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| 8-K - Pinnacle Foods Finance LLC | a2011_1109form8-kq311earni.htm |
Earnings Release
Contact: Craig Steeneck
973-541-6622
Pinnacle Foods Finance LLC
Reports Fiscal 2011 Third Quarter Results
Parsippany, NJ November 9, 2011 - Pinnacle Foods Finance LLC announced its financial results for the third quarter ended September 25, 2011. Net sales were $575 million, a 6% increase compared to $542 million in last year's third quarter. Net earnings were $13 million compared to a $(12) million loss in the third quarter last year which included $13 million after tax charges related to our refinancing. For the first nine months of 2011, net sales were $1.78 billion, a 0.5% increase compared to $1.77 billion in last year's first nine months. Net earnings were $41 million compared to $6 million in the first nine months last year.
Pinnacle's Chief Executive Officer, Bob Gamgort said, “Our increased investment in consumer marketing and innovation delivered strong sales growth in the quarter. Further, we began to realize the benefits of retail pricing actions previously implemented and have made sequential improvement in our year on year gross margin comparisons."
Third Quarter 2011
Net sales were $575 million in the third quarter of 2011 compared to $542 million in last year's third quarter, a 6% 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® Voila!® complete bagged meals, Birds Eye® Steamfresh® vegetables, Hungryman® frozen dinners, Armour® canned meats and Nalley® chili. During the quarter, we introduced several innovative new products, including Birds Eye® Steamfresh® Chef's Favorites® restaurant style vegetable blends, Vlasic® Reduced Sodium pickles, Vlasic® Farmers Garden® refrigerated pickles and Log Cabin® all natural pancake mix.
Earnings before interest and taxes (EBIT) were $65 million in the third quarter of 2011, compared to $54 million a year ago. EBIT was positively impacted by higher sales volumes, pricing actions and productivity improvements, partially offset by the incremental advertising investment and higher input costs. Consolidated EBITDA, as defined in our borrowing agreements, was $93 million in the third quarter of 2011 compared to $90 million in the third 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 refinancing related charges.
This year's quarterly tax rate was 3%, due to two discrete items. Excluding these items, the tax rate would be approximately 38.5%.
First Nine Months 2011
Net sales were $1.78 billion in the first nine months of 2011 compared to $1.77 billion in last year's first nine months, a 0.5% increase. Net sales in our North American retail businesses increased 2%, excluding the impact of the exited Birds Eye® Steamfresh® meals and U. S. Swanson® meals businesses. We experienced strong growth in Birds Eye® Voila!® complete bagged meals, Birds Eye® Steamfresh® vegetables, 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 were the launches of our innovative new products. In addition to the third quarter launches noted above, we introduced in our first half Birds Eye® Voila!® Family Size complete bagged meals, Birds Eye® Steamfresh® Family Size vegetables, Hungry-Man® frozen dinner Pub Favorites, Van de Kamp's® and Mrs. Paul's® 90 calories fish fillets and Aunt Jemima® Oatmeal pancakes, as well as a complete line of Swanson® Skillet meals in Canada.
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Earnings before interest and taxes (EBIT) were $209 million in the first nine months of 2011, compared to $187 million a year ago. The EBIT reflects the net sales increase, higher commodity costs, offset by improved productivity and pricing, as well as the write up to fair value of inventories of $37 million in 2010 associated with the Birds Eye Foods, Inc. acquisition. Consolidated EBITDA, as defined in our borrowing agreements, was $301 million in the first nine months of 2011 compared to $333 million in the first nine months of 2010, as detailed below.
Nine month earnings were positively impacted by lower interest expense, as mentioned above. This year's tax rate was 24.3%. Net cash provided by operating activities in the first nine 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, November 10, 2011 at 2:00PM (ET) to discuss results for the quarter ended September 25, 2011.
To access the call, you can dial (866) 244-4518 and reference conference name: Pinnacle Foods Q3 Earnings Call. A replay of the call will be available beginning November 10, 2011 at 5:30 PM (ET) until November 25, 2011 by dialing 1-888-266-2081 and referencing Access Code 1557227.
