Pinnacle Foods Finance 10Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

_____________________



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

For the quarterly period ended June 24, 2012



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

For the transition period from ____________to _____________.

Commission File Number 333-148297

___________________________________

Pinnacle Foods Finance LLC

(Exact name of registrant as specified in its charter)

___________________________________



Delaware		20-8720036
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

399 Jefferson Road Parsippany, New Jersey		07054
(Address of Principal Executive Offices)		(Zip Code)

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

___________________________________

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

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

(Title of class)

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

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

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

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



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	ý	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No ý

As of August 8, 2012, 100% of the registrant's outstanding limited liability company interests were held by Peak Finance Holdings LLC, its sole member.

Table of Contents



	TABLE OF CONTENTS FORM 10-Q	Page No.
PART I		1
ITEM 1:	FINANCIAL STATEMENTS (UNAUDITED)	1
CONSOLIDATED STATEMENTS OF OPERATIONS		2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS		3
CONSOLIDATED BALANCE SHEETS		4
CONSOLIDATED STATEMENTS OF CASH FLOWS		5
CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY		6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		7
1.	Summary of Business Activities	7
2.	Interim Financial Statements	7
3.	Fair Value Measurements	8
4.	Other Expense (Income), net	9
5.	Balance Sheet Information	10
6.	Goodwill, Tradenames and Other Assets	12
7.	Restructuring and Impairment Charges	15
8.	Debt and Interest Expense	16
9.	Pension and Retirement Plans	21
10.	Financial Instruments	23
11.	Commitments and Contingencies	28
12.	Related Party Transactions	29
13.	Segments	30
14.	Taxes on Earnings	32
15.	Recently Issued Accounting Pronouncements	33
16.	Guarantor and Nonguarantor Statements	34
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	43
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	64
ITEM 4:	CONTROLS AND PROCEDURES	65
PART II		66
ITEM 1:	LEGAL PROCEEDINGS	66
ITEM 1A:	RISK FACTORS	66
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	66
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	66
ITEM 4:	MINE SAFETY DISCOSURES	66
ITEM 5:	OTHER INFORMATION	66
ITEM 6:	EXHIBITS	67
SIGNATURES		68

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Unaudited consolidated financial statements begin on the following page

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands of dollars)



	Three months ended						Six months ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Net sales	$	588,595		$	602,024		$	1,205,520		$	1,208,335
Cost of products sold	456,439			460,347			937,687			913,263
Gross profit	132,156			141,677			267,833			295,072
Operating expenses
Marketing and selling expenses	48,204			46,627			92,204			88,458
Administrative expenses	24,126			22,134			44,740			43,130
Research and development expenses	3,327			2,067			5,534			4,061
Other expense (income), net	14,510			11,904			18,196			15,715
Total operating expenses	90,167			82,732			160,674			151,364
Earnings before interest and taxes	41,989			58,945			107,159			143,708
Interest expense	60,527			52,056			110,139			103,383
Interest income	43			63			101			142
Earnings (loss) before income taxes	(18,495		)	6,952			(2,879		)	40,467
Provision (benefit) for income taxes	(7,935		)	(629		)	(1,858		)	12,634
Net earnings (loss)	$	(10,560	)	$	7,581		$	(1,021	)	$	27,833

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (unaudited)

(thousands of dollars)



	Three months ended						Six months ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Net earnings (loss)	$	(10,560	)	$	7,581		$	(1,021	)	$	27,833
Other comprehensive earnings
Swaps mark to market adjustments	2,397			5,616			2,134			6,723
Amortization of deferred mark-to-market adjustment on terminated swaps	32			507			445			1,212
Foreign currency translation	(42		)	(91		)	223			399
Loss on pension actuarial assumptions	21			—			(76		)	—
Tax provision on other comprehensive earnings	(931		)	(2,246		)	(1,185		)	(3,376		)
Total other comprehensive earnings - net of tax	1,477			3,786			1,541			4,958
Total comprehensive earnings (loss)	$	(9,083	)	$	11,367		$	520		$	32,791

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

(thousands of dollars)



	June 24, 2012			December 25, 2011
Current assets:
Cash and cash equivalents	$	22,719		$	151,031
Accounts receivable, net of allowances of $5,988 and $5,440, respectively	153,675			159,981
Inventories	309,677			335,812
Other current assets	9,009			7,549
Deferred tax assets	72,658			71,109
Total current assets	567,738			725,482
Plant assets, net of accumulated depreciation of $235,278 and $205,281, respectively	503,418			501,283
Tradenames	1,604,512			1,604,512
Other assets, net	167,049			178,849
Goodwill	1,441,495			1,441,495
Total assets	$	4,284,212		$	4,451,621

Current liabilities:
Short-term borrowings	$	716		$	1,708
Current portion of long-term obligations	26,037			15,661
Accounts payable	127,237			152,869
Accrued trade marketing expense	28,982			35,125
Accrued liabilities	121,940			128,785
Total current liabilities	304,912			334,148
Long-term debt (includes $67,532 and $121,992 owed to related parties, respectively)	2,597,877			2,738,650
Pension and other postretirement benefits	88,844			93,406
Other long-term liabilities	28,073			22,099
Deferred tax liabilities	418,663			417,966
Total liabilities	3,438,369			3,606,269
Commitments and contingencies (Note 11)	—			—
Member’s equity:
Limited liability company interests	—			—
Additional paid-in-capital	697,323			697,352
Retained earnings	199,415			200,436
Accumulated other comprehensive loss	(50,895		)	(52,436		)
Total member’s equity	845,843			845,352
Total liabilities and member’s equity	$	4,284,212		$	4,451,621

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands of dollars)



	Six months ended
	June 24, 2012			June 26, 2011
Cash flows from operating activities
Net earnings (loss)	$	(1,021	)	$	27,833
Non-cash charges (credits) to net earnings (loss)
Depreciation and amortization	42,056			42,902
Amortization of discount on term loan	450			603
Amortization of debt acquisition costs	4,835			5,192
Call premium on note redemption	10,785			—
Refinancing costs and write off of debt issuance costs	14,840			—
Amortization of deferred mark-to-market adjustment on terminated swaps	444			1,212
Plant asset impairment charges	—			1,286
Change in value of financial instruments	1,002			1,916
Equity-based compensation charge	600			600
Pension expense, net of contributions	(4,637		)	(6,476		)
Other long-term liabilities	2,453			(1,913		)
Other long-term assets	(470		)	78
Deferred income taxes	(2,016		)	11,594
Changes in working capital
Accounts receivable	6,306			(7,541		)
Inventories	26,341			(1,425		)
Accrued trade marketing expense	(6,143		)	(11,650		)
Accounts payable	(25,038		)	21,111
Accrued liabilities	(1,089		)	8,323
Other current assets	(2,001		)	1,565
Net cash provided by operating activities	67,697			95,210
Cash flows from investing activities
Capital expenditures	(34,699		)	(51,606		)
Proceeds from sale of plant assets	—			7,900
Net cash used in investing activities	(34,699		)	(43,706		)
Cash flows from financing activities
Proceeds from bank term loan	396,000			—
Repayments of long-term obligations	(319,444		)	—
Repurchase of notes	(219,785		)	—
Proceeds from short-term borrowings	815			484
Repayments of short-term borrowings	(1,807		)	(1,583		)
Repayment of capital lease obligations	(1,815		)	(1,074		)
Equity contributions	—			543
Repurchases of equity	(629		)	(1,006		)
Debt acquisition costs	(14,645		)	(67		)
Change in bank overdrafts	—			429
Net cash used in financing activities	(161,310		)	(2,274		)
Effect of exchange rate changes on cash	—			211
Net change in cash and cash equivalents	(128,312		)	49,441
Cash and cash equivalents - beginning of period	151,031			115,286
Cash and cash equivalents - end of period	$	22,719		$	164,727

Supplemental disclosures of cash flow information:
Interest paid	$	96,899		$	96,596
Interest received	101			142
Income taxes (refunded) paid	1,913			(3,796		)
Non-cash investing and financing activities:
New capital leases	1,548			505

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY (unaudited)

(thousands of dollars, except share amounts)



	Additional Paid In Capital			Retained earnings			Accumulated Other Comprehensive Loss			Total Member’s Equity
	Additional Paid In Capital			Retained earnings			Accumulated Other Comprehensive Loss			Total Member’s Equity
Balance, December 26, 2010	$	697,267		$	247,350		$	(49,532	)	$	895,085
Equity contribution:
Cash	543									543
Repurchases of equity	(1,006		)							(1,006		)
Equity related compensation	600									600
Comprehensive earnings				27,833			4,958			32,791
Balance, June 26, 2011	$	697,404		$	275,183		$	(44,574	)	$	928,013

Balance, December 25, 2011	$	697,352		$	200,436		$	(52,436	)	$	845,352
Equity contribution:
Cash	—									—
Repurchases of equity	(629		)							(629		)
Equity related compensation	600									600
Comprehensive earnings				(1,021		)	1,541			520
Balance, June 24, 2012	$	697,323		$	199,415		$	(50,895	)	$	845,843

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1. Summary of Business Activities

Business Overview

Pinnacle Foods Finance LLC (hereafter referred to as the “Company” or “PFF”) is a leading manufacturer, marketer and distributor of high quality, branded convenience food products in North America, the products and operations of which are managed and reported in three operating segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods.

The Company's Birds Eye Frozen Division manages the Leadership brands in the United States retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), and frozen seafood (Van de Kamp's and Mrs. Paul's) categories, as well as its Foundation brands in the frozen and refrigerated bagels (Lender's), frozen pizza for one (Celeste), full-calorie single-serve frozen dinners and entrées (Hungry-Man), and frozen breakfast (Aunt Jemima) categories.

The Company's Duncan Hines Grocery division manages the Leadership brands in the baking mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), and table syrups (Mrs. Butterworth's and Log Cabin) categories, and our Foundation brands in the canned meat (Armour, Nalley, Brooks), pie and pastry fillings (Comstock, Wilderness), barbecue sauces (Open Pit) and salad dressing (Bernstein's) categories as well as all Canadian operations. The Company refers to the sum of its Birds Eye Frozen segment and our Duncan Hines Grocery segment as the North American retail businesses.

The Company's Specialty Foods Division consists of snack products (Tim's Cascade and Snyder of Berlin) and the food service and private label businesses.

History and Current Ownership

Since 2001, the Company and its predecessors have been involved in several business combinations to acquire certain assets and liabilities related to the brands discussed above.

Effective April 2, 2007, PFF became a direct wholly-owned subsidiary of Peak Finance Holdings LLC (“Peak”). Peak is a direct wholly-owned subsidiary of Crunch Holding Corp. (“Crunch”) and Crunch is 100% owned by Peak Holdings LLC (“Peak Holdings”) and certain members of the Company’s senior management. Peak Holdings is an entity controlled by affiliates of The Blackstone Group L.P. (“Blackstone”), a global private investment and advisory firm.

On December 23, 2009, the Company’s subsidiary, Pinnacle Foods Group LLC, purchased all of the common stock of Birds Eye Foods, Inc. (the “Birds Eye Foods Acquisition”).

2. Interim Financial Statements

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting primarily of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of June 24, 2012, the results of operations for the three and six months ended June 24, 2012 and June 26, 2011, and the cash flows for the six months ended June 24, 2012 and June 26, 2011. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 25, 2011.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

3. Fair Value Measurements

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


Level 1:	Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2:	Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


Level 3:	Unobservable inputs that reflect the Company’s assumptions.

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



	Fair Value as of June 24, 2012		Fair Value Measurements Using Fair Value Hierarchy						Fair Value as of December 25, 2011		Fair Value Measurements Using Fair Value Hierarchy
	Fair Value as of June 24, 2012		Level 1		Level 2		Level 3		Fair Value as of December 25, 2011		Level 1		Level 2		Level 3
Assets
Interest rate derivatives	$	—	$	—	$	—	$	—	$	1,335	$	—	$	1,335	$	—
Foreign currency derivatives	532		—		532		—		931		—		931		—
Commodity derivatives	—		—		—		—		142		—		142		—
Total assets at fair value	$	532	$	—	$	532	$	—	$	2,408	$	—	$	2,408	$	—

Liabilities
Interest rate derivatives	$	3,819	$	—	$	3,819	$	—	$	7,836	$	—	$	7,836	$	—
Foreign currency derivatives	—		—		—		—		—		—		—		—
Commodity derivatives	2,447		—		2,447		—		1,615		—		1,615		—
Total liabilities at fair value	$	6,266	$	—	$	6,266	$	—	$	9,451	$	—	$	9,451	$	—

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

The valuations of these instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate, commodity, and foreign exchange forward curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of the authoritative guidance for fair value disclosure, the Company incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The Company had no fair value measurements based upon significant unobservable inputs (Level 3) as of June 24, 2012 or December 25, 2011.

In addition to the instruments named above, the Company also makes fair value measurements in connection with its annual goodwill and trade name impairment testing. These measurements would fall into Level 3 of the fair value hierarchy.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

In December 2011, the Company adopted the provisions of the Financial Accounting Standards Board's (“FASB”) Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements," (“ASU 2011-04”). For purposes of calculating fair value of financial instruments, we manage the portfolio of financial assets and financial liabilities on the basis of the Company's net exposure to credit risk. The Company has elected to apply the portfolio exception in ASU 2011-04 with respect to measuring counterparty credit risk for all of its derivative transactions subject to master netting arrangements on a net basis by counterparty portfolio.

4. Other Expense (Income), net



	Three months ended						Six months ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Other expense (income), net consists of:
Amortization of intangibles/other assets	$	3,886		$	4,043		$	7,768		$	8,082
Lehman Brothers Specialty Financing settlement	—			8,500			—			8,500
Gain on sale of the Watsonville, CA facility	—			(391		)	—			(391		)
Redemption premium on the early extinguishment of debt	10,785			—			10,785			—
Royalty income and other	(161		)	(248		)	(357		)	(476		)
Total other expense (income), net	$	14,510		$	11,904		$	18,196		$	15,715

Redemption premium on the early extinguishment of debt. On April 19, 2012, as part of a debt refinancing (the "2012 Refinancing") the Company redeemed all $199.0 million of its outstanding 10.625% Senior Subordinated Notes at a redemption price of 105.313% of the aggregate principal amount. In addition, on June 5, 2012, the Company repurchased and retired $10.0 million of 9.25% Senior Notes at a price of 102.125% of the aggregate principal amount. For more information on the 2012 Refinancing see Note 8 to the Consolidated Financial Statements for Debt and Interest Expense.

Lehman Brothers Specialty Financing settlement. On June 4, 2010, Lehman Brothers Special Financing (LBSF) initiated a claim against the Company in LBSF’s bankruptcy proceeding for an additional payment from the Company of $19.7 million, related to certain derivatives contracts which the Company had earlier terminated due to LBSF’s default as a result of its bankruptcy filing in 2008. On May 31, 2011, the Company and LBSF agreed in principle to a settlement of LBSF’s June 4, 2010 claim. Under the terms of the settlement, the Company made a payment of $8.5 million in return for LBSF’s full release of its claim against the Company.

Sale of the Watsonville, CA facility. On June 24, 2011, the Company completed the sale of our Watsonville, CA facility which had been recorded as an asset held for sale. The proceeds of the sale were $7.9 million and resulted in a $0.4 million gain recorded in Other Expense (Income), net in the three and six months ended June 26, 2011.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

5. Balance Sheet Information

Accounts Receivable. Customer accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for cash discounts, returns and bad debts is our best estimate of the amount of uncollectible amounts in our existing accounts receivable. The Company determines the allowance based on historical discounts taken and write-off experience. The Company reviews its allowance for doubtful accounts quarterly. Account balances are charged off against the allowance when the Company concludes it is probable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to our customers. Accounts receivable are as follows:



	June 24, 2012			December 25, 2011
Customers	$	150,869		$	154,949
Allowances for cash discounts, bad debts and returns	(5,988		)	(5,440		)
Subtotal	144,881			149,509
Other receivables	8,794			10,472
Total	$	153,675		$	159,981

Inventories. Inventories are as follows:



	June 24, 2012		December 25, 2011
Raw materials, containers and supplies	$	87,015	$	66,247
Finished product	222,662		269,565
Total	$	309,677	$	335,812

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

Other Current Assets. Other Current Assets are as follows:



	June 24, 2012		December 25, 2011
Prepaid expenses	$	6,996	$	6,540
Prepaid income taxes	2,013		1,009
Total	$	9,009	$	7,549

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Plant Assets. Plant assets are as follows:



	June 24, 2012			December 25, 2011
Land	$	18,002		$	18,001
Buildings	185,066			163,397
Machinery and equipment	504,970			474,556
Projects in progress	30,658			50,610
Subtotal	738,696			706,564
Accumulated depreciation	(235,278		)	(205,281		)
Total	$	503,418		$	501,283

Depreciation was $17,682 and $34,288 during the three and six months ended June 24, 2012, respectively. Depreciation was $18,449 and $34,820 during the three and six months ended June 26, 2011, respectively. As of June 24, 2012 and December 25, 2011, Plant Assets included assets under capital lease with a book value of $23,251 and $17,614 (net of accumulated depreciation of $6,876 and $5,257), respectively.

