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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________ 
Form 10-Q
 _______________________________  
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2014
or
 
¨
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 001-35708
  _______________________________  
 
 
The WhiteWave Foods Company
(Exact name of the registrant as specified in its charter)
 _______________________________   
 
Delaware
 
46-0631061
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
1225 Seventeenth Street, Suite 1000
Denver, Colorado 80202
(303) 635-4500
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
  _______________________________   
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  ý    No  ¨
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 (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
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 October 31, 2014, there were 174,357,009 outstanding shares of common stock, par value $0.01 per share.
 



Table of Contents
 
 
 
Page
Part I — Financial Information
 
 
 
 
Item 1
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
Part II — Other Information
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2C
 
 
 
Item 6
 
 



ii


Part I — Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
The WhiteWave Foods Company
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 30, 2014
 
December 31, 2013
 
(In thousands, except share and per share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
226,178

 
$
101,105

Trade receivables, net of allowance of $1,888 and $1,345
201,851

 
146,864

Inventories
197,838

 
158,569

Deferred income taxes
33,076

 
26,588

Prepaid expenses and other current assets
38,062

 
23,095

Total current assets
697,005

 
456,221

Investment in unconsolidated entity
44,030

 

Property, plant, and equipment, net
928,517

 
659,683

Identifiable intangible and other assets, net
650,911

 
394,937

Goodwill
986,278

 
772,343

Total Assets
$
3,306,741

 
$
2,283,184

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
421,178

 
$
357,106

Current portion of debt and capital lease obligations
21,085

 
15,000

Income taxes payable
1,126

 
14,294

Total current liabilities
443,389

 
386,400

Long-term debt and capital lease obligations
1,500,795

 
647,650

Deferred income taxes
262,330

 
237,765

Other long-term liabilities
41,038

 
49,930

Total liabilities
2,247,552

 
1,321,745

Commitments and Contingencies (Note 13)

 

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 170,000,000 shares authorized, no shares issued and outstanding at September 30, 2014 and December 31, 2013

 

Common stock (formally Class A Common stock), $0.01 par value; 1,700,000,000 shares authorized, 174,162,054 issued and outstanding at September 30, 2014; 173,452,896 issued and outstanding at December 31, 2013
1,742

 
1,735

Class B common stock, $0.01 par value; 175,000,000 shares authorized, no shares issued and outstanding at September 30, 2014 and December 31, 2013

 

Additional paid-in capital
874,750

 
851,017

Retained earnings
224,751

 
117,127

Accumulated other comprehensive loss
(42,054
)
 
(8,440
)
Total shareholders’ equity
1,059,189

 
961,439

Total Liabilities and Shareholders’ Equity
$
3,306,741

 
$
2,283,184

See notes to condensed consolidated financial statements (unaudited).

1


The WhiteWave Foods Company
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except share and per share amounts)
Net sales
$
857,467

 
$
638,518

 
$
2,525,617

 
$
1,823,854

Net sales to related parties

 

 

 
37,062

Transitional sales fees

 

 

 
1,837

Total net sales
857,467

 
638,518

 
2,525,617

 
1,862,753

Cost of goods sold
564,711

 
412,066

 
1,674,387

 
1,193,544

Gross profit
292,756

 
226,452

 
851,230

 
669,209

Operating expenses:
 
 
 
 
 
 
 
Selling, distribution, and marketing
157,756

 
131,548

 
462,057

 
395,833

General and administrative
61,653

 
45,364

 
195,569

 
139,888

Asset disposal and exit costs

 
7,400

 
(704
)
 
7,400

Total operating expenses
219,409

 
184,312

 
656,922

 
543,121

Operating income
73,347

 
42,140

 
194,308

 
126,088

Other expense:
 
 
 
 
 
 
 
Interest expense
9,713

 
4,459

 
22,947

 
13,920

Other expense (income), net
(1,670
)
 
4,129

 
2,687

 
(4,265
)
Total other expense
8,043

 
8,588

 
25,634

 
9,655

Income before income taxes
65,304

 
33,552

 
168,674

 
116,433

Income tax expense
22,999

 
9,259

 
59,059

 
36,932

Income before loss in investment in unconsolidated entity
42,305

 
24,293

 
109,615

 
79,501

Loss in investment in unconsolidated entity
(1,448
)
 

 
(1,991
)
 

Net income
$
40,857

 
$
24,293

 
$
107,624

 
$
79,501

Weighted average common shares:
 
 
 
 
 
 
 
Basic
174,136,880

 
173,097,361

 
173,911,304

 
173,035,973

Diluted
178,291,434

 
175,203,342

 
177,620,641

 
174,149,095

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.14

 
$
0.62

 
$
0.46

Diluted
$
0.23

 
$
0.14

 
$
0.61

 
$
0.46

See notes to condensed consolidated financial statements (unaudited).

2


The WhiteWave Foods Company
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Net income
$
40,857

 
$
24,293

 
$
107,624

 
$
79,501

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Change in minimum pension liability, net of tax benefit (expense) of ($29), $35, ($44) and $22
58

 
(72
)
 
103

 
(44
)
Foreign currency translation adjustment
(34,573
)
 
19,688

 
(34,017
)
 
9,572

Change in fair value of derivative instruments, net of tax benefit (expense) of ($308), ($54), ($95) and ($91)
630

 
52

 
300

 
137

Other comprehensive income (loss), net of tax
(33,885
)
 
19,668

 
(33,614
)
 
9,665

Comprehensive income
$
6,972

 
$
43,961

 
$
74,010

 
$
89,166

See notes to condensed consolidated financial statements (unaudited).

3


The WhiteWave Foods Company
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
 
Common Stock - Formally Class A Common Stock
 
Common Stock - Class B
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Equity
 
(In thousands, except share data)
Balance at December 31, 2013
173,452,896

 
$
1,735

 

 
$

 
$
851,017

 
$
117,127

 
$
(8,440
)
 
$
961,439

Net income

 

 

 

 

 
107,624

 

 
107,624

Share-based compensation

 

 

 

 
21,045

 

 

 
21,045

Tax windfall from share-based compensation

 

 

 

 
3,235

 

 

 
3,235

Shares issued in connection with share-based compensation
709,158

 
7

 

 

 
1,986

 

 

 
1,993

Minimum tax withholdings related to net share settlements of restricted stock units

 

 

 

 
(3,489
)
 

 

 
(3,489
)
Conversion of phantom shares into restricted stock units (Note 10)

 

 

 

 
956

 

 

 
956

Other comprehensive loss

 

 

 

 

 

 
(33,614
)
 
(33,614
)
Balance at September 30, 2014
174,162,054

 
$
1,742

 

 
$

 
$
874,750

 
$
224,751

 
$
(42,054
)
 
$
1,059,189

See notes to condensed consolidated financial statements (unaudited).

4


The WhiteWave Foods Company
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
 
Common Stock - Formally Class A Common Stock
 
Common Stock - Class B
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-
In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Equity
 
(In thousands, except share data)
Balance at December 31, 2012
23,000,000

 
$
230

 
150,000,000

 
$
1,500

 
$
792,828

 
$
18,086

 
$
(27,688
)
 
$
784,956

Net income

 

 

 

 

 
79,501

 

 
79,501

Share-based compensation

 

 

 

 
14,317

 

 

 
14,317

Tax shortfall from share-based compensation

 

 

 

 
(483
)
 

 

 
(483
)
Shares issued in connection with share-based compensation
213,045

 
2

 

 

 
11,857

 

 

 
11,859

Minimum tax withholdings related to net share settlements of restricted stock units

 

 

 

 
(83
)
 

 

 
(83
)
Contributions to equity

 

 

 

 
32,478

 

 

 
32,478

Conversion of Class B common stock held by Dean Foods into Class A common stock (Note 1)
82,086,000

 
821

 
(82,086,000
)
 
(821
)
 

 

 

 

Cancellation of shares

 

 
(690
)
 

 

 

 

 

Conversion of Class B common stock into Class A common stock (Note 1)
67,913,310

 
679

 
(67,913,310
)
 
(679
)
 

 

 

 

Other comprehensive income

 

 

 

 

 

 
9,665

 
9,665

Balance at September 30, 2013
173,212,355

 
$
1,732

 

 
$

 
$
850,914

 
$
97,587

 
$
(18,023
)
 
$
932,210

See notes to condensed consolidated financial statements (unaudited).

5


The WhiteWave Foods Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine months ended September 30,
 
2014
 
2013
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
107,624

 
$
79,501

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
82,152

 
60,552

Share-based compensation expense
21,045

 
14,317

Amortization of debt issuance costs
2,173

 
1,810

Exit costs related to asset disposals
(704
)
 

Loss/(gain) on fixed asset disposal
1,381

 
(528
)
Write-down of assets held for sale

 
7,400

Deferred income taxes
(6,360
)
 
11,025

Mark-to-market on derivative instruments
5,199

 

Noncash patronage dividends received
(410
)
 

Loss in investment in unconsolidated entity
1,991

 

Other
239

 
(4,024
)
Net change in operating assets and liabilities, net of acquisition/divestitures
(46,214
)
 
(54,734
)
Net cash provided by operating activities
168,116

 
115,319

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investment in unconsolidated entity
(47,285
)
 

Payments for acquisition, net of cash acquired $5,638
(603,134
)
 

Payments for property, plant, and equipment
(209,337
)
 
(103,144
)
Proceeds from sale of fixed assets
400

 
62,166

Net cash used in investing activities
(859,356
)
 
(40,978
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Distributions to Dean Foods, net

 
(871
)
Proceeds from the issuance of debt
1,025,000

 

Repayment of debt
(10,000
)
 
(11,250
)
Payments of capital lease obligations
(766
)
 

Proceeds from revolver line of credit
622,450

 
438,450

Payments for revolver line of credit
(800,100
)
 
(485,200
)
Proceeds from exercise of stock options
1,986

 
300

Minimum tax withholding paid on behalf of employees for restricted stock units
(3,489
)
 

Tax windfall from share-based compensation
3,421

 
324

Payment of financing costs
(18,019
)
 
(16
)
Net cash provided by (used in) financing activities
820,483

 
(58,263
)
Effect of exchange rate changes on cash and cash equivalents
(4,170
)
 
1,694

INCREASE IN CASH AND CASH EQUIVALENTS
125,073

 
17,772

Cash and cash equivalents, beginning of period
101,105

 
69,373

Cash and cash equivalents, end of period
$
226,178

 
$
87,145

SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Non-cash activity - Transfer of inventories and plant, property, and equipment, net to assets held for sale
$

 
$
40,548

Non-cash activity - Unpaid purchases of plant and equipment
25,069

 

Non-cash activity - Conversion of phantom shares to restricted stock units
956

 

Non-cash activity - Distribution to Dean Foods

 
22,950

Non-cash activity - Contribution from Dean Foods

 
10,797

See notes to condensed consolidated financial statements (unaudited).

6


THE WHITEWAVE FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2014 and 2013
(Unaudited)
Unless otherwise indicated, references in these notes to the unaudited condensed consolidated financial statements to “we,” “us,” “our,” “WhiteWave,” or the “Company” refer to The WhiteWave Foods Company’s operations, taken as a whole.
1. General
Nature of Our Business — We are a leading consumer packaged food and beverage company focused on high-growth product categories that are aligned with emerging consumer trends. We manufacture, market, distribute, and sell branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products, and organic greens and produce throughout North America and Europe. Our brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, Horizon Organic premium dairy products, and Earthbound Farm organic greens and produce, while our European brands of plant-based foods and beverages include Alpro and Provamel.
Basis of Presentation — The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the Securities and Exchange Commission ("SEC") on February 28, 2014 and subsequently updated on September 11, 2014 within the Current Report on Form 8-K to provide supplemental guarantor financial information pursuant to Rule 3-10 of Regulation S-X as a result of our issuance of senior secured notes as described further in Note 8 "Debt and Capital Lease Obligations."
In our opinion, we have made all necessary adjustments (which generally include normal recurring adjustments) in order to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to SEC rules and regulations. Our results of operations for the three and nine months ended September 30, 2014 and 2013 may not be indicative of our operating results for the full year. The unaudited condensed consolidated financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2013 contained in our Annual Report on Form 10-K for the year ended December 31, 2013.
On January 2, 2014, the Company completed its acquisition of Earthbound Farm, a privately owned company based in San Juan Bautista, California that produces organic produce, fresh fruits and vegetables, frozen fruits and vegetables, and dried fruits and snacks. The results of operations are included in our financial statements from the date of acquisition and are included in the North America segment.
On September 17, 2014, the Company announced that it agreed to acquire the company that owns So Delicious® Dairy Free ("So Delicious") from its existing shareholders, for $195 million in cash. So Delicious manufactures, markets and distributes plant-based beverages, creamers, cultured products and frozen desserts and is based in Eugene, Oregon. The Company completed this acquisition on October 31, 2014.
Certain reclassifications of previously reported amounts have been made to conform to current year presentation in the unaudited condensed consolidated statements of cash flows and unaudited condensed consolidated statements of shareholders' equity, Note 6 "Goodwill and Intangible Assets", Note 10 "Share-Based Compensation", and Note 17 “Supplemental Guarantor Financial Information.” These reclassifications did not impact previously reported amounts on the Company’s unaudited condensed consolidated balance sheets, statements of income and statements of cash flows.
Completion of Spin-Off from Dean Foods— On May 23, 2013, Dean Foods Company (“Dean Foods”) distributed (the “Distribution”) to its stockholders an aggregate of 47,686,000 shares of our Class A common stock, par value $0.01 per share (the “Class A common stock”), and 67,914,000 shares of our Class B common stock, par value $0.01 per share (the “Class B common stock”), as a pro rata dividend to Dean Foods stockholders at the close of business on May 17, 2013, the record date for the Distribution. Effective upon the Distribution, and in accordance with the terms of our amended and restated certificate of incorporation, we reduced the number of votes per share of our Class B common stock with respect to all matters submitted to a vote of our stockholders, other than the election and removal of directors, to one vote per share.

7


Prior to the Distribution, Dean Foods converted 82,086,000 shares of our Class B common stock into 82,086,000 shares of our Class A common stock in accordance with the terms of our amended and restated certificate of incorporation, of which 47,686,000 shares of Class A common stock were distributed to Dean Foods stockholders in the Distribution. As a result of and immediately after the Distribution, Dean Foods owned 34,400,000 shares of our Class A common stock and no shares of our Class B common stock. Under the terms of the separation and distribution agreement, Dean Foods was required to dispose of any remaining ownership interest in us within three years of the Distribution, or May 23, 2016. On July 25, 2013 Dean Foods disposed of all of its remaining 34,400,000 shares of our Class A common stock in a registered public offering. We did not receive any proceeds from this offering. As a result of and immediately after the closing of this offering, Dean Foods no longer owns any shares of our common stock and has no ownership interest in us.

Common Stock Class Conversion — On September 24, 2013, the Company’s stockholders approved the conversion of the outstanding shares of the Company’s Class B common stock into shares of the Company’s Class A common stock. As a result, all of the shares of Class B common stock outstanding were converted on a one-for-one basis into shares of Class A common stock.
The conversion had no impact on the economic interests of the holders of Class A common stock and the former holders of Class B common stock. The conversion had no impact on the total issued and outstanding shares of the Company’s common stock although it increased the number of shares of Class A common stock outstanding in an amount equivalent to the number of shares of Class B common stock outstanding immediately prior to the conversion.
Effective May 15, 2014, the Company amended its charter to change the classification of its Class A common stock to common stock.  As a result, the Company has one class of capital stock outstanding called common stock.
Recently Issued Accounting Pronouncements — In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists. ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. The adoption of this update effective January 1, 2014, had no impact on our unaudited condensed consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to change the criteria for reporting discontinued operations and modify related disclosure requirements. The new guidance is effective on a prospective basis for the Company beginning with its Consolidated Financial Statements for the year ending December 31, 2015. We will evaluate the effects, if any, adoption of this guidance will have on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606, to clarify the principles used to recognize revenue for all entities. The guidance is effective for annual and interim periods beginning December 15, 2016. Early adoption is not permitted. We are currently evaluating the effects, if any, adoption of this guidance will have on the Company's consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on management's responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure requirements. This guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption will not have an impact to the Company’s consolidated financial statements.
2. Acquisition and Divestitures
Acquisition
On January 2, 2014, the Company acquired Earthbound Farm, one of the largest organic produce brands in North America, from the existing shareholders in accordance with an Agreement and Plan of Merger dated December 8, 2013. The acquisition adds to our focus on high-growth product categories that are aligned with emerging customer trends. The total consideration for the acquisition was approximately $600 million, subject to post-closing working capital adjustments and indemnification claims. The acquisition was funded by approximately $615 million in new borrowings under our senior secured credit facilities, including the incremental term loan A-3 facility. See Note 8 “Debt and Capital Lease Obligations”.

