WHITEWAVE FOODS Co - FORM 10-Q - May 10, 2016

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EX-32.1 - EXHIBIT 32.1 - WHITEWAVE FOODS Cowwav-20160331xex321.htm
EX-32.2 - EXHIBIT 32.2 - WHITEWAVE FOODS Cowwav-20160331xex322.htm
EX-31.1 - EXHIBIT 31.1 - WHITEWAVE FOODS Cowwav-20160331xex311.htm
EX-31.2 - EXHIBIT 31.2 - WHITEWAVE FOODS Cowwav-20160331xex312.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________ 
Form 10-Q
 _______________________________  
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2016
or
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from                      to                     
Commission File Number 001-35708
  _______________________________  
 
 
The WhiteWave Foods Company
(Exact name of the registrant as specified in its charter)
 _______________________________   
 
Delaware
 
46-0631061
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
1225 Seventeenth Street, Suite 1000
Denver, Colorado 80202
(303) 635-4500
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
  _______________________________   
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  ý
As of April 30, 2016, there were 176,918,229 outstanding shares of common stock, par value $0.01 per share.
 


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



ii

Part I — Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
The WhiteWave Foods Company
Condensed Consolidated Balance Sheets
(Unaudited)
 
March 31, 2016
 
December 31, 2015
 
(In thousands, except share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
39,421

 
$
38,610

Trade receivables, net of allowance of $2,416 and $2,127
289,483

 
257,548

Inventories
277,632

 
270,737

Prepaid expenses and other current assets
36,504

 
39,782

Total current assets
643,040

 
606,677

Equity method investments
28,941

 
30,772

Property, plant, and equipment, net
1,144,258

 
1,137,521

Identifiable intangible and other assets, net
1,060,633

 
1,038,577

Goodwill
1,428,861

 
1,415,322

Total Assets
$
4,305,733

 
$
4,228,869

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
513,529

 
$
549,713

Current portion of debt and capital lease obligations
46,336

 
51,449

Income taxes payable
4,234

 
3,043

Total current liabilities
564,099

 
604,205

Long-term debt and capital lease obligations, net of debt issuance costs
2,089,244

 
2,078,940

Deferred income taxes
302,678

 
293,326

Other long-term liabilities
41,113

 
41,490

Total liabilities
2,997,134

 
3,017,961

Commitments and Contingencies (Note 12)

 

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 170,000,000 shares authorized, no shares issued and outstanding at March 31, 2016 and December 31, 2015
—

 
—

Common stock, $0.01 par value; 1,700,000,000 shares authorized, 176,858,375 issued and outstanding at March 31, 2016; 176,246,199 issued and outstanding at December 31, 2015
1,768

 
1,762

Additional paid-in capital
924,932

 
914,975

Retained earnings
468,305

 
425,705

Accumulated other comprehensive loss
(86,406
)
 
(131,534
)
Total shareholders’ equity
1,308,599

 
1,210,908

Total Liabilities and Shareholders’ Equity
$
4,305,733

 
$
4,228,869

See notes to condensed consolidated financial statements (unaudited).

1

The WhiteWave Foods Company
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands, except share and per share amounts)
Net sales
$
1,039,695

 
$
911,142

Cost of sales
685,928

 
602,567

Gross profit
353,767

 
308,575

Operating expenses:
 
 
 
Selling, distribution and marketing
185,844

 
167,761

General and administrative
84,086

 
70,744

Total operating expenses
269,930

 
238,505

Operating income
83,837

 
70,070

Other expense:
 
 
 
Interest expense
13,680

 
8,667

Other expense, net
2,439

 
3,801

Total other expense
16,119

 
12,468

Income before income taxes
67,718

 
57,602

Income tax expense
22,908

 
20,182

Income before loss in equity method investments
44,810

 
37,420

Loss in equity method investments
2,210

 
4,073

Net income
$
42,600

 
$
33,347

Weighted average common shares:
 
 
 
Basic
176,550,367

 
174,693,383

Diluted
180,284,883

 
179,152,184

Net income per share:
 
 
 
Basic
$
0.24

 
$
0.19

Diluted
$
0.24

 
$
0.19

See notes to condensed consolidated financial statements (unaudited).

2

The WhiteWave Foods Company
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Net income
$
42,600

 
$
33,347

Other comprehensive income (loss), net of tax
 
 
 
Change in defined benefit pension plan, net of tax benefit/(expense) of $17 and ($116)
(36
)
 
231

Foreign currency translation adjustment
44,949

 
(43,670
)
Change in fair value of derivative instruments, net of tax benefit/(expense) of $157 and ($256)
215

 
496

Other comprehensive income (loss), net of tax
45,128

 
(42,943
)
Comprehensive income (loss)
$
87,728

 
$
(9,596
)
See notes to condensed consolidated financial statements (unaudited).

3

The WhiteWave Foods Company
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Equity
 
(In thousands, except share data)
Balance at December 31, 2015
176,246,199

 
$
1,762

 
$
914,975

 
$
425,705

 
$
(131,534
)
 
$
1,210,908

Net income
—

 
—

 
—

 
42,600

 
—

 
42,600

Share-based compensation
—

 
—

 
12,945

 
—

 
—

 
12,945

Excess tax benefit from share-based compensation
—

 
—

 
5,115

 
—

 
—

 
5,115

Shares issued in connection with share-based compensation
612,176

 
6

 
3,126

 
—

 
—

 
3,132

Minimum tax withholdings related to net share settlements of stock based compensation
—

 
—

 
(11,229
)
 
—

 
—

 
(11,229
)
Other comprehensive income
—

 
—

 
—

 
—

 
45,128

 
45,128

Balance at March 31, 2016
176,858,375

 
$
1,768

 
$
924,932

 
$
468,305

 
$
(86,406
)
 
$
1,308,599

See notes to condensed consolidated financial statements (unaudited).

4

The WhiteWave Foods Company
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-
In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Equity
 
(In thousands, except share data)
Balance at December 31, 2014
174,388,132

 
$
1,744

 
$
878,549

 
$
257,312

 
$
(61,118
)
 
$
1,076,487

Net income
—


—


—


33,347


—


33,347

Share-based compensation
—


—


12,796


—


—


12,796

Excess tax benefit from share-based compensation
—


—


4,778


—


—


4,778

Shares issued in connection with share-based compensation
716,629


7


1,830


—


—


1,837

Minimum tax withholdings related to net share settlements of stock based compensation
—

 
—

 
(7,484
)
 
—

 
—

 
(7,484
)
Other comprehensive loss
—


—


—


—


(42,943
)

(42,943
)
Balance at March 31, 2015
175,104,761

 
$
1,751

 
$
890,469

 
$
290,659

 
$
(104,061
)
 
$
1,078,818

See notes to condensed consolidated financial statements (unaudited).

5

The WhiteWave Foods Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
42,600

 
$
33,347

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
33,440

 
27,530

Share-based compensation expense
12,945

 
12,796

Amortization of debt issuance costs
1,108

 
1,015

Loss/(gain) on disposals and other, net
4,853

 
(108
)
Deferred income taxes
3,073

 
5,051

Mark-to-market on derivative instruments
322

 
2,979

Loss in equity method investments
2,210

 
4,073

Other
(1,314
)
 
(1,554
)
Net change in operating assets and liabilities, net of acquisitions
(51,448
)
 
(20,713
)
Net cash provided by operating activities
47,789

 
64,416

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Payments for acquisitions, net of cash acquired
(60
)
 
—

Proceeds from acquisition adjustments
—

 
346

Payments for property, plant, and equipment
(48,559
)
 
(91,703
)
Proceeds from sale of fixed assets
49

 
1,589

Net cash used in investing activities
(48,570
)
 
(89,768
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayment of debt
(11,250
)
 
(5,000
)
Payments on capital lease obligations
(286
)
 
(290
)
Proceeds from revolver line of credit
183,034

 
83,125

Payments on revolver line of credit
(167,472
)
 
(66,750
)
Proceeds from exercise of stock options
3,126

 
1,830

Minimum tax withholding paid on behalf of employees for share-based compensation
(11,229
)
 
(7,484
)
Excess tax benefit from share-based compensation
5,373

 
4,778

Payment of deferred financing costs
(130
)
 
(39
)
Net cash provided by financing activities
1,166

 
10,170

Effect of exchange rate changes on cash and cash equivalents
426

 
(4,118
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
811

 
(19,300
)
Cash and cash equivalents, beginning of period
38,610

 
50,240

Cash and cash equivalents, end of period
$
39,421

 
$
30,940

SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Non-cash activity - Unpaid purchases of plant and equipment
$
19,300

 
$
13,177

See notes to condensed consolidated financial statements (unaudited).

6

THE WHITEWAVE FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2016 and 2015
(Unaudited)
Unless otherwise indicated, references in these notes to the unaudited condensed consolidated financial statements to “we,” “us,” “our,” “WhiteWave,” or the “Company” refer to The WhiteWave Foods Company’s operations, taken as a whole.
1. General
Nature of Our Business — We are a leading consumer packaged food and beverage company focused on high-growth product categories that are aligned with emerging consumer trends. We manufacture, market and sell branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce. We sell products primarily in North America, Europe and through a joint venture in China. We focus on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. Our widely-recognized, leading brands distributed in North America include Silk, So Delicious and Vega plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, Horizon Organic and Wallaby Organic premium dairy products and Earthbound Farm organic salads, fruits and vegetables. Our popular plant-based foods and beverages brands in Europe include Alpro and Provamel.

Effective January 1, 2016, we report results of operations through two reportable segments: Americas Foods & Beverages and Europe Foods & Beverages. This reporting structure aligns with the way our Chief Operating Decision Maker ("CODM"), our CEO, monitors operating performance, allocates resources, and deploys capital. In 2014 and 2015, we reported results of operations through three reportable segments: Americas Foods & Beverages, Americas Fresh Foods and Europe Foods & Beverages.  In connection with our recent management restructure, we consolidated the historical Americas Foods & Beverages and Americas Fresh Foods segments into a single Americas Foods & Beverages segment under the leadership of Kevin Yost, U.S. Group President, Americas Foods & Beverages. Accordingly, prior year segment data has been recast to reflect this new segment structure.
Basis of Presentation — The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission ("SEC") on February 29, 2016.
In our opinion, we have made all necessary adjustments (which generally include normal recurring adjustments) in order to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to SEC rules and regulations. Our results of operations for the three months ended March 31, 2016 and 2015 may not be indicative of our operating results for the full year. The unaudited condensed consolidated financial statements contained in this Form 10-Q should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015 contained in our Annual Report on Form 10-K for the year ended December 31, 2015.
Certain reclassifications of previously reported amounts have been made to conform to current year presentation in Note 13 "Segment, Geographic, and Customer Information.” These reclassifications did not impact previously reported amounts on the Company’s unaudited condensed consolidated balance sheets, statements of income, shareholders' equity or statements of cash flows.
Recently Issued Accounting Pronouncements — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606, to clarify the principles used to recognize revenue for all entities. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09. The new guidance will be effective for annual and interim periods beginning on or after December 15, 2017 and will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. Early adoption will be permitted as of the December 31, 2016 original effective date. We are currently evaluating the effects, if any, adoption of this guidance will have on the Company's consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on management's responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure requirements. This guidance applies to all entities and is effective for annual periods ending after

7

December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption will not have an impact to the Company’s consolidated financial statements. It will require establishing a going concern assessment process to meet the standard.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This ASU discusses amendments to existing accounting guidance to modify the subsequent measurement of inventory. Under existing guidance, an entity measures inventory at the lower of cost or market, with market defined as replacement cost, net realizable value (NRV), or NRV less a normal profit margin. An entity uses current replacement cost provided that it is not above NRV (ceiling) or below NRV less a normal profit margin (floor). Amendments in the new guidance require an entity to subsequently measure inventory at the lower of cost or net realizable value and eliminates the need to determine replacement cost and evaluate whether it is above the ceiling or below the floor. NRV is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. For public business entities, the ASU is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted for all entities and should be applied prospectively. We expect that the adoption of this guidance will not have any impact on the Company's consolidated financial statements.    
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the effects adoption of this guidance will have on the Company’s consolidated financial statements or financial statement disclosures.

