TREEHOUSE FOODS, INC., 10-K filed on 2/15/2011
Annual Report
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands
Year Ended
Dec. 31,
2010
2009
Current assets:
 
 
Cash and cash equivalents
$ 6,323 
$ 4,415 
Receivables, net of allowance for doubtful accounts of $750 and $424
126,644 
86,557 
Inventories, net
287,395 
264,933 
Deferred income taxes
3,499 
3,397 
Assets held for sale
4,081 
4,081 
Prepaid expenses and other current assets
12,861 
7,269 
Total current assets
440,803 
370,652 
Property, plant and equipment, net
386,191 
276,033 
Goodwill
1,076,321 
575,007 
Intangible assets, net
463,617 
152,526 
Other assets, net
24,316 
10,210 
Total assets
2,391,248 
1,384,428 
Current liabilities:
 
 
Accounts payable and accrued expenses
202,384 
148,819 
Current portion of long-term debt
976 
906 
Total current liabilities
203,360 
149,725 
Long-term debt
976,452 
401,640 
Deferred income taxes
194,917 
45,381 
Other long-term liabilities
38,553 
31,453 
Total liabilities
1,413,282 
628,199 
Commitments and contingencies (Note 19)
 
 
Stockholders' equity:
 
 
Preferred stock, par value $.01 per share, 10,000 shares authorized, none issued
0 
0 
Common stock, par value $.01 per share, 90,000 shares authorized, 35,440 and 31,999 shares issued and outstanding, respectively
354 
320 
Additional paid-in capital
703,465 
587,598 
Retained earnings
286,181 
195,262 
Accumulated other comprehensive loss
(12,034)
(26,951)
Total stockholders' equity
977,966 
756,229 
Total liabilities and stockholders' equity
$ 2,391,248 
$ 1,384,428 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data
Dec. 31, 2010
Dec. 31, 2009
Current assets:
 
 
Receivables, net of allowance for doubtful accounts
$ 750 
$ 424 
Stockholders' equity:
 
 
Preferred stock, par value (in dollars per share)
0.01 
0.01 
Preferred stock, shares authorized (in shares)
10,000 
10,000 
Preferred stock, shares issued (in shares)
0 
0 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized (in shares)
90,000 
90,000 
Common stock, shares issued (in shares)
35,440 
31,999 
Common stock, shares outstanding (in shares)
35,440 
31,999 
CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Thousands, except Per Share data
Year Ended
Dec. 31,
2010
2009
2008
Income Statement
 
 
 
Net sales
$ 1,817,024 
$ 1,511,653 
$ 1,500,650 
Cost of sales
1,385,690 
1,185,283 
1,208,626 
Gross profit
431,334 
326,370 
292,024 
Operating expenses:
 
 
 
Selling and distribution
120,120 
107,938 
115,731 
General and administrative
107,126 
80,466 
61,741 
Amortization expense
26,352 
13,381 
13,528 
Other operating (income) expenses, net
1,183 
(6,224)
13,899 
Total operating expenses
254,781 
195,561 
204,899 
Operating income
176,553 
130,809 
87,125 
Other (income) expense:
 
 
 
Interest expense
45,691 
18,430 
27,614 
Interest income
0 
(45)
(107)
(Gain) loss on foreign currency exchange
(1,574)
(7,387)
13,040 
Other (income) expense, net
(3,964)
(2,263)
7,123 
Total other expense
40,153 
8,735 
47,670 
Income from continuing operations before income taxes
136,400 
122,074 
39,455 
Income taxes
45,481 
40,760 
10,895 
Income from continuing operations
90,919 
81,314 
28,560 
Loss from discontinued operations, net of tax
0 
0 
(336)
Net income
90,919 
81,314 
28,224 
Weighted average common shares:
 
 
 
Basic (in shares)
35,079 
31,982 
31,341 
Diluted (in shares)
36,172 
32,798 
31,469 
Basic earnings per common share:
 
 
 
Income from continuing operations (in dollars per share)
2.59 
2.54 
0.91 
Loss from discontinued operations, net of tax (in dollars per share)
0 
0 
(0.01)
Net income (in dollars per share)
2.59 
2.54 
0.90 
Diluted earnings per common share:
 
 
 
Income from continuing operations (in dollars per share)
2.51 
2.48 
0.91 
Loss from discontinued operations, net of tax (in dollars per share)
0 
0 
(0.01)
Net income (in dollars per share)
$ 2.51 
$ 2.48 
$ 0.90 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Thousands
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total
Balance at Dec. 31, 2007
$ 312 
$ 550,370 
$ 85,724 
$ (7,097)
$ 629,309 
Balance (in shares) at Dec. 31, 2007
31,204 
 
 
 
 
Net income
0 
0 
28,224 
0 
28,224 
Pension & post-retirement liability adjustment, net of tax
0 
0 
0 
(6,261)
(6,261)
Foreign currency translation adjustment
0 
0 
0 
(50,198)
(50,198)
Amortization of loss on derivatives, net of tax
0 
0 
0 
162 
162 
Comprehensive income (loss)
0 
0 
0 
0 
(28,073)
Stock options exercised/Equity awards exercised, including tax benefit (deficiency)
3 
6,787 
0 
0 
6,790 
Stock options exercised/Equity awards exercised, including tax benefit (deficiency) (in shares)
341 
 
 
 
 
Stock options forfeited
0 
(88)
0 
0 
(88)
Stock-based compensation
0 
12,193 
0 
0 
12,193 
Balance (in shares) at Dec. 31, 2008
31,545 
 
 
 
31,545 
Balance at Dec. 31, 2008
315 
569,262 
113,948 
(63,394)
620,131 
Net income
0 
0 
81,314 
0 
81,314 
Pension & post-retirement liability adjustment, net of tax
0 
0 
0 
604 
604 
Foreign currency translation adjustment
0 
0 
0 
35,678 
35,678 
Amortization of loss on derivatives, net of tax
0 
0 
0 
161 
161 
Comprehensive income (loss)
0 
0 
0 
0 
117,757 
Stock options exercised/Equity awards exercised, including tax benefit (deficiency)
5 
5,092 
0 
0 
5,097 
Stock options exercised/Equity awards exercised, including tax benefit (deficiency) (in shares)
454 
 
 
 
 
Stock options forfeited
0 
(59)
0 
0 
(59)
Stock-based compensation
0 
13,303 
0 
0 
13,303 
Balance (in shares) at Dec. 31, 2009
31,999 
 
 
 
31,999 
Balance at Dec. 31, 2009
320 
587,598 
195,262 
(26,951)
756,229 
Net income
0 
0 
90,919 
0 
90,919 
Pension & post-retirement liability adjustment, net of tax
0 
0 
0 
(172)
(172)
Post retirement curtailment, net of tax
 
 
 
862 
862 
Foreign currency translation adjustment
0 
0 
0 
14,066 
14,066 
Amortization of loss on derivatives, net of tax
0 
0 
0 
161 
161 
Comprehensive income (loss)
0 
0 
0 
0 
105,836 
Stock options exercised/Equity awards exercised, including tax benefit (deficiency)
7 
(11,013)
0 
0 
(11,006)
Stock options exercised/Equity awards exercised, including tax benefit (deficiency) (in shares)
738 
 
 
 
 
Stock-based compensation
0 
16,219 
0 
0 
16,219 
Shares Issued
27 
110,661 
0 
0 
110,688 
Shares Issued (in shares)
2,703 
 
 
 
 
Balance (in shares) at Dec. 31, 2010
35,440 
 
 
 
35,440 
Balance at Dec. 31, 2010
$ 354 
$ 703,465 
$ 286,181 
$ (12,034)
$ 977,966 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)
In Thousands
Year Ended
Dec. 31,
2010
2009
2008
Statement of Stockholders' Equity [Abstract]
 
 
 
Pension & post-retirement liability adjustment, tax
$ 107 
$ 384 
$ 4,070 
Amortization of loss on derivatives, tax
101 
101 
101 
Stock options exercised, tax benefit (deficiency)
(276)
731 
1,356 
Post retirement curtailment, tax
539 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands
Year Ended
Dec. 31,
2010
2009
2008
Cash flows from operating activities:
 
 
 