Accrued Liabilities. Accrued liabilities are as follows:



	June 24, 2012		December 25, 2011
Employee compensation and benefits	$	56,842	$	50,891
Interest payable	29,606		36,840
Consumer coupons	4,285		3,170
Accrued restructuring charges (see note 7)	4,696		4,076
Accrued financial instrument contracts (see note 10)	2,745		9,451
Other	23,766		24,357
Total	$	121,940	$	128,785

Other Long-Term Liabilities. Other long-term liabilities are as follows:



	June 24, 2012		December 25, 2011
Employee compensation and benefits	$	9,013	$	9,589
Long-term rent liability and deferred rent allowances	10,402		6,594
Liability for uncertain tax positions	1,706		1,788
Accrued financial instrument contracts (see note 10)	3,522		—
Other	3,430		4,128
Total	$	28,073	$	22,099

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

6. Goodwill, Tradenames and Other Assets

Goodwill

Goodwill by segment is as follows:



	Birds Eye Frozen		Duncan Hines Grocery		Specialty Foods		Total
Balance, December 25, 2011	$	527,069	$	740,465	$	173,961	$	1,441,495

Balance, June 24, 2012	$	527,069	$	740,465	$	173,961	$	1,441,495

The authoritative guidance for business combinations requires that all business combinations be accounted for at fair value under the acquisition method of accounting. The authoritative guidance for goodwill provides that goodwill will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. The Company completed its annual testing as of December 25, 2011. As a result of the testing, the Company recognized goodwill impairments of $122.9 million in its Frozen Breakfast, Private label, and Food Service reporting units during the year ended December 25, 2011.

Tradenames

Tradenames by segment are as follows:



	Birds Eye		Duncan Hines		Specialty
	Frozen		Grocery		Foods		Total
Balance, December 25, 2011	$	796,680	$	771,832	$	36,000	$	1,604,512
			—
Balance, June 24, 2012	$	796,680	$	771,832	$	36,000	$	1,604,512

The authoritative guidance for indefinite-lived assets provides that indefinite-lived assets will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. As a result of its annual testing of indefinite-lived assets in December 2011, the Company recorded impairment charges totaling $25.3 million in its Aunt Jemima, Lender's and Bernstein's tradenames during the year ended December 25, 2011.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Other Assets



	June 24, 2012
	Weighted Avg Life	Gross Carrying Amount		Accumulated Amortization			Net
Amortizable intangibles
Recipes	10	$	52,810	$	(27,675	)	$	25,135
Customer relationships - Distributors	36	125,746		(25,817		)	99,929
Customer relationships - Food Service	7	36,143		(30,145		)	5,998
Customer relationships - Private Label	7	9,214		(8,256		)	958
License	7	4,875		(1,868		)	3,007
Total amortizable intangibles		$	228,788	$	(93,761	)	$	135,027
Deferred financing costs		59,689		(31,970		)	27,719
Other (1)		4,303		—			4,303
Total other assets, net							$	167,049
	Amortizable intangibles by segment
	Birds Eye Frozen						$	72,879
	Duncan Hines Grocery						51,425
	Specialty Foods						10,723
							$	135,027



	December 25, 2011
	Weighted Avg Life	Gross Carrying Amount		Accumulated Amortization			Net
Amortizable intangibles
Recipes	10	$	52,810	$	(25,084	)	$	27,726
Customer relationships - Distributors	36	125,746		(22,947		)	102,799
Customer relationships - Food Service	7	36,143		(28,472		)	7,671
Customer relationships - Private Label	7	9,214		(7,989		)	1,225
License	7	4,875		(1,500		)	3,375
Total amortizable intangibles		$	228,788	$	(85,992	)	$	142,796
Deferred financing costs		77,112		(46,228		)	30,884
Financial instruments (see note 10)		1,335		—			1,335
Other (1)		3,834		—			3,834
Total other assets, net							$	178,849
	Amortizable intangibles by segment
	Birds Eye Frozen						$	76,054
	Duncan Hines Grocery						53,948
	Specialty Foods						12,794
							$	142,796

(1) As of June 24, 2012 and December 25, 2011, Other consists of security deposits.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Amortization of intangible assets was $3,886 and $7,768 for the three and six months ended June 24, 2012, respectively. Amortization of intangible assets was $4,043 and $8,082 for the three and six months ended June 26, 2011, respectively. Estimated amortization expense for each of the next five years and thereafter is as follows: remainder of 2012 -$8,100 ; 2013 - $15,500; 2014 - $12,200; 2015 - $10,900; 2016 - $10,300 and thereafter - $78,100.

Deferred Financing Costs

All deferred financing costs, which relate to the Senior Secured Credit Facility and Senior Notes are amortized into interest expense over the life of the related debt facility using the effective interest method. On April 17, 2012, as part the 2012 Refinancing, the Company expensed financing costs of $7,526 and wrote off deferred financing costs of $5,450. In addition, amortization of deferred financing costs was $2,276 and $4,835 during the three and six months ended June 24, 2012, respectively. Amortization of deferred financing costs was $2,605 and $5,192 during the three and six months ended June 26, 2011, respectively. For more information on the 2012 Refinancing, see Note 8 to the Consolidated Financial Statements for Debt and Interest Expense.

The following summarizes deferred financing cost activity:



	Gross Carrying Amount			Accumulated Amortization			Net
Balance, December 25, 2011	$	77,112		$	(46,228	)	$	30,884
2012 - Additions	7,120			—			7,120
- Amortization	—			(4,835		)	(4,835		)
- Write Off	(24,543		)	19,093			(5,450		)
Balance, June 24, 2012	$	59,689		$	(31,970	)	$	27,719

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

7. Restructuring Charges

Millsboro, DE Plant

On May 25, 2012, the Company announced plans to further improve the efficiency of its supply chain by consolidating its Vlasic pickle production into one plant in Imlay City, MI. The Company's other pickle production plant, located in Millsboro, DE, is expected to end production around year-end 2012. The Company recorded employee termination costs of 1,322 in the three and six months ended June 24, 2012. The Company recorded asset retirement obligation charges of $750 in the three and six months ended June 24, 2012. In addition, the Company recorded accelerated depreciation charges of $1,736 in the three and six months ended June 24, 2012. The Company anticipates recording additional accelerated depreciation charges of $11.6 million throughout the remainder of fiscal 2012. All restructuring charges related to the closure of the Millsboro, DE plant are recorded in the Duncan Hines Grocery segment and in the Cost of products sold line in the Consolidated Statements of Operations.

Green Bay, WI Research Facility

On May 15, 2012, the Company announced plans to relocate the Birds Eye Research and Development team to its new facility at its Parsippany, NJ headquarters. The Company believes that bringing its Birds Eye R&D team to Parsippany will allow for seamless collaboration between marketing, sales, procurement and R&D that will drive superior brand innovation, marketing and productivity. The Green Bay, WI research facility will close during December 2012. The Company recorded employee termination costs of $727 in the three and six months ended June 24, 2012. In addition, the Company recorded accelerated depreciation charges of $187 in the three and six months ended June 24, 2012. The Company anticipates recording additional accelerated depreciation charges of $0.8 million throughout the remainder of fiscal 2012. All restructuring charges related to the closure of the Green Bay, WI research facility are recorded in the Birds Eye Frozen segment and in the Research and development line in the Consolidated Statements of Operations.

Fulton, NY Plant

On April 15, 2011, the Company announced plans to consolidate the Birds Eye Frozen segment's Fulton, NY plant operations into the Darien, WI and Waseca, MN facilities in order to locate vegetable processing closer to the crop-growing region and thus reduce the related freight costs. In connection with this project, the Company made significant capital investments in its Darien, WI and Waseca, MN plants. The Company recorded accelerated depreciation costs of $479 and $2,324 in the three and six months ended June 24, 2012, respectively. The Company recorded employee termination costs of $1,850 in the three and six months ended June 26, 2011. In addition, the Company recorded accelerated depreciation costs of $2,635 in the three and six months ended June 26, 2011. All restructuring charges related to the closure of the Fulton, NY plant are recorded in the Birds Eye Frozen segment and in the Cost of products sold line in the Consolidated Statements of Operations. The Company expects severance payments to be completed by the third quarter of 2012.

Tacoma, WA Plant

On December 3, 2010, in an effort to improve its supply chain operations, the Company announced the closure of the Tacoma, WA plant and the consolidation of production into its Fort Madison, IA plant. The Company recorded accelerated depreciation costs of $0 and $307 in the three and six months ended June 24, 2012, respectively. The Company recorded accelerated depreciation costs of $1,992 and $4,782 in the three and six months ended and June 26, 2011, respectively. In addition, the Company recorded asset impairment charges of $1,286 in the three and six months ended June 26, 2011, upon ceasing use of the facility at the end of the second quarter of 2011. All restructuring charges related to the closure of the Tacoma, WA plant are recorded in the Duncan Hines Grocery segment and in the Cost of products sold line in the Consolidated Statements of Operations.

The following table summarizes total restructuring charges accrued as of June 24, 2012.



Description	Balance, December 25, 2011		Expense		Other increases			Payments			Balance, June 24, 2012
Facility shutdowns	$	1,201	$	—	$	770	(1)	$	—		$	1,971
Employee severance	2,875		2,049		—			(2,199		)	2,725
Total	$	4,076	$	2,049	$	770		$	(2,199	)	$	4,696

(1) Consists of asset retirement obligations at the Millsboro, DE and Tacoma, WA plants.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

8. Debt and Interest Expense



	June 24, 2012			December 25, 2011
Short-term borrowings
- Notes payable	$	716		$	1,708
Total short-term borrowings	$	716		$	1,708
Long-term debt
- Senior Secured Credit Facility - Tranche B Non Extended Term Loans due 2014	$	549,525		$	1,196,875
- Senior Secured Credit Facility - Tranche B Extended Term Loans due 2016	641,100			—
- Senior Secured Credit Facility - Tranche D Term Loans due 2014	—			313,194
- Senior Secured Credit Facility - Tranche E Term Loans due 2018	400,000			—
- 9.25% Senior Notes due 2015	615,000			625,000
- 8.25% Senior Notes due 2017	400,000			400,000
- 10.625% Senior Subordinated Notes due 2017	—			199,000
- Unamortized discount on long term debt	(4,398		)	(2,712		)
- Capital lease obligations	22,687			22,954
	2,623,914			2,754,311
Less: current portion of long-term obligations	26,037			15,661
Total long-term debt	$	2,597,877		$	2,738,650



Interest expense	Three months ended				Six months ended
	June 24, 2012		June 26, 2011		June 24, 2012		June 26, 2011
Interest expense, third party	$	38,819	$	41,386	$	80,050	$	83,072
Related party interest expense	755		1,435		2,086		2,794
Amortization of debt acquisition costs (Note 6)	2,276		2,605		4,835		5,192
Write-off of debt acquisition costs (Note 6)	5,450		—		5,450		—
Write-off of loan discount	1,864		—		1,864		—
Financing costs (Note 6)	7,526		—		7,526		—
Amortization of deferred mark-to-market adjustment on terminated swaps (Note 10)	32		507		444		1,212
Interest rate swap losses (Note 10)	3,805		6,123		7,884		11,113
Total interest expense	$	60,527	$	52,056	$	110,139	$	103,383

Senior Secured Credit Facility

On April 17, 2012 the Company entered into an amendment and restatement of the Senior Secured Credit Facility (as amended and restated, the “Senior Secured Credit Facility”). The Senior Secured Credit Facility provides for (i) an extension of the maturity date of a portion of the existing term loan B facility (the “Tranche B Extended Term Loans”) in the initial amount of $641.1 million, while a portion of the existing term loan B facility (the "Tranche B Non Extended Term Loans") in the initial amount of $550.0 million retained their original terms, (ii) the issuance of a new term loan E facility (the “Tranche E Term Loans”) in the initial amount of $400.0 million, and (iii) the replacement of the existing revolving credit facility with a new $150.0 million revolving credit facility (the “Revolving Credit Facility”). The Senior Secured Credit Facility, as well as the indentures covering our various notes referenced below, subject the company to various financial and non-financial covenants. The Company used proceeds from the Tranche E Term Loans to pay off all of its outstanding balance of $313.2 million aggregate principal amount of Tranche D Term Loans.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

On April 19, 2012, the Company redeemed all $199.0 million aggregate principal amount of its outstanding 10.625% Senior Subordinated Notes using proceeds from the Tranche E Term Loans along with available cash. This is explained in greater detail under the section titled, "Senior Notes and Senior Subordinated Notes."

In connection with the refinancing, the Company incurred deferred financing fees which are explained in detail in Note 6 to the Consolidated Financial Statements, "Goodwill, Tradenames and Other Assets". Also, the Company incurred $4.0 million of original issue discount on our new Tranche E Term Loans.

The stated maturity dates are: April 2, 2014 for the Tranche B Non Extended Term Loans, October 2, 2016 for the Tranche B Extended Term Loans, October 17, 2018 for the Tranche E Term Loans, and April 17, 2017 for the Revolving Credit Facility.

However, the maturity dates would be accelerated as follows:


•	if more than $150.0 million of the Tranche B Non Extended Term Loans are outstanding on January 1, 2014, the Revolving Credit Facility would expire January 1, 2014;


•	if more than $150.0 million of the 9.25% Senior Notes are outstanding on December 31, 2014, then the maturity dates of the Tranche B Extended Term Loans, the Tranche E Term Loans and the Revolving Credit Facility would be December 31, 2014;


•	if more than $150.0 million of the Tranche B Extended Term Loans are outstanding on July 3, 2016, the Revolving Credit Facility would expire July 3, 2016; or


•	if more than $150.0 million of the 8.25% Senior Notes are outstanding on June 2, 2017, then the maturity dates of the Tranche E Term Loans would be June 2, 2017.

There were no borrowings outstanding under the Revolving Credit Facility as of June 24, 2012 and December 25, 2011. There were no borrowings under the revolver during 2011 or 2012.

The total combined amount of the Senior Secured Credit Facility Loans that were owed to affiliates of Blackstone as of June 24, 2012 and December 25, 2011, was $67,532 and $121,992, respectively.

The Company’s borrowings under the Senior Secured Credit Facility, bear interest at a floating rate and are maintained as base rate loans or as Eurocurrency rate loans. Base rate loans bear interest at the base rate plus the applicable base rate margin, as defined in the Senior Secured Credit Facility. The base rate is defined as the higher of (i) the prime rate and (ii) the Federal Reserve reported overnight funds rate plus 1/2 of 1%. Eurocurrency rate loans bear interest at the adjusted Eurocurrency rate, as described in the Senior Secured Credit Facility, plus the applicable Eurocurrency rate margin. Solely with respect to Tranche E Term Loans, the Eurocurrency rate shall be no less than 1.25% per annum and the base rate shall be no less than 2.25% per annum.

The applicable margins with respect to the Company’s Senior Secured Credit Facility vary from time to time in accordance with the terms thereof and agreed upon pricing grids based on the Company’s leverage ratio as defined in the credit agreement. The applicable margins with respect to the Senior Secured Credit Facility as of June 24, 2012 were:

Applicable Margin (per annum)



Revolving Credit Facility and Letters of Credit			Tranche B Non Extended Term Loans		Tranche B Extended Term Loans
Eurocurrency Rate	Base Rate	Commitment Fees Rate	Eurocurrency Rate	Base Rate	Eurocurrency Rate	Base Rate
3.50%	2.50%	0.50%	2.50%	1.50%	3.50%	2.50%

			Tranche E Term Loans
			Eurocurrency Rate	Base Rate
			3.50%	2.50%

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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

A commitment fee of 0.50% per annum is applied to the unused portion of the Revolving Credit Facility. As of June 24, 2012 and December 25, 2011, the interest rate on the revolving credit facility was 3.75% and 2.79%, respectively, however, no borrowings were made during 2011 or 2012. For the three and six months ended June 24, 2012, the weighted average interest rate on the term loan components of the Senior Credit Facility was 3.64% and 3.57%, respectively. For the three and six months ended June 26, 2011, the weighted average interest rate on the term loan components of the Senior Credit Facility was 3.49% and 3.51%, respectively. As of June 24, 2012 and December 25, 2011 the Eurocurrency interest rate on the term loan facilities was 3.67% and 3.46%, respectively.

