Our Food Away From Home segment sells non-dairy powdered creamers,creamers; pickle products,products; Mexican sauces,sauces; refrigerated dressings,dressings; aseptic products and hot cereals to foodservice customers, including restaurant chains and food distribution companies, within the United States and Canada.
Our Industrial and Export segment includes the Company’s co-pack business and non-dairy powdered creamer sales to industrial customers for use in industrial applications, including products for repackaging in portion control packages and for use as ingredients by other food manufacturers; pickles; Mexican sauces; infant feeding products and refrigerated dressings. Export sales are primarily to industrial customers outside of North America.
See Note 2221 to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information related to the Company’s business segments.
We operate our business as Bay Valley Foods, LLC (“Bay Valley”), Sturm and S.T. Foods in the United States and E.D. Smith Foods, Ltd (“E.D. Smith”) in Canada. Bay Valley is a Delaware limited liability company, a wholly owned subsidiary of TreeHouse Foods, Inc. and holds all of the real estate and operating assets related to our business. E.D. Smith, Sturm and S.T. Foods are wholly owned subsidiaries of Bay Valley.
On October 28, 2010,January 10, 2012, the Company acquired all of the outstanding securities of STSF Holdings, Inc. (Holdings) for approximately $180 million in cash (subject to adjustment) plus up to an additional $15 million in cash if S.T. Foods achieved certain earnings targets for the twelve month period ending December 31, 2010.repaid its cross border intercompany loans with its Canadian subsidiary, E.D. Smith. The earnings targets were not met; therefore, no additional payment is required. S.T. Foods, a wholly owned subsidiary of Holdings, has annual net sales of approximately $100repayment totaled $67.7 million and is a manufacturer of private label macaroniincluded both principal and cheese, skillet dinners and other value-added side dishes. The acquisition added additional categories to our product portfolio for the retail grocery channel. The acquisitioninterest. Payment was financed through the Company’swith borrowings under our revolving credit facility.
The loans were fully repaid and canceled at the time of payment. The cash will be held by E.D. Smith in short term investments and we expect to use for general corporate purposes in Canada, including capital projects and acquisitions. The cash relates to foreign earnings that, if repatriated, would result in a tax liability.On October 27, 2010,September 23, 2011, the Company entered into an Amended and Restated Credit Agreement with a group of participating lenders which amended and restated the Credit Agreement dated June 27, 2005 (as amended) that wasAmendment No.1 (“Amendment”) to expire August 31, 2011. The Amended and Restated Credit Agreement provides for an increase in the aggregate commitment under the revolving credit facility from $600 million to $750 million and extends the maturity to October 27, 2015. The interest rate under the Amended and Restated Credit Agreement is(“Credit Agreement”) with Bank of America, N.A., as administrative agent, and the group of other participating lenders. The Amendment, among other things, extends the maturity of the revolving credit facility to September 23, 2016, and adjusts the interest rates. The interest rates under the Credit Agreement are based on the Company’s consolidated leverage ratio, and will beare determined by either LIBOR plus a margin ranging from 1.25%1.00% to 2.05%1.60% or a base rate (as defined in the Amended and Restated Credit Agreement) plus a margin ranging from 0.25%0.00% to 1.05%0.60%. In addition, a facility fee based on our consolidated leverage ratio ranging from 0.25% to 0.45%0.40% is due quarterly on the aggregate commitment under the revolving credit facility. Proceeds fromThe aggregate commitment under the credit facility may be used for working capital and general corporate purposes, including acquisition financing. The credit facility contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a leverage and an interest coverage ratio.
For the year ended December 31, 2010, the Company recorded chargesCredit Agreement remains at $750 million, of $4.2which $345.0 million related to the exit from the retail branded infant feeding business. Costs related to excess inventory are included in the Gross profit line of the Condensed Consolidated Statements of Income. Fixed asset write-downs and severance costs are included in the Other operating expense (income), net line of the Condensed Consolidated Statements of Income.
In connection with the formation of the Company, the Board of Directors of the Company adopted a stockholder rights plan that became effective June 27, 2005. The plan had a term of five years. The stockholder rights plan expired on June 27, 2010 and was not renewed.
On March 2, 2010, the Company acquired Sturm, a private label manufacturer of hot cereal and powdered soft drink mixes that serves retail and foodservice customers in the United States with annual sales of approximately $340 million. The acquisition of Sturm has strengthened the Company’s presence in private label dry grocery categories. The Company paid a cash purchase price of $664.7 million, before adjusting for a $3.3 million working capital adjustment to reduce the purchase price, for 100% of the issued and outstanding
5
Jams and Other Sauces — We produce jams, pie fillingsMexican and other sauces—We produce a wide variety of Mexican and other sauces, including salsa, picante sauce, cheese dip, enchilada sauce, pasta sauces and taco sauce that we sell to supermarkets, mass merchandisers and foodservice customers in the United States and Canada. JamsCanada, as well as to industrial markets. Mexican and other sauces represented 9.1%9.5% of our consolidated net sales in 2010.
Powdered drinks — We produce a variety of powdered drink mixes, principally sugar free products, including lemonade, iced tea, energy, vitamin enhanced and isotonic sports drinks through our recently acquired subsidiary, Sturm. These products are sold primarily to supermarkets and mass merchandisers. Powdered drinks, since the March 2, 2010 acquisition of Sturm, represented 8.5% of our consolidated net sales in 2010.
2011.Hot cereals—We also produce a variety of instant andcook-on-stove hot cereals, including oatmeal, farina and grits in single-serve instant packets and microwaveable bowls through our recently acquired subsidiary, Sturm.bowls. These products are sold primarily to supermarkets and mass merchandisers. Hot cereals since the March 2, 2010 acquisition of Sturm, represented 6.6%7.3% of our consolidated net sales in 2010.
2011.Dry dinners—We produce private label macaroni and cheese, skillet dinners and other value added side dishes. These products are sold to grocery retailers. Dry dinners represented 5.6% of our consolidated net sales in 2011.
Aseptic Productsproducts—We produce aseptic products which includesinclude cheese sauces and puddings. Aseptic products are processed under heat and pressure in a sterile production and packaging environment, creating a product that does not require refrigeration prior to use. These products are sold primarily to foodservice customers in cans and flexible packages. Aseptic products represented 4.9%4.5% of our consolidated net sales in 2010.
2011.Mexican SaucesJams—We produce a wide variety of Mexican sauces, including salsa, picante sauce, cheese dip, enchilada saucejams and taco saucepie fillings that we sellare sold to supermarkets, mass merchandisers and foodservice customers in the United States and Canada, as well as to industrial markets. Mexican saucesCanada. Jams represented 4.1%3.2% of our consolidated net sales in 2010.
Refrigerated Products — We produce refrigerated salad dressings and liquid non-dairy creamer, which are sold to retail and foodservice customers. Refrigerated products represented 1.7% of our consolidated net sales in 2010.
Dry dinners —We produce private label macaroni and cheese, skillet dinners and other value added side dishes through our recently acquired subsidiary S.T. Foods. These products are sold to retail channels. Dry dinners represented 0.9% of our consolidated net sales in 2010 and includes sales from October 28, 2010, the acquisition date of S.T. Foods.
2011.See Note 2221 to the Consolidated Financial Statements for financial information by segment and sales by major products.
Customers and Distribution
We sell our products through various distribution channels, including retail grocery, foodservice distributors and industrial and export, which includes food manufacturers and repackagers of foodservice products. We have an internal sales force that manages customer relationships and oura broker network, which is used for sales to retail and foodservice accounts. Industrial food products are generally sold directly to customers without the use of a broker. Most of our customers including long-standing customers, purchase products from us either by purchase order or pursuant to contracts that generally are terminable at will.
Products are shipped from our production facilities directly to customers, or from warehouse distribution centers, where products are consolidated for shipment to customers if an order includes products manufactured in more than one production facility. We believe this consolidation of products enables us to improve customer service by offering our customers a single order, invoice and shipment.
We sell our products to a diverse customer base, including many of the leading grocery retailers and foodservice operators in the United States and Canada, and a variety of customers that purchase bulk products for industrial food applications. We currently supply more than 250 food retail customers in North America, including 49 of the 50 largest food retailers, and more than 450 foodservice customers, including the 200 largest food distributors and 53 of the 100 largest restaurant chains and the 200 largest food distributors.chains. A relatively limited number of customers account for a large percentage of our consolidated net sales. For the year ended December 31, 2010,2011, our ten
7
products to these high volume customers is very strong. We expect that a significant portion of our net sales will continue to be derived from a small number of customers.customers, consisting primarily of traditional grocery retailers, mass merchandisers and foodservice operators. For the year ended December 31, 2010,2011, our ten largest customers accounted for approximately 52.1% of the Company’s50.2% our consolidated net sales. These customers typically do not enter into written contracts, and the contracts that they do enter into generally are terminable at will. Our customers make purchase decisions based on a combination of price, product quality and customer service performance. If our product sales to one or more of these customers are reduced, this reduction may have a material adverse effect on our business, results of operations and financial condition.
Increases in input costs, such as ingredients, packaging materials and fuel costs, could adversely affect earnings.
The costs of ingredients, as well asraw materials, packaging materials and fuel, have varied widely in recent years and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly. ManyWe experienced increases in costs of themost raw materials, that we use in our products rose to unusually high levels during 2008, including processed vegetables and meats, soybean oil, casein, cheeseingredients, and packaging materials. During 2010 and 2009, certain input costs decreased from the high levels experiencedmaterials in 2008, while other input costs such as metal caps, glass and plastic containers have risen.2011 compared to 2010. In addition, fuel costs, which represent the most important factor affecting utility costs at our production facilities, andas well as our transportation costs, rose to unusually high levelssignificantly in the middle of 2008. Although these costs have recently moderated, we2011. We expect the volatile nature of these costs to continue.
continue with an overall upward trend.We manage the impact of increases in the costs of raw materials, wherever possible, by locking in prices on quantities required to meet our production requirements. In addition, we attempt to offset the effect of such increases by raising prices to our customers. However, changes in the prices of our products may lag behind changes in the costs of our materials. Competitive pressures also may limit our ability to quickly raise prices in response to increased raw materials, packaging and fuel costs. Accordingly, if we are unable to increase our prices to offset increasing raw material, packaging and fuel costs, our operating profits and margins could be materially adversely affected. In addition, in instances of declining input costs, customers may be looking for price reductions in situations where we have locked into purchases at higher costs.
Our private label and regionally branded products may not be able to compete successfully with nationally branded products.
For sales of private label products to retailers, the principal competitive factors are price, product quality and quality of service. For sales of private label products to consumers, the principal competitive factors are price and product quality. In many cases, competitors with nationally branded products have a competitive advantage over private label products primarily due to name recognition. In addition, when branded competitors focus on price and promotion, the environment for private label producers becomes more challenging because the price difference between private label products and branded products can become less significant.
Competition to obtain shelf space for our branded products with retailers is primarily based on the expected or historical performance of our product sales relative to our competitors. The principal competitive factors for sales of our branded products to consumers are brand recognition and loyalty, product quality, promotion and price. Most of our branded competitors have significantly greater resources and brand recognition than we do.
Competitive pressures or other factors could cause us to lose market share, which may require us to lower prices, increase the use of discounting or promotional programs or increase marketing expenditures, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability.
We operate in the highly competitive food industry.
We face competition across our product lines from other companies whichthat have varying abilities to withstand changes in market conditions. Some of our competitors have substantial financial, marketing and
12
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
The Company completed its annual assessment of goodwill and intangible assets as of December 31, 20102011 and did not have any impairments.
For most of 2010,2011, the economy continued to show signs of weakness with continued high unemployment. Theand uncertainty. During the first half of 2011, the Company continuedexperienced significant increases in input costs that occurred at a faster rate than the Company was able to focus its efforts on cost containment,pass along in price increases to customers. This timing disparity was corrected by the end of the third quarter of 2011 when virtually all price increases were in effect. As a result, gross margins were weaker in the first half of the year before recovering in the third quarter. However, while we were able to increase prices, the Company lost volume in the last quarter of the year as compared to the prior year, and incurred higher cucumber crop costs, an unfavorable LIFO inventory adjustment for pickles and a shift in mix as we had higher sales of private label value products and lower sales of higher margin improvementpremium products, resulting in lower revenues and volume retention. Our efforts resultednet income than the Company had expected. Despite the challenges the Company faced in 2011, direct operating income growthincreased 7.2% over the prior year.
The Company had no acquisitions in 2011, however, we continue the pursuit of 39.7%, 24.9% and 23.1% for the years ended December 31, 2010, 2009 and 2008, respectively.
attractive acquisition targets. The acquisition landscape in 2010 when compared to 2009, yielded better opportunities and more attractive acquisition targets. This improved landscapetargets, which resulted in the acquisition of Sturm, for approximately $660 million and S.T. Foods for approximately $180 million. As we integrateDuring 2011, the Company successfully integrated these acquisitions into our operations, the Company expects to continue its pursuit of other attractive acquisition targets.
existing business.The Company’s exposure to foreign exchange rates is primarily limited to the Canadian dollar. For the year 2010,2011, the U.S. dollar was relatively weak versus the Canadian dollar which resulted inCompany had a foreign currency gain of $1.6 million.
$3.5 million due to fluctuations between the U.S. and Canadian currency exchange rates.Recent Developments
On October 28, 2010,January 10, 2012, the Company acquired allrepaid its cross border intercompany loans with its Canadian subsidiary, E.D. Smith. The repayment totaled $67.7 million and included both principal and interest. Payment was financed with borrowings under our revolving credit facility. The loans were fully repaid and canceled at the time of the outstanding securities of STSF Holdings, Inc. (“Holdings”) for approximately $180 million inpayment. The cash (subject to adjustment) plus up to an additional $15 million in cash if S.T. Foods achieved certain earnings targets for the twelve month period ending December 31, 2010. The earnings targets were not met; therefore, no additional payment will be required. S.T. Foods,held by E.D. Smith in short term investments and will be used for general corporate purposes in Canada, including capital projects and acquisitions. The cash relates to foreign earnings, that if repatriated, would result in a wholly owned subsidiary of Holdings, has annual net sales of approximately $100 million and is a manufacturer of private label macaroni and cheese, skillet dinners and other value-added side dishes. The acquisition added additional categories to our product portfolio for the retail grocery channel. The acquisition was financed through the Company’s revolving credit facility.
tax liability.On October 27, 2010,September 23, 2011, the Company entered into an Amended and Restated Credit Agreement with a group of participating lenders which amended and restated the Credit Agreement dated June 27, 2005 (as amended) that wasAmendment No.1 (“Amendment”) to expire August 31, 2011. The Amended and Restated Credit Agreement provides for an increase in the aggregate commitment under the revolving credit facility from $600 million to $750 million and extends the maturity to October 27, 2015. The interest rate under the Amended and Restated Credit Agreement is(“Credit Agreement”) with Bank of America, N.A., as administrative agent, and the
group of other participating lenders. The Amendment, among other things, extends the maturity of the revolving credit facility to September 23, 2016, and adjusts the interest rates. The interest rates under the Credit Agreement are based on the Company’s consolidated leverage ratio, and will beare determined by either LIBOR plus a margin ranging from 1.25%1.00% to 2.05%1.60% or a base rate (as defined in the Amended and Restated Credit Agreement) plus a margin ranging from 0.25%0.00% to 1.05%0.60%. In addition, a facility fee based on our consolidated leverage ratio ranging from 0.25% to 0.45%0.40% is due quarterly on the aggregate commitment under the revolving credit facility. Proceeds fromThe aggregate commitment under the credit facility may be used for working capital and general corporate purposes, including acquisition financing. The credit facility contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a leverage and interest coverage ratio.
For the year ended December 31, 2010, the Company recorded chargesCredit Agreement remains at $750 million, of $4.2which $345.0 million related to the exit of the retail branded infant feeding business. Costs related to excess inventory are included in the Gross profit line of the Condensed Consolidated Statements of Income. Fixed asset write-downs and severance costs are included in the Other operating expense (income), net line of the Condensed Consolidated Statements of Income.
In connection with the formation of the Company, the Board of Directors of the Company adopted a stockholder rights plan that became effective June 27, 2005. The plan had a term of five years. The stockholder rights plan expired on June 27, 2010 and was not renewed.
On March 2, 2010, the Company acquired Sturm Foods, Inc. (“Sturm”), a private label manufacturer of hot cereal and powdered soft drink mixes that serves retail and foodservice customers in the United States
21
Net Sales—Net sales increased 12.8% to $2,050.0 million for the year ended December 31, 2011, compared to $1,817.0 million, for the year ended December 31, 2010. Net sales by segment are shown in the following table: | | | | | | | | | | | | | | | | |
| | | Consolidated Net Sales | |
| | | Year Ended December 31, | | | $ Increase/
(Decrease) | | | % Increase/
(Decrease) | |
| | | 2011 | | | 2010 | | | |
| | | (Dollars in thousands) | |
North American Retail Grocery | | $ | 1,456,213 | | | $ | 1,247,126 | | | $ | 209,087 | | | | 16.8 | % |
Food Away From Home | | | 307,819 | | | | 314,998 | | | | (7,179 | ) | | | (2.3 | ) |
Industrial and Export | | | 285,953 | | | | 254,900 | | | | 31,053 | | | | 12.2 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 2,049,985 | | | $ | 1,817,024 | | | $ | 232,961 | | | | 12.8 | % |
| | | | | | | | | | | | | | | | |
The increase is driven by the acquisitions of Sturm and S.T. Foods in 2010, increases in pricing needed to offset higher input costs, favorable foreign currency exchange rates between the U.S. and Canadian dollar and a favorable product mix.
Cost of Sales—All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs, labor costs, facility and equipment costs, including costs to operate and maintain our warehouses, and costs associated with transporting our finished products from our manufacturing facilities to distribution centers. Cost of sales as a percentage of consolidated net sales increased to 76.9% in 2011 from 76.3% in the prior year. The increase in cost of sales is primarily due to an increase in ingredient and packaging costs, and warehouse start-up costs associated with the consolidation of the Company’s distribution network partially offset by a favorable mix of sales from Sturm and S.T. Foods. The underlying commodity cost of most raw materials and packaging supplies increased in 2011 and was substantially offset by increases in selling prices by the end of the third quarter. However, during the fourth quarter, costs increased due to unfavorable LIFO inventory adjustments, and higher production costs resulting from the reduced volume level.
Operating Costs and Expenses—Operating expenses increased to $285.0 million in 2011 compared to $254.8 million in 2010. The increase in 2011 resulted from the following:
Selling and distribution expenses increased $22.2 million in 2011 compared to 2010. The increase is primarily due to the acquisition of Sturm and S.T. Foods during 2010. Selling and distribution expenses as a percentage of net sales increased to 6.9% from 6.6% in 2010 mainly due to increases in distribution costs partially offset by reduced incentive compensation.
General and administrative expenses decreased $5.3 million in 2011 compared to 2010, which was primarily related to reduced incentive compensation and acquisition costs partially offset by incremental general and administrative costs of Sturm and S.T. Foods and costs related to the ERP systems implementation.
Amortization expense increased $8.1 million in 2011 compared to 2010 due primarily to the addition of intangible assets acquired in the Sturm and S.T. Foods acquisitions and amortization of capitalized ERP system costs.
Other operating expense increased $5.3 million in 2011 compared to 2010. Expense in 2011 relates to facility closings, primarily the closing of the Springfield, Missouri pickle plant. Operating expense in 2010 primarily relates to costs associated with the exit from the branded baby food business partially offset by the gain on a postretirement plan curtailment at our Dixon facility.
Interest expense in 2011 was $53.0 million, an increase of $7.3 million from 2010 primarily due to an increase in debt resulting from the Sturm and S.T. Foods acquisitions and higher borrowing costs offset by the expiration of an interest rate swap contract that had locked in a portion of our floating rate debt at a higher fixed interest rate.
The impact of changes in foreign currency resulted in a gain of $3.5 million in 2011, versus a gain in 2010 of $1.6 million, due to fluctuations in currency exchange rates between the U.S. and Canadian dollar.
Other (income) expense was a gain of $1.0 million in 2011 versus a gain of $4.0 million in 2010. The decrease is primarily related to the gain associated with the mark to market adjustment of our interest rate swap agreement, totaling $4.0 million in 2010.
Income Taxes—Income tax expense was recorded at an effective rate of 32.5% for 2011 compared to 33.3% for 2010.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010—Results by Segment
North American Retail Grocery
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | Dollars | | | Percent | | | Dollars | | | Percent | |
| | | (Dollars in thousands) | |
Net sales | | $ | 1,456,213 | | | | 100.0 | % | | $ | 1,247,126 | | | | 100.0 | % |
Cost of sales | | | 1,102,843 | | | | 75.7 | | | | 933,734 | | | | 74.9 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 353,370 | | | | 24.3 | | | | 313,392 | | | | 25.1 | |
Freight out and commissions | | | 77,034 | | | | 5.3 | | | | 59,496 | | | | 4.7 | |
Direct selling and marketing | | | 32,592 | | | | 2.3 | | | | 32,423 | | | | 2.6 | |
| | | | | | | | | | | | | | | | |
Direct operating income | | $ | 243,744 | | | | 16.7 | % | | $ | 221,473 | | | | 17.8 | % |
| | | | | | | | | | | | | | | | |
Net sales in the North American Retail Grocery segment increased by $209.1 million, or 16.8%, for the year ended December 31, 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:
| | | | | | | | |
| | | Dollars | | | Percent | |
| | | (Dollars in thousands) | |
2010 Net sales | | $ | 1,247,126 | | | | | |
Volume | | | 8,524 | | | | 0.7 | % |
Pricing | | | 27,440 | | | | 2.2 | |
Mix/other | | | 4,999 | | | | 0.4 | |
Foreign currency | | | 8,462 | | | | 0.7 | |
Acquisitions | | | 159,662 | | | | 12.8 | |
| | | | | | | | |
2011 Net sales | | $ | 1,456,213 | | | | 16.8 | % |
| | | | | | | | |
The increase in net sales from 2010 to 2011 is primarily due to the acquisition of Sturm and S.T. Foods, price increases, foreign currency fluctuations and higher unit sales. Overall volume is higher in 2011 compared to that of 2010, primarily due to increases in the salad dressings, powdered drinks, dry dinners and hot cereal categories offset by the Company’s exit from the retail infant feeding business in 2010.
Cost of sales as a percentage of net sales increased from 74.9% in 2010 to 75.7% in 2011 primarily due to higher raw material, ingredient and packaging costs and warehouse start-up costs that were partially offset by increased pricing.
Freight out and commissions paid to independent brokers increased $17.5 million or 29.5%, primarily due to increased volume from the Sturm and S.T. Foods acquisitions and increases in freight costs primarily due to higher fuel costs.
Direct selling and marketing increased $0.2 million primarily due to the Sturm and S.T. Foods acquisitions.
Food Away From Home
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | Dollars | | | Percent | | | Dollars | | | Percent | |
| | | (Dollars in thousands) | |
Net sales | | $ | 307,819 | | | | 100.0 | % | | $ | 314,998 | | | | 100.0 | % |
Cost of sales | | | 244,741 | | | | 79.5 | | | | 249,508 | | | | 79.2 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 63,078 | | | | 20.5 | | | | 65,490 | | | | 20.8 | |
Freight out and commissions | | | 11,262 | | | | 3.6 | | | | 10,518 | | | | 3.3 | |
Direct selling and marketing | | | 7,008 | | | | 2.3 | | | | 7,221 | | | | 2.3 | |
| | | | | | | | | | | | | | | | |
Direct operating income | | $ | 44,808 | | | | 14.6 | % | | $ | 47,751 | | | | 15.2 | % |
| | | | | | | | | | | | | | | | |
Net sales in the Food Away From Home segment decreased by $7.2 million, or 2.3%, for the year ended December 31, 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:
| | | | | | | | |
| | | Dollars | | | Percent | |
| | | (Dollars in thousands) | |
2010 Net sales | | $ | 314,998 | | | | | |
Volume | | | (27,137 | ) | | | (8.6 | )% |
Pricing | | | 3,204 | | | | 1.0 | |
Mix/other | | | 12,026 | | | | 3.8 | |
Foreign currency | | | 1,361 | | | | 0.4 | |
Acquisitions | | | 3,367 | | | | 1.1 | |
| | | | | | | | |
2011 Net sales | | $ | 307,819 | | | | (2.3 | )% |
| | | | | | | | |
Net sales decreased in 2011 compared to 2010 due to decreases in volume of our sales of low margin processed pickles, partially offset by the acquisition of Sturm, foreign currency fluctuations, price increases and a favorable product mix.
Cost of sales as a percentage of net sales increased from 79.2% in 2010 to 79.5% in 2011, due to net increases in raw material and ingredient costs partially offset by exiting certain low margin processed pickle business and increased pricing.
Freight out and commissions paid to independent brokers increased $0.7 million in 2011 compared to 2010, primarily due to the acquisition of Sturm and increased freight costs primarily due to higher fuel costs.
Direct selling and marketing expenses were $7.0 million in 2011 compared to $7.2 million in 2010.
Industrial and Export
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | Dollars | | | Percent | | | Dollars | | | Percent | |
| | | (Dollars in thousands) | |
Net sales | | $ | 285,953 | | | | 100.0 | % | | $ | 254,900 | | | | 100.0 | % |
Cost of sales | | | 229,104 | | | | 80.1 | | | | 202,448 | | | | 79.4 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 56,849 | | | | 19.9 | | | | 52,452 | | | | 20.6 | |
Freight out and commissions | | | 6,825 | | | | 2.4 | | | | 5,583 | | | | 2.2 | |
Direct selling and marketing | | | 1,756 | | | | 0.6 | | | | 1,813 | | | | 0.7 | |
| | | | | | | | | | | | | | | | |
Direct operating income | | $ | 48,268 | | | | 16.9 | % | | $ | 45,056 | | | | 17.7 | % |
| | | | | | | | | | | | | | | | |
Net sales in the Industrial and Export segment increased by $31.1 million, or 12.2%, for the year ended December 31, 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:
| | | | | | | | |
| | | Dollars | | | Percent | |
| | | (Dollars in thousands) | |
2010 Net sales | | $ | 254,900 | | | | | |
Volume | | | (6,707 | ) | | | (2.6 | )% |
Pricing | | | 17,483 | | | | 6.9 | |
Mix/other | | | 18,020 | | | | 7.1 | |
Foreign currency | | | 294 | | | | 0.1 | |
Acquisitions | | | 1,963 | | | | 0.7 | |
| | | | | | | | |
2011 Net sales | | $ | 285,953 | | | | 12.2 | % |
| | | | | | | | |
The increase in net sales is primarily due to price increases, a favorable product mix and the acquisition of the Sturm co-pack business. The volume decrease is mainly due to a decrease in co-pack soup business partially offset by higher sales of non-dairy creamer.
Cost of sales, as a percentage of net sales, increased from 79.4% in 2010 to 80.1% in 2011 primarily due to increases in raw material, ingredient and packaging costs partially offset by price increases.
Freight out and commissions paid to independent sales brokers were $6.8 million in 2011 compared to $5.6 million in 2010, due to increases in freight costs primarily due to higher fuel costs.
Direct selling and marketing was $1.8 million in 2011 and 2010.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Sales—Net sales increased 20.2% to $1,817.0 million for the year ended December 31, 2010, compared to $1,511.7 million, for the year ended December 31, 2009. Net sales by segment are shown in the following table:
| | | | | | | | | | | | | | | | | |
| | | Consolidated Net Sales | |
| | | Year Ended December 31, | | | | | | | |
| | | 2010 | | | 2009 | | | (Decrease) | | | (Decrease) | |
| | | (Dollars in thousands) | |
| |
| North American Retail Grocery | | $ | 1,247,126 | | | $ | 971,083 | | | $ | 276,043 | | | | 28.4 | % |
| Food Away From Home | | | 314,998 | | | | 292,927 | | | | 22,071 | | | | 7.5 | |
| Industrial and Export | | | 254,900 | | | | 247,643 | | | | 7,257 | | | | 2.9 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,817,024 | | | $ | 1,511,653 | | | $ | 305,371 | | | | 20.2 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Consolidated Net Sales | |
| | | Year Ended December 31, | | | $ Increase/ (Decrease) | | | % Increase/ (Decrease) | |
| | | 2010 | | | 2009 | | | |
| | | (Dollars in thousands) | |
North American Retail Grocery | | $ | 1,247,126 | | | $ | 971,083 | | | $ | 276,043 | | | | 28.4 | % |
Food Away From Home | | | 314,998 | | | | 292,927 | | | | 22,071 | | | | 7.5 | |
Industrial and Export | | | 254,900 | | | | 247,643 | | | | 7,257 | | | | 2.9 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,817,024 | | | $ | 1,511,653 | | | $ | 305,371 | | | | 20.2 | % |
| | | | | | | | | | | | | | | | |
Total net sales increased 20.2% as increases in volume and the impact of acquisitions and foreign currency were partially offset by decreases in pricing and a shift in sales mix.
Cost of Sales—All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs, labor costs, facility and equipment costs, including costs to operate and maintain our warehouses, and costs associated with transporting our finished products from our manufacturing facilities to distribution centers. Cost of sales as a percentage of consolidated net sales decreased to 76.3% in 2010 from 78.4% in the prior year. We experienced increases in certain costs such as glass and plastic containers in 2010 compared to 2009; however, these increases were more than offset by decreases in the cost of casein, oils, sweeteners and other ingredients. The combination of foreign currency fluctuations and a net decrease in costs partially offset by a decrease in pricing and a shift in sales mix in 2010 versus 2009 has resulted in improvement in our consolidated gross margins.
Operating Costs and Expenses—Operating expenses increased to $254.8 million in 2010 compared to $195.6 million in 2009. The increase in 2010 resulted from the following:
Selling and distribution expenses increased $12.2 million in 2010 compared to 2009. The increase is primarily due to the acquisition of Sturm and S.T. Foods. Selling and distribution expenses as a percentage of net sales decreased to 6.6% from 7.1% in 2009 due to improved efficiencies on our outbound freight and reduction in incentive based compensation.
General and administrative expenses increased $26.7 million in 2010 compared to 2009, which was primarily due to the acquisition of Sturm and S.T. Foods, acquisition costs, stock based compensation costs and consulting fees offset by a decrease in incentive based compensation.
Amortization expense increased from $13.4 million in 2009 to $26.4 million in 2010 due primarily to the addition of intangible assets acquired in the Sturm and S.T. Foods acquisitions.
Other operating expense was $1.2 million in 2010 compared to operating income of $6.2 million in 2009. Operating expense in 2010 primarily relates to costs associated with the exit from the branded baby food business partially offset by the gain on a postretirement plan curtailment at our Dixon facility. Income in 2009 was related to the $14.5 million gain on insurance settlement relating to a fire at our New Hampton, Iowa facility, partially offset by a $7.6 million impairment of ourNature’s Goodness® trademark.
Operating Income—Operating income in 2010 was $176.6 million, an increase of $45.7 million, or 35.0% from operating income of $130.8 million in 2009. Our operating margin was 9.7% in 2010 compared to 8.7% in 2009.
Other (income) expense —expense—Other (income) expense includes interest expense, interest income, foreign exchange gains and losses, and other (income) and expenses.
Interest expense in 2010 was $45.7 million, an increase of $27.3 million from 2009 primarily due to higher debt levels in connection with the Sturm and S.T. Foods acquisitions.
23
Year Ended December 31, 2009 ComparedThe costs of raw materials, ingredients, packaging materials and fuel, have varied widely in recent years and future changes in such costs may cause our results of operations and our operating margins to Year Ended December 31, 2008
Net Sales — Net sales increased 0.7% to $1,511.7 million for the year ended December 31, 2009, compared to $1,500.7 million, for the year ended December 31, 2008. Net sales by segment are shown in the following table:
| | | | | | | | | | | | | | | | | |
| | | Consolidated Net Sales | |
| | | Year Ended December 31, | | | $ Increase/
| | | % Increase/
| |
| | | 2009 | | | 2008 | | | (Decrease) | | | (Decrease) | |
| | | (Dollars in thousands) | |
| |
| North American Retail Grocery | | $ | 971,083 | | | $ | 917,102 | | | $ | 53,981 | | | | 5.9 | % |
| Food Away From Home | | | 292,927 | | | | 294,020 | | | | (1,093 | ) | | | (0.4 | ) |
| Industrial and Export | | | 247,643 | | | | 289,528 | | | | (41,885 | ) | | | (14.5 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,511,653 | | | $ | 1,500,650 | | | $ | 11,003 | | | | 0.7 | % |
| | | | | | | | | | | | | | | | | |
Total net sales increased 0.7% as decreases in volume in all segments and the impact of foreign currency were offset by increased pricing and a shift in sales mix.
Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs, labor costs, facility and equipment costs, including costs to operate and maintain our warehouses, and costs associated with transporting our finished products from our manufacturing facilities to distribution centers. Cost of sales as a percentage of consolidated net sales decreased to 78.4% in 2009 from 80.5% in the prior year.fluctuate significantly. We experienced increases in certain costs such as metal caps, cansof most raw materials, ingredients and lids and meat productspackaging materials in 20092011 compared to 2008; however, these increases were more than offset by decreases in2010. In addition, fuel costs, which represent the cost of casein, oils and plastic containers. The combination of price increases and a net decrease inmost important factor affecting utility costs in 2009 versus 2008 has resulted in improvement in our consolidated gross margins.
Operating Costs and Expenses — Operating expenses decreased to $195.6 million in 2009 compared to $204.9 million in 2008. The decrease in 2009 resulted from the following:
Selling and distribution expenses decreased $7.8 million in 2009 compared to 2008. The decrease is primarily due to a reduction in freight costs related to lower unit volume and a reduction in freight rates.
General and administrative expenses increased $18.7 million in 2009 compared to 2008, which was primarily due to increases in incentive based compensation and stock based compensation related to the Company’s performance and acquisition costs.
Amortization expense decreased slightly from $13.5 million in 2008 to $13.4 million in 2009.
Other operating income was $6.2 million in 2009 compared to operating expense of $13.9 million in 2008. Income in 2009 was related to the $14.5 million gain on insurance settlement relating to a fire at our New Hampton, Iowa facility, partially offset byproduction facilities, as well as our transportation costs, rose significantly in 2011. We expect the volatile nature of these costs to continue with an $7.6 million impairment of ourNature’s Goodness ® trademark. Operating expense in 2008 reflected costs associated with the closure of our Portland, Oregon facility.
Operating Income — Operating income in 2009 was $130.8 million, an increase of $43.7 million, or 50.1% from operating income of $87.1 million in 2008. Our operating margin was 8.7% in 2009 compared to 5.8% in 2008.
Other (income) expense —Other (income) expense includes interest expense, interest income, foreign exchange gains and losses, and other (income) and expenses.
Interest expense in 2009 was $18.4 million, a decrease of $9.2 million from 2008. The decrease is due to lower debt levels and lower average interest rates.
The impact of changes in foreign currency resulted in a gain of $7.4 million in 2009 versus an expense in 2008 of $13.0 million. In 2009, approximately $4.9 million of the foreign currency gain was due to the revaluation of an intercompany note, as compared to a currency loss of $9.1 million in 2008. The remaining
27
repayments under our line of credit. The Company believes it has sufficient liquidity with the availability under the revolving credit facility and does not anticipate a significant risk to cash flows in the foreseeable future despite the current disruption of the credit markets, as the Company operates in a relatively stable industry and has sizable market share across its product lines. The Company’s long-term financing needs will depend largely on potential acquisition activity.
The impact of the reduction in stock market equity values in late 2008 and early 2009 resulted in a reduced funded balance of our Pension Plan, and required additional cash contributions in 2009, which was funded by cash flows from operations. The Company contributed $3.6 million, $1.3 million and $8.9 million in 2011, 2010 and 2009 respectively to its pension plan, and expects to make contributions of approximately $4.9$4.0 million in 2011.
