depreciation expense of $1.5 million in fiscal 2012, principally related to the new Parsippany, New Jersey headquarters and $0.5 million of lease termination costs incurred in fiscal 2012 in connection with the completion of our headquarters office move.

Research and development expenses:

Research and development expenses were $12.0 million, or 0.5% of net sales, for the fiscal year ended December 30, 2012 compared to $8.0 million, or 0.3% of net sales, for the comparable prior-year period. This increase was primarily driven by $3.0 million ($2.1 million cash and $0.9 million non-cash) of one-time expenses in fiscal 2012 related to consolidating research and development activities of our Birds Eye Frozen Division at our Parsippany, New Jersey headquarters. Also impacting Research and development expenses was $0.3 million of lower management incentive compensation expense in fiscal 2011.

Other Income and Expense:

 

     Fiscal year  
     December 30,
2012
    December 25,
2011
 
     (53 weeks)     (52 weeks)  

Other expense (income), net consists of:

    

Amortization of intangibles/other assets

   $ 15.8      $ 16.2   

Tradename impairment charges

     0.5        25.3   

Redemption premium on the early extinguishment of debt

     14.3        —     

Lehman Brothers Specialty Financing settlement

     —          8.5   

Gain on sale of the Watsonville, CA facility

     —          (0.4

Royalty income and other

     (0.8     (1.0
  

 

 

   

 

 

 

Total other expense (income), net

     29.8        48.6   
  

 

 

   

 

 

 

On April 19, 2012, as part of a debt refinancing (the “April 2012 Refinancing”), the Company redeemed all $199.0 million of its outstanding 10.625% Senior Subordinated Notes at a redemption price of 105.313% of the aggregate principal amount. In addition, on June 5, 2012, the Company repurchased and retired $10.0 million of 9.25% Senior Notes at a price of 102.125% of the aggregate principal amount. Also, on September 20, 2012, as part of a debt refinancing (the “September 2012 Refinancing”, and, together with the April 2012 Refinancing, the “2012 Refinancings”), the Company redeemed $150.0 million of 9.25% Senior Notes at a price of 102.313% of the aggregate principal amount. For more information on the 2012 Refinancings see Note 9 to the audited consolidated financial statements included elsewhere in this prospectus.

 

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Earnings before interest and taxes

Earnings before interest and taxes (“EBIT”) was $283.6 million for the fiscal year ended December 30, 2012, an increase of $100.3 million, or 54.7%, from $183.3 million in the comparable prior-year period. The primary drivers of the increase are goodwill and tradename impairment charges of $148.2 million recognized in fiscal year 2011 compared to $0.5 million in fiscal 2012. The increase in fiscal 2012 was partially offset by $14.3 million of charges related to the early extinguishment of debt, increased incentive compensation, increased research and development costs and lower gross profit as described above. Also, the fifty-third week in fiscal 2012 increased EBIT by $5.5 million.

Birds Eye Frozen Division:

EBIT increased $81.0 million, or 83.4%, to $178.2 million for the fiscal year ended December 30, 2012, primarily reflecting goodwill and impairment charges of $76.6 million in 2011. EBIT was also impacted by charges of $8.3 million and $14.0 million in the fiscal years 2012 and 2011, respectively, related to our plant consolidation projects. Fiscal year 2012 was also impacted by significantly higher commodity costs and higher research and development charges resulting from our consolidation activities, which were offset by ongoing productivity programs, higher net selling prices and the $11.0 million savings from the closure of our Fulton, New York plant.

Duncan Hines Grocery Division:

EBIT was $120.7 million, a decline of $36.6 million, or 23.2%, primarily reflecting significantly higher commodity costs, which were only partially offset by productivity improvements and increased net selling prices. Also impacting EBIT were introductory distribution costs related to the second-half 2012 Vlasic Farmers Garden launch. In addition, EBIT was also impacted by charges of $23.6 million and $11.3 million in the fiscal years 2012 and 2011, respectively, related to our Millsboro, Delaware and Tacoma, Washington plant consolidation projects.

Specialty Foods Division:

EBIT increased $63.8 million, or 158.3%, to $23.5 million, primarily reflecting goodwill impairment charges of $71.2 million in 2011. EBIT was also impacted by charges of $8.1 million in fiscal 2012 resulting from the exit of the lower-margin un-branded pickle business, higher commodity costs which were partially offset by productivity improvements and increased net selling prices.

Interest Expense, net

Net interest expense declined 4.7% or $9.7 million from $208.1 million in the fiscal year ended December 25, 2011 to $198.4 million in the fiscal year ended December 30, 2012. Included in net interest expense in both periods were charges associated with our 2012 Refinancings and certain interest rate swap activity that was de-designated for swap accounting in 2008. These items, which total $17.9 million in fiscal 2012 and $2.1 million in fiscal 2011, are discussed below.

On April 17, 2012 we entered into an amended and restated credit agreement, which provided for the extension of certain of our Tranche B Term Loans and our Revolving Credit facility, the repayment of our Tranche D term loans and the issuance of new Tranche E term loans. In connection with this refinancing, we also redeemed all of our outstanding 10.625% Senior Subordinated Notes. This refinancing resulted in the recognition of approximately $14.8 million of charges to interest expense during fiscal 2012. The charges recognized consisted of $7.3 million of write downs of existing deferred financing costs as well as $7.5 million of new costs incurred in connection with the transaction that were recorded directly to interest expense.

 

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On August 30, 2012, the Company entered into the first amendment to the amended and restated credit agreement, which provided for the issuance of new Tranche F term loans. In connection with this refinancing, on September 20, 2012, we also redeemed $150 million aggregate principal of our 9.25% senior notes. This refinancing resulted in the recognition of approximately $2.6 million of charges to interest expense during the third quarter for write downs of existing deferred financing costs.

