Pinnacle Foods Inc. Reports Q4 and Full-Year 2013 Results at the Top of its Guidance Range Company Expects Another Year of Double-Digit EPS Growth in 2014

PARSIPPANY, N.J., March 6, 2014 /PRNewswire/ -- Pinnacle Foods Inc. (NYSE: PF) today reported double-digit growth in net earnings for both the fourth quarter and full year of fiscal 2013 ended December 29, 2013, achieving the top of its EPS guidance range.  The Company also provided its outlook for fiscal 2014, calling for another year of double-digit growth in net earnings and EPS. 

Highlights of 2013 include:

  • Grew consolidated net sales by approximately 0.6% and North America Retail net sales by 2.1%, excluding the impact of a 53rd week in 2012
  • Gained market share in fiscal 2013, outpacing overall composite category performance
  • Expanded adjusted gross margin by 190 basis points through continued strong productivity and favorable product mix
  • Delivered double-digit growth in EBIT and grew Adjusted EBITDA to $460 million, excluding items affecting comparability
  • Grew pro forma diluted EPS by 39% to $1.57, representing the top of the Company's $1.53 to $1.57 guidance range, excluding items affecting comparability
  • Delivered cash flow from operations of $262 million, an improvement of approximately $60 million versus year-ago

In addition, Pinnacle took significant steps during 2013 to position the Company for future growth and value creation, including the highly-accretive acquisition of Wish-Bone in the fourth quarter.  Wish-Bone contributed $38 million to net sales and $0.02 to diluted EPS, excluding items affecting comparability, in 2013.  The Company also reduced its ongoing annual interest expense significantly, due to debt pay-down associated with its March 2013 IPO and refinancing actions taken in both 2012 and 2013.  The Company also initiated a quarterly dividend program during the first half of 2013 and announced a 17% increase in the dividend rate, beginning with the quarterly payment in January 2014.

Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "Our solid finish to the fourth quarter capped off an outstanding first year as a public company.  Our ability to outpace the performance of our composite categories, combined with strong productivity and product mix, enabled us to deliver financial results that exceeded our long-term growth targets.  In addition, our acquisition of the Wish-Bone business in the fourth quarter provides us with an important catalyst for growth in 2014 and beyond."

Items affecting comparability and pro forma adjustments are described and reconciled to GAAP financial metrics in the accompanying reconciliation tables.

Full Year Fiscal 2013 Results Summary
Consolidated net sales for the year declined 0.6% to $2.46 billion versus $2.48 billion in fiscal 2012.  The 2012 period included the benefit of a 53rd week, which contributed approximately $28 million in incremental net sales.  Excluding the 53rd week, net sales in fiscal 2013 advanced 0.6%, reflecting a 1.6% benefit from the Wish-Bone acquisition, partially offset by lower volume/mix of 0.9% on the base business, largely due to the planned exit of low-margin, unbranded businesses in the Company's Specialty Foods segment.  Also impacting the year-over-year comparison was unfavorable foreign currency translation of 0.1%. 

Net sales for the Company's North America Retail business, excluding the impact of the 53rd week, advanced 2.1%, reflecting a 1.8% benefit from Wish-Bone and a 0.5% benefit from higher volume/mix on the base business, partially offset by lower net pricing of 0.1% and unfavorable foreign currency translation of 0.1%.  The net sales growth was driven by Birds Eye frozen vegetables, Birds Eye Voila! complete bagged meals, Log Cabin and Mrs. Butterworth's syrups and Vlasic pickles, partially offset by lower net sales for Duncan Hines baking products and Aunt Jemima frozen breakfast products.

Pinnacle's retail consumption, as measured by IRI, was essentially flat for the year, outpacing the performance of its composite categories, which declined by 1% versus year-ago.  As a result, Pinnacle grew overall market share in 2013 on a composite basis, with market share growth accelerating in the fourth quarter. 

Adjusted EBITDA on a pro forma basis advanced approximately 9% to $460.3 million for the year, compared to $423.1 million in the year-ago period.  Excluding the impact of the 53rd week, which contributed $5.5 million to Adjusted EBITDA in fiscal 2012, Adjusted EBITDA in fiscal 2013 advanced 10%.  This performance primarily reflected continued gross margin expansion from the base business, due to strong productivity in excess of inflation and favorable product mix, as well as the incremental benefit of Wish-Bone in the fourth quarter.  For the year, productivity totaled 4% of cost of products sold.  Adjusted EBITDA is a Non-GAAP measure defined below under "Non-GAAP Financial Measures," and reconciled to net earnings in the tables that accompany this release.

EBIT on a pro forma basis, excluding items affecting comparability, increased approximately 10% to $382.1 million, compared to $346.8 million in the year-ago period.  Adjusting for the impact of the 53rd week, the growth in EBIT was 12%. 

GAAP net earnings advanced 70% to $89.3 million in 2013, compared to $52.5 million in 2012.  On a pro forma basis, excluding items affecting comparability, net earnings advanced 39% to $183.3 million, or $1.57 per diluted share, compared to net earnings of $132.2 million, or $1.13 per diluted share, in the year-ago period.  This performance reflected the growth in EBIT and the significant reduction in interest expense stemming from the Company's IPO and refinancing actions in 2012 and 2013.  Adjusting for the impact of the 53rd week, the growth in net earnings and diluted EPS was 41%.

Net cash provided by operating activities increased significantly in 2013 to $262 million, compared to $203 million in 2012, largely reflecting the growth in net earnings. 