In March 2016, the FASB issued ASU No. 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The ASU clarifies that “a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met.” For public business entities, the amendments in the ASU are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Early adoption is permitted. Entities have the option of applying the amendments in the ASU on either a prospective basis or a modified retrospective basis. We are currently evaluating the effects adoption of this guidance will have on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement that when an existing cost method investment qualifies for use of the equity method, an investor must restate its historical financial statements as if the equity method had been used during all previous periods. Under the new guidance, at the point an investment qualifies for the equity method, any unrealized gain or loss in accumulated other comprehensive income/(loss) ("AOCI") will be recognized through earnings. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. We are currently evaluating the effects adoption of this guidance will have on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), to clarify certain aspects of the principal-versus-agent guidance in its new revenue recognition standard in response to feedback received from the FASB-IASB joint revenue recognition transition resource group. The ASU clarifies implementation guidance on principal-versus-agent considerations. In addition, ASU 2016-08 updates the indicators in ASC 606-10-55-39 and revises the existing examples in ASC 606 to better illustrate the application of the principal-versus-agent guidance. The amendments in the ASU are effective at the same time as those in ASU 2014-09 (as amended by ASU 2015-14). We are currently evaluating the effects adoption of this guidance will have on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. We are currently evaluating the effects adoption of this guidance will have on the Company’s consolidated financial statements or financial statement disclosures.

8

2. Acquisitions
Acquisitions
 
EIEIO
On May 29, 2015, the Company acquired substantially all of the assets and liabilities of EIEIO, Inc. ("EIEIO"), the company that owns the Magicow brand and other brands, for $40.2 million in cash. EIEIO, which is based outside Austin, Texas, manufactures, markets and distributes bulk, bag-in-box and shelf stable creamers, coffee beverages and whip toppings.  The acquisition of EIEIO expanded our portfolio of bulk coffee creamer and flavor dispensing products and provided new product capabilities to support growth in our away-from-home channel. EIEIO's results of operations have been included in our condensed consolidated statements of income of our Americas Foods & Beverages segment from the date of acquisition.
The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were determined by management based in part on an independent valuation of assets acquired, which includes intangible assets of approximately $21.8 million and relate primarily to tradenames. Intangible assets subject to amortization of approximately $10.2 million are being amortized over a 15 year term and relate primarily to customer relationships. The purchase price allocations are based upon preliminary valuations. The Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized. Certain estimated values for the acquisition are not yet finalized pending the final purchase price allocations. We expect to finalize the allocation of the purchase price in the second quarter of 2016. Any change in the estimated fair value of the net assets will change the purchase price allocation.

Vega

On August 1, 2015, we completed our acquisition of Sequel Naturals Ltd, the company that owns the Vega brand ("Vega") and is a pioneer and leader in plant-based nutrition products, for approximately $553.6 million in cash funded by borrowings under our credit facility. Vega offers a broad range of plant-based nutrition products - primarily powdered shakes and snack bars. This acquisition extended the Company's plant-based foods and beverages platform into nutritional powders and bars, and provided additional innovation opportunities. We have included Vega's results of operations in our condensed consolidated statements of income in our Americas Foods & Beverages segment from the date of acquisition.

The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were determined by management based in part on an independent valuation of assets acquired, which includes intangible assets of approximately $296.9 million and relate primarily to tradenames and customer relationships. Intangible assets subject to amortization of approximately $106.9 million are being amortized over a 15 year term and relate primarily to customer relationships. The purchase price allocations are based upon preliminary valuations. The Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized. Certain estimated values for the acquisition are not yet finalized pending the final purchase price allocations. We expect to finalize the allocation of the purchase price within one year of the acquisition.
Any change in the estimated fair value of the net assets will change the purchase price allocation. In the three months ended March 31, 2016, we recorded $4.0 million of purchase accounting adjustments to goodwill. See Note 5 "Goodwill and Intangible Assets."

Wallaby    

On August 30, 2015, we completed our acquisition of Wallaby Yogurt Company, Inc. ("Wallaby") for approximately $122.4 million in cash. We funded this acquisition with borrowings under our credit facility. Founded in 1994 and based in American Canyon, California, Wallaby is a leading manufacturer and distributor of organic dairy yogurt products including Greek and Australian style yogurts and Kefir beverages. The addition of Wallaby strengthened and expanded our growing yogurt portfolio and provided entry into several fast-growing yogurt categories. The acquisition also provided us with additional West Coast based manufacturing capabilities and further expansion and growth opportunities. We have included Wallaby's results of operations in our condensed consolidated statements of income in our Americas Foods & Beverages segment from the date of acquisition.

The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were estimated by management based in part on a preliminary independent valuation of assets acquired, which includes intangible assets of approximately $57.1 million and relate primarily to tradenames. Estimated intangible assets subject to amortization of approximately $9.1 million are being

9

amortized over a 15 year term and relate primarily to customer relationships. The purchase price allocations are based upon preliminary valuations. The Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized. Certain estimated values for the acquisition are not yet finalized pending the final purchase price allocations. We expect to finalize the allocation of the purchase price within one year of the acquisition. Any change in the estimated fair value of the net assets will change the purchase price allocation. In the three months ended March 31, 2016, we recorded $6.2 million of purchase accounting adjustments to goodwill. See Note 5 "Goodwill and Intangible Assets."
The following table summarizes allocation of the purchase price to the fair value of assets acquired and liabilities assumed for the fiscal 2015 acquisitions. The allocation of the purchase price in the table below is preliminary and subject to change based on the finalization of the valuations.
 
 
EIEIO
 
Vega
 
Wallaby
 
May 29, 2015
 
August 1, 2015
 
August 30, 2015
 
(In thousands)
Assets acquired:
 
 
 
 
 
Cash and cash equivalents
$
1,546

 
$
5,235

 
1,740

Inventories
3,050

 
18,440

 
2,252

Other current assets
1,951

 
18,857

 
5,245

Property, plant and equipment
554

 
650

 
11,492

Trademarks
11,600

 
189,963

 
48,036

Intangible assets with finite lives
10,160

 
106,920

 
9,058

Other long-term assets
—

 
1,756

 
50

Liabilities assumed:
 
 
 
 
 
Accounts payable and other accruals
2,296

 
12,909

 
1,542

Deferred taxes
—

 
77,015

 
—

Other long-term liabilities
48

 
7,581

 
1,031

Total identifiable net assets
26,517

 
244,316

 
75,300

Goodwill
13,685

 
309,316

 
47,052

Total purchase price
$
40,202

 
$
553,632

 
$
122,352

Goodwill is calculated as the excess of consideration paid over the net assets acquired and represents synergies, organic growth and other benefits that are expected to arise from integrating the EIEIO, Vega and Wallaby businesses into our operations. Goodwill is recorded in the Americas Foods & Beverages segment. Goodwill related to EIEIO and Wallaby is tax deductible. None of the goodwill recorded in the Vega acquisition is tax deductible.

The following table summarizes unaudited supplemental pro forma consolidated results of operations as if we acquired EIEIO, Vega and Wallaby on January 1, 2015: 
 
Three months ended March 31,
 
2015
 
(In thousands, except share data)
Net sales
$
956,899

Income before income taxes
60,155

Diluted earnings per common share
$
0.20


The historical financial information has been adjusted to give effect to the pro forma adjustments. These adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been had it completed the acquisitions on January 1, 2015. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined companies nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisitions. The pro forma consolidated results reflect purchase accounting adjustments primarily related to depreciation and amortization expense, as well as interest expense, tax expense and acquisition related costs.

10

3. Joint Venture with China Mengniu Dairy Company
On January 5, 2014, the Company entered into a joint venture agreement with China Mengniu Dairy Company Limited (“Mengniu”), a leading Chinese dairy company. The joint venture manufactures, markets and sells a range of premium plant-based beverage products in China. Under the terms of the agreement, the Company owns a 49% stake in the venture while Mengniu owns a 51% stake.
Based on the joint venture agreement, the Company has the ability to exert significant influence over the operations and financial policies of the joint venture and has in-substance common stock in the joint venture. Thus, the joint venture is accounted for as an equity-method investment. No contributions were made during the three months ended March 31, 2016 as the joint venture entered into a new credit facility in 2016 with Mengniu for up to an additional Chinese yuan (CNY) of 90 million ($14.0 million USD) in addition to its existing credit facility of Chinese yuan 120 million ($18.6 million USD). The new facility is expected to support its liquidity requirements for 2016. We guarantee up to 49% on the total commitment amount of these credit facilities or Chinese yuan 102.9 million ($16.0 million USD). As of March 31, 2016, the joint venture had borrowed Chinese yuan 150 million ($23.3 million USD) under the facilities.

4. Inventories
Inventories consisted of the following:
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Raw materials and supplies
$
120,720

 
$
120,922

Finished goods
156,912

 
149,815

Total
$
277,632

 
$
270,737

5. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2016 are as follows:
 
 
Americas Foods & Beverages
 
Europe Foods & Beverages
 
Total
 
(In thousands)
Balance at December 31, 2015
$
1,278,753

 
$
136,569

 
$
1,415,322

Purchase price adjustments (1)
(10,188
)
 
—

 
(10,188
)
Foreign currency translation
17,637

 
6,090

 
23,727

Balance at March 31, 2016
$
1,286,202

 
$
142,659

 
$
1,428,861

(1) Purchase price adjustments are the result of intangible asset valuation adjustments and the impact of final pre-acquisition tax returns filed in the first quarter 2016.
The gross carrying amount and accumulated amortization of our intangible assets, other than goodwill, as of March 31, 2016 and December 31, 2015 are as follows:
 

11

 
March 31, 2016
 
December 31, 2015
 
Gross 
carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
 
Gross 
carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
 
(In thousands)
Intangible assets with indefinite lives:
 
 
 
 
 
 
 
 
 
 
 
Trademarks (1)
$
792,822

 
$
—

 
$
792,822

 
$
777,718

 
$
—

 
$
777,718

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Customer-related and other (1)
283,994

 
(45,130
)
 
238,864

 
270,801

 
(39,828
)
 
230,973

Supplier relationships
12,000

 
(2,160
)
 
9,840

 
12,000

 
(1,920
)
 
10,080

Non-compete agreements (1)
1,341

 
(613
)
 
728

 
1,267

 
(592
)
 
675

        Trademarks
968


(965
)

3


968


(965
)

3

Total
$
1,091,125

 
$
(48,868
)
 
$
1,042,257

 
$
1,062,754

 
$
(43,305
)
 
$
1,019,449


 (1) The change in the carrying amount of intangible assets with indefinite and finite lives is the result of foreign currency translation and purchase accounting adjustments.

Amortization expense on finite-lived intangible assets for the three months ended March 31, 2016 and 2015 was $5.2 million and $2.8 million, respectively. Estimated aggregate finite-lived intangible asset amortization expense for the next five years and thereafter is as follows (in thousands):
 
2016
$
20,290

2017
20,080

2018
19,949

2019
18,950

2020
18,666

Thereafter
151,500

Total
$
249,435

6. Income Taxes
For each interim period, the Company estimates the effective tax rate expected to be applicable for the full year and applies that rate to income before income taxes for the period. Additionally, the Company records discrete income tax items in the period in which they are incurred.
The effective tax rate for the three months ended March 31, 2016 was 33.8% compared to 35.0% for the three months ended March 31, 2015. The decrease in the effective tax rate was due primarily to changes in the mix of income before income taxes between the U.S. and foreign countries principally driven by the Vega acquisition. Changes in the relative profitability of our operating segments, as well as changes to federal, state and foreign tax laws may cause the rate to change from historical rates.
7. Debt and Capital Lease Obligations
Our outstanding debt and capital lease obligations as of March 31, 2016 and December 31, 2015 consisted of the following: 

12

 
March 31, 2016
 
December 31, 2015
 
 
Amount
outstanding
 
Interest
rate
 
Amount
outstanding
 
Interest
rate
 
 
(In thousands, except percentages)
 
Senior secured credit facilities
$
1,636,750

 
2.30
%
* 
$
1,627,000

 
2.54
%
* 
Senior unsecured notes
500,000

 
5.38
%
 
500,000

 
5.38
%
 
Capital lease obligations
21,231

 
 
 
21,635

 
 
 
Other borrowings
—

 
 
 
5,133

 
3.70
%
 
Less current portion
(46,336
)
 
 
 
(51,449
)
 
 
 
Less debt issuance costs
(22,401
)
 
 
 
(23,379
)
 
 
 
Total long-term debt
$
2,089,244

 
 
 
$
2,078,940

 
 
 
*
Represents a weighted average rate, including applicable interest rate margins.