Included in net interest expense was $0.4 million and $2.1 million for the fiscal years ended December 30, 2012 and December 25, 2011, respectively, related to the amortization of the cumulative mark-to-market adjustment for an interest rate swap that was de-designated for swap accounting in the fourth quarter of 2008 and subsequently terminated. The counterparty to the interest rate swap was Lehman Brothers Special Financing (“LBSF”), a subsidiary of Lehman Brothers, and the hedge was de-designated for swap accounting at the time of LBSF’s bankruptcy filing. At that time of de-designation, the cumulative mark to market adjustment was $11.5 million. As of December 30, 2012, the balance was fully amortized.

Excluding the impact of the aforementioned charges on net interest expense in both periods, the net decrease in interest expense was $25.5 million, of which $13.5 million was due to the pay down of our term loans and notes, $13.3 million was due to lower payments on interest rate swap agreements and $2.6 million was due to lower amortization of deferred financing costs. Partially offsetting these interest savings were a $2.8 million increase resulting from the additional fifty-third week in the 2012 fiscal year as compared to the fifty-two weeks in the 2011 fiscal year and a $0.7 million increase due to higher weighted average interest rates on our term loans.

We utilize interest rate swap agreements to reduce the potential exposure to interest rate movements and to achieve a desired proportion of variable versus fixed rate debt. Any gains or losses realized on the interest rate swap agreements, excluding the Accumulated other comprehensive (loss) earnings (“AOCL”) portion, are recorded as an adjustment to interest expense. Included in net interest expense was $10.1 million and $23.4 million for the fiscal years 2012 and 2011, respectively, recorded from losses on interest rate swap agreements, resulting in $13.3 million lower payments on interest rate swap agreements.

Provision (benefit) for income taxes

Our effective tax rate was 38.4% for the fiscal year ended December 30, 2012 compared to (89.1%) for the fiscal year ended December 25, 2011. The effective rate difference was principally due to the $100.2 million portion of the $122.9 million goodwill impairment in December 2011 for which no tax benefit was recognized. Additionally, in the prior year, a benefit of $3.0 million was recorded as a result of evaluating new information affecting the measurement of certain unrecognized tax positions.

Under Section 382 of the Code, the Company is a loss corporation. Section 382 of the Code places limitations on our ability to use certain Net Operating Loss Carryover (NOLCs) to offset income. The annual NOLCs limitation on the portion subject to Section 382 is approximately $17.0 million to $23.0 million, subject to other rules and restrictions. Our NOLCs and certain other tax attributes generated prior to December 23, 2009 may not be utilized to offset Birds Eye income from recognized built in gains through December 2014 pursuant to Section 384 of the Code. See Note 15 to the audited consolidated financial statements included elsewhere in this prospectus. Approximately $225 million of the NOLCs are not subject to Section 382 limitations.

Fiscal year ended December 25, 2011 compared to fiscal year ended December 26, 2010

Net sales

Net sales were $2.47 billion for the fiscal year ended December 25, 2011 compared to $2.44 billion in the comparable prior year period, a 1.3% increase. Net sales in our North American Retail businesses were up 2.5%, excluding the $11.5 million impact of the exited Birds Eye Steamfresh meals and U.S. Swanson meals businesses. Our new product introductions contributed a 2.5% increase in our sales volume. We have increased

 

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our published selling prices across our portfolio to help offset inflation and have experienced sequential improvement in price realization throughout the year. Net pricing actions increased net sales by 2.0% in 2011 and foreign exchange increased net sales by 0.1%, while lower volumes and product mix reduced sales by approximately 0.8%. During 2011, we grew or held market share in brands representing approximately 50% of our product contribution.

Birds Eye Frozen Division:

Net sales in the fiscal year ended December 25, 2011 were $1,100.8 million, an increase of $34.8 million, or 3.3%, from the prior year. Sales for the period were impacted by this year’s significant investment in new product launches, which has led to strong gains in sales of our Birds Eye Steamfresh vegetables and Birds Eye Voila! complete bagged meals. We introduced several new products during 2011, including Birds Eye Steamfresh, Chef’s Favorites restaurant style vegetable blends, new varieties of Birds Eye Steamfresh vegetables, new varieties of Birds Eye Voila! complete bagged meals, new varieties of Mrs. Paul’s and Van de Kamp’s seafood products, and new varieties of Hungry-Man frozen dinners. Celeste sales also increased 22% as a result of strong market share gains and additional distribution at key customers. Mrs. Paul’s and Van de Kamp’s sales increased as a result of strong sales during Lent. The increases were offset, primarily by lower sales in our Aunt Jemima frozen breakfast products as a result of increased competition in 2011 and the elimination of sales from our exited Steamfresh meals business. Net pricing actions increased net sales for the division by 1.2% in 2011 and volume and product mix increased net sales by approximately 2.1%.

Duncan Hines Grocery Division:

Net sales in the fiscal year ended December 25, 2011 were $966.1 million, an increase of $8.1 million, or 0.8%, from the prior year. During the period, we realized strong sales in our Canadian business, where we introduced Swanson Skillet meals during the first quarter. In addition, sales of our Armour canned meat, Nalley’s chili and Log Cabin brand increased significantly from the prior year. Offsetting these increases were lower sales in our Vlasic and Open Pit brands. Duncan Hines sales gained considerable momentum during the second half of the year following an extensive advertising campaign for our premium line started during the second quarter. We introduced several new products during the year, including Log Cabin all natural pancake mix and Vlasic Farmers Garden refrigerated artisan-style pickles. Net pricing actions increased net sales for the division by 4.0% in 2011 and foreign exchange increased net sales by 0.2%, while volume and product mix reduced sales by approximately 3.4%.