Fourth Quarter Consolidated Results
Consolidated net sales for the fourth quarter increased 0.6% to $709.3 million versus $705.1 million in fiscal 2012, which included the $28 million benefit of the 53rd week.  Excluding the 53rd week, net sales advanced 4.8%, reflecting a 5.6% benefit from Wish-Bone and a 1.2% increase from higher volume/mix on the base business, partially offset by lower net pricing of 1.8%.  Also impacting the year-over-year comparison was unfavorable foreign currency translation of 0.2%. 

Net sales for the Company's North America Retail business, excluding the impact of the 53rd week, advanced 5.7%, reflecting a 6.3% benefit from Wish-Bone and a 1.7% increase from higher volume/mix on the base business, partially offset by lower net pricing of 2.0% and unfavorable foreign currency translation of 0.2%.  The net sales growth in the quarter was largely driven by Birds Eye frozen vegetables, Birds Eye Voila! complete bagged meals, Duncan Hines baking products, Log Cabin and Mrs. Butterworth's syrups and Mrs. Paul's and Van de Kamp's seafood.

Adjusted EBITDA on a pro forma basis advanced 2% to $155.4 million in the fourth quarter of 2013, compared to $152.2 million in the fourth quarter of 2012.  Excluding the impact of the 53rd week, which contributed $5.5 million to Adjusted EBITDA in the fourth quarter of 2012, Adjusted EBITDA in the fourth quarter of 2013 advanced 6%.  This performance primarily reflected gross margin expansion, largely due to strong productivity in excess of inflation, favorable mix and the higher-margin Wish-Bone business, partially offset by higher selling, general, and administrative expenses, primarily due to the inclusion of Wish-Bone.

EBIT on a pro forma basis, excluding items affecting comparability, increased 2% to $134.8 million in the fourth quarter of 2013, compared to $132.3 million in the year-ago period.  Adjusting for the impact of the 53rd week, the growth in EBIT was in excess of 6%.

GAAP net earnings advanced 28% to $55.7 million in the fourth quarter of 2013, compared to $43.7 million in the year-ago period.  On a pro forma basis, excluding items affecting comparability, net earnings advanced 11% to $67.6 million, or $0.58 per diluted share, compared with net earnings of $60.8 million, or $0.52 per diluted share, in the year-ago period.  Adjusting for the impact of the 53rd week, the growth in pro forma net earnings, excluding items affecting comparability, was 15%.

Net cash provided by operating activities totaled $121 million in the fourth quarter of 2013, compared to $140 million in the year-ago period. 

Fourth Quarter Segment Results

Birds Eye Frozen Segment
Net sales for the Birds Eye Frozen segment declined 4.1% to $302.4 million in the fourth quarter of 2013, compared to $315.5 million in the year-ago period, which included the benefit of the 53rd week.  Excluding this benefit in 2012, net sales for the Birds Eye Frozen segment declined 0.5%, due to lower net pricing of 1.6%, partially offset by higher volume/mix of 1.1%.   The net sales decline was driven primarily by Aunt Jemima breakfast and Celeste pizza, significantly offset by growth across the Leadership Brand portfolio—particularly Birds Eye vegetables, driven by the new Recipe Ready line, and Birds Eye Voila!  complete bagged meals, as well as Mrs. Paul's and Van de Kamp's seafood.

EBIT for the Birds Eye Frozen segment declined approximately 1% to $68.2 million in the fourth quarter of 2013, compared to $68.7 million in the fourth quarter of 2012.   Excluding items affecting comparability and the impact of the 53rd week in 2012, EBIT advanced approximately 2% to $70.2 million, driven by favorable mix and productivity in excess of inflation, partially offset by higher trade investment.

Duncan Hines Grocery Segment
Net sales for the Duncan Hines Grocery segment advanced 8.0% to $314.7 million in the fourth quarter of 2013, compared to $291.4 million in the year-ago period, which included the benefit of the 53rd week.  Excluding this benefit in 2012, net sales for the Duncan Hines Grocery segment advanced 12.5%, reflecting a 13.3% benefit from Wish-Bone, and higher volume/mix from the base business of 2.2%, partially offset by lower net pricing of 2.5% and the impact of unfavorable foreign currency translation of 0.5%.  Base business net sales growth from the Leadership Brands—namely, Duncan Hines baking products and Log Cabin and Mrs. Butterworth's syrups—was offset by declines in pie fillings and chili products.  

EBIT for the Duncan Hines Grocery segment advanced approximately 8% to $47.0 million in the fourth quarter of 2013, compared to $43.6 million in the year-ago period.  Excluding items affecting comparability and the impact of the 53rd week in 2012, EBIT advanced approximately 18% to $63.2 million, due to the growth in net sales and gross margin expansion, stemming from improved product mix, the benefit of Wish-Bone and productivity in excess of inflation. Partially offsetting these factors was higher marketing investment. 

Specialty Foods Segment
Net sales for the Specialty Foods segment declined 6.1% to $92.1 million in the fourth quarter of 2013, compared to $98.2 million in the fourth quarter of 2012, which included the benefit of the 53rd week.  Excluding this benefit in 2012, net sales for the Specialty Foods segment declined 0.9%, due to lower volume/mix of 1.4% and reduced net pricing of 0.6%, partially offset by the benefit of 1.2% from the Wish-Bone foodservice business.  For the base business, lower net sales of private label canned meat were only partially offset by growth in foodservice and snacks.

