TreeHouse Foods - 10-Q quarterly report FY2011 Q2

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the Quarterly Period Ended June 30, 2011.

or


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number 001-32504

TreeHouse Foods, Inc.

(Exact name of the registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		20-2311383 (I.R.S. employer identification no.)


2021 Spring Road, Suite 600 Oak Brook, IL (Address of principal executive offices)		60523 (Zip Code)

(Registrant’s telephone number, including area code) (708) 483-1300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	þ	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting Company	o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

Number of shares of Common Stock, $0.01 par value, outstanding as of July 22, 2011: 35,873,741

Table of Contents


	Page
Part I — Financial Information

Item 1 — Financial Statements (Unaudited)		3

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3 — Quantitative and Qualitative Disclosures About Market Risk		33

Item 4 — Controls and Procedures		35

Report of Independent Registered Public Accounting Firm		36

Part II — Other Information

Item 1 — Legal Proceedings		37

Item 1A — Risk Factors		37

Item 6 — Exhibits		37

Signatures		38
EX-12.1
EX-15.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

Part I — Financial Information




Item 1.		Financial Statements

TREEHOUSE FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)


	June 30,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,347		$	6,323
Receivables, net		117,005			126,644
Inventories, net		320,672			287,395
Deferred income taxes		3,360			3,499
Prepaid expenses and other current assets		10,685			12,861
Assets held for sale		4,081			4,081

Total current assets		458,150			440,803
Property, plant and equipment, net		392,255			386,191
Goodwill, net		1,079,301			1,076,321
Intangible assets, net		454,908			463,617
Other assets, net		23,105			24,316

Total assets	$	2,407,719		$	2,391,248


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	205,500		$	202,384
Current portion of long-term debt		1,232			976

Total current liabilities		206,732			203,360
Long-term debt		940,324			976,452
Deferred income taxes		195,451			194,917
Other long-term liabilities		41,512			38,553

Total liabilities		1,384,019			1,413,282
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 10,000 shares authorized, none issued		—			—
Common stock, par value $0.01 per share, 90,000 shares authorized, 35,868 and 35,440 shares issued and outstanding, respectively		359			354
Additional paid-in capital		707,249			703,465
Retained earnings		320,333			286,181
Accumulated other comprehensive loss		(4,241	)		(12,034	)

Total stockholders’ equity		1,023,700			977,966

Total liabilities and stockholders’ equity	$	2,407,719		$	2,391,248

See Notes to Condensed Consolidated Financial Statements.

3

TREEHOUSE FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
Net sales	$	492,620		$	446,195		$	986,133		$	843,319
Cost of sales		383,180			340,045			755,767			648,391

Gross profit		109,440			106,150			230,366			194,928
Operating expenses:
Selling and distribution		35,558			30,887			71,818			57,683
General and administrative		30,602			25,084			59,845			53,562
Other operating expense (income), net		1,348			2,019			3,998			(242	)
Amortization expense		8,319			7,287			16,368			11,734

Total operating expenses		75,827			65,277			152,029			122,737

Operating income		33,613			40,873			78,337			72,191
Other expense (income):
Interest expense, net		13,470			11,779			27,321			18,606
(Gain) loss on foreign currency exchange		(875	)		(2,170	)		555			(2,070	)
Other income, net		(225	)		(993	)		(717	)		(1,206	)

Total other expense		12,370			8,616			27,159			15,330

Income before income taxes		21,243			32,257			51,178			56,861
Income taxes		6,898			10,605			17,025			18,890

Net income	$	14,345		$	21,652		$	34,153		$	37,971


Weighted average common shares:
Basic		35,600			34,814			35,566			34,465
Diluted		36,950			35,994			36,871			35,588
Net earnings per common share:
Basic	$	.40		$	.62		$	.96		$	1.10
Diluted	$	.39		$	.60		$	.93		$	1.07

See Notes to Condensed Consolidated Financial Statements.

4

TREEHOUSE FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Six Months Ended
	June 30,
	2011			2010
	(Unaudited)
Cash flows from operating activities:
Net income	$	34,153		$	37,971
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		23,979			20,763
Amortization		16,368			11,734
Loss on foreign currency exchange		720			668
Mark to market adjustment on derivative contracts		(753	)		(1,710	)
Excess tax (benefits) deficiency from stock-based compensation		(3,671	)		440
Stock-based compensation		9,449			7,798
Loss on disposition of assets, net		237			1,720
Write-down of tangible assets		2,330			—
Deferred income taxes		907			7,199
Curtailment of postretirement benefit obligation		—			(2,357	)
Other		27			81
Changes in operating assets and liabilities, net of acquisitions:
Receivables		6,763			20,556
Inventories		(32,427	)		16,875
Prepaid expenses and other assets		3,610			(11,898	)
Accounts payable, accrued expenses and other liabilities		9,344			6,922

Net cash provided by operating activities		71,036			116,762
Cash flows from investing activities:
Additions to property, plant and equipment		(29,839	)		(16,625	)
Additions to other intangible assets		(6,183	)		(6,614	)
Acquisition of business, net of cash acquired		3,243			(664,655	)
Proceeds from sale of fixed assets		56			—

Net cash used in investing activities		(32,723	)		(687,894	)
Cash flows from financing activities:
Proceeds from issuance of debt		—			400,000
Borrowings under revolving credit facility		125,600			270,900
Payments under revolving credit facility		(162,200	)		(187,100	)
Payments on capitalized lease obligations		(599	)		(587	)
Proceeds from issuance of common stock, net of expenses		—			110,688
Payment of deferred financing costs		—			(10,783	)
Net (payments) proceeds related to stock-based award activities		(9,394	)		(12,256	)
Excess tax benefits (deficiency) from stock-based compensation		3,671			(440	)

Net cash (used in) provided by financing activities		(42,922	)		570,422

Effect of exchange rate changes on cash and cash equivalents		633			(258	)

Net decrease in cash and cash equivalents		(3,976	)		(968	)
Cash and cash equivalents, beginning of period		6,323			4,415

Cash and cash equivalents, end of period	$	2,347		$	3,447

See Notes to Condensed Consolidated Financial Statements.

5

TREEHOUSE FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of and for the six months ended June 30, 2011
(Unaudited)

1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements included herein have been prepared by TreeHouse Foods, Inc. (the “Company,” “we,” “us,” or “our”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to quarterly reporting on Form 10-Q. In our opinion, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. Certain product sales, as disclosed in Note 20, from prior year have been reclassified and certain line items on the Condensed Consolidated Statements of Cash Flows for the prior year have been combined to conform to the current period presentation. These reclassifications had no effect on reported net income, total assets, or cash flows. The Condensed Consolidated Financial Statements and related notes should be read in conjunction with the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Results of operations for interim periods are not necessarily indicative of annual results.

The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to use our 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 Condensed Consolidated Financial Statements, and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates.

A detailed description of the Company’s significant accounting policies can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

2. Recent Accounting Pronouncements

On June 16, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income which revises the manner in which entities present comprehensive income in their financial statements. This ASU removes the current presentation guidance and requires comprehensive income to be presented either in a single continuous statement of comprehensive income or two separate but consecutive statements. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. ASU 2011-05 does not change current accounting and therefore is not expected to have a significant impact on the Company.

On May 12, 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU provides converged guidance on how (not when) to measure fair value. The ASU provides expanded disclosure requirements and other amendments, including those that eliminate unnecessary wording differences between U.S. GAAP and IFRSs. This ASU is effective for interim and annual periods beginning after December 15, 2011 and is not expected to have a significant impact on the Company’s disclosures or fair value measurements.