8


The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were determined by management based in part on an independent valuation of assets acquired, which includes intangible assets of $255.6 million. Intangible assets subject to amortization of $104.9 million are being amortized over a weighted average period of 15 years and relate primarily to customer and supplier relationships. Certain estimated values for the Earthbound Farm acquisition are not yet finalized pending the final settlement of the purchase price and purchase price allocations and are subject to change once additional information is obtained. We expect to finalize the allocation of the purchase price in the fourth quarter of 2014.
Earthbound Farm’s results of operations have been included in our unaudited condensed consolidated statements of income and the results of operations of our North America segment from the date of acquisition.
The following table summarizes allocation of the purchase price to the fair value of assets acquired. The allocation of the purchase price in the table below is preliminary and subject to change based on the finalization of the purchase price.
 
 
January 2, 2014
 
(In thousands)
Assets acquired:
 
Cash and cash equivalents
$
5,638

Inventories
22,658

Other current assets
54,898

Property, plant and equipment
147,390

Other long-term assets
659

Trademarks
150,700

Intangible assets with finite lives
104,900

Liabilities assumed:
 
Accounts payable and other accruals
54,785

Income taxes and deferred taxes, net
29,159

Obligations under capital leases
21,614

Total identifiable net assets
381,285

Goodwill
227,487

Total purchase price
$
608,772

Goodwill is calculated as the excess of consideration paid over the net assets acquired and represents synergies, organic growth and other benefits that are expected to arise from integrating the Earthbound Farm assets into our operations. Goodwill was recorded in the North America segment. The amount of goodwill expected to be tax deductible is approximately $91.0 million.
For the three and nine months ended September 30, 2014, the acquisition of Earthbound Farm increased our net sales by $140.5 million and $439.6 million, respectively, and our operating income by $15.9 million and $38.5 million, respectively. In connection with the acquisition of Earthbound Farm, we incurred $0.2 million and $7.3 million in expenses for the three and nine months ended September 30, 2014, respectively, related to due diligence, investment advisors and regulatory matters. These acquisition costs and other non-recurring charges are included in the earliest period presented in the below table. These costs are included in general and administrative expense in our unaudited condensed consolidated statements of income in the periods in which they were incurred. These expenses have not been allocated to our segments and are reflected entirely within corporate and other.
The following table summarizes unaudited supplemental pro forma consolidated results of operations as if we acquired Earthbound Farm on January 1, 2013: 

9


 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except share data)
Net sales
$
857,467

 
$
769,195

 
$
2,525,617

 
$
2,261,728

Operating income
42,529

 
30,445

 
116,773

 
89,755

Diluted earnings per common share
$
0.24

 
$
0.17

 
$
0.66

 
$
0.52

The historical financial information has been adjusted to give effect to the pro forma adjustments. These adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been had it completed the acquisition on January 1, 2013. The diluted earnings per share in 2013 reflects pro forma tax adjustments that do not include income tax expense on historical Earthbound Farm income from continuing operations because Earthbound Farm was classified as a partnership for income tax purposes. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined company nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisition. The pro forma consolidated results reflect purchase accounting adjustments primarily related to cost of goods sold, depreciation and amortization expense, interest expense and tax expense.
Divestitures
SoFine
On March 31, 2014, we completed the sale of SoFine Foods BV (“SoFine”), a wholly-owned subsidiary that operated a soy-based meat-alternatives business in the Netherlands. Management’s intention to pursue a sale was based on the strategic decision to exit this non-core business of the Europe segment. In the fourth quarter of 2013, a write-down of $9.8 million was recorded and included in operating expenses in our financial statements. SoFine’s assets and liabilities were included in the Europe segment and the fair value was determined based on the estimated selling price, less cost to sell.
Idaho Dairy Farm
In 2013, management approved a plan to sell the assets of its dairy farm located in Idaho which was completed in the fourth quarter of 2013. Management’s decision to sell the Idaho dairy farm was based on the strategic decision to focus on North America’s core processing, marketing and distribution capabilities. In conjunction with the sale of the Idaho dairy farm, we recorded an impairment charge of $11.1 million included in asset disposal and exit costs in our financial statements. Cash received at the time of sale in the fourth quarter of 2013 was $31.0 million, net of disposal costs. In addition, we recorded a note receivable for $6.4 million which was fully collected by the second quarter of 2014.
In addition to the impairment charge, we recorded a charge of $3.3 million related to lease liabilities, severance and related costs in connection with the Idaho dairy farm sale. Liabilities recorded and the changes therein for the nine months ended September 30, 2014 were as follows: 
 
Accrued
charges at
December 31,
2013
 
Costs
paid or
otherwise
settled
 
Reversal
of prior
expense
 
Accrued
charges at
September 30,
2014
 
(In thousands)
Lease liability
$
2,674

 
$
(1,879
)
 
$
(351
)
 
$
444

Severance and related costs
632

 
(598
)
 
(34
)
 

Total
$
3,306

 
$
(2,477
)
 
$
(385
)
 
$
444


We expect cash payments for the lease liability and severance and related costs to be completed by the end of 2014. During the nine months ended September 30, 2014, we recorded a reversal of $0.7 million of the prior period expenses of which $0.3 million related to the impairment charge and $0.4 million related to the lease liability and severance costs.
3. Joint Venture with China Mengniu Dairy Company
On January 5, 2014, the Company entered into a joint venture agreement with China Mengniu Dairy Company Limited (“Mengniu”), a leading Chinese dairy company. The joint venture intends to manufacture, market and sell a range of premium plant-based beverage products and other nutritious products in China. Under the terms of the agreement, the Company owns a

10


49% stake in the venture while Mengniu owns a 51% stake. In the second quarter of 2014, the joint venture completed its purchase of Yashili Zhengzhou (“Zhengzhou”), a subsidiary of Yashili International Holdings, Ltd (“Yashili”). Zhengzhou’s primary asset is a production facility currently under construction in China, where the joint venture intends to manufacture its products. Mengniu was the majority owner of Yashili. The purchase price for Zhengzhou was approximately $80.9 million (RMB 504 million), including $60.3 million (RMB 376.7 million) for the purchase of equity and the balance for the repayment and assumption of debt and other obligations. Each joint venture party’s share of the purchase price for Zhengzhou was consistent with its ownership interest in the venture. The parties expect to make additional investments to support the start-up and commercialization of the joint venture.
Based on the joint venture agreement, the Company has the ability to exert significant influence over the operations and financial policies of the joint venture and has in-substance common stock in the joint venture. Thus, the joint venture is accounted for as an equity-method investment. During the nine months ended September 30, 2014, we contributed $47.3 million of cash to the joint venture.
In connection with the formation of the joint venture, we incurred nil and $0.3 million in expenses for the three and nine months ended September 30, 2014, related to due diligence, investment advisors and regulatory matters. The expenses have been recorded in general and administrative expenses in our unaudited condensed consolidated statements of income and have not been allocated to our segments and are reflected entirely within corporate and other.
4. Transactions with Morningstar Foods, LLC (“Morningstar”)
On January 3, 2013 Dean Foods sold its wholly-owned subsidiary Morningstar Foods, LLC to Saputo Inc. an unaffiliated third party, and after such sale Morningstar was no longer considered a related party. In connection with this sale, we modified certain of the commercial agreements between us and Morningstar. These modifications, with the exception of the Morningstar Asset Purchase Agreement, are primarily timing modifications and did not have a material impact on our results of operations.
Morningstar Asset Purchase Agreement
In connection with Dean Foods’ sale of Morningstar, we agreed to terminate an option to purchase plant capacity and property at a Morningstar facility, sell to Morningstar certain manufacturing equipment used to produce certain WhiteWave products, and execute certain other transactions. The agreement was executed on December 2, 2012, but became effective on January 3, 2013, immediately prior to the completion of Dean Foods’ sale of Morningstar, and we received proceeds of $60.0 million as consideration. This transaction was accounted for as a contribution to equity and a purchase by Dean Foods. The proceeds were used to repay a portion of the outstanding balance under the senior secured credit facilities.
Transitional Sales Agreements
In connection with and effective as of our initial public offering, we entered into an agreement with Morningstar, a then wholly-owned Dean Foods subsidiary, pursuant to which Morningstar transferred back to us responsibility for sales and associated costs of certain WhiteWave products over a term of up to nine months after the completion of the Morningstar sale. During the three and nine months ended September 30, 2013, Morningstar provided certain transitional services to us which included, but were not limited to, taking and filling orders, collecting receivables, and shipping products to our customers. Morningstar remitted to us the cash representing the net profit collected from these product sales until such time as the sales transitioned to us. The net effect of the agreement is reflected as transitional sales fees of $1.8 million in our unaudited condensed consolidated statements of income for the nine months ended September 30, 2013. The sales transition was substantially completed during the second quarter of 2013.
We also entered into an agreement with Morningstar pursuant to which we transferred to Morningstar responsibility for the sales and associated costs of our aerosol whipped topping and other non-core products. Per the agreement, we provided certain transitional services to Morningstar which included, but were not limited to, taking and filling orders, collecting receivables and shipping products to customers. We remitted to Morningstar the net profit associated with these product sales until such time as the sales were transitioned to Morningstar. The net fees remitted for the nine months ended September 30, 2013 were $0.7 million. The services transition was substantially completed during the early part of the second quarter of 2013.

5. Inventories
Inventories consisted of the following:

11


 
September 30,
2014
 
December 31,
2013
 
(In thousands)
Raw materials and supplies
$
89,001

 
$
67,956

Finished goods
108,837

 
90,613

Total
$
197,838

 
$
158,569

6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2014 are as follows:
 
 
North America
 
Europe
 
Total
 
(In thousands)
Balance at December 31, 2013
$
600,316

 
$
172,027

 
$
772,343

Acquisition
227,487

 

 
227,487

Foreign currency translation

 
(13,552
)
 
(13,552
)
Balance at September 30, 2014
$
827,803

 
$
158,475

 
$
986,278

The gross carrying amount and accumulated amortization of our intangible assets, other than goodwill, as of September 30, 2014 and December 31, 2013 are as follows:
 
 
September 30, 2014
 
December 31, 2013
 
Gross 
carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
 
Gross 
carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
 
(In thousands)
Intangible assets with indefinite lives:
 
 
 
 
 
 
 
 
 
 
 
Trademarks (1)
$
497,540

 
$

 
$
497,540

 
$
354,527

 
$

 
$
354,527

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Customer-related and other (1)
131,212

 
(25,172
)
 
106,040

 
40,189

 
(18,789
)
 
21,400

Supplier relationships (1)
12,000

 
(720
)
 
11,280

 

 

 

Non-compete agreements (1)
600

 
(150
)
 
450

 

 

 

Total
$
641,352

 
$
(26,042
)
 
$
615,310

 
$
394,716

 
$
(18,789
)
 
$
375,927

 
(1)
The increase in carrying amounts is attributable to the Earthbound Farm acquisition in the total amount of $255.6 million and the result of foreign currency translation adjustments in the amount of $9.0 million.

Amortization expense on finite-lived intangible assets for the nine months ended September 30, 2014 and 2013 was $7.7 million and $2.1 million, respectively. Amortization expense on finite-lived intangible assets for the three months ended September 30, 2014 and 2013 was $2.6 million and $0.7 million, respectively. Estimated aggregate finite-lived intangible asset amortization expense for the next five years is as follows (in millions):
 
2014
$
10.2

2015
10.1

2016
9.8

2017
9.6

2018
9.6

7. Income Taxes
Our historical provision for income taxes was prepared on a separate return basis as if the Company was a stand-alone entity for periods prior to the Distribution. Prior to the Distribution, the Company was included in the Dean Foods’ U.S.

12


consolidated federal income tax return and also filed some U.S. state income tax returns on a combined basis with Dean Foods. For periods subsequent to the Distribution, the Company has filed its own U.S. federal and state income tax returns. Our foreign subsidiaries file local income tax returns in the jurisdictions in which they operate.
For each interim period, the Company estimates the effective tax rate expected to be applicable for the full year and applies that rate to income before income taxes for the period. Additionally, the Company records discrete income tax items in the period in which they are incurred.
The effective tax rate for the three months ended September 30, 2014 was 35.2% compared to 27.6% for the three months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 was 35.0% compared to 31.7% for the nine months ended September 30, 2013. The increase in the effective tax rates was due to favorable tax adjustments recognized in 2013 as a result of a reduction in the U.K. statutory rate, as well as return to provision adjustments associated with differences between the provision calculated on a separate return basis and the filing of the Dean Foods' U.S. consolidated federal tax return. Changes in the relative profitability of our operating segments, as well as changes to federal, state and foreign tax laws may cause the rate to change from historical rates.
8. Debt and Capital Lease Obligations
Our outstanding debt and capital lease obligations as of September 30, 2014 and December 31, 2013 consisted of the following: 
 
September 30, 2014
 
December 31, 2013
 
 
Amount
outstanding
 
Interest
rate
 
Amount
outstanding
 
Interest
rate
 
 
(In thousands, except percentages)
 
Senior secured credit facilities
$
1,000,000

 
2.09
%
$
662,650

 
1.76
%
Senior unsecured notes
500,000

 
5.38
%
 

 
 
 
Capital lease obligations
21,880

 
 
 

 
 
 
Less current portion
(21,085
)
 
 
 
(15,000
)
 
 
 
Total long-term debt
$
1,500,795

 
 
 
$
647,650

 
 
 
*
Represents a weighted average rate, including applicable interest rate margins.
Senior Secured Credit Facilities
On October 12, 2012, we entered into a credit agreement, among us, the subsidiary guarantors listed therein, Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and the other lenders party thereto (the “Credit Agreement”). The Credit Agreement governs our senior secured credit facilities, consisting of a five-year revolving credit facility in a principal amount of $850 million, an original five-year $250 million term loan A-1, and an original seven-year $250 million term loan A-2. We capitalized $12.4 million of deferred financing fees, which were being amortized over the respective revolving and term loan commitments up until the Amendment on August 29, 2014 as described below.

In conjunction with the January 2, 2014 acquisition of Earthbound Farm, under the terms of the Credit Agreement, we entered into an Incremental Term Loan Agreement to establish a new incremental seven-year term loan A-3 facility in an aggregate principal amount of $500.0 million (the “Incremental Term Loan Agreement”). We capitalized $3.3 million of financing fees, which were being amortized over the term of the term loan facility up until the amendment on August 29, 2014 as described below. We also amended the Credit Agreement on January 2, 2014, to, among other things, reset an accordion feature that allows for our senior secured credit facilities to be increased by up to $500.0 million, subject to lenders commitments, and increased the limit of swing line loans to $85.0 million.

On August 29, 2014, we entered into the Third Amendment to the Credit Agreement with Bank of America, N.A., as administrative agent, and the subsidiary guarantors, lenders and voting participants party thereto (the “Third Amendment”). The Third Amendment extended maturity dates, reset amortization requirements, increased liquidity and added additional operating flexibility under the Credit Agreement. The applicable interest rates and fees under the Credit Agreement were not modified in the Third Amendment. As a result of the Third Amendment, we expensed $0.8 million of deferred financing fees related to the Credit Agreement. We capitalized $4.8 million of new deferred financing fees related to the Third Amendment which, in conjunction with $10.1 million of deferred financing fees remaining related to the Credit Agreement, are being amortized over

13



the term of the revolving and term loan commitments as described below. Deferred financing fees are included in identifiable intangible and other assets in our unaudited condensed consolidated balance sheets.