EBIT for the Specialty Foods segment declined 18% to $8.9 million in the fourth quarter of 2013, compared to $10.8 million in the fourth quarter of 2012.  Excluding items affecting comparability and the impact of the 53rd week in 2012, EBIT declined 14% to $9.1 million, primarily reflecting lower gross margin from snacks, largely due to the impacts of reduced net pricing and comparison against a year-ago period that included the benefit of an insurance settlement. 

Provided in the tables below is the benefit the 53rd week had on Consolidated and Segment results in the fourth quarter and full year of 2012.

($ in millions except per share amount)



Consolidated Results


Segment Results




53rd Week

Impact



53rd Week Impact






Net Sales


EBIT



Net Sales

$28.4


Birds Eye Frozen

$11.5


$2.6



EBIT

$5.5


Duncan Hines Grocery

11.7


2.7



Net Earnings

$2.1


North America Retail

$23.2


$5.3



Diluted EPS

$0.02


Specialty Foods

5.2


1.2






Corporate

-


-1.0



Adjusted EBITDA

$5.5


Total

$28.4


$5.5





















Outlook For 2014
The Company's outlook for 2014 is consistent with its long-term growth algorithm plus the incremental benefit of Wish-Bone.  Diluted EPS for the year, assuming a weighted average share count of 117.2 million, is forecasted in the range of $1.75 to $1.80, excluding the impact of non-cash, stock-based compensation expense.

In February 2014, the Pinnacle Board of Directors approved an annual long-term equity incentive plan that builds on the initial founders equity grants awarded in connection with the Company's IPO.  On an after-tax basis, non-cash, stock-based compensation expense for 2014 is estimated to be $5.7 million, or $0.05 per diluted share.  In 2013, the Company incurred non-cash, stock-based compensation expense of $5.9 million after-tax, or $0.05 per diluted share, but treated the expense as an item affecting comparability, due to the absence of a similar expense in 2012 before the Company was public.  Including this expense in both years, the Company's diluted EPS guidance range for 2014 is $1.70 to $1.75, representing a double-digit increase versus diluted EPS on a comparable basis of $1.52 in 2013.

The Company's outlook for 2014 also includes the following assumptions:

  • Input cost inflation for the year is estimated at approximately 2%, with first quarter inflation estimated to be the highest of the year due to higher-cost inventory from 2013 being carried into 2014.  The inflation rate for the balance of the year is estimated to progressively decrease by quarter.
  • Productivity for the year is estimated in the range of 3-4% of cost of products sold, with savings expected to be greater in the second half of the year versus the first half.
  • Interest expense for the year is estimated at $100 million.
  • The effective tax rate for the year is estimated at 38.9%. 
  • The full-year weighted average diluted share count estimate of 117.2 million reflects the anticipated impact of the Company's new long-term equity incentive plan.
  • Capital spending for the year is expected to be in the range of $120 million to $130 million, including the previously-communicated $40-50 million of anticipated capital spending related to the Wish-Bone manufacturing integration.
  • The benefit of Easter in 2014 will shift to the second quarter, versus the first quarter in 2013, due to the later timing of the Holiday this year.  Businesses most affected by this timing shift include Duncan Hines, Birds Eye, and the Company's seafood businesses.

Conference Call Information
The Company will host an investor conference call on Thursday, March 6, 2014 at 9:30AM (ET) to discuss the results of the quarter.  To access the call, investors and analysts can dial (866) 793-1344 in the U.S. and Canada or (703) 639-1315 from outside the U.S. and Canada and reference conference name:  Pinnacle Foods Q4 Earnings Call.  A replay of the call will be available, beginning March 6, 2014 at 1:00 PM (ET) until March 27, 2014, by dialing (888) 266-2081 in the U.S. and Canada or (703) 925-2533 from outside the U.S. and Canada and referencing Access Code 1618983.  Access to a live audio webcast and replay of the event will be available in the Investor Center of the Company's corporate website at www.pinnaclefoods.com.

About Pinnacle Foods Inc.
In more than 85% of America households, consumers reach for Pinnacle Foods brands. Pinnacle Foods is a Top 1000 Company as ranked by Fortune Magazine. We are a leading producer, marketer and distributor of high-quality branded food products, which have been trusted household names for decades.  Headquartered in Parsippany, NJ, our business employs an average of 4,200 employees. We are a leader in the shelf stable and frozen foods segments and our brands hold the #1 or #2 market position in 10 of the 13 major categories in which they compete. Our Duncan Hines Grocery Division manages brands such as Duncan Hines® baking mixes and frostings, Vlasic® and Vlasic® Farmer's Garden® shelf-stable pickles, Wish-Bone® and Western® salad dressings, Mrs. Butterworth's® and Log Cabin® table syrups, Armour® canned meats, Brooks® and Nalley® chili and chili ingredients, Duncan Hines® Comstock® and Wilderness® pie and pastry fruit fillings and Open Pit® barbecue sauces. Our Birds Eye Frozen Division manages brands such as Birds Eye®, Birds Eye Steamfresh®, C&W®, McKenzie's®, and Freshlike® frozen vegetables, Birds Eye Voila!® complete bagged frozen meals, Van de Kamp's® and Mrs. Paul's® frozen prepared seafood, Hungry-Man® frozen dinners and entrées, Aunt Jemima® frozen breakfasts, Lender's® frozen and refrigerated bagels, and Celeste® frozen pizza. Our Specialty Foods Division manages Tim's Cascade Snacks®, Hawaiian® kettle style potato chips, Erin's® popcorn, Snyder of Berlin® and Husman's® snacks in addition to our food service and private label businesses. Further information is available at www.pinnaclefoods.com