2012.A portion of the Company’s cash is generated by the earnings of our Canadian operations. The Company has asserted that these earnings are indefinitely reinvested in Canada and, accordingly, are not available to fund U.S. operating activities. If the Company were to repatriate these funds we would be required to pay U.S. income taxes. However, a determination of the potential tax liability is not practical at this time. As a temporary measure, the Company established a series of short term intercompany loans from the Canadian operations to the U.S. The cash was used to pay down the Company’s revolving line of credit and reduce the overall interest expense of the consolidated group. The balance of the intercompany loans, principal and interest, at December 31, 2011 was $67.9 million. On January 10, 2012, the Company repaid the cross border intercompany loans in full and canceled the related notes. Payment was financed with borrowings under our revolving credit facility. The cash will be held by our Canadian subsidiary, E.D. Smith, in short term investments and will be used for general corporate purposes in Canada, including capital projects and acquisitions. Repayment of the intercompany loans will not impact the Company’s compliance with loan covenants and is not expected to significantly impact the Company’s access to liquidity. After repaying the intercompany loans on January 10, 2012, the Company had access to $283.8 million under the revolving line of credit, which is sufficient to fund ongoing U.S. operations, for no less than twelve months, as well as acquisitions.
Seasonality
The Company’s short-term financing needs are primarily for financing working capital during the year. As the Company continues to add new product categories to our portfolio, spikes in financing needs are lessened. Cucumber and fruit production are driven by harvest cycles, which occur primarily during the spring and summer as inventories of pickles and jams generally are at a low point in late spring and at a high point during the fall, increasing our working capital requirements. In addition, the Company builds inventories of salad dressings in the spring and soup in the summer months in anticipation of large seasonal shipments that begin in the second and third quarters, respectively.
Revolving Credit Facility—On October 27, 2010,September 23, 2011, the Company entered into an Amended and RestatedAmendment to its Credit Agreement with aBank of America, N.A., as administrative agent, and the group of other participating lenders which amended and restatedlenders. The Amendment, among other things, extended the Credit Agreement dated June 27, 2005 (as amended) that was to expire August 31, 2011. The Amended and Restated Credit Agreement provides for an increase in the aggregate commitment undermaturity of the revolving credit facility from $600 million to $750 millionSeptember 23, 2016, and extendsadjusted the maturity to October 27, 2015.interest rates. The interest raterates under the Amended and Restated Credit Agreement isare based on the Company’s consolidated leverage ratio, and will beare determined by either LIBOR plus a margin ranging from 1.25%1.00% to 2.05%1.60% or a base rate (as defined in the Amended and Restated Credit Agreement) plus a margin ranging from 0.25%0.00% to 1.05%0.60%. In addition, a facility fee based on our consolidated leverage ratio ranging from 0.25% to 0.45%0.40% is due quarterly on the aggregate commitment under the revolving credit facility. Proceeds from theThe Company’s unsecured revolving credit facility may be used for working capital and general corporate purposes, including acquisition financing. The Company’s obligationshas an aggregate commitment under the Credit Agreement of $750 million, of which $345.0 million was available as of December 31, 2011. As of December 31, 2011, there were $9.2 million in letters of credit under the revolving credit facility are guaranteed by certain of its United States subsidiaries.that were issued but undrawn. The revolving credit facility contains various financial and other restrictive covenants and requires that we maintainthe Company maintains certain financial ratios, including a leverage and an interest coverage ratio. The Company is in compliance with all applicable covenants as of December 31, 2010.
For a further discussion of2011. The Company’s average interest rate on debt outstanding under the revolving credit facility andfor the Amended and Restatedyear ended December 31, 2011 was 2.03%. Interest is payable quarterly or at the end of the applicable interest period. After the repayment of intercompany loans on January 10, 2012 of approximately $67.7 million, $ 283.8 million was available under our Revolving Credit Agreement, see Note 10 “Long Term Debt” to the Consolidated Financial Statements accompanying this report.
Facility.High Yield Notes— On March 2, 2010, TreeHouse Foods, Inc. completed its offering of $400 millionThe Company’s 7.75% high yield notes in aggregate principal amount of 7.75% high yield notes$400 million are due March 1, 2018 (the “Notes”). The net amountNotes are guaranteed by the Company’s 100 percent owned subsidiary Bay Valley and its 100 percent owned subsidiaries EDS Holdings, LLC; Sturm; S.T. Foods. The Indenture governing the Notes provides, among other things, that the Notes will be senior unsecured obligations of the proceeds of $391.0 million (providing an effective interest rate of 8.03%) was used as partial payment inCompany. The Indenture contains various restrictive covenants with which the acquisition of all of the issued and outstanding stock of Sturm. The Company issued the Notes pursuant to an Indenture, dated March 2, 2010 (the “Base Indenture”), among the Company, the subsidiary guarantors party thereto (Bay Valley Foods, LLC and EDS Holdings, LLC, the “Initial Guarantors”) and Wells Fargo Bank, National Association, (Trustee), as supplemented by a First Supplemental Indenture, dated March 2, 2010 (the “First Supplemental Indenture”), among the Company, the Initial Guarantors and the Trustee. In addition, on March 2, 2010, the Company entered into a Second Supplemental Indenture, dated March 2, 2010 (the “Second Supplemental Indenture”) pursuant to which Sturm became an additional guarantor of the Notes, with the same force and effect as if Sturm was initially named as a guarantor under the Indenture. On October 28, 2010, the Company entered into a Third Supplemental Indenture, dated October 28, 2010 (the “Third Supplemental Indenture” and together with the Base Indenture the First Supplemental Indenture and the Second
33
Supplemental Indenture, the “Indenture”), pursuant to which S.T. Foods (together with the Initial Guarantors and Sturm, the “Guarantors”) became an additional guarantor of the Notes, with the same force and effect as if S.T. Foods was initially named a guarantor under the Indenture. The Company is in compliance with all applicable covenants as of December 31, 2010.
For a further discussion of the2011. Interest is paid semi-annually on March 1 and September 1.Senior Notes and the Indenture, see Note 10, “Long Term Debt” to the Consolidated Financial Statements accompanying this report.
Interest Rate Swap —During 2008, the Company entered into a $200 million long-term interest rate swap agreement with an effective date of November 19, 2008 to lock into a fixed LIBOR interest rate base. Under the terms of the agreement, $200 million in floating rate debt was swapped for a fixed rate of 2.9% interest rate base for a period of 24 months, amortizing to $50 million for an additional nine months at the same 2.9% interest rate. As of December 31, 2010 the swap amount was $50 million. The Company did not apply hedge accounting and recorded the fair value of this instrument on its balance sheet within other long term liabilities. The fair value of the swap, using Level 2 inputs, was a liability of approximately $0.9 million and $4.9 million as of December 31, 2010 and 2009, respectively. In 2010 and 2009, the Company recorded income of $4.0 million and of $2.1 million, respectively, related to the mark to market adjustment within the Other (income) expense line of the Consolidated Statements of Income.
Senior Notes —On September 22, 2006, the Company completedmaintains a private placement of $100 million in aggregate principal of 6.03% senior notes due September 30, 2013, pursuant to a Note Purchase Agreement among TreeHousethe Company and a group of purchasers. The Note Purchase Agreement contains covenants that will limit the ability of the Company and its subsidiaries to, among other things, merge with other entities, change the nature of the business, create liens, incur additional indebtedness or sell assets. The Note Purchase Agreement also requires the Company to maintain certain financial ratios. The Company is in compliance with the applicable covenants as of December 31, 2011. All of the Company’s obligations under the senior notes are fully and unconditionally guaranteed by EDS Holdings, LLC, Bay Valley, Foods, LLC, a wholly-owned100 percent owned subsidiary of the Company, and its wholly-owned100 percent owned subsidiaries of EDS Holdings, LLC, Sturm and S.T. Foods. The senior notes have not been registered under the Securities1933 Act, of 1933, as amended, and may not be offered or sold in the United States, absent registration or an applicable exemption. Net proceeds were used to repay outstanding indebtedness under the revolving credit facility. The CompanyInterest is in compliance with all applicable covenants as of Decemberpaid semi-annually on March 31 2010.
For a further discussion of the Senior Notes, see Note 10, “Long Term Debt” to the Consolidated Financial Statements accompanying this report.
and September 30.Contractual Obligations
The following table summarizes the Company’s obligations and commitments to make future payments as of December 31, 2010:
2011:Indebtedness, Purchase and Lease Obligations
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | | | | Year
| | | Years
| | | Years
| | | More than
| |
| | | Total | | | 1 | | | 2 - 3 | | | 4 - 5 | | | 5 Years | |
| | | (In thousands) | |
| |
| Revolving credit facility(1) | | $ | 523,538 | | | $ | 10,539 | | | $ | 21,078 | | | $ | 491,921 | | | $ | — | |
| High yield notes(2) | | | 622,167 | | | | 31,000 | | | | 62,000 | | | | 62,000 | | | | 467,167 | |
| Senior notes(3) | | | 116,583 | | | | 6,030 | | | | 110,553 | | | | — | | | | — | |
| Capital lease obligations(4) | | | 2,430 | | | | 831 | | | | 1,477 | | | | 122 | | | | — | |
| Purchasing obligations(5) | | | 170,179 | | | | 156,035 | | | | 12,878 | | | | 1,266 | | | | — | |
| Operating leases(6) | | | 49,943 | | | | 12,614 | | | | 13,966 | | | | 9,848 | | | | 13,515 | |
| Benefit obligations(7) | | | 29,449 | | | | 2,204 | | | | 5,257 | | | | 5,604 | | | | 16,384 | |
| Deferred compensation(8) | | | 6,392 | | | | 175 | | | | 321 | | | | 2,946 | | | | 2,950 | |
| Unrecognized tax benefits(9) | | | 6,969 | | | | 374 | | | | 3,568 | | | | 2,973 | | | | 54 | |
| Tax increment financing(10) | | | 3,520 | | | | 388 | | | | 779 | | | | 783 | | | | 1,570 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,531,170 | | | $ | 220,190 | | | $ | 231,877 | | | $ | 577,463 | | | $ | 501,640 | |
| | | | | | | | | | | | | | | | | | | | | |
34
| | |
| (1) | | Revolving credit facility obligation includes principal of $472.6$395.8 million and interest at an average rate of 2.23%1.74% at December 31, 2010.2011. The principal is due October 27, 2015.September 23, 2016. (See Note 10) |
|
| (2) | | High yield notes include principal and interest payments based on a fixed interest rate of 7.75%. Principal payment is due March 1, 2018. (See Note 10) |
|
| (3) | | Senior note obligation includes principal and interest payments based on a fixed interest rate of 6.03%. Principal payment is due September 30, 2013. (See Note 10) |
|
| (4) | | Payments required under long-term capitalized lease contracts. |
|
| (5) | | Primarily represents commitments to purchase minimum quantities of raw materials used in our production processes. We enter into these contracts from time to time in an effort to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process. |
|
| (6) | | In accordance with GAAP,generally accepted accounting principles (“GAAP”), these obligations are not reflected in the accompanying balance sheets. Operating lease obligations consist of minimum rental payments under non-cancelable operating leases. |
|
| (7) | | Benefit obligations consist of future payments related to pension and postretirement benefits as estimated by an actuarial valuation. |
|
| (8) | | Deferred compensation obligations have been allocated to payment periods based on existing payment plans for terminated employees and the estimated timing of distributions of current employees based on age. |
|
| (9) | | The unrecognized tax benefit long term liability recorded by the Company is $6,969$11.9 million at December 31, 2010.2011. The timing of cash settlement, if any, cannot be reasonably estimated. The Company’s gross unrealized tax benefit included in the tabular reconciliation (See Note 9 to our Consolidated Financial Statements) is approximately $6,854$11.4 million. The difference between the gross unrecognized tax benefit and the amount per the “Contractual Obligations — Obligations—Indebtedness, Purchase and Lease Obligations” table is due to the inclusion above of corollary positions, interest, penalties, as well as the impact of state taxes on the federal tax liability. Deferred tax liabilities are excluded from the table due to uncertainty in their timing. |
|
| (10) | | Tax increment financing obligation includes principal and interest payments based on rates ranging from 6.61%6.71% to 7.16%. Final payment is due May 1, 2019. (See Note 10) |
In addition to the commitments set forth in the above table, at December 31, 2010,2011, the Company had $9.2 million in letters of credit primarily related to the Company’s workers’ compensation program.
Off-Balance Sheet Arrangements
The Company does not have any obligations that meet the definition of an off-balance sheet arrangement, other than operating leases and letters of credit, which neither have ornor are reasonably likely to have a material effect on the Consolidated Financial Statements.
Other Commitments and Contingencies
The Company also has the following commitments and contingent liabilities, in addition to contingent liabilities related to ordinary course litigation, investigations and tax audits:
certain lease obligations, and
selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses.
| | |
| • | certain lease obligations, and |
|
| • | selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and .other casualty losses. |
See Note 1918 to our Consolidated Financial Statements for more information about the Company’s commitments and contingent obligations.
35
Critical Accounting Policies
Critical accounting policies are defined as those that are most important to the portrayal of a company’s financial condition and results and that require ourthe most difficult, subjective or complex judgments. In many cases the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles (“GAAP”) with no need for the application of our judgment. In certain circumstances, however, the preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principlesGAAP requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. We have identified the policies described below as our critical accounting policies. See Note 1 to the Consolidated Financial Statements for a detailed discussion of these and othersignificant accounting policies.
Accounts Receivable Allowances—We maintain an allowance for customer promotional programs, marketing co-op programs and other sales and marketing expenses. This allowance is based on a combination of historical rolling twelve month average program activity and historical customer sales and can fluctuate due to the level of sales and marketing programs, and timing of deductions. This allowance was $8.4$13.1 million and $8.3$12.7 million, at December 31, 2011 and 2010, and 2009, respectively.
Inventories —Inventories—Inventories are stated at the lower of cost or market. Pickle inventories are valued using thelast-in, first-out (“LIFO”) method, while all of our other inventories are valued using thefirst-in, first-out (“FIFO”) method. These valuations have been reduced by an allowance for obsolete and defective products and packaging materials. The estimated allowance is based on a review of inventories on hand compared to estimates of future demand, changes in formulas and packaging materials and inferior product. The Company’s allowances were $9.5$5.6 million and $6.9$9.5 million at December 31, 2011 and 2010, and 2009, respectively.
Goodwill and Intangible Assets—Goodwill and intangible assets totaled $1,539.9$1,506.3 million as of December 31, 2010,2011, resulting primarily from acquisitions. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities, including but not limited to trademarks and customer-related intangible assets, with any remaining purchase price recorded as goodwill. Goodwill and indefinite lived trademarks are not amortized. For purposes of goodwill impairment testing, our reporting units are defined as North American Retail Grocery — Grocery—U.S.,; North American Retail Grocery — Canada,Grocery—Canada; Food Away From Home — Home—U.S.,; Food Away From Home — Canada,Home—Canada; Industrial, BulkContract—U.S. and Co-Pack — U.S., and Co-Pack — Contract—Canada.
We believe that a trademark has an indefinite life if it has sufficient market share and a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. If these perpetual trademark criteria are not met, the trademarks are amortized over their expected useful lives. Determining the expected life of a trademark requires considerable management judgment and is based on an evaluation of a number of factors including the competitive environment, market share, trademark history and anticipated future trademark support.
Indefinite lived trademarks and goodwill are evaluated for impairment annually in the fourth quarter, or more frequently, if other events occur, to ensure that fair value continues to exceed the related book value. An indefinite lived trademark is impaired if its book value exceeds fair value. Goodwill impairment is indicated if the book value of its reporting unit exceeds its fair value. If the fair value of an evaluated asset is less than its book value, the asset is written down to fair value, which is generally based on its discounted future cash flows. Future business results could impact the evaluation of our goodwill and intangible assets.
The Company completed its annual goodwill and intangible asset impairment analysis as of December 31, 2010.2011. Our assessment did not result in an impairment. We have seven reporting units, five of which contain goodwill totaling $1,076.3$1,068.4 million. Our analysis employed the use of both a market and income approach, with each method given equal weighting. Significant assumptions used in the income approach include growth and discount rates, margins and the Company’s weighted average cost of capital. We used historical performance and management estimates of future performance to determine margins and growth rates. Discount rates selected for each reporting unit varied, with the weighted average of all discount rates being equal to the total Company discount rate. Our weighted average cost of capital included a review and assessment of market and capital structure assumptions. Further supporting our assessment of goodwill is the fact that our Company’s stock price has increased from December 31, 20092010 to December 31, 20102011 by
36
approximately 31.5%28%. Of the five reporting units with goodwill, all have fair values significantly in excess of their carrying values (between 60%69% and 115%99%). Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Changes in our estimates or any of our other assumptions used in our analysis could result in a different conclusion.
We reviewed our indefinite lived intangible assets, which include our trademarks totaling $32.7$32.2 million, using the relief from royalty method. Significant assumptions include the royalty, growth and discount rates. Our assumptions were based on historical performance and management estimates of future performance, as well as available data on licenses of similar products. Our analysis resulted in no impairment. The Company’s policy is that indefinite lived assets must have a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. When these criteria are no longer met, the Company changes the classification. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Changes in our estimates or any of our other assumptions used in our analysis could result in a different conclusion.
Amortizable intangible assets, which include primarily customer relationships and trademarks, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its fair value, which is generally based on discounted future cash flows. No impairment was identified and the Company concluded no changes are necessary to the remaining useful lives or values of the remaining amortizable intangible assets as of December 31, 2010.
2011.Purchase Price Allocation—We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed. All identifiable assets acquired, including identifiable intangibles and liabilities assumed are assigned a portion of the purchase price of the acquired company, normally equal to their fair values at the date of acquisition. The excess of the purchase price of the acquired company over the sum of the amounts assigned to identifiable assets acquired, less liabilities assumed is recorded as goodwill. We record the initial purchase price allocation based on evaluation of information and estimates available at the date of the financial statements. As final information regarding fair value of assets acquired and liabilities assumed is received and estimates are refined, appropriate adjustments are made to the purchase price allocation. To the extent that such adjustments indicate that the fair values of assets and liabilities differ from their preliminary purchase price allocations, such differences would adjust the amounts allocated to those assets and liabilities and would change the amounts allocated to goodwill. The final purchase price allocation includes the consideration of a number of factors to determine the fair value of individual assets acquired and liabilities assumed, including quoted market prices, forecast of expected cash flows, net realizable values, estimates of the present value of required payments and determination of remaining useful lives.
Income Taxes—Deferred taxes are recognized for future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We periodically estimate our probable tax obligations using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretations of tax regulations in the jurisdictions in which we operate. These judgments and estimates made at a point in time may change based on the outcome of tax audits and changes to or further interpretations of regulations. If such changes take place, there is a risk that our tax rate may increase or decrease in any period, which would have an impact on our earnings. Future business results may affect deferred tax liabilities or the valuation of deferred tax assets over time.
Stock-Based Compensation—Income from Continuing Operations Before Income Taxes, for the years ended December 31, 20102011 and December 31, 2009,2010, included share-based compensation expense for employeeemployees and director stock options, restricted stock, restricted stock units,directors of $15.1 million and performance units of $15.8 million, and $13.3 million, respectively.
The fair value of stock options, restricted stock, restricted stock unit awards and performance units (the “Awards”) is determined on the date of grant. Stock options were valued using a Black Scholes model. Performance units and all other restricted stock and restricted stock unit awards were valued using the closing price of the Company’s stock on the date of grant. Stock-based compensation expense, as calculated and recorded, could have been impacted, if other assumptions were used. Furthermore, if we use different
37
assumptions in future periods, stock-based compensation expense could be impacted in future periods. Expected volatilities for 20102011 are based on historical volatilities of the Company’s stock price. Prior to 2010, expected volatilities were based on the implied historical volatilities from peer companies and other factors, as the Company’s stock was not publically traded prior to June 27, 2005. The Company has estimated that certain employees will complete the required service conditions associated with certain Awards. For all other employees, the Company estimates forfeitures as not all employees are expected to complete the required service conditions. The expected service period is the longer of the derived service period, as determined from the output of the valuation models, and the service period based on the term of the Awards. The risk-free interest rate for periods within the contractual life of the Awards is based on the U.S. Treasury yield curve in effect at the time of the grant. As the Company does not have significant history to determine the expected term of its option awards, we based the expected term on that of comparable companies. The assumptions used to calculate the option and restricted stock awards granted in 20102011 are presented in Note 12 to the Consolidated Financial Statements.
Insurance Accruals—We retain selected levels of property and casualty risks, primarily related to employee health care, workers compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third-party carriers having high deductible limits. In other areas, we are self-insured with stop-loss coverage. Accrued liabilities for incurred but not reported losses related to these retained risks are calculated based upon loss development factors whichthat contemplate a number of variables, including claims history and expected trends. These loss development factors are based on industry factors and, along with the estimated liabilities, are developed by us in consultation with external insurance brokers and actuaries. At December 31, 20102011 and 2009,2010, we recorded accrued liabilities related to these retained risks of $9.2$10.6 million and $9.1$9.2 million, respectively, including both current and long-term liabilities. Changes in loss development factors, claims history and cost trends could result in substantially different results in the future.
Employee Benefit Plan Costs—We provide a range of benefits to our employees, including pension and postretirement benefits to our eligible employees and retirees. We record annual amounts relating to these plans based on calculations specified by generally accepted accounting principles,GAAP, which include various actuarial assumptions, such as discount rates, assumed investment rates of return, compensation increases, employee turnover rates and health care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends, when it is deemed appropriate. As required by generally accepted accounting principles,GAAP, the effect of the modifications is generally recorded and amortized over future periods. Different assumptions that we make could result in the recognition of different amounts of expense over different periods of time.
Our current asset mix guidelines, under our investment policy as written by our Investment Committee,investment committee (the “Investment Committee”), target equities at 55% to 65% of the portfolio and fixed income at 35% to 45%. At December 31, 2010,2011, our master trust was invested as follows: equity securities of 62%59%; fixed income securities of 37%36%; and cash and cash equivalents of 1%5%.
We determine our expected long-term rate of return based on our expectations of future returns for the pension plan’s investments based on target allocations of the pension plan’s investments. Additionally, we consider the weighted-average return of a capital markets model and historical returns on comparable equity, debt and other investments. The resulting weighted average expected long-term rate of return on plan assets is 7.60%7.2%.
While a number of the key assumptions related to our qualified pension plans are long-term in nature, including assumed investment rates of return, compensation increases, employee turnover rates and mortality rates, generally accepted accounting principlesGAAP require that our discount rate assumption be more heavily weighted to current market conditions. As such, our discount rate will likely change more frequently. We used a discount rate to determine our estimated future benefit obligations of 5.25%,4.75% at December 31, 2010.
2011.See Note 14 to our Consolidated Financial Statements for more information regarding our employee pension and retirement benefit plans.
38
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in Note 2 to the Consolidated Financial Statements.
| |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Fluctuations
The Company entered into a $200 million long term interest rate swap agreement with an effective date of November 19, 2008 to lock into a fixed LIBOR interest rate base. Under the terms of the agreement, $200 million in floating rate debt was swapped for a fixed 2.9% interest base rate for a period of 24 months, amortizing to $50 million for an additional nine months at the same 2.9% interest rate. As of December 31, 2010 theThis swap amount is $50 million. Under the terms of the Company’s revolving credit agreement and in conjunction with our credit spread, this will result in an all in borrowing cost on the swapped principal of $50 million being no more than 4.95% during the balance of the swap agreement.
expired August 19, 2011.In July 2006, we entered into a forward interest rate swap transaction for a notational amount of $100 million as a hedge of the forecasted private placement of $100 million in senior notes. The interest rate swap transaction was terminated on August 31, 2006, which resulted in a pre-tax loss of $1.8 million. The unamortized loss is reflected, net of tax, in Accumulated other comprehensive loss in the Consolidated Balance Sheets. The total loss will be reclassified ratably to the Consolidated Statements of Income as an increase to interest expense over the term of the senior notes, providing an effective interest rate of 6.29% over the terms of the senior notes.
We do not utilize financial instruments for trading purposes or hold any derivative financial instruments, other than our interest rate swap agreements, foreign currency contracts and commodity swap agreements as of December 31, 2010,2011, which could expose us to significant market risk. Our exposure to market risk for changes in interest rates relates primarily to the increase in the amount of interest expense we expect to pay with respect to our revolving credit facility, which is tied to variable market rates which includes LIBOR and prime interest rates. Based on our outstanding debt balance of $472.6$395.8 million under our revolving credit facility and adjusting for the $50 million fixed rate swap agreement, as of December 31, 2010,2011, each 1% rise in our interest rate would increase our interest expense by approximately $4.2$4.0 million annually.
The costs of raw materials, as well as packaging materials and fuel, have varied widely in recent years and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly. We experienced increases in certain costs such as metal caps, cansof most raw materials, ingredients and lids and meat productspackaging materials in 20102011 compared to 2009, however, these increases were more than offset by decreases in the cost of oils, casein and plastic containers.2010. In addition, fuel costs, which represent the most important factor affecting utility costs at our production facilities and our transportation costs, rose to unusually high levelssignificantly in the middle of 2008, but have decreased proportionately to the general reduction in overall economic activity in 2009 and 2010.2011. We expect the volatile nature of these costcosts to continue with an overall upward trend.
The most important raw material usedWe use a significant amount of fruits and vegetables in our pickle operations is cucumbers. We purchase cucumbersas raw materials. Certain of these fruits and vegetables are purchased under seasonal grower contracts with a variety of growers strategically located to supply our production facilities. Bad weather or disease in a particular growing area can damage or destroy the crop in that area, which would impair crop yields.area. If we are not ableunable to buy cucumbersthe fruits and vegetables from local suppliers, we would likely either purchase cucumbersthem from foreign sources, such asmore distant locations, including other locations within the United States, Mexico or India, or ship cucumbers from other growing areas in the United States, thereby increasing our production costs.
Changes in the prices of our products may lag behind changes in the costs of our materials. Competitive pressures also may limit our ability to quickly raise prices in response to increased raw materials, packaging and fuel costs. Accordingly, if we are unable to increase our prices to offset increasing raw material, packaging and fuel costs, our operating profits and margins could be materially adversely affected. In addition, in instances of declining input costs, customers may be looking for price reductions in situations where we have locked into pricing at higher costs.
39
| |
| Item 8. | Financial Statements and Supplementary Data |
The Consolidated Financial Statements for 20102011 are included in this report on the following pages:
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
We have audited the accompanying consolidated balance sheets of TreeHouse Foods, Inc. and subsidiaries (the “Company”) as of December 31, 20102011 and 2009,2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010.2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of TreeHouse Foods, Inc. and subsidiaries as of December 31, 20102011 and 2009,2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010,2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010,2011, based on the criteria established inInternal Control — Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 201117, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.
4121, 2012
TREEHOUSE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands,
| |
| | | except per share data) | |
| |
ASSETS |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 6,323 | | | $ | 4,415 | |
| Receivables, net of allowance for doubtful accounts of $750 and $424 | | | 126,644 | | | | 86,557 | |
| Inventories, net | | | 287,395 | | | | 264,933 | |
| Deferred income taxes | | | 3,499 | | | | 3,397 | |
| Assets held for sale | | | 4,081 | | | | 4,081 | |
| Prepaid expenses and other current assets | | | 12,861 | | | | 7,269 | |
| | | | | | | | | |
| Total current assets | | | 440,803 | | | | 370,652 | |
| Property, plant and equipment, net | | | 386,191 | | | | 276,033 | |
| Goodwill | | | 1,076,321 | | | | 575,007 | |
| Intangible assets, net | | | 463,617 | | | | 152,526 | |
| Other assets, net | | | 24,316 | | | | 10,210 | |
| | | | | | | | | |
| Total assets | | $ | 2,391,248 | | | $ | 1,384,428 | |
| | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 202,384 | | | $ | 148,819 | |
| Current portion of long-term debt | | | 976 | | | | 906 | |
| | | | | | | | | |
| Total current liabilities | | | 203,360 | | | | 149,725 | |
| Long-term debt | | | 976,452 | | | | 401,640 | |
| Deferred income taxes | | | 194,917 | | | | 45,381 | |
| Other long-term liabilities | | | 38,553 | | | | 31,453 | |
| | | | | | | | | |
| Total liabilities | | | 1,413,282 | | | | 628,199 | |
| Commitments and contingencies (Note 19) | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock, par value $.01 per share, 10,000 shares authorized, none issued | | | — | | | | — | |
| Common stock, par value $.01 per share, 90,000 shares authorized, 35,440 and 31,999 shares issued and outstanding, respectively | | | 354 | | | | 320 | |
Additionalpaid-in-capital | | | 703,465 | | | | 587,598 | |
| Retained earnings | | | 286,181 | | | | 195,262 | |
| Accumulated other comprehensive loss | | | (12,034 | ) | | | (26,951 | ) |
| | | | | | | | | |
| Total stockholders’ equity | | | 977,966 | | | | 756,229 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 2,391,248 | | | $ | 1,384,428 | |
| | | | | | | | | |
(In thousands, except per share data)
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 3,279 | | | $ | 6,323 | |
Receivables, net of allowance for doubtful accounts of $517 and $750 | | | 115,168 | | | | 126,644 | |
Inventories, net | | | 329,374 | | | | 287,395 | |
Deferred income taxes | | | 3,854 | | | | 3,499 | |
Assets held for sale | | | 4,081 | | | | 4,081 | |
Prepaid expenses and other current assets | | | 12,638 | | | | 12,861 | |
| | | | | | | | |
Total current assets | | | 468,394 | | | | 440,803 | |
Property, plant and equipment, net | | | 406,558 | | | | 386,191 | |
Goodwill | | | 1,068,419 | | | | 1,076,321 | |
Intangible assets, net | | | 437,860 | | | | 463,617 | |
Other assets, net | | | 23,298 | | | | 24,316 | |
| | | | | | | | |
Total assets | | $ | 2,404,529 | | | $ | 2,391,248 | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 169,525 | | | $ | 202,384 | |
Current portion of long-term debt | | | 1,954 | | | | 976 | |
| | | | | | | | |
Total current liabilities | | | 171,479 | | | | 203,360 | |
Long-term debt | | | 902,929 | | | | 976,452 | |
Deferred income taxes | | | 202,258 | | | | 194,917 | |
Other long-term liabilities | | | 54,346 | | | | 38,553 | |
| | | | | | | | |
Total liabilities | | | 1,331,012 | | | | 1,413,282 | |
Commitments and contingencies (Note 18) | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, par value $.01 per share, 10,000 shares authorized, none issued | | | — | | | | — | |
Common stock, par value $.01 per share, 90,000 shares authorized, 35,921 and 35,440 shares issued and outstanding, respectively | | | 359 | | | | 354 | |
Additional paid-in-capital | | | 714,932 | | | | 703,465 | |
Retained earnings | | | 380,588 | | | | 286,181 | |
Accumulated other comprehensive loss | | | (22,362 | ) | | | (12,034 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 1,073,517 | | | | 977,966 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 2,404,529 | | | $ | 2,391,248 | |
| | | | | | | | |
See Notes to Consolidated Financial Statements.
42
TREEHOUSE FOODS, INC.
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands, except per share data) | |
| |
| Net sales | | $ | 1,817,024 | | | $ | 1,511,653 | | | $ | 1,500,650 | |
| Cost of sales | | | 1,385,690 | | | | 1,185,283 | | | | 1,208,626 | |
| | | | | | | | | | | | | |
| Gross profit | | | 431,334 | | | | 326,370 | | | | 292,024 | |
| Operating expenses: | | | | | | | | | | | | |
| Selling and distribution | | | 120,120 | | | | 107,938 | | | | 115,731 | |
| General and administrative | | | 107,126 | | | | 80,466 | | | | 61,741 | |
| Amortization expense | | | 26,352 | | | | 13,381 | | | | 13,528 | |
| Other operating (income) expenses, net | | | 1,183 | | | | (6,224 | ) | | | 13,899 | |
| | | | | | | | | | | | | |
| Total operating expenses | | | 254,781 | | | | 195,561 | | | | 204,899 | |
| | | | | | | | | | | | | |
| Operating income | | | 176,553 | | | | 130,809 | | | | 87,125 | |
| Other (income) expense: | | | | | | | | | | | | |
| Interest expense | | | 45,691 | | | | 18,430 | | | | 27,614 | |
| Interest income | | | — | | | | (45 | ) | | | (107 | ) |
| (Gain) loss on foreign currency exchange | | | (1,574 | ) | | | (7,387 | ) | | | 13,040 | |
| Other (income) expense, net | | | (3,964 | ) | | | (2,263 | ) | | | 7,123 | |
| | | | | | | | | | | | | |
| Total other expense | | | 40,153 | | | | 8,735 | | | | 47,670 | |
| | | | | | | | | | | | | |
| Income from continuing operations, before income taxes | | | 136,400 | | | | 122,074 | | | | 39,455 | |
| Income taxes | | | 45,481 | | | | 40,760 | | | | 10,895 | |
| | | | | | | | | | | | | |
| Income from continuing operations | | | 90,919 | | | | 81,314 | | | | 28,560 | |
| Loss from discontinued operations, net of tax | | | — | | | | — | | | | (336 | ) |
| | | | | | | | | | | | | |
| Net income | | $ | 90,919 | | | $ | 81,314 | | | $ | 28,224 | |
| | | | | | | | | | | | | |
| Weighted average common shares: | | | | | | | | | | | | |
| Basic | | | 35,079 | | | | 31,982 | | | | 31,341 | |
| Diluted | | | 36,172 | | | | 32,798 | | | | 31,469 | |
| Basic earnings per common share: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 2.59 | | | $ | 2.54 | | | $ | .91 | |
| Loss from discontinued operations, net of tax | | | — | | | | — | | | | (.01 | ) |
| | | | | | | | | | | | | |
| Net income | | $ | 2.59 | | | $ | 2.54 | | | $ | .90 | |
| | | | | | | | | | | | | |
| Diluted earnings per common share: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 2.51 | | | $ | 2.48 | | | $ | .91 | |
| Loss from discontinued operations, net of tax | | | — | | | | — | | | | (.01 | ) |
| | | | | | | | | | | | | |
| Net income | | $ | 2.51 | | | $ | 2.48 | | | $ | .90 | |
| | | | | | | | | | | | | |
(In thousands, except per share data)
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Net sales | | $ | 2,049,985 | | | $ | 1,817,024 | | | $ | 1,511,653 | |
Cost of sales | | | 1,576,688 | | | | 1,385,690 | | | | 1,185,283 | |
| | | | | | | | | | | | |
Gross profit | | | 473,297 | | | | 431,334 | | | | 326,370 | |
Operating expenses: | | | | | | | | | | | | |
Selling and distribution | | | 142,341 | | | | 120,120 | | | | 107,938 | |
General and administrative | | | 101,817 | | | | 107,126 | | | | 80,466 | |
Amortization expense | | | 34,402 | | | | 26,352 | | | | 13,381 | |
Other operating expense (income), net | | | 6,462 | | | | 1,183 | | | | (6,224 | ) |
| | | | | | | | | | | | |
Total operating expenses | | | 285,022 | | | | 254,781 | | | | 195,561 | |
| | | | | | | | | | | | |
Operating income | | | 188,275 | | | | 176,553 | | | | 130,809 | |
Other (income) expense: | | | | | | | | | | | | |
Interest expense | | | 53,023 | | | | 45,691 | | | | 18,385 | |
Gain on foreign currency exchange | | | (3,510 | ) | | | (1,574 | ) | | | (7,387 | ) |
Other income, net | | | (1,036 | ) | | | (3,964 | ) | | | (2,263 | ) |
| | | | | | | | | | | | |
Total other expense | | | 48,477 | | | | 40,153 | | | | 8,735 | |
| | | | | | | | | | | | |
Income before income taxes | | | 139,798 | | | | 136,400 | | | | 122,074 | |
Income taxes | | | 45,391 | | | | 45,481 | | | | 40,760 | |
| | | | | | | | | | | | |
Net income | | $ | 94,407 | | | $ | 90,919 | | | $ | 81,314 | |
| | | | | | | | | | | | |
Net earnings per basic share | | $ | 2.64 | | | $ | 2.59 | | | $ | 2.54 | |
Net earnings per diluted share | | $ | 2.56 | | | $ | 2.51 | | | $ | 2.48 | |
Weighted average shares—basic | | | 35,805 | | | | 35,079 | | | | 31,982 | |
Weighted average shares—diluted | | | 36,950 | | | | 36,172 | | | | 32,798 | |
See Notes to Consolidated Financial Statements.
