PINNACLE FOODS INC. - FORM 10-Q

Attached files

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EX-32.2 - EXHIBIT 32.2 - PINNACLE FOODS INC.	pinnp20150628ex322.htm
EX-31.2 - EXHIBIT 31.2 - PINNACLE FOODS INC.	pinnp20150628ex312.htm
EX-32.1 - EXHIBIT 32.1 - PINNACLE FOODS INC.	pinnp20150628ex321.htm
EX-31.1 - EXHIBIT 31.1 - PINNACLE FOODS INC.	pinnp20150628ex311.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

_____________________



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

For the quarterly period ended June 28, 2015



¨	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 001-35844

___________________________________

Pinnacle Foods Inc.

(Exact name of registrant as specified in its charter)

___________________________________



Delaware		35-2215019
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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

___________________________________

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 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 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 (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

The Registrant had 116,586,619 shares of common stock, $0.01 par value, outstanding at July 28, 2015.

Table of Contents



	TABLE OF CONTENTS FORM 10-Q	Page No.
PART I - FINANCIAL INFORMATION		1
ITEM 1:	FINANCIAL STATEMENTS (UNAUDITED)	1
CONSOLIDATED STATEMENTS OF OPERATIONS		1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS		2
CONSOLIDATED BALANCE SHEETS		3
CONSOLIDATED STATEMENTS OF CASH FLOWS		4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY		5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		6
1.	Summary of Business Activities	6
2.	Interim Financial Statements	6
3.	Acquisitions	6
4.	Fair Value Measurements	8
5.	Other Expense (Income), net	10
6.	Equity-Based Compensation and Earnings Per Share	10
7.	Accumulated Other Comprehensive Income (Loss)	12
8.	Balance Sheet Information	13
9.	Goodwill, Tradenames and Other Assets	15
10.	Debt and Interest Expense	17
11.	Pension and Retirement Plans	19
12.	Financial Instruments	20
13.	Commitments and Contingencies	24
14.	Related Party Transactions	24
15.	Segments	25
16.	Provision for Income Taxes	27
17.	Recently Issued Accounting Pronouncements	28
18.	Guarantor and Nonguarantor Statements	29
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 4:	CONTROLS AND PROCEDURES	56
PART II - OTHER INFORMATION		57
ITEM 1:	LEGAL PROCEEDINGS	57
ITEM 1A:	RISK FACTORS	57
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	57
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	57
ITEM 4:	MINE SAFETY DISCLOSURES	57
ITEM 5:	OTHER INFORMATION	57
ITEM 6:	EXHIBITS	60
SIGNATURES		59

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands, except per share amounts)



	Three months ended				Six months ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014
Net sales	$	631,746	$	617,800	$	1,297,027	$	1,261,839
Cost of products sold	462,637		455,583		956,201		932,961
Gross profit	169,109		162,217		340,826		328,878

Marketing and selling expenses	45,698		47,970		92,707		92,098
Administrative expenses	27,665		24,618		55,451		50,595
Research and development expenses	3,589		2,876		6,641		5,358
Other expense (income), net	2,342		4,843		7,743		8,826
	79,294		80,307		162,542		156,877
Earnings before interest and taxes	89,815		81,910		178,284		172,001
Interest expense	22,187		24,524		43,815		48,891
Interest income	12		32		165		58
Earnings before income taxes	67,640		57,418		134,634		123,168
Provision for income taxes	23,961		21,834		49,419		46,836
Net earnings	$	43,679	$	35,584	$	85,215	$	76,332

Net earnings per share
Basic	$	0.38	$	0.31	$	0.73	$	0.66
Weighted average shares outstanding - basic	116,031		115,690		115,968		115,641
Diluted	$	0.37	$	0.30	$	0.73	$	0.65
Weighted average shares outstanding - diluted	117,281		116,901		117,158		116,794
Dividends declared	$	0.235	$	0.21	$	0.47	$	0.42

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (unaudited)

(thousands)



	Three months ended						Six months ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Net earnings	$	43,679		$	35,584		$	85,215		$	76,332
Other comprehensive earnings (loss)
Foreign currency translation	623			235			(1,938		)	(239		)
Net gain (loss) on financial instrument contracts	2,254			(12,481		)	(10,362		)	(20,222		)

Reclassifications into earnings:
Financial instrument contracts	402			(183		)	91			(555		)
Loss on pension actuarial assumption adjustments	244			32			519			175

Tax (provision) benefit on other comprehensive earnings (loss)	(1,487		)	4,665			4,529			8,028
Total other comprehensive earnings (loss) - net of tax	2,036			(7,732		)	(7,161		)	(12,813		)
Total comprehensive earnings	$	45,715		$	27,852		$	78,054		$	63,519

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

(thousands, except share and per share amounts)



	June 28, 2015			December 28, 2014
Current assets:
Cash and cash equivalents	$	53,356		$	38,477
Accounts receivable, net of allowances of $6,936 and $6,801, respectively	194,472			190,754
Inventories	365,547			356,467
Other current assets	10,375			8,223
Deferred tax assets	88,778			121,788
Total current assets	712,528			715,709
Plant assets, net of accumulated depreciation of $383,927 and $349,639, respectively	608,905			605,906
Tradenames	2,001,579			2,001,874
Other assets, net	145,315			157,896
Goodwill	1,716,869			1,719,560
Total assets	$	5,185,196		$	5,200,945

Current liabilities:
Short-term borrowings	$	1,794		$	2,396
Current portion of long-term obligations	11,313			11,916
Accounts payable	176,645			198,579
Accrued trade marketing expense	31,358			36,210
Accrued liabilities	98,538			106,488
Dividends payable	28,059			27,847
Total current liabilities	347,707			383,436
Long-term debt (includes $24,834 and $47,315 owed to related parties, respectively)	2,281,484			2,285,984
Pension and other postretirement benefits	58,608			61,830
Other long-term liabilities	36,921			34,305
Deferred tax liabilities	715,825			721,401
Total liabilities	3,440,545			3,486,956
Commitments and contingencies (Note 13)
Shareholders' equity:
Pinnacle preferred stock: $.01 per share, 50,000,000 shares authorized, none issued	—			—
Pinnacle common stock: par value $.01 per share, 500,000,000 shares authorized; issued 117,584,434 and 117,293,745, respectively	1,176			1,173
Additional paid-in-capital	1,370,689			1,363,129
Retained earnings	449,791			419,531
Accumulated other comprehensive loss	(44,895		)	(37,734		)
Capital stock in treasury, at cost, 1,000,000 common shares	(32,110		)	(32,110		)
Total shareholders' equity	1,744,651			1,713,989
Total liabilities and shareholders' equity	$	5,185,196		$	5,200,945

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands)



	Six months ended
	June 28, 2015			June 29, 2014
Cash flows from operating activities
Net earnings	$	85,215		$	76,332
Non-cash charges (credits) to net earnings
Depreciation and amortization	43,157			39,958
Amortization of discount on term loan	1,190			1,267
Amortization of debt acquisition costs	1,940			2,056
Change in value of financial instruments	(4,566		)	497
Equity-based compensation charge	8,062			4,448
Pension expense, net of contributions	(2,704		)	(5,622		)
Other long-term liabilities	(638		)	(10		)
Unrealized foreign exchange losses	1,578			—
Deferred income taxes	33,123			45,438
Changes in working capital
Accounts receivable	(4,528		)	(8,367		)
Inventories	(9,652		)	33,252
Accrued trade marketing expense	(4,668		)	(5,177		)
Accounts payable	(15,049		)	13,840
Accrued liabilities	(5,769		)	(9,477		)
Other current assets	(2,257		)	(1,881		)
Net cash provided by operating activities	124,434			186,554
Cash flows from investing activities
Business acquisition activity	1,102			(11,769		)
Capital expenditures	(48,168		)	(56,210		)
Net cash used in investing activities	(47,066		)	(67,979		)
Cash flows from financing activities
Repayments of long-term obligations	(4,422		)	(11,360		)
Proceeds from short-term borrowings	1,710			1,773
Repayments of short-term borrowings	(2,312		)	(2,185		)
Repayment of capital lease obligations	(1,871		)	(1,755		)
Dividends paid	(54,747		)	(48,635		)
Net proceeds from issuance of common stock	824			165
Excess tax benefits on equity-based compensation	1,076			786
Taxes paid related to net share settlement of equity awards	(2,401		)	(3,061		)
Debt acquisition costs	—			(214		)
Net cash used in financing activities	(62,143		)	(64,486		)
Effect of exchange rate changes on cash	(346		)	6
Net change in cash and cash equivalents	14,879			54,095
Cash and cash equivalents - beginning of period	38,477			116,739
Cash and cash equivalents - end of period	$	53,356		$	170,834

Supplemental disclosures of cash flow information:
Interest paid	$	39,453		$	45,375
Interest received	165			58
Income taxes paid	17,341			3,656
Non-cash investing and financing activities:
New capital leases	—			282
Dividends payable	28,059			25,746

Accrued additions to Plant assets at June 28, 2015 were $17,767. As of June 29, 2014, they were not significant.

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)

(thousands, except share and per share amounts)



	Common Stock			Treasury Stock					Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
	Shares	Amount		Shares		Amount			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Balance, December 29, 2013	117,231,853	$	1,172	—		$	—		$	1,328,847	$	275,519		$	(7,497	)	$	1,598,041
Equity-based compensation plans	71,323	1							2,338								2,339
Dividends ($0.42 per share) (a)											(49,306		)				(49,306		)
Comprehensive earnings											76,332			(12,813		)	63,519
Balance, June 29, 2014	117,303,176	$	1,173	—		$	—		$	1,331,185	$	302,545		$	(20,310	)	$	1,614,593

Balance, December 28, 2014	117,293,745	$	1,173	(1,000,000	)	$	(32,110	)	$	1,363,129	$	419,531		$	(37,734	)	$	1,713,989
Equity-based compensation plans	290,689	3							7,560								7,563
Dividends ($0.47 per share) (b)											(54,955		)				(54,955		)
Comprehensive earnings											85,215			(7,161		)	78,054
Balance, June 28, 2015	117,584,434	$	1,176	(1,000,000	)	$	(32,110	)	$	1,370,689	$	449,791		$	(44,895	)	$	1,744,651

(a) $0.21 per share declared February 2014 and May 2014

(b) $0.235 per share declared February 2015 and June 2015

See accompanying Notes to Unaudited Consolidated Financial Statements

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1. Summary of Business Activities

Business Overview

Pinnacle Foods Inc. (the "Company") is a leading manufacturer, marketer and distributor of high quality, branded convenience food products, the products and operations of which are reported in three operating segments: (i) Birds Eye Frozen, (ii) Duncan Hines Grocery and (iii) Specialty Foods. The Company’s United States retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), frozen seafood (Van de Kamp’s and Mrs. Paul’s), plant based protein frozen products (gardein), full-calorie single-serve frozen dinners and entrées (Hungry-Man), frozen breakfast (Aunt Jemima), frozen and refrigerated bagels (Lender’s), and frozen pizza for one (Celeste) are reported in the Birds Eye Frozen segment. The Company’s baking mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), liquid and dry-mix salad dressings (Wish-Bone and Western), table syrups (Mrs. Butterworth’s and Log Cabin), canned meat (Armour, Nalley and Brooks), pie and pastry fillings (Duncan Hines Comstock and Wilderness), barbecue sauces (Open Pit) and Canadian operations excluding Garden Protein are reported in the Duncan Hines Grocery segment. The Company refers to the sum of the Birds Eye Frozen segment and the Duncan Hines Grocery segment as the North America Retail business. The Specialty Foods segment consists of snack products (Tim’s Cascade and Snyder of Berlin) and the Company’s food service and private label businesses.

History and Current Ownership

On April 2, 2007, the Company was acquired by, and became a wholly owned subsidiary of Peak Holdings LLC (“Peak Holdings”), an entity controlled by investment funds affiliated with The Blackstone Group L.P. (“Blackstone”). We refer to this merger transaction and related financing transactions as the Blackstone Transaction. As a result of the Blackstone Transaction, Blackstone owned, through Peak Holdings, approximately 98% of the common stock of the Company.

Prior to our initial public offering on April 3, 2013 (the “IPO”), we were a controlled company as a result of the Blackstone Transaction, whereby Blackstone owned, through Peak Holdings, approximately 98% of our common stock. Effective September 12, 2014, as a result of Blackstone’s reduced ownership in the Company, we no longer qualified as a “controlled company” under applicable New York Stock Exchange ("NYSE") listing standards. On November 21, 2014, Blackstone sold additional shares, and the reduction in Blackstone’s ownership level to below 50% of its initial holdings, as well as Blackstone exceeding its internal rate of return vesting objective, triggered the immediate vesting of approximately 1.1 million non-vested shares and 0.2 million stock options and the recognition of approximately $23.7 million of equity-based compensation expense (the “Liquidity Event”).

On May 8, 2015, Blackstone sold an additional 5,000,000 shares in an underwritten public offering. Upon completion of the offering, Blackstone no longer beneficially owned any of the Company's outstanding common stock. The Company did not receive any proceeds from the sale.

2. Interim Financial Statements

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting primarily of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of June 28, 2015, the results of operations for the three and six months ended June 28, 2015 and June 29, 2014, and the cash flows for the six months ended June 28, 2015 and June 29, 2014. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2014.

3. Acquisitions

The Company accounts for business combinations by using the acquisition method of accounting. This provides that goodwill and other intangible assets with indefinite lives are not to be amortized, but tested for impairment on an annual basis, or more frequently as warranted. Acquisition costs are expensed as incurred. Both of the following acquisitions have been accounted for in accordance with these standards.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Acquisition of the Duncan Hines manufacturing business (the "Gilster acquisition")

On March 31, 2014, the Company acquired the Duncan Hines manufacturing business located in Centralia, Illinois, from Gilster Mary Lee Corporation (“Gilster”), the Company's primary co-packer of Duncan Hines products. The cost of the acquisition was $26.6 million, $11.7 million of which was paid in cash, with the balance due under a $14.9 million four-year note. Goodwill, which is not subject to amortization, totaled $9.6 million (tax deductible goodwill of $7.5 million). The entire acquisition was allocated to the Duncan Hines Grocery segment. Other operating costs of approximately $0.3 million incurred in connection with the transaction were expensed as incurred and recorded in Cost of products sold in the Consolidated Statements of Operations.

The following table summarizes the allocation of the total cost of the acquisition to the assets acquired and liabilities assumed:



Assets acquired:
Inventories	$	10,188
Building and land	3,480
Plant assets	2,302
Deferred tax assets	1,278
Goodwill	9,550
Fair value of assets acquired	26,798
Liabilities assumed
Accrued liabilities	178
Total cost of acquisition	$	26,620

Unaudited pro forma revenue and net earnings related to the acquisition are not presented because the pro forma impact is not material.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Acquisition of Garden Protein (the "Garden Protein acquisition")

On November 14, 2014, the Company acquired Garden Protein International Inc., a Canadian corporation, and the manufacturer of the plant-based protein brand gardein. The brand has a line of frozen products that serve as alternatives for traditional animal based protein formats such as chicken strips and tenders, ground beef and fish fillets.