Forward Looking Statements
This release may contain statements that predict or forecast future events or results, depend on future events for their accuracy or otherwise contain "forward-looking information." The words "estimates," "expects," "contemplates," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "may," "should," and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are made based on management's current expectations and beliefs concerning future events and various assumptions and are not guarantees of future performance. Actual results may differ materially as a result of various factors, some of which are beyond our control, including but not limited to: general economic and business conditions, deterioration of the credit and capital markets, industry trends, our substantial leverage and changes in our leverage, interest rate changes, changes in our ownership structure, competition, the loss of any of our major customers or suppliers, changes in demand for our products, changes in distribution channels or competitive conditions in the markets where we operate, costs of integrating acquisitions, loss of our intellectual property rights, fluctuations in price and supply of raw materials, seasonality, our reliance on co-packers to meet our manufacturing needs, availability of qualified personnel, changes in the cost of compliance with laws and regulations, including environmental laws and regulations, and the other risks and uncertainties detailed in our final prospectus filed with the Securities and Exchange Commission on March 28, 2013 and subsequent reports filed with the Securities and Exchange Commission. There may be other factors that may cause our actual results to differ materially from the forward-looking statements.  We assume no obligation to update the information contained in the presentation.

 


PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(thousands, except per share data)



Three Months Ended


Twelve Months Ended


December 29, 2013


December 30, 2012


December 29, 2013


December 30, 2012


13 weeks


14 weeks


52 weeks


53 weeks

Net sales

$

709,322



$

705,060



$

2,463,802



$

2,478,485


Cost of products sold

511,745



517,685



1,809,553



1,893,936


Gross profit

197,577



187,375



654,249



584,549


Operating expenses








Marketing and selling expenses

41,700



39,196



175,702



169,736


Administrative expenses

26,601



23,325



119,790



89,414


Research and development expenses

2,691



3,820



10,516



12,031


Other expense (income), net

10,108



4,494



55,204



29,774


Total operating expenses

81,100



70,835



361,212



300,955


Earnings before interest and taxes

116,477



116,540



293,037



283,594


Interest expense

24,476



43,883



132,354



198,484


Interest income

73



5



141



110


Earnings before income taxes

92,074



72,662



160,824



85,220


Provision for income taxes

36,367



29,000



71,475



32,701


Net earnings

$

55,707



$

43,662



$

89,349



$

52,519










Net earnings per share








Basic

$

0.48



$

0.54



$

0.84



$

0.65


Weighted average shares outstanding- basic

115,601



80,202



106,841



81,231


Diluted

$

0.48



$

0.51



$

0.82



$

0.61


Weighted average shares outstanding- diluted

116,540



85,482



108,619



86,495


Dividends declared

$

0.21



$



$

0.57



$


 

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(thousands of dollars)



December 29,
2013


December 30,
2012

Current assets:




Cash and cash equivalents

$

116,739



$

92,281


Accounts receivable, net of allowances of $5,849 and $5,149, respectively

164,664



143,884


Inventories

361,872



358,051


Other current assets

7,892



11,862


Deferred tax assets

141,142



99,199


Total current assets

792,309



705,277


Plant assets, net of accumulated depreciation of $297,103 and $244,694, respectively

523,270



493,666


Tradenames

1,951,392



1,603,992


Other assets, net

186,125



155,558


Goodwill

1,628,095



1,441,495


Total assets

$

5,081,191



$

4,399,988






Current liabilities:




Short-term borrowings

$

2,437



$

2,139


Current portion of long-term obligations

24,580



30,419


Accounts payable

142,353



137,326


Accrued trade marketing expense

37,060



44,571


Accrued liabilities

99,755



119,269


Dividends payable

25,119




Total current liabilities

331,304



333,724


Long-term debt (includes $63,976 and $63,097 owed to related parties, respectively)

2,476,167



2,576,386


Pension and other postretirement benefits

49,847



100,918


Other long-term liabilities

24,560



28,705


Deferred tax liabilities

601,272



471,529


Total liabilities

3,483,150



3,511,262


Commitments and contingencies




Shareholders' equity:




Pinnacle preferred stock: $.01 per share, 50,000,000 shares authorized, none issued




Pinnacle common stock: par value $.01 per share, 500,000,000 shares authorized;

issued and outstanding 117,231,853 and 81,210,672, respectively

1,172



812


Additional paid-in-capital

1,328,847



696,512


Retained earnings

275,519



252,955


Accumulated other comprehensive loss

(7,497)



(61,553)


Total shareholders' equity

1,598,041



888,726


Total liabilities and shareholders' equity

$

5,081,191



$

4,399,988


 



PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of dollars)



Fiscal year


December 29,
2013


December 30,
2012


52 weeks


53 weeks

Cash flows from operating activities




Net earnings (loss)

$

89,349



$

52,519


Non-cash charges (credits) to net earnings (loss)




Depreciation and amortization

78,225



98,123


Goodwill and intangible asset impairment charge



520


Amortization of discount on term loan

1,354



994


Amortization of debt acquisition costs

4,395



8,585


Call premium on note redemptions

34,180



14,255


Refinancing costs and write off of debt issuance costs

19,668



17,482


Amortization of deferred mark-to-market adjustment on terminated swaps



444


Change in value of financial instruments

(535)



(1,185)


Equity-based compensation charge

7,933



850


Pension expense, net of contributions

(9,131)