The Third Amendment, among other things:

extended the maturity date of the revolving commitment and term loan A-1 to August 29, 2019
consolidated the term loan A-3 into the term loan A-2 and extended the maturity date of the term loan A-2 to August 29, 2021
increased the revolving commitment to $1.0 billion from $850 million, and increased the limits under our revolving commitment of swing line loans to $100 million and issued letters of credit to $100 million
increased the term loan A-1 balance to $250 million, constituting an increase of $18.8 million
increased the term loan A-2 balance to $750 million, constituting an aggregate increase of $6.3 million from the previous term loan A-2 and term loan A-3 balances
established a maximum consolidated net leverage ratio at 4.00 to 1.00, with a step down to 3.75 to 1.00 beginning with the fiscal quarter ended March 31, 2016, with such ratio subject to certain additional adjustments in connection with acquisitions; provided that upon the incurrence of certain indebtedness (a) the maximum consolidated net leverage ratio will increase to 5.00 to 1.00 and (b) the establishment of a maximum consolidated senior secured net leverage ratio covenant of 4.00 to 1.00, with a step down to 3.75 to 1.00 after five full fiscal quarters have elapsed from the incurrence date of such indebtedness. The Senior Unsecured Notes described below triggered changes referenced above in (a) and (b).
As of September 30, 2014, we had outstanding borrowings of $1.0 billion under our $2.0 billion senior secured credit facilities, of which $1.0 billion consists of term loan borrowings. Further, we had $5.0 million in outstanding letters of credit issued under our $1.0 billion revolving credit facility. We had immediate additional borrowing capacity of $995.0 million under our revolving credit facility, which amount will vary over time depending on our financial covenants and operating performance. As of September 30, 2014, the revolving credit facility and term loan A-1 bear interest at a rate of LIBOR plus 1.75% and the term loan A-2 at a rate of LIBOR plus 2.00%. As of September 30, 2014, we were in compliance with all related (or associated) covenants under our debt facilities.
Alpro Revolving Credit Facility
In the three and nine months ended September 30, 2014, Alpro maintained a revolving credit facility not to exceed €10 million ($12.6 million USD) or its currency equivalent. The facility is unsecured and is guaranteed by various Alpro subsidiaries. The subsidiary revolving credit facility is available for working capital and other general corporate purposes of Alpro and for the issuance of up to €10 million letters of credit ($12.6 million USD) or its currency equivalent. As of September 30, 2014, there were no outstanding borrowings under this facility. Principal payments, if any, are due under the subsidiary revolving credit facility upon maturity on December 9, 2014. We currently intend to extend or replace the facility by the maturity date.
Senior Unsecured Notes
On September 17, 2014, we issued $500.0 million in aggregate principal amount of senior notes. The notes mature on October 1, 2022 and bear interest at a rate of 5.375% per annum payable on April 1 and October 1 of each year, beginning on April 1, 2015. The net proceeds from the issuance and sale of the notes, after deducting underwriting discounts and commission and offering expenses, was approximately $490.7 million. We utilized the proceeds of the issuance to pay down all outstanding borrowings under our senior secured revolving commitment, with the remaining proceeds increasing our cash balances.
Capital Lease Obligations
In conjunction with the January 2, 2014 acquisition of Earthbound Farm, we became party to leases of certain operating facilities and equipment under capital lease arrangements which bear interest at rates from 3.1% to 6.3% and have expiration dates through 2033. These assets are included in property, plant, and equipment, net, on the unaudited condensed consolidated balance sheets.



14


9. Derivative Financial Instruments and Fair Value Measurement
Interest Rates
We maintain an interest rate swaps portfolio with a total notional value of $650 million and all with a maturity date of March 31, 2017 (the “2017 swaps”). We are the counterparty to the financial institutions under these swap agreements and are responsible for any required settlements, and the sole beneficiary of any receipts of funds, pursuant to their terms. We are subject to market risk with respect to changes in the underlying benchmark interest rate that impact the fair value of the interest rate swaps.
The following table summarizes the terms of the interest rate swap agreements as of September 30, 2014:
 
Fixed Interest Rates
 
Expiration Date
 
Notional Amount
 
 
 
 
(In thousands)
2.75% to 3.19%
 
March 31, 2017
 
$
650,000

We have not designated such contracts as hedging instruments; therefore, the interest rate swap agreements are marked-to-market at the end of each reporting period and a derivative asset or liability is recorded on our unaudited condensed consolidated balance sheets. Gains on these contracts were $1.7 million for the three months ended September 30, 2014 and losses on these contracts were $2.7 million for the nine months ended September 30, 2014. Losses on these contracts were $4.2 million for the three months ended September 30, 2013 and gains on these contracts were $4.0 million for the nine months ended September 30, 2013. Gains and losses are recorded in other expense (income) in our unaudited condensed consolidated statements of income. A summary of these open swap agreements recorded at fair value in our unaudited condensed consolidated balance sheets at September 30, 2014 and December 31, 2013 is included in the table below.
Credit risk under these arrangements is believed to be remote as the counterparties to the interest rate swap agreements are major financial institutions; however, if any of the counterparties to the swap agreements become unable to fulfill their obligation, we may lose any financial benefits of these arrangements.

Commodities
We are exposed to commodity and raw material price fluctuations, including for organic and conventional milk, butterfat, almonds, organic and non-genetically modified (“non-GMO”) soybeans, sweeteners, organic greens and produce, and other commodity costs used in the manufacturing, packaging, and distribution of our products, including utilities, natural gas, resin, and diesel fuel. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging, and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month’s to one year’s anticipated requirements, depending on the ingredient or commodity, but can be longer in some cases. These contracts are considered normal purchases.
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 and diesel fuel purchases and other commodities at a future delivery date. Changes in the fair value of derivatives not designated in hedging relationships are allocated to cost of goods sold and selling, distribution, and marketing expenses in our unaudited condensed consolidated statements of operations. For the three and nine months ended September 30, 2014, we recorded a $2.5 million loss related to our commodities contracts.
In addition to entering into forward purchase contracts, from time to time we may purchase over-the-counter contracts from our qualified financial institutions for commodities associated with the production and distribution of our products. Certain of the contracts offset the risk of increases in our commodity costs and are designated as cash flow hedges when appropriate. These contracts are recorded as an asset or liability in our unaudited condensed consolidated balance sheets at fair value, with an offset to accumulated other comprehensive loss to the extent the hedge is effective. Derivative gains and losses included in accumulated other comprehensive loss are reclassified into earnings as the underlying transaction occurs. Any ineffectiveness in our commodity hedges is recorded as an adjustment to distribution expense or cost of goods sold, depending on commodity type, in our unaudited condensed consolidated statements of income. There was no material hedge ineffectiveness related to our commodities contracts designated as hedging instruments during the three and nine months ended September 30, 2014 and 2013. A summary of our open commodities contracts recorded at fair value in our unaudited condensed consolidated balance sheets at September 30, 2014 and December 31, 2013 is included in the table below.

15


Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies.
Foreign Currency
Our international operations represented approximately 16.6% and 15.2% of our long-lived assets and net sales, respectively, as of and for the nine months ended September 30, 2014. Sales in foreign countries, as well as certain expenses related to those sales, are transacted in currencies other than our reporting currency, the U.S. Dollar. Our foreign currency exchange rate risk is primarily limited to the Euro and the British Pound. We may, from time to time, employ derivative financial instruments to manage our exposure to fluctuations in foreign currency rates related to the purchase of raw materials. These contracts are recorded as an asset or liability in our unaudited condensed consolidated balance sheets at fair value, with an offset to accumulated other comprehensive loss to the extent the hedge is effective. Derivative gains and losses included in accumulated other comprehensive loss are reclassified into earnings as the underlying transaction occurs. Any ineffectiveness in our foreign currency exchange hedges is recorded as an adjustment to cost of goods sold in our unaudited condensed consolidated statements of income. There was no material hedge ineffectiveness related to our foreign currency exchange contracts designated as hedging instruments during the three and nine months ended September 30, 2014 and 2013.

Fair Value - Derivatives
As of September 30, 2014 and December 31, 2013, derivatives recorded at fair value in our unaudited condensed consolidated balance sheets were as follows:
 
 
Derivative assets
 
Derivative liabilities
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
 
(In thousands)
Derivatives designated as Hedging Instruments
 
 
 
 
 
 
 
Foreign currency contracts - current (1)
$
800

 
$

 
$

 
$
634

Commodities contracts - current (1)

 
1,162

 

 

Derivatives not designated as Hedging Instruments
 
 
 
 
 
 
 
Interest rate swap contracts - current (1)

 

 
18,033

 
18,255

Commodities contracts - current (1)

 

 
2,517

 

Interest rate swap contracts - noncurrent (2)

 

 
15,529

 
26,667

Total derivatives
$
800

 
$
1,162

 
$
36,079

 
$
45,556

 
(1)
Derivative assets and liabilities that have settlement dates equal to or less than 12 months from the respective balance sheet date were included in prepaid expenses and other current assets and accounts payable and accrued expenses, respectively, in our unaudited condensed consolidated balance sheets.
(2)
Derivative liabilities that have settlement dates greater than 12 months from the respective balance sheet date were included in other long-term liabilities in our unaudited condensed consolidated balance sheets.

Gains and losses on derivatives designated as cash flow hedges reclassified from accumulated other comprehensive loss into income for the three and nine months ended September 30, 2014 and 2013 were as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Losses on foreign currency contracts (1)
$
204

 
$
78

 
$
512

 
$
194

Losses/(gains) on commodities contracts (2)
140

 
(427
)
 
(1,037
)
 
(296
)
 
(1)
Recorded in cost of goods sold in our unaudited condensed consolidated statements of income.
(2)
Recorded in distribution expense or cost of goods sold, depending on commodity type, in our unaudited condensed consolidated statements of income.

16


Based on current exchange rates, we estimate that $0.8 million of hedging activity related to our foreign currency contracts will be reclassified from accumulated other comprehensive loss within the next 12 months.
Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A summary of our financial assets and liabilities subject to recurring fair value measurements and the basis for that measurement according to the levels in the fair value hierarchy as of September 30, 2014 and December 31, 2013 is as follows:
 
 
Fair value as of September 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
4,484

 
$
4,484

 
$

 
$

Supplemental Executive Retirement Plan investments
1,791

 
1,791

 

 

Foreign currency contracts
800

 

 
800

 

Deferred compensation investments
4,645

 

 
4,645

 

 
$
11,720

 
$
6,275

 
$
5,445

 
$

Liabilities:
 
 
 
 
 
 
 
Senior unsecured notes
$
505

 
$
505

 
$

 
$

Commodities contracts
2,517

 

 
2,517

 

Interest rate swap contracts
33,562

 

 
33,562

 

 
$
36,584

 
$
505

 
$
36,079

 
$


As of September 30, 2014, we had no transfers between Level 1 and Level 2. New derivative contracts transacted during the three months ended September 30, 2014 were included in Level 2.
 
Fair value as of December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
11,617

 
$
11,617

 
$

 
$

Supplemental Executive Retirement Plan investments
1,790

 
1,790

 

 

Commodities contracts
1,162

 

 
1,162

 

Deferred compensation investments
4,637

 

 
4,637

 

 
$
19,206

 
$
13,407

 
$
5,799

 
$

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$
634

 
$

 
$
634

 
$

Interest rate swap contracts
44,922

 

 
44,922

 

 
$
45,556

 
$

 
$
45,556

 
$

The fair value of our interest rate swaps is determined based on the notional amounts of the swaps and the forward LIBOR curve relative to the fixed interest rates under the swap agreements. The fair value of our commodities contracts is

17


based on the quantities and fixed prices under the agreements and quoted forward commodity prices. The fair value of our foreign currency contracts is based on the notional amounts and rates under the contracts and observable market forward exchange rates. We classify these instruments in Level 2 because quoted market prices can be corroborated utilizing observable benchmark market rates at commonly quoted intervals and observable market transactions of spot currency rates, forward currency prices and the forward LIBOR curve. We did not significantly change our valuation techniques from prior periods.
The Supplemental Executive Retirement Plan (“SERP”) investments are classified as trading securities and are primarily invested in money market funds and held at fair value. We classify these assets as Level 1 as fair value can be corroborated based on quoted market prices for identical instruments in active markets.
The deferred compensation investment is primarily invested in mutual funds and is held at fair value. We classify these assets as Level 2 as fair value can be corroborated based on quoted market prices for identical or similar instruments in markets that are not active.
The fair value of the senior unsecured notes is based on fair value and is determined using Level 1 inputs. We classify the senior notes as Level 1 as fair value can be corroborated based on quoted market prices in active markets.
Due to their near-term maturities, the carrying amounts of trade accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on our senior secured credit facilities are variable, their fair values approximate their carrying values.

10. Share-Based Compensation
Twenty million shares of our common stock are reserved for issuance under the 2012 Stock Incentive Plan (the “2012 SIP”) upon the exercise of stock options, restricted stock units (“RSUs”), or restricted stock awards that may be issued to our employees, non-employee directors and consultants. The 2012 SIP also includes awards of stock appreciation rights (“SARs”) and phantom shares as part of our long-term incentive compensation program. In general, awards granted to our employees under the 2012 SIP vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date, and one-third on the third anniversary of the grant date. Unvested awards vest immediately upon a change of control and in the following additional circumstances: (i) an employee retires after reaching the age of 65, (ii) in certain cases upon death or qualified disability, and (iii) with the exception of the awards granted in connection with the initial public offering, an employee with 10 years of service retires after reaching the age of 55.
Prior to the Distribution, certain of the Company’s employees participated in share-based compensation plans sponsored by Dean Foods. These plans provided employees with RSUs, options to purchase shares of Dean Foods’ common stock, and other stock-based awards. No new grants of Dean Foods’ equity were made to our employees after completion of our initial public offering.
On May 23, 2013 and in connection with the Distribution, all Dean Foods equity-based awards held by 162 of our non-employee directors and employees were converted into equity-based awards with respect to our common stock. These Dean Foods equity-based awards included Dean Foods stock options (whether vested or unvested), unvested RSUs and unvested Dean Foods restricted stock awards held by our non-employee directors on the date of the Distribution. The options to purchase Dean Foods common stock held by our directors and employees were converted to options to purchase our common stock in a manner that preserved the life and aggregate intrinsic value in the converted stock option and continued the same proportionate relationship between the exercise price and the value of our common stock as existed with respect to the Dean Foods common stock immediately prior to the Distribution. The conversion was effected based on a formula using the volume weighted average price of Dean Foods common stock and our common stock during the five trading day period that ended on the second trading day preceding the Distribution. The unvested Dean Foods RSUs held by our directors and employees were converted to WhiteWave RSUs in a manner that, on a unit-by-unit basis, preserved the life and intrinsic value of each outstanding Dean Foods RSU (determined using the same volume weighted average values as described above). The unvested Dean Foods phantom shares held by our employees were converted to WhiteWave phantom shares in a manner that, on a unit-by-unit basis, preserved the life and intrinsic value of each outstanding Dean Foods phantom share (determined using the same volume weighted average values as described above). Dean Foods restricted stock awards held by our directors on the date of the Distribution were converted into restricted stock awards with respect to our common stock by (i) applying the same volume weighted average values as described above and (ii) subtracting any shares of our common stock and Class B common stock received by our directors in the Distribution in respect of such Dean Foods restricted stock awards. We did not recognize any incremental expense in connection with the conversion of Dean Foods’ equity-based awards into WhiteWave awards.

18


Share-Based Compensation Expense
The following table summarizes the share-based compensation expense recognized for the Company’s equity and liability classified plans in the three and nine months ended September 30, 2014 and 2013:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Share-based compensation expense:
 
 
 
 
 
 
 
WhiteWave Stock options
$
2,093

 
$
1,456

 
$
8,698

 
$
7,167

WhiteWave RSUs
3,526

 
1,781

 
12,347

 
7,150

WhiteWave Phantom shares
178

 
1,656

 
2,374

 
3,462

WhiteWave SARs
204

 
224

 
763

 
620

Total share-based compensation expense
$
6,001

 
$
5,117

 
$
24,182

 
$
18,399

Share-based compensation expense shown above reflect expenses for Dean Foods equity and liability plans that converted to equivalent WhiteWave equity and liability plans upon the spin-off transaction.

Stock Options
Under the terms of the 2012 SIP, our employees and non-employee directors may be granted options to purchase our common stock at a price equal to the market price on the date the option is granted. Our employee options vest one-third on each of the first, second and third anniversary of the grant date.
Share-based compensation expense for stock options is recognized ratably over the vesting period within general and administrative expense. The expense totaled $2.1 million and $1.5 million for the three months ended September 30, 2014 and 2013, respectively, and $8.7 million and $7.2 million for the nine months ended September 30, 2014 and 2013, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model with the following assumptions: 
 
Nine months ended September 30,
 
2014
 
2013
Expected volatility
28% - 29%
 
28%
Expected dividend yield
0%
 
0%
Expected option term
6 years
 
6 years
Risk-free rate of return
1.82% to 2.10%
 
1.13% to 1.66%
Forfeiture rate
—%
 
3%
Since the Company’s common stock did not have a long history of being publicly traded at grant date, the expected term was determined under the simplified method, using an average of the contractual term and vesting period of the stock options. The expected volatility assumption was calculated based on a compensation peer group analysis of stock price volatility with a six-year look back period ending on the grant date. The risk-free rates were based on the average implied yield available on five-year and seven-year U.S. Treasury issues. We have not paid, and do not anticipate paying, a cash dividend on our common stock.