Specialty Foods Division:

Net sales in the fiscal year ended December 25, 2011 were $402.7 million, a decrease of $10.1 million, or 2.4% from the prior year. The decrease is primarily attributable to lower sales in our foodservice business as we exited lower margin un-branded businesses and emphasized higher margin branded products. The decline was partially offset by higher selling prices and increased sales in our snacks business. During 2011, volume and product mix reduced net sales for the division by approximately 2.2%. Net pricing declined by approximately 0.2%.

Gross profit

Gross profit for the fiscal year ended December 25, 2011 was $614.9 million, or 24.9%, of net sales, compared to $602.3 million, or 24.7%, of net sales during the comparable prior year period. The comparison of gross profit as a percentage of net sales was impacted during the period by a favorable variance resulting from $37.1 million of non-recurring expense recorded during 2010 related to the sale of inventory that was recorded at fair value during the Birds Eye Acquisition. Offsetting this favorable variance were charges of $12.6 million and $8.9 million, respectively, related to the closures of our Fulton, New York and Tacoma, Washington facilities. Each of the plants was closed during 2011 and the transfer of manufacturing activities to our remaining plants

 

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has gone according to our plans. Substantially higher commodity costs net of manufacturing productivity savings decreased gross profit by 2.6% during the period. We have increased our published selling prices across our portfolio in order to help offset inflation and have experienced sequential improvement in realization throughout the fiscal year. As a result, net pricing increased gross profit by 2.6% during 2011. Unfavorable product mix decreased gross profit by 0.4% during 2011. Excluding the restructuring and acquisition charges, gross profit was 25.8% and 26.2% of net sales, respectively, for 2011 and 2010.

Marketing and selling expenses

Marketing and selling expenses were $171.6 million, or 6.9%, of net sales for the fiscal year ended December 25, 2011, compared to $172.3 million, or 7.1%, of sales during the comparable prior year period. During 2011, we increased advertising expenses by $9.4 million as we expanded our investment in direct consumer marketing. We made significant investments in our Birds Eye Steamfresh and Birds Eye Voila! brands, as part of our enhanced brand building efforts and in support of our new product launches during the period. We also supported our Duncan Hines brand with an extensive new advertising campaign for the decadent line. These incremental expenses were more than offset by the overhead synergies achieved from the Birds Eye Acquisition, which reduced other marketing and selling expenses by $10.4 million for the period.

Administrative expenses

Administrative expenses were $80.5 million, or 3.3%, of net sales for the fiscal year ended December 25, 2011, compared to $110.0 million, or 4.5%, of net sales during the comparable prior year period. The decrease in administrative expenses as a percentage of net sales is due to an $8.6 million decrease in incentive compensation expenses during 2011 due to a low bonus payout rate of 20% for 2011, synergies from the Birds Eye Acquisition and charges of $13.1 million in the 2010 period for the termination benefits and integration related expenses and $1.3 million of lease termination costs. Excluding these 2010 charges and expenses and the impact of the 2011 incentive compensation variance, administrative expenses were 3.6% and 3.9% of net sales during 2011 and 2010, respectively.

Goodwill impairment charges

During 2011, we recognized goodwill impairment charges of $122.9 million related to our Frozen Breakfast ($51.7 million), Private Label ($49.7 million) and Foodservice ($21.5 million) reporting units. The impairment charges were primarily driven by lower long term sales projections resulting from a strategic decision to focus on higher margin products and the loss of a key customer within the private label reporting unit. For more information on our impairment charges please refer to the Impairment of Goodwill and Other Long-Lived Assets section above.

Other expense (income), net

Other expense (income), net consists of the following:

 

     Fiscal years ended  

($ in millions)

   December 25,
2011
    December 26,
2010
 

Amortization of intangibles/other assets

   $ 16.2      $ 17.2   

Tradename impairment charges

     25.3        29.0   

Lehman Brothers Specialty Financing settlement

     8.5        —     

Gain on sale of the Watsonville, California facility

     (0.4     —     

Birds Eye Acquisition merger-related costs (1)

     (0.1     0.2   

Royalty income and other

     (0.9     (0.9
  

 

 

   

 

 

 

Total other expense (income), net

   $ 48.6      $ 45.5   
  

 

 

   

 

 

 

 

(1)

See Note 2 to our consolidated financial statements included elsewhere in this prospectus.

 

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During 2011 we recognized tradename impairment charges of $23.7 million related to our Aunt Jemima trade name, and $1.6 million related to other smaller tradenames. The impairments were driven by lower projected sales levels within these brands primarily as a result of our strategic initiatives to focus on higher margin products.

During the second quarter of 2010 LBSF initiated a claim against us in LBSF’s bankruptcy proceeding for an additional payment from us of $19.7 million, related to certain derivative contracts which we had earlier terminated due to LBSF’s default as a result of its bankruptcy filing in 2008. During the second quarter of 2011, we and LBSF agreed in principle to a settlement of LBSF’s second quarter 2010 claim. Under the terms of the settlement, we made a payment of $8.5 million in return for LBSF’s full release of its claim.

On June 24, 2011, we completed the sale of our Watsonville, California facility which had been recorded as an asset held for sale. The proceeds of the sale were $7.9 million and resulted in a $0.4 million gain.