43
TREEHOUSE FOODS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | | Additional
| | | | | | Other
| | | Total
| |
| | | Common Stock | | | Paid-In
| | | Retained
| | | Comprehensive
| | | Stockholders’
| |
| | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | Equity | |
| | | (In thousands) | |
| |
Balance, January 1, 2008 | | | 31,204 | | | $ | 312 | | | $ | 550,370 | | | $ | 85,724 | | | $ | (7,097 | ) | | $ | 629,309 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | 28,224 | | | | — | | | | 28,224 | |
| Pension & post-retirement liability adjustment, net of tax of $4,070 | | | — | | | | — | | | | — | | | | — | | | | (6,261 | ) | | | (6,261 | ) |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | (50,198 | ) | | | (50,198 | ) |
| Amortization of loss on derivatives, net of tax of $101 | | | — | | | | — | | | | — | | | | — | | | | 162 | | | | 162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (28,073 | ) |
| Stock options exercised, including tax benefit of $1,356 | | | 341 | | | | 3 | | | | 6,787 | | | | — | | | | — | | | | 6,790 | |
| Stock options forfeited | | | — | | | | — | | | | (88 | ) | | | — | | | | — | | | | (88 | ) |
| Stock-based compensation | | | — | | | | — | | | | 12,193 | | | | — | | | | — | | | | 12,193 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2008 | | | 31,545 | | | | 315 | | | | 569,262 | | | | 113,948 | | | | (63,394 | ) | | | 620,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | 81,314 | | | | — | | | | 81,314 | |
| Pension & post-retirement liability adjustment, net of tax of $384 | | | — | | | | — | | | | — | | | | — | | | | 604 | | | | 604 | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 35,678 | | | | 35,678 | |
| Amortization of loss on derivatives, net of tax of $101 | | | — | | | | — | | | | — | | | | — | | | | 161 | | | | 161 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 117,757 | |
| Stock options exercised, including tax benefit of $731 | | | 454 | | | | 5 | | | | 5,092 | | | | — | | | | — | | | | 5,097 | |
| Stock options forfeited | | | — | | | | — | | | | (59 | ) | | | — | | | | — | | | | (59 | ) |
| Stock-based compensation | | | — | | | | — | | | | 13,303 | | | | — | | | | — | | | | 13,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2009 | | | 31,999 | | | | 320 | | | | 587,598 | | | | 195,262 | | | | (26,951 | ) | | | 756,229 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | 90,919 | | | | — | | | | 90,919 | |
| Pension & post-retirement liability adjustment, net of tax benefit of $107 | | | — | | | | — | | | | — | | | | — | | | | (172 | ) | | | (172 | ) |
| Post retirement curtailment, net of tax of $539 | | | — | | | | — | | | | — | | | | — | | | | 862 | | | | 862 | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 14,066 | | | | 14,066 | |
| Amortization of loss on derivatives, net of tax of $101 | | | — | | | | — | | | | — | | | | — | | | | 161 | | | | 161 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 105,836 | |
| Shares issued | | | 2,703 | | | | 27 | | | | 110,661 | | | | — | | | | — | | | | 110,688 | |
| Equity awards exercised, including tax deficiency of $276 | | | 738 | | | | 7 | | | | (11,013 | ) | | | — | | | | — | | | | (11,006 | ) |
| Stock-based compensation | | | — | | | | — | | | | 16,219 | | | | — | | | | — | | | | 16,219 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2010 | | | 35,440 | | | $ | 354 | | | $ | 703,465 | | | $ | 286,181 | | | $ | (12,034 | ) | | $ | 977,966 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Additional
Paid-In
Capital | | | Retained
Earnings | | | Accumulated
Other
Comprehensive
Loss | | | Total
Stockholders’
Equity | |
| | | Shares | | | Amount | | | | | |
Balance, January 1, 2009 | | | 31,545 | | | $ | 315 | | | $ | 569,262 | | | $ | 113,948 | | | $ | (63,394 | ) | | $ | 620,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 81,314 | | | | — | | | | 81,314 | |
Pension & post-retirement liability adjustment, net of tax of $384 | | | — | | | | — | | | | — | | | | — | | | | 604 | | | | 604 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 35,678 | | | | 35,678 | |
Amortization of loss on derivatives, net of tax of $101 | | | — | | | | — | | | | — | | | | — | | | | 161 | | | | 161 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 117,757 | |
Equity awards exercised | | | 454 | | | | 5 | | | | 5,092 | | | | — | | | | — | | | | 5,097 | |
Stock options forfeited | | | — | | | | — | | | | (59 | ) | | | — | | | | — | | | | (59 | ) |
Stock-based compensation | | | — | | | | — | | | | 13,303 | | | | — | | | | — | | | | 13,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2009 | | | 31,999 | | | | 320 | | | | 587,598 | | | | 195,262 | | | | (26,951 | ) | | | 756,229 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 90,919 | | | | — | | | | 90,919 | |
Pension & post-retirement liability adjustment, net of tax benefit of $107 | | | — | | | | — | | | | — | | | | — | | | | (172 | ) | | | (172 | ) |
Post retirement curtailment, net of tax of $539 | | | — | | | | — | | | | — | | | | — | | | | 862 | | | | 862 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 14,066 | | | | 14,066 | |
Amortization of loss on derivatives, net of tax of $101 | | | — | | | | — | | | | — | | | | — | | | | 161 | | | | 161 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 105,836 | |
Shares issued | | | 2,703 | | | | 27 | | | | 110,661 | | | | — | | | | — | | | | 110,688 | |
Equity awards exercised | | | 738 | | | | 7 | | | | (11,013 | ) | | | — | | | | — | | | | (11,006 | ) |
Stock-based compensation | | | — | | | | — | | | | 16,219 | | | | — | | | | — | | | | 16,219 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2010 | | | 35,440 | | | | 354 | | | | 703,465 | | | | 286,181 | | | | (12,034 | ) | | | 977,966 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 94,407 | | | | — | | | | 94,407 | |
Pension & post-retirement liability adjustment, net of tax benefit of $2,527 | | | — | | | | — | | | | — | | | | — | | | | (4,000 | ) | | | (4,000 | ) |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | (6,489 | ) | | | (6,489 | ) |
Amortization of loss on derivatives, net of tax of $101 | | | — | | | | — | | | | — | | | | — | | | | 161 | | | | 161 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 84,079 | |
Equity awards exercised | | | 481 | | | | 5 | | | | (3,839 | ) | | | — | | | | — | | | | (3,834 | ) |
Stock-based compensation | | | — | | | | — | | | | 15,306 | | | | — | | | | — | | | | 15,306 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2011 | | | 35,921 | | | $ | 359 | | | $ | 714,932 | | | $ | 380,588 | | | $ | (22,362 | ) | | $ | 1,073,517 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
44
TREEHOUSE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
Cash flows from operating activities: | | | | | | | | | | | | |
| Net income | | $ | 90,919 | | | $ | 81,314 | | | $ | 28,224 | |
| Loss from discontinued operations | | | — | | | | — | | | | 336 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 43,426 | | | | 33,962 | | | | 32,326 | |
| Amortization | | | 26,352 | | | | 13,381 | | | | 13,528 | |
| Stock-based compensation | | | 15,838 | | | | 13,303 | | | | 12,193 | |
| (Gain) loss on foreign currency exchange, intercompany note | | | 1,469 | | | | (4,932 | ) | | | 9,034 | |
| Mark to market (gain) loss on derivative contracts | | | (4,363 | ) | | | (2,104 | ) | | | 6,981 | |
| (Gain) loss on disposition of assets | | | 3,159 | | | | (11,885 | ) | | | (469 | ) |
| Write-down of impaired intangible assets | | | — | | | | 7,600 | | | | 560 | |
| Write-down of impaired tangible assets | | | — | | | | — | | | | 5,431 | |
| Deferred income taxes | | | 9,199 | | | | 18,596 | | | | 5,314 | |
| Excess tax benefits from stock-based compensation | | | (5,732 | ) | | | (169 | ) | | | (377 | ) |
| Curtailment of postretirement benefit obligations | | | (2,357 | ) | | | — | | | | — | |
| Other | | | 161 | | | | 161 | | | | 137 | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | |
| Receivables | | | 6,161 | | | | 3,739 | | | | (14,395 | ) |
| Inventories | | | 34,318 | | | | (14,062 | ) | | | 43,396 | |
| Prepaid expenses and other assets | | | 225 | | | | (647 | ) | | | (2,063 | ) |
| Accounts payable, accrued expenses and other liabilities | | | 25,876 | | | | (33,413 | ) | | | 35,490 | |
| | | | | | | | | | | | | |
| Net cash provided by continuing operations | | | 244,651 | | | | 104,844 | | | | 175,646 | |
| Net cash used in discontinued operations | | | — | | | | — | | | | (10 | ) |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 244,651 | | | | 104,844 | | | | 175,636 | |
Cash flows from investing activities: | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (39,543 | ) | | | (36,987 | ) | | | (55,471 | ) |
| Additions to intangible assets | | | (22,110 | ) | | | — | | | | — | |
| Insurance proceeds | | | — | | | | 2,863 | | | | 12,047 | |
| Cash outflows for acquisitions, less cash acquired | | | (844,496 | ) | | | — | | | | (251 | ) |
| Proceeds from sale of fixed assets | | | 43 | | | | 6 | | | | 1,679 | |
| | | | | | | | | | | | | |
| Net cash used in continuing operations | | | (906,106 | ) | | | (34,118 | ) | | | (41,996 | ) |
| Net cash provided by discontinued operations | | | — | | | | — | | | | 157 | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (906,106 | ) | | | (34,118 | ) | | | (41,839 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
| Proceeds from issuance of debt | | | 400,000 | | | | — | | | | — | |
| Borrowings under revolving credit agreement | | | 512,000 | | | | 284,200 | | | | 263,000 | |
| Payments under revolving credit agreement | | | (337,600 | ) | | | (358,000 | ) | | | (402,500 | ) |
| Payments on capitalized lease obligations | | | (1,010 | ) | | | (684 | ) | | | (6,037 | ) |
| Payments of deferred financing costs | | | (16,418 | ) | | | — | | | | — | |
| Excess tax benefits from stock-based compensation | | | 5,732 | | | | 169 | | | | 377 | |
| Cash used for taxes upon settlement of equity awards | | | (15,370 | ) | | | (336 | ) | | | — | |
| Issuance of common stock, net of expenses | | | 110,688 | | | | — | | | | — | |
| Proceeds from stock option exercises | | | 4,599 | | | | 4,926 | | | | 5,434 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 662,621 | | | | (69,725 | ) | | | (139,726 | ) |
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 742 | | | | 727 | | | | (614 | ) |
| Increase (decrease) in cash and cash equivalents | | | 1,908 | | | | 1,728 | | | | (6,543 | ) |
| Cash and cash equivalents, beginning of year | | | 4,415 | | | | 2,687 | | | | 9,230 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 6,323 | | | $ | 4,415 | | | $ | 2,687 | |
| | | | | | | | | | | | | |
(In thousands)
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 94,407 | | | $ | 90,919 | | | $ | 81,314 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation | | | 48,616 | | | | 43,426 | | | | 33,962 | |
Amortization | | | 34,402 | | | | 26,352 | | | | 13,381 | |
Stock-based compensation | | | 15,107 | | | | 15,838 | | | | 13,303 | |
Loss (gain) on foreign currency exchange | | | 18 | | | | 1,469 | | | | (4,932 | ) |
Mark to market gain on derivative contracts | | | (861 | ) | | | (4,363 | ) | | | (2,104 | ) |
Loss (gain) on disposition of assets | | | 1,681 | | | | 3,159 | | | | (11,885 | ) |
Write-down of intangible assets | | | — | | | | — | | | | 7,600 | |
Write-down of tangible assets | | | 2,864 | | | | — | | | | — | |
Deferred income taxes | | | 15,114 | | | | 9,199 | | | | 18,596 | |
Excess tax benefits from stock-based compensation | | | (4,473 | ) | | | (5,732 | ) | | | (169 | ) |
Curtailment of postretirement benefit obligations | | | — | | | | (2,357 | ) | | | — | |
Other | | | 188 | | | | 161 | | | | 161 | |
Changes in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | |
Receivables | | | 7,812 | | | | 6,161 | | | | 3,739 | |
Inventories | | | (43,039 | ) | | | 34,318 | | | | (14,062 | ) |
Prepaid expenses and other assets | | | 3,742 | | | | 225 | | | | (647 | ) |
Accounts payable, accrued expenses and other liabilities | | | (19,507 | ) | | | 25,876 | | | | (33,413 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 156,071 | | | | 244,651 | | | | 104,844 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (68,523 | ) | | | (39,543 | ) | | | (36,987 | ) |
Additions to intangible assets | | | (9,273 | ) | | | (22,110 | ) | | | — | |
Insurance proceeds | | | — | | | | — | | | | 2,863 | |
Acquisitions, less cash acquired | | | 3,243 | | | | (844,496 | ) | | | — | |
Proceeds from sale of fixed assets | | | 251 | | | | 43 | | | | 6 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (74,302 | ) | | | (906,106 | ) | | | (34,118 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from issuance of debt | | | — | | | | 400,000 | | | | — | |
Borrowings under revolving credit agreement | | | 263,100 | | | | 512,000 | | | | 284,200 | |
Payments under revolving credit agreement | | | (339,900 | ) | | | (337,600 | ) | | | (358,000 | ) |
Payments on capitalized lease obligations | | | (1,417 | ) | | | (1,010 | ) | | | (684 | ) |
Issuance of common stock, net of expenses | | | — | | | | 110,688 | | | | — | |
Payments of deferred financing costs | | | (1,518 | ) | | | (16,418 | ) | | | — | |
Net (payments) proceeds related to stock-based award activities | | | (8,278 | ) | | | (10,771 | ) | | | 4,590 | |
Excess tax benefits from stock-based compensation | | | 4,473 | | | | 5,732 | | | | 169 | |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (83,540 | ) | | | 662,621 | | | | (69,725 | ) |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (1,273 | ) | | | 742 | | | | 727 | |
(Decrease) increase in cash and cash equivalents | | | (3,044 | ) | | | 1,908 | | | | 1,728 | |
Cash and cash equivalents, beginning of year | | | 6,323 | | | | 4,415 | | | | 2,687 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 3,279 | | | $ | 6,323 | | | $ | 4,415 | |
| | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
45
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended December 31, 2011, 2010 2009 and 2008)2009
| 1. | |
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation—The Consolidated Financial Statements include the accounts of TreeHouse Foods, Inc. and its wholly owned subsidiaries (“Company,” “we,” “us,” or “our”). All intercompany balances and transactions are eliminated in consolidation. Certain product sales, as disclosed in Note 21, from prior year amountsyears have been reclassified and certain line items on the Consolidated Statements of Cash Flows for prior years have been combined to conform to the current period presentation, primarily to present borrowings and payments under our line of credit on a gross versus net basis.presentation. These reclassifications had no effect on reported net income, total assets, or net cash flows.
Use of Estimates—The preparation of our Consolidated Financial Statements in conformity with generally accepted accounting principles (“GAAP”) requires management to use judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates.
Cash Equivalents—We consider temporary cash investments with an original maturity of three months or less to be cash equivalents.
Inventories—Inventories are stated at the lower of cost or market. Pickle inventories are valued using thelast-in, first-out (“LIFO”) method, while all of our other inventories are valued using thefirst-in, first-out (“FIFO”) method. The costs of finished goods inventories include raw materials, labor and overhead costs.
Property, Plant and Equipment—Property, plant and equipment are stated at acquisition cost, plus capitalized interest on borrowings during the actual construction period of major capital projects. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets as follows:
| | |
Asset | | Useful Life |
Asset
Buildings and improvements | | Useful Life
12-40 years |
|
BuildingsMachinery and improvements:equipment | | 3-15 years |
ImprovementsOffice furniture and previously existing structuresequipment | | 10 to 203-12 years |
New structures | | 40 years |
Machinery and equipment: | | |
Manufacturing plant equipment | | 5 to 20 years |
Transportation equipment | | 3 to 8 years |
Office equipment | | 3 to 10 years |
We perform impairment tests when circumstances indicate that the carrying value may not be recoverable. Capitalized leases are amortized over the shorter of their lease term or their estimated useful lives, and amortization expense is included in depreciation expense. Expenditures for repairs and maintenance, which do not improve or extend the life of the assets, are expensed as incurred.
Intangible and Other Assets—Identifiable intangible assets with finite lives are amortized over their estimated useful lives as follows:
| | |
Asset | | Useful Life |
Asset
| | Useful Life
|
|
Customer relationships | | Straight-line method over 5 to 20 years |
Trademarks/trade names | | Straight-line method over 10 to 20 years |
Non-competition agreements | | Straight-line method over the terms of the agreements |
Deferred financing costs | | Straight-line method over the terms of the related debt |
Formulas/recipes | | Straight-line method over 5 to 7 years |
Computer software | | Straight-line method over 2 to 7 years |
Indefinite lived trademarks are evaluated for impairment annually in the fourth quarter or more frequently, if events or changes in circumstances indicate that the asset might be impaired. Indefinite lived trademarks
46
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
impairment is indicated when their book value exceeds fair value. If the fair value of an evaluated asset is less than its book value, the asset is written down to fair value, which is generally based on its discounted future cash flows.
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amortizable intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.
Goodwill is evaluated annually in the fourth quarter or more frequently, if events or changes in circumstances require an interim assessment. We assess goodwill for impairment at the reporting unit level using a market and income approach, employing significant assumptions regarding growth, discount rates, and profitability at each reporting unit.
Goodwill impairment has occurred if the book value of the reporting unit exceeds its fair value and goodwill is written down to fair value. Our estimates of fair value are determined based on a discounted cash flow model.Stock-Based Compensation—We measure compensation expense for our equity awards at their grant date fair value. The resulting expense is recognized over the relevant service period.
See Note 12.Sales Recognition and Accounts Receivable—Sales are recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, title and risk of loss transfer to customers and there is a reasonable assurance of collection of the sales proceeds. Product is shipped FOB shipping point and FOB destination, depending on our agreement with the customer. Sales are reduced by certain sales incentives, some of which are recorded by estimating expense based on our historical experience. We provide credit terms to customers ranging up to 3060 days, perform ongoing credit evaluation of our customers and maintain allowances for potential credit losses based on historical experience. Customer balances are written off after all collection efforts are exhausted. Estimated product returns, which have not been material, are deducted from sales at the time of shipment.
Income Taxes—The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.
Foreign Currency Translation and Transactions—The functional currency of the Company’s foreign operations is the applicable local currency. The functional currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as of the balance sheet date and for revenue and expense accounts using a weighted-average exchange rate during the fiscal year. The translation adjustments are deferred as a separate component of stockholders’Stockholders’ equity captioned accumulatedin Accumulated other comprehensive loss. Gains or losses resulting from transactions denominated in foreign currencies are included in Other (income) expense, in the Consolidated Statements of Income.
Shipping and Handling Fees—Our shipping and handling costs are included in both cost of sales and selling and distribution expense, depending on the nature of such costs. Shipping and handling costs included in cost of sales reflect inventory warehouse costs, product loading and handling costs, and costs associated with transporting finished products from our manufacturing facilities to distribution warehouses. Shipping and handling costs included in selling and distribution expense consist primarily of the cost of shipping products to customers through third party carriers. Shipping and handling costs recorded as a component of selling and distribution expense were approximately $70.1 million, $53.6 million $46.5 million and $60.2$46.5 million, for years ended 2011, 2010 and 2009, and 2008, respectively.
Derivative Financial Instruments—From time to time, we utilize derivative financial instruments including interest rate and commodity swaps, foreign currency contracts and forward purchase contracts to manage our
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
exposure to interest rate, foreign currency and commodity price risks. We do not hold or issue financial instruments for speculative or trading purposes. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivatives that are not designated as hedges according to GAAP must be adjusted to fair value through earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of the gain or loss is reported as accumulated other comprehensive income and reclassified into earnings in the same period when the hedged transaction affects
47
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
earnings. The ineffective gain or loss is recognized in current earnings. Commodity forward contracts generally qualify for the normal purchase exception under guidance for derivative instruments and hedging activities, and therefore are not subject to its provisions. For further information about our derivative instruments see Note 20.
19.Capital Lease Obligations—Capital lease obligations represent machinery and equipment financing obligations, which are generally payable in monthly installments of principal and interest and are collateralized by the related assets financed.
Insurance Accruals—We retain selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third party carriers having high deductible limits. In other areas, we are self-insured with stop-loss coverage. Accrued liabilities for incurred but not reported losses related to these retained risks are calculated based upon loss development factors which contemplate a number of factors, including claims history and expected trends. These accruals are developed by us in consultation with external insurance brokers and actuaries.
Facility Closing and Reorganization Costs—We periodically record facility closing and reorganization charges, when we have identified a facility for closure or other reorganization opportunity, developed a plan and notified the affected employees.
Research and Development Costs—We record research and development charges to expense as they are incurred. The expendituresincurred and are reported in the General and administrative line of our Consolidated Statements of Income. Expenditures totaled $10.1 million, $10.5 million $8.3 million and $6.9$8.3 million, for years ended 2011, 2010 and 2009, and 2008, respectively.
Advertising Costs—Advertising costs are expensed as incurred and reported in the sellingSelling and distribution line of our Consolidated Statements of Income.
| 2. | |
2. | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In January 2010,On December 31, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2010-06, 2011-12,Fair Value Measurements and Disclosures(“ASU2010-06”) to provide additional guidance on fair value disclosures. ASU2010-06 requires new disclosures about transfers in and outComprehensive Income, Deferral of Level 1 and 2, and requires that the activity in Level 3 disclosures be presented on a gross basis rather than as a net number. The ASU also clarifies existing disclosures about the level of disaggregation and information on inputs and valuation techniques, and includes confirming amendmentsEffective Date for Amendments to the guidance on employers’ disclosures about postretirement benefit plan assets.Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.This ASU2010-06 defers only certain portions of ASU 2011-05 that relate to the presentation of reclassification adjustments and is effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted the provisions of this ASU effective January 1, 2010, and the adoption did not significantly impact the Company’s Condensed Consolidated Financial Statements.
In December 2010,being made to allow the FASB issuedadditional time to redeliberate the original guidance in ASUNo. 2010-28,When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amountsto modify Step 1 of the goodwill impairment test; requiring companies with reporting units with zero or negative carrying amounts to perform Step 2 of the goodwill impairment analysis if it is more likely than not that a goodwill impairment exists. 2011-05. This guidanceASU is effective for fiscal years and interim periods within those years, beginning after December 15, 2010. Early adoption is2011. ASU 2011-12 does not permitted. This guidance is not expected to impact the Company.
In December 2010, the FASB issued ASUNo. 2010-29,Disclosure of Supplementary Pro Forma Information for Business Combinationsto specify that if a company presents comparative financial statements, it should disclose revenuechange current accounting and earnings of the combined entity as though the business combination that occurred during the current period, occurred at the beginning of the comparable prior annual reporting period only. This guidance is effective prospectively for business combinations for which the acquisition date in, on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We will adopt this guidance prospectively beginning January 1, 2011. Ittherefore is not expected to have a significant impact on the Company.
48
On September 21, 2011, the FASB issued ASU 2011-09,Employer’s Participation in Multiemployer Plans which increases the quantitative and qualitative disclosures an employer is required to provide about its participation in significant multiemployer plans that offer pension and other postretirement benefits. This ASU does not change current accounting and is effective for fiscal years ended on or after December 15, 2011. The Company adopted this guidance in the 2011 Financial Statements as presented in Note 14, which did not have a significant impact on the Company’s financial statements.TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
On September 15, 2011, the FASB issued ASU 2011-08,Testing Goodwill for Impairment which provides entities the option of performing a qualitative assessment of goodwill before calculating the fair value of a reporting unit in Step 1 of the goodwill impairment test. If an entity determines, based on the qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This ASU is effective for annual and interim periods for fiscal years beginning after December 15, 2011. Early adoption is permitted. This literature does not change how goodwill is accounted for, and thus the Company does not believe this ASU will have a significant impact on the Company’s financial statements.
On June 16, 2011, the FASB issued ASU 2011-05,Presentation of Comprehensive Income which revises the manner in which entities present comprehensive income in their financial statements. This ASU removes the current presentation guidance and requires comprehensive income to be presented either in a single continuous statement of comprehensive income or two separate but consecutive statements. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. ASU 2011-05 does not change current accounting and therefore is not expected to have a significant impact on the Company’s financial statements.
On May 12, 2011, the FASB issued ASU 2011-04,Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.This ASU provides converged guidance on how (not when) to measure fair value. The ASU provides expanded disclosure requirements and other amendments, including those that eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRSs). This ASU is effective for interim and annual periods beginning after December 15, 2011 and is not expected to have a significant impact on the Company’s disclosures or fair value measurements.
On February 13, 2008,As of December 31, 2011, the Company announced plans to closehad closed its pickle plant in Portland, Oregon. The Portland plantSpringfield, Missouri. Production ceased in August 2011 and has been transferred to other pickle facilities. Production at the Springfield facility was primarily related to the Company’s highest cost and least utilized pickle facility. Operations in the plant ceased during the second quarter of 2008.Food Away From Home segment. For the twelve monthsyear ended December 31, 2010 and 2009,2011, the Company recorded closure costs of $0.6$5.1 million which included $2.4 million to reduce the carrying value of the assets to net realizable value and $0.9$2.7 million respectively, thatfor severance and other costs. These costs are included in Other operating expense (income) expense, net line in our Consolidated Statements of Income. There are noApproximately $2.5 million of the charges was paid in cash. The Company has accrued expenses related to this closureseverance costs of approximately $0.2 million as of December 31, 2010 and 2009, and insignificant accrued expenses as of December 31, 2008. In connection with the Portland closure, the Company has $4.1 million of assets held for sale, which are primarily land and buildings. 2011.
The Company will continue to incur executory costs for this facility until it is sold. Those costs total approximately $0.8 million per year.
On November 3, 2008, the Company announced plans to closeclosed its salad dressings manufacturing plant in Cambridge, Ontario. Manufacturing operations in Cambridge ceasedOntario at the end of June 2009. Production has beenwas transitioned to the Company’s other manufacturing facilities in Canada and the United States. The change results inrealigned the Company’s production capabilities being more aligned with the needs of our customers. The majority of the closure costs were included as costs of the acquisition of E.D. Smith and did not significantly impact earnings. Total costs are expected to bewere approximately $2.3 million, including severance costs of $1.1 million, and other costs of $1.2 million. As of December 31, 2010, the Company had insignificant accruals remaining.remaining and no accruals as of December 31, 2011. Severance payments during the twelve months ended December 31, 2010 and 2009 were approximately $62 thousand, and $0.9 million, respectively.
The Company closed its pickle plant in Portland, Oregon during the second quarter of 2008. For the twelve months ended December 31, 2011, 2010 and 2009, the Company recorded costs of $0.6 million, $0.6 million and $0.9 million, respectively, which are included in Other operating expense (income), net line in our Consolidated Statements of Income. The Company had insignificant accrued expenses related to this closure as of December 31, 2011 and 2010. In connection with the Portland closure, the Company has $4.1 million of assets
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
held for sale, which are primarily land and buildings. The Company will continue to incur executory costs for this facility until it is sold. Those costs total approximately $0.6 million per year.
On October 28, 2010, the Company acquired S.T. Specialty Foods, Inc. (S.T. Foods), a wholly owned subsidiary of STSF Holdings, Inc. (“Holdings”) by acquiring all of the outstanding securities of STSF Holdings Inc. (“Holdings”) for approximately $180$179.8 million in cash (subject to adjustment) plus up to an additional $15 million in cash (“earn out”) if S.T. Specialty Foods, Inc. (“S.T. Foods”) achieved certain earnings targets for the twelve month period ending December 31, 2010. The earnings targets were not met; therefore, no additional payment will be required.cash. The acquisition was funded by the Company’s revolving credit facility. S.T. Foods a wholly owned subsidiary of Holdings, has annual net sales of approximately $100 million and is a manufacturer of private label macaroni and cheese, skillet dinners and other value-added side dishes. The acquisition added additional categories to our product portfolio for the retail grocery channel.
The acquisition is being accounted for under the purchaseacquisition method of accounting and the results of operations are included in our financial statements from the date of acquisition and are included in the North American Retail Grocery segment. S.T. Foods contributed $17.1 million to net sales and $1.5 million in net income sincefrom the October 28, 2010 acquisition date through December 31, 2010. At the date of acquisition, the purchase price was allocated to the assets acquired and liabilities assumed based upon estimated fair market value, no value was assigned to the earn out. The Company’s purchase price allocation is set forth below is preliminary and subject to tax adjustments that are expected to be completed during 2011. Adjustments may impact taxes, goodwill and other assets and liabilities.
| | | | | |
| | | (In thousands) | |
| |
| Receivables | | $ | 6,183 | |
| Inventory | | | 7,557 | |
| Property plant and equipment | | | 26,400 | |
| Customer relationships | | | 58,715 | |
| Other intangible assets | | | 257 | |
| Deferred taxes | | | 343 | |
| Other assets | | | 177 | |
| Goodwill | | | 117,193 | |
| | | | | |
| Total assets acquired | | | 216,825 | |
49
| | | | |
| | | (In thousands) | |
Receivables | | $ | 6,183 | |
Inventory | | | 7,557 | |
Property plant and equipment | | | 26,400 | |
Customer relationships | | | 58,714 | |
Other intangible assets | | | 257 | |
Deferred taxes | | | 343 | |
Other assets | | | 1,476 | |
Goodwill | | | 114,191 | |
| | | | |
Total assets acquired | | | 215,121 | |
Accounts payable and accruals | | | (7,768 | ) |
Deferred taxes | | | (27,511 | ) |
| | | | |
Total liabilities assumed | | | (35,279 | ) |
| | | | |
Total purchase price | | $ | 179,842 | |
| | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | |
| | | (In thousands) | |
| |
| Accounts payable and accruals | | | (6,921 | ) |
| Deferred taxes | | | (30,063 | ) |
| | | | | |
| Total liabilities assumed | | | (36,984 | ) |
| | | | | |
| Total purchase price | | $ | 179,841 | |
| | | | | |
The Company allocated $58.7 million to customer relationships that have an estimated life of twenty years. Other intangible assets consist of capitalized computer software that is being amortized over two years. The Company increased the cost of acquired inventories by approximately $0.8 million, and expensed the amount as a component of cost of sales in the fourth quarter of 2010. The Company has allocated all of the goodwill ($117.2114.2 million) to the North American Retail Grocery segment. No goodwill is expected to be deductible for tax purposes. Goodwill arises principally as a result of expansion opportunities and employed workforce. The Company incurred approximately $2.4 million in acquisition related costs for the S.T. Foods acquisition that are included in the General and administrative expense line on the Condensed Consolidated Statements of Income.
On March 2, 2010, the Company acquired Sturm Foods, Inc. (“Sturm”), a private label manufacturer of hot cerealcereals and powdered soft drink mixes that servesservices retail and foodservice customers in the United States with annual sales of approximately $340 million. The acquisition of Sturm has strengthened the Company’s presence in private label dry grocery categories.
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company paid a cash purchase price of $664.7$661.4 million, beforeafter adjusting for a $3.3 million working capital adjustment to reduce the purchase price, for 100% of the issued and outstanding stock of Sturm. The $3.3 million working capital adjustment is recorded in the Receivables, net line of our Condensed Consolidated Balance Sheets as of December 31, 2010. The transaction was financed through the issuance of $400 million in high yield notes, the issuance of 2.7 million shares of Company common stock at $43.00 per share and borrowings under the Company’s credit facility.
The acquisition is being accounted for under the purchaseacquisition method of accounting and the results of operations are included in our financial statements from the date of acquisition and are included in each of our segments. Sturm contributed $275.2 million to net sales and $27.8 million in net income sincefrom the March 2, 2010 acquisition date through December 31, 2010. At the date of acquisition, the purchase price was allocated to the assets acquired and liabilities assumed based upon estimated fair market values. The Company’s purchase price allocationvalues as set forth below is preliminary and subject to tax adjustments that are expected to be completed by March 2, 2011. Adjustments may impact the total purchase price, deferred taxes and goodwill.
| | | | | |
| | | (In thousands) | |
| |
| Receivables | | $ | 35,774 | |
| Inventory | | | 47,525 | |
| Property plant and equipment | | | 86,106 | |
| Customer relationships | | | 229,000 | |
| Trade name | | | 10,000 | |
| Formulas | | | 5,000 | |
| Other intangible assets | | | 5,835 | |
| Other assets | | | 3,813 | |
| Goodwill | | | 379,804 | |
| | | | | |
| Total assets acquired | | | 802,857 | |
50
| | | | |
| | | (In thousands) | |
Receivables | | $ | 35,774 | |
Inventory | | | 47,525 | |
Property plant and equipment | | | 86,106 | |
Customer relationships | | | 229,000 | |
Trade name | | | 10,000 | |
Formulas | | | 5,000 | |
Other intangible assets | | | 5,835 | |
Other assets | | | 3,813 | |
Goodwill | | | 377,204 | |
| | | | |
Total assets acquired | | | 800,257 | |
Accounts payable and accruals | | | (34,350 | ) |
Other long-term liabilities | | | (4,518 | ) |
Deferred taxes | | | (99,976 | ) |
| | | | |
Total liabilities assumed | | | (138,844 | ) |
| | | | |
Total purchase price | | $ | 661,413 | |
| | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | |
| | | (In thousands) | |
| |
| Accounts payable and accruals | | | (34,207 | ) |
| Other long-term liabilities | | | (4,518 | ) |
| Deferred taxes | | | (102,805 | ) |
| | | | | |
| Total liabilities assumed | | | (141,530 | ) |
| | | | | |
| Total purchase price | | $ | 661,327 | |
| | | | | |
The Company allocated $229.0 million to customer relationships that have an estimated life of twenty years. The acquired trade name will be amortized over fifteen years. Formulas have an estimated useful life of five years. Other intangible assets consist of capitalized computer software that is being amortized over three years. The Company increased the cost of acquired inventories by approximately $6.2 million, and expensed that amount as a component of cost of sales through the second quarter of 2010. The Company has allocated $373.6$371.1 million of goodwill to the North American Retail Grocery segment and $6.2$6.1 million of goodwill to the Food Away From Home segment. No goodwill is expected to be deductible for tax purposes. Goodwill arises principally as a result of expansion opportunities, employed workforce, and the impact of Sturm’sSturm being one of the first mover advantage.companies to develop the single serve powdered drink mix market. The Company incurred approximately $5.4 million in acquisition related costs related to the Sturm acquisition during the twelve months ended December 31, 2010. These costs are included in the General and administrative expense line on the Condensed Consolidated Statements of Income. In connection with the issuance of debt and equity to finance the acquisition, the Company incurred approximately $10.8 million in debt issue costs that were capitalized and are amortized over the term of the debt on a straight line basis, and are included as a component of interest expense. The Company also incurred approximately $5.5 million of stock issuance costs that reduced the proceeds and were recorded as a component of additional paid in capital.