3. Facility Closings

On February 28, 2011, the Company announced plans to close its pickle plant in Springfield, Missouri. Production will cease in August 2011 and will be transferred to other pickle facilities. Full plant closure is expected to occur by December 2011. For the three and six months ended June 30, 2011, the Company recorded costs of $0.8 million and $3.2 million, respectively. For the three months ended June 30, 2011, costs consisted of $0.2 million for severance and $0.6 million for disposal costs. For the six months ended June 30, 2011, costs relating to this closure consisted of a fixed asset impairment charge of $2.3 million to reduce the carrying value of the facility to net realizable value, $0.3 million for severance and $0.6 million for disposal costs. These costs are included in Other operating expense (income), net line in our Condensed Consolidated Statements of Income. Total costs are expected to be approximately $4.7 million. Components of the charges include $3.6 million for asset write-offs and removal of certain manufacturing equipment, $0.8 million in severance and other charges, and $0.3 million in costs to transfer inventory to other manufacturing facilities. The Company estimates that approximately $2.4 million of the charges will be in cash and incurred in 2011. The Company has accrued severance costs of approximately $0.2 million at June 30, 2011.

6

4. Acquisitions

On October 28, 2010, the Company acquired S.T. Specialty Foods, Inc (S.T. Foods), a wholly owned subsidiary of STSF Holdings, Inc. (“Holdings”) by acquiring all of the outstanding securities of Holdings for approximately $180 million in cash. The acquisition was funded by the Company’s revolving credit facility. S.T. Foods, 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.

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

The Company’s purchase price allocation as set forth in the Company’s Annual Report of Form 10-K for the fiscal year ended December 31, 2010 is preliminary and subject to tax adjustments that are expected to be completed during the third quarter of 2011.

5. Inventories


	June 30,			December 31,
	2011			2010
	(In thousands)
Raw materials and supplies	$	113,204		$	111,376
Finished goods		226,807			194,558
LIFO reserve		(19,339	)		(18,539	)

Total	$	320,672		$	287,395

Approximately $59.9 million and $84.8 million of our inventory was accounted for under the LIFO method of accounting at June 30, 2011 and December 31, 2010, respectively.

6. Property, Plant and Equipment


	June 30,			December 31,
	2011			2010
	(In thousands)
Land	$	15,840		$	15,851
Buildings and improvements		148,304			148,616
Machinery and equipment		400,212			390,907
Construction in progress		44,226			21,067

Total		608,582			576,441
Less accumulated depreciation		(216,327	)		(190,250	)

Property, plant and equipment, net	$	392,255		$	386,191

7. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the six months ended June 30, 2011 are as follows:


	North American		Food Away			Industrial
	Retail Grocery		From Home			and Export		Total
	(In thousands)
Balance at December 31, 2010	$	850,593	$	92,146		$	133,582	$	1,076,321
Currency exchange adjustment		2,155		561			—		2,716
Purchase price adjustment		273		(9	)		—		264

Balance at June 30, 2011	$	853,021	$	92,698		$	133,582	$	1,079,301

Purchase price adjustments are related to working capital, tax and other adjustments for the Sturm and S.T. Foods acquisitions. The Company has not incurred any goodwill impairments since its inception.

7

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The gross carrying amount and accumulated amortization of intangible assets other than goodwill as of June 30, 2011 and December 31, 2010 are as follows:


	June 30, 2011							December 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
						(In thousands)
Intangible assets with indefinite lives:
Trademarks	$	33,313	$	—		$	33,313	$	32,673	$	—		$	32,673
Intangible assets with finite lives:
Customer-related		447,538		(70,499	)		377,039		445,578		(57,480	)		388,098
Non-compete agreement		1,000		(1,000	)		—		1,000		(967	)		33
Trademarks		20,010		(3,989	)		16,021		20,010		(3,393	)		16,617
Formulas/recipes		6,856		(2,672	)		4,184		6,825		(1,972	)		4,853
Computer software		31,447		(7,096	)		24,351		26,007		(4,664	)		21,343

Total	$	540,164	$	(85,256	)	$	454,908	$	532,093	$	(68,476	)	$	463,617

Amortization expense on intangible assets for the three months ended June 30, 2011 and 2010 was $8.3 million and $7.3 million, respectively, and $16.4 million and $11.7 million for the six months ended June 30, 2011 and 2010, respectively. Estimated amortization expense on intangible assets for 2011 and the next four years is as follows:


	(In thousands)
2011		33,827
2012		32,029
2013		30,679
2014		30,450
2015		29,518

8. Accounts Payable and Accrued Expenses


	June 30,		December 31,
	2011		2010
	(In thousands)
Accounts payable	$	135,515	$	112,638
Payroll and benefits		32,444		33,730
Interest and taxes		19,198		21,019
Health insurance, workers’ compensation and other insurance costs		5,757		4,855
Marketing expenses		5,247		10,165
Other accrued liabilities		7,339		19,977

Total	$	205,500	$	202,384

9. Income Taxes

Income tax expense was recorded at an effective rate of 32.5% and 33.3% for the three and six months ended June 30, 2011, respectively, compared to 32.9% and 33.2% for the three and six months ended June 30, 2010, respectively. The Company’s effective tax rate is favorably impacted by an intercompany financing structure entered into in conjunction with the E.D. Smith Canadian acquisition.

As of June 30, 2011, the Company does not believe that its gross recorded unrecognized tax benefits will materially change within the next 12 months.

The Company or one of its subsidiaries files income tax returns in the U.S., Canada and various state jurisdictions. The Company has various state tax examinations in process, which are expected to be completed in 2011 or 2012. The outcome of the various state tax examinations is unknown at this time.

8

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Long-Term Debt


	June 30,			December 31,
	2011			2010
	(In thousands)
Revolving credit facility	$	436,000		$	472,600
High yield notes		400,000			400,000
Senior notes		100,000			100,000
Tax increment financing and other debt		5,556			4,828

Total debt outstanding		941,556			977,428
Less current portion		(1,232	)		(976	)

Total long-term debt	$	940,324		$	976,452

Revolving Credit Facility — The Company is party to an unsecured revolving credit facility with an aggregate commitment of $750 million, of which $304.8 million was available as of June 30, 2011. The revolving credit facility matures October 27, 2015. In addition, as of June 30, 2011, there were $9.2 million in letters of credit under the revolving credit facility that were issued but undrawn. Our revolving credit facility contains various financial and other restrictive covenants and requires that the Company maintains certain financial ratios, including a leverage and interest coverage ratio. The Company is in compliance with all applicable covenants as of June 30, 2011. The Company’s average interest rate on debt outstanding under our revolving credit facility for the three and six months ended June 30, 2011 was 2.13% and 2.16%, respectively.

High Yield Notes — On March 2, 2010, the Company completed its offering of $400 million in aggregate principal amount of 7.75% high yield notes due March 1, 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 Notes are guaranteed by the Company’s 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. 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.

Senior Notes — The Company maintains 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. The Note Purchase Agreement contains covenants that will 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. The Company is in compliance with the applicable covenants as of June 30, 2011.

Swap Agreement — The Company has a $50 million interest rate swap agreement with a termination date of August 19, 2011 and a fixed 2.9% interest rate. Under the terms of the Company’s revolving credit agreement, and in conjunction with our credit spread, this will result in an all-in borrowing cost on the swapped principal of $50 million being no more than 4.95% until August 19, 2011. The Company did not apply hedge accounting to this swap.