Net income
$ 90,919 
$ 81,314 
$ 28,224 
Loss from discontinued operations, net of tax
0 
0 
336 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
43,426 
33,962 
32,326 
Amortization
26,352 
13,381 
13,528 
Stock-based compensation
15,838 
13,303 
12,193 
(Gain) loss on foreign currency exchange, intercompany note
1,469 
(4,932)
9,034 
Mark to market (gain) loss on derivative contracts
(4,363)
(2,104)
6,981 
(Gain) loss on disposition of assets
3,159 
(11,885)
(469)
Write-down of impaired intangible assets
0 
7,600 
560 
Write-down of impaired tangible assets
0 
0 
5,431 
Deferred income taxes
9,199 
18,596 
5,314 
Excess tax benefits from stock-based compensation
(5,732)
(169)
(377)
Curtailment of postretirement benefit obligations
(2,357)
0 
0 
Other
161 
161 
137 
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Receivables
6,161 
3,739 
(14,395)
Inventories
34,318 
(14,062)
43,396 
Prepaid expenses and other assets
225 
(647)
(2,063)
Accounts payable, accrued expenses and other liabilities
25,876 
(33,413)
35,490 
Net cash provided by continuing operations
244,651 
104,844 
175,646 
Net cash used in discontinued operations
0 
0 
(10)
Net cash provided by operating activities
244,651 
104,844 
175,636 
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(39,543)
(36,987)
(55,471)
Additions to intangible assets
(22,110)
0 
0 
Insurance proceeds
0 
2,863 
12,047 
Cash outflows for acquisitions, less cash acquired
(844,496)
0 
(251)
Proceeds from sale of fixed assets
43 
6 
1,679 
Net cash used in continuing operations
(906,106)
(34,118)
(41,996)
Net cash provided by discontinued operations
0 
0 
157 
Net cash used in investing activities
(906,106)
(34,118)
(41,839)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt
400,000 
0 
0 
Borrowings under revolving credit agreement
512,000 
284,200 
263,000 
Payments under revolving credit agreement
(337,600)
(358,000)
(402,500)
Payments on capitalized lease obligations
(1,010)
(684)
(6,037)
Payments of deferred financing costs
(16,418)
0 
0 
Excess tax benefits from stock-based compensation
5,732 
169 
377 
Cash used for taxes upon settlement of equity awards
(15,370)
(336)
0 
Issuance of common stock, net of expenses
110,688 
0 
0 
Proceeds from stock option exercises
4,599 
4,926 
5,434 
Net cash provided by (used in) financing activities
662,621 
(69,725)
(139,726)
Effect of exchange rate changes on cash and cash equivalents
742 
727 
(614)
Increase (decrease) in cash and cash equivalents
1,908 
1,728 
(6,543)
Cash and cash equivalents, beginning of year
4,415 
2,687 
9,230 
Cash and cash equivalents, end of year
$ 6,323 
$ 4,415 
$ 2,687 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation — The Consolidated Financial Statements include the accounts of TreeHouse Foods, Inc. and its wholly owned subsidiaries (“Company,” “we,” “us,” or “our”).  All intercompany balances and transactions are eliminated in consolidation.  Certain prior year amounts have been reclassified to conform to the current period presentation, primarily to present borrowings and payments under our line of credit on a gross versus net basis.  These reclassifications had no effect on reported net income, total assets or net cash flows.

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.

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.  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 20 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
Computer software
 
Straight-line method over 2 to 7 years

Indefinite lived trademarks 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 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.
 
Goodwill is evaluated annually in the fourth quarter or more frequently, if events or changes in circumstances require an interim assessment.  We assess goodwill for impairment at the reporting unit level using a market and income approach, employing significant assumptions regarding growth, discount rates, and profitability at each reporting unit.

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.  Customer balances are written off after all collection efforts are exhausted.  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 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.

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 $53.6 million, $46.5 million and $60.2 million, for years ended 2010, 2009 and 2008, respectively.

Derivative Financial Instruments — From time to time, we utilize derivative financial instruments including interest rate and commodity 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 20.

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 $10.5 million, $8.3 million and $6.9 million, for years ended 2010, 2009 and 2008, respectively.

Advertising Costs —Advertising costs are expensed as incurred and reported in the selling and distribution line of our Consolidated Statements of Income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
2.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”) to provide additional guidance on fair value disclosures.  ASU 2010-06 requires new disclosures about transfers in and out of Level 1 and 2, and requires that the activity in Level 3 disclosures be presented on a gross basis rather than as a net number.  The ASU also clarifies existing disclosures about the level of disaggregation and information on inputs and valuation techniques, and includes confirming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets.  ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009.  The Company adopted the provisions of this ASU effective January 1, 2010, and the adoption did not significantly impact the Company’s Condensed Consolidated Financial Statements.

In December 2010, the FASB issued ASU No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts to modify Step 1 of the goodwill impairment test; requiring companies with reporting units with zero or negative carrying amounts to perform Step 2 of the goodwill impairment analysis if it is more likely than not that a goodwill impairment exists.  This guidance is effective for fiscal years beginning after December 15, 2010.  Early adoption is not permitted.  This guidance is not expected to impact the Company.

In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations to specify that if a company presents comparative financial statements, it should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current period, occurred at the beginning of the comparable prior annual reporting period only.  This guidance is effective prospectively for business combinations for which the acquisition date in, on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  Early adoption is permitted.  We will adopt this guidance prospectively beginning January 1, 2011.  It is not expected to have a significant impact on the Company.
FACILITY CLOSINGS
FACILITY CLOSINGS
   
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, 2010 and 2009, the Company recorded costs of $0.6 million and $0.9 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, 2010 and 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 did not significantly impact earnings.  Total costs are expected to be approximately $2.3 million, including severance costs of $1.1 million, and other costs of $1.2 million.  As of December 31, 2010, the Company had insignificant accruals remaining.  Severance payments during the twelve months ended December 31, 2010 and 2009 were approximately $62 thousand, and $0.9 million, respectively.
Acquisitions
Acquisitions
   
4.
ACQUISITIONS

On October 28, 2010, the Company acquired all of the outstanding securities of STSF Holdings, Inc. (“Holdings”) for approximately $180 million in cash (subject to adjustment) plus up to an additional $15 million in cash (“earn out”) if S.T. Specialty Foods, Inc. (“S.T. Foods”) achieved certain earnings targets for the twelve month period ending December 31, 2010.  The earnings targets were not met; therefore, no additional payment will be required.  The acquisition was funded by the Company’s revolving credit facility.  S.T. Foods, a wholly owned subsidiary of Holdings, has annual net sales of approximately $100 million and is a manufacturer of private label macaroni and cheese, skillet dinners and other value-added side dishes.  The acquisition added additional categories to our product portfolio for the retail grocery channel.

The acquisition is being accounted for under the purchase method of accounting and the results of operations are included in our financial statements from the date of acquisition and are included in the North American Retail Grocery segment.  S.T. Foods contributed $17.1 million to net sales and $1.5 million in net income since the October 28, 2010 acquisition date through December 31, 2010.  At the date of acquisition, the purchase price was allocated to the assets acquired and liabilities assumed based upon estimated fair market value, no value was assigned to the earn out.  The Company’s purchase price allocation set forth below is preliminary and subject to tax adjustments that are expected to be completed during 2011.  Adjustments may impact taxes, goodwill and other assets and liabilities.

   
(In thousands)
 
Receivables
 $6,183 
Inventory
  7,557 
Property plant and equipment
  26,400 
Customer relationships
  58,715 
Other intangible assets
  257 
Deferred taxes
  343 
Other assets
  177 
Goodwill
  117,193 
Total assets acquired
  216,825 
      
Accounts payable and accruals
  (6,921 )
Deferred taxes
  (30,063 )
Total liabilities assumed
  (36,984 )
Total purchase price
 $179,841 

The Company allocated $58.7 million to customer relationships that have an estimated life of twenty years.  Other intangible assets consist of capitalized computer software that is being amortized over two years.  The Company increased the cost of acquired inventories by approximately $0.8 million, and expensed the amount as a component of cost of sales in the fourth quarter of 2010.  The Company has allocated all of the goodwill ($117.2 million) to the North American Retail Grocery segment.  No goodwill is expected to be deductible for tax purposes.  Goodwill arises principally as a result of expansion opportunities and employed workforce.  The Company incurred approximately $2.4 million in acquisition related costs for the S.T. Foods acquisition that are included in the General and administrative expense line on the Condensed Consolidated Statements of Income.

On March 2, 2010, the Company acquired Sturm Foods, Inc. (“Sturm”), a private label manufacturer of hot cereal and powdered soft drink mixes that serves retail and foodservice customers in the United States with annual sales of approximately $340 million.  The acquisition of Sturm has strengthened the Company’s presence in private label dry grocery categories.

The Company paid a cash purchase price of $664.7 million, before adjusting for a $3.3 million working capital adjustment to reduce the purchase price, for 100% of the issued and outstanding stock of Sturm.  The $3.3 million working capital adjustment is recorded in the Receivables, net line of our Condensed Consolidated Balance Sheets as of December 31, 2010.  The transaction was financed through the issuance of $400 million in high yield notes, the issuance of 2.7 million shares of Company common stock at $43.00 per share and borrowings under the Company’s credit facility.
 
The acquisition is being accounted for under the purchase method of accounting and the results of operations are included in our financial statements from the date of acquisition and are included in each of our segments.  Sturm contributed $275.2 million to net sales and $27.8 million in net income since the March 2, 2010 acquisition date through December 31, 2010.  At the date of acquisition, the purchase price was allocated to the assets acquired and liabilities assumed based upon estimated fair market values.  The Company’s purchase price allocation set forth below is preliminary and subject to tax adjustments that are expected to be completed by March 2, 2011.  Adjustments may impact the total purchase price, deferred taxes and goodwill.

     
   
(In thousands)
 
Receivables
 $35,774 
Inventory
  47,525 
Property plant and equipment
  86,106 
Customer relationships
  229,000 
Trade name
  10,000 
Formulas
  5,000 
Other intangible assets
  5,835 
Other assets
  3,813 
Goodwill
  379,804 
Total assets acquired
  802,857 
      
Accounts payable and accruals
  (34,207 )
Other long-term liabilities
  (4,518 )
Deferred taxes
  (102,805 )
Total liabilities assumed
  (141,530 )
Total purchase price
 $661,327 
      
      
The Company allocated $229.0 million to customer relationships that have an estimated life of twenty years.  The acquired trade name will be amortized over fifteen years.  Formulas have an estimated useful life of five years.  Other intangible assets consist of capitalized computer software that is being amortized over three years.  The Company increased the cost of acquired inventories by approximately $6.2 million, and expensed that amount as a component of cost of sales through the second quarter of 2010.  The Company has allocated $373.6 million of goodwill to the North American Retail Grocery segment and $6.2 million of goodwill to the Food Away From Home segment.  No goodwill is expected to be deductible for tax purposes.  Goodwill arises principally as a result of expansion opportunities, employed workforce, and the impact of Sturm’s first mover advantage.  The Company incurred approximately $5.4 million in acquisition related costs related to the Sturm acquisition during the twelve months ended December 31, 2010.   These costs are included in the General and administrative expense line on the Condensed Consolidated Statements of Income.  In connection with the issuance of debt and equity to finance the acquisition, the Company incurred approximately $10.8 million in debt issue costs that were capitalized and are amortized over the term of the debt on a straight line basis, and are included as a component of interest expense.  The Company also incurred approximately $5.5 million of stock issuance costs, that reduced the proceeds and were recorded as a component of additional paid in capital.