Earnings before interest and taxes

EBIT was $183.3 million for the fiscal year ended December 25, 2011, a decrease of $81.9 million, or 30.9%, from the comparable prior year period. The primary drivers of the decrease are the goodwill and tradename impairment charges of $148.2 million related to our frozen breakfast, private label and food service reporting units and our Aunt Jemima tradename recognized during 2011. The $8.5 million settlement of LBSF’s outstanding claim against us also contributed to the decrease. The decrease was partially offset by higher gross profit as a result of the favorable comparison of $15.6 million described above related to the Birds Eye Acquisition and plant consolidation projects, an impairment charge of $29.0 million recognized during 2010 related to the Hungry-Man trade name, and a $29.5 million decrease in administrative expenses primarily driven by non-recurring costs related to the Birds Eye integration during the prior year, synergies achieved during 2011 and reduced management incentive compensation in 2011. Excluding these items, EBIT increased by $0.9 million, which is primarily driven by improved pricing, partially offset by higher commodity costs.

Birds Eye Frozen Division:

EBIT was $97.2 million for the fiscal year ended December 25, 2011, a decrease of $17.3 million, or 15.1%, from the comparable prior year period. The primary drivers of the decrease were impairment charges of $51.7 million and $24.9 million related to our frozen breakfast reporting unit goodwill and trade names. In addition, we incurred $12.6 million of costs related to the planned closure of our Fulton, New York manufacturing facility. Offsetting these was a favorable variance resulting from $18.3 million of non-recurring expense recorded during 2010 related to the sale of inventory that was recorded at fair value during the Birds Eye Acquisition. In addition, administrative expenses were lower as a result of non-recurring integration costs of $5.3 million that were incurred during the prior year related to the Birds Eye acquisition. Higher commodity costs in 2011, partially offset by increased selling prices and improved manufacturing performance also impacted EBIT for the period.

Duncan Hines Grocery Division:

EBIT was $157.3 million for the fiscal year ended December 25, 2011, a decrease of $1.5 million, or 0.9%, from the comparable prior year period. The primary driver of the decrease was $8.9 million of costs related to the closure of our Tacoma, Washington manufacturing facility. This unfavorable variance was offset by improved pricing and manufacturing performance and a favorable variance resulting from $12.0 million of non-recurring expense recorded during 2010 related to the sale of inventory that was recorded at fair value during the Birds Eye Acquisition. Higher commodity costs in 2011, along with higher advertising expenses resulting from our new Duncan Hines advertising campaign also impacted EBIT during the period.

 

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Specialty Foods Division:

Loss before interest and taxes was $40.3 million for the fiscal year ended December 25, 2011, a decrease of $67.4 million, or 248.8%, from the comparable prior year period. The primary driver of the decrease was impairment charges of $71.2 million recorded in our private label and foodservice reporting units. Offsetting this charge was a favorable variance resulting from $7.3 million of non-recurring expense recorded during 2010 related to the sale of inventory that was recorded at fair value during the Birds Eye Acquisition. The remaining decrease was driven by lower net sales, combined with higher commodity costs.

Interest expense, net

Interest expense, net was $208.1 million in the fiscal year ended December 25, 2011, compared to $235.7 million in the fiscal year ended December 26, 2010.

The comparison of interest expense to the prior year period was impacted by our August 2010 refinancing, which resulted in charges of $20.9 million related to the write off of debt issue costs and discounts, loan modification fees and hedge ineffectiveness.

Included in interest expense, net, was $2.1 million and $3.3 million for the fiscal year ended December 25, 2011 and the fiscal year ended December 26, 2010, respectively, for the amortization of the cumulative mark-to-market adjustment for an interest rate swap that was de-designated for swap accounting in the fourth quarter of 2008 and subsequently terminated. The counterparty to the interest rate swap was LBSF, a subsidiary of Lehman Brothers, and the hedge was de-designated for swap accounting at the time of LBSF’s bankruptcy filing. At that time of de-designation, the cumulative mark to market adjustment was $11.5 million. As of December 25, 2011, the remaining unamortized balance is $0.4 million.

Excluding the impact of the items in the previous paragraphs, the net decrease in interest expense was $5.5 million, of which $5.4 million was due to lower term loan debt levels due to payments made in 2010, $2.2 million due to the impact of lower interest rates from the August 2010 refinancing, $2.5 million due to lower amortization of debt issue costs, $2.0 million due to lower interest rates on the Tranche B term loans, offset by increased losses on interest rate swap agreements of $5.7 million and other increases of $0.9 million.

Included in the interest expense, net, amount was $23.4 million and $17.7 million for the fiscal year ended December 25, 2011 and the fiscal year ended December 26, 2010, respectively, recorded from losses on interest rate swap agreements, a net change of $5.7 million. We utilize interest rate swap agreements to reduce the potential exposure to interest rate movements and to achieve a desired proportion of variable versus fixed rate debt. Any gains or losses realized on the interest rate swap agreements, excluding the AOCI portion, are recorded as an adjustment to interest expense.

Provision (benefit) for income taxes

The effective tax rate was (89.1%) for the fiscal year ended December 25, 2011, compared to 25.1% for the fiscal year ended December 26, 2010. The effective rate difference was principally due to the $100.2 million portion of the $122.9 million goodwill impairment for which no tax benefit was recognized. Further, a benefit of $3.9 million was recorded as a result of evaluating new information effecting the measurement of certain unrecognized tax benefits and the settlement of a tax examination, as well as a benefit of $2.6 million reflecting a decrease in our net deferred state taxes as a result of changes to our manufacturing footprint and state legislation enacted during the year. Additionally, the prior year rate was effected due to a $2.2 million benefit to the state effective rate as a result of restructuring arising from the Birds Eye integration and an out of period adjustment of $4.2 million to correct errors related to the reversal of our income tax valuation allowance as of December 27, 2009. Since the out of period adjustment was not material to either the fiscal year 2010 or fiscal year 2009 financial statements, we recorded the adjustment in the financial statement for the year ended December 26, 2010.