The cost of the Garden Protein acquisition was $156,502, which included a first quarter 2015 post closing working capital adjustment that reduced the preliminary purchase price by $1,102. This adjustment to the purchase price allocation did not significantly impact previously reported amounts or results. The following table summarizes the preliminary allocation of the total cost of the acquisition to the assets acquired and liabilities assumed:



Assets acquired:
Accounts receivable	$	5,226
Inventories	6,798
Prepaid expenses and other assets	572
Property and equipment	13,895
Tradenames	51,950
Distributor relationships	3,098
Private label customer relationships	1,328
Formulations	7,611
Goodwill	83,155
Fair value of assets acquired	173,632
Liabilities assumed
Accounts payable and accrued liabilities	5,007
Income tax payable	7,878
Long term deferred tax liability	1,532
Other long-term liabilities	2,714
Total cost of acquisition	$	156,502

Based upon the allocation, the value assigned to intangible assets and goodwill totaled $147.1 million. The goodwill was generated primarily as a result of expected synergies to be achieved because of the acquisition. Distributor relationships and private label customer relationships are being amortized on an accelerated basis over 30 and 7 years, respectively. Formulations are being amortized on a straight line basis over 10 years. These useful lives are based on an attrition rate based on industry experience, which management believes is appropriate in the Company's circumstances. The Company has also assigned $51.9 million to the value of the tradename acquired, which is not subject to amortization but is reviewed annually for impairment. Goodwill, which is also not subject to amortization, totaled $83.2 million (tax deductible goodwill of $53.6 million resulted from the acquisition). The entire acquisition was allocated to the Birds Eye Frozen segment.

The acquisition was financed through cash on hand and borrowings of $40.0 million under our revolving credit facility which were repaid in full as of December 28, 2014.

Unaudited pro forma revenue and net earnings related to the acquisition are not presented because the pro forma impact is not material.

4. Fair Value Measurements

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

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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


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


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


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

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



	Fair Value as of June 28, 2015		Fair Value Measurements Using Fair Value Hierarchy						Fair Value as of December 28, 2014		Fair Value Measurements Using Fair Value Hierarchy
	Fair Value as of June 28, 2015		Level 1		Level 2		Level 3		Fair Value as of December 28, 2014		Level 1		Level 2		Level 3
Assets
Interest rate derivatives	$	441	$	—	$	441	$	—	$	6,420	$	—	$	6,420	$	—
Foreign currency derivatives	1,172		—		1,172		—		1,294		—		1,294		—
Commodity derivatives	535		—		535		—		—		—		—		—
Total assets at fair value	$	2,148	$	—	$	2,148	$	—	$	7,714	$	—	$	7,714	$	—

Liabilities
Interest rate derivatives	$	8,728	$	—	$	8,728	$	—	$	4,543	$	—	$	4,543	$	—
Commodity derivatives	7,921		—		7,921		—		12,011		—		12,011		—
Total liabilities at fair value	$	16,649	$	—	$	16,649	$	—	$	16,554	$	—	$	16,554	$	—

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

The valuations of these instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate, commodity, and foreign exchange forward curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of the authoritative guidance for fair value disclosure, the Company incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The Company had no fair value measurements based upon significant unobservable inputs (Level 3) as of June 28, 2015 or December 28, 2014.

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

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

5. Other Expense (Income), net



	Three months ended						Six months ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Other expense (income), net consists of:
Amortization of intangibles/other assets	$	3,399		$	3,186		$	6,761		$	7,361
Unrealized foreign exchange (gains) losses	(701		)	—			1,578			—
Termination costs associated with the Hillshire merger agreement	—			2,085			—			2,085
Royalty income and other	(356		)	(428		)	(596		)	(620		)
Total other expense (income), net	$	2,342		$	4,843		$	7,743		$	8,826

Unrealized foreign exchange (gains) losses. Represents foreign exchange (gains) losses from intra-entity loans resulting from the Garden Protein acquisition that are anticipated to be settled in the foreseeable future.

Hillshire merger agreement. On May 12, 2014 the Company entered into a definitive merger agreement for the sale of the Company to The Hillshire Brands Company ("Hillshire"). Subsequently, Hillshire received an offer from Tyson Foods, Inc. ("Tyson") to acquire all of its outstanding common shares. On June 16, 2014, in light of the Tyson offer, Hillshire's board of directors withdrew its recommendation of the pending acquisition of the Company. Under the terms of the merger agreement, as a result of the change in recommendation, the Company had the right to terminate its merger agreement with Hillshire, which it did on June 30, 2014. The costs incurred in the three and six months ended June 29, 2014, primarily represents professional fees incurred related to the terminated merger agreement.

6. Equity-Based Compensation Expense and Earnings Per Share

Equity-based Compensation

The Company has two long-term incentive programs: The 2007 Stock Incentive Plan and the 2013 Omnibus Incentive Plan. Prior to March 28, 2013, Peak Holdings, the former parent of the Company, also had the 2007 Unit Plan, which was terminated in connection with the Company's IPO. Equity-based compensation expense recognized during the period is based on the value of the portion of equity-based payment awards that is ultimately expected to vest during the period. As equity-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The authoritative guidance for equity-based compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Expense Information

The following table summarizes equity-based compensation expense which was allocated as follows:



	Three months ended						Six months ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Cost of products sold	$	578		$	274		$	1,871		$	471
Marketing and selling expenses	1,480			657			1,994			928
Administrative expenses	2,412			1,330			3,956			2,933
Research and development expenses	123			75			241			116
Pre-tax equity-based compensation expense	4,593			2,336			8,062			4,448
Income tax benefit	(1,695		)	(768		)	(2,967		)	(1,466		)
Net equity-based compensation expense	$	2,898		$	1,568		$	5,095		$	2,982

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

2007 Stock Incentive Plan

The Company adopted an equity option plan (the “2007 Stock Incentive Plan”) providing for the issuance of the Company's common stock through the granting of nonqualified stock options. As a result of the Liquidity Event, the majority of the outstanding equity options became exercisable. Any unvested awards vest ratably over five years from the date of grant. Subsequent to the adoption of the 2013 Omnibus Incentive Plan (as further described below), there will be no more grants under the 2007 Stock Incentive Plan.

2007 Unit Plan

Peak Holdings, the former parent of the Company, adopted an equity plan (the “2007 Unit Plan”) providing for the issuance of profit interest units ("PIUs") in Peak Holdings. In connection with the Company's IPO, Peak Holdings was dissolved resulting in the termination of the 2007 Unit Plan and the adoption of the 2013 Omnibus Incentive Plan (as further described below). As a result of the dissolution, the assets of Peak Holdings were distributed to the unit holders of Peak Holdings. As the sole assets of Peak Holdings were shares of the Company's common stock, units were converted into shares of common stock. The number of shares of common stock delivered to the equity holder as a result of the conversion had the same intrinsic value as the Class A-2 Units held by the equity holder prior to such conversion. Additionally, in connection with the dissolution, all PIUs were converted into shares or restricted shares of the Company's common stock. Vested PIUs were converted into shares of common stock and unvested PIUs were converted into unvested restricted shares of our common stock, which are subject to vesting terms substantially similar to those applicable to the unvested PIUs immediately prior to the conversion. As a result of the Liquidity Event, the majority of the outstanding non-vested shares vested. Any unvested awards vest ratably over five years from the date of grant of the original PIU.

2013 Omnibus Incentive Plan

In connection with the IPO, the Company adopted an equity incentive plan (the “2013 Omnibus Incentive Plan”) providing for the issuance of up to 11,300,000 shares of the Company's common stock under (1) equity awards granted as a result of the conversion of unvested PIUs into restricted common stock of the Company, (2) stock options and other equity awards granted in connection with the completion of the IPO, and (3) awards granted by the Company under the 2013 Omnibus Incentive Plan following the completion of the IPO. Awards granted subsequent to the IPO include equity options, non-vested shares, restricted stock units ("RSU's"), the majority of which vest in full three years from the date of grant. The Company also granted non-vested performance shares ("PS's) and performance share units ("PSU's"), both of which vest based on achievement of total shareholder return performance goals over a three-year performance period.

In April 2015, as part of our equity compensation program:


•	We granted 354,422 equity options with a grant date fair value of $8.93 and an exercise price of $41.05 using the BlackScholes pricing method to value the awards.


•	We granted 184,574 PSU's and PS's with a grant date fair value of $48.61 using the Monte Carlo simulation model to value the awards.


•	We granted 165,625 RSU's with a grant date fair value of $41.05 which was the market price of our stock on the date of grant.

Earnings Per Share

Basic earnings per common share is computed by dividing net earnings or loss for common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net earnings by weighted-average common shares outstanding during the period plus dilutive potential common shares, which are determined as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



	Three months ended		Six months ended
	June 28, 2015	June 29, 2014	June 28, 2015	June 29, 2014
Weighted-average common shares	116,030,571	115,690,050	115,968,301	115,641,174
Effect of dilutive securities:	1,250,001	1,210,556	1,190,188	1,152,579
Dilutive potential common shares	117,280,572	116,900,606	117,158,489	116,793,753

Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities. For the three and six months ended June 28, 2015, conversion of securities totaling 526,648 and 265,264, respectively, into common share equivalents were excluded from this calculation as their effect would have been anti-dilutive. For the three and six months ended June 29, 2014, conversion of securities totaling 1,224,851 and 798,741, respectively, into common share equivalents were excluded from this calculation as their effect would have been anti-dilutive.

7. Accumulated Other Comprehensive Loss

The components of Accumulated other comprehensive loss consisted of the following:



	Currency translation adjustments			Gains (Losses) on cash flow hedges			Change in pensions			Total
Balance at December 28, 2014	$	(2,053	)	$	4,126		$	(39,807	)	$	(37,734	)
Other comprehensive loss before reclassification	(1,181		)	(6,306		)	—			(7,487		)
Amounts reclassified from accumulated other comprehensive loss	—			5			321			326
Net current period other comprehensive (loss) income	(1,181		)	(6,301		)	321			(7,161		)
Balance at June 28, 2015	$	(3,234	)	$	(2,175	)	$	(39,486	)	$	(44,895	)



	Currency translation adjustments			Gains (Losses) on cash flow hedges			Change in pensions			Total
Balance at December 29, 2013	$	(466	)	$	19,581		$	(26,612	)	$	(7,497	)
Other comprehensive loss before reclassification	(147		)	(12,556		)	—			(12,703		)
Amounts reclassified from accumulated other comprehensive loss	—			(218		)	108			(110		)
Net current period other comprehensive (loss) income	(147		)	(12,774		)	108			(12,813		)
Balance at June 29, 2014	$	(613	)	$	6,807		$	(26,504	)	$	(20,310	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The following table presents amounts reclassified out of Accumulated Other Comprehensive Loss ("AOCL") and into Net earnings for the three and six months ended June 28, 2015 and June 29, 2014, respectively.



Gain/(Loss)	Amounts Reclassified from AOCL
	Three months ended						Six months ended
Details about Accumulated Other Comprehensive Earnings Components	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014				Reclassified from AOCL to:
Gains and losses on financial instrument contracts
Interest rate contracts	$	(1,011	)	$	(204	)	$	(1,403	)	$	(245	)		Interest expense
Foreign exchange contracts	609			387			1,312			800				Cost of products sold
Total pre-tax	(402		)	183			(91		)	555
Tax benefit (expense)	313			(130		)	86			(337		)		Provision for income taxes
Net of tax	(89		)	53			(5		)	218

Pension actuarial assumption adjustments
Amortization of actuarial loss	(244		)	(32		)	(519		)	(175		)	(a)	Cost of products sold
Tax benefit	93			12			198			67				Provision for income taxes
Net of tax	(151		)	(20		)	(321		)	(108		)
Net reclassifications into net earnings	$	(240	)	$	33		$	(326	)	$	110

(a) This is included in the computation of net periodic pension cost (see Note 11 for additional details).

8. Balance Sheet Information

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



	June 28, 2015			December 28, 2014
Customers	$	196,122		$	190,321
Allowances for cash discounts, bad debts and returns	(6,936		)	(6,801		)
Subtotal	189,186			183,520
Other receivables	5,286			7,234
Total	$	194,472		$	190,754

Inventories. Inventories are as follows:



	June 28, 2015		December 28, 2014
Raw materials, containers and supplies	$	90,228	$	60,828
Finished product	275,319		295,639
Total	$	365,547	$	356,467

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Other Current Assets. Other Current Assets are as follows:



	June 28, 2015		December 28, 2014
Prepaid expenses and other	$	8,708	$	8,139
Prepaid income taxes	1,667		84
Total	$	10,375	$	8,223

Plant Assets. Plant assets are as follows:



	June 28, 2015			December 28, 2014
Land	$	14,211		$	14,211
Buildings	227,448			208,341
Machinery and equipment	700,653			641,818
Projects in progress	50,520			91,175
Subtotal	992,832			955,545
Accumulated depreciation	(383,927		)	(349,639		)
Total	$	608,905		$	605,906

Depreciation was $18,891 and $36,396 during the three and six months ended June 28, 2015, respectively. Depreciation was $16,392 and $32,597 during the three and six months ended June 29, 2014, respectively. As of June 28, 2015 and December 28, 2014, Machinery and equipment included assets under capital lease with a book value of $17,685 and $18,127 (net of accumulated depreciation of $11,590 and $9,935), respectively.

Accrued Liabilities. Accrued liabilities are as follows:



	June 28, 2015		December 28, 2014
Employee compensation and benefits	$	44,837	$	52,404
Interest payable	12,691		12,239
Consumer coupons	5,340		1,912
Accrued financial instrument contracts (see note 12)	7,117		10,276
Other	28,553		29,657
Total	$	98,538	$	106,488

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



	June 28, 2015		December 28, 2014
Employee compensation and benefits	$	10,393	$	9,506
Long-term rent liability and deferred rent allowances	7,948		8,431
Liability for uncertain tax positions	2,051		2,064
Accrued financial instrument contracts (see note 12)	9,533		6,280
Other	6,996		8,024
Total	$	36,921	$	34,305

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

9. Goodwill, Tradenames and Other Assets

Goodwill

Goodwill by segment is as follows:



	Birds Eye Frozen			Duncan Hines Grocery		Specialty Foods		Total
Balance, December 28, 2014	$	608,984		$	936,615	$	173,961	$	1,719,560
Foreign currency adjustment	(1,589		)	—		—		(1,589		)
Purchase price adjustment (1)	(1,102		)	—		—		(1,102		)
Balance, June 28, 2015	$	606,293		$	936,615	$	173,961	$	1,716,869

(1) During the first quarter of 2015, a post closing working capital adjustment related to the Garden Protein acquisition was finalized which reduced the preliminary purchase price.

The authoritative guidance for business combinations requires that all business combinations be accounted for at fair value under the acquisition method of accounting. The authoritative guidance for goodwill provides that goodwill will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. During 2014, we changed the measurement date of our annual goodwill and trade names impairment tests from the fourth quarter to the third quarter. The Company completed its annual testing in the third quarter of 2014, resulting in no impairment.

Tradenames

Tradenames by segment are as follows:



	Birds Eye			Duncan Hines		Specialty
	Frozen			Grocery		Foods		Total
Balance, December 28, 2014	$	847,162		$	1,118,712	$	36,000	$	2,001,874
Foreign currency adjustment	(295		)	—		—		(295		)
Balance, June 28, 2015	$	846,867		$	1,118,712	$	36,000	$	2,001,579

The authoritative guidance for indefinite-lived assets provides that indefinite-lived assets will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. The Company completed its annual testing in the third quarter of 2014, resulting in no impairment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Other Assets



	June 28, 2015
	Weighted Avg Life	Gross Carrying Amount		Accumulated Amortization			Net
Amortizable intangibles
Recipes	10	$	60,171	$	(44,047	)	$	16,124
Customer relationships - Distributors	35	142,147		(43,557		)	98,590
Customer relationships - Private Label	7	1,290		(221		)	1,069
License	7	6,175		(5,181		)	994
Total amortizable intangibles		$	209,783	$	(93,006	)	$	116,777
Debt acquisition costs		45,913		(27,184		)	18,729
Financial instruments (see note 12)		976		—			976
Other (1)		8,833		—			8,833
Total other assets, net							$	145,315
	Amortizable intangibles by segment
	Birds Eye Frozen						$	64,031
	Duncan Hines Grocery						48,570
	Specialty Foods						4,176
							$	116,777



	December 28, 2014
	Weighted Avg Life	Gross Carrying Amount		Accumulated Amortization			Net
Amortizable intangibles
Recipes	10	$	60,206	$	(41,027	)	$	19,179
Customer relationships - Distributors	35	142,156		(40,616		)	101,540
Customer relationships - Private Label	7	1,290		(43		)	1,247
License	7	6,175		(4,563		)	1,612
Total amortizable intangibles		$	209,827	$	(86,249	)	$	123,578
Debt acquisition costs		45,913		(25,244		)	20,669
Financial instruments (see note 12)		6,420		—			6,420
Other (1)		7,229		—			7,229
Total other assets, net							$	157,896
	Amortizable intangibles by segment
	Birds Eye Frozen						$	67,525
	Duncan Hines Grocery						51,637
	Specialty Foods						4,416
							$	123,578

(1) As of June 28, 2015 and December 28, 2014, Other primarily consists of security deposits and supplemental savings plan investments.