The following unaudited pro forma information shows the results of operations for the Company as if the 2010 acquisitions of Sturm and S.T. Foods had been completed as of the beginning of each period presented.  Adjustments have been made for the pro forma effects of amortization of intangible assets recognized as part of the business combination, interest expense related to the financing of the business combinations, and related income taxes.  These pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.

   
Year Ended
 
   
December 31,
 
   
2010
  
2009
 
   
(In thousands, except per share data)
 
Pro forma net sales
 $1,961,567  $1,954,568 
Pro forma net income
 $100,551  $104,679 
Pro forma basic earnings per common share
 $2.87  $3.02 
Pro forma diluted earnings per common share
 $2.78  $2.95 
INVENTORIES
INVENTORIES
   
5.
INVENTORIES

   
December 31,
 
   
2010
   
2009
 
   
(In thousands)
 
Raw materials and supplies
 
$
111,376
   
$
86,223
 
Finished goods
   
194,558
     
197,539
 
LIFO reserve
   
(18,539
)
   
(18,829
)
Total inventories
 
$
287,395
   
$
264,933
 

The increase in inventories from December 31, 2009 to 2010 is primarily due to the Sturm and S.T. Foods acquisitions.  Excluding the effect of the Sturm and S.T. Foods acquisitions, inventory levels decreased by $30.9 million.

Approximately $84.8 million and $98.7 million of our inventory was accounted for under the LIFO method of accounting at December 31, 2010 and 2009, respectively.  The LIFO reserve reflects the excess of the current cost of LIFO inventories at December 31, 2010 and 2009, over the amount at which these inventories were valued on the consolidated balance sheets.
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT
   
6.
PROPERTY, PLANT AND EQUIPMENT

   
December 31,
 
   
2010
   
2009
 
   
(In thousands)
 
Land
 
$
15,851
   
$
11,335
 
Buildings and improvements
   
148,616
     
99,856
 
Machinery and equipment
   
390,907
     
310,265
 
Construction in progress
   
21,067
     
6,778
 
Total
   
576,441
     
428,234
 
Less accumulated depreciation
   
(190,250
)
   
(152,201
)
Property, plant and equipment, net
 
$
386,191
   
$
276,033
 

The increase in net property, plant and equipment from December 31, 2009 to 2010 is primarily due to the Sturm and S.T. Foods acquisitions.  Excluding the effect of the Sturm and S.T. Foods acquisitions, net property, plant and equipment decreased by $1.9 million.

Accumulated depreciation includes the amortization of capitalized leases.

Depreciation expense for years ended December 31, 2010, 2009 and 2008 was $43.4 million, $34.0 million and $32.3 million, respectively.
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS
   
7.
GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009, are as follows:

   
North American
  
Food Away
  
Industrial
    
   
Retail Grocery
  
From Home
  
and Export
  
Total
 
   
(In thousands)
 
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 
Acquisitions
  493,489   6,232   —   499,721 
Purchase price adjustment
  (3,640 )  (100 )  —   (3,740 )
Foreign currency exchange adjustment
  4,819   514   —   5,333 
Balance at December 31, 2010
 $850,593  $92,146  $133,582  $1,076,321 
                  

The Company has not incurred any goodwill impairments since its inception.

Approximately $273.2 million of goodwill is deductible for tax purposes.

The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of December 31, 2010 and 2009 are as follows:

   
December 31,
 
   
2010
   
2009
 
   
Gross
       
Net
   
Gross
       
Net
 
   
Carrying
   
Accumulated
   
Carrying
   
Carrying
   
Accumulated
   
Carrying
 
   
Amount
   
Amortization
   
Amount
   
Amount
   
Amortization
   
Amount
 
   
(In thousands)
 
Intangible assets with indefinite lives:
                                               
 
Trademarks
 
$
32,673
   
$
—
   
$
32,673
   
$
31,422
   
$
—
   
$
31,422
 
Intangible assets with finite lives:
                                               
 
Customer-related
   
445,578
     
(57,480
)
   
388,098
     
147,346
     
(35,400)
     
111,946
 
 
Non-compete agreements
   
1,000
     
(967
)
   
33
     
2,620
     
(2,162
)
   
458
 
 
Trademarks
   
20,010
     
(3,393
)
   
16,617
     
10,010
     
(2,311
)
   
7,699
 
 
Formulas/recipes
   
6,825
     
(1,972
)
   
4,853
     
1,762
     
(761
)
   
1,001
 
 
Computer software
   
26,007
     
(4,664
)
   
21,343
     
—
     
—
     
—
 
Total other intangibles
 
$
532,093
   
$
(68,476
)
 
$
463,617
   
$
193,160
   
$
(40,634
)
 
$
152,526
 

As of December 31, 2010, the weighted average remaining useful life for the amortizable intangible assets are (1) customer related at 16.8 years, (2) non-compete agreements at 0.2 years, (3) trademarks at 14.5 years, (4) formulas/recipes at 3.9 years, and (5) computer software at 6.1 years.  The weighted average remaining useful life in total for all amortizable intangible assets is 16.1 years as of December 31, 2010.
 
Amortization expense on intangible assets was $26.4 million, $13.4 million and $13.5 million, for the years ended December 31, 2010, 2009 and 2008, respectively.  Estimated intangible asset amortization expense for the next five years is as follows:

   
(In thousands)
 
2011
 
$
32,401
 
2012
 
$
32,048
 
2013
 
$
29,877
 
2014
 
$
29,541
 
2015
 
$
28,593
 

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 2010 impairment review, using a discounted cash flow analysis, resulted in no impairment.

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 focused 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 ® was a part of the North American Retail Grocery segment.  The circumstances resulting in the full impairment of the remaining value occurred during the fourth quarter of 2009.  During 2010, we exited the retail infant business which included the Natures Goodness ® brand.  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.

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.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
   
8.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

   
December 31,
 
   
2010
 
2009
 
   
(In thousands)
 
Accounts payable
 
$
112,638
   
$
79,438
 
Payroll and benefits
   
33,730
     
29,921
 
Interest and taxes
   
21,019
     
12,015
 
Health insurance, workers’ compensation and other insurance costs
   
4,855
     
4,837
 
Marketing expenses
   
10,165
     
10,558
 
Other accrued liabilities
   
19,977
     
12,050
 
Total
 
$
202,384
   
$
148,819
 
 
The increase in accounts payable from December 31, 2009 to 2010 is primarily due to the Sturm and S.T. Foods acquisitions.  Excluding the effect of the Sturm and S.T. Foods acquisitions, accounts payable and accrued expenses decreased by $12.7 million.
INCOME TAXES
INCOME TAXES
   
9.
INCOME TAXES

Components of Income from continuing operations, before income taxes are as follows:

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
   
(In thousands)
 
Domestic source
 
$
120,461
   
$
125,413
   
$
35,966
 
Foreign source
   
15,939
     
(3,339
)
   
3,489
 
Income from continuing operations, before income tax
 
$
136,400
   
$
122,074
   
$
39,455
 

The following table presents the components of the 2010, 2009 and 2008 provision for income taxes:

   
Year Ended December 31,
 
   
2010
  
2009
  
2008 (1)
 
   
(In thousands)
 
Current:
   
Federal
 $26,958  $20,654  $3,858 
State
  4,473   4,101   1,546 
Foreign
  4,851   (2,591 )  177 
Total current
  36,282   22,164   5,581 
Deferred:
            
Federal
  8,239   13,577   3,665 
State
  1,250   1,956   350 
Foreign
  (290 )  3,063   1,299 
Total deferred
  9,199   18,596   5,314 
Total income tax expense
 $45,481  $40,760  $10,895 

 
   
(1)
Excludes, $(0.2) million income tax benefit related to discontinued operations in 2008.

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,
 
 
2010
   
2009
   
2008
 
 
(In thousands)
 
Tax at statutory rate
$
47,740
   
$
42,726
   
$
13,809
 
State income taxes
 
3,720
     
3,937
     
1,233
 
Tax benefit of cross-border intercompany financing structure
 
(5,053
)
   
(4,831
)
   
(4,762
)
Reduction of enacted tax rates on deferred tax liabilities (Canada)
 
—
     
(2,155
)
   
—
 
Transaction costs
 
1,149
     
—
     
—
 
Other, net
 
(2,075
)
   
1,083
     
615
 
Total provision for income taxes
$
45,481
   
$
40,760
   
$
10,895
 
 
 
The tax effects of temporary differences giving rise to deferred income tax assets and liabilities were:

   
December 31,
 
   
2010
   
2009
 
   
(In thousands)
 
Deferred tax assets:
               
Pension and postretirement benefits
 
$
5,278
   
$
5,116
 
Accrued liabilities
   
11,900
     
11,235
 
Stock compensation
   
13,080
     
22,191
 
Unrealized foreign exchange loss
   
1,073
     
395
 
Unrealized loss on interest swap
   
337
     
1,894
 
Other
   
12
     
1,332
 
Total deferred tax assets
   
31,680
     
42,163
 
Deferred tax liabilities:
               
Depreciation and amortization
   
(222,751
)
   
(82,214
)
Other
   
(347
)
   
(1,933
)
Total deferred tax liabilities
   
(223,098
)
   
(84,147
)
Net deferred income tax liability
 
$
(191,418
)
 
$
(41,984
)

Classification of net deferred tax assets (liabilities) in the Consolidated Balance Sheets is as follows:

   
December 31,
 
   
2010
   
2009
 
   
(In thousands)
 
Current assets
 
$
3,499
   
$
3,397
 
Non-current liabilities
   
(194,917
)
   
(45,381
)
Total net deferred tax liabilities
 
$
(191,418
)
 
$
(41,984
)

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 carry forwards as of December 31, 2010:

         
Years of Expiration:
 
   
Amount
   
Beginning
   
Ending
 
   
(In thousands)
   
U.S. state tax loss carry forwards
   
232
     
2014
     
2016
 

These tax loss carry forwards are associated with the 2007 acquisition of E.D. Smith.