Tax Increment Financing — As part of the acquisition of the soup and infant feeding business in 2006, the Company assumed the payments related to redevelopment bonds pursuant to a Tax Increment Financing Plan. The Company has agreed to make certain payments with respect to the principal amount of the redevelopment bonds through May 2019. As of June 30, 2011, $2.3 million remains outstanding.

11. 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 stock options, restricted stock, restricted stock units and performance units.

9

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Weighted average common shares outstanding		35,599,737		34,814,309		35,566,370		34,464,990
Assumed exercise/vesting of equity awards (1)		1,350,258		1,179,282		1,304,240		1,123,481

Weighted average diluted common shares outstanding		36,949,995		35,993,591		36,870,610		35,588,471


(1)		Incremental shares from stock options, restricted stock, restricted stock units, and performance units are computed by the treasury stock method. 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 110,000 and 365,720 for the three and six months ended June 30, 2011, respectively, and 276,620 for the three and six months ended June 30, 2010.

12. Stock-Based Compensation

Income before income taxes for the three and six month periods ended June 30, 2011 and 2010 includes share-based compensation expense of $4.7 million, $9.4 million, $4.4 million and $7.8 million, respectively. The tax benefit recognized related to the compensation cost of these share-based awards was approximately $1.8 million, $3.7 million, $1.7 million and $3.0 million for the three and six month periods ended June 30, 2011 and 2010, respectively.

The following table summarizes stock option activity during the six months ended June 30, 2011. Stock options are granted under our long-term incentive plan, and have a three year vesting schedule, which vest one-third on each of the first three anniversaries of the grant date. Stock options expire ten years from the grant date.


								Weighted
						Weighted		Average
						Average		Remaining		Aggregate
	Employee			Director		Exercise		Contractual		Intrinsic
	Options			Options		Price		Term (yrs)		Value
Outstanding, December 31, 2010		2,256,735			94,796	$	28.38		5.6	$	53,400,867
Granted		110,000			—	$	54.90		—		—
Forfeited		—			—	$	—		—		—
Exercised		(78,933	)		—	$	25.48		—		—

Outstanding, June 30, 2011		2,287,802			94,796	$	29.70		5.3	$	59,378,742

Vested/expected to vest, at June 30, 2011		2,281,668			94,796	$	29.65		5.3	$	59,358,924

Exercisable, June 30, 2011		2,090,770			94,796	$	27.77		5.0	$	58,670,301

Compensation costs related to unvested options totaled $3.8 million at June 30, 2011 and will be recognized over the remaining vesting period of the grants, which averages 2.6 years. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used to calculate the fair value of stock options issued in 2011 include the following: expected volatility of 33.35%, expected term of six years, risk free rate of 2.57% and no dividends. The average grant date fair value of stock options granted in the six months ended June 30, 2011 was $20.36. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2011 was approximately $2.3 million.

10

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In addition to stock options, the Company also grants restricted stock, restricted stock units and performance unit awards. These awards are granted under our long-term incentive plan. Employee restricted stock and restricted stock unit awards generally vest based on the passage of time. These awards generally vest one-third on each anniversary of the grant date. Director restricted stock units vest over thirteen months. Certain directors have deferred receipt of their awards until their departure from the Board. A complete description of restricted stock and restricted stock unit awards is presented in the Company’s annual report on Form 10-K for the year ended December 31, 2010. The following table summarizes the restricted stock and restricted stock unit activity during the six months ended June 30, 2011:


				Weighted					Weighted				Weighted
	Employee			Average		Employee			Average		Director		Average
	Restricted			Grant Date		Restricted			Grant Date		Restricted		Grant Date
	Stock			Fair Value		Stock Units			Fair Value		Stock Units		Fair Value
Outstanding, at December 31, 2010		291,628		$	24.32		419,876		$	39.22		62,270	$	32.24
Granted		—			—		126,760		$	54.88		13,230	$	54.90
Vested		(274,292	)	$	24.20		(137,729	)	$	38.08		—		—
Forfeited		(590	)	$	25.46		(8,608	)	$	43.01		—		—

Outstanding, at June 30, 2011		16,746		$	26.34		400,299		$	44.49		75,500	$	36.21

Future compensation costs related to restricted stock and restricted stock units is approximately $15.7 million as of June 30, 2011, and will be recognized on a weighted average basis, over the next 2.1 years. The grant date fair value of the awards granted in 2011 is equal to the Company’s closing stock price on the grant date.

Performance unit awards are granted to certain members of management. These awards contain service and performance conditions. For each of the three performance periods, 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, generally, 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. As of June 30, 2011, based on achievement of operating performance measures, 72,900 performance units were converted into 145,800 shares of stock. Conversion of these shares was based on attainment of at least 120% of the target performance goals, and resulted in the vesting awards being converted into two shares of stock for each performance unit. The following table summarizes the performance unit activity during the six months ended June 30, 2011:


				Weighted
				Average
	Performance			Grant Date
	Units			Fair Value
Unvested, at December 31, 2010		165,060		$	30.87
Granted		43,050		$	54.90
Vested		(72,900	)		24.06
Forfeited		(1,512	)		28.47

Unvested, at June 30, 2011		133,698		$	42.35

Future compensation cost related to the performance units is estimated to be approximately $5.1 million as of June 30, 2011, and is expected to be recognized over the next 2.3 years.

11

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Comprehensive Income

The following table sets forth the components of comprehensive income:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011		2010
	(In thousands)						(In thousands)
Net income	$	14,345		$	21,652		$	34,153	$	37,971
Foreign currency translation adjustment		(1,428	)		(7,773	)		7,375		749
Amortization of pension and postretirement prior service costs and net loss, net of tax		169			137			338		315
Curtailment of postretirement plan, net of tax		—			—			—		862
Amortization of swap loss, net of tax		40			40			80		80

Comprehensive income	$	13,126		$	14,056		$	41,946	$	39,977

The Company expects to amortize $0.7 million of prior service costs and net loss, net of tax and $0.2 million of swap loss, net of tax from other comprehensive income into earnings during 2011.

14. Employee Retirement and Postretirement Benefits

Pension, Profit Sharing and Postretirement Benefits — Certain employees and retirees participate in pension and other postretirement benefit plans. Employee benefit plan obligations and expenses included in the Condensed 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.

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 expense (income), net on the Condensed Consolidated Statements of Income for the six months ended June 30, 2010.

Components of net periodic pension expense are as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Service cost	$	560		$	515		$	1,120		$	1,030
Interest cost		560			551			1,120			1,102
Expected return on plan assets		(592	)		(549	)		(1,184	)		(1,098	)
Amortization of unrecognized net loss		144			124			288			248
Amortization of prior service costs		151			151			302			302

Net periodic pension cost	$	823		$	792		$	1,646		$	1,584

The Company contributed $1.2 million to the pension plans in the first six months of 2011 and expects to contribute approximately $3.6 million in 2011.

12

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Components of net periodic postretirement expenses are as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Service cost	$	9		$	12		$	18		$	66
Interest cost		31			35			62			84
Amortization of prior service credit		(17	)		(18	)		(35	)		(36	)
Amortization of unrecognized net loss		(3	)		(10	)		(5	)		(11	)

Net periodic postretirement cost	$	20		$	19		$	40		$	103

The Company expects to contribute approximately $0.2 million to the postretirement health plans during 2011.

