TREEHOUSE FOODS, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 | |
| For the Fiscal Year Ended December 31, 2009 | ||
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Or
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o
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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
001-32504
TreeHouse Foods, Inc.
(Exact name of the registrant as
specified in its charter)
|
Delaware
|
20-2311383 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |
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Two Westbrook Corporate Center, Suite 1070
Westchester, IL (Address of principal executive offices) |
60154
(Zip Code) |
Registrant’s telephone number, including area code
(708) 483-1300
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange |
Securities registered pursuant to section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(section 229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
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.
|
Large accelerated
filer
þ
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Accelerated filer o | Non-accelerated filer o | Smaller reporting Company o | |||
| (Do not check if a 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
o
No
þ
The aggregate market value of the Registrant’s common stock
held by non-affiliates as of June 30, 2009, based on the
$28.77 per share closing price on the New York Stock Exchange on
such date, was approximately $897.7 million. Shares of
common stock held by executive officers and directors of the
registrant have been excluded from this calculation because such
persons may be deemed to be affiliates.
The number of shares of the registrant’s common stock
outstanding as of January 29, 2010 was 32,000,919.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for
its Annual Meeting of Stockholders to be held on April 29,
2010 are incorporated by reference into Part III of this
Form 10-K.
TABLE OF
CONTENTS
2
Table of Contents
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements and information in this
Form 10-K
may constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The
words “believe,” “estimate”,
“project”, “except,” “anticipate,”
“plan,” “intend,” “foresee,”
“should,” “would,” “could” or
other similar expressions are intended to identify
forward-looking statements, which are generally not historical
in nature. These forward-looking statements are based on our
current expectations and beliefs concerning future developments
and their potential effect on us. These forward-looking
statements and other information are based on our beliefs as
well as assumptions made by us using information currently
available. Such statements reflect our current views with
respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected
or intended. We are making investors aware that such
forward-looking statements, because they relate to future
events, are by their very nature subject to many important
factors that could cause actual results to differ materially
from those contemplated. Such factors include, but are not
limited to, the outcome of litigation and regulatory proceedings
to which we may be a party; the impact of product recalls;
actions of competitors; changes and developments affecting our
industry; quarterly or cyclical variations in financial results;
our ability to obtain suitable pricing for our products;
development of new products and services; our level of
indebtedness; the availability of financing on commercially
reasonable terms; cost of borrowing; our ability to maintain and
improve cost efficiency of operations; changes in foreign
currency exchange rates; interest rates and raw material and
commodity costs; changes in economic conditions; political
conditions; reliance on third parties for manufacturing of
products and provision of services; delays in the consummation,
or the failure to consummate, the proposed Sturm Foods, Inc.
acquisition; general U.S. and global economic conditions;
the financial condition of our customers and suppliers;
consolidations in the retail grocery and foodservice industries;
our ability to continue to make acquisitions in accordance with
our business strategy or effectively manage the growth from
acquisitions and other risks that are described Part I,
Item 1A — “Risk Factors” and our other
reports filed from time to time with the Securities and Exchange
Commission (the “SEC”).
Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly update or revise
any forward-looking statements after the date they are made,
whether as a result of new information, future events or
otherwise.
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Table of Contents
PART I
| Item 1. | Business |
References herein to “we,” “us,”
“our,” “Company” and “TreeHouse”
refers to TreeHouse Foods, Inc. and its consolidated
subsidiaries unless the context specifically states or implies
otherwise.
TreeHouse is a Delaware corporation incorporated on
January 25, 2005 by Dean Foods Company to accomplish a
spin-off of certain specialty businesses to its shareholders
which was completed on June 27, 2005. Since the Company
began operating as an independent entity, it has expanded its
product offerings through a number of acquisitions. On
April 24, 2006, the Company acquired the private label soup
and infant feeding business from Del Monte Corporation
(“Soup and Infant Feeding”). On May 31, 2007, the
Company acquired VDW Acquisition, Ltd (“San Antonio
Farms”) a manufacturer of Mexican sauces. On
October 15, 2007, the Company acquired the assets of E.D.
Smith Income Fund (“E.D. Smith”), a manufacturer of
salad dressings, jams and various sauces.
We are a food manufacturer servicing primarily the retail
grocery and foodservice distribution channels. Our products
include non-dairy powdered coffee creamers; private label soups,
salad dressings and sauces; Mexican sauces; jams and pie
fillings; pickles and related products; infant feeding products;
aseptic sauces; refrigerated salad dressings and liquid
non-dairy creamer. We manufacture and sell the following:
| • | private label products to retailers, such as supermarkets and mass merchandisers, for resale under the retailers’ own or controlled labels, | |
| • | private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators, | |
| • | branded products under our own proprietary brands, primarily on a regional basis to retailers, and | |
| • | products to our industrial customer base, for repackaging in portion control packages and for use as ingredients by other food manufacturers. |
Effective January 1, 2008, we realigned the manner in which
our business is managed and now focus on operating results based
on channels of distribution, which resulted in a change to our
operating and reportable segments. Previously, we managed our
business based on product categories. Our change in operating
and reportable segments from product categories to channel of
distribution is consistent with management’s long-term
growth strategy and was necessary due to the acquisitions that
occurred during 2007. The change in operating and reportable
segments will permit the Company to integrate future
acquisitions more efficiently and provide our investors with
greater comparability to our peer group, as many of them also
present results based on channels of distribution.
We discuss the following segments in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”: North American Retail Grocery, Food Away From
Home, and Industrial and Export. The key performance indicators
of our segments are net sales dollars, gross profit and direct
operating income, which is gross profit less the cost of
transporting products to customer locations (referred to in the
tables below as “freight out”), commissions paid to
independent sales brokers, and direct selling and marketing
expenses.
Our North American Retail Grocery segment sells branded and
private label products to customers within the United States and
Canada. These products include non-dairy powdered creamers;
condensed and ready to serve soups, broths and gravies; infant
feeding products; salad dressings and sauces; pickles, peppers
and relishes; Mexican sauces; jams and pie fillings; aseptic
products and liquid non-dairy creamer.
Our Food Away From Home segment sells non-dairy powdered
creamers, pickle products, Mexican sauces, refrigerated
dressings, and aseptic products to foodservice customers,
including restaurant chains and food distribution companies,
within the United States and Canada.
Our Industrial and Export segment includes the Company’s
co-pack soup and infant feeding business; non-dairy powdered
creamer sales to industrial customers for use in industrial
applications, including products
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for repackaging in portion control packages and for use as
ingredients by other food manufacturers; pickles; Mexican
sauces; and refrigerated dressings. Export sales are primarily
to industrial customers.
See Note 21 to the Consolidated Financial Statements and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for information
related to the Company’s business segments.
We operate our business as Bay Valley Foods, LLC (“Bay
Valley”) in the United States and E.D. Smith Foods, Ltd
(“E.D. Smith”) in Canada. Bay Valley is a Delaware
limited liability company, a wholly owned subsidiary of
TreeHouse Foods, Inc. and holds all of the real estate and
operating assets related to our business. E.D. Smith is a wholly
owned subsidiary of Bay Valley.
Recent
Developments
On December 20, 2009, TreeHouse entered into a definitive
Purchase Agreement to acquire all of the issued and outstanding
common stock of Sturm Foods, Inc. (“Sturm”) for a
purchase price of approximately $660 million in cash
(subject to adjustment). We believe Sturm is the leading
manufacturer of private label sugar free drink mixes and hot
cereals in the United States. The acquisition of Sturm will add
two large categories to our dry grocery portfolio. TreeHouse
intends to finance the transaction through a combination of
approximately $400 million in new debt issuance,
approximately $100 million in equity stock issuance, and
the balance funded from borrowings under TreeHouse’s
existing revolving credit facility.
The closing of the transaction is subject to customary closing
conditions and is expected to close in the first quarter of
2010. There can be no assurances, however, that the parties will
satisfy the closing conditions and consummate the transaction
within the expected timeframe, or at all.
Our
Products
Financial information about our North American Retail Grocery,
Food Away From Home, and Industrial and Export segments can be
found under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
The following table sets forth percentages of consolidated net
sales contributed by classes of similar products, for the years
ended December 31, 2009, 2008, and 2007:
Products
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Net Sales | % | Net Sales | % | Net Sales | % | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
|
Soup and infant feeding
|
$ | 344,181 | 22.8 | % | $ | 336,519 | 22.4 | % | $ | 322,223 | 27.8 | % | ||||||||||||
|
Non-dairy powdered creamer
|
323,926 | 21.4 | 351,838 | 23.4 | 299,191 | 25.9 | ||||||||||||||||||
|
Pickles
|
316,976 | 21.0 | 325,579 | 21.7 | 329,686 | 28.5 | ||||||||||||||||||
|
Salad dressings
|
186,778 | 12.3 | 156,884 | 10.5 | 29,295 | 2.5 | ||||||||||||||||||
|
Jams and other sauces
|
155,771 | 10.3 | 153,927 | 10.3 | 29,973 | 2.6 | ||||||||||||||||||
|
Aseptic products
|
84,493 | 5.6 | 83,198 | 5.5 | 80,784 | 7.0 | ||||||||||||||||||
|
Mexican sauces
|
64,520 | 4.3 | 52,718 | 3.5 | 25,862 | 2.2 | ||||||||||||||||||
|
Refrigerated products
|
35,008 | 2.3 | 39,987 | 2.7 | 40,888 | 3.5 | ||||||||||||||||||
|
Total
|
$ | 1,511,653 | 100.0 | % | $ | 1,500,650 | 100.0 | % | $ | 1,157,902 | 100.0 | % | ||||||||||||
Soup and Infant Feeding
— Soup, broth and gravy
are produced and packaged in cans of various sizes, from single
serve to larger sized cans. We primarily produce private label
products sold to supermarkets and mass merchandisers. We also
produce infant feeding products, primarily under the
Nature’s
Goodness
®
brand, and we co-pack organic infant feeding products for a
branded baby food company. Infant feeding production takes place
in the same factory that produces most of our soup, broth and
gravy products. In 2009, the
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majority of the soup and infant feeding sales were to the retail
channel and represented 22.8% of our consolidated net sales,
with the majority of the sales coming from soup.
Non-Dairy Powdered Creamer
— Non-dairy powdered
creamer is used as coffee creamer or whitener and as an
ingredient in baking, hot and cold beverages, gravy mixes and
similar products. Product offerings in this category include
private label products packaged for grocery retailers, such as
supermarkets and mass merchandisers, foodservice products for
use in coffee service and other industrial applications, such as
portion control, repackaging and ingredient use by other food
manufacturers. We believe we are the largest supplier of
non-dairy powdered creamer in the United States. Non-dairy
powdered creamer represented 21.4% of our consolidated net sales
for the year ended December 31, 2009.
Pickles
— We produce pickles and a variety of
related products, including peppers, pickled vegetables, sauces
and syrups. We produce private label and regional branded
offerings in the pickles category. These products are sold to
supermarkets, mass merchandisers, foodservice and industrial
customers. We believe we are the largest producer of pickles
with in the United States. Pickles and related products
represented approximately 21.0% of our consolidated net sales in
2009.
Salad Dressings
— We produce both pourable and
spoonable salad dressings. Our salad dressings are sold
primarily to supermarkets and mass merchandisers throughout the
United States and Canada, and encompass many flavor varieties.
We believe we are the largest supplier of private label salad
dressings in both the United States and Canada. Salad dressings
represented 12.3% of our consolidated net sales in 2009.
Jams and Other Sauces
— We produce jams, pie
fillings and other sauces that we sell to supermarkets, mass
merchandisers and foodservice customers in the United States and
Canada. Jams and other sauces represented 10.3% of our
consolidated net sales in 2009.
Aseptic Products
— Aseptic products are
processed under heat and pressure in a sterile production and
packaging environment, creating a product that does not require
refrigeration prior to use. Our principal aseptic products are
cheese sauces and puddings. These products are sold primarily to
foodservice customers in cans and flexible packages. Aseptic
products represented 5.6% of our consolidated net sales in 2009.
Mexican Sauces
— We produce a wide variety of
Mexican sauces, including salsa, picante sauce, cheese dip,
enchilada sauce and taco sauce that we sell to supermarkets,
mass merchandisers and foodservice customers in the United
States and Canada, as well as to industrial markets. Mexican
sauces represented approximately 4.3% of our consolidated net
sales in 2009.
Refrigerated Products
— We produce refrigerated
salad dressings and liquid non-dairy creamer, which are sold to
retail and foodservice customers. Refrigerated products
represented approximately 2.3% of our consolidated net sales in
2009.
See Note 21 to the Consolidated Financial Statements for
financial information by segment and sales by major products.
Customers
and Distribution
We sell our products through various distribution channels,
including retail grocery, foodservice distributors and
industrial and export, including food manufacturers and
repackagers of foodservice products. We have an internal sales
force that manages customer relationships and our broker
network, which is used for sales to retail and foodservice
accounts. Industrial food products are generally sold directly
to customers without the use of a broker. Most of our customers,
including long-standing customers, purchase products from us
either by purchase order or pursuant to contracts that generally
are terminable at will. We have many customer supply
arrangements that are not evidenced by written agreements.
Products are shipped from our production facilities directly to
customers or to our distribution centers, where products are
consolidated for shipment to customers. We believe this
consolidation of products enables us to improve customer service
by offering our customers a single order, invoice and shipment.
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Table of Contents
We sell our products to a diverse customer base, including many
of the leading grocery retailers and foodservice operators in
the United States and Canada, and a variety of customers that
purchase bulk products for industrial food applications. We
currently supply more than 250 food retail customers in North
America, including 47 of the 50 largest food retailers, and more
than 450 foodservice customers, including 74 of the 100 largest
restaurant chains and the 200 largest food distributors. A
relatively limited number of customers account for a large
percentage of our consolidated net sales. For the year ended
December 31, 2009, our ten largest customers accounted for
approximately 47% of the Company’s consolidated net sales.
For the years ended December 31, 2009, 2008 and 2007, our
largest customer, Wal-Mart Stores, Inc. and its affiliates,
accounted for approximately 14.4%, 15.1% and 13.8%,
respectively, of our consolidated net sales. No other customer
accounted for 10% or more of the Company’s consolidated net
sales. Total trade receivables with Wal-Mart Stores, Inc. and
affiliates represented 13.3% and 14.5% of our total trade
receivables as of December, 31, 2009 and 2008, respectively.
Backlog
Our products are generally shipped from inventory upon receipt
of a customer order. In certain cases, we produce to order.
Sales order backlog is not material to our business.
Competition
We have several competitors in each of our segments. For sales
of private label products to retailers, the principal
competitive factors are price, product quality and quality of
service. For sales of products to foodservice, industrial and
export customers, the principal competitive factors are product
quality and specifications, reliability of service and price. We
believe we are the largest manufacturer of non-dairy powdered
creamer and pickles in the United States and largest
manufacturer of private label salad dressings in the United
States and Canada based on sales volume.
Competition to obtain shelf space for our branded products with
retailers generally is based on the expected or historical
performance of our product sales relative to our competitors.
The principal competitive factors for sales of our branded
products to consumers are brand recognition and loyalty, product
quality, promotion and price. Most of our branded competitors
have significantly greater resources and brand recognition than
we do.
The consolidation trend is continuing in the retail grocery and
foodservice industries, and mass merchandisers are gaining
market share. As our customer base continues to consolidate, we
expect competition to intensify as we compete for the business
of fewer, large customers.
We believe our strategies for competing in each of our business
segments, which include superior product quality, effective cost
control programs, an efficient supply chain, successful new
products and price, allow us to compete effectively.
Patents
and Trademarks
We own a number of registered trademarks. While we consider our
trademarks to be valuable assets, we do not consider any
trademark to be of such material importance that its absence
would cause a material disruption of our business. No trademark
is material to any one segment.
Brand names sold within the North American Retail Grocery
segment include the following pickle brands,
Farman’s
®
,
Nalley’s
®
,
Peter Piper
®
and
Steinfeld
®
.
Also sold are brands related to sauces and syrups,
Bennett’s
®
,
Hoffman
House
®
,
Roddenbery’s
Northwoods
®
and
San Antonio
Farms
®
.
Infant feeding products are sold under the
Nature’s
Goodness
®
brand, while our non-dairy powdered creamer is sold under our
proprietary
Cremora
®
brand. Our refrigerated products are sold under the
Mocha
Mix
®
and
Second
Nature
®
brand names, and our jams and other sauces are sold under
the
E.D.
Smith
®
and
Habitant
®
brand names.
Trade names used in our Food Away From Home segment include
Schwartz
®
and
Saucemaker
®
.
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Seasonality
In general, total demand for our products does not vary
significantly by quarter. However, sales of soup products have a
higher percentage of sales in the fourth quarter and lower sales
in the second quarter while dressings have higher sales in the
second quarter. Pickles tend to have higher sales in the second
quarter and non-dairy powdered creamer tends to have higher
sales in the first and fourth quarters.
Foreign
Operations and Geographic Information
Foreign sales information is set forth in Note 21 to the
“Consolidated Financial Statements.”
Raw
Materials and Supplies
Our raw materials consist of ingredients and packaging
materials. Principle ingredients used in our operations include
processed vegetables and meats, soybean oil, coconut oil,
casein, cheese, corn syrup, cucumbers, peppers and fruit. These
ingredients generally are purchased under supply contracts, and
we occasionally engage in forward buying, when we determine such
buying to be to our advantage. We believe these ingredients to
be generally available from a number of suppliers. The cost of
raw materials used in our products may fluctuate due to weather
conditions, regulations, industry and general U.S. and
global economic conditions, fuel prices, energy costs, labor
disputes, transportation delays or other unforeseen
circumstances. The most important packaging materials and
supplies used in our operations are glass, plastic containers,
corrugated containers, metal closures and metal cans, operating
supplies and energy. Most packaging materials are purchased
under long-term supply contracts. We believe these packaging
materials to be generally available from a number of suppliers.
Volatility in the cost of our raw materials and supplies can
adversely affect our performance, as price changes often lag
behind changes in costs and we are not always able to adjust our
pricing to reflect changes in raw material and supply costs.
For additional discussion of the risks associated with the raw
materials used in our operations, see “Known Trends and
Uncertainties — Prices of Raw Materials.”
Working
Capital
Our short-term financing needs are primarily for financing
working capital during the year. Due to the seasonality of
pickle and fruit production, driven by harvest cycles, which
occur primarily during late spring and summer, inventories
generally are at a low point in late spring and at a high point
during the fall, increasing our working capital requirements. In
addition, we build inventories of salad dressings in the spring
and soup in the summer months in anticipation of large seasonal
shipments that begin late in the second and third quarters,
respectively. Our long-term financing needs will depend largely
on potential acquisition activity. Our revolving credit
agreement, plus cash flow from operations, is expected to be
adequate to provide liquidity for our current operations. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources.”
Research
and Development
Our research facilities include a Research and Development
Center in Pecatonica, Illinois, which focuses on the development
of aseptic and powdered creamer products. Product development
work for aseptic products is also carried out at our production
facility in Dixon, Illinois. Research and development for our
pickle products is carried out at our production facility in
Green Bay, Wisconsin. We conduct research and development
activities for our soup and infant feeding products at our
production facility in Pittsburgh, Pennsylvania. New
formulations for salad dressings are created at our Seaforth,
Canada location and new sauces and fruit based products are
developed at our Winona, Canada facility. In addition, sample
preparation, plant trials, ingredient approval and other quality
control procedures are conducted at all our manufacturing
facilities. Research and development expense totaled
$8.3 million, $6.9 million, and $4.8 million in
2009, 2008, and 2007, respectively, and is included in the
General and administrative line of the Consolidated Statements
of Income.
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Table of Contents
Employees
As of December 31, 2009, our work force consisted of
approximately 3,100 full-time employees in the United
States and Canada.
Available
Information
Our fiscal year ends on December 31. We furnish our
stockholders with annual reports on
Form 10-K
containing audited financial reports. As a public company, we
regularly file reports and proxy statements with the Securities
and Exchange Commission (“SEC”). These reports are
required by the Securities Exchange Act of 1934 and include
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and proxy statements on Schedule 14A. Copies of any
materials the Company files with the SEC can be obtained free of
charge through the SEC’s website at
http://www.sec.gov,
at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549, or by
calling the SEC’s Office of Investor Education and
Assistance at
1-800-732-0330.
We make our SEC filings available on our own internet site as
soon as reasonably practicable after they have been filed with
the SEC. Our internet address is
http://www.treehousefoods.com
. The information on our
website is not incorporated by reference into this annual report
on
Form 10-K.
Regulatory
Environment and Environmental Compliance
The conduct of our businesses, and the production, distribution,
sale, labeling, safety, transportation and use of our products,
are subject to various laws and regulations administered by
federal, state, and local governmental agencies in the United
States, as well as to foreign laws and regulations administered
by government entities and agencies in markets where we operate.
It is our policy to abide by the laws and regulations that apply
to our businesses.
We are subject to national and local environmental laws in the
United States and in foreign countries in which we do business
including laws relating to water consumption and treatment, air
quality, waste, handling and disposal and other regulations
intended to protect public health and the environment. We are
committed to meeting all applicable environmental compliance
requirements.
The cost of compliance with U.S. and foreign laws does not
have and are not expected to have, a material financial impact
on our capital expenditures, earnings or competitive position.
Executive
Officers
|
Sam K. Reed
|
63 | Chairman of the Board of Directors. Mr. Reed has served as the Chief Executive Officer since January 2005. | ||||
|
David F. Vermylen
|
59 | President and Chief Operating Officer and has served in that position since January 2005. | ||||
|
Dennis F. Riordan
|
52 | Senior Vice President and Chief Financial Officer since January 2006. | ||||
|
Thomas E. O’Neill
|
55 | General Counsel, Chief Administrative Officer and a Senior Vice President and has served in that position since January 2005. | ||||
|
Harry J. Walsh
|
54 | Senior Vice President and has served in that position since July 2008. Previously Senior Vice President of Operations from January 2005 through July 2008. |
| Item 1A. | Risk Factors |
In addition to the factors discussed elsewhere in this Report,
the following risks and uncertainties could materially and
adversely affect the Company’s business, financial
condition, results of operations and cash flows. Additional
risks and uncertainties not presently known to the Company also
may impair the Company’s business operations and financial
condition.
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Disruptions
in the financial markets could affect our ability to fund
acquisitions or to renew our outstanding credit agreements upon
expiration at our current favorable terms.
As of December 31, 2009, we had $402.5 million of
outstanding indebtedness which included $298.2 million
under our $600 million revolving credit agreement, which
expires August 31, 2011, and $100 million in senior
notes from a private placement, which expires on
September 30, 2013. The inability to generate sufficient
cash flow to satisfy our debt obligations, or to refinance our
debt obligations on commercially reasonable terms, would have a
material adverse effect on our business, financial condition,
and results of operations. In addition, the inability to access
additional borrowing at commercially reasonable terms could
affect our ability to pursue additional acquisitions.
U.S. credit markets have experienced significant
dislocations and liquidity disruptions which have caused credit
spreads on prospective debt financings to widen considerably.
These circumstances have materially impacted liquidity in debt
markets, making financial terms for borrowers less attractive,
and in certain cases have resulted in the unavailability of
certain types of debt refinancing. Continued uncertainty in the
credit markets may negatively impact our ability to access
additional debt financing or to refinance existing indebtedness
on favorable terms, or at all. Events affecting the credit
markets have also had an adverse effect on other financial
markets in the U.S., which may make it more difficult or costly
for us to raise capital through the issuance of common stock or
other equity securities. Our business could also be negatively
impacted if our suppliers or customers experience disruptions
resulting from tighter capital and credit markets, or a slowdown
in the general economy. Any of these risks could impair our
ability to fund our operations or limit our ability to expand
our business and could possibly increase our interest expense,
which could have a material adverse effect on our financial
results.
Increases
in interest rates may negatively affect earnings.
We had outstanding variable rate debt of $298.2 million
with an average interest rate of 0.91% as of December 31,
2009, which accounts for approximately 74.1% of our total debt
outstanding at December 31, 2009. In October, 2008, we
entered into an interest rate swap for two years, with an
effective date of November 19, 2008, at a fixed rate of
2.9% on $200 million of our variable rate debt which
effectively results in an average interest rate of 2.75% on our
variable rate debt at December 31, 2009. However, because
we have a significant portion of variable rate debt, we may
still experience interest rate volatility. Increases in interest
rates on our variable rate debt could materially affect our
earnings.
Fluctuations
in foreign currencies may adversely affect earnings.
The Company is exposed to fluctuations in foreign currency
exchange rates primarily related to raw material purchases. We
are also exposed to fluctuations in the value of our foreign
currency investment in our Canadian subsidiary, E.D. Smith.
The Canadian assets, liabilities, revenues and expenses are
translated into U.S. dollars at applicable exchange rates.
Accordingly, we are exposed to volatility in the translation of
foreign currency earnings due to fluctuations in the value of
the Canadian dollar, which may negatively impact the
Company’s results of operations and financial position.
As we are
dependent upon a limited number of customers, the loss of a
significant customer, or consolidation of our customer base,
could adversely affect our operating results.
A limited number of customers represent a large percentage of
our consolidated net sales. Our operating results are contingent
on our ability to maintain our sales to these customers. The
competition to supply products to these high volume customers is
very high. We expect that a significant portion of our net sales
will continue to be derived from a small number of customers.
For the year ended December 31, 2009, our ten largest
customers accounted for approximately 47% of the Company’s
consolidated net sales. These customers typically do not enter
into written contracts, and the contracts that they do enter
into generally are terminable at will. Our customers make
purchase decisions based on a combination of price, product
quality and customer service performance.
10
Table of Contents
If our product sales to one or more of these customers are
reduced, this reduction may have a material adverse effect on
our business, results of operations and financial condition.
Increases
in input costs, such as ingredients, packaging materials and
fuel costs, could adversely affect earnings.
The costs of ingredients, as well as packaging materials and
fuel, have varied widely in recent years and future changes in
such costs may cause our results of operations and our operating
margins to fluctuate significantly. Many of the raw materials
that we use in our products rose to unusually high levels during
2007 and 2008, including processed vegetables and meats, soybean
oil, casein, cheese and packaging materials. During 2009,
certain input costs have decreased from the high levels
experienced in 2008, but continue to remain at levels in excess
of historical costs. Other input costs such as metal cans, lids
and caps continue to rise even though the underlying commodity
cost has decreased. In addition, fuel costs, which represent the
most important factor affecting utility costs at our production
facilities and our transportation costs, rose to unusually high
levels in the middle of 2008, but have decreased proportionately
to the general reduction in overall economic activity in 2009.
We expect the volatile nature of these costs to continue, with
an overall slightly upward trend.
We manage the impact of increases in the costs of raw materials,
wherever possible, by locking in prices on quantities required
to meet our production requirements. In addition, we attempt to
offset the effect of such increases by raising prices to our
customers. However, changes in the prices of our products may
lag behind changes in the costs of our materials. Competitive
pressures also may limit our ability to quickly raise prices in
response to increased raw materials, packaging and fuel costs.
Accordingly, if we are unable to increase our prices to offset
increasing raw material, packaging and fuel costs, our operating
profits and margins could be materially adversely affected. In
addition, in instances of declining input costs, customers may
be looking for price reductions in situations where we have
locked into purchases at higher costs.
Our
private label and regionally branded products may not be able to
compete successfully with nationally branded products.
For sales of private label products to retailers, the principal
competitive factors are price, product quality and quality of
service. For sales of private label products to consumers, the
principal competitive factors are price and product quality. In
many cases, competitors with nationally branded products have a
competitive advantage over private label products primarily due
to name recognition. In addition, when branded competitors focus
on price and promotion, the environment for private label
producers becomes more challenging because the price difference
between private label products and branded products can become
less significant.
Competition to obtain shelf space for our branded products with
retailers is primarily based on the expected or historical
performance of our product sales relative to our competitors.
The principal competitive factors for sales of our branded
products to consumers are brand recognition and loyalty, product
quality, promotion and price. Most of our branded competitors
have significantly greater resources and brand recognition than
we do.
Competitive pressures or other factors could cause us to lose
market share, which may require us to lower prices, increase
marketing expenditures, or increase the use of discounting or
promotional programs, each of which would adversely affect our
margins and could result in a decrease in our operating results
and profitability.
We
operate in the highly competitive food industry.
We face competition across our product lines from other
companies which have varying abilities to withstand changes in
market conditions. Some of our competitors have substantial
financial, marketing and other resources, and competition with
them in our various business segments and product lines could
cause us to reduce prices, increase capital, marketing or other
expenditures, or lose category share, which could have a
11
Table of Contents
material adverse effect on our business and financial results.
Category share and growth could also be adversely impacted if we
are not successful in introducing new products.
We may be
unsuccessful in our future acquisition endeavors, if any, which
may have an adverse effect on our business.
Consistent with our stated strategy, our future growth depends,
in large part, on our acquisition of additional food
manufacturing businesses, products or processes. As a result, we
intend to engage in acquisition activity, including without
limitation our pending acquisition of Sturm. We may be unable to
identify suitable targets, opportunistic or otherwise, for
acquisition or make acquisitions at favorable prices. If we
identify a suitable acquisition candidate, our ability to
successfully implement the acquisition would depend on a variety
of factors, including our ability to obtain financing on
acceptable terms.
Acquisitions, including the pending acquisition of Sturm,
involve risks, including those associated with integrating the
operations, financial reporting, disparate technologies and
personnel of acquired companies; managing geographically
dispersed operations; the diversion of management’s
attention from other business concerns; the inherent risks in
entering markets or lines of business in which we have either
limited or no direct experience; unknown risks; and the
potential loss of key employees, customers and strategic
partners of acquired companies. We may not successfully
integrate businesses or technologies we acquire in the future
and may not achieve anticipated revenue and cost benefits.