The Company pays a fee for all outstanding letters of credit drawn against the Revolving Credit Facility at an annual rate equivalent to the Applicable Margin then in effect with respect to Eurodollar loans under the Revolving Credit Facility, less the fronting fee payable in respect of the applicable letter of credit. The fronting fee is equal to 0.125% per annum of the daily maximum amount then available to be drawn under such letter of credit. The fronting fees are computed on a quarterly basis in arrears. Total letters of credit issued under the Revolving Credit Facility cannot exceed $50,000. As of June 24, 2012 and December 25, 2011, the Company had utilized $32,894 and $33,568, respectively of the Revolving Credit Facility for letters of credit. As of June 24, 2012 and December 25, 2011, there were no borrowings under the Revolving Credit Facility. As of June 24, 2012 and December 25, 2011, respectively, there was $117,106 and $116,432 of borrowing capacity under the Revolving Credit Facility, of which $17,106 and $16,432 was available to be used for letters of credit.

Under the terms of the Senior Secured Credit Facility, the Company is required to use 50% of its “Excess Cash Flow” to prepay the Senior Secured Credit Facility loans. Excess Cash Flow is defined as consolidated net income (as defined), as adjusted for certain items, including (1) all non cash charges and credits included in arriving at consolidated net income, (2) changes in working capital, (3) capital expenditures (to the extent they were not financed with debt), (4) the aggregate amount of principal payments of indebtedness and (5) certain other items defined in the Senior Secured Credit Facility. In December 2011, the Company made voluntary prepayments on its Senior Secured Credit Facility of $55.0 million. As a result of this prepayment, no payment was due under the Excess Cash Flow requirements of Senior Secured Credit Facility for the 2011 reporting year.

The Senior Secured Credit Facility loans mature in quarterly 0.25% installments. The aggregate maturities of the Tranche B Non Extended Term Loans outstanding as of June 24, 2012 are $6.2 million in the remainder of 2012, $12.5 million in 2013 and $530.8 million in 2014. The aggregate maturities of the Tranche B Extended Term Loans outstanding as of June 24, 2012 are $3.2 million in the remainder of 2012, $6.4 million in 2013, $6.4 million in 2014, $6.4 million in 2015 and $618.7 million in 2016. The aggregate maturities of the Tranche E Term Loans outstanding as of June 24, 2012 are $2.0 million in the remainder of 2012, $4.0 million in 2013, $4.0 million in 2014, $4.0 million in 2015, $4.0 million in 2016 and $382.0 million thereafter.

Pursuant to the terms of the Senior Secured Credit Facility, the Company must maintain a net first lien senior secured leverage ratio ("Net First Lien Leverage Ratio") of 5.25 to 1.00. Consolidated total senior secured debt is defined under the Senior Secured Credit Facility as aggregate consolidated secured indebtedness of the Company less the aggregate amount of all unrestricted cash and cash equivalents. In addition, under the Senior Secured Credit Facility and the indenture governing the Senior Notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to the Net First Lien Leverage Ratio, in the case of the Senior Secured Credit Facility, or to the ratio of EBITDA to fixed charges for the most recently concluded four consecutive fiscal quarters, in the case of the Senior Notes. The Senior Secured Credit Facility also permits restricted payments up to an aggregate amount of (together with certain other amounts) the greater of $50 million and 2% of our consolidated total assets, so long as no default has occurred and is continuing and our pro forma leverage ratio would be no greater than 4.25 to 1.00. As of June 24, 2012 the Company is in compliance with all covenants and other obligations under the Senior Secured Credit Facility and the Senior Notes.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Senior Notes and Senior Subordinated Notes

On April 2, 2007, the Company issued in the initial aggregate principal amounts of $325.0 million of 9.25% Senior Notes (the “Senior Notes”) due 2015, and $250.0 million of 10.625% Senior Subordinated Notes (the “Senior Subordinated Notes”) due 2017. On December 23, 2009, as part of the Birds Eye Foods Acquisition, the Company issued an additional $300 million of 9.25% Senior Notes due in 2015 (the “Additional Senior Notes”). The Senior Notes and the Additional Senior Notes are collectively referred to herein as the 9.25% Senior Notes. On August 17, 2010, the Company issued $400.0 million of 8.25% Senior Notes due 2017 (the “8.25% Senior Notes”).

The 9.25% Senior Notes and the 8.25% Senior Notes are general unsecured obligations of the Company, effectively subordinated in right of payment to all existing and future senior secured indebtedness of the Company and guaranteed on a full, unconditional, joint and several basis by the Company’s wholly-owned domestic subsidiaries that guarantee other indebtedness of the Company. See Note 16 to the Consolidated Financial Statements for Guarantor and Nonguarantor Financial Statements.

On April 19, 2012, the Company redeemed all $199.0 million aggregate principal amount of its outstanding 10.625% Senior Subordinated Notes at a redemption price equal to 105.313% of the aggregate principal amount plus accrued and unpaid interest to the redemption date. The total redemption price was approximately $210.6 million, including accrued interest of $1.0 million. The make whole premium of $10.6 million was recorded in Other expense (income) during the second quarter. The redemption was effected in accordance with the indenture governing the Senior Subordinated Notes pursuant to a notice dated March 20, 2012.

The Company funded the redemption price for the Senior Subordinated Notes with the net proceeds of $82.8 million from the Tranche E Term Loans along with $127.8 million of available cash.

The Company may redeem some or all of the 8.25% Senior Notes at any time prior to September 1, 2013 at a price equal to 100% of the principal amount of notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the redemption date, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date. The “Applicable Premium” is defined as the greater of (1) 1.0% of the principal amount of such note and (2) the excess, if any, of (a) the present value at such redemption date of (i) the redemption price of such 8.25% Senior Note at September 1, 2013, plus (ii) all required interest payments due on such 8.25% Senior Note through September 1, 2013 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the treasury rate plus 50 basis points over (b) the principal amount of such note.

The Company currently may redeem the 9.25% Senior Notes, and in the future may redeem the 8.25% Senior Notes or the Senior Subordinated Notes, at the redemption prices listed below, if redeemed during the twelve-month period beginning on April 1^st (for the 9.25% Senior Notes) or September 1^st (for the 8.25% Senior Notes) of each of the years indicated below:



9.25% Senior Notes		8.25% Senior Notes
Year	Percentage	Year	Percentage
2012	102.313%	2013	106.188%
2013 and thereafter	100.000%	2014	104.125%
		2015	102.063%
		2016 and thereafter	100.000%

In addition, until September 1, 2013, the Company may redeem up to 35% of the aggregate principal amount of the 8.25% Senior Notes at a redemption price equal to 108.25% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, subject to the right of holders of the 8.25% Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds received by the Company from one or more equity offerings; provided that (i) at least 50% of the aggregate principal amount of the 8.25% Senior Notes originally issued under the indenture remains outstanding immediately after the occurrence of each such redemption and (ii) each such redemption occurs within 90 days of the date of closing of each such equity offering.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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

The estimated fair value of the Company’s long-term debt, including the current portion, as of June 24, 2012, is as follows:



	June 24, 2012
Issue	Face Value		Fair Value
Senior Secured Credit Facility - Tranche B Non Extended Term Loans	$	549,525	$	545,404
Senior Secured Credit Facility - Tranche B Extended Term Loans	641,100		631,484
Senior Secured Credit Facility - Tranche E Term Loans	400,000		396,000
9.25% Senior Notes	615,000		625,763
8.25% Senior Notes	400,000		420,000
	$	2,605,625	$	2,618,651

The estimated fair value of the Company’s long-term debt, including the current portion, as of December 25, 2011, is as follows:



	December 25, 2011
Issue	Face Value		Fair Value
Senior Secured Credit Facility - Tranche B Term Loans	$	1,196,875	$	1,169,945
Senior Secured Credit Facility - Tranche D Term Loans	313,194		313,977
9.25% Senior Notes	625,000		642,188
8.25% Senior Notes	400,000		416,000
10.625% Senior Subordinated Notes	199,000		209,448
	$	2,734,069	$	2,751,558

The estimated fair values of our long-term debt are classified as Level 2 in the fair value hierarchy. The fair value is based on the quoted market price for such notes and borrowing rates currently available to the Company for loans with similar terms and maturities.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

9. Pension and Retirement Plans

The Company accounts for pension and retirement plans in accordance with the authoritative guidance for retirement benefit compensation. This guidance requires recognition of the funded status of a benefit plan in the statement of financial position. The guidance also requires recognition in accumulated other comprehensive earnings of certain gains and losses that arise during the period but are deferred under pension accounting rules.

The Company uses a measurement date for the pension benefit plans that coincides with its year end.

The Company has two defined benefit plans (Pinnacle Foods Pension Plan and the Birds Eye Foods Pension Plan), two qualified 401(k) plans, a non-qualified 40l(k) plan and participates in a multi-employer defined benefit plan.

Pinnacle Foods Pension Plan

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

The following represents the components of net periodic benefit cost:



Pension Benefits	Pinnacle Foods Pension Plan
	Three months ended						Six months ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Service cost	$	277		$	288		$	555		$	511
Interest cost	1,028			1,374			2,056			2,440
Expected return on assets	(1,089		)	(1,368		)	(2,178		)	(2,429		)
Amortization of:
prior service cost	10			13			21			24
actuarial loss	447			233			894			414
Net periodic cost	$	673		$	540		$	1,348		$	960

Cash Flows

Contributions. In fiscal 2012, the Company expects to make contributions of $4.7 million to the Pinnacle Foods Pension Plan, of which $1.1 million and $2.0 million was made in the three and six months ended June 24, 2012. The Company made contributions to the pension plan totaling $6.8 million in fiscal 2011, of which $4.1 million and $5.0 million was made in the three and six months ending June 26, 2011.

Birds Eye Foods Pension Plan

The Company’s Birds Eye Foods Pension Plan (the “Birds Eye Foods Pension Plan”) consists of hourly and salaried employees and has primarily non-contributory defined-benefit schedules. Benefits for the salaried employees have been frozen since the plan was acquired.

The Company acquired an Excess Benefit Retirement Plan from Birds Eye Foods ("EBRP"), which serves to provide employees with the same retirement benefit they would have received from Birds Eye’s retirement plan under the career average base pay formula. Benefits for this plan are frozen. Also, the Company maintains a non-qualified Supplemental Executive Retirement Plan (“SERP”) which provides additional retirement benefits to two prior executives of Birds Eye Foods who retired prior to November 4, 1994. Expenses and liabilities for the EBRP and the SERP plan are grouped with those of the Birds Eye Pension Plan in all disclosures listed herein.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The benefits for these plans are based primarily on years of service and employees’ pay near retirement. The Company’s funding policy is consistent with the funding requirements of Federal laws and regulations. Plan assets consist principally of common stocks, corporate bonds and U.S. government obligations. Plan assets do not include any of the Company’s own equity or debt securities.

The following represents the components of net periodic benefit cost:



Pension Benefits	Birds Eye Foods Pension Plan
	Three months ended						Six months ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Service cost	$	52		$	161		$	105		$	395
Interest cost	1,928			1,484			3,856			3,520
Expected return on assets	(2,086		)	(1,325		)	(4,172		)	(3,235		)
Amortization of:
actuarial loss	87			—			174			—
Net periodic cost	$	(19	)	$	320		$	(37	)	$	680

Cash Flows

Contributions. In fiscal 2012, the Company expects to make contributions of $8.8 million to the Birds Eye Foods Pension Plan, of which $1.9 million and $3.7 million was made in the three and six months ended June 24, 2012. The Company made contributions to the pension plan totaling $9.1 million in fiscal 2011, of which $2.0 million and $2.9 million was made in three and six months ending June 26, 2011.

Multi-employer Plans

Pinnacle contributes to the United Food and Commercial Workers International Union Industry Pension Fund (EIN 51-6055922) (the "UFCW Plan") under the terms of the collective-bargaining agreement with our Fort Madison employees. The collective bargaining agreement expires during September 2012. For the three and six months ended June 24, 2012 contributions to the UFCW Plan were $187 and $371, respectively. For the three and six months ended June 26, 2011, contributions to the UFCW Plan were $152 and $304, respectively. Our contributions to this plan are paid monthly based upon the number of employees. They represent less than 5% of the total contributions received by this plan during the most recent plan year.

The risks of participating in multi-employer plans are different from single-employer plans in the following aspects: (a) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (b) if a participating employer stops contributing to the multi-employer plan, the unfunded obligations of the plan may be borne by the remaining participating employers and (c) if the Company chooses to stop participating in the plan, the Company may be required to pay a withdraw liability based on the underfunded status of the plan.

The UFCW Plan received a Pension Protection Act “green” zone status for the plan year beginning July 1, 2011. The zone status is based on information the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the green zone are at least 80 percent funded. The UFCW Plan did not utilize any extended amortization provisions that effect its placement in the "green" zone. The UFCW Plan has never been required to implement a funding improvement plan nor is one pending at this time.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

10. Financial Instruments

Risk Management Objective of Using Derivatives

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

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

Certain parts of the Company’s foreign operations in Canada expose the Company to fluctuations in foreign exchange rates. The Company’s goal is to reduce its exposure to such foreign exchange risks on its foreign currency cash flows and fair value fluctuations on recognized foreign currency denominated assets, liabilities and unrecognized firm commitments to acceptable levels primarily through the use of foreign exchange-related derivative financial instruments. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency. The Company does not enter into these transactions for non-hedging purposes.

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

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the three and six months ended June 24, 2012 and June 26, 2011 such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

As of June 24, 2012, the Company had the following interest rate swaps that were designated as cash flow hedges of interest rate risk:

Product

Number of

Instruments

Notional

Amount

Fixed Rate Range

Index

Trade Dates

Maturity

Dates

Interest Rate Swaps

634,048

0.58% - 3.33%

USD-LIBOR-BBA

Feb 2009 - Aug 2011

Jul 2012 - Apr 2014

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive loss (“AOCL”) in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reported in AOCL related to derivatives will be reclassified to Interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $2,744 will be reclassified as an increase to Interest expense.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Cash Flow Hedges of Foreign Exchange Risk

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

As of June 24, 2012, the Company had the following foreign currency exchange contracts (in aggregate) that were designated as cash flow hedges of foreign exchange risk:

Product

Number of

Instruments

Notional Sold in

Aggregate in ("CAD")

Notional

Purchased in

Aggregate in ("USD")

USD to CAD

Exchange

Rates

Trade Date

Maturity

Dates

CAD Forward

25,500

25,374

1.003-1.007

Feb 2011

Jul 2012 - Dec 2012

The effective portion of changes in the fair value of derivatives designated that qualify as cash flow hedges of foreign exchange risk is recorded in AOCL in the Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portions of the change in fair value of the derivative, as well as amounts excluded from the assessment of hedge effectiveness, are recognized directly in Cost of products sold in the Consolidated Statements of Operations.

Non-designated Hedges of Commodity Risk

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

As of June 24, 2012, the Company had the following derivative instruments that were not designated in qualifying hedging relationships:



Commodity Contracts	Number of Instruments	Notional Amount	Price/Index	Trade Dates	Maturity Dates
Diesel Fuel Contracts	4	8,712,000 Gallons	$3.64 - $4.09 per Gallon	Sep 2011 -Jun 2012	Dec 2012 - Jun 2013
Natural Gas Contracts	1	215,000 MMBTU’s	$3.00 per MMBTU	Feb 2012	Oct 2012

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the Consolidated Balance Sheets as of June 24, 2012 and December 25, 2011.



	Tabular Disclosure of Fair Values of Derivative Instruments
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value as of June 24, 2012		Balance Sheet Location	Fair Value as of June 24, 2012
Derivatives designated as hedging instruments
Interest Rate Contracts		$	—	Accrued liabilities	$	298
				Other long-term liabilities	3,522
Foreign Exchange Contracts	Other current assets	$	532
Total derivatives designated as hedging instruments		$	532		$	3,820
Derivatives not designated as hedging instruments
Commodity Contracts		—		Accrued liabilities	2,447
Total derivatives not designated as hedging instruments		$	—		$	2,447

	Balance Sheet Location	Fair Value as of December 25, 2011		Balance Sheet Location	Fair Value as of December 25, 2011
Derivatives designated as hedging instruments
Interest Rate Contracts	Other assets, net	$	1,335	Accrued liabilities	$	7,836
Foreign Exchange Contracts	Other current assets	931			—
Total derivatives designated as hedging instruments		$	2,266		$	7,836
Derivatives not designated as hedging instruments
Commodity Contracts	Other current assets	$	142	Accrued liabilities	$	1,615
Total derivatives not designated as hedging instruments		$	142		$	1,615

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The table below presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations and Accumulated other comprehensive loss ("AOCL") for the three and six months ended June 24, 2012 and June 26, 2011.