 

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Liquidity and Capital Resources

Overview

Our cash flows are seasonal. Typically we are a net user of cash in the third quarter of the calendar year (i.e., the quarter ending in September) and a net generator of cash over the balance of the year.

Our principal liquidity requirements have been, and we expect will be, for working capital and general corporate purposes, including capital expenditures and debt service. Capital expenditures are expected to be approximately $80 to $90 million in 2013, which include approximately $7 million related to our facility restructuring projects. We have historically satisfied our liquidity requirements with internally generated cash flows and availability under our revolving credit facility. We expect that our ability to generate cash from our operations and ability to borrow from our credit facilities should be sufficient to support working capital needs, planned growth and capital expenditures for the next 12 months and for the foreseeable future. We keep an insignificant amount of cash in foreign accounts, primarily related to the operations of our Canadian business. Tax liabilities related to bringing these funds back into the United States would not be significant and have been accrued.

We have never declared or paid dividends to the holders of our common stock, including in the fiscal years 2012, 2011 and 2010. After completion of this offering, we intend to pay a regular quarterly cash dividend of approximately $0.18 per share on our common stock, subject to the discretion of our Board of Directors and our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant. See “Dividend Policy.”

Statements of cash flows for the fiscal year ended December 30, 2012 compared to the fiscal year ended December 25, 2011

Net cash provided by operating activities was $202.9 million for the fiscal year ended December 30, 2012 and was the result of net earnings, excluding non-cash charges and credits, of $216.1 million and a decrease in cash from working capital of $13.1 million. The decrease in cash from working capital was primarily the result of a $22.0 million increase in inventory principally resulting from temporary inventory buildup from our supply chain efficiency initiatives, principally the close down of the Millsboro, Delaware plant, and a $16.3 million decrease in accounts payable driven principally by the timing of production. These were offset by a $9.4 million increase in accrued trade marketing expense driven by higher sales for December of 2012 compared to the previous year as well as increased spending rates driven by increased competitive activity. Also impacting working capital was a decrease of $16.3 million in accounts receivable resulting from the timing of sales within the month of December in 2012 compared to the previous year. The aging profile of accounts receivable has not changed significantly from December 25, 2011. All other working capital accounts generated a net $0.4 million cash outflow.

Net cash provided by operating activities was $204.2 million for the fiscal year ended December 25, 2011 and was the result of net earnings, excluding non-cash charges and credits, of $215.5 million and an increase in working capital of $11.3 million. The increase in working capital was primarily the result of a $23.5 million decrease in accrued liabilities driven by lower incentive compensation and interest accruals, a $12.1 million decrease in accrued trade marketing expense driven by lower trade spending rates in December and a faster rate of settlement on deductions, and an $11.0 million increase in accounts receivable driven by the timing of sales as well as higher selling prices. The aging profile of accounts receivable did not change significantly from December 2010. These were offset by a $38.2 million increase in accounts payable driven by our inventory purchases and the timing of vendor payments. All other working capital accounts had no net effect on cash during the period.

 

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Net cash used in investing activities was $77.7 million for the fiscal year ended December 30, 2012 and was primarily related to capital expenditures. Capital expenditures during fiscal 2012 included approximately $8.6 million of costs related to our facility consolidation projects.

Net cash used in investing activities was $109.4 million for the fiscal year ended December 25, 2011 and consisted of $117.3 million of capital expenditures, offset by $7.9 million of proceeds received for the sale of our Watsonville, CA facility, which had been recorded as an asset held for sale. Capital expenditures during 2011 included approximately $29.0 million of costs related to our plant consolidation projects in Tacoma and Fulton. Although not impacting our cash capital expenditures, we also acquired approximately $11.2 million of assets through capital leases during 2011.

Net cash used by financing activities was impacted by our 2012 Refinancings, which is explained in greater detail in Note 9 to the Consolidated Financial Statements. Net cash used by financing activities for the fiscal year ended December 30, 2012 was $184.1 million and consisted of $632.0 million of term loan repayments, $373.3 million of repurchases of outstanding notes, $17.4 million of debt acquisition costs, $3.5 million of capital lease payments, $0.4 million of notes payable activity, and $0.9 million for repurchases of equity. These outflows were funded by $842.6 million of proceeds from our new Tranche E and F Term loans, with the remainder coming from cash on hand.

Net cash used by financing activities for the fiscal year ended December 25, 2011 was $59.0 million and consisted of $57.5 million of term loan repayments, including a $55.0 million voluntary prepayment of the Tranche D Term Loan made in December 2011, $2.5 million of payments on capital leases, $1.6 million of share repurchases of equity, and $0.7 million of debt acquisition costs. These outflows were partially offset by proceeds from new equity contributions of $0.6 million and other financing activities of $2.7 million.

The net of all activities resulted in a decrease in cash of $58.8 million for the fiscal year ended December 30, 2012, compared to an increase in cash of $35.7 million for the fiscal year ended December 25, 2011.

Statements of Cash Flows for the Fiscal Year Ended December 25, 2011 Compared to the Fiscal Year Ended December 26, 2010

Net cash provided by operating activities was $204.2 million for the fiscal year ended December 25, 2011 and was the result of net earnings, excluding non-cash charges and credits, of $215.5 million and an increase in working capital of $11.3 million. The increase in working capital was primarily the result of a $23.5 million decrease in accrued liabilities driven by lower incentive compensation and interest accruals, a $12.1 million decrease in accrued trade marketing expense driven by lower trade spending rates in December and a faster rate of settlement on deductions, and an $11.0 million increase in accounts receivable driven by the timing of sales as well as higher selling prices. The aging profile of accounts receivable has not changed significantly from December 2010. These were offset by a $38.2 million increase in accounts payable driven by our inventory purchases and the timing of vendor payments. All other working capital accounts had no net effect on cash during the period.