(10,391)


Gain on sale of assets held for sale

(3,627)




Other long-term liabilities

(1,872)



2,799


Deferred income taxes

67,852



30,929


Changes in working capital




Accounts receivable

(21,347)



16,259


Inventories

16,129



(22,027)


Accrued trade marketing expense

(7,290)



9,383


Accounts payable

4,112



(16,333)


Accrued liabilities

(17,052)



(1,432)


Other current assets

(101)



1,079


Net cash provided by operating activities

262,242



202,853


Cash flows from investing activities




Payments for business acquisition

(575,164)




Capital expenditures

(84,055)



(78,279)


Proceeds from sale of plant assets

6,853



570


Net cash used in investing activities

(652,366)



(77,709)


Cash flows from financing activities




Net proceeds from issuance of common stock

624,953




Repurchases of equity

(191)



(878)


Dividends paid

(41,664)




Proceeds from bank term loans

2,142,394



842,625


Proceeds from notes offerings

350,000




Repayments of long-term obligations

(1,736,146)



(632,025)


Repurchase of notes

(899,180)



(373,255)


Proceeds from short-term borrowings

5,078



4,294


Repayments of short-term borrowings

(4,779)



(3,863)


Borrowings under revolving credit facility



40,000


Repayments of revolving credit facility



(40,000)


Repayment of capital lease obligations

(2,943)



(3,511)


Debt acquisition costs

(23,142)



(17,498)


Net cash provided by (used in) financing activities

414,380



(184,111)


Effect of exchange rate changes on cash

202



217


Net change in cash and cash equivalents

24,458



(58,750)


Cash and cash equivalents - beginning of period

92,281



151,031


Cash and cash equivalents - end of period

$

116,739



$

92,281






Supplemental disclosures of cash flow information:




Interest paid

$

120,310



$

179,427


Interest received

141



110


Income taxes paid

3,425



1,981


Non-cash investing and financing activities:




New capital leases

2,030



1,548


Dividends payable

25,119




 

Non-GAAP Financial Measures
Pinnacle Foods Inc. uses the following non-GAAP financial measures as defined by the Securities and Exchange Commission in our financial communications.  These non-GAAP financial measures should be considered in addition to the GAAP reported measures, should not be considered replacements for the GAAP measures and may not be comparable to similarly named measures used by other companies.

  • North America Retail Net Sales
  • Adjusted Gross Profit
  • Adjusted EBITDA
  • Adjusted Earnings before Interest and Taxes (Adjusted EBIT)
  • Adjusted interest expense, net
  • Adjusted net earnings
  • Adjusted earnings per share

North America Retail Net Sales
North America Retail Net Sales is the sum of the net sales of the Birds Eye Frozen segment and the net sales of the Duncan Hines Grocery segment.  We refer to this to measure net sales performance of our retail focused branded business in contrast to our Specialty Foods segment where over the last several years we have de-emphasized certain low margin foodservice and private label businesses.

Items Impacting Gross Profit and Earnings

Adjusted Gross Profit

Adjusted gross profit is defined as gross profit before accelerated depreciation related to restructuring activities, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments.  We believe that the presentation of Adjusted gross profit is useful to investors because it is consistent with our definition of Adjusted EBITDA (defined below), a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, we also use targets based on Adjusted gross profit as one of the components used to evaluate our management's performance.

Adjusted EBITDA
The Company's metric of Adjusted EBITDA, which is used in creating targets for the bonus and equity portions of our compensation plans, is equivalent to Covenant Compliance EBITDA under our debt agreements.

Pinnacle believes that the presentation of Adjusted EBITDA provides investors with useful information, as it is important in measuring covenant compliance in accordance with the financial covenants and determining our ability to engage in certain transactions in compliance with our debt facilities and it is a metric used internally by our Board of Directors and senior management.

You should not consider Adjusted EBITDA as an alternative to operating or net earnings (loss), determined in accordance with GAAP, as an indicator of Pinnacle's operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity.

Adjusted EBITDA is defined as earnings (loss) before interest expense, taxes, depreciation and amortization ("EBITDA"), further adjusted to exclude non-cash items, non-recurring items and other adjustment items permitted in calculating Adjusted EBITDA under the Senior Secured Credit Facility and the indentures governing the Senior Notes.

EBITDA and Adjusted EBITDA do not represent net earnings or (loss) or cash flow from operations as those terms are defined by Generally Accepted Accounting Principles ("GAAP") and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definitions of Adjusted EBITDA in the Senior Secured Credit Facility and the indentures allow us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that may recur, vary greatly and are difficult to predict. While EBITDA and Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

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

Adjusted Earnings Before Interest and Taxes (Adjusted EBIT)

Adjusted Earnings before Interest and Taxes is provided because Pinnacle believes it is useful information in understanding our EBIT results by improving the comparability of year-to-year results.

Adjusted Interest Expense, Net

Adjusted interest expense, net is provided to assist the reader by eliminating mark to market adjustments and the charges which result from refinancing activities.

Adjusted Net Earnings
Adjusted Earnings Per Share

Adjusted net earnings and the related adjusted earnings per share are provided to present the reader with the after-tax impact of Adjusted EBIT and Adjusted interest expense, net in order to improve the comparability and understanding of the related GAAP measures.

 


Pinnacle Foods Inc.