Amortization of intangible assets was $3,399 and $6,761 for the three and six months ended June 28, 2015, respectively. Amortization of intangible assets was $3,186 and $7,361 for the three and six months ended June 29, 2014, respectively. Estimated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

amortization expense for each of the next five years and thereafter is as follows: remainder of 2015 - $6,700; 2016 - $12,200; 2017 - $7,400; 2018 - $5,800; 2019 - $5,500 and thereafter - $79,200.

Debt Acquisition Costs

All debt acquisition costs, which relate to the senior secured credit facility and Senior Notes (as defined below) are amortized into interest expense over the life of the related debt using the effective interest method. Amortization of debt acquisition costs was $946 and $1,940 during the three and six months ended June 28, 2015, respectively. Amortization of debt acquisition costs was $1,032 and $2,056 during the three and six months ended June 29, 2014, respectively.

The following summarizes debt acquisition cost activity:



	Gross Carrying Amount		Accumulated Amortization			Net
Balance, December 28, 2014	$	45,913	$	(25,244	)	$	20,669
Amortization	—		(1,940		)	(1,940		)
Balance, June 28, 2015	$	45,913	$	(27,184	)	$	18,729

10. Debt and Interest Expense



	June 28, 2015			December 28, 2014
Short-term borrowings
- Notes payable	$	1,794		$	2,396
Total short-term borrowings	$	1,794		$	2,396
Long-term debt
- Amended Credit Agreement - Tranche G Term Loans due 2020	1,409,625			1,409,625
- Amended Credit Agreement - Tranche H Term Loans due 2020	517,125			519,750
- 4.875% Senior Notes due 2021	350,000			350,000
- 3.0% Note payable to Gilster Mary Lee Corporation due 2018	10,701			12,497
- Unamortized discount on long term debt	(11,538		)	(12,728		)
- Capital lease obligations	16,884			18,756
	2,292,797			2,297,900
Less: current portion of long-term obligations	11,313			11,916
Total long-term debt	$	2,281,484		$	2,285,984



Interest expense	Three months ended				Six months ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014
Interest expense, third party	$	19,969	$	22,764	$	39,935	$	45,560
Related party interest expense (Note 14)	261		509		537		1,025
Amortization of debt acquisition costs (Note 9)	946		1,032		1,940		2,056
Interest rate swap losses (Note 12)	1,011		219		1,403		250
Total interest expense	$	22,187	$	24,524	$	43,815	$	48,891

Amended Credit Agreement

As of September 28, 2014, Pinnacle Foods Finance LLC ("Pinnacle Foods Finance") achieved a total net leverage ratio of less than 4.25:1.0, which resulted in a 25 basis point reduction on the interest rate on our amended credit agreement. The lower rate

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

took effect in the fourth quarter of 2014 and will remain in effect as long as the total net leverage ratio is maintained below 4.25:1.0. As of June 28, 2015, the total net leverage ratio was 4.13.

Senior Notes

Estimated fair value

The estimated fair value of the Company’s long-term debt, including the current portion, as of June 28, 2015, is as follows:



	June 28, 2015
Issue	Face Value		Fair Value
Amended Credit Agreement - Tranche G Term Loans	$	1,409,625	$	1,402,577
Amended Credit Agreement - Tranche H Term Loans	517,125		514,539
3.0% Note payable to Gilster Mary Lee Corporation due 2018	10,701		10,701
4.875% Senior Notes	350,000		346,500
	$	2,287,451	$	2,274,317

The estimated fair value of the Company’s long-term debt, including the current portion, as of December 28, 2014, is as follows:



	December 28, 2014
Issue	Face Value		Fair Value
Amended Credit Agreement - Tranche G Term Loans	$	1,409,625	$	1,367,336
Amended Credit Agreement - Tranche H Term Loans	519,750		504,158
3.0% Note payable to Gilster Mary Lee Corporation due 2018	12,497		12,497
4.875% Senior Notes	350,000		346,500
	$	2,291,872	$	2,230,491

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

11. Pension and Retirement Plans

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

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

The Company maintains a defined benefit plan, the Pinnacle Foods Group LLC Pension Plan (the "Plan"), which is frozen for future benefit accruals. The Company also has two qualified 401(k) plans, two non-qualified supplemental savings plans and participates in a multi-employer defined benefit plan.

Pinnacle Foods Group LLC Pension Plan

The Plan covers eligible union employees and provides benefits generally based on years of service and employees’ compensation. The Plan is frozen for future benefits. The Plan is funded in conformity with the funding requirements of applicable government regulations. The Plan assets consist principally of cash equivalents, equity and fixed income common collective trusts. The Plan assets do not include any of the Company’s own equity or debt securities.

The following represents the components of net periodic (benefit) cost:



	Three months ended						Six months ended
Pension Benefits	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Interest cost	2,361			2,902			5,189			5,803
Expected return on assets	(3,225		)	(3,292		)	(6,616		)	(6,584		)
Amortization of:
Actuarial loss	206			32			475			64
Net periodic benefit	$	(658	)	$	(358	)	$	(952	)	$	(717	)

Cash Flows

Contributions. In fiscal 2015, the Company expects to make contributions of $2.8 million to the Plan, of which minimum required payments of none and $1.7 million were made in the three and six months ended June 28, 2015, respectively. The Company made contributions to the pension plans totaling $7.8 million in fiscal 2014, of which $2.3 million and $4.4 million was made in the three and six months ended June 29, 2014, respectively.

Multi-employer Plans

The Company contributes to the United Food and Commercial Workers International Union Industry Pension Fund (EIN 51-6055922) (the "UFCW Plan") under the terms of the collective-bargaining agreement with its Fort Madison employees.

For the three and six months ended June 28, 2015, contributions to the UFCW Plan were $191 and $384, respectively. For the three and six months ended June 29, 2014, contributions to the UFCW Plan were $191 and $384, respectively. The contributions to this UFCW Plan are paid monthly based upon the number of employees. They represent less than 5% of the total contributions received by this UFCW Plan using available information during the most recent plan year.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The UFCW Plan received a Pension Protection Act “green” zone status for the plan year ending June 30, 2014. The zone status is based on information the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the "green" zone are at least 80 percent funded. The UFCW Plan did not utilize any extended amortization provisions that effect its placement in the "green" zone. The UFCW Plan has never been required to implement a funding improvement plan nor is one pending at this time.

12. Financial Instruments

Risk Management Objective of Using Derivatives

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

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

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

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

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the three and six months ended June 28, 2015 and June 29, 2014, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

As of June 28, 2015, the Company had the following interest rate swaps that were designated as cash flow hedges of interest rate risk:

Product

Number of

Instruments

Current

Notional

Amount

Fixed Rate Range

Index

Trade Dates

Maturity

Dates

Interest Rate Swaps

1,498,050

1.03% - 2.97%

USD-LIBOR-BBA

Apr 2013 - Oct 2013

Nov 2015 - Apr 2020

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Loss ("AOCL") in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reported in AOCL related to derivatives will be reclassified to Interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $4,580 will be reclassified as an increase to Interest expense.

Cash Flow Hedges of Foreign Exchange Risk

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

As of June 28, 2015, the Company had the following foreign currency exchange contracts (in aggregate) that were designated as cash flow hedges of foreign exchange risk:

Product

Number of

Instruments

Notional Sold in

Aggregate in CAD

Notional

Purchased in

Aggregate in USD

USD to CAD

Exchange

Rates

Trade Date

Maturity

Dates

CAD $ Contracts

12,000

10,903

1.099 - 1.102

Aug 2014

July 2015 - Dec 2015

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

Non-designated Hedges of Commodity Risk

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

As of June 28, 2015, the Company had the following derivative instruments that were not designated in qualifying hedging relationships:



Commodity Contracts	Number of Instruments	Notional Purchased in Aggregate	Price/Index	Trade Dates	Maturity Dates
Diesel Fuel Contracts	4	12,197,766 Gallons	$3.68 - $3.80 per Gallon	September 2014 - November 2014	July 2015 - December 2016
Heating Oil Contracts	1	180,653 Gallons	$1.82 Per Gallon	January 2015	December 2016
Natural Gas Contracts	2	99,952 MMBTU's	$4.12 - $4.40 per MMBTU	June 2014 - July 2014	December 2015
Soybean Oil Contracts	2	55,072,559 Pounds	$0.32 - $0.35 per Pound	December 2014 - March 2015	September 2015 - January 2017

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the Consolidated Balance Sheets as of June 28, 2015 and December 28, 2014.



	Tabular Disclosure of Fair Values of Derivative Instruments
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value as of June 28, 2015		Balance Sheet Location	Fair Value as of June 28, 2015
Derivatives designated as hedging instruments
Interest Rate Contracts	Other assets, net	$	441	Accrued liabilities	$	2,909
				Other long-term liabilities	5,819
Foreign Exchange Contracts	Other current assets	1,172
Total derivatives designated as hedging instruments		$	1,613		$	8,728
Derivatives not designated as hedging instruments
Commodity Contracts	Other assets, net	$	535	Accrued liabilities	4,207
				Other long-term liabilities	$	3,714
Total derivatives not designated as hedging instruments		$	535		$	7,921

	Balance Sheet Location	Fair Value as of December 28, 2014		Balance Sheet Location	Fair Value as of December 28, 2014
Derivatives designated as hedging instruments
Interest Rate Contracts	Other assets, net	$	6,420	Accrued liabilities	$	1,280
				Other long-term liabilities	3,263
Foreign Exchange Contracts	Other current assets	1,294
Total derivatives designated as hedging instruments		$	7,714		$	4,543
Derivatives not designated as hedging instruments
Commodity Contracts				Accrued liabilities	$	8,995
				Other long-term liabilities	3,016
Total derivatives not designated as hedging instruments		$	—		$	12,011

The Company has elected not to offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if the Company were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheets as of June 28, 2015 and December 28, 2014 would be adjusted as detailed in the following table:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



	June 28, 2015						December 28, 2014
Derivative Instrument	Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements		Net Amount		Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements		Net Amount
Total asset derivatives	$	2,148	(1,723	)	$	425	$	7,714	(5,039	)	$	2,675

Total liability derivatives	$	16,649	(1,723	)	14,926		$	16,554	(5,039	)	$	11,515

The table below presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations and AOCL for the three and six months ended June 28, 2015 and June 29, 2014.

Tabular Disclosure of the Effect of Derivative Instruments



Gain/(Loss)
Derivatives in Cash Flow Hedging Relationships	Recognized in AOCL on Derivative (Effective Portion)			Effective portion reclassified from AOCL to:	Reclassified from AOCL into Earnings (Effective Portion)			Ineffective portion recognized in Earnings in:	Recognized in Earnings (Ineffective Portion)
Interest Rate Contracts	$	2,564		Interest expense	$	(1,011	)	Interest expense	$	—
Foreign Exchange Contracts	(310		)	Cost of products sold	609			Cost of products sold	(14		)
Three months ended June 28, 2015	$	2,254			$	(402	)		$	(14	)

Interest Rate Contracts	$	(11,567	)	Interest expense	$	(1,403	)	Interest expense	$	—
Foreign Exchange Contracts	1,205			Cost of products sold	1,312			Cost of products sold	(15		)
Six months ended June 28, 2015	$	(10,362	)		$	(91	)		$	(15	)

Interest Rate Contracts	$	(11,691	)	Interest expense	$	(204	)	Interest expense	$	—
Foreign Exchange Contracts	(790		)	Cost of products sold	387			Cost of products sold	(11		)
Three months ended June 29, 2014	$	(12,481	)		$	183			$	(11	)

Interest Rate Contracts	$	(20,423	)	Interest expense	$	(245	)	Interest expense	$	—
Foreign Exchange Contracts	201			Cost of products sold	800			Cost of products sold	(8		)
Six months ended June 29, 2014	$	(20,222	)		$	555			$	(8	)

Derivatives Not Designated as Hedging Instruments				Recognized in Earnings in:	Recognized in Earnings
Commodity Contracts				Cost of products sold	$	1,934
Three months ended June 28, 2015					$	1,934

Commodity Contracts				Cost of products sold	$	(73	)
Six months ended June 28, 2015					$	(73	)

Commodity Contracts				Cost of products sold	$	309
Interest Rate Contracts				Interest expense	$	(15	)
Three months ended June 29, 2014					$	294

Commodity Contracts				Cost of products sold	$	(44	)
Interest Rate Contracts				Interest expense	$	(5	)
Six months ended June 29, 2014					$	(49	)

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Credit risk-related contingent features

The Company has agreements with certain counterparties that contain a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of June 28, 2015, the Company has not posted any collateral related to these agreements. If the Company had breached this provision at June 28, 2015, it could have been required to settle its obligations under the agreements at their termination value, which differs from the recorded fair value. The table below summarizes the aggregate fair values of those derivatives that contain credit risk-related contingent features as of June 28, 2015 and December 28, 2014.

June 28, 2015



Asset/(Liability)
Counterparty	Contract Type	Termination Value			Performance Risk Adjustment			Accrued Interest			Fair Value (excluding interest)
Barclays	Interest Rate Contracts	$	(4,304	)	$	569		$	(264	)	$	(3,471	)
	Foreign Exchange Contracts	1,173			(1		)	—			1,172
	Commodity Contracts	(5,041		)	114			—			(4,927		)
Bank of America	Interest Rate Contracts	(321		)	517			—			196
	Commodity Contracts	229			—			—			229
Credit Suisse	Interest Rate Contracts	(2,245		)	71			(264		)	(1,910		)
Macquarie	Interest Rate Contracts	(3,284		)	72			(111		)	(3,101		)
	Commodity Contracts	(2,703		)	14			—			(2,689		)
Total		$	(16,496	)	$	1,356		$	(639	)	$	(14,501	)

December 28, 2014



Asset/(Liability)
Counterparty	Contract Type	Termination Value			Performance Risk Adjustment		Accrued Interest			Fair Value (excluding interest)
Barclays	Interest Rate Contracts	$	550		$	667	$	(90	)	$	1,307
	Foreign Exchange Contracts	1,294			—		—			1,294
	Commodity Contracts	(6,300		)	—		—			(6,300		)
Bank of America	Interest Rate Contracts	1,578			627		—			2,205
Credit Suisse	Interest Rate Contracts	322			58		(90		)	470
Macquarie	Interest Rate Contracts	(2,262		)	80		(77		)	(2,105		)
	Commodity Contracts	(5,711		)	—		—			(5,711		)
Total		$	(10,529	)	$	1,432	$	(257	)	$	(8,840	)

13. Commitments and Contingencies

General

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

No single item individually is, nor are all of them in the aggregate, material.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

14. Related Party Transactions

Customer Purchases

Performance Food Group Company, which is controlled by affiliates of Blackstone, is a foodservice supplier that purchases products from the Company. Sales to Performance Food Group Company were $1,805 and $3,220 in the three and six months ended June 28, 2015, respectively. Sales to Performance Food Group Company were $1,133 and $2,208 in the three and six months ended June 29, 2014, respectively. As of June 28, 2015 and December 28, 2014, amounts due from Performance Food Group Company were $288 and $230, respectively, and were recorded in Accounts receivable, net of allowances in the Consolidated Balance Sheets.