Net cash provided by operating activities was $257.0 million for fiscal 2010, which consisted of net earnings excluding non-cash charges of $166.4 million, and a decrease in working capital of $90.6 million. The decrease in working capital was principally due to a concerted effort to reduce inventories while, at the same time, improving customer service levels. Inventories were reduced by $60.6 million. In addition, accounts receivable declined by $13.0 million in line with lower sales. Working capital also decreased due to a $14.5 million increase in accrued liabilities, principally driven by a $16.1 million increase in accrued interest, caused by the timing of the Birds Eye Acquisition borrowing in 2009.

Net cash used in investing activities was $109.4 million for the fiscal year ended December 25, 2011 and consisted of $117.3 million of capital expenditures, offset by $7.9 million of proceeds received for the sale of our Watsonville, California facility, which had been recorded as an asset held for sale. Capital expenditures during

 

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2011 included approximately $29.0 million of costs related to our plant consolidation projects in Tacoma, Washington and Fulton, New York. Although not impacting our cash capital expenditures, we also acquired approximately $11.2 million of assets through capital leases during 2011. Net cash used in investing activities was $81.3 million for the twelve months ended December 26, 2010 and was related exclusively to capital expenditures.

Net cash used by financing activities for the fiscal year ended December 25, 2011 was $59.0 million and consisted of $57.5 million of term loan repayments, including a $55.0 million voluntary prepayment of the Tranche D Term Loan made in December 2011, $2.5 million of payments on capital leases, $1.6 million of share repurchases, and $0.7 million of debt acquisition costs. These outflows were partially offset by proceeds from new share issuances of $0.6 million and other financing activities of $2.7 million. Net cash used in financing activities was $134.3 million during the year ended December 26, 2010. The usage primarily related to a $27.0 million prepayment of our term loans in accordance with the “Excess Cash Flow” requirements of our senior secured credit facilities, $3.1 million of normally scheduled repayments of the term loans, a $73.0 million voluntary prepayment of the Tranche D Term Loan made in December 2010, $14.3 million in repayments of bank overdrafts, $13.4 million of refinancing costs in connection with the refinancing of the Tranche C Term Loan, and $5.7 million in repayments of our notes payable and capital lease obligations, partially offset by $2.2 million of other activities, net. In August 2010, we refinanced our Tranche C Term Loan by issuing $400 million of 8.25% Senior Notes and executing a new Tranche D Term Loan in the amount of $442.3 million. Except for the refinancing costs referred to above, this refinancing did not impact net cash used in financing activities.

The net of all activities resulted in an increase in cash of $35.7 million for the fiscal year ended December 25, 2011, compared to an increase in cash of $41.4 million or the fiscal year ended December 26, 2010.

Debt

As of December 30, 2012 and December 25, 2011, our long term debt consisted of the following (without giving effect to this offering):

 

($ in millions)

   December 30,
2012
    December 25,
2011
 

Long-term debt

    

Senior Secured Credit Facilities—Tranche B Non-Extended Term Loans due 2014

   $ 243.3      $ 1,196.9   

Senior Secured Credit Facilities—Tranche B Extended Term Loans due 2016

     637.9        —     

Senior Secured Credit Facilities—Tranche D Term Loans due 2014

     —          313.2   

Senior Secured Credit Facilities—Tranche E Term Loans due 2018

     398.0        —     

Senior Secured Credit Facilities—Tranche F Term Loans due 2018

     448.9        —     

9.25% Senior Notes due 2015

     465.0        625.0   

8.25% Senior Notes due 2017

     400.0        400.0   

10.625% Senior Subordinated Notes due 2017

     —          199.0   

Unamortized discount on long term debt

     (7.2     (2.7

Capital lease obligations

     21.0        23.0   
  

 

 

   

 

 

 
     2,606.9        2,754.4   

Less: current portion of long-term obligations

     30.4        15.7   
  

 

 

   

 

 

 

Total long-term debt

   $ 2,576.5      $ 2,738.7   
  

 

 

   

 

 

 

On April 17, 2012 we entered into an amended and restated credit agreement which extended a portion of our Tranche B Term Loans to 2016, allowed us to borrow on new $400 million Tranche E Term Loans and replace our existing revolving credit facility with a new $150 million revolving credit facility. We used proceeds from the Tranche E Term Loans to pay off all of our outstanding balance of $313.2 million aggregate principal amount of Tranche D Term Loans. On April 19, 2012, we redeemed all $199.0 million of our outstanding 10.625% Senior Subordinated Notes using proceeds from the Tranche E Term Loans along with available cash.

 

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On August 30, 2012, we entered into the first amendment to the amended and restated credit agreement which allowed us to borrow on $450 million of Tranche F Term Loans due 2018. The Company used proceeds from the Tranche F Term Loans along with available cash to pay off $300 million of the aggregate principal amount of Tranche B Non Extended Term Loans due 2014 and $150 million of the aggregate principal amount of 9.25% Senior Notes due 2015. For additional details regarding our debt instruments and our April and September 2012 refinancing, please refer to Note 9 “Debt and Interest Expense” to the audited consolidated financial statements included elsewhere in this prospectus.