The following unaudited pro forma information shows the results of operations for the Company as if the 2010 acquisitions of Sturm and S.T. Foods had been completed as of the beginning of each period presented.
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Adjustments have been made for the pro forma effects of amortization of intangible assets recognized as part of the business combination, interest expense related to the financing of the business combinations, and related income taxes. These pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.
| | | | | | | | | |
| | | Year Ended
| |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands,
| |
| | | except per share data) | |
| |
| Pro forma net sales | | $ | 1,961,567 | | | $ | 1,954,568 | |
| | | | | | | | | |
| Pro forma net income | | $ | 100,551 | | | $ | 104,679 | |
| | | | | | | | | |
| Pro forma basic earnings per common share | | $ | 2.87 | | | $ | 3.02 | |
| | | | | | | | | |
| Pro forma diluted earnings per common share | | $ | 2.78 | | | $ | 2.95 | |
| | | | | | | | | |
51
| | | | | | | | |
| | | Year Ended
December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands, except per share data) | |
Pro forma net sales | | $ | 1,961,567 | | | $ | 1,954,568 | |
| | | | | | | | |
Pro forma net income | | $ | 100,551 | | | $ | 104,679 | |
| | | | | | | | |
Pro forma basic earnings per common share | | $ | 2.87 | | | $ | 3.02 | |
| | | | | | | | |
Pro forma diluted earnings per common share | | $ | 2.78 | | | $ | 2.95 | |
| | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Raw materials and supplies | | $ | 111,376 | | | $ | 86,223 | |
| Finished goods | | | 194,558 | | | | 197,539 | |
| LIFO reserve | | | (18,539 | ) | | | (18,829 | ) |
| | | | | | | | | |
| Total inventories | | $ | 287,395 | | | $ | 264,933 | |
| | | | | | | | | |
The increase in inventories from December 31, 2009 to 2010 is primarily due to the Sturm and S.T. Foods acquisitions. Excluding the effect of the Sturm and S.T. Foods acquisitions, inventory levels decreased by $30.9 million.
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Raw materials and supplies | | $ | 115,719 | | | $ | 111,376 | |
Finished goods | | | 233,408 | | | | 194,558 | |
LIFO reserve | | | (19,753 | ) | | | (18,539 | ) |
| | | | | | | | |
Total inventories | | $ | 329,374 | | | $ | 287,395 | |
| | | | | | | | |
Approximately $84.8$82.0 million and $98.7$84.8 million of our inventory was accounted for under the LIFO method of accounting at December 31, 20102011 and 2009,2010, respectively. The LIFO reserve reflects the excess of the current cost of LIFO inventories at December 31, 20102011 and 2009,2010, over the amount at which these inventories were valued on the consolidated balance sheets.
| 6. | |
6. | PROPERTY, PLANT AND EQUIPMENT |
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Land | | $ | 15,851 | | | $ | 11,335 | |
| Buildings and improvements | | | 148,616 | | | | 99,856 | |
| Machinery and equipment | | | 390,907 | | | | 310,265 | |
| Construction in progress | | | 21,067 | | | | 6,778 | |
| | | | | | | | | |
| Total | | | 576,441 | | | | 428,234 | |
| Less accumulated depreciation | | | (190,250 | ) | | | (152,201 | ) |
| | | | | | | | | |
| Property, plant and equipment, net | | $ | 386,191 | | | $ | 276,033 | |
| | | | | | | | | |
The increase in net property, plant and equipment from December 31, 2009 to 2010 is primarily due to the Sturm and S.T. Foods acquisitions. Excluding the effect of the Sturm and S.T. Foods acquisitions, net property, plant and equipment decreased by $1.9 million.
Accumulated depreciation includes the amortization of capitalized leases.
Depreciation expense for years ended December 31, 2010, 2009 and 2008 was $43.4 million, $34.0 million and $32.3 million, respectively.
52
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Land | | $ | 19,256 | | | $ | 15,851 | |
Buildings and improvements | | | 158,370 | | | | 148,616 | |
Machinery and equipment | | | 417,156 | | | | 390,907 | |
Construction in progress | | | 42,683 | | | | 21,067 | |
| | | | | | | | |
Total | | | 637,465 | | | | 576,441 | |
Less accumulated depreciation | | | (230,907 | ) | | | (190,250 | ) |
| | | | | | | | |
Property, plant and equipment, net | | $ | 406,558 | | | $ | 386,191 | |
| | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
| 7. | |
7. | GOODWILL AND INTANGIBLE ASSETS |
The changes in the carrying amount of goodwill for the years ended December 31, 20102011 and 2009,2010 are as follows:
| | | | | | | | | | | | | | | | | |
| | | North American
| | | Food Away
| | | Industrial
| | | | |
| | | Retail Grocery | | | From Home | | | and Export | | | Total | |
| | | (In thousands) | |
| |
| Balance at December 31, 2008 | | $ | 343,651 | | | $ | 83,641 | | | $ | 133,582 | | | $ | 560,874 | |
| Reversal of certain reserves related to the consolidation of operations expected at the time of the acquisition of E.D. Smith | | | (4,914 | ) | | | — | | | | — | | | | (4,914 | ) |
| Foreign currency exchange adjustment | | | 17,188 | | | | 1,859 | | | | — | | | | 19,047 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 355,925 | | | | 85,500 | | | | 133,582 | | | | 575,007 | |
| Acquisitions | | | 493,489 | | | | 6,232 | | | | — | | | | 499,721 | |
| Purchase price adjustment | | | (3,640 | ) | | | (100 | ) | | | — | | | | (3,740 | ) |
| Foreign currency exchange adjustment | | | 4,819 | | | | 514 | | | | — | | | | 5,333 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 850,593 | | | $ | 92,146 | | | $ | 133,582 | | | $ | 1,076,321 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | North American
Retail Grocery | | | Food Away
From Home | | | Industrial
and Export | | | Total | |
| | | (In thousands) | |
Balance at December 31, 2009 | | $ | 355,925 | | | $ | 85,500 | | | $ | 133,582 | | | $ | 575,007 | |
Acquisitions | | | 493,489 | | | | 6,232 | | | | — | | | | 499,721 | |
Purchase price adjustment | | | (3,640 | ) | | | (100 | ) | | | — | | | | (3,740 | ) |
Foreign currency exchange
adjustment | | | 4,819 | | | | 514 | | | | — | | | | 5,333 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | 850,593 | | | | 92,146 | | | | 133,582 | | | | 1,076,321 | |
Purchase price adjustment | | | (5,652 | ) | | | (55 | ) | | | — | | | | (5,707 | ) |
Foreign currency exchange
adjustment | | | (2,140 | ) | | | (55 | ) | | | — | | | | (2,195 | ) |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2011 | | $ | 842,801 | | | $ | 92,036 | | | $ | 133,582 | | | $ | 1,068,419 | |
| | | | | | | | | | | | | | | | |
The Company has not incurred any goodwill impairments since its inception.
During 2011, the Company discovered and corrected an immaterial error in the purchase accounting of Sturm. The adjustment reduced goodwill and deferred taxes and is included in the purchase price adjustment line in 2011.Approximately $273.2 million of goodwill is deductible for tax purposes.
The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of December 31, 20102011 and 20092010 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | Gross
| | | | | | Net
| | | Gross
| | | | | | Net
| |
| | | Carrying
| | | Accumulated
| | | Carrying
| | | Carrying
| | | Accumulated
| | | Carrying
| |
| | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount | |
| | | (In thousands) | |
| |
| Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | | | | | | | | | |
| Trademarks | | $ | 32,673 | | | $ | — | | | $ | 32,673 | | | $ | 31,422 | | | $ | — | | | $ | 31,422 | |
| Intangible assets with finite lives: | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer-related | | | 445,578 | | | | (57,480 | ) | | | 388,098 | | | | 147,346 | | | | (35,400 | ) | | | 111,946 | |
| Non-compete agreements | | | 1,000 | | | | (967 | ) | | | 33 | | | | 2,620 | | | | (2,162 | ) | | | 458 | |
| Trademarks | | | 20,010 | | | | (3,393 | ) | | | 16,617 | | | | 10,010 | | | | (2,311 | ) | | | 7,699 | |
| Formulas/recipes | | | 6,825 | | | | (1,972 | ) | | | 4,853 | | | | 1,762 | | | | (761 | ) | | | 1,001 | |
| Computer software | | | 26,007 | | | | (4,664 | ) | | | 21,343 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total other intangibles | | $ | 532,093 | | | $ | (68,476 | ) | | $ | 463,617 | | | $ | 193,160 | | | $ | (40,634 | ) | | $ | 152,526 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | |
| | | (In thousands) | |
Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | | | | | | | | | |
Trademarks | | $ | 32,155 | | | $ | — | | | $ | 32,155 | | | $ | 32,673 | | | $ | — | | | $ | 32,673 | |
Intangible assets with finite lives: | | | | | | | | | | | | | | | | | | | | | | | | |
Customer-related | | | 444,540 | | | | (82,152 | ) | | | 362,388 | | | | 445,578 | | | | (57,480 | ) | | | 388,098 | |
Non-compete agreements | | | 1,000 | | | | (1,000 | ) | | | — | | | | 1,000 | | | | (967 | ) | | | 33 | |
Trademarks | | | 20,010 | | | | (4,555 | ) | | | 15,455 | | | | 20,010 | | | | (3,393 | ) | | | 16,617 | |
Formulas/recipes | | | 6,799 | | | | (3,302 | ) | | | 3,497 | | | | 6,825 | | | | (1,972 | ) | | | 4,853 | |
Computer software | | | 35,721 | | | | (11,356 | ) | | | 24,365 | | | | 26,007 | | | | (4,664 | ) | | | 21,343 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other intangibles | | $ | 540,225 | | | $ | (102,365 | ) | | $ | 437,860 | | | $ | 532,093 | | | $ | (68,476 | ) | | $ | 463,617 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2010,2011, the weighted average remaining useful lifelives for the amortizable intangible assets are (1) customer related at 16.816.0 years, (2) non-compete agreementstrademarks at 0.213.5 years, (3) trademarks at 14.5 years, (4) formulas/recipes at 3.93.0 years, and (5)(4) computer software at 6.15.6 years. The weighted average remaining useful life in total for all amortizable intangible assets is 16.115.1 years as of December 31, 2010.
53
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Amortization expense on intangible assets was $34.4 million, $26.4 million $13.4 million and $13.5$13.4 million, for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. Estimated intangible asset amortization expense for the next five years is as follows:
| | | | | |
| | | (In thousands) | |
| |
| 2011 | | $ | 32,401 | |
| 2012 | | $ | 32,048 | |
| 2013 | | $ | 29,877 | |
| 2014 | | $ | 29,541 | |
| 2015 | | $ | 28,593 | |
Indefinite lived trademarks | | | | |
| | | (In thousands) | |
2012 | | $ | 32,601 | |
2013 | | $ | 31,260 | |
2014 | | $ | 30,925 | |
2015 | | $ | 29,875 | |
2016 | | $ | 29,707 | |
Our 2011 and goodwill are evaluated for impairment annually in the fourth quarter or more frequently, if events or changes in circumstances indicate that the asset might be impaired. Indefinite lived trademarks are impaired and goodwill impairment is indicated when their book value exceeds fair value. If the fair value of an evaluated asset is less than its book value, the asset is written down to fair value, which is generally based on its discounted future cash flows.
Amortizable intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.
Our 2010 impairment review,reviews, using a discounted cash flow analysis, resulted in no impairment.
impairments.Our 2009 impairment review, using a discounted cash flow analysis, resulted in the impairment of theNature’s Goodness®amortizable infant feeding trademark as we focused on our private label opportunities in retail baby food. The remaining balance of approximately $7.6 million was written off as of December 31, 2009 and is included in Other operating (income) expense in our Consolidated Statements of Income.Nature’s Goodness®was a part of the North American Retail Grocery segment. The circumstances resulting in the full impairment of the remaining value occurred during the fourth quarter of 2009. During 2010, we exited the retail infant business which included theNatures Goodness® brand. No other impairment was identified during our 2009 analysis.
During our 2008 impairment review, we determined that theSteinfeld’s ® pickle trademark,Nature’s Goodness ® infant feeding trademark andSan Antonio Farms® salsa trademarks can no longer be classified as indefinite lived, and we began amortizing their remaining balance over their expected remaining useful life of 10, 20 and 10 years, respectively, in 2009. Our review resulted in an impairment expense of approximately $0.6 million related to ourSan Antonio Farms ® trademark and is recorded within the Other operating (income) expense line of our Consolidated Statements of Income, and pertains to the North American Retail Grocery segment.
Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are consistent with our internal projections and operating plans.
54
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 8. | |
8. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Accounts payable | | $ | 112,638 | | | $ | 79,438 | |
| Payroll and benefits | | | 33,730 | | | | 29,921 | |
| Interest and taxes | | | 21,019 | | | | 12,015 | |
| Health insurance, workers’ compensation and other insurance costs | | | 4,855 | | | | 4,837 | |
| Marketing expenses | | | 10,165 | | | | 10,558 | |
| Other accrued liabilities | | | 19,977 | | | | 12,050 | |
| | | | | | | | | |
| Total | | $ | 202,384 | | | $ | 148,819 | |
| | | | | | | | | |
The increase in accounts payable from December 31, 2009 to 2010 is primarily due to the Sturm and S.T. Foods acquisitions. Excluding the effect of the Sturm and S.T. Foods acquisitions, accounts payable and accrued expenses decreased by $12.7 million.
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Accounts payable | | $ | 109,178 | | | $ | 112,638 | |
Payroll and benefits | | | 17,079 | | | | 33,730 | |
Interest and taxes | | | 20,659 | | | | 21,019 | |
Health insurance, workers’ compensation and other insurance costs | | | 5,584 | | | | 4,855 | |
Marketing expenses | | | 7,148 | | | | 10,165 | |
Other accrued liabilities | | | 9,877 | | | | 19,977 | |
| | | | | | | | |
Total | | $ | 169,525 | | | $ | 202,384 | |
| | | | | | | | |
Components of Income from continuing operations, before income taxes are as follows:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Domestic source | | $ | 120,461 | | | $ | 125,413 | | | $ | 35,966 | |
| Foreign source | | | 15,939 | | | | (3,339 | ) | | | 3,489 | |
| | | | | | | | | | | | | |
| Income from continuing operations, before income tax | | $ | 136,400 | | | $ | 122,074 | | | $ | 39,455 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Domestic source | | $ | 118,681 | | | $ | 120,461 | | | $ | 125,413 | |
Foreign source | | | 21,117 | | | | 15,939 | | | | (3,339 | ) |
| | | | | | | | | | | | |
Income before income taxes | | $ | 139,798 | | | $ | 136,400 | | | $ | 122,074 | |
| | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the components of the 2011, 2010 2009 and 20082009 provision for income taxes:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008(1) | |
| | | (In thousands) | |
| |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 26,958 | | | $ | 20,654 | | | $ | 3,858 | |
| State | | | 4,473 | | | | 4,101 | | | | 1,546 | |
| Foreign | | | 4,851 | | | | (2,591 | ) | | | 177 | |
| | | | | | | | | | | | | |
| Total current | | | 36,282 | | | | 22,164 | | | | 5,581 | |
| Deferred: | | | | | | | | | | | | |
| Federal | | | 8,239 | | | | 13,577 | | | | 3,665 | |
| State | | | 1,250 | | | | 1,956 | | | | 350 | |
| Foreign | | | (290 | ) | | | 3,063 | | | | 1,299 | |
| | | | | | | | | | | | | |
| Total deferred | | | 9,199 | | | | 18,596 | | | | 5,314 | |
| | | | | | | | | | | | | |
| Total income tax expense | | $ | 45,481 | | | $ | 40,760 | | | $ | 10,895 | |
| | | | | | | | | | | | | |
| | |
(1) | | Excludes, $(0.2) million income tax benefit related to discontinued operations in 2008. |
55
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Current: | | | | | | | | | | | | |
Federal | | $ | 20,435 | | | $ | 26,958 | | | $ | 20,654 | |
State | | | 3,225 | | | | 4,473 | | | | 4,101 | |
Foreign | | | 6,617 | | | | 4,851 | | | | (2,591 | ) |
| | | | | | | | | | | | |
Total current | | | 30,277 | | | | 36,282 | | | | 22,164 | |
Deferred: | | | | | | | | | | | | |
Federal | | | 13,982 | | | | 8,239 | | | | 13,577 | |
State | | | 1,789 | | | | 1,250 | | | | 1,956 | |
Foreign | | | (657 | ) | | | (290 | ) | | | 3,063 | |
| | | | | | | | | | | | |
Total deferred | | | 15,114 | | | | 9,199 | | | | 18,596 | |
| | | | | | | | | | | | |
Total income tax expense | | $ | 45,391 | | | $ | 45,481 | | | $ | 40,760 | |
| | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a reconciliation of income tax expense computed at the U.S. federal statutory tax rate to the income tax expense reported in the Consolidated Statements of Income:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Tax at statutory rate | | $ | 47,740 | | | $ | 42,726 | | | $ | 13,809 | |
| State income taxes | | | 3,720 | | | | 3,937 | | | | 1,233 | |
| Tax benefit of cross-border intercompany financing structure | | | (5,053 | ) | | | (4,831 | ) | | | (4,762 | ) |
| Reduction of enacted tax rates on deferred tax liabilities (Canada) | | | — | | | | (2,155 | ) | | | — | |
| Transaction costs | | | 1,149 | | | | — | | | | — | |
| Other, net | | | (2,075 | ) | | | 1,083 | | | | 615 | |
| | | | | | | | | | | | | |
| Total provision for income taxes | | $ | 45,481 | | | $ | 40,760 | | | $ | 10,895 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Tax at statutory rate | | $ | 48,929 | | | $ | 47,740 | | | $ | 42,726 | |
State income taxes | | | 3,259 | | | | 3,720 | | | | 3,937 | |
Tax benefit of cross-border intercompany financing structure | | | (4,960 | ) | | | (5,053 | ) | | | (4,831 | ) |
Reduction of enacted tax rates on deferred tax liabilities (Canada) | | | — | | | | — | | | | (2,155 | ) |
Transaction costs | | | — | | | | 1,149 | | | | — | |
Other, net | | | (1,837 | ) | | | (2,075 | ) | | | 1,083 | |
| | | | | | | | | | | | |
Total provision for income taxes | | $ | 45,391 | | | $ | 45,481 | | | $ | 40,760 | |
| | | | | | | | | | | | |
The tax effects of temporary differences giving rise to deferred income tax assets and liabilities were:
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Deferred tax assets: | | | | | | | | |
| Pension and postretirement benefits | | $ | 5,278 | | | $ | 5,116 | |
| Accrued liabilities | | | 11,900 | | | | 11,235 | |
| Stock compensation | | | 13,080 | | | | 22,191 | |
| Unrealized foreign exchange loss | | | 1,073 | | | | 395 | |
| Unrealized loss on interest swap | | | 337 | | | | 1,894 | |
| Other | | | 12 | | | | 1,332 | |
| | | | | | | | | |
| Total deferred tax assets | | | 31,680 | | | | 42,163 | |
| Deferred tax liabilities: | | | | | | | | |
| Depreciation and amortization | | | (222,751 | ) | | | (82,214 | ) |
| Other | | | (347 | ) | | | (1,933 | ) |
| | | | | | | | | |
| Total deferred tax liabilities | | | (223,098 | ) | | | (84,147 | ) |
| | | | | | | | | |
| Net deferred income tax liability | | $ | (191,418 | ) | | $ | (41,984 | ) |
| | | | | | | | | |
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Deferred tax assets: | | | | | | | | |
Pension and postretirement benefits | | $ | 7,247 | | | $ | 5,278 | |
Accrued liabilities | | | 13,135 | | | | 11,900 | |
Stock compensation | | | 12,772 | | | | 13,080 | |
Unrealized foreign exchange loss | | | 642 | | | | 1,073 | |
Unrealized loss on interest swap | | | — | | | | 337 | |
Other | | | 5,704 | | | | 12 | |
| | | | | | | | |
Total deferred tax assets | | | 39,500 | | | | 31,680 | |
Deferred tax liabilities: | | | | | | | | |
Depreciation and amortization | | | (237,568 | ) | | | (222,751 | ) |
Other | | | (336 | ) | | | (347 | ) |
| | | | | | | | |
Total deferred tax liabilities | | | (237,904 | ) | | | (223,098 | ) |
| | | | | | | | |
Net deferred income tax liability | | $ | (198,404 | ) | | $ | (191,418 | ) |
| | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Classification of net deferred tax assets (liabilities) in the Consolidated Balance Sheets is as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Current assets | | $ | 3,499 | | | $ | 3,397 | |
| Non-current liabilities | | | (194,917 | ) | | | (45,381 | ) |
| | | | | | | | | |
| Total net deferred tax liabilities | | $ | (191,418 | ) | | $ | (41,984 | ) |
| | | | | | | | | |
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Current assets | | $ | 3,854 | | | $ | 3,499 | |
Non-current liabilities | | | (202,258 | ) | | | (194,917 | ) |
| | | | | | | | |
Total net deferred tax liabilities | | $ | (198,404 | ) | | $ | (191,418 | ) |
| | | | | | | | |
No valuation allowance has been provided on deferred tax assets as management believes it is more likely than not that the deferred income tax assets will be fully recoverable.
56
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We had the following tax loss carry forwards as of December 31, 2010:
| | | | | | | | | | | | | |
| | | | | | Years of Expiration: | |
| | | Amount | | | Beginning | | | Ending | |
| | | (In thousands) | | | | | | | |
| |
| U.S. state tax loss carry forwards | | | 232 | | | | 2014 | | | | 2016 | |
These tax loss carry forwards are associated with the 2007 acquisition of E.D. Smith.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, Canada and various state jurisdictions. For U.S. federal, state and Canadian purposes the Company is generally open for examination for the tax year ended December 31, 2008 and forward. The Company settled thean Internal Revenue Service (“IRS”) examination of its 2007 federal income tax return in the first quarter of 2010. The exam resulted in a small refund to the Company. The Company has various state tax examinations in process, which are expected to be completed in 2011 or 2012. The outcome of the various state tax examinations is unknown at this time.
E.D. Smith and its affiliates are subject to Canadian, U.S. and state tax examinations from 2005 forward. The IRS completed an examination of E.D. Smith’s U.S. affiliates tax return for 2005 during the first quarter of 2009. An insignificant tax adjustment was paid to settle the examination. During the second quarter of 2010, the Canada Revenue Agency (CRA) completed an income tax audit for the E.D. Smith 2006 and 2007 tax years. The Company did not incur any material adjustments as a result of the tax audit.
The Company settled various state tax examinations during 2011, each resulting in an insignificant amount of additional tax liability.The IRS has initiated an examination of Holdings pre-acquisition tax year ended October 28, 2010. The outcome of the examination is not expected to have a material effect of the Company’s financial position, results of operations or cash flow. The Company has various state tax examinations in process, which are expected to be completed in 2012. The outcome of the various state tax examinations is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.
During the year, the Company recorded adjustments to its unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Unrecognized tax benefits beginning balance | | $ | 3,187 | | | $ | 1,995 | |
| Additions based on tax positions related to the current year | | | 2,932 | | | | 1,535 | |
| Additions based on tax positions of prior years | | | 354 | | | | 227 | |
| Additions resulting from acquisitions | | | 1,887 | | | | — | |
| Reductions for tax positions of prior years | | | (1,264 | ) | | | (529 | ) |
| Foreign currency translation | | | — | | | | 146 | |
| Payments | | | (242 | ) | | | (187 | ) |
| | | | | | | | | |
| Unrecognized tax benefits ending balance | | $ | 6,854 | | | $ | 3,187 | |
| | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Unrecognized tax benefits beginning balance | | $ | 6,854 | | | $ | 3,187 | | | $ | 1,995 | |
Additions based on tax positions related to the current year | | | 2,625 | | | | 2,932 | | | | 1,535 | |
Additions based on tax positions of prior years | | | 1,118 | | | | 354 | | | | 227 | |
Additions resulting from acquisitions | | | 1,364 | | | | 1,887 | | | | — | |
Reductions for tax positions of prior years | | | (565 | ) | | | (1,264 | ) | | | (529 | ) |
Foreign currency translation | | | — | | | | — | | | | 146 | |
Payments | | | — | | | | (242 | ) | | | (187 | ) |
| | | | | | | | | | | | |
Unrecognized tax benefits ending balance | | $ | 11,396 | | | $ | 6,854 | | | $ | 3,187 | |
| | | | | | | | | | | | |
At December 31, 2010,2011, the Company does not anticipate any significant adjustments to its unrecognized tax benefits caused by the settlement of the ongoing tax examinations detailed above or other factors within the next twelve months. Unrecognized tax benefits are included in Other long-term liabilities in our Consolidated Balance Sheets.
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Included in the balance at December 31, 20102011 are amounts that are offset by deferred taxes (i.e., temporary differences) or amounts that would be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Thus, $6.4$11.0 million and $1.9$6.4 million of the amount accrued at December 31, 20102011 and December 31, 2009,2010, respectively, would impact the effective tax rate, if reversed.
The Company recognizes interest (income) expense and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2011, 2010 2009 and 2008,2009, the Company recognized $0.1 million, $(0.6) million $0.1 million and $0.2$0.1 million in interest and penalties in income tax expense, respectively. The Company has accrued approximately $0.1$0.5 million and $0.6$0.1 million for the payment of interest and penalties at December 31, 2011 and 2010, and 2009, respectively.
57
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company considers its investment in E.D. Smith to be permanent and therefore, the Company has not provided U.S. income taxes on the earnings of E.D. Smith or the translation of its financial statements into U.S. dollars. A provision has not been established because it is our present intention to reinvest the E.D. Smith undistributed earnings indefinitely in Canada. The undistributed earnings as of December 31, 20102011 were approximately $27.0$54.4 million. The determination of the amount of unrecognized U.S. federal income tax liabilities for the E.D. Smith unremitted earnings at December 31, 20102011 is not practical at this time.
During the first quarter of 2008, the Company entered into an intercompany financing structure that results in the recognition of foreign earnings subject to a low effective tax rate. As the foreign earnings are permanently reinvested, U.S. income taxes have not been provided. For the years ended December 31, 20102011 and 2009,2010, the Company recognized a tax benefit of approximately $5.6$5.0 million and $6.0$5.6 million, respectively, related to this item.
| | | | | | | | | |
| | | December 31, | |
| | | 2010
| | | 2009
| |
| | | Amount
| | | Amount
| |
| | | Outstanding | | | Outstanding | |
| | | (In thousands) | |
| |
| Revolving credit facility | | $ | 472,600 | | | $ | 298,200 | |
| High yield notes | | | 400,000 | | | | — | |
| Senior notes | | | 100,000 | | | | 100,000 | |
| Tax increment financing and other debt | | | 4,828 | | | | 4,346 | |
| | | | | | | | | |
| Total outstanding debt | | | 977,428 | | | | 402,546 | |
| Less current portion | | | (976 | ) | | | (906 | ) |
| | | | | | | | | |
| Total long-term debt | | $ | 976,452 | | | $ | 401,640 | |
| | | | | | | | | |
| | | | | | | | |
| | | December 31, | |
| | | 2011
Amount
Outstanding | | | 2010
Amount
Outstanding | |
| | | (In thousands) | |
Revolving credit facility | | $ | 395,800 | | | $ | 472,600 | |
High yield notes | | | 400,000 | | | | 400,000 | |
Senior notes | | | 100,000 | | | | 100,000 | |
Tax increment financing and other debt | | | 9,083 | | | | 4,828 | |
| | | | | | | | |
Total outstanding debt | | | 904,883 | | | | 977,428 | |
Less current portion | | | (1,954 | ) | | | (976 | ) |
| | | | | | | | |
Total long-term debt | | $ | 902,929 | | | $ | 976,452 | |
| | | | | | | | |
The scheduled maturities of outstanding debt, at December 31, 2010,2011, are as follows (in thousands):
| | | | | |
| 2011 | | $ | 976 | |
| 2012 | | | 986 | |
| 2013 | | | 100,890 | |
| 2014 | | | 346 | |
| 2015 | | | 472,905 | |
| Thereafter | | | 401,325 | |
| | | | | |
| Total outstanding debt | | $ | 977,428 | |
| | | | | |
| | | | |
2012 | | $ | 1,954 | |
2013 | | | 101,950 | |
2014 | | | 1,525 | |
2015 | | | 1,610 | |
2016 | | | 396,812 | |
Thereafter | | | 401,032 | |
| | | | |
Total outstanding debt | | $ | 904,883 | |
| | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revolving Credit Facility—On October 27, 2010,September 23, 2011, the Company entered into anAmendment No.1 (“Amendment”) to the Amended and Restated Credit Agreement (“Credit Agreement”) with aBank of America, N.A., as administrative agent, and the group of other participating lenders which amends and restateslenders. The Amendment, among other things, extended the Credit Agreement dated June 27, 2005 (as amended) that was to expire August 31, 2011. The Credit Agreement provides for an increase in the aggregate commitment undermaturity of the revolving credit facility from $600 million to $750 millionSeptember 23, 2016, and extendsadjusted the maturity to October 27, 2015. The Credit Agreement also provides for a $75 million letter of credit sublimit, against which $9.2 million and $8.8 million in letters of credit have been issued but undrawn as of December 31, 2010 and 2009, respectively. Proceeds from the credit facility may be used for working capital and general corporate purposes, including acquisition financing. The Company’s obligations under the credit facility are guaranteed by certain of its United States subsidiaries. The credit facility contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a leverage and an interest coverage ratio. We are in compliance with all applicable covenants as of December 31, 2010. As of December 31, 2010, available funds under this facility totaled $268.2 million.
58
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest is payable quarterly or at the end of the applicable interest period in arrears on any outstanding borrowings at a customary Eurodollar rate plus the applicable margin, or at a customary base rate.rates. The interest raterates under the Credit Agreement isare based on the Company’s consolidated leverage ratio, and will beare determined by either LIBOR plus a margin ranging from 1.25%1.00% to 2.05%1.60% or a base rate (as defined in the Credit Agreement) plus a margin ranging from 0.25%0.00% to 1.05%0.60%. In addition, a facility fee based on our consolidated leverage ratio and ranging from 0.25% to 0.45%0.40% is due quarterly on the aggregate commitment under the revolving credit facility. OurThe Company’s unsecured revolving credit facility has an aggregate commitment of $750 million, of which $345.0 million was available as of December 31, 2011. As of December 31, 2011, there were $9.2 million in letters of credit under the revolving credit facility that were issued but undrawn. The revolving credit facility contains various financial and other restrictive covenants and requires that the Company maintains certain financial ratios, including a leverage and interest coverage ratio. The Company is in compliance with all applicable covenants as of December 31, 2011. The Company’s average interest rate on debt outstanding under our Credit Agreement atthe revolving credit facility for the year ended December 31, 20102011 was 2.23%2.03%. IncludingInterest is payable quarterly or at the swap agreement (see below) with a fixed rateend of 2.9% on $50 million, the average rate increases to 2.52% at December 31, 2010.
applicable interest period.The Credit Agreement contains limitations on liens, investments, the incurrence of subsidiary indebtedness, mergers, dispositions of assets, acquisitions, material lines of business and transactions with affiliates. The Credit Agreement restricts certain payments, including dividends, and prohibits certain agreements restricting the ability of our subsidiaries to make certain payments or to guarantee our obligations under the Credit Agreement.
Our revolving credit facility permits the Company to issue dividends, provided that the Company is not in default at the time of the declaration and payment of such dividends. Furthermore, the declaration and payment of dividends must not result in default by the Company. Our revolving credit facility requires that we maintain a certain level of available liquidity (as defined) before and after dividends are declared and paid.High Yield Notes— On March 2, 2010, TreeHouse Foods, Inc. completed its offering of $400 millionThe Company’s 7.75% high yield notes in aggregate principal amount of 7.75% high yield notes$400 million are due March 1, 2018 (the “Notes”). The net proceeds of $391.0 million ($400.0 million notes less underwriting discount of $9.0 million providing an effective interest rate of 8.03%) were used as partial payment in the acquisition of all of the issued and outstanding stock of Sturm. The Company issued the Notes pursuant to an Indenture, dated March 2, 2010 (the “Base Indenture”), among the Company, theare guaranteed by our 100 percent owned subsidiary guarantors party thereto (BayBay Valley Foods, LLC (“Bay Valley”) and its 100 percent owned subsidiaries EDS Holdings, LLC, the “Initial Guarantors”)LLC; Sturm; S.T. Foods and Wells Fargo Bank, National Association, (Trustee), as supplemented by a First Supplemental Indenture, dated March 2, 2010 (the “First Supplemental Indenture”), among the Company, the Initial Guarantors and the Trustee. In addition, on March 2, 2010, the Company entered into a Second Supplemental Indenture, dated March 2, 2010 (the “Second Supplemental Indenture”) pursuantcertain other of our subsidiaries that may become guarantors from time to which Sturm became an additional guarantor of the Notes,time in accordance with the same force and effect as if Sturm was initially named as a guarantor under the Indenture. On October 28, 2010, the Company entered into a Third Supplemental Indenture, dated October 28, 2010 (the “Third Supplemental Indenture” and together with the Base Indenture, the First Supplementalapplicable Indenture and the Second Supplemental Indenture, themay fully, jointly, severally and unconditionally guarantee our payment obligations under any series of debt securities offered. The indenture (the “Indenture”), pursuant to which STSF Holdings, Inc. and S.T. Foods, Inc. (together with the Initial Guarantors and Sturm, the “Guarantors”) became an additional guarantor of governing the Notes with the same force and effect as if STSF Holdings, Inc. and S.T. Foods, Inc. was initially named a guarantor under the Indenture.
The Indenture provides, among other things, that the Notes will be senior unsecured obligations of the Company. The Indenture contains various restrictive covenants of which the Company is in compliance as of December 31, 2011. Interest is payable on the Notespaid semi-annually on March 1 and September 1 of each year, beginning September 1, 2010. The Notes will mature on March 1, 2018.
The Company may redeem some or all of the Notes at any time prior to March 1, 2014 at a price equal to 100% of the principal amount of the Notes redeemed, plus an applicable “make-whole” premium. On or after March 1, 2014, the Company may redeem some or all of the Notes at redemption prices set forth in the First Supplemental Indenture. In addition, at any time prior to March 1, 2013, the Company may redeem up to 35% of the Notes at a redemption price of 107.75% of the principal amount of the Notes redeemed with the net cash proceeds of certain equity offerings.
Subject to certain limitations, in the event of a change of control of the Company, the Company will be required to make an offer to purchase the Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest.
The Company’s payment obligations under the Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Guarantors and future domestic subsidiaries of the Company, other than certain
59
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
excluded subsidiaries and unrestricted subsidiaries. The Notes are not guaranteed by any of the Company’s foreign subsidiaries.
The Indenture contains restrictive covenants that, among other things, limit the ability of the Company and the Guarantorsguarantors to: (i) pay dividends or make other restricted payments, (ii) make certain investments, (iii) incur additional indebtedness or issue preferred stock, (iv) create liens, (v) allow restrictions on the ability of certain of its subsidiaries to pay dividends or make other payments to the Company or the Guarantors,guarantors, (vi) merge or consolidate with other entities or sell substantially all of its assets, (vii) enter into transactions with affiliates and (viii) engage in certain sale and leaseback transactions. The foregoing limitations are only subject to exceptions as set forth in the First Supplemental Indenture. In addition,limitation that the above actions are not permitted if in the future the Notes have an investment grade credit rating by both Moody’s Investors Services, Inc. and Standard & Poor’s Ratings Services, certain of these covenants will, thereafter, no longer apply to the Notes for so long as the Notes are rated investment grade by the two rating agencies. The Company is in compliance with the applicable covenants as of December 31, 2010.
The Indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace and cure periods): (i) non-payment of principal or interest; (ii) breach of certain covenants contained in the Indenture or the Notes, (iii) defaultsabove actions would result in failure to pay certain other indebtedness or the acceleration of certain other indebtedness prior to maturity, (iv) the failure to pay certain final judgments, (v) the failure of certain guarantees to be enforceable and (vi) certain events of bankruptcy or insolvency. Generally, if an event of default occurs (subject to certain exceptions), the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
Indenture.Senior Notes— On September 22, 2006, we completedThe Company maintains a private placement of $100 million in aggregate principal of 6.03% senior notes due September 30, 2013, pursuant to a Note Purchase Agreement among the Company and a group of purchasers. All of the Company’s obligations under the senior notes are fully and unconditionally guaranteed by Bay Valley Foods, LLC, a wholly-owned subsidiary of the Company, and the wholly-owned subsidiaries of Bay Valley Foods, LLC, EDS Holdings, LLC, Sturm and S.T. Foods. The senior notes have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States, absent registration or an applicable exemption. Net proceeds were used to repay outstanding indebtedness under the revolving Credit Agreement. Interest is paid semi-annually in arrears on March 31 and September 30 of each year. As of December 31, 2007, the Company exceeded the permitted leverage ratio of 3.5 to 1.0 requiring an additional interest payment of 1.0% per annum in 2008. The maximum permitted leverage ratio is 4.0 to 1.0, therefore, the Company was in compliance with the covenants of the Note Purchase Agreement. The Company’s leverage ratio was under 3.5 to 1.0 at December 31, 2008 and 2009 and, therefore, the Company did not pay additional interest of 1.0% in 2009 or 2010.
The Note Purchase Agreement contains covenants that
will limit the ability of the Company and its subsidiaries to, among other things, merge with other entities, change the nature of the business, create liens, incur additional indebtedness or sell assets. The Note Purchase Agreement also requires the Company to
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
maintain certain financial ratios. We areThe Company is in compliance with the applicable covenants as of December 31, 2010.
Swap Agreements — The Company entered into a $200 million long term interest rate swap agreement with an effective date of November 19, 2008 to lock into a fixed LIBOR interest rate base. Under the terms of agreement, $200 million in floating rate debt was swapped for a fixed 2.9% interest base rate for a period of 24 months, amortizing to $50 million for an additional nine months at the same 2.9% interest rate. As of December 31, 2010 the swap amount was $50 million. Under the terms2011. All of the Company’s revolving credit agreementobligations under the senior notes are fully and unconditionally guaranteed by Bay Valley, a 100 percent owned subsidiary of the Company, and its 100 percent owned subsidiaries EDS Holdings, LLC; Sturm and S.T. Foods. The senior notes have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in conjunction with our credit spread, this will result inthe United States, absent registration or an all-in borrowing costapplicable exemption. Interest is paid semi-annually on the swapped principal being no more than 4.95% during 2011. The Company did not apply hedge accounting to this swap.
60
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In July 2006, the Company entered into a forward interest rate swap transaction for a notional amount of $100 million, as a hedge of the forecasted private placement of $100 million senior notes. The interest rate swap transaction was terminated on August 31, 2006, which resulted in a pre-tax loss of $1.8 million. The unamortized loss is reflected, net of tax, in Accumulated Other Comprehensive Loss in the Consolidated Balance Sheet.Sheets. The total loss will be reclassified ratably to the Consolidated Statements of Income as an increase to interest expense over the term of the senior notes, providing an effective interest rate of 6.29% over the term of the senior notes. In each of 2011, 2010 2009 and 2008,2009, $0.3 million of the loss was taken into interest expense. We anticipate that $0.3 million of the loss will be reclassified to interest expense in 2011.
2012.Tax Increment Financing—On December 15, 2001, the Urban Redevelopment Authority of Pittsburgh (“URA”) issued $4.0 million of redevelopment bonds, pursuant to a Tax“Tax Increment Financing PlanPlan” to assist with certain aspects of the development and construction of the Company’s Pittsburgh, Pennsylvania facilities. The agreement was transferred to the Company as part of the acquisition of the Soup and Infant Feeding Business. The Company has agreed to make certain payments with respect to the principal amount of the URA’s redevelopment bonds through May 2019. As of December 31, 2010, $2.52011, $2.3 million remains outstanding. Interest accrues at an annual rate of 6.61% for the $0.2 million tranche which is due on November 1, 2011; 6.71% for the $0.4 million tranche which is due on Novembermatures May 1, 2013; and 7.16% for the $1.9 million tranche which is due onmatures May 1, 2019.
Capital Lease Obligations and Other—Capital lease obligations represent machinery and equipment financing obligations, which are payable in monthly installments of principal and interest and are collateralized by the related assets financed.
| 11. | |
11. | STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE |
Common stock—The Company has authorized 90 million shares of common stock with a par value of $0.01 per share and 10 million shares of preferred stock with a par value of $0.01 per share. No preferred stock has been issued.
As of December 31, 2010,2011, there were 35,439,83535,921,288 shares of common sharesstock issued and outstanding. There is no treasury stock.
Earnings per share—Basic earnings per share is computed by dividing net income by the number of weighted average common shares outstanding during the reporting period. The weighted average number of common shares used in the diluted earnings per share calculation is determined using the treasury stock method and includes the incremental effect related to outstanding options, restricted stock, restricted stock units and performance units.
Certain restricted stock awards and restricted stock units were subject to service and market conditions for vesting. The market conditions of the restricted stock awards were met only in the first quarter of 2009, and thus are included in the year to date calculation of diluted earnings per share in that year. These awards arewere no longer outstanding as of December 31, 2010. The market conditions for the restricted stock units were met during the third quarter of 2009 and they became vested. Prior to vesting, the restricted stock units did not meet the criteria for inclusion in the calculation of diluted earnings per share during 2009 and thus were excluded. During 2008, the market conditions of these awards were not met and they were excluded from the calculation of diluted earnings per share.
61
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
The following table summarizes the effect of the share-based compensation awards on the weighted average number of shares outstanding used in calculating diluted earnings per share:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Weighted average common shares outstanding | | | 35,079 | | | | 31,982 | | | | 31,341 | |
| Assumed exercise of stock options(1) | | | 728 | | | | 383 | | | | 96 | |
| Assumed vesting of restricted stock, restricted stock units and performance units(1) | | | 365 | | | | 433 | | | | 32 | |
| | | | | | | | | | | | | |
| Weighted average diluted common shares outstanding | | | 36,172 | | | | 32,798 | | | | 31,469 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Weighted average common shares outstanding | | | 35,805 | | | | 35,079 | | | | 31,982 | |
Assumed exercise/vesting of equity awards (1) | | | 1,145 | | | | 1,093 | | | �� | 816 | |
| | | | | | | | | | | | |
Weighted average diluted common shares outstanding | | | 36,950 | | | | 36,172 | | | | 32,798 | |
| | | | | | | | | | | | |
| | |
| (1) | | Stock options, restricted stock, restricted stock units and performance units are excluded from our computation of diluted earnings per share, because they were anti-dilutive, were 242 thousand, 131 thousand and 29 thousand and 2.2 million for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. |
| 12. | |
12. | STOCK-BASED COMPENSATION |
The Board of Directors adopted and the stockholders approved the TreeHouse Foods, Inc. 2005 Long-Term Incentive Plan.Plan (“Plan”). The Plan was amended and restated as the “TreeHouse Foods, Inc. Equity and Incentive Plan” on February 16, 2007. The Plan is administered by our Compensation Committee, which consists entirely of independent directors. The Compensation Committee determines specific awards for our executive officers. For all other employees below the position of senior vice president (or any analogous title), and if the committee designates, our Chief Executive Officer or such other officers will, from time to time, determine specific persons to whom awards under the Plan will be granted and the extent of, and the terms and conditions of each award. The Compensation Committee or its designee, pursuant to the terms of the Plan, also will make all other necessary decisions and interpretations under the Plan.
Under the Plan, the Compensation Committee may grant awards of various types of equity-based compensation, including stock options, restricted stock, restricted stock units, performance shares and performance units and other types of stock-based awards, and other cash-based compensation. The maximum number of shares that are available to be awarded under the Plan is approximately 6.0 million, of which 0.60.5 million remain available at December 31, 2010.
2011.Income from continuing operations before tax, for the years ended December 31, 2011, 2010 and 2009 and 2008 included share-basedincludes stock-based compensation expense for employeeemployees and director stock options, restricted stock, restricted stock units and performance unitsdirectors of $15.1 million, $15.8 million $13.3 million and $12.2$13.3 million, respectively. The tax benefit recognized related to the compensation cost of these share-based awards was approximately $5.8 million, $6.1 million and $5.1 million for 2011, 2010 and $4.6 million for 2010, 2009, and 2008, respectively.
The Company has estimated that certain employees and all our directors will complete the required service conditions associated with certain restricted stock, restricted stock units, stock options and performance unittheir awards. For all other employees, the Company estimates forfeitures, as not all employees are expected to complete the required service conditions. The expected service period is the longer of the derived service period, as determined from the output of the valuation models, and the service period based on the term of the awards.
Options were granted under our long-term incentive plan and in certain cases pursuant to employment agreements. Options were also granted to our non-employee directors. All options have a three year termvesting schedule and vest one-third on each of the first three anniversaries of the grant date, and a maximum term ofdate. Stock options expire ten years.
62
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
The following table summarizes stock option activity during 2010:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Weighted
| | | | |
| | | | | | | | | Weighted
| | | Average
| | | | |
| | | | | | | | | Average
| | | Remaining
| | | Aggregate
| |
| | | Employee
| | | Director
| | | Exercise
| | | Contractual
| | | Intrinsic
| |
| | | Options | | | Options | | | Price | | | Term (Yrs) | | | Value | |
| |
| Outstanding, December 31, 2009 | | | 2,292,744 | | | | 107,773 | | | $ | 27.28 | | | | 6.4 | | | $ | 27,792,212 | |
| Granted | | | 130,550 | | | | — | | | $ | 46.47 | | | | — | | | | — | |
| Forfeited | | | (6,601 | ) | | | — | | | $ | 27.00 | | | | — | | | | — | |
| Exercised | | | (159,958 | ) | | | (12,977 | ) | | $ | 26.84 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Outstanding, December 31, 2010 | | | 2,256,735 | | | | 94,796 | | | $ | 28.38 | | | | 5.6 | | | $ | 53,400,867 | |
| | | | | | | | | | | | | | | | | | | | | |
| Vested/expect to vest, at December 31, 2010 | | | 2,240,601 | | | | 94,796 | | | $ | 28.35 | | | | 5.6 | | | $ | 53,104,972 | |
| | | | | | | | | | | | | | | | | | | | | |
| Exercisable, December 31, 2010 | | | 1,980,891 | | | | 93,196 | | | $ | 27.55 | | | | 5.3 | | | $ | 48,824,201 | |
| | | | | | | | | | | | | | | | | | | | | |
2011: | | | | | | | | | | | | | | | | | | | | |
| | | Employee
Options | | | Director
Options | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Term (yrs.) | | | Aggregate
Intrinsic
Value | |
| | | (In thousands) | | | | | | | | | (In thousands) | |
Outstanding, December 31, 2010 | | | 2,257 | | | | 95 | | | $ | 28.38 | | | | 5.6 | | | $ | 53,401 | |
Granted | | | 110 | | | | — | | | $ | 54.90 | | | | | | | | | |
Forfeited | | | — | | | | — | | | $ | — | | | | | | | | | |
Exercised | | | (124 | ) | | | — | | | $ | 25.93 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Outstanding, December 31, 2011 | | | 2,243 | | | | 95 | | | $ | 29.76 | | | | 4.8 | | | $ | 83,292 | |
| | | | | | | | | | | | | | | | | | | | |
Vested/expect to vest, at December 31, 2011 | | | 2,238 | | | | 95 | | | $ | 29.71 | | | | 4.8 | | | $ | 83,220 | |
| | | | | | | | | | | | | | | | | | | | |
Exercisable, December 31, 2011 | | | 2,046 | | | | 95 | | | $ | 27.79 | | | | 4.4 | | | $ | 80,493 | |
| | | | | | | | | | | | | | | | | | | | |
During the years ended December 31, 2011, 2010 2009 and 2008,2009, the total intrinsic value of stock options exercised was approximately $3.7 million, $3.4 million $1.9 million and $3.8$1.9 million, respectively. The tax benefit recognized from stock option exercises in 2011, 2010 2009 and 20082009 was approximately $1.4 million, $1.3 million $0.7 million and $1.4$0.7 million, respectively. Compensation expense related to unvested options totaled $2.5$3.1 million at December 31, 20102011 and will be recognized over the remaining vesting period of the grants, which averages 2.1 years. The average grant date fair value of options granted, in 2011, 2010 and 2009 was $20.36, $19.11 and 2008 was $19.11, $8.97, and $8.09, respectively.
In addition to stock options, certain management employees were granted restricted stock and restricted stock units, pursuant to the terms of their employment agreements that are subject to service and market conditions for vesting. The restricted stock awards expired and are no longer outstanding as of December 31, 2010. During 2009, the vesting conditions of the restricted stock units were satisfied. Issuance of the shares related to the units was deferred pursuant to the deferral elections of the participants.
During 2008, theThe Company began issuingissues restricted stock and restricted stock units to non-employee directors and a larger pool of employees. Generally these restricted stock and restricted stock unit awards vest based on the passage of time. Awards granted to employees generally vest one-third on each anniversary of the grant date. Additionally, certain restricted stock awards issued to our executives are subject to a performance condition that requires operating income for the previous twelve months to be greater than $0. This condition may be satisfied on a yearly or cumulative basis over three years. Restricted stock units granted to our non-employee directors in 2008generally vest over one year and those granted subsequent to 2008 vest over thirteen months.on the anniversary of the thirteenth month. The fair value of these awards is equal to the closing price of our stock on the date of grant. The following table summarizes the restricted stock and restricted stock unit activity during 2010:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted
| | | Employee
| | | Weighted
| | | Director
| | | Weighted
| |
| | | Employee
| | | Average
| | | Restricted
| | | Average
| | | Restricted
| | | Average
| |
| | | Restricted
| | | Grant Date
| | | Stock
| | | Grant Date
| | | Stock
| | | Grant Date
| |
| | | Stock | | | Fair Value | | | Units | | | Fair Value | | | Units | | | Fair Value | |
| |
| Outstanding, at December 31, 2009 | | | 1,202,319 | | | $ | 24.28 | | | | 784,931 | | | $ | 26.16 | | | | 45,400 | | | $ | 26.96 | |
| Granted | | | — | | | $ | — | | | | 266,485 | | | $ | 45.73 | | | | 16,870 | | | $ | 46.47 | |
| Vested | | | (277,754 | ) | | $ | 24.22 | | | | (619,159 | ) | | $ | 25.62 | | | | — | | | $ | — | |
| Forfeited | | | (632,937 | ) | | $ | 24.28 | | | | (12,381 | ) | | $ | 31.31 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding, at December 31, 2010 | | | 291,628 | | | $ | 24.32 | | | | 419,876 | | | $ | 39.22 | | | | 62,270 | | | $ | 32.24 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
2011: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Employee
Restricted
Stock | | | Weighted
Average
Grant Date
Fair Value | | | Employee
Restricted
Stock
Units | | | Weighted
Average
Grant Date
Fair Value | | | Director
Restricted
Stock
Units | | | Weighted
Average
Grant Date
Fair Value | |
| | | (In thousands) | | | | | | (In thousands) | | | | | | (In thousands) | | | | |
Outstanding, at December 31, 2010 | | | 292 | | | $ | 24.32 | | | | 420 | | | $ | 39.22 | | | | 62 | | | $ | 32.24 | |
Granted | | | — | | | | — | | | | 128 | | | $ | 54.96 | | | | 13 | | | $ | 54.90 | |
Vested | | | (275 | ) | | $ | 24.20 | | | | (143 | ) | | $ | 38.11 | | | | (4 | ) | | $ | 46.47 | |
Forfeited | | | (2 | ) | | $ | 26.04 | | | | (37 | ) | | $ | 43.94 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding, at December 31, 2011 | | | 15 | | | $ | 26.35 | | | | 368 | | | $ | 44.66 | | | | 71 | | | $ | 35.51 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Compensation expense for all restricted stock and restricted stock units totaled $11.0 million in 2011, $11.4 million in 2010, and $8.0 million in 2009. The restricted stock and restricted stock units vested during 2011, 2010 and 2009 had a fair value of $23.1 million, $41.6 million and $6.4$7.8 million, in 2008.
63
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future compensation cost for restricted stock and restricted stock units is approximately $14.5$11.0 million as of December 31, 2010,2011 and will be recognized on a weighted average basis over the next 1.8 years.
Performance unit awards have beenare granted to certain members of management. These awards contain service and performance conditions. For each of the three performance period,periods, one third of the units will accrue, multiplied by a predefined percentage between 0% and 200%, depending on the achievement of certain operating performance measures. Additionally, for the cumulative performance period, a number of units will accrue, equal to the number of units granted multiplied by a predefined percentage between 0% and 200%, depending on the achievement of certain operating performance measures, less any units previously accrued. Accrued units will be converted to stock or cash, at the discretion of the Compensation Committeecompensation committee, generally, on the third anniversary of the grant date. The Company intends to settle these awards in stock and has the shares available to do so. The Company expects that 200%As of December 31, 2011, based on achievement of operating performance measures, 72,900 performance units were converted into 145,800 shares of stock. Conversion of these shares was based on attainment of at least 120% of the 2008target performance goals, and 2009resulted in the vesting awards will accrue and vest over the cumulativebeing converted into two shares of stock for each performance and service period, and approximately 100% of the 2010 awards will accrue and vest over the cumulative performance and service period, subject to estimated forfeitures. unit.
The following table summarizes the performance unit activity during the twelve months ended December 31, 2010:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | Performance
| | | Grant Date
| |
| | | Units | | | Fair Value | |
| |
| Unvested, at December 31, 2009 | | | 127,800 | | | $ | 26.15 | |
| Granted | | | 38,885 | | | $ | 46.29 | |
| Vested | | | — | | | | — | |
| Forfeited | | | (1,625 | ) | | $ | 28.47 | |
| | | | | | | | | |
| Unvested, at December 31, 2010 | | | 165,060 | | | $ | 30.87 | |
| | | | | | | | | |
2011: | | | | | | | | |
| | | Performance
Units | | | Weighted
Average
Grant Date
Fair Value | |
| | | (In thousands) | | | | |
Unvested, at December 31, 2010 | | | 165 | | | $ | 30.87 | |
Granted | | | 43 | | | $ | 54.90 | |
Vested | | | (73 | ) | | $ | 24.06 | |
Forfeited | | | (5 | ) | | $ | 44.35 | |
| | | | | | | | |
Unvested, at December 31, 2011 | | | 130 | | | $ | 42.11 | |
| | | | | | | | |
Future compensation cost related to the performance units is estimated to be approximately $3.3$2.6 million as of December 31, 2010,2011 and is expected to be recognized over the next 1.8 years. The future compensation accrual is based on the assumption that 200% of the 2008 and 2009 awards, and approximately 100% of the 2010 awards will vest. The grant date fair value of the awards is equal to the Company’s closing stock price on the date of grant.
The fair value of performance units vested in 2011 was $8.0 million. No performance units vested in 2010 or 2009.The fair value of stock options, restricted stock, restricted stock unit awards and performance units (the “Awards”) is determined on the date of grant using the assumptions noted in the following table or the market price of the Company’s stock on the date of grant. Stock options were valued using a Black Scholes model. Performance units, and restricted stock and restricted stock unit awards were valued using the closing price of the Company’s stock on the date of grant. Expected volatilities for 2011 and 2010 are based on historical volatilities of the Company’s stock price. Prior to 2010, expected volatilities were based on the implied historical volatilities from peer companies and other factors, as the Company’s stock was not publically traded prior to June 27, 2005. The risk-free interest rate for periods within the contractual life of the Awards is based on the U.S. Treasury yield curve in effect at the time of the grant. As the Company began operations in 2005, we do not have significant history to determine the expected term of our awards based on our experience alone. As such, we based our
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
expected term on that of comparable companies. The assumptions used to calculate the value of the option awards granted in 2011, 2010 2009 and 20082009 are presented as follows:
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Expected volatility | | | 35.00 | % | | | 26.37 | % | | | 26.37 | % |
| Expected dividends | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| Risk-free interest rate | | | 3.87 | % | | | 3.53 | % | | | 3.53 | % |
| Expected term | | | 6.0 years | | | | 6.0 years | | | | 6.0 years | |
64
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Expected volatility | | | 33.35 | % | | | 35.00 | % | | | 26.37 | % |
Expected dividends | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
Risk-free interest rate | | | 2.57 | % | | | 3.87 | % | | | 3.53 | % |
Expected term | | | 6.0 years | | | | 6.0 years | | | | 6.0 years | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 13. | |
13. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
Accumulated Other Comprehensive Loss consists of the following components all of which are net of tax, except for the foreign currency translation adjustment:
| | | | | | | | | | | | | | | | | |
| | | | | | Unrecognized
| | | | | | Accumulated
| |
| | | Foreign
| | | Pension and
| | | Derivative
| | | Other
| |
| | | Currency
| | | Postretirement
| | | Financial
| | | Comprehensive
| |
| | | Translation(1) | | | Benefits | | | Instrument | | | Loss | |
| | | (In thousands) | |
| |
| Balance at December 31, 2007 | | $ | (3,325 | ) | | $ | (2,858 | ) | | $ | (914 | ) | | $ | (7,097 | ) |
| Other comprehensive (loss) gain | | | (50,198 | ) | | | (6,261 | ) | | | 162 | | | | (56,297 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2008 | | | (53,523 | ) | | | (9,119 | ) | | | (752 | ) | | | (63,394 | ) |
| Other comprehensive gain | | | 35,678 | | | | 604 | | | | 161 | | | | 36,443 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | (17,845 | ) | | | (8,515 | ) | | | (591 | ) | | | (26,951 | ) |
| Other comprehensive gain | | | 14,066 | | | | 690 | | | | 161 | | | | 14,917 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | $ | (3,779 | ) | | $ | (7,825 | ) | | $ | (430 | ) | | $ | (12,034 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Foreign
Currency
Translation (1) | | | Unrecognized
Pension and
Postretirement
Benefits | | | Derivative
Financial
Instrument | | | Accumulated
Other
Comprehensive
Loss | |
| | | (In thousands) | |
Balance at December 31, 2008 | | $ | (53,523 | ) | | $ | (9,119 | ) | | $ | (752 | ) | | $ | (63,394 | ) |
Other comprehensive gain | | | 35,678 | | | | 604 | | | | 161 | | | | 36,443 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | | (17,845 | ) | | | (8,515 | ) | | | (591 | ) | | | (26,951 | ) |
Other comprehensive gain | | | 14,066 | | | | 690 | | | | 161 | | | | 14,917 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | (3,779 | ) | | | (7,825 | ) | | | (430 | ) | | | (12,034 | ) |
Other comprehensive (loss) gain | | | (6,489 | ) | | | (4,000 | ) | | | 161 | | | | (10,328 | ) |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2011 | | $ | (10,268 | ) | | $ | (11,825 | ) | | $ | (269 | ) | | $ | (22,362 | ) |
| | | | | | | | | | | | | | | | |
| | |
| (1) | | The foreign currency translation adjustment is not net of tax, as it pertains to the Company’s permanent investment in theits Canadian subsidiary, E.D. Smith. |
| 14. | |
14. | EMPLOYEE PENSION AND RETIREMENTPOSTRETIREMENT BENEFIT PLANS |
Pension and Postretirement Benefits—Certain of our employees and retirees participate in pension and other postretirement benefit plans. Employee benefit plan obligations and expenses included in the Consolidated Financial Statements are determined based on plan assumptions, employee demographic data, including years of service and compensation, benefits and claims paid, and employer contributions.
Defined Contribution Plans—Certain of our non-union employees participate in savings and profit sharing plans. These plans generally provide for salary reduction contributions to the plans on behalf of the participants of between 1% and 20%80% of a participant’s annual compensation and provide for employer matching and profit sharing contributions. The Company established a tax-qualified defined contribution plan to manage the assets. For 2011, 2010 2009 and 2008,2009, the Company made matching contributions to the plan of $4.3 million, $3.3 million and $2.9 million, and $2.8 million, respectively.
Multiemployer Pension and Certain Union Plans—The Company contributes to several multiemployer pension plans on behalf of employees covered by collective bargaining agreements. These plans are administered jointly by management and union representatives and cover substantially all full-time and certain part-time union employees who are not covered by other plans. The Multiemployer Pension Plan Amendments Actrisks of 1980 amended ERISA to establish funding requirements and obligations for employers participating in multiemployer plans principally relatedare different from single-employer plans in the following aspects: (1) assets contributed to the multiemployer plan by one employer withdrawal from or terminationmay be used to
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
provide benefits to employees of such plans. Weother participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (3) if the Company chooses to stop participating in a multiemployer plan, we could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans. At this time, we have not established any liabilities because withdrawal from these plans is not probable. In 2011, 2010 2009 and 2008,2009, the contributions to these plans, which are expensed as incurred, were $1.6 million, $1.6 million and $1.5 million, respectively.
The Company’s participation in multiemployer pension plans is outlined in the table below. The EIN column provides the Employer Identification Number (“EIN”) of each plan. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2011 and $1.7 million,2010 is for the plan’s year ended December 31, 2010, and 2009, respectively.
The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP” column indicates plans for which a financial improvement plan “(“FIP”) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. There have been no significant changes in the number of Company employees covered by the multiemployer plans or other significant events that would impact the comparability of contributions to the plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | EIN Number | | Plan Number | | Pension Protection Act
Zone Status | | FIP
Implemented
(yes or no) | | | | | | | | | | | Surcharge
Imposed (yes or no) | | Expiration
Date Of Collective
Bargaining Agreement | |
| | | | | Plan Year Ended
December, 31 | | | TreeHouse Foods
Contributions | | | |
Plan Name: | | | | 2011 | | 2010 | | | 2011 | | | 2010 | | | 2009 | | | |
Central States Southeast and Southwest Areas Pension Fund | | 36-2154936 | | 1 | | Red | | Red | | Yes | | $ | 620,518 | | | $ | 590,697 | | | $ | 525,185 | | | No | | | 12/28/2013 | |
Rockford Area Dairy Industry Local 754, Intl. Brotherhood of Teamsters Retirement Pension Plan | | 36-6067654 | | 1 | | Green | | Green | | No | | $ | 422,810 | | | $ | 403,461 | | | $ | 351,189 | | | No | | | 4/30/2012 | |
Western Conference of Teamsters Pension Fund | | 91-6145047 | | 1 | | Green | | Green | | No | | $ | 314,636 | | | $ | 330,727 | | | $ | 358,810 | | | No | | | 2/28/2012 | |
The Company was listed in the plan’s Form 5500 as providing more than 5% of the total contributions for the following plan and plan years.
| | |
Plan Name: | | Year Contributions to Plan
Exceeded More Than 5% of total
Contributions (as of December 31
Of the Plan’s Year-End) |
Rockford Area Dairy Industry Local 754, Intl. Brotherhood of Teamsters Retirement Pension Plan | | 2011, 2010 and 2009 |
Defined Benefit Pension Plans—The Company established a tax-qualified pension plan and master trust to manage the portion of the pension plan assets related to TreeHouse eligible salaried and non-union and union employees not covered by a multi-employermultiemployer pension plan. We also retain investment consultants to assist our Investment Committee with formulating a long-term investment policy for the master trust. The expected long term rate of return on assets is based on projecting long-term market returns for the various asset classes in which the plans
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assets are invested, weighted by the target asset allocations. The estimated ranges are
65
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
primarily based on observations of historical asset returns and their historical volatility. In determining the expected returns, we also consider consensus forecasts of certain market and economic factors that influence returns, such as inflation, gross domestic product trends and dividend yields. Active management of the plan assets may result in adjustments to the historical returns. The rate of return assumption is reviewed annually.
The Company’s overall investment strategy is to provide a regular and reliable source of income to meet the liquidity needs of the pension plans and minimize reliance on plan sponsor contributions as a source of benefit security. The Company’s investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants. Central to the policy are target allocation ranges by major asset classes. The objective of the target allocations are to ensure the assets are invested with the intent to protect pension plan assets so that such assets are preserved for the provision of benefits to participants and their beneficiaries and such long-term growth as may maximize the amounts available to provide such benefits without undue risk. Additionally, we consider the weighted average return of a capital markets model and historical returns on comparable equity, debt and other investments. Our current asset mix guidelines, under the investment policy, target equities at 55% to 65% of the portfolio and fixed income at 35% to 45%. At December 31, 2010,2011, our master trust was invested as follows: equity securities of 62%59%, fixed income securities of 37%,36% and cash and cash equivalents of 1%5%. Equity securities primarily include investments in collective equity funds that primarily invest in securities in the United States. Fixed income securities primarily include investments in collective funds that invest in corporate bonds of companies from diversified industries. Other investments are short term in nature, including certificates of deposit, investments in a collective bond fund that investinvests in commercial paper, time deposits, fixed rate notes and bonds and others.
The fair value of the Company’s pension plan assets at December 31, 20102011 and 2009,2010, by asset category areis as follows:
| | | | | | | | | |
| | | | | | Pension Plan Assets
| |
| | | | | | Fair Value Measurements at
| |
| | | Level | | | December 31, 2010 | |
| |
| Short Term Investment Fund(a) | | | 2 | | | $ | 221 | |
| Aggregate Bond Index Fund(b) | | | 2 | | | | 12,069 | |
| U.S. Market Cap Equity Index Fund(c) | | | 2 | | | | 16,868 | |
| International All Country World Index Fund(d) | | | 2 | | | | 3,242 | |
| | | | | | | | | |
| | | | | | | $ | 32,400 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | Pension Plan Assets
| |
| | | | | | Fair Value Measurements at
| |
| | | Level | | | December 31, 2009 | |
| |
| Short Term Investment Fund(a) | | | 1 | | | $ | 654 | |
| Aggregate Bond Index Fund(b) | | | 1 | | | | 9,510 | |
| U.S. Market Cap Equity Index Fund(c) | | | 1 | | | | 16,211 | |
| International All Country World Index Fund(d) | | | 1 | | | | 3,329 | |
| | | | | | | | | |
| | | | | | | $ | 29,704 | |
| | | | | | | | | |
| | | | | | | | |
| | | Level (e) | | | Pension Plan Assets
Fair Value
Measurements at
December 31, 2011 | |
| | | | | | (In thousands) | |
Short Term Investment Fund (a) | | | 2 | | | $ | 1,824 | |
Aggregate Bond Index Fund (b) | | | 2 | | | | 12,545 | |
U.S. Market Cap Equity Index Fund (c) | | | 2 | | | | 17,281 | |
International All Country World Index Fund (d) | | | 2 | | | | 3,127 | |
| | | | | | | | |
| | | | | | $ | 34,777 | |
| | | | | | | | |
| | | | | | | | |
| | | Level (e) | | | Pension Plan Assets
Fair Value
Measurements at
December 31, 2010 | |
| | | | | | (In thousands) | |
Short Term Investment Fund (a) | | | 2 | | | $ | 221 | |
Aggregate Bond Index Fund (b) | | | 2 | | | | 12,069 | |
U.S. Market Cap Equity Index Fund (c) | | | 2 | | | | 16,868 | |
International All Country World Index Fund (d) | | | 2 | | | | 3,242 | |
| | | | | | | | |
| | | | | | $ | 32,400 | |
| | | | | | | | |
| | |
| (a) | | This fund is an investment vehicle for cash reserves, thatwhich seeks to offer a competitive rate of return through a portfolio of high-grade, short term, money market instruments. Principal preservation is the primary objective of this fund. |
|
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| (b) | | The primary objective of this fund is to hold a portfolio representative of the overall United States bond and debt market, as characterized by the Barclays Capital aggregateAggregate Bond Index. |
66
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| (c) | | The primary objective of this fund is to approximate the risk and return characteristics of the Dow Jones U.S. ex-LP’s Total Stock Market index.Index. |
|
| (d) | | The primary objective of this fund is to approximate the risk and return characteristics of the Morgan Stanley All Country World ex-US (MSCI ACWI exUS)ex-US) ND Index. This fund is commonly used to represent theNon-U.S. non-U.S. equity in developed and emerging markets. |
The pension plan assets are held in collective funds and in 2009, were presented as Level 1 investments in a manner that looked through the funds to the underlying investments. For 2010, the pension plan assets are presented at the fund level as Level 2 investments. The presentation of the pension plan assets for 2009 has been adjusted so that the investments are presented consistent with the 2010 presentation.
| (e) | Level 2 inputs are inputs other than quoted prices that are observable for an asset or liability, either directly or indirectly. |
Pension benefits for eligible salaried and non-union TreeHouse employees were frozen in 2002 for years of creditable service. For these employees incremental pension benefits are only earned for changes in compensation effecting final average pay. Pension benefits earned by union employees covered by collective bargaining agreements, but not participating in multiemployer pension plans, are earned based on creditable years of service and the specified benefit amounts negotiated as part of the collective bargaining agreements. The Company’s funding policy provides that annual contributions to the pension plan master trust will be at least equal to the minimum amounts required by ERISA.Employee Retirement Security Act of 1974, as amended. The Company estimates that its 20112012 contributions to its pension plans will be $4.9$4.0 million. The measurement date for the defined benefit pension plans is December 31.
Other Postretirement Benefits—Certain employees participate in benefit programs which provide certain health care and life insurance benefits for retired employees and their eligible dependents. The plans are unfunded. The Company estimates that its 20112012 contributions to its postretirement benefit plans will be $0.2 million. The measurement date for the other postretirement benefit plans is December 31.
The Company contributes to certain multiemployer postretirement benefit plans other than pensions on behalf of employees covered by collective bargaining agreements. These plans are administered jointly by management and union representatives and covers all eligible retirees. These plans are primarily health and welfare funds and carry the same multiemployer risks as identified at the beginning of Note 14. Total contributions to these plans were $1.4 million, $1.3 million, and $0.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. Increase in expense from 2009, 2010 and 2011 is due to the transfer of the postretirement union retiree medical plan at our Dixon facility to the Central States multiemployer plan. Effective March 31, 2010, the Company negotiated the transfer of the postretirement union retiree medical plan at the Dixon production facility to the Central States multiemployer plan. The Company transferred its liability to the multiemployer plan and no longer carries a liability for the accumulated benefit obligation of the employees covered under that plan, resulting in a plan curtailment. The curtailment resulted in a gain of $2.4 million, $1.4 million net of tax, which is included in Other operating expense (income) expense,, net on the Condensed Consolidated Statements of Income.