Interest Expense

For the three and six months ended June 28, 2015, fees and interest expense recognized in the Consolidated Statements of Operations for debt owed to affiliates of Blackstone Advisors L.P. totaled $261 and $537, respectively. For the three and six months ended June 29, 2014, fees and interest expense recognized in the Consolidated Statements of Operations for debt owed to affiliates of Blackstone Advisors L.P. totaled $509 and $1,025, respectively. As of June 28, 2015 and December 28, 2014, debt owed to related parties was $24,834 and $47,315, respectively and was recorded in Long-term debt in the Consolidated Balance Sheets. As of June 28, 2015 and December 28, 2014, interest accrued on debt owed to related parties was $115 and $196, respectively, and was recorded in Accrued liabilities in the Consolidated Balance Sheets.

Upon completion of the May 8, 2015 public offering described in Note 1, Blackstone no longer beneficially owned any of the Company's outstanding common stock.

15. Segments

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

The Birds Eye Frozen segment is comprised of our Leadership Brands in the retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), plant based protein frozen products (gardein) and frozen prepared seafood (Van de Kamp’s and Mrs. Paul’s) categories, as well as our Foundation Brands in the full-calorie single-serve frozen dinners and entrées (Hungry-Man), frozen pancakes / waffles / French Toast (Aunt Jemima), frozen and refrigerated bagels (Lender’s) and frozen pizza for one (Celeste) categories.

The Duncan Hines Grocery segment is comprised of our Leadership Brands in the baking mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), liquid and dry-mix salad dressings (Wish-Bone and Western), and table syrups (Mrs. Butterworth’s and Log Cabin) categories, and our Foundation Brands in the canned meat (Armour, Nalley and Brooks), pie and pastry fillings (Duncan Hines Comstock and Wilderness), and barbecue sauces (Open Pit) categories as well as Canadian operations excluding Garden Protein.

The Company refers to the sum of the Birds Eye Frozen segment and the Duncan Hines Grocery segment as the North America Retail business.

The Specialty Foods segment consists of snack products (Tim's Cascade and Snyder of Berlin), foodservice and private label business.

Segment performance is evaluated by the Company’s Chief Operating Decision Maker and is based on earnings before interest and taxes. Transfers between segments and geographic areas are recorded at cost plus markup or at market. Identifiable assets are those assets, including goodwill, which are identified with the operations in each segment or geographic region. Corporate assets consist of prepaid and deferred tax assets. Unallocated corporate expenses consist of corporate overhead such as executive management, finance and legal functions. In 2014, also includes costs associated with the Hillshire merger agreement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



	Three months ended						Six months ended
SEGMENT INFORMATION	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Net sales
Birds Eye Frozen	$	268,859		$	246,188		$	586,749		$	540,466
Duncan Hines Grocery	277,994			289,963			539,192			554,867
Specialty Foods	84,893			81,649			171,086			166,506
Total	$	631,746		$	617,800		$	1,297,027		$	1,261,839
Earnings before interest and taxes
Birds Eye Frozen	$	37,978		$	37,068		$	81,255		$	83,796
Duncan Hines Grocery	51,041			46,349			94,248			89,022
Specialty Foods	7,599			6,348			15,299			13,420
Unallocated corporate expenses	(6,803		)	(7,855		)	(12,518		)	(14,237		)
Total	$	89,815		$	81,910		$	178,284		$	172,001
Depreciation and amortization
Birds Eye Frozen	$	10,747		$	9,714		$	21,415		$	19,663
Duncan Hines Grocery	8,081			6,901			15,081			13,363
Specialty Foods	3,461			2,962			6,661			6,932
Total	$	22,289		$	19,577		$	43,157		$	39,958
Capital expenditures (1)
Birds Eye Frozen	$	13,212		$	11,374		$	17,752		$	17,355
Duncan Hines Grocery	6,889			19,268			25,811			34,008
Specialty Foods	1,043			3,162			4,605			5,129
Total	$	21,144		$	33,804		$	48,168		$	56,492

NET SALES BY PRODUCT TYPE
Net sales
Frozen	$	305,335		$	283,597		$	664,474		$	620,831
Meals and Meal Enhancers	233,951			233,125			442,925			443,825
Desserts	65,279			73,951			137,133			144,672
Snacks	27,181			27,127			52,495			52,511
Total	$	631,746		$	617,800		$	1,297,027		$	1,261,839

GEOGRAPHIC INFORMATION
Net sales
United States	$	626,468		$	612,793		$	1,287,635		$	1,252,610
Canada	31,067			17,661			60,565			37,852
Intercompany	(25,789		)	(12,654		)	(51,173		)	(28,623		)
Total	$	631,746		$	617,800		$	1,297,027		$	1,261,839


(1)	Includes new capital leases.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



SEGMENT INFORMATION	June 28, 2015		December 28, 2014
Total assets
Birds Eye Frozen	$	2,125,524	$	2,123,902
Duncan Hines Grocery	2,621,945		2,612,311
Specialty Foods	347,620		343,177
Corporate	90,107		121,555
Total	$	5,185,196	$	5,200,945
GEOGRAPHIC INFORMATION
Long-lived assets
United States	$	596,189	$	592,541
Canada	12,716		13,365
Total	$	608,905	$	605,906

16. Provision for Income Taxes

The provision for income taxes and related effective tax rates for the three and six months ended June 28, 2015 and June 29, 2014, respectively, were as follows:



	Three months ended						Six months ended
Provision for Income Taxes	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Current	$	9,337		$	748		$	16,296		$	1,398
Deferred	14,624			21,086			33,123			45,438
Total	$	23,961		$	21,834		$	49,419		$	46,836

Effective tax rate	35.4		%	38.0		%	36.7		%	38.0		%

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

The provision for income taxes for the three and six months ended June 28, 2015 includes benefits related to the Domestic Production Activities Deduction and the foreign tax credit associated with our Canadian operations, which were not available to the Company during 2014. In addition, the provision for income taxes for each of the three and six months ended June 28, 2015 includes a $0.5 million benefit for the enactment of state tax legislation. For the three and six months ended June 29, 2014, the provision for income taxes includes benefits of $0.5 million and $1.1 million respectively for enactment of state tax legislation.

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

As of June 28, 2015 and June 29, 2014, the Company maintained a valuation allowance for certain state net operating loss (“NOL”) carryovers, state tax credit carryovers and foreign loss carryovers. There was no change in the valuation allowance for either of the six month periods ended June 28, 2015 and June 29, 2014.

The Company is a loss corporation as defined by Internal Revenue Code (“the Code”) Section 382. Section 382 places an annual limitation on our ability to use our Net Operating Loss carryovers (NOLs) and other attributes to reduce future taxable income. The September 12, 2014 secondary offering resulted in an ownership change that placed an annual limitation of approximately $94.0 million on approximately $230.8 million of our federal NOL carryovers which previously were not subject to an annual limitation. The annual limitation which applies to our federal NOLs before the ownership change is approximately $17.0 million to $23.0 million. The Company does not anticipate that the new limitation will impact the realization of the NOL carryovers. Each

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

of the NOL limitations is subject to adjustment for certain built in gain recognition items (as defined in Section 382 of the Code), subject to other rules and restrictions.

17. Recently Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs". The new guidance changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The updated guidance will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted for all entities for financial statements that have not been previously issued. The Company is in the process of evaluating this guidance.

In April 2015, the FASB issued ASU No. 2015-04, “Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets". The new guidance gives an employer whose fiscal year-end does not coincide with a calendar month-end (e.g., an entity that has a 52- or 53-week fiscal year, as the Company does) the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The updated guidance will be effective for annual reporting periods beginning after December 31, 2015, including interim periods within that reporting period. Early application is permitted, and the ASU should be applied prospectively. The Company is in the process of evaluating this guidance.

In May 2014, the FASB issued revised guidance on the recognition of revenue from contracts with customers. The guidance is designed to create greater comparability for financial statement users across industries and jurisdictions. The guidance also requires enhanced disclosures. The guidance was originally effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In April 2015, the FASB delayed the effective date of the new revenue guidance by one year. The updated guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to adopt the new revenue standard early, but not before the original effective date. The guidance permits the use of either a full retrospective or modified retrospective transition method. The Company is currently evaluating the impact that the new guidance will have on the consolidated financial statements, as well as which transition method it will use.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

18. Guarantor and Nonguarantor Statements

The 4.875% Senior Notes are general senior unsecured obligations of Pinnacle Foods Finance, effectively subordinated in right of payment to all existing and future senior secured indebtedness of Pinnacle Foods Finance and guaranteed on a full, unconditional, joint and several basis by the Company and Pinnacle Foods Finance's 100% owned domestic subsidiaries that guarantee other indebtedness of the Company. The indenture governing the 4.875% Senior Notes contains customary exceptions under which a guarantee of a guarantor subsidiary will terminate, including (1) the sale, exchange or transfer (by merger or otherwise) of the capital stock or all of the assets of such guarantor subsidiary, (2) the release or discharge of the guarantee by such guarantor subsidiary of the Amended Credit Agreement or other guarantee that resulted in the creation of the guarantee, (3) the designation of such guarantor subsidiary as an “unrestricted subsidiary” in accordance with the indenture governing the 4.875% Senior Notes and (4) upon the legal defeasance or covenant defeasance or discharge of the indenture governing the 4.875% Senior Notes.

The following condensed consolidating financial information presents:


(1)	(a) Condensed consolidating balance sheets as of June 28, 2015 and December 28, 2014.

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

i. Three and six months ended June 28, 2015; and

ii. Three and six months ended June 29, 2014.

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

i. Six months ended June 28, 2015; and

ii. Six months ended June 29, 2014.


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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Balance Sheet June 28, 2015

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Current assets:
Cash and cash equivalents	$	—		$	—		$	38,495		$	14,861		$	—		$	53,356
Accounts receivable, net	—			—			181,866			12,606			—			194,472
Intercompany accounts receivable	89,743			—			697,094			—			(786,837		)	—
Inventories, net	—			—			354,724			10,823			—			365,547
Other current assets	—			1,216			7,168			1,991			—			10,375
Deferred tax assets	—			1,015			87,421			342			—			88,778
Total current assets	89,743			2,231			1,366,768			40,623			(786,837		)	712,528
Plant assets, net	—			—			596,189			12,716			—			608,905
Investment in subsidiaries	1,683,137			2,290,336			27,469			—			(4,000,942		)	—
Intercompany note receivable	—			2,117,265			15,472			9,800			(2,142,537		)	—
Tradenames	—			—			1,996,800			4,779			—			2,001,579
Other assets, net	—			19,329			124,998			988			—			145,315
Deferred tax assets	—			322,396			—			—			(322,396		)	—
Goodwill	—			—			1,692,715			24,154			—			1,716,869
Total assets	$	1,772,880		$	4,751,557		$	5,820,411		$	93,060		$	(7,252,712	)	$	5,185,196
Current liabilities:
Short-term borrowings	$	—		$	—		$	1,794		$	—		$	—		$	1,794
Current portion of long-term obligations	—			5,250			5,981			82			—			11,313
Accounts payable	—			—			172,659			3,986			—			176,645
Intercompany accounts payable	—			774,563			—			12,274			(786,837		)	—
Accrued trade marketing expense	—			—			27,968			3,390			—			31,358
Accrued liabilities	170			19,112			77,348			1,908			—			98,538
Dividends payable	28,059			—			—			—			—			28,059
Total current liabilities	28,229			798,925			285,750			21,640			(786,837		)	347,707
Long-term debt	—			2,259,962			21,119			403			—			2,281,484
Intercompany note payable	—			—			2,105,896			36,641			(2,142,537		)	—
Pension and other postretirement benefits	—			—			58,608			—			—			58,608
Other long-term liabilities	—			9,533			23,860			3,528			—			36,921
Deferred tax liabilities	—			—			1,034,842			3,379			(322,396		)	715,825
Total liabilities	28,229			3,068,420			3,530,075			65,591			(3,251,770		)	3,440,545
Commitments and contingencies (Note 13)
Shareholders' equity:
Pinnacle common stock	1,176			—			—			—			—			1,176
Additional paid-in-capital	1,370,689			1,371,865			1,294,217			20,476			(2,686,558		)	1,370,689
Retained earnings	449,791			356,167			1,033,637			11,314			(1,401,118		)	449,791
Accumulated other comprehensive loss	(44,895		)	(44,895		)	(37,518		)	(4,321		)	86,734			(44,895		)
Capital stock in treasury, at cost	(32,110		)	—			—			—			—			(32,110		)
Total Shareholders' equity	1,744,651			1,683,137			2,290,336			27,469			(4,000,942		)	1,744,651
Total liabilities and shareholders' equity	$	1,772,880		$	4,751,557		$	5,820,411		$	93,060		$	(7,252,712	)	$	5,185,196

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Balance Sheet December 28, 2014

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Current assets:
Cash and cash equivalents	$	—		$	—		$	32,942		$	5,535		$	—		$	38,477
Accounts receivable, net	—			—			176,822			13,932			—			190,754
Intercompany accounts receivable	89,361			—			575,842			—			(665,203		)	—
Inventories, net	—			—			344,589			11,878			—			356,467
Other current assets	—			1,294			6,756			173			—			8,223
Deferred tax assets	—			1,015			120,488			285			—			121,788
Total current assets	89,361			2,309			1,257,439			31,803			(665,203		)	715,709
Plant assets, net	—			—			592,541			13,365			—			605,906
Investment in subsidiaries	1,652,475			2,188,789			75,740			—			(3,917,004		)	—
Intercompany note receivable	—			2,086,775			7,270			9,800			(2,103,845		)	—
Tradenames	—			—			1,951,392			50,482			—			2,001,874
Other assets, net	—			26,757			119,336			11,803			—			157,896
Deferred tax assets	—			307,584			—			—			(307,584		)	—
Goodwill	—			—			1,638,946			80,614			—			1,719,560
Total assets	$	1,741,836		$	4,612,214		$	5,642,664		$	197,867		$	(6,993,636	)	$	5,200,945
Current liabilities:
Short-term borrowings	$	—		$	—		$	2,396		$	—		$	—		$	2,396
Current portion of long-term obligations	—			5,250			6,746			(80		)	—			11,916
Accounts payable	—			—			194,671			3,908			—			198,579
Intercompany accounts payable	—			664,675			—			528			(665,203		)	—
Accrued trade marketing expense	—			—			33,039			3,171			—			36,210
Accrued liabilities	—			22,137			73,911			10,440			—			106,488
Dividends payable	27,847			—			—			—			—			27,847
Total current liabilities	27,847			692,062			310,763			17,967			(665,203		)	383,436
Long-term debt	—			2,261,397			24,142			445			—			2,285,984
Intercompany note payable	—			—			2,005,593			98,252			(2,103,845		)	—
Pension and other postretirement benefits	—			—			61,830			—			—			61,830
Other long-term liabilities	—			6,280			24,368			3,657			—			34,305
Deferred tax liabilities	—			—			1,027,179			1,806			(307,584		)	721,401
Total liabilities	27,847			2,959,739			3,453,875			122,127			(3,076,632		)	3,486,956
Commitments and contingencies (Note 13)
Shareholders' equity:
Pinnacle common stock	1,173			—			—			—			—			1,173
Additional paid-in-capital	1,363,129			1,364,302			1,285,084			67,181			(2,716,567		)	1,363,129
Retained earnings	419,531			325,907			942,185			10,977			(1,279,069		)	419,531
Accumulated other comprehensive loss	(37,734		)	(37,734		)	(38,480		)	(2,418		)	78,632			(37,734		)
Capital stock in treasury, at cost	(32,110		)	—			—			—			—			(32,110		)
Total Shareholders' equity	1,713,989			1,652,475			2,188,789			75,740			(3,917,004		)	1,713,989
Total liabilities and shareholders' equity	$	1,741,836		$	4,612,214		$	5,642,664		$	197,867		$	(6,993,636	)	$	5,200,945