15. Other Operating Expense (Income), Net

The Company incurred Other operating expense (income), for the three and six months ended June 30, 2011 and 2010, respectively, which consisted of the following:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011			2010		2011			2010
	(In thousands)					(In thousands)
Facility closing costs	$	1,368		$	—	$	4,065		$	—
Gain on postretirement plan curtailment		—			—		—			(2,357	)
Realignment of infant feeding business		—			1,915		—			1,915
Other		(20	)		104		(67	)		200

Total other operating expense (income), net	$	1,348		$	2,019	$	3,998		$	(242	)

16. Supplemental Cash Flow Information


	Six Months Ended,
	June 30,
	2011		2010
	(In thousands)
Interest paid	$	26,005	$	7,790
Income taxes paid	$	19,582	$	23,012
Accrued purchase of property and equipment	$	5,083	$	3,626
Accrued other intangible assets	$	1,101	$	2,158

Non cash financing activities for the six months ended June 30, 2011 and 2010 include the settlement of 555,322 shares and 890,488, shares, respectively, of restricted stock, restricted stock units and performance units, where shares were withheld to satisfy the minimum statuary tax withholding requirements.

17. Commitments and Contingencies

Litigation, Investigations and Audits — The Company is party in the ordinary course of business to certain claims, litigation, audits and investigations. The Company believes that it has established adequate reserves to satisfy any liability that may be incurred in connection with any such currently pending or threatened matters. The settlement of any such currently pending or threatened matters is not expected to have a material adverse impact on our financial position, annual results of operations or cash flows.

13

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

18. Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by derivative instruments include 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.

The Company’s $50 million interest rate swap agreement swaps floating rate debt for a fixed rate of 2.9% and expires August 19, 2011. The Company did not apply hedge accounting and recorded the fair value of this instrument on its Condensed Consolidated Balance Sheets. The Company recorded income of $0.3 million, $0.6 million, $1.2 million and $1.9 million related to the mark to market adjustment in the three and six months ended June 30, 2011 and 2010, respectively, within the Other expense (income) line of the Condensed 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 the net cash flow requirements for purchases that are denominated in U.S. dollars. These contracts do not qualify for hedge accounting and changes in their fair value are recorded in the Condensed Consolidated Statements of Income, within the loss on foreign currency exchange line. The Company realized a gain of approximately $0.5 million and $0.1 million in the three and six months ended June 30, 2011. As of June 30, 2011, the Company had three foreign currency contracts for the purchase of U.S. dollars, all expiring by the end of the third quarter in 2011. The total contracted U.S. dollar amount as of June 30, 2011 is $15.0 million.

Commodity price risk is managed, in part, by using derivatives such as commodity swaps, the objective of which is to establish a fixed commodity cost over the term of the contracts.

As of June 30, 2011, the Company had two types of commodity swap contracts outstanding, one for diesel fuel and one for high density polyethylene (“HDPE”). The Company entered into diesel fuel swap contracts on June 30, 2011 to manage the Company’s risk associated with the underlying cost of diesel fuel used to deliver products. These contracts expire in the third and fourth quarters of 2011. The contract for HDPE is used to manage the Company’s risk associated with the underlying commodity cost of a significant component used in packaging materials.

As of June 30, 2011, the Company had 1.8 million gallons outstanding under diesel contracts, with 0.9 million gallons settling in the third and fourth quarters of 2011. As of June 30, 2011, the company had 1.8 million pounds outstanding under the HDPE swap with 0.3 million pounds settling on a monthly basis. The contract expires on December 31, 2011.

The Company did not apply hedge accounting to the commodity swaps, and they are recorded at fair value on the Company’s Condensed Consolidated Balance Sheets. For the three months ended June 30, 2011 and 2010, the Company realized a loss of $0.2 million, and for the six months ended June 30, 2011 and 2010 a gain of $0.1 million, and a loss of $0.2 million, respectively, related to mark to market adjustments, which are recorded in the Condensed Consolidated Statement of Income, within the Other expense (income) line.

14

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


		Fair Value
	Balance Sheet Location	June 30, 2011		December 31, 2010
		(In thousands)
Liability Derivatives:
Interest rate swap	Accounts payable and accrued expenses	$	229	$	874
Foreign exchange contract	Accounts payable and accrued expenses		93		184

		$	322	$	1,058


Asset Derivative:
Commodity contracts	Prepaid expenses and other current assets	$	468	$	360

		$	468	$	360

19. 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 June 30, 2011, the outstanding balance of the Company’s variable rate debt (revolving credit facility) was $436.0 million, the fair value of which is estimated to be $448.3 million, using a present value technique and market based interest rates and credit spreads. As of June 30, 2011, the carrying value of the Company’s fixed rate senior notes was $100.0 million and fair value was estimated to be $98.6 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 March 1, 2018, with an outstanding balance of $400.0 million as of June 30, 2011, was estimated at $427.0 million, based on quoted market prices.

The fair value of the Company’s interest rate swap agreement, as described in Notes 10 and 18, was a liability of approximately $0.2 million as of June 30, 2011. 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 contracts as described in Note 18 was an asset of approximately $0.5 million as of June 30, 2011. The fair value of the commodity contracts were 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 18 was a liability of $0.1 million as of June 30, 2011, using level 2 inputs, comparing the foreign exchange rate of our contract to the spot rate as of June 30, 2011.

20. Segment Information

The Company manages operations on a company-wide basis, thereby making determinations as to the allocation of resources in total rather than on a segment-level basis. The Company has designated reportable segments based on how management views its business. The Company does not segregate assets between segments for internal reporting. Therefore, asset-related information has not been presented. The reportable segments, as presented below, are consistent with the manner in which the Company reports its results to the Chief Operating Decision maker.

The Company evaluates the performance of its segments based on net sales dollars, gross profit 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 senior management and do not include allocated income taxes. Other expenses not allocated include unallocated selling and distribution expenses and corporate expenses which consist of general and administrative expenses, amortization expense, other operating (income) expense, and other expense (income). The accounting policies of the Company’s segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our 2010 Consolidated Financial Statements contained in our Annual Report on Form 10-K.

15

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Net sales to external customers:
North American Retail Grocery	$	350,861		$	307,526		$	704,324		$	569,105
Food Away From Home		79,179			80,269			153,406			153,747
Industrial and Export		62,580			58,400			128,403			120,467

Total	$	492,620		$	446,195		$	986,133		$	843,319

Direct operating income:
North American Retail Grocery	$	54,102		$	52,218		$	117,046		$	94,119
Food Away From Home		10,089			12,608			20,141			22,120
Industrial and Export		10,592			11,158			23,414			22,990

Total		74,783			75,984			160,601			139,229
Unallocated selling and distribution expenses		(901	)		(721	)		(2,053	)		(1,984	)
Unallocated corporate expense		(40,269	)		(34,390	)		(80,211	)		(65,054	)

Operating income		33,613			40,873			78,337			72,191
Other expense		(12,370	)		(8,616	)		(27,159	)		(15,330	)

Income before income taxes	$	21,243		$	32,257		$	51,178		$	56,861

Geographic Information — The Company had revenues to customers outside of the United States of approximately 12.9% and 13.9% of total consolidated net sales in the six months ended June 30, 2011 and 2010, respectively, with 12.1% and 13.1% going to Canada, respectively.

Major Customers — Wal-Mart Stores, Inc. and affiliates accounted for approximately 20.0% and 17.8% of consolidated net sales in the six months ended June 30, 2011 and 2010, respectively. No other customer accounted for more than 10% of our consolidated net sales.