19


The following table summarizes stock option activity during the nine months ended September 30, 2014:
 
 
Number of options
 
Weighted average
exercise price
 
Weighted average
contractual life
 
Aggregate
intrinsic value
Options outstanding at January 1, 2014
11,120,585

 
$
17.12

 
 
 
 
Granted
1,218,996

 
26.54

 
 
 
 
Forfeited, cancelled and expired (1)
(480,187
)
 
17.47

 
 
 
 
Exercised
(433,259
)
 
19.13

 
 
 
 
Options outstanding at September 30, 2014
11,426,135

 
$
18.04

 
6.23
 
$
208,977,298

Options vested and expected to vest at September 30, 2014
11,342,227

 
$
18.01

 
6.21
 
$
207,820,776

Options exercisable at September 30, 2014
7,352,201

 
$
17.70

 
5.01
 
$
136,959,369

 
(1)
Pursuant to the terms of the 2012 SIP, options that are cancelled or forfeited may be available for future grants.
During the nine months ended September 30, 2014, we received $2.0 million of cash from stock option exercises. At September 30, 2014, there was $11.9 million of unrecognized stock option expense, all of which is related to non-vested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.42 years.
RSUs
RSUs are issued to certain senior employees under the 2012 SIP as part of the long-term incentive program. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price. RSUs granted to employees vest ratably over three years.

The following table summarizes RSU activity during the nine months ended September 30, 2014:
 
RSUs outstanding January 1, 2014
1,247,596

RSUs issued
507,709

Shares issued upon vesting of RSUs
(260,344
)
RSUs cancelled or forfeited (1)
(153,463
)
Converted from phantom shares
279,504

RSUs outstanding at September 30, 2014
1,621,002

Weighted average grant date fair value per share
$
21.59

 
(1)
Pursuant to the terms of the 2012 SIP, employees have the option of forfeiting RSUs to cover their minimum statutory tax withholding when shares are issued. RSUs that are cancelled or forfeited may be available for future grants.
Compensation expense for RSUs is recognized ratably over the vesting period. RSU expense totaled $3.5 million and $1.8 million for the three months ended September 30, 2014 and 2013, respectively, and $12.3 million and $7.2 million for the nine months ended September 30, 2014 and 2013, respectively. At September 30, 2014, there was $18.2 million of total unrecognized RSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.45 years.
Phantom Shares
We previously granted phantom shares under the 2012 SIP as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of WhiteWave stock and vest ratably over a three-year period, but are cash-settled based upon the value of WhiteWave stock at each vesting period. The fair value of the awards is re-measured at each reporting period. Compensation expense is recognized ratably over the vesting period, which is recorded in general and administrative expenses in the unaudited condensed consolidated statement of income.

20


On November 14, 2013, the Company’s compensation committee approved the conversion into RSUs of all phantom shares outstanding and unvested, except for the phantom shares held by employees of the Europe Segment. For each phantom share that had a vesting event in February 2014, the conversion of the award was effective immediately after that vesting event. For each phantom share that had a vesting event on a date after February 2014, the conversion of the award was effective on March 1, 2014. Upon conversion, the corresponding liability was reclassified to additional paid-in capital in our unaudited condensed consolidated balance sheets as of the modification date. As of the conversion date, the converted awards are accounted for as equity-based awards and will not be re-measured at each reporting period. The RSUs vest ratably over the remaining term of the original phantom shares.
Compensation expense for phantom shares totaled $0.2 million and $1.7 million for the three months ended September 30, 2014 and 2013, respectively, and $2.4 million and $3.5 million for the nine months ended September 30, 2014 and 2013, respectively. A corresponding liability has been recorded in current liabilities in our consolidated balance sheet totaling $0.7 million and $4.8 million as of September 30, 2014 and December 31, 2013, respectively. The 2014 cash settlement of WhiteWave phantom shares was $5.6 million.
The following table summarizes the phantom share activity during the nine months ended September 30, 2014:
 
Shares
 
Weighted-average
grant date fair value
per share
Outstanding at January 1, 2014
571,079

 
$
17.11

Granted
1,614

 
17.00

Converted/paid
(206,833
)
 
17.68

Forfeited
(32,320
)
 
17.11

Converted to RSUs
(279,504
)
 
16.81

Outstanding at September 30, 2014
54,036

 
$
16.48


SARs
We previously granted SARs under the 2012 SIP as part of our long-term incentive compensation program, which are similar to stock options in that they are based on the price of WhiteWave stock and vest ratably over a three-year period, but are cash-settled based upon the value of WhiteWave stock at the exercise date.
The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model with the following assumptions:
 
 
Nine months ended September 30,
 
2014 (1)
 
2013
Expected volatility
  
28%
Expected dividend yield
  
0%
Expected option term
  
6 years
Risk-free rate of return
  
1.13% to 1.66%
Forfeiture rate
 
3%
 
(1)
The Company did not grant any SARs in the three and nine months ended September 30, 2014.
Since the Company’s common stock did not have a long history of being publicly traded at grant date, the expected term was determined under the simplified method, using an average of the contractual term and vesting period of the stock options. The expected volatility assumption was calculated based on a compensation peer group analysis of stock price volatility with a six-year look back period ending on the grant date. The risk-free rates were based on the average implied yield available on five-year and seven-year U.S. Treasury issues. We have not paid, and do not anticipate paying, a cash dividend on our common stock.
The fair value of the awards is re-measured at each reporting period. Compensation expense is recognized over the vesting period, which is recorded in general and administrative expenses in the consolidated statement of operations. The expense totaled $0.2 million and $0.2 million for the three months ended September 30, 2014 and 2013, respectively, and $0.8 million and $0.6 million for the nine months ended September 30, 2014 and 2013, respectively. A corresponding liability has

21


been recorded in current liabilities in our consolidated balance sheets totaling $1.6 million and $0.9 million as of September 30, 2014 and December 31, 2013, respectively. The following table summarizes SAR activity during the nine months ended September 30, 2014:
 
 
Number of
SARs
 
Weighted
average
exercise price
 
Weighted
average
contractual life
 
Aggregate
intrinsic value
SARs outstanding at January 1, 2014
293,693

 
$
16.48

 
 
 
 
Granted

 

 
 
 
 
Forfeited and cancelled (1)
(14,153
)
 
16.52

 
 
 
 
Exercised
(16,020
)
 
16.36

 
 
 
 
SARs outstanding at September 30, 2014
263,520

 
$
16.49

 
8.16
 
$
5,228,646

SARs vested and expected to vest at September 30, 2014
261,131

 
$
16.49

 
8.16
 
$
5,180,807

SARs exercisable at September 30, 2014
81,885

 
$
16.51

 
8.15
 
$
1,623,203

 
(1)
Pursuant to the terms of the 2012 SIP, SARs that are cancelled or forfeited may be available for future grants.

11. Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component for the three months ended September 30, 2014 were as follows (net of tax):
 
Derivative
instruments (1)
 
Minimum pension liability
adjustment (2)
 
Foreign currency
translation
adjustment
 
Total
 
 
 
(In thousands)
 
 
Balance at July 1, 2014
$
(125
)
 
$
(748
)
 
$
(7,296
)
 
$
(8,169
)
Other comprehensive income/(loss) before reclassifications
974

 
62

 
(34,573
)
 
(33,537
)
Amounts reclassified from accumulated other comprehensive income/(loss)
(344
)
 
(4
)
 

 
(348
)
Other comprehensive income/(loss), net of tax expense of $337
630

 
58

 
(34,573
)
 
(33,885
)
Balance at September 30, 2014
$
505

 
$
(690
)
 
$
(41,869
)
 
$
(42,054
)

(1)
The accumulated other comprehensive loss reclassification components affect cost of goods sold. See Note 9 “Derivative Financial Instruments and Fair Value Measurement.”
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs which are both included in the computation of net periodic pension cost. See Note 12 “Employee Retirement Plans.”

22


The changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2014 were as follows (net of tax): 
 
Derivative
instruments (1)
 
Minimum pension liability
adjustment (2)
 
Foreign currency
translation
adjustment
 
Total
 
 
 
(In thousands)
 
 
Balance at January 1, 2014
$
205

 
$
(793
)
 
$
(7,852
)
 
$
(8,440
)
Other comprehensive income/(loss) before reclassifications
(225
)
 
115

 
(34,017
)
 
(34,127
)
Amounts reclassified from accumulated other comprehensive
income/(loss)
525

 
(12
)
 

 
513

Other comprehensive income/(loss), net of tax expense of $139
300

 
103

 
(34,017
)
 
(33,614
)
Balance at September 30, 2014
$
505

 
$
(690
)
 
$
(41,869
)
 
$
(42,054
)
 
(1)
The accumulated other comprehensive loss reclassification components affect cost of goods sold. See Note 9 “Derivative Financial Instruments and Fair Value Measurement.”
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs which are both included in the computation of net periodic pension cost. See Note 12 “Employee Retirement Plans.”

The changes in accumulated other comprehensive loss by component for the three months ended September 30, 2013 were as follows (net of tax):
 
Derivative
instruments (1)
 
Minimum pension liability
adjustment (2)
 
Foreign currency
translation
adjustment
 
Total
 
 
 
(In thousands)
 
 
Balance at July 1, 2013
$
(209
)
 
$
(1,790
)
 
$
(35,692
)
 
$
(37,691
)
Other comprehensive income/(loss) before reclassifications
(297
)
 
(50
)
 
19,688

 
19,341

Amounts reclassified from accumulated other comprehensive income/(loss)
349

 
(22
)
 

 
327

Other comprehensive income/(loss), net of tax expense of $19
52

 
(72
)
 
19,688

 
19,668

Balance at September 30, 2013
$
(157
)
 
$
(1,862
)
 
$
(16,004
)
 
$
(18,023
)

(1)
The accumulated other comprehensive loss reclassification components affect cost of goods sold. See Note 9 “Derivative Financial Instruments and Fair Value Measurement.”
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs which are both included in the computation of net periodic pension cost. See Note 12 “Employee Retirement Plans.”


23


The changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2013 were as follows (net of tax): 
 
Derivative
instruments (1)
 
Minimum pension liability
adjustment (2)
 
Foreign currency
translation
adjustment
 
Total
 
 
 
(In thousands)
 
 
Balance at January 1, 2013
$
(294
)
 
$
(1,818
)
 
$
(25,576
)
 
$
(27,688
)
Other comprehensive income before reclassifications
35

 
22

 
9,572

 
9,629

Amounts reclassified from accumulated other comprehensive income/(loss)
102

 
(66
)
 

 
36

Other comprehensive income/(loss), net of tax expense of $69
137

 
(44
)
 
9,572

 
9,665

Balance at September 30, 2013
$
(157
)
 
$
(1,862
)
 
$
(16,004
)
 
$
(18,023
)
 
(1)
The accumulated other comprehensive loss reclassification components affect cost of goods sold. See Note 9 “Derivative Financial Instruments and Fair Value Measurement.”
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs which are both included in the computation of net periodic pension cost. See Note 12 “Employee Retirement Plans.”
12. Employee Retirement Plans
Prior to the Distribution, our employees participated in Dean Foods’ broad-based programs generally available to all employees, including its 401(k) plan, health and dental plans and various other insurance plans, including disability and life insurance. Effective upon the Distribution, the Company implemented its own substantially similar employee benefit plans and our employees are no longer eligible to participate in Dean Foods’ plans. Additionally, we contribute to one multiemployer pension plan on behalf of our employees. We have separate, stand-alone defined benefit pension plans as a result of the acquisition of Alpro on July 2, 2009. The benefits under our Alpro defined benefit plans are based on years of service and employee compensation.
The components of net periodic benefit cost for our pension plans for the three and nine months ended September 30, 2014 and 2013 are detailed below:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
452

 
$
440

 
$
1,356

 
$
1,320

Interest cost
158

 
135

 
473

 
405

Expected return on plan assets
(117
)
 
(88
)
 
(352
)
 
(264
)
Amortization:
 
 
 
 
 
 
 
Prior service cost
3

 
4

 
10

 
12

Unrecognized net loss
1

 
18

 
2

 
54

Net periodic benefit cost
$
497

 
$
509

 
$
1,489

 
$
1,527

13. Commitments and Contingencies
Lease and Purchase Obligations
We lease certain property, plant, and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for operating facilities, office space, machinery, and equipment, have lease terms ranging from one to 20 years. Rent expense was $3.8 million and $2.0 million for the three months ended September 30, 2014 and 2013, respectively, and $12.6 million and $6.0 million for the nine months ended September 30, 2014 and 2013, respectively. The Company leases certain operating facilities and equipment under capital lease arrangements. These assets are included in property, plant, and equipment, net, on the unaudited condensed consolidated balance sheet.
We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes, including soybeans and organic raw milk. We enter into these

24


contracts from time to time to ensure a sufficient supply of raw materials. In addition, we have contractual obligations to purchase various services that are part of our production process.
Litigation, Investigations, and Audits
The Company is involved in various litigation, investigations, and audit proceedings in the normal course of business. It is management’s opinion, after consultation with counsel and a review of the facts, that a material adverse effect on the financial position, liquidity, or results of operations, or cash flows of the Company is not probable or reasonably possible.
14. Segment, Geographic, and Customer Information
Our business is managed by geography and is organized into two operating and reportable segments, North America and Europe, based on our go-to-markets strategies, customer bases, and the objectives of our businesses. Our segments align with how our chief operating decision maker, our chief executive officer, monitors operating performance, allocates resources, and deploys capital.
The North America segment offers products in the plant-based foods and beverages, coffee creamers and beverages, premium dairy products, and organic greens and produce categories throughout North America, and our Europe segment offers plant-based food and beverage products throughout Europe. We sell our products to a variety of customers, including grocery stores, mass merchandisers, club stores, and convenience stores, as well as various away-from-home channels, including foodservice outlets, across North America and Europe. We sell our products in North America and Europe primarily through our direct sales force and independent brokers. We have an extensive production and supply chain footprint in the United States. We utilize six manufacturing plants and also rely on third-party co-packers to fulfill our manufacturing needs. We have strategically positioned three plants in the United Kingdom, Belgium, and France, each supported by an integrated supply chain, and we also utilize a limited number of third-party co-packers for certain products in Europe. Furthermore, we utilize a broad commercial partner network to access certain markets in Europe, in addition to our own sales organizations in the United Kingdom, Belgium, Germany, and the Netherlands.
We evaluate the performance of our segments based on net sales and operating income or loss before gains and losses on the sale of businesses, foreign exchange gains and losses, and income tax. The amounts in the following tables are obtained from reports used by our chief operating decision maker. There are no significant non-cash items reported in segment profit or loss other than depreciation and amortization.
In addition, the results of the joint venture with Mengniu and the expense related to share-based compensation, which has not been allocated to our segments, are reflected entirely within the caption “Corporate and other”.