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive Earnings For the three months ended June 28, 2015

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	—		$	626,468		$	31,067		$	(25,789	)	$	631,746
Cost of products sold	—			14			461,850			26,304			(25,531		)	462,637
Gross profit	—			(14		)	164,618			4,763			(258		)	169,109

Marketing and selling expenses	—			—			43,320			2,378			—			45,698
Administrative expenses	—			(129		)	26,308			1,486			—			27,665
Research and development expenses	—			—			3,449			140			—			3,589
Intercompany royalties	—			—			—			8			(8		)	—
Intercompany technical service fees	—			—			—			250			(250		)	—
Other expense (income), net	—			(522		)	2,830			34			—			2,342
Equity in (earnings) loss of investees	(43,679		)	(46,246		)	(266		)	—			90,191			—
	(43,679		)	(46,897		)	75,641			4,296			89,933			79,294
Earnings before interest and taxes	43,679			46,883			88,977			467			(90,191		)	89,815
Intercompany interest (income) expense	—			(17,181		)	16,908			273			—			—
Interest expense	—			21,808			367			12			—			22,187
Interest income	—			—			2			10			—			12
Earnings before income taxes	43,679			42,256			71,704			192			(90,191		)	67,640
Provision (benefit) for income taxes	—			(1,423		)	25,458			(74		)	—			23,961
Net earnings	$	43,679		$	43,679		$	46,246		$	266		$	(90,191	)	$	43,679

Total comprehensive earnings (loss)	$	45,715		$	45,715		$	46,100		$	(31	)	$	(91,784	)	$	45,715

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive Earnings For the three months ended June 29, 2014

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	—		$	612,793	$	17,661		$	(12,654	)	$	617,800
Cost of products sold	—			285			452,115		15,558			(12,375		)	455,583
Gross profit	—			(285		)	160,678		2,103			(279		)	162,217

Marketing and selling expenses	—			657			45,603		1,710			—			47,970
Administrative expenses	—			1,655			22,063		900			—			24,618
Research and development expenses	—			75			2,801		—			—			2,876
Intercompany royalties	—			—			—		9			(9		)	—
Intercompany technical service fees	—			—			—		270			(270		)	—
Other expense (income), net	—			250			4,593		—			—			4,843
Equity in (earnings) loss of investees	(35,584		)	(41,701		)	625		—			76,660			—
	(35,584		)	(39,064		)	75,685		2,889			76,381			80,307
Earnings before interest and taxes	35,584			38,779			84,993		(786		)	(76,660		)	81,910
Intercompany interest (income) expense	—			(16,891		)	16,855		36			—			—
Interest expense	—			23,980			537		7			—			24,524
Interest income	—			—			17		15			—			32
Earnings before income taxes	35,584			31,690			67,618		(814		)	(76,660		)	57,418
Provision (benefit) for income taxes	—			(3,894		)	25,917		(189		)	—			21,834
Net earnings	$	35,584		$	35,584		$	41,701	$	(625	)	$	(76,660	)	$	35,584

Total comprehensive earnings (loss)	$	27,852		$	27,852		$	40,987	$	(1,358	)	$	(67,481	)	$	27,852

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive Earnings For the six months ended June 28, 2015

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	—		$	1,287,635		$	60,565		$	(51,173	)	$	1,297,027
Cost of products sold	—			16			957,236			49,609			(50,660		)	956,201
Gross profit	—			(16		)	330,399			10,956			(513		)	340,826

Marketing and selling expenses	—			—			86,611			6,096			—			92,707
Administrative expenses	—			3			52,248			3,200			—			55,451
Research and development expenses	—			—			6,390			251			—			6,641
Intercompany royalties	—			—			—			14			(14		)	—
Intercompany technical service fees	—			—			—			499			(499		)	—
Other expense (income), net	—			1,311			6,396			36			—			7,743
Equity in (earnings) loss of investees	(85,215		)	(91,452		)	(337		)	—			177,004			—
	(85,215		)	(90,138		)	151,308			10,096			176,491			162,542
Earnings before interest and taxes	85,215			90,122			179,091			860			(177,004		)	178,284
Intercompany interest (income) expense	—			(34,359		)	33,829			530			—			—
Interest expense	—			42,929			863			23			—			43,815
Interest income	—			—			147			18			—			165
Earnings (loss) before income taxes	85,215			81,552			144,546			325			(177,004		)	134,634
Provision (benefit) for income taxes	—			(3,663		)	53,094			(12		)	—			49,419
Net earnings (loss)	$	85,215		$	85,215		$	91,452		$	337		$	(177,004	)	$	85,215

Total comprehensive earnings (loss)	$	78,054		$	78,054		$	90,511		$	(925	)	$	(167,640	)	$	78,054

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive Earnings For the six months ended June 29, 2014

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	—		$	1,252,610	$	37,852		$	(28,623	)	$	1,261,839
Cost of products sold	—			479			926,060		34,487			(28,065		)	932,961
Gross profit	—			(479		)	326,550		3,365			(558		)	328,878

Marketing and selling expenses	—			928			88,244		2,926			—			92,098
Administrative expenses	—			3,351			45,168		2,076			—			50,595
Research and development expenses	—			116			5,242		—			—			5,358
Intercompany royalties	—			—			—		18			(18		)	—
Intercompany technical service fees	—			—			—		540			(540		)	—
Other expense (income), net	—			250			8,576		—			—			8,826
Equity in (earnings) loss of investees	(76,332		)	(88,104		)	1,714		—			162,722			—
	(76,332		)	(83,459		)	148,944		5,560			162,164			156,877
Earnings before interest and taxes	76,332			82,980			177,606		(2,195		)	(162,722		)	172,001
Intercompany interest (income) expense	—			(33,781		)	33,710		71			—			—
Interest expense	—			47,892			984		15			—			48,891
Interest income	—			—			28		30			—			58
Earnings (loss) before income taxes	76,332			68,869			142,940		(2,251		)	(162,722		)	123,168
Provision (benefit) for income taxes	—			(7,463		)	54,836		(537		)	—			46,836
Net earnings (loss)	$	76,332		$	76,332		$	88,104	$	(1,714	)	$	(162,722	)	$	76,332

Total comprehensive earnings (loss)	$	63,519		$	63,519		$	87,620	$	(2,306	)	$	(148,833	)	$	63,519

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



Pinnacle Foods Inc. Condensed Consolidating Statement of Cash Flows For the six months ended June 28, 2015
	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	—		$	(6,195	)	$	137,365		$	(6,736	)	$	—		$	124,434
Cash flows from investing activities
Business acquisition activity	—			—			1,102			—			—			1,102
Intercompany accounts receivable/payable	—			—			(19,131		)	—			19,131			—
Intercompany loans	—			—			(7,209		)	—			7,209			—
Investment in Subsidiary	55,248			—			—			—			(55,248		)	—
Capital expenditures	—			—			(47,057		)	(1,111		)	—			(48,168		)
Net cash (used in) provided by investing activities	55,248			—			(72,295		)	(1,111		)	(28,908		)	(47,066		)
Cash flows from financing activities
Net proceeds from issuance of common stock	824			—			—			—			—			824
Excess tax benefits on stock-based compensation	1,076			—			—			—			—			1,076
Taxes paid related to net share settlement of equity awards	(2,401		)	—			—			—			—			(2,401		)
Dividends paid	(54,747		)	—			—			—			—			(54,747		)
Repayments of long-term obligations	—			(2,626		)	(1,796		)	—			—			(4,422		)
Proceeds from short-term borrowing	—			—			1,710			—			—			1,710
Repayments of short-term borrowing	—			—			(2,312		)	—			—			(2,312		)
Intercompany accounts receivable/payable	—			8,821			—			10,310			(19,131		)	—
Parent investment	—			—			(55,248		)	—			55,248			—
Intercompany loans										7,209			(7,209		)	—
Repayment of capital lease obligations	—			—			(1,871		)	—			—			(1,871		)
Net cash (used in) provided by financing activities	(55,248		)	6,195			(59,517		)	17,519			28,908			(62,143		)
Effect of exchange rate changes on cash	—			—			—			(346		)	—			(346		)
Net change in cash and cash equivalents	—			—			5,553			9,326			—			14,879
Cash and cash equivalents - beginning of period	—			—			32,942			5,535			—			38,477
Cash and cash equivalents - end of period	$	—		$	—		$	38,495		$	14,861		$	—		$	53,356

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Pinnacle Foods Inc. Condensed Consolidating Statement of Cash Flows For the six months ended June 29, 2014

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	—		$	(16,554	)	$	206,373		$	(3,265	)	$	—		$	186,554
Cash flows from investing activities
Payments for business acquisitions	—			—			(11,769		)	—			—			(11,769		)
Repayments of intercompany loans	—			45,717			—			—			(45,717		)	—
Investment in subsidiaries	50,745			—			—			—			(50,745		)	—
Capital expenditures	—			—			(56,210		)	—			—			(56,210		)
Net cash (used in) provided by investing activities	50,745			45,717			(67,979		)	—			(96,462		)	(67,979		)
Cash flows from financing activities
Proceeds from the issuance of common stock	165			—			—			—			—			165
Excess tax benefits on stock-based compensation	786			—			—			—			—			786
Taxes paid related to net share settlement of equity awards	(3,061		)	—			—			—			—			(3,061		)
Dividends paid	(48,635		)	—			—			—			—			(48,635		)
Repayments of long-term obligations	—			(10,775		)	(585		)	—			—			(11,360		)
Proceeds from short-term borrowing	—			—			1,773			—			—			1,773
Repayments of short-term borrowing	—			—			(2,185		)	—			—			(2,185		)
Intercompany accounts receivable/payable	—			(16,278		)	16,278			—			—			—
Repayments of intercompany loans	—			—			(45,717		)	—			45,717			—
Parent investment	—			(2,110		)	(48,635		)	—			50,745			—
Repayment of capital lease obligations	—			—			(1,755		)	—			—			(1,755		)
Debt acquisition costs	—			—			(214		)	—			—			(214		)
Net cash (used in) provided by financing activities	(50,745		)	(29,163		)	(81,040		)	—			96,462			(64,486		)
Effect of exchange rate changes on cash	—			—			—			6			—			6
Net change in cash and cash equivalents	—			—			57,354			(3,259		)	—			54,095
Cash and cash equivalents - beginning of period	—			—			104,345			12,394			—			116,739
Cash and cash equivalents - end of period	$	—		$	—		$	161,699		$	9,135		$	—		$	170,834

Table of Contents


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

(dollars in millions, except where noted)

You should read the following discussion of our results of operations and financial condition together with the audited consolidated financial statements appearing in our annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 24, 2015 and the unaudited Consolidated Financial Statements and the notes thereto included in this quarterly report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Form 10-K, and the section entitled “Special Note Regarding Forward-Looking Statements” in this report. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We are a leading manufacturer, marketer and distributor of high quality, branded food products in North America. The business is comprised of three segments: Birds Eye Frozen, Duncan Hines Grocery and Specialty Foods. Our Birds Eye Frozen segment is comprised of our Leadership Brands in the retail frozen vegetables (Birds Eye), frozen complete bagged meals (Birds Eye Voila!), plant based protein frozen products (gardein) and frozen prepared seafood (Van de Kamp’s and Mrs. Paul’s) categories, as well as our Foundation Brands in the full-calorie single-serve frozen dinners and entrées (Hungry-Man), frozen pancakes / waffles / French Toast (Aunt Jemima), frozen and refrigerated bagels (Lender’s) and frozen pizza for one (Celeste) categories. Our Duncan Hines Grocery segment is comprised of our Leadership Brands in the baking mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), liquid and dry-mix salad dressings (Wish-Bone and Western), and table syrups (Mrs. Butterworth’s and Log Cabin) categories, and our Foundation Brands in the canned meat (Armour, Nalley and Brooks), pie and pastry fillings (Duncan Hines Comstock and Wilderness), and barbecue sauces (Open Pit) categories as well as Canadian operations excluding Garden Protein. We refer to the sum of our Birds Eye Frozen segment and our Duncan Hines Grocery segment as our North America Retail business. Our Specialty Foods segment consists of snack products (Tim’s Cascade and Snyder of Berlin) and our Foodservice and Private Label businesses.

On November 14, 2014, Pinnacle acquired Garden Protein International Inc., ("Garden Protein") the manufacturer of the plant-based protein brand gardein. The brand is an innovator in the fast growing plant-based protein sector, with a line of award-winning frozen products that serve as alternatives for traditional animal-based protein formats, such as chicken strips and tenders, ground beef and fish fillets and recently introduced pork and crab cakes. As one of the fastest-growing frozen health and wellness brands in the U.S., gardein enjoys exceptional velocity trends across both traditional and non-traditional retailers, including the natural and organic channel.

Segment performance is evaluated by the Company’s Chief Operating Decision Maker and is based on earnings before interest and taxes. Transfers between segments and geographic areas are recorded at cost plus markup or at market. Identifiable assets are those assets, including goodwill, which are identified with the operations in each segment or geographic region. Corporate assets consist of prepaid and deferred tax assets. Unallocated corporate expenses consist of corporate overhead such as executive management and finance and legal functions. In 2014, also includes costs associated with the Hillshire merger agreement. Product contribution is defined as gross profit less direct to consumer advertising and marketing expenses, selling commissions and direct brand marketing overhead expenses.

Business Drivers and Measures

In operating our business and monitoring its performance, we pay attention to trends in the food manufacturing industry and a number of performance measures and operational factors. The industry experiences volatility in overall commodity prices from time to time, which has historically been managed by increasing retail prices. However, over the past several years, significant macroeconomic weakness and ongoing pressures on the consumer have resulted in shifting consumer buying patterns for grocery products. As a result, industry volumes have come under pressure, hampering the ability of the industry to pass along higher input costs.

Industry Trends

Growth in our industry is driven primarily by population growth, changes in product selling prices and changes in consumption between out-of-home and in-home eating. In the current economic environment, consumers are looking for value alternatives,

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which has caused an increase in the percentage of products sold on promotion and a shift from traditional retail grocery to mass merchandisers, club stores and dollar store channels. We believe we are well positioned in grocery and non-traditional channels, maintaining strong customer relationships across key retailers in each segment.

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

Revenue Factors

Our net sales are driven principally by the following factors:


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


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


◦	Cash discounts, returns and other allowances.


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


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


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

Cost Factors


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


•	Raw materials, such as vegetables and fruits, proteins, grains and oils, sugars, seafood and other agricultural products, among others, are available from numerous independent suppliers but are subject to price fluctuations due to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, weather conditions and insects, among others.


•	Packaging costs. Our broad array of products entails significant costs for packaging and is subject to fluctuations in the price of steel, aluminum, glass jars, plastic bottles, corrugated fiberboard, and various poly-films.


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


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


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


•	Advertising and other marketing expenses. These expenses represent advertising and other consumer and trade-oriented marketing programs.


•	Brokerage commissions and other overhead expenses.


•	Costs recorded in administrative and research and development expenses in the consolidated statement of operations include:


•	Administrative expenses. These expenses consist of personnel and facility charges and also include third party professional and other services. Our lean, nimble structure and efficient internal processes have enabled us to consistently hold our overhead costs (i.e., selling, general and administrative expenses, excluding one-time items) to approximately 9% of net sales on an annual basis.


•	Research and Development. These expenses consist of personnel and facility charges and include expenditures on new products and the improvement and maintenance of existing products and processes.