Tabular Disclosure of the Effect of Derivative Instruments



Gain/(Loss)
Derivatives in Cash Flow Hedging Relationships	Recognized in AOCL on Derivative (Effective Portion)			Effective portion reclassified from AOCL to:	Reclassified from AOCL into Earnings (Effective Portion)			Ineffective portion recognized in Earnings in:	Recognized in Earnings on Derivative (Ineffective Portion)

Interest Rate Contracts	$	(1,994	)	Interest expense	$	(3,837	)	Interest expense	$	—
Foreign Exchange Contracts	756			Cost of products sold	170			Cost of products sold	(12		)
Three months ended June 24, 2012	$	(1,238	)		$	(3,667	)		$	(12	)

Interest Rate Contracts	$	(5,377	)	Interest expense	$	(8,327	)	Interest expense	$	(1	)
Foreign Exchange Contracts	(170		)	Cost of products sold	203			Cost of products sold	(26		)
Six months ended June 24, 2012	$	(5,547	)		$	(8,124	)		$	(27	)

Interest Rate Contracts	$	(1,482	)	Interest expense	$	(6,584	)	Interest expense	$	(46	)
Foreign Exchange Contracts	221			Cost of products sold	(799		)	Cost of products sold	41
Three months ended June 26, 2011	$	(1,261	)		$	(7,383	)		$	(5	)

Interest Rate Contracts	$	(3,940	)	Interest expense	$	(12,317	)	Interest expense	$	(8	)
Foreign Exchange Contracts	(1,747		)	Cost of products sold	(1,305		)	Cost of products sold	127
Six months ended June 26, 2011	$	(5,687	)		$	(13,622	)		$	119

Derivatives Not Designated as Hedging Instruments				Recognized in Earnings in:	Recognized in Earnings on Derivative
Commodity Contracts				Cost of products sold	$	(3,110	)
Three months ended June 24, 2012					$	(3,110	)

Commodity Contracts				Cost of products sold	$	(2,367	)
Six months ended June 24, 2012					$	(2,367	)

Commodity Contracts				Cost of products sold	$	(2,143	)
Three months ended June 26, 2011					$	(2,143	)

Commodity Contracts				Cost of products sold	$	(526	)
Six months ended June 26, 2011					$	(526	)

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Credit risk-related Contingent Features

The Company has agreements with certain counterparties that contain a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of June 24, 2012, the Company has not posted any collateral related to these agreements. If the Company had breached this provision at June 24, 2012, it could have been required to settle its obligations under the agreements at their termination value, which differs from the recorded fair value. The table below summarizes the aggregate fair values of those derivatives that contain credit risk-related contingent features as of June 24, 2012 and December 25, 2011.

June 24, 2012



Asset/(Liability)
Counterparty	Contract Type	Termination Value			Performance Risk Adjustment			Accrued Interest			Fair Value (excluding interest)
Barclays	Interest Rate Contracts	$	(2,801	)	$	11		$	(760	)	$	(2,030	)
	Foreign Exchange Contracts	545			(12		)	—			533
	Commodity Contracts	(2,447		)	—			—			(2,447		)
Credit Suisse	Interest Rate Contracts	(2,386		)	46			(551		)	(1,789		)
Total		$	(7,089	)	$	45		$	(1,311	)	$	(5,733	)

December 25, 2011



Asset/(Liability)
Counterparty	Contract Type	Termination Value			Performance Risk Adjustment		Accrued Interest			Fair Value (excluding interest)
Barclays	Interest Rate Contracts	$	(7,766	)	$	65	$	(1,600	)	$	(6,101	)
	Foreign Exchange Contracts	754			1		—			755
	Commodity Contracts	(1,473		)	—		—			(1,473		)
Credit Suisse	Interest Rate Contracts	(784		)	38		(346		)	(400		)
	Foreign Exchange Contracts	176			—		—			176
Total		$	(9,093	)	$	104	$	(1,946	)	$	(7,043	)

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

11. Commitments and Contingencies

General

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

Lehman Brothers Special Financing

On June 4, 2010, Lehman Brothers Special Financing (LBSF) initiated a claim against the Company in LBSF’s bankruptcy proceeding for an additional payment from the Company of $19.7 million, related to certain derivative contracts which the Company had earlier terminated due to LBSF’s default as a result of its bankruptcy filing in 2008. On May 31, 2011, the Company and LBSF agreed to a settlement of LBSF’s June 4, 2010 claim. Under the terms of the settlement, the Company made payment of $8.5 million during the third quarter of 2011 in return for LBSF’s full release of its claim.

Aunt Jemima Breakfast Recall

On January 27, 2012, the Company issued a voluntary recall for certain Aunt Jemima frozen pancakes due to potential cross contamination with soy protein which may cause an allergic reaction in people who have a soy allergy. The cost impact of this recall was $4.4 million, of which $1.1 million was recorded as an inventory write down in Cost of products sold in the Consolidated Statements of Operations in 2011. For the three and six months ended June 24, 2012 costs pertaining to the recall, net of insurance recoveries, were zero and $3.3 million, respectively.

Charges for the recall are reported in the Birds Eye Frozen segment. The impact on Net sales and expenses for the Aunt Jemima recall appear in the Consolidated Statements of Operations as follows:



(in millions)	Three months ended			Six months ended
	June 24, 2012			June 24, 2012
Net sales	$	(0.2	)	$	(2.5	)
Cost of products sold	(0.2		)	0.1
Marketing and selling expenses	—			0.6
Research and development expenses	—			0.1
Net expense	$	—		$	(3.3	)

As of June 24, 2012, the reserves related to the recall remaining on our Consolidated Balance Sheets are $0.1 million in Accrued liabilities and $0.3 million in Accounts receivable reserves. To date this recall has not had a lasting impact on the Aunt Jemima breakfast brand.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

12. Related Party Transactions

At the closing of our acquisition by Blackstone, the Company entered into an advisory agreement with an affiliate of Blackstone pursuant to which such entity or its affiliates provide certain strategic and structuring advice and assistance to us. In addition, under this agreement, affiliates of Blackstone provide certain monitoring, advisory and consulting services to the Company for an aggregate annual management fee equal to the greater of $2,500 or 1.0% of Covenant Compliance EBITDA (as defined in the credit agreement governing the Company’s Senior Secured Credit Facility). Affiliates of Blackstone also receive reimbursement for out-of-pocket expenses. Expenses relating to the management fee were $1,034 and $2,222 in the three and six months ended June 24, 2012, respectively. Expenses relating to the management fee were $1,150 and $2,338 in the three and six months ended June 26, 2011, respectively. Management fee expenses were recorded in administrative expenses in the Consolidated Statements of Operations. The Company reimbursed Blackstone for out-of-pocket expenses totaling $0 and $123 in the three and six months ended June 24, 2012. There were no out-of-pocket expenses reimbursed to Blackstone in the three and six months ended June 26, 2011. As of June 24, 2012 prepaid expenses for related party management fees were $2,325 and were recorded in the Other current assets line in the Consolidated Balance Sheets.

Supplier Costs

Graham Packaging, which was formerly controlled by affiliates of Blackstone, supplies packaging for some of the Company’s products. Purchases from Graham Packaging were $3,146 and $4,944 in the three and six months ended June 26, 2011. On September 8, 2011, Graham Packaging announced the completion of its acquisition by Reynolds Group Holdings Limited, and thus ceased to be a related party.

Customer Purchases

Performance Food Group Company, which is controlled by affiliates of Blackstone, is a food service supplier that purchases products from the Company. Sales to Performance Food Group Company were $1,113 and $2,359 in the three and six months ended June 24, 2012, respectively. Sales to Performance Food Group Company were $1,200 and $2,400 in the three and six months ended June 26, 2011, respectively. As of June 24, 2012 and December 25, 2011 amounts due from Performance Food Group Company were $2 and $113, respectively and were recorded on the Accounts receivable, net of allowances line in the Consolidated Balance Sheets.

Interest Expense

For the three and six months ended June 24, 2012, fees and interest expense recognized in the Consolidated Statements of Operations for debt to affiliates of Blackstone Advisors L.P. totaled $755 and $2,086, respectively. For the three and six months ended June 26, 2011, fees and interest expense recognized in the Consolidated Statements of Operations for debt to affiliates of Blackstone Advisors L.P. totaled $1,435 and $2,794, respectively.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

13. Segments

The Company is a leading producer, marketer and distributor of high quality, branded food products in North America. The Company manages the business in three operating segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods.

The Birds Eye Frozen Division manages our Leadership brands in the United States retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), and frozen seafood (Van de Kamp's and Mrs. Paul's) categories, as well as our Foundation brands in the frozen and refrigerated bagels (Lender's), frozen pizza for one (Celeste), full-calorie single-serve frozen dinners and entrées (Hungry-Man), and frozen breakfast (Aunt Jemima) categories.

The Duncan Hines Grocery division manages our Leadership brands in the baking mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), and table syrups (Mrs. Butterworth's and Log Cabin) categories, and our Foundation brands in the canned meat (Armour, Nalley, Brooks), pie and pastry fillings (Comstock, Wilderness), barbecue sauces (Open Pit) and salad dressing (Bernstein's) categories as well as all Canadian operations. We refer to the sum of the Birds Eye Frozen segment and the Duncan Hines Grocery segment as the North American retail businesses.

The Specialty Foods Division consists of snack products (Tim's Cascade and Snyder of Berlin) and the food service and private label businesses.

Segment performance is evaluated by the Company’s Chief Operating Decision Maker and is based on earnings before interest and taxes. Transfers between segments and geographic areas are recorded at cost plus markup or at market. Identifiable assets are those assets, including goodwill, which are identified with the operations in each segment or geographic region. Corporate assets consist of prepaid and deferred tax assets. Unallocated corporate expenses consist of corporate overhead such as executive management and finance and legal functions.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



	Three months ended						Six months ended
SEGMENT INFORMATION	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Net sales
Birds Eye Frozen	$	241,113		$	254,145		$	531,653		$	548,391
Duncan Hines Grocery	249,587			251,187			471,588			465,334
Specialty Foods	97,895			96,692			202,279			194,610
Total	$	588,595		$	602,024		$	1,205,520		$	1,208,335
Earnings before interest and taxes
Birds Eye Frozen	$	29,923		$	34,166		$	67,146		$	79,609
Duncan Hines Grocery	24,495			32,517			50,794			68,909
Specialty Foods	5,265			6,409			12,143			14,758
Unallocated corporate expenses	(17,694		)	(14,147		)	(22,924		)	(19,568		)
Total	$	41,989		$	58,945		$	107,159		$	143,708
Depreciation and amortization
Birds Eye Frozen	$	9,156		$	10,303		$	19,323		$	18,286
Duncan Hines Grocery	8,234			8,054			14,558			16,484
Specialty Foods	4,177			4,135			8,175			8,132
Total	$	21,567		$	22,492		$	42,056		$	42,902
Capital expenditures*
Birds Eye Frozen	$	13,615		$	23,985		$	21,389		$	33,686
Duncan Hines Grocery	6,268			7,912			10,163			12,340
Specialty Foods	2,859			4,344			4,695			6,085
Total	$	22,742		$	36,241		$	36,247		$	52,111
GEOGRAPHIC INFORMATION
Net sales
United States	$	582,896		$	594,536		$	1,195,175		$	1,195,100
Canada	20,917			22,948			39,380			41,803
Intercompany	(15,218		)	(15,460		)	(29,035		)	(28,568		)
Total	$	588,595		$	602,024		$	1,205,520		$	1,208,335

*Includes new capital leases.



SEGMENT INFORMATION	June 24, 2012		December 25, 2011
Total assets
Birds Eye Frozen	$	1,940,682	$	2,028,104
Duncan Hines Grocery	1,922,581		1,978,813
Specialty Foods	347,205		372,786
Corporate	73,744		71,918
Total	$	4,284,212	$	4,451,621
GEOGRAPHIC INFORMATION
Long-lived assets
United States	$	503,387	$	501,245
Canada	31		38
Total	$	503,418	$	501,283

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

14. Taxes on Earnings

The provision (benefit) for income taxes and related effective tax rates for the three and six months ended June 24, 2012 and June 26, 2011 were as follows:



	Three months ended						Six months ended
Provision for Income Taxes	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Current	$	(736	)	$	728		$	158		$	1,040
Deferred	(7,199		)	(1,357		)	(2,016		)	11,594
Total	$	(7,935	)	$	(629	)	$	(1,858	)	$	12,634

Effective tax rate	42.9		%	(9.0		)%	64.5		%	31.2		%

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

During the three and six months ended June 24, 2012, the Company announced plans to consolidate its Millsboro, DE plant operations into its Imlay City, MI operating plant. Additionally, it announced plans to move its Frozen Research & Development (“R&D”) operations from Green Bay, WI to Parsippany, NJ. The announced restructuring plans are projected to decrease our future state effective tax rate, resulting in a net benefit of $2,075 to the tax provision and a corresponding decrease of $2,075 to our net deferred tax liabilities. During the three and six months ended June 26, 2011, various jurisdictions enacted legislative changes, which resulted in a net benefit of $3,360 and $2,777, respectively, to the tax provision and a corresponding decrease to our net deferred tax liabilities.

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

As of June 24, 2012 and June 26, 2011, the Company maintained a valuation allowance for certain state net operating loss (“NOL”) carryovers, state tax credit carryovers and foreign loss carryovers. For the three and six months ended June 24, 2012, a charge of $1,943 was recognized to the income tax provision, principally related to the realizability of state NOL carryovers and state credits, due to the aforementioned operational changes. For the three and six months ended June 26, 2011, a charge of $566 and $443, respectively, was recognized to the income tax provision, principally related to certain state credit carryovers and changes due to aforementioned tax laws.

The Company's liability for unrecognized tax benefits (“UTB”) as of June 24, 2012 was $9,391. The amount, that if recognized, would impact the effective tax rate as of June 24, 2012 was $1,908. From time to time, various taxing authorities may audit the Company's tax returns. It is reasonably possible that a decrease in the UTB of up to $2,303 may occur within the next twelve months due to the lapse of certain statute of limitations or resolution of uncertainties.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

15. Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income," (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive earnings and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive earnings or in two separate but consecutive statements. This new guidance is to be applied retrospectively and became effective in the first quarter of 2012. The Company adopted this standard in the first quarter and it resulted in a separate Statement of Comprehensive Earnings.

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” (“ASU 2012-02”). In accordance with the amendments in ASU 2012-02, an entity has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If the entity determines that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than the carrying value, the entity will be required to perform the quantitative test. The amendments in ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. However, early adoption is permitted. The Company is currently evaluating whether it will elect to early adopt in the current fiscal year.

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

16. Guarantor and Nonguarantor Statements

The 9.25% Senior Notes and the 8.25% Senior Notes are general senior unsecured obligations of the Company, effectively subordinated in right of payment to all existing and future senior secured indebtedness of the Company and guaranteed on a full, unconditional, joint and several basis by the Company’s 100% owned domestic subsidiaries that guarantee other indebtedness of the Company.

The following condensed consolidating financial information presents:


(1)	(a) Condensed consolidating balance sheets as of June 24, 2012 and December 25, 2011.

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

i. Three and six months ended June 24, 2012; and

ii. Three and six months ended June 26, 2011.

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

i. Six months ended June 24, 2012; and

ii. Six months ended June 26, 2011.