Acquisitions may not be accretive to our earnings and may
negatively impact our results of operations as a result of,
among other things, the incurrence of debt, one time write-offs
of goodwill and amortization expenses of other intangible
assets. In addition, future acquisitions could result in
dilutive issuances of equity securities.
With respect to our pending acquisition of Sturm, there can be
no assurances that the parties will satisfy the closing
conditions contained in the purchase agreement and consummate
the transaction within our expected timeframe or at all.
See Item 1 “Business” regarding the definitive
agreement to purchase Sturm Foods.
We may be
unable to anticipate changes in consumer preferences, which may
result in decreased demand for our products.
Our success depends in part on our ability to anticipate the
tastes and eating habits of consumers and to offer products that
appeal to their preferences. Consumer preferences change from
time to time and our failure to anticipate, identify or react to
these changes could result in reduced demand for our products,
which would adversely affect our operating results and
profitability.
We may be
subject to product liability claims for misbranded, adulterated,
contaminated or spoiled food products.
We sell food products for human consumption, which involve risks
such as product contamination or spoilage, misbranding, product
tampering, and other adulteration of food products. Consumption
of a misbranded, adulterated, contaminated or spoiled product
may result in personal illness or injury. We could be subject to
claims or lawsuits relating to an actual or alleged illness or
injury, and we could incur liabilities that are not insured or
that exceed our insurance coverage. Even if product liability
claims against us are not successful or fully pursued, these
claims could be costly and time consuming and may require
management to spend time defending the claims rather than
operating our business. A product that has been actually or
allegedly misbranded or becomes adulterated could result in:
product withdrawals, product recalls, destruction of product
inventory, negative publicity, temporary plant closings, and
substantial costs of compliance or remediation. Any of these
events, including a significant product liability judgment
against us, could result in a loss of confidence in our food
products, which could have an adverse effect on our financial
condition, results of operations or cash flows.
12
Table of Contents
New laws
or regulations or changes in existing laws or regulations could
adversely affect our business.
The food industry is subject to a variety of federal, state,
local and foreign laws and regulations, including those related
to food safety, food labeling and environmental matters.
Governmental regulations also affect taxes and levies,
healthcare costs, energy usage, international trade, immigration
and other labor issues, all of which may have a direct or
indirect effect on our business or those of our customers or
suppliers. Changes in these laws or regulations or the
introduction of new laws or regulations could increase the costs
of doing business for us or our customers or suppliers or
restrict our actions, causing our results of operations to be
adversely affected.
Our
business could be harmed by strikes or work stoppages by our
employees.
Currently, approximately 60% of our full time hourly
distribution, production and maintenance employees are covered
by collective bargaining agreements with the International
Brotherhood of Teamsters, United Food and Commercial Workers
Union, or Retail, Wholesale and Department Store Union Central
States Council. No agreements expire within one year. If a
dispute with one of these unions or the employees they represent
were to arise, production interruptions caused by work stoppages
could occur. If a strike or work stoppage were to occur, our
business, financial condition and results of operations could be
adversely affected.
| Item 1B. | Unresolved Staff Comments |
None.
| Item 2. | Properties |
We currently operate sixteen production facilities, the majority
of which are owned except for the facility in City of Industry,
California, which is leased under an agreement that expires in
September 2016; the Mendota, Illinois facility, which is leased
from Del Monte Corporation under an agreement that expires in
April 2035; the Springfield, Missouri facility, which is leased
from Bell Carter under an agreement that expires in
October 31, 2010. We believe that these facilities are
suitable for our operations and provide sufficient capacity to
meet our requirements for the foreseeable future. The Company
closed the Cambridge, Ontario production facility in June 2009.
The following chart lists the location and principal products by
segment produced at our production facilities at
December 31, 2009:
|
Facility Location
|
Principal Products
|
Segment | ||
|
City of Industry, California
|
Liquid non-dairy creamer and refrigerated salad dressings | 1,2,3 | ||
|
Chicago, Illinois
|
Refrigerated foodservice pickles | 2 | ||
|
Dixon, Illinois
|
Aseptic cheese sauces, puddings and gravies | 2,3 | ||
|
Faison, North Carolina
|
Pickles, peppers and relish; syrup | 1,2,3 | ||
|
Green Bay, Wisconsin
|
Pickles, peppers, relish and sauces | 1,2,3 | ||
|
Mendota, Illinois
|
Soups, broths, and gravies | 1,3 | ||
|
New Hampton, Iowa
|
Non-dairy powdered creamer | 3 | ||
|
North East, Pennsylvania
|
Salad dressings | 1,3 | ||
|
Pecatonica, Illinois
|
Non-dairy powdered creamer | 3 | ||
|
Pittsburgh, Pennsylvania
|
Soups, broths, and gravies; baby food | 1,3 | ||
|
Plymouth, Indiana
|
Pickles, peppers and relish | 1,2,3 | ||
|
San Antonio, Texas
|
Mexican sauces | 1,2,3 | ||
|
Seaforth, Ontario, Canada
|
Salad dressings, mayonnaise | 1,3 | ||
|
Springfield, Missouri
|
Foodservice pickles | 2 | ||
|
Wayland, Michigan
|
Non-dairy powdered creamer | 1,3 | ||
|
Winona, Ontario, Canada
|
Jams, pie fillings and specialty sauces | 1,2,3 |
| Segments: | 1. North American Retail Grocery |
13
Table of Contents
| 2. Food Away From Home | ||
| 3. Industrial and Export |
| Item 3. | Legal Proceedings |
We are party to a variety of legal proceedings arising out of
the conduct of our business. While the results of proceedings
cannot be predicted with certainty, management believes that the
final outcome of these proceedings will not have a material
adverse effect on the Consolidated Financial Statements, annual
results of operations or cash flows.
| Item 4. | Submission of Matters to a Vote of Security Holders |
There were no matters submitted during the fourth quarter of
fiscal year 2009 to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Company’s common stock is traded on the New York Stock
Exchange under the symbol “THS.” The high and low
sales prices of our common stock as quoted on the New York Stock
Exchange for 2009 and 2008 are provided in the table below
| 2009 | 2008 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
First Quarter
|
29.41 | 24.28 | 24.80 | 19.24 | ||||||||||||
|
Second Quarter
|
29.48 | 25.25 | 27.01 | 21.84 | ||||||||||||
|
Third Quarter
|
38.19 | 28.00 | 30.29 | 23.58 | ||||||||||||
|
Fourth Quarter
|
40.38 | 33.00 | 31.61 | 20.43 | ||||||||||||
The closing sales price of our common stock on February 4,
2010 as reported on the NYSE, was $38.38 per share. On
February 4, 2010, there were 4,060 shareholders of
record of our common stock.
We have not paid any cash dividends on the common stock and
currently anticipate that, for the foreseeable future, any
earnings will be retained for the development of our business.
Accordingly, no dividends are expected to be declared or paid on
the common stock. Moreover, our revolving credit facility
contains certain restrictions on our ability to pay cash
dividends. The declaration of dividends is at the discretion of
our Board of Directors.
The Company did not purchase any shares of its common stock in
either 2009 or 2008.
14
Table of Contents
PERFORMANCE
GRAPH
The price information reflected for our common stock in the
following performance graph and accompanying table represents
the closing sales prices of the common stock for the period from
June 28, 2005 through December 31, 2009. The graph and
accompanying table compare the cumulative total
stockholders’ return on our common stock with the
cumulative total return of the S&P Small Cap 600 Index,
Russell 2000 Index and a Peer Group Index consisting of the
following group of companies selected based on the similar
nature of their business: Kraft Foods Inc., Sara Lee Corp.,
General Mills, Inc., Kellogg Co., ConAgra Foods Inc., Archer
Daniels Midland Co., H.J. Heinz Company, Campbell Soup Co.,
McCormick & Co. Inc., The JM Smucker Co., Del Monte
Foods Co., Corn Products Int’l., Lancaster Colony Corp.,
Flowers Foods, Inc., Ralcorp Holdings Inc., The Hain Celestial
Group, Inc., Lance, Inc., J&J Snack Foods Corp., B&G
Foods, Inc., American Italian Pasta Co., Farmer Bros. Inc. and
Peet’s Coffee and Tea. The graph assumes an investment of
$100 on June 28, 2005, in each of TreeHouse Foods’
common stock, the stocks comprising the S&P Small Cap 600
Index, Russell 2000 Index and the Peer Group Index.
COMPARISON
OF CUMULATIVE TOTAL RETURN OF $100 AMONG TREEHOUSE FOODS,
INC., S&P SMALL CAP 600 INDEX, RUSSELL 2000 INDEX AND THE
PEER GROUP INDEX
Comparison
Of Cumulative Total Return
|
Indexed Returns
|
||||||||||||||||||||||||||||||
| Years Ending | ||||||||||||||||||||||||||||||
|
Base
|
||||||||||||||||||||||||||||||
|
Period
|
||||||||||||||||||||||||||||||
| Company Name / Index | 6/28/05 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | ||||||||||||||||||||||||
|
TreeHouse Foods, Inc.
|
100 | 63.14 | 105.23 | 77.54 | 91.87 | 131.06 | ||||||||||||||||||||||||
|
S&P SmallCap 600 Index
|
100 | 105.96 | 121.98 | 121.62 | 83.83 | 105.27 | ||||||||||||||||||||||||
|
Russell 2000 Index
|
100 | 105.59 | 124.98 | 123.03 | 81.46 | 104.92 | ||||||||||||||||||||||||
|
Peer Group
|
100 | 97.65 | 122.37 | 130.22 | 107.67 | 126.69 | ||||||||||||||||||||||||
15
Table of Contents
Equity
Compensation Plan Information
The following table provides information about our common stock
that may be issued upon the exercise of options under all of our
equity compensation plans as of December 31, 2009:
|
(c)
|
||||||||||||
|
Number of Securities
|
||||||||||||
|
(a)
|
Remaining Available for
|
|||||||||||
|
Number of Securities
|
(b)
|
Future Issuance under
|
||||||||||
|
to be Issued upon
|
Weighted-average
|
Equity Compensation
|
||||||||||
|
Exercise of
|
Exercise Price of
|
Plans (Excluding
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Securities Reflected in
|
||||||||||
|
Plan Category
|
Warrants and Rights | Warrants and Rights | Column (a)) | |||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||
|
TreeHouse Foods, Inc. Equity and Incentive Plan
|
2,400,517 | $ | 27.28 | 124,157 | ||||||||
|
Equity compensation plans not approved by security holders:
|
||||||||||||
|
None
|
||||||||||||
|
Total
|
2,400,517 | $ | 27.28 | 124,157 | ||||||||
| Item 6. | Selected Financial Data |
The following selected financial data as of and for each of the
five years in the period ended December 31, 2009 has been
derived from the Consolidated Financial Statements. The selected
financial data do not purport to indicate results of operations
as of any future date or for any future period. The selected
financial data should be read in conjunction with the
Consolidated Financial Statements and related Notes. For periods
prior to June 27, 2005, all of the historical assets,
liabilities, sales, expenses, income, cash flows, products,
businesses and activities of our business that we describe in
this report as “ours” are in fact the historical
assets, liabilities, sales, expenses, income, cash flows,
products, businesses and activities of the businesses
transferred to TreeHouse by Dean Foods.
| Year Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
|
Operating data:
|
||||||||||||||||||||
|
Net sales
|
$ | 1,511,653 | $ | 1,500,650 | $ | 1,157,902 | $ | 939,396 | $ | 707,731 | ||||||||||
|
Cost of sales
|
1,185,283 | 1,208,626 | 917,611 | 738,818 | 560,094 | |||||||||||||||
|
Gross profit
|
326,370 | 292,024 | 240,291 | 200,578 | 147,637 | |||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Selling and distribution
|
107,938 | 115,731 | 94,636 | 74,884 | 60,976 | |||||||||||||||
|
General and administrative
|
80,466 | 61,741 | 53,931 | 57,914 | 31,977 | |||||||||||||||
|
Management fee paid to Dean Foods
|
— | — | — | — | 2,940 | |||||||||||||||
|
Amortization of intangibles
|
13,381 | 13,528 | 7,195 | 3,268 | 1,732 | |||||||||||||||
|
Other operating (income) expense, net
|
(6,224 | ) | 13,899 | (415 | ) | (19,842 | ) | 21,423 | ||||||||||||
|
Total operating expenses
|
195,561 | 204,899 | 155,347 | 116,224 | 119,048 | |||||||||||||||
16
Table of Contents
| Year Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
|
Operating income
|
130,809 | 87,125 | 84,944 | 84,354 | 28,589 | |||||||||||||||
|
Other (income) expense:
|
||||||||||||||||||||
|
Interest expense
|
18,430 | 27,614 | 22,036 | 12,985 | 1,223 | |||||||||||||||
|
Interest income
|
(45 | ) | (107 | ) | (112 | ) | (665 | ) | (7 | ) | ||||||||||
|
(Gain) loss on foreign currency exchange
|
(7,387 | ) | 13,040 | (3,469 | ) | — | — | |||||||||||||
|
Other (income) expense, net
|
(2,263 | ) | 7,123 | (36 | ) | — | (66 | ) | ||||||||||||
|
Total other expense
|
8,735 | 47,670 | 18,419 | 12,320 | 1,150 | |||||||||||||||
|
Income from continuing operations, before income taxes
|
122,074 | 39,455 | 66,525 | 72,034 | 27,439 | |||||||||||||||
|
Income taxes
|
40,760 | 10,895 | 24,873 | 27,333 | 15,174 | |||||||||||||||
|
Income from continuing operations
|
81,314 | 28,560 | 41,652 | 44,701 | 12,265 | |||||||||||||||
|
Income (loss) from discontinued operations, net of tax
|
— | (336 | ) | (30 | ) | 155 | (689 | ) | ||||||||||||
|
Net income
|
$ | 81,314 | $ | 28,224 | $ | 41,622 | $ | 44,856 | $ | 11,576 | ||||||||||
|
Basic earnings per common share:
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 2.54 | $ | .91 | $ | 1.33 | $ | 1.43 | $ | .40 | ||||||||||
|
Income (loss) from discontinued operations
|
— | (.01 | ) | — | .01 | (.02 | ) | |||||||||||||
|
Net income
|
$ | 2.54 | $ | .90 | $ | 1.33 | $ | 1.44 | $ | .38 | ||||||||||
|
Diluted earnings per common share:
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 2.48 | $ | .91 | $ | 1.33 | $ | 1.42 | $ | .39 | ||||||||||
|
Income (loss) from discontinued operations
|
— | (.01 | ) | — | .01 | (.02 | ) | |||||||||||||
|
Net income
|
$ | 2.48 | $ | .90 | $ | 1.33 | $ | 1.43 | $ | .37 | ||||||||||
|
Weighted average common shares:
|
||||||||||||||||||||
|
Basic
|
31,982 | 31,341 | 31,203 | 31,158 | 30,905 | |||||||||||||||
|
Diluted
|
32,798 | 31,469 | 31,351 | 31,396 | 31,108 | |||||||||||||||
|
Other data:
|
||||||||||||||||||||
|
Balance sheet data (at end of period):
|
||||||||||||||||||||
|
Total assets
|
$ | 1,384,428 | $ | 1,355,682 | $ | 1,455,958 | $ | 935,623 | $ | 609,697 | ||||||||||
|
Long-term debt
|
401,640 | 475,233 | 620,452 | 239,115 | 6,144 | |||||||||||||||
|
Other long-term liabilities
|
31,453 | 44,563 | 33,913 | 26,520 | 18,906 | |||||||||||||||
|
Deferred income taxes
|
45,381 | 27,485 | 27,517 | 4,293 | 9,421 | |||||||||||||||
|
Total stockholders’ equity
|
756,229 | 620,131 | 629,309 | 576,249 | 513,355 | |||||||||||||||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Executive
Overview
We believe we are the largest manufacturer of non-dairy powdered
creamer and pickles in the United States, and the largest
manufacturer of private label salad dressings in the United
States and Canada, based upon total sales volumes. In 2009,
based on available industry data, private label products sold in
the retail grocery channel in the United States, which compete
with branded products on the basis of equivalent quality at a
lower price, represented approximately 37% of all pickle
products, approximately 55% of all non-dairy powdered creamer,
approximately 22% of all salad dressings and approximately 18%
of all canned soup.
17
Table of Contents
We sell our products primarily to the retail grocery and
foodservice channels. For the year ended December 31, 2009,
sales to the retail grocery and foodservice channels represented
64.2% and 19.4%, respectively, of our consolidated net sales.
The remaining 16.4% represented industrial and export sales. A
majority of our sales are private label products.
We intend to grow our business profitably through the following
strategic initiatives:
| • | Expand Partnerships with Retailers. As grocery retailers become more demanding of their private label food product suppliers, they have come to expect strategic insight, product innovation, customer service and logistical economies of scale similar to those of our branded competitors. To this end, we are continually developing, investing in and expanding our private label food product offerings and capabilities in these areas. In addition to our low cost manufacturing, we have invested in research and development, product and packaging innovation, category management, information technology systems and other capabilities. We believe that these investments enable us to provide a broad and growing array of private label food products that generally meet or exceed the value and quality of branded competitors that have comparable sales, marketing, innovation and category management support. We believe that we are well positioned to expand our market share with grocery retailers given our differentiated capabilities, breadth of product offering and geographic reach. | |
| • | Continue to Drive Growth and Profitability from our Existing Product Portfolio. We believe we can continue to drive strong organic growth from our existing product portfolio. Through insights gained from our EVA (Economic Value Added) analyses, we develop operating strategies that enable us to focus our resources and investments on products and categories that we believe offer the highest potential. Additionally, EVA analyses identify products and categories that lag the broader portfolio and require corrective action. We believe EVA analysis is a helpful tool which maximizes the full potential of our product offerings. | |
| • | Leverage Cross-Selling Opportunities Across Customers, Sales Channels and Geographies. While we have high private label food product market shares in the United States for our non-dairy powdered creamer, soup, salad dressing and pickles, as well as high branded and private label food product market share in jams in Canada, we believe we still have significant potential for growth with grocery retailers and foodservice distributors that we either currently serve in a limited manner, or do not currently serve. We believe that our size and scale give us an advantage over smaller private label food product producers, many of whom provide only a single category or service to a single customer or geography. Our ability to service customers across North America and across a wider spectrum of products and capabilities provides many opportunities for cross-selling to customers who seek to reduce the number of private label food product suppliers they utilize. | |
| • | Growth Through Acquisitions. We believe we have the expertise and demonstrated ability to identify and integrate value-enhancing acquisitions. We selectively pursue acquisitions of complementary businesses that we believe are a compelling strategic fit with our existing operations. Each potential acquisition is vigorously evaluated for merit utilizing a rigorous analysis that assesses targets for their market attractiveness, intrinsic value and strategic fit. We believe our past acquisitions of Oxford Foods, the Del Monte Soup and Infant Feeding business, San Antonio Farms, DeGraffenreid, and E.D. Smith were each a success and consistent with our strategy. Since we began operating as an independent company in 2005, our acquisitions have significantly added to our revenue base, enhanced margins and allowed us to expand from an initial base of two center-of-store, shelf stable food categories to eight, including Sturm. We attempt to maintain conservative financial policies when pursuing acquisitions, and our proven integration strategies have resulted in rapid deleveraging. By identifying targets that fit within our defined strategies, we believe we can continue to expand our product selection and continue our efforts to be the low-cost, high quality and innovative supplier of private label food products for our customers. |
The following discussion and analysis presents the factors that
had a material effect on our financial condition, changes in
financial condition and results of operations for the years
ended December 31, 2009, 2008 and 2007. This should be read
in conjunction with the Consolidated Financial Statements and
the Notes
18
Table of Contents
to those Consolidated Financial Statements included elsewhere in
this report. This Management’s Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements. See “Cautionary Statement
Regarding Forward-Looking Statements” for a discussion of
the uncertainties, risks and assumptions associated with these
statements.
The Company completed its annual assessment of goodwill and
indefinite lived assets as of December 31, 2009 and did not
have goodwill impairment. The Company recognized the impairment
of one definite lived trademark resulting in a charge of
approximately $7.6 million, which is related to the North
American Retail Grocery segment. No other impairment was noted.
For a more detailed description of the results of our analysis
and the related assumptions, see our “Critical Accounting
Policies.”
For most of 2009, the economy continued to show signs of
weakness with continued high unemployment. The Company continued
to focus its efforts on cost containment, margin improvement and
volume retention. Our efforts resulted in direct operating
income growth of 24.9% and 23.1% for the years ended
December 31, 2009 and 2008, respectively.
The acquisition landscape in 2009, when compared to 2008,
yielded better opportunities and types of companies we would be
interested in acquiring. The improved landscape resulted in the
announcement in December 2009 of a definitive agreement to
acquire Sturm Foods, for approximately $660 million. We
expect the acquisition to be completed in the first quarter of
2010. As we incorporate this acquisition into our operations,
the Company will continue its pursuit of other businesses.
The Company’s exposure to foreign exchange rates is
primarily limited to the Canadian dollar. At the beginning of
2009, the U.S. dollar was relatively strong versus the
Canadian dollar. However, as the year progressed, the
U.S. dollar weakened.
Recent
Developments
On December 20, 2009, we entered into a definitive Purchase
Agreement to acquire all of the issued and outstanding common
stock of Sturm for a purchase price of approximately
$660 million in cash (subject to adjustment). We intend to
finance the transaction through a combination of approximately
$400 million in new debt issuance, approximately
$100 million in equity stock issuance, and the balance
funded from borrowings under our existing revolving credit
facility.
The closing of the transaction is subject to certain customary
closing conditions and is expected to close in the first quarter
of 2010. There can be no assurances, however, that the parties
will satisfy the closing conditions and consummate the
transaction within the expected timeframe, or at all.
19
Table of Contents
Results
of Operations
The following table presents certain information concerning our
financial results, including information presented as a
percentage of consolidated net sales:
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Dollars | Percent | Dollars | Percent | Dollars | Percent | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
|
Net sales
|
$ | 1,511,653 | 100.0 | % | $ | 1,500,650 | 100.0 | % | $ | 1,157,902 | 100.0 | % | ||||||||||||
|
Cost of sales
|
1,185,283 | 78.4 | 1,208,626 | 80.5 | 917,611 | 79.2 | ||||||||||||||||||
|
Gross profit
|
326,370 | 21.6 | 292,024 | 19.5 | 240,291 | 20.8 | ||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
Selling and distribution
|
107,938 | 7.1 | 115,731 | 7.7 | 94,636 | 8.2 | ||||||||||||||||||
|
General and administrative
|
80,466 | 5.3 | 61,741 | 4.2 | 53,931 | 4.7 | ||||||||||||||||||
|
Amortization expense
|
13,381 | 0.9 | 13,528 | 0.9 | 7,195 | 0.6 | ||||||||||||||||||
|
Other operating (income) expense, net
|
(6,224 | ) | (0.4 | ) | 13,899 | 0.9 | (415 | ) | — | |||||||||||||||
|
Total operating expenses
|
195,561 | 12.9 | 204,899 | 13.7 | 155,347 | 13.5 | ||||||||||||||||||
|
Total operating income
|
130,809 | 8.7 | 87,125 | 5.8 | 84,944 | 7.3 | ||||||||||||||||||
|
Other (income) expense:
|
||||||||||||||||||||||||
|
Interest expense
|
18,430 | 1.2 | 27,614 | 1.8 | 22,036 | 1.9 | ||||||||||||||||||
|
Interest income
|
(45 | ) | — | (107 | ) | — | (112 | ) | — | |||||||||||||||
|
(Gain) loss on foreign currency exchange
|
(7,387 | ) | (0.5 | ) | 13,040 | 0.9 | (3,469 | ) | (0.3 | ) | ||||||||||||||
|
Other (income) expense, net
|
(2,263 | ) | (0.1 | ) | 7,123 | 0.5 | (36 | ) | — | |||||||||||||||
|
Total other expense
|
8,735 | 0.6 | 47,670 | 3.2 | 18,419 | 1.6 | ||||||||||||||||||
|
Income from continuing operations, before income taxes
|
122,074 | 8.1 | 39,455 | 2.6 | 66,525 | 5.7 | ||||||||||||||||||
|
Income taxes
|
40,760 | 2.7 | 10,895 | 0.7 | 24,873 | 2.1 | ||||||||||||||||||
|
Income from continuing operations
|
81,314 | 5.4 | 28,560 | 1.9 | 41,652 | 3.6 | ||||||||||||||||||
|
Loss from discontinued operations, net of tax
|
— | — | (336 | ) | — | (30 | ) | — | ||||||||||||||||
|
Net income
|
$ | 81,314 | 5.4 | % | $ | 28,224 | 1.9 | % | $ | 41,622 | 3.6 | % | ||||||||||||
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Net Sales
— Net sales increased 0.7% to
$1,511.7 million for the year ended December 31, 2009,
compared to $1,500.7 million, for the year ended
December 31, 2008. Net sales by segment are shown in the
following table:
| Consolidated Net Sales | ||||||||||||||||
| Year Ended December 31, |
$ Increase/
|
% Increase/
|
||||||||||||||
| 2009 | 2008 | (Decrease) | (Decrease) | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
North American Retail Grocery
|
$ | 971,083 | $ | 917,102 | $ | 53,981 | 5.9 | % | ||||||||
|
Food Away From Home
|
292,927 | 294,020 | (1,093 | ) | (0.4 | ) | ||||||||||
|
Industrial and Export
|
247,643 | 289,528 | (41,885 | ) | (14.5 | ) | ||||||||||
|
Total
|
$ | 1,511,653 | $ | 1,500,650 | $ | 11,003 | 0.7 | % | ||||||||
20
Table of Contents
Total net sales increased 0.7% as decreases in volume in all
segments and the impact of foreign currency were offset by
increased pricing and a shift in sales mix.
Cost of Sales
— All expenses incurred to bring
a product to completion are included in cost of sales, such as
raw material, ingredient and packaging costs, labor costs,
facility and equipment costs, including costs to operate and
maintain our warehouses, and costs associated with transporting
our finished products from our manufacturing facilities to
distribution centers. Cost of sales as a percentage of
consolidated net sales decreased to 78.4% in 2009 from 80.5% in
the prior year. We experienced increases in certain costs such
as metal caps, cans and lids and meat products in 2009 compared
to 2008; however, these increases were more than offset by
decreases in the cost of casein, oils and plastic containers.
The combination of price increases and a net decrease in costs
in 2009 versus 2008 has resulted in improvement in our
consolidated gross margins.
Operating Costs and Expenses
— Operating
expenses decreased to $195.6 million in 2009 compared to
$204.9 million in 2008. The decrease in 2009 resulted from
the following:
Selling and distribution expenses decreased $7.8 million in
2009 compared to 2008. The decrease is primarily due to a
reduction in freight costs related to lower unit volume and a
reduction in freight rates.
General and administrative expenses increased $18.7 million
in 2009 compared to 2008, which was primarily due to increases
in incentive based compensation and stock based compensation
related to the Company’s performance and acquisition costs.
Amortization expense decreased slightly from $13.5 million
in 2008 to $13.4 million in 2009.
Other operating income was $6.2 million in 2009 compared to
operating expense of $13.9 million in 2008. Income in 2009
was related to the $14.5 million gain on insurance
settlement relating to a fire at our New Hampton, Iowa facility,
partially offset by an $7.6 million impairment of our
Nature’s
Goodness
®
trademark. Operating expense in 2008 reflected costs
associated with the closure of our Portland, Oregon facility.
Operating Income
— Operating income in 2009 was
$130.8 million, an increase of $43.7 million, or 50.1%
from operating income of $87.1 million in 2008. Our
operating margin was 8.7% in 2009 compared to 5.8% in 2008.
Other (income) expense —
Other (income) expense
includes interest expense, interest income, foreign exchange
gains and losses, and other (income) and expenses.
Interest expense in 2009 was $18.4 million, a decrease of
$9.2 million from 2008. The decrease is due to lower debt
levels and lower average interest rates.
The impact of changes in foreign currency resulted in a gain of
$7.4 million in 2009 versus an expense in 2008 of
$13.0 million. In 2009, approximately $4.9 million of
the foreign currency gain was due to the revaluation of an
intercompany note, as compared to a currency loss of
$9.1 million in 2008. The remaining $2.5 million of
foreign currency gain is primarily due to currency exchange on
cross-border purchases by our Canadian subsidiary, E.D. Smith,
as compared to currency loss of $3.9 million in 2008.
Other (income) expense was a gain of $2.3 million in 2009
versus a loss of $7.1 million in 2008. The increase is
primarily related to the gain associated with the mark to market
adjustment of our interest rate swap agreement, totaling
approximately $2.1 million, compared to a loss of
$7.0 million in 2008.
Income Taxes
— Income tax expense was recorded
at an effective rate of 33.4% for 2009 compared to 27.6% for
2008. The higher effective tax rate in 2009 is due primarily to
increased income which reduced the percentage benefit of the
cross-border financing structure entered into in conjunction
with the E.D. Smith acquisition.
Discontinued operations —
Loss from
discontinued operations was $0.3 million in 2008 due to the
write off of assets held for sale. There were no discontinued
operations in 2009.