Senior Secured Credit Facilities
The Company maintains a credit agreement (the “Credit Agreement”) with Bank of America, N.A. as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and the other lenders party thereto. The Credit Agreement governs our senior secured credit facilities, consisting of a five-year $1.0 billion revolving credit facility commitment, a five-year $750 million term loan A-1, and a seven-year $750 million term loan A-2.

As of March 31, 2016, we had outstanding borrowings of $1.6 billion under our $2.5 billion senior secured credit facilities consisting of $148.0 million outstanding under the revolving credit agreement, a $740.6 million principal balance under term loan A-1, and a $748.1 million principal balance under term loan A-2. We had $7.6 million in outstanding letters of credit issued under our revolving credit facilities. We had additional borrowing capacity of approximately $844.4 million under our senior secured credit facilities, which amount will vary over time depending on our financial covenants and operating performance.

The senior secured credit facilities are secured by security interests and liens on substantially all of our domestic assets, and are guaranteed by our material domestic subsidiaries. As of March 31, 2016, borrowings under the revolving credit facility and term loan A-1 bore interest at a rate of LIBOR plus 1.75% and the term loan A-2 at a rate of LIBOR plus 2.00% per annum.
Alpro Revolving Credit Facility
On June 29, 2015, Alpro entered into a revolving credit facility not to exceed €30.0 million or its currency equivalent. The facility is unsecured and guaranteed by The WhiteWave Foods Company. The facility is available for working capital and other general corporate purposes of Alpro and for the issuance of up to €30.0 million letters of credit or its currency equivalent. At March 31, 2016 and December 31, 2015, Alpro did not have any outstanding borrowings. Any borrowings under the facility are due upon maturity on June 29, 2016.
Vega Revolving Credit Facility
On August 27, 2015, Vega entered into an uncommitted revolving credit facility not to exceed $10.0 million CAD. The facility is unsecured and guaranteed by The WhiteWave Foods Company. The facility is available for working capital and other general corporate purposes of Vega. At March 31, 2016, Vega did not have any outstanding borrowings under the facility. At December 31, 2015, there was $7.1 million CAD ($5.1 million USD) outstanding in borrowings under the facility. Subsequent to March 31, 2016, the uncommitted revolving credit facility limit was increased to $15.0 million CAD.
Senior Unsecured Notes
In 2014, we issued $500.0 million in aggregate principal amount of senior notes. The notes mature on October 1, 2022 and beginning on April 1, 2015, bear interest at a rate of 5.375% per annum payable on April 1 and October 1 of each year.
Capital Lease Obligations

13

We are party to leases of certain operating facilities and equipment under capital lease arrangements which bear interest at rates from 3.1% to 8.0% and have expiration dates through 2033. These assets are included in property, plant, and equipment, net, on the unaudited condensed consolidated balance sheets.
8. Derivative Financial Instruments and Fair Value Measurement
Interest Rates
In connection with our initial public offering, on October 31, 2012, Dean Foods novated to us certain of its interest rate swaps (the “2017 swaps”) with a notional value of $650 million and a maturity date of March 31, 2017. The interest rate swaps effectively change the interest payments on a portion of our debt from variable-rate, based on short term LIBOR, to fixed-rate payments. We are the sole counterparty to the financial institutions under these swap agreements and are directly responsible for any required settlements, and the sole beneficiary of any receipts of funds, pursuant to their terms. We are subject to market risk with respect to changes in the underlying benchmark interest rate that impact the fair value of the interest rate swaps.
The following table summarizes the terms of the interest rate swap agreements as of March 31, 2016:
 
Fixed Interest Rates
 
Expiration Date
 
Notional Amount
 
 
 
 
(In thousands)
2.75% to 3.19%
 
March 31, 2017
 
$
650,000

We have not designated such contracts as hedging instruments; therefore, the interest rate swap agreements are marked to market at the end of each reporting period and a derivative asset or liability is recorded on our unaudited condensed consolidated balance sheets. Losses on these contracts were $1.9 million for the three months ended March 31, 2016 and $3.8 million for the three months ended March 31, 2015. Gains and losses are recorded in other expense (income), net in our unaudited condensed consolidated statements of income. A summary of these open swap agreements recorded at fair value in our unaudited condensed consolidated balance sheets at March 31, 2016 and December 31, 2015 is included in the table below.
Credit risk under these arrangements is believed to be remote as the counterparties to the interest rate swap agreements are major financial institutions; however, if any of the counterparties to the swap agreements become unable to fulfill their obligation, we may lose the financial benefits of these arrangements.

Commodities
We are exposed to commodity price fluctuations, including organic and conventional milk, butterfat, almonds, organic and non-genetically modified (“non-GMO”) soybeans, sweeteners, and other commodity costs used in the manufacturing, packaging, and distribution of our products, including utilities, natural gas, resin, and diesel fuel. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging, and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month’s to one year’s anticipated requirements, depending on the ingredient or commodity, but can be longer in limited cases. These contracts are considered normal purchases.
In addition to entering into forward purchase contracts, from time to time we may purchase over-the-counter hedge contracts from qualified financial institutions for commodities associated with the production and distribution of our products. Certain of these contracts offset the risk of increases in our commodity costs and are designated as cash flow hedges when appropriate. As of March 31, 2016, we have not entered into any commodity cash flow hedges.
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to commodity price risk but do not meet the authoritative guidance for hedge accounting. From time to time, the Company enters into commodity forward contracts to fix the price of natural gas and diesel fuel purchases and other commodities at a future delivery date. Changes in the fair value of derivatives not designated in hedging relationships are recorded to cost of sales and selling, distribution, and marketing expenses in our unaudited condensed consolidated statements of income depending on commodity type. Losses on these contracts were $2.1 million and $2.1 million, for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, the Company had outstanding contracts for the purchase of 27.1 million gallons of diesel expiring throughout 2016 and 2017. A summary of our open commodities contracts recorded at fair value in our unaudited condensed consolidated balance sheets at March 31, 2016 and December 31, 2015 is included in the table below.

14

Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies.
Foreign Currency
Our international operations represented approximately 22% and 21% of our long-lived assets as of March 31, 2016 and December 31, 2015, respectively, and 19% and 19% of net sales for the three months ended March 31, 2016 and 2015, respectively. Sales in foreign countries, as well as certain expenses related to those sales, are transacted in currencies other than our reporting currency, the U.S. dollar. Our foreign currency exchange rate risk primarily consists of the Euro, British pound, Canadian dollar, Mexican peso and Chinese yuan related to net sales and expenses in currencies other than the functional currency of the business. We may, from time to time, employ derivative financial instruments to manage our exposure to fluctuations in foreign currency rates or enter into forward currency exchange contracts to hedge our net investment and intercompany payable or receivable balances in foreign operations. These contracts are designated as cash flow hedges and are recorded as an asset or liability in our unaudited condensed consolidated balance sheets at fair value with an offset to accumulated other comprehensive loss to the extent the hedge is effective. Derivative gains and losses included in accumulated other comprehensive loss are reclassified into earnings as the underlying transaction occurs. As of March 31, 2016, the Company had $267.3 million of U.S. dollar foreign currency contracts outstanding, expiring throughout 2016. Any ineffectiveness in our foreign currency exchange hedges is recorded as an adjustment to cost of goods sold in our unaudited condensed consolidated statements of income. There was no material hedge ineffectiveness related to our foreign currency exchange contracts designated as hedging instruments during the three months ended March 31, 2016 and 2015.

Fair Value - Derivatives
As of March 31, 2016 and December 31, 2015, derivatives recorded at fair value in our unaudited condensed consolidated balance sheets were as follows:
 
 
Derivative assets
 
Derivative liabilities
 
March 31,
2016
 
December 31,
2015
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Derivatives designated as Hedging Instruments
 
 
 
 
 
 
 
Foreign currency contracts - current (1)
$
—

 
$
483

 
$
3,861

 
$
—

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

 
—

 
16,007

 
15,228

Commodities contracts - current (1)
—

 
—

 
10,479

 
11,093

Commodities contracts - noncurrent (2)
74

 
—

 
695

 
1,551

Interest rate swap contracts - noncurrent (2)
—

 
—

 
—

 
3,142

Total derivatives
$
74

 
$
483

 
$
31,042

 
$
31,014

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

Gains on derivatives designated as cash flow hedges reclassified from accumulated other comprehensive loss into income for the three months ended March 31, 2016 and 2015 were as follows:
 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Realized gains on foreign currency contracts (1)
$
41

 
$
12

 
(1)
Recorded in cost of sales in our unaudited condensed consolidated statements of income. See Note 10 "Accumulated Other Comprehensive Loss."

15

Based on current exchange rates, we estimate that $3.9 million of hedging activity related to our foreign currency contracts will be reclassified from accumulated other comprehensive loss within the next 12 months.
Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
•
Level 1 — Quoted prices for identical instruments in active markets.
•
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
•
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A summary of our financial assets and liabilities subject to recurring fair value measurements and the basis for that measurement according to the levels in the fair value hierarchy as of March 31, 2016 and December 31, 2015 is as follows:
 
 
Fair value as of March 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
112

 
$
112

 
$
—

 
$
—

Supplemental Executive Retirement Plan investments
3,101

 
3,101

 
—

 
—

Qualifying insurance policies (1)
11,138

 
—

 
—

 
11,138

Commodities contracts
74

 
—

 
74

 
—

Deferred compensation investments
3,699

 
—

 
3,699

 
—

 
$
18,124

 
$
3,213

 
$
3,773

 
$
11,138

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
3,861

 
—

 
3,861

 
—

Commodities contracts
11,174

 
—

 
11,174

 
—

Interest rate swap contracts
16,007

 
—

 
16,007

 
—

 
$
31,042

 
$
—

 
$
31,042

 
$
—

(1)
Change in value since December 31, 2015 due to foreign currency translation.

There were no transfers between the three levels of the fair value hierarchy during the three months ended March 31, 2016.
 
Fair value as of December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
107

 
$
107

 
$
—

 
$
—

Supplemental Executive Retirement Plan investments
3,164

 
3,164

 
—

 
—

Qualifying insurance policies
10,631

 
—

 
—

 
10,631

Foreign currency contracts
483


—


483


—

Deferred compensation investments
4,359

 
—

 
4,359

 
—

 
$
18,744

 
$
3,271

 
$
4,842

 
$
10,631

Liabilities:
 
 
 
 
 
 
 
Commodities contracts
12,644

 
—

 
12,644

 
—

Interest rate swap contracts
18,370

 
—

 
18,370

 
—

 
$
31,014

 
$
—

 
$
31,014

 
$
—


16


We sponsor two deferred compensation plans, Pre-2005 Executive Deferred Compensation Plan and Post-2004 Executive Deferred Compensation Plan, under which certain employees with a base compensation of at least $150,000 may elect to defer receiving payment for a portion of their salary and bonus until periods after their retirements or upon separation from service. The investments are classified as trading securities and the assets related to these plans are primarily invested in money mutual funds and are held at fair value. We classify these assets as Level 2 as fair value can be corroborated based on quoted market prices for identical or similar instruments in markets that are not active. Changes in the fair value are recorded in general and administrative expense in our unaudited condensed consolidated statements of income.
 