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about our pension and postretirement benefit plans for the years ended December 31, 20102011 and 2009:
| | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | (In thousands) | | | (In thousands) | |
| |
Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Benefit obligation, at beginning of year | | $ | 38,780 | | | $ | 33,540 | | | $ | 4,713 | | | $ | 3,959 | |
| Service cost | | | 2,023 | | | | 1,933 | | | | 85 | | | | 255 | |
| Interest cost | | | 2,136 | | | | 2,083 | | | | 140 | | | | 239 | |
| Amendments | | | — | | | | 182 | | | | — | | | | — | |
| Acquisitions | | | — | | | | — | | | | 1,064 | | | | — | |
| Curtailments | | | — | | | | — | | | | (3,758 | ) | | | — | |
| Actuarial losses | | | 2,141 | | | | 2,854 | | | | 279 | | | | 358 | |
| Benefits paid | | | (1,868 | ) | | | (1,812 | ) | | | (198 | ) | | | (98 | ) |
| | | | | | | | | | | | | | | | | |
| Benefit obligation, at end of year | | $ | 43,212 | | | $ | 38,780 | | | $ | 2,325 | | | $ | 4,713 | |
| | | | | | | | | | | | | | | | | |
67
| | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | (In thousands) | | | (In thousands) | |
Change in benefit obligation: | | | | | | | | | | | | | | | | |
Benefit obligation, at beginning of year | | $ | 43,212 | | | $ | 38,780 | | | $ | 2,325 | | | $ | 4,713 | |
Service cost | | | 2,199 | | | | 2,023 | | | | 30 | | | | 85 | |
Interest cost | | | 2,219 | | | | 2,136 | | | | 118 | | | | 140 | |
Acquisitions | | | — | | | | — | | | | — | | | | 1,064 | |
Curtailments | | | — | | | | — | | | | — | | | | (3,758 | ) |
Actuarial losses | | | 4,914 | | | | 2,141 | | | | 904 | | | | 279 | |
Benefits paid | | | (1,712 | ) | | | (1,868 | ) | | | (149 | ) | | | (198 | ) |
| | | | | | | | | | | | | | | | |
Benefit obligation, at end of year | | $ | 50,832 | | | $ | 43,212 | | | $ | 3,228 | | | $ | 2,325 | |
| | | | | | | | | | | | | | | | |
Change in plan assets: | | | | | | | | | | | | | | | | |
Fair value of plan assets, at beginning of year | | $ | 32,400 | | | $ | 29,704 | | | $ | — | | | $ | — | |
Actual return on plan assets | | | 476 | | | | 3,314 | | | | — | | | | — | |
Company contributions | | | 3,613 | | | | 1,250 | | | | 149 | | | | 198 | |
Benefits paid | | | (1,712 | ) | | | (1,868 | ) | | | (149 | ) | | | (198 | ) |
| | | | | | | | | | | | | | | | |
Fair value of plan assets, at year end | | $ | 34,777 | | | $ | 32,400 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Funded status of the plan | | $ | (16,055 | ) | | $ | (10,812 | ) | | $ | (3,228 | ) | | $ | (2,325 | ) |
| | | | | | | | | | | | | | | | |
Amounts recognized in the Consolidated Balance Sheets: | | | | | | | | | | | | | | | | |
Current liability | | $ | — | | | $ | — | | | $ | (165 | ) | | $ | (175 | ) |
Non-current liability | | | (16,055 | ) | | | (10,812 | ) | | | (3,063 | ) | | | (2,150 | ) |
| | | | | | | | | | | | | | | | |
Net amount recognized | | $ | (16,055 | ) | | $ | (10,812 | ) | | $ | (3,228 | ) | | $ | (2,325 | ) |
| | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | |
Net actuarial loss (gain) | | $ | 16,249 | | | $ | 10,095 | | | $ | 749 | | | $ | (167 | ) |
Prior service cost | | | 2,846 | | | | 3,449 | | | | (440 | ) | | | (508 | ) |
| | | | | | | | | | | | | | | | |
Total, before tax effect | | $ | 19,095 | | | $ | 13,544 | | | $ | 309 | | | $ | (675 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | Pension Benefits | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Accumulated benefit obligation | | $ | 47,295 | | | $ | 40,582 | |
Weighted average assumptions used to determine the pension benefit obligations: | | | | | | | | |
Discount rate | | | 4.75 | % | | | 5.25 | % |
Rate of compensation increases | | | 4.00 | % | | | 4.00 | % |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
| | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | (In thousands) | | | (In thousands) | |
| |
Change in plan assets: | | | | | | | | | | | | | | | | |
| Fair value of plan assets, at beginning of year | | $ | 29,704 | | | $ | 17,600 | | | $ | — | | | $ | — | |
| Actual return on plan assets | | | 3,314 | | | | 5,019 | | | | — | | | | — | |
| Company contributions | | | 1,250 | | | | 8,897 | | | | 198 | | | | 98 | |
| Benefits paid | | | (1,868 | ) | | | (1,812 | ) | | | (198 | ) | | | (98 | ) |
| | | | | | | | | | | | | | | | | |
| Fair value of plan assets, at year end | | $ | 32,400 | | | $ | 29,704 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Funded status of the plan | | $ | (10,812 | ) | | $ | (9,076 | ) | | $ | (2,325 | ) | | $ | (4,713 | ) |
| | | | | | | | | | | | | | | | | |
Amounts recognized in the Consolidated Balance Sheet consist of: | | | | | | | | | | | | | | | | |
| Current liability | | $ | — | | | $ | — | | | $ | (175 | ) | | $ | (107 | ) |
| Non-current liability | | | (10,812 | ) | | | (9,076 | ) | | | (2,150 | ) | | | (4,606 | ) |
| | | | | | | | | | | | | | | | | |
| Net amount recognized | | $ | (10,812 | ) | | $ | (9,076 | ) | | $ | (2,325 | ) | | $ | (4,713 | ) |
| | | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated Other Comprehensive Loss consist of: | | | | | | | | | | | | | | | | |
| Net actuarial loss | | $ | 10,095 | | | $ | 9,591 | | | $ | (167 | ) | | $ | 925 | |
| Prior service cost | | | 3,449 | | | | 4,052 | | | | (508 | ) | | | (576 | ) |
| | | | | | | | | | | | | | | | | |
| Total, before tax effect | | $ | 13,544 | | | $ | 13,643 | | | $ | (675 | ) | | $ | 349 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | Pension Benefits |
| | | 2010 | | 2009 |
| | | (In thousands) |
| |
Accumulated benefit obligation: | | $ | 40,582 | | | $ | 35,749 | |
Weighted average assumptions used to determine the pension benefit obligations: | | | | | | | | |
| Discount rate | | | 5.25 | % | | | 5.75 | % |
| Rate of compensation increases | | | 4.00 | % | | | 4.00 | % |
The key actuarial assumptions used to determine the postretirement benefit obligations as of December 31, 20102011 and 20092010 are as follows:
| | | | | | | | | | | | | |
| | | 2010 | | 2009 |
| | | Pre-65 | | Post 65 | | Pre-65 | | Post 65 |
| |
Healthcare inflation: | | | | | | | | | | | | |
| Initial rate | | 7.5% - 9.0% | | 9.0% | | | 8.0 | % | | | 10.0 | % |
| Ultimate rate | | 5.0% | | 5.0% | | | 5.0 | % | | | 5.0 | % |
| Year ultimate rate achieved | | 2015-2018 | | 2015-2018 | | | 2015 | | | | 2015 | |
| Discount rate | | 5.25% | | 5.25% | | | 5.75 | % | | | 5.75 | % |
68
| | | | | | | | | | | | | | | | |
| | | 2011 | | | 2010 | |
| | | Pre-65 | | | Post 65 | | | Pre-65 | | | Post 65 | |
Health care cost trend rates: | | | | | | | | | | | | | | | | |
Health care cost trend rate for next year | | | 8.5 | % | | | 8.0 | % | | | 7.5% – 9.0 | % | | | 9.0 | % |
Ultimate rate | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % |
Discount rate | | | 4.75 | % | | | 4.75 | % | | | 5.25 | % | | | 5.25 | % |
Year ultimate rate achieved | | | 2018 | | | | 2017 | | | | 2015-2018 | | | | 2015-2018 | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the net periodic cost of our pension plans and postretirement plans, for the years ended December 31, 2011, 2010 2009 and 2008:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2010 | | | 2009 | | | 2008 | | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | | | (In thousands) | |
| |
Components of net periodic costs: | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 2,023 | | | $ | 1,933 | | | $ | 1,755 | | | $ | 85 | | | $ | 255 | | | $ | 218 | |
| Interest cost | | | 2,136 | | | | 2,083 | | | | 1,807 | | | | 140 | | | | 239 | | | | 218 | |
| Expected return on plan asset | | | (2,199 | ) | | | (1,773 | ) | | | (1,505 | ) | | | — | | | | — | | | | — | |
| Amortization of unrecognized prior service cost | | | 603 | | | | 580 | | | | 479 | | | | (68 | ) | | | (68 | ) | | | (68 | ) |
| Amortization of unrecognized net loss (gain) | | | 522 | | | | 626 | | | | 73 | | | | (30 | ) | | | (2 | ) | | | 8 | |
| Curtailment | | | — | | | | — | | | | — | | | | (2,357 | ) | | | — | | | | — | |
| Settlement charge | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net periodic cost | | $ | 3,085 | | | $ | 3,449 | | | $ | 2,609 | | | $ | (2,230 | ) | | $ | 424 | | | $ | 376 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2010 | | | 2009 | | | 2008 | | | 2010 | | | 2009 | | | 2008 | |
| |
Weighted average assumptions used to determine the periodic benefit costs: | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 5.75 | % | | | 6.25 | % | | | 6.25 | % | | | 5.75 | % | | | 6.25 | % | | | 6.25 | % |
| Rate of compensation increases | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % | | | — | | | | — | | | | — | |
| Expected return on plan assets | | | 7.60 | % | | | 7.60 | % | | | 7.60 | % | | | — | | | | — | | | | — | |
2009: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | | | (In thousands) | |
Components of net periodic costs: | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 2,199 | | | $ | 2,023 | | | $ | 1,933 | | | $ | 30 | | | $ | 85 | | | $ | 255 | |
Interest cost | | | 2,219 | | | | 2,136 | | | | 2,083 | | | | 118 | | | | 140 | | | | 239 | |
Expected return on plan assets | | | (2,356 | ) | | | (2,199 | ) | | | (1,773 | ) | | | — | | | | — | | | | — | |
Amortization of unrecognized prior service cost | | | 603 | | | | 603 | | | | 580 | | | | (68 | ) | | | (68 | ) | | | (68 | ) |
Amortization of unrecognized net loss (gain) | | | 640 | | | | 522 | | | | 626 | | | | (12 | ) | | | (30 | ) | | | (2 | ) |
Curtailment | | | — | | | | — | | | | — | | | | — | | | | (2,357 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic cost | | $ | 3,305 | | | $ | 3,085 | | | $ | 3,449 | | | $ | 68 | | | $ | (2,230 | ) | | $ | 424 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | |
Weighted average assumptions used to determine the periodic benefit costs: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 5.25 | % | | | 5.75 | % | | | 6.25 | % | | | 5.25 | % | | | 5.75 | % | | | 6.25 | % |
Rate of compensation increases | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % | | | — | | | | — | | | | — | |
Expected return on plan assets | | | 7.20 | % | | | 7.60 | % | | | 7.60 | % | | | — | | | | — | | | | — | |
The estimated amount that will be amortized from accumulated other comprehensive income into net pension cost in 20112012 is as follows:
| | | | | | | | | |
| | | Pension | | | Postretirement | |
| | | (In thousands) | |
| |
| Net actuarial loss | | $ | 575 | | | $ | 12 | |
| Prior service cost | | $ | 603 | | | $ | 68 | |
| | | | | | | | |
| | | Pension | | | Postretirement | |
| | | (In thousands) | |
Net actuarial loss | | $ | 1,235 | | | $ | 55 | |
Prior service cost | | $ | 603 | | | $ | (68 | ) |
Estimated future pension and postretirement benefit payments from the plans are as follows:
| | | | | | | | | |
| | | Pension
| | | Postretirement
| |
| | | Benefit | | | Benefit | |
| | | (In thousands) | |
| |
| 2011 | | $ | 2,029 | | | $ | 175 | |
| 2012 | | $ | 2,391 | | | $ | 149 | |
| 2013 | | $ | 2,586 | | | $ | 131 | |
| 2014 | | $ | 2,594 | | | $ | 145 | |
| 2015 | | $ | 2,707 | | | $ | 158 | |
| 2016-2020 | | $ | 15,563 | | | $ | 821 | |
69
| | | | | | | | |
| | | Pension
Benefit | | | Postretirement
Benefit | |
| | | (In thousands) | |
2012 | | $ | 2,472 | | | $ | 165 | |
2013 | | $ | 2,681 | | | $ | 165 | |
2014 | | $ | 2,640 | | | $ | 178 | |
2015 | | $ | 2,714 | | | $ | 176 | |
2016 | | $ | 2,888 | | | $ | 184 | |
2017-2021 | | $ | 16,430 | | | $ | 913 | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
The effect of a 1% change in health care trend rates would have the following effects on the postretirement benefit plan:
| | | | | |
| | | 2010 | |
| | | (In thousands) | |
| |
| 1% Increase: | | | | |
| Benefit obligation, end of year | | $ | 186 | |
| Service cost plus interest cost for the year | | $ | 11 | |
| 1% Decrease: | | | | |
| Benefit obligation, end of year | | $ | (158 | ) |
| Service cost plus interest cost for the year | | $ | (10 | ) |
| | | | |
| | | 2011 | |
| | | (In thousands) | |
1% Increase: | | | | |
Benefit obligation, end of year | | $ | 352 | |
Service cost plus interest cost for the year | | $ | 17 | |
1% Decrease: | | | | |
Benefit obligation, end of year | | $ | (291 | ) |
Service cost plus interest cost for the year | | $ | (15 | ) |
Most of our employees are not eligible for postretirement medical benefits and of those that are, the majority are covered by a multi-employer plan in which expenses are paid as incurred. The effect on those covered by plans for which we maintain a liability was not significant.
| 15. | |
15. | OTHER OPERATING (INCOME) EXPENSE (INCOME), NET |
We incurred Other operating expense (income) expense,, net of $6.5 million, $1.2 million $(6.2) million and $13.9$(6.2) million, for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively. Other operating expenses (income) expenses,, net consisted of the following:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Facility closing costs and impairment charges related to the Portland, Oregon plant | | $ | 642 | | | $ | 886 | | | $ | 12,839 | |
| Gain on postretirement plan curtailment | | | (2,357 | ) | | | — | | | | — | |
| Realignment of infant feeding business | | | 2,195 | | | | — | | | | — | |
| Exit from a third party warehouse | | | 879 | | | | — | | | | — | |
| (Gain) loss on fire at New Hampton, Iowa facility | | | — | | | | (14,533 | ) | | | 500 | |
| Impairment of trademarks and other intangibles | | | — | | | | 7,600 | | | | 560 | |
| Other | | | (176 | ) | | | (177 | ) | | | — | |
| | | | | | | | | | | | | |
| Total other operating (income) expense, net | | $ | 1,183 | | | $ | (6,224 | ) | | $ | 13,899 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Facility closing costs | | $ | 6,349 | | | $ | 1,521 | | | $ | 886 | |
Gain on postretirement plan curtailment | | | — | | | | (2,357 | ) | | | — | |
Realignment of infant feeding business | | | — | | | | 2,195 | | | | — | |
Gain on fire at New Hampton, Iowa facility | | | — | | | | — | | | | (14,533 | ) |
Impairment of trademarks and other intangibles | | | — | | | | — | | | | 7,600 | |
Other | | | 113 | | | | (176 | ) | | | (177 | ) |
| | | | | | | | | | | | |
Total other operating expense (income), net | | $ | 6,462 | | | $ | 1,183 | | | $ | (6,224 | ) |
| | | | | | | | | | | | |
| 16. | |
16. | INSURANCE CLAIM — CLAIM—NEW HAMPTON |
In February 2008, the Company’s non-dairy powdered creamer plant in New Hampton, Iowa was damaged by a fire, which left the facility unusable. The Company repaired the facility and it became operational in the first quarter of 2009. The Company filed a claim with ourits insurance provider and received approximately $47.2 million in reimbursements for property damage and incremental expenses incurred to service our customers throughout this period. The claim was finalized in September 2009, and the Company received a final payment of approximately $10.6 million to close the claim in October 2009. For the year ended December 31, 2009 the Company recognized income of approximately $15.4 million, of which $14.5 million is classified in Other operating expense (income) expense and $0.9 million is classified in Cost of sales. Of the $14.5 million, $13.6 million was related to a gain on the fixed assets destroyed in the incident.
| |
17. | DISCONTINUED OPERATIONS |
In the fourth quarter of 2008, the Company wrote-off the value of the remaining assets consisting of machinery and equipment of the nutritional beverage business that was discontinued in 2004. The loss of approximately $0.3 million in 2008, net of tax of $0.2 million, is included in the Consolidated Statements of
70
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Income in the line Income (loss) from discontinued operations, net of tax expense (benefit). The Company was not able to find a buyer for these assets.
| 17. | |
18. | SUPPLEMENTAL CASH FLOW INFORMATION |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Interest paid | | $ | 33,045 | | | $ | 17,224 | | | $ | 29,153 | |
| Income taxes paid | | $ | 23,895 | | | $ | 18,103 | | | $ | 10,959 | |
| Accrued purchase of property and equipment | | $ | 4,761 | | | $ | 1,419 | | | $ | 3,819 | |
| Accrued other intangible assets | | $ | 1,609 | | | $ | — | | | $ | — | |
| Receivable related to Sturm acquisition | | $ | 3,329 | | | $ | — | | | $ | — | |
Non cash | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Interest paid | | $ | 50,531 | | | $ | 33,045 | | | $ | 17,224 | |
Income taxes paid | | $ | 27,078 | | | $ | 23,895 | | | $ | 18,103 | |
Accrued purchase of property and equipment | | $ | 4,181 | | | $ | 4,761 | | | $ | 1,419 | |
Accrued other intangible assets | | $ | 1,865 | | | $ | 1,609 | | | $ | — | |
Receivable related to Sturm acquisition | | $ | — | | | $ | 3,329 | | | $ | — | |
Non-cash financing activities for the twelve months ended December 31, 2011, 2010 and 2009 include the settlement of 560,104, 893,198 and 33,625 shares, respectively, of restricted stock and restricted stock units, where shares were withheld to satisfy the minimum statuary tax withholding requirements.
| 18. | |
19. | COMMITMENTS AND CONTINGENCIES |
Leases — We lease certain property, plant and equipment and distribution warehouses used in our operations under both capital and operating lease agreements. SuchThese leases which are primarily for machinery, equipment and vehicles, have lease terms ranging from 1one to 25twenty-five years. Certain of theRent expense under operating lease agreements require the payment of additional rentals for maintenance, along with additional rentals based on miles driven or units produced. Rent expense, including additional rent,commitments was $33.1$22.7 million, $34.3$19.3 million and $27.3$19.1 million for the years ended December 31, 2011, 2010 and 2009, and 2008, respectively.
The composition of capital leases which are reflected as Property, plant and equipment in the Consolidated Balance Sheets are as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Machinery and equipment | | $ | 3,381 | | | $ | 2,486 | |
| Less accumulated amortization | | | (1,207 | ) | | | (869 | ) |
| | | | | | | | | |
| Total | | $ | 2,174 | | | $ | 1,617 | |
| | | | | | | | | |
Purchase Obligations — We have entered into various contracts obligating us to purchase minimum quantities of raw materials used in our production processes, including cucumbers and tank yard space.
71
| | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Machinery and equipment | | $ | 8,615 | | | $ | 3,381 | |
Less accumulated amortization | | | (2,096 | ) | | | (1,207 | ) |
| | | | | | | | |
Total | | $ | 6,519 | | | $ | 2,174 | |
| | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future minimum payments at December 31, 2010,2011, under non-cancelable capital leases, operating leases and purchase obligations are summarized as follows:
| | | | | | | | | | | | | |
| | | Capital
| | | Operating
| | | Purchase
| |
| | | Leases | | | Leases | | | Obligations | |
| | | (In thousands) | |
| |
| 2011 | | $ | 831 | | | $ | 12,614 | | | $ | 156,035 | |
| 2012 | | | 805 | | | | 8,707 | | | | 10,963 | |
| 2013 | | | 672 | | | | 5,259 | | | | 1,915 | |
| 2014 | | | 90 | | | | 5,073 | | | | 1,230 | |
| 2015 | | | 32 | | | | 4,775 | | | | 36 | |
| Thereafter | | | — | | | | 13,515 | | | | — | |
| | | | | | | | | | | | | |
| Total minimum payments | | | 2,430 | | | $ | 49,943 | | | $ | 170,179 | |
| | | | | | | | | | | | | |
| Less amount representing interest | | | 137 | | | | | | | | | |
| | | | | | | | | | | | | |
| Present value of capital lease obligations | | $ | 2,293 | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Capital
Leases | | | Operating
Leases | | | Purchase
Obligations | |
| | | (In thousands) | |
2012 | | $ | 2,249 | | | $ | 14,689 | | | $ | 274,980 | |
2013 | | | 2,105 | | | | 12,743 | | | | 38,349 | |
2014 | | | 1,534 | | | | 12,271 | | | | 24,262 | |
2015 | | | 1,478 | | | | 10,551 | | | | 85 | |
2016 | | | 739 | | | | 9,667 | | | | 35 | |
Thereafter | | | — | | | | 28,831 | | | | — | |
| | | | | | | | | | | | |
Total minimum payments | | | 8,105 | | | $ | 88,752 | | | $ | 337,711 | |
| | | | | | | | | | | | |
Less amount representing interest | | | 1,348 | | | | | | | | | |
| | | | | | | | | | | | |
Present value of capital lease obligations | | $ | 6,757 | | | | | | | | | |
| | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Litigation, Investigations and Audits—We are party in the conduct of our business to certain claims, litigation, audits and investigations. We believe we have adequate reserves for any liability we may incur in connection with any such currently pending or threatened matter. In our opinion, the settlement of any such currently pending or threatened matter is not expected to have a material adverse impact on our financial position, annual results of operations or cash flows.
| 19. | |
20. | DERIVATIVE INSTRUMENTS |
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by derivative instruments are interest rate risk, foreign currency risk and commodity price risk. Interest rate swapsDerivative contracts are entered into to manage interest rate risk associatedfor periods consistent with the Company’s $750 million revolving credit facility. related underlying exposure and do not constitute positions independent of those exposures. The Company does not enter into derivative instruments for trading or speculative purposes.
Interest on our credit facility is variable andRate Risk—The Company manages its exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps establishesto hedge our exposure to changes in interest rates, to reduce the volatility of our financing costs, and to achieve a desired proportion of fixed rate over the term ofversus floating-rate debt, based on current and projected marked conditions, with a portion of the facility. bias toward fixed-rate debt.
The Company’s objective in using an interest rate swap is to establishCompany had a fixed interest rate, thereby enabling the Company to predict and manage interest expense and cash flows in a more efficient and effective manner.
During 2008, the Company entered into a $200$50 million long-term interest rate swap agreement with an effective date of November 19, 2008 to lock into a fixed LIBOR interest rate base. Under the terms of the agreement, $200 million inthat swapped floating rate debt was swapped for a fixed rate of 2.9% interest rate baseand expired on August 19, 2011. These contracts do not qualify for a period of 24 months, amortizing to $50 million for an additional nine months at the same 2.9% interest rate. The Company did not apply hedge accounting and recorded thechanges in their fair value of this instrument on its Consolidated Balance Sheets. The fair value of the swap at December 31, 2010 and 2009 was a liability of approximately $0.9 million and $4.9 million, respectively. The Companyare recorded income of $4.0 million and $2.1 million and expense of $7.0 million related to the mark to market adjustment in 2010, 2009 and 2008, respectively, within the Other (income) expense line of the Consolidated Statements of Income.
Income, with their fair value recorded on the Consolidated Balance Sheets.Foreign Currency Risk—Due to the Company’s operations in Canada, we are exposed to foreign currency risks. The Company enters into foreign currency contracts to manage the risk associated with foreign currency cash flows. The Company’s objective in using foreign currency contracts is to establish a fixed foreign currency exchange rate for certain Canadian raw materialthe net cash flow requirements for purchases that are denominated in U.S. dollars, thereby enabling the Company to manage its foreign currency exchange rate risk.dollars. These contracts do not qualify for hedge accounting and changes in their fair value are recorded throughin the Consolidated Statements of Income, withinwith their fair value recorded on the (Gain) loss on foreign currency exchange line. AsConsolidated Balance Sheets.
Commodity Risk—Certain commodities we use in the production and distribution of December 31, 2010 we hadour products are exposed to market price risk. The Company utilizes a liabilitycombination of $0.2 millionderivative contracts, purchase orders and various short and long term supply arrangements in connection with the purchase of raw materials to manage commodity price risk. Commodity forward contracts generally qualify for foreign exchangethe normal purchase exception under the guidance for derivative instruments and hedging activities, and therefore are not subject to its provisions.
Commodity price risk is managed, in part, by using derivatives such as commodity swaps, the objective of which is to establish a fixed commodity cost over the term of the contracts. No foreign currency contracts were outstanding as of December 31, 2009 or
72
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2008. During 2010 and 2009,2011, the Company realized a losshad three types of approximately $0.2 millioncommodity swap contracts, diesel fuel, oil and a gain of approximately $0.7 million in 2008 on these contracts.
During 2010, thehigh density polyethylene (“HDPE”). The Company entered into
a commoditydiesel fuel swap
contractcontracts to manage the Company’s risk associated with the underlying cost of diesel fuel used to deliver products. The contracts for
5.4 million pounds of High Density Polyethylene (“HDPE”)oil and HDPE are used to manage the Company’s risk associated with the underlying commodity cost of a significant component used in packaging materials.
The objective in using this swap is to establish a fixed commodity cost over the term of the contract. The trade date was June 3, 2010, with an effective date of July 1, 2010 and an expiration date of December 31, 2011. The Company will settle 0.3 million pounds on a monthly basis over the term of the contract. The Company did not apply hedge accounting to the commodity swap, and it is recorded at fair value on the Company’s Condensed Consolidated Balance Sheets. As of December 31,
2010, we had an asset of $0.4 million associated with2011, there are no outstanding contracts for diesel fuel or HDPE.TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We recorded the commodity swap contract. During 2010, the Company realized a gain of $0.4 millionfollowing gains and losses on this contract which is recordedour derivative contracts in the Consolidated StatementStatements of Income, withinIncome:
| | | | | | | | | | |
| | | Location of Gain (Loss) Recognized in Income | | Year Ended
December 31, | |
| | | | 2011 | | | 2010 | |
| | | | | (In thousands) | |
Mark to market unrealized gain (loss): | | | | | | | | | | |
Interest rate swap | | Other income, net | | $ | 874 | | | $ | 4,003 | |
Foreign currency contract | | Gain on foreign currency exchange | | | 184 | | | | (184 | ) |
Commodity contracts | | Other income, net | | | (197 | ) | | | 360 | |
| | | | | | | | | | |
| | | | | 861 | | | | 4,179 | |
Realized gain (loss): | | | | | | | | | | |
Interest rate swap | | Interest expense | | | (854 | ) | | | (4,855 | ) |
Foreign currency contract | | Cost of sales | | | 203 | | | | — | |
Commodity contracts | | Manufacturing related to cost of sales and transportation related to selling and distribution | | | 270 | | | | 12 | |
| | | | | | | | | | |
| | | | | (381 | ) | | | (4,843 | ) |
| | | | | | | | | | |
Total gain (loss) | | | | $ | 480 | | | $ | (664 | ) |
| | | | | | | | | | |
As of December 31, 2011, the Other (income) expense line.
Company had outstanding oil contracts with a total notional amount of 18,000 barrels expiring March 31, 2012.The following table identifies the derivative, its fair value, and location on the Consolidated Balance Sheet:
| | | | | | | | | | | |
| | | | | Fair Value | |
| | | Balance Sheet Location | | December 31, 2010 | | | December 31, 2009 | |
| | | | | (In thousands) | |
| |
Liability Derivatives: | | | | | | | | | | |
| Interest rate swap | | Accounts payable and accrued expenses | | $ | 874 | | | $ | 3,327 | |
| Foreign exchange contract | | Accounts payable and accrued expenses | | | 184 | | | | — | |
| | | | | | | | | | | |
| | | | | $ | 1,058 | | | $ | 3,327 | |
| | | | | | | | | | | |
| Interest rate swap | | Other Long-term liabilities | | $ | — | | | $ | 1,550 | |
| | | | | | | | | | | |
| | | | | $ | — | | | $ | 1,550 | |
| | | | | | | | | | | |
Asset Derivative: | | | | | | | | | | |
| Commodity contract | | Prepaid expenses and other current assets | | $ | 360 | | | $ | — | |
| | | | | | | | | | | |
| | | | | $ | 360 | | | $ | — | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | Fair Value | |
| | | Balance Sheet Location | | December 31, 2011 | | | December 31, 2010 | |
| | | | | (In thousands) | |
Asset Derivatives: | | | | | | |
Commodity contracts | | Prepaid expenses and other current assets | | $ | 163 | | | $ | 360 | |
| | | | | | | | | | |
| | | | $ | 163 | | | $ | 360 | |
| | | | | | | | | | |
Liability Derivatives: | | | | | | |
Interest rate swap | | Accounts payable and accrued expenses | | $ | — | | | $ | 874 | |
Foreign exchange contract | | Accounts payable and accrued expenses | | | — | | | | 184 | |
| | | | | | | | | | |
| | | | $ | — | | | $ | 1,058 | |
| | | | | | | | | | |
| 20. | |
21. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Cash and cash equivalents and accounts receivable are financial assets with carrying values that approximate fair value. Accounts payable are financial liabilities with carrying values that approximate fair value. As
The following table presents the carrying value and fair value of our outstanding debt as of December 31, 2010, the outstanding balance of the Company’s variable rate debt (revolving credit facility) was $472.6 million, the2011:
| | | | | | | | |
| | | Carrying
Value | | | Fair
Value | |
| | | (In thousands) | |
Revolving credit facility | | $ | 395,800 | | | $ | 396,728 | |
Senior notes | | $ | 100,000 | | | $ | 101,529 | |
7.75% high yield notes | | $ | 400,000 | | | $ | 433,000 | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of which isthe revolving credit facility and senior notes were estimated to be $475.4 million, using a present value techniquetechniques and market based interest rates and credit spreads. As of December 31, 2010, the carrying value of the Company’s fixed rate senior notes was $100.0 million and fair value was estimated to be $100.2 million based on a present value technique using market based interest rates and credit spreads. The fair value of the Company’s 7.75% high yield notes due 2018, withwas estimated based on quoted market prices.
The fair value of the Company’s commodity contract as described in Note 19 was an outstanding balanceasset of $400.0approximately $0.2 million as of December 31, 2010,2011. The fair value of the commodity contract was estimated at $434.0 million,determined using Level 2 inputs. Level 2 inputs are inputs other than quoted prices that are observable for an asset or liability, either directly or indirectly. The value of the commodity contract was based on quoted market prices.
an analysis comparing the contract rates to the forward curve rates throughout the term of the contact, which expires in the first quarter of 2012.The fair value of the Company’s interest rate swap agreement, as described in Notes 10 and 20,Note 19, was a liability of approximately $0.9 million as of December 31, 2010. The fair value of the swap was determined using Level 2 inputs, which are inputs other than quoted prices that are observable for an asset or liability, either directly or indirectly.inputs. The fair value is based on a market approach, comparing the fixed rate of 2.9% to the current and forward one month LIBOR rates throughout the term of the swap agreement.
The fair value of the Company’s commodity contract as described in Note 2019 was an asset of approximately $0.4 million as of December 31, 2010. The fair value of the commodity contract was determined using Level 1 inputs. Level 1 inputs are those inputs where quoted prices in active markets for identical assets or liabilities are available.
73
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of the Company’s foreign exchange contract as described in Note 2019 was a liability of $0.2 million as of December 31, 2010, using levelLevel 2 inputs, comparing the foreign exchange rate of ourthe Company’s contract to the spot rate as of December 31, 2010.
| 21. | |
22. | SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS |
We manageThe Company manages operations on a company-wide basis, thereby making determinations as to the allocation of resources in total rather than on a segment-level basis. We have designated our reportable segments based on how management views our business. We do not segregate assets between segments for internal reporting. Therefore, asset-related information has not been presented. The Company’s reportable segments, as presented below, are consistent with the manner in which the Company reports its results to the chief operating decision maker.
Our North American Retail Grocery segment sells branded and private label products to customers within the United States and Canada. These products include non-dairy powdered creamers; condensed and ready to serve soups, broths and gravies; infant feeding products; salad dressings and sauces; pickles and related products; Mexican sauces; jams and pie fillings; aseptic products; liquid non-dairy creamer; powdered drinks; hot cereals; macaroni and cheese and skillet dinners. During 2010, we exited the retail infant feeding business.
Our Food Away From Home segment sells non-dairy powdered creamers,creamers; pickles and related products,products; Mexican sauces,sauces; refrigerated dressings,dressings; aseptic products and hot cereals to foodservice customers, including restaurant chains and food distribution companies, within the United States and Canada.
Our Industrial and Export segment includes the Company’s co-pack business and non-dairy powdered creamer sales to industrial customers for use in industrial applications, including products for repackaging in portion control packages and for use as ingredients by other food manufacturers; pickles and related products; Mexican sauces; infant feeding products and refrigerated dressings. Export sales are primarily to industrial customers outside of North America.
We evaluateThe Company evaluates the performance of our segments based on net sales dollars and direct operating income (gross profit less freight out, sales commissions and direct selling and marketing expenses). The amounts in the
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
following tables are obtained from reports used by our senior management team and do not include allocated income taxes. Other expenses not allocated include warehousestart-up costs, unallocated selling and distribution expenses and corporate expenses which consist of general and administrative expenses, amortization expense, other operating (income) expense interest expense, interest income, foreign currency exchange and other expense (income) expense.. The accounting policies of our segments are the same as those described in the summary of significant accounting policies set forth in Note 1 “Summary of Significant Accounting Policies”.