Reconciliation from Reported to Adjusted (Note 1) and Proforma (Note 2) Statement of Operations Amounts (unaudited)

For the three months (13 weeks) ended December 29, 2013

(thousands, except per share amounts)



Reported


Acquisition,








IPO and







Three Months Ended


Merger and


Other




Adjusted


Refinancing


Public


Proforma



December 29,


Other Restructuring


Non-Cash


Other


December 29,


Interest


Company


December 29,



2013


Charges (3)


Items (4)


Adjustments


2013


Adjustments


Costs (2)


2013

Net sales


$

709,322



$



$



$



$

709,322



$



$



$

709,322


Gross profit


$

197,577



$

748



$

6,144



$



$

204,469



$



$



$

204,469


% of net sales


27.9

%








28.8

%






28.8

%


















Earnings before interest and taxes


$

116,477



$

9,917



$

8,218



$



$

134,612





$

200



$

134,812



















Interest expense, net


$

24,403



$



$

(73)



$



$

24,330



$





$

24,330


Provision for income taxes


$

36,367



$

3,359



$

3,070



$



$

42,796



$



$

78



42,874


% effective tax rate


39.5

%








38.8

%






38.8

%


















Net earnings


$

55,707



$

6,558



$

5,221



$



$

67,486



$



$

122



$

67,608



















Diluted net earnings per share


$

0.48









$

0.58







$

0.58


Diluted weighted average outstanding shares

116,540









116,540







116,540



















Adjusted EBITDA (Non GAAP - See separate discussion and tables)















EBIT


$

116,477



$

9,917



$

8,218



$



$

134,612



$



$

200



$

134,812


Depreciation


16,284









16,284







16,284


Amortization


4,259









4,259







4,259


EBITDA


$

137,020



$

9,917



$

8,218



$



$

155,155





$

200



$

155,355



















(1)

Excludes Wish-Bone pre-acquisition earnings and anticipated synergies which are included in calculating Covenant compliance.

(2)

Reflects Adjusted Statements of Operations amounts, assuming IPO and 2013 Refinancing occurred on the first day of Fiscal 2013.

(3)

Represents Wish-Bone acquisition related charges of ($7.2MM), employee severance ($1.0MM), restructuring charges ($0.7MM) and other expenses ($1.0MM).

(4)

Represents expenses related to the write-up to fair value of inventories acquired in the Wish-Bone acquisition ($6.3MM), non-cash stock-based compensation charges ($2.4MM) along with unrealized mark-to-market gains +$0.4MM resulting from hedging activities and other of $0.1MM.

 

Pinnacle Foods Inc.

Reconciliation from Reported to Adjusted and Proforma (Note 1) Statement of Operations Amounts (unaudited)

For the three months (14 weeks) ended December 30, 2012

(thousands, except per share amounts)



Reported


Acquisition,















Three Months Ended


Merger and


Other




Adjusted


IPO


Public


Proforma



December 30,


Other Restructuring


Non-Cash


Other


December 30,


Interest


Company


December 30,



2012


Charges (2)


Items (3)


Adjustments (4)


2012


Adjustments (1)


Costs (1)


2012

Net sales


$

705,060



$



$



$



$

705,060



$



$



$

705,060


Gross profit


$

187,375



$

12,337



$

802



$

(936)



$

199,578



$



$



$

199,578


% of net sales


26.6

%








28.3

%






28.3

%


















Earnings before interest and taxes


$

116,540



$

15,040



$

1,430



$

22



$

133,032





$

(750)



$

132,282



















Interest expense, net


$

43,878



$



$

(33)



$



$

43,845



$

(12,167)



$



$

31,678


Provision for income taxes


$

29,000



$

5,790



$

563



$

8



$

35,361



$

4,684



$

(289)



$

39,756


% effective tax rate


39.9

%








39.6

%






39.5

%


















Net earnings


$

43,662



$

9,250



$

900



$

14



$

53,826



$

7,483



$

(461)



$

60,848



















Diluted net earnings per share


$

0.51









$

0.63







$

0.52


Diluted weighted average outstanding shares


85,482









85,482



31,918





117,400



















Adjusted EBITDA (Non GAAP - See separate discussion and tables)















EBIT


$

116,540



$

15,040



$

1,430



$

22



$

133,032



$



$

(750)



$

132,282


Depreciation


25,400



(9,637)







15,763







15,763


Amortization


4,181









4,181







4,181


EBITDA


$

146,121



$

5,403



$

1,430



$

22



$

152,976



$



$

(750)



$

152,226



















(1)

Proforma data reflects Adjusted Statements of Operations amounts, assuming IPO occurred on the first day of Fiscal 2012.

(2)

Adjusted EBITDA represents restructuring charges related to plant closures ($4.6MM), principally our Millsboro, Delaware facility and due diligence investigations and other special projects ($0.8MM).

(3)

Represents unrealized mark-to-market losses ($0.8MM) resulting from hedging activities, tradename impairment ($0.5MM) and non-cash stock-based compensation charges ($0.1MM).

(4)

Represents management/advisory fees and expenses paid to an affiliate of Blackstone ($1.2MM) and insurance recoveries related to retrieving and destroying the products covered by the product recall of Aunt Jemima +$1.2MM.

 

Pinnacle Foods Inc.