Product Information — The following table presents the Company’s net sales by major products for the three and six months ended June 30, 2011 and 2010. Certain product sales for 2010 have been reclassified to conform to the current period presentation due to enhanced information reporting available with the new enterprise resource planning (“ERP”) software system.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(In thousands)				(In thousands)
Products:
Pickles	$	87,682	$	91,367	$	158,136	$	165,756
Non-dairy creamer		74,372		68,321		156,402		152,613
Soup and infant feeding		59,094		59,369		132,493		137,129
Powdered drinks		57,918		51,990		113,806		66,380
Salad dressing		61,297		57,296		112,650		107,482
Mexican and other sauces		52,489		51,655		99,679		97,416
Hot cereals		30,971		25,516		71,725		34,921
Dry dinners		24,032		—		52,802		—
Aseptic products		23,083		21,764		45,019		43,617
Jams		19,200		15,116		35,304		30,060
Other products		2,482		3,801		8,117		7,945

Total net sales	$	492,620	$	446,195	$	986,133	$	843,319

16

TREEHOUSE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

21. Guarantor and Non-Guarantor Financial Information

On March 2, 2010, the Company issued $400 million 7.75% high yield notes due March 1, 2018, which are 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 June 30, 2011 and 2010 and for the three and six months ended June 30, 2011 and 2010. 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.

17

Condensed Supplemental Consolidating Balance Sheet
June 30, 2011
(In thousands)


	Parent		Guarantor			Non-Guarantor
	Company		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	11		$	2,336		$	—		$	2,347
Receivables, net		50		93,635			23,320			—			117,005
Inventories, net		—		280,851			39,821			—			320,672
Deferred income taxes		339		2,846			175			—			3,360
Assets held for sale		—		4,081			—			—			4,081
Prepaid expenses and other current assets		1,240		8,912			533			—			10,685

Total current assets		1,629		390,336			66,185			—			458,150
Property, plant and equipment, net		13,793		343,421			35,041			—			392,255
Goodwill		—		963,400			115,901			—			1,079,301
Investment in subsidiaries		1,293,373		165,674			—			(1,459,047	)		—
Intercompany accounts receivable, net		625,248		(523,780	)		(101,468	)		—			—
Deferred income taxes		13,106		—			—			(13,106	)		—
Identifiable intangible and other assets, net		47,460		346,919			83,634			—			478,013

Total assets	$	1,994,609	$	1,685,970		$	199,293		$	(1,472,153	)	$	2,407,719


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	20,689	$	167,642		$	17,169		$	—		$	205,500
Current portion of long-term debt		—		1,226			6			—			1,232

Total current liabilities		20,689		168,868			17,175			—			206,732
Long-term debt		925,633		14,691			—			—			940,324
Deferred income taxes		6,438		185,675			16,444			(13,106	)		195,451
Other long-term liabilities		18,149		23,363			—			—			41,512
Stockholders’ equity		1,023,700		1,293,373			165,674			(1,459,047	)		1,023,700

Total liabilities and stockholders’ equity	$	1,994,609	$	1,685,970		$	199,293		$	(1,472,153	)	$	2,407,719

18

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

19

Condensed Supplemental Consolidating Statement of Income
Three Months Ended June 30, 2011
(In thousands)


	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	424,684		$	75,141		$	(7,205	)	$	492,620
Cost of sales		—			332,516			57,869			(7,205	)		383,180

Gross profit		—			92,168			17,272			—			109,440
Selling, general and administrative expense		14,587			43,646			7,927			—			66,160
Amortization		741			6,292			1,286			—			8,319
Other operating expense, net		—			1,348			—			—			1,348

Operating (loss) income		(15,328	)		40,882			8,059			—			33,613
Interest expense (income), net		12,571			(2,724	)		3,623			—			13,470
Other income, net		(331	)		26			(795	)		—			(1,100	)

(Loss) income before income taxes		(27,568	)		43,580			5,231			—			21,243
Income taxes (benefit)		(9,369	)		14,858			1,409			—			6,898
Equity in net income of subsidiaries		32,544			3,822			—			(36,366	)		—

Net income	$	14,345		$	32,544		$	3,822		$	(36,366	)	$	14,345

Condensed Supplemental Consolidating Statement of Income
Three Months Ended June 30, 2010
(In thousands)


	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	388,850		$	64,812		$	(7,467	)	$	446,195
Cost of sales		—			297,191			50,321			(7,467	)		340,045

Gross profit		—			91,659			14,491			—			106,150
Selling, general and administrative expense		9,911			39,813			6,247			—			55,971
Amortization		132			5,976			1,179			—			7,287
Other operating expense, net		—			2,019			—			—			2,019

Operating (loss) income		(10,043	)		43,851			7,065			—			40,873
Interest expense (income), net		11,710			(3,366	)		3,435			—			11,779
Other income, net		(1,235	)		(371	)		(1,557	)		—			(3,163	)

(Loss) income before income taxes		(20,518	)		47,588			5,187			—			32,257
Income taxes (benefit)		(7,420	)		16,455			1,570			—			10,605
Equity in net income of subsidiaries		34,750			3,617			—			(38,367	)		—

Net income	$	21,652		$	34,750		$	3,617		$	(38,367	)	$	21,652

20

Condensed Supplemental Consolidating Statement of Income
Six Months Ended June 30, 2011
(In thousands)


	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	862,020		$	139,271		$	(15,158	)	$	986,133
Cost of sales		—			663,068			107,857			(15,158	)		755,767

Gross profit		—			198,952			31,414			—			230,366
Selling, general and administrative expense		29,092			89,897			12,674			—			131,663
Amortization		1,305			12,516			2,547			—			16,368
Other operating expense, net		—			3,998			—			—			3,998

Operating (loss) income		(30,397	)		92,541			16,193			—			78,337
Interest expense (income), net		26,228			(6,044	)		7,137			—			27,321
Other (income) expense, net		(645	)		648			(165	)		—			(162	)

(Loss) income before income taxes		(55,980	)		97,937			9,221			—			51,178
Income taxes (benefit)		(21,089	)		35,639			2,475			—			17,025
Equity in net income of subsidiaries		69,044			6,746			—			(75,790	)		—

Net income	$	34,153		$	69,044		$	6,746		$	(75,790	)	$	34,153

Condensed Supplemental Consolidating Statement of Income
Six Months Ended June 30, 2010
(In thousands)


	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	734,801		$	122,969		$	(14,451	)	$	843,319
Cost of sales		—			563,833			99,009			(14,451	)		648,391

Gross profit		—			170,968			23,960			—			194,928
Selling, general and administrative expense		25,780			73,653			11,812			—			111,245
Amortization		263			9,144			2,327			—			11,734
Other operating income, net		—			(242	)		—			—			(242	)
Operating (loss) income		(26,043	)		88,413			9,821			—			72,191
Interest expense (income), net		18,338			(6,527	)		6,795			—			18,606
Other (income) expense, net		(1,926	)		1,388			(2,738	)		—			(3,276	)

(Loss) income before income taxes		(42,455	)		93,552			5,764			—			56,861
Income taxes (benefit)		(15,232	)		32,355			1,767			—			18,890
Equity in net income of subsidiaries		65,194			3,997			—			(69,191	)		—

Net income	$	37,971		$	65,194		$	3,997		$	(69,191	)	$	37,971

21

Condensed Supplemental Consolidating Statement of Cash Flows
Six Months Ended June 30, 2011
(In thousands)


	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	(34,017	)	$	108,219		$	(3,166	)	$	—	$	71,036
Cash flows from investing activities:
Additions to property, plant and equipment		(1,518	)		(26,873	)		(1,448	)		—		(29,839	)
Additions to other intangible assets		(4,035	)		(2,148	)		—			—		(6,183	)
Acquisition of business, net of cash acquired		—			3,243			—			—		3,243
Proceeds from sale of fixed assets		—			56			—			—		56