25


The following table presents the summarized income statement amounts by segment:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Total net sales:
 
 
 
 
 
 
 
North America
$
728,279

 
$
534,176

 
$
2,142,402

 
$
1,555,023

Europe
129,188

 
104,342

 
383,215

 
307,730

Total
$
857,467

 
$
638,518

 
$
2,525,617

 
$
1,862,753

Operating income:
 
 
 
 
 
 
 
North America
$
81,305

 
$
51,366

 
$
229,931

 
$
157,266

Europe
13,730

 
7,558

 
38,140

 
22,109

Total reportable segment operating income
$
95,035

 
$
58,924

 
$
268,071

 
$
179,375

Corporate and other
(21,688
)
 
(16,784
)
 
(73,763
)
 
(53,287
)
Total operating income
$
73,347

 
$
42,140

 
$
194,308

 
$
126,088

Other expense:
 
 
 
 
 
 
 
Interest expense
$
9,713

 
$
4,459

 
$
22,947

 
$
13,920

Other expense (income), net
(1,670
)
 
4,129

 
2,687

 
(4,265
)
Income before taxes
$
65,304

 
$
33,552

 
$
168,674

 
$
116,433

Depreciation and amortization:
 
 
 
 
 
 
 
North America
$
22,079

 
$
15,270

 
$
65,023

 
$
44,908

Europe
4,896

 
5,169

 
16,245

 
15,365

Corporate and other
309

 
138

 
884

 
279

Total
$
27,284

 
$
20,577

 
$
82,152

 
$
60,552

The following tables present sales amounts by product categories:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Total net sales:
 
 
 
 
 
 
 
North America
 
 
 
 
 
 
 
Plant-based food and beverages
$
178,896

 
$
164,748

 
$
526,058

 
$
470,598

Coffee creamers and beverages
243,832

 
222,778

 
705,053

 
654,926

Premium dairy
165,090

 
146,650

 
471,680

 
429,499

Organic greens and produce
140,461

 

 
439,611

 

North America net sales
728,279

 
534,176

 
2,142,402

 
1,555,023

Europe
 
 
 
 
 
 
 
Plant-based food and beverages
129,188

 
104,342

 
383,215

 
307,730

Total net sales
$
857,467

 
$
638,518

 
$
2,525,617

 
$
1,862,753


The following tables present assets and capital expenditures by segment: 

26


 
September 30, 2014
 
December 31, 2013
 
(In thousands)
Assets:
 
 
 
North America
$
2,407,276

 
$
1,588,104

Europe
575,626

 
563,026

Corporate
323,839

 
132,054

Total
$
3,306,741

 
$
2,283,184

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Capital expenditures:
 
 
 
 
 
 
 
North America
$
45,178

 
$
41,168

 
$
171,128

 
$
84,378

Europe
15,617

 
5,440

 
36,864

 
12,774

Corporate
944

 
3,515

 
2,602

 
5,992

Total
$
61,739

 
$
50,123

 
$
210,594

 
$
103,144

Significant Customers
The Company had a single customer that represented 14.6% and 17.2% of our consolidated net sales in the three months ended September 30, 2014 and 2013, respectively. The same customer represented 16.5% and 17.7% of our consolidated net sales in the nine months ended September 30, 2014 and 2013, respectively. Sales to this customer are primarily included in our North America segment.
15. Related Party Transactions
Related Party Arrangements
As of July 25, 2013, Dean Foods disposed of its remaining shares of the Company’s common stock in a registered public offering. As a result and immediately following this offering, Dean Foods has no ownership interest in us and therefore is no longer a related party. Historically, related party transactions and activities involving Dean Foods and its wholly-owned subsidiaries were not always consummated on terms equivalent to those that would prevail in an arm’s-length transaction where conditions of competitive, free-market dealing may exist. Prior to the Distribution, sales of our raw materials and finished products that we manufacture for other wholly-owned subsidiaries of Dean Foods have been reflected as related party sales in our consolidated financial statements.
Prior to completion of our initial public offering, certain related party transactions were settled by either non-cash capital contributions from Dean Foods to us or non-cash capital distributions from us to Dean Foods and included as part of Dean Foods’ net investment. Both prior to and after the completion of our initial public offering, other related party transactions that are settled in cash are reflected as related party receivables in our consolidated balance sheets.
During the three and nine months ended September 30, 2013, we utilized manufacturing facilities and resources managed by affiliates of Dean Foods to conduct our business. The expenses associated with these transactions, which primarily relate to co-packing certain of our products, are included in cost of goods sold in our consolidated statements of operations. We continue to utilize these facilities although Dean Foods is no longer a related party.
In connection with and effective as of our initial public offering, we entered into agreements that formalize ongoing commercial arrangements we have with Dean Foods and Morningstar, which are described below. Certain terms of these agreements were modified in connection with Dean Foods’ sale of Morningstar. These agreements are described in Note 4, “Transactions with Morningstar.”

Agreements with Dean Foods
Sales and Distribution Agreement — We entered into an agreement with two wholly-owned subsidiaries of Dean Foods, Suiza Dairy Group, LLC (“Suiza Dairy”) and Dean Dairy Holdings, LLC (“Dean Dairy”), pursuant to which those subsidiaries

27


continue to sell and distribute certain WhiteWave products. This agreement modifies our historical intercompany arrangements and reflects new pricing.
Co-Packing Agreement — Additionally, we entered into a separate manufacturing agreement with Suiza Dairy and Dean Dairy pursuant to which those subsidiaries continue manufacturing WhiteWave fresh organic milk products on our behalf. The agreement formalizes our historical intercompany arrangements.
Cream Supply Agreement — We also entered into a supply agreement with Suiza Dairy and Dean Dairy pursuant to which we continue to purchase cream from such subsidiaries for an initial term ending December 31, 2013, with an option for us to renew for up to four one-year terms. We have renewed through December 31, 2014. This agreement formalizes our historical intercompany arrangements and does not impact comparability in our unaudited condensed consolidated statements of income for the three and nine month period ended September 30, 2014 and 2013.
License Agreement — We entered into an agreement with Dean Foods pursuant to which we have an exclusive license to manufacture and sell shelf stable aseptic flavored and white milk under Dean Foods’ TruMoo brand in certain retail channels and to designated foodservice accounts throughout North America in exchange for payment of a royalty. The initial term of the agreement is December 2012 through December 31, 2017, with automatic one-year renewals thereafter so long as we achieve specified volume thresholds and minimum royalties.
Transition Services Agreement — We and Dean Foods also entered into a transition services agreement to cover certain continued corporate services provided by us and Dean Foods to each other following completion of our initial public offering. Our services consisted primarily of marketing and research and development, while Dean Foods’ provided supply chain, information technology, legal, finance and accounting, human resources, risk management, tax, treasury, and other transitional services. Both Dean Foods’ and our services continue for a specified initial term, which vary with the types of services provided, unless terminated earlier or extended according to the terms of the transition services agreement. We pay Dean Foods mutually agreed-upon fees for their services and Dean Foods pays us mutually agreed-upon fees for our services. In the three and nine months ended September 30, 2014, Dean Foods charged us $0.4 million and $2.0 million, respectively, and we charged Dean Foods $0.2 million and $0.5 million, respectively, for services rendered under the transition services agreement. In the three and nine months ended September 30, 2013, Dean Foods charged us $1.3 million and $18.0 million, respectively, and we charged Dean Foods $0.3 million and $2.8 million, respectively, for services rendered under the transition services agreement. The transition services agreement is substantially complete, however a portion of the agreement relating to IT services has been extended into 2015.
16. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period.


28


The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share: 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except share and per share data)
Basic earnings per share computation:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income
$
40,857

 
$
24,293

 
$
107,624

 
$
79,501

Denominator:
 
 
 
 
 
 
 
Weighted average common shares
174,136,880

 
173,097,361

 
173,911,304

 
173,035,973

Basic earnings per share
$
0.23

 
$
0.14

 
$
0.62

 
$
0.46

Diluted earnings per share computation:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income
$
40,857

 
$
24,293

 
$
107,624

 
$
79,501

Denominator:
 
 
 
 
 
 
 
Weighted average common shares - basic
174,136,880

 
173,097,361

 
173,911,304

 
173,035,973

Stock option conversion (1)
3,457,936

 
1,259,608

 
3,081,971

 
586,887

Stock units (2)
696,618

 
846,373

 
627,366

 
526,235

Weighted average common shares - diluted
178,291,434

 
175,203,342

 
177,620,641

 
174,149,095

Diluted earnings per share
$
0.23

 
$
0.14

 
$
0.61

 
$
0.46

 
 
 
 
 
 
 
 
(1) Anti-dilutive options excluded
2,700

 
5,206,482

 
10,193

 
3,761,414

(2) Anti-dilutive RSUs excluded
3,398

 
6,311

 
2,946

 
303

 
17. Supplemental Guarantor Financial Information

In September of 2014, we issued debt securities that are guaranteed by certain of our 100% owned subsidiaries. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, the following condensed consolidating financial statements present the balance sheets as of September 30, 2014 and December 31, 2013 and the statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013 and cash flows for each of the nine months ended September 30, 2014 and 2013 for The WhiteWave Foods Company (referred to as “Parent” for the purpose of this note only), the combined guarantor subsidiaries, the combined non-guarantor subsidiaries and elimination adjustments necessary to arrive at the information for the Parent, guarantor subsidiaries and non-guarantor subsidiaries on a consolidated basis. Investments in subsidiaries are accounted for using the equity method for this presentation. All guarantors of our debt securities are also guarantors for our senior secured credit facilities. Our senior secured credit facilities are secured by security interest and liens on substantially all of our assets and the assets of our domestic subsidiaries and is presented in the Parent column of the accompanying condensed consolidating balance sheet as of September 30, 2014.

    




29


Condensed Consolidating Balance Sheets
 
 
September 30, 2014
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
168,538


$
637


$
57,003


$


$
226,178

Trade receivables, net of allowance
 
760


137,171


63,920




201,851

Inventories
 


163,730


34,108




197,838

Deferred income taxes
 
15,690


14,713


2,673




33,076

Prepaid expenses and other current assets
 
8,674


16,506


12,882




38,062

Intercompany receivables
 
172,358


387,982




(560,340
)


Total current assets
 
366,020


720,738


170,587


(560,340
)

697,005

Investment in unconsolidated entity
 




44,030




44,030

Investment in consolidated subsidiaries
 
2,563,626


454,447




(3,018,073
)


Property, plant, and equipment, net
 
7,781


743,147


177,589




928,517

Deferred income taxes
 
24,873

 

 

 
(24,873
)
 

Identifiable intangible and other assets, net
 
31,548


518,281


101,082




650,911

Goodwill
 


827,803


158,475




986,278

 Total Assets
 
$
2,993,848


$
3,264,416


$
651,763


$
(3,603,286
)

$
3,306,741

 
 









LIABILITIES AND SHAREHOLDERS' EQUITY
 









Current liabilities:
 









Accounts payable and accrued expenses
 
$
32,865


$
277,808


$
110,505


$


$
421,178

Current portion of debt and capital lease obligations
 
20,000


1,085






21,085

Income taxes payable
 




1,126




1,126

Intercompany payables
 
371,029


166,194


23,117


(560,340
)


Total current liabilities
 
423,894


445,087


134,748


(560,340
)

443,389

Long-term debt and capital lease obligations
 
1,480,000


20,795






1,500,795

Deferred income taxes
 


232,953


54,250


(24,873
)

262,330

Other long-term liabilities
 
30,765


1,955


8,318




41,038

Total liabilities
 
1,934,659


700,790


197,316


(585,213
)

2,247,552

Total shareholders' equity
 
1,059,189


2,563,626


454,447


(3,018,073
)

1,059,189

Total Liabilities and Shareholders' Equity
 
$
2,993,848


$
3,264,416


$
651,763


$
(3,603,286
)

$
3,306,741


30


Condensed Consolidating Balance Sheets
 
 
December 31, 2013
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$


$
673


$
100,432


$


$
101,105

Trade receivables, net of allowance
 
332


100,124


46,408




146,864

Inventories
 


124,964


33,605




158,569

Deferred income taxes
 
12,671


10,652


3,265




26,588

Prepaid expenses and other current assets
 
3,650


9,304


10,141




23,095

Intercompany receivables
 
97,619


244,502




(342,121
)


Total current assets
 
114,272


490,219


193,851


(342,121
)

456,221

Investment in consolidated subsidiaries
 
1,783,006


464,420




(2,247,426
)


Property, plant, and equipment, net
 
6,028


484,739


168,916




659,683

Identifiable intangible and other assets, net
 
40,762


267,983


110,726


(24,534
)

394,937

Goodwill
 


600,316


172,027




772,343

Total Assets
 
$
1,944,068


$
2,307,677


$
645,520


$
(2,614,081
)

$
2,283,184

 
 









LIABILITIES AND SHAREHOLDERS' EQUITY
 









Current liabilities:
 









Accounts payable and accrued expenses
 
$
39,727


$
222,022


$
95,357


$


$
357,106

Current portion of debt and capital lease obligations
 
15,000








15,000

Income taxes payable
 
13,079




1,215




14,294

Intercompany payables
 
227,549


95,175


19,397


(342,121
)


Total current liabilities
 
295,355


317,197


115,969


(342,121
)

386,400

Long-term debt and capital lease obligations
 
647,650








647,650

Deferred income taxes
 


205,860


56,439


(24,534
)

237,765

Other long-term liabilities
 
39,624


1,614


8,692




49,930

Total liabilities
 
982,629


524,671


181,100


(366,655
)

1,321,745

Total shareholders' equity
 
961,439


1,783,006


464,420


(2,247,426
)

961,439

Total Liabilities and Shareholders' Equity
 
$
1,944,068


$
2,307,677


$
645,520


$
(2,614,081
)

$
2,283,184


31


Condensed Consolidating Statements of Comprehensive Income
 
 
Three months ended September 30, 2014
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
Net sales
 
$


$
728,279


$
129,188


$


$
857,467

Cost of goods sold
 


492,334


72,377




564,711

Gross profit
 


235,945


56,811




292,756

Operating expenses:
 









Selling, distribution, and marketing
 


127,266


30,490




157,756

General and administrative
 
19,384


27,375


14,894




61,653

Total operating expenses
 
19,384


154,641


45,384




219,409

Operating income (loss)
 
(19,384
)

81,304


11,427




73,347

Other expense (income):
 









Interest expense
 
9,379


282


52




9,713

Other expense (income), net
 
(30,000
)

28,330






(1,670
)
Total other expense (income)
 
(20,621
)

28,612


52




8,043

Income before income taxes
 
1,237


52,692


11,375




65,304

Income tax expense
 
1,217


19,900


1,882




22,999

Operating income
 
20


32,792


9,493




42,305

Equity (loss) in earnings of consolidated subsidiaries
 
40,837


8,045




(48,883
)


Income (loss) before loss in investment in unconsolidated entity
 
40,857


40,837


9,493


(48,883
)

42,305

Loss in investment in unconsolidated entity
 




(1,448
)



(1,448
)
Net income (loss)
 
40,857


40,837


8,045


(48,883
)

40,857

Other comprehensive income (loss), net of tax, attributable to The WhiteWave Foods Company
 
(33,885
)

(33,885
)

(34,514
)

68,399


(33,885
)
Comprehensive income (loss) attributable to The WhiteWave Foods Company
 
$
6,972


$
6,952


$
(26,469
)

$
19,516


$
6,972


32


Condensed Consolidating Statements of Comprehensive Income
 
 
Nine months ended September 30, 2014
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
Net sales
 
$


$
2,142,402


$
383,215


$


$
2,525,617

Cost of goods sold
 


1,455,231


219,156




1,674,387

Gross profit
 


687,171


164,059




851,230

Operating expenses:
 









Selling, distribution, and marketing
 


373,363


88,694




462,057

General and administrative
 
69,853


84,580


41,136




195,569

Asset disposal and exit costs
 


(704
)





(704
)
Total operating expenses
 
69,853


457,239


129,830




656,922

Operating income (loss)
 
(69,853
)

229,932


34,229




194,308

Other expense (income):
 









Interest expense
 
21,896


913


138




22,947

Other expense (income), net
 
(89,777
)

92,464






2,687

Total other expense (income)
 
(67,881
)

93,377


138




25,634

Income (loss) before income taxes
 
(1,972
)

136,555


34,091




168,674

Income tax expense
 
2,329


49,805


6,925




59,059

Operating income (loss)
 
(4,301
)

86,750


27,166




109,615

Equity (loss) in earnings of consolidated subsidiaries
 
111,925


25,175




(137,100
)


Income (loss) before loss in investment in unconsolidated entity
 
107,624


111,925


27,166


(137,100
)

109,615

Loss in investment in unconsolidated entity
 




(1,991
)



(1,991
)
Net income (loss)
 
107,624


111,925


25,175


(137,100
)

107,624

Other comprehensive income (loss), net of tax, attributable to The WhiteWave Foods Company
 
(33,614
)

(33,614
)

(33,315
)

66,929


(33,614
)
Comprehensive income (loss) attributable to The WhiteWave Foods Company
 
$
74,010


$
78,311


$
(8,140
)

$
(70,171
)

$
74,010


33


Condensed Consolidating Statements of Comprehensive Income
 
 
Three months ended September 30, 2013
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
Net sales
 
$


$
534,177


$
104,341


$


$
638,518

Total net sales
 


534,177


104,341




638,518

Cost of goods sold
 


349,828


62,238




412,066

Gross profit
 


184,349


42,103




226,452

Operating expenses:
 









Selling, distribution, and marketing
 


108,530


23,018




131,548

General and administrative
 
16,254


17,053


12,057




45,364

Asset disposal and exit costs
 


7,400






7,400

Total operating expenses
 
16,254


132,983


35,075




184,312

Operating income (loss)
 
(16,254
)

51,366


7,028




42,140

Other expense (income):
 