21
Table of Contents
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008 — Results by
Segment
North
American Retail Grocery
| Year Ended December 31, | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
| Dollars | Percent | Dollars | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 971,083 | 100.0 | % | $ | 917,102 | 100.0 | % | ||||||||
|
Cost of sales
|
738,002 | 76.0 | 720,388 | 78.6 | ||||||||||||
|
Gross profit
|
233,081 | 24.0 | 196,714 | 21.4 | ||||||||||||
|
Freight out and commissions
|
51,821 | 5.4 | 58,756 | 6.4 | ||||||||||||
|
Direct selling and marketing
|
28,411 | 2.9 | 23,447 | 2.6 | ||||||||||||
|
Direct operating income
|
$ | 152,849 | 15.7 | % | $ | 114,511 | 12.4 | % | ||||||||
Net sales in the North American Retail Grocery segment increased
by $54.0 million, or 5.9%, for the year ended
December 31, 2009 compared to the prior year. The change in
net sales from 2008 to 2009 was due to the following:
| Dollars | Percent | |||||||
| (Dollars in thousands) | ||||||||
|
2008 Net sales
|
$ | 917,102 | ||||||
|
Volume
|
(8,721 | ) | (1.0 | )% | ||||
|
Pricing
|
66,944 | 7.3 | ||||||
|
Foreign currency
|
(16,731 | ) | (1.8 | ) | ||||
|
Mix/other
|
12,489 | 1.4 | ||||||
|
2009 Net sales
|
$ | 971,083 | 5.9 | % | ||||
The increase in net sales from 2008 to 2009 resulted from the
carryover effect of price increases taken in the second half of
2008 to cover the cost of rising raw material and packaging
costs, partially offset by lower case sales of infant feeding
and retail branded pickles, and the impact of foreign currency.
While overall case sales decreased in the segment, the Company
experienced modest volume increases in soups, Mexican sauces,
and salad dressings.
Cost of sales as a percentage of net sales decreased from 78.6%
in 2008 to 76.0% in 2009 as price increases have now caught up
to the raw material and packaging cost increases experienced by
the Company in earlier periods. Also contributing to the
decrease were several cost reduction initiatives, moving away
from certain low margin customers over the past year and net
declines in raw material and packaging costs.
Freight out and commissions paid to independent brokers
decreased $6.9 million or 11.8%, to $51.8 million in
2009 compared to $58.8 million in 2008, as a result of
reduced volumes and lower freight costs, as fuel costs have
decreased since last year.
Direct selling and marketing was $28.4 million in 2009
compared to $23.4 million in 2008, an increase of
$5.0 million or 21.2% primarily due to increased levels of
incentive based compensation associated with the Company’s
overall performance.
22
Table of Contents
Food Away
From Home
| Year Ended December 31, | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
| Dollars | Percent | Dollars | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 292,927 | 100.0 | % | $ | 294,020 | 100.0 | % | ||||||||
|
Cost of sales
|
239,971 | 81.9 | 242,035 | 82.3 | ||||||||||||
|
Gross profit
|
52,956 | 18.1 | 51,985 | 17.7 | ||||||||||||
|
Freight out and commissions
|
10,071 | 3.5 | 13,567 | 4.6 | ||||||||||||
|
Direct selling and marketing
|
6,816 | 2.3 | 6,285 | 2.2 | ||||||||||||
|
Direct operating income
|
$ | 36,069 | 12.3 | % | $ | 32,133 | 10.9 | % | ||||||||
Net sales in the Food Away From Home segment decreased by
$1.1 million, or 0.4%, for the year ended December 31,
2009 compared to the prior year. The change in net sales from
2008 to 2009 was due to the following:
| Dollars | Percent | |||||||
| (Dollars in thousands) | ||||||||
|
2008 Net sales
|
$ | 294,020 | ||||||
|
Volume
|
(8,646 | ) | (2.9 | )% | ||||
|
Pricing
|
11,530 | 3.9 | ||||||
|
Foreign currency
|
(1,378 | ) | (0.5 | ) | ||||
|
Mix/other
|
(2,599 | ) | (0.9 | ) | ||||
|
2009 Net sales
|
$ | 292,927 | (0.4 | )% | ||||
Net sales decreased during 2009 compared to 2008 primarily due
to reduced volumes resulting from the recent economic down turn
as consumers reduced their spending on dining and eating out.
This segment also experienced a decrease in net sales due to
both a shift in the sales mix and the impact of foreign currency
changes. Increased pricing in response to commodity cost
increases over the past year and modest increases in sales units
of aseptic products and Mexican sauces, offset the volume
declines in pickles and other products.
Cost of sales as a percentage of net sales decreased from 82.3%
in 2008 to 81.9% in 2009, as price increases to our customers
have now caught up to the increases in raw material, packaging,
and energy costs experienced by the Company in earlier periods,
combined with improvements in operating efficiencies.
Freight out and commissions paid to independent brokers
decreased $3.5 million or 25.8% to $10.1 million in
2009 compared to $13.6 million in 2008, primarily as a
result of reduced volumes and lower freight costs, as fuel costs
have decreased since last year.
Direct selling and marketing was $6.8 million in 2009
compared to $6.3 million in 2008, primarily due to
increased levels of incentive based compensation associated with
the Company’s overall performance.
23
Table of Contents
Industrial
and Export
| Year Ended December 31, | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
| Dollars | Percent | Dollars | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 247,643 | 100.0 | % | $ | 289,528 | 100.0 | % | ||||||||
|
Cost of sales
|
203,970 | 82.4 | 246,203 | 85.0 | ||||||||||||
|
Gross profit
|
43,673 | 17.6 | 43,325 | 15.0 | ||||||||||||
|
Freight out and commissions
|
5,848 | 2.4 | 8,821 | 3.0 | ||||||||||||
|
Direct selling and marketing
|
1,800 | 0.7 | 1,031 | 0.4 | ||||||||||||
|
Direct operating income
|
$ | 36,025 | 14.5 | % | $ | 33,473 | 11.6 | % | ||||||||
Net sales in the Industrial and Export segment decreased by
$41.9 million, or 14.5%, for the year ended
December 31, 2009 compared to the prior year. The change in
net sales from 2008 to 2009 was due to the following:
| Dollars | Percent | |||||||
| (Dollars in thousands) | ||||||||
|
2008 Net sales
|
$ | 289,528 | ||||||
|
Volume
|
(51,889 | ) | (17.9 | )% | ||||
|
Pricing
|
(1,941 | ) | (0.7 | ) | ||||
|
Foreign currency
|
(69 | ) | — | |||||
|
Mix/other
|
12,014 | 4.1 | ||||||
|
2009 Net sales
|
$ | 247,643 | (14.5 | )% | ||||
The decrease in net sales is primarily due to reduced volumes
resulting from lower co-pack sales of branded products for other
food companies. While the decline in net sales included the
majority of the products sold within this segment, the most
significant were in the non-dairy powdered creamer, soup and
infant feeding products. Partially offsetting the volume
declines was a favorable shift in the mix of products sold.
Cost of sales as a percentage of net sales decreased from 85.0%
in 2008 to 82.4% in 2009 as price increases have caught up to
input cost increases experienced in prior periods. Also
contributing to the reduction were productivity improvements
realized in 2009, and net decreases in raw material and
packaging costs.
Freight out and commissions paid to independent brokers
decreased by $3.0 million to $5.8 million primarily
due to reduced volumes and lower freight costs, as fuel costs
have decreased since last year.
Direct selling and marketing was $1.8 million in 2009
compared to $1.0 million in 2008, primarily due to
increased levels of incentive based compensation associated with
the Company’s overall performance.
24
Table of Contents
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Net Sales
— Net sales increased 29.6% to
$1,500.7 million for the year ended December 31, 2008,
compared to $1,157.9 million, for the year ended
December 31, 2007. Net sales by segment are shown in the
following table:
| Consolidated Net Sales | ||||||||||||||||
| Year Ended December 31, |
$ Increase/
|
% Increase/
|
||||||||||||||
| 2008 | 2007 | (Decrease) | (Decrease) | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
North American Retail Grocery
|
$ | 917,102 | $ | 663,506 | $ | 253,596 | 38.2 | % | ||||||||
|
Food Away From Home
|
294,020 | 254,580 | 39,440 | 15.5 | ||||||||||||
|
Industrial and Export
|
289,528 | 239,816 | 49,712 | 20.7 | ||||||||||||
|
Total
|
$ | 1,500,650 | $ | 1,157,902 | $ | 342,748 | 29.6 | % | ||||||||
The increase in net sales is primarily due to the full year
impact in 2008 of the 2007 acquisitions of E.D. Smith and
San Antonio Farms along with price increases taken to
offset rising input costs, which were partially offset by volume
decreases in the North American Retail Grocery and Food Away
From Home segments. Volume decreases were primarily in the
pickle and non-dairy powder creamer businesses, reflecting the
Company’s decision to move away from low margin customers
and the impact of the slowing global economy.
Cost of Sales
— All expenses incurred to bring
a product to completion are included in cost of sales, such as
raw material, ingredient and packaging costs, labor costs,
facility and equipment costs, including costs to operate and
maintain our warehouses, and costs associated with transporting
our finished products from our manufacturing facilities to our
own distribution centers. Cost of sales as a percentage of
consolidated net sales increased to 80.5% in 2008 from 79.2% in
the prior year. Significant raw material cost increases in 2008
include a 43% increase in casein, a 39% increase in oils, an 11%
increase in sweeteners and an 8% increase in cucumber crop
costs. Packaging cost increases include a 21% increase in
plastic containers and a 12% increase in glass containers. We
continued to experience increased raw material and packaging
costs that we were able to partially offset with increased
operating efficiencies and increases in the prices of our
products. See — “Results by Segment.”
Operating Costs and Expenses
— Operating
expenses increased to $204.9 million in 2008 compared to
$155.3 million in 2007. The increase in 2008 resulted from
the following:
Selling and distribution expenses increased $21.1 million,
primarily due to the full year impact in 2008 of the
acquisitions of San Antonio Farms in May, 2007 and E.D.
Smith in October, 2007.
General and administrative expenses increased $7.8 million
in 2008 compared to 2007, due to the acquisition of
San Antonio Farms, in May 2007 and E.D. Smith in October
2007. However, due to synergies realized, general and
administrative costs as a percent of revenue decreased from 4.7%
in 2007 to 4.2% in 2008.
Amortization expenses increased to $13.5 million in 2008
from $7.2 million in 2007, due to the full year impact in
2008 of the acquisition of the San Antonio Farms in the
second quarter of 2007 and the acquisition of E.D. Smith in the
fourth quarter of 2007.
Other operating expense in 2008 increased $14.3 million
primarily due to the closing of our pickle plant located in
Portland, Oregon.
Operating Income
— Operating income in 2008 was
$87.1 million, an increase of $2.2 million, or 2.6%
from operating income of $84.9 million in 2007. Our
operating margin was 5.8% in 2008 compared to 7.3% in 2007. The
impact of the Portland plant closure on operating margin for
2008 was a reduction of 0.9%.
Other (income) expense —
Other (income) expense
includes interest expense, interest income, foreign exchange
gains and losses, and other (income) and expenses.
25
Table of Contents
Interest expense in 2008 was $27.6 million, an increase of
$5.6 million from 2007. The increase is primarily due to
increased debt levels resulting from our 2007 acquisitions. The
increase in interest expense was mitigated, as the Company paid
down debt during the year and interest rates lowered. Interest
income in 2008 and 2007 was $0.1 million.
The impact of changes in foreign currency resulted in an expense
of $13.0 million in 2008 versus a gain in 2007 of
$3.5 million. In 2008, approximately $9.1 million of
the foreign currency expense was due to the revaluation of an
intercompany note. The remaining $3.9 million of foreign
currency expense is primarily due to a full year of foreign
currency transaction gains and losses occurring in 2008. The
gain in 2007 was primarily due to the forward purchase of
Canadian currency used in the 2007 acquisition of E.D. Smith.
This did not repeat in 2008.
Other (income) expense was a loss of $7.1 million in 2008
versus a gain of $36 thousand in 2007. The increase is primarily
related to the mark to market adjustment of our interest rate
swap agreement, totaling approximately $7.0 million.
Income Taxes
— Income tax expense was recorded
at an effective rate of 27.6% for 2008 compared to 37.4% for
2007. The lower effective tax rate in 2008 is due to the
favorable intercompany financing structure entered into in
conjunction with the E.D. Smith acquisition (See Note 8),
combined with the tax benefit of the mark to market adjustment
of our interest rate swap agreement.
Discontinued operations —
Our loss on
discontinued operations was $0.3 million in 2008 versus $30
thousand in 2007. The increase of $0.3 million was due to
the write off of assets held for sale during 2008. The Company
was unable to locate a buyer for these assets and has determined
they have no value.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007 — Results by
Segment
North
American Retail Grocery
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Dollars | Percent | Dollars | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 917,102 | 100.0 | % | $ | 663,506 | 100.0 | % | ||||||||
|
Cost of sales
|
720,388 | 78.6 | 509,308 | 76.8 | ||||||||||||
|
Gross profit
|
196,714 | 21.4 | 154,198 | 23.2 | ||||||||||||
|
Freight out and commissions
|
58,756 | 6.4 | 45,138 | 6.8 | ||||||||||||
|
Direct selling and marketing
|
23,447 | 2.6 | 23,767 | 3.5 | ||||||||||||
|
Direct operating income
|
$ | 114,511 | 12.4 | % | $ | 85,293 | 12.9 | % | ||||||||
Net sales in the North American Retail Grocery segment increased
by $253.6 million, or 38.2%, for the year ended
December 31, 2008 compared to the prior year. The change in
net sales from 2007 to 2008 was due to the following:
| Dollars | Percent | |||||||
| (Dollars in thousands) | ||||||||
|
2007 Net sales
|
$ | 663,506 | ||||||
|
Volume
|
(32,017 | ) | (4.8 | )% | ||||
|
Mix/other
|
(1,248 | ) | (0.2 | ) | ||||
|
Acquisitions
|
240,168 | 36.2 | ||||||
|
Pricing
|
46,693 | 7.0 | ||||||
|
2008 Net sales
|
$ | 917,102 | 38.2 | % | ||||
The increase in net sales from 2007 to 2008 resulted mainly from
the full year impact in 2008 of the acquisition of
San Antonio Farms in the second quarter of 2007 and E.D.
Smith in the fourth quarter of 2007.
26
Table of Contents
Price increases taken due to rising raw material and packaging
costs more than offset lower case sales of baby food and retail
branded pickles. The volume declines related to retail pickle
low margin customer rationalization and a decline in branded
baby food.
Cost of sales as a percentage of sales increased from 76.8% in
2007 to 78.6% in 2008 primarily as a result of input cost
increases throughout 2008 which were not fully offset by price
increases.
Freight out and commissions paid to independent brokers
increased $13.6 million or 30.2%, to $58.8 million in
2008 compared to $45.1 million in 2007, as a result of
increased sales and higher shipping costs primarily due to
elevated fuel costs early in 2008.
Food Away
From Home
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Dollars | Percent | Dollars | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 294,020 | 100.0 | % | $ | 254,580 | 100.0 | % | ||||||||
|
Cost of sales
|
242,035 | 82.3 | 209,927 | 82.5 | ||||||||||||
|
Gross profit
|
51,985 | 17.7 | 44,653 | 17.5 | ||||||||||||
|
Freight out and commissions
|
13,567 | 4.6 | 10,932 | 4.3 | ||||||||||||
|
Direct selling and marketing
|
6,285 | 2.2 | 5,401 | 2.1 | ||||||||||||
|
Direct operating income
|
$ | 32,133 | 10.9 | % | $ | 28,320 | 11.1 | % | ||||||||
Net sales in the Food Away From Home segment increased by
$39.4 million, or 15.5%, for the year ended
December 31, 2008 compared to the prior year. The change in
net sales from 2007 to 2008 was due to the following:
| Dollars | Percent | |||||||
| (Dollars in thousands) | ||||||||
|
2007 Net sales
|
$ | 254,580 | ||||||
|
Volume
|
(16,944 | ) | (6.7 | )% | ||||
|
Mix/other
|
5,973 | 2.4 | ||||||
|
Acquisitions
|
32,529 | 12.8 | ||||||
|
Pricing
|
17,882 | 7.0 | ||||||
|
2008 Net sales
|
$ | 294,020 | 15.5 | % | ||||
Sales increased in 2008 compared to 2007 primarily due to the
acquisitions of San Antonio Farms in May 2007, and the E.D.
Smith acquisition in October 2007. Price increases taken in 2008
to offset rising input costs also contributed to the increase.
Volume declined as the Company moved away from low margin pickle
customers and experienced adverse economic conditions in the
Food Away From Home industry in 2008.
Cost of sales as a percentage of net sales decreased from 82.5%
in 2007 to 82.3% in 2008, as price increases to our customers
offset increases in raw material, packaging, and energy costs,
combined with improvements in operating efficiencies.
Freight out and commissions paid to independent brokers
increased $2.6 million or 24.1% to $13.6 million in
2008 compared to $10.9 million in 2007, primarily as a
result of the higher sales and increased shipping costs due to
elevated fuel costs early in 2008.
27
Table of Contents
Industrial
and Export
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Dollars | Percent | Dollars | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 289,528 | 100.0 | % | $ | 239,816 | 100.0 | % | ||||||||
|
Cost of sales
|
246,203 | 85.0 | 198,376 | 82.7 | ||||||||||||
|
Gross profit
|
43,325 | 15.0 | 41,440 | 17.3 | ||||||||||||
|
Freight out and commissions
|
8,821 | 3.0 | 7,976 | 3.3 | ||||||||||||
|
Direct selling and marketing
|
1,031 | 0.4 | 761 | 0.4 | ||||||||||||
|
Direct operating income
|
$ | 33,473 | 11.6 | % | $ | 32,703 | 13.6 | % | ||||||||
Net sales in the Industrial and Export segment increased by
$49.7 million, or 20.7%, for the year ended
December 31, 2008 compared to the prior year. The change in
net sales from 2007 to 2008 was due to the following:
| Dollars | Percent | |||||||
| (Dollars in thousands) | ||||||||
|
2007 Net sales
|
$ | 239,816 | ||||||
|
Volume
|
13,960 | 5.8 | % | |||||
|
Mix/other
|
(12,417 | ) | (5.2 | ) | ||||
|
Acquisitions
|
3,314 | 1.4 | ||||||
|
Pricing
|
44,855 | 18.7 | ||||||
|
2008 Net sales
|
$ | 289,528 | 20.7 | % | ||||
Price increases were taken in 2008 in an effort to offset the
significant increases in input costs. In addition, we realized
volume increases during the year from the existing customer base.
Cost of sales as a percentage of net sales increased from 82.7%
in 2007 to 85.0% in 2008 as price increases to our customers did
not fully offset increases in raw materials and packaging costs.
Also contributing to the increase was a shift in our mix of
customers towards lower margin co-pack customers.
Freight out and commissions paid to independent brokers
increased by $0.8 million to $8.8 million as a result
of increased fuel costs early in 2008. However, these costs
decreased as a percent of revenue from 3.3% in 2007 to 3.0% in
2008 due to combining shipments and leveraging freight rates
with the other product lines.
Known
Trends and Uncertainties
Prices
of Raw Materials
We were adversely affected by rising input costs during 2008 and
2007, however, during 2009 certain input costs decreased from
these high levels. Many of the raw materials used in our
products rose to unusually high levels during 2008, including
processed vegetables and meats, soybean oil, casein, cheese and
packaging materials. Fluctuating fuel costs also impacted our
results. While prices for many of our raw materials decreased
during 2009 from their historic highs reached in the prior year,
the Company expects moderate price volatility for the next year
with an upward trend. We manage the impact, wherever possible,
on commercially reasonable terms, by locking in prices on
quantities required to meet our production requirements. In
addition, we offset the effect by raising prices to our
customers. However, for competitive reasons, we may not be able
to pass along the full effect of increases in raw materials and
other input costs as we incur them. In addition, in instances of
declining input costs, customers may be looking for price
reductions in situations where we have locked into purchases at
higher costs.
28
Table of Contents
Competitive
Environment
There has been significant consolidation in the retail grocery
and foodservice industries in recent years, and mass
merchandisers are gaining market share. As our customer base
continues to consolidate, we expect competition to intensify as
we compete for the business of fewer, large customers. There can
be no assurance that we will be able to keep our existing
customers, or gain new customers. As the consolidation of the
retail grocery and foodservice industry continues, we could lose
sales if any one or more of our existing customers were to be
sold.
Both the difficult economic environment and the increased
competitive environment in the retail and foodservice channels
have caused competition to become increasingly intense in our
business. We expect this trend to continue for the foreseeable
future.
Liquidity
and Capital Resources
Management assesses the Company’s liquidity in terms of its
ability to generate cash to fund its operating, investing and
financing activities. The Company continues to generate
substantial cash from operating activities and remains in a
strong financial position, with resources available for
reinvestment in existing businesses, acquisitions and managing
its capital structure on a short and long-term basis. Over the
last three years, the Company has generated $376.9 million
in cash flow from operating activities by focusing on working
capital management. If additional borrowings are needed,
approximately $293.0 million was available on the revolving
credit facility as of December 31, 2009. This facility
expires in 2011. We believe that, given our cash flow from
operating activities and our available credit capacity, we can
comply with the current terms of the credit facility and meet
foreseeable financial requirements.
Cash
flows from operating activities:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Net income
|
$ | 81,314 | $ | 28,224 | $ | 41,622 | ||||||
|
Loss from discontinued operations
|
— | 336 | 30 | |||||||||
|
Depreciation & amortization
|
47,343 | 45,854 | 34,986 | |||||||||
|
Stock-based compensation
|
13,303 | 12,193 | 13,580 | |||||||||
|
(Gain) loss on foreign currency exchange
|
(4,932 | ) | 9,034 | — | ||||||||
|
Mark to market (gain) loss on interest swap
|
(2,104 | ) | 6,981 | — | ||||||||
|
Gain on disposition of assets
|
(11,885 | ) | (469 | ) | (498 | ) | ||||||
|
Write-down of impaired assets
|
7,600 | 5,991 | — | |||||||||
|
Deferred income taxes
|
18,596 | 5,314 | 5,940 | |||||||||
|
Changes in operating assets and liabilities, net of acquisitions
|
(44,383 | ) | 62,428 | 611 | ||||||||
|
Other
|
(8 | ) | (240 | ) | 161 | |||||||
|
Net cash provided by continuing operations
|
104,844 | 175,646 | 96,432 | |||||||||
|
Net cash provided by discontinued operations
|
— | (10 | ) | (30 | ) | |||||||
|
Net cash provided by operating activities
|
$ | 104,844 | $ | 175,636 | $ | 96,402 | ||||||
Our cash from operations decreased from $175.6 million in
2008 to $104.8 million in 2009. Higher net income in the
year ended December 31, 2009 compared to 2008 was more than
offset by a decrease in accounts payable from the high level in
2008, a build in inventories due to higher pickle production
resulting from a strong 2009 cucumber crop and the forward
purchase of certain commodities.
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Table of Contents
Cash
flows from investing activities:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Additions to property, plant and equipment
|
$ | (36,987 | ) | $ | (55,471 | ) | $ | (19,814 | ) | |||
|
Insurance proceeds
|
2,863 | 12,047 | — | |||||||||
|
Cash outflows for acquisitions and investments, less cash
acquired
|
— | (251 | ) | (449,937 | ) | |||||||
|
Proceeds from sale of fixed assets
|
6 | 1,679 | 1,465 | |||||||||
|
Net cash used in continuing operations
|
(34,118 | ) | (41,996 | ) | (468,286 | ) | ||||||
|
Net cash provided by discontinued operations
|
— | 157 | 467 | |||||||||
|
Net cash used in investing activities
|
$ | (34,118 | ) | $ | (41,839 | ) | $ | (467,819 | ) | |||
In 2009, cash used in investing activities decreased by
$7.7 million from 2008, primarily due to a decrease in
capital additions as the Company had several large projects that
were initiated in 2008 and completed in 2009, including the
repair of the New Hampton, Iowa facility that was damaged by
fire in February of 2008. Capital spending in 2009 included
projects to improve plant efficiencies and upgrades to our
Pittsburgh plant water and power systems, capacity expansion at
our North East, Pennsylvania facility, completion of the repair
of the New Hampton, Iowa facility and routine equipment upgrades
or replacements at all of our facilities which number sixteen
across the United States and Canada. The expenditures related to
the New Hampton, Iowa facility were partially offset by proceeds
received from our insurance claim.
We expect capital spending programs to be approximately
$60.0 million in 2010. Capital spending in 2010 will focus
on food safety, quality, productivity improvements, installation
of an ERP system and routine equipment upgrades or replacements
at all of our plants.
Cash
flows from financing activities:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Proceeds from issuance of debt
|
$ | — | $ | — | $ | 440,035 | ||||||
|
Net repayment of debt
|
(74,484 | ) | (145,537 | ) | (59,150 | ) | ||||||
|
Payments of deferred financing costs
|
— | — | (230 | ) | ||||||||
|
Excess tax benefits from stock-based payment arrangements
|
169 | 377 | — | |||||||||
|
Cash used to net share settle equity awards
|
(336 | ) | — | — | ||||||||
|
Proceeds from stock option exercises
|
4,926 | 5,434 | 44 | |||||||||
|
Net cash provided by (used in) financing activities
|
$ | (69,725 | ) | $ | (139,726 | ) | $ | 380,699 | ||||
Net cash used in financing activities decreased from
$139.7 million in 2008 to $69.7 million in 2009, as
cash provided from operating activities (used to pay down debt)
was $70.8 million less than 2008. See cash flows from
operating activities. In 2007, we borrowed $440.0 million,
primarily to finance the E.D. Smith and San Antonio Farms
acquisitions. In 2009 and 2008, we did not complete any
acquisitions and used the cash flow generated by operations to
pay down our outstanding debt.
In connection with our proposed acquisition of Sturm, we expect
to fund the purchase price of approximately $660 million
through the issuance of $400 million in new debt,
approximately $100 million in equity stock issuance and the
balance of approximately $160 million funded from
borrowings under our existing revolving credit agreement. The
transaction is expected to close in the first quarter of 2010.
The Company believes it has sufficient liquidity, after
considering the debt requirements of the Sturm acquisition, and
does not anticipate a significant risk to cash flows in the
foreseeable future despite the current
30
Table of Contents
disruption of the credit markets, because the Company operates
in a relatively stable industry and has sizable market share
across its product lines. The Company’s long-term financing
needs will depend largely on potential acquisition activity.
The impact of the reduction in equity values of the stock market
in late 2008 and early 2009 resulted in a reduced funded balance
of our Pension Plan, and required additional cash contributions
in 2009, which was funded by cash flows from operations. The
Company contributed $8.9 million in 2009 and expects to
make contributions of approximately $0.9 million in 2010.
Seasonality
The Company’s short-term financing needs are primarily for
financing working capital during the year. Due to the
seasonality of cucumber and fruit production driven by harvest
cycles, which occur primarily during the spring and summer,
inventories generally are at a low point in late spring and at a
high point during the fall, increasing our working capital
requirements. In addition, the Company builds inventories of
salad dressings in the spring and soup in the summer months in
anticipation of large seasonal shipments that begin late in the
third quarter.
Sources
of Capital
Revolving Credit Facility
— On August 30,
2007, the Company entered into Amendment No. 2 to the
unsecured revolving Credit Agreement, as amended (the
“Credit Agreement”), dated June 27, 2005, with a
group of participating financial institutions. Among other
things, Amendment No. 2 reduces the available liquidity
requirement with respect to permitted acquisitions and reduces
the required consolidated interest coverage ratio at the end of
each fiscal quarter. The Company also exercised its option under
the Credit Agreement to increase the aggregate commitments under
the revolving credit facility from $500 million to
$600 million. The Credit Agreement also provides for a
$75 million letter of credit sublimit, against which
$8.8 million in letters of credit have been issued but
undrawn. Proceeds from the credit facility may be used for
working capital and general corporate purposes, including
acquisition financing. The credit facility contains various
financial and other restrictive covenants and requires that we
maintain certain financial ratios, including a leverage and
interest coverage ratio. The Company is in compliance with all
applicable covenants as of December 31, 2009.
During 2008, the Company entered into a $200 million
long-term interest rate swap agreement with an effective date of
November 19, 2008 to lock into a fixed LIBOR interest rate
base. Under the terms of the agreement, $200 million in
floating rate debt was swapped for a fixed rate of 2.9% interest
rate base for a period of 24 months, amortizing to
$50 million for an additional nine months at the same 2.9%
interest rate. The Company did not apply hedge accounting and
recorded the fair value of this instrument on its balance sheet
within other long term liabilities. The fair value of the swap,
using Level 2 inputs, was a liability of approximately
$4.9 million and $7.0 million as of December 31,
2009 and 2008, respectively. In 2009 and 2008, the Company
recorded income of $2.1 million and expense of
$7.0 million, respectively, related to the mark to market
adjustment within the Other (income) expense line of the
Consolidated Statements of Income.
On September 22, 2006, the Company completed a private
placement of $100 million in aggregate principal of
6.03% senior notes due September 30, 2013 pursuant to
a Note Purchase Agreement among TreeHouse and a group of
purchasers. All of the Company’s obligations under the
senior notes are fully and unconditionally guaranteed by Bay
Valley Foods, LLC, a wholly-owned subsidiary of the Company. The
senior notes have not been registered under the Securities Act
of 1933, as amended, and may not be offered or sold in the
United States absent registration or an applicable exemption.
Net proceeds were used to repay outstanding indebtedness under
the revolving Credit Agreement. The Company is in compliance
with all applicable covenants as of December 31, 2009.