Additionally, we maintain a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified deferred compensation arrangement for our executive officers and other employees earning compensation in excess of the maximum compensation that can be taken into account with respect to our 401(k) plan. The SERP is designed to provide these employees with retirement benefits that are equivalent, as a percentage of total compensation, to the benefits provided to other employees. The investments are classified as trading securities and are primarily invested in money market funds and held at fair value. We classify these assets as Level 1 as fair value can be corroborated based on quoted market prices for identical instruments in active markets. Changes in the fair value are recorded in general and administrative expense in our unaudited condensed consolidated statements of income.

Our assets and liabilities recorded at fair value on a recurring basis include cash equivalent money market funds. Due to their near-term maturities, the carrying amounts of trade accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on our senior secured credit facilities are variable, their fair values approximate their carrying values.

We estimate the fair value of our senior unsecured notes primarily using quoted market prices in markets that are not active. As of March 31, 2016, the carrying value and fair value of the Company's borrowings was $500.0 million and $540.0 million, respectively. See Note 7 "Debt and Capital Lease Obligations." As of December 31, 2015, the carrying value and fair value of the Company's borrowings was $500.0 million and $521.3 million, respectively. If measured at fair value in the consolidated balance sheets, our senior unsecured notes would be classified in Level 2 of the fair value hierarchy.

The fair value of our interest rate swaps is determined based on the notional amounts of the swaps and the forward LIBOR curve relative to the fixed interest rates under the swap agreements. The fair value of our commodities contracts is based on the quantities and fixed prices under the agreements and quoted forward commodity prices. The fair value of our foreign currency contracts is based on the notional amounts and rates under the contracts and observable market forward exchange rates. We classify these instruments in Level 2 because quoted market prices can be corroborated utilizing observable benchmark market rates at commonly quoted intervals and observable market transactions of spot currency rates and forward currency prices. We did not significantly change our valuation techniques from prior periods.
Our qualified pension plan investments are comprised of qualifying insurance policies and the guaranteed premiums are invested in the general assets of the insurance company. We classify these assets as Level 3 as there is little or no market data to support the fair value. The qualifying insurance policies are valued at the amount guaranteed by the insurer to pay out the insured benefits. The funding policy is to contribute assets at least equal in amount to regulatory minimum requirements. Funding is based on legal requirements, tax considerations, and investment opportunities. See Note 11 “Employee Retirement Plans.”

9. Share-Based Compensation
Under the Amended and Restated 2012 Stock Incentive Plan (the "2012 SIP"), a total of 26,850,000 shares of our common stock were reserved for issuance upon the exercise of stock options or the vesting of restricted stock units (“RSUs”), performance stock units ("PSUs") or restricted stock awards that may be issued to our employees, non-employee directors and consultants. The 2012 SIP also permits awards of stock appreciation rights (“SARs”) and phantom shares as part of our long-term incentive compensation program. In general, awards granted to our employees under the 2012 SIP vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date, and one-third on the third anniversary of the grant date. Unvested awards vest immediately upon a change of control, except for PSUs and all equity awards granted after 2014 to the Company’s executive officers. Unvested awards vest immediately in the following additional circumstances: (i) an employee retires after reaching the age of 65, (ii) in certain cases upon an employee’s death or qualified disability, and (iii) an employee with 10 years of service retires after reaching the age of 55.
Share-Based Compensation Expense
The following table summarizes the share-based compensation expense recognized for the Company’s equity and liability classified plans in the three months ended March 31, 2016 and 2015:

17

 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Equity awards:
 
 
 
Stock options
$
4,081

 
$
4,676

RSUs
5,834

 
5,953

PSUs
3,030

 
2,167

Equity awards share-based compensation expense
12,945

 
12,796

 
 
 
 
Liability awards:
 
 
 
Phantom shares
13

 
364

SARs
281

 
779

Liability awards share-based compensation expense
294

 
1,143

Total share-based compensation expense
$
13,239

 
$
13,939


Expense is recognized for employee share-based compensation awards one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date, and one-third on the third anniversary of the grant date, unless the employee has reached the retirement age of 65 or is 55 years of age and has 10 years of service, then all share-based compensation expense is recognized at the time of grant and recorded within general and administrative expense.

Stock Options
Under the terms of the 2012 SIP, our employees may be granted options to purchase our common stock at a price equal to the market price on the date the option is granted. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model with the following assumptions: 
 
Three months ended March 31,
 
2016
 
2015
Expected volatility
28% - 29%
 
28% - 29%
Expected dividend yield
0%
 
0%
Expected option term
6 years
 
6 years
Risk-free rate of return
1.35% to 1.70%
 
1.45% to 1.79%
Forfeiture rate
—%
 
—%
Since the Company’s common stock did not have a long history of being publicly traded at grant date, the expected term was determined under the simplified method, using an average of the contractual term and vesting period of the stock options. For stock options granted in the three months ended March 31, 2016 and March 31, 2015, the expected volatility assumption was calculated based on a blend of compensation peer group analysis of stock price volatility with a six-year look back period ending on the grant date, and the Company's current implied stock price volatility. For stock options granted prior to March 31, 2015, the expected volatility assumption was calculated based on a compensation peer group analysis of stock price volatility with a six-year look back period ending on the grant date. The risk-free rates were based on the average implied yield available on five-year and seven-year U.S. Treasury issues. The forfeiture rates are based on historical rates and the Company elected to use a 0% forfeiture rate due to historically immaterial forfeiture rates. We have not paid, and do not anticipate paying, a cash dividend on our common stock.
The following table summarizes stock option activity during the three months ended March 31, 2016:

18

 
 
Number of options
 
Weighted average
exercise price
 
Weighted average
contractual life in years
 
Aggregate
intrinsic value
Options outstanding at January 1, 2016
9,440,803

 
$
19.14

 
 
 
 
Granted
775,565

 
36.27

 
 
 
 
Forfeited, canceled and expired (1)
(48,265
)
 
40.81

 
 
 
 
Exercised
(785,635
)
 
18.78

 
 
 
 
Options outstanding at March 31, 2016
9,382,468

 
$
20.48

 
5.95
 
$
189,358,562

Options vested and expected to vest at March 31, 2016
9,382,468

 
$
20.48

 
5.95
 
$
189,358,562

Options exercisable at March 31, 2016
7,796,725

 
$
17.56

 
5.31
 
$
179,935,654

 ____________________________________
(1)
Pursuant to the terms of the 2012 SIP, options that are forfeited, canceled or expired may be available for future grants; however shares delivered to or withheld by the Company for the payment of the exercise price of an option and/or tax withholding related to an exercise, and shares subject to an option that are not issued upon the net exercise of such option, are not added back to the pool of shares available for future awards.
During the three months ended March 31, 2016, we received $3.1 million of cash from stock option exercises. At March 31, 2016, there was $11.1 million of unrecognized stock option expense, all of which is related to non-vested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.09 years.
Restricted Stock Units
RSUs are issued to certain senior employees under the 2012 SIP as part of our long-term incentive program. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price. RSUs granted to employees vest ratably over three years.

The following table summarizes RSU activity during the three months ended March 31, 2016:
 
RSUs outstanding January 1, 2016
839,252

RSUs granted
394,617

Shares issued upon vesting of RSUs (including tax withholding) (1)
(415,352
)
RSUs canceled (1)
(16,980
)
RSUs outstanding at March 31, 2016
801,537

Weighted average grant date fair value per share
$
34.74

 __________________________________
(1)
Pursuant to the terms of the 2012 SIP, RSUs that are canceled or forfeited before they vest may be available for future grants; however shares delivered to or withheld by the Company for the payment of the employee's tax withholding related to an RSU vesting are not added back to the pool of shares available for future awards.
At March 31, 2016, there was $19.4 million of total unrecognized RSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.12 years.

Performance Stock Units
In February 2015 and 2016, we granted PSUs to our executive officers under the 2012 SIP as part of our long-term incentive compensation program. PSUs vest based on a comparison of the Company’s diluted adjusted EPS growth over the three-year performance period to the diluted adjusted EPS growth of companies in the S&P 500 over the same period. In the first year, one third of the PSUs will vest based on our diluted adjusted EPS growth in that year compared to the one-year diluted adjusted EPS growth of S&P 500 companies. In the second year, one third of the PSUs will vest based on our cumulative diluted adjusted EPS growth over the past two years compared to the cumulative two-year diluted adjusted EPS growth of S&P 500 companies. In the third year, one third of the PSUs will vest based on our cumulative diluted adjusted EPS growth over the past three years compared to the cumulative three-year diluted adjusted EPS growth of S&P 500 companies. PSUs will be converted to common stock upon vesting and the payout range is 0 to 200%.

19


We recognize share-based compensation expense in the condensed consolidated statements of income over the three year performance period based on the Company’s estimated relative performance for each vesting tranche. Accordingly, for the grant made each year we recognize 100% of the estimated first year expense, 50% of the estimated second year expense and 33.3% of the estimated third year expense. As of March 31, 2016, based upon our current assessment of our relative performance versus the S&P 500, the 2015 PSU awards have been expensed based upon a target payout 150% for the year two tranche (2015-2016) and 133% for the year three tranche (2015-2017). As of March 31, 2016, the 2016 PSU awards have expensed based upon a target payout assumption of 100% for all years.

The following table summarizes PSU activity during the three months ended March 31, 2016:
PSUs outstanding January 1, 2016
107,358

PSUs granted
120,056

Shares issued upon vesting of PSUs (1)
—

PSUs canceled (1)
—

PSUs outstanding at March 31, 2016
227,414

Weighted average grant date fair value per share
$
37.44

__________________________________________
(1)
Pursuant to the terms of the 2012 SIP, PSUs that are canceled or forfeited before they vest may be available for future grants; however shares delivered to or withheld by the Company for the payment of the employee's tax withholding related to a PSU vesting are not added back to the pool of shares available for future awards. Shares issued upon vesting of PSUs on April 18, 2016 were 71,580 which represented 200% payout.
At March 31, 2016 there was $2.7 million of total unrecognized PSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.65 years.
Phantom Shares
We previously granted phantom shares under the 2012 SIP as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of WhiteWave stock and vest ratably over a three-year period, but are cash-settled based upon the value of WhiteWave stock at each vesting period. The fair value of the awards is re-measured at each reporting period. As of March 31, 2016 all phantom shares have been cash settled.

Stock Appreciation Rights
We previously granted SARs under the 2012 SIP as part of our long-term incentive compensation program, which are similar to stock options in that they are based on the price of WhiteWave stock and vest ratably over a three-year period, but are cash-settled based upon the value of WhiteWave stock at the exercise date. We have not granted any SARs since 2013.

     The fair value of the awards is re-measured at each reporting period. A liability has been recorded in current liabilities in our condensed consolidated balance sheets totaling $3.0 million and $2.7 million as of March 31, 2016 and December 31, 2015, respectively. The following table summarizes SARs activity during the three months ended March 31, 2016:
 
 
Number of
SARs
 
Weighted
average
exercise price
 
Weighted average
contractual life in years
 
Aggregate
intrinsic value
SARs outstanding at January 1, 2016
122,031

 
$
16.45

 
 
 
 
Granted
—

 
—

 
 
 
 
Forfeited and canceled (1)
—

 
—

 
 
 
 
Exercised
—

 
—

 
 
 
 
SARs outstanding at March 31, 2016
122,031

 
$
16.45

 
6.66
 
$
2,952,540

SARs vested and expected to vest at March 31, 2016
122,031

 
$
16.45

 
6.66
 
$
2,952,540

SARs exercisable at March 31, 2016
122,031

 
$
16.45

 
6.66
 
$
2,952,540

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



20

10. Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component for the three months ended March 31, 2016 were as follows (net of tax):
 
Derivative
instruments (1)
 
Defined benefit pension plan (2)
 
Foreign currency translation adjustment
 
Total
 
 
 
(In thousands)
 
 
Balance at January 1, 2016
$
505

 
$
(761
)
 
$
(131,278
)
 
$
(131,534
)
Other comprehensive income/(loss) before reclassifications
174

 
(35
)
 
44,949

 
45,088

Amounts reclassified from accumulated other comprehensive income/(loss)
41

 
(1
)
 
—

 
40

Other comprehensive income/(loss), net of tax benefit of $174
215

 
(36
)
 
44,949

 
45,128

Balance at March 31, 2016
$
720

 
$
(797
)
 
$
(86,329
)
 
$
(86,406
)
__________________________________________
(1)
The accumulated other comprehensive loss reclassification components affect cost of sales. See Note 8 “Derivative Financial Instruments and Fair Value Measurement.”
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs which are both included in the computation of net periodic pension cost. See Note 11 “Employee Retirement Plans.”