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

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

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Balance Sheet June 24, 2012

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Current assets:
Cash and cash equivalents	$	—		$	20,716		$	2,003		$	—		$	22,719
Accounts receivable, net	—			141,966			11,709			—			153,675
Intercompany accounts receivable	—			96,658			—			(96,658		)	—
Inventories, net	—			304,458			5,219			—			309,677
Other current assets	2,857			5,284			868			—			9,009
Deferred tax assets	—			74,605			91			(2,038		)	72,658
Total current assets	2,857			643,687			19,890			(98,696		)	567,738
Plant assets, net	—			503,387			31			—			503,418
Investment in subsidiaries	1,771,229			8,938			—			(1,780,167		)	—
Intercompany note receivable	1,553,572			7,270			9,800			(1,570,642		)	—
Tradenames	—			1,604,512			—			—			1,604,512
Other assets, net	27,151			139,724			174			—			167,049
Deferred tax assets	223,131			—			—			(223,131		)	—
Goodwill	—			1,441,495			—			—			1,441,495
Total assets	$	3,577,940		$	4,349,013		$	29,895		$	(3,672,636	)	$	4,284,212
Current liabilities:
Short-term borrowings	$	—		$	716		$	—		$	—		$	716
Current portion of long-term obligations	22,911			3,126			—			—			26,037
Accounts payable	—			125,759			1,478			—			127,237
Intercompany accounts payable	93,562			—			3,096			(96,658		)	—
Accrued trade marketing expense	—			23,388			5,594			—			28,982
Accrued liabilities	33,786			89,833			359			(2,038		)	121,940
Total current liabilities	150,259			242,822			10,527			(98,696		)	304,912
Long-term debt	2,578,316			19,561			—			—			2,597,877
Intercompany note payable	—			1,563,148			7,494			(1,570,642		)	—
Pension and other postretirement benefits	—			88,844			—			—			88,844
Other long-term liabilities	3,522			21,821			2,730			—			28,073
Deferred tax liabilities	—			641,588			206			(223,131		)	418,663
Total liabilities	2,732,097			2,577,784			20,957			(1,892,469		)	3,438,369
Commitments and contingencies (Note 11)
Member’s equity:
Limited liability company interests and other equity	$	—		$	—		$	—		$	—		—
Additional paid-in-capital	697,323			1,284,155			2,324			(1,286,479		)	697,323
Retained earnings	199,415			528,387			6,652			(535,039		)	199,415
Accumulated other comprehensive (loss) earnings	(50,895		)	(41,313		)	(38		)	41,351			(50,895		)
Total member’s equity	845,843			1,771,229			8,938			(1,780,167		)	845,843
Total liabilities and member’s equity	$	3,577,940		$	4,349,013		$	29,895		$	(3,672,636	)	$	4,284,212

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Balance Sheet December 25, 2011

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Current assets:
Cash and cash equivalents	$	—		$	150,493		$	538		$	—		$	151,031
Accounts receivable, net	—			152,041			7,940			—			159,981
Intercompany accounts receivable	129,142			—			947			(130,089		)	—
Inventories, net	—			330,136			5,676			—			335,812
Other current assets	1,072			6,189			288			—			7,549
Deferred tax assets	1,563			69,575			(29		)	—			71,109
Total current assets	131,777			708,434			15,360			(130,089		)	725,482
Plant assets, net	—			501,245			38			—			501,283
Investment in subsidiaries	1,726,711			10,438			—			(1,737,149		)	—
Intercompany note receivable	1,541,341			7,270			9,800			(1,558,411		)	—
Tradenames	—			1,604,512			—			—			1,604,512
Other assets, net	31,604			147,057			188			—			178,849
Deferred tax assets	191,289			—			—			(191,289		)	—
Goodwill	—			1,441,495			—			—			1,441,495
Total assets	$	3,622,722		$	4,420,451		$	25,386		$	(3,616,938	)	$	4,451,621
Current liabilities:
Short-term borrowings	$	—		$	1,708		$	—		$	—		$	1,708
Current portion of long-term obligations	12,500			3,161			—			—			15,661
Accounts payable	—			151,693			1,176			—			152,869
Intercompany accounts payable	—			130,089			—			(130,089		)	—
Accrued trade marketing expense	—			32,020			3,105			—			35,125
Accrued liabilities	46,012			82,312			461			—			128,785
Total current liabilities	58,512			400,983			4,742			(130,089		)	334,148
Long-term debt	2,718,858			19,792			—			—			2,738,650
Intercompany note payable	—			1,551,141			7,270			(1,558,411		)	—
Pension and other postretirement benefits	—			93,406			—			—			93,406
Other long-term liabilities	—			19,369			2,730			—			22,099
Deferred tax liabilities	—			609,049			206			(191,289		)	417,966
Total liabilities	2,777,370			2,693,740			14,948			(1,879,789		)	3,606,269
Commitments and contingencies (Note 11)
Member’s equity:
Limited liability company interests and other equity	$	—		$	—		$	—		$	—		—
Additional paid-in-capital	697,352			1,284,155			2,324			(1,286,479		)	697,352
Retained earnings	200,436			483,821			8,011			(491,832		)	200,436
Accumulated other comprehensive (loss) earnings	(52,436		)	(41,265		)	103			41,162			(52,436		)
Total member’s equity	845,352			1,726,711			10,438			(1,737,149		)	845,352
Total liabilities and member’s equity	$	3,622,722		$	4,420,451		$	25,386		$	(3,616,938	)	$	4,451,621

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Statement of Operations and Comprehensive Income For the three months ended June 24, 2012

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	582,896	$	20,917		$	(15,218	)	$	588,595
Cost of products sold	52			453,257		18,107			(14,977		)	456,439
Gross profit	(52		)	129,639		2,810			(241		)	132,156
Operating expenses
Marketing and selling expenses	120			45,575		2,509			—			48,204
Administrative expenses	801			22,537		788			—			24,126
Research and development expenses	9			3,318		—			—			3,327
Intercompany royalties	—			—		15			(15		)	—
Intercompany technical service fees	—			—		226			(226		)	—
Other expense (income), net	10,785			3,725		—			—			14,510
Equity in (earnings) loss of investees	(18,797		)	586		—			18,211			—
Total operating expenses	(7,082		)	75,741		3,538			17,970			90,167
Earnings (loss) before interest and taxes	7,030			53,898		(728		)	(18,211		)	41,989
Intercompany interest (income) expense	(23,411		)	23,381		30			—			—
Interest expense	59,960			560		7			—			60,527
Interest income	—			43		—			—			43
Earnings (loss) before income taxes	(29,519		)	30,000		(765		)	(18,211		)	(18,495		)
Provision (benefit) for income taxes	(18,959		)	11,203		(179		)	—			(7,935		)
Net earnings (loss)	$	(10,560	)	$	18,797	$	(586	)	$	(18,211	)	$	(10,560	)

Total comprehensive earnings (loss)	$	(9,083	)	$	19,221	$	(175	)	$	(19,046	)	$	(9,083	)

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Statement of Operations and Comprehensive Income For the three months ended June 26, 2011

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries		Eliminations			Consolidated Total
Net sales	$	—		$	594,536		$	22,948	$	(15,460	)	$	602,024
Cost of products sold	(2		)	456,560			19,023		(15,234		)	460,347
Gross profit	2			137,976			3,925		(226		)	141,677
Operating expenses
Marketing and selling expenses	120			44,537			1,970		—			46,627
Administrative expenses	1,311			19,927			896		—			22,134
Research and development expenses	9			2,058			—		—			2,067
Intercompany royalties	—			—			26		(26		)	—
Intercompany technical service fees	—			—			200		(200		)	—
Other expense (income), net	—			11,904			—		—			11,904
Equity in (earnings) loss of investees	(22,357		)	(617		)	—		22,974			—
Total operating expenses	(20,917		)	77,809			3,092		22,748			82,732
Earnings (loss) before interest and taxes	20,919			60,167			833		(22,974		)	58,945
Intercompany interest (income) expense	(28,789		)	28,789			—		—			—
Interest expense	51,657			399			—		—			52,056
Interest income	—			63			—		—			63
Earnings (loss) before income taxes	(1,949		)	31,042			833		(22,974		)	6,952
Provision (benefit) for income taxes	(9,530		)	8,685			216		—			(629		)
Net earnings (loss)	$	7,581		$	22,357		$	617	$	(22,974	)	$	7,581

Total comprehensive earnings (loss)	$	11,367		$	23,047		$	1,307	$	(24,354	)	$	11,367

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Statement of Operations and Comprehensive Income For the six months ended June 24, 2012

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	1,195,175	$	39,380		$	(29,035	)	$	1,205,520
Cost of products sold	106			930,557		35,590			(28,566		)	937,687
Gross profit	(106		)	264,618		3,790			(469		)	267,833
Operating expenses
Marketing and selling expenses	241			88,499		3,464			—			92,204
Administrative expenses	1,820			41,341		1,579			—			44,740
Research and development expenses	18			5,516		—			—			5,534
Intercompany royalties	—			—		28			(28		)	—
Intercompany technical service fees	—			—		441			(441		)	—
Other expense (income), net	10,785			7,411		—			—			18,196
Equity in (earnings) loss of investees	(44,566		)	1,359		—			43,207			—
Total operating expenses	(31,702		)	144,126		5,512			42,738			160,674
Earnings (loss) before interest and taxes	31,596			120,492		(1,722		)	(43,207		)	107,159
Intercompany interest (income) expense	(46,834		)	46,774		60			—			—
Interest expense	108,916			1,209		14			—			110,139
Interest income	—			101		—			—			101
Earnings (loss) before income taxes	(30,486		)	72,610		(1,796		)	(43,207		)	(2,879		)
Provision (benefit) for income taxes	(29,465		)	28,044		(437		)	—			(1,858		)
Net earnings (loss)	$	(1,021	)	$	44,566	$	(1,359	)	$	(43,207	)	$	(1,021	)

Total comprehensive earnings (loss)	$	520		$	44,381	$	(1,497	)	$	(42,884	)	$	520

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Statement of Operations and Comprehensive Income For the six months ended June 26, 2011

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	1,195,100	$	41,803		$	(28,568	)	$	1,208,335
Cost of products sold	(75		)	904,684		36,798			(28,144		)	913,263
Gross profit	75			290,416		5,005			(424		)	295,072
Operating expenses
Marketing and selling expenses	241			84,650		3,567			—			88,458
Administrative expenses	2,647			38,735		1,748			—			43,130
Research and development expenses	18			4,043		—			—			4,061
Intercompany royalties	—			—		38			(38		)	—
Intercompany technical service fees	—			—		386			(386		)	—
Other expense (income), net	—			15,715		—			—			15,715
Equity in (earnings) loss of investees	(56,276		)	464		—			55,812			—
Total operating expenses	(53,370		)	143,607		5,739			55,388			151,364
Earnings (loss) before interest and taxes	53,445			146,809		(734		)	(55,812		)	143,708
Intercompany interest (income) expense	(58,429		)	58,429		—			—			—
Interest expense	102,502			881		—			—			103,383
Interest income	—			141		1			—			142
Earnings (loss) before income taxes	9,372			87,640		(733		)	(55,812		)	40,467
Provision (benefit) for income taxes	(18,461		)	31,364		(269		)	—			12,634
Net earnings (loss)	$	27,833		$	56,276	$	(464	)	$	(55,812	)	$	27,833

Total comprehensive earnings (loss)	$	32,791		$	56,149	$	(540	)	$	(55,609	)	$	32,791

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



Pinnacle Foods Finance LLC Condensed Consolidating Statement of Cash Flows For the six months ended June 24, 2012
	Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries		Eliminations and Reclassifications			Consolidated Total
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	(52,432	)	$	118,664		$	1,465	$	—		$	67,697
Cash flows from investing activities
Intercompany accounts receivable/payable	176,331			—			—		(176,331		)	—
Repayments of intercompany loans	34,604			—			—		(34,604		)	—
Capital expenditures	—			(34,699		)	—		—			(34,699		)
Net cash (used in) provided by investing activities	210,935			(34,699		)	—		(210,935		)	(34,699		)
Cash flows from financing activities
Proceeds from bank term loan	396,000			—			—		—			396,000
Repayments of long-term obligations	(319,444		)	—			—		—			(319,444		)
Repurchase of notes	(219,785		)	—			—		—			(219,785		)
Proceeds from short-term borrowing	—			815			—		—			815
Repayments of short-term borrowing	—			(1,807		)	—		—			(1,807		)
Intercompany accounts receivable/payable	—			(176,331		)	—		176,331			—
Repayments of intercompany loans	—			(34,604		)	—		34,604			—
Repayment of capital lease obligations	—			(1,815		)	—		—			(1,815		)
Repurchases of equity	(629		)	—			—		—			(629		)
Debt acquisition costs	(14,645		)	—			—		—			(14,645		)
Net cash (used in) provided by financing activities	(158,503		)	(213,742		)	—		210,935			(161,310		)
Effect of exchange rate changes on cash	—			—			—		—			—
Net change in cash and cash equivalents	—			(129,777		)	1,465		—			(128,312		)
Cash and cash equivalents - beginning of period	—			150,493			538		—			151,031
Cash and cash equivalents - end of period	$	—		$	20,716		$	2,003	$	—		$	22,719


Supplemental disclosures of cash flow information:
Interest paid	$	95,723		$	1,176		$	—	$	—		$	96,899
Interest received	—			101			—		—			101
Income taxes paid (refunded)	—			1,913			—		—			1,913
Non-cash investing and financing activities:
New capital leases	—			1,548			—		—			1,548

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Finance LLC Condensed Consolidating Statement of Cash Flows For the six months ended June 26, 2011

	Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	(43,091	)	$	144,903		$	(6,602	)	$	—		$	95,210
Cash flows from investing activities
Intercompany accounts receivable/payable	(95,192		)	—			—			95,192			—
Repayments of intercompany loans	138,813			—			—			(138,813		)	—
Capital expenditures	—			(51,606		)	—			—			(51,606		)
Sale of plant assets held for sale	—			7,900			—			—			7,900
Net cash (used in) provided by investing activities	43,621			(43,706		)	—			(43,621		)	(43,706		)
Cash flows from financing activities
Proceeds from short-term borrowing	—			484			—			—			484
Repayments of short-term borrowing	—			(1,583		)	—			—			(1,583		)
Intercompany accounts receivable/payable	—			95,192			—			(95,192		)	—
Repayments of intercompany loans	—			(138,813		)	—			138,813			—
Repayment of capital lease obligations	—			(1,074		)	—			—			(1,074		)
Debt acquisition costs	(67		)	—			—			—			(67		)
Change in bank overdrafts	—			—			429			—			429
Equity contributions	543			—			—			—			543
Reduction of equity contributions	(1,006		)	—			—			—			(1,006		)
Net cash (used in) provided by financing activities	(530		)	(45,794		)	429			43,621			(2,274		)
Effect of exchange rate changes on cash	—			—			211			—			211
Net change in cash and cash equivalents	—			55,403			(5,962		)	—			49,441
Cash and cash equivalents - beginning of period	—			109,324			5,962			—			115,286
Cash and cash equivalents - end of period	$	—		$	164,727		$	—		$	—		$	164,727

Supplemental disclosures of cash flow information:
Interest paid	$	95,716		$	880		$	—		$	—		$	96,596
Interest received	—			141			1			—			142
Income taxes paid	—			(4,308		)	512			—			(3,796		)
Non-cash investing and financing activities:
New capital leases	—			505			—			—			505

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ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollars in millions, except where noted)

You should read the following discussion of our results of operations and financial condition together with the “Selected Financial Data” and the audited consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 25, 2011 and the unaudited Consolidated Financial Statements included in this quarterly report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Item 1A: Risk Factors” section of our Form 10-Q for the three months ended March 25, 2012. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We are a leading producer, marketer and distributor of high quality, branded food products in North America. We manage the business in three operating segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods.

Our Birds Eye Frozen Division manages our Leadership brands in the United States retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), and frozen seafood (Van de Kamp's and Mrs. Paul's) categories, as well as our Foundation brands in the frozen and refrigerated bagels (Lender's), frozen pizza for one (Celeste), full-calorie single-serve frozen dinners and entrées (Hungry-Man), and frozen breakfast (Aunt Jemima) categories.

Our Duncan Hines Grocery division manages our Leadership brands in the baking mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), and table syrups (Mrs. Butterworth's and Log Cabin) categories, and our Foundation brands in the canned meat (Armour, Nalley, Brooks), pie and pastry fillings (Comstock, Wilderness), barbecue sauces (Open Pit) and salad dressing (Bernstein's) categories as well as all Canadian operations. We refer to the sum of our Birds Eye Frozen segment and our Duncan Hines Grocery segment as our North American retail businesses.

Our Specialty Foods Division consists of snack products (Tim's Cascade and Snyder of Berlin) and our food service and private label businesses.

Our Leadership brands historically receive about 80% of our marketing investment and a majority of our innovation investment. We manage our Foundation brands for revenue stability and cash flow to support investment in our Leadership brands. We support the Foundation brands with brand renovation spending, as well as targeted consumer and trade programs.