31
Table of Contents
Contractual
Obligations
The following table summarizes the Company’s obligations
and commitments to make future payments as of December 31,
2009:
Indebtedness,
Purchase & Lease Obligations
| Payments Due by Period | ||||||||||||||||||||
|
Less than
|
1 - 3
|
3 - 5
|
More than
|
|||||||||||||||||
| Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revolving credit facility(1)
|
$ | 302,722 | $ | 2,914 | $ | 299,808 | $ | — | $ | — | ||||||||||
|
Senior notes(2)
|
122,613 | 6,030 | 12,060 | 104,523 | — | |||||||||||||||
|
Capital lease obligations(3)
|
1,817 | 589 | 768 | 457 | 3 | |||||||||||||||
|
Purchasing obligations(4)
|
223,265 | 158,158 | 63,852 | 1,220 | 35 | |||||||||||||||
|
Operating leases(5)
|
44,966 | 12,869 | 17,918 | 7,221 | 6,958 | |||||||||||||||
|
Benefit obligations(6)
|
27,657 | 2,009 | 4,436 | 5,224 | 15,988 | |||||||||||||||
|
Deferred compensation(7)
|
5,310 | 136 | 356 | 1,943 | 2,875 | |||||||||||||||
|
FIN 48 liability(8)
|
630 | — | 630 | — | — | |||||||||||||||
|
Tax increment financing(9)
|
3,912 | 391 | 778 | 782 | 1,961 | |||||||||||||||
|
Total
|
$ | 732,892 | $ | 183,096 | $ | 400,606 | $ | 121,370 | $ | 27,820 | ||||||||||
| (1) | Revolving credit facility obligation includes principal of $298.2 million and interest at an average rate of 0.91% at December 31, 2009. The principal is due August 31, 2011. (See Note 9) | |
| (2) | Senior note obligation includes principal and interest payments based on a fixed interest rate of 6.03%. Principal payment is due September 30, 2013. (See Note 9) | |
| (3) | Payments required under long-term capitalized lease contracts. | |
| (4) | Primarily represents commitments to purchase minimum quantities of raw materials used in our production processes. We enter into these contracts from time to time in an effort to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process. | |
| (5) | In accordance with GAAP, these obligations are not reflected in the accompanying balance sheets. Operating lease obligations consist of minimum rental payments under non-cancelable operating leases. | |
| (6) | Benefit obligations consist of future payments related to pension and postretirement benefits as estimated by an actuarial valuation. | |
| (7) | Deferred compensation obligations have been allocated to payment periods based on existing payment plans for terminated employees and the estimated timing of distributions of current employees based on age. | |
| (8) | The FIN 48 long term liability recorded by the Company is $2.1 million at December 31, 2009, 30% of which is expected to be settled within one to three years. The remaining 70% or $1.5 million has been excluded from the table. The timing of cash settlement for this portion, if any, cannot be reasonably estimated due to offsetting positions and conclusions upon audit. The Company’s gross unrealized tax benefit is approximately $3.2 million. The difference between the gross unrealized tax benefit and the FIN 48 liability is due to the inclusion of corollary positions, interest, penalties, as well as the impact of state taxes on the federal tax liability, which are included in the computation of the FIN 48 liability but not the gross unrecognized tax benefit. (See Note 8 to our Consolidated Financial Statements). Deferred tax liabilities are excluded from the table due to uncertainly in their timing. | |
| (9) | Tax increment financing obligation includes principal and interest payments based on rates ranging from 6.61% to 7.16%. Final payment is due May 1, 2019. (See Note 9) |
In addition to the commitments set forth in the above table, at
December 31, 2009, the Company had $8.8 million in
letters of credit primarily related to the Company’s
workers’ compensation program.
32
Table of Contents
Off-Balance
Sheet Arrangements
The Company does not have any obligations that meet the
definition of an off-balance sheet arrangement, other than
operating leases and letters of credit, which have or are
reasonably likely to have a material effect on the Consolidated
Financial Statements.
Other
Commitments and Contingencies
The Company also has the following commitments and contingent
liabilities, in addition to contingent liabilities related to
ordinary course litigation, investigations and tax audits:
| • | certain lease obligations, and | |
| • | selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses. |
See Note 18 to our Consolidated Financial Statements for
more information about the Company’s commitments and
contingent obligations.
Critical
Accounting Policies
Critical accounting policies are defined as those that are most
important to the portrayal of a company’s financial
condition and results and that require our most difficult,
subjective or complex judgments. In many cases the accounting
treatment of a particular transaction is specifically dictated
by generally accepted accounting principles with no need for the
application of our judgment. In certain circumstances, however,
the preparation of the Consolidated Financial Statements in
conformity with generally accepted accounting principles
requires us to use our judgment to make certain estimates and
assumptions. These estimates affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the Consolidated Financial Statements
and the reported amounts of net sales and expenses during the
reporting period. We have identified the policies described
below as our critical accounting policies. See Note 1 to
the Consolidated Financial Statements for a detailed discussion
of these and other accounting policies.
Accounts Receivable Allowances
— We maintain an
allowance for customer promotional programs, marketing co-op
programs and other sales and marketing expenses. This allowance
is based on historical rolling twelve month average program
activity and can fluctuate due to the level of sales and
marketing programs, and timing of deductions. This allowance was
$8.3 million and $7.3 million, at December 31,
2009 and 2008, respectively.
Inventories —
Inventories are stated at the
lower of cost or market. Pickle inventories are valued using the
last-in,
first-out (“LIFO”) method, while all of our other
inventories are valued using the
first-in,
first-out (“FIFO”) method. These valuations have been
reduced by an allowance for obsolete and defective products and
packaging materials. The estimated allowance is based on a
review of inventories on hand compared to estimates of future
demand, changes in formulas and packaging materials and inferior
product. The Company’s allowances were $6.9 million
and $3.3 million at December 31, 2009 and 2008,
respectively.
Goodwill and Intangible Assets
— Goodwill and
intangible assets totaled $727.5 million as of
December 31, 2009, resulting primarily from acquisitions.
Upon acquisition, the purchase price is first allocated to
identifiable assets and liabilities, including but not limited
to trademarks and customer-related intangible assets, with any
remaining purchase price recorded as goodwill. Goodwill and
indefinite lived trademarks are not amortized. For purposes of
goodwill impairment testing, our reporting units are defined as
North American Retail Grocery — U.S., North American
Retail Grocery — Canada, Food Away From
Home — U.S., Food Away From Home — Canada,
Industrial Bulk and Co-Pack — U.S., and
Co-Pack — Canada.
We believe that a trademark has an indefinite life if it has
sufficient market share and a history of strong sales and cash
flow performance that we expect to continue for the foreseeable
future. If these perpetual trademark criteria are not met, the
trademarks are amortized over their expected useful lives.
Determining the expected life of a trademark requires
considerable management judgment and is based on an evaluation
of a
33
Table of Contents
number of factors including the competitive environment, market
share, trademark history and anticipated future trademark
support.
Indefinite lived trademarks and goodwill are evaluated for
impairment annually in the fourth quarter, or more frequently,
if other events occur, to ensure that fair value continues to
exceed the related book value. An indefinite lived trademark is
impaired if its book value exceeds fair value. Goodwill
impairment is indicated if the book value of its reporting unit
exceeds its fair value. If the fair value of an evaluated asset
is less than its book value, the asset is written down to fair
value, which is generally based on its discounted future cash
flows. Future business results could impact the evaluation of
our goodwill and intangible assets.
The Company completed its annual goodwill and indefinite lived
intangible asset impairment analysis as of December 31,
2009. Our assessment did not result in goodwill impairment. We
have seven reporting units, five of which contain goodwill
totaling $575.0 million. Our analysis employed the use of
both a market and income approach, with each method given equal
weighting. Significant assumptions used in the income approach
include growth and discount rates, margins and the
Company’s weighted average cost of capital. We used
historical performance and management estimates of future
performance to determine margins and growth rates. Discount
rates selected for each reporting unit varied, with the weighted
average of all discount rates being equal to the total Company
discount rate. Our weighted average cost of capital included a
review and assessment of market and capital structure
assumptions. Further supporting our assessment of goodwill is
the fact that our Company’s stock price has increased from
December 31, 2008 to December 31, 2009 by
approximately 43.0%. Of the five reporting units with goodwill,
three have fair values significantly in excess of their carrying
values (between 75% and 95%), while another reporting unit has a
fair value that is approximately 35% in excess of its carrying
value. Our final reporting unit, Retail Grocery —
Canada, has a fair value that is approximately 14% in excess of
its carrying value. Considerable management judgment is
necessary to evaluate the impact of operating changes and to
estimate future cash flows. Changes in our estimates or any of
our other assumptions used in our analysis could result in a
different conclusion.
We reviewed our indefinite lived intangible assets, which
include our trademarks totaling $31.4 million, using the
relief from royalty method. Significant assumptions include the
royalty, growth and discount rates. Our assumptions were based
on historical performance and management estimates of future
performance, as well as available data on licenses of similar
products. Our analysis resulted in no impairment. The
Company’s policy is that indefinite lived assets must have
a history of strong sales and cash flow performance that we
expect to continue for the foreseeable future. When these
criteria are no longer met, the Company changes the
classification. Considerable management judgment is necessary to
evaluate the impact of operating changes and to estimate future
cash flows. Changes in our estimates or any of our other
assumptions used in our analysis could result in a different
conclusion.
Amortizable intangible assets which include primarily customer
relationships and trademarks are evaluated for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If an evaluation of the
undiscounted cash flows indicates impairment, the asset is
written down to its fair value, which is generally based on
discounted future cash flows. We reviewed our amortizable
intangible assets and our analysis resulted in the impairment of
our
Nature’s
Goodness
®
trademark totaling $7.6 million, and is related to the
North American Retail Grocery — U.S. segment. No
other impairment was identified and the Company concluded no
changes are necessary to the remaining useful lives or values of
the remaining amortizable intangible assets as of
December 31, 2009.
Purchase Price Allocation
— We allocate the
purchase price of acquisitions to the assets acquired and
liabilities assumed. All identifiable assets acquired, including
identifiable intangibles, and liabilities assumed are assigned a
portion of the purchase price of the acquired company, normally
equal to their fair values at the date of acquisition. The
excess of the purchase price of the acquired company over the
sum of the amounts assigned to identifiable assets acquired,
less liabilities assumed is recorded as goodwill. We record the
initial purchase price allocation based on evaluation of
information and estimates available at the date of the financial
statements. As final information regarding fair value of assets
acquired and liabilities assumed is received and estimates are
refined, appropriate adjustments are made to the purchase price
allocation. To the extent that such adjustments indicate that
the fair values of assets and liabilities differ from their
preliminary purchase
34
Table of Contents
price allocations, such differences would adjust the amounts
allocated to those assets and liabilities and would change the
amounts allocated to goodwill. The final purchase price
allocation includes the consideration of a number of factors to
determine the fair value of individual assets acquired and
liabilities assumed, including quoted market prices, forecast of
expected cash flows, net realizable values, estimates of the
present value of required payments and determination of
remaining useful lives.
Income Taxes
— Deferred taxes are recognized
for future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for
the years in which the differences are expected to reverse. We
periodically estimate our probable tax obligations using
historical experience in tax jurisdictions and informed
judgments. There are inherent uncertainties related to the
interpretations of tax regulations in the jurisdictions in which
we operate. These judgments and estimates made at a point in
time may change based on the outcome of tax audits and changes
to or further interpretations of regulations. If such changes
take place, there is a risk that our tax rate may increase or
decrease in any period, which would have an impact on our
earnings. Future business results may affect deferred tax
liabilities or the valuation of deferred tax assets over time.
Stock-Based Compensation
— Income from
Continuing Operations Before Income Taxes, for the years ended
December 31, 2009 and December 31, 2008, included
share-based compensation expense for employee and director stock
options, restricted stock, restricted stock units, and
performance units of $13.3 million and $12.2 million,
respectively.
The fair value of stock options, restricted stock, restricted
stock unit awards and performance units (the “Awards”)
is determined on the date of grant. Stock options were valued
using a Black Scholes model and certain restricted stock and
restricted stock units were valued using a Monte Carlo
simulation. Performance units and all other restricted stock and
restricted stock unit awards were valued using the closing price
of the Company’s stock on the date of grant. Stock-based
compensation expense, as calculated and recorded, could have
been impacted, if other assumptions were used. Furthermore, if
we use different assumptions in future periods, stock-based
compensation expense could be impacted in future periods. As the
Company’s stock was not publicly traded prior to
June 27, 2005, expected volatilities are based on the
implied historical volatilities from peer companies and other
factors. The Company has estimated that certain employees will
complete the required service conditions associated with certain
Awards. For all other employees, the Company estimates
forfeitures as not all employees are expected to complete the
required service conditions. The expected service period is the
longer of the derived service period, as determined from the
output of the valuation models, and the service period based on
the term of the Awards. The risk-free interest rate for periods
within the contractual life of the Awards is based on the
U.S. Treasury yield curve in effect at the time of the
grant. As the Company does not have significant history to
determine the expected term of its option awards, we based the
expected term on that of comparable companies. The assumptions
used to calculate the option and restricted stock awards granted
in 2009 are presented in Note 11 to the Consolidated
Financial Statements.
Insurance Accruals
— We retain selected levels
of property and casualty risks, primarily related to employee
health care, workers compensation claims and other casualty
losses. Many of these potential losses are covered under
conventional insurance programs with third-party carriers having
high deductible limits. In other areas, we are self-insured with
stop-loss coverage. Accrued liabilities for incurred but not
reported losses related to these retained risks are calculated
based upon loss development factors which contemplate a number
of variables, including claims history and expected trends.
These loss development factors are based on industry factors
and, along with the estimated liabilities, are developed by us
in consultation with external insurance brokers and actuaries.
At December 31, 2009 and 2008, we recorded accrued
liabilities related to these retained risks of $9.1 million
and $8.5 million, respectively, including both current and
long-term liabilities. Changes in loss development factors,
claims history and cost trends could result in substantially
different results in the future.
Employee Benefit Plan Costs
— We provide a
range of benefits to our employees, including pension and
postretirement benefits to our eligible employees and retirees.
We record annual amounts relating to these plans based on
calculations specified by generally accepted accounting
principles, which include various actuarial assumptions, such as
discount rates, assumed investment rates of return, compensation
increases,
35
Table of Contents
employee turnover rates and health care cost trend rates. We
review our actuarial assumptions on an annual basis and make
modifications to the assumptions based on current rates and
trends, when it is deemed appropriate. As required by generally
accepted accounting principles, the effect of the modifications
is generally recorded and amortized over future periods.
Different assumptions that we make could result in the
recognition of different amounts of expense over different
periods of time.
Our current asset mix guidelines, under our investment policy as
written by our Investment Committee, target equities at 55% to
65% of the portfolio and fixed income at 35% to 45%. At
December 31, 2009, our master trust was invested as
follows: equity securities of 66%; fixed income securities of
32%; and cash and cash equivalents of 2%.
We determine our expected long-term rate of return based on our
expectations of future returns for the pension plan’s
investments based on target allocations of the pension
plan’s investments. Additionally, we consider the
weighted-average return of a capital markets model and
historical returns on comparable equity, debt and other
investments. The resulting weighted average expected long-term
rate of return on plan assets is 7.60%.
While a number of the key assumptions related to our qualified
pension plans are long-term in nature, including assumed
investment rates of return, compensation increases, employee
turnover rates and mortality rates, generally accepted
accounting principles require that our discount rate assumption
be more heavily weighted to current market conditions. As such,
our discount rate will likely change more frequently. We used a
discount rate to determine our estimated future benefit
obligations of 5.75%, at December 31, 2009.
See Note 13 to our Consolidated Financial Statements for
more information regarding our employee pension and retirement
benefit plans.
Recent
Accounting Pronouncements
Information regarding recent accounting pronouncements is
provided in Note 2 to the Consolidated Financial Statements.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Interest
Rate Fluctuations
The Company entered into a $200 million long term interest
rate swap agreement with an effective date of November 19,
2008 to lock into a fixed LIBOR interest rate base. Under the
terms of the agreement, $200 million in floating rate debt
was swapped for a fixed 2.9% interest base rate for a period of
24 months, amortizing to $50 million for an additional
nine months at the same 2.9% interest rate. Under the terms of
the Company’s revolving credit agreement, and in
conjunction with our credit spread, this will result in an all
in borrowing cost on the swapped principal being no more than
3.8% during the life of the swap agreement.
In July 2006, we entered into a forward interest rate swap
transaction for a notational amount of $100 million as a
hedge of the forecasted private placement of $100 million
in senior notes. The interest rate swap transaction was
terminated on August 31, 2006, which resulted in a pre-tax
loss of $1.8 million. The unamortized loss is reflected,
net of tax, in Accumulated other comprehensive loss in the
Consolidated Balance Sheets. The total loss will be reclassified
ratably to the Consolidated Statements of Income as an increase
to interest expense over the term of the senior notes, providing
an effective interest rate of 6.29% over the terms of the senior
notes.
We do not utilize financial instruments for trading purposes or
hold any derivative financial instruments, other than our
interest rate swap agreement, as of December 31, 2009,
which could expose us to significant market risk. Our exposure
to market risk for changes in interest rates relates primarily
to the increase in the amount of interest expense we expect to
pay with respect to our revolving credit facility, which is tied
to variable market rates which includes LIBOR and prime interest
rates. Based on our outstanding debt balance of
$298.2 million under our revolving credit facility, and
adjusting for the $200 million fixed rate swap
36
Table of Contents
agreement, as of December 31, 2009, each 1% rise in our
interest rate would increase our interest expense by
approximately $1.0 million annually.
Input
Costs
The costs of raw materials, as well as packaging materials and
fuel, have varied widely in recent years and future changes in
such costs may cause our results of operations and our operating
margins to fluctuate significantly. We experienced increases in
certain costs such as metal caps, cans and lids and meat
products in 2009 compared to 2008, however, these increases were
more than offset by decreases in the cost of oils, casein and
plastic containers. In addition, fuel costs, which represent the
most important factor affecting utility costs at our production
facilities and our transportation costs, rose to unusually high
levels in the middle of 2008, but have decreased proportionately
to the general reduction in overall economic activity in 2009.
The most important raw material used in our pickle operations is
cucumbers. We purchase cucumbers under seasonal grower contracts
with a variety of growers strategically located to supply our
production facilities. Bad weather or disease in a particular
growing area can damage or destroy the crop in that area, which
would impair crop yields. If we are not able to buy cucumbers
from local suppliers, we would likely either purchase cucumbers
from foreign sources, such as Mexico or India, or ship cucumbers
from other growing areas in the United States, thereby
increasing our production costs.
Changes in the prices of our products may lag behind changes in
the costs of our materials. Competitive pressures also may limit
our ability to quickly raise prices in response to increased raw
materials, packaging and fuel costs. Accordingly, if we are
unable to increase our prices to offset increasing raw material,
packaging and fuel costs, our operating profits and margins
could be materially adversely affected. In addition, in
instances of declining input costs, customers may be looking for
price reductions in situations where we have locked into pricing
at higher costs.
37
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
The Consolidated Financial Statements for 2009 are included in
this report on the following pages:
| Page | ||||
| 39 | ||||
| 40 | ||||
| 41 | ||||
| 42 | ||||
| 43 | ||||
| 44 | ||||
38
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
TreeHouse Foods, Inc.
Westchester, IL 60154
TreeHouse Foods, Inc.
Westchester, IL 60154
We have audited the accompanying consolidated balance sheets of
TreeHouse Foods, Inc. and subsidiaries (the “Company”)
as of December 31, 2009 and 2008, and the related
consolidated statements of income, stockholders’ equity,
and cash flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
consolidated financial statements and financial statement
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
TreeHouse Foods, Inc. and subsidiaries as of December 31,
2009 and 2008, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 16, 2010 expressed
an unqualified opinion on the Company’s internal control
over financial reporting.
/s/ Deloitte &
Touche LLP
Chicago, Illinois
February 16, 2010
39
Table of Contents
TREEHOUSE
FOODS, INC.
CONSOLIDATED
BALANCE SHEETS
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands, except share and per share data) | ||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 4,415 | $ | 2,687 | ||||
|
Receivables, net of allowance for doubtful accounts of $424 and
$478
|
86,557 | 86,837 | ||||||
|
Inventories, net
|
264,933 | 245,790 | ||||||
|
Deferred income taxes
|
3,397 | 6,769 | ||||||
|
Assets held for sale
|
4,081 | 4,081 | ||||||
|
Prepaid expenses and other current assets
|
7,269 | 10,315 | ||||||
|
Total current assets
|
370,652 | 356,479 | ||||||
|
Property, plant and equipment, net
|
276,033 | 270,664 | ||||||
|
Goodwill
|
575,007 | 560,874 | ||||||
|
Identifiable intangible and other assets, net
|
162,736 | 167,665 | ||||||
|
Total assets
|
$ | 1,384,428 | $ | 1,355,682 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 148,819 | $ | 187,795 | ||||
|
Current portion of long-term debt
|
906 | 475 | ||||||
|
Total current liabilities
|
149,725 | 188,270 | ||||||
|
Long-term debt
|
401,640 | 475,233 | ||||||
|
Deferred income taxes
|
45,381 | 27,485 | ||||||
|
Other long-term liabilities
|
31,453 | 44,563 | ||||||
|
Total liabilities
|
628,199 | 735,551 | ||||||
|
Commitments and contingencies (Note 18)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, par value $.01 per share,
10,000,000 shares authorized, none issued
|
— | — | ||||||
|
Common stock, par value $.01 per share, 90,000,000 and
40,000,000 shares authorized, respectively, 31,998,921 and
31,544,515 shares issued and outstanding, respectively
|
320 | 315 | ||||||
|
Additional
paid-in-capital
|
587,598 | 569,262 | ||||||
|
Retained earnings
|
195,262 | 113,948 | ||||||
|
Accumulated other comprehensive loss
|
(26,951 | ) | (63,394 | ) | ||||
|
Total stockholders’ equity
|
756,229 | 620,131 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 1,384,428 | $ | 1,355,682 | ||||
See Notes to Consolidated Financial Statements.
40
Table of Contents
TREEHOUSE
FOODS, INC.
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
|
Net sales
|
$ | 1,511,653 | $ | 1,500,650 | $ | 1,157,902 | ||||||
|
Cost of sales
|
1,185,283 | 1,208,626 | 917,611 | |||||||||
|
Gross profit
|
326,370 | 292,024 | 240,291 | |||||||||
|
Operating expenses:
|
||||||||||||
|
Selling and distribution
|
107,938 | 115,731 | 94,636 | |||||||||
|
General and administrative
|
80,466 | 61,741 | 53,931 | |||||||||
|
Amortization expense
|
13,381 | 13,528 | 7,195 | |||||||||
|
Other operating (income) expenses, net
|
(6,224 | ) | 13,899 | (415 | ) | |||||||
|
Total operating expenses
|
195,561 | 204,899 | 155,347 | |||||||||
|
Operating income
|
130,809 | 87,125 | 84,944 | |||||||||
|
Other (income) expense:
|
||||||||||||
|
Interest expense
|
18,430 | 27,614 | 22,036 | |||||||||
|
Interest income
|
(45 | ) | (107 | ) | (112 | ) | ||||||
|
(Gain) loss on foreign currency exchange
|
(7,387 | ) | 13,040 | (3,469 | ) | |||||||
|
Other (income) expense, net
|
(2,263 | ) | 7,123 | (36 | ) | |||||||
|
Total other expense
|
8,735 | 47,670 | 18,419 | |||||||||
|
Income from continuing operations, before income taxes
|
122,074 | 39,455 | 66,525 | |||||||||
|
Income taxes
|
40,760 | 10,895 | 24,873 | |||||||||
|
Income from continuing operations
|
81,314 | 28,560 | 41,652 | |||||||||
|
Loss from discontinued operations, net of tax benefit of $0,
$(213) and $(19), respectively
|
— | (336 | ) | (30 | ) | |||||||
|
Net income
|
$ | 81,314 | $ | 28,224 | $ | 41,622 | ||||||
|
Weighted average common shares:
|
||||||||||||
|
Basic
|
31,982 | 31,341 | 31,203 | |||||||||
|
Diluted
|
32,798 | 31,469 | 31,351 | |||||||||
|
Basic earnings per common share:
|
||||||||||||
|
Income from continuing operations
|
$ | 2.54 | $ | .91 | $ | 1.33 | ||||||
|
Loss from discontinued operations, net of tax
|
— | (.01 | ) | — | ||||||||
|
Net income
|
$ | 2.54 | $ | .90 | $ | 1.33 | ||||||
|
Diluted earnings per common share:
|
||||||||||||
|
Income from continuing operations
|
$ | 2.48 | $ | .91 | $ | 1.33 | ||||||
|
Loss from discontinued operations, net of tax
|
— | (.01 | ) | — | ||||||||
|
Net income
|
$ | 2.48 | $ | .90 | $ | 1.33 | ||||||
See Notes to Consolidated Financial Statements.
41
Table of Contents
TREEHOUSE
FOODS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
Accumulated
|
||||||||||||||||||||||||
|
Additional
|
Other
|
Total
|
||||||||||||||||||||||
| Common Stock |
Paid-In
|
Retained
|
Comprehensive
|
Stockholders’
|
||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Balance, December 31, 2006
|
31,202 | $ | 312 | $ | 536,934 | $ | 44,108 | $ | (5,105 | ) | $ | 576,249 | ||||||||||||
|
Net income
|
— | — | — | 41,622 | — | 41,622 | ||||||||||||||||||
|
Pension & post-retirement liability adjustment, net of
tax of $768
|
— | — | — | — | 1,172 | 1,172 | ||||||||||||||||||
|
Foreign currency translation adjustment
|
— | — | — | — | (3,325 | ) | (3,325 | ) | ||||||||||||||||
|
Amortization of loss on derivatives, net of tax of $101
|
— | — | — | — | 161 | 161 | ||||||||||||||||||
|
Comprehensive income
|
— | — | — | — | — | 39,630 | ||||||||||||||||||
|
Stock options exercised, including tax benefit of $2
|
2 | — | 44 | — | — | 44 | ||||||||||||||||||
|
Stock options forfeited
|
— | — | (188 | ) | — | — | (188 | ) | ||||||||||||||||
|
Adoption of FIN 48
|
— | — | — | (6 | ) | — | (6 | ) | ||||||||||||||||
|
Stock-based compensation
|
— | — | 13,580 | — | — | 13,580 | ||||||||||||||||||
|
Balance, December 31, 2007
|
31,204 | 312 | 550,370 | 85,724 | (7,097 | ) | 629,309 | |||||||||||||||||
|
Net income
|
— | — | — | 28,224 | — | 28,224 | ||||||||||||||||||
|
Pension & post-retirement liability adjustment, net of
tax of $4,070
|
— | — | — | — | (6,261 | ) | (6,261 | ) | ||||||||||||||||
|
Foreign currency translation adjustment
|
— | — | — | — | (50,198 | ) | (50,198 | ) | ||||||||||||||||
|
Amortization of loss on derivatives, net of tax of $101
|
— | — | — | — | 162 | 162 | ||||||||||||||||||
|
Comprehensive loss
|
— | — | — | — | — | (28,073 | ) | |||||||||||||||||
|
Stock options exercised, including tax benefit of $1,356
|
341 | 3 | 6,787 | — | — | 6,790 | ||||||||||||||||||
|
Stock options forfeited
|
— | — | (88 | ) | — | — | (88 | ) | ||||||||||||||||
|
Stock-based compensation
|
— | — | 12,193 | — | — | 12,193 | ||||||||||||||||||
|
Balance, December 31, 2008
|
31,545 | 315 | 569,262 | 113,948 | (63,394 | ) | 620,131 | |||||||||||||||||
|
Net income
|
— | — | — | 81,314 | — | 81,314 | ||||||||||||||||||
|
Pension & post-retirement liability adjustment, net of
tax of $384
|
— | — | — | — | 604 | 604 | ||||||||||||||||||
|
Foreign currency translation adjustment
|
— | — | — | — | 35,678 | 35,678 | ||||||||||||||||||
|
Amortization of loss on derivatives, net of tax of $101
|
— | — | — | — | 161 | 161 | ||||||||||||||||||
|
Comprehensive income
|
— | — | — | — | — | 117,757 | ||||||||||||||||||
|
Stock options exercised, including tax benefit of $731
|
454 | 5 | 5,092 | — | — | 5,097 | ||||||||||||||||||
|
Stock options forfeited
|
— | — | (59 | ) | — | — | (59 | ) | ||||||||||||||||
|
Stock-based compensation
|
— | — | 13,303 | — | — | 13,303 | ||||||||||||||||||
|
Balance, December 31, 2009
|
31,999 | $ | 320 | $ | 587,598 | $ | 195,262 | $ | (26,951 | ) | $ | 756,229 | ||||||||||||
See Notes to Consolidated Financial Statements.
42
Table of Contents
TREEHOUSE
FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 81,314 | $ | 28,224 | $ | 41,622 | ||||||
|
Loss from discontinued operations
|
— | 336 | 30 | |||||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation
|
33,962 | 32,326 | 27,791 | |||||||||
|
Amortization
|
13,381 | 13,528 | 7,195 | |||||||||
|
Stock-based compensation
|
13,303 | 12,193 | 13,580 | |||||||||
|
(Gain) loss on foreign currency exchange, intercompany note
|
(4,932 | ) | 9,034 | — | ||||||||
|
Mark to market (gain) loss on interest swap
|
(2,104 | ) | 6,981 | — | ||||||||
|
Gain on disposition of assets
|
(11,885 | ) | (469 | ) | (498 | ) | ||||||
|
Write-down of impaired assets
|
7,600 | 5,991 | — | |||||||||
|
Deferred income taxes
|
18,596 | 5,314 | 5,940 | |||||||||
|
Excess tax benefits from stock-based compensation
|
(169 | ) | (377 | ) | — | |||||||
|
Other
|
161 | 137 | 161 | |||||||||
|
Changes in operating assets and liabilities, net of acquisitions:
|
||||||||||||
|
Receivables
|
3,739 | (14,395 | ) | 10,164 | ||||||||
|
Inventories
|
(14,062 | ) | 43,396 | (27,115 | ) | |||||||
|
Prepaid expenses and other assets
|
(647 | ) | (2,063 | ) | 4,390 | |||||||
|
Accounts payable, accrued expenses and other liabilities
|
(33,413 | ) | 35,490 | 13,172 | ||||||||
|
Net cash provided by continuing operations
|
104,844 | 175,646 | 96,432 | |||||||||
|
Net cash used in discontinued operations
|
— | (10 | ) | (30 | ) | |||||||
|
Net cash provided by operating activities
|
104,844 | 175,636 | 96,402 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Additions to property, plant and equipment
|
(36,987 | ) | (55,471 | ) | (19,814 | ) | ||||||
|
Insurance proceeds
|
2,863 | 12,047 | — | |||||||||
|
Cash outflows for acquisitions and investments, less cash
acquired
|
— | (251 | ) | (449,937 | ) | |||||||
|
Proceeds from sale of fixed assets
|
6 | 1,679 | 1,465 | |||||||||
|
Net cash used in continuing operations
|
(34,118 | ) | (41,996 | ) | (468,286 | ) | ||||||
|
Net cash provided by discontinued operations
|
— | 157 | 467 | |||||||||
|
Net cash used in investing activities
|
(34,118 | ) | (41,839 | ) | (467,819 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from issuance of debt
|
— | — | 440,035 | |||||||||
|
Net repayment of debt
|
(74,484 | ) | (145,537 | ) | (59,150 | ) | ||||||
|
Payments of deferred financing costs
|
— | — | (230 | ) | ||||||||
|
Excess tax benefits from stock-based payment arrangements
|
169 | 377 | — | |||||||||
|
Cash used to net share settle equity awards
|
(336 | ) | — | — | ||||||||
|
Proceeds from stock option exercises
|
4,926 | 5,434 | 44 | |||||||||
|
Net cash (used in) provided by financing activities
|
(69,725 | ) | (139,726 | ) | 380,699 | |||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
727 | (614 | ) | (58 | ) | |||||||
|
Increase (decrease) in cash and cash equivalents
|
1,728 | (6,543 | ) | 9,224 | ||||||||
|
Cash and cash equivalents, beginning of year
|
2,687 | 9,230 | 6 | |||||||||
|
Cash and cash equivalents, end of year
|
$ | 4,415 | $ | 2,687 | $ | 9,230 | ||||||
See Notes to Consolidated Financial Statements.