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 Parsippany, NJ, our business employs more than 4,300 people in 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 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 Birds Eye Frozen Division manages brands such as Birds Eye®, Birds Eye Steam fresh®, C&W®, McKenzie's®, and Fresh like® vegetables, Birds Eye Voila!® meals, 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 Specialty Foods Division manages Tim's Cascade Snacks®, Hawaiian™ Kettle Style Potato Chips, Snyder of Berlin® and Husman's® in addition to our food service and private label businesses. 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 nine month periods ended September 25, 2011 and September 26, 2010 and the fiscal year ended December 26, 2010. The terms and related calculations are defined in the Senior Secured Credit Facility and the indentures governing the 8.25% Senior Notes, 9.25% Senior Notes and Senior Subordinated Notes.
(thousands of dollars)
Nine months ended | Nine months ended | Fiscal Year Ended | |||||||||
September 25, 2011 | September 26, 2010 | December 26, 2010 | |||||||||
Net earnings | $ | 40,610 | $ | 5,937 | $ | 22,037 | |||||
Interest expense, net | 155,385 | 182,536 | 235,716 | ||||||||
Income tax expense (benefit) | 13,007 | (1,746 | ) | 7,399 | |||||||
Depreciation and amortization expense | 65,065 | 58,213 | 78,049 | ||||||||
EBITDA (unaudited) | $ | 274,067 | $ | 244,940 | $ | 343,201 | |||||
Non-cash items (a) | 6,291 | 38,256 | 71,500 | ||||||||
Non-recurring items (b) | 17,130 | 23,656 | 27,489 | ||||||||
Other adjustment items (c) | 3,146 | 6,268 | 7,580 | ||||||||
Subtotal | 300,634 | 313,120 | 449,770 | ||||||||
Net cost savings projected to be realized as a result of initiatives taken, including acquisition synergies (d) | — | 20,114 | 25,000 | ||||||||
Consolidated EBITDA (unaudited) | $ | 300,634 | $ | 333,234 | $ | 474,770 | |||||
Last twelve months Consolidated EBITDA (unaudited) | $ | 442,170 | |||||||||
(a) | Non-cash items are comprised of the following: |
Nine months ended | Nine months ended | Fiscal Year Ended | |||||||||
September 25, 2011 | September 26, 2010 | December 26, 2010 | |||||||||
Non-cash equity-related compensation charges | $ | 900 | $ | 612 | $ | 4,727 | |||||
Unrealized mark-to-market losses resulting from hedging activities | 4,105 | 868 | 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 | — | 36,776 | 37,076 | ||||||||
Total non-cash items | $ | 6,291 | $ | 38,256 | $ | 71,500 | |||||
_________________
(1) | For fiscal 2010 represents an impairment for the Hungry-Man tradename. For the nine months ended September 25, 2011 represents a plant asset impairment on the Tacoma, WA facility. |
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(thousands of dollars)
(b) | Non-recurring items are comprised of the following: |
Nine months ended | Nine months ended | Fiscal Year Ended | |||||||||
September 25, 2011 | September 26, 2010 | December 26, 2010 | |||||||||
Expenses in connection with an acquisition or other non-recurring merger costs | $ | 9,039 | $ | 437 | $ | 923 | |||||
Restructuring charges, integration costs and other business optimization expenses | 7,119 | 22,125 | 25,472 | ||||||||
Employee severance and recruiting | 972 | 1,094 | 1,094 | ||||||||
Total non-recurring items | $ | 17,130 | $ | 23,656 | $ | 27,489 | |||||
(c) | Other adjustment items are comprised of the following: |
Nine months ended | Nine months ended | Fiscal Year Ended | |||||||||
September 25, 2011 | September 26, 2010 | December 26, 2010 | |||||||||
