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8-K - FORM 8-K - Pinnacle Foods Finance LLCd8k.htm

Exhibit 99.1

LOGO

Earnings Release

 

Contact:    Craig Steeneck
   973-541-6622

Pinnacle Foods Finance LLC

Reports Fiscal 2011 Second Quarter Results

Mountain Lakes, NJ August 10, 2011 - Pinnacle Foods Finance LLC announced its financial results for the second quarter ended June 26, 2011. Net sales were $602 million compared to $576 million in last year’s second quarter. Net earnings were $7 million compared to $14 million in the second quarter last year. For the first six months of 2011, net sales were $1.21 billion compared to $1.23 billion in last year’s first six months. Net earnings were $27 million compared to $18 million in the first six months last year.

Pinnacle’s Chief Executive Officer, Bob Gamgort said, “We are pleased with our strong sales growth in the second quarter, which reflects enhanced consumer marketing programs, successful new product introductions and the shift in Easter timing. For the quarter, we grew or held market share on brands representing 72% of our product contribution. Input cost inflation caused our gross margin to decline in the quarter, however we implemented pricing actions to offset the impact going forward.”

Second Quarter 2011

Net sales were $602 million in the second quarter of 2011 compared to $576 million in last year’s second quarter, a 4.5% increase. Net sales in our North American retail businesses increased 7%, excluding the impact of the exited Birds Eye® Steamfresh® meals and U. S. Swanson® meals businesses. We experienced strong growth in Birds Eye® Steamfresh® vegetables, Birds Eye® Voila!® complete bagged meals, Duncan Hines® baking mixes and frostings, as well as Van de Kamp’s® and Mrs. Paul’s® frozen seafood.

Earnings before interest and taxes (EBIT) were $59 million in the second quarter of 2011, compared to $70 million a year ago. EBIT was positively impacted by higher sales volumes, pricing actions and productivity improvements, but these were offset by the incremental advertising investment of approximately $8 million, as well as higher commodity costs. Consolidated EBITDA, as defined in our borrowing agreements, was $100 million in the second quarter of 2011 compared to $116 million in the second quarter of 2010. Consolidated EBITDA is defined below under “Non-GAAP Financial Matters”.

Earnings were positively impacted by lower interest expense, the result of last year’s strong cash flow which allowed us to make a voluntary bank debt prepayment of $73 million in December 2010 and lower interest rates from our refinancing in August 2010. This year’s quarterly tax rate was negative 9% which was the result of states’ legislative changes enacted during the quarter.

First Six Months 2011

Net sales were $1.21 billion in the first six months of 2011 compared to $1.23 billion in last year’s first six months, a 2.0% decrease. Net sales in our North American retail businesses were basically flat, excluding the impact of the exited Birds Eye® Steamfresh® meals and U. S. Swanson® meals businesses. We experienced strong growth in Birds Eye® Steamfresh® vegetables, Birds Eye® Voila!® complete bagged meals, Van de Kamp’s® and Mrs. Paul’s® frozen seafood, Log Cabin® syrups, Armour® canned meat and Nalley® chili. Contributing to the year to date sales increase in these brands were our first quarter launches of our innovative new products, including Birds Eye® Voila! ® Family Size complete bagged meals, Birds Eye® Steamfresh® Family Size vegetables, Hungry-Man® frozen dinner Pub Favorites varieties of Honey Bourbon chicken and Popcorn chicken, and Van de Kamp’s® and Mrs. Paul’s® 90 calories fish fillets, as well as the introduction of a complete line of Swanson® Skillet meals in Canada. In the second quarter, we also introduced Aunt Jemima® Oatmeal pancakes and Lenders® Thin bagels.

 

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Earnings before interest and taxes (EBIT) were $144 million in the first six months of 2011, compared to $133 million a year ago. The EBIT reflects the net sales decline, including our first quarter new distribution investment of $6 million, as well as higher commodity costs, offset by improved productivity and pricing, as well as the step up of inventories in 2010. Consolidated EBITDA, as defined in our borrowing agreements, was $207 million in the first six months of 2011 compared to $243 million in the first six months of 2010, as detailed below.

Six month earnings were positively impacted by lower interest expense, as mentioned above. This year’s tax rate was 31%. 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 previously announced plant closings.

Conference Call Information

We will hold a conference call on Thursday, August 11, 2011 at 2:00PM (ET) to discuss results for the quarter ended June 26, 2011.

To access the call, you can dial (866) 227-1582 and reference conference name: Pinnacle Foods Q2 Earnings Call. A replay of the call will be available beginning August 11, 2011 at 5:30 PM (ET) until August 31, 2011 by dialing 1-888-266-2081 and referencing Access Code 1544194.