43
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Years
ended December 31, 2009, 2008 and 2007)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation
— The Consolidated
Financial Statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates
— The preparation of our
Consolidated Financial Statements in conformity with generally
accepted accounting principles (“GAAP”) requires
management to use judgment to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the Consolidated Financial Statements and the reported amounts
of net sales and expenses during the reporting period. Actual
results could differ from these estimates.
Subsequent Events
— The Company has evaluated
all subsequent events through February 16, 2010, which is
the date that the accompanying financial statements are being
issued.
Cash Equivalents
— We consider temporary cash
investments with an original maturity of three months or less to
be cash equivalents.
Inventories
— Inventories are stated at the
lower of cost or market. Pickle inventories are valued using the
last-in,
first-out (“LIFO”) method, while all of our other
inventories are valued using the
first-in,
first-out (“FIFO”) method. The costs of finished goods
inventories include raw materials, labor and overhead costs.
Property, Plant and Equipment
— Property, plant
and equipment are stated at acquisition cost, plus capitalized
interest on borrowings during the actual construction period of
major capital projects. Also included in property, plant and
equipment are certain direct costs related to the implementation
of computer software for internal use. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives of the assets as follows:
|
Asset
|
Useful Life
|
|
|
Buildings and improvements:
|
||
|
Improvements and previously existing structures
|
10 to 20 years | |
|
New structures
|
40 years | |
|
Machinery and equipment:
|
||
|
Manufacturing plant equipment
|
5 to 20 years | |
|
Transportation equipment
|
3 to 8 years | |
|
Office equipment
|
3 to 10 years |
We perform impairment tests when circumstances indicate that the
carrying value may not be recoverable. Capitalized leases are
amortized over the shorter of their lease term or their
estimated useful lives and amortization expense is included in
depreciation expense. Expenditures for repairs and maintenance,
which do not improve or extend the life of the assets, are
expensed as incurred.
Intangible and Other Assets
— Identifiable
intangible assets with finite lives are amortized over their
estimated useful lives as follows:
|
Asset
|
Useful Life
|
|
|
Customer relationships
|
Straight-line method over 5 to 15 years | |
|
Trademarks/trade names
|
Straight-line method over 10 to 20 years | |
|
Non-competition agreements
|
Straight-line method over the terms of the agreements | |
|
Deferred financing costs
|
Straight-line method over the terms of the related debt | |
|
Formulas/recipes
|
Straight-line method over 5 to 7 years |
44
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Indefinite lived trademarks and goodwill are evaluated for
impairment annually in the fourth quarter or more frequently, if
events or changes in circumstances indicate that the asset might
be impaired. Indefinite lived trademarks and goodwill impairment
is indicated when their book value exceeds fair value. If the
fair value of an evaluated asset is less than its book value,
the asset is written down to fair value, which is generally
based on its discounted future cash flows.
Stock-Based Compensation
— We measure
compensation expense for our equity awards at their grant date
fair value. The resulting expense is recognized over the
relevant service period.
Sales Recognition and Accounts Receivable
—
Sales are recognized when persuasive evidence of an arrangement
exists, the price is fixed or determinable, title and risk of
loss transfer to customers and there is a reasonable assurance
of collection of the sales proceeds. Product is shipped FOB
shipping point and FOB destination, depending on our agreement
with the customer. Sales are reduced by certain sales
incentives, some of which are recorded by estimating expense
based on our historical experience. We provide credit terms to
customers ranging up to 30 days, perform ongoing credit
evaluation of our customers and maintain allowances for
potential credit losses based on historical experience.
Estimated product returns, which have not been material, are
deducted from sales at the time of shipment.
Income Taxes
— The provision for income taxes
includes federal, foreign, state and local income taxes
currently payable and those deferred because of temporary
differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets or liabilities are
computed based on the difference between the financial statement
and income tax bases of assets and liabilities using enacted
marginal tax rates. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Deferred income tax expenses or
credits are based on the changes in the asset or liability from
period to period.
The Company has net operating loss and tax credit carry forwards
available in certain jurisdictions to reduce future taxable
income. Future tax benefits for net operating loss and tax
credit carry forwards are recognized to the extent that
realization of these benefits is considered more likely than
not. This determination is based on the expectation that related
operations will be sufficiently profitable or various tax,
business and other planning strategies will enable us to utilize
the operating loss and tax credit carry forwards. We cannot be
assured that we will be able to realize these future tax
benefits or that future valuation allowances will not be
required. To the extent that available evidence raises doubt
about the realization of a deferred income tax asset, a
valuation allowance is established.
Foreign Currency Translation and Transactions
—
The functional currency of the Company’s foreign operations
is the applicable local currency. The functional currency is
translated into U.S. dollars for balance sheet accounts
using currency exchange rates in effect as of the balance sheet
date and for revenue and expense accounts using a
weighted-average exchange rate during the fiscal year. The
translation adjustments are deferred as a separate component of
stockholders’ equity, captioned accumulated other
comprehensive loss. Gains or losses resulting from transactions
denominated in foreign currencies are included in Other (income)
expense, in the Consolidated Statements of Income.
Shipping and Handling Fees
— Our shipping and
handling costs are included in both cost of sales and selling
and distribution expense, depending on the nature of such costs.
Shipping and handling costs included in cost of sales reflect
inventory warehouse costs, product loading and handling costs,
and costs associated with transporting finished products from
our manufacturing facilities to distribution warehouses.
Shipping and handling costs included in selling and distribution
expense consist primarily of the cost of shipping products to
customers through third party carriers. Shipping and handling
costs recorded as a component of selling and distribution
expense were approximately $46.5 million,
$60.2 million and $48.1 million, for years ended 2009,
2008 and 2007, respectively.
45
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Derivative Financial Instruments
— From time to
time, we utilize derivative financial instruments including
interest rate swaps, foreign currency contracts and forward
purchase contracts to manage our exposure to interest rate,
foreign currency and commodity price risks. We do not hold or
issue financial instruments for speculative or trading purposes.
The Company accounts for its derivative instruments as either
assets or liabilities and carries them at fair value.
Derivatives that are not designated as hedges according to GAAP
must be adjusted to fair value through earnings. For derivative
instruments that are designated as cash flow hedges, the
effective portion of the gain or loss is reported as accumulated
other comprehensive income and reclassified into earnings in the
same period when the hedged transaction affects earnings. The
ineffective gain or loss is recognized in current earnings. For
further information about our derivative instruments see
Note 19.
Capital Lease Obligations
— Capital lease
obligations represent machinery and equipment financing
obligations, which are payable in monthly installments of
principal and interest and are collateralized by the related
assets financed.
Insurance Accruals
— We retain selected levels
of property and casualty risks, primarily related to employee
health care, workers’ compensation claims and other
casualty losses. Many of these potential losses are covered
under conventional insurance programs with third party carriers
having high deductible limits. In other areas, we are
self-insured with stop-loss coverage. Accrued liabilities for
incurred but not reported losses related to these retained risks
are calculated based upon loss development factors which
contemplate a number of factors, including claims history and
expected trends. These accruals are developed by us in
consultation with external insurance brokers and actuaries.
Facility Closing and Reorganization Costs
— We
periodically record facility closing and reorganization charges,
when we have identified a facility for closure or other
reorganization opportunity, developed a plan and notified the
affected employees.
Research and Development Costs
— We record
research and development charges to expense as they are
incurred. The expenditures totaled $8.3 million,
$6.9 million and $4.8 million, for years ended 2009,
2008 and 2007, respectively.
Advertising Costs
— Advertising costs are
expensed as incurred and reported in the selling and
distribution line of our Consolidated Statements of Income.
| 2. | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In September 2006, the Financial Accounting Standards Board
(“FASB”) issued an accounting pronouncement which
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.
The provisions of the pronouncement are effective for fiscal
years beginning after November 15, 2007. In February 2008,
the FASB issued another accounting pronouncement, which delayed
the initial effective date for all nonrecurring fair value
measurements of nonfinancial assets and nonfinancial liabilities
until fiscal years beginning after November 15, 2008. The
adoption of the provisions of these pronouncements did not
significantly impact our consolidated financial statements.
In December 2007, the FASB issued an accounting pronouncement on
business combinations. The provisions of this pronouncement
establish principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
non-controlling interest acquired and the goodwill acquired. The
pronouncement also establishes disclosure requirements that will
enable users to evaluate the nature and financial effects of the
business combination, and applies to business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
December 15, 2008. The Company will apply the provisions of
this pronouncement for all future acquisitions.
46
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In December 2007, the FASB issued an accounting pronouncement on
non-controlling interests in consolidated financial statements.
The provisions of this pronouncement outline the accounting and
reporting for ownership interests in a subsidiary held by
parties other than the parent and is effective for fiscal years,
and interim periods within those fiscal years, beginning on or
after December 15, 2008. This pronouncement is to be
applied prospectively as of the beginning of the fiscal year in
which it is initially adopted, except for the presentation and
disclosure requirements, which are to be applied retrospectively
for all periods presented. The adoption of this pronouncement
did not have an impact on our consolidated financial statements.
In March 2008, the FASB issued an accounting pronouncement
regarding disclosures about derivative instruments and hedging
activities, which requires increased qualitative, and
credit-risk disclosures. This pronouncement is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. Further, entities are
encouraged, but not required to provide comparative disclosures
for earlier periods. We adopted the provisions of this
pronouncement beginning January 1, 2009 and have provided
the required disclosures beginning with our first quarterly
report on
Form 10-Q
in 2009.
On December 30, 2008, the FASB issued an accounting
pronouncement regarding employers’ disclosures about
postretirement benefits. This pronouncement is effective for
fiscal years ending after December 15, 2009. This
pronouncement does not change current accounting methods, but
requires disclosure about investment policies and strategies,
the fair value of each major category of plan assets, the
methods and inputs used to develop fair value measurements of
plan assets, and concentrations of credit risk. The Company has
provided the required disclosure in its 2009
Form 10-K.
In April 2009, the FASB issued an accounting pronouncement
regarding interim disclosures about the fair value of financial
instruments. This pronouncement requires disclosures about the
fair value of financial instruments in financial statements for
interim reporting periods and in annual financial statements of
publicly-traded companies. This pronouncement also requires
entities to disclose the method(s) and significant assumptions
used to estimate the fair value of financial instruments in
financial statements on an interim and annual basis and to
highlight any changes from prior periods. The effective date for
this pronouncement is interim and annual periods ending after
June 15, 2009. We have complied with the disclosure
provisions of this pronouncement.
In May 2009, the FASB issued an accounting pronouncement
regarding subsequent events, which establishes general standards
of accounting for, and requires disclosure of, events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. This pronouncement is
effective for fiscal years and interim periods ended after
June 15, 2009. We adopted the provisions of this
pronouncement for the quarter ended June 30, 2009. The
adoption of these provisions did not have a material effect on
our consolidated financial statements.
In June 2009, the FASB issued an accounting pronouncement
regarding consolidation guidance for variable interest entities
(VIE) that is effective beginning January 1, 2010. The
Company does not expect this pronouncement to significantly
impact our consolidated financial statements.
In June 2009, the FASB issued an accounting pronouncement
regarding the FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. This
pronouncement establishes the FASB Accounting Standards
Codification (the “Codification”) as the single source
of authoritative, nongovernmental U.S. GAAP. The
Codification is effective for financial statements for interim
or annual reporting periods ending after September 15,
2009. All U.S. GAAP accounting literature is now known as
the “Accounting Standard Codification”
(“ASC”) and updates to the Codification are now issued
as “Accounting Standards Updates” (“ASU”).
As the Codification was not intended to change or alter existing
U.S. GAAP, it did not have any impact on our consolidated
financial statements.
In August 2009, the FASB issued ASU
2009-5
which
provides additional guidance on measuring the fair value of
liabilities under ASC 820 — Fair Value Measurements
and Disclosures. ASU
2009-5
clarifies that the
47
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
quoted price for the identical liability, when traded as an
asset in an active market, is also a Level 1 measurement
for that liability when no adjustment to the quoted price is
required. This pronouncement also requires that the fair value
of a liability is measured using one or more of the following
techniques when a quoted price in an active market for the
identical liability is not available, (1) a valuation
technique that uses the quoted price for the identical liability
when traded as an asset, (2) quoted prices for similar
liabilities or similar liabilities when traded as assets, or
(3) another valuation technique consistent with the
guidance in ASC 820, for example, an income approach such as a
present value technique. The adoption of ASU
2009-5
did
not significantly impact the consolidated financial statements.
| 3. | FACILITY CLOSINGS |
On February 13, 2008, the Company announced plans to close
its pickle plant in Portland, Oregon. The Portland plant was the
Company’s highest cost and least utilized pickle facility.
Operations in the plant ceased during the second quarter of
2008. For the twelve months ended December 31, 2009, and
2008, the Company recorded costs of $0.9 million and
$12.8 million, respectively, that are included in Other
operating (income) expense in our Consolidated Statements of
Income. There are no accrued expenses related to this closure as
of December 31, 2009, and insignificant accrued expenses as
of December 31, 2008. In connection with the Portland
closure, the Company has $4.1 million of assets held for
sale, which are primarily land and buildings. The Company will
continue to incur executory costs for this facility until it is
sold. Those costs total approximately $0.8 million per year.
On November 3, 2008, the Company announced plans to close
its salad dressings manufacturing plant in Cambridge, Ontario.
Manufacturing operations in Cambridge ceased at the end of June
2009. Production has been transitioned to the Company’s
other manufacturing facilities in Canada and the United States.
The change results in the Company’s production capabilities
being more aligned with the needs of our customers. The majority
of the closure costs were included as costs of the acquisition
of E.D. Smith and are not expected to significantly impact
earnings. Total costs are expected to be approximately
$2.5 million, including severance costs of
$1.4 million, and other costs of $1.1 million. As of
December 31, 2009, the Company had remaining accruals of
approximately $0.5 million for severance. The Company
expects payments to be completed by the end of 2010, with all
payments expected to be funded with cash from operations.
Severance payments during the twelve months ended
December 31, 2009 were approximately $0.9 million.
| 4. | INVENTORIES |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Raw materials and supplies
|
$ | 86,223 | $ | 82,869 | ||||
|
Finished goods
|
197,539 | 181,311 | ||||||
|
LIFO reserve
|
(18,829 | ) | (18,390 | ) | ||||
|
Total
|
$ | 264,933 | $ | 245,790 | ||||
Approximately $98.7 million and $83.0 million of our
inventory was accounted for under the LIFO method of accounting
at December 31, 2009 and 2008, respectively. The LIFO
reserve reflects the excess of the current cost of LIFO
inventories at December 31, 2009 and 2008, over the amount
at which these inventories were valued on the consolidated
balance sheets. During 2008, we incurred a LIFO inventory
liquidation that reduced our cost of sales and increased pre-tax
income by $3.1 million.
48
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 5. | PROPERTY, PLANT AND EQUIPMENT |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Land
|
$ | 11,335 | $ | 7,341 | ||||
|
Buildings and improvements
|
99,856 | 85,361 | ||||||
|
Machinery and equipment
|
310,265 | 267,856 | ||||||
|
Construction in progress
|
6,778 | 30,041 | ||||||
|
Total
|
428,234 | 390,599 | ||||||
|
Less accumulated depreciation
|
(152,201 | ) | (119,935 | ) | ||||
|
Property, plant and equipment, net
|
$ | 276,033 | $ | 270,664 | ||||
| 6. | GOODWILL AND INTANGIBLE ASSETS |
The changes in the carrying amount of goodwill for the years
ended December 31, 2009 and 2008, are as follows:
|
North American
|
Food Away
|
Industrial
|
||||||||||||||
| Retail Grocery | From Home | and Export | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Balance at December 31, 2007
|
$ | 370,688 | $ | 86,521 | $ | 133,582 | $ | 590,791 | ||||||||
|
Purchase price adjustment
|
(145 | ) | (13 | ) | — | (158 | ) | |||||||||
|
Foreign currency exchange adjustment
|
(26,892 | ) | (2,867 | ) | — | (29,759 | ) | |||||||||
|
Balance at December 31, 2008
|
343,651 | 83,641 | 133,582 | 560,874 | ||||||||||||
|
Reversal of certain reserves related to the consolidation of
operations expected at the time of the acquisition of E.D. Smith
|
(4,914 | ) | — | — | (4,914 | ) | ||||||||||
|
Foreign currency exchange adjustment
|
17,188 | 1,859 | — | 19,047 | ||||||||||||
|
Balance at December 31, 2009
|
$ | 355,925 | $ | 85,500 | $ | 133,582 | $ | 575,007 | ||||||||
The Company has not incurred any goodwill impairments since its
inception.
Approximately $212.9 million of goodwill is deductible for
tax purposes.
49
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The gross carrying amount and accumulated amortization of our
intangible assets other than goodwill as of December 31,
2009 and 2008 are as follows:
| December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
| Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Intangible assets with indefinite lives:
|
||||||||||||||||||||||||
|
Trademarks
|
$ | 31,422 | $ | — | $ | 31,422 | $ | 27,824 | $ | — | $ | 27,824 | ||||||||||||
|
Intangible assets with finite lives:
|
||||||||||||||||||||||||
|
Customer-related
|
147,346 | (35,400 | ) | 111,946 | 137,693 | (23,430 | ) | 114,263 | ||||||||||||||||
|
Non-compete agreements
|
2,620 | (2,162 | ) | 458 | 2,620 | (1,422 | ) | 1,198 | ||||||||||||||||
|
Trademarks
|
10,010 | (2,311 | ) | 7,699 | 17,610 | (1,385 | ) | 16,225 | ||||||||||||||||
|
Formulas/recipes
|
1,762 | (761 | ) | 1,001 | 1,583 | (378 | ) | 1,205 | ||||||||||||||||
|
Total other intangibles
|
$ | 193,160 | $ | (40,634 | ) | $ | 152,526 | $ | 187,330 | $ | (26,615 | ) | $ | 160,715 | ||||||||||
As of December 31, 2009, the weighted average remaining
useful life for the amortizable intangible assets are
(1) customer related at 11.1 years,
(2) non-compete agreements at 0.8 years,
(3) trademarks at 14.8 years and
(4) formulas/recipes at 3.0 years. The weighted
average remaining useful life in total for all amortizable
intangible assets is 11.2 years as of December 31,
2009.
Amortization expense on intangible assets was
$13.4 million, $13.5 million and $7.2 million,
for the years ended December 31, 2009, 2008 and 2007,
respectively. Estimated intangible asset amortization expense
for the next five years is as follows:
| (In thousands) | ||||
|
2010
|
$ | 13,038 | ||
|
2011
|
$ | 11,146 | ||
|
2012
|
$ | 10,817 | ||
|
2013
|
$ | 10,463 | ||
|
2014
|
$ | 10,443 | ||
Indefinite lived trademarks and goodwill are evaluated for
impairment annually in the fourth quarter or more frequently, if
events or changes in circumstances indicate that the asset might
be impaired. Indefinite lived trademarks are impaired and
goodwill impairment is indicated when their book value exceeds
fair value. If the fair value of an evaluated asset is less than
its book value, the asset is written down to fair value, which
is generally based on its discounted future cash flows.
Amortizable intangible assets are evaluated for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If an evaluation of the
undiscounted cash flows indicates impairment, the asset is
written down to its estimated fair value, which is generally
based on discounted future cash flows.
Our 2009 impairment review, using a discounted cash flow
analysis, resulted in the impairment of the
Nature’s
Goodness
®
amortizable infant feeding trademark as we focus on our private
label opportunities in retail baby food. The remaining balance
of approximately $7.6 million was written off as of
December 31, 2009 and is included in Other operating
(income) expense in our Consolidated Statements of Income.
Nature’s
Goodness
®
is a part of the North American Retail Grocery segment. The
circumstances resulting in the full
50
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
impairment of the remaining value occurred during the fourth
quarter of 2009. No other impairment was identified during our
2009 analysis.
During our 2008 impairment review, we determined that the
Steinfeld’s
®
pickle trademark,
Nature’s
Goodness
®
infant feeding trademark and
San Antonio
Farms
®
salsa trademarks can no longer be classified as indefinite
lived, and we began amortizing their remaining balance over
their expected remaining useful life of 10, 20 and 10 years
, respectively, in 2009. Our review resulted in an impairment
expense of approximately $0.6 million related to our
San Antonio
Farms
®
trademark and is recorded within the Other operating (income)
expense line of our Consolidated Statements of Income, and
pertains to the North American Retail Grocery segment.
During our 2007 impairment review, we determined that the
Farman’s
®
pickle trademark can no longer be classified as indefinite
lived, and we are amortizing the remaining balance over the
expected remaining useful life of 20 years. Our review did
not result in impairment. Amortization of this trademark began
in 2008.
Considerable management judgment is necessary to evaluate the
impact of operating changes and to estimate future cash flows.
Assumptions used in our impairment evaluations, such as
forecasted growth rates and our cost of capital, are consistent
with our internal projections and operating plans.
| 7. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Accounts payable
|
$ | 79,438 | $ | 135,502 | ||||
|
Payroll and benefits
|
29,921 | 15,208 | ||||||
|
Insurance(1)
|
— | 9,555 | ||||||
|
Interest and taxes
|
12,015 | 4,670 | ||||||
|
Health insurance, workers’ compensation and other insurance
costs
|
4,837 | 4,143 | ||||||
|
Marketing expenses
|
10,558 | 4,694 | ||||||
|
Other accrued liabilities
|
12,050 | 14,023 | ||||||
|
Total
|
$ | 148,819 | $ | 187,795 | ||||
| (1) | See Note 15 Insurance Claim — New Hampton. |
| 8. | INCOME TAXES |
Components of Income from continuing operations, before income
taxes are as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Domestic source
|
$ | 125,413 | $ | 35,966 | $ | 71,106 | ||||||
|
Foreign source
|
(3,339 | ) | 3,489 | (4,581 | ) | |||||||
|
Income from continuing operations, before income tax
|
$ | 122,074 | $ | 39,455 | $ | 66,525 | ||||||
51
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the components of the 2009, 2008
and 2007 provision for income taxes:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008(1) | 2007(1) | ||||||||||
| (In thousands) | ||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 20,654 | $ | 3,858 | $ | 15,072 | ||||||
|
State
|
4,101 | 1,546 | 3,300 | |||||||||
|
Foreign
|
(2,591 | ) | 177 | 561 | ||||||||
|
Total current
|
22,164 | 5,581 | 18,933 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
13,577 | 3,665 | 7,462 | |||||||||
|
State
|
1,956 | 350 | 1,377 | |||||||||
|
Foreign
|
3,063 | 1,299 | (2,899 | ) | ||||||||
|
Total deferred
|
18,596 | 5,314 | 5,940 | |||||||||
|
Total income tax expense
|
$ | 40,760 | $ | 10,895 | $ | 24,873 | ||||||
| (1) | Excludes, $(0.2) million and $(0.02) million income tax benefit related to discontinued operations in 2008 and 2007, respectively. |
The following is a reconciliation of income tax expense computed
at the U.S. federal statutory tax rate to the income tax
expense reported in the Consolidated Statements of Income:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Tax at statutory rate
|
$ | 42,726 | $ | 13,809 | $ | 23,285 | ||||||
|
State income taxes
|
3,937 | 1,233 | 3,041 | |||||||||
|
Tax benefit of cross-border intercompany financing structure
|
(4,831 | ) | (4,762 | ) | — | |||||||
|
Reduction of enacted tax rates on deferred tax liabilities
(Canada)
|
(2,155 | ) | — | (1,359 | ) | |||||||
|
Other, net
|
1,083 | 615 | (94 | ) | ||||||||
|
Total provision for income taxes
|
$ | 40,760 | $ | 10,895 | $ | 24,873 | ||||||
52
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The tax effects of temporary differences giving rise to deferred
income tax assets and liabilities were:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Deferred tax assets:
|
||||||||
|
Pension and postretirement benefits
|
$ | 5,116 | $ | 5,688 | ||||
|
Accrued liabilities
|
11,235 | 11,141 | ||||||
|
Loss and credit carry forwards
|
1,332 | 6,315 | ||||||
|
Stock compensation
|
22,191 | 20,783 | ||||||
|
Unrealized foreign exchange loss
|
395 | 3,202 | ||||||
|
Unrealized loss on interest swap
|
1,894 | 2,676 | ||||||
|
Total deferred tax assets
|
42,163 | 49,805 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Depreciation and amortization
|
(82,214 | ) | (68,354 | ) | ||||
|
Asset valuation reserves
|
(1,933 | ) | (2,167 | ) | ||||
|
Total deferred tax liabilities
|
(84,147 | ) | (70,521 | ) | ||||
|
Net deferred income tax asset liability
|
$ | (41,984 | ) | $ | (20,716 | ) | ||
Classification of net deferred tax assets (liabilities) in the
Consolidated Balance Sheets is as follows:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Current assets
|
$ | 3,397 | $ | 6,769 | ||||
|
Non-current liabilities
|
(45,381 | ) | (27,485 | ) | ||||
|
Total net deferred tax liabilities
|
$ | (41,984 | ) | $ | (20,716 | ) | ||
No valuation allowance has been provided on deferred tax assets
as management believes it is more likely than not that the
deferred income tax assets will be fully recoverable.
We had the following tax loss and tax credit carry forwards as
of December 31, 2009:
| Years of Expiration: | ||||||||||||
| Amount | Beginning | Ending | ||||||||||
| (In thousands) | ||||||||||||
|
U.S. federal loss carry forwards
|
$ | 1,855 | 2025 | 2026 | ||||||||
|
U.S. state loss carry forwards
|
2,813 | 2014 | 2026 | |||||||||
|
Foreign credit carry forwards
|
490 | 2011 | 2025 | |||||||||
|
Total carry forwards
|
$ | 5,158 | ||||||||||
All of these tax loss and tax credit carry forwards are
associated with the 2007 acquisition of E.D. Smith. The
U.S. federal and state losses are subject to limitation
under Section 382 of the Internal Revenue Code. Management
has considered all available evidence regarding the likelihood
of the ultimate realization of the deferred income tax assets
recorded at December 31, 2009 and December 31, 2008,
respectively, by jurisdiction. Based upon all available
evidence, the Company has concluded that, it is more likely than
not, it will realize the deferred income tax assets by
jurisdiction at December 31, 2009 and December 31,
2008, respectively. Therefore, the
53
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company has not recorded a valuation allowance against the
deferred income tax assets at December 31, 2009 and
December 31, 2008, respectively.
The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction, Canada and various state
jurisdictions. The Company settled the Internal Revenue Service
(“IRS”) examination of its 2007 federal income tax
return in the first quarter of 2010. The exam resulted in a
small refund to the Company. The Company has various state tax
examinations in process, which are expected to be completed in
2010. The outcome of the various state tax examinations is
unknown at this time.
E.D. Smith and its affiliates are subject to Canadian,
U.S. and state tax examinations from 2005 forward. The IRS
completed an examination of E.D. Smith’s
U.S. affiliates tax return for 2005 during the first
quarter of 2009. An insignificant tax adjustment was paid to
settle the examination. The Canada Revenue Agency (CRA)
initiated an income tax audit for the E.D. Smith 2006 and 2007
tax years. The Company expects this audit to conclude during the
first quarter of 2010. The outcome of this audit is unknown at
this time.
During the year, the Company recorded adjustments to its
unrecognized tax benefits. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Unrecognized tax benefits beginning balance
|
$ | 1,995 | $ | 1,769 | ||||
|
Additions based on tax positions related to the current year
|
1,535 | 212 | ||||||
|
Additions based on tax positions of prior years
|
227 | 654 | ||||||
|
Reductions for tax positions of prior years
|
(529 | ) | (118 | ) | ||||
|
Foreign currency translation
|
146 | (215 | ) | |||||
|
Payments
|
(187 | ) | (307 | ) | ||||
|
Unrecognized tax benefits ending balance
|
$ | 3,187 | $ | 1,995 | ||||
At December 31, 2009, the Company does not anticipate any
significant adjustments to its unrecognized tax benefits caused
by the settlement of the ongoing tax examinations detailed above
or other factors within the next twelve months. Unrecognized tax
benefits are included in Other long-term liabilities in our
Consolidated Balance Sheets.