Working Capital

Our working capital is primarily driven by accounts receivable and inventories, which fluctuate throughout the year due to seasonality in both sales and production. See “Seasonality” below. We will continue to focus on reducing our working capital requirements while simultaneously maintaining our customer service levels and fulfilling our production requirements. We have

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historically relied on internally generated cash flows and temporary borrowings under our revolving credit facility to satisfy our working capital requirements.

Other Factors

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

•

Interest Expense. Our IPO and debt refinancings have improved our debt profile and significantly reduced our leverage and our expected future interest expense. However, as a result of the Blackstone Transaction, the Birds Eye acquisition and the Wish-Bone acquisition, we still have significant indebtedness. Although we expect to continue to reduce our leverage over time, which includes our July 8, 2014 $200.0 million principal payment of the Tranche G Term Loans, we expect interest expense to continue to be a significant, although declining, component of our expenses. Additionally, as of September 28, 2014, we achieved a total net leverage ratio of less than 4.25:1.0, which resulted in a 25 basis point reduction on the margin on our Amended Credit Agreement. Annual savings from 2014 levels of approximately $5.0 million are expected to be realized from the lower rate along with an additional approximately $5.0 million resulting from the July principal payment of $200.0 million. We have maintained our total leverage ratio under 4.25 since that time.


•	Cash Taxes. We have significant tax-deductible intangible asset amortization and federal and state NOLs, which resulted in minimal federal and state cash taxes in recent years. We expect continued amortization and utilization of our NOLs will significantly reduce our federal and state income tax payments through 2015 and generate modest annual cash tax savings thereafter.

Seasonality

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

Inflation

To the extent possible, we strive to offset the effects of inflation with cost reduction and productivity programs. However, we spend approximately $1.9 billion annually on Cost of products sold, therefore each 1% change in our weighted average cost of inputs would increase our Cost of products sold by approximately $19 million. If we experience significant inflation, price increases may be necessary in order to preserve our margins and returns. However, over the past several years, significant macroeconomic weakness and ongoing pressures on the consumer have resulted in shifting consumer buying patterns for grocery products. As a result, industry volumes have come under pressure, hampering our ability to pass along higher input costs. Severe increases in inflation could have an adverse impact on our business, financial condition and results of operations.

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Results of Operations:

Consolidated Statements of Operations

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



	Three months ended								Six months ended
	June 28, 2015				June 29, 2014				June 28, 2015				June 29, 2014
Net sales	$	631.7	100.0	%	$	617.8	100.0	%	$	1,297.0	100.0	%	$	1,261.8	100.0	%
Cost of products sold	462.6		73.2	%	455.6		73.7	%	956.2		73.7	%	933.0		73.9	%
Gross profit	169.1		26.8	%	162.2		26.3	%	340.8		26.3	%	328.8		26.1	%

Marketing and selling expenses	$	45.7	7.2	%	$	48.0	7.8	%	$	92.7	7.1	%	$	92.1	7.3	%
Administrative expenses	27.7		4.4	%	24.6		4.0	%	55.5		4.3	%	50.6		4.0	%
Research and development expenses	3.6		0.6	%	2.9		0.5	%	6.6		0.5	%	5.4		0.4	%
Other expense (income), net	2.3		0.4	%	4.8		0.8	%	7.7		0.6	%	8.8		0.7	%
	$	79.3	12.6	%	$	80.3	13.0	%	$	162.5	12.5	%	$	156.9	12.4	%
Earnings before interest and taxes	$	89.8	14.2	%	$	81.9	13.3	%	$	178.3	13.7	%	$	172.0	13.6	%



	Three months ended						Six months ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Net sales
Birds Eye Frozen	$	268.9		$	246.2		$	586.7		$	540.5
Duncan Hines Grocery	278.0			290.0			539.2			554.9
North America Retail	546.9			536.2			1,125.9			1,095.3

Specialty Foods	84.9			81.6			171.1			166.5
Total	$	631.7		$	617.8		$	1,297.0		$	1,261.8

Earnings before interest and taxes
Birds Eye Frozen	$	38.0		$	37.1		$	81.3		$	83.8
Duncan Hines Grocery	51.0			46.3			94.2			89.0
Specialty Foods	7.6			6.3			15.3			13.4
Unallocated corporate expenses	(6.8		)	(7.9		)	(12.5		)	(14.2		)
Total	$	89.8		$	81.9		$	178.3		$	172.0

Depreciation and amortization
Birds Eye Frozen	$	10.7		$	9.7		$	21.4		$	19.7
Duncan Hines Grocery	8.1			6.9			15.1			13.4
Specialty Foods	3.5			3.0			6.7			6.9
Total	$	22.3		$	19.6		$	43.2		$	40.0

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Adjustments to Earnings before Interest and Taxes and Depreciation and Amortization used in the calculation of Adjusted EBITDA as described below in the "Covenant Compliance" section, by Segment, are as follows:



	Three months ended						Six months ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Adjustments to Earnings before interest and taxes
Birds Eye Frozen	$	(1.5	)	$	(0.1	)	$	2.0		$	0.3
Duncan Hines Grocery	(1.0		)	2.2			2.4			4.4
Specialty Foods	(0.3		)	—			(0.2		)	0.1
Unallocated corporate (income) expenses	—			2.3			—			2.3

Three months ended June 28, 2015 compared to the three months ended June 29, 2014

Net sales

Net sales for the three months ended June 28, 2015 increased $13.9 million or 2.3% versus year-ago to $631.7 million, reflecting a 2.5% increase from the benefit of the Garden Protein acquisition and higher net price realization of 1.3% partially offset by a 1.2% decrease from volume/mix. The period also was impacted by unfavorable foreign currency translation of 0.3%. The earlier timing of the Easter holiday in 2015, which shifted sales into the first quarter from the second quarter, unfavorably impacted the net sales comparison by approximately 1%.

Net sales in our North America Retail business for the second quarter increased 2.0% versus year-ago to $546.9 million, reflecting a 2.9% increase from the Garden Protein acquisition and higher net price realization of 1.2% partially offset by a 1.7% decrease from volume/mix, driven by Easter timing. Also impacting the comparison was unfavorable foreign currency translation of 0.4%. In an industry generally marked by low growth and a price sensitive consumer environment, we continue to outpace the performance of our composite categories, with market share growth of 0.4 percentage points in the quarter.

Birds Eye Frozen Segment:

Net sales in the three months ended June 28, 2015 increased 9.2% versus year-ago to $268.9 million, reflecting a 6.4% increase from the Garden Protein acquisition, a 1.6% increase from volume/mix and higher net price realization of 1.2%. In addition to gardein, the current period benefited from double-digit sales growth of Birds Eye Voila! complete bagged meals, reflecting distribution gains and the expansion of Family Size offerings and strong sales of our Birds Eye frozen vegetables driven by our newly launched Steamfresh Flavor Full and Protein Blends platforms. Partially offsetting this growth were lower sales of the Foundation brands.

Duncan Hines Grocery Segment:

Net sales in the three months ended June 28, 2015 were $278.0 million, a decline of 4.1%, reflecting higher net price realization of 1.2% more than offset by a 4.6% decrease from volume/mix and unfavorable foreign currency translation of 0.7%. During the quarter we realized increased sales of our Log Cabin and Mrs. Butterworth's syrups. These increases were more than offset by lower net sales of our Duncan Hines products driven by category weakness and lower sales of Wish-Bone products, reflecting a highly competitive category environment.

Specialty Foods Segment:

Net sales in the three months ended June 28, 2015 were $84.9 million, an increase of 4.0%, reflecting a 1.8% increase from volume/mix and higher net pricing of 2.2%. This increase was primarily driven by increased sales of private label canned meat.

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Gross profit

Gross profit for the three months ended June 28, 2015 was $169.1 million, or 26.8% of net sales, compared to $162.2 million, or 26.3% of net sales, in the comparable prior year period. Impacting gross profit in the second quarter of 2015 were higher mark to market gains on financial instruments. Excluding these and other items affecting comparability, gross profit advanced 1.3% and gross profit percentage decreased 25 basis points. The decline in gross profit margin largely reflected the impacts of higher new product introductory costs and input cost inflation, which together more than offset the benefits of higher net price realization and strong productivity.

The following table outlines the factors resulting in the year on year change in gross profit and gross margin percentage in the three months ended June 28, 2015.



	$ (in millions)			% Net sales
Productivity	$	15.0		2.4	%
Favorable product mix	3.2			0.1
Higher net price realization, net of slotting	8.0			0.9
Higher mark to market gains on financial instruments	4.3			0.7
Inflation	(16.0		)	(2.5	)
Higher depreciation expense	(1.9		)	(0.3	)
Other (a)	(4.9		)	(0.8	)
Subtotal	$	7.7		0.5	%
Lower sales volume	(0.8		)
Total	$	6.9

(a) Consists primarily of business improvement initiatives and packaging investments.

Marketing and selling expenses

Marketing and selling expenses decreased 4.7% to $45.7 million, or 7.2% of net sales, for the three months ended June 28, 2015, compared to $48.0 million, or 7.8% of net sales for the prior year period. The decrease primarily reflected lower marketing expense due to timing of consumer marketing related to new products, partially offset by higher expenses as a result of the Garden Protein acquisition.

Administrative expenses

Administrative expenses were $27.7 million, or 4.4% of net sales, for the three months ended June 28, 2015, compared to $24.6 million, or 4.0% of net sales, for the comparable prior year period. The increase primarily reflected higher non-cash equity based compensation, depreciation expense and higher personnel expenses as a result of the Garden Protein acquisition.

Research and development expenses:

Research and development expenses were $3.6 million, or 0.6% of net sales, for the three months ended June 28, 2015 compared to $2.9 million, or 0.5% of net sales, for the prior year period. The increase primarily reflected innovation related expenses and higher personnel expense, including the impact of the Garden Protein acquisition.

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Other income and expense



	Three months ended
	June 28, 2015			June 29, 2014
Other expense (income), net consists of:
Amortization of intangibles/other assets	$	3.4		$	3.2
Unrealized foreign exchange gains	(0.7		)	—
Termination costs associated with the Hillshire merger agreement	—			2.1
Royalty income and other	(0.4		)	(0.4		)
Total other expense (income), net	$	2.3		$	4.8

Unrealized foreign exchange gains. Represents foreign exchange gains from intra-entity loans resulting from the Garden Protein acquisition that are anticipated to be settled in the foreseeable future.

Hillshire merger agreement. On May 12, 2014 the Company entered into a definitive merger agreement for the sale of the Company to The Hillshire Brands Company ("Hillshire"). Subsequently, Hillshire received an offer from Tyson Foods, Inc. ("Tyson") to acquire all of its outstanding common shares. On June 16, 2014, in light of the Tyson offer, Hillshire's board of directors withdrew its recommendation of the pending acquisition of the Company. Under the terms of the merger agreement, as a result of the change in recommendation, the Company had the right to terminate its merger agreement with Hillshire, which it did on June 30, 2014. The costs incurred in the three months ended June 29, 2014, primarily represent professional fees incurred related to the terminated merger agreement.

Earnings before interest and taxes

Earnings before interest and taxes for the three months ended June 28, 2015 were $89.8 million, an increase of 9.7%, or $7.9 million. Items affecting comparability in the three months ended June 28, 2015 and June 29, 2014, were $2.8 million of credits and $4.4 million of charges, respectively. The variance in these items primarily resulted from higher unrealized mark to market gains on financial instruments and intra-entity loans in 2015 and professional fees incurred related to the terminated agreement previously in place with Hillshire Brands incurred in 2014. Excluding these items, Earnings before interest and taxes increased $0.7 million, or 0.8%, primarily resulting from increased gross profit and lower consumer marketing, partially offset by higher administrative and research and development expenses.

Birds Eye Frozen Segment:

Earnings before interest and taxes for the three months ended June 28, 2015 were $38.0 million, an increase of 2.5%, or $0.9 million, as compared to the year-ago period. Excluding items affecting comparability, Earnings before interest and taxes decreased $0.6 million, or 1.5%, primarily resulting from net sales growth and productivity savings, more than offset by new product introductory costs, higher consumer marketing investment and input cost inflation.

Duncan Hines Grocery Segment:

Earnings before interest and taxes increased 10.1%, or $4.7 million, versus year-ago to $51.0 million for the three months ended June 28, 2015. Excluding items affecting comparability, Earnings before interest and taxes advanced 3.1%, or $1.5 million, driven by productivity savings and lower consumer marketing expense, partially offset by input cost inflation and the impact of the net sales decline.

Specialty Foods Segment:

Earnings before interest and taxes increased 19.7%, or $1.3 million, versus year-ago to $7.6 million for the three months ended June 28, 2015. Excluding items affecting comparability, Earnings before interest and taxes advanced 15.0%, or $1.0 million, largely reflecting the growth in net sales and productivity savings, partially offset by input cost inflation.

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Unallocated corporate expense:

Unallocated corporate expense for the three months ended June 28, 2015 was $6.8 million, as compared to $7.9 million in the year ago period. The change primarily reflected professional fees incurred related to the terminated agreement previously in place with Hillshire Brands incurred in the year ago quarter.

Interest expense, net

Net interest expense decreased 9.5%, or $2.3 million, to $22.2 million in the three months ended June 28, 2015, compared to $24.5 million in the three months ended June 29, 2014. The decrease primarily resulted from lower outstanding debt balances driven by our July 2014 $200.0 million principal payment as well as twenty five basis point lower rates on our term loans due to the benefit of our improved net leverage ratio. Also impacting the comparison was higher interest rate swap losses described below.

We utilize interest rate swap agreements to reduce the potential exposure to interest rate movements and to achieve a desired proportion of variable versus fixed rate debt. Any gains or losses realized on the interest rate swap agreements, excluding the AOCL portion, are recorded as an adjustment to interest expense. Included in net interest expense was $1.0 million and $0.2

million for the second quarters of 2015 and 2014, respectively, recorded from losses on interest rate swap agreements.

Provision for income taxes

The effective tax rate was 35.4% for the three months ended June 28, 2015 compared to 38.0% for the three months ended June 29, 2014. The effective tax rate difference relates to benefits of the Domestic Production Activities Deduction and the foreign tax credit associated with our Canadian operations, which were not available to the company during 2014. In addition, the effective tax rate for each of the three months ended June 28, 2015 and June 29, 2014 includes benefits of approximately 0.8% for changes to state tax legislation. For the three months ended June 28, 2015 and June 29, 2014, we maintained a valuation allowance against certain state net operating loss carryovers, state tax credit carryovers, and foreign loss carryovers. There was no change in the valuation allowance for either of the respective three month reporting periods.

Under Internal Revenue Code (“the Code”) Section 382, the Company is a loss corporation. Section 382 of the Code places limitations on our ability to use our Net Operating Loss carryovers (NOLs) to offset taxable income. The ownership change in the third quarter of 2014 placed an annual limitation of approximately $94.0 million on approximately $230.8 million of our federal NOL carryovers which previously were not subject to an annual limitation. The annual Federal NOL limitation that applies to our NOLs before the ownership change is approximately $17.0 million to $23.0 million. We do not anticipate that this new limitation will impact our realization of our NOL carryovers. Each of the NOL limitations is subject to adjustment for certain built in gain recognition items (as defined in IRC Section 382), subject to other rules and restrictions.

We have significant tax-deductible intangible asset amortization and federal and state NOLs, which resulted in minimal federal and state cash taxes in recent years. We expect continued amortization and utilization of our NOLs will significantly reduce our federal and state cash income tax payments through 2015 and generate modest annual cash tax savings thereafter.