We meet the service requirements on our debt utilizing cash flow generated from operations. During 2011, we made a voluntary prepayment of $55.0 million on our term loans. In addition to the above facilities, we have a $150.0 million revolving credit facility, which can be used to fund our working capital needs and can also be used to issue up to $50.0 million of letters of credit. There were no borrowings against the revolving credit facility as of December 30, 2012 and December 25, 2011. As of December 30, 2012 and December 25, 2011, we had issued $33.5 million and $33.6 million, respectively, of letters of credit under this facility, leaving $116.5 million and $116.4 million, respectively, of unused capacity under this facility.

The loans under our senior secured credit facilities mature in quarterly 0.25% installments. The aggregate maturities of the Tranche B Non Extended Term Loan outstanding as of December 30, 2012 are $12.5 million in 2013 and $230.8 million in 2014. The aggregate maturities of the Tranche B Extended Term Loan outstanding as of December 30, 2012 are $6.4 million in 2013, $6.4 million in 2014, $6.4 million in 2015 and $618.6 million in 2016. The aggregate maturities of the Tranche E Term Loans outstanding as of December 30, 2012 are $4.0 million in 2013, $4.0 million in 2014, $4.0 million in 2015, $4.0 million in 2016, $5.0 million in 2017 and $377.0 million thereafter. The aggregate maturities of the Tranche F Term Loans outstanding as of December 30, 2012 are $4.5 million in 2013, $4.5 million in 2014, $4.5 million in 2015, $4.5 million in 2016, $5.6 million in 2017 and $425.3 million thereafter.

Under the terms of our senior secured credit facilities, we are required to use 50% of our “Excess Cash Flow” to prepay the Tranche B Non Extended Term Loans, Tranche B Extended Term Loans, Tranche E Term Loans and Tranche F Term Loans. Excess Cash Flow is defined as consolidated net income (as defined), as adjusted 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 principal payments of indebtedness and (5) certain other items defined in the credit agreement governing our senior secured credit facilities. In December 2011, we made a voluntary prepayment on our Tranche D terms loans of $55.0 million. As a result of this prepayment, no payment was due under the Excess Cash Flow requirements of our senior secured credit facilities for the 2011 reporting year. No payment was due under the Excess Cash Flow requirements of our senior secured credit facilities for the fiscal 2012 reporting year. The percentage of cash flow required to be prepaid is dependent on our total leverage ratio and will decrease based on this offering.

As market conditions warrant, we and our subsidiaries, affiliates or significant equity holders (including Blackstone and its affiliates) may from time to time, in our or their sole discretion, purchase, repay, redeem or retire any of our 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.

For additional details regarding our debt instruments, please refer to Note 9 “Debt and Interest Expenses” of the audited consolidated financial statements, included elsewhere in this prospectus.

For a description of the material terms of our debt instruments, please see “Description of Indebtedness.”

We intend to use the net proceeds of this offering to redeem all outstanding amount of our 9.25% Senior Notes due 2015 at a redemption price of 100% and to repay a portion of the Tranche B Non Extended Term Loan. See “Use of Proceeds.”

 

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Covenant Compliance

The following is a discussion of the financial covenants contained in our debt agreements.

Senior Secured Credit Facilities

Our senior secured credit facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to:

 

   

incur additional indebtedness and make guarantees;

 

   

create liens on assets;

 

   

engage in mergers or consolidations;

 

   

sell assets;

 

   

pay dividends and distributions or repurchase our capital stock;

 

   

make investments, loans and advances, including acquisitions; and

 

   

engage in certain transactions with affiliates.

Our senior secured credit facilities also contain certain customary affirmative covenants and events of default.

On April 17, 2012 we amended and restated the credit agreement relating to our senior secured credit facilities as part of an initiative to lower our interest costs by paying off our 10.625% Senior Subordinated Notes and extending the maturity dates for a portion of our senior secured credit facilities. On August 30, 2012, we entered into an amendment to the senior secured credit facilities, which provided for the issuance of new $450 million Tranche F Term Loans, the proceeds of which were used to redeem a portion of our 9.25% Senior Notes and to prepay the initial term loans due April 2, 2014. This is discussed further in Note 9 “Debt and Interest Expense” to the audited consolidated financial statements included elsewhere in this prospectus.

8.25% Senior Notes and 9.25% Senior Notes

Additionally, on April 2, 2007, we issued the 9.25% Senior Notes due 2015 (the “9.25% Senior Notes”). On December 23, 2009, we issued additional 9.25% Senior Notes. On August 17, 2010, we issued the 8.25% Senior Notes due 2017 (together with the 9.25% Senior Notes, the “Senior Notes”). The Senior Notes are general senior unsecured obligations, effectively subordinated in right of payment to all of our existing and future senior secured indebtedness, and guaranteed on a full, unconditional, joint and several basis by our wholly-owned domestic subsidiaries that guarantee our other indebtedness.

The indentures governing the Senior Notes limit our (and most or all of our subsidiaries’) ability to, subject to certain exceptions:

 

   

incur additional debt or issue certain preferred shares;

 

   

pay dividends on or make other distributions in respect of our capital stock or make other restricted payments;

 

   

make certain investments;

 

   

sell certain assets;

 

   

create liens on certain assets to secure debt;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

   

enter into certain transactions with our affiliates; and

 

   

designate our subsidiaries as unrestricted subsidiaries.

 

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Subject to certain exceptions, the indentures governing the Senior Notes permit us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

Adjusted EBITDA

The Company’s metric of Adjusted EBITDA, an operating performance measure, which is used in creating targets for the bonus and equity portions of our compensation plans, is equivalent to Covenant Compliance EBITDA under our debt agreements.