Included in the balance at December 31, 2009 are amounts
that are offset by deferred taxes (i.e., temporary differences)
or amounts that would be offset by refunds in other taxing
jurisdictions (i.e., corollary adjustments). Thus, only
$1.9 million and $815 thousand of the amount accrued at
December 31, 2009 and December 31, 2008, respectively,
would impact the effective tax rate, if reversed.
The Company recognizes interest expense and penalties related to
unrecognized tax benefits in income tax expense. During the
years ended December 31, 2009, 2008 and 2007, the Company
recognized $0.1 million, $0.2 million and
$0.1 million in interest and penalties in income tax
expense, respectively. The Company has accrued approximately
$0.6 million and $0.5 million for the payment of
interest and penalties at December 31, 2009 and 2008,
respectively.
The Company considers its investment in E.D. Smith to be
permanent and therefore, the Company has not provided
U.S. income taxes on the earnings of E.D. Smith or the
translation of its financial statements into U.S. dollars.
A provision has not been established because it is our present
intention to reinvest the E.D. Smith undistributed earnings
indefinitely in Canada. The undistributed earnings as of
December 31, 2009 were $12.3 million. The
determination of the amount of unrecognized U.S. federal
income tax liabilities for the E.D. Smith unremitted earnings at
December 31, 2009 is not practical at this time.
54
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
During the first quarter of 2008, the Company entered into an
intercompany financing structure that results in the recognition
of foreign earnings subject to a low effective tax rate. As the
foreign earnings are permanently reinvested, U.S. income
taxes have not been provided. For the years ended
December 31, 2009 and 2008, the Company recognized a tax
benefit of approximately $6.0 million and
$5.3 million, respectively, related to this item.
| 9. | LONG-TERM DEBT |
| December 31, | ||||||||
|
2009
|
2008
|
|||||||
|
Amount
|
Amount
|
|||||||
| Outstanding | Outstanding | |||||||
| (In thousands) | ||||||||
|
Revolving credit facility
|
$ | 298,200 | $ | 372,000 | ||||
|
Senior notes
|
100,000 | 100,000 | ||||||
|
Tax increment financing and other debt
|
4,346 | 3,708 | ||||||
|
Total outstanding debt
|
402,546 | 475,708 | ||||||
|
Less current portion
|
(906 | ) | (475 | ) | ||||
|
Total long-term debt
|
$ | 401,640 | $ | 475,233 | ||||
The scheduled maturities of outstanding debt, at
December 31, 2009, are as follows (in thousands):
|
2010
|
$ | 906 | ||||||
|
2011
|
298,545 | |||||||
|
2012
|
556 | |||||||
|
2013
|
100,591 | |||||||
|
2014
|
345 | |||||||
|
Thereafter
|
1,603 | |||||||
|
Total outstanding debt
|
$ | 402,546 | ||||||
Revolving Credit Facility
— On August 30,
2007, the Company entered into Amendment No. 2 of our
unsecured revolving Credit Agreement, as amended (the
“Credit Agreement”), dated June 27, 2005, with a
group of participating financial institutions. Among other
things, Amendment No. 2 reduced the available liquidity
requirement with respect to permitted acquisitions and reduced
the required consolidated interest coverage ratio at the end of
each fiscal quarter. The Company also exercised its option under
the Credit Agreement to increase the aggregate commitments under
the revolving credit facility from $500 million to
$600 million. The Credit Agreement also provides for a
$75 million letter of credit sublimit, against which
$8.8 million and $8.6 million in letters of credit
have been issued but undrawn as of December 31, 2009 and
2008, respectively. Proceeds from the credit facility may be
used for working capital and general corporate purposes,
including acquisition financing. The credit facility contains
various financial and other restrictive covenants and requires
that we maintain certain financial ratios, including a leverage
and interest coverage ratio. We are in compliance with all
applicable covenants as of December 31, 2009. The Credit
Agreement expires August 31, 2011. As of December 31,
2009, available funds under this facility totaled
$293.0 million.
Interest is payable quarterly or at the end of the applicable
interest period in arrears on any outstanding borrowings at a
customary Eurodollar rate plus the applicable margin, or at a
customary base rate. The underlying rate is defined as the rate
equal to the British Bankers Association LIBOR Rate for
Eurodollar Rate Loans, or the higher of the prime lending rate
of the administrative agent or federal funds rate plus 0.5% for
Base Rate Committed Loans. The applicable margin for Eurodollar
loans is based on our consolidated
55
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
leverage ratio and ranges from 0.295% to 0.90%. In addition, a
facility fee based on our consolidated leverage ratio and
ranging from 0.08% to 0.225% is due quarterly on the aggregate
commitment under the credit facility. Our average interest rate
on debt outstanding under our Credit Agreement at
December 31, 2009 was 0.91%. Including the swap agreement
(see below) with a fixed rate of 2.9%, the average rate
increases to 2.75% at December 31, 2009.
The credit facility contains limitations on liens, investments,
the incurrence of subsidiary indebtedness, mergers, dispositions
of assets, acquisitions, material lines of business and
transactions with affiliates. The credit facility restricts
certain payments, including dividends, and prohibits certain
agreements restricting the ability of our subsidiaries to make
certain payments or to guarantee our obligations under the
credit facility. The credit facility contains standard default
triggers, including without limitation:
| • | failure to pay principal, interest or other amounts due and payable under the credit facility and related loan documents, | |
| • | failure to maintain compliance with the financial and other covenants contained in the credit agreement, | |
| • | incorrect or misleading representations or warranties, | |
| • | default on certain of our other debt, | |
| • | the existence of bankruptcy or insolvency proceedings, | |
| • | insolvency, | |
| • | existence of certain material judgments, | |
| • | failure to maintain compliance with ERISA, | |
| • | the invalidity of certain provisions in any loan document, and | |
| • | a change of control. |
Senior Notes
— On September 22, 2006, we
completed a private placement of $100 million in aggregate
principal of 6.03% senior notes due September 30,
2013, pursuant to a Note Purchase Agreement among the Company
and a group of purchasers. All of the Company’s obligations
under the senior notes are fully and unconditionally guaranteed
by Bay Valley Foods, LLC, a wholly-owned subsidiary of the
Company. The senior notes have not been registered under the
Securities Act of 1933, as amended, and may not be offered or
sold in the United States, absent registration or an applicable
exemption. Net proceeds were used to repay outstanding
indebtedness under the revolving Credit Agreement. Interest is
paid semi-annually in arrears on March 31 and September 30 of
each year. As of December 31, 2007, the Company exceeded
the permitted leverage ratio of 3.5 to 1.0 requiring an
additional interest payment of 1.0% per annum in 2008. The
maximum permitted leverage ratio is 4.0 to 1.0, therefore, the
Company was in compliance with the covenants of the Note
Purchase Agreement. The Company’s leverage ratio was under
3.5 to 1.0 at December 31, 2008 and, therefore, the Company
did not pay additional interest of 1.0% in 2009.
The Note Purchase Agreement contains covenants that limit the
ability of the Company and its subsidiaries to, among other
things, merge with other entities, change the nature of the
business, create liens, incur additional indebtedness or sell
assets. The Note Purchase Agreement also requires the Company to
maintain certain financial ratios. We are in compliance with the
applicable covenants as of December 31, 2009. Events of
default include, but are not limited to:
| • | failure to pay principal or interest, | |
| • | breach of the Company’s covenants or warranties, |
56
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| • | any payment default or acceleration of indebtedness of the Company or any subsidiary, if the total amount of such indebtedness exceeds $25 million, and | |
| • | events of bankruptcy, insolvency or liquidation involving the Company or its material subsidiaries. |
Swap Agreements
— The Company entered into a
$200 million long term interest rate swap agreement with an
effective date of November 19, 2008 to lock into a fixed
LIBOR interest rate base. Under the terms of agreement,
$200 million in floating rate debt was swapped for a fixed
2.9% interest base rate for a period of 24 months,
amortizing to $50 million for an additional nine months at
the same 2.9% interest rate. Under the terms of the
Company’s revolving credit agreement and in conjunction
with our credit spread, this will result in an all-in borrowing
cost on the swapped principal being no more than 3.8% during the
life of the swap agreement. The Company did not apply hedge
accounting to this swap.
In July 2006, the Company entered into a forward interest rate
swap transaction for a notional amount of $100 million, as
a hedge of the forecasted private placement of $100 million
senior notes. The interest rate swap transaction was terminated
on August 31, 2006, which resulted in a pre-tax loss of
$1.8 million. The unamortized loss is reflected, net of
tax, in Accumulated Other Comprehensive Loss in the Balance
Sheet. The total loss will be reclassified ratably to the
Consolidated Statements of Income as an increase to interest
expense over the term of the senior notes, providing an
effective interest rate of 6.29% over the term of the senior
notes. In 2009, 2008 and 2007, $0.3 million of the loss was
taken into interest expense. We anticipate that
$0.3 million of the loss will be reclassified to interest
expense in 2010.
Tax Increment Financing
— On December 15,
2001, the Urban Redevelopment Authority of Pittsburgh
(“URA”) issued $4.0 million of redevelopment
bonds, pursuant to a Tax Increment Financing Plan to assist with
certain aspects of the development and construction of the
Company’s Pittsburgh, Pennsylvania facilities. The
agreement was transferred to the Company as part of the
acquisition of the Soup and Infant Feeding Business. The Company
has agreed to make certain payments with respect to the
principal amount of the URA’s redevelopment bonds through
May 2019. As of December 31, 2009, $2.7 million
remains outstanding. Interest accrues at an annual rate of 6.61%
for the $0.4 million tranche which is due on
November 1, 2011; 6.71% for the $0.4 million tranche
which is due on November 1, 2013; and 7.16% for the
$1.9 million tranche which is due on May 1, 2019.
Capital Lease Obligations and Other
— Capital
lease obligations represent machinery and equipment financing
obligations, which are payable in monthly installments of
principal and interest and are collateralized by the related
assets financed.
| 10. | STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE |
Common stock
— The Company has authorized
90 million shares of common stock with a par value of $0.01
per share and 10 million shares of preferred stock with a
par value of $0.01 per share. No preferred stock has been issued.
As of December 31, 2009, there were 31,998,921 common
shares issued and outstanding. There is no treasury stock.
Earnings per share
— Basic earnings per share
is computed by dividing net income by the number of weighted
average common shares outstanding during the reporting period.
The weighted average number of common shares used in the diluted
earnings per share calculation is determined using the treasury
stock method and includes the incremental effect related to
outstanding options, restricted stock, restricted stock units
and performance units.
Certain restricted stock and restricted stock units are subject
to market conditions for vesting. The market conditions of the
restricted stock awards were met only in the first quarter of
2009, and thus are included in the year to date calculation of
diluted earnings per share. These awards continue to remain
outstanding as of
57
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
December 31, 2009. The market conditions for the restricted
stock units were met during the third quarter of 2009 and they
became vested. Prior to vesting, the restricted stock units did
not meet the criteria for inclusion in the calculation of
diluted earnings per share during 2009 and thus were excluded.
During 2008 and 2007, the market conditions of these awards were
not met and they were excluded from the calculation of diluted
earnings per share.
The following table summarizes the effect of the share-based
compensation awards on the weighted average number of shares
outstanding used in calculating diluted earnings per share:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Weighted average common shares outstanding
|
31,982 | 31,341 | 31,203 | |||||||||
|
Assumed exercise of stock options(1)
|
383 | 96 | 148 | |||||||||
|
Assumed vesting of restricted stock, restricted stock units and
performance units(1)
|
433 | 32 | — | |||||||||
|
Weighted average diluted common shares outstanding
|
32,798 | 31,469 | 31,351 | |||||||||
| (1) | Stock options, restricted stock, restricted stock units, and performance units excluded from our computation of diluted earnings per share, because they were anti-dilutive, were 29 thousand, 2.2 million and 2.1 million for the years ended December 31, 2009, 2008 and 2007, respectively. |
| 11. | STOCK-BASED COMPENSATION |
The Board adopted and the stockholders approved the TreeHouse
Foods, Inc. 2005 Long-Term Incentive Plan. The Plan was amended
and restated as the “TreeHouse Foods, Inc. Equity and
Incentive Plan” on February 16, 2007. The Plan is
administered by our Compensation Committee, which consists
entirely of independent directors. The Compensation Committee
determines specific awards for our executive officers. For all
other employees below the position of senior vice president (or
any analogous title), and if the committee designates, our Chief
Executive Officer or such other officers will, from time to
time, determine specific persons to whom awards under the Plan
will be granted and the extent of, and the terms and conditions
of each award. The Compensation Committee or its designee,
pursuant to the terms of the Plan, also will make all other
necessary decisions and interpretations under the Plan.
Under the Plan, the Compensation Committee may grant awards of
various types of equity-based compensation, including stock
options, restricted stock, restricted stock units, performance
shares and performance units and other types of stock-based
awards, and other cash-based compensation. The maximum number of
shares that are available to be awarded under the Plan is
approximately 6.0 million, of which 0.1 million remain
available.
Income from continuing operations before tax, for the years
ended December 31, 2009, 2008 and 2007 included share-based
compensation expense for employee and director stock options,
restricted stock, restricted stock units and performance units
of $13.3 million, $12.2 million and
$13.6 million, respectively. The tax benefit recognized
related to the compensation cost of these share-based awards was
approximately $5.1 million, $4.6 million and
$5.3 million for 2009, 2008 and 2007, respectively.
The Company has estimated that certain employees and all our
directors will complete the required service conditions
associated with certain restricted stock, restricted stock
units, stock options and performance unit awards. For all other
employees, the Company estimates forfeitures, as not all
employees are expected to complete the required service
conditions. The expected service period is the longer of the
derived service period, as determined from the output of the
valuation models, and the service period based on the term of
the awards.
58
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Options were granted under our long-term incentive plan and in
certain cases pursuant to employment agreements. Options were
also granted to our non-employee directors. All options granted
have three year terms which vest one-third on each of the first
three anniversaries of the grant date, and a maximum term of ten
years.
The following table summarizes stock option activity during 2009:
|
Weighted
|
||||||||||||||||||||
|
Weighted
|
Average
|
|||||||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||||||
|
Employee
|
Director
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||||
| Options | Options | Price | Term (Yrs) | Value | ||||||||||||||||
|
Outstanding, December 31, 2008
|
2,485,937 | 126,117 | $ | 27.21 | 7.4 | $ | 3,394,930 | |||||||||||||
|
Granted
|
2,400 | — | $ | 26.69 | — | — | ||||||||||||||
|
Forfeited
|
(18,787 | ) | — | $ | 25.53 | — | — | |||||||||||||
|
Exercised
|
(176,806 | ) | (18,344 | ) | $ | 26.48 | — | — | ||||||||||||
|
Outstanding, December 31, 2009
|
2,292,744 | 107,773 | $ | 27.28 | 6.4 | $ | 27,792,212 | |||||||||||||
|
Vested/expect to vest, at December 31, 2009
|
2,253,235 | 107,773 | $ | 27.32 | 6.4 | $ | 27,256,715 | |||||||||||||
|
Exercisable, December 31, 2009
|
1,870,242 | 93,637 | $ | 27.82 | 6.1 | $ | 21,682,591 | |||||||||||||
During the years ended December 31, 2009, 2008 and 2007,
the total intrinsic value of stock options exercised was
approximately $1.9 million, $3.8 million and $5.0
thousand, respectively. The tax benefit recognized from stock
option exercises in 2009, 2008 and 2007 was approximately
$0.7 million, $1.4 million and $2.0 thousand,
respectively. Compensation expense related to unvested options
totaled $2.2 million at December 31, 2009 and will be
recognized over the remaining vesting period of the grants,
which averages 1.3 years. The average grant date fair value
of options granted, in 2009, 2008 and 2007 was $8.97, $8.09 and
$9.23, respectively.
In addition to stock options, certain key management employees
were granted restricted stock and restricted stock units,
pursuant to the terms of their employment agreements. These
restricted shares vest one-third each January, and are subject
to a market condition that requires that the total stockholder
return of TreeHouse equal or exceed the median of a peer group
of 22 companies for the applicable vesting period. In
addition, there is a cumulative test at January 31, 2007
through 2010 that allows for vesting of previously unvested
grants, if the total stockholder return test is met on a
cumulative basis. Subsequent to June 27, 2008, all the
restricted stock units may vest on any date where the
Company’s stock price exceeds $29.65 for a 20 trading day
period. TreeHouse issued 630,942 shares of restricted stock
and 616,802 restricted stock units in the second quarter of 2005
pursuant to employment agreements, and 43,000 shares of
restricted stock in the first quarter of 2007 that are also
subject to the total stockholder return of TreeHouse as compared
to its peer group as described above. During 2009, the market
condition of the restricted stock units was satisfied. Issuance
of the shares related to the units was deferred pursuant to the
deferral elections of the participants. The market conditions of
the restricted stock have not been met and the awards remain
outstanding.
During 2008, the Company began issuing restricted stock and
restricted stock units to non-employee directors and a larger
pool of employees. Generally these restricted stock and
restricted stock unit awards vest based on the passage of time.
Awards granted to employees generally vest one-third on each
anniversary of the grant date. Additionally, certain restricted
stock awards issued to our executives are subject to a
performance condition that requires operating income for the
previous twelve months to be greater than $0. This condition may
be satisfied on a yearly or cumulative basis over three years.
Restricted stock units granted to our non-employee directors in
2008 vest over one year and those granted in 2009 vest over
thirteen months.
59
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of these awards is equal to the closing price of
our stock on the date of grant. The following table summarizes
the restricted stock and restricted stock unit activity during
2009:
|
Weighted
|
Employee
|
Weighted
|
Director
|
Weighted
|
||||||||||||||||||||
|
Employee
|
Average
|
Restricted
|
Average
|
Restricted
|
Average
|
|||||||||||||||||||
|
Restricted
|
Grant Date
|
Stock
|
Grant Date
|
Stock
|
Grant Date
|
|||||||||||||||||||
| Stock | Fair Value | Units | Fair Value | Units | Fair Value | |||||||||||||||||||
|
Outstanding, at December 31, 2008
|
1,412,322 | $ | 24.15 | 598,939 | $ | 25.28 | 22,200 | $ | 24.06 | |||||||||||||||
|
Granted
|
59,340 | $ | 26.36 | 192,400 | $ | 28.84 | 26,900 | $ | 28.95 | |||||||||||||||
|
Vested
|
(260,776 | ) | $ | 24.06 | (4,788 | ) | $ | 24.17 | (3,700 | ) | $ | 24.06 | ||||||||||||
|
Forfeited
|
(8,567 | ) | $ | 24.82 | (1,620 | ) | $ | 27.75 | — | — | ||||||||||||||
|
Outstanding, at December 31, 2009
|
1,202,319 | $ | 24.28 | 784,931 | $ | 26.16 | 45,400 | $ | 26.96 | |||||||||||||||
Compensation expense for all restricted stock and restricted
stock units totaled $8.0 million in 2009, $6.4 million
in 2008, and $7.0 million in 2007.
Future compensation cost for restricted stock and restricted
stock units is approximately $14.5 million as of
December 31, 2009, and will be recognized on a weighted
average basis, over the next 1.8 years.
Performance unit awards have been granted to certain members of
management. These awards contain service and performance
conditions. For each performance period, one third of the units
will accrue multiplied by a predefined percentage between 0% and
200%, depending on the achievement of certain operating
performance measures. Additionally, for the cumulative
performance period, a number of units will accrue equal to the
number of units granted multiplied by a predefined percentage
between 0% and 200%, depending on the achievement of certain
operating performance measures, less any units previously
accrued. Accrued units will be converted to stock or cash, at
the discretion of the Compensation Committee on the third
anniversary of the grant date. The Company intends to settle
these awards in stock and has the shares available to do so. The
Company expects that 200% of all the awards will accrue and vest
over the cumulative performance and service period, subject to
estimated forfeitures. The following table summarizes the
performance unit activity during the twelve months ended
December 31, 2009:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Performance
|
Grant Date
|
|||||||
| Units | Fair Value | |||||||
|
Unvested, at December 31, 2008
|
72,900 | $ | 24.06 | |||||
|
Granted
|
54,900 | $ | 28.92 | |||||
|
Vested
|
— | |||||||
|
Forfeited
|
— | — | ||||||
|
Unvested, at December 31, 2009
|
127,800 | $ | 26.15 | |||||
Future compensation cost related to the performance units is
estimated to be approximately $4.0 million as of
December 31, 2009, and is expected to be recognized over
the next 2.0 years. The future compensation accrual is
based on the assumption that 200% of the award will vest. The
grant date fair value of the awards granted in 2009 was equal to
the Company’s closing stock price on the grant date.
The fair value of stock options, restricted stock, restricted
stock unit awards and performance units (the “Awards”)
is determined on the date of grant using the assumptions noted
in the following table or the market price of the Company’s
stock on the date of grant. Stock options were valued using a
Black Scholes model and certain restricted stock and restricted
stock units were valued using a Monte Carlo simulation.
Performance units and all other restricted stock and restricted
stock unit awards were valued using the closing price of the
Company’s stock on the date of grant. As the Company’s
stock was not publicly traded prior to
60
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
June 27, 2005, expected volatilities are based on the
implied historical volatilities from peer companies and other
factors. The risk-free interest rate for periods within the
contractual life of the Awards is based on the
U.S. Treasury yield curve in effect at the time of the
grant. As the Company began operations in 2005, we do not have
significant history to determine the expected term of our awards
based on our experience alone. As such, we based our expected
term on that of comparable companies. The assumptions used to
calculate the value of the option awards granted in 2009, 2008
and 2007 and the restricted stock awards granted in 2007 are
presented as follows:
|
2009
|
Stock Options | Restricted Stock | Restricted Stock Units | |||||||||
|
Expected volatility
|
26.37 | % | — | — | ||||||||
|
Expected dividends
|
— | — | — | |||||||||
|
Expected term
|
6.0 years | — | — | |||||||||
|
Risk-free interest rate
|
3.53 | % | — | — | ||||||||
|
2008
|
Stock Options | Restricted Stock | Restricted Stock Units | |||||||||
|
Expected volatility
|
26.37 | % | — | — | ||||||||
|
Expected dividends
|
— | — | — | |||||||||
|
Expected term
|
6.0 years | — | — | |||||||||
|
Risk-free interest rate
|
3.53 | % | — | — | ||||||||
|
2007
|
Stock Options | Restricted Stock | Restricted Stock Units | |||||||||
|
Expected volatility
|
22.61 | % | 35.6 | % | — | |||||||
|
Expected dividends
|
— | — | — | |||||||||
|
Expected term
|
6.0 years | 1.58 years | — | |||||||||
|
Risk-free interest rate
|
5.00 | % | 4.74 | % | — | |||||||
| 12. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
Accumulated Other Comprehensive Loss consists of the following
components all of which are net of tax, except for the foreign
currency translation adjustment:
|
Unrecognized
|
Accumulated
|
|||||||||||||||
|
Foreign
|
Pension and
|
Derivative
|
Other
|
|||||||||||||
|
Currency
|
Postretirement
|
Financial
|
Comprehensive
|
|||||||||||||
| Translation(1) | Benefits | Instrument | Loss | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Balance at December 31, 2006
|
$ | — | $ | (4,030 | ) | $ | (1,075 | ) | $ | (5,105 | ) | |||||
|
Other comprehensive (loss) gain
|
(3,325 | ) | 1,172 | 161 | (1,992 | ) | ||||||||||
|
Balance at December 31, 2007
|
(3,325 | ) | (2,858 | ) | (914 | ) | (7,097 | ) | ||||||||
|
Other comprehensive (loss) gain
|
(50,198 | ) | (6,261 | ) | 162 | (56,297 | ) | |||||||||
|
Balance at December 31, 2008
|
(53,523 | ) | (9,119 | ) | (752 | ) | (63,394 | ) | ||||||||
|
Other comprehensive gain
|
35,678 | 604 | 161 | 36,443 | ||||||||||||
|
Balance at December 31, 2009
|
$ | (17,845 | ) | $ | (8,515 | ) | $ | (591 | ) | $ | (26,951 | ) | ||||
| (1) | The foreign currency translation adjustment is not net of tax, as it pertains to the Company’s permanent investment in the Canadian subsidiary, E.D. Smith. |
61
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 13. | EMPLOYEE PENSION AND RETIREMENT BENEFIT PLANS |
Pension and Postretirement Benefits
— Certain
of our employees and retirees participate in pension and other
postretirement benefit plans. Employee benefit plan obligations
and expenses included in the Consolidated Financial Statements
are determined based on plan assumptions, employee demographic
data, including years of service and compensation, benefits and
claims paid, and employer contributions.
Defined Contribution Plans
— Certain of our
non-union employees participate in savings and profit sharing
plans. These plans generally provide for salary reduction
contributions to the plans on behalf of the participants of
between 1% and 20% of a participant’s annual compensation
and provide for employer matching and profit sharing
contributions. The Company established a tax-qualified defined
contribution plan to manage the assets. For 2009, 2008 and 2007,
the Company made matching contributions to the plan of
$2.9 million, $2.8 million and $2.0 million,
respectively.
Multiemployer Pension and Certain Union Plans
—
The Company contributes to several multiemployer pension plans
on behalf of employees covered by collective bargaining
agreements. These plans are administered jointly by management
and union representatives and cover substantially all full-time
and certain part-time union employees who are not covered by
other plans. The Multiemployer Pension Plan Amendments Act of
1980 amended ERISA to establish funding requirements and
obligations for employers participating in multiemployer plans,
principally related to employer withdrawal from or termination
of such plans. We could, under certain circumstances, be liable
for unfunded vested benefits or other expenses of jointly
administered union/management plans. At this time, we have not
established any liabilities because withdrawal from these plans
is not probable. In 2009, 2008 and 2007, the contributions to
these plans, which are expensed as incurred, were
$1.5 million, $1.7 million and $1.8 million,
respectively.
Defined Benefit Pension Plans
— The Company
established a tax-qualified pension plan and master trust to
manage the portion of the pension plan assets related to
TreeHouse eligible salaried and non-union and union employees
not covered by a multi-employer pension plan. We also retain
investment consultants to assist our Investment Committee with
formulating a long-term investment policy for the master trust.
The expected long term rate of return on assets is based on
projecting long-term market returns for the various asset
classes in which the plans assets are invested, weighted by the
target asset allocations. The estimated ranges are primarily
based on observations of historical asset returns and their
historical volatility. In determining the expected returns, we
also consider consensus forecasts of certain market and economic
factors that influence returns, such as inflation, gross
domestic product trends and dividend yields. Active management
of the plan assets may result in adjustments to the historical
returns. The rate of return assumption is reviewed annually.
The Company’s overall investment strategy is to provide a
regular and reliable source of income to meet the liquidity
needs of the pension plans and minimize reliance on plan sponsor
contributions as a source of benefit security. The
Company’s investment policy includes various guidelines and
procedures designed to ensure assets are invested in a manner
necessary to meet expected future benefits earned by
participants. Central to the policy are target allocation ranges
by major asset classes. The objective of the target allocations
are to ensure the assets are invested with the intent to protect
pension plan assets so that such assets are preserved for the
provision of benefits to participants and their beneficiaries
and such long-term growth as may maximize the amounts available
to provide such benefits without undue risk. Additionally, we
consider the weighted average return of a capital markets model
and historical returns on comparable equity, debt and other
investments. Our current asset mix guidelines, under the
investment policy, target equities at 55% to 65% of the
portfolio and fixed income at 35% to 45%. At December 31,
2009, our master trust was invested as follows: equity
securities of 66%, fixed income securities of 32%, and cash and
cash equivalents of 2%. Equity securities primarily include
investments in large-cap and mid-cap companies primarily located
in the United States. Fixed income securities include corporate
bonds of companies from diversified industries. Other
investments are short term in nature, including certificates of
deposit, commercial paper, time deposits, fixed rate notes and
bonds, and others.
62
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets at
December 31, 2009, by asset category are as follows:
|
Pension Plan Assets
|
||||||||||||||||
|
Fair Value Measurements at
|
||||||||||||||||
| December 31, 2009 | ||||||||||||||||
|
Quoted Prices
|
Significant
|
Significant
|
||||||||||||||
|
In Active Markets for
|
Observable
|
Unobservable
|
||||||||||||||
|
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Investment at fair value
|
||||||||||||||||
|
Equity securities:
|
||||||||||||||||
|
U.S. companies(a)
|
$ | 16,211 | $ | 16,211 | $ | — | $ | — | ||||||||
|
International companies(b)
|
3,329 | 3,329 | — | — | ||||||||||||
|
AAA corporate bonds(c)
|
7,513 | 7,513 | — | — | ||||||||||||
|
AA corporate bonds(c)
|
342 | 342 | — | — | ||||||||||||
|
A corporate bonds(c)
|
923 | 923 | — | — | ||||||||||||
|
BAA corporate bonds(c)
|
732 | 732 | — | — | ||||||||||||
|
Certificate of deposit(d)
|
229 | 229 | — | — | ||||||||||||
|
Commercial paper(d)
|
98 | 98 | — | — | ||||||||||||
|
Time deposit(d)
|
94 | 94 | — | — | ||||||||||||
|
Fixed rate note/bond(d)
|
93 | 93 | — | — | ||||||||||||
|
Other short-term investments(e)
|
140 | 140 | — | — | ||||||||||||
| $ | 29,704 | $ | 29,704 | $ | — | $ | — | |||||||||
| (a) | Securities with the primary objective of approximating the risk and return characteristics of the Dow Jones U.S. Index. | |
| (b) | Securities with the primary objective of approximating the risk and return characteristics of the Morgan Stanley All Country World ex-US Index. | |
| (c) | A collective fund for qualified plans with the primary objective of holding a portfolio representative of the overall United States bond and debt market. | |
| (d) | An investment vehicle for cash reserves, which contains a portfolio of high-grade, short term money market instruments. The primary objective is principal management with the liquidity to redeem units on any business day. | |
| (e) | Short-term investments that include repurchase agreements, discount notes, treasury bills, variable rate notes and bonds, and others. |
Pension benefits for eligible salaried and non-union TreeHouse
employees were frozen in 2002 for years of creditable service.