About Pinnacle Foods Finance LLC

Millions of times a day in more than 85% of American households, consumers reach for Pinnacle Foods’ brands. We are a leading producer, marketer and distributor of high-quality branded food products, which have been trusted household names for decades. Headquartered in Mountain Lakes, NJ, our approximately $2.5 billion business employs more than 4,500 people in 21 sites around North America. We are a leader in the shelf stable and frozen foods segments and our brands hold the #1 or #2 market position in 8 out of 12 major category segments in which they compete. Our Birds Eye Frozen Division brands consist primarily of Birds Eye® vegetables, Birds Eye Steamfresh® vegetables, Birds Eye Viola!® meals, C&W® vegetables and McKenzie’s® vegetables, Freshlike® vegetables, Aunt Jemima® frozen breakfasts, Swanson® and Hungry-Man® dinners and entrees, Van de Kamp’s® and Mrs. Paul’s® seafood, Lender’s® bagels and Celeste® frozen pizza.Our Duncan Hines Grocery Division manages brands such as Duncan Hines® baking mixes and frostings, Vlasic® pickles, peppers, and relish, Mrs. Butterworth’s® and Log Cabin® syrups, Armour® canned meats, Nalley® and Brooks® chili and chili ingredients, and Open Pit® barbecue sauces. Our Specialty Food group manages Tim’s Cascade Snacks®, Snyder of Berlin® and Husman’s®. Further information is available at www.pinnaclefoods.com.

Forward Looking Statements

This release may contain statements that predict or forecast future events or results, depend on future events for their accuracy or otherwise contain “forward-looking information.” The words “estimates,” “expects,” “contemplates,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should,” and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are made based on management’s current expectations and beliefs concerning future events and various assumptions and are not guarantees of future performance. Actual results may differ materially as a result of various factors, some of which are beyond our control, including but not limited to: general economic and business conditions, deterioration of the credit and capital markets, industry trends, our substantial leverage and changes in our leverage, interest rate changes, changes in our ownership structure, competition, the loss of any of our major customers or suppliers, changes in demand for our products, changes in distribution channels or competitive conditions in the markets where we operate, costs of integrating acquisitions, the successful integration and achievement of estimated future cost savings related to the Birds Eye Foods acquisition, loss of our intellectual property rights, fluctuations in price and supply of raw materials, seasonality, our reliance on co-packers to meet our manufacturing needs, availability of qualified personnel, changes in the cost of compliance with laws and regulations, including environmental laws and regulations, and the other risks and uncertainties detailed in our Annual Report on Form 10-K for the fiscal year ended December 26, 2010 and subsequent reports filed with the Securities and Exchange Commission. There may be other factors that may cause our actual results to differ materially from the forward-looking statements. We assume no obligation to update the information contained in the presentation.

 

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Non-GAAP Financial Matters

Pinnacle believes that the presentation of Consolidated EBITDA provides investors with useful information, as it is important in measuring covenant compliance with the financial covenants and determining our ability to engage in certain transactions in compliance with our debt facilities and it is a metric used internally by our Board of Directors and senior management.

Consolidated EBITDA is a non-GAAP measure and may not be comparable to similarly named measures used by other companies. You should not consider Consolidated EBITDA as an alternative to operating or net earnings (loss), determined in accordance with GAAP, as an indicator of Pinnacle’s operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity.

Consolidated EBITDA is defined as earnings (loss) before interest expense, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude non-cash items, non-recurring items and other adjustment items permitted in calculating covenant compliance under the Senior Secured Credit Facility and the indentures governing the Senior Notes and Senior Subordinated Notes.

EBITDA and Consolidated EBITDA do not represent net earnings or (loss) or cash flow from operations as those terms are defined by 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 Consolidated 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 may recur, vary greatly and are difficult to predict. While EBITDA and Consolidated 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 comply with the financial covenants and engage in certain transactions in compliance with our debt agreements 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 and Senior Subordinated 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 and Senior Subordinated Notes.

 

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The following table provides a reconciliation from our net earnings to EBITDA and Consolidated EBITDA for the six months ended June 26, 2011 and June 27, 2010 and the year ended December 26, 2010. The terms and related calculations are defined in the Senior Secured Credit Facility and the indentures governing the Senior Notes and Senior Subordinated Notes.