Financial information relating to the Company’s reportable segments is as follows:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | (In thousands) | | | | |
| |
| Net sales: | | | | | | | | | | | | |
| North American Retail Grocery | | $ | 1,247,126 | | | $ | 971,083 | | | $ | 917,102 | |
| Food Away From Home | | | 314,998 | | | | 292,927 | | | | 294,020 | |
| Industrial and Export | | | 254,900 | | | | 247,643 | | | | 289,528 | |
| | | | | | | | | | | | | |
| Total | | | 1,817,024 | | | | 1,511,653 | | | | 1,500,650 | |
| Direct operating income: | | | | | | | | | | | | |
| North American Retail Grocery | | | 221,473 | | | | 152,849 | | | | 114,511 | |
| Food Away From Home | | | 47,751 | | | | 36,069 | | | | 32,133 | |
| Industrial and Export | | | 45,056 | | | | 36,025 | | | | 33,473 | |
| | | | | | | | | | | | | |
| Total | | | 314,280 | | | | 224,943 | | | | 180,117 | |
74
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Net sales: | | | | | | | | | | | | |
North American Retail Grocery | | $ | 1,456,213 | | | $ | 1,247,126 | | | $ | 971,083 | |
Food Away From Home | | | 307,819 | | | | 314,998 | | | | 292,927 | |
Industrial and Export | | | 285,953 | | | | 254,900 | | | | 247,643 | |
| | | | | | | | | | | | |
Total | | $ | 2,049,985 | | | $ | 1,817,024 | | | $ | 1,511,653 | |
| | | | | | | | | | | | |
Direct operating income: | | | | | | | | | | | | |
North American Retail Grocery | | $ | 243,744 | | | $ | 221,473 | | | $ | 152,849 | |
Food Away From Home | | | 44,808 | | | | 47,751 | | | | 36,069 | |
Industrial and Export | | | 48,268 | | | | 45,056 | | | | 36,025 | |
| | | | | | | | | | | | |
Total | | | 336,820 | | | | 314,280 | | | | 224,943 | |
Unallocated warehouse start-up costs (1) | | | — | | | | — | | | | (3,339 | ) |
Unallocated selling and distribution expenses | | | (5,864 | ) | | | (3,066 | ) | | | (3,172 | ) |
Unallocated corporate expense | | | (142,681 | ) | | | (134,661 | ) | | | (87,623 | ) |
| | | | | | | | | | | | |
Operating income | | | 188,275 | | | | 176,553 | | | | 130,809 | |
Other expense, net | | | (48,477 | ) | | | (40,153 | ) | | | (8,735 | ) |
| | | | | | | | | | | | |
Income before income taxes | | $ | 139,798 | | | $ | 136,400 | | | $ | 122,074 | |
| | | | | | | | | | | | |
Depreciation: | | | | | | | | | | | | |
North American Retail Grocery | | $ | 33,343 | | | $ | 27,729 | | | $ | 21,395 | |
Food Away From Home | | | 6,484 | | | | 5,666 | | | | 5,237 | |
Industrial and Export | | | 6,714 | | | | 7,332 | | | | 5,485 | |
Corporate office | | | 2,075 | | | | 2,699 | | | | 1,845 | |
| | | | | | | | | | | | |
Total | | $ | 48,616 | | | $ | 43,426 | | | $ | 33,962 | |
| | | | | | | | | | | | |
Trademark impairment: | | | | | | | | | | | | |
North American Retail Grocery | | $ | — | | | $ | — | | | $ | 7,600 | |
Food Away From Home | | | — | | | | — | | | | — | |
Industrial and Export | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Total | | $ | — | | | $ | — | | | $ | 7,600 | |
| | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | (In thousands) | | | | |
| |
Unallocated warehousestart-up costs(1) | | | — | | | | (3,339 | ) | | | — | |
| Unallocated selling and distribution expenses | | | (3,066 | ) | | | (3,172 | ) | | | (3,824 | ) |
| Unallocated corporate expense | | | (134,661 | ) | | | (87,623 | ) | | | (89,168 | ) |
| | | | | | | | | | | | | |
| Operating income | | | 176,553 | | | | 130,809 | | | | 87,125 | |
| Other expense | | | (40,153 | ) | | | (8,735 | ) | | | (47,670 | ) |
| | | | | | | | | | | | | |
| Income before income taxes | | $ | 136,400 | | | $ | 122,074 | | | $ | 39,455 | |
| | | | | | | | | | | | | |
| Depreciation: | | | | | | | | | | | | |
| North American Retail Grocery | | $ | 27,729 | | | $ | 21,395 | | | $ | 23,064 | |
| Food Away From Home | | | 5,666 | | | | 5,237 | | | | 5,424 | |
| Industrial and Export | | | 7,332 | | | | 5,485 | | | | 2,344 | |
| Corporate office | | | 2,699 | | | | 1,845 | | | | 1,494 | |
| | | | | | | | | | | | | |
| Total | | $ | 43,426 | | | $ | 33,962 | | | $ | 32,326 | |
| | | | | | | | | | | | | |
| Trademark impairment: | | | | | | | | | | | | |
| North American Retail Grocery | | $ | — | | | $ | 7,600 | | | $ | 560 | |
| Food Away From Home | | | — | | | | — | | | | — | |
| Industrial and Export | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total | | $ | — | | | $ | 7,600 | | | $ | 560 | |
| | | | | | | | | | | | | |
| | |
| (1) | | Included in Cost of sales in the Consolidated Statements of Income. |
Geographic Information—We had revenues to customers outside of the United States of approximately 13.5%13.2%, 13.7%13.5% and 14.3%13.7% of total consolidated net sales in 2011, 2010 2009 and 2008,2009, respectively, with 12.8%11.7%, 13.1%12.8% and 13.6%13.1% going to Canada in 2011, 2010 2009 and 2008,2009, respectively. Sales are determined based on customer destination.
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Long-lived assets | | | | | | | | | | | | |
| United States | | $ | 350,356 | | | $ | 242,144 | | | $ | 239,574 | |
| Canada | | | 35,835 | | | | 33,889 | | | | 31,090 | |
| | | | | | | | | | | | | |
| Total | | $ | 386,191 | | | $ | 276,033 | | | $ | 270,664 | |
| | | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Long-lived assets: | | | | | | | | | | | | |
United States | | $ | 370,857 | | | $ | 350,356 | | | $ | 242,144 | |
Canada | | | 35,701 | | | | 35,835 | | | | 33,889 | |
| | | | | | | | | | | | |
Total | | $ | 406,558 | | | $ | 386,191 | | | $ | 276,033 | |
| | | | | | | | | | | | |
Long-lived assets consist of net property, plant and equipment.
Major Customers—Wal-Mart Stores, Inc. and affiliates accounted for approximately 18.5%19.1%, 14.4%18.5% and 15.1%14.4% of our consolidated net sales in 2011, 2010 2009 and 2008,2009, respectively. Sales to Wal-Mart Stores, Inc. and affiliates are included in our North American Retail Grocery segment. No other customer accounted for more than 10% of our consolidated net sales.
Total trade receivables with Wal-Mart Stores, Inc. and affiliates represented approximately 22.6% and 13.3% of our total trade receivables as of December 31, 20102011 and 2009, respectively.
75
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Product Information—The following table presents the Company’s net sales by major products.
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Products: | | | | | | | | | | | | |
| Pickles | | $ | 328,058 | | | $ | 316,976 | | | $ | 325,579 | |
| Soup and infant feeding | | | 322,490 | | | | 344,181 | | | | 336,519 | |
| Non-dairy powdered creamer | | | 305,659 | | | | 323,926 | | | | 351,838 | |
| Salad dressings | | | 208,209 | | | | 186,778 | | | | 156,884 | |
| Jams and other sauces | | | 165,622 | | | | 155,771 | | | | 153,927 | |
| Powdered drinks | | | 154,751 | | | | — | | | | — | |
| Hot cereals | | | 120,486 | | | | — | | | | — | |
| Aseptic products | | | 88,119 | | | | 84,493 | | | | 83,198 | |
| Mexican sauces | | | 74,725 | | | | 64,520 | | | | 52,718 | |
| Refrigerated products | | | 31,777 | | | | 35,008 | | | | 39,987 | |
| Dry dinners | | | 17,128 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total net sales | | $ | 1,817,024 | | | $ | 1,511,653 | | | $ | 1,500,650 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Products: | | | | | | | | | | | | |
Non-dairy creamer | | $ | 359,860 | | | $ | 313,917 | | | $ | 335,129 | |
Pickles | | | 300,414 | | | | 319,281 | | | | 317,006 | |
Soup and infant feeding | | | 299,042 | | | | 325,546 | | | | 346,825 | |
Powdered drinks | | | 226,305 | | | | 169,404 | | | | — | |
Salad dressings | | | 220,359 | | | | 201,775 | | | | 212,158 | |
Mexican and other sauces | | | 195,233 | | | | 189,718 | | | | 143,806 | |
Hot cereals | | | 150,364 | | | | 105,831 | | | | — | |
Dry dinners | | | 115,627 | | | | 17,129 | | | | — | |
Aseptic products | | | 92,981 | | | | 88,486 | | | | 85,079 | |
Jams | | | 64,686 | | | | 61,592 | | | | 58,066 | |
Other products | | | 25,114 | | | | 24,345 | | | | 13,584 | |
| | | | | | | | | | | | |
Total net sales | | $ | 2,049,985 | | | $ | 1,817,024 | | | $ | 1,511,653 | |
| | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 22. | |
23. | QUARTERLY RESULTS OF OPERATIONS (unaudited) |
The following is a summary of our unaudited quarterly results of operations for 20102011 and 2009:
Fiscal 2010
| | | | | | | | | | | | | | | | | |
| | | Quarter | |
| | | First | | | Second | | | Third | | | Fourth | |
| | | (In thousands, except per share data) | |
| |
Fiscal 2010 | | | | | | | | | | | | | | | | |
| Net sales | | $ | 397,124 | | | $ | 446,195 | | | $ | 464,242 | | | $ | 509,463 | |
| Gross profit | | | 88,778 | | | | 106,150 | | | | 110,237 | | | | 126,169 | |
| Income before income taxes | | | 24,604 | | | | 32,257 | | | | 36,810 | | | | 42,729 | |
| Net income | | | 16,319 | | | | 21,652 | | | | 24,867 | | | | 28,081 | |
| Net income per common share: | | | | | | | | | | | | | | | | |
| Basic | | | .49 | | | | .62 | | | | .70 | | | | .79 | |
| Diluted | | | .47 | | | | .60 | | | | .68 | | | | .77 | |
Fiscal 2009 | | | | | | | | | | | | | | | | |
| Net sales | | $ | 355,396 | | | $ | 372,605 | | | $ | 378,865 | | | $ | 404,787 | |
| Gross profit | | | 71,711 | | | | 79,844 | | | | 80,518 | | | | 94,297 | |
| Income before income taxes(1) | | | 20,211 | | | | 28,156 | | | | 43,407 | | | | 30,300 | |
| Net income | | | 12,732 | | | | 18,425 | | | | 28,064 | | | | 22,093 | |
| Net income per common share: | | | | | | | | | | | | | | | | |
| Basic | | | .40 | | | | .58 | | | | .87 | | | | .68 | |
| Diluted | | | .39 | | | | .58 | | | | .85 | | | | .66 | |
| | | | | | | | | | | | | | | | |
| | | Quarter | |
| | | First | | | Second | | | Third | | | Fourth | |
| | | (In thousands, except per share data) | |
Fiscal 2011 | | | | | | | | | | | | |
Net sales | | $ | 493,513 | | | $ | 492,620 | | | $ | 528,050 | | | $ | 535,802 | |
Gross profit | | | 120,926 | | | | 109,440 | | | | 125,532 | | | | 117,399 | |
Income before income taxes | | | 29,935 | | | | 21,243 | | | | 45,115 | | | | 43,505 | |
Net income | | | 19,808 | | | | 14,345 | | | | 30,390 | | | | 29,864 | |
Net income per common share: | | | | | | | | | | | | |
Basic | | | .56 | | | | .40 | | | | .84 | | | | .83 | |
Diluted | | | .54 | | | | .39 | | | | .82 | | | | .81 | |
Fiscal 2010 | | | | | | | | | | | | |
Net sales | | $ | 397,124 | | | $ | 446,195 | | | $ | 464,242 | | | $ | 509,463 | |
Gross profit | | | 88,778 | | | | 106,150 | | | | 110,237 | | | | 126,169 | |
Income before income taxes | | | 24,604 | | | | 32,257 | | | | 36,810 | | | | 42,729 | |
Net income | | | 16,319 | | | | 21,652 | | | | 24,867 | | | | 28,081 | |
Net income per common share: | | | | | | | | | | | | |
Basic | | | .49 | | | | .62 | | | | .70 | | | | .79 | |
Diluted | | | .47 | | | | .60 | | | | .68 | | | | .77 | |
| 23. | | |
(1) | | Includes trademark impairment of $7.6 million before tax in the fourth quarter of 2009. |
76
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
24. | GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION |
With the acquisition of Sturm, the Company issuedThe Company’s $400 million, in new debt which is7.75% high yield notes are guaranteed by its wholly100 percent owned subsidiary Bay Valley and its 100 percent owned subsidiaries Bay Valley Foods, LLC; EDS Holdings, LLC;LLC, Sturm Foods, Inc.; STSF Holdings, Inc. and S.T. Specialty Foods, Inc. and certain other of our subsidiaries that may become guarantors from time to time in accordance with the applicable indenture and may fully, jointly, severally and unconditionally guarantee our payment obligations under any series of debt securities offered.Foods. There are no significant restrictions on the ability of the parent company or any guarantor to obtain funds from its subsidiaries by dividend or loan. The following condensed supplemental consolidating financial information presents the results of operations, financial position and cash flows of TreeHouse, Foods, Inc., its Guarantorguarantor subsidiaries, its non-Guarantornon-guarantor subsidiaries and the eliminations necessary to arrive at the information for the CompanyTreeHouse on a consolidated basis as of December 31, 20102011 and 20092010 and for the years ended December 31, 2011, 2010 2009 and 2008.2009. The equity method has been used with respect to investments in subsidiaries. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Supplemental Consolidating Balance Sheet
December 31, 20102011
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
ASSETS |
| Current assets: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | 6 | | | $ | 6,317 | | | $ | — | | | $ | 6,323 | |
| Accounts receivable, net | | | 3,381 | | | | 104,227 | | | | 19,036 | | | | — | | | | 126,644 | |
| Inventories, net | | | — | | | | 251,993 | | | | 35,402 | | | | — | | | | 287,395 | |
| Deferred income taxes | | | 339 | | | | 2,916 | | | | 244 | | | | — | | | | 3,499 | |
| Assets held for sale | | | — | | | | 4,081 | | | | — | | | | — | | | | 4,081 | |
| Prepaid expenses and other current assets | | | 1,299 | | | | 10,997 | | | | 565 | | | | — | | | | 12,861 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 5,019 | | | | 374,220 | | | | 61,564 | | | | — | | | | 440,803 | |
| Property, plant and equipment, net | | | 12,722 | | | | 337,634 | | | | 35,835 | | | | — | | | | 386,191 | |
| Goodwill | | | — | | | | 963,031 | | | | 113,290 | | | | — | | | | 1,076,321 | |
| Investment in subsidiaries | | | 1,216,618 | | | | 140,727 | | | | — | | | | (1,357,345 | ) | | | — | |
| Intercompany accounts receivable, net | | | 703,283 | | | | (586,789 | ) | | | (116,494 | ) | | | — | | | | — | |
| Deferred income taxes | | | 13,179 | | | | — | | | | — | | | | (13,179 | ) | | | — | |
| Identifiable intangible and other assets, net | | | 45,005 | | | | 358,805 | | | | 84,123 | | | | — | | | | 487,933 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,995,826 | | | $ | 1,587,628 | | | $ | 178,318 | | | $ | (1,370,524 | ) | | $ | 2,391,248 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 33,363 | | | $ | 147,889 | | | $ | 21,132 | | | $ | — | | | $ | 202,384 | |
| Current portion of long-term debt | | | — | | | | 976 | | | | — | | | | — | | | | 976 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 33,363 | | | | 148,865 | | | | 21,132 | | | | — | | | | 203,360 | |
| Long-term debt | | | 963,014 | | | | 13,438 | | | | — | | | | — | | | | 976,452 | |
| Deferred income taxes | | | 6,210 | | | | 185,427 | | | | 16,459 | | | | (13,179 | ) | | | 194,917 | |
| Other long-term liabilities | | | 15,273 | | | | 23,280 | | | | — | | | | — | | | | 38,553 | |
| Shareholders’ equity | | | 977,966 | | | | 1,216,618 | | | | 140,727 | | | | (1,357,345 | ) | | | 977,966 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 1,995,826 | | | $ | 1,587,628 | | | $ | 178,318 | | | $ | (1,370,524 | ) | | $ | 2,391,248 | |
| | | | | | | | | | | | | | | | | | | | | |
77
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 6 | | | $ | 3,273 | | | $ | — | | | $ | 3,279 | |
Accounts receivable, net | | | 1 | | | | 98,477 | | | | 16,690 | | | | — | | | | 115,168 | |
Inventories, net | | | — | | | | 283,212 | | | | 46,162 | | | | — | | | | 329,374 | |
Deferred income taxes | | | — | | | | 3,615 | | | | 239 | | | | — | | | | 3,854 | |
Assets held for sale | | | — | | | | 4,081 | | | | — | | | | — | | | | 4,081 | |
Prepaid expenses and other current assets | | | 1,397 | | | | 10,719 | | | | 522 | | | | — | | | | 12,638 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 1,398 | | | | 400,110 | | | | 66,886 | | | | — | | | | 468,394 | |
Property, plant and equipment, net | | | 15,034 | | | | 355,823 | | | | 35,701 | | | | — | | | | 406,558 | |
Goodwill | | | — | | | | 957,429 | | | | 110,990 | | | | — | | | | 1,068,419 | |
Investment in subsidiaries | | | 1,562,365 | | | | 180,497 | | | | — | | | | (1,742,862 | ) | | | — | |
Intercompany accounts receivable (payable), net | | | 356,291 | | | | (275,721 | ) | | | (80,570 | ) | | | — | | | | — | |
Deferred income taxes | | | 14,874 | | | | — | | | | — | | | | (14,874 | ) | | | — | |
Identifiable intangible and other assets, net | | | 49,143 | | | | 334,251 | | | | 77,764 | | | | — | | | | 461,158 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,999,105 | | | $ | 1,952,389 | | | $ | 210,771 | | | $ | (1,757,736 | ) | | $ | 2,404,529 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 7,264 | | | $ | 147,654 | | | $ | 14,607 | | | $ | — | | | $ | 169,525 | |
Current portion of long-term debt | | | — | | | | 1,953 | | | | 1 | | | | — | | | | 1,954 | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 7,264 | | | | 149,607 | | | | 14,608 | | | | — | | | | 171,479 | |
Long-term debt | | | 895,800 | | | | 7,129 | | | | — | | | | — | | | | 902,929 | |
Deferred income taxes | | | 2,666 | | | | 198,800 | | | | 15,666 | | | | (14,874 | ) | | | 202,258 | |
Other long-term liabilities | | | 19,858 | | | | 34,488 | | | | — | | | | — | | | | 54,346 | |
Shareholders’ equity | | | 1,073,517 | | | | 1,562,365 | | | | 180,497 | | | | (1,742,862 | ) | | | 1,073,517 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,999,105 | | | $ | 1,952,389 | | | $ | 210,771 | | | $ | (1,757,736 | ) | | $ | 2,404,529 | |
| | | | | | | | | | | | | | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Condensed Supplemental Consolidating Balance Sheet
December 31, 20092010
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
ASSETS |
| Current assets: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1 | | | $ | 8 | | | $ | 4,406 | | | $ | — | | | $ | 4,415 | |
| Accounts receivable, net | | | 325 | | | | 66,573 | | | | 19,659 | | | | — | | | | 86,557 | |
| Inventories, net | | | — | | | | 229,185 | | | | 35,748 | | | | — | | | | 264,933 | |
| Deferred income taxes | | | 1,875 | | | | 990 | | | | 532 | | | | — | | | | 3,397 | |
| Assets held for sale | | | — | | | | 4,081 | | | | — | | | | — | | | | 4,081 | |
| Prepaid expenses and other current assets | | | 384 | | | | 6,253 | | | | 632 | | | | — | | | | 7,269 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 2,585 | | | | 307,090 | | | | 60,977 | | | | — | | | | 370,652 | |
| Property, plant and equipment, net | | | 11,549 | | | | 230,595 | | | | 33,889 | | | | — | | | | 276,033 | |
| Goodwill | | | — | | | | 466,274 | | | | 108,733 | | | | — | | | | 575,007 | |
| Investment in subsidiaries | | | 1,054,776 | | | | 94,804 | | | | — | | | | (1,149,580 | ) | | | — | |
| Intercompany accounts receivable, net | | | 87,643 | | | | 65,683 | | | | (153,326 | ) | | | — | | | | — | |
| Deferred income taxes | | | 21,186 | | | | — | | | | — | | | | (21,186 | ) | | | — | |
| Identifiable intangible and other assets, net | | | 14,328 | | | | 65,156 | | | | 83,252 | | | | — | | | | 162,736 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,192,067 | | | $ | 1,229,602 | | | $ | 133,525 | | | $ | (1,170,766 | ) | | $ | 1,384,428 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 31,458 | | | $ | 94,936 | | | $ | 22,425 | | | $ | — | | | $ | 148,819 | |
| Current portion of long-term debt | | | 200 | | | | 554 | | | | 152 | | | | — | | | | 906 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 31,658 | | | | 95,490 | | | | 22,577 | | | | — | | | | 149,725 | |
| Long-term debt | | | 390,037 | | | | 11,603 | | | | — | | | | — | | | | 401,640 | |
| Deferred income taxes | | | 5,609 | | | | 44,914 | | | | 16,044 | | | | (21,186 | ) | | | 45,381 | |
| Other long-term liabilities | | | 8,534 | | | | 22,819 | | | | 100 | | | | — | | | | 31,453 | |
| Shareholders’ equity | | | 756,229 | | | | 1,054,776 | | | | 94,804 | | | | (1,149,580 | ) | | | 756,229 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 1,192,067 | | | $ | 1,229,602 | | | $ | 133,525 | | | $ | (1,170,766 | ) | | $ | 1,384,428 | |
| | | | | | | | | | | | | | | | | | | | | |
78
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 6 | | | $ | 6,317 | | | $ | — | | | $ | 6,323 | |
Accounts receivable, net | | | 3,381 | | | | 104,227 | | | | 19,036 | | | | — | | | | 126,644 | |
Inventories, net | | | — | | | | 251,993 | | | | 35,402 | | | | — | | | | 287,395 | |
Deferred income taxes | | | 339 | | | | 2,916 | | | | 244 | | | | — | | | | 3,499 | |
Assets held for sale | | | — | | | | 4,081 | | | | — | | | | — | | | | 4,081 | |
Prepaid expenses and other current assets | | | 1,299 | | | | 10,997 | | | | 565 | | | | — | | | | 12,861 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 5,019 | | | | 374,220 | | | | 61,564 | | | | — | | | | 440,803 | |
Property, plant and equipment, net | | | 12,722 | | | | 337,634 | | | | 35,835 | | | | — | | | | 386,191 | |
Goodwill | | | — | | | | 963,031 | | | | 113,290 | | | | — | | | | 1,076,321 | |
Investment in subsidiaries | | | 1,216,618 | | | | 140,727 | | | | — | | | | (1,357,345 | ) | | | — | |
Intercompany accounts receivable (payable), net | | | 703,283 | | | | (586,789 | ) | | | (116,494 | ) | | | — | | | | — | |
Deferred income taxes | | | 13,179 | | | | — | | | | — | | | | (13,179 | ) | | | — | |
Identifiable intangible and other assets, net | | | 45,005 | | | | 358,805 | | | | 84,123 | | | | — | | | | 487,933 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,995,826 | | | $ | 1,587,628 | | | $ | 178,318 | | | $ | (1,370,524 | ) | | $ | 2,391,248 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 33,363 | | | $ | 147,889 | | | $ | 21,132 | | | $ | — | | | $ | 202,384 | |
Current portion of long-term debt | | | — | | | | 976 | | | | — | | | | — | | | | 976 | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 33,363 | | | | 148,865 | | | | 21,132 | | | | — | | | | 203,360 | |
Long-term debt | | | 963,014 | | | | 13,438 | | | | — | | | | — | | | | 976,452 | |
Deferred income taxes | | | 6,210 | | | | 185,427 | | | | 16,459 | | | | (13,179 | ) | | | 194,917 | |
Other long-term liabilities | | | 15,273 | | | | 23,280 | | | | — | | | | — | | | | 38,553 | |
Shareholders’ equity | | | 977,966 | | | | 1,216,618 | | | | 140,727 | | | | (1,357,345 | ) | | | 977,966 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,995,826 | | | $ | 1,587,628 | | | $ | 178,318 | | | $ | (1,370,524 | ) | | $ | 2,391,248 | |
| | | | | | | | | | | | | | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Condensed Supplemental Consolidating Statement of Income
Year Ended December 31, 20102011
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| Net sales | | $ | — | | | $ | 1,593,324 | | | $ | 250,001 | | | $ | (26,301 | ) | | $ | 1,817,024 | |
| Cost of sales | | | — | | | | 1,215,837 | | | | 196,154 | | | | (26,301 | ) | | | 1,385,690 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | — | | | | 377,487 | | | | 53,847 | | | | — | | | | 431,334 | |
| Selling, general and administrative expense | | | 50,605 | | | | 153,619 | | | | 23,022 | | | | — | | | | 227,246 | |
| Amortization | | | 526 | | | | 21,085 | | | | 4,741 | | | | — | | | | 26,352 | |
| Other operating income, net | | | — | | | | 1,183 | | | | — | | | | — | | | | 1,183 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating (loss) income | | | (51,131 | ) | | | 201,600 | | | | 26,084 | | | | — | | | | 176,553 | |
| Interest expense (income), net | | | 44,824 | | | | (12,862 | ) | | | 13,729 | | | | — | | | | 45,691 | |
| Other (income) expense, net | | | (4,002 | ) | | | 1,537 | | | | (3,073 | ) | | | — | | | | (5,538 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, before income taxes | | | (91,953 | ) | | | 212,925 | | | | 15,428 | | | | — | | | | 136,400 | |
| Income taxes (benefit) | | | (35,782 | ) | | | 76,702 | | | | 4,561 | | | | — | | | | 45,481 | |
| Equity in net income of subsidiaries | | | 147,090 | | | | 10,867 | | | | — | | | | (157,957 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | | | | | | | | | | | | | | | | | | | |
| Loss from discontinued operations | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 90,919 | | | $ | 147,090 | | | $ | 10,867 | | | $ | (157,957 | ) | | $ | 90,919 | |
| | | | | | | | | | | | | | | | | | | | | |
(In thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 1,812,068 | | | $ | 272,270 | | | $ | (34,353 | ) | | $ | 2,049,985 | |
Cost of sales | | | — | | | | 1,400,394 | | | | 210,647 | | | | (34,353 | ) | | | 1,576,688 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 411,674 | | | | 61,623 | | | | — | | | | 473,297 | |
Selling, general and administrative expense | | | 49,030 | | | | 171,150 | | | | 23,978 | | | | — | | | | 244,158 | |
Amortization | | | 3,155 | | | | 26,213 | | | | 5,034 | | | | — | | | | 34,402 | |
Other operating expense, net | | | — | | | | 6,462 | | | | — | | | | — | | | | 6,462 | |
| | | | | | | | | | | | | | | | | | | | |
Operating (loss) income | | | (52,185 | ) | | | 207,849 | | | | 32,611 | | | | — | | | | 188,275 | |
Interest expense (income), net | | | 50,936 | | | | (12,111 | ) | | | 14,198 | | | | — | | | | 53,023 | |
Other income, net | | | (927 | ) | | | (44 | ) | | | (3,575 | ) | | | — | | | | (4,546 | ) |
| | | | | | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (102,194 | ) | | | 220,004 | | | | 21,988 | | | | — | | | | 139,798 | |
Income taxes (benefit) | | | (38,533 | ) | | | 77,905 | | | | 6,019 | | | | — | | | | 45,391 | |
Equity in net income of subsidiaries | | | 158,068 | | | | 15,969 | | | | — | | | | (174,037 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 94,407 | | | $ | 158,068 | | | $ | 15,969 | | | $ | (174,037 | ) | | $ | 94,407 | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Supplemental Consolidating Statement of Income
Year Ended December 31, 20092010
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| Net sales | | $ | — | | | $ | 1,300,694 | | | $ | 246,715 | | | $ | (35,756 | ) | | $ | 1,511,653 | |
| Cost of sales | | | — | | | | 1,016,524 | | | | 204,515 | | | | (35,756 | ) | | | 1,185,283 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | — | | | | 284,170 | | | | 42,200 | | | | — | | | | 326,370 | |
| Selling, general and administrative expense | | | 36,560 | | | | 128,592 | | | | 23,252 | | | | — | | | | 188,404 | |
| Amortization | | | 926 | | | | 7,809 | | | | 4,646 | | | | — | | | | 13,381 | |
| Other operating expense (income), net | | | 7,600 | | | | (13,824 | ) | | | — | | | | — | | | | (6,224 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Operating (loss) income | | | (45,086 | ) | | | 161,593 | | | | 14,302 | | | | — | | | | 130,809 | |
| Interest expense (income), net | | | 15,922 | | | | (11,279 | ) | | | 13,787 | | | | — | | | | 18,430 | |
| Other (income) expense, net | | | (2,104 | ) | | | (11,855 | ) | | | 4,264 | | | | — | | | | (9,695 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, before income taxes | | | (58,904 | ) | | | 184,727 | | | | (3,749 | ) | | | — | | | | 122,074 | |
| Income taxes (benefit) | | | (23,375 | ) | | | 63,321 | | | | 814 | | | | — | | | | 40,760 | |
| Equity in net income of subsidiaries | | | 116,843 | | | | (4,563 | ) | | | — | | | | (112,280 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 81,314 | | | $ | 116,843 | | | $ | (4,563 | ) | | $ | (112,280 | ) | | $ | 81,314 | |
| | | | | | | | | | | | | | | | | | | | | |
79
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 1,593,324 | | | $ | 250,001 | | | $ | (26,301 | ) | | $ | 1,817,024 | |
Cost of sales | | | — | | | | 1,215,837 | | | | 196,154 | | | | (26,301 | ) | | | 1,385,690 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 377,487 | | | | 53,847 | | | | — | | | | 431,334 | |
Selling, general and administrative expense | | | 50,605 | | | | 153,619 | | | | 23,022 | | | | — | | | | 227,246 | |
Amortization | | | 526 | | | | 21,085 | | | | 4,741 | | | | — | | | | 26,352 | |
Other operating income, net | | | — | | | | 1,183 | | | | — | | | | — | | | | 1,183 | |
| | | | | | | | | | | | | | | | | | | | |
Operating (loss) income | | | (51,131 | ) | | | 201,600 | | | | 26,084 | | | | — | | | | 176,553 | |
Interest expense (income), net | | | 44,824 | | | | (12,862 | ) | | | 13,729 | | | | — | | | | 45,691 | |
Other (income) expense, net | | | (4,002 | ) | | | 1,537 | | | | (3,073 | ) | | | — | | | | (5,538 | ) |
| | | | | | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (91,953 | ) | | | 212,925 | | | | 15,428 | | | | — | | | | 136,400 | |
Income taxes (benefit) | | | (35,782 | ) | | | 76,702 | | | | 4,561 | | | | — | | | | 45,481 | |
Equity in net income of subsidiaries | | | 147,090 | | | | 10,867 | | | | — | | | | (157,957 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 90,919 | | | $ | 147,090 | | | $ | 10,867 | | | $ | (157,957 | ) | | $ | 90,919 | |
| | | | | | | | | | | | | | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Condensed Supplemental Consolidating Statement of Income
Year Ended December 31, 20082009
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| Net sales | | $ | — | | | $ | 1,252,780 | | | $ | 252,756 | | | $ | (4,886 | ) | | $ | 1,500,650 | |
| Cost of sales | | | — | | | | 1,017,798 | | | | 195,714 | | | | (4,886 | ) | | | 1,208,626 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | — | | | | 234,982 | | | | 57,042 | | | | — | | | | 292,024 | |
| Selling, general and administrative expense | | | 27,938 | | | | 121,729 | | | | 27,805 | | | | — | | | | 177,472 | |
| Amortization | | | 415 | | | | 7,802 | | | | 5,311 | | | | — | | | | 13,528 | |
| Other operating expense, net | | | 560 | | | | 13,339 | | | | — | | | | — | | | | 13,899 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating (loss) income | | | (28,913 | ) | | | 92,112 | | | | 23,926 | | | | — | | | | 87,125 | |
| Interest expense (income), net | | | 24,259 | | | | (13,326 | ) | | | 16,681 | | | | — | | | | 27,614 | |
| Other expense, net | | | 6,981 | | | | 9,170 | | | | 3,905 | | | | — | | | | 20,056 | |
| | | | | | | | | | | | | | | | | | | | | |
| (Loss) income from continuing operations, before income taxes | | | (60,153 | ) | | | 96,268 | | | | 3,340 | | | | — | | | | 39,455 | |
| Income taxes (benefit) | | | (22,659 | ) | | | 32,078 | | | | 1,476 | | | | — | | | | 10,895 | |
| Equity in net income of subsidiaries | | | 65,718 | | | | 1,864 | | | | — | | | | (67,582 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | | 28,224 | | | | 66,054 | | | | 1,864 | | | | (67,582 | ) | | | 28,560 | |
| Loss from discontinued operations | | | — | | | | (336 | ) | | | — | | | | — | | | | (336 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 28,224 | | | $ | 65,718 | | | $ | 1,864 | | | $ | (67,582 | ) | | $ | 28,224 | |
| | | | | | | | | | | | | | | | | | | | | |
80
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 1,300,694 | | | $ | 246,715 | | | $ | (35,756 | ) | | $ | 1,511,653 | |
Cost of sales | | | — | | | | 1,016,524 | | | | 204,515 | | | | (35,756 | ) | | | 1,185,283 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 284,170 | | | | 42,200 | | | | — | | | | 326,370 | |
Selling, general and administrative expense | | | 36,560 | | | | 128,592 | | | | 23,252 | | | | — | | | | 188,404 | |
Amortization | | | 926 | | | | 7,809 | | | | 4,646 | | | | — | | | | 13,381 | |
Other operating expense (income), net | | | 7,600 | | | | (13,824 | ) | | | — | | | | — | | | | (6,224 | ) |
| | | | | | | | | | | | | | | | | | | | |
Operating (loss) income | | | (45,086 | ) | | | 161,593 | | | | 14,302 | | | | — | | | | 130,809 | |
Interest expense (income), net | �� | | 15,922 | | | | (11,324 | ) | | | 13,787 | | | | — | | | | 18,385 | |
Other (income) expense, net | | | (2,104 | ) | | | (11,810 | ) | | | 4,264 | | | | — | | | | (9,650 | ) |
| | | | | | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (58,904 | ) | | | 184,727 | | | | (3,749 | ) | | | — | | | | 122,074 | |
Income taxes (benefit) | | | (23,375 | ) | | | 63,321 | | | | 814 | | | | — | | | | 40,760 | |
Equity in net income (loss) of subsidiaries | | | 116,843 | | | | (4,563 | ) | | | — | | | | (112,280 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 81,314 | | | $ | 116,843 | | | $ | (4,563 | ) | | $ | (112,280 | ) | | $ | 81,314 | |
| | | | | | | | | | | | | | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Condensed Supplemental Consolidating Statement of Cash Flows
Fiscal Year Ended December 31, 20102011
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| Net cash (used) provided by operations | | $ | (39,737 | ) | | $ | 276,416 | | | $ | 7,972 | | | $ | — | | | $ | 244,651 | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (463 | ) | | | (33,485 | ) | | | (5,595 | ) | | | — | | | | (39,543 | ) |
| Additions to intangible assets | | | (14,763 | ) | | | (5,883 | ) | | | (1,464 | ) | | | — | | | | (22,110 | ) |
| Cash outflows for acquisitions, net of cash acquired | | | 1,641 | | | | (846,137 | ) | | | — | | | | — | | | | (844,496 | ) |
| Proceeds from sale of fixed assets | | | — | | | | (367 | ) | | | 410 | | | | — | | | | 43 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in continuing operations | | | (13,585 | ) | | | (885,872 | ) | | | (6,649 | ) | | | — | | | | (906,106 | ) |
| Net cash provided by discontinued operations | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | | | (13,585 | ) | | | (885,872 | ) | | | (6,649 | ) | | | — | | | | (906,106 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
| Proceeds from issuance of debt | | | 400,000 | | | | — | | | | — | | | | — | | | | 400,000 | |
| Net borrowing (repayment) of debt | | | 174,600 | | | | (1,056 | ) | | | (154 | ) | | | — | | | | 173,390 | |
| Intercompany transfer | | | (610,510 | ) | | | 610,510 | | | | — | | | | — | | | | — | |
| Payment of deferred financing costs | | | (16,418 | ) | | | — | | | | — | | | | — | | | | (16,418 | ) |
| Excess tax benefit from stock based compensation | | | 5,732 | | | | — | | | | — | | | | — | | | | 5,732 | |
| Cash used to net share settle equity awards | | | (15,370 | ) | | | — | | | | — | | | | — | | | | (15,370 | ) |
| Issuance of common stock, net of expenses | | | 110,688 | | | | — | | | | — | | | | — | | | | 110,688 | |
| Proceeds from stock option exercises | | | 4,599 | | | | — | | | | — | | | | — | | | | 4,599 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 53,321 | | | | 609,454 | | | | (154 | ) | | | — | | | | 662,621 | |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 742 | | | | — | | | | 742 | |
| Increase (decrease) in cash and cash equivalents | | | (1 | ) | | | (2 | ) | | | 1,911 | | | | — | | | | 1,908 | |
| Cash and cash equivalents, beginning of year | | | 1 | | | | 8 | | | | 4,406 | | | | — | | | | 4,415 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | — | | | $ | 6 | | | $ | 6,317 | | | $ | — | | | $ | 6,323 | |
| | | | | | | | | | | | | | | | | | | | | |
81
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Net cash provided by operating activities | | $ | (73,426 | ) | | $ | 226,570 | | | $ | 2,927 | | | $ | — | | | $ | 156,071 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (3,317 | ) | | | (60,486 | ) | | | (4,720 | ) | | | — | | | | (68,523 | ) |
Additions to intangible assets | | | (6,689 | ) | | | (2,584 | ) | | | — | | | | — | | | | (9,273 | ) |
Acquisitions, net of cash acquired | | | — | | | | 3,243 | | | | — | | | | — | | | | 3,243 | |
Proceeds from sale of fixed assets | | | — | | | | 229 | | | | 22 | | | | — | | | | 251 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (10,006 | ) | | | (59,598 | ) | | | (4,698 | ) | | | — | | | | (74,302 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Net repayment of debt | | | (76,800 | ) | | | (1,417 | ) | | | — | | | | — | | | | (78,217 | ) |
Intercompany transfer | | | 165,555 | | | | (165,555 | ) | | | — | | | | — | | | | — | |
Payment of deferred financing costs | | | (1,518 | ) | | | — | | | | — | | | | — | | | | (1,518 | ) |
Net payments related to stock-based award activities | | | (8,278 | ) | | | — | | | | — | | | | — | | | | (8,278 | ) |
Excess tax benefits from stock-based payment arrangements | | | 4,473 | | | | — | | | | — | | | | — | | | | 4,473 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in financing activities | | | 83,432 | | | | (166,972 | ) | | | — | | | | — | | | | (83,540 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (1,273 | ) | | | — | | | | (1,273 | ) |
Increase (decrease) in cash and cash equivalents | | | — | | | | — | | | | (3,044 | ) | | | — | | | | (3,044 | ) |
Cash and cash equivalents, beginning of year | | | — | | | | 6 | | | | 6,317 | | | | — | | | | 6,323 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | — | | | $ | 6 | | | $ | 3,273 | | | $ | — | | | $ | 3,279 | |
| | | | | | | | | | | | | | | | | | | | |
TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Condensed Supplemental Consolidating Statement of Cash Flows
Fiscal Year Ended December 31, 20092010
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| Net cash (used) provided by operating activities | | $ | (85,858 | ) | | $ | 167,537 | | | $ | 23,165 | | | $ | — | | | $ | 104,844 | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (166 | ) | | | (33,693 | ) | | | (3,128 | ) | | | — | | | | (36,987 | ) |
| Insurance proceeds | | | — | | | | 2,863 | | | | — | | | | — | | | | 2,863 | |
| Proceeds from sale of fixed assets | | | — | | | | 6 | | | | — | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (166 | ) | | | (30,824 | ) | | | (3,128 | ) | | | — | | | | (34,118 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
| Net repayment of debt | | | (73,800 | ) | | | 18,342 | | | | (19,026 | ) | | | — | | | | (74,484 | ) |
| Intercompany transfer | | | 155,054 | | | | (155,054 | ) | | | — | | | | — | | | | — | |
| Excess tax benefits from stock based compensation | | | 169 | | | | — | | | | — | | | | — | | | | 169 | |
| Cash used to net settle equity awards | | | (336 | ) | | | — | | | | — | | | | — | | | | (336 | ) |
| Proceeds from stock option exercises | | | 4,926 | | | | — | | | | — | | | | — | | | | 4,926 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in financing activities | | | 86,013 | | | | (136,712 | ) | | | (19,026 | ) | | | — | | | | (69,725 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 727 | | | | — | | | | 727 | |