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Business Drivers and Measures

In operating our business and monitoring its performance, we pay attention to trends in the food manufacturing industry and a number of performance measures and operational factors. An overall trend that has been prevalent in the industry over the past few years has been the volatility in overall commodity inflation. To date the industry has managed this commodity inflation by increasing retail prices, which has affected consumer buying patterns and led to lower volumes, particularly in the frozen categories. Going forward, competitive pressures may limit the ability to pass through these increased commodity prices to the end consumer. This discussion includes forward-looking statements that are based on our current expectations.

Industry Trends

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

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

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

Revenue Factors

Our net sales are driven principally by the following factors:


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


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


◦	Cash discounts, returns and other allowances.


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


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


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

Cost Factors


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

◦

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


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


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

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


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


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

Working Capital

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

Other Factors

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


•	Interest Expense. As a result of our acquisition by Blackstone and the Birds Eye Foods Acquisition, we have significant indebtedness. Although we expect to reduce our leverage over time, we expect interest expense to continue to be a significant component of our expenses. See “Liquidity and Capital Resources” below.


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


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

•

Impairment of Goodwill, Tradenames and Long-Lived Assets. We test our goodwill and intangible assets annually or more frequently (if necessary) for impairment and have recorded impairment charges in recent years. The value of goodwill and intangibles from the allocation of purchase price from the Blackstone Transaction and the Birds Eye Acquisition is derived from our business operating plans at that time and is therefore susceptible to an adverse change that could require an impairment charge. We have incurred impairment charges in each of the fiscal years ended on December 25, 2011, December 26, 2010 and December 27, 2009, the amounts of which are discussed in greater detail in Note 8 to our consolidated financial statements included in our 10-K that was filed for the fiscal year ending December 25, 2011.

Seasonality

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

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Restructuring Charges

From time to time, we voluntarily undertake consolidation and restructuring activities in order to optimize our manufacturing footprint and reduce our supply chain costs and ongoing costs of products sold. We believe that the combined impact of the plant consolidation actions discussed below will reduce our ongoing annual cost of products sold in future years.

Millsboro, DE Plant

On May 25, 2012, we announced plans to further improve the efficiency of our supply chain by consolidating our Vlasic pickle production into one plant in Imlay City, MI. Our other pickle production plant, located in Millsboro, DE, is expected to end production around year-end 2012. We recorded employee termination costs of $1.3 million in the three and six months ended June 24, 2012. We recorded asset retirement obligation charges of $0.8 million in the three and six months ended June 24, 2012. In addition, we recorded accelerated depreciation charges of $1.7 million in the three and six months ended June 24, 2012. We anticipate recording additional accelerated depreciation charges of $11.6 million throughout the remainder of fiscal 2012. All restructuring charges related to the closure of the Millsboro, DE plant are recorded in the Duncan Hines Grocery segment and in the Cost of products sold line in the Consolidated Statements of Operations.

Green Bay, WI Research Facility

On May 15, 2012, we announced plans to relocate the Birds Eye Research and Development team to our new facility at our Parsippany, NJ headquarters.We believe that bringing our Birds Eye R&D team to Parsippany will allow for seamless collaboration between marketing, sales, procurement and R&D that will drive superior brand innovation, marketing and productivity. Our Green Bay, WI research facility will close during December 2012. We recorded employee termination costs of $0.7 million in the three and six months ended June 24, 2012. In addition, we recorded accelerated depreciation charges of $0.2 million in the three and six months ended June 24, 2012. We anticipate recording additional accelerated depreciation charges of $0.8 million throughout the remainder of fiscal 2012. All restructuring charges related to the closure of the Green Bay, WI Research Facility are recorded in the Birds Eye Frozen segment and in the Research and development line in the Consolidated Statements of Operations.

Fulton, NY Plant

On April 15, 2011, we announced plans to consolidate the Birds Eye Frozen Segment's Fulton, NY plant operations into the Darien, WI and Waseca, MN facilities in order to locate vegetable processing closer to the crop-growing region and thus reduce the related freight costs. In connection with this project, we made significant capital investments in our Darien, WI and Waseca, MN plants. We recorded accelerated depreciation costs of $0.5 million and $2.3 million in the three and six months ended June 24, 2012, respectively. We recorded employee termination costs of $1.9 million in the three and six months ended June 26, 2011. In addition, we recorded accelerated depreciation costs of $2.6 million in the three and six months ended June 26, 2011. All restructuring charges related to the closure of the Fulton, NY plant are recorded in the Birds Eye Frozen segment and in the Cost of products sold line in the Consolidated Statements of Operations. We expect most of these severance payments to be completed by the third quarter of 2012.

Tacoma, WA Plant

On December 3, 2010, in an effort to improve our supply chain operations, we announced the closure of the Tacoma, WA plant and the consolidation of production into our Fort Madison, IA plant. We recorded accelerated depreciation costs of $2.0 million and $4.8 million in the three and six months ended and June 26, 2011. In addition, we recorded asset impairment charges of $1.3 million in the three and six months ended June 26, 2011, upon ceasing use of the facility at the end of the second quarter of 2011. All restructuring charges related to the closure of the Tacoma, WA plant are recorded in the Duncan Hines Grocery segment and in the Cost of products sold line in the Consolidated Statements of Operations.

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Results of Operations:

Consolidated Statements of Operations

The following tables set forth our statement of operations data expressed in dollars and as a percentage of net sales.



	Three months ended								Six months ended
	June 24, 2012				June 26, 2011				June 24, 2012				June 26, 2011
Net sales	$	588.6	100.0	%	$	602.0	100.0	%	$	1,205.5	100.0	%	$	1,208.3	100.0	%
Cost of products sold	456.4		77.5	%	460.3		76.5	%	937.7		77.8	%	913.2		75.6	%
Gross profit	132.2		22.5	%	141.7		23.5	%	267.8		22.2	%	295.1		24.4	%
Operating expenses:
Marketing and selling expenses	$	48.2	8.2	%	$	46.6	7.7	%	$	92.2	7.6	%	$	88.5	7.3	%
Administrative expenses	24.1		4.1	%	22.1		3.7	%	44.7		3.7	%	43.1		3.6	%
Research and development expenses	3.3		0.6	%	2.1		0.3	%	5.5		0.5	%	4.1		0.3	%
Other expense (income), net	14.5		2.5	%	11.9		2.0	%	18.2		1.5	%	15.7		1.3	%
Total operating expenses	$	90.1	15.3	%	$	82.7	13.7	%	$	160.7	13.3	%	$	151.4	12.5	%
Earnings before interest and taxes	$	42.0	7.1	%	$	59.0	9.8	%	$	107.2	8.9	%	$	143.7	11.9	%



	Three months ended						Six months ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011
Net sales
Birds Eye Frozen	$	241.1		$	254.1		$	531.7		$	548.4
Duncan Hines Grocery	249.6			251.2			471.6			465.3
Specialty Foods	97.9			96.7			202.3			194.6
Total	$	588.6		$	602.0		$	1,205.5		$	1,208.3

Earnings before interest and taxes
Birds Eye Frozen	$	29.9		$	34.2		$	67.1		$	79.6
Duncan Hines Grocery	24.5			32.5			50.8			68.9
Specialty Foods	5.3			6.4			12.1			14.8
Unallocated corporate expenses	(17.7		)	(14.1		)	(22.9		)	(19.6		)
Total	$	42.0		$	59.0		$	107.1		$	143.7

Depreciation and amortization
Birds Eye Frozen	$	9.2		$	10.3		$	19.3		$	18.3
Duncan Hines Grocery	8.2			8.1			14.6			16.5
Specialty Foods	4.2			4.1			8.2			8.1
Total	$	21.6		$	22.5		$	42.1		$	42.9

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Three months ended June 24, 2012 compared to the three months ended June 26, 2011

Net sales

Net sales for the three months ended June 24, 2012 declined 2.2% to $588.6 million, compared to net sales of $602.0 million in the comparable prior-year period. This performance reflected a 3.9% decline from volume/mix, partially offset by higher net pricing of 1.7%, stemming from pricing actions.

Net sales in our North American retail businesses were down 3% in the second quarter, reflecting the timing impact of the earlier Easter holiday in 2012, which accelerated sales across our portfolio into the first quarter, as well as the impact of overall volume softness in the food industry, particularly the frozen categories, which weighed on our results for the quarter. Partially offsetting these factors was the benefit of new products launched during 2012. Despite the decline in net sales, we grew market share on brands representing approximately half of our product contribution.

Birds Eye Frozen Division:

Net sales in the three months ended June 24, 2012 declined 5.1% versus year-ago to $241.1 million, reflecting a 6.2% decline from volume/mix, stemming from both the earlier timing of Easter in 2012 and the overall softness in the frozen categories, partially offset by higher net pricing of 1.1%. Higher sales of our Aunt Jemima breakfast products, which recovered from the first quarter recall, as well as growth from Hungry Man frozen dinners, Celeste pizza, Lender's bagels and our new Mrs. Paul's and VanDeKamp's Parchment Bake seafood products was more than offset by lower sales of Birds Eye frozen vegetables and core seafood.

Duncan Hines Grocery Division:

Net sales in the three months ended June 24, 2012 declined 0.6% versus year-ago to $249.6 million, reflecting a 2.5% decrease from volume/mix, stemming primarily from the earlier timing of Easter in 2012 and lower sales from our Canadian business, almost entirely offset by higher net pricing of 1.9%. Our new Duncan Hines Frosting Creations product , as well as our Log Cabin and Mrs. Butterworth syrups, performed well in the quarter.

Specialty Foods Division:

Net sales in the three months ended June 24, 2012 increased 1.2% versus year-ago to $97.9 million, reflecting a 2.4% increase from higher net pricing, partially offset by a 1.1% decrease from volume/mix. Higher sales in our foodservice business, stemming from successful promotional programs at a key customer, drove the overall increase in net sales for the quarter.

Gross profit.

Gross profit for the three months ended June 24, 2012 was $132.2 million, or 22.5% of net sales, compared to $141.7 million, or 23.5% of net sales, in the comparable prior-year period. The decrease in gross profit as a percentage of net sales was driven by substantially higher commodity costs which were not fully offset by higher net pricing and productivity during the quarter. Also impacting gross profit in both periods were charges associated with our plant consolidation activities, with the second quarter of 2012 including charges totaling $5.0 million ($2.8 million in cash and $2.2 million non-cash) and the second quarter of 2011 including charges totaling $7.4 million ($3.4 million in cash and $4.0 million non-cash). For the quarter, higher commodity costs, net of productivity savings reduced the gross profit percentage from 2011 by 4.1 percentage points. Higher net selling prices increased the gross profit percentage by 2.2 percentage points, product mix increased the gross profit percentage by 0.5 percentage points and lower plant consolidation charges increased gross profit percentage by 0.4 percentage points.

Marketing and selling expenses

Marketing and selling expenses were $48.2 million, or 8.2% of net sales, for the three months ended June 24, 2012, compared to $46.6 million, or 7.7% of net sales, for the comparable prior-year period. The increase in marketing and selling expenses in the second quarter of 2012 was primarily driven by investments behind our new products, particularly Duncan Hines Frosting Creations.

Administrative expenses

Administrative expenses were $24.1 million, or 4.1% of net sales, for the three months ended June 24, 2012, compared to $22.1 million, or 3.7% of net sales, for the comparable prior-year period. This increase was driven primarily by lease termination costs incurred in connection with the completion of our Headquarters office move to Parsippany, NJ.

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Research and development expenses:

Research and development expenses were $3.3 million, or 0.6% of net sales, for the three months ended June 24, 2012, compared to $2.1 million, or 0.3% of net sales, for the comparable prior-year period. This increase was primarily driven by $0.9 million of expenses related to consolidating research and development activities of our Birds Eye Frozen Division at our Parsippany, NJ headquarters.

Other Income and Expense:



	Three months ended
	June 24, 2012		June 26, 2011
Other expense (income), net consists of:
Amortization of intangibles/other assets	3.9		4.0
Lehman Brothers Specialty Financing settlement	—		8.5
Gain on sale of the Watsonville, CA facility	—		(0.4	)
Redemption premium on the early extinguishment of debt	10.8		—
Royalty income and other	(0.2	)	(0.2	)
Total other expense (income), net	14.5		11.9

On April 19, 2012, as part of a debt refinancing (the "2012 Refinancing") the Company redeemed all $199.0 million of its outstanding 10.625% Senior Subordinated Notes at a redemption price of 105.313% of the aggregate principal amount. In addition, on June 5, 2012, the Company repurchased and retired $10.0 million of 9.25% Senior Notes at a price of 102.125% of the aggregate principal amount. For more information on the 2012 Refinancing see Note 8 to the Consolidated Financial Statements.

Earnings before interest and taxes

Earnings before interest and taxes were $42.0 million for the three months ended June 24, 2012, a decrease of $17.0 million, or 28.8%, from the comparable prior-year period. This performance primarily reflected lower gross profit, largely driven by significantly higher commodity costs and a weak consumer environment, which limited the benefit of our pricing actions. Also impacting earnings before interest and taxes were charges of $5.0 million and $7.4 million in the second quarters of 2012 and 2011, respectively, related to our facility consolidation projects.

Birds Eye Frozen Division:

Earnings before interest and taxes declined 12.4%, or $4.2 million, versus year-ago to $29.9 million for the three months ended June 24, 2012, primarily reflecting lower sales and significantly higher commodity costs, which were only partially offset by pricing and productivity improvements. Earnings before interest and taxes were also impacted by charges of $0.9 million and $5.2 million in the second quarters of 2012 and 2011, respectively, related to our Fulton, NY plant consolidation project.

Duncan Hines Grocery Division:

Earnings before interest and taxes declined 24.7%, or $8.0 million, versus year-ago to $24.5 million for the three months ended June 24, 2012, primarily reflecting significantly higher commodity costs, which were only partially offset by productivity improvements and the benefit of our net pricing actions. Earnings before interest and taxes were also impacted by charges of $4.1 million and $2.3 million in the second quarters of 2012 and 2011, respectively, related to our Tacoma, WA and Millsboro, DE plant consolidation projects.

Specialty Foods Division:

Earnings before interest and taxes declined 17.8%, or $1.1 million, versus year ago to $5.3 million, primarily reflecting significantly higher commodity costs partially offset by productivity improvements, increased net selling prices and, to a lesser extent, favorable product mix.

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Interest Expense, net

Net interest expense was $60.5 million in the three months ended June 24, 2012, compared to net interest expense of $52.0 million in the three months ended June 26, 2011. Included in net interest expense in both periods were charges associated with our 2012 Refinancing and certain interest rate swap activity that was de-designated for swap accounting in 2008. These items, which total $14.9 million in the second quarter of 2012 and $0.5 million in the second quarter of 2011, are discussed below.

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

Also included in net interest expense were $0.1 million and $0.5 million for the three months ended June 24, 2012 and the three months ended June 26, 2011, respectively, for the amortization of the cumulative mark-to-market adjustment for an interest rate swap that was de-designated for swap accounting in the fourth quarter of 2008 and subsequently terminated. The counterparty to the interest rate swap was Lehman Brothers Special Financing (“LBSF”), a subsidiary of Lehman Brothers, and the hedge was de-designated for swap accounting at the time of LBSF's bankruptcy filing. At that time of de-designation, the cumulative mark to market adjustment was $11.5 million. As of June 24, 2012, the balance was fully amortized.

Excluding the impact of the aforementioned charges to net interest expense in both periods, net interest expense declined $5.9 million versus year-ago in the second quarter of 2012, reflecting savings of $4.0 million due to the pay down of our term loans and notes, $2.3 million due to lower payments on interest rate swap agreements and $0.5 million due to lower amortization of deferred financing costs. Partially offsetting these interest savings were a $0.6 million increase due to higher weighted average interest rates on our term loans and other net increases of $0.3 million.

We utilize interest rate swap agreements to reduce the potential exposure to interest rate movements and to achieve a desired proportion of variable versus fixed rate debt. Any gains or losses realized on the interest rate swap agreements, excluding the Accumulated other comprehensive (loss) earnings (“AOCL”) portion, are recorded as an adjustment to interest expense. Included in net interest expense was $3.8 million and $6.1 million for the second quarters of 2012 and 2011, respectively, recorded from losses on interest rate swap agreements, resulting in a change of $2.3 million.

Provision (benefit) for income taxes

The effective tax rate was 42.9% for the three months ended June 24, 2012, compared to -9.0% for the three months ended June 26, 2011. The effective rate difference was due to the increase in valuation allowance for the current period resulting from the current year restructuring activities. For the three months ended June 24, 2012 and June 26, 2011 we maintained a valuation allowance against certain state net operating carryovers, state tax credits carryovers and foreign loss carryovers. See Note 14 to the Consolidated Financial Statements for Income Taxes.