For these employees incremental pension benefits are only earned
for changes in compensation effecting final average pay. Pension
benefits earned by union employees covered by collective
bargaining agreements, but not participating in multiemployer
pension plans, are earned based on creditable years of service
and the specified benefit amounts negotiated as part of the
collective bargaining agreements. The Company’s funding
policy provides that annual contributions to the pension plan
master trust will be at least equal to the minimum amounts
required by ERISA. The Company estimates that its 2010
contributions to its pension plans will be $0.9 million.
The measurement date for the defined benefit pension plans is
December 31.
63
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Other Postretirement Benefits
— Certain
employees participate in benefit programs which provide certain
health care and life insurance benefits for retired employees
and their eligible dependents. The plan is unfunded. The Company
estimates that its 2010 contributions to its postretirement
benefit plan will be $0.1 million. The measurement date for
the other postretirement benefit plans is December 31.
The following table summarizes information about our pension and
postretirement benefit plans for the years ended
December 31, 2009 and 2008:
| Pension Benefits | Postretirement Benefits | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||
|
Benefit obligation, at beginning of year
|
$ | 33,540 | $ | 27,942 | $ | 3,959 | $ | 3,619 | ||||||||
|
Service cost
|
1,933 | 1,755 | 255 | 218 | ||||||||||||
|
Interest cost
|
2,083 | 1,807 | 239 | 218 | ||||||||||||
|
Amendments
|
182 | 1,541 | — | — | ||||||||||||
|
Actuarial (gains) losses
|
2,854 | 2,291 | 358 | (2 | ) | |||||||||||
|
Benefits paid
|
(1,812 | ) | (1,796 | ) | (98 | ) | (94 | ) | ||||||||
|
Benefit obligation, at end of year
|
$ | 38,780 | $ | 33,540 | $ | 4,713 | $ | 3,959 | ||||||||
|
Change in plan assets:
|
||||||||||||||||
|
Fair value of plan assets, at beginning of year
|
$ | 17,600 | $ | 17,425 | $ | — | $ | — | ||||||||
|
Actual return on plan assets
|
5,019 | (5,488 | ) | — | — | |||||||||||
|
Company contributions
|
8,897 | 7,459 | 98 | 94 | ||||||||||||
|
Benefits paid
|
(1,812 | ) | (1,796 | ) | (98 | ) | (94 | ) | ||||||||
|
Fair value of plan assets, at year end
|
$ | 29,704 | $ | 17,600 | $ | — | $ | — | ||||||||
|
Funded status of the plan
|
$ | (9,076 | ) | $ | (15,940 | ) | $ | (4,713 | ) | $ | (3,959 | ) | ||||
|
Amounts recognized in the Consolidated Balance Sheet consist
of:
|
||||||||||||||||
|
Current liability
|
$ | — | $ | — | $ | (107 | ) | $ | (110 | ) | ||||||
|
Non-current liability
|
(9,076 | ) | (15,940 | ) | (4,606 | ) | (3,849 | ) | ||||||||
|
Net amount recognized
|
$ | (9,076 | ) | $ | (15,940 | ) | $ | (4,713 | ) | $ | (3,959 | ) | ||||
|
Amounts recognized in Accumulated Other Comprehensive Loss
consist of:
|
||||||||||||||||
|
Net actuarial loss
|
$ | 9,591 | $ | 10,609 | $ | 925 | $ | 565 | ||||||||
|
Prior service cost
|
4,052 | 4,450 | (576 | ) | (644 | ) | ||||||||||
|
Total, before tax effect
|
$ | 13,643 | $ | 15,059 | $ | 349 | $ | (79 | ) | |||||||
| Pension Benefits | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Accumulated benefit obligation:
|
$ | 35,749 | $ | 30,849 | ||||
|
Weighted average assumptions used to determine the pension
benefit obligations:
|
||||||||
|
Discount rate
|
5.75 | % | 6.25 | % | ||||
|
Rate of compensation increases
|
4.00 | % | 4.00 | % | ||||
64
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The key actuarial assumptions used to determine the
postretirement benefit obligations as of December 31, 2009
and 2008 are as follows:
| 2009 | 2008 | |||||||||||||||
| Pre-65 | Post 65 | Pre-65 | Post 65 | |||||||||||||
|
Healthcare inflation:
|
||||||||||||||||
|
Initial rate
|
8.0 | % | 10.0 | % | 8.0 | % | 10.0 | % | ||||||||
|
Ultimate rate
|
5.0 | % | 5.0 | % | 5.0 | % | 5.0 | % | ||||||||
|
Year ultimate rate achieved
|
2015 | 2015 | 2011 | 2013 | ||||||||||||
|
Discount rate
|
5.75 | % | 5.75 | % | 6.25 | % | 6.25 | % | ||||||||
The following table summarizes the net periodic cost of our
pension plans and postretirement plans, for the years ended
December 31, 2009, 2008 and 2007:
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||
|
Components of net periodic costs:
|
||||||||||||||||||||||||
|
Service cost
|
$ | 1,933 | $ | 1,755 | $ | 1,733 | $ | 255 | $ | 218 | $ | 245 | ||||||||||||
|
Interest cost
|
2,083 | 1,807 | 1,655 | 239 | 218 | 204 | ||||||||||||||||||
|
Expected return on plan asset
|
(1,773 | ) | (1,505 | ) | (1,347 | ) | — | — | — | |||||||||||||||
|
Amortization of unrecognized prior service cost
|
580 | 479 | 479 | (68 | ) | (68 | ) | (68 | ) | |||||||||||||||
|
Amortization of unrecognized net loss (gain)
|
626 | 73 | — | (2 | ) | 8 | 50 | |||||||||||||||||
|
Settlement charge
|
— | — | 387 | — | — | — | ||||||||||||||||||
|
Net periodic pension cost
|
$ | 3,449 | $ | 2,609 | $ | 2,907 | $ | 424 | $ | 376 | $ | 431 | ||||||||||||
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
Weighted average assumptions used to determine the periodic
benefit costs:
|
||||||||||||||||||||||||
|
Discount rate
|
6.25 | % | 6.25 | % | 5.75 | % | 6.25 | % | 6.25 | % | 5.50-5.75 | % | ||||||||||||
|
Rate of compensation increases
|
4.00 | % | 4.00 | % | 4.00 | % | — | — | — | |||||||||||||||
|
Expected return on plan assets
|
7.60 | % | 7.60 | % | 7.60 | % | — | — | — | |||||||||||||||
The estimated amount that will be amortized from accumulated
other comprehensive income into net pension cost in 2010 is as
follows:
| Pension | Postretirement | |||||||
| (In thousands) | ||||||||
|
Net actuarial loss
|
$ | 463 | $ | 27 | ||||
|
Prior service cost
|
$ | 603 | $ | (68 | ) | |||
65
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Estimated future pension and postretirement benefit payments
from the plans are as follows:
|
Pension
|
Postretirement
|
|||||||
| Benefit | Benefit | |||||||
| (In thousands) | ||||||||
|
2010
|
$ | 1,902 | $ | 107 | ||||
|
2011
|
$ | 1,995 | $ | 107 | ||||
|
2012
|
$ | 2,218 | $ | 116 | ||||
|
2013
|
$ | 2,488 | $ | 119 | ||||
|
2014
|
$ | 2,472 | $ | 145 | ||||
|
2015-2019
|
$ | 14,976 | $ | 1,012 | ||||
The effect of a 1% change in health care trend rates would have
the following effects on the postretirement benefit plan:
| 2009 | ||||
| (In thousands) | ||||
|
1% Increase:
|
||||
|
Benefit obligation, end of year
|
$ | 955 | ||
|
Service cost plus interest cost for the year
|
$ | 130 | ||
|
1% Decrease:
|
||||
|
Benefit obligation, end of year
|
$ | (768 | ) | |
|
Service cost plus interest cost for the year
|
$ | (99 | ) | |
Most of our employees are not eligible for postretirement
medical benefits and of those that are, the majority are covered
by a multi-employer plan in which expenses are paid as incurred.
The effect on those covered by plans for which we maintain a
liability was not significant.
| 14. | OTHER OPERATING (INCOME) EXPENSE, NET |
We incurred Other operating (income) expense, net of
$(6.2) million, $13.9 million and $(0.4) million,
for the years ended December 31, 2009, 2008 and 2007,
respectively. Other operating (income) expenses, net consisted
of the following:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Facility closing costs and impairment charges related to the
Portland, Oregon plant
|
$ | 886 | $ | 12,839 | $ | — | ||||||
|
(Gain) loss on fire at New Hampton, Iowa facility
|
(14,533 | ) | 500 | — | ||||||||
|
Impairment of trademarks and other intangibles
|
7,600 | 560 | — | |||||||||
|
Gain on sale of La Junta, Colorado manufacturing facility
|
— | — | (415 | ) | ||||||||
|
Other
|
(177 | ) | — | — | ||||||||
|
Total other operating (income) expense, net
|
$ | (6,224 | ) | $ | 13,899 | $ | (415 | ) | ||||
| 15. | INSURANCE CLAIM — NEW HAMPTON |
In February 2008, the Company’s non-dairy powdered creamer
plant in New Hampton, Iowa was damaged by a fire, which left the
facility unusable. The Company repaired the facility and it
became operational in the first quarter of 2009. The Company
filed a claim with our insurance provider and has received
approximately $47.2 million in reimbursements for property
damage and incremental expenses
66
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
incurred to service our customers throughout this period. The
claim was finalized in September 2009, and the Company received
a final payment of approximately $10.6 million to close the
claim in October 2009. For the year ended December 31, 2009
the Company recognized income of approximately
$15.4 million, of which $14.5 million is classified in
Other operating (income) expense and $0.9 million is
classified in Cost of sales. Of the $14.5 million, $13.6
was related to a gain on the fixed assets destroyed in the
incident.
| 16. | DISCONTINUED OPERATIONS |
In the fourth quarter of 2008, the Company wrote-off the value
of the remaining assets consisting of machinery and equipment of
the nutritional beverage business that was discontinued in 2004.
The loss of approximately $0.3 million in 2008, net of tax,
is included in the Consolidated Statements of Income in the line
Income (loss) from discontinued operations, net of tax expense
(benefit). The Company was not able to find a buyer for these
assets.
| 17. | SUPPLEMENTAL CASH FLOW INFORMATION |
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Interest paid
|
$ | 17,224 | $ | 29,153 | $ | 22,037 | ||||||
|
Income taxes paid
|
$ | 18,103 | $ | 10,959 | $ | 11,166 | ||||||
|
Accrued purchase of property and equipment
|
$ | 1,419 | $ | 3,819 | $ | 3,124 | ||||||
| 18. | COMMITMENTS AND CONTINGENCIES |
Leases
— We lease certain property, plant and
equipment used in our operations under both capital and
operating lease agreements. Such leases, which are primarily for
machinery, equipment and vehicles, have lease terms ranging from
1 to 25 years. Certain of the operating lease agreements
require the payment of additional rentals for maintenance, along
with additional rentals based on miles driven or units produced.
Rent expense, including additional rent, was $34.3 million,
$27.3 million and $22.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
The composition of capital leases which are reflected as
Property, plant and equipment in the Consolidated Balance Sheets
are as follows:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In thousands) | ||||||||
|
Machinery and equipment
|
$ | 2,486 | $ | 1,237 | ||||
|
Less accumulated amortization
|
(869 | ) | (657 | ) | ||||
|
Total
|
$ | 1,617 | $ | 580 | ||||
Purchase Obligations
— We have entered into
various contracts obligating us to purchase minimum quantities
of raw materials used in our production processes, including
cucumbers and tank yard space.
67
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Future minimum payments at December 31, 2009, under
non-cancelable capital leases, operating leases and purchase
obligations are summarized as follows:
|
Capital
|
Operating
|
Purchase
|
||||||||||
| Leases | Leases | Obligations | ||||||||||
| (In thousands) | ||||||||||||
|
2010
|
$ | 589 | $ | 12,869 | $ | 158,158 | ||||||
|
2011
|
396 | 10,168 | 53,133 | |||||||||
|
2012
|
372 | 7,750 | 10,719 | |||||||||
|
2013
|
369 | 3,973 | 980 | |||||||||
|
2014
|
88 | 3,248 | 240 | |||||||||
|
Thereafter
|
3 | 6,958 | 35 | |||||||||
|
Total minimum payments
|
1,817 | $ | 44,966 | $ | 223,265 | |||||||
|
Less amount representing interest
|
(206 | ) | ||||||||||
|
Present value of capital lease obligations
|
$ | 1,611 | ||||||||||
Insurance
— We have established insurance
programs with retention of selected levels of property and
casualty risks, primarily related to employee health care,
workers’ compensation claims and other casualty losses.
Many of these potential losses are covered under conventional
insurance programs with third party carriers with high
deductible limits. The deductibles for casualty claims range
from $50 thousand to $500 thousand, depending upon the type of
coverage. We believe we have established adequate reserves to
cover these claims.
Litigation, Investigations and Audits
— We are
party in the conduct of our business to certain claims,
litigation, audits and investigations. We believe we have
adequate reserves for any liability we may incur in connection
with any such currently pending or threatened matter. In our
opinion, the settlement of any such currently pending or
threatened matter is not expected to have a material adverse
impact on our financial position, annual results of operations
or cash flows.
| 19. | DERIVATIVE INSTRUMENTS |
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risks managed by derivative
instruments are interest rate risk and foreign currency risk.
Interest rate swaps are entered into to manage interest rate
risk associated with the Company’s $600 million
revolving credit facility. Interest on our credit facility is
variable and use of interest rate swaps establishes a fixed rate
over the term of a portion of the facility. The Company’s
objective in using an interest rate swap is to establish a fixed
interest rate, thereby enabling the Company to predict and
manage interest expense and cash flows in a more efficient and
effective manner.
During 2008, the Company entered into a $200 million
long-term interest rate swap agreement with an effective date of
November 19, 2008 to lock into a fixed LIBOR interest rate
base. Under the terms of the agreement, $200 million in
floating rate debt was swapped for a fixed rate of 2.9% interest
rate base for a period of 24 months, amortizing to
$50 million for an additional nine months at the same 2.9%
interest rate. The Company did not apply hedge accounting and
recorded the fair value of this instrument on its Consolidated
Balance Sheets. The fair value of the swap at December 31,
2009 and 2008 was a liability of approximately $4.9 million
and $7.0 million, respectively. The Company recorded income
of $2.1 million and expense of $7.0 million related to
the mark to market adjustment in 2009 and 2008, respectively,
within the Other (income) expense line of the Consolidated
Statements of Income.
68
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Due to the Company’s operations in Canada, we are exposed
to foreign currency risks. The Company enters into foreign
currency contracts to manage the risk associated with foreign
currency cash flows. The Company’s objective in using
foreign currency contracts is to establish a fixed foreign
currency exchange rate for certain Canadian raw material
purchases that are denominated in U.S. dollars, thereby
enabling the Company to manage its foreign currency exchange
rate risk. These contracts do not qualify for hedge accounting
and changes in their fair value are recorded through the
Consolidated Statements of Income, within the (Gain) loss on
foreign currency exchange line. No foreign currency contracts
were outstanding as of December 31, 2009 or 2008. During
2009 and 2008, the Company realized a loss of approximately
$0.2 million and a gain of approximately $0.7 million
gain on these contracts, respectively. For the period
October 15, 2007 (the acquisition date of E.D. Smith)
through December 31, 2007, the Company recorded a gain on
these contracts totaling approximately $3.1 million.
The following table identifies the derivative, its fair value,
and location on the Consolidated Balance Sheet:
| Liability Derivatives | ||||||||||||
| December 31, 2009 | December 31, 2008 | |||||||||||
|
Balance Sheet
|
Balance Sheet
|
|||||||||||
| Location | Fair Value | Location | Fair Value | |||||||||
| (In thousands) | ||||||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Interest rate swap
|
Current Liability | $ | 3,327 | Current Liability | — | |||||||
|
Interest rate swap
|
Other long-term liabilities | $ | 1,550 | Other long-term liabilities | $ | 6,981 | ||||||
| 20. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Cash and cash equivalents and accounts receivable are financial
assets with carrying values that approximate fair value.
Accounts payable are financial liabilities with carrying values
that approximate fair value. As of December 31, 2009, the
carrying value of the Company’s fixed rate senior notes was
$100.0 million and fair value was estimated to be
$103.7 million based on Level 2 inputs. The fair value
of the Company’s variable rate debt (revolving credit
facility), with an outstanding balance of $298.2 million as
of December 31, 2009, was $282.6 million, using
Level 2 inputs. The fair value of the Company’s
interest rate swap agreement as described in Note 19 as of
December 31, 2009 was a liability of approximately
$4.9 million. The fair value of the swap was determined
using Level 2 inputs. Level 2 inputs are inputs other
than quoted prices that are observable for an asset or
liability, either directly or indirectly.
| 21. | SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS |
We manage operations on a company-wide basis, thereby making
determinations as to the allocation of resources in total rather
than on a segment-level basis. We have designated our reportable
segments based on how management views our business. We do not
segregate assets between segments for internal reporting.
Therefore, asset-related information has not been presented.
During the first quarter of 2008, the Company changed its
internal reporting structure from product categories to channel
based. The Company’s new reportable segments, as presented
below, are consistent with the manner in which the Company
reports its results to the chief operating decision maker.
Our North American Retail Grocery segment sells branded and
private label products to customers within the United States and
Canada. These products include non-dairy powdered creamer;
condensed and ready to serve soups, broths and gravies; baby
food; salad dressings and sauces; pickles, peppers and relishes;
Mexican sauces; jams and pie fillings; aseptic products and
liquid non-dairy creamers. Brand names sold within the North
American Retail Grocery segment include the following pickle
brands,
Farman’s
®
,
Nalley’s
®
,
Peter
69
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Piper
®
,
and
Steinfeld
®
.
Also sold are brands related to sauces and syrups,
Bennett’s
®
,
Hoffman
House
®
,
Roddenbery’s
Northwoods
®
and
San Antonio
Farms
®
.
Infant feeding products are sold under the
Nature’s
Goodness
®
brand, while our non-dairy powdered creamer is sold under our
proprietary
Cremora
®
brand. Our refrigerated products are sold under the
Mocha
Mix
®
and
Second
Nature
®
brand names, and our jams and other sauces are sold under the
E.D.
Smith
®
and
Habitant
®
brand names.
Our Food Away From Home segment sells pickle products, non-dairy
powdered creamers, Mexican sauces, refrigerated dressings and
aseptic products to foodservice customers, including restaurant
chains and food distribution companies, within the United States
and Canada. Trade names used within our Food Away From Home
segment include
Schwartz
®
and
Saucemaker
®
.
Our Industrial and Export segment includes the Company’s
co-pack business; non-dairy powdered creamer sales to industrial
customers for use in industrial applications, including for
repackaging in portion control packages and for use as an
ingredient by other food manufacturers; pickles; Mexican sauces
and refrigerated dressings. Export sales are primarily to
industrial customers.
We evaluate the performance of our segments based on net sales
dollars, gross profit and direct operating income (gross profit
less freight out, sales commissions and direct segment
expenses). The amounts in the following tables are obtained from
reports used by our senior management team and do not include
allocated income taxes. Other expenses not allocated include
warehouse
start-up
costs, unallocated selling and distribution expenses and
corporate expenses which consist of general and administrative
expenses, amortization expense, other operating (income)
expense, interest expense, interest income, foreign currency
exchange and other (income) expense. The accounting policies of
our segments are the same as those described in the summary of
significant accounting policies set forth in Note 1
“Summary of Significant Accounting Policies”.
Financial information relating to the Company’s reportable
segments is as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Net sales:
|
||||||||||||
|
North American Retail Grocery
|
$ | 971,083 | $ | 917,102 | $ | 663,506 | ||||||
|
Food Away From Home
|
292,927 | 294,020 | 254,580 | |||||||||
|
Industrial and Export
|
247,643 | 289,528 | 239,816 | |||||||||
|
Total
|
1,511,653 | 1,500,650 | 1,157,902 | |||||||||
|
Direct operating income:
|
||||||||||||
|
North American Retail Grocery
|
152,849 | 114,511 | 85,293 | |||||||||
|
Food Away From Home
|
36,069 | 32,133 | 28,320 | |||||||||
|
Industrial and Export
|
36,025 | 33,473 | 32,703 | |||||||||
|
Total
|
224,943 | 180,117 | 146,316 | |||||||||
|
Unallocated warehouse
start-up
costs(1)
|
(3,339 | ) | — | — | ||||||||
|
Unallocated selling and distribution expenses
|
(3,172 | ) | (3,824 | ) | (661 | ) | ||||||
|
Unallocated corporate expense
|
(87,623 | ) | (89,168 | ) | (60,711 | ) | ||||||
|
Operating income
|
130,809 | 87,125 | 84,944 | |||||||||
|
Other expense
|
(8,735 | ) | (47,670 | ) | (18,419 | ) | ||||||
|
Income before income taxes
|
$ | 122,074 | $ | 39,455 | $ | 66,525 | ||||||
70
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Depreciation:
|
||||||||||||
|
North American Retail Grocery
|
$ | 21,395 | $ | 23,064 | $ | 19,476 | ||||||
|
Food Away From Home
|
5,237 | 5,424 | 4,777 | |||||||||
|
Industrial and Export
|
5,485 | 2,344 | 2,529 | |||||||||
|
Corporate office
|
1,845 | 1,494 | 1,009 | |||||||||
|
Total
|
$ | 33,962 | $ | 32,326 | $ | 27,791 | ||||||
|
Trademark impairment:
|
||||||||||||
|
North American Retail Grocery
|
$ | 7,600 | $ | 560 | $ | — | ||||||
|
Food Away From Home
|
— | — | — | |||||||||
|
Industrial and Export
|
— | — | — | |||||||||
|
Total
|
$ | 7,600 | $ | 560 | $ | — | ||||||
| (1) | Included in Cost of sales in the Consolidated Statements of Income. |
Geographic Information
— We had revenues to
customers outside of the United States of approximately 13.7%,
14.3% and 6.2% of total consolidated net sales in 2009, 2008 and
2007, respectively, with 13.1% and 13.6% going to Canada in 2009
and 2008, respectively. Sales are determined based on customer
destination.
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Long-lived assets
|
||||||||||||
|
United States
|
$ | 242,144 | $ | 239,574 | $ | 226,271 | ||||||
|
Canada
|
33,889 | 31,090 | 38,736 | |||||||||
|
Total
|
$ | 276,033 | $ | 270,664 | $ | 265,007 | ||||||
Long-lived assets consist of net property, plant and equipment.
Major Customers
— Wal-Mart Stores, Inc. and
affiliates accounted for approximately 14.4%, 15.1% and 13.8% of
our consolidated net sales in 2009, 2008 and 2007, respectively.
Sales to Wal-Mart Stores, Inc. and affiliates are included in
our North American Retail Grocery segment. No other customer
accounted for more than 10% of our consolidated net sales.
Total trade receivables with Wal-Mart Stores, Inc. and
affiliates represented approximately 13.3% and 14.5% of our
total trade receivables as of December 31, 2009 and 2008,
respectively.
71
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Product Information — The following table presents the
Company’s net sales by major products.
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In thousands) | ||||||||||||
|
Products:
|
||||||||||||
|
Soup and infant feeding
|
$ | 344,181 | $ | 336,519 | $ | 322,223 | ||||||
|
Non-dairy powdered creamer
|
323,926 | 351,838 | 299,191 | |||||||||
|
Pickles
|
316,976 | 325,579 | 329,686 | |||||||||
|
Salad dressings
|
186,778 | 156,884 | 29,295 | |||||||||
|
Jams and other sauces
|
155,771 | 153,927 | 29,973 | |||||||||
|
Aseptic products
|
84,493 | 83,198 | 80,784 | |||||||||
|
Mexican sauces
|
64,520 | 52,718 | 25,862 | |||||||||
|
Refrigerated products
|
35,008 | 39,987 | 40,888 | |||||||||
|
Total net sales
|
$ | 1,511,653 | $ | 1,500,650 | $ | 1,157,902 | ||||||
| 22. | QUARTERLY RESULTS OF OPERATIONS (unaudited) |
The following is a summary of our unaudited quarterly results of
operations for 2009 and 2008:
| Quarter | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
|
Fiscal 2009
|
||||||||||||||||
|
Net sales
|
$ | 355,396 | $ | 372,605 | $ | 378,865 | $ | 404,787 | ||||||||
|
Gross profit
|
71,711 | 79,844 | 80,518 | 94,297 | ||||||||||||
|
Income before income taxes(1)
|
20,211 | 28,156 | 43,407 | 30,300 | ||||||||||||
|
Net income
|
12,732 | 18,425 | 28,064 | 22,093 | ||||||||||||
|
Net income per common share:
|
||||||||||||||||
|
Basic
|
.40 | .58 | .87 | .68 | ||||||||||||
|
Diluted
|
.39 | .58 | .85 | .66 | ||||||||||||
|
Fiscal 2008
|
||||||||||||||||
|
Net sales
|
$ | 360,623 | $ | 367,369 | $ | 374,576 | $ | 398,082 | ||||||||
|
Gross profit
|
70,389 | 68,629 | 73,160 | 79,846 | ||||||||||||
|
Income from continuing operations, before income taxes
|
2,797 | 11,883 | 15,813 | 8,962 | ||||||||||||
|
Net income(2)
|
2,061 | 8,292 | 11,080 | 6,791 | ||||||||||||
|
Net income per common share:
|
||||||||||||||||
|
Basic
|
.07 | .27 | .35 | .22 | ||||||||||||
|
Diluted
|
.07 | .26 | .35 | .21 | ||||||||||||
| (1) | Includes trademark impairment of $7.6 million before tax in the fourth quarter of 2009. | |
| (2) | Includes loss, net of tax, from discontinued operations of $(336) thousand in the fourth quarter of 2008. |
72
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 23. | Acquisitions |
On December 20, 2009, TreeHouse entered into a definitive
Purchase Agreement to acquire all of the issued and outstanding
common stock of Sturm Foods, Inc. (“Sturm”) for a
purchase price of approximately $660 million in cash
(subject to adjustment). Sturm is a manufacturer of private
label sugar free drink mixes and hot cereals in the United
States. The acquisition of Sturm will add two new large
categories to our dry grocery portfolio. TreeHouse intends to
finance the transaction through a combination of approximately
$400 million in new debt issuance, approximately
$100 million in equity stock issuance, and the balance
funded from borrowings under TreeHouse’s existing revolving
credit facility.
The closing of the transaction is subject to certain customary
closing conditions and is expected to close in the first quarter
of 2010. There can be no assurances, however, that the parties
will satisfy the closing conditions and consummate the
transaction within the expected timeframe, or at all.
| 24. | Guarantor and Non-Guarantor Financial Information |
Pursuant with the pending acquisition of Sturm, the Company
expects to issue approximately $400 million in new debt
which may be guaranteed by its wholly owned subsidiaries Bay
Valley Foods, LLC, EDS Holdings, LLC and certain other of our
subsidiaries that may become guarantors from time to time in
accordance with the applicable indenture and may fully, jointly,
severally and unconditionally guarantee our payment obligations
under any series of debt securities offered. There are no
significant restrictions on the ability of the parent company or
any guarantor to obtain funds from its subsidiaries by dividend
or loan. The following condensed consolidating financial
information presents the results of operations, financial
position and cash flows of TreeHouse Foods, Inc., its Guarantor
subsidiaries, its non-Guarantor subsidiaries and the
eliminations necessary to arrive at the information for the
Company on a consolidated basis as of December 31, 2009 and
2008 and for the years ended December 31, 2009, 2008 and
2007. The equity method has been used with respect to
investments in subsidiaries. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances
and transactions.