Management, monitoring, consulting and advisory fees paid to Blackstone | $ | 3,422 | $ | 3,430 | $ | 4,555 | |||||
Variable product contribution on Birds Eye Steamfresh complete bagged meals no longer being offered for sale | — | 2,838 | 2,837 | ||||||||
Other | (276 | ) | — | 188 | |||||||
Total other adjustments | $ | 3,146 | $ | 6,268 | $ | 7,580 | |||||
(d) | Net cost savings projected to be realized as a result of initiatives taken: |
Nine months ended | Nine months ended | Fiscal Year Ended | |||||||||
September 25, 2011 | September 26, 2010 | December 26, 2010 | |||||||||
Estimated net cost savings associated with the Birds Eye Foods Acquisition ("synergies") (1) | $ | — | $ | 20,114 | $ | 25,000 | |||||
Total net cost savings projected to be realized as a result of initiatives taken | $ | — | $ | 20,114 | $ | 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 | Nine months ended | ||||||||||||||
September 25, 2011 | September 26, 2010 | September 25, 2011 | September 26, 2010 | ||||||||||||
Net sales | $ | 574,746 | $ | 541,729 | $ | 1,783,081 | $ | 1,774,245 | |||||||
Cost of products sold | 440,496 | 418,256 | 1,353,759 | 1,353,104 | |||||||||||
Gross profit | 134,250 | 123,473 | 429,322 | 421,141 | |||||||||||
Operating expenses | |||||||||||||||
Marketing and selling expenses | 43,306 | 39,766 | 131,764 | 131,093 | |||||||||||
Administrative expenses | 19,510 | 23,449 | 62,640 | 83,941 | |||||||||||
Research and development expenses | 2,282 | 1,912 | 6,343 | 6,460 | |||||||||||
Other expense (income), net | 3,858 | 4,111 | 19,573 | 12,920 | |||||||||||
Total operating expenses | 68,956 | 69,238 | 220,320 | 234,414 | |||||||||||
Earnings before interest and taxes | 65,294 | 54,235 | 209,002 | 186,727 | |||||||||||
Interest expense | 52,241 | 74,064 | 155,624 | 182,778 | |||||||||||
Interest income | 97 | 85 | 239 | 242 | |||||||||||
Earnings (loss) before income taxes | 13,150 | (19,744 | ) | 53,617 | 4,191 | ||||||||||
Provision (benefit) for income taxes | 373 | (7,577 | ) | 13,007 | (1,746 | ) | |||||||||
Net earnings (loss) | $ | 12,777 | $ | (12,167 | ) | $ | 40,610 | $ | 5,937 | ||||||
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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands of dollars)
September 25, 2011 | December 26, 2010 | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 99,377 | $ | 115,286 | |||
Accounts receivable, net | 178,049 | 145,258 | |||||
Inventories, net | 406,928 | 329,635 | |||||
Other current assets | 9,340 | 21,507 | |||||
Deferred tax assets | 34,715 | 38,288 | |||||
Total current assets | 728,409 | 649,974 | |||||
Plant assets, net | 484,703 | 447,068 | |||||
Tradenames | 1,629,813 | 1,629,812 | |||||
Other assets, net | 181,161 | 200,367 | |||||
Goodwill | 1,564,395 | 1,564,395 | |||||
Total assets | $ | 4,588,481 | $ | 4,491,616 | |||
Current liabilities: | |||||||
Short-term borrowings | $ | 434 | $ | 1,591 | |||
Current portion of long-term obligations | 14,165 | 4,648 | |||||
Accounts payable | 166,430 | 115,369 | |||||
Accrued trade marketing expense | 39,590 | 47,274 | |||||
Accrued liabilities | 165,551 | 142,746 | |||||
Accrued income taxes | 340 | 193 | |||||
Total current liabilities | 386,510 | 311,821 | |||||
Long-term debt (includes $127,698 and $125,698 owed to related parties, respectively) | 2,788,197 | 2,797,307 | |||||
Pension and other postretirement benefits | 65,711 | 78,606 | |||||
Other long-term liabilities | 20,945 | 43,010 | |||||
Deferred tax liabilities | 380,621 | 365,787 | |||||
Total liabilities | 3,641,984 | 3,596,531 | |||||
Commitments and contingencies | |||||||