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 2011or 2012.  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.  During the second quarter of 2010, the Canada Revenue Agency (CRA) completed an income tax audit for the E.D. Smith 2006 and 2007 tax years.  The Company did not incur any material adjustments as a result of the tax audit.
 

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,
 
   
2010
   
2009
 
   
(In thousands)
 
Unrecognized tax benefits beginning balance
 
$
3,187
   
$
1,995
 
Additions based on tax positions related to the current year
   
2,932
     
1,535
 
Additions based on tax positions of prior years
   
354
     
227
 
Additions resulting from acquisitions
   
1,887
     
—
 
Reductions for tax positions of prior years
   
(1,264
)
   
(529
)
Foreign currency translation
   
—
     
146
 
Payments
   
(242
)
   
(187
)
Unrecognized tax benefits ending balance
 
$
6,854
   
$
3,187
 

At December 31, 2010, 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, 2010 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, $6.4 million and $1.9 million of the amount accrued at December 31, 2010 and December 31, 2009, respectively, would impact the effective tax rate, if reversed.

The Company recognizes interest (income) expense and penalties related to unrecognized tax benefits in income tax expense.  During the years ended December 31, 2010, 2009 and 2008, the Company recognized $(0.6) million, $0.1 million and $0.2 million in interest and penalties in income tax expense, respectively.  The Company has accrued approximately $0.1 million and $0.6 million for the payment of interest and penalties at December 31, 2010 and 2009, 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, 2010 were approximately $27.0 million.  The determination of the amount of unrecognized U.S. federal income tax liabilities for the E.D. Smith unremitted earnings at December 31, 2010 is not practical at this time.

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, 2010 and 2009, the Company recognized a tax benefit of approximately $5.6 million and $6.0 million, respectively, related to this item.
LONG-TERM DEBT
LONG-TERM DEBT
10.
LONG-TERM DEBT

   
December 31,
 
   
2010
   
2009
 
   
Amount
   
Amount
 
   
Outstanding
   
Outstanding
 
   
(In thousands)
 
Revolving credit facility
 
$
472,600
   
$
298,200
 
High yield notes
   
400,000
     
—
 
Senior notes
   
100,000
     
100,000
 
Tax increment financing and other debt
   
4,828
     
4,346
 
Total outstanding debt
   
977,428
     
402,546
 
Less current portion
   
(976
)
   
(906
)
Total long-term debt
 
$
976,452
   
$
401,640
 
 
The scheduled maturities of outstanding debt, at December 31, 2010, are as follows (in thousands):

2011
 
$
976
 
2012
   
986
 
2013
   
100,890
 
2014
   
346
 
2015
   
472,905
 
Thereafter
   
401,325
 
Total outstanding debt
 
$
977,428
 

Revolving Credit Facility — On October 27, 2010, the Company entered into an Amended and Restated Credit Agreement (“Credit Agreement”) with a group of participating lenders which amends and restates the Credit Agreement dated June 27, 2005 (as amended) that was to expire August 31, 2011.  The Credit Agreement provides for an increase in the aggregate commitment under the revolving credit facility from $600 million to $750 million and extends the maturity to October 27, 2015.  The Credit Agreement also provides for a $75 million letter of credit sublimit, against which $9.2 million and $8.8 million in letters of credit have been issued but undrawn as of December 31, 2010 and 2009, respectively.  Proceeds from the credit facility may be used for working capital and general corporate purposes, including acquisition financing.  The Company’s obligations under the credit facility are guaranteed by certain of its United States subsidiaries.  The credit facility contains various financial and other restrictive covenants and requires that we maintain certain financial ratios, including a leverage and an interest coverage ratio.  We are in compliance with all applicable covenants as of December 31, 2010.  As of December 31, 2010, available funds under this facility totaled $268.2 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 interest rate under the Credit Agreement is based on the Company’s consolidated leverage ratio, and will be determined by either LIBOR plus a margin ranging from 1.25% to 2.05% or a base rate (as defined in the Credit Agreement) plus a margin ranging from 0.25% to 1.05%.  In addition, a facility fee based on our consolidated leverage ratio and ranging from 0.25% to 0.45% 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, 2010 was 2.23%.  Including the swap agreement (see below) with a fixed rate of 2.9% on $50 million, the average rate increases to 2.52% at December 31, 2010.

The Credit Agreement 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 Agreement 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 Agreement.

High Yield Notes — On March 2, 2010, TreeHouse Foods, Inc. completed its offering of $400 million in aggregate principal amount of 7.75% high yield notes due 2018 (the “Notes”).  The net proceeds of $391.0 million ($400.0 million notes less underwriting discount of $9.0 million providing an effective interest rate of 8.03%) were used as partial payment in the acquisition of all of the issued and outstanding stock of Sturm.  The Company issued the Notes pursuant to an Indenture, dated March 2, 2010 (the “Base Indenture”), among the Company, the subsidiary guarantors party thereto (Bay Valley Foods, LLC and EDS Holdings, LLC, the “Initial Guarantors”) and Wells Fargo Bank, National Association, (Trustee), as supplemented by a First Supplemental Indenture, dated March 2, 2010 (the “First Supplemental Indenture”), among the Company, the Initial Guarantors and the Trustee.  In addition, on March 2, 2010, the Company entered into a Second Supplemental Indenture, dated March 2, 2010 (the “Second Supplemental Indenture”) pursuant to which Sturm became an additional guarantor of the Notes, with the same force and effect as if Sturm was initially named as a guarantor under the Indenture.  On October 28, 2010, the Company entered into a Third Supplemental Indenture, dated October 28, 2010 (the “Third Supplemental Indenture” and together with the Base Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, the “Indenture”), pursuant to which STSF Holdings, Inc. and S.T. Foods, Inc. (together with the Initial Guarantors and Sturm, the “Guarantors”) became an additional guarantor of the Notes, with the same force and effect as if STSF Holdings, Inc. and S.T. Foods, Inc. was initially named a guarantor under the Indenture.  The Indenture provides, among other things, that the Notes will be senior unsecured obligations of the Company.  Interest is payable on the Notes on March 1 and September 1 of each year, beginning September 1, 2010.  The Notes will mature on March 1, 2018.
 
The Company may redeem some or all of the Notes at any time prior to March 1, 2014 at a price equal to 100% of the principal amount of the Notes redeemed, plus an applicable “make-whole” premium.  On or after March 1, 2014, the Company may redeem some or all of the Notes at redemption prices set forth in the First Supplemental Indenture.  In addition, at any time prior to March 1, 2013, the Company may redeem up to 35% of the Notes at a redemption price of 107.75% of the principal amount of the Notes redeemed with the net cash proceeds of certain equity offerings.

Subject to certain limitations, in the event of a change of control of the Company, the Company will be required to make an offer to purchase the Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest.

The Company’s payment obligations under the Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Guarantors and future domestic subsidiaries of the Company, other than certain excluded subsidiaries and unrestricted subsidiaries.  The Notes are not guaranteed by any of the Company’s foreign subsidiaries.

The Indenture contains restrictive covenants that, among other things, limit the ability of the Company and the Guarantors to: (i) pay dividends or make other restricted payments, (ii) make certain investments, (iii) incur additional indebtedness or issue preferred stock, (iv) create liens, (v) allow restrictions on the ability of certain of its subsidiaries to pay dividends or make other payments to the Company or the Guarantors, (vi) merge or consolidate with other entities or sell substantially all of its assets, (vii) enter into transactions with affiliates and (viii) engage in certain sale and leaseback transactions.  The foregoing limitations are subject to exceptions as set forth in the First Supplemental Indenture.  In addition, if in the future the Notes have an investment grade credit rating by both Moody’s Investors Services, Inc. and Standard & Poor’s Ratings Services, certain of these covenants will, thereafter, no longer apply to the Notes for so long as the Notes are rated investment grade by the two rating agencies.  The Company is in compliance with the applicable covenants as of December 31, 2010.

The Indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace and cure periods):  (i) non-payment of principal or interest; (ii) breach of certain covenants contained in the Indenture or the Notes, (iii) defaults in failure to pay certain other indebtedness or the acceleration of certain other indebtedness prior to maturity, (iv) the failure to pay certain final judgments, (v) the failure of certain guarantees to be enforceable and (vi) certain events of bankruptcy or insolvency.  Generally, if an event of default occurs (subject to certain exceptions), the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.

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, and the wholly-owned subsidiaries of Bay Valley Foods, LLC, EDS Holdings, LLC, Sturm and S.T. Foods.  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 2009 and, therefore, the Company did not pay additional interest of 1.0% in 2009 or 2010.

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, 2010.