Under Internal Revenue Code (“the Code”) Section 382, the Company is a loss corporation. Section 382 of the Code places limitations on our ability to use certain NOL carry-forwards to offset income. The annual NOL is approximately $14 to $18 million subject to other rules and restrictions. Our NOLs and certain other tax attributes generated prior to December 23, 2009 may not be utilized to offset Birds Eye income from recognized built in gains through December 2014 pursuant to Section 384 of the Code.

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Six months ended June 24, 2012 compared to six months ended June 26, 2011

Net sales

Net sales for the six months ended June 24, 2012 declined 0.2% to $1,205.5 million, compared to net sales of $1,208.3 million in the comparable prior-year period. This performance reflected a 2.8% decline from volume/mix, partially offset by higher net pricing of 2.6%, stemming from pricing actions that were previously initiated.

Net sales in our North American retail businesses were down 1% six months ended June 24, 2012, reflecting the impact of overall volume softness in the food industry, particularly the frozen categories, which weighed on our results for the first half. Partially offsetting these factors was the benefit of new products launched during 2012. Despite a challenging consumer environment, we grew market share on brands representing approximately half of our product contribution during the first half.

Birds Eye Frozen Division:

Net sales in the six months ended June 24, 2012 declined 3.0% versus year-ago to $531.7 million, reflecting a 5.2% decline from volume/mix, stemming from the overall softness in the frozen categories, partially offset by higher net pricing of 2.7%. The Aunt Jemima product recall also reduced sales by 0.5% for the period. Higher sales of our Birds Eye Steamfresh vegetables, Lender's bagels and our new Mrs. Paul's and VanDeKamp's Parchment Bake seafood products were more than offset by lower sales of core frozen vegetables, Celeste Pizza and Aunt Jemima frozen breakfast products.

Duncan Hines Grocery Division:

Net sales in the six months ended June 24, 2012 increased 1.4% versus year-ago to $471.6 million, reflecting higher net pricing of 2.3%, partially offset by a 0.9% decrease from volume/mix. Our new Duncan Hines Frosting Creations product , as well as our Armour Canned meat products, performed well in the quarter.

Specialty Foods Division:

Net sales in the six months ended June 24, 2012 increased 4.0% versus year-ago to $202.3 million, reflecting a 2.6% increase from higher net pricing, and a 1.3% increase from volume/mix. Higher sales in our foods service business, stemming from successful promotional programs at a key customer, drove the overall increase in net sales for the half.

Gross profit.

Gross profit for the six months ended June 24, 2012 was $267.8 million or 22.2% of net sales, compared to $295.1 million, or 24.4%, of net sales during the comparable prior year period. The decrease in gross profit as a percentage of net sales was driven by substantially higher commodity costs which were not fully offset by higher net pricing and productivity during the period. Also impacting gross profit in both periods were charges associated with our plant consolidation activities, with the first half of 2012 including charges totaling $8.5 million ($4.2 million in cash and $4.3 million non-cash) and the first half of 2011 including charges totaling $12.4 million ($4.7 million in cash and $7.7 million non-cash). For the period, higher commodity costs, net of productivity savings reduced the gross profit percentage from 2011 by 5.0 percentage points, while higher net selling prices increased the gross profit percentage by 2.8 percentage points.

Marketing and selling expenses

Marketing and selling expenses were $92.2 million, or 7.6% of net sales for the six months ended June 24, 2012, compared to $88.5 million, or 7.3%, of sales during the comparable prior year period. The increase in marketing and selling expenses in the period was primarily driven by investments behind our new products, particularly Duncan Hines Frosting Creations.

Administrative expenses

Administrative expenses were $44.7 million or 3.7% of net sales for the six months ended June 24, 2012, compared to $43.1 million or 3.6% of net sales during the comparable prior year period. The increase in administrative expenses was mainly driven by lease termination costs incurred in connection with the completion of our Headquarters office move to Parsippany, NJ.

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Research and development expenses:

Research and development expenses were $5.5 million, or 0.5% of net sales for the six months ended June 24, 2012, compared to $4.1 million, or 0.3%, of net sales during the comparable prior year period.This increase was driven by $0.9 million of expenses related to consolidating research and development activities of our Birds Eye Frozen Division at our Parsippany, NJ headquarters.

Other expense (income),net



	Six months ended
	June 24, 2012		June 26, 2011
Other expense (income), net consists of:
Amortization of intangibles/other assets	7.8		8.1
Lehman Brothers Specialty Financing settlement	—		8.5
Gain on sale of the Watsonville, CA facility	—		(0.4	)
Redemption premium on the early extinguishment of debt	10.8		—
Royalty income and other	(0.4	)	(0.5	)
Total other expense (income), net	18.2		15.7

Earnings before interest and taxes

Earnings before interest and taxes were $107.2 million for the six months ended June 24, 2012, a decrease of $36.5 million, or 25.4%, from the comparable prior year period. This performance primarily reflected lower gross profit, largely driven by significantly higher commodity costs and a weak consumer environment, which limited the benefit of our pricing actions and trade spending efficiency program. Also impacting earnings before interest and taxes were charges of $8.5 million and $12.4 million during the first half of 2012 and 2011, respectively, related to our facility consolidation projects.

Birds Eye Frozen Division:

Earnings before interest and taxes declined by 15.7% or $12.5 million from the prior year period to $67.1 million, primary reflecting significantly higher commodity costs. These decreases were partially offset by productivity improvements and higher net selling prices. Also impacting earnings before interest and taxes were charges of $3.9 million and $5.7 million during the first half of 2012 and 2011, respectively, related to our Fulton, NY plant consolidation project and $3.3 million of costs during the first six months of 2012 related to the Aunt Jemima product recall.

Duncan Hines Grocery Division:

Earnings before interest and taxes declined by 26.3% or $18.1 million from the prior year period to $50.8 million, primary reflecting significantly higher commodity costs, which were only partially offset by productivity improvements, increased net selling prices and favorable product mix. Also impacting earnings before interest and taxes were charges of $4.6 million and $6.8 million during the first half of 2012 and 2011, respectively, related to our Tacoma, WA and Millsboro, DE plant consolidation projects.

Specialty Foods Division:

Earnings before interest and taxes decreased by 17.7% or $2.6 million from the prior year period to $12.1 million, primarily reflecting higher commodity costs partially offset by productivity improvements, increased net selling prices and to a lesser extent, favorable product mix.

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Interest Expense, net

Net Interest expense, was $110.0 million in the six months ended June 24, 2012, compared to $103.2 million in the six months ended June 26, 2011. Included in net interest expense in both periods were charges associated with our 2012 Refinancing and certain interest rate swap activity that was de-designated for swap accounting in 2008. These items, which total $15.2 million in the first half of 2012 and $1.2 million in the first half of 2011, are discussed below.

On April 17, 2012 the Company executed an amended and restated credit agreement, which provided for the extension of our certain Tranche B Term Loans and our Revolving Credit facility, the repayment of our Tranche D term loans and the issuance of a new Tranche E term loan. In connection with this refinancing, we also redeemed all of our outstanding10.625% Senior Subordinated Notes. This refinancing resulted in our recognizing approximately $14.8 million of charges to interest expense during the first half. The charges recognized consisted of $7.3 million of write downs of existing deferred financing costs as well as $7.5 million of new costs incurred in connection with the transaction that were recorded directly to interest expense.

Included in net interest expense was $0.4 million and $1.2 million for the six months ended June 24, 2012 and the six months ended June 26, 2011, respectively, for the amortization of the cumulative mark-to-market adjustment for an interest rate swap that was de-designated for swap accounting in the fourth quarter of 2008 and subsequently terminated. The counterparty to the interest rate swap was Lehman Brothers Special Financing (“LBSF”), a subsidiary of Lehman Brothers, and the hedge was de-designated for swap accounting at the time of LBSF’s bankruptcy filing. At that time of de-designation, the cumulative mark to market adjustment was $11.5 million. As of June 24, 2012, the balance was fully amortized.

Excluding the aforementioned charges to net interest expense in both periods, the net decrease in interest expense was $7.2 million, of which $4.6 million was due to the pay down of our term loans and notes, $3.3 million was due to lower payments on interest rate swap agreements and $0.5 million was due to lower amortization of deferred financing costs. Partially offsetting these interest savings were a $0.6 million increase due to higher weighted average interest rates on our term loans and other net increases of $0.5 million.

We utilize interest rate swap agreements to reduce the potential exposure to interest rate movements and to achieve a desired proportion of variable versus fixed rate debt. Any gains or losses realized on the interest rate swap agreements, excluding the Accumulated other comprehensive loss (“AOCL”) portion, are recorded as an adjustment to interest expense. Included net interest expense, was $7.9 million and $11.1 million for the six months ended June��24, 2012 and the six months ended June 26, 2011, respectively, recorded from losses on interest rate swap agreements, a net change of $3.2 million.

Provision (benefit) for income taxes

The effective tax rate was 64.5% for the six months ended June 24, 2012, compared to 31.2% for the six months ended June 26, 2011. The effective rate difference was due to the increase in valuation allowance for the current period resulting from the current year restructuring activities. For the six months ended June 24, 2012 and June 26, 2011 we maintained a valuation allowance against certain state net operating carryovers, state tax credits carryovers and foreign loss carryovers. See Note 14 to the Consolidated Financial Statements for Income Taxes.

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Liquidity and Capital Resourcess

Historical

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

Our principal liquidity requirements have been, and we expect will be, for working capital and general corporate purposes, including capital expenditures and debt service. Capital expenditures are expected to be approximately $85-95 million in 2012, which consists of normal capital expenditures and approximately $10 million related to our Fulton, NY and Millsboro, DE plant restructuring projects. We have historically satisfied our liquidity requirements with internally generated cash flows and availability under our Revolving Credit Facility (as defined in Note 8 to the Consolidated Financial Statements). The Company expects that its ability to generate cash from its operations and ability to borrow from its credit facilities should be sufficient to support working capital needs, planned growth and capital expenditures for the next 12 months and for the foreseeable future. We keep a insignificant amount of cash in foreign accounts, primarily related to the operations of our Canadian business. Tax liabilities related to bringing these funds back into the United States would not be significant and have been accrued.

Statements of cash flows for the six months ended June 24, 2012 compared to the six months ended June 26, 2011

Net cash provided by operating activities was $67.7 million for the six months ended June 24, 2012 and was the result of net earnings, excluding non-cash charges and credits, of $69.3 million and an increase in working capital of $1.6 million. The increase in working capital was primarily the result of a seasonal decrease of $25.0 million in accounts payable driven by lower inventory levels and a $6.1 million decrease in accrued trade marketing expense driven by the timing of our marketing programs. Offsetting these increases in working capital were a seasonal decrease of $26.3 million in inventories and a $6.3 million decrease in accounts receivable driven by the timing of sales. All other working capital accounts increased by $3.1 million.

Net cash provided by operating activities was $95.2 million for the six months ended June 26, 2011 and was the result of net earnings, excluding non-cash charges and credits, of $84.9 million and a decrease in working capital of $10.3 million. The decrease in working capital was primarily the result of a $21.1 million increase in accounts payable caused by seasonal inventory purchases and an $8.5 million increase in accrued liabilities caused by our settlement with LBSF. These were offset by a $11.7 million decrease in the trade marketing accrual and a $7.5 million increase in accounts receivable. Inventories resulted in a $1.4 million increase in working capital and net cash provided by operating activities in the first six months of 2011 was negatively impacted by the required pre-build of inventories associated with our plant closing. All other working capital accounts generated a net $1.3 million cash inflow.

Net cash used in investing activities was $34.7 million for the six months ended June 24, 2012 and was entirely related to capital expenditures. Capital expenditures during the first six months of 2012 included approximately $2.6 million of costs related to our plant consolidation projects in Millsboro, DE, Tacoma, WA and Fulton, NY. Net cash used in investing activities was $43.7 million for the six months ended June 26, 2011 and was the result of capital expenditures of $51.6 million, offset by proceeds of $7.9 million received from the sale of our Watsonville, CA site.

Net cash used by financing activities was impacted by our April 2012 refinancing, which is explained in greater detail in note 8 to the Consolidated Financial Statements. Net cash used by financing activities for the six months ended June 24, 2012 was $161.3 million and consisted of $319.4 million of term loan repayments, $219.8 million of repurchases of outstanding notes, $14.7 million of debt acquisition costs, $2.8 million of net capital leases and notes payable activity, and $0.6 million of equity repurchases. These outflows were partially offset by $396.0 million of proceeds from our new Tranche E Term loan .

Net cash used by financing activities for the six months ended June 26, 2011 was $2.3 million and consisted of $1.1 million in net note payable repayments, $1.1 million of payments on capital leases, $1.0 million of equity repurchases, and $0.1 million of debt acquisition costs. These outflows were partially offset by proceeds from new share issuances of $0.6 million and $0.3 million of bank overdrafts.

The net of all activities resulted in a decrease in cash of $128.3 million for the six months ended June 24, 2012, compared to an increase in cash of $49.4 million for the six months ended June 26, 2011.

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Debt

As of June 24, 2012 and December 25, 2011, our long term debt consisted of the following:



	June 24, 2012			December 25, 2011
Long-term debt
- Senior Secured Credit Facility - Tranche B Non Extended Term Loans due 2014	$	549.5		$	1,196.9
- Senior Secured Credit Facility - Tranche B Extended Term Loans due 2016	641.1			—
- Senior Secured Credit Facility - Tranche D Term Loans due 2014	—			313.2
- Senior Secured Credit Facility - Tranche E Term Loans due 2014	400.0			—
- 9.25% Senior Notes due 2015	615.0			625.0
- 8.25% Senior Notes due 2017	400.0			400.0
- 10.625% Senior Subordinated Notes due 2017	—			199.0
- Unamortized discount on long term debt	(4.4		)	(2.7		)
- Capital lease obligations	22.7			23.0
	2,623.9			2,754.3
Less: current portion of long-term obligations	26.0			15.7
Total long-term debt	$	2,597.9		$	2,738.7

On April 17, 2012 we entered into debt refinancing agreements which extended a portion of our Tranche B Term Loans to 2016, allowed us to borrow on new $400 million Tranche E Term Loan and replace our existing revolving credit facility with a new $150 million revolving credit facility. We used proceeds from the Tranche E Term Loans to pay off all of our outstanding balance of $313.2 million aggregate principal amount of Tranche D Term Loans. On April 19, 2012, we redeemed all $199.0 million of our outstanding 10.625% Senior Subordinated Notes using proceeds from the Tranche E Term Loans along with available cash. For additional details regarding our debt instruments and our April 2012 refinancing, please refer to Note 8 of the Consolidated Financial Statements, "Debt and Interest Expense".

We meet the service requirements on our debt utilizing cash flow generated from operations. During 2011, we made a voluntary prepayment of $55.0 million on our term loans. In addition to the above facilities, we have a $150.0 million revolving credit facility, which can be used to fund our working capital needs and can also be used to issue up to $50.0 million of letters of credit. There were no cash borrowings against the revolving credit facility at any time during 2012 or 2011. As of June 24, 2012 and December 25, 2011, we had issued $32.9 million and $33.6 million, respectively, of letters of credit under this facility, leaving $117.1 million and $116.4 million, respectively, of unused capacity under this facility.

The Senior Secured Credit Facility loans mature in quarterly 0.25% installments. The aggregate maturities of the Tranche B Non Extended Term Loan outstanding as of June 24, 2012 are $6.2 million in the remainder of 2012, $12.5 million in 2013 and $530.8 million in 2014. The aggregate maturities of the Tranche B Extended Term Loan outstanding as of June 24, 2012 are $3.2 million in the remainder of 2012, $6.4 million in 2013, $6.4 million in 2014, $6.4 million in 2015 and $618.7 million in 2016. The aggregate maturities of the Tranche E Term Loans outstanding as of June 24, 2012 are $2.0 million in the remainder of 2012, $4.0 million in 2013, $4.0 million in 2014, $4.0 million in 2015, $4.0 million in 2016 and $382.0 million thereafter.