Shareholder’s equity: | |||||||
Common stock | — | — | |||||
Additional paid-in-capital | 697,101 | 697,267 | |||||
Retained earnings | 287,960 | 247,350 | |||||
Accumulated other comprehensive loss | (38,564 | ) | (49,532 | ) | |||
Total shareholder’s equity | 946,497 | 895,085 | |||||
Total liabilities and shareholder’s equity | $ | 4,588,481 | $ | 4,491,616 | |||
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PINNACLE FOODS FINANCE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands of dollars)
Nine months ended | |||||||
September 25, 2011 | September 26, 2010 | ||||||
Cash flows from operating activities | |||||||
Net earnings | $ | 40,610 | $ | 5,937 | |||
Non-cash charges (credits) to net earnings | — | ||||||
Depreciation and amortization | 65,065 | 58,212 | |||||
Amortization of discount on term loan | 904 | 1,856 | |||||
Amortization of debt acquisition costs | 7,812 | 9,424 | |||||
Write off debt issue and refinancing cost | — | 17,281 | |||||
Amortization of deferred mark-to-market adjustment on terminated swap | 1,684 | 2,565 | |||||
Plant asset impairment charges | 1,286 | — | |||||
Change in value of financial instruments | 3,984 | 1,212 | |||||
Stock-based compensation charge | 900 | 614 | |||||
Postretirement healthcare benefits | 84 | (57 | ) | ||||
Pension expense, net of contributions | (11,313 | ) | (2,473 | ) | |||
Other long-term liabilities | (1,375 | ) | 1,528 | ||||
Other long-term assets | 170 | 50 | |||||
Deferred income taxes | 10,797 | (3,801 | ) | ||||
Changes in working capital | |||||||
Accounts receivable | (32,925 | ) | (5,320 | ) | |||
Inventories | (76,919 | ) | 1,306 | ||||
Accrued trade marketing expense | (7,607 | ) | (3,966 | ) | |||
Accounts payable | 51,533 | 34,691 | |||||
Accrued liabilities | 9,386 | 23,732 | |||||
Other current assets | 4,892 | 2,692 | |||||
Accrued income taxes | 151 | — | |||||
Net cash provided by operating activities | 69,119 | 145,483 | |||||
Cash flows from investing activities | |||||||
Capital expenditures | (90,832 | ) | (52,397 | ) | |||
Sale of plant assets held for sale | 7,900 | — | |||||
Net cash used in investing activities | (82,932 | ) | (52,397 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from bond offerings | — | 400,000 | |||||
Proceeds from bank term loan | — | 442,300 | |||||
Repayments of long-term obligations | — | (872,452 | ) | ||||
Proceeds from short-term borrowings | 845 | 1,412 | |||||
Repayments of short-term borrowings | (2,002 | ) | (2,178 | ) | |||
Repayment of capital lease obligations | (1,997 | ) | (2,164 | ) | |||
Change in bank overdrafts | — | (14,304 | ) | ||||
Equity contributions | 558 | 561 | |||||
Repurchases of equity | (1,624 | ) | (954 | ) | |||
Repayment of notes receivable from officers | — | 565 | |||||
Debt acquisition costs | (546 | ) | (13,025 | ) | |||
Other financing | 2,730 | — | |||||
Net cash used in financing activities | (2,036 | ) | (60,239 | ) | |||
Effect of exchange rate changes on cash | (60 | ) | 178 | ||||
Net change in cash and cash equivalents | (15,909 | ) | 33,025 | ||||
Cash and cash equivalents - beginning of period | 115,286 | 73,874 | |||||
Cash and cash equivalents - end of period | $ | 99,377 | $ | 106,899 | |||
Supplemental disclosures of cash flow information: | |||||||
Interest paid | $ | 133,770 | $ | 122,380 | |||
Interest received | 193 | 242 | |||||
Income taxes (refunded) paid | (2,365 | ) | 6,262 | ||||
Non-cash investing and financing activities: | |||||||
New capital leases | 1,500 | 12,222 | |||||
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