Reconciliation from Reported to Adjusted (Note 1) and Proforma (Note 2) Statement of Operations Amounts (unaudited)

For the year (52 weeks) ended December 29, 2013

(thousands, except per share amounts)



Reported


Acquisition,








IPO and







Year Ended


Merger and


Other




Adjusted


Refinancing


Public


Proforma



December 29,


Other Restructuring


Non-Cash


Other


December 29,


Interest


Company


December 29,



2013


Charges (3)


Items (4)


Adjustments (5)


2013


Adjustments (2)


Costs (2)


2013

Net sales


$

2,463,802



$



$



$



$

2,463,802



$



$



$

2,463,802


Gross profit


$

654,249



$

4,504



$

6,253



$



$

665,006



$



$



$

665,006


% of net sales


26.6

%








27.0

%






27.0

%


















Earnings before interest and taxes


$

293,037



$

22,137



$

13,553



$

53,361



$

382,088





$



$

382,088



















Interest expense, net


$

132,213



$



$

(330)



$

(22,467)



$

109,416



$

(25,763)





$

83,653


Provision for income taxes


$

71,475



$

7,948



$

5,191



$

20,513



$

105,127



$

10,048



$



$

115,175


% effective tax rate


44.4

%








38.6

%






38.6

%


















Net earnings


$

89,349



$

14,189



$

8,692



$

55,315



$

167,545



$

15,715



$



$

183,260



















Diluted net earnings per share


$

0.82









$

1.54







$

1.57


Diluted weighted average outstanding shares

108,619









108,619



7,940





116,559



















Adjusted EBITDA (Non GAAP - See separate discussion and tables)















EBIT


$

293,037



$

22,137



$

13,553



$

53,361



$

382,088



$



$



$

382,088


Depreciation


62,350









62,350







62,350


Amortization


15,875









15,875







15,875


EBITDA


$

371,262



$

22,137



$

13,553



$

53,361



$

460,313



$



$



$

460,313



















(1)

Excludes Wish-Bone pre-acquisition earnings and anticipated synergies which are included in calculating Covenant compliance.

(2)

Reflects Adjusted Statements of Operations amounts, assuming IPO and 2013 Refinancing occurred on the first day of Fiscal 2013.

(3)

Represents restructuring charges related to plant closures ($7.3MM), principally our Millsboro, Delaware facility, Wish-Bone acquisition related charges of ($7.2MM), employee severance ($4.7MM), consulting and business optimization expenses related to the expansion of headquarter direct sales coverage for retail ($3.7MM), along with IPO related and other expenses ($2.1MM), partially offset by a +$2.9MM gain on sale of the Tacoma, WA facility.

(4)

Represents non-cash stock-based compensation charges ($7.9MM), expenses related to the write-up to fair value of inventories acquired in the Wish-Bone acquisition ($6.3MM), along with unrealized mark-to-market gains resulting from hedging activities +$0.7MM.

(5)

Represents premiums paid on the redemption of Senior Notes ($34.2MM) and management/advisory fees and expenses paid to an affiliate of Blackstone ($19.2MM) which includes the termination of the Blackstone management fee agreement as a result of the IPO.

 

Pinnacle Foods Inc.

Reconciliation from Reported to Adjusted and Proforma (Note 1) Statement of Operations Amounts (unaudited)

For the year (53 weeks) ended December 30, 2012

(thousands, except per share amounts)



Reported


Acquisition,















Year Ended


Merger and


Other




Adjusted


IPO


Public


Proforma



December 30,


Other Restructuring


Non-Cash


Other


December 30,


Interest


Company


December 30,



2012


Charges (2)


Items (3)


Adjustments (4)


2012


Adjustments (1)


Costs (1)


2012

Net sales


$

2,478,485



$



$



$



$

2,478,485



$



$



$

2,478,485


Gross profit


$

584,549



$

37,925



$

(1,195)



$

1,619



$

622,898



$



$



$

622,898


% of net sales


23.6

%








25.1

%






25.1

%


















Earnings before interest and taxes


$

283,594



$

45,143



$

62



$

21,041



$

349,840





$

(3,000)



$

346,840



















Interest expense, net


$

198,374



$



$

(122)



$

(17,481)



$

180,771



$

(48,669)



$



$

132,102


Provision for income taxes


$

32,701



$

17,380



$

71



$

14,831



$

64,983



$

18,737



$

(1,155)



$

82,565


% effective tax rate


38.4

%








38.4

%






38.4

%


















Net earnings


$

52,519



$

27,763



$

113



$

23,691



$

104,086



$

29,932



$

(1,845)



$

132,173



















Diluted net earnings per share


$

0.61









$

1.20







$

1.13


Diluted weighted average outstanding shares


86,495









86,495



30,905





117,400



















Adjusted EBITDA (Non GAAP - See separate discussion and tables)















EBIT


$

283,594



$

45,143



$

62



$

21,041



$

349,840



$



$

(3,000)



$

346,840


Depreciation


82,295



(21,867)







60,428







60,428


Amortization


15,828









15,828







15,828


EBITDA


$

381,717



$

23,276



$

62



$

21,041



$

426,096



$



$

(3,000)



$

423,096



















(1)

Proforma data reflects Adjusted Statements of Operations amounts, assuming IPO occurred on the first day of Fiscal 2012.

(2)

Adjusted EBITDA represents restructuring charges related to plant closures ($19.3MM), due diligence investigations and other special projects ($2.2MM), along with employee severance and other acquisition related expenses.

(3)

Represents unrealized mark-to-market gains +$1.3MM resulting from hedging activities, tradename impairment ($0.5MM) and non-cash stock-based compensation charges ($0.9MM).

(4)

Represents premiums paid on the redemption/repurchase of Senior Notes ($14.3MM), management/advisory fees and expenses paid to an affiliate of Blackstone ($4.7MM), and costs of retrieving and destroying the products covered by the product recall of Aunt Jemima, net of insurance recoveries ($2.0MM).