The changes in accumulated other comprehensive loss by component for the three months ended March 31, 2015 were as follows (net of tax):
 
Derivative
instruments (1)
 
Defined benefit pension plan (2)
 
Foreign currency translation adjustment
 
Total
 
 
 
(In thousands)
 
 
Balance at January 1, 2015
$
774

 
$
(2,050
)
 
$
(59,842
)
 
$
(61,118
)
Other comprehensive income/(loss) before reclassifications
484

 
255

 
(43,670
)
 
(42,931
)
Amounts reclassified from accumulated other comprehensive income/(loss)
12

 
(24
)
 
—

 
(12
)
Other comprehensive income/(loss), net of tax expense of $372
496

 
231

 
(43,670
)
 
(42,943
)
Balance at March 31, 2015
$
1,270

 
$
(1,819
)
 
$
(103,512
)
 
$
(104,061
)
______________________________________________
(1)
The accumulated other comprehensive loss reclassification components affect cost of sales. See Note 8 “Derivative Financial Instruments and Fair Value Measurement.”
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs which are both included in the computation of net periodic pension cost. See Note 11 “Employee Retirement Plans.”
11. Employee Retirement Plans
We have employee benefit plans including a 401(k) plan and European pension plans. Additionally, we contribute to one multi-employer pension plan on behalf of certain employees. We have separate, stand-alone defined benefit pension plans for Alpro. The benefits under our Alpro defined benefit plans are based on years of service and employee compensation.
The components of net periodic benefit cost for our pension plans for the three months ended March 31, 2016 and 2015 are detailed below:

21

 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
Service cost
$
405

 
$
444

Interest cost
95

 
84

Expected return on plan assets
(70
)
 
(68
)
Amortization:
 
 
 
Prior service cost
—

 
—

Unrecognized net loss
1

 
24

Net periodic benefit cost
$
431

 
$
484

12. Commitments and Contingencies
Lease and Purchase Obligations
We lease certain property, plant, and equipment used in our operations under both capital and operating lease agreements. Such operating leases, which are primarily for operating facilities, office space, machinery, and equipment, have lease terms ranging from one to 20 years. Rent expense was $8.2 million and $5.6 million for the three months ended March 31, 2016 and 2015, respectively. The Company leases certain operating facilities and equipment under capital lease arrangements. These assets are included in property, plant, and equipment, net, on the unaudited condensed consolidated balance sheets.
We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes, including soybeans and organic raw milk. We enter into these contracts from time to time to ensure a sufficient supply of raw materials. In addition, we have contractual obligations to purchase various services that are part of our production and distribution process.
Litigation, Investigations, and Audits
The Company is involved in various litigation, investigations, and audit proceedings in the normal course of business. It is management’s opinion, after consultation with counsel and a review of the facts, that a material adverse effect on the financial position, liquidity, or results of operations, or cash flows of the Company is not probable or reasonably possible.
13. Segment, Geographic, and Customer Information

Effective January 1, 2016, we report results of operations through two reportable segments: Americas Foods & Beverages and Europe Foods & Beverages. This reporting structure aligns with the way our Chief Operating Decision Maker ("CODM"), our CEO, monitors operating performance, allocates resources, and deploys capital. In 2014 and 2015, we reported results of operations through three reportable segments: Americas Foods & Beverages, Americas Fresh Foods and Europe Foods & Beverages.  In connection with our recent management restructure, we consolidated the historical Americas Foods & Beverages and Americas Fresh Foods segments into a single Americas Foods & Beverages segment under the leadership of Kevin Yost, U.S. Group President, Americas Foods & Beverages. Accordingly, prior year segment data has been recast to reflect this new segment structure.
The Americas Foods & Beverages segment offers products in the plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce categories throughout North America. Our Europe Foods & Beverages segment offers plant-based food and beverage products throughout Europe. We sell our products to a variety of customers, including grocery stores, mass merchandisers, club stores, health food stores and convenience stores, as well as various away-from-home channels, including foodservice outlets, across North America and Europe. We sell our products in North America and Europe primarily through our direct sales force, independent brokers, regional brokers, and distributors. We utilize eleven manufacturing plants, multiple distribution centers, and three strategic co-packers across the United States. Additionally, we have three plants across Europe in the United Kingdom, Belgium and France, each supported by an integrated supply chain. We also utilize third-party co-packers across Europe for certain products.
We evaluate the performance of our segments based on net sales and operating income. The amounts in the following tables are obtained from reports used by our chief operating decision maker. There are no significant non-cash items reported in segment profit or loss other than depreciation and amortization.

22

Expense related to share-based compensation has not been allocated to our segments and is reflected entirely within the caption “Corporate and other”.

The following table presents the summarized income statement amounts by segment:
 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Total net sales:
 
 
 
Americas Foods & Beverages
$
894,762


$
780,374

Europe Foods & Beverages
144,933


130,768

Total
$
1,039,695


$
911,142

Operating income:



Americas Foods & Beverages
$
95,715


$
81,705

Europe Foods & Beverages
15,204


14,364

Total reportable segment operating income
$
110,919


$
96,069

Corporate and other
(27,082
)

(25,999
)
Total operating income
$
83,837


$
70,070

Other expense:



Interest expense
$
13,680


$
8,667

Other expense, net
2,439


3,801

Income before taxes
$
67,718


$
57,602

Depreciation and amortization:



Americas Foods & Beverages
$
27,147


$
22,525

Europe Foods & Beverages
5,743


4,441

Corporate and other
550


564

Total
$
33,440


$
27,530

The following tables present sales amounts by product categories:
 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Total net sales:
 
 
 
Americas Foods & Beverages
 
 
 
Plant-based foods and beverages
$
266,132

 
$
206,326

Coffee creamers and beverages
284,538

 
257,769

Premium dairy
204,222

 
176,631

Fresh foods
139,870

 
139,648

Americas Foods & Beverages net sales
894,762

 
780,374

 
 
 
 
Europe Foods & Beverages
 
 
 
Plant-based foods and beverages
144,933

 
130,768

Europe Foods & Beverages net sales
144,933

 
130,768

 
 
 
 
Total net sales
$
1,039,695

 
$
911,142


The following tables present assets and capital expenditures by segment: 

23

 
March 31, 2016
 
December 31, 2015
 
(In thousands)
Assets:
 
 
 
Americas Foods & Beverages
$
3,610,212


$
3,555,988

Europe Foods & Beverages
639,244


605,843

Corporate
56,277


67,038

Total
$
4,305,733


$
4,228,869

 
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Capital expenditures:
 
 
 
Americas Foods & Beverages
$
18,824


$
52,729

Europe Foods & Beverages
14,291


20,378

Corporate
580


128

Total
$
33,695


$
73,235

Significant Customers
The Company had a single customer that represented 13.4% and 14.4% of its consolidated net sales in the three months ended March 31, 2016 and 2015, respectively. Sales to this customer are primarily included in the Americas Foods & Beverages segment.
14. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period.

The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share: 

24

 
Three months ended March 31,
 
2016
 
2015
 
(In thousands, except share and per share data)
Basic earnings per share computation:
 
 
 
Numerator:
 
 
 
Net income
$
42,600

 
$
33,347

Denominator:
 
 
 
Weighted average common shares
176,550,367

 
174,693,383

Basic earnings per share
$
0.24

 
$
0.19

Diluted earnings per share computation:
 
 
 
Numerator:
 
 
 
Net income
$
42,600

 
$
33,347

Denominator:
 
 
 
Weighted average common shares - basic
176,550,367

 
174,693,383

Stock option conversion (1)
3,190,613

 
3,889,110

Stock units (2)
543,903

 
569,691

Weighted average common shares - diluted
180,284,883

 
179,152,184

Diluted earnings per share
$
0.24

 
$
0.19

(1) Anti-dilutive options excluded
1,063,115

 
306,268

(2) Anti-dilutive RSUs excluded
2,232

 
428


15. Supplemental Guarantor Financial Information

In September of 2014, we issued debt securities that are guaranteed by certain of our 100% owned subsidiaries. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, the following condensed consolidating financial statements present the balance sheets as of March 31, 2016 and December 31, 2015 and the statements of comprehensive income and cash flows for the three months ended March 31, 2016 and 2015 for The WhiteWave Foods Company (referred to as “Parent” for the purpose of this note only), the combined guarantor subsidiaries, the combined non-guarantor subsidiaries and elimination adjustments necessary to arrive at the information for the Parent, guarantor subsidiaries and non-guarantor subsidiaries on a consolidated basis. Investments in subsidiaries are accounted for using the equity method for this presentation. All guarantors of our debt securities are also guarantors for our senior secured credit facilities. The guarantee is full and unconditional and joint and several. Our senior secured credit facilities are secured by security interest and liens on substantially all of our assets and the assets of our domestic subsidiaries and is presented in the Parent column of the accompanying condensed consolidating balance sheets as of March 31, 2016 and December 31, 2015.

25

Condensed Consolidating Balance Sheets
 
 
March 31, 2016
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
9,573

 
$
29,848

 
$
—

 
$
39,421

Trade receivables, net of allowance
 
805

 
203,183

 
85,495

 
—

 
289,483

Inventories
 
—

 
236,184

 
46,971

 
(5,523
)
 
277,632

Prepaid expenses and other current assets
 
7,735

 
16,168

 
12,601

 
—

 
36,504

Intercompany receivables
 
1,778,571

 
606,161

 
22,748

 
(2,407,480
)
 
—

Total current assets
 
1,787,111

 
1,071,269

 
197,663

 
(2,413,003
)
 
643,040

Equity method investments
 
2,767

 
—

 
26,174

 
—

 
28,941

Investment in consolidated subsidiaries
 
2,275,250

 
1,000,067

 
—

 
(3,275,317
)
 
—

Property, plant, and equipment, net
 
6,215

 
887,092

 
250,951

 
—

 
1,144,258

Identifiable intangible and other assets, net
 
34,650

 
666,447

 
383,420

 
(23,884
)
 
1,060,633

Goodwill
 
—

 
982,538

 
446,323

 
—

 
1,428,861

Total Assets
 
$
4,105,993

 
$
4,607,413

 
$
1,304,531

 
$
(5,712,204
)
 
$
4,305,733


 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY
 

 

 

 

 

Current liabilities:
 

 

 

 

 

Accounts payable and accrued expenses
 
$
56,438

 
$
330,147

 
$
126,944

 
$
—

 
$
513,529

Current portion of debt and capital lease obligations
 
45,000

 
1,336

 
—

 
—

 
46,336

Income taxes payable
 
—

 
—

 
4,234

 
—

 
4,234

Intercompany payables
 
606,161

 
1,774,297

 
27,022

 
(2,407,480
)
 
—

Total current liabilities
 
707,599

 
2,105,780

 
158,200

 
(2,407,480
)
 
564,099

Long-term debt and capital lease obligations, net of debt issuance costs
 
2,069,349

 
19,895

 
—

 
—

 
2,089,244

Deferred income taxes
 
—

 
203,818

 
122,744

 
(23,884
)
 