| Increase (decrease) in cash and cash equivalents | | | (11 | ) | | | 1 | | | | 1,738 | | | | — | | | | 1,728 | |
| Cash and cash equivalents, beginning of year | | | 12 | | | | 7 | | | | 2,668 | | | | — | | | | 2,687 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 1 | | | $ | 8 | | | $ | 4,406 | | | $ | — | | | $ | 4,415 | |
| | | | | | | | | | | | | | | | | | | | | |
82
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Net cash (used) provided by operations | | $ | (39,737 | ) | | $ | 276,416 | | | $ | 7,972 | | | $ | — | | | $ | 244,651 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (463 | ) | | | (33,485 | ) | | | (5,595 | ) | | | — | | | | (39,543 | ) |
Additions to intangible assets | | | (14,763 | ) | | | (5,883 | ) | | | (1,464 | ) | | | — | | | | (22,110 | ) |
Cash outflows for acquisitions, net of cash acquired | | | 1,641 | | | | (846,137 | ) | | | — | | | | — | | | | (844,496 | ) |
Proceeds from sale of fixed assets | | | — | | | | (367 | ) | | | 410 | | | | — | | | | 43 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (13,585 | ) | | | (885,872 | ) | | | (6,649 | ) | | | — | | | | (906,106 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt | | | 400,000 | | | | — | | | | — | | | | — | | | | 400,000 | |
Net borrowing (repayment) of debt | | | 174,600 | | | | (1,056 | ) | | | (154 | ) | | | — | | | | 173,390 | |
Intercompany transfer | | | (610,510 | ) | | | 610,510 | | | | — | | | | — | | | | — | |
Payment of deferred financing costs | | | (16,418 | ) | | | — | | | | — | | | | — | | | | (16,418 | ) |
Net payments related to stock-based award activities | | | (10,771 | ) | | | — | | | | — | | | | — | | | | (10,771 | ) |
Excess tax benefit from stock-based compensation | | | 5,732 | | | | — | | | | — | | | | — | | | | 5,732 | |
Issuance of common stock, net of expenses | | | 110,688 | | | | — | | | | — | | | | — | | | | 110,688 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 53,321 | | | | 609,454 | | | | (154 | ) | | | — | | | | 662,621 | |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 742 | | | | — | | | | 742 | |
Increase (decrease) in cash and cash equivalents | | | (1 | ) | | | (2 | ) | | | 1,911 | | | | — | | | | 1,908 | |
Cash and cash equivalents, beginning of year | | | 1 | | | | 8 | | | | 4,406 | | | | — | | | | 4,415 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | — | | | $ | 6 | | | $ | 6,317 | | | $ | — | | | $ | 6,323 | |
| | | | | | | | | | | | | | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — STATEMENTS—(Continued)
Condensed Supplemental Consolidating Statement of Cash Flows
Fiscal Year Ended December 31, 20082009
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent
| | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| Net cash provided by operating activities | | $ | 26,616 | | | $ | 127,353 | | | $ | 21,667 | | | $ | — | | | $ | 175,636 | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (12,133 | ) | | | (40,232 | ) | | | (3,106 | ) | | | — | | | | (55,471 | ) |
| Insurance proceeds | | | — | | | | 12,047 | | | | — | | | | | | | | 12,047 | |
| Acquisitions, net of cash acquired | | | 67 | | | | — | | | | (318 | ) | | | — | | | | (251 | ) |
| Proceeds from sale of fixed assets | | | | | | | 1,679 | | | | — | | | | — | | | | 1,679 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in continuing operations | | | (12,066 | ) | | | (26,506 | ) | | | (3,424 | ) | | | — | | | | (41,996 | ) |
| Net cash provided by discontinued operations | | | — | | | | 157 | | | | — | | | | — | | | | 157 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (12,066 | ) | | | (26,349 | ) | | | (3,424 | ) | | | — | | | | (41,839 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
| Net repayment of debt | | | (139,673 | ) | | | 14,757 | | | | (20,621 | ) | | | — | | | | (145,537 | ) |
| Intercompany transfer | | | 115,986 | | | | (115,986 | ) | | | — | | | | — | | | | — | |
| Excess tax benefits from stock based payment arrangements | | | 377 | | | | — | | | | — | | | | — | | | | 377 | |
| Proceeds from stock option exercises | | | 5,434 | | | | — | | | | — | | | | — | | | | 5,434 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in financing activities | | | (17,876 | ) | | | (101,229 | ) | | | (20,621 | ) | | | — | | | | (139,726 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (614 | ) | | | — | | | | (614 | ) |
| Increase (decrease) in cash and cash equivalents | | | (3,326 | ) | | | (225 | ) | | | (2,992 | ) | | | — | | | | (6,543 | ) |
| Cash and cash equivalents, beginning of year | | | 3,338 | | | | 232 | | | | 5,660 | | | | — | | | | 9,230 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 12 | | | $ | 7 | | | $ | 2,668 | | | $ | — | | | $ | 2,687 | |
| | | | | | | | | | | | | | | | | | | | | |
83
(In thousands) | | | | | | | | | | | | | | | | | | | | |
| | | Parent
Company | | | Subsidiary
Guarantors | | | Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Net cash (used) provided by operating activities | | $ | (85,858 | ) | | $ | 167,537 | | | $ | 23,165 | | | $ | — | | | $ | 104,844 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (166 | ) | | | (33,693 | ) | | | (3,128 | ) | | | — | | | | (36,987 | ) |
Insurance proceeds | | | — | | | | 2,863 | | | | — | | | | — | | | | 2,863 | |
Proceeds from sale of fixed assets | | | — | | | | 6 | | | | — | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (166 | ) | | | (30,824 | ) | | | (3,128 | ) | | | — | | | | (34,118 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Net repayment of debt | | | (73,800 | ) | | | 18,342 | | | | (19,026 | ) | | | — | | | | (74,484 | ) |
Intercompany transfer | | | 155,054 | | | | (155,054 | ) | | | — | | | | — | | | | — | |
Net proceeds related to stock-based award activities | | | 4,590 | | | | — | | | | — | | | | — | | | | 4,590 | |
Excess tax benefits from stock-based compensation | | | 169 | | | | — | | | | — | | | | — | | | | 169 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in financing activities | | | 86,013 | | | | (136,712 | ) | | | (19,026 | ) | | | — | | | | (69,725 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 727 | | | | — | | | | 727 | |
Increase (decrease) in cash and cash equivalents | | | (11 | ) | | | 1 | | | | 1,738 | | | | — | | | | 1,728 | |
Cash and cash equivalents, beginning of year | | | 12 | | | | 7 | | | | 2,668 | | | | — | | | | 2,687 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 1 | | | $ | 8 | | | $ | 4,406 | | | $ | — | | | $ | 4,415 | |
| | | | | | | | | | | | | | | | | | | | |
| |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
| |
| Item 9A. | Controls and Procedures |
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’sour Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’sdesign and operation of our disclosure controls and procedures (as defined inRules Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) as of December 31, 2010.Act). Based on such evaluations, the Company’sthat evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period, the Company’sDecember 31, 2011, our disclosure controls and procedures were effective in recording, processing, summarizing, and reporting, on a timely basis,to ensure that information required to be disclosed by the Companyus in the reports that it fileswe file or submitssubmit under the Exchange1934 Act is (1) recorded, processed, summarized, and that information isreported within the time periods specified in applicable rules and forms, and (2) accumulated and communicated to theour management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allowin a manner that allows timely discussionsdecisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during our fiscal quarter ended December 31, 2011, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) under the Exchange1934 Act. The Company’s management, with the participation of Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The scope of management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 20102011 includes all of the Company’s subsidiaries except for Sturm Foods, Inc. and S.T. Specialty Foods, Inc., which were acquired in 2010. This scope exception is permissible under applicable Securities and Exchange Commission guidelines. The net sales and total assets of Sturm and S.T. Foods represented approximately 16% and 42%, respectively, of the related Consolidated Financial Statement amounts for the year ended December 31, 2010.subsidiaries. Based on this evaluation, the Company’s management has concluded that, as of December 31, 2010,2011, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2010.2011. This report is included with thisForm 10-K.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined inRule 13a-15(f) of the Exchange Act) identified in connection with the evaluation required byRule 13a-15(d) of the Exchange Act, that occurred during the fourth quarter of the fiscal year covered by this report onForm 10-K, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
84
| Item 9B. | Other Information |
None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
We have audited the internal control over financial reporting of TreeHouse Foods, Inc. and subsidiaries (the “Company”) as of December 31, 2010,2011, based on criteria established inInternal Control — Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the Management Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Sturm Foods, Inc. which was acquired on March 2, 2010, and STSF Holdings, Inc., which was acquired on October 28, 2010, whose combined financial statements constitute 42% of total assets and 16% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2010. Accordingly, our audit did not include the internal control over financial reporting at Sturm Foods, Inc. and STSF Holdings, Inc. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2011, based on the criteria established inInternal Control — Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
85
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20102011 of the Company and our report dated February 14, 201117, 2012 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ DeloitteDELOITTE & ToucheTOUCHE LLP
8621, 2012
| |
Item 9B. | Other Information |
None.
PART III
| |
| Item 10. | Directors, Executive Officers and Corporate Governance |
Information required by this item about our directors and executive officers is included in our Proxy Statement (“20112012 Proxy Statement”) to be filed with the Securities and Exchange CommissionSEC in connection with our 20112012 annual meeting of the stockholders under the headings,Directors And Management — Management—Directors and Executive OfficersandElection of Directorsand is incorporated herein by reference.
Information about compliance with the reporting requirements of Section 16(a) of the Securities Exchange1934 Act, of 1934, as amended, by our executive officers and directors, persons who own more than ten percent of our common stock, and their affiliates who are required to comply with such reporting requirements, is included in our 20112012 Proxy Statement under the headings,Stock Ownership—Security Ownership of Certain Beneficial Owners and ManagementandSection 16(a) Beneficial Ownership Reporting Complianceand is incorporated herein by reference. Information about the Audit Committee Financial Expert is included in our 20112012 Proxy Statement under the heading,Corporate Governance— MeetingsCommittee Meetings/Role of the Board of Directors Committees—Audit CommitteeandCommittee Meetings/Role of Committees,and is incorporated herein by reference.
The information required by this item concerning our executive officers is incorporated herein by reference to our proxy statement (to be filed) for our April 28, 201126, 2012 Annual Meeting of Stockholders.
Our Code of Ethics, which is applicable to all of our employees and directors, is available on our corporate website athttp://www.treehousefoods.com, along with the Corporate Governance Guidelines of our Board of Directors and the charters of the Committees of our Board of Directors. Any waivers that we may grant to our executive officers or directors under the Code of Ethics, and any amendments to our Code of Ethics, will be posted on our corporate website. Any of these items or any of our filings with the Securities and Exchange Commission are available in print to any shareowner who requests them. Requests should be sent to Investor Relations, TreeHouse Foods, Inc., 2021 Spring Road, Suite 600, Oak Brook, IL 60523.
We submitted the certification of our chief executive officer required by Section 303A.12 of the NYSE Listed Company Manual, relating to our compliance with the NYSE’s corporate governance listing standards, on May 10, 2010 without qualification. In addition, we have included the certifications required of our chief executive officer and our chief financial officer by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules with respect to the quality of our disclosures in ourForm 10-K for the year ended December 31, 2010, as Exhibits 31.1 and 31.2, respectively, to thisForm 10-K.
| |
| Item 11. | Executive Compensation |
The information required by this item is included in the 20112012 Proxy Statement under the headings,Stock Ownership, Compensation Discussion and Analysis, Executive Compensation, Compensation Committee Interlocks and Insider ParticipationandCommittee Reports — Reports—Report of the Compensation Committeeand is incorporated herein by reference. Notwithstanding anything to the contrary set forth in this report, theCommittee Reports — Report of the Compensation Committeesection of the 20112012 Proxy Statement shall be deemed to be “furnished” and not “filed” for purposes of the Securities Exchange Act of 1934 as amended.
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item is included in the 20112012 Proxy Statement under the heading,Stock Ownership — Ownership—Security Ownership of Certain Beneficial Owners and Managementand is incorporated herein by reference.
87
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this item is included in the 20112012 Proxy Statement under the heading,Corporate Governanceand is incorporated herein by reference.
| |
| Item 14. | Principal Accountant Fees and Services |
The information required by this item is included in the 20112012 Proxy Statement under the heading,Fees Billed by Independent Registered Public Accounting Firmand is incorporated herein by reference.
| |
| Item 15. | Exhibits and Financial Statement Schedules |
The following documents are filed as part of thisForm 10-K.
1. Financial Statements filed as a part of this document under Item 8.
88
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange1934 Act,
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| TREEHOUSE FOODS, INC. |
|
| /s/ DENNIS F. RIORDAN |
| Dennis F. Riordan |
| Executive Vice President and Chief Financial Officer |
TREEHOUSE FOODS, INC.
Dennis F. Riordan
Senior Vice President and Chief Financial Officer
21, 2012Pursuant to the requirements of the Securities Exchange1934 Act, of 1934, this Reportreport has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Name | | Title | | Date |
| | |
/S/ SAM K. REED Sam K. Reed | | |
Name
| | Title
| | Date
|
|
| | | | |
/s/ Sam K. Reed
Sam K. Reed | | Chairman of the Board,
President, Chief Executive Officer and Director
(Principal Executive Officer) | | February 14, 201121, 2012 |
| | |
/s/ DENNIS F. RIORDAN Dennis F. Riordan | | | | |
/s/ Dennis F. Riordan
Dennis F. Riordan | | SeniorExecutive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) | | February 14, 201121, 2012 |
| | |
/s/ GEORGE V. BAYLY George V. Bayly | | | | |
/s/ George V. Bayly
George V. Bayly | | Director | | February 14, 201121, 2012 |
| | |
/s/ DIANA S. FERGUSON Diana S. Ferguson | | | | |
/s/ Diana S. Ferguson
Diana S. Ferguson | | Director | | February 14, 201121, 2012 |
| | |
/s/ DENNIS F. O’BRIEN Dennis F. O’Brien | | | | |
/s/ Dennis F. O’Brien
Dennis F. O’Brien | | Director | | February 14, 201121, 2012 |
| | |
/s/ FRANK J. O’CONNELL Frank J. O’Connell | | | | |
/s/ Frank J. O’Connell
Frank J. O’Connell | | Director | | February 14, 201121, 2012 |
| | |
/s/ ANN M. SARDINI Ann M. Sardini | | | | |
/s/ Ann M. Sardini
Ann M. Sardini | | Director | | February 14, 201121, 2012 |
| | |
/s/ GARY D. SMITH Gary D. Smith | | | | |
/s/ Gary D. Smith
Gary D. Smith | | Director | | February 14, 201121, 2012 |
| | | | |
/s/ TERDEMA L. USSERY, II Terdema L. Ussery, II
Terdema L. Ussery, II | | Director | | February 14, 201121, 2012 |
| | |
/s/ DAVID B. VERMYLEN David B. Vermylen | | | | |
/s/ David B. Vermylen
David B. Vermylen | | Director
President and Chief Operating Officer | | February 14, 201121, 2012 |
89
SCHEDULE II
TREEHOUSETREEEHOUSE FOODS, INC.
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2011, 2010 2009 and 20082009
Allowance for doubtful accounts deducted from accounts receivable:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance
| | Change
| | | | Write-Off of
| | | | |
| | | Beginning
| | to
| | | | Uncollectible
| | | | Balance
|
Year | | of Year | | Allowance | | Acquisitions | | Accounts | | Recoveries | | End of Year |
| | | (In thousands) |
| |
| 2008 | | $ | 637 | | | $ | 150 | | | $ | — | | | $ | (314 | ) | | $ | 5 | | | $ | 478 | |
| 2009 | | $ | 478 | | | $ | 68 | | | $ | — | | | $ | (124 | ) | | $ | 2 | | | $ | 424 | |
| 2010 | | $ | 424 | | | $ | (50 | ) | | $ | 243 | | | $ | (60 | ) | | $ | 193 | | | $ | 750 | |
90
| | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Balance
Beginning
of Year | | | Change
to
Allowance | | | Acquisitions | | | Write-Off of
Uncollectible
Accounts | | | Recoveries | | | Balance
End of Year | |
| | | (In thousands) | |
2009 | | $ | 478 | | | $ | 68 | | | $ | — | | | $ | (124 | ) | | $ | 2 | | | $ | 424 | |
2010 | | $ | 424 | | | $ | (50 | ) | | $ | 243 | | | $ | (60 | ) | | $ | 193 | | | $ | 750 | |
2011 | | $ | 750 | | | $ | (221 | ) | | $ | — | | | $ | (15 | ) | | $ | 3 | | | $ | 517 | |
| | | | | |
Exhibit No. | | Exhibit Description |
| |
| | 2 | .1 | | Purchase Agreement, dated as of April 20, 2007, among Silver Brands Partners II, L.P., VDW Farms, Ltd., VDW Management, L.L.C., and Bay Valley Foods, LLC is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated April 23, 2007. |
| | 2 | .2 | | Purchase Agreement, dated as of June 24, 2007 between E.D. Smith Operating Trust, E.D. Smith Limited Partnership, E.D. Smith Income Fund and TreeHouse Foods, Inc. is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated June 27, 2007. |
| | 2 | .3 | | Stock Purchase Agreement, dated as of December 20, 2009, among TreeHouse Foods, Inc., Sturm Foods, Inc., HMSF, L.P. and other shareholders of Sturm Foods, Inc. is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated December 20, 2009. |
| | 2 | .4 | | Securities Purchase Agreement, dated as of September 13, 2010, among STSF Holdings LLC, STSF Holdings, Inc., S.T. Specialty Foods, Inc. and the Company is incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 13, 2010. |
| | 2 | .5 | | Earnout Agreement between STSF Holdings, LLC and the Company is incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated September 13, 2010. |
| | 3 | .1 | | Restated Certificate of Incorporation of TreeHouse Foods, Inc., as amended on April 30, 2009 is incorporated by reference to Exhibit 3.1 to the Company’s Form10-K for the year ended December 31, 2009. |
| | 3 | .2 | | Amended and Restated By-Laws of TreeHouse Foods, Inc. is incorporated by reference to Exhibit 3.2 of our quarterly report on Form 10-Q filed with the Commission November 4, 2009. |
| | 4 | .1 | | Form of TreeHouse Foods, Inc. Common Stock Certificate is incorporated by reference to Exhibit 4.1 to Amendment No. 1 to our Registration Statement on Form 10 filed with the Commission on June 9, 2005. |
| | 4 | .2 | | Form of Certificate of Designation of Series A Junior Participating Preferred Stock incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2005. |
| | 4 | .3* | | Third Supplemental Indenture, dated October 28, 2010, among the Company, the subsidiary guarantors party thereto and the Trustee. |
| | 10 | .1** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Sam K. Reed is incorporated by reference to Exhibit 10.1 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| | 10 | .2** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and David B. Vermylen is incorporated by reference to Exhibit 10.2 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| | 10 | .3** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Thomas E. O’Neill is incorporated by reference to Exhibit 10.4 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| | 10 | .4** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Harry J. Walsh is incorporated by reference to Exhibit 10.5 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| | 10 | .5 | | Form of Subscription Agreement is incorporated by reference to Exhibit 10.6 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| | 10 | .6** | | Form of Memorandum of Amendment to Stockholders Agreement and Employment Agreements of Sam K. Reed, David B. Vermylen, E. Nichol McCully, Thomas E. O’Neill, and Harry J. Walsh is incorporated by reference to Exhibit 10.14 to Amendment No. 1 to our Registration Statement on Form 10 filed with the Commission on June 9, 2005. |
| | 10 | .7** | | TreeHouse Foods, Inc. Executive Deferred Compensation Plan is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 3, 2005. |
| | 10 | .8 | | Credit Agreement dated as of June 27, 2005, between TreeHouse Foods, Inc. and a group of Lenders with Bank of America as Administrative Agent, Swing Line Lender and L/C Issuer is incorporated by reference to Exhibit 10.16 of our Form 10-Q filed with the Commission on May 12, 2006. |
91
| | | | | |
Exhibit No. | | Exhibit Description |
| |
| | 10 | .9 | | Amendment No. 1 dated as of August 31, 2006 to the Credit Agreement dated June 27, 2005 is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 31, 2006. |
| | 10 | .10 | | Note Purchase Agreement dated as of September 22, 2006 by and among TreeHouse Foods, Inc. and a group of Purchasers is incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated September 22, 2006. |
| | 10 | .11** | | Amendments to and a restatement of our 2005 Long-Term Incentive Plan which was renamed the “TreeHouse Foods, Inc. Equity and Incentive Plan” is incorporated by reference to Appendix A of the Schedule 14A (Proxy Statement) dated February 27, 2007. |
| | 10 | .12** | | Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan is incorporated by reference to Exhibit 10.1 of our Form 10-Q filed with the Commission August 8, 2007. |
| | 10 | .13 | | Amendment to No. 2 dated as of August 30, 2007 to the Credit Agreement dated June 27, 2005 is incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K dated September 4, 2007. |
| | 10 | .14** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Sam K. Reed is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .15** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Thomas E. O’Neill is incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .16** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and David B. Vermylen is incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .17** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Harry J. Walsh is incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .18** | | Employment Agreement by and between TreeHouse Foods, Inc. and Dennis F. Riordan is incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .19** | | First Amendment to the TreeHouse Foods, Inc. Executive Deferred Compensation Plan is incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .20** | | First Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan is incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .21** | | Amended and Restated TreeHouse Foods, Inc. Executive Severance Plan is incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K dated November 5, 2008. |
| | 10 | .22** | | First Amendment to Employment Agreement, date April 21, 2009, between TreeHouse Foods, Inc. and Dennis F. Riordan is Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated April 21, 2009. |
| | 10 | .23** | | Form of employee Cash Long-Term Incentive Award Agreement is incorporated by reference to Exhibit 10.1 of our Form 10-Q filled with the Commission August 6, 2009. |
| | 10 | .24** | | Form of employee Performance Unit Agreement is incorporated by reference to Exhibit 10.2 of our Form 10-Q filled with the Commission August 6, 2009. |
| | 10 | .25** | | Form of employee Restricted Stock Agreement is incorporated by reference to Exhibit 10.3 of our Form 10-Q filled with the Commission August 6, 2009. |
| | 10 | .26** | | Form of employee Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.4 of our Form 10-Q filled with the Commission August 6, 2009. |
| | 10 | .27** | | Form of employee Non-Statutory Stock Option Agreement is incorporated by reference to Exhibit 10.5 of our Form 10-Q filled with the Commission August 6, 2009. |
| | 10 | .28** | | Form of non-employee director Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.6 of our Form 10-Q filled with the Commission August 6, 2009. |
92
| | | | | |
Exhibit No. | | Exhibit Description |
| |
| | 10 | .29** | | Form of non-employee director Non-Statutory Stock Option Agreement is incorporated by reference to Exhibit 10.7 of our Form 10-Q filled with the Commission August 6, 2009. |
| | 10 | .30 | | Amended and Restated Credit Agreement, dated as of October 27, 2010 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 27, 2010. |
| | 12 | .1* | | Computation of Ratio of Earnings to Fixed Changes. |
| | 21 | .1* | | List of Subsidiaries. |
| | 23 | .1* | | Consent of Independent Registered Accounting Firm, Deloitte & Touche LLP. |
| | 31 | .1* | | Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
| | 31 | .2* | | Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
| | 32 | .1* | | Certificate of Chief Executive Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 32 | .2* | | Certificate of Chief Financial Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 101 | .INS*** | | XBRL Instance Document. |
| | 101 | .SCH*** | | XBRL Taxonomy Extension Schema Document. |
| | 101 | .CAL*** | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | 101 | .DEF*** | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | 101 | .LAB*** | | XBRL Taxonomy Extension Label Linkbase Document. |
| | 101 | .PRE*** | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
*Exhibit No. | | Exhibit Description |
| Filed herewith |
| 2.1 | | Purchase Agreement, dated as of April 20, 2007, among Silver Brands Partners II, L.P., VDW Farms, Ltd., VDW Management, L.L.C., and Bay Valley Foods, LLC is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated April 23, 2007. |
| |
| 2.2 | | Purchase Agreement, dated as of June 24, 2007 between E.D. Smith Operating Trust, E.D. Smith Limited Partnership, E.D. Smith Income Fund and TreeHouse Foods, Inc. is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated June 27, 2007. |
| |
| 2.3 | | Stock Purchase Agreement, dated as of December 20, 2009, among TreeHouse Foods, Inc., Sturm Foods, Inc., HMSF, L.P. and other shareholders of Sturm Foods, Inc. is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated December 20, 2009. |
| |
| 2.4 | | Securities Purchase Agreement dated as of September 13, 2010, among STSF Holdings LLC, STSF Holdings, Inc., S.T. Specialty Foods, Inc. and the Company is incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 13, 2010. |
| |
| 2.5 | | Earnout Agreement between STSF Holdings, LLC and the Company is incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated September 13, 2010. |
| |
| 3.1 | | Amended and Restated Certificate of Incorporation of TreeHouse Foods, Inc., as amended April 28, 2011, is incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 28, 2011. |
| |
| 3.2 | | Amendment to the Amended and Restated By-Laws of TreeHouse Foods, Inc. is incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K dated February 25, 2011. |
| |
| 3.3 | | Amended and Restated By-Laws of TreeHouse Foods, Inc. is incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K dated April 28, 2011. |
| |
| 4.1 | | Form of TreeHouse Foods, Inc. Common Stock Certificate is incorporated by reference to Exhibit 4.1 to Amendment No. 1 to our Registration Statement on Form 10 filed with the Commission on June 9, 2005. |
| |
| 4.2 | | Form of Certificate of Designation of Series A Junior Participating Preferred Stock incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2005. |
| |
| 4.3 | | Third Supplemental Indenture, dated October 28, 2010, among the Company, the subsidiary guarantors party thereto and the Trustee is incorporated by reference to Exhibit 4.3 to our Registration Statement on Form 10-K for the fiscal year ended December 31, 2010. |
| |
| 10.1** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Sam K. Reed is incorporated by reference to Exhibit 10.1 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| |
| 10.2** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and David B. Vermylen is incorporated by reference to Exhibit 10.2 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| |
| 10.3** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Thomas E. O’Neill is incorporated by reference to Exhibit 10.4 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| |
| 10.4** | | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Harry J. Walsh is incorporated by reference to Exhibit 10.5 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| | |
Exhibit No. | | Exhibit Description |
| 10.5 | | Form of Subscription Agreement is incorporated by reference to Exhibit 10.6 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005. |
| |
| 10.6** | | Form of Memorandum of Amendment to Stockholders Agreement and Employment Agreements of Sam K. Reed, David B. Vermylen, E. Nichol McCully, Thomas E. O’Neill, and Harry J. Walsh is incorporated by reference to Exhibit 10.14 to Amendment No. 1 to our Registration Statement on Form 10 filed with the Commission on June 9, 2005. |
| |
| 10.7** | | TreeHouse Foods, Inc. Executive Deferred Compensation Plan is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 3, 2005. |
| |
| 10.8 | | Credit Agreement dated as of June 27, 2005, between TreeHouse Foods, Inc. and a group of Lenders with Bank of America as Administrative Agent, Swing Line Lender and L/C Issuer is incorporated by reference to Exhibit 10.16 of our Form 10-Q filed with the Commission on May 12, 2006. |
| |
| 10.9 | | Amendment No. 1 dated as of August 31, 2006 to the Credit Agreement dated June 27, 2005 is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 31, 2006. |
| |
| 10.10 | | Note Purchase Agreement dated as of September 22, 2006 by and among TreeHouse Foods, Inc. and a group of Purchasers is incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated September 22, 2006. |
| |
| 10.11** | | Amendments to and a restatement of our 2005 Long-Term Incentive Plan which was renamed the “TreeHouse Foods, Inc. Equity and Incentive Plan” is incorporated by reference to Appendix A of the Schedule 14A (Proxy Statement) dated February 27, 2007. |
| |
| 10.12** | | Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan is incorporated by reference to Exhibit 10.1 of our Form 10-Q filed with the Commission August 8, 2007. |
| |
| 10.13 | | Amendment No. 2 dated as of August 30, 2007 to the Credit Agreement dated June 27, 2005 is incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K dated September 4, 2007. |
| |
| 10.14** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Sam K. Reed is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated November 5, 2008. |
| |
| 10.15** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Thomas E. O’Neill is incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated November 5, 2008. |
| |
| 10.16** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and David B. Vermylen is incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated November 5, 2008. |
| |
| 10.17** | | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Harry J. Walsh is incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K dated November 5, 2008. |
| |
| 10.18** | | Employment Agreement by and between TreeHouse Foods, Inc. and Dennis F. Riordan is incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K dated November 5, 2008. |
| |
| 10.19** | | First Amendment to the TreeHouse Foods, Inc. Executive Deferred Compensation Plan is incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K dated November 5, 2008. |
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Exhibit No. | | Exhibit Description |
| 10.20** | | Second Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan is incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K dated November 5, 2008. |
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| 10.21** | | Amended and Restated TreeHouse Foods, Inc. Executive Severance Plan is incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K dated November 5, 2008. |
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| 10.22** | | First Amendment to Employment Agreement, date April 21, 2009, between TreeHouse Foods, Inc. and Dennis F. Riordan is Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated April 21, 2009. |
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| 10.23** | | Form of employee Cash Long-Term Incentive Award Agreement is incorporated by reference to Exhibit 10.1 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.24** | | Form of employee Performance Unit Agreement is incorporated by reference to Exhibit 10.2 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.25** | | Form of employee Restricted Stock Agreement is incorporated by reference to Exhibit 10.3 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.26** | | Form of employee Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.4 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.27** | | Form of employee Non-Statutory Stock Option Agreement is incorporated by reference to Exhibit 10.5 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.28** | | Form of non-employee director Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.6 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.29** | | Form of non-employee director Non-Statutory Stock Option Agreement is incorporated by reference to Exhibit 10.7 of our Form 10-Q filed with the Commission August 6, 2009. |
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| 10.30 | | Amended and Restated Credit Agreement, dated as of October 27, 2010 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 27, 2010. |
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| 10.31 | | Amendment No.1 to Amended and Restated Credit Agreement, dated as of September 23, 2011 by and among TreeHouse Foods, Inc., Bay Valley Foods, Inc., EDS Holdings LLC, Sturm Foods, Inc., STSF Holdings, Inc., S.T. Specialty Foods, Inc. and Bank of America, N.A. in its capacity as administrative agent, and each of the Lenders parties thereto, is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 23, 2011. |
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| *10.32** | | Third Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan. |
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| 10.33** | | Consulting Agreement, dated February 10, 2011, between the Company and David B. Vermylen is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 10, 2011. |
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| 12.1* | | Computation of Ratio of Earnings to Fixed Changes. |
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| 21.1* | | List of Subsidiaries. |
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| 23.1* | | Consent of Independent Registered Accounting Firm, Deloitte & Touche LLP. |
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| 31.1* | | Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 31.2* | | Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1* | | Certificate of Chief Executive Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 32.2* | | Certificate of Chief Financial Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002. |
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Exhibit No. | | Exhibit Description |
| 101.INS*** | | XBRL Instance Document. |
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| 101.SCH*** | | XBRL Taxonomy Extension Schema Document. |
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| 101.CAL*** | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101.DEF*** | | XBRL Taxonomy Extension Definition Linkbase Document. |
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| 101.LAB*** | | XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE*** | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| ** | Management contract or compensatory plan or arrangement. |
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| *** | | Attached as Exhibit 101 to this report are the following documents from TreeHouse Foods, Inc. Annual Report on Form 10-K for the year ended December 31, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated StatementStatements of Income, for the years ended December 31, 2010 and 2009, (ii) the Condensed Consolidated Balance Sheet at December 31, 2010 and December 31, 2010 and 2009,Sheets, (iii) the Condensed Consolidated StatementStatements of Cash Flows, for the years ended December 31, 2010, 2009 and 2008,Consolidated Statements of Stockholders’ Equity and (iv) Notes to Condensed Consolidated Financial Statements for the years ended December 31, 2010, 2009 and 2008.Statements. Users of this data are advised pursuant to Rule 406T ofRegulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange1934 Act, of 1934, and otherwise is not subject to liability under these sections. |
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