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.  As of December 31, 2010 the swap amount was $50 million.  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 4.95% during 2011.  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 each of 2010, 2009 and 2008, $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 2011.

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, 2010, $2.5 million remains outstanding.  Interest accrues at an annual rate of 6.61% for the $0.2 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.
STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
   
11.
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, 2010, there were 35,439,835 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 were subject to service and 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 in that year.  These awards are no longer outstanding as of December 31, 2010.  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, 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,
 
           
2010
 
2009
 
2008
 
           
(In thousands)
 
Weighted average common shares outstanding
         
35,079
 
31,982
 
31,341
 
Assumed exercise of stock options (1)
         
728
 
383
 
96
 
Assumed vesting of restricted stock, restricted stock units and performance units (1)
   
365
 
433
 
32
 
Weighted average diluted common shares outstanding
         
36,172
 
32,798
 
31,469
 


 
   
(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 131 thousand, 29 thousand and 2.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
   
12.
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 0.6 million remain available at December 31, 2010.

Income from continuing operations before tax, for the years ended December 31, 2010, 2009 and 2008 included share-based compensation expense for employee and director stock options, restricted stock, restricted stock units and performance units of $15.8 million, $13.3 million and $12.2 million, respectively.  The tax benefit recognized related to the compensation cost of these share-based awards was approximately $6.1 million, $5.1 million and $4.6 million for 2010, 2009 and 2008, 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.

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 have a three year term and 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 2010:

               
Weighted
    
          
Weighted
   
Average
    
          
Average
   
Remaining
 
Aggregate
 
 
Employee
   
Director
   
Exercise
   
Contractual
 
Intrinsic
 
 
Options
   
Options
   
Price
   
Term (yrs)
 
Value
 
Outstanding, December 31, 2009
2,292,744
     
107,773
   
$
27.28
     
6.4
   
$
27,792,212
 
Granted
130,550
     
—
   
$
46.47
     
—
     
—
 
Forfeited
(6,601
)
   
—
   
$
27.00
     
—
     
—
 
Exercised
(159,958
)
   
(12,977
)
 
$
26.84
     
—
     
—
 
Outstanding, December 31, 2010
2,256,735
     
94,796
   
$
28.38
     
5.6
   
$
53,400,867
 
Vested/expect to vest, at December 31, 2010
2,240,601
     
94,796
   
$
28.35
     
5.6
   
$
53,104,972
 
Exercisable, December 31, 2010
1,980,891
     
93,196
   
$
27.55
     
5.3
   
$
48,824,201
 

During the years ended December 31, 2010, 2009 and 2008, the total intrinsic value of stock options exercised was approximately $3.4 million, $1.9 million and $3.8 million, respectively.  The tax benefit recognized from stock option exercises in 2010, 2009 and 2008 was approximately $1.3 million, $0.7 million and $1.4 million, respectively.  Compensation expense related to unvested options totaled $2.5 million at December 31, 2010 and will be recognized over the remaining vesting period of the grants, which averages 2.1 years.  The average grant date fair value of options granted, in 2010, 2009 and 2008 was $19.11, $8.97 and $8.09, respectively.
 
In addition to stock options, certain management employees were granted restricted stock and restricted stock units, pursuant to the terms of their employment agreements that are subject to service and market conditions for vesting.  The restricted stock awards expired and are no longer outstanding as of December 31, 2010.  During 2009, the vesting conditions of the restricted stock units were satisfied.  Issuance of the shares related to the units was deferred pursuant to the deferral elections of the participants.

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 subsequent to 2008 vest over thirteen months.  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 2010:

                    
      
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, 2009
  1,202,319  $24.28   784,931  $26.16   45,400  $26.96 
Granted
  —  $—   266,485  $45.73   16,870  $46.47 
Vested
  (277,754 ) $24.22   (619,159 ) $25.62   —  $— 
Forfeited
  (632,937 ) $24.28   (12,381 ) $31.31   —   — 
Outstanding, at December 31, 2010
  291,628  $24.32   419,876  $39.22   62,270  $32.24 

Compensation expense for all restricted stock and restricted stock units totaled $11.4 million in 2010, $8.0 million in 2009, and $6.4 million in 2008.

Future compensation cost for restricted stock and restricted stock units is approximately $14.5 million as of December 31, 2010 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 the 2008 and 2009 awards will accrue and vest over the cumulative performance and service period, and approximately 100% of the 2010 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, 2010:

       
Weighted
 
       
Average
 
 
Performance
   
Grant Date
 
 
Units
   
Fair Value
 
Unvested, at December 31, 2009
127,800
   
$
26.15
 
Granted
38,885
   
$
46.29
 
Vested
—
     
—
 
Forfeited
(1,625
)
 
$
28.47
 
Unvested, at December 31, 2010
165,060
   
$
30.87
 

Future compensation cost related to the performance units is estimated to be approximately $3.3 million as of December 31, 2010 and is expected to be recognized over the next 1.8 years.  The future compensation accrual is based on the assumption that 200% of the 2008 and 2009 awards and approximately 100% of the 2010 awards will vest.  The grant date fair value of the awards is equal to the Company’s closing stock price on the date of grant.
 
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.  Performance units and restricted stock and restricted stock unit awards were valued using the closing price of the Company’s stock on the date of grant.  Expected volatilities for 2010 are based on historical volatilities of the Company’s stock price.  Prior to 2010, expected volatilities were based on the implied historical volatilities from peer companies and other factors, as the Company’s stock was not publically traded prior to June 27, 2005.  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 2010, 2009 and 2008 are presented as follows:

   
2010
     
2009
     
2008
   
Expected volatility
   
35.00
%
   
26.37
%
   
26.37
%
Expected dividends
   
0.00
%
   
0.00
%
   
0.00
%
Risk-free interest rate
   
3.87
%
   
3.53
%
   
3.53
%
Expected term
   
6.0
 years
   
6.0
 years
   
6.0
 years
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE LOSS
   
13.
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, 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
)
Other comprehensive gain
 
14,066
     
690
     
161
     
14,917
 
Balance at December 31, 2010
$
(3,779
)
 
$
(7,825
)
 
$
(430
)
 
$
(12,034
)
                               

(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.
EMPLOYEE PENSION AND RETIREMENT BENEFIT PLANS
EMPLOYEE PENSION AND RETIREMENT BENEFIT PLANS
   
14.
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 2010, 2009 and 2008, the Company made matching contributions to the plan of $3.3 million, $2.9 million and $2.8 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 2010, 2009 and 2008, the contributions to these plans, which are expensed as incurred, were $1.6 million, $1.5 million and $1.7 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, 2010, our master trust was invested as follows: equity securities of 62%, fixed income securities of 37%, and cash and cash equivalents of 1%.  Equity securities primarily include investments in collective equity funds that primarily invest in securities in the United States.  Fixed income securities primarily include investments in collective funds that invest in corporate bonds of companies from diversified industries.  Other investments are short term in nature, including certificates of deposit, investments in a collective bond fund that invest in commercial paper, time deposits, fixed rate notes and bonds, and others.
 
The fair value of the Company’s pension plan assets at December 31, 2010 and 2009, by asset category are as follows:

       
Pension Plan Assets
   
       
Fair Value Measurements at
   
 
Level
   
December 31, 2010
   
Short Term Investment Fund (a)
2
     
$
221
   
Aggregate Bond Index Fund (b)
2
       
12,069
   
U.S. Market Cap Equity Index Fund (c)
2
       
16,868
   
International All Country World Index Fund (d)
2
       
3,242
   
         
$
32,400
   

       
Pension Plan Assets
   
       
Fair Value Measurements at
   
 
Level
   
December 31, 2009
   
Short Term Investment Fund (a)
1
     
$
654
   
Aggregate Bond Index Fund (b)
1
       
9,510
   
U.S. Market Cap Equity Index Fund (c)
1
       
16,211
   
International All Country World Index Fund (d)
1
       
3,329
   
         
$
29,704
   

(a)  
This fund is an investment vehicle for cash reserves, that seeks to offer a competitive rate of return through a portfolio of high-grade, short term, money market instruments.  Principal preservation is the primary objective of this fund.

(b)  
The primary objective of this fund is to hold a portfolio representative of the overall United States bond and debt market, as characterized by the Barclays Capital aggregate Bond Index.

(c)  
The primary objective of this fund is to approximate the risk and return characteristics of the Dow Jones U.S. ex-LP’s Total Stock Market index.

(d)  
The primary objective of this fund is to approximate the risk and return characteristics of the Morgan Stanley All Country World ex-US (MSCI ACWI exUS) ND Index.  This fund is commonly used to represent the Non-U.S. equity developed and emerging markets.

The pension plan assets are held in collective funds and in 2009, were presented as Level 1 investments in a manner that looked through the funds to the underlying investments.  For 2010, the pension plan assets are presented at the fund level as Level 2 investments.  The presentation of the pension plan assets for 2009 has been adjusted so that the investments are presented consistent with the 2010 presentation.

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 2011 contributions to its pension plans will be $4.9 million.  The measurement date for the defined benefit pension plans is December 31.

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 plans are unfunded.  The Company estimates that its 2011 contributions to its postretirement benefit plans will be $0.2 million.  The measurement date for the other postretirement benefit plans is December 31.

Effective March 31, 2010, the Company negotiated the transfer of the postretirement union retiree medical plan at the Dixon production facility to the Central States multiemployer plan.  The Company transferred its liability to the multiemployer plan and no longer carries a liability for the accumulated benefit obligation of the employees covered under that plan, resulting in a plan curtailment.  The curtailment resulted in a gain of $2.4 million, $1.4 million net of tax, which is included in Other operating (income) expense, net on the Condensed Consolidated Statements of Income.