Under the terms of the Senior Secured Credit Facility, we are required to use 50% of our “Excess Cash Flow” to prepay the Tranche B Non Extended Term Loans, Tranche B Extended Term Loans, Tranche D Term Loans and the Tranche E Term Loans. Excess Cash Flow is defined as consolidated net income (as defined), as adjusted for certain items, including (1) all non cash charges and credits included in arriving at consolidated net income, (2) changes in working capital, (3) capital expenditures (to the extent they were not financed with debt), (4) the aggregate amount of principal payments of indebtedness and (5) certain other items defined in the Senior Secured Credit Facility. In December 2011 we made a voluntary prepayment on our Tranche D terms loans of $55.0 million. As a result of this prepayment, no payment was due under the Excess Cash Flow requirements of the Senior Secured Credit Facility for the 2011 reporting year.

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As market conditions warrant, we and our subsidiaries, affiliates or significant equity holders (including Blackstone and its affiliates) may from time to time, in our or their sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities (including any publicly issued debt or equity securities), in privately negotiated or open market transactions, by tender offer or otherwise.

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Covenant Compliance

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

Senior Secured Credit Facility

Our Senior Secured Credit Facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to:


•	incur additional indebtedness and make guarantees;


•	create liens on assets;


•	engage in mergers or consolidations;


•	sell assets;


•	pay dividends and distributions or repurchase our capital stock;


•	make investments, loans and advances, including acquisitions;


•	repay the Senior Subordinated Notes or enter into certain amendments thereof; and


•	engage in certain transactions with affiliates.

The Senior Secured Credit Facility also contains certain customary affirmative covenants and events of default.

On April 17, 2012 we amended and restated the Senior Secured Credit Facility as part of an initiative to lower our interest costs by paying off of our Senior Subordinated Notes and extending the maturity dates for a portion of our Senior Secured Credit Facility. This is discussed further in Note 8 of the Consolidated Financial Statements "Debt and Interest Expense".

8.25% Senior Notes, 9.25% Senior Notes and Senior Subordinated Notes

Additionally, on April 2, 2007, we issued the 9.25% Senior Notes and the 10.625% Senior Subordinated Notes. On December 23, 2009, we issued additional 9.25% Senior Notes. On August 17, 2010, we issued the 8.25% Senior Notes. The Senior Notes are general senior unsecured obligations, effectively subordinated in right of payment to all of our existing and future senior secured indebtedness, and guaranteed on a full, unconditional, joint and several basis by our wholly-owned domestic subsidiaries that guarantee our other indebtedness. On April 17, 2012, we redeemed all outstanding Senior Subordinated Notes.

The indentures governing the 8.25% Senior Notes and the 9.25% Senior Notes limit our (and most or all of our subsidiaries’) ability to, subject to certain exceptions:


•	incur additional debt or issue certain preferred shares;


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


•	make certain investments;


•	sell certain assets;


•	create liens on certain assets to secure debt;


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


•	enter into certain transactions with our affiliates; and


•	designate our subsidiaries as unrestricted subsidiaries.

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

Adjusted EBITDA

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

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Pursuant to the terms of the Senior Secured Credit Facility, we are required to maintain a ratio of Net First Lien Secured Debt to Adjusted EBITDA of no greater than 5.25 to 1. Net First Lien Secured Debt is defined as our aggregate consolidated secured indebtedness, plus capital lease obligations less the aggregate amount of all unrestricted cash and cash equivalents. We are also required to maintain a ratio of Consolidated Senior Secured Debt to Adjusted EBITDA of no greater than 4.75 to 1. Consolidated Senior Secured Debt is defined as our aggregate consolidated secured indebtedness, plus capital lease obligations less the aggregate amount of all unrestricted cash and cash equivalents.

In addition, under the Senior Secured Credit Facility and the indentures governing the Senior Notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to the Net First Lien Leverage Ratio, in the case of the Senior Secured Credit Facility, or to the ratio of Adjusted EBITDA to fixed charges for the most recently concluded four consecutive fiscal quarters in the case of the Senior Notes. As of June 24, 2012, we were in compliance with all covenants and other obligations under the Senior Secured Credit Facility, and the indentures governing the Senior Notes.

Adjusted EBITDA is defined as earnings (loss) before interest expense, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude non-cash items, extraordinary, unusual or non-recurring items and other adjustment items permitted in calculating Adjusted EBITDA under the Senior Secured Credit Facility and the indentures governing the Senior Notes. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financial covenants.

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

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

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The following table provides a reconciliation from our net earnings (loss) to EBITDA and Adjusted EBITDA for the three and six months ended June 24, 2012 and June 26, 2011, and the fiscal year ended December 25, 2011. The terms and related calculations are defined in the Senior Secured Credit Facility and the indentures governing the 8.25% Senior Notes, and 9.25% Senior Notes.



(thousands of dollars)	Three months ended						Six months ended					Fiscal Year Ended
	June 24, 2012			June 26, 2011			June 24, 2012			June 26, 2011		December 25, 2011
Net earnings (loss)	$	(10,560	)	$	7,581		$	(1,021	)	$	27,833	$	(46,914	)
Interest expense, net	60,484			51,993			110,038			103,241		208,078
Income tax expense (benefit)	(7,935		)	(629		)	(1,858		)	12,634		22,103
Depreciation and amortization expense	21,566			22,492			42,056			42,902		88,476
EBITDA	$	63,555		$	81,437		$	149,215		$	186,610	$	271,743
Non-cash items (a)	3,727			5,104			1,599			3,882		152,245
Non-recurring items (as defined) (b)	17,018			12,983			18,824			14,652		20,264
Other adjustment items (c)	1,035			816			5,570			2,054		5,440
Adjusted EBITDA	85,335			100,340			175,208			207,198		449,692
Last twelve months Adjusted EBITDA							$	417,702


(a)	Non-cash items are comprised of the following:



(thousands of dollars)	Three months ended				Six months ended				Fiscal Year Ended
	June 24, 2012		June 26, 2011		June 24, 2012		June 26, 2011		December 25, 2011
Non-cash compensation charges (1)	$	300	$	300	$	600	$	600	$	1,151
Unrealized losses resulting from hedging activities (2)	3,427		3,518		999		1,996		1,608
Goodwill impairment charges (3)	—		—		—		—		122,900
Other impairment charges (4)	—		1,286		—		1,286		26,586
Total non-cash items	$	3,727	$	5,104	$	1,599	$	3,882	$	152,245

_________________


(1)	For the three and six months ended June 24, 2012 and June 26, 2011, and the fiscal year ended December 25, 2011, represents non-cash compensation charges related to the granting of equity awards.


(2)	For the three and six months ended June 24, 2012 and June 26, 2011, and the fiscal year ended December 25, 2011, represents non-cash gains and losses resulting from mark-to-market adjustments of obligations under foreign exchange and commodity derivative contracts.


(3)	For the fiscal year ended December 25, 2011, represents goodwill impairments on the Breakfast ($51,700), Private Label ($49,700) and Food Service ($21,500) reporting units.


(4)	For the three and six months ended June 26, 2011 represents a plant asset impairment on the previously announced closure of the Tacoma, WA facility. For the fiscal year ended December 25, 2011, represents tradename impairments on Aunt Jemima ($23,700), Lenders ($1,200) and Bernstein's ($400) in addition to the plant asset impairment at Tacoma.

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(b)	Non-recurring items as defined in our Senior Secured Credit Facility are comprised of the following:



(thousands of dollars)	Three months ended				Six months ended				Fiscal Year Ended
	June 24, 2012		June 26, 2011		June 24, 2012		June 26, 2011		December 25, 2011
Expenses in connection with an acquisition or other non-recurring merger costs (1)	$	1,307	$	8,787	$	1,623	$	9,037	$	8,771
Restructuring charges, integration costs and other business optimization expenses (2)	4,092		3,639		5,477		5,004		9,485
Employee severance (3)	828		557		933		611		2,008
Other non-recurring items (4)	10,791		—		10,791		—
Total other adjustments	$	17,018	$	12,983	$	18,824	$	14,652	$	20,264

_________________

(1)

For the three and six months ended June 24, 2012 primarily represents costs related to due diligence investigations and special project expenses. For the three and six months ended June 26, 2011 and fiscal year ended December 25, 2011, primarily represents costs related to due diligence investigation and includes an $8.5 million legal settlement related to the Lehman Brothers Special Financing claim.

(2)

For the three and six months ended June 24, 2012, primarily represents restructuring charges, consulting and business optimization expenses related to the closings of the Tacoma, WA, Fulton, NY, Green Bay, WI and Millsboro, DE facilities. For the three and six months ended June 26, 2011, and the fiscal year ended December 25, 2011, primarily represents restructuring charges, consulting and business optimization expenses related to the closings of the Tacoma, WA and Fulton, NY facilities.


(3)	For the three and six months ended June 24, 2012 and June 26, 2011, and the fiscal year ended December 25, 2011, represents severance costs paid, or to be paid, to terminated employees.


(4)	For the three and six months ended June 24, 2012, represents the premium paid on the redemption of $199.0 million of 10.625% Senior Subordinated Notes and the premium paid on the repurchase and retirement of $10.0 million of 9.25% Senior Notes.


(c)	Other adjustment items are comprised of the following:



(thousands of dollars)	Three months ended					Six months ended					Fiscal Year Ended
	June 24, 2012		June 26, 2011			June 24, 2012		June 26, 2011			December 25, 2011
Management, monitoring, consulting and advisory fees (1)	$	1,035	$	1,152		$	2,346	$	2,340		$	4,572
Other (2)	—		(336		)	3,224		(286		)	868
Total other adjustments	$	1,035	$	816		$	5,570	$	2,054		$	5,440

_________________


(1)	For the three and six months ended June 24, 2012 and June 26, 2011, and the fiscal year ended December 25, 2011, represents management/advisory fees and expenses paid to an affiliate of Blackstone.


(2)	For the three and six months ended June 24, 2012 and the fiscal year ended December 25, 2011, primarily represents the recall of Aunt Jemima product. For the the fiscal year ended December 25, 2011, this also includes a gain on the sale of the Watsonville, CA property. For three and six months ended June 26, 2011, represents gain on the sale of the Watsonville, CA property.

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Our covenant requirements and actual ratios for the twelve months ended June 24, 2012 are as follows:



	Covenant Requirement	Actual Ratio
Senior Secured Credit Facility
Net First Lien Leverage Ratio (1)	5.25 to 1.00	3.75
Senior Secured Leverage Ratio (2)	4.75 to 1.00	3.70
Total Leverage Ratio (3)	Not applicable	6.19
Senior Notes (4)
Minimum Adjusted EBITDA to fixed charges ratio required to incur additional debt pursuant to ratio provisions (5)	2.00 to 1.00	2.19

_________________


(1)	Pursuant to the terms of the Senior Secured Credit Facility, we are required to maintain a ratio of Net First Lien Secured Debt to Adjusted EBITDA of no greater than 5.25 to 1. Net First Lien Secured Debt is defined as our aggregate consolidated secured indebtedness, plus capital lease obligations less the aggregate amount of all unrestricted cash and cash equivalents.


(2)	Pursuant to the terms of the Senior Secured Credit Facility, we are also required to maintain a ratio of Consolidated Senior Secured Debt to Adjusted EBITDA of no greater than 4.75 to 1. Consolidated Senior Secured Debt is defined as our aggregate consolidated secured indebtedness, less the aggregate amount of all unrestricted cash and cash equivalents.


(3)	The Total Leverage Ratio is not a financial covenant but is used to determine the applicable rate under the Senior Secured Credit Facility. The Total Leverage Ratio is calculated by dividing consolidated total debt less the aggregate amount of all unrestricted cash and cash equivalents by Adjusted EBITDA.


(4)	Our ability to incur additional debt and make certain restricted payments under the indentures governing the Senior Notes, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charges ratio of at least 2.0:1.


(5)	Fixed charges is defined in the indentures governing the Senior Notes as (i) consolidated interest expense (excluding specified items) plus consolidated capitalized interest less consolidated interest income, plus (ii) cash dividends and distributions paid on preferred stock or disqualified stock.

INFLATION

Prior to 2007, inflation did not have a significant effect on us as we had been successful in mitigating the effects of inflation with cost reduction and productivity programs, as well as increasing selling prices during periods of higher inflation. Beginning in late 2007 and continuing into 2008, we experienced higher energy and commodity costs in production and higher fuel surcharges for product delivery. Inflation was less pronounced in 2009 and in 2010, but has been more pronounced in 2011 and 2012, particularly in ingredient costs such as vegetables, flours, shortening/oils, beef, dairy, cocoa, corn sweeteners and energy. To the extent possible, we offset inflation with productivity programs. However, we spend approximately $1.1 billion each year on ingredients, therefore each 1% change in our weighted average ingredient costs would impact earnings by approximately $11 million. If we experience significant inflation, price increases may be necessary in order to preserve our margins and returns. Severe increases in inflation could have an adverse impact on our business, financial condition and results of operations.

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Contractual Commitments

Our contractual commitments consist mainly of payments related to long-term debt and related interest, operating and capital lease payments, certain take-or-pay arrangements entered into as part of the normal course of business and pension obligations. Refer to the “Contractual Commitments” section of the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year December 25, 2011 for details on our contractual obligations and commitments.

Subsequent to the end of the first quarter of fiscal 2012, there was a significant change in our contractual obligations and commitments related to long-term debt and related interest as a result of the amendment and restatement of our Senior Secured Credit Facility. See Note 8 - Debt and Interest Expense for further details. Our contractual commitments related to our debt is as follows:



	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(in thousands)
Long-term debt (1)	$	2,605,625	$	11,456	$	564,097	$	1,248,072	$	782,000
Projected interest payments on long term debt (2)	725,382		80,400		313,000		296,000		35,982
Total	$	3,331,007	$	91,856	$	877,097	$	1,544,072	$	817,982


(1)	Long-term debt at face value includes scheduled principal repayments and excludes interest payments.


(2)	The total projected interest payments on long-term debt are based upon borrowings and interest rates as of June 24, 2012, including the effect of interest rate swaps in place. The interest rate on variable rate debt is subject to changes beyond our control and may result in actual interest expense and payments differing from the amounts above.

Off-Balance Sheet Arrangements

As of June 24, 2012, we did not have any off-balance sheet obligations.

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Accounting Policies and Pronouncements

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” (“ASU 2012-02”). In accordance with the amendments in ASU 2012-02, an entity has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If the entity determines that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than the carrying value, the entity will be required to perform the quantitative test. The amendments in ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. However, early adoption is permitted. We are currently evaluating whether we will elect to early adopt in the current fiscal year.

Critical Accounting Policies and Estimates

We have disclosed in "Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operations" included in our annual report for the fiscal year ended December 25, 2011 on Form 10-K, those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our annual report for the fiscal year ended December 25, 2011 on Form 10-K. We believe that the accounting principles utilized in preparing our unaudited consolidated financial statements conform in all material respects to GAAP.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

FINANCIAL INSTRUMENTS

Risk Management Strategy

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, foreign exchange rates or commodity prices. Please refer to Note 10 of the Consolidated Financial Statements "Financial Instruments" for additional details regarding our derivatives and refer to Note 8 of the Consolidated Financial Statements "Debt and Interest Expense" for additional details regarding our debt instruments. There were no significant changes in our exposures to market risk since December 25, 2011.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 24, 2012. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective at a level of reasonable assurance.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended June 24, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1: LEGAL PROCEEDINGS

No material legal proceedings are currently pending.

ITEM 1A: RISK FACTORS

Our risk factors are summarized under the“Item 1A: Risk Factors” section of our Form 10-Q for the three months ended March 25, 2012. There have been no material changes to our risk factors since the filing of that 10-Q.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: MINE SAFETY DISCLOSURES

None

ITEM 5: OTHER INFORMATION

None

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ITEM 6: EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES



Exhibit Number		Description of exhibit


10.1*		Fifth Amendment to the Credit Agreement, dated April 17, 2012, by and among Pinnacle Foods Finance LLC, Peak Finance Holdings LLC, Barclays Bank PLC, the Guarantors and the Other Lenders Party


31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (A)

32.2*		Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (A)

101.1*		The following materials are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Earnings, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Member’s Equity, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information. (B)

* Identifies exhibits that are filed as attachments to this document.

(A)

Pursuant to Commission Release No. 33-8212, this certification will be treated as “accompanying” this Form 10-Q and not “filed” as part of such report for purposes of Section 18 of Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

(B)

Pursuant to Rule 406T of Regulation S-T, the Interactive Data files on Exhibit 101.1 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 133, as amended, are deemed not file for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PINNACLE FOODS FINANCE LLC



By:	/s/ Craig Steeneck
Name:	Craig Steeneck
Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Date:	August 8, 2012

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Pinnacle Foods Finance Inactive 10-Q2012 Q2 Quarterly report

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