Six months ended June 28, 2015 compared to the six months ended June 29, 2014

Net sales

Net sales for the six months ended June 28, 2015 increased $35.2 million or 2.8% versus year-ago to $1.30 billion, reflecting a 2.5% increase from the benefit of the Garden Protein acquisition and higher net price realization of 1.0% partially offset by a 0.4% decrease from volume/mix. The period also was impacted by unfavorable foreign currency translation of 0.3%.

Net sales in our North American retail business for the six months ended June 28, 2015 increased 2.8% versus year-ago to $1.13 billion reflecting a 2.8% increase from the Garden Protein acquisition and higher net price realization of 1.1% partially offset by a 0.7% decrease from volume/mix. Also impacting the comparison was unfavorable foreign currency translation of 0.4%. In an industry generally marked by low growth and a price sensitive consumer environment, we continue to outpace the performance of our composite categories, with market share growth in the six months of 0.4 percentage points.

Birds Eye Frozen Segment:

Net sales in the six months ended June 28, 2015 increased 8.6% versus year-ago to $586.7 million, reflecting a 5.8% increase from the Garden Protein acquisition, a 1.7% increase from volume/mix and higher net price realization of 1.1%. Excluding the impact of Garden Protein, the increase is primarily attributable to growth in Birds Eye frozen vegetables

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and Birds Eye Voila! complete bagged meals, reflecting distribution expansion and the benefit of recently launched new products, such as Birds Eye Steamfresh Flavor Full, Protein Blends and Birds Eye Voila! family size varieties. These increases were partially offset by lower sales of the Foundation brands.

Duncan Hines Grocery Segment:

Net sales in the six months ended June 28, 2015 were $539.2 million, a decline of 2.8%, reflecting higher net price realization of 0.9% more than offset by a 3.0% decrease from volume/mix and unfavorable foreign currency translation of 0.7%. Positively impacting the period were increased sales of our Log Cabin and Mrs. Butterworth's syrups. More than offsetting these increases were lower net sales of our Canadian operations, including the unfavorable impact from foreign exchange and lower sales of our Duncan Hines products due to category weakness.

Specialty Foods Segment:

Net sales in the six months ended June 28, 2015 increased 2.8% versus year-ago to $171.1 million, reflecting higher net pricing of 1.6% and a 1.2% increase from volume/mix. This increase was primarily driven by increased sales of private label canned meat.

Gross profit

Gross profit for the six months ended June 28, 2015 was $340.8 million, or 26.3% of net sales, compared to $328.8 million, or 26.1% of net sales, in the comparable prior year period. Impacting gross profit in the six months ended June 28, 2015 were higher mark to market gains on financial instruments. Excluding these and other items affecting comparability, gross profit advanced 2.6% and gross profit percentage decreased 4 basis points. The decline in gross profit margin largely reflected the impacts of input cost inflation partially and other items partially offset by the benefits of higher net price realization and strong productivity.

The following table outlines the factors resulting in the year on year change in gross profit and gross margin percentage in the six months ended June 28, 2015.



	$ (in millions)			% Net sales
Productivity	$	29.0		2.2	%
Favorable product mix	8.2			0.2
Higher net price realization, including slotting	13.2			0.7
Higher mark-to-market gains on financial instruments	4.9			0.4
Inflation	(33.0		)	(2.5	)
Higher depreciation expense	(2.7		)	(0.2	)
Employee incentives resulting from the termination of the Hillshire merger agreement	(1.1		)	(0.1	)
Other (a)	(8.1		)	(0.5	)
Subtotal	$	10.4		0.2	%
Higher sales volume	1.6
Total	$	12.0

(a) Consists primarily of business improvement initiatives and packaging investments.

Marketing and selling expenses

Marketing and selling expenses were $92.7 million, or 7.1% of net sales, for the six months ended June 28, 2015, compared to $92.1 million, or 7.3% of net sales, for the comparable prior year period. The decrease primarily reflected lower marketing expense due to timing of consumer marketing related to new products, partially offset by higher expenses as a result of the Garden Protein acquisition.

Administrative expenses

Administrative expenses were $55.5 million, or 4.3% of net sales, for the six months ended June 28, 2015, compared to $50.6 million, or 4.0% of net sales, for the comparable prior year period. The increase primarily reflected higher non-cash equity based compensation, depreciation expense and higher personnel expenses as a result of the Garden Protein acquisition.

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Research and development expenses:

Research and development expenses were $6.6 million, or 0.5% of net sales, for the six months ended June 28, 2015 compared to $5.4 million, or 0.4% of net sales, for the comparable prior year period. The increase primarily reflected innovation related expenses and higher personnel expense including the impact from the Garden Protein acquisition.

Other income and expense



	Six months ended
	June 28, 2015			June 29, 2014
Other expense (income), net consists of:
Amortization of intangibles/other assets	$	6.8		$	7.4
Unrealized foreign exchange losses	1.6			—
Termination costs associated with the Hillshire merger agreement	—			2.1
Royalty income and other	(0.6		)	(0.6		)
Total other expense (income), net	$	7.7		$	8.8

Unrealized foreign exchange losses. Represents foreign exchange losses from intra-entity loans resulting from the Garden Protein acquisition that are anticipated to be settled in the foreseeable future.

Hillshire merger agreement. On May 12, 2014 the Company entered into a definitive merger agreement for the sale of the Company to The Hillshire Brands Company ("Hillshire"). Subsequently, Hillshire received an offer from Tyson Foods, Inc. ("Tyson") to acquire all of its outstanding common shares. On June 16, 2014, in light of the Tyson offer, Hillshire's board of directors withdrew its recommendation of the pending acquisition of the Company. Under the terms of the merger agreement, as a result of the change in recommendation, the Company had the right to terminate its merger agreement with Hillshire, which it did on June 30, 2014. The costs incurred in the six months ended June 29, 2014, primarily represents professional fees incurred related to the terminated merger agreement.

Earnings before interest and taxes

Earnings before interest and taxes for the six months ended June 28, 2015 increased $6.3 million, or 3.7%, versus year-ago to $178.3 million. Impacting the six months ended June 28, 2015 and June 29, 2014 were $4.2 million and $7.0 million, respectively, of charges affecting comparability. The decrease in these charges primarily resulted from higher unrealized mark to market gains on financial instruments in the current year and professional fees incurred related to the terminated agreement previously in place with Hillshire Brands incurred in the year ago period. Excluding these items, Earnings before interest and taxes increased $3.5 million, or 1.9%, primarily resulting from increased gross profit and lower consumer marketing partially offset by higher administrative expense.

Birds Eye Frozen Segment:

Earnings before interest and taxes for the six months ended June 28, 2015 were $81.3 million, a decline of $2.5 million, or 3.0%, as compared to the year-ago period. Excluding items affecting comparability, Earnings before interest and taxes declined $0.9 million or 1.1%, largely reflecting input cost inflation, and higher marketing investment, particularly for our Birds-Eye products, partially offset by the net sales growth and productivity savings.

Duncan Hines Grocery Segment:

Earnings before interest and taxes for the six months ended June 28, 2015 were $94.2 million, an increase of 5.9%, as compared to the year-ago period. Excluding items affecting comparability, Earnings before interest and taxes increased $3.2 million or 3.5%, largely reflecting improved gross profit driven by productivity savings and favorable product mix and lower consumer marketing partially offset by the impacts of the net sales decline and input cost inflation.

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Specialty Foods Segment:

Earnings before interest and taxes for the six months ended June 28, 2015 were $15.3 million, an increase of $1.9 million, or 14.0%, versus year-ago. Excluding items affecting comparability, EBIT advanced $1.7 million or 12.4%, largely reflecting the growth in net sales and productivity savings and lower intangible amortization partially offset by input cost inflation.

Unallocated corporate expense:

Unallocated corporate expense for the six months ended June 28, 2015 was $12.5 million, as compared to $14.2 million in the year ago period. The change primarily reflected professional fees incurred related to the terminated agreement previously in place with Hillshire Brands incurred in the year ago period.

Interest expense, net

Net interest expense declined 10.6%, or $5.2 million, to $43.7 million in the six months ended June 28, 2015 from $48.8 million in the six months ended June 29, 2014. The decrease primarily resulted from lower outstanding debt balances driven by our July 2014 $200.0 million principal payment as well as twenty five basis point lower rates on our term loans due to the benefit of our improved net leverage ratio. Also impacting the comparison was higher interest rate swap losses described below.

Provision for income taxes

The effective tax rate was 36.7% for the six months ended June 28, 2015 compared to 38.0% for the six months ended June 29, 2014. The effective tax rate for the six months ended June 28, 2015 includes benefits related to the Domestic Production Activities Deduction and the foreign tax credit associated with our Canadian operations, which were not available to the company during 2014. In addition, the effective tax rate for each of the six months ended June 28, 2015 and June 29, 2014 includes benefits of 0.4% and 0.8% for changes to state tax legislation respectively. For the six months ended June 28, 2015 and June 29, 2014, we maintained a valuation allowance against certain state net operating loss carryovers, state tax credit carryovers, and foreign loss carryovers. There was no change in the valuation allowance for either of the respective six month reporting periods.

Liquidity and Capital Resources

Historical

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

Our principal liquidity requirements have been, and we expect will be, for working capital and general corporate purposes, including capital expenditures, debt service and our quarterly dividend program. Currently, the quarterly payment is $0.235 per share, or approximately $28 million per quarter. Capital expenditures are expected to be approximately $100 to $110 million in 2015, excluding any potential capital this year in the U.S. associated with the Garden Protein expansion. We have historically satisfied our liquidity requirements with internally generated cash flows and availability under our revolving credit facility. We expect that

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our ability to generate cash from our operations and ability to borrow from our credit facilities should be sufficient to support working capital needs, planned growth, capital expenditures, debt service and dividends for the next 12 months and for the foreseeable future. We have cash in foreign accounts, primarily related to the operations of our Canadian businesses. Tax liabilities related to bringing these funds back into the United States would not be significant and have been accrued.

Statements of cash flows for the six months ended June 28, 2015 compared to the six months ended June 29, 2014

For the six months ended June 28, 2015, net cash flow increased $14.9 million compared to an increase in net cash flow of $54.1 million for the six months ended June 29, 2014.

Net cash provided by operating activities was $124.4 million for the six months ended June 28, 2015, and was the result of net earnings, excluding non-cash charges and credits, of $166.4 million and an increase in working capital of $41.9 million. The increase in working capital was primarily the result of a $5.8 million decrease in accrued liabilities, primarily attributable to payment of the 2014 annual bonus, a $15.0 million decrease in accounts payable resulting from seasonal timing, a $9.7 million increase in inventories resulting from agricultural seasonal build that is expected to normalize by year end, a $4.7 million decrease in accrued trade marketing expense and a $4.5 million increase in accounts receivable driven by the timing of sales. The aging profile of accounts receivable has not changed significantly from December 2014. All other working capital accounts generated a net $2.3 million cash inflow.

Net cash provided by operating activities was $186.6 million for the six months ended June 29, 2014 and was the result of net earnings, excluding non-cash charges and credits, of $164.4 million and a decrease in working capital of $22.2 million. The decrease in working capital was primarily the result of a $33.3 million decrease in inventories resulting from the sell-down of the seasonal inventory build from December 2013 and a $13.8 million increase in accounts payable related to both Wish-Bone and the timing of our inventory purchases. These were partially offset by an $8.4 million increase in accounts receivable driven by the timing of sales, a $9.5 million decrease in accrued liabilities primarily attributable to payment of the 2013 annual bonus and a $5.2 million decrease in accrued trade marketing driven by the seasonality of our marketing programs. All other working capital accounts generated a net $1.9 million cash outflow.

Net cash used in investing activities was $47.1 million, for the six months ended June 28, 2015 and included $48.2 million for capital expenditures as well as $1.1 million of cash inflows from a Garden Protein acquisition post closing working capital adjustment. Capital expenditures during the first six months of 2015 included approximately $8.4 million of costs related to our acquisition integration projects.

Net cash used in investing activities was $68.0 million for the six months ended June 29, 2014 and included $56.2 million for capital expenditures as well as $11.8 million of cash outflows to partially fund the acquisition of the Duncan Hines co-manufacturing business. Capital expenditures during the first six months of 2014 included approximately $24.3 million of costs related to our acquisition integration projects.

Net cash used by financing activities for the six months ended June 28, 2015 was $62.1 million and consisted of $54.7 million of dividends paid, $6.9 million of debt repayments and $0.5 million of net cash outflows related to our equity based compensation plans.

Net cash used by financing activities for the six months ended June 29, 2014 was $64.5 million and consisted of $48.6 million of dividends paid, $13.5 million of debt repayments and $2.1 million of cash outflows related to our equity based compensation plans. All other financing activities generated a net $0.3 million outflow.

Debt

For more information on our debt, see Note 10 of the Consolidated Financial Statements "Debt and Interest Expense".

Covenant Compliance

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

Amended Credit Agreement

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

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•	incur additional indebtedness and make guarantees;


•	create liens on assets;


•	engage in mergers or consolidations;


•	sell assets;


•	pay dividends and distributions or repurchase our capital stock;


•	make investments, loans and advances, including acquisitions; and


•	engage in certain transactions with affiliates.

The Amended Credit Agreement also contains certain customary affirmative covenants and events of default.

4.875% Senior Notes

The 4.875% Senior Notes are general senior unsecured obligations, effectively subordinated in right of payment to all of our existing and future secured indebtedness, and guaranteed on a full, unconditional, joint and several basis by the Company and Pinnacle Foods Finance's wholly-owned domestic subsidiaries that guarantee our other indebtedness.

The indenture governing the 4.875% Senior Notes limits our (and our restricted subsidiaries’) ability to, subject to certain exceptions:


•	incur additional debt or issue certain preferred shares;


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


•	make certain investments;


•	sell certain assets;


•	create liens on certain assets to secure debt;


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


•	enter into certain transactions with our affiliates; and


•	designate our subsidiaries as unrestricted subsidiaries.

Subject to certain exceptions, the indenture governing the 4.875% Senior Notes permits us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

Covenant Compliance EBITDA

The Company's metric of Adjusted EBITDA, which is used in creating targets for the bonus portion of our compensation plan, is substantially equivalent to Covenant Compliance EBITDA under our debt agreements. We define Adjusted EBITDA as earnings before interest expense, taxes, depreciation and amortization, further adjusted to exclude non-cash items, extraordinary, as defined, unusual or non-recurring items and other adjustment items (“Adjusted EBITDA”).

Pursuant to the terms of the Amended Credit Agreement, Pinnacle Foods Finance is required to maintain a ratio of Net First Lien Secured Debt to Covenant Compliance EBITDA of no greater than 5.75 to 1.00. Net First Lien Secured Debt is defined as Pinnacle Foods Finance's aggregate consolidated secured indebtedness secured on a first lien basis, less the aggregate amount of all unrestricted cash and cash equivalents.

In addition, under the Amended Credit Agreement and the indenture governing the 4.875% Senior Notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to the Senior Secured Leverage Ratio (which is currently the same as the ratio of Net First Lien Secured Debt to Covenant Compliance EBITDA described above), in the case of the Amended Credit Agreement, or to the ratio of Covenant Compliance EBITDA to fixed charges for the most recently concluded four consecutive fiscal quarters, in the case of the 4.875% Senior Notes. We believe that these covenants are material terms of these agreements and that information about the covenants is material to an investor's understanding our financial performance. As of June 28, 2015, we were in compliance with all covenants and other obligations under the Amended Credit Agreement and the indenture governing the 4.875% Senior Notes.