The following table summarizes information about our pension and postretirement benefit plans for the years ended December 31, 2010 and 2009:

   
Pension Benefits
  
Postretirement Benefits
 
   
2010
   
2009
  
2010
  
2009
 
Change in benefit obligation:
 
(In thousands)
  
(In thousands)
 
Benefit obligation, at beginning of year
 
$
38,780
   
$
33,540
   
$
4,713
   
$
3,959
 
Service cost
   
2,023
     
1,933
    
85
    
255
 
Interest cost
   
2,136
     
2,083
    
140
    
239
 
Amendments
   
—
     
182
    
—
    
—
 
Acquisitions
   
—
     
—
    
1,064
    
—
 
Curtailments
   
—
     
—
    
(3,758
)
  
—
 
Actuarial losses
   
2,141
     
2,854
    
279
    
358
 
Benefits paid
   
(1,868
)
   
(1,812
)
  
(198
)
  
(98
)
Benefit obligation, at end of year
 
$
43,212
   
$
38,780
   
$
2,325
   
$
4,713
 
                               
Change in plan assets:
                             
Fair value of plan assets, at beginning of year
 
$
29,704
   
$
17,600
   
$
—
   
$
—
 
Actual return on plan assets
   
3,314
     
5,019
    
—
    
—
 
Company contributions
   
1,250
     
8,897
    
198
    
98
 
Benefits paid
   
(1,868
)
   
(1,812
)
  
(198
)
  
(98
)
Fair value of plan assets, at year end
 
$
32,400
   
$
29,704
   
$
—
   
$
—
 
                               
Funded status of the plan
 
$
(10,812
)
 
$
 
(9,076
)
 
$
(2,325
)
 
$
(4,713
)
                               
Amounts recognized in the Consolidated Balance Sheet consist of:
                             
Current liability
 
$
—
   
$
—
   
$
(175
)
 
$
(107
)
Non-current liability
   
(10,812
)
   
(9,076
)
  
(2,150
)
  
(4,606
)
Net amount recognized
 
$
(10,812
)
 
$
(9,076
)
 
$
(2,325
)
 
$
(4,713
)
                               
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
                             
Net actuarial loss
 
$
10,095
   
$
9,591
   
$
(167
)
 
$
925
 
Prior service cost
   
3,449
     
4,052
    
(508
)
  
(576
)
Total, before tax effect
 
$
13,544
   
$
13,643
   
$
(675
)
 
$
349
 

 
               
Pension Benefits
 
               
2010
     
2009
 
               
(In thousands)
 
Accumulated benefit obligation:
           
$
40,582
   
$
35,749
 
                           
Weighted average assumptions used to determine the pension benefit obligations:
                         
Discount rate
             
5.25
%
   
5.75
%
Rate of compensation increases
             
4.00
%
   
4.00
%

The key actuarial assumptions used to determine the postretirement benefit obligations as of December 31, 2010 and 2009 are as follows:

                 
2010
         
2009
 
                 
Pre-65
 
Post 65
         
Pre-65
 
Post 65
 
Healthcare inflation:
                                       
Initial rate
               
7.5% – 9.0%
 
9.0%
         
8.0%
 
10.0%
 
Ultimate rate
               
5.0%
 
5.0%
         
5.0%
 
5.0%
 
Year ultimate rate achieved
               
2015-2018
 
2015-2018
         
2015
 
2015
 
Discount rate
               
5.25%
 
5.25%
         
5.75%
 
5.75%
 

The following table summarizes the net periodic cost of our pension plans and postretirement plans, for the years ended December 31, 2010, 2009 and 2008:

         
Pension Benefits
   
Postretirement Benefits
 
         
2010
   
2009
   
2008
   
2010
   
2009
   
2008
 
         
(In thousands)
   
(In thousands)
 
Components of net periodic costs:
                                                       
Service cost
         
$
2,023
   
$
1,933
   
$
1,755
   
$
85
   
$
255
   
$
218
 
Interest cost
           
2,136
     
2,083
     
1,807
     
140
     
239
     
218
 
Expected return on plan asset
           
(2,199
)
   
(1,773
)
   
(1,505
)
   
—
     
—
     
—
 
Amortization of unrecognized prior service cost
     
603
     
580
     
479
     
(68
)
   
(68
)
   
(68
)
Amortization of unrecognized net loss (gain)
           
522
     
626
     
73
     
(30
)
   
(2
)
   
8
 
Curtailment
           
—
     
—
     
—
     
(2,357
)
   
—
     
—
 
Settlement charge
   
 
     
—
     
—
     
—
     
—
     
—
     
—
 
Net periodic cost
         
$
3,085
   
$
3,449
   
$
2,609
   
$
(2,230
)
 
$
424
   
$
376
 

   
Pension Benefits
   
Postretirement Benefits
 
   
2010
     
2009
     
2008
   
2010
     
2009
     
2008
 
Weighted average assumptions used to
                                           
determine the periodic benefit costs:
                                           
Discount rate
 
5.75
%
   
6.25
%
   
6.25
%
 
5.75
%
   
6.25
%
   
6.25
%
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 2011 is as follows:

   
Pension
  
Postretirement
 
   
(In thousands)
 
Net actuarial loss
 $575  $12 
Prior service cost
 $603  $68 

Estimated future pension and postretirement benefit payments from the plans are as follows:

   
Pension
  
Postretirement
 
   
Benefit
  
Benefit
 
   
(In thousands)
 
2011
 $2,029  $175 
2012
 $2,391  $149 
2013
 $2,586  $131 
2014
 $2,594  $145 
2015
 $2,707  $158 
2016-2020
 $15,563  $821 

The effect of a 1% change in health care trend rates would have the following effects on the postretirement benefit plan:

   
2010
 
   
(In thousands)
 
1% Increase:
       
Benefit obligation, end of year
 
$
186
 
Service cost plus interest cost for the year
 
$
11
 
1% Decrease:
       
Benefit obligation, end of year
 
$
(158
)
Service cost plus interest cost for the year
 
$
(10
)

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.
OTHER OPERATING (INCOME) EXPENSE, NET
OTHER OPERATING (INCOME) EXPENSE, NET
   
15.
OTHER OPERATING (INCOME) EXPENSE, NET

We incurred Other operating (income) expense, net of $1.2 million, $(6.2) million and $13.9 million, for the years ended December 31, 2010, 2009 and 2008, respectively.  Other operating (income) expenses, net consisted of the following:

  Year Ended December 31,
   
2010
   
2009
   
2008
 
  (In thousands)
             
             
Facility closing costs and impairment charges related to the Portland, Oregon plant
 
$
642
   
$
886
   
$
12,839
 
Gain on postretirement plan curtailment
   
(2,357
)
   
—
     
—
 
Realignment of infant feeding business
   
2,195
     
—
     
—
 
Exit from a third party warehouse
   
879
     
—
     
—
 
(Gain) loss on fire at New Hampton, Iowa facility
   
—
     
(14,533
)
   
500
 
Impairment of trademarks and other intangibles
   
—
     
7,600
     
560
 
Other
   
(176
)
   
(177
)
   
—
 
Total other operating (income) expense, net
 
$
1,183
   
$
(6,224
)
 
$
13,899
 
INSURANCE CLAIM - NEW HAMPTON
INSURANCE CLAIM - NEW HAMPTON
   
16.
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 received approximately $47.2 million in reimbursements for property damage and incremental expenses 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.
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
   
17.
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 of $0.2 million, 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.
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
   
18.
SUPPLEMENTAL CASH FLOW INFORMATION

   
Year Ended December 31,
 
   
2010
  
2009
  
2008
 
   
(In thousands)
 
Interest paid
 $33,045  $17,224  $29,153 
Income taxes paid
 $23,895  $18,103  $10,959 
Accrued purchase of property and equipment
 $4,761  $1,419  $3,819 
Accrued other intangible assets
 $1,609  $—  $— 
Receivable related to Sturm acquisition
 $3,329  $—  $— 

Non cash financing activities for the twelve months ended December 31, 2010 and 2009 include the settlement of 893,198 and 33,625 shares, respectively, of restricted stock and restricted stock units, where shares were withheld to satisfy the minimum statuary tax withholding requirements.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
   
19.
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 $33.1 million, $34.3 million and $27.3 million for the years ended December 31, 2010, 2009 and 2008, respectively.

The composition of capital leases which are reflected as Property, plant and equipment in the Consolidated Balance Sheets are as follows:

   
December 31,
 
   
2010
   
2009
 
   
(In thousands)
 
Machinery and equipment
 
$
3,381
   
$
2,486
 
Less accumulated amortization
   
(1,207
)
   
(869
)
Total
 
$
2,174
   
$
1,617
 

 
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.

Future minimum payments at December 31, 2010, under non-cancelable capital leases, operating leases and purchase obligations are summarized as follows:

   
Capital
   
Operating
   
Purchase
 
   
Leases
   
Leases
   
Obligations
 
   
(In thousands)
 
2011
 
$
831
   
$
12,614
   
$
156,035
 
2012
   
805
     
8,707
     
10,963
 
2013
   
672
     
5,259
     
1,915
 
2014
   
90
     
5,073
     
1,230
 
2015
   
32
     
4,775
     
36
 
Thereafter
   
—
     
13,515
     
—
 
Total minimum payments
   
2,430
   
$
49,943
   
$
170,179
 
Less amount representing interest
   
137
                 
Present value of capital lease obligations
 
$
2,293
                 

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.
DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS
   
20.
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, foreign currency risk and commodity price risk.  Interest rate swaps are entered into to manage interest rate risk associated with the Company’s $750 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, 2010 and 2009 was a liability of approximately $0.9 million and $4.9 million, respectively.  The Company recorded income of $4.0 million and $2.1 million and expense of $7.0 million related to the mark to market adjustment in 2010, 2009 and 2008, respectively, within the Other (income) expense line of the Consolidated Statements of Income.

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. As of December 31, 2010 we had a liability of $0.2 million for foreign exchange contracts.  No foreign currency contracts were outstanding as of December 31, 2009 or 2008. During 2010 and 2009, the Company realized a loss of approximately $0.2 million and a gain of approximately $0.7 million in 2008 on these contracts.
 
During 2010, the Company entered into a commodity swap contract for 5.4 million pounds of High Density Polyethylene (“HDPE”) to manage the Company’s risk associated with the underlying commodity cost of a significant component used in packaging materials.  The objective in using this swap is to establish a fixed commodity cost over the term of the contract.  The trade date was June 3, 2010, with an effective date of July 1, 2010 and an expiration date of December 31, 2011.  The Company will settle 0.3 million pounds on a monthly basis over the term of the contract.  The Company did not apply hedge accounting to the commodity swap, and it is recorded
at fair value on the Company’s Condensed Consolidated Balance Sheets.  As of December 31, 2010, we had an asset of $0.4 million associated with the commodity swap contract.  During 2010, the Company realized a gain of $0.4 million on this contract which is recorded in the Consolidated Statement of Income, within the Other (income) expense line.

The following table identifies the derivative, its fair value, and location on the Consolidated Balance Sheet:

     
Fair Value
 
 
Balance Sheet Location
 
December 31, 2010
  
December 31, 2009
 
Liability Derivatives:
   
(In thousands)
 
Interest rate swap
Accounts payable and accrued expenses
 $874  $3,327 
Foreign exchange contract
Accounts payable and accrued expenses
  184   — 
     $1,058  $3,327 
            
Interest rate swap
Other Long-term liabilities
 $—  $1,550 
     $—  $1,550 
            
Asset Derivative:
          
Commodity contract
Prepaid expenses and other current assets
 $360  $— 
     $360  $— 
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
   
21.
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, 2010, the outstanding balance of the Company’s variable rate debt (revolving credit facility) was $472.6 million, the fair value of which is estimated to be $475.4 million, using a present value technique and market based interest rates and credit spreads.  As of December 31, 2010, the carrying value of the Company’s fixed rate senior notes was $100.0 million and fair value was estimated to be $100.2 million based on a present value technique using market based interest rates and credit spreads.  The fair value of the Company’s 7.75% high yield notes due 2018, with an outstanding balance of $400.0 million as of December 31, 2010, was estimated at $434.0 million, based on quoted market prices.

The fair value of the Company’s interest rate swap agreement, as described in Notes 10 and 20, was a liability of approximately $0.9 million as of December 31, 2010.  The fair value of the swap was determined using Level 2 inputs, which are inputs other than quoted prices that are observable for an asset or liability, either directly or indirectly.  The fair value is based on a market approach, comparing the fixed rate of 2.9% to the current and forward one month LIBOR rates throughout the term of the swap agreement.

The fair value of the Company’s commodity contract as described in Note 20 was an asset of approximately $0.4 million as of December 31, 2010.  The fair value of the commodity contract was determined using Level 1 inputs.  Level 1 inputs are those inputs where quoted prices in active markets for identical assets or liabilities are available.

The fair value of the Company’s foreign exchange contract as described in Note 20 was a liability of $0.2 million as of December 31, 2010, using level 2 inputs, comparing the foreign exchange rate of our contract to the spot rate as of December 31, 2010.
SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
   
22.
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.  The Company’s 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 creamers; condensed and ready to serve soups, broths and gravies; infant feeding products; salad dressings and sauces; pickles and related products; Mexican sauces; jams and pie fillings; aseptic products; liquid non-dairy creamer; powdered drinks; hot cereals; macaroni and cheese and skillet dinners.  During 2010, we exited the retail infant feeding business.

Our Food Away From Home segment sells non-dairy powdered creamers, pickles and related products, Mexican sauces, refrigerated dressings, aseptic products and hot cereals 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 business and non-dairy powdered creamer sales to industrial customers for use in industrial applications, including products for repackaging in portion control packages and for use as ingredients by other food manufacturers; pickles and related products; Mexican sauces; infant feeding products and refrigerated dressings.  Export sales are primarily to industrial customers outside of North America.

We evaluate the performance of our segments based on net sales dollars and direct operating income (gross profit less freight out, sales commissions and direct selling and marketing 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,
 
   
2010
   
2009
   
2008
 
   
(In thousands)
 
Net sales:
                       
North American Retail Grocery
 
$
1,247,126
   
$
971,083
   
$
917,102
 
Food Away From Home
   
314,998
     
292,927
     
294,020
 
Industrial and Export
   
254,900
     
247,643
     
289,528
 
Total
   
1,817,024
     
1,511,653
     
1,500,650
 
Direct operating income:
                       
North American Retail Grocery
   
221,473
     
152,849
     
114,511
 
Food Away From Home
   
47,751
     
36,069
     
32,133
 
Industrial and Export
   
45,056
     
36,025
     
33,473
 
Total
   
314,280
     
224,943
     
180,117
 
Unallocated warehouse start-up costs (1)
   
—
     
(3,339
)
   
—
 
Unallocated selling and distribution expenses
   
(3,066
)
   
(3,172
)
   
(3,824
)
Unallocated corporate expense
   
(134,661
)
   
(87,623
)
   
(89,168
)
Operating income
   
176,553
     
130,809
     
87,125
 
Other expense
   
(40,153
)
   
(8,735
)
   
(47,670
)
Income before income taxes
 
$
136,400
   
$
122,074
   
$
39,455
 
                         
Depreciation:
                       
North American Retail Grocery
 
$
27,729
   
$
21,395
   
$
23,064
 
Food Away From Home
   
5,666
     
5,237
     
5,424
 
Industrial and Export
   
7,332
     
5,485
     
2,344
 
Corporate office
   
2,699
     
1,845
     
1,494
 
Total
 
$
43,426
   
$
33,962
   
$
32,326
 
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 13.5%, 13.7% and 14.3% of total consolidated net sales in 2010, 2009 and 2008, respectively, with 12.8%, 13.1% and 13.6% going to Canada in 2010, 2009 and 2008, respectively.  Sales are determined based on customer destination.
   
December 31,
 
   
2010
   
2009
   
2008
 
   
(In thousands)
 
Long-lived assets
                       
United States
 
$
350,356
   
$
242,144
   
$
239,574
 
Canada
   
35,835
     
33,889
     
31,090
 
Total
 
$
386,191
   
$
276,033
   
$
270,664
 

Long-lived assets consist of net property, plant and equipment.
 
Major Customers — Wal-Mart Stores, Inc. and affiliates accounted for approximately 18.5%, 14.4% and 15.1% of our consolidated net sales in 2010, 2009 and 2008, 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 22.6% and 13.3% of our total trade receivables as of December 31, 2010 and 2009, respectively.

Product Information — The following table presents the Company’s net sales by major products.

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
   
(In thousands)
 
Products:
                       
Pickles
 
$
328,058
   
$
316,976
   
$
325,579
 
Soup and infant feeding
   
322,490
     
344,181
     
336,519
 
Non-dairy powdered creamer
   
305,659
     
323,926
     
351,838
 
Salad dressings
   
208,209
     
186,778
     
156,884
 
Jams and other sauces
   
165,622
     
155,771
     
153,927
 
Powdered drinks
   
154,751
     
—
     
—
 
Hot cereals
   
120,486
     
—
     
—
 
Aseptic products
   
88,119
     
84,493
     
83,198
 
Mexican sauces
   
74,725
     
64,520
     
52,718
 
Refrigerated products
   
31,777
     
35,008
     
39,987
 
Dry dinners
   
17,128
     
—
     
—
 
Total net sales
 
$
1,817,024
   
$
1,511,653
   
$
1,500,650
 
QUARTERLY RESULTS OF OPERATIONS (unaudited)
QUARTERLY RESULTS OF OPERATIONS (unaudited)
   
23.
QUARTERLY RESULTS OF OPERATIONS (unaudited)

The following is a summary of our unaudited quarterly results of operations for 2010 and 2009:

Fiscal 2010
 
Quarter
 
   
First
   
Second
   
Third
   
Fourth
 
   
(In thousands, except per share data)
 
Fiscal 2010
                               
Net sales
 
$
397,124
   
$
446,195
   
$
464,242
   
$
509,463
 
Gross profit
   
88,778
     
106,150
     
110,237
     
126,169
 
Income before income taxes
   
24,604
     
32,257
     
36,810
     
42,729
 
Net income
   
16,319
     
21,652
     
24,867
     
28,081
 
Net income per common share:
                               
Basic
   
.49
     
.62
     
.70
     
.79
 
Diluted
   
.47
     
.60
     
.68
     
.77
 
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
 
                                 

(1)
Includes trademark impairment of $7.6 million before tax in the fourth quarter of 2009.
   
Guarantor and Non-Guarantor Financial Information
Guarantor and Non-Guarantor Financial Information
   
24.
GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

With the acquisition of Sturm, the Company issued $400 million in new debt which is guaranteed by its wholly owned subsidiaries Bay Valley Foods, LLC; EDS Holdings, LLC; Sturm Foods, Inc.; STSF Holdings, Inc. and S.T. Specialty Foods, Inc. 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, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008.  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.

Condensed Supplemental Consolidating Balance Sheet
 
December 31, 2010
 
(In thousands)
 
   
Parent
  
Subsidiary
  
Non-Guarantor
       
   
Company
  
Guarantors
  
Subsidiaries
  
Eliminations
  
Consolidated
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
 $—  $6  $6,317  $—  $6,323 
Accounts receivable, net
  3,381   104,227   19,036   —   126,644 
Inventories, net
  —   251,993   35,402   —   287,395 
Deferred income taxes
  339   2,916   244   —   3,499 
Assets held for sale
  —   4,081   —   —   4,081 
Prepaid expenses and other current assets
  1,299   10,997   565   —   12,861 
Total current assets
  5,019   374,220   61,564   —   440,803 
Property, plant and equipment, net
  12,722   337,634   35,835   —   386,191 
Goodwill
  —   963,031   113,290   —   1,076,321 
Investment in subsidiaries
  1,216,618   140,727   —   (1,357,345 )  — 
Intercompany accounts receivable, net
  703,283   (586,789 )  (116,494 )  —   — 
Deferred income taxes
  13,179   —   —   (13,179 )  — 
Identifiable intangible and other assets, net
  45,005   358,805   84,123   —   487,933 
Total assets
 $1,995,826  $1,587,628  $178,318  $(1,370,524) $2,391,248 
LIABILITIES AND
                    
SHAREHOLDERS’ EQUITY
                    
Current liabilities:
                    
Accounts payable and accrued expenses
 $33,363  $147,889  $21,132  $—  $202,384 
Current portion of long-term debt
  —   976   —   —   976 
Total current liabilities
  33,363   148,865   21,132   —   203,360 
Long-term debt
  963,014   13,438   —   —   976,452 
Deferred income taxes
  6,210   185,427   16,459   (13,179 )  194,917 
Other long-term liabilities
  15,273   23,280   —   —   38,553 
Shareholders’ equity
  977,966   1,216,618   140,727   (1,357,345 )  977,966 
Total liabilities and shareholders’ equity
 $1,995,826  $1,587,628  $178,318  $(1,370,524) $2,391,248 

 
Condensed Supplemental Consolidating Balance Sheet
 
December 31, 2009
 
(In thousands)
 
   
Parent
  
Subsidiary
  
Non-Guarantor
       
   
Company
  
Guarantors
  
Subsidiaries
  
Eliminations
  
Consolidated
 
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 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 

 
Condensed Supplemental Consolidating Statement of Income
   
Year Ended December 31, 2010
   
(In thousands)
   
     
Parent
     
Subsidiary
     
Non-Guarantor
                 
     
Company
     
Guarantors
     
Subsidiaries
     
Eliminations
     
Consolidated
 
Net sales
 
$
—
   
$
1,593,324
   
$
250,001
   
$
(26,301
)
 
$
1,817,024
 
Cost of sales
   
—
     
1,215,837
     
196,154
     
(26,301
)
   
1,385,690
 
Gross profit
   
—
     
377,487
     
53,847
     
—
     
431,334
 
Selling, general and administrative expense
   
50,605
     
153,619
     
23,022
     
—
     
227,246
 
Amortization
   
526
     
21,085
     
4,741
     
—
     
26,352
 
Other operating income, net
   
—
     
1,183
     
—
     
—
     
1,183
 
Operating (loss) income
   
(51,131
)
   
201,600
     
26,084
     
—
     
176,553
 
Interest expense (income), net
   
44,824
     
(12,862
)
   
13,729
     
—
     
45,691
 
Other (income) expense, net
   
(4,002
)
   
1,537
     
(3,073
)
   
—
     
(5,538
)
(Loss) income from continuing operations, before income taxes
   
(91,953
)
   
212,925
     
15,428
     
—
     
136,400
 
Income taxes (benefit)
   
(35,782
)
   
76,702
     
4,561
     
—
     
45,481
 
Equity in net income of subsidiaries
   
147,090
     
10,867
     
—
     
(157,957
)
   
—
 
Income from continuing operations
                                       
Loss from discontinued operations
                                       
Net income (loss)
 
$
90,919
   
$
147,090
   
$
10,867
   
$
(157,957
)
 
$
90,919
 




Condensed Supplemental Consolidating Statement of Income
   
Year Ended December 31, 2009
   
(In thousands)
   
     
Parent
     
Subsidiary
     
Non-Guarantor
                 
     
Company
     
Guarantors
     
Subsidiaries
     
Eliminations
     
Consolidated
 
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
 
 

 
 
Condensed Supplemental Consolidating Statement of Income
   
Year Ended December 31, 2008
   
(In thousands)
   
     
Parent
     
Subsidiary
     
Non-Guarantor
                 
     
Company
     
Guarantors
     
Subsidiaries
     
Eliminations
     
Consolidated
 
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
 

 
 
Condensed Supplemental Consolidating Statement of Cash Flows
 
Fiscal Year Ended December 31, 2010
 
(In thousands)
 
     
Parent
     
Subsidiary
     
Non-Guarantor
                 
     
Company
     
Guarantors
     
Subsidiaries
     
Eliminations
     
Consolidated
 
Net cash (used) provided by operations
 
$
(39,737
)
 
$
276,416
   
$
7,972
   
$
—
   
$
244,651
 
Cash flows from investing activities:
                                       
Additions to property, plant and equipment
   
(463
)
   
(33,485
)
   
(5,595
)
   
—
     
(39,543
)
Additions to intangible assets
   
(14,763
)
   
(5,883
)
   
(1,464
)
   
—
     
 
(22,110
)
Cash outflows for acquisitions, net of cash acquired
   
1,641
     
(846,137
)
   
—
     
—
     
(844,496
)
Proceeds from sale of fixed assets
   
—
     
(367
)
   
410
     
—
     
43
 
Net cash used in continuing operations
   
(13,585
)
   
(885,872
)
   
(6,649
)
   
—
     
(906,106
)
Net cash provided by discontinued operations
   
—
     
—
     
—
     
—
     
—
 
Net cash provided by (used in) investing activities
   
(13,585
)
   
(885,872
)
   
(6,649
)
   
—
     
(906,106
)
Cash flows from financing activities:
                                       
Proceeds from issuance of debt
   
400,000
     
—
     
—
     
—
     
400,000
 
Net borrowing (repayment) of debt
   
174,600
     
(1,056
)
   
(154
)
   
—
     
173,390
 
Intercompany transfer
   
(610,510
)
   
610,510
     
—
     
—
     
—
 
Payment of deferred financing costs
   
(16,418
)
   
—
     
—
     
—
     
(16,418
)
Excess tax benefit from stock based compensation
   
5,732
     
—
     
—
     
—
     
5,732
 
Cash used to net share settle equity awards
   
(15,370
)
   
—
     
—
     
—
     
(15,370
)
Issuance of common stock, net of expenses
   
110,688
     
—
     
—
     
—
     
110,688
 
Proceeds from stock option exercises
   
4,599
     
—
     
—
     
—
     
4,599
 
Net cash provided by (used in) financing activities
   
53,321
     
609,454
     
(154
)
   
—
     
662,621
 
Effect of exchange rate changes on cash and cash equivalents
   
—
     
—
     
742
     
—
     
742
 
Increase (decrease) in cash and cash equivalents
   
(1
)
   
(2
)
   
1,911
     
—
     
1,908
 
Cash and cash equivalents, beginning of year
   
1
     
8
     
4,406
     
—
     
4,415
 
Cash and cash equivalents, end of year
 
$
—
   
$
6
   
$
6,317
   
$
—
   
$
6,323
 

 

 
Condensed Supplemental Consolidating Statement of Cash Flows
 
Fiscal Year Ended December 31, 2009
 
(In thousands)
 
     
Parent
     
Subsidiary
     
Non-Guarantor
                 
     
Company
     
Guarantors
     
Subsidiaries
     
Eliminations
     
Consolidated
 
Net cash (used) 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 compensation
   
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
 

 

Condensed Supplemental Consolidating Statement of Cash Flows
 
Fiscal Year Ended December 31, 2008
 
(In thousands)
 
     
Parent
     
Subsidiary
     
Non-Guarantor
                 
     
Company
     
Guarantors
     
Subsidiaries
     
Eliminations
     
Consolidated
 
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
 
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
TREEEHOUSE FOODS, INC.
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2010, 2009 and 2008

Allowance for doubtful accounts deducted from accounts receivable:

 
Balance
   
Change
         
Write-Off of
             
 
Beginning
   
to
         
Uncollectible
         
Balance
 
Year
of Year
   
Allowance
   
Acquisitions
   
Accounts
   
Recoveries
   
End of Year
 
 
(In thousands)
 
2008
$
637
   
$
150
   
$
—
   
$
(314
)
 
$
5
   
$
478
 
2009
$
478
   
$
68
   
$
—
   
$
(124
)
 
$
2
   
$
424
 
2010
$
424
   
$
(50
)
 
$
243
   
$
(60
)
 
$
193
   
$
750
 
Document Information
Year Ended
Dec. 31, 2010
Document Type
10-K 
Amendment Flag
FALSE 
Document Period End Date
2010-12-31 
Entity Information
Year Ended
Dec. 31, 2010
Jan. 31, 2011
Jun. 30, 2010
Entity Registrant Name
TreeHouse Foods, Inc. 
 
 
Entity Central Index Key
0001320695 
 
 
Current Fiscal Year End Date
12/31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
1,570,232,971 
Entity Common Stock, Shares Outstanding
 
35,441,562 
 
Document Fiscal Year Focus
2010 
 
 
Document Fiscal Period Focus
FY