Net cash used in investing activities		(5,553	)		(25,722	)		(1,448	)		—		(32,723	)
Cash flows from financing activities:
Borrowings under revolving credit facility		125,600			—			—			—		125,600
Payments under revolving credit facility		(162,200	)		—			—			—		(162,200	)
Payments on capitalized lease obligations		—			(599	)		—			—		(599	)
Intercompany transfer		81,893			(81,893	)		—			—		—
Excess tax benefits from stock-based compensation		3,671			—			—			—		3,671
Net payments related to stock-based award activities		(9,394	)		—			—			—		(9,394	)

Net cash provided by financing activities		39,570			(82,492	)		—			—		(42,922	)

Effect of exchange rate changes on cash and cash equivalents		—			—			633			—		633
Net (decrease) increase in cash and cash equivalents		—			5			(3,981	)		—		(3,976	)
Cash and cash equivalents, beginning of period		—			6			6,317			—		6,323

Cash and cash equivalents, end of period	$	—		$	11		$	2,336		$	—	$	2,347

Condensed Supplemental Consolidating Statement of Cash Flows
Six Months Ended June 30, 2010
(In thousands)


	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	(16,357	)	$	129,783		$	3,336		$	—	$	116,762
Cash flows from investing activities:
Additions to property, plant and equipment		(17	)		(13,192	)		(3,416	)		—		(16,625	)
Additions to other intangible assets		(5,135	)		(15	)		(1,464	)		—		(6,614	)
Acquisition of business, net of cash acquired		—			(664,655	)		—			—		(664,655	)

Net cash used in investing activities		(5,152	)		(677,862	)		(4,880	)		—		(687,894	)
Cash flows from financing activities:
Proceeds from sale of fixed assets		400,000			—			—			—		400,000
Borrowings under revolving credit facility		270,900			—			—			—		270,900
Payments under revolving credit facility		(187,100	)		—			—			—		(187,100	)
Payments on capitalized lease obligations		—			(488	)		(99	)		—		(587	)
Intercompany transfer		(549,501	)		549,501			—			—		—
Proceeds from issuance of common stock, net of expenses		110,688			—			—			—		110,688
Payment of deferred financing costs		(10,783	)		—			—			—		(10,783	)
Excess tax (deficiency) benefits from stock-based payment arrangements		(440	)		—			—			—		(440	)
Net payments related to stock-based award activities		(12,256	)		—			—			—		(12,256	)

Net cash provided by financing activities		21,508			549,013			(99	)		—		570,422

Effect of exchange rate changes on cash and cash equivalents		—			—			(258	)		—		(258	)
Net decrease in cash and cash equivalents		(1	)		934			(1,901	)		—		(968	)
Cash and cash equivalents, beginning of period		1			8			4,406			—		4,415

Cash and cash equivalents, end of period	$	—		$	942		$	2,505		$	—	$	3,447

22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

TreeHouse is a food manufacturer servicing primarily the retail grocery and foodservice distribution channels. Its products include non-dairy powdered coffee creamers; canned soups; salad dressings and sauces; sugar free drink mixes and sticks; instant oatmeal and hot cereals; macaroni and cheese; skillet dinners; Mexican sauces; jams and pie fillings; pickles and related products; infant feeding products; aseptic sauces; refrigerated salad dressings; and liquid non-dairy creamer. TreeHouse believes it is the largest manufacturer of pickles and non-dairy powdered creamer in the United States and the largest manufacturer of private label salad dressings, drink mixes and instant hot cereals in the United States and Canada based on sales volume.

The following discussion and analysis presents the factors that had a material effect on our results of operations for the three and six months ended June 30, 2011 and 2010. Also discussed is our financial position as of the end of those periods. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes to those Condensed Consolidated Financial Statements included elsewhere in this report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

We discuss the following segments in this Management’s Discussion and Analysis of Financial Condition and Results of Operations: North American Retail Grocery, Food Away From Home, and Industrial and Export. The key performance indicators of our segments are net sales dollars, gross profit and direct operating income, which is gross profit less the cost of transporting products to customer locations (referred to in the tables below as “freight out”), commissions paid to independent sales brokers, and direct selling and marketing expenses.

Our current operations consist of the following:

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; 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.

Our Food Away From Home segment sells non-dairy powdered creamers, pickle 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; Mexican sauces; infant feeding products and refrigerated dressings. Export sales are primarily to industrial customers outside of North America.

The Company continues its effort to focus on volume, cost containment and margin improvement. This strategy combined with the acquisitions of Sturm and S.T. Foods, has increased our net sales for the three and six months ended June 30, 2011 by approximately 10.4% and 16.9%, respectively, versus the same periods last year. However, the Company has been challenged by rising input and distribution costs that have caused in our direct operating income margins to decrease from 17.0% in the second quarter of 2010 to 15.2% in the second quarter of 2011. Direct operating income margins for the six months ended June 30, 2011 and 2010 were 16.3% and 16.5%, respectively. To offset rising costs, the Company increased prices and expects to realize them in the second half of the year.

23

Recent Developments

With the success to date of the Company’s ongoing ERP systems implementation, a decision was made to accelerate the conversion of the Sturm and S.T. Foods acquisitions to SAP, while maintaining an aggressive rollout to our distribution centers. This acceleration will require an additional investment of approximately $5.0 million.

On February 28, 2011, the Company announced plans to close its pickle plant in Springfield, Missouri. Production at the facility will cease in August 2011 and will be consolidated at other pickle facilities. Full plant closure is expected to occur by December 2011. Total costs are expected to be approximately $4.7 million. Components of the charges include $3.6 million for asset write-offs and removal of certain manufacturing equipment, approximately $0.8 million in severance and other charges, and $0.3 million in costs to transfer inventory to other manufacturing facilities.

Results of Operations

The following table presents certain information concerning our financial results, including information presented as a percentage of net sales:


	Three Months Ended June 30,												Six Months Ended June 30,
	2011						2010						2011						2010
	Dollars			Percent			Dollars			Percent			Dollars			Percent			Dollars			Percent
				(Dollars in thousands)												(Dollars in thousands)
Net sales	$	492,620			100.0	%	$	446,195			100.0	%	$	986,133			100.0	%	$	843,319			100.0	%
Cost of sales		383,180			77.8			340,045			76.2			755,767			76.6			648,391			76.9

Gross profit		109,440			22.2			106,150			23.8			230,366			23.4			194,928			23.1
Operating expenses:
Selling and distribution		35,558			7.2			30,887			6.9			71,818			7.3			57,683			6.8
General and administrative		30,602			6.2			25,084			5.6			59,845			6.1			53,562			6.3
Other operating expense (income), net		1,348			0.3			2,019			0.5			3,998			0.4			(242	)		—
Amortization expense		8,319			1.7			7,287			1.7			16,368			1.7			11,734			1.4

Total operating expenses		75,827			15.4			65,277			14.7			152,029			15.5			122,737			14.5

Operating income		33,613			6.8			40,873			9.1			78,337			7.9			72,191			8.6
Other expenses (income):
Interest expense, net		13,470			2.7			11,779			2.6			27,321			2.7			18,606			2.2
(Gain) loss on foreign currency exchange		(875	)		(0.2	)		(2,170	)		(0.5	)		555			0.1			(2,070	)		(0.2	)
Other income, net		(225	)		—			(993	)		(0.2	)		(717	)		(0.1	)		(1,206	)		(0.1	)

Total other expense		12,370			2.5			8,616			1.9			27,159			2.7			15,330			1.9

Income before income taxes		21,243			4.3			32,257			7.2			51,178			5.2			56,861			6.7
Income taxes		6,898			1.4			10,605			2.4			17,025			1.7			18,890			2.2