302,678

Other long-term liabilities
 
20,446

 
2,670

 
17,997

 
—

 
41,113

Total liabilities
 
2,797,394

 
2,332,163

 
298,941

 
(2,431,364
)
 
2,997,134

Total shareholders' equity
 
1,308,599

 
2,275,250

 
1,005,590

 
(3,280,840
)
 
1,308,599

Total Liabilities and Shareholders' Equity
 
$
4,105,993

 
$
4,607,413

 
$
1,304,531

 
$
(5,712,204
)
 
$
4,305,733


26

Condensed Consolidating Balance Sheets
 
 
December 31, 2015
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
2,282

 
$
36,328

 
$
—

 
$
38,610

Trade receivables, net of allowance
 
2,649

 
200,808

 
54,091

 
—

 
257,548

Inventories
 
—

 
232,757

 
46,755

 
(8,775
)
 
270,737

Prepaid expenses and other current assets
 
15,442

 
11,070

 
13,270

 
—

 
39,782

Intercompany receivables
 
1,878,299

 
686,469

 
37,962

 
(2,602,730
)
 
—

Total current assets
 
1,896,390

 
1,133,386

 
188,406

 
(2,611,505
)
 
606,677

Equity method investments
 
2,983

 
—

 
27,789

 
—

 
30,772

Investment in consolidated subsidiaries
 
2,156,856

 
943,501

 
—

 
(3,100,357
)
 
—

Property, plant, and equipment, net
 
6,169

 
893,594

 
237,758

 
—

 
1,137,521

Identifiable intangible and other assets, net
 
34,441

 
663,101

 
365,316

 
(24,281
)
 
1,038,577

Goodwill
 
—

 
991,085

 
424,237

 
—

 
1,415,322

Total Assets
 
$
4,096,839

 
$
4,624,667

 
$
1,243,506

 
$
(5,736,143
)
 
$
4,228,869

 
 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
47,713

 
$
374,483

 
$
127,517

 
$
—

 
$
549,713

Current portion of debt and capital lease obligations
 
45,000

 
1,415

 
5,034

 
—

 
51,449

Income taxes payable
 
—

 
—

 
3,043

 
—

 
3,043

Intercompany payables
 
710,984

 
1,866,496

 
25,250

 
(2,602,730
)
 
—

Total current liabilities
 
803,697

 
2,242,394

 
160,844

 
(2,602,730
)
 
604,205

Long-term debt and capital lease obligations, net of debt issuance costs
 
2,058,621

 
20,219

 
100

 
—

 
2,078,940

Deferred income taxes
 
—

 
200,642

 
116,965

 
(24,281
)
 
293,326

Other long-term liabilities
 
23,613

 
4,556

 
13,321

 
—

 
41,490

Total liabilities
 
2,885,931

 
2,467,811

 
291,230

 
(2,627,011
)
 
3,017,961

Total shareholders' equity
 
1,210,908

 
2,156,856

 
952,276

 
(3,109,132
)
 
1,210,908

Total Liabilities and Shareholders' Equity
 
$
4,096,839

 
$
4,624,667

 
$
1,243,506

 
$
(5,736,143
)
 
$
4,228,869


27

Condensed Consolidating Statements of Comprehensive Income
 
 
Three months ended March 31, 2016
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
Net sales

$
—


$
884,098


$
169,395


$
(13,798
)

$
1,039,695

Cost of sales

—


602,010


100,109


(16,191
)

685,928

Gross profit

—


282,088


69,286


2,393


353,767

Operating expenses:










Selling, distribution and marketing

—


150,510


35,334


—


185,844

General and administrative

24,829


41,322


17,935


—


84,086

Total operating expenses

24,829


191,832


53,269


—


269,930

Operating (loss) income

(24,829
)

90,256


16,017


2,393


83,837

Other (income) expense:










Interest expense

13,318


206


156


—


13,680

Other (income) expense, net

(34,165
)

36,325


279


—


2,439

Total other (income) expense

(20,847
)

36,531


435


—


16,119

Income (loss) before income taxes and equity in earnings of subsidiaries

(3,982
)

53,725


15,582


2,393


67,718

Income tax expense (benefit)

(315
)

19,784


3,439


—


22,908

Income before loss in equity method investments and equity in earnings of subsidiaries

(3,667
)

33,941


12,143


2,393


44,810

Loss in equity method investments

216


—


1,994


—


2,210

Equity in earnings of consolidated subsidiaries

46,483


12,542


—


(59,025
)

—

Net income

42,600


46,483


10,149


(56,632
)

42,600

Other comprehensive income, net of tax

45,128


45,128


45,128


(90,256
)

45,128

Comprehensive income

$
87,728


$
91,611


$
55,277


$
(146,888
)

$
87,728





28

Condensed Consolidating Statements of Comprehensive Loss
 
 
Three months ended March 31, 2015
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
(In thousands)
Net sales

$
—


$
780,374


$
130,768


$
—


$
911,142

Cost of sales

—


528,005


74,562


—


602,567

Gross profit

—


252,369


56,206


—


308,575

Operating expenses:










Selling, distribution and marketing

—


137,711


30,050


—


167,761

General and administrative

24,187


32,952


13,605


—


70,744

Total operating expenses

24,187


170,663


43,655


—


238,505

Operating (loss) income

(24,187
)

81,706


12,551


—


70,070

Other (income) expense:










Interest expense

8,337


263


67


—


8,667

Other (income) expense, net

(30,514
)

34,312


3


—


3,801

Total other (income) expense

(22,177
)

34,575


70


—


12,468

Income (loss) before income taxes and equity in earnings of subsidiaries

(2,010
)

47,131


12,481


—


57,602

Income tax expense (benefit)

(73
)

17,364


2,891


—


20,182

Income before loss in equity method investments and equity in earnings of subsidiaries

(1,937
)

29,767


9,590


—


37,420

Loss in equity method investments

135


—


3,938


—


4,073

Equity in earnings of consolidated subsidiaries

35,419


5,652


—


(41,071
)

—

Net income

33,347


35,419


5,652


(41,071
)

33,347

Other comprehensive loss, net of tax

(42,943
)

(42,943
)

(43,669
)

86,612


(42,943
)
Comprehensive loss

$
(9,596
)

$
(7,524
)

$
(38,017
)

$
45,541


$
(9,596
)







29

Condensed Consolidating Statements of Cash Flows
 
 
 
 
 
Three months ended March 31, 2016
 
 
 
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
 
 
 
(In thousands)
 CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net cash provided by operating activities
 
$
25,248

 
$
4,931

 
$
17,610

 
$
—

 
$
47,789

 CASH FLOWS FROM INVESTING ACTIVITIES:
 

 

 

 

 

 
 
Proceeds from acquisition adjustments

—

 
(60
)
 
—

 
—

 
(60
)
 
 
Payments for property, plant, and equipment
 
(3
)
 
(28,641
)
 
(19,915
)
 
—

 
(48,559
)
 
 
Intercompany contributions
 
(32,127
)
 
—

 
—

 
32,127

 
—

 
 
Proceeds from sale of fixed assets
 
—

 
49

 
—

 
—

 
49

 
 
 
Net cash used in investing activities
 
(32,130
)
 
(28,652
)
 
(19,915
)
 
32,127

 
(48,570
)
 CASH FLOWS FROM FINANCING ACTIVITIES:
 

 

 

 

 

 
 
Intercompany contributions
 
—

 
31,298

 
829

 
(32,127
)
 
—

 
 
Repayment of debt
 
(11,250
)
 
—

 
—

 
—

 
(11,250
)
 
 
Payments on capital lease obligations
 
—

 
(286
)
 
—

 
—

 
(286
)
 
 
Proceeds from revolver line of credit
 
174,500

 
—

 
8,534

 
—

 
183,034

 
 
Payments on revolver line of credit
 
(153,500
)

—


(13,972
)

—


(167,472
)
 
 
Proceeds from exercise of stock options
 
3,126

 
—

 
—

 
—

 
3,126

 
 
Minimum tax withholding paid on behalf of employees for share-based compensation
 
(11,229
)
 
—

 
—

 
—

 
(11,229
)
 
 
Excess tax benefit from share-based compensation
 
5,365

 
—

 
8

 
—

 
5,373

 
 
Payment of deferred financing costs
 
(130
)
 
—

 
—

 
—

 
(130
)
 
 
 
Net cash provided by financing activities
 
6,882

 
31,012

 
(4,601
)
 
(32,127
)
 
1,166

 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
426

 
—

 
426

 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
—

 
7,291

 
(6,480
)
 
—

 
811

 Cash and cash equivalents, beginning of period
 
—

 
2,282

 
36,328

 
—

 
38,610

 Cash and cash equivalents, end of period
 
$
—

 
$
9,573

 
$
29,848

 
$
—

 
$
39,421


30

Condensed Consolidating Statements of Cash Flows
 
 
 
 
 
Three months ended March 31, 2015
 
 
 
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
 
 
 
 
 
(In thousands)
 CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net cash provided by operating activities
 
$
22,628

 
$
38,554

 
$
3,234

 
$
—

 
$
64,416

 CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from acquisition adjustments
 
—

 
346

 
—

 
—

 
346

 
 
Payments for property, plant, and equipment
 
(188
)
 
(71,504
)
 
(20,011
)
 
—

 
(91,703
)
 
 
Intercompany contributions
 
(32,900
)
 
—

 
—

 
32,900

 
—

 
 
Proceeds from sale of fixed assets
 
—

 
1,589

 
—

 
—

 
1,589

 
 
 
Net cash used in investing activities
 
(33,088
)
 
(69,569
)
 
(20,011
)
 
32,900

 
(89,768
)
 CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Intercompany contributions
 
—

 
31,826

 
1,074

 
(32,900
)
 
—

 
 
Repayment of debt
 
(5,000
)
 
—

 
—

 
—

 
(5,000
)
 
 
Payments on capital lease obligations
 
—

 
(290
)
 
—

 
—

 
(290
)
 
 
Proceeds from revolver line of credit
 
83,125

 
—

 
—

 
—

 
83,125

 
 
Payments for revolver line of credit
 
(66,750
)
 
—

 
—

 
—

 
(66,750
)
 
 
Proceeds from exercise of stock options
 
1,830

 
—

 
—

 
—

 
1,830

 
 
Minimum tax withholding paid on behalf of employees for stock based compensation
 
(7,484
)
 
—

 
—

 
—

 
(7,484
)
 
 
Excess tax benefit from share-based compensation
 
4,778

 
—

 
—

 
—

 
4,778

 
 
Payment of deferred financing costs
 
(39
)
 
—

 
—

 
—

 
(39
)
 
 
 
Net cash provided by financing activities
 
10,460

 
31,536

 
1,074

 
(32,900
)
 
10,170

 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
(4,118
)
 
—

 
(4,118
)
 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
—

 
521

 
(19,821
)
 
—

 
(19,300
)
 Cash and cash equivalents, beginning of period
 
—

 
524

 
49,716

 
—

 
50,240

 Cash and cash equivalents, end of period
 
$
—

 
$
1,045

 
$
29,895

 
$
—

 
$
30,940


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in this Form 10-Q is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Unless otherwise specified, any description of “our”, “we”, and “us” in this MD&A refer to The WhiteWave Foods Company and its operating and non-operating subsidiaries included within our reporting segments and Corporate.
Cautionary Statement Regarding Forward-Looking Statements

31

This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on our current expectations and our projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning our business strategy, among other things, including anticipated trends and developments in, and management plans for, our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “might,” “will,” and “could,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on these forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled “Part II — Other Information — Item 1A — Risk Factors” in this Form 10-Q, and elsewhere in this Form 10-Q. You should carefully consider the risks and uncertainties described under these sections.
Overview of the Business
We are a leading consumer packaged food and beverage company focused on high-growth product categories that are aligned with emerging consumer trends. We manufacture, market and sell branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce. We sell products primarily in North America, Europe and through a joint venture in China. We focus on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. Our widely-recognized, leading brands distributed in North America include Silk, So Delicious and Vega plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, Horizon Organic and Wallaby Organic premium dairy products and Earthbound Farm organic salads, fruits and vegetables. Our popular plant-based foods and beverages brands in Europe include Alpro and Provamel.
Effective January 1, 2016, we report our results of operations through two reportable segments: Americas Foods & Beverages and Europe Foods & Beverages. This reporting structure aligns with the way our Chief Operating Decision Maker ("CODM"), our CEO, monitors operating performance, allocates resources, and deploys capital. In 2014 and 2015, we reported results of operations through three reportable segments: Americas Foods & Beverages, Americas Fresh Foods and Europe Foods & Beverages.  In connection with our recent management restructure, we consolidated the historical Americas Foods & Beverages and Americas Fresh Foods segments into a single Americas Foods & Beverages segment under the leadership of Kevin Yost, U.S. Group President, Americas Foods & Beverages. Accordingly, prior year segment data has been recast to reflect this new segment structure.
We sell our products to a variety of customers, including grocery stores, mass merchandisers, club stores, health food stores and convenience stores, as well as through various away-from-home channels, including foodservice outlets. We sell our products primarily through our direct sales force, independent brokers, regional brokers and distributors.
We have an extensive production and supply chain footprint and we utilize eleven production facilities and also rely on third-party co-packers to fulfill our manufacturing needs in North America. In Europe, we have strategically positioned three plants in the United Kingdom, Belgium, and France, each supported by an integrated supply chain, and we also utilize third-party co-packers. Furthermore, we utilize a broad commercial partner network to access certain markets in Europe, in addition to our own sales organizations in the United Kingdom, Belgium, Germany, and the Netherlands.