Adjusted EBITDA is defined as net earnings (loss) before interest expense, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude certain non-cash items, extraordinary, unusual or non-recurring items and other adjustment items. The Company’s management utilizes Adjusted EBITDA as an operating performance measure. In addition, we believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financial covenants.

Pursuant to the terms of our senior secured credit facilities, we are required to maintain a ratio of Net First Lien Secured Debt to Adjusted EBITDA of no greater than 5.25 to 1.00. Net First Lien Secured Debt is defined as our aggregate consolidated secured first lien indebtedness, less the aggregate amount of all unrestricted cash and cash equivalents. In addition, under the credit agreement governing our senior secured credit facilities and the indentures governing the Senior Notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to the Senior Secured Leverage Ratio (which is currently the same as the ratio of Net First Lien Secured Debt to Adjusted EBITDA above), in the case of our senior secured credit facilities, or to the ratio of Adjusted EBITDA to fixed charges for the most recently concluded four consecutive fiscal quarters in the case of the Senior Notes. We believe that these covenants are material terms of these agreements and that information about the covenants is material to an investor’s understanding of our financial performance. As of December 30, 2012, we were in compliance with all covenants and other obligations under the credit agreement governing our senior secured credit facilities, and the indentures governing the Senior Notes.

EBITDA and Adjusted EBITDA do not represent net earnings or loss or cash flow from operations as those terms are defined by United States Generally Accepted Accounting Principles (“GAAP”) and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definitions of Adjusted EBITDA in the credit agreement governing our senior secured credit facilities and the indentures governing the Senior Notes allow us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that vary greatly and are difficult to predict. While EBITDA and Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

Our ability to meet the covenants specified above in future periods will depend on events beyond our control, and we cannot assure you that we will meet those ratios. A breach of any of these covenants in the future could result in a default under, or an inability to undertake certain activities in compliance with, the credit agreement governing our senior secured credit facilities and the indentures governing the Senior Notes, at which time the lenders could elect to declare all amounts outstanding under our senior secured credit facilities to be immediately due and payable. Any such acceleration would also result in a default under the indentures governing the Senior Notes.

 

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The following table provides a reconciliation from our net earnings (loss) to EBITDA and Adjusted EBITDA for the fiscal years ended December 26, 2010, December 26, 2011 and December 30, 2012.

 

($ in millions)

   Fiscal year
ended
December 26,
2010
     Fiscal year
ended
December 25,
2011
    Fiscal year
ended

December 30,
2012
 
     (52 weeks)      (52 weeks)     (53 weeks)  

Net earnings (loss)

   $ 22.0       $ (46.9   $ 52.6   

Interest expense, net

     235.7         208.1        198.4   

Income tax expense (benefit)

     7.4         22.1        32.7   

Depreciation and amortization expense

     78.1         88.5        98.1   
  

 

 

    

 

 

   

 

 

 

EBITDA

   $ 343.2       $ 271.8      $ 381.7   
  

 

 

    

 

 

   

 

 

 

Non-cash items (a)

   $ 71.5       $ 152.2      $ 0.1   

Acquisition, merger and other restructuring charges (b)

     27.5         20.3        23.3   

Other adjustment items (c)

     4.7         5.5        21.0   
  

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 446.9       $ 449.7      $ 426.1   
  

 

 

    

 

 

   

 

 

 

 

(a)

Non-cash items are comprised of the following:

 

($ in millions)

  Fiscal year
ended

December 26,
2010
    Fiscal year
ended

December 25,
2011
    Fiscal year
ended

December 30,
2012
 
    (52 weeks)     (52 weeks)     (53 weeks)  

Non-cash compensation charges (1)

  $ 4.7      $ 1.1      $ 0.9   

Unrealized losses (gains) resulting from hedging activities (2)

    0.7        1.6        (1.3

Goodwill impairment charges (3)

    —          122.9        —     

Other impairment charges (4)

    29.0        26.6        0.5   

Effects of adjustments related to the application of purchase accounting (5)

    37.1        —          —     
 

 

 

   

 

 

   

 

 

 

Total non-cash items

  $ 71.5      $ 152.2      $ 0.1   
 

 

 

   

 

 

   

 

 

 

 

  (1)

Represents non-cash compensation charges related to the granting of equity awards.

  (2)

Represents non-cash gains and losses resulting from mark-to-market adjustments of obligations under derivative contracts.

  (3)

For the fiscal year ended December 25, 2011, represents goodwill impairments on the Frozen Breakfast ($51.7 million), Private Label ($49.7 million) and Food Service ($21.5 million) reporting units.

  (4)

For the fiscal year ended December 26, 2010, represents an impairment for the Hungry-Man tradename. For the fiscal year ended December 25, 2011, represents tradename impairments on Aunt Jemima ($23.7 million), Lenders ($1.2 million) and Bernstein’s ($0.4 million), as well as a plant asset impairment on the previously announced closure of the Tacoma, Washington facility ($1.3 million). For the fiscal year ended December 30, 2012, represents tradename impairment of Bernstein’s ($0.5 million).

  (5)

For the fiscal year ended December 26, 2010, represents expense related to the write-up to fair market value of inventories acquired as a result of the Birds Eye Acquisition.

 

(b)

Acquisition, merger and other restructuring charges are comprised of the following:

 

($ in millions)

  Fiscal year
ended
December 26,
2010
    Fiscal year
ended
December 25,
2011
    Fiscal year
ended

December 30,
2012
 
    (52 weeks)     (52 weeks)     (53 weeks)  

Expenses in connection with an acquisition or other merger costs (1)

    $0.9        $8.8        $2.3   

Restructuring charges, integration costs and other business optimization expenses (2)

    25.5        9.5        20.0   

Employee severance and recruiting (3)

    1.1        2.0