Net income	$	14,345			2.9	%	$	21,652			4.8	%	$	34,153			3.5	%	$	37,971			4.5	%

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

Net Sales — Second quarter net sales increased 10.4% to $492.6 million in 2011 compared to $446.2 million in the second quarter of 2010. The increase is partially driven by the acquisition of S.T. Foods in 2010 and price increases to offset increasing input costs. Net sales by segment are shown in the following table:


	Three Months Ended June 30,
					$ Increase/			% Increase/
	2011		2010		(Decrease)			(Decrease)
			(Dollars in thousands)
North American Retail Grocery	$	350,861	$	307,526	$	43,335			14.1	%
Food Away From Home		79,179		80,269		(1,090	)		(1.4	)%
Industrial and Export		62,580		58,400		4,180			7.2	%

Total	$	492,620	$	446,195	$	46,425			10.4	%

24

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales. These costs include raw materials, ingredient and packaging costs, labor costs, facility and equipment costs, costs to operate and maintain our warehouses, and costs associated with transporting our finished products from our manufacturing facilities to distribution centers. Cost of sales as a percentage of net sales was 77.8% in the second quarter of 2011 compared to 76.2% in 2010. Contributing to the increase in cost of sales, as a percent of net sales, is the increase in the cost of ingredients, packaging supplies and warehouse start-up costs associated with the consolidation of the Company’s distribution network.

Operating Expenses — Total operating expenses were $75.8 million during the second quarter of 2011 compared to $65.3 million in 2010. The increase in 2011 resulted from the following:

Selling and distribution expenses increased $4.7 million or 15.1% in the second quarter of 2011 compared to 2010 primarily due to the addition of S.T. Foods. Selling and distribution expenses as a percentage of total revenues increased to 7.2% in 2011 from 6.9% in 2010, mainly due to increases in distribution costs.

General and administrative expenses increased $5.5 million in the second quarter of 2011 compared to 2010. The increase is primarily related to incremental general and administrative costs of the S.T. Foods acquisition and costs related to the ERP systems implementation.

Other operating expenses were $1.3 million in the second quarter of 2011 consisting primarily of facility closing costs of the Springfield, Missouri pickle plant, compared to $2.0 million in 2010 due to the realignment of the infant feeding business.

Amortization expense increased $1.0 million in the second quarter of 2011 compared to 2010, due primarily to the additional intangible assets acquired in the S.T. Foods acquisition and amortization of capitalized ERP system costs.

Interest Expense, net — Interest expense increased to $13.5 million in the second quarter of 2011, compared to $11.8 million in 2010 primarily due to an increase in debt resulting from the S.T. Foods acquisition and higher borrowing costs.

Foreign Currency — The Company’s foreign currency gain was $0.5 million for the three months ended June 30, 2011 compared to a gain of $2.2 million in 2010, due to fluctuations in currency exchange rates between the U.S. and Canadian dollar.

Income Taxes — Income tax expense was recorded at an effective rate of 32.5% in the second quarter of 2011 compared to 32.9% in the prior year’s quarter.

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010 — Results by Segment

North American Retail Grocery —


	Three Months Ended June 30,
	2011					2010
	Dollars		Percent			Dollars		Percent
			(Dollars in thousands)
Net sales	$	350,861		100.0	%	$	307,526		100.0	%
Cost of sales		268,627		76.6			231,763		75.4

Gross profit		82,234		23.4			75,763		24.6
Freight out and commissions		19,235		5.5			14,189		4.6
Direct selling and marketing		8,897		2.5			9,356		3.0

Direct operating income	$	54,102		15.4	%	$	52,218		17.0	%

Net sales in the North American Retail Grocery segment increased by $43.3 million, or 14.1% in the second quarter of 2011 compared to 2010. The change in net sales from 2010 to 2011 was due to the following:


	Dollars			Percent
	(Dollars in thousands)
2010 Net sales	$	307,526
Volume		11,191			3.6	%
Pricing		2,707			0.9
Acquisition		27,592			9.0
Foreign currency		3,406			1.1
Mix/other		(1,561	)		(0.5	)

2011 Net sales	$	350,861			14.1	%

25

The increase in net sales from 2010 to 2011 resulted primarily from the acquisition of S.T. Foods in 2010, higher volume, price increases and foreign currency fluctuations partially offset by an unfavorable product mix. Overall volume is higher in the second quarter of 2011 compared to that of 2010, primarily due to increases in the soup category.

Cost of sales as a percentage of net sales increased from 75.4% in the second quarter of 2010 to 76.6% in 2011 primarily due to higher ingredient and packaging costs and warehouse start-up costs partially offset by price increases.

Freight out and commissions paid to independent sales brokers were $19.2 million in the second quarter of 2011 compared to $14.2 million in 2010, an increase of 35.6%, primarily due to the addition of S.T. Foods and increases in distribution costs.

Direct selling and marketing expenses were approximately $8.9 million in the second quarter of 2011 and $9.4 million in 2010.

Food Away From Home —


	Three Months Ended June 30,
	2011					2010
	Dollars		Percent			Dollars		Percent
			(Dollars in thousands)
Net sales	$	79,179		100.0	%	$	80,269		100.0	%
Cost of sales		64,156		81.0			62,865		78.3

Gross profit		15,023		19.0			17,404		21.7
Freight out and commissions		3,103		4.0			2,732		3.4
Direct selling and marketing		1,831		2.3			2,064		2.6

Direct operating income	$	10,089		12.7	%	$	12,608		15.7	%

Net sales in the Food Away From Home segment decreased by $1.1 million, or 1.4%, in the second quarter of 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:


	Dollars			Percent
	(Dollars in thousands)
2010 Net sales	$	80,269
Volume		(5,878	)		(7.3	)%
Pricing		325			0.4
Acquisition		278			0.3
Foreign currency		525			0.7
Mix/other		3,660			4.5

2011 Net sales	$	79,179			(1.4	)%

Net sales decreased during the second quarter of 2011 compared to 2010 primarily due to decreases in volume in our pickle category partially offset by a positive product mix.

Cost of sales as a percentage of net sales increased from 78.3% in the second quarter of 2010 to 81.0% in 2011 due to higher ingredient and packaging costs.

Freight out and commissions paid to independent sales brokers were $3.1 million in the second quarter of 2011 compared to $2.7 million in 2010, an increase of 13.6%, primarily due to increased distribution costs.

Direct selling and marketing was $1.8 million in the second quarter of 2011 and $2.1 million in 2010.

26

Industrial and Export —


	Three Months Ended June 30,
	2011					2010
	Dollars		Percent			Dollars		Percent
			(Dollars in thousands)
Net sales	$	62,580		100.0	%	$	58,400		100.0	%
Cost of sales		50,397		80.5			45,417		77.8

Gross profit		12,183		19.5			12,983		22.2
Freight out and commissions		1,048		1.7			1,363		2.3
Direct selling and marketing		543		0.9			462		0.8

Direct operating income	$	10,592		16.9	%	$	11,158		19.1	%

Net sales in the Industrial and Export segment increased $4.2 million or 7.2% in the second quarter of 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:


	Dollars			Percent
	(Dollars in thousands)
2010 Net sales	$	58,400
Volume		(3,338	)		(5.7	)%
Pricing		3,499			6.0
Acquisition		—			—
Foreign currency		107			0.2
Mix/other		3,912			6.7

2011 Net sales	$	62,580			7.2	%

The increase in net sales is due to price increases and a favorable product mix, partially offset by lower volume in our co-pack soup business.

Cost of sales as a percentage of net sales increased from 77.8% in the second quarter of 2010 to 80.5% in 2011 primarily due to higher ingredient and packaging costs.