Interest expense
 
4,459








4,459

Other expense (income), net
 
(23,717
)

29,862


(2,016
)



4,129

Total other expense (income)
 
(19,258
)

29,862


(2,016
)



8,588

Income before income taxes
 
3,004


21,504


9,044




33,552

Income tax expense
 
4,244


4,533


482




9,259

Income before equity in earnings of subsidiaries
 
(1,240
)

16,971


8,562




24,293

Equity (loss) in earnings of consolidated subsidiaries
 
25,533


8,562




(34,095
)


Net income (loss)
 
24,293


25,533


8,562


(34,095
)

24,293

Other comprehensive income (loss), net of tax, attributable to The WhiteWave Foods Company
 
19,668


19,668


19,616


(39,284
)

19,668

Comprehensive income (loss) attributable to The WhiteWave Foods Company
 
$
43,961


$
45,201


$
28,178


$
(73,379
)

$
43,961


34


Condensed Consolidating Statements of Comprehensive Income
 
 
Nine months ended September 30, 2013
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
Net sales
 
$


$
1,516,124


$
307,730


$


$
1,823,854

Net sales to related parties
 


37,062






37,062

Transitional sales fees
 


1,837






1,837

Total net sales
 


1,555,023


307,730




1,862,753

Cost of goods sold
 


1,010,555


182,989




1,193,544

Gross profit
 


544,468


124,741




669,209

Operating expenses:
 









Selling, distribution, and marketing
 


326,657


69,176




395,833

General and administrative
 
51,615


53,145


35,128




139,888

Asset disposal and exit costs
 


7,400






7,400

Total operating expenses
 
51,615


387,202


104,304




543,121

Operating income (loss)
 
(51,615
)

157,266


20,437




126,088

Other expense (income):
 









Interest expense (income)
 
13,932




(12
)



13,920

Other expense (income), net
 
(64,339
)

59,914


160




(4,265
)
Total other expense (income)
 
(50,407
)

59,914


148




9,655

Income (loss) before income taxes
 
(1,208
)

97,352


20,289




116,433

Income tax expense
 
3,013


33,566


353




36,932

Income (loss) before equity in earnings of subsidiaries
 
(4,221
)

63,786


19,936




79,501

Equity (loss) in earnings of consolidated subsidiaries
 
83,722


19,936




(103,658
)


Net income (loss)
 
79,501


83,722


19,936


(103,658
)

79,501

Other comprehensive income (loss), net of tax, attributable to The WhiteWave Foods Company
 
9,665


9,665


9,528


(19,193
)

9,665

Comprehensive income (loss) attributable to The WhiteWave Foods Company
 
$
89,166


$
93,387


$
29,464


$
(122,851
)

$
89,166



35


Condensed Consolidating Statements of Cash Flows
 
 
 
 
 
Nine months ended September 30, 2014
 
 
 
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
 
 
 
(In thousands)
 CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net cash (used in) provided by operating activities
 
$
(20,871
)

$
148,777


$
40,210


$


$
168,116

 CASH FLOWS FROM INVESTING ACTIVITIES:
 









 
 
Investment in unconsolidated entity
 

 

 
(47,285
)
 

 
(47,285
)
 
 
Payments for acquisition, net of cash acquired
 

 
(603,134
)
 

 

 
(603,134
)
 
 
Payments for property, plant, and equipment
 
(40,933
)

(133,795
)

(34,609
)



(209,337
)
 
 
Intercompany transfers
 
(590,907
)





590,907



 
 
Proceeds from sale of fixed assets
 


400






400

 
 
 
Net cash used in investing activities
 
(631,840
)

(736,529
)

(81,894
)

590,907


(859,356
)
 CASH FLOWS FROM FINANCING ACTIVITIES:
 









 
 
Intercompany transfers
 


588,482


2,425


(590,907
)


 
 
Proceeds from the issuance of debt
 
1,025,000








1,025,000

 
 
Repayment of debt
 
(10,000
)







(10,000
)
 
 
Payments of capital lease obligations
 


(766
)





(766
)
 
 
Proceeds from revolver line of credit
 
622,450








622,450

 
 
Payments for revolver line of credit
 
(800,100
)







(800,100
)
 
 
Proceeds from exercise of stock options
 
1,986








1,986

 
 
Minimum tax withholding paid on behalf of employees for restricted stock units
 
(3,489
)







(3,489
)
 
 
Tax windfall on share-based compensation
 
3,421








3,421

 
 
Payment of financing costs
 
(18,019
)







(18,019
)
 
 
 
Net cash provided by financing activities
 
821,249


587,716


2,425


(590,907
)

820,483

 
 
 
Effect of exchange rate changes on cash and cash equivalents
 




(4,170
)



(4,170
)
 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
168,538


(36
)

(43,429
)



125,073

 Cash and cash equivalents, beginning of period
 


673


100,432




101,105

 Cash and cash equivalents, end of period
 
$
168,538


$
637


$
57,003


$


$
226,178


36


Condensed Consolidating Statements of Cash Flows
 
 
 
 
 
Nine months ended September 30, 2013
 
 
 
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
 
 
 
(In thousands)
 CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
 
$
(56,977
)

$
137,606


$
34,690


$


$
115,319

 CASH FLOWS FROM INVESTING ACTIVITIES:
 









 
 
Payments for property, plant, and equipment
 
(5,624
)

(84,748
)

(12,772
)



(103,144
)
 
 
Intercompany transfers
 


(114,418
)



114,418



 
 
Proceeds from sale of fixed assets
 


62,140


26




62,166

 
 
 
Net cash used in investing activities
 
(5,624
)

(137,026
)

(12,746
)

114,418


(40,978
)
 CASH FLOWS FROM FINANCING ACTIVITIES:
 









 
 
Intercompany transfers
 
114,148




270


(114,418
)


 
 
Distributions to Dean Foods, net
 
(830
)

(128
)

87




(871
)
 
 
Repayment of debt
 
(11,250
)







(11,250
)
 
 
Proceeds from revolver line of credit
 
438,450








438,450

 
 
Payments for revolver line of credit
 
(485,200
)







(485,200
)
 
 
Proceeds from exercise of stock options
 
300

 

 

 

 
300

 
 
Tax savings on share-based compensation
 
324

 

 

 

 
324

 
 
Payment of deferred financing costs
 
(16
)







(16
)
 
 
 
Net cash used provided by (used in) financing activities
 
55,926


(128
)

357


(114,418
)

(58,263
)
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 




1,694




1,694

 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
(6,675
)

452


23,995




17,772

 Cash and cash equivalents, beginning of period
 
6,675


49


62,649




69,373

 Cash and cash equivalents, end of period
 
$


$
501


$
86,644


$


$
87,145



18. Subsequent Events
On October 31, 2014, we acquired the company that owns So Delicious Dairy Free from its existing shareholders. The acquisition adds to our focus on high-growth product categories that are aligned with emerging customer trends. The total purchase price for the acquisition was approximately $195 million, subject to post-closing working capital adjustments and indemnification claims. The Company has not yet completed an appraisal of the assets acquired and anticipates finalizing the allocation of the purchase price to the assets acquired and liabilities assumed within the next twelve months.





37


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in this Form 10-Q is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q and the Current Report on Form 8-K filed on September 11, 2014 to provide supplemental guarantor financial information pursuant to Rule 3-10 of Regulation S-X as a result of our issuance of senior secured notes.
Unless otherwise specified, any description of “our”, “we”, and “us” in this MD&A refer to The WhiteWave Foods Company and its operating and non-operating subsidiaries included within our reporting segments and Corporate.
Cautionary Statement Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on our current expectations and our projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning our business strategy, among other things, including anticipated trends and developments in, and management plans for, our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “might,” “will,” “could,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on these forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled “Part II — Other Information — Item 1A — Risk Factors” in this Form 10-Q, and elsewhere in this Form 10-Q. You should carefully consider the risks and uncertainties described under these sections.
Overview of the Business
We are a leading consumer packaged food and beverage company focused on high-growth product categories that are aligned with emerging consumer trends. We manufacture, market, distribute, and sell branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe. We are pioneers in these product categories, with Silk, International Delight, and Horizon Organic and Earthbound Farm having #1 or #2 brand positions based on retail sales in the United States, and Alpro having a #1 brand position based on retail sales in Europe. Our widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, Horizon Organic premium dairy products and Earthbound Farm certified organic packaged salad greens, fruits and vegetables. Our European brands of plant-based foods and beverages include Alpro and Provamel.
We sell our products across North America and Europe to a variety of customers, including grocery stores, mass merchandisers, club stores, and convenience stores, as well as through various away-from-home channels, including restaurants and foodservice outlets. We sell our products in North America and Europe primarily through our direct sales force and independent brokers.
We have an extensive production and supply chain footprint and we utilize six manufacturing plants and also rely on third-party co-packers to fulfill our manufacturing needs in the U.S. In Europe, we have strategically positioned three plants in the United Kingdom, Belgium, and France, each supported by an integrated supply chain, and we also utilize a limited number of third-party co-packers for certain products. Furthermore, we utilize a broad commercial partner network to access certain markets in Europe, in addition to our own sales organizations in the United Kingdom, Belgium, Germany, and the Netherlands.
Developments since January 1, 2014
Acquisition of Earthbound Farm
On January 2, 2014, the Company completed the acquisition of Earthbound Farm for approximately $600 million in cash. Earthbound Farm is the largest organic produce brand in North America and the recognized leader in the value-added organic

38


packaged salad category. Earthbound Farm also produces and markets an extensive line of organic fresh fruits and vegetables, frozen fruits and vegetables, and dried fruits and snacks. The acquisition was funded by approximately $615 million in new borrowings under our senior secured credit facilities, including the incremental term loan A-3 facility. Earthbound Farm’s results of operations have been included in our unaudited condensed consolidated statements of income and the results of operations of our North America segment from the date of acquisition.
Formation of Joint Venture in China
On January 5, 2014, the Company announced that it had entered into a joint venture agreement with China Mengniu Dairy Company Limited (“Mengniu”), a leading Chinese dairy company, to manufacture, market and sell a range of nutritious products in China. The joint venture is owned 49% by the Company and 51% by Mengniu. In the second quarter of 2014, the joint venture completed its purchase of Yashili Zhengzhou (“Zhengzhou”), a subsidiary of Yashili International Holdings Ltd (“Yashili”), whose primary asset is a production facility currently under construction in China where the joint venture intends to manufacture its products. Mengniu was the majority owner of Yashili. The purchase price for Zhengzhou was approximately $80.9 million (RMB 504 million). Each joint venture party’s share of the purchase price for Zhengzhou was consistent with its ownership interest in the venture. The Company and Mengnui expect to make additional investments to support the start-up and commercialization of the joint venture, but the amount of any future additional investments is not currently known. During the nine months ended September 30, 2014, we contributed $47.3 million of cash to the joint venture.
Divestiture of SoFine Foods BV
On March 31, 2014, we completed the sale of SoFine Foods BV (“SoFine”), a wholly-owned subsidiary that operates a soy-based meat-alternatives business in the Netherlands. Management’s intention to pursue a sale was based on the strategic decision to exit this non-core business of the Europe segment. In the fourth quarter of 2013, a write-down of the assets to fair value was determined based on the estimated selling price, less cost to sell.
Amendment of Credit Agreement
On August 29, 2014, we entered into the Third Amendment to the Credit Agreement with Bank of America, N.A., as administrative agent, and the subsidiary guarantors, lenders and voting participants party thereto (the “Third Amendment”). The Third Amendment extended maturity dates, reset amortization requirements, increased liquidity and added additional operating flexibility under the Credit Agreement. The applicable interest rates and fees under the Credit Agreement were not modified in the Third Amendment.
The Third Amendment, among other things:

extended the maturity date of the revolving commitment and term loan A-1 to August 29, 2019
consolidated the term loan A-3 into the term loan A-2 and extended the maturity date of the term loan A-2 to August 29, 2021
increased the revolving commitment to $1.0 billion from $850 million, and increased the limits under our revolving commitment of swing line loans to $100 million and issued letters of credit to $100 million
increased the term loan A-1 balance to $250 million, constituting an increase of $18.8 million
increased the term loan A-2 balance to $750 million, constituting an aggregate increase of $6.3 million from the previous term loan A-2 and term loan A-3 balances
established a maximum consolidated net leverage ratio at 4.00 to 1.00, with a step down to 3.75 to 1.00 beginning with the fiscal quarter ended March 31, 2016, with such ratio subject to certain additional adjustments in connection with acquisitions; provided that upon the incurrence of certain indebtedness (a) the maximum consolidated net leverage ratio will increase to 5.00 to 1.00 and (b) the establishment of a maximum consolidated senior secured net leverage ratio covenant of 4.00 to 1.00, with a step down to 3.75 to 1.00 after five full fiscal quarters have elapsed from the incurrence date of such indebtedness. The Senior Unsecured Notes described below triggered changes referenced above in (a) and (b).
Senior Unsecured Notes

On September 17, 2014, we issued $500 million in aggregate principal amount of senior unsecured notes due 2022. The notes mature on October 1, 2022 and bear interest at a rate of 5.375% per annum payable on April 1 and October 1 of each year, beginning on April 1, 2015. The net proceeds from the issuance and sale of the notes, after deducting underwriting discounts and commission and offering expenses, was approximately $490.7 million. We utilized the proceeds of the issuance to pay down all outstanding borrowings under our senior secured revolving commitment, with the remaining proceeds increasing our cash balances.

39



Acquisition of So Delicious
On October 31, 2014, we acquired the company that owns So Delicious Dairy Free ("So Delicious") from its existing shareholders. The acquisition adds to our focus on high-growth product categories that are aligned with emerging customer trends. The total purchase price for the acquisition was approximately $195 million, subject to post-closing working capital adjustments and indemnification claims. The Company has not yet completed an appraisal of the assets acquired and anticipates finalizing the allocation of the purchase price to the assets acquired and liabilities assumed within the next twelve months.

Factors Affecting Our Business and Results of Operations
The following trends have impacted our sales and operating income over the past two years and we believe that they will continue to be factors affecting our business and results of operations in the future:
Acquisitions and Formation of Joint Venture
We have grown and intend to continue to grow our business in part by acquiring new brands and businesses, and forming joint ventures, both in the United States and globally. The addition of acquisitions or joint ventures allows us to leverage our resources and capabilities but can also divert resources and management attention from our day-to-day operations as we integrate them into existing operations. In 2014, we completed the acquisitions of Earthbound Farm and So Delicious, and entered into a joint venture with Mengniu Dairy in China.
New Product Introductions
We will continue to respond to evolving consumer preferences by delivering innovative products. We have a proven track record of innovation through either creating or largely developing the organic milk, soymilk, and flavored non-dairy creamer subcategories. Recent successful new product introductions under our Silk, Alpro, Horizon Organic, and International Delight brands further demonstrate our capabilities to develop and expand our categories. We will continue to focus on innovation that we believe will drive increased consumption of our products.

Volatility in Commodity Costs

Our business is heavily dependent on raw materials and other inputs, such as organic and conventional raw milk, butterfat, almonds, organic and non-genetically modified (“non-GMO”) soybeans, sweeteners, organic greens and produce, and other commodity costs used in the manufacturing, packaging, and distribution of our products, including utilities, natural gas, resin and diesel fuel. Changes in the costs of raw materials and other inputs have historically impacted, and will continue to impact, our profitability.   Increases in commodity costs have led, and in the future could lead, to price increases across our portfolio to mitigate the impacts of these increased costs.
Consumer Preferences for Nutritious, Flavorful, Convenient, and Responsibly Produced Products
The plant-based foods and beverages, coffee creamers and beverages, premium dairy, and organic greens and produce categories are aligned with emerging consumer preferences for products that are nutritious, flavorful, convenient, and responsibly produced. As a result, we believe these product categories will continue to offer attractive growth opportunities relative to traditional food and beverage categories. Our plant-based foods and beverages, premium dairy products and organic greens are well positioned within the dairy and dairy alternatives sector, as well as the organic sector. The growth of the organic sector is outpacing the growth of the overall food and beverage industry and, within dairy and dairy alternatives, our share continues to grow. In addition, our coffee creamers and beverages continue to benefit from the growth and overall size of the creamers sector.
Manufacturing and Warehousing Capacity Constraints

Our volume growth has exerted and continues to exert pressure on our internal plant and warehousing capacity in both our North America and Europe segments. In response, we have historically relied on our third-party network, which has resulted in higher costs for the production, distribution, and warehousing of our products. In addition, capacity constraints sometimes create the need for us to shift production between internal facilities, which increases overall shipping and warehousing costs. We have increased internal capacity and will continue to both shift production between internal facilities and utilize our co-packing network, as needed, to meet our production and warehousing requirements. At the same time, we have invested and will continue to invest to expand our internal production and warehousing capabilities as growth requires.