Factors Affecting Our Business and Results of Operations
The following trends have impacted our sales and operating income over the past two years and we believe that they will continue to be factors affecting our business and results of operations in the future:
Acquisitions and Joint Venture
We have grown and intend to continue to grow our business in part by acquiring new brands and businesses, and forming joint ventures, both in the United States and globally. The addition of acquisitions or joint ventures allows us to leverage our resources and capabilities but can also divert resources and management attention from our day-to-day operations as we integrate them into existing operations.
New Product Introductions

32

We intend to continue to respond to evolving consumer preferences by delivering innovative products. We have a proven track record of innovation through either creating or largely developing our subcategories and we continue to focus on innovation that we believe will drive increased consumption of our products.

Volatility in Commodity Costs

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

Our volume growth has exerted and continues to exert pressure on our internal plant and warehousing capacity across all segments. In response, we have historically relied on our third-party network, which has resulted in higher costs for the production, distribution, and warehousing of our products. In addition, capacity constraints sometimes create the need for us to shift production between internal facilities, which increases overall shipping and warehousing costs. We have increased and are increasing internal capacity and will continue to both shift production between internal facilities and utilize our co-packing network, as needed, to meet our production and warehousing requirements.
Matters Affecting Comparability
Our results of operations for the three months ended March 31, 2016 and 2015 were affected by the following:
    
Acquisitions of EIEIO, Vega and Wallaby
On May 29, 2015, the Company acquired substantially all the assets and liabilities of EIEIO, Inc. ("EIEIO"), which owns the Magicow brand as well as other brands, for $40.2 million in cash. The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were determined by management based in part on an independent valuation of assets acquired, which includes intangible assets of approximately $21.8 million and relate primarily to tradenames. Intangible assets subject to amortization of approximately $10.2 million are being amortized over a 15 year term and relate primarily to customer relationships. We have included EIEIO's results of operations in our statements of income in our Americas Foods & Beverages segment from the date of acquisition.

On August 1, 2015, we completed our acquisition of Sequel Naturals Ltd, the company that owns the Vega ("Vega") brand and is a pioneer and leader in plant-based nutrition products, for approximately $553.6 million in cash funded by borrowings under our credit facility. We have included Vega's results of operations in our statements of income in our Americas Foods & Beverages segment from the date of acquisition. The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were determined by management based in part on an independent valuation of assets acquired, which includes intangible assets of approximately $296.9 million and relate primarily to tradenames and customer relationships. Intangible assets subject to amortization of approximately $106.9 million are being amortized over a 15 year term and relate primarily to customer relationships. In the three months ended March 31, 2016, we recorded $4.0 million of purchase accounting adjustments to goodwill.


33

On August 30, 2015, we completed our acquisition of Wallaby Yogurt Company, Inc. ("Wallaby") for approximately $122.4 million in cash. We funded this acquisition with borrowings under our credit facility. We have included Wallaby's results of operations in our statements of income in our Americas Foods & Beverages segment from the date of acquisition. The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The fair values were determined by management based in part on an independent valuation of assets acquired, which includes intangible assets of approximately $57.1 million and relate primarily to tradenames. Intangible assets subject to amortization of approximately $9.1 million are being amortized over a 15 year term and relate primarily to customer relationships. In the three months ended March 31, 2016, we recorded $6.2 million of purchase accounting adjustments to goodwill.
Foreign Exchange Movements
Due to the international aspect of our business, our net sales and expenses are influenced by foreign exchange movements. Our exposures to foreign exchange rates are the Euro, British pound, Canadian dollar, Mexican peso and Chinese yuan against the U.S. dollar. The financial statements of our Europe Foods & Beverages segment are translated to U.S. dollars. The functional currency of our foreign subsidiaries is generally the local currency of the country of our subsidiary. Accordingly, income and expense items are translated at the average rates prevailing during the period. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses and are recorded in general and administrative expense in the consolidated statements of income.
Results of Operations
The following table presents, for the periods indicated, selected information from our condensed consolidated financial results, including information presented as a percentage of net sales:
 
 
Three months ended March 31,
 
2016
 
2015
 
Dollars
 
Percent
 
Dollars
 
Percent
 
(Dollars in millions)
Total net sales
$
1,039.7

 
100.0
%
 
$
911.1

 
100.0
%
Cost of sales
685.9

 
66.0
%
 
602.5

 
66.1
%
Gross profit (1)
353.8

 
34.0
%
 
308.6

 
33.9
%
Operating expenses
 
 
 
 
 
 
 
Selling, distribution and marketing
185.8

 
17.9
%
 
167.8

 
18.4
%
General and administrative
84.1

 
8.1
%
 
70.7

 
7.8
%
Total operating expenses
269.9

 
26.0
%
 
238.5

 
26.2
%
Operating income
83.8

 
8.0
%
 
70.1

 
7.7
%
Interest and other expenses, net
16.1

 
 
 
12.5

 
 
Income tax expense
22.9

 
 
 
20.2

 
 
Loss in equity method investments
2.2

 
 
 
4.1

 
 
Net income
$
42.6

 
 
 
$
33.3

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

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Consolidated Results
Total net sales — Total net sales by segment are shown in the table below:

34

 
 
Three months ended March 31,
 
2016
 
2015
 
$ Increase
 
% Increase
 
(Dollars in millions)
Americas Foods & Beverages
$
894.8

 
$
780.3

 
$
114.5

 
14.7
%
Europe Foods & Beverages
144.9

 
130.8

 
14.1

 
10.8
%
Total
$
1,039.7

 
$
911.1

 
$
128.6

 
14.1
%
The changes in total net sales were due to the following:
 
 
Change in net sales
Three months ended March 31, 2016 vs. March 31, 2015
 
Acquisitions
 
Volume
 
Pricing, product mix and currency changes
 
Total increase
 
(Dollars in millions)
Americas Foods & Beverages
$
64.3

 
$
24.9

 
$
25.3

 
$
114.5

Europe Foods & Beverages
—

 
19.0

 
(4.9
)
 
14.1

Total
$
64.3

 
$
43.9

 
$
20.4

 
$
128.6

Total net sales — Consolidated total net sales increased $128.6 million, or 14.1%, for the three months ended March 31, 2016 compared to the same period in 2015. This was driven by acquisitions including Vega, Wallaby, and EIEIO which contributed 7.0 percentage points of growth. Organic growth was largely volume driven with additional contributions from pricing and a favorable mix. The increase was partially offset by an unfavorable currency impact of 80 basis points.
Cost of sales — Cost of sales increased $83.4 million, or 13.8%, for the three months ended March 31, 2016 compared to the same period in 2015. This increase was principally driven by higher sales volumes, including the impact of acquisitions, and increased raw material costs partially offset by $2.1 million of foreign currency translation. Costs were also impacted by a $2.2 million write-off of a warehouse in the Europe Foods & Beverages segment and $6.0 million of transition costs related to the SAP implementation at Fresh Foods in the Americas Foods & Beverages segment.
Gross profit — Gross profit margin increased to 34.0% for the three months ended March 31, 2016 from 33.9% for the same period in 2015. This increase was driven principally by a favorable mix of products sold. Currency impact reduced gross margin by 30 basis points.
Operating expenses — Total operating expenses increased $31.4 million, or 13.2%, for the three months ended March 31, 2016 compared to the same period in 2015.
Selling, distribution and marketing expense increased $18.0 million for the three months ended March 31, 2016. This increase was driven primarily by an increase in distribution cost linked to higher sales volumes, including the impact of acquisitions, along with higher marketing expenses.

General and administrative expense increased $13.4 million for the three months ended March 31, 2016, due principally to the impact of acquisitions and higher employee-related costs. Cost related to management of our joint venture investment in China was $0.8 million compared to $0.4 million in the first quarter of 2015.
Interest and other expenses, net — Interest and other expenses, net for the three months ended March 31, 2016 increased $3.7 million compared to the same period in 2015. The increase was driven by higher debt levels outstanding at March 31, 2016 primarily due to the 2015 acquisitions of EIEIO, Vega, and Wallaby and capital investments. These increases were partially offset by lower mark-to-market losses on our interest rate swaps of $1.9 million in the first quarter of 2016 compared to $3.8 million in the same quarter 2015.
Income tax expense — The effective tax rate for the three months ended March 31, 2016 was 33.8% compared to 35.0% for the three months ended March 31, 2015. The decrease in the effective tax rate was due primarily to changes in the mix of income before income taxes between the U.S. and foreign countries principally driven by the Vega acquisition. Changes in the

35

relative profitability of our operating segments, as well as changes to federal, state and foreign tax laws may cause the rate to change from historical rates.
Loss in equity method investments — Our share of the loss related to the China joint venture was $2.0 million in the three months ended March 31, 2016 compared to $4.1 million in the three months ended March 31, 2015. This decrease was due to heavy start-up costs in the first quarter of 2015. Our share of the loss related to our other equity investment was $0.2 million for the three months ended March 31, 2016.

Americas Foods & Beverages Segment Results
The following table presents certain financial information concerning our Americas Foods & Beverages segment’s financial results: 
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
$ Change
 
% Change
 
(Dollars in millions)
 
 
 
 
Total net sales
$
894.8

 
100.0
%
 
$
780.3

 
100.0
%
 
$
114.5

 
14.7
%
Cost of sales
600.4

 
67.1
%
 
528.0

 
67.7
%
 
72.4

 
13.7
%
Gross profit
294.4

 
32.9
%
 
252.3

 
32.3
%
 
42.1

 
16.7
%
Operating expenses
198.7

 
22.2
%
 
170.6

 
21.9
%
 
28.1

 
16.5
%
Operating income
$
95.7

 
10.7
%
 
$
81.7

 
10.4
%
 
$
14.0

 
17.1
%
Total net sales — Total net sales increased $114.5 million, or 14.7%, for the three months ended March 31, 2016 compared to the same period in 2015. This increase was driven by a combination of volume growth, including the acquisitions of EIEIO, Vega and Wallaby which contributed $64.3 million in net sales in the quarter, and pricing. These increases were partially offset by a $2.7 million unfavorable impact of currency translation driven by the strengthening of the U.S. dollar compared to the Canadian dollar and the Mexican peso.
Net sales in the plant-based foods and beverages platform increased 29.0%, with the acquisition of Vega contributing 20.9 points of growth. Organic growth was primarily driven by increased sales of frozen desserts, plant-based yogurt products, coconut beverages and nut-based beverages, including almond and cashew products, which was partially offset by declines in soy beverages of $4.6 million.
Net sales growth in the coffee creamers and beverages platform increased 10.4%. This performance was driven by higher volumes, with the acquisition of EIEIO contributing 2.0 points of growth. The key driver of organic growth was growth in new products and increased distribution, along with some benefit of pricing taken in the third quarter of 2015.
Our premium dairy brand platform sales growth of 15.6% was principally driven by the acquisition of Wallaby, which contributed 9.0 points of growth, and higher pricing taken in the second quarter of 2015 to offset the rising costs of organic milk. With the exception of the Wallaby growth, volume was essentially flat across the platform with growth in meals and snacks and other dairy products offsetting slight declines in milk volumes.