(thousands of dollars)

 

     Six Months Ended      Six Months Ended      Fiscal Year Ended  
     June 26, 2011      June 27, 2010      December 26, 2010  

Net earnings

   $ 27,833       $ 18,104       $ 22,037   

Interest expense, net

     103,241         108,558         235,716   

Income tax expense (benefit)

     12,634         5,831         7,399   

Depreciation and amortization expense

     42,902         38,677         78,049   
  

 

 

    

 

 

    

 

 

 

EBITDA (unaudited)

   $ 186,610       $ 171,170       $ 343,201   
  

 

 

    

 

 

    

 

 

 

Non-cash items (a)

     3,882         28,287         71,500   

Non-recurring items (b)

     14,652         20,130         27,489   

Other adjustment items (c)

     2,054         5,689         7,580   
  

 

 

    

 

 

    

 

 

 

Subtotal

     207,198         225,276         449,770   

Net cost savings projected to be realized as a result of initiatives taken, including acquisition synergies (d)

     —           18,102         25,000   
  

 

 

    

 

 

    

 

 

 

Consolidated EBITDA (unaudited)

   $ 207,198       $ 243,378       $ 474,770   
  

 

 

    

 

 

    

 

 

 

Last twelve months Consolidated EBITDA (unaudited)

   $ 438,590         
  

 

 

       

 

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

 

     Six Months Ended
June 26, 2011
     Six Months Ended
June 27, 2010
     Fiscal Year Ended
December 26, 2010
 

Non-cash equity-related compensation charges

   $ 600       $ 408       $ 4,727   

Unrealized mark-to-market losses resulting from hedging activities

     1,996         831         697   

Impairment charges (1)

     1,286         —           29,000   

Effects of adjustments related to the application of purchase accounting - the write-up to fair market value of inventories acquired as a result of the Birds Eye Foods Acquisition

     —           27,048         37,076   
  

 

 

    

 

 

    

 

 

 

Total non-cash items

   $ 3,882       $ 28,287       $ 71,500   
  

 

 

    

 

 

    

 

 

 

 

(1) For fiscal 2010 represents an impairment for the Hungry-Man tradename. For the six months ended June 26, 2011 represents a plant asset impairment on the Tacoma, WA facility.

 

(b) Non-recurring items are comprised of the following:

 

     Six Months Ended
June 26, 2011
     Six Months Ended
June 27, 2010
     Fiscal Year Ended
December 26, 2010
 

Expenses in connection with an acquisition or other non-recurring merger costs

   $ 9,037       $ 242       $ 923   

Restructuring charges, integration costs and other business optimization expenses

     5,004         18,794         25,472   

Employee severance and recruiting

     611         1,094         1,094   
  

 

 

    

 

 

    

 

 

 

Total non-recurring items

   $ 14,652       $ 20,130       $ 27,489   
  

 

 

    

 

 

    

 

 

 

 

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(thousands of dollars)

 

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

 

     Six Months Ended
June 26, 2011
    Six Months Ended
June 27, 2010
     Fiscal Year Ended
December 26, 2010
 

Management, monitoring, consulting and advisory fees paid to Blackstone

   $ 2,340      $ 2,305       $ 4,555   

Variable product contribution on Birds Eye Steamfresh complete bagged meals no longer being offered for sale

     —          3,384         2,837   

Other

     (286     —           188   
  

 

 

   

 

 

    

 

 

 

Total other adjustments

   $ 2,054      $ 5,689       $ 7,580   
  

 

 

   

 

 

    

 

 

 

 

 

(d) Net cost savings projected to be realized as a result of initiatives taken:

 

     Six Months Ended
June 26, 2011
     Six Months Ended
June 27, 2010
     Fiscal Year Ended
December 26, 2010
 

Estimated net cost savings associated with the Birds Eye Foods Acquisition (“synergies”) (1)

   $ —         $ 18,102       $ 25,000   
  

 

 

    

 

 

    

 

 

 

Total net cost savings projected to be realized as a result of initiatives taken

   $ —         $ 18,102       $ 25,000   
  

 

 

    

 

 

    

 

 

 

 

(1) Represents the estimated reduction in operating costs that we anticipated would result from the combination of Pinnacle and Birds Eye Foods as a result of eliminating duplicate overhead functions and overlapping operating expenses, leveraging supplier relationships and combined purchasing power to obtain procurement savings on raw materials and packaging, and optimizing and rationalizing overlapping warehouse and distribution networks less what has been realized.