40


Matters Affecting Comparability
Our results of operations for the three and nine months ended September 30, 2014 and 2013 were affected by the following:
Acquisition of Earthbound Farm
The results of operations of Earthbound Farm have been included in our unaudited condensed consolidated statements of income and the results of operations of our North America segment from the date of acquisition. In connection with the acquisition of Earthbound Farm, we incurred $0.2 million and $7.3 million in expenses for the three and nine months ended September 30, 2014, respectively, related to due diligence, investment advisors and regulatory matters. The expenses have been recorded in general and administrative expenses in our unaudited condensed consolidated statements of income and have not been allocated to our segments and are reflected entirely within corporate and other.

Joint Venture in China
In connection with the formation of the joint venture with Mengniu, we incurred nil and $0.3 million in expenses for the three and nine month period ended September 30, 2014, respectively, related to due diligence, investment advisors and regulatory matters. During the nine month period ended September 30, 2014, we contributed $47.3 million of cash to the joint venture and incurred $4.2 million of corporate expense related to management of our joint venture investment of which $1.2 million was incurred in the third quarter of 2014. The expenses have been recorded in general and administrative expenses in our unaudited condensed consolidated statements of income and have not been allocated to our segments and are reflected entirely within corporate and other. For the three and nine month periods ended September 30, 2014, we recorded a loss in investment in unconsolidated entity of $1.4 million and $2.0 million, respectively. We expect the joint venture losses to increase somewhat in the fourth quarter of this year as we begin production and support the product launch.
Morningstar and Dean Foods Commercial Agreements
In conjunction with our initial public offering on October 31, 2012, WhiteWave entered into several commercial agreements with Morningstar and two wholly-owned subsidiaries of Dean Foods which modified the terms of the historical arrangements. Those agreements altered the price that Dean Foods pays WhiteWave for WhiteWave branded products and the cost WhiteWave pays for products produced and supplied by Morningstar and Dean Foods to WhiteWave, and it eliminated the historical intellectual property agreement for which Morningstar paid a license fee to WhiteWave. In addition, it transferred certain LAND O LAKES branded products from WhiteWave to Dean Foods and other products from Morningstar to WhiteWave. Finally, a transitional services agreement was implemented between the various parties.
During the three and nine months ended September 30, 2013, Morningstar provided certain transitional services to us which included, but were not limited to, taking and filling orders, collecting receivables, and shipping products to our customers. Morningstar remitted to us the cash representing the net profit collected from these product sales until such time as the sales were transitioned to us. The net effect of the agreement is reflected as transitional sales fees of $1.8 million in our unaudited condensed consolidated statement of income for the nine months ended September 30, 2013. The transitional sales were substantially completed during the early part of the second quarter of 2013.
We also entered into an agreement with Morningstar pursuant to which we transferred to Morningstar responsibility for the sales and associated costs of our aerosol whipped topping and other non-core products for up to 15 months. During this transition, we agreed to provide certain services to Morningstar which included, but were not limited to, taking and filling orders, collecting receivables and shipping products to customers. We remitted to Morningstar the net profit associated with these product sales until the sales transitioned to Morningstar. The net fees remitted for the nine months ended September 30, 2013 were $0.7 million. The transitional services were substantially completed during the early part of the second quarter of 2013.
Foreign Exchange Movements
Due to the international aspect of our business, our net sales and expenses are influenced by foreign exchange movements. Our primary exposures to foreign exchange rates are the Euro and British Pound against the U.S. dollar. The financial statements of our Europe segment are translated to U.S. dollars. The functional currency of our foreign subsidiaries is generally the local currency of the country of our subsidiary. Accordingly, income and expense items are translated at the average rates prevailing during the period. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses.

41


Results of Operations
The following table presents, for the periods indicated, selected information from our consolidated financial results, including information presented as a percentage of net sales:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
 
(Dollars in millions)
Net sales
$
857.5

 
 
 
$
638.5

 
 
 
$
2,525.6

 
 
 
$
1,823.8

 
 
Net sales to related parties

 
 
 

 
 
 

 
 
 
37.1

 
 
Transitional sales fees

 
 
 

 
 
 

 
 
 
1.8

 
 
Total net sales
857.5

 
100.0
%
 
638.5

 
100.0
%
 
2,525.6

 
100.0
 %
 
1,862.7

 
100.0
%
Cost of goods sold
564.7

 
65.9
%
 
412.1

 
64.5
%
 
1,674.4

 
66.3
 %
 
1,193.5

 
64.1
%
Gross profit (1)
292.8

 
34.1
%
 
226.4

 
35.5
%
 
851.2

 
33.7
 %
 
669.2

 
35.9
%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, distribution, and marketing
157.8

 
18.4
%
 
131.5

 
20.6
%
 
462.0

 
18.3
 %
 
395.8

 
21.2
%
General and administrative
61.7

 
7.2
%
 
45.4

 
7.1
%
 
195.6

 
7.7
 %
 
139.9

 
7.5
%
Write-down of assets held for sale

 
0.0
%
 
7.4

 
1.2
%
 
(0.7
)
 
0.0
 %
 
7.4

 
0.4
%
Total operating expenses
219.5

 
25.6
%
 
184.3

 
28.9
%
 
656.9

 
26.0
 %
 
543.1

 
29.1
%
Operating income
73.3

 
8.5
%
 
42.1

 
6.6
%
 
194.3

 
7.7
 %
 
126.1

 
6.8
%
Interest and other expenses, net
8.0

 
 
 
8.5

 
 
 
25.6

 
 
 
9.7

 
 
Income tax expense
23.0

 
 
 
9.3

 
 
 
59.1

 
 
 
36.9

 
 
Loss in investment in unconsolidated entity
(1.4
)
 
 
 

 
 
 
(2.0
)
 
 
 

 
 
Net income
$
40.9

 
 
 
$
24.3

 
 
 
$
107.6

 
 
 
$
79.5

 
 
 
(1)
We include certain shipping and handling costs within selling, distribution, and marketing expense. As a result, our gross profit may not be comparable to other companies that present all shipping and handling costs as a component of cost of goods sold.
The key performance indicators for both of our reportable segments are net sales and operating income, which are presented in the segment results tables and discussion below.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Consolidated Results
Total net sales — Total net sales by segment are shown in the table below:
 
 
Three months ended September 30,
 
2014
 
2013
 
$
Increase
 
%
Increase
 
(Dollars in millions)
North America
$
728.3

 
$
534.2

 
$
194.1

 
36.3
%
Europe
129.2

 
104.3

 
24.9

 
23.9
%
Total
$
857.5

 
$
638.5

 
$
219.0

 
34.3
%
The changes in total net sales were due to the following:

42


 
 
Change in net sales
Three months ended September 30, 2014 vs. September 30, 2013
 
Acquisition
 
Volume
 
Pricing, product
mix and currency changes
 
Total increase
 
(in millions)
North America
$
140.5

 
$
28.8

 
$
24.8

 
$
194.1

Europe

 
25.9

 
(1.0
)
 
24.9

Total
$
140.5

 
$
54.7

 
$
23.8

 
$
219.0

Total net sales — Consolidated total net sales increased $219.0 million, or 34.3%, for the three months ended September 30, 2014 compared to the same period in 2013. This increase was principally due to the Earthbound Farm acquisition which contributed $140.5 million in net sales in the quarter. In addition, the increase in total net sales was driven by strong volume growth in both the North America and Europe segments, and was also impacted by price increases in North America.  Net sales in Europe also benefited modestly from favorable currency translation. 
Cost of goods sold — Cost of goods sold increased $152.6 million, or 37.0%, for the three months ended September 30, 2014 compared to the same period in 2013. This increase was principally driven by the impact of the Earthbound Farm acquisition, along with volume increases in the Company’s historical North America and Europe businesses and higher commodity costs in the North America segment.
Gross profit — Gross profit margin decreased to 34.1% for the three months ended September 30, 2014 from 35.5% for the same period in 2013 driven by the impact of the Earthbound Farm acquisition, partially offset by strong margin expansion in the Europe segment in the period. 
Operating expenses — Total operating expenses increased $35.2 million, or 19.1%, for the three months ended September 30, 2014 compared to the same period in 2013.
Selling, distribution, and marketing costs increased $26.3 million, or 20.0% driven by increased marketing investments in both North America and Europe and higher distribution costs linked to volume growth, as well as the impact of the Earthbound Farm acquisition. Distribution costs for the quarter ended September 30, 2014 also included a $1.8 million unrealized loss related to the mark-to-market impact of commodity contracts not designated as hedge instruments. These increases were partially offset by the benefits of cost reduction initiatives impacting distribution, warehousing, and resupply in the North America segment.
General and administrative expenses increased $16.3 million, or 35.9%. This increase was in large part due to the Earthbound Farm acquisition. In addition, general and administrative expenses increased due to higher headcount and other employee related costs, including incentive based compensation. We also incurred $1.2 million of corporate expenses related to management of our joint venture investment in China, which we announced earlier this year.
Operating expenses for the three months ended September 30, 2013 included a non-cash write-down of assets held for sale in the amount of $7.4 million related to the Idaho dairy farm.
Interest and other expenses, net — Interest and other expenses for the three months ended September 30, 2014 decreased $0.5 million compared to the same period in 2013. Interest expense increased $2.8 million due to higher debt levels resulting from the financing of the Earthbound Farm acquisition, along with higher interest expense associated with our issuance of $500.0 million senior unsecured notes on September 17, 2014. Further, interest expense was impacted by $0.8 million of deferred financing fees that were expensed as a result of the August 29, 2014 amendment to our credit facilities. These increases were more than offset by the impact of our interest rate swaps. In the third quarter of 2014, interest and other expenses included income of $1.7 million related to mark-to-market gains on our interest rate swaps, compared to a loss of $4.2 million for the same period in 2013.
Income tax expense — The effective tax rate for the third quarter of 2014 was 35.2% compared to 27.6% for the third quarter of 2013. The increase in the effective tax rate was due to favorable tax adjustments recognized in 2013 as a result of a reduction in the U.K. statutory rate, as well as return to provision adjustments associated with differences between the provision calculated on a separate return basis and the filing of the Dean Foods' U.S. consolidated federal tax return. Changes

43


in the relative profitability of our operating segments, as well as changes to federal, state and foreign tax laws may cause the rate to change from historical rates.
Net loss in investment in unconsolidated entity — Our share of the loss related to the new China joint venture with Mengniu was $1.4 million in the third quarter of 2014. The loss consists of initial overhead and other expenses incurred in preparation for a fourth quarter 2014 product launch.

North America Segment Results
The following table presents certain financial information concerning our North America segment’s financial results:
 
 
Three months ended September 30,
 
2014
 
2013
 
 
 
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
$ Change
 
% Change
 
(Dollars in millions)
 
 
 
 
Net sales
$
728.3

 
100.0
%
 
$
534.2

 
100.0
%
 
$
194.1

 
36.3
%
Cost of goods sold
492.3

 
67.6
%
 
349.8

 
65.5
%
 
142.5

 
40.7
%
Gross profit
236.0

 
32.4
%
 
184.4

 
34.5
%
 
51.6

 
28.0
%
Operating expenses
154.7

 
21.2
%
 
133.0

 
24.9
%
 
21.7

 
16.3
%
Operating income
$
81.3

 
11.2
%
 
$
51.4

 
9.6
%
 
$
29.9

 
58.2
%
Total net sales — Total net sales increased $194.1 million, or 36.3%, for the three months ended September 30, 2014 compared to the same period in 2013. This increase was principally due to the Earthbound Farm acquisition which contributed $140.5 million in net sales in the quarter, but was also driven by volume growth and higher pricing, led by particularly strong growth in premium dairy.
Cost of goods sold — Cost of goods sold increased $142.5 million, or 40.7%, for the three months ended September 30, 2014 compared to the same period in 2013. This increase was driven by the impact of the Earthbound Farm acquisition, along with volume increases in the Company’s historical platforms and higher commodity costs, particularly almonds, and organic and conventional dairy inputs.
Gross profit — Gross profit margin decreased 210 basis points to 32.4% for the three months ended September 30, 2014 driven by the impact of the Earthbound Farm acquisition, partially offset by price increases which more than offset the impact of higher commodity costs.
Operating expenses — Operating expenses increased $21.7 million, or 16.3%, for the three months ended September 30, 2014 compared to the same period in 2013. This increase was principally due to the Earthbound Farm acquisition but was also driven by increased marketing investments in support of our brands, higher distribution costs linked to growth in sales volumes, and higher employee related costs. Distribution costs for the quarter ended September 30, 2014 also included a $1.8 million unrealized loss related to the mark-to-market impact of commodity contracts not designated as hedge instruments. These increases were partially offset by the benefits of cost reduction initiatives related to distribution, warehousing, and resupply. Operating expenses in the third quarter of 2013 included a non-cash write-down of assets held for sale in the amount of $7.4 million related to the Idaho dairy farm.

Europe Segment Results
The following table presents certain financial information concerning our Europe segment’s financial results:

44


 
 
Three months ended September 30,
 
2014
 
2013
 
 
 
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
$ Change
 
% Change
 
(Dollars in millions)
 
 
 
 
Net sales
$
129.2

 
100.0
%
 
$
104.3

 
100.0
%
 
$
24.9

 
23.9
%
Cost of goods sold
72.4

 
56.0
%
 
62.2

 
59.6
%
 
10.2

 
16.4
%
Gross profit
56.8

 
44.0
%
 
42.1

 
40.4
%
 
14.7

 
34.9
%
Operating expenses
43.1

 
33.4
%
 
34.5

 
33.1
%
 
8.6

 
24.9
%
Operating income
$
13.7

 
10.6
%
 
$
7.6

 
7.3
%
 
$
6.1

 
80.3
%
Net sales — Net sales increased $24.9 million, or 23.9%, for the three months ended September 30, 2014 compared to the same period in 2013. The increase was driven principally by continued strong volume growth, led by almond beverages and, to a lesser extent, soy beverages, as well as strong growth in our plant-based yogurts and creams. Volume growth continues to be broad-based across Europe with particular strength in our core markets in Northern Europe. Favorable currency translation contributed approximately 3 percentage points of growth and was partially offset by increased promotional activity in the quarter.
Cost of goods sold — Cost of goods sold increased $10.2 million, or 16.4%, for the three months ended September 30, 2014 compared to the same period in 2013 driven principally by higher sales volumes, as well as the impact of foreign currency translation. These increases were partially offset by cost reduction initiatives.
Gross profit — Gross profit margin increased to 44.0% for the three months ended September 30, 2014 compared to 40.4% for the same period in 2013. This increase was primarily driven by strong volume-driven cost leverage in the business, and, to a lesser extent, by the exit of the low margin soy-based meat-alternatives business. Currency translation also favorably impacted gross margins in the quarter.
Operating expenses — Operating expenses increased $8.6 million, or 24.9%, for the three months ended September 30, 2014 compared to the same period in 2013. The increase was driven by higher marketing investments to support branded growth, volume related increases in distribution costs, and higher employee-related costs, including incentive based compensation.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Consolidated Results
Total net sales - Total net sales by segment are shown in the table below:
 
Nine months ended September 30,
 
2014
 
2013
 
$
Increase
 
%
Increase
 
(Dollars in millions)
North America
$
2,142.4

 
$
1,555.0

 
$
587.4

 
37.8
%
Europe
383.2

 
307.7

 
75.5

 
24.5
%
Total
$
2,525.6

 
$
1,862.7

 
$
662.9

 
35.6
%
 
The changes in total net sales were due to the following:
 