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

EBITDA, Adjusted EBITDA and Covenant Compliance EBITDA do not represent net earnings or loss or cash flow from operations as those terms are defined by U.S. Generally Accepted Accounting Principles (“GAAP”) and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definitions of Covenant Compliance EBITDA in the Amended

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Credit Agreement and the indenture allow us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that vary greatly and are difficult to predict. While EBITDA, Adjusted EBITDA and Covenant Compliance EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

Our ability to meet the covenants specified above in future periods will depend on events beyond our control, and we cannot assure you that we will meet those ratios. A breach of any of these covenants in the future could result in a default under, or an inability to undertake certain activities in compliance with, the Amended Credit Agreement and the indenture governing the 4.875% Senior Notes, at which time the lenders could elect to declare all amounts outstanding under the Amended Credit Agreement to be immediately due and payable. Any such acceleration would also result in a default under the indenture governing the 4.875% Senior Notes.

The following table provides a reconciliation from our net earnings to EBITDA, Adjusted EBITDA and Covenant Compliance EBITDA for the three and six months ended June 28, 2015 and June 29, 2014, and the fiscal year ended December 28, 2014. The terms and related calculations are defined in the Amended Credit Agreement and the indenture governing the 4.875% Senior Notes.



(thousands of dollars)	Three months ended						Six months ended					Fiscal Year Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014		December 28, 2014
Net earnings	$	43,679		$	35,584		$	85,215		$	76,332	$	248,418
Interest expense, net	22,175			24,492			43,650			48,833		96,053
Income tax expense	23,961			21,834			49,419			46,836		167,800
Depreciation and amortization expense	22,290			19,578			43,157			39,958		80,627
EBITDA	$	112,105		$	101,488		$	221,441		$	211,959	$	592,898
Non-cash items (a)	(5,200		)	(158		)	(1,465		)	264		41,022
Acquisition, merger and other restructuring charges (b)	2,388			4,384			5,657			6,587		(130,050		)
Other adjustment items (c)	—			169			—			169		169
Adjusted EBITDA	$	109,293		$	105,883		$	225,633		$	218,979	$	504,039
Wish-Bone and Gardein Protein acquisition adjustments (1)	3,000			3,409			6,000			6,728		25,260
Non-cash equity-based compensation charges (2)	4,593			2,336			6,495			4,448		8,762
Covenant Compliance EBITDA	$	116,886		$	111,628		$	238,128		$	230,155	$	538,061
Last twelve months Covenant Compliance EBITDA							$	546,034

(1)

For the three months and six months ended June 28, 2015, represents the net cost savings projected to be realized from acquisition synergies from both the Garden Protein and Wish-Bone acquisitions, calculated consistent with the definition of Covenant Compliance EBITDA. For the three and six months ended June 29, 2014 and fiscal 2014, represents proforma additional EBITDA from Garden Protein for the period of fiscal 2014 prior to the acquisition and the net cost savings projected to be realized from acquisition synergies from both the Garden Protein and Wish-Bone acquisitions, calculated consistent with the definition of Covenant Compliance EBITDA.


(2)	Represents non-cash compensation charges related to the granting of equity awards that occur in the normal course of business. Awards that were issued as a result of the termination of the Hillshire merger agreement and awards that vested as a result of the Liquidity Event are being treated as an adjustment in the determination of Adjusted EBITDA. See Non-cash items below for details.

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



(thousands of dollars)	Three months ended						Six months ended					Fiscal Year Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014		December 28, 2014
Unrealized (gains) losses resulting from hedging activities (1)	$	(4,500	)	$	(158	)	$	(4,610	)	$	264	$	12,542
Effects of adjustments related to the application of purchase accounting (2)	—			—			—			—		636
Non-cash compensation charges (3)	—			—			1,567			$	—	27,189
Unrealized foreign exchange (gains) losses (4)	(700		)	—			1,578			$	—	655
Total non-cash items	$	(5,200	)	$	(158	)	$	(1,465	)	$	264	$	41,022

_________________


(1)	Represents non-cash (gains) losses resulting from mark-to-market adjustments of obligations under derivative contracts.


(2)	For fiscal 2014, represents expense related to the write-up to fair market value of inventories acquired as a result of the Garden Protein acquisition.


(3)	For the six months ended June 28, 2015, represents non-cash employee incentives and retention charges resulting from the termination of the Hillshire merger agreement. For fiscal 2014, represents non-cash employee incentives and retention charges resulting from the termination of the Hillshire merger agreement and equity based compensation charges resulting from the Liquidity event.


(4)	Represents foreign exchange (gains) losses resulting from intra-entity loans that are anticipated to be settled in the foreseeable future.


(b)	Acquisition, merger and other restructuring charges are comprised of the following:



(thousands of dollars)	Three months ended				Six months ended				Fiscal Year Ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014		December 28, 2014
Expenses in connection with an acquisition or other non-recurring merger costs (1)	$	362	$	2,100	$	1,128	$	2,100	$	(144,526	)
Restructuring charges, integration costs and other business optimization expenses (2)	2,026		2,284		4,529		4,062		11,011
Employee severance (3)	—		—		—		425		3,465
Total acquisition, merger and other restructuring charges	$	2,388	$	4,384	$	5,657	$	6,587	$	(130,050	)

_________________

(1)

For the three and six months ended June 28, 2015, represents expenses related to the secondary offerings of common stock. For the three and six months ended June 29, 2014, primarily represents professional fees incurred related to the terminated agreement previously in place with Hillshire Brands. For fiscal 2014, primarily represents receipt of Hillshire merger termination fee, net of professional fees and employee incentives incurred related to the terminated agreement. Also, includes expenses related to secondary offerings of common stock during 2014.

(2)

For the three and six months ended June 28, 2015, primarily represents integration costs of the Garden Protein and Wish-Bone acquisitions. For the three and six months June 29, 2014, represents integration costs of the Duncan Hines manufacturing business located in Centralia, Illinois and of the Wish-Bone acquisition and restructuring related costs from the closure of our Millsboro, DE facility. For fiscal 2014, represents integration costs of the Wish-Bone and Gilster acquisitions and a gain from the sale of our Millsboro, DE facility in September 2014.


(3)	Represents severance costs paid, or to be paid, to terminated employees.

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



(thousands of dollars)	Three months ended				Six months ended				Fiscal Year Ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014		December 28, 2014
Other	—		169		—		169		169
Total other adjustments	$	—	$	169	$	—	$	169	$	169

_________________

Our covenant requirements and actual ratios for the twelve months ended June 28, 2015 are as follows:



	Covenant Requirement	Actual Ratio
Amended Credit Agreement
Net First Lien Leverage Ratio (1)	5.75 to 1.00	3.46
Total Leverage Ratio (2)	Not applicable	4.13
Senior Notes (3)
Minimum Covenant Compliance EBITDA to fixed charges ratio required to incur additional debt pursuant to ratio provisions (4)	2.00 to 1.00	6.36

_________________

(1)

Pursuant to the terms of the Amended Credit Agreement, Pinnacle Foods Finance is required to maintain a ratio of Net First Lien Secured Debt to Covenant Compliance EBITDA of no greater than 5.75 to 1.00. Net First Lien Secured Debt is defined as Pinnacle Foods Finance's aggregate consolidated secured indebtedness secured on a first lien priority basis, less the aggregate amount of all unrestricted cash and cash equivalents.

(2)

The Total Leverage Ratio is not a financial covenant but is used to determine the applicable margin rate under the Amended Credit Agreement. As of September 28, 2014, we achieved a total net leverage ratio of less than 4.25:1.0, and maintained it at June 28, 2015, which resulted in a 25 basis point reduction on the margin on our Amended Credit Agreement. The Total Leverage Ratio is calculated by dividing consolidated total debt less the aggregate amount of all unrestricted cash and cash equivalents by Covenant Compliance EBITDA.


(3)	Our ability to incur additional debt and make certain restricted payments under the indenture governing the 4.875% Senior Notes, subject to specified exceptions, is tied to a Covenant Compliance EBITDA to fixed charges ratio of at least 2.00 to 1.00.


(4)	Fixed charges is defined in the indenture governing the 4.875% Senior Notes as (i) consolidated interest expense (excluding specified items) plus consolidated capitalized interest less consolidated interest income, plus (ii) cash dividends and distributions paid on preferred stock or disqualified stock.

Adjusted Gross Profit

Our management uses Adjusted Gross Profit as an operating performance measure. Adjusted Gross Profit is defined as gross profit before accelerated depreciation related to restructuring activities, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments noted in the table below. We believe that the presentation of Adjusted Gross Profit is useful to investors because it is consistent with our definition of Adjusted EBITDA (defined above), a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, we also use targets based on Adjusted Gross Profit as one of the components used to evaluate our management’s performance. Adjusted Gross Profit is not defined under GAAP, should not be considered in isolation or as substitutes for measures of our performance prepared in accordance with GAAP and is not indicative of gross profit as determined under GAAP.

The following table provides a reconciliation from our gross profit to Adjusted Gross Profit for the three and six months ended June 28, 2015 and June 29, 2014, and the fiscal year ended December 28, 2014.

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(thousands of dollars)	Three months ended						Six months ended						Fiscal Year Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014			December 28, 2014
Gross profit	$	169,109		$	162,217		$	340,826		$	328,878		$	681,198
Non-cash items (a)	(4,500		)	(158		)	(3,656		)	264			17,856
Acquisition, merger and other restructuring charges (b)	1,677			2,108			4,294			3,663			12,247
Adjusted Gross Profit	$	166,286		$	164,167		$	341,464		$	332,805		$	711,301

% of Net Sales	26.3		%	26.6		%	26.3		%	26.4		%	27.5		%


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



(thousands of dollars)	Three months ended						Six months ended					Fiscal Year Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014		December 28, 2014
Unrealized losses (gains) resulting from hedging activities (1)	$	(4,500	)	$	(158	)	$	(4,610	)	$	264	$	12,542
Effects of adjustments related to the application of purchase accounting (2)							—			—		636
Non-cash compensation charges (3)				—			954			—		4,678
Non-cash items	$	(4,500	)	$	(158	)	$	(3,656	)	$	264	$	17,856

_________________


(1)	Represents non-cash gains and losses resulting from mark-to-market obligations under derivative contracts.


(2)	For fiscal 2014, represents expense related to the write-up to fair market value of inventories acquired as a result of the Garden Protein acquisition.


(3)	Represents non-cash employee incentives and retention charges resulting from the termination of the Hillshire merger agreement.


(b)	Acquisition, merger and other restructuring charges are comprised of the following:



(thousands of dollars)	Three months ended				Six months ended				Fiscal Year Ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014		December 28, 2014
Expenses in connection with an acquisition or other non-recurring merger costs (1)	$	—	$	—	$	130	$	—	$	855
Restructuring charges, integration costs and other business optimization expenses (2)	1,677		2,108		$	4,164	$	3,663	10,697
Employee severance and recruiting (3)	—		—		—		—		695
Total acquisition, merger and other restructuring charges	$	1,677	$	2,108	$	4,294	$	3,663	$	12,247

_________________


(1)	For the three and six months ended June 28, 2015 and for fiscal 2014, represents expenses incurred related to the terminated agreement with Hillshire.

(2)

For the three and six months ended June 28, 2015, primarily represents integration costs of the Garden Protein and Wish-Bone acquisitions. For the three and six months ended June 29, 2014 primarily represents restructuring related charges related to the Duncan Hines manufacturing business located in Centralia, Illinois, integration costs for the Wish-Bone acquisition and the closure of our Millsboro, DE facility. For fiscal 2014, represents integration costs of the Wish-Bone and Gilster acquisitions and a gain from the sale of our Millsboro, DE facility in September 2014.


(3)	Represents severance costs paid or accrued to terminated employees.

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Contractual Commitments

Our contractual commitments consist mainly of payments related to long-term debt and related interest, operating and capital lease payments, certain take-or-pay arrangements entered into as part of the normal course of business and pension obligations. Refer to the “Contractual Commitments” section of the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K filed with the SEC on February 24, 2015 for details on our contractual obligations and commitments.

Off-Balance Sheet Arrangements

As of June 28, 2015, we did not have any off-balance sheet obligations.

Critical Accounting Policies and Estimates

We have disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Form 10-K filed on February 24, 2015, those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of the 10-K. We believe that the accounting principles utilized in preparing our unaudited consolidated financial statements conform in all material respects to GAAP.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FINANCIAL INSTRUMENTS

Risk Management Strategy

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, foreign exchange rates or commodity prices. Please refer to Note 12 of the Consolidated Financial Statements "Financial Instruments" for additional details regarding our derivatives and refer to Note 10 of the Consolidated Financial Statements "Debt and Interest Expense" for additional details regarding our debt instruments. There were no significant changes in our exposures to market risk since December 28, 2014.

See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” included in our Form 10-K filed on February 24, 2015.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 28, 2015. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective at a level of reasonable assurance.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended June 28, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1: LEGAL PROCEEDINGS

No material legal proceedings are currently pending.

ITEM 1A: RISK FACTORS

Our risk factors are summarized under the “Risk Factors” section of our Form 10-K filed on February 24, 2015. There have been no material changes to our risk factors since the filing of the Form 10-K.

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

None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: MINE SAFETY DISCLOSURES

None

ITEM 5: OTHER INFORMATION

Rule 10b5-1 Plans

Our policy governing transactions in our securities by our directors, officers and employees permits such persons to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Our directors, officers and employees have in the past and may from time to time establish such stock trading plans. We do not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically do not undertake to disclose the adoption, amendment, termination or explanation of any such plans.

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ITEM 6: EXHIBITS

See the Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements.” All statements, other than statements of historical facts included in this report, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, financing needs, plans or intentions relating to acquisitions, business trends and other information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Note 13. Commitments and Contingencies” are forward-looking statements. When used in this report, the words “estimates,” “expects,” “contemplates”, “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this report. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth in our Form 10-K filed with the SEC on February 24, 2015 under the section entitled “Risk Factors,” the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations” in this report and the following risks, uncertainties and factors:


•	competition;


•	our ability to predict, identify, interpret and respond to changes in consumer preferences;


•	the loss of any of our major customers;


•	our reliance on a single source provider for the manufacturing, co-packing and distribution of many of our products;


•	fluctuations in the price and supply of food ingredients, packaging materials and freight;


•	volatility in commodity prices and our failure to mitigate the risks related to commodity price fluctuation and foreign exchange risk through the use of derivative instruments;


•	costs and timeliness of integrating future acquisitions or our failure to realize anticipated cost savings, revenue enhancements or other synergies therefrom;


•	litigation or claims regarding our intellectual property rights or termination of our material licenses;


•	our ability to drive revenue growth in our key product categories or to add products that are in faster growing and more profitable categories;


•	potential product liability claims;


•	seasonality;


•	the funding of our defined benefit pension plans;


•	changes in our collective bargaining agreements or shifts in union policy;


•	changes in the cost of compliance with laws and regulations, including environmental, worker health and workplace safety laws and regulations;


•	our failure to comply with U.S Food & Drug Administration, U.S. Department of Agriculture or Federal Trade Commission regulations and the impact of governmental budget cuts;


•	disruptions in our information technology systems;


•	future impairments of our goodwill and intangible assets;


•	difficulty in the hiring or the retention of key management personnel; and


•	changes in tax statutes, tax rates, or case laws which impact tax positions we have taken.

You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this report apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PINNACLE FOODS INC.



By:	/s/ Craig Steeneck
Name:	Craig Steeneck
Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer and Authorized Officer)
Date:	July 31, 2015

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PINNACLE FOODS INC.

Exhibit Index



Exhibit Number	Exhibit Description	Filed Herewith	Incorporated by Reference from Form	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation of Pinnacle Foods Inc.		8-K	3.1	4/3/13
3.2	Amended and Restated Bylaws of Pinnacle Foods Inc.		8-K	3.2	4/3/13
4.1	Form of Stock Certificate for Common Stock		S-1/A	4.1	3/6/13
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	X
31.2	Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer	X
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2**	Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (A)	X
101.1***	The following materials are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Earnings, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information.	X

**This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

***In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a 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 and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act except as expressly set forth by specific reference in such filing.

Attached files

PINNACLE FOODS INC. Reports

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