Our fresh foods platform grew 0.2% in the first quarter of 2016 as slightly lower volumes were offset by favorable mix and pricing. The platform continues to improve its shipping and customer service levels following the SAP implementation related business disruptions during the fourth quarter of 2015.    
Cost of sales — Cost of sales increased $72.4 million, or 13.7%, for the three months ended March 31, 2016 compared to the same period in 2015. This increase was driven by the impact of acquisitions, along with volume increases in the plant-based beverage and coffee creamers and beverages platforms, and higher commodity costs, particularly organic dairy inputs. Costs were also impacted by $6.0 million of transition costs related to the SAP implementation at Fresh Foods.
Gross profit — Gross profit margin increased 60 basis points to 32.9% for the three months ended March 31, 2016. The increase was primarily driven by a favorable product mix, including the impact of acquisitions. Higher pricing largely offset increased commodity costs. Mix favorability was partially offset by the impact of a strengthening U.S. dollar relative to the Canadian dollar, which reduced gross margin by approximately 20 basis points, and the impact of the SAP implementation related costs.

36

Operating expenses — Operating expenses increased $28.1 million, or 16.5%, for the three months ended March 31, 2016 compared to the same period in 2015. This increase was principally due to acquisitions but was also driven by increased marketing investments in our brands, higher distribution costs linked to higher sales volumes, and higher employee related costs.

Europe Foods & Beverages Segment Results
The following table presents certain financial information concerning our Europe Foods & Beverages segment’s financial results:
 
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
Dollars
 
Percent
 
Dollars
 
Percent
 
$ Change
 
% Change
 
(Dollars in millions)
 
 
 
 
Net sales
$
144.9

 
100.0
%
 
$
130.8

 
100.0
%
 
$
14.1

 
10.8
%
Cost of sales
85.5

 
59.0
%
 
74.6

 
57.0
%
 
10.9

 
14.6
%
Gross profit
59.4

 
41.0
%
 
56.2

 
43.0
%
 
3.2

 
5.7
%
Operating expenses
44.2

 
30.5
%
 
41.8

 
32.0
%
 
2.4

 
5.7
%
Operating income
$
15.2

 
10.5
%
 
$
14.4

 
11.0
%
 
$
0.8

 
5.6
%
Net sales — Net sales increased $14.1 million, or 10.8%, for the three months ended March 31, 2016 compared to the same period in 2015. The increase was driven principally by continued strong volume growth and a favorable mix, led by nut based and coconut beverages, as well as strong growth in our plant-based yogurts. Net sales growth was partially offset by unfavorable foreign currency translation, which reduced growth by 370 basis points.
Cost of sales — Cost of sales increased $10.9 million, or 14.6%, for the three months ended March 31, 2016 compared to the same period in 2015 driven by higher sales volumes and, to a lesser extent, an unfavorable mix. In addition, we wrote off $2.2 million in fixed assets related to the demolition of the Wevelgem warehouse in connection with European capacity expansion.
Gross profit — Gross profit margin decreased to 41.0% for the three months ended March 31, 2016 compared to 43.0% for the same period in 2015. The warehouse write off had an unfavorable impact on gross margin of approximately 145 basis points, while currency contributed an additional unfavorable 50 basis points.
Operating expenses — Operating expenses increased $2.4 million, or 5.7%, for the three months ended March 31, 2016 compared to the same period in 2015. The increase was driven by higher marketing investments and higher general and administrative expenses as we continue to invest behind our brands and our infrastructure. In addition, while distribution costs increased with volume growth, the growth was partially offset by lower co-packed volumes, which reduced shipping costs. Operating expenses were also affected by $1.5 million of favorable currency impacts.
Liquidity and Capital Resources
Debt Facilities

On November 6, 2015, the Company entered into the fourth amendment to its existing senior secured credit facility (the “Fourth Amendment”). As of April 30, 2016, we had outstanding borrowings of $1.7 billion under our $2.5 billion senior secured credit facilities, which consisted of $1.5 billion of term loan borrowings and $174.5 million borrowed under our $1.0 billion revolving credit facility commitment.  We further had $7.6 million in outstanding letters of credit issued under our revolving credit facility.  We had the ability to incur up to a maximum of approximately $620 million of additional indebtedness as governed by the current financial covenants under our senior secured credit facility, assuming such proceeds are not utilized to acquire additional businesses or operations.

The senior secured credit facilities are secured by security interests and liens on substantially all of our assets and the assets of our domestic subsidiaries. The senior secured credit facilities are guaranteed by our material domestic subsidiaries. As of April 30, 2016, borrowings under our senior secured credit facilities bore interest at a rate of LIBOR plus 1.75% per annum

37

for the $1.0 billion revolving commitment and the $750.0 million currently outstanding on the term loan A-1 facility and LIBOR plus 2.00% per annum for the $750.0 million currently outstanding on the term loan A-2 facility.
Alpro maintains a revolving credit facility not to exceed €30.0 million or its currency equivalent. The facility is unsecured and guaranteed by The WhiteWave Foods Company. The Alpro revolving credit facility is available for working capital and other general corporate purposes of Alpro and for the issuance of up to €30.0 million letters of credit or its currency equivalent. At March 31, 2016 and December 31, 2015, Alpro did not have any outstanding borrowings. Any borrowings under the subsidiary revolving credit facility are due upon maturity on June 29, 2016.
Vega maintains an uncommitted revolving credit facility not to exceed $15.0 million CAD. The facility is unsecured and guaranteed by The WhiteWave Foods Company. The facility is available for working capital and other general corporate purposes of Vega. At March 31, 2016, there were no amounts outstanding in borrowings under the facility. At December 31, 2015, there was $7.1 million CAD ($5.1 million USD) outstanding in borrowings under the facility.
As of March 31, 2016, we were in compliance with all related (or associated) covenants under our debt facilities.

Liquidity
Based on current and anticipated level of operations, we believe that our cash on hand, together with operating cash flows, and amounts expected to be available under our senior secured credit facilities, will be sufficient to meet our anticipated liquidity needs over the next twelve months. Our anticipated uses of cash include capital expenditures, working capital needs, other general corporate purposes, and financial obligations such as payments under the senior secured credit facility. In addition, we also evaluate and consider strategic acquisitions, divestitures, joint ventures, and stock repurchases, as well as other transactions to create stockholder value and enhance financial performance. Such transactions may require cash expenditures by us or generate proceeds for us. In connection with such transactions, or to fund other anticipated uses of cash, we may modify our senior secured credit facilities, seek additional debt financing or issue equity securities.
As of March 31, 2016, $30.4 million of our total cash on hand was attributable to our foreign operations and currently domiciled outside the U.S. We anticipate permanently reinvesting our foreign earnings outside the U.S.
Capital Resources
Our board of directors has authorized a share repurchase program, under which the Company may repurchase up to $150.0 million of its common stock. The primary purpose of the program is to offset dilution from the Company’s equity compensation plans, but the Company also may make discretionary purchases. Shares may be repurchased under the program from time to time in one or more open market or other transactions, at the discretion of the Company, subject to market conditions and other factors. The authorization to repurchase shares will end when the Company has repurchased the maximum amount of shares authorized, or the Company’s Board of Directors has determined to discontinue such repurchases. To date, no shares have been repurchased under the share repurchase program.
Historical Cash Flow
The following table summarizes our cash flows from operating, investing, and financing activities:
 
 
Three months ended March 31,
 
2016
 
2015
 
Change
 
(In millions)
Net cash flows from:
 
 
 
 
 
Operating activities
$
47.8

 
$
64.4

 
$
(16.6
)
Investing activities
(48.6
)
 
(89.8
)
 
41.2

Financing activities
1.2

 
10.2

 
(9.0
)
Effect of exchange rate changes on cash and cash equivalents
0.4

 
(4.1
)
 
4.5

Net increase (decrease) in cash and cash equivalents
$
0.8

 
$
(19.3
)
 
$
20.1

Operating Activities

38

Net cash provided by operating activities was $47.8 million for the three months ended March 31, 2016 compared to $64.4 million for the three months ended March 31, 2015. The decrease was due to an increase in operating assets and liabilities, net of acquisition, of $30.7 million partially offset by higher net income excluding non-cash items of $14.1 million. The increase in operating assets and liabilities was driven by the lower accounts payable due to the timing of cash disbursements related to outstanding payments at the end of 2015 relative to the end of 2014.

Investing Activities
Net cash used in investing activities was $48.6 million for the three months ended March 31, 2016 compared to net cash used in investing activities of $89.8 million for the three months ended March 31, 2015. The decrease was primarily driven by lower capital expenditures in 2016.

Financing Activities
Net cash provided by financing activities was $1.2 million for the three months ended March 31, 2016 compared to net cash provided of $10.2 million for the three months ended March 31, 2015. The decrease from 2015 was driven by the repayment in the first quarter of 2016 of principal due on the term loan.
Contractual Obligations and Other Long-Term Liabilities
There have been no material changes in the information provided in Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Contractual Obligations and Other Long-Term Liabilities” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Off-Balance Sheet Arrangements
As of March 31, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies
The process of preparing our consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and judgments are based on historical experience, future expectations, and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. Actual results may differ materially from these estimates. We have identified the following policies as critical accounting policies:
 
•
Goodwill and Intangible Assets, Purchase Price Allocation;
•
Revenue Recognition, Sales Incentives, and Trade Accounts Receivable;
•
Share-Based Compensation;
•
Property, Plant, and Equipment; and
•
Income Taxes.
These critical accounting policies are discussed in more detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 to the unaudited condensed consolidated financial statements within Item 1 of this report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in the Quantitative and Qualitative Disclosures About Market Risk disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Item 4. Controls and Procedures
 

39

(a)
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”) and, based upon such evaluation, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.
 
(b)
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ending March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Item 2C. Issuer Purchases of Equity Securities
On May 23, 2013, the Company announced that its Board of Directors had authorized a share repurchase program, under which the Company may repurchase up to $150 million of its common stock. As of March 31, 2016, no shares of common stock have been repurchased under this program. There is no expiration date for the program, and the authorization to repurchase shares will end when the Company has repurchased the maximum amount of shares authorized, or the Company’s Board of Directors has determined to discontinue such repurchases.

40

Item 6. Exhibits
 
 
 
31.1
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
32.2
  
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS
  
XBRL Instance Document
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
  
XBRL Taxonomy Calculation Linkbase Document
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
  
XBRL Taxonomy Label Linkbase Document
 
 
101.PRE
  
XBRL Taxonomy Presentation Linkbase Document
Attached as Exhibit 101 to this report are the following materials from the WhiteWave Foods Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, (ii) the Condensed Consolidated Statements of Income for the three months ended March 31, 2016 and 2015, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015, (iv) the Condensed Consolidated Statements of Equity for the three months ended March 31, 2016 and 2015, (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015, and (vi) Notes to Condensed Consolidated Financial Statements.
In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

41

SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
THE WHITEWAVE FOODS COMPANY
 
/s/ James T. Hau
James T. Hau
Vice President and Chief Accounting Officer
May 10, 2016


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WHITEWAVE FOODS Co Reports

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