 


Pinnacle Foods Inc.

Reconciliation from Reported to Adjusted Segment Amounts

For the three months and years ended December 29, 2013 and December 30, 2012

(thousands)



Three Months Ended


Twelve Months Ended



December 29, 2013


December 30, 2012


December 29,

2013


December 30,

2012



13 weeks


14 weeks


52 weeks


53 weeks

Net sales - Reported









Birds Eye Frozen


$

302,433



$

315,490



$

1,096,897



$

1,103,093


Duncan Hines Grocery


314,747



291,390



1,004,990



978,615


North America Retail


617,180



606,880



2,101,887



2,081,708


Specialty Foods


92,142



98,180



361,915



396,777


Total


$

709,322



$

705,060



$

2,463,802



$

2,478,485




















Earnings before interest & taxes - Reported








Birds Eye Frozen


$

68,172



$

68,685



$

198,634



$

178,184


Duncan Hines Grocery


47,029



43,615



144,428



120,746


Specialty Foods


8,872



10,808



29,959



23,503


Unallocated corporate expenses

(7,596)



(6,568)



(79,984)



(38,839)


Total


$

116,477



$

116,540



$

293,037



$

283,594




















Adjustments (Non GAAP - See separate table)









Birds Eye Frozen


$

2,047



$

2,832



$

9,060



$

14,630


Duncan Hines Grocery


16,162



12,414



22,977



27,246


Specialty Foods


278



1,043



890



8,570


Unallocated corporate expenses

(352)



203



56,124



15,800


Total


$

18,135



$

16,492



$

89,051



$

66,246




















Earnings before interest & taxes - Adjusted (Non GAAP - See separate discussion and tables)









Birds Eye Frozen


$

70,219



$

71,517



$

207,694



$

192,814


Duncan Hines Grocery


63,191



56,029



167,405



147,992


Specialty Foods


9,150



11,851



30,849



32,073


Unallocated corporate expenses


(7,948)



(6,365)



(23,860)



(23,039)


Total


$

134,612



$

133,032



$

382,088



$

349,840











 

Pinnacle Foods Inc.

Reconciliation from Reported to Adjusted Segment Amounts

Supplemental Schedule of Adjustments Detail

For the three months and years ended December 29, 2013 and December 30, 2012

(millions)



Adjustments to Earnings Before Interest and Taxes



Three Months Ended


Twelve Months Ended



December 29,

2013


December 30,

2012


December 29,

2013


December 30,

2012



13 weeks


14 weeks


52 weeks


53 weeks

Birds Eye Frozen









Restructuring charges


$

0.1



$

2.6



$

3.6



$

9.4


Non-cash stock-based compensation


1.2



0.1



3.0



0.4


Employee severance


0.5





2.3



0.4


Unrealized mark-to-market (gain)/loss


(0.2)



0.4



(0.3)



(0.5)


Blackstone management/advisory fees




0.6





2.2


Aunt Jemima product recall costs




(1.2)





2.0


Other


0.4



0.3



0.5



0.7


Total Birds Eye Frozen


$

2.0



$

2.8



$

9.1



$

14.6











Duncan Hines Grocery









Wish-Bone acquisition related charges


$

13.8



$



$

13.8



$


Restructuring charges


0.6



10.9



7.3



23.7


Non-cash stock-based compensation


1.0





2.5



0.4


Employee severance


0.4





2.0



0.5


Unrealized mark-to-market (gain)/loss


(0.2)



0.3



(0.3)



(0.7)


Blackstone management/advisory fees




0.4





2.2


Gain on sale of the Tacoma, WA location






(2.9)




Tradename impairment charge




0.5





0.5


Other


0.6



0.3



0.6



0.6


Total Duncan Hines Grocery


$

16.2



$

12.4



$

23.0



$

27.2











Specialty Foods









Restructuring charges


$



$

0.7



$



$

8.0


Non-cash stock-based compensation


0.2





0.5




Employee severance


0.1





0.4




Unrealized mark-to-market (gain)/loss




0.1






Blackstone management/advisory fees




0.2





0.3


Other




0.1





0.3


Total Specialty Foods


$

0.3



$

1.1



$

0.9



$

8.6











Unallocated Corporate Expenses









Non-cash stock-based compensation


$



$



$

1.9



$


Premiums paid on redemption of Senior Notes






34.2



14.3


Termination of Blackstone management/advisory agreement






19.2




Other


(0.4)



0.2



0.8



1.5


Total Unallocated Corporate Expenses


$

(0.4)



$

0.2



$

56.1



$

15.8


 

Pinnacle Foods Inc.

Impact of Non-Cash Stock-Based Compensation Expense in 2013

(millions, except per share amounts)

 



Three Months


Three Months


Three Months


Three Months


Fiscal Year



Ended


Ended


Ended


Ended


Ended



March 31, 2013


June 30,    2013


September 29, 2013


December 29, 2013


December 29, 2013

Adjusted net earnings


$

0.2



$

2.5



$

1.6



$

1.6



$

5.9













Adjusted net earnings per share


$



$

0.02



$

0.01


(1)

$

0.01


(1)

$

0.05













Adjusted EBITDA


$

0.2



$

3.1



$

2.3



$

2.3



$

7.9
























(1) Both third and fourth quarter EPS impact is 1.4 cents per share.


 

SOURCE Pinnacle Foods Inc.



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