 
Change in net sales
Nine months ended September 30, 2014 vs. September 30, 2013
 
Acquisition
 
Volume
 
Pricing, product mix and currency changes
 
Total increase
 
(in millions)
North America
$
439.6

 
$
108.9

 
$
38.9

 
$
587.4

Europe

 
62.9

 
12.6

 
75.5

Total
$
439.6

 
$
171.8

 
$
51.5

 
$
662.9


45


Total net sales - Consolidated total net sales increased $662.9 million, or 35.6%, for the nine months ended September 30, 2014 compared to the same period in 2013. The increase was principally due to the Earthbound Farm acquisition which contributed $439.6 million in net sales on a year to date basis. In addition, the increase in net sales was driven by strong volume growth in both the North America and Europe segments and the favorable impact of price increases in North America and currency translation in Europe.
Cost of goods sold - Cost of sales increased $480.9 million, or 40.3%, for the nine months ended September 30, 2014 compared to the same period in 2013. This increase was principally driven by the impact of the Earthbound Farm acquisition, along with volume increases in the Company’s historical North America and Europe segments and higher commodity costs, principally in the North America segment.
Gross profit - Gross profit margin decreased to 33.7% for the nine months ended September 30, 2014 compared to 35.9% for the same period in 2013 driven by the impact of the Earthbound Farm acquisition, partially offset by strong margin expansion in the Europe segment in the period.
Operating expenses — Total operating expenses increased $113.8 million, or 21.0%, for the nine months ended September 30, 2014 compared to the same period in 2013.
Selling, distribution, and marketing costs increased $66.2 million, or 16.7% driven primarily by an increase in marketing investments in both North America and Europe, coupled with higher distribution costs linked to higher sales volume, as well as the addition of Earthbound Farm. These increases were partially offset by the benefits of cost reduction initiatives impacting distribution, warehousing, and resupply in the North America segment.
General and administrative expenses increased $55.7 million, or 39.8%. This increase was in large part due to the Earthbound Farm acquisition. In addition, general and administrative expenses increased due to higher headcount and other employee related costs, including incentive based compensation. Also, in the nine months ended September 30, 2014, we incurred $9.1 million of transaction costs associated with the Earthbound Farm and the So Delicious acquisitions and $4.2 million of expense related to management of our joint venture investment in China, which we announced earlier this year.
Interest and other expenses, net — Interest and other expenses for the nine months ended September 30, 2014 increased $15.9 million, driven by increased debt levels resulting from the financing of the Earthbound Farm acquisition, along with higher interest expense associated with our issuance of $500.0 million senior notes on September 17, 2014. Interest expense was also impacted by $0.8 million of deferred financing fees that were expensed as a result of our August 29, 2014 amendment to our credit facilities. For the nine months ended September 30, 2014, interest and other expenses also includes a loss of $2.7 million related to mark-to-market losses on our interest rate swaps, compared to a gain of $4.0 million for the same period in 2013.
Income tax expense — The effective tax rate for the nine months ended September 30, 2014 was 35.0% compared to 31.7% for the third quarter of 2013. The increase in the effective tax rate was due to favorable tax adjustments recognized in 2013 as a result of a reduction in the U.K. statutory rate, as well as return to provision adjustments associated with differences between the provision calculated on a separate return basis and the filing of the Dean Foods' U.S. consolidated federal tax return. Changes in the relative profitability of our operating segments, as well as changes to federal, state and foreign tax laws may cause the rate to change from historical rates.
 Net loss in investment in unconsolidated entity — Our share of the loss related to the new China joint venture with Mengniu was $2.0 million in the nine months ended September 30, 2014. The loss consists of general overhead and other expenses incurred in preparation for a fourth quarter 2014 product launch.

46



North America Segment Results
The following table presents certain financial information concerning our North America segment’s financial results:
 
Nine months ended September 30,
 
2014
 
2013
 
 
 
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
$ Change
 
% Change
 
(Dollars in millions)
 
 
 
 
Net sales
$
2,142.4

 
 
 
$
1,516.1

 
 
 
$
626.3

 
41.3
 %
Net sales to related parties

 
 
 
37.1

 
 
 
(37.1
)
 
(100.0
)%
Transitional sales fees

 
 
 
1.8

 
 
 
(1.8
)
 
(100.0
)%
Total net sales
2,142.4

 
100.0
%
 
1,555.0

 
100.0
%
 
587.4

 
37.8
 %
Cost of goods sold
1,455.2

 
67.9
%
 
1,010.6

 
65.0
%
 
444.6

 
44.0
 %
Gross profit
687.2

 
32.1
%
 
544.4

 
35.0
%
 
142.8

 
26.2
 %
Operating expenses
457.2

 
21.4
%
 
387.1

 
24.9
%
 
70.1

 
18.1
 %
Operating income
$
230.0

 
10.7
%
 
$
157.3

 
10.1
%
 
$
72.7

 
46.2
 %

 Total net sales - Total net sales increased $587.4 million, or 37.8%, for the nine months ended September 30, 2014 compared to the same period in 2013. This increase was principally due to the Earthbound Farm acquisition which contributed $439.6 million in net sales on a year-to-date basis, but was also driven by volume growth and higher pricing.
Cost of goods sold - Cost of goods sold increased $444.6 million, or 44.0%, for the nine months ended September 30, 2014 compared to the same period in 2013. This increase was driven by the impact of the Earthbound Farm acquisition, along with volume increases in the Company’s historical platforms and higher commodity costs, particularly conventional and organic dairy inputs and almonds.
Gross profit - Gross profit margin decreased 290 basis points to 32.1% for the nine months ended September 30, 2014 driven by the impact of the Earthbound Farm acquisition, partially offset by price increases, which more than offset the impact of higher commodity costs.
Operating expenses - Operating expenses increased $70.1 million, or 18.1%, for the nine months ended September 30, 2014 compared to the same period in 2013. This increase was principally due to the Earthbound Farm acquisition but was also driven by increased marketing investments in support of our brands, higher distribution costs linked to higher sales volume, and higher employee related costs, including incentive based compensation. These increases were partially offset by the benefits of cost reduction initiatives related to distribution, warehousing, and resupply. Operating expenses in the nine months ended September 30, 2013 included a non-cash write-down of assets held for sale in the amount of $7.4 million related to the Idaho dairy farm.
Europe Segment Results
The following table presents certain financial information concerning our Europe segment’s financial results:
 
Nine months ended September 30,
 
2014
 
2013
 
 
 
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
$ Change
 
% Change
 
(Dollars in millions)
 
 
 
 
Net sales
$
383.2

 
100.0
%
 
$
307.7

 
100.0
%
 
$
75.5

 
24.5
%
Cost of goods sold
219.2

 
57.2
%
 
183.0

 
59.5
%
 
36.2

 
19.8
%
Gross profit
164.0

 
42.8
%
 
124.7

 
40.5
%
 
39.3

 
31.5
%
Operating expenses
125.9

 
32.9
%
 
102.6

 
33.3
%
 
23.3

 
22.7
%
Operating income
$
38.1

 
9.9
%
 
$
22.1

 
7.2
%
 
$
16.0

 
72.4
%
Net sales - Net sales increased $75.5 million, or 24.5%, for the nine months ended September 30, 2014 compared to the same period in 2013. The increase was driven principally by continued strong volume growth, especially in plant-based beverages, led by almond beverages and, to a lesser extent, soy beverages, as well as strong growth in our plant-based yogurt and cream products. Volume growth was broad-based across Europe with particular strength in our core markets in Northern Europe. Favorable currency translation contributed approximately 5 percentage points of growth.

47


Cost of goods sold - Cost of goods sold increased $36.2 million, or 19.8%, for the nine months ended September 30, 2014 compared to the same period in 2013 driven principally by higher sales volumes, as well as the impact of foreign currency translation.
Gross profit - Gross profit margin increased to 42.8% for the nine months ended September 30, 2014 compared to 40.5% for the same period in 2013. This increase was driven by strong volume-driven cost leverage in the business and, to a lesser extent, by the exit of the low-margin soy-based meat-alternatives business. Currency translation and lower commodity costs also favorably impacted gross margins in the period.
Operating expenses - Operating expenses increased $23.3 million, or 22.7%, for the nine months ended September 30, 2014 compared to the same period in 2013. The increase was driven by volume related increases in distribution costs, increased marketing investments to support our sales growth, and higher employee-related costs, including incentive based compensation.
Liquidity and Capital Resources
Debt Facilities
As of October 31, 2014, we had outstanding borrowings of $1.0 billion under our current $2.0 billion senior secured credit facilities, of which $1.0 billion consists of term loan borrowings and $0.3 million consists of borrowings under the $1.0 billion revolving commitment of our senior secured credit facilities. We had $5.9 million in outstanding letters of credit issued under our revolving commitment. We had additional borrowing capacity of approximately $993.9 million under our senior secured credit facilities, which amount will vary over time depending on our financial covenants and operating performance.
The senior secured credit facilities are secured by security interests and liens on substantially all of our assets and the assets of our domestic subsidiaries. The senior secured credit facilities are guaranteed by our material domestic subsidiaries. As of October 31, 2014, borrowings under our senior secured credit facilities bore interest at a rate of LIBOR plus 1.75% per annum for the $1.0 billion revolving commitment and the currently $250.0 million term loan A-1 facility and LIBOR plus 2.00% per annum for the currently $750.0 million term loan A-2 facility.
In the three and nine months ended September 30, 2014, Alpro maintained a revolving credit facility not to exceed €10 million ($12.6 million USD) or its currency equivalent. The facility is unsecured and is guaranteed by various Alpro subsidiaries. The subsidiary revolving credit facility is available for working capital and other general corporate purposes of Alpro and for the issuance of up to €10 million letters of credit ($12.6 million USD) or its currency equivalent. At September 30, 2014 and December 31, 2013, there were no outstanding borrowings under this facility. Principal payments, if any, are due under the subsidiary revolving credit facility upon maturity on December 9, 2014. We currently intend to extend or replace the facility by the maturity date.
As of September 30, 2014, we were in compliance with all related (or associated) covenants under our debt facilities.

Liquidity
Based on current and anticipated level of operations, we believe that our cash on hand, together with operating cash flows, and amounts expected to be available under our senior secured credit facilities, will be sufficient to meet our anticipated liquidity needs over the next twelve months. Our anticipated uses of cash include capital expenditures, working capital needs, other general corporate purposes, and financial obligations such as payments under the senior secured credit facility. In addition, we also evaluate and consider strategic acquisitions, divestitures, joint ventures, and stock repurchases, as well as other transactions to create stockholder value and enhance financial performance. Such transactions may require cash expenditures by us or generate proceeds for us. In connection with such transactions, or to fund other anticipated uses of cash, we may modify our senior secured credit facilities, seek additional debt financing or issue equity securities.
As of September 30, 2014, $57.0 million of our total cash on hand of $226.2 million was attributable to our foreign operations and currently domiciled outside the U.S. We anticipate permanently reinvesting our foreign earnings outside the U.S. The majority of our U.S. domiciled cash balances as of September 30, 2014 was used to finance a significant portion of our $195.0 million acquisition of So Delicious on October 31, 2014.
Capital Resources
Our board of directors has authorized a share repurchase program, under which the Company may repurchase up to $150 million of its common stock. The primary purpose of the program is to offset dilution from the Company’s equity compensation

48


plans, but the Company also may make discretionary purchases. Shares may be repurchased under the program from time to time in one or more open market or other transactions, at the discretion of the Company, subject to market conditions and other factors. The authorization to repurchase shares will end when the Company has repurchased the maximum amount of shares authorized, or the Company’s Board of Directors has determined to discontinue such repurchases. To date, no shares have been repurchased under the share repurchase program.
Historical Cash Flow
The following table summarizes our cash flows from operating, investing, and financing activities:
 
 
Nine months ended September 30,
 
2014
 
2013
 
Change
 
(In millions)
Net cash flows from:
 
 
 
 
 
Operating activities
$
168.1

 
$
115.3

 
$
52.8

Investing activities
(859.3
)
 
(41.0
)
 
(818.3
)
Financing activities
820.5

 
(58.2
)
 
878.7

Effect of exchange rate changes on cash and cash equivalents
(4.2
)
 
1.7

 
(5.9
)
Net increase in cash and cash equivalents
$
125.1

 
$
17.8

 
$
107.3

Operating Activities
Net cash provided by operating activities was $168.1 million for the nine months ended September 30, 2014 compared to $115.3 million for the nine months ended September 30, 2013. The higher level of cash provided from operating activities in 2014 was primarily due to increased net income, including Earthbound Farm. Consistent with the nine months ended September 30, 2013, the net change in operating assets and liabilities was driven by growth in accounts receivable and inventory related to increased sales.
Investing Activities
Net cash used in investing activities was $859.3 million for the nine months ended September 30, 2014 compared to net cash used in investing activities of $41.0 million for the nine months ended September 30, 2013. The change was primarily driven by the purchase of Earthbound Farm and, to a lesser extent, a $106.2 million increase in payments for property, plant, and equipment, as compared to the same period in 2013. In addition, we contributed $47.3 million to the joint venture in China in 2014. In 2013, we recorded $60.0 million of proceeds from the sale of fixed assets to Morningstar.

Financing Activities
Net cash provided by financing activities was $820.5 million for the nine months ended September 30, 2014 compared to net cash used of $58.2 million for the nine months ended September 30, 2013. The increase was principally driven by $615.0 million of new borrowings related to the Earthbound Farm acquisition and $500.0 million of senior unsecured notes, partially offset by debt repayments and the payment of financing costs.
Contractual Obligations and Other Long-Term Liabilities
There have been no material changes in the information provided in Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Contractual Obligations and Other Long-Term Liabilities” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 with the exception of the impact related to the acquisition of Earthbound Farm, related lease obligations and our amendment to our senior secured credit facility and issuance of senior unsecured notes. The following table presents new lease obligations that arose in 2014 due to the Earthbound Farm acquisition as well as the obligations related to the amended credit facility and senior unsecured notes.

49


 
 
Payments Due by Period as of September 30, 2014
 
Total
 
Remainder of
2014
 
2015 - 2016
 
2017 - 2018
 
After 2018
 
(In thousands)
Senior secured credit facility
$
1,000,000

 
$
5,000

 
$
41,563

 
$
54,062

 
$
899,375

Senior unsecured notes
500,000

 

 

 

 
500,000

Farm land operating leases
23,319

 
1,338

 
6,225

 
4,644

 
11,112

Capital leases
21,879

 
266

 
2,276

 
2,579

 
16,758

Operating leases
565

 
106

 
363

 
96

 

Total
$
1,545,763

 
$
6,710

 
$
50,427

 
$
61,381

 
$
1,427,245

Off-Balance Sheet Arrangements
As of September 30, 2014, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies
The process of preparing our consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and judgments are based on historical experience, future expectations, and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. Actual results may differ materially from these estimates. We have identified the following policies as critical accounting policies:
 
Goodwill and Intangible Assets, Purchase Price Allocation;
Revenue Recognition, Sales Incentives, and Trade Accounts Receivable;
Share-Based Compensation;
Property, Plant, and Equipment; and
Income Taxes.
These critical accounting policies are discussed in more detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists. ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. The adoption of this update effective January  1, 2014, had no impact on our unaudited condensed consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to change the criteria for reporting discontinued operations and modify related disclosure requirements. The new guidance is effective on a prospective basis for the Company beginning with its Consolidated Financial Statements for the year ending December 31, 2015. We will evaluate the effects, if any, adoption of this guidance will have on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606, to clarify the principles used to recognize revenue for all entities. The guidance is effective for annual and interim periods beginning December 15, 2016. Early adoption is not permitted. We are currently evaluating the effects, if any, adoption of this guidance will have on the Company's consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on

50


management's responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure requirements. This guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption will not have an impact to the Company’s consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in the Quantitative and Qualitative Disclosures About Market Risk disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Item 4. Controls and Procedures
 
(a)
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”) and, based upon such evaluation, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.
 
(b)
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014.
Item 2C. Issuer Purchases of Equity Securities
On May 23, 2013, the Company announced that its Board of Directors had authorized a share repurchase program, under which the Company may repurchase up to $150 million of its common stock. As of September 30, 2014, no shares of common stock have been repurchased under this program. There is no expiration date for the program, and the authorization to repurchase shares will end when the Company has repurchased the maximum amount of shares authorized, or the Company’s Board of Directors has determined to discontinue such repurchases.

51


Item 6. Exhibits
 
 
 
31.1
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
32.2
  
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS
  
XBRL Instance Document
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
  
XBRL Taxonomy Calculation Linkbase Document
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
  
XBRL Taxonomy Label Linkbase Document
 
 
101.PRE
  
XBRL Taxonomy Presentation Linkbase Document
Attached as Exhibit 101 to this report are the following materials from the WhiteWave Foods Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013, (iv) the Condensed Consolidated Statements of Equity for the nine months ended September 30, 2014 and 2013, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (vi) Notes to Condensed Consolidated Financial Statements.
In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

52



SIGNATURES
Pursuant to the requirement 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.
 
THE WHITEWAVE FOODS COMPANY
 
/s/ James T. Hau
James T. Hau
Vice President and Chief Accounting Officer
November 10, 2014


53