 

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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 26,     June 27,      June 26,      June 27,  
     2011     2010      2011      2010  

Net sales

   $ 602,024      $ 576,080       $ 1,208,335       $ 1,232,516   

Cost of products sold

     460,347        434,142         913,263         934,848   
  

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

     141,677        141,938         295,072         297,668   

Operating expenses

          

Marketing and selling expenses

     46,627        38,490         88,458         91,327   

Administrative expenses

     22,134        26,562         43,130         60,492   

Research and development expenses

     2,067        2,202         4,061         4,548   

Other expense (income) , net

     11,904        4,286         15,715         8,809   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

     82,732        71,540         151,364         165,176   
  

 

 

   

 

 

    

 

 

    

 

 

 

Earnings before interest and taxes

     58,945        70,398         143,708         132,492   

Interest expense

     52,056        53,503         103,383         108,714   

Interest income

     63        70         142         157   
  

 

 

   

 

 

    

 

 

    

 

 

 

Earnings before income taxes

     6,952        16,965         40,467         23,935   

Provision (benefit) for income taxes

     (629     2,791         12,634         5,831   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net earnings

   $ 7,581      $ 14,174       $ 27,833       $ 18,104   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

(thousands of dollars)

 

 

     June 26,     December 26,  
     2011     2010  

Current assets:

    

Cash and cash equivalents

   $ 164,727      $ 115,286   

Accounts receivable, net

     153,269        145,258   

Inventories, net

     331,735        329,635   

Other current assets

     11,926        21,507   

Deferred tax assets

     36,346        38,288   
  

 

 

   

 

 

 

Total current assets

     698,003        649,974   

Plant assets, net

     462,898        447,068   

Tradenames

     1,629,812        1,629,812   

Other assets, net

     187,081        200,367   

Goodwill

     1,564,395        1,564,395   
  

 

 

   

 

 

 

Total assets

   $ 4,542,189      $ 4,491,616   
  

 

 

   

 

 

 

Current liabilities:

    

Short-term borrowings

   $ 492      $ 1,591   

Current portion of long-term obligations

     10,941        4,648   

Accounts payable

     137,465        115,369   

Accrued trade marketing expense

     35,892        47,274   

Accrued liabilities

     151,292        142,746   

Accrued income taxes

     —          193   
  

 

 

   

 

 

 

Total current liabilities

     336,082        311,821   

Long-term debt (includes $127,698 and $125,698 owed to related parties)

     2,791,048        2,797,307   

Pension and other postretirement benefits

     72,158        78,606   

Other long-term liabilities

     35,928        43,010   

Deferred tax liabilities

     378,960        365,787   
  

 

 

   

 

 

 

Total liabilities

     3,614,176        3,596,531   

Commitments and contingencies

    

Shareholder’s equity:

    

Common stock

     —          —     

Additional paid-in-capital

     697,404        697,267   

Retained earnings

     275,183        247,350   

Accumulated other comprehensive loss

     (44,574     (49,532
  

 

 

   

 

 

 

Total shareholder’s equity

     928,013        895,085   
  

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   $ 4,542,189      $ 4,491,616   
  

 

 

   

 

 

 

 

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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands of dollars)

 

 

     Six months ended  
     June 26,     June 27,  
     2011     2010  

Cash flows from operating activities

    

Net earnings

   $ 27,833      $ 18,104   

Non-cash charges (credits) to net earnings

    

Depreciation and amortization

     42,902        38,677   

Amortization of discount on term loan

     603        1,374   

Amortization of debt acquisition costs

     5,192        6,582   

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

     1,212        1,829   

Plant asset impairment charges

     1,286        —     

Change in value of financial instruments

     1,916        1,251   

Stock-based compensation charge

     600        410   

Postretirement healthcare benefits

     28        (24

Pension expense, net of contributions

     (6,476     (464

Other long-term liabilities

     (1,913     1,276   

Other long-term assets

     78        156   

Deferred income taxes

     11,594        (3,957

Changes in working capital

    

Accounts receivable

     (7,541     2,487   

Inventories

     (1,425     93,685   

Accrued trade marketing expense

     (11,650     (9,441

Accounts payable

     21,111        (8,070

Accrued liabilities

     8,502        13,327   

Other current assets

     1,565        (4,650

Accrued income taxes

     (207     —     
  

 

 

   

 

 

 

Net cash provided by operating activities

     95,210        152,552   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (51,606     (37,534

Sale of plant assets held for sale

     7,900        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (43,706     (37,534
  

 

 

   

 

 

 

Cash flows from financing activities

    

Repayments of long-term obligations

     —          (30,143

Proceeds from short-term borrowings

     484        497   

Repayments of short-term borrowings

     (1,583     (1,350

Repayment of capital lease obligations

     (1,074     (876

Debt acquisition costs

     (67     (17

Change in bank overdrafts

     429        (14,305

Equity contributions

     543        350   

Repurchases of equity

     (1,006     (904

Repayment of notes receivable from officers

     —          565   
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,274     (46,183
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     211        118   

Net change in cash and cash equivalents

     49,441        68,953   

Cash and cash equivalents - beginning of period

     115,286        73,874   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 164,727      $ 142,827   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

   $ 96,596      $ 84,074   

Interest received

     142        157   

Income taxes (refunded) paid

     (3,796     5,858   

Non-cash investing and financing activities:

    

New capital leases

     505        1,998   

 

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