73
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TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Balance Sheet
December 31, 2009
December 31, 2009
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1 | $ | 8 | $ | 4,406 | $ | — | $ | 4,415 | ||||||||||
|
Accounts receivable, net
|
325 | 66,573 | 19,659 | — | 86,557 | |||||||||||||||
|
Inventories, net
|
— | 229,185 | 35,748 | — | 264,933 | |||||||||||||||
|
Deferred income taxes
|
1,875 | 990 | 532 | — | 3,397 | |||||||||||||||
|
Assets held for sale
|
— | 4,081 | — | — | 4,081 | |||||||||||||||
|
Prepaid expenses and other current assets
|
384 | 6,253 | 632 | — | 7,269 | |||||||||||||||
|
Total current assets
|
2,585 | 307,090 | 60,977 | — | 370,652 | |||||||||||||||
|
Property, plant and equipment, net
|
11,549 | 230,595 | 33,889 | — | 276,033 | |||||||||||||||
|
Goodwill
|
— | 466,274 | 108,733 | — | 575,007 | |||||||||||||||
|
Investment in subsidiaries
|
1,054,776 | 94,804 | — | (1,149,580 | ) | — | ||||||||||||||
|
Intercompany accounts receivable, net
|
87,643 | 65,683 | (153,326 | ) | — | — | ||||||||||||||
|
Deferred income taxes
|
21,186 | — | — | (21,186 | ) | — | ||||||||||||||
|
Identifiable intangible and other current assets, net
|
14,328 | 65,156 | 83,252 | — | 162,736 | |||||||||||||||
|
Total assets
|
$ | 1,192,067 | $ | 1,229,602 | $ | 133,525 | $ | (1,170,766 | ) | $ | 1,384,428 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable and accrued expenses
|
$ | 31,458 | $ | 94,936 | $ | 22,425 | $ | — | $ | 148,819 | ||||||||||
|
Current portion of long-term debt
|
200 | 554 | 152 | — | 906 | |||||||||||||||
|
Total current liabilities
|
31,658 | 95,490 | 22,577 | — | 149,725 | |||||||||||||||
|
Long-term debt
|
390,037 | 11,603 | — | — | 401,640 | |||||||||||||||
|
Deferred income taxes
|
5,609 | 44,914 | 16,044 | (21,186 | ) | 45,381 | ||||||||||||||
|
Other long-term liabilities
|
8,534 | 22,819 | 100 | — | 31,453 | |||||||||||||||
|
Shareholders’ equity
|
756,229 | 1,054,776 | 94,804 | (1,149,580 | ) | 756,229 | ||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 1,192,067 | $ | 1,229,602 | $ | 133,525 | $ | (1,170,766 | ) | $ | 1,384,428 | |||||||||
74
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Balance Sheet
December 31, 2008
December 31, 2008
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 12 | $ | 7 | $ | 2,668 | $ | — | $ | 2,687 | ||||||||||
|
Accounts receivable, net
|
— | 64,664 | 22,173 | — | 86,837 | |||||||||||||||
|
Inventories, net
|
— | 214,815 | 30,975 | — | 245,790 | |||||||||||||||
|
Deferred income taxes
|
2,711 | 3,473 | 585 | — | 6,769 | |||||||||||||||
|
Assets held for sale
|
— | 4,081 | — | — | 4,081 | |||||||||||||||
|
Prepaid expenses and other current assets
|
354 | 9,588 | 373 | — | 10,315 | |||||||||||||||
|
Total current assets
|
3,077 | 296,628 | 56,774 | — | 356,479 | |||||||||||||||
|
Property, plant and equipment, net
|
12,040 | 227,534 | 31,090 | 270,664 | ||||||||||||||||
|
Goodwill
|
— | 439,725 | 121,149 | — | 560,874 | |||||||||||||||
|
Investment in subsidiaries
|
901,648 | 85,081 | — | (986,729 | ) | — | ||||||||||||||
|
Intercompany accounts receivable, net
|
214,419 | (56,966 | ) | (157,453 | ) | — | — | |||||||||||||
|
Deferred income taxes
|
19,048 | — | — | (19,048 | ) | — | ||||||||||||||
|
Identifiable intangible and other current assets, net
|
23,165 | 67,559 | 76,941 | — | 167,665 | |||||||||||||||
|
Total assets
|
$ | 1,173,397 | $ | 1,059,561 | $ | 128,501 | $ | (1,005,777 | ) | $ | 1,355,682 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable and accrued expenses
|
$ | 75,533 | $ | 84,534 | $ | 27,728 | $ | — | $ | 187,795 | ||||||||||
|
Current portion of long-term debt
|
— | 315 | 160 | — | 475 | |||||||||||||||
|
Total current liabilities
|
75,533 | 84,849 | 27,888 | — | 188,270 | |||||||||||||||
|
Long-term debt
|
465,839 | 9,264 | 130 | — | 475,233 | |||||||||||||||
|
Deferred income taxes
|
1,342 | 34,802 | 10,389 | (19,048 | ) | 27,485 | ||||||||||||||
|
Other long-term liabilities
|
10,552 | 28,998 | 5,013 | — | 44,563 | |||||||||||||||
|
Shareholders’ equity
|
620,131 | 901,648 | 85,081 | (986,729 | ) | 620,131 | ||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 1,173,397 | $ | 1,059,561 | $ | 128,501 | $ | (1,005,777 | ) | $ | 1,355,682 | |||||||||
75
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Statement of Income
Year Ended December 31, 2009
Year Ended December 31, 2009
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 1,300,694 | $ | 246,715 | $ | (35,756 | ) | $ | 1,511,653 | |||||||||
|
Cost of sales
|
— | 1,016,524 | 204,515 | (35,756 | ) | 1,185,283 | ||||||||||||||
|
Gross profit
|
— | 284,170 | 42,200 | — | 326,370 | |||||||||||||||
|
Selling, general and administrative expense
|
36,560 | 128,592 | 23,252 | — | 188,404 | |||||||||||||||
|
Amortization
|
926 | 7,809 | 4,646 | — | 13,381 | |||||||||||||||
|
Other operating expense (income), net
|
7,600 | (13,824 | ) | — | — | (6,224 | ) | |||||||||||||
|
Operating (loss) income
|
(45,086 | ) | 161,593 | 14,302 | — | 130,809 | ||||||||||||||
|
Interest expense (income), net
|
15,922 | (11,279 | ) | 13,787 | — | 18,430 | ||||||||||||||
|
Other (income) expense, net
|
(2,104 | ) | (11,855 | ) | 4,264 | — | (9,695 | ) | ||||||||||||
|
(Loss) income from continuing operations, before income taxes
|
(58,904 | ) | 184,727 | (3,749 | ) | — | 122,074 | |||||||||||||
|
Income taxes (benefit)
|
(23,375 | ) | 63,321 | 814 | — | 40,760 | ||||||||||||||
|
Equity in net income of subsidiaries
|
116,843 | (4,563 | ) | — | (112,280 | ) | — | |||||||||||||
|
Net income (loss)
|
$ | 81,314 | $ | 116,843 | $ | (4,563 | ) | $ | (112,280 | ) | $ | 81,314 | ||||||||
76
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Statement of Income
Year Ended December 31, 2008
Year Ended December 31, 2008
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 1,252,780 | $ | 252,756 | $ | (4,886 | ) | $ | 1,500,650 | |||||||||
|
Cost of sales
|
— | 1,017,798 | 195,714 | (4,886 | ) | 1,208,626 | ||||||||||||||
|
Gross profit
|
— | 234,982 | 57,042 | — | 292,024 | |||||||||||||||
|
Selling, general and administrative expense
|
27,938 | 121,729 | 27,805 | — | 177,472 | |||||||||||||||
|
Amortization
|
415 | 7,802 | 5,311 | — | 13,528 | |||||||||||||||
|
Other operating expense, net
|
560 | 13,339 | — | — | 13,899 | |||||||||||||||
|
Operating (loss) income
|
(28,913 | ) | 92,112 | 23,926 | — | 87,125 | ||||||||||||||
|
Interest expense (income), net
|
24,259 | (13,326 | ) | 16,681 | — | 27,614 | ||||||||||||||
|
Other expense, net
|
6,981 | 9,170 | 3,905 | — | 20,056 | |||||||||||||||
|
(Loss) income from continuing operations, before income taxes
|
(60,153 | ) | 96,268 | 3,340 | — | 39,455 | ||||||||||||||
|
Income taxes (benefit)
|
(22,659 | ) | 32,078 | 1,476 | — | 10,895 | ||||||||||||||
|
Equity in net income of subsidiaries
|
65,718 | 1,864 | — | (67,582 | ) | — | ||||||||||||||
|
Income from continuing operations
|
28,224 | 66,054 | 1,864 | (67,582 | ) | 28,560 | ||||||||||||||
|
Loss from discontinued operations
|
— | (336 | ) | — | — | (336 | ) | |||||||||||||
|
Net income
|
$ | 28,224 | $ | 65,718 | $ | 1,864 | $ | (67,582 | ) | $ | 28,224 | |||||||||
77
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Statement of Income
Year Ended December 31, 2007
Year Ended December 31, 2007
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 1,107,147 | $ | 51,066 | $ | (311 | ) | $ | 1,157,902 | |||||||||
|
Cost of sales
|
— | 875,081 | 42,841 | (311 | ) | 917,611 | ||||||||||||||
|
Gross profit
|
— | 232,066 | 8,225 | — | 240,291 | |||||||||||||||
|
Selling, general and administrative expense
|
24,541 | 116,730 | 7,296 | — | 148,567 | |||||||||||||||
|
Amortization
|
370 | 5,565 | 1,260 | — | 7,195 | |||||||||||||||
|
Other operating income, net
|
— | (415 | ) | — | — | (415 | ) | |||||||||||||
|
Operating (loss) income
|
(24,911 | ) | 110,186 | (331 | ) | — | 84,944 | |||||||||||||
|
Interest expense (income), net
|
17,782 | (225 | ) | 4,479 | — | 22,036 | ||||||||||||||
|
Other income, net
|
(3,271 | ) | (133 | ) | (213 | ) | — | (3,617 | ) | |||||||||||
|
(Loss) income from continuing operations, before income taxes
|
(39,422 | ) | 110,544 | (4,597 | ) | — | 66,525 | |||||||||||||
|
Income taxes (benefit)
|
(15,491 | ) | 42,702 | (2,338 | ) | — | 24,873 | |||||||||||||
|
Equity in net income of subsidiaries
|
65,553 | (2,259 | ) | — | (63,294 | ) | — | |||||||||||||
|
Income from continuing operations
|
41,622 | 65,583 | (2,259 | ) | (63,294 | ) | 41,652 | |||||||||||||
|
Loss from discontinued operations
|
— | (30 | ) | — | — | (30 | ) | |||||||||||||
|
Net income (loss)
|
$ | 41,622 | $ | 65,553 | $ | (2,259 | ) | $ | (63,294 | ) | $ | 41,622 | ||||||||
78
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Statement of Cash Flows
Fiscal Year Ended December 31, 2009
Fiscal Year Ended December 31, 2009
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net cash provided by operating activities
|
$ | (85,858 | ) | $ | 167,537 | $ | 23,165 | $ | — | $ | 104,844 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(166 | ) | (33,693 | ) | (3,128 | ) | — | (36,987 | ) | |||||||||||
|
Insurance proceeds
|
— | 2,863 | — | — | 2,863 | |||||||||||||||
|
Proceeds from sale of fixed assets
|
— | 6 | — | — | 6 | |||||||||||||||
|
Net cash used in investing activities
|
(166 | ) | (30,824 | ) | (3,128 | ) | — | (34,118 | ) | |||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Net repayment of debt
|
(73,800 | ) | 18,342 | (19,026 | ) | — | (74,484 | ) | ||||||||||||
|
Intercompany transfer
|
155,054 | (155,054 | ) | — | — | — | ||||||||||||||
|
Excess tax benefits from stock based payment arrangements
|
169 | — | — | — | 169 | |||||||||||||||
|
Cash used to net settle equity awards
|
(336 | ) | — | — | — | (336 | ) | |||||||||||||
|
Proceeds from stock option exercises
|
4,926 | — | — | — | 4,926 | |||||||||||||||
|
Net cash used in financing activities
|
86,013 | (136,712 | ) | (19,026 | ) | — | (69,725 | ) | ||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | — | 727 | — | 727 | |||||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
(11 | ) | 1 | 1,738 | — | 1,728 | ||||||||||||||
|
Cash and cash equivalents, beginning of year
|
12 | 7 | 2,668 | — | 2,687 | |||||||||||||||
|
Cash and cash equivalents, end of year
|
$ | 1 | $ | 8 | $ | 4,406 | $ | — | $ | 4,415 | ||||||||||
79
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Statement of Cash Flows
Fiscal Year Ended December 31, 2008
Fiscal Year Ended December 31, 2008
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net cash provided by operating activities
|
$ | 26,616 | $ | 127,353 | $ | 21,667 | $ | — | $ | 175,636 | ||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(12,133 | ) | (40,232 | ) | (3,106 | ) | — | (55,471 | ) | |||||||||||
|
Insurance proceeds
|
12,047 | — | — | 12,047 | ||||||||||||||||
|
Acquisitions, net of cash acquired
|
67 | — | (318 | ) | — | (251 | ) | |||||||||||||
|
Proceeds from sale of fixed assets
|
1,679 | — | — | 1,679 | ||||||||||||||||
|
Net cash used in continuing operations
|
(12,066 | ) | (26,506 | ) | (3,424 | ) | — | (41,996 | ) | |||||||||||
|
Net cash provided by discontinued operations
|
— | 157 | — | — | 157 | |||||||||||||||
|
Net cash used in investing activities
|
(12,066 | ) | (26,349 | ) | (3,424 | ) | — | (41,839 | ) | |||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Net repayment of debt
|
(139,673 | ) | 14,757 | (20,621 | ) | — | (145,537 | ) | ||||||||||||
|
Intercompany transfer
|
115,986 | (115,986 | ) | — | — | — | ||||||||||||||
|
Excess tax benefits from stock based payment arrangements
|
377 | — | — | — | 377 | |||||||||||||||
|
Proceeds from stock option exercises
|
5,434 | — | — | — | 5,434 | |||||||||||||||
|
Net cash used in financing activities
|
(17,876 | ) | (101,229 | ) | (20,621 | ) | — | (139,726 | ) | |||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | — | (614 | ) | — | (614 | ) | |||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
(3,326 | ) | (225 | ) | (2,992 | ) | — | (6,543 | ) | |||||||||||
|
Cash and cash equivalents, beginning of year
|
3,338 | 232 | 5,660 | — | 9,230 | |||||||||||||||
|
Cash and cash equivalents, end of year
|
$ | 12 | $ | 7 | $ | 2,668 | $ | — | $ | 2,687 | ||||||||||
80
Table of Contents
TREEHOUSE
FOODS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Supplemental Consolidating Statement of Cash Flows
Fiscal Year Ended December 31, 2007
Fiscal Year Ended December 31, 2007
|
Parent
|
Subsidiary
|
Non-Guarantor
|
||||||||||||||||||
| Company | Guarantors | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net cash provided by operations
|
$ | (28,530 | ) | $ | 115,089 | $ | 9,843 | $ | — | $ | 96,402 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(27 | ) | (19,042 | ) | (745 | ) | — | (19,814 | ) | |||||||||||
|
Acquisitions, net of cash acquired
|
(451,891 | ) | 389 | 1,565 | — | (449,937 | ) | |||||||||||||
|
Proceeds from sale of fixed assets
|
— | 1,465 | — | — | 1,465 | |||||||||||||||
|
Net cash used in continuing operations
|
(451,918 | ) | (17,188 | ) | 820 | — | (468,286 | ) | ||||||||||||
|
Net cash provided by discontinued operations
|
— | 467 | — | — | 467 | |||||||||||||||
|
Net cash provided by (used in) investing activities
|
(451,918 | ) | (16,721 | ) | 820 | — | (467,819 | ) | ||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Proceeds from issuance of debt
|
440,035 | — | — | — | 440,035 | |||||||||||||||
|
Net repayment of debt
|
(58,535 | ) | 4,330 | (4,945 | ) | — | (59,150 | ) | ||||||||||||
|
Intercompany transfer
|
102,472 | (102,472 | ) | — | — | — | ||||||||||||||
|
Financing costs
|
(230 | ) | — | — | — | (230 | ) | |||||||||||||
|
Proceeds from stock option exercises
|
44 | — | — | — | 44 | |||||||||||||||
|
Net cash provided by (used in) financing activities
|
483,786 | (98,142 | ) | (4,945 | ) | — | 380,699 | |||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | — | (58 | ) | — | (58 | ) | |||||||||||||
|
Increase in cash and cash equivalents
|
3,338 | 226 | 5,660 | — | 9,224 | |||||||||||||||
|
Cash and cash equivalents, beginning of year
|
— | 6 | — | — | 6 | |||||||||||||||
|
Cash and cash equivalents, end of year
|
$ | 3,338 | $ | 232 | $ | 5,660 | $ | — | $ | 9,230 | ||||||||||
81
Table of Contents
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
Disclosure
Controls and Procedures
The Company’s management, with the participation of the
Company’s Chief Executive Officer and Chief Financial
Officer, have evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in
Rules 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of December 31, 2009. Based
on such evaluations, the Company’s Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end
of such period, the Company’s disclosure controls and
procedures were effective in recording, processing, summarizing,
and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act, and that information is accumulated and
communicated to the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely discussions regarding
required disclosure.
Management’s
Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in
Rule 13a-15(f)
under the Exchange Act. The Company’s management, with the
participation of Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the
Company’s internal control over financial reporting based
on the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on this evaluation, the
Company’s management has concluded that, as of
December 31, 2009, the Company’s internal control over
financial reporting was effective.
The Company’s independent registered public accounting
firm, Deloitte & Touche LLP, has issued an attestation
report on the Company’s internal control over financial
reporting as of December 31, 2009. This report is included
with this
Form 10-K.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Changes
in Internal Controls over Financial Reporting
There was no change in the Company’s internal control over
financial reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) identified in connection with the
evaluation required by
Rule 13a-15(d)
of the Exchange Act, that occurred during the fourth quarter of
the fiscal year covered by this report on
Form 10-K,
that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
82
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
TreeHouse Foods, Inc.
Westchester, IL 60154
We have audited the internal control over financial reporting of
TreeHouse Foods, Inc. and subsidiaries (the “Company”)
as of December 31, 2009, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2009 of
the Company and our report dated February 16, 2010
expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ Deloitte &
Touche LLP
Chicago, Illinois
February 16, 2010
83
Table of Contents
| Item 9B. | Other Information |
None.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Information required by this item about our directors and
executive officers is included in our Proxy Statement
(“2010 Proxy Statement”) to be filed with the
Securities and Exchange Commission in connection with our 2010
annual meeting of the stockholders under the headings,
Directors And Management — Directors and Executive
Officers
and
Election of Directors
and is
incorporated herein by reference.
Information about compliance with the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934, as
amended, by our executive officers and directors, persons who
own more than ten percent of our common stock, and their
affiliates who are required to comply with such reporting
requirements, is included in our 2010 Proxy Statement under the
headings,
Stock Ownership — Security Ownership of
Certain Beneficial Owners and Management
and
Section 16(a) Beneficial Ownership Reporting Compliance
and is incorporated herein by reference. Information about
the Audit Committee Financial Expert is included in our 2010
Proxy Statement under the heading,
Corporate Governance
—
Meetings of the Board of Directors and
Committee Meetings/Role of Committees,
and is incorporated
herein by reference.
The information required by this item concerning our executive
officers is incorporated herein by reference to our proxy
statement (to be filed) for our April 29, 2010 Annual
Meeting of Stockholders.
Our Code of Ethics, which is applicable to all of our employees
and directors, is available on our corporate website at
http://www.treehousefoods.com,
along with the Corporate Governance Guidelines of our Board of
Directors and the charters of the Committees of our Board of
Directors. Any waivers that we may grant to our executive
officers or directors under the Code of Ethics, and any
amendments to our Code of Ethics, will be posted on our
corporate website. Any of these items or any of our filings with
the Securities and Exchange Commission are available in print to
any shareowner who requests them. Requests should be sent to
Investor Relations, TreeHouse Foods, Inc., Two Westbrook
Corporate Center, Suite 1070, Westchester, IL 60154.
We submitted the certification of our chief executive officer
required by Section 303A.12 of the NYSE Listed Company
Manual, relating to our compliance with the NYSE’s
corporate governance listing standards, on May 7, 2009
without qualification. In addition, we have included the
certifications required of our chief executive officer and our
chief financial officer by Section 302 of the
Sarbanes-Oxley Act of 2002 and related rules with respect to the
quality of our disclosures in our
Form 10-K
for the year ended December 31, 2009, as Exhibits 31.1
and 31.2, respectively, to this
Form 10-K.
| Item 11. | Executive Compensation |
The information required by this item is included in the 2010
Proxy Statement under the headings,
Stock Ownership,
Compensation Discussion and Analysis, Executive Compensation,
Compensation Committee Interlocks and Insider Participation
and
Committee Reports — Report of the
Compensation Committee
and is incorporated herein by
reference. Notwithstanding anything to the contrary set forth in
this report, the
Committee Reports — Report of the
Compensation Committee
section of the 2010 Proxy Statement
shall be deemed to be “furnished” and not
“filed” for purposes of the Securities Exchange Act of
1934, as amended.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item is included in the 2010
Proxy Statement under the heading,
Stock
Ownership — Security Ownership of Certain Beneficial
Owners and Management
and is incorporated herein by
reference.
84
Table of Contents
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this item is included in the 2010
Proxy Statement under the heading,
Corporate Governance
and is incorporated herein by reference.
| Item 14. | Principal Accountant Fees and Services |
The information required by this item is included in the 2010
Proxy Statement under the heading,
Fees Billed by Independent
Registered Public Accounting Firm
and is incorporated herein
by reference.
PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
The following documents are filed as part of this
Form 10-K.
| Page | ||||
|
1. Financial Statements filed as a part of this document under
Item 8.
|
||||
| 39 | ||||
| 40 | ||||
| 41 | ||||
| 42 | ||||
| 43 | ||||
| 44 | ||||
|
2. Financial Statement Schedule
|
||||
| 87 | ||||
|
3. Exhibits
|
88 | |||
85
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TREEHOUSE FOODS, INC.
|
/s/ Dennis
F. Riordan
|
Dennis F. Riordan
Senior Vice President and Chief Financial Officer
February 16, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
Name
|
Title
|
Date
|
||||
|
/s/ Sam
K. Reed
|
Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) | February 16, 2010 | ||||
|
/s/ Dennis
F. Riordan
|
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | February 16, 2010 | ||||
|
/s/ George
V. Bayly
|
Director | February 16, 2010 | ||||
|
/s/ Diana
S. Ferguson
|
Director | February 16, 2010 | ||||
|
/s/ Dennis
F. O’Brien
|
Director | February 16, 2010 | ||||
|
/s/ Frank
J. O’Connell
|
Director | February 16, 2010 | ||||
|
/s/ Ann
M. Sardini
|
Director | February 16, 2010 | ||||
|
/s/ Gary
D. Smith
|
Director | February 16, 2010 | ||||
|
/s/ Terdema
L. Ussery, II
|
Director | February 16, 2010 | ||||
|
/s/ David
B. Vermylen
|
Director
President and Chief Operating Officer |
February 16, 2010 | ||||
86
Table of Contents
SCHEDULE II
TREEEHOUSE
FOODS, INC.
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2009, 2008 and 2007
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2009, 2008 and 2007
Allowance for doubtful accounts deducted from accounts
receivable:
|
Balance
|
Charge
|
Write-Off of
|
||||||||||||||||||||||
|
Beginning
|
(Credit) to
|
Uncollectible
|
Balance
|
|||||||||||||||||||||
|
Year
|
of Year | Income | Acquisitions | Accounts | Recoveries | End of Year | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
2007
|
$ | 227 | $ | 253 | $ | 301 | $ | (147 | ) | $ | 3 | $ | 637 | |||||||||||
|
2008
|
$ | 637 | $ | 150 | $ | — | $ | (314 | ) | $ | 5 | $ | 478 | |||||||||||
|
2009
|
$ | 478 | $ | 68 | $ | — | $ | (124 | ) | $ | 2 | $ | 424 | |||||||||||
87
Table of Contents
INDEX TO
EXHIBITS
|
Exhibit No.
|
Exhibit Description
|
|||
| 2 | .1 | Purchase Agreement, dated as of April 20, 2007, among Silver Brands Partners II, L.P., VDW Farms, Ltd., VDW Management, L.L.C., and Bay Valley Foods, LLC is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated April 23, 2007. | ||
| 2 | .2 | Purchase Agreement, dated as of June 24, 2007 between E.D. Smith Operating Trust, E.D. Smith Limited Partnership, E.D. Smith Income Fund and TreeHouse Foods, Inc. is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated June 27, 2007. | ||
| 2 | .3 | Stock Purchase Agreement, dated as of December 20, 2009, among TreeHouse Foods, Inc., Sturm Foods, Inc., HMSF, L.P. and other shareholders of Sturm Foods, Inc. is incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated December 20, 2009. | ||
| 3 | .1* | Restated Certificate of Incorporation of TreeHouse Foods, Inc., as amended on April 30, 2009 | ||
| 3 | .2 | Amended and Restated By-Laws of TreeHouse Foods, Inc. is incorporated by reference to Exhibit 3.2 of our quarterly report on Form 10-Q filed with the Commission November 4, 2009. | ||
| 4 | .1 | Form of TreeHouse Foods, Inc. Common Stock Certificate is incorporated by reference to Exhibit 4.1 to Amendment No. 1 to our Registration Statement on Form 10 filed with the Commission on June 9, 2005 | ||
| 4 | .2 | Stockholders Agreement, dated January 27, 2005, by and between, TreeHouse Foods, Inc., Dean Foods Company, Sam K. Reed, David B. Vermylen, E. Nichol McCully, Thomas E. O’Neill, and Harry J. Walsh is incorporated by reference to Exhibit 4.2 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005 | ||
| 4 | .3 | Rights Agreement between TreeHouse Foods, Inc. and The Bank of New York, as rights agent is incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2005 | ||
| 4 | .4 | Form of Certificate of Designation of Series A Junior Participating Preferred Stock (attached as an Exhibit to the Rights Agreement that is incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2005) | ||
| 4 | .5 | Form of Rights Certificate (attached as an Exhibit to the Rights Agreement that is incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2005) | ||
| 10 | .1** | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Sam K. Reed is incorporated by reference to Exhibit 10.1 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005 | ||
| 10 | .2** | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and David B. Vermylen is incorporated by reference to Exhibit 10.2 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005 | ||
| 10 | .3** | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Thomas E. O’Neill is incorporated by reference to Exhibit 10.4 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005 | ||
| 10 | .4** | Employment Agreement, dated January 27, 2005, by and between TreeHouse Foods, Inc. and Harry J. Walsh is incorporated by reference to Exhibit 10.5 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005 | ||
| 10 | .5 | Form of Subscription Agreement is incorporated by reference to Exhibit 10.6 to our Registration Statement on Form 10 filed with the Commission on May 13, 2005 | ||
| 10 | .6** | Form of Memorandum of Amendment to Stockholders Agreement and Employment Agreements of Sam K. Reed, David B. Vermylen, E. Nichol McCully, Thomas E. O’Neill, and Harry J. Walsh is incorporated by reference to Exhibit 10.14 to Amendment No. 1 to our Registration Statement on Form 10 filed with the Commission on June 9, 2005. | ||
| 10 | .7** | TreeHouse Foods, Inc. Executive Deferred Compensation Plan is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 3, 2005. | ||
88
Table of Contents
|
Exhibit No.
|
Exhibit Description
|
|||
| 10 | .8 | Credit Agreement dated as of June 27, 2005, between TreeHouse Foods, Inc. and a group of Lenders with Bank of America as Administrative Agent, Swing Line Lender and L/C Issuer is incorporated by reference to Exhibit 10.16 of our Form 10-Q filed with the Commission on May 12, 2006. | ||
| 10 | .9** | Executive Severance Plan, dated as of April 21, 2006, which became effective May 1, 2006 is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated April 21, 2006. | ||
| 10 | .10 | Amendment No. 1 dated as of August 31, 2006 to the Credit Agreement dated June 27, 2005 is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 31, 2006. | ||
| 10 | .11 | Note Purchase Agreement dated as of September 22, 2006 by and among TreeHouse Foods, Inc. and a group of Purchasers is incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated September 22, 2006. | ||
| 10 | .12** | Form of Performance — Vesting Restricted Stock Award Agreement is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated February 5, 2007. | ||
| 10 | .13** | Form of Performance — Vesting Restricted Stock Award Agreement with Dennis F. Riordan is incorporated by reference to Exhibit 10.2 of our Form 10-Q filed with the Commission May 9, 2007. | ||
| 10 | .14** | Amendments to and a restatement of our 2005 Long-Term Incentive Plan which was renamed the “TreeHouse Foods, Inc. Equity and Incentive Plan” is incorporated by reference to Appendix A of the Schedule 14A (Proxy Statement) dated February 27, 2007. | ||
| 10 | .15** | Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan is incorporated by reference to Exhibit 10.1 of our Form 10-Q filed with the Commission August 8, 2007. | ||
| 10 | .16 | Amendment to No. 2 dated as of August 30, 2007 to the Credit Agreement dated June 27, 2005 is incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K dated September 4, 2007. | ||
| 10 | .17** | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Sam K. Reed is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .18** | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Thomas E. O’Neill is incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .19** | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and David B. Vermylen is incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .20** | First Amendment to the January 27, 2005 Employment Agreement by and between TreeHouse Foods, Inc. and Harry J. Walsh is incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .21** | Employment Agreement by and between TreeHouse Foods, Inc. and Dennis F. Riordan is incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .22** | First Amendment to the TreeHouse Foods, Inc. Executive Deferred Compensation Plan is incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .23** | First Amendment to the TreeHouse Supplement Retirement Plan is incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .24** | First Amendment to the TreeHouse Foods, Inc. 2008 Incentive Plan is incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .25** | First Amendment to the Bay Valley Foods, LLC 2008 Incentive Plan is incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K dated November 5, 2008. | ||
89
Table of Contents
|
Exhibit No.
|
Exhibit Description
|
|||
| 10 | .26** | First Amendment to the TreeHouse Foods, Inc. Equity and Incentive Plan is incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .27** | Amended and Restated TreeHouse Foods, Inc. Executive Severance Plan is incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K dated November 5, 2008. | ||
| 10 | .28** | First Amendment to Employment Agreement, date April 21, 2009, between TreeHouse Foods, Inc. and Dennis F. Riordan is Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated April 21, 2009. | ||
| 10 | .29** | Form of employee Cash Long-Term Incentive Award Agreement is incorporated by reference to Exhibit 10.1 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 10 | .30** | Form of employee Performance Unit Agreement is incorporated by reference to Exhibit 10.2 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 10 | .31** | Form of employee Restricted Stock Agreement is incorporated by reference to Exhibit 10.3 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 10 | .32** | Form of employee Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.4 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 10 | .33** | Form of employee Non-Statutory Stock Option Agreement is incorporated by reference to Exhibit 10.5 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 10 | .34** | Form of non-employee director Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.6 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 10 | .35** | Form of non-employee director Non-Statutory Stock Option Agreement is incorporated by reference to Exhibit 10.7 of our Form 10-Q filled with the Commission August 6, 2009. | ||
| 21 | .1* | List of Subsidiaries. | ||
| 23 | .1* | Consent of Independent Registered Accounting Firm, Deloitte & Touche LLP. | ||
| 31 | .1* | Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31 | .2* | Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .1* | Certificate of Chief Executive Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .2* | Certificate of Chief Financial Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| * | Filed herewith. | |
| ** | Management contract or compensatory plan or arrangement. |
90
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint