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 product sales, as disclosed in Note 20, from prior years have been reclassified to conform to the current period presentation. Due to changes in the amount of cash on our balance sheet in 2012 versus prior years, we have earned significant interest income, and as a result, have presented interest income as a separate line item in our Consolidated Statements of Income in 2012. To be consistent with the current year presentation, we have reclassified interest income, which had previously been presented net of interest expense. These reclassifications had no effect on reported net income, total assets, or 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. As of December 31, 2012, $94.1 million represents cash held in Canada, in local currency, and is convertible into other currencies. The cash held in Canada is expected to be used for general corporate purposes in Canada, including capital projects and acquisitions.

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:

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:

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.

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. 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. Goodwill impairment has occurred if the book value of the reporting unit exceeds its fair value, and goodwill is written down to fair value. Our estimates of fair value under the income approach are determined based on a discounted cash flow model.

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. See Note 12.

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 or 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 60 days, perform ongoing credit evaluations 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 in 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 $61.5 million, $70.1 million and $53.6 million, for years ended 2012, 2011 and 2010, 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 loss and reclassified into earnings in the same period when the hedged transaction affects earnings. The ineffective gain or loss is recognized in current earnings. Commodity forward contracts generally qualify for the normal purchase exception under the guidance for derivative instruments and hedging activities, and therefore are not subject to its provisions. For further information about our derivative instruments see Note 18.

Capital Lease Obligations—Capital lease obligations represent machinery and equipment financing obligations, which are generally 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. These charges are incurred as a component of operating income.

Research and Development Costs—We record research and development charges to expense as they are incurred and are reported in the General and administrative line of our Consolidated Statements of Income. Expenditures totaled $11.1 million, $10.1 million and $10.5 million, for years ended 2012, 2011 and 2010, respectively.

Advertising Costs—Advertising costs are expensed as incurred and reported in the Selling and distribution line of our Consolidated Statements of Income.

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, which is intended to simplify how an entity tests other intangible assets for impairment, by allowing companies the option of performing a qualitative assessment before calculating the fair value of the asset when testing indefinite-lived intangible assets for impairment. The ASU also revises the examples of events and circumstances that an entity should consider in interim periods. This ASU is effective for annual and interim period impairment tests performed for fiscal years beginning after September 15, 2012. This ASU does not change how intangible assets are accounted for, accordingly, the Company does not believe this ASU will have a significant impact on the Company’s financial statements.

Soup restructuring—On August 7, 2012, following a strategic review of the soup category, the Company announced a restructuring plan that includes the closure of its Mendota, Illinois soup plant. Subsequently, the Company amended the plan to include reductions to the cost structure of the Pittsburgh, Pennsylvania facility by reorganizing and simplifying the soup business at the Pittsburgh facility. The restructuring is expected to reduce manufacturing costs by streamlining operations and transferring production to the Company’s Pittsburgh, Pennsylvania soup plant. Production at the Mendota facility was primarily related to the North American Retail Grocery segment and production ended as of December 31, 2012, with full plant closure to occur in the first quarter of 2013. Total costs are expected to be approximately $20.5 million as detailed below, of which $5.6 million is expected to be in cash. The total expected costs decreased from $21.4 million, as reported in the third quarter of 2012, as estimates were refined. Expenses associated with the restructuring are aggregated in the Other operating expense, net line item of the Consolidated Statement of Income, with the exception of accelerated depreciation, which is recorded in Cost of sales.

Seaforth, Ontario, Canada—On August 7, 2012, the Company announced the closure of its salad dressing plant in Seaforth, Ontario, Canada and the transfer of production to facilities where the Company has lower production costs. Production at the Seaforth, Ontario facility was primarily related to the North American Retail Grocery segment and is expected to end in the second quarter of 2013, with full plant closure expected in the third quarter of 2013. Total costs to close the Seaforth facility are expected to be approximately $12.8 million as detailed below, of which $5.7 million is expected to be in cash. The total expected costs decreased from $13.6 million, as reported in the third quarter of 2012, as estimates were refined. Expenses incurred associated with the facility closure are primarily aggregated in the Other operating expense, net line item of the Consolidated Statement of Income. Certain costs, primarily accelerated depreciation, are recorded in Cost of sales.

Concurrent with the restructurings as noted above, the Company reviewed the fixed assets for impairment at the product category level and no impairment was indicated. During the review, the useful lives of the related assets were reassessed and shortened to be consistent with the dates that production at the facilities were expected to end. The change in estimated useful lives related to the restructurings resulted in $10.7 million, or approximately $0.21 per basic and fully diluted share, of accelerated depreciation being recorded in 2012. We expect to incur an additional $11.3 million of accelerated depreciation through the second quarter of 2013. The weighted average useful life of the soup assets before and after the analysis was approximately eleven years and seven years, respectively. The Seaforth assets had a weighted average useful life before and after the analysis of approximately eleven years and nine months, respectively.

Below is a summary of the restructuring costs:

As disclosed in Note 4, the Company acquired substantially all of the assets of Naturally Fresh, Inc. (“Naturally Fresh”). Subsequent to the acquisition, during the third quarter of 2012, the Company closed the trucking operations of Naturally Fresh that were acquired in the purchase. This action resulted in approximately $0.4 million of severance costs that are recorded in the Other operating expense, net line of the Consolidated Statements of Income.

Liabilities recorded as of December 31, 2012 associated with the restructurings are related to severance costs totaling $2.7 million and are included in the Accounts payable and accrued expenses line of the Consolidated Balance Sheets. The table below presents a reconciliation of the severance liability as of December 31, 2012. The adjustments in the table below relate to refined estimates.

Springfield, MO—As of December 31, 2011, the Company closed its pickle plant in Springfield, Missouri. Production ceased in August 2011 and has been transferred to other pickle facilities. Production at the Springfield facility was primarily related to the Food Away From Home segment. Closure costs for the year ended December 31, 2012 were insignificant. For the year ended December 31, 2011, total closure costs were $5.1 million. These costs are included in Other operating expense, net line in our Consolidated Statements of Income.

The Company classifies assets as held for sale in the amount of $4.1 million, resulting from the closure of our Portland pickle facility in 2008. The assets are valued at the lower of its carrying amount or fair value, less the cost to sell. The assets are not depreciated. The Company expects the assets to be sold within the next twelve months.

On November 30, 2012, the Company completed the acquisition of selected assets of the aseptic cheese and pudding business from Associated Milk Producers Inc. (AMPI), a dairy marketing cooperative based in New Ulm, Minnesota. The business will be integrated into the Company’s existing aseptic operations within its Food Away From Home segment, and increase the Company’s presence in the aseptic category. The purchase price was $4.0 million. The acquisition was financed through borrowings under the Company’s revolving credit facility. Components of the acquisition include fixed assets and intangible assets such as customer lists, formulas and goodwill. The acquisition is being accounted for under the acquisition method of accounting and the results of operations are included in our financial statements from the date of acquisition. There were no acquisition costs. Due to the size and timing of this acquisition, it does not have a material impact on the Company’s financial statements for the year ended December 31, 2012. As such, the Company has not presented a purchase price allocation or pro forma disclosures.

On April 13, 2012, the Company completed its acquisition of substantially all the assets of Naturally Fresh, a privately owned Atlanta, Georgia based manufacturer of refrigerated dressings, sauces, marinades, dips and specialty items sold within each of our segments. The purchase price was approximately $26 million, net of cash. The acquisition was financed through borrowings under the Company’s revolving credit facility. The acquisition expanded the Company’s refrigerated manufacturing and packaging capabilities, broadened its distribution footprint and further developed its presence within the growing category of fresh foods. Naturally Fresh’s Atlanta facility, coupled with the Company’s existing West Coast and Chicago based refrigerated food plants, is expected to allow the Company to more efficiently service customers from coast to coast.

The acquisition is being accounted for under the acquisition 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. Included in the Company’s Consolidated Statements of Income are Naturally Fresh net sales of $60.8 million and operating income of $0.1 million for the year ended December 31, 2012. At the date of acquisition, the purchase price was allocated to the assets and liabilities acquired based upon fair market values, and is subject to tax adjustments. No goodwill was created with this acquisition and an insignificant bargain purchase gain was recognized and recorded in the Other operating expense, net line of the Consolidated Statement of Income. Prior to recognizing the gain, the Company reassessed the fair value of the assets acquired and liabilities assumed in the acquisition. The insignificant bargain purchase gain is the result of the difference between the fair value of the assets acquired and the purchase price. Pro forma disclosures related to the transaction are not included since they are not considered material. We have made an allocation to net tangible and intangible assets acquired and liabilities assumed as follows:

The Company allocated $1.3 million to customer relationships that have an estimated life of twenty years, $0.8 million to trademarks that have an estimated life of ten years, $0.1 million to a non-compete agreement with a life of five years, and $0.1 million to other intangible assets with a weighted average life of approximately four years. The Company increased the cost of inventories by $0.4 million, and expensed the amount as a component of cost of goods sold in the second quarter of 2012. The Company incurred approximately $1.0 million in acquisition related costs. These costs are included in the General and administrative expense line of the Consolidated Statements of Income.

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.

Approximately $77.7 million and $82.0 million of our inventory was accounted for under the LIFO method of accounting at December 31, 2012 and 2011, respectively. The LIFO reserve reflects the excess of the current cost of LIFO inventories at December 31, 2012 and 2011, over the amount at which these inventories were valued on the consolidated balance sheets. During 2011, we incurred a LIFO inventory liquidation that reduced our cost of sales and increased income before income taxes by $0.8 million. No LIFO inventory liquidation occurred in 2012.

The increase in fixed assets is due to capital expenditures and the acquisition of the assets of Naturally Fresh, partially offset by accelerated depreciation of approximately $10.7 million. Depreciation expense was $64.7 million, $48.6 million, and $43.4 million in 2012, 2011, and 2010, respectively.

The changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 are as follows:

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

Approximately $275.2 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, 2012 and 2011 are as follows:

As of December 31, 2012, the weighted average remaining useful lives for the amortizable intangible assets are (1) customer related at 15.1 years, (2) trademarks at 12.4 years, (3) formulas/recipes at 2.4 years, (4) computer software at 5.1 years and (5) non-competes at 4.3 years. The weighted average remaining useful life in total for all amortizable intangible assets is 14.3 years as of December 31, 2012.

Amortization expense on intangible assets was $33.5 million, $34.4 million and $26.4 million, for the years ended December 31, 2012, 2011 and 2010, respectively. Estimated intangible asset amortization expense for the next five years is as follows:

Our 2012 and 2011 impairment reviews of goodwill and indefinite life intangible assets, using a discounted cash flow analysis, resulted in no impairments.

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.

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

The following table presents the components of the 2012, 2011 and 2010 provision for income taxes:

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:

The tax effects of temporary differences giving rise to deferred income tax assets and liabilities were:

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

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.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, Canada and various state jurisdictions. For U.S. federal, state and Canadian purposes the Company is generally open for examination for the tax years ended December 31, 2008 and forward.

The Company settled an Internal Revenue Service (“IRS”) examination of S.T. Specialty Foods pre-acquisition tax year ended October 28, 2010 in the fourth quarter of 2012. The Company did not incur any material adjustments as a result of the examination.

During the second quarter of 2012, the IRS initiated an examination of TreeHouse Foods’ 2010 tax year, and the Canadian Revenue Agency (“CRA”) initiated an examination of the E.D. Smith 2008, 2009, and 2010 tax years. The IRS and CRA examinations are expected to be completed in 2013 or 2014. The Company has examinations in process with various state taxing authorities, which are expected to be completed in 2013.

Management estimates that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by as much as $5.9 million within the next 12 months, primarily as a result of the resolution of audits currently in progress in several jurisdictions and the lapsing of statutes of limitations.

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:

Unrecognized tax benefits are included in Other long-term liabilities in our Consolidated Balance Sheets.

Included in the balance at December 31, 2012 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, $5.8 million and $6.4 million of the amount accrued at December 31, 2012 and December 31, 2011, 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, 2012, 2011 and 2010, the Company recognized income of $0.1 million, expense of $0.1 million and income of $0.6 million in interest and penalties in income tax expense, respectively. The Company has accrued approximately $0.4 million and $0.5 million for the payment of interest and penalties at December 31, 2012 and 2011, 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, 2012 were approximately $71.8 million. As of December 31, 2012, there was $94.1 million of cash and cash equivalents held by our Canadian subsidiary that is not available to fund operations in the U.S., unless these funds are repatriated. If the Company were to repatriate these funds, we would be required to pay U.S. income taxes. The determination of the amount of unrecognized U.S. federal income tax liabilities for the E.D. Smith unremitted earnings at December 31, 2012 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, 2012 and 2011, the Company recognized a tax benefit of approximately $5.1 million and $5.0 million, respectively, related to this item.