Freight out and commissions paid to independent sales brokers were $1.0 million in the second quarter of 2011 and $1.4 million 2010, a decrease of 23.1% due to the decrease in volume partially offset by increases in distribution costs.

Direct selling and marketing was $0.5 million in the second quarter of 2011 and 2010.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Net Sales — Net sales increased 16.9% to $986.1 million in the first six months of 2011 compared to $843.3 million in the first six months of 2010. The increase is driven by the acquisitions of Sturm and S.T. Foods in 2010, increases in pricing needed to offset higher input costs, favorable foreign currency exchange rates between the U.S. and Canadian dollar and a favorable product mix. Net sales by segment are shown in the following table:


	Six Months Ended June 30,
					$ Increase/			% Increase/
	2011		2010		(Decrease)			(Decrease)
			(Dollars in thousands)
North American Retail Grocery	$	704,324	$	569,105	$	135,219			23.8	%
Food Away From Home		153,406		153,747		(341	)		(0.2	)%
Industrial and Export		128,403		120,467		7,936			6.6	%

Total	$	986,133	$	843,319	$	142,814			16.9	%

27

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales. These costs include raw materials, ingredient and packaging costs, labor costs, facility and equipment costs, costs to operate and maintain our warehouses, and costs associated with transporting our finished products from our manufacturing facilities to distribution centers. Cost of sales as a percentage of net sales was 76.6% in the first six months of 2011 compared to 76.9% in 2010. Contributing to the reduction in cost of sales, as a percent of net sales, is a favorable mix of sales from Sturm and S.T. Foods, partially offset by lower margins in legacy product categories resulting from an increase in ingredient and packaging costs and warehouse start-up costs associated with the consolidation of the Company’s distribution network. The underlying commodity cost of most raw materials and packaging supplies has increased in the six months ended June 30, 2011.

Operating Expenses — Total operating expenses were $152.0 million during the first six months of 2011 compared to $122.7 million in 2010. The increase in 2011 resulted from the following:

Selling and distribution expenses increased $14.1 million or 24.5% in the first six months of 2011 compared to 2010 primarily due to the addition of Sturm and S.T. Foods. Selling and distribution expenses as a percentage of total revenues increased to 7.3% in 2011 from 6.8% in 2010, mainly due to increases in distribution costs.

General and administrative expenses increased $6.3 million in the first six months of 2011 compared to 2010. The increase is primarily related to incremental general and administrative costs of Sturm and S.T. Foods and costs related to the ERP systems implementation.

Amortization expense increased $4.6 million in the first six months of 2011 compared to the first six months of 2010, due primarily to the additional intangible assets acquired in the Sturm and S.T. Foods acquisitions and amortization of capitalized SAP systems cost.

Other operating expense was $4.0 million in the first six months of 2011 compared to operating income of $0.2 million in the first six months of 2010. Expense in 2011 relates to facility closings, primarily the closing of the Springfield, Missouri pickle plant. Income in 2010 was primarily related to the postretirement benefit plan curtailment at our Dixon facility, offset by costs associated with the realignment of the infant feeding business.

Interest Expense, net — Interest expense increased to $27.3 million in the first six months of 2011, compared to $18.6 million in 2010, primarily due to an increase in debt resulting from the Sturm and S.T. Foods acquisitions and higher borrowing costs.

Foreign Currency — The Company’s foreign currency loss was $0.9 million for the six months ended June 30, 2011 compared to a gain of $2.1 million in 2010, due to fluctuations in currency exchange rates between the U.S. and Canadian dollar.

Income Taxes — Income tax expense was recorded at an effective rate of 33.3% in the first six months of 2011 compared to 33.2% in 2010. The Company’s effective tax rate is favorably impacted by an intercompany financing structure with E.D. Smith.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010 — Results by Segment

North American Retail Grocery —


	Six Months Ended June 30,
	2011					2010
	Dollars		Percent			Dollars		Percent
			(Dollars in thousands)
Net sales	$	704,324		100.0	%	$	569,105		100.0	%
Cost of sales		530,670		75.4			431,932		75.9

Gross profit		173,654		24.6			137,173		24.1
Freight out and commissions		38,766		5.5			27,366		4.8
Direct selling and marketing		17,842		2.5			15,688		2.8

Direct operating income	$	117,046		16.6	%	$	94,119		16.5	%

Net sales in the North American Retail Grocery segment increased by $135.2 million, or 23.8% in the first six months of 2011 compared to the first quarter of 2010. The change in net sales from 2010 to 2011 was due to the following:

28


	Dollars			Percent
	(Dollars in thousands)
2010 Net sales	$	569,105
Volume		16,965			3.0	%
Pricing		1,392			0.2
Acquisition		116,346			20.5
Foreign currency		5,951			1.1
Mix/other		(5,435	)		(1.0	)

2011 Net sales	$	704,324			23.8	%

The increase in net sales from 2010 to 2011 resulted from the acquisition of Sturm and S.T. Foods, foreign currency fluctuations, and higher unit sales offset by an unfavorable product mix. Overall volume is higher in the first six months of 2011 compared to that of 2010, primarily due to increases in the soup category.

Cost of sales as a percentage of net sales decreased from 75.9% in the first six months of 2010 to 75.4% in 2011 primarily due to a favorable mix of sales from Sturm and S.T. Foods partially offset by higher ingredient and packaging costs and warehouse start-up costs.

Freight out and commissions paid to independent sales brokers were $38.8 million in the first six months of 2011 compared to $27.4 million in 2010, an increase of 41.7%, primarily due to the addition of Sturm and S.T. Foods and increases in distribution costs.

Direct selling and marketing expenses increased $2.2 million, or 13.7% in the first six months of 2011 compared to 2010 primarily due to the Sturm and S.T. Foods acquisitions.

Food Away From Home —


	Six Months Ended June 30,
	2011					2010
	Dollars		Percent			Dollars		Percent
			(Dollars in thousands)
Net sales	$	153,406		100.0	%	$	153,747		100.0	%
Cost of sales		123,582		80.6			122,597		79.7

Gross profit		29,824		19.4			31,150		20.3
Freight out and commissions		5,670		3.7			5,162		3.4
Direct selling and marketing		4,013		2.6			3,868		2.5

Direct operating income	$	20,141		13.1	%	$	22,120		14.4	%

Net sales in the Food Away From Home segment decreased by $0.3 million, or 0.2%, in the first six months of 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:


	Dollars			Percent
	(Dollars in thousands)
2010 Net sales	$	153,747
Volume		(10,866	)		(7.1	)%
Pricing		(65	)		—
Acquisition		3,170			2.1
Foreign currency		916			0.6
Mix/other		6,504			4.2

2011 Net sales	$	153,406			(0.2	)%

29

Net sales decreased during the first six months of 2011 compared to 2010 primarily due to decreases in volume in our pickle category partially offset by the acquisition of Sturm, foreign currency fluctuations and a positive product mix.

Cost of sales as a percentage of net sales increased from 79.7% in the first six months of 2010 to 80.6% in 2011, due to increases in raw material, ingredient and packaging costs.

Freight out and commissions paid to independent sales brokers were $5.7 million in the first six months of 2011 compared to $5.2 million in 2010 due to the addition of Sturm and increased distribution costs.

Direct selling and marketing was $4.0 million in the first six months of 2011 compared to $3.9 million in 2010.

Industrial and Export —


	Six Months Ended June 30,
	2011					2010
	Dollars		Percent			Dollars		Percent
			(Dollars in thousands)
Net sales	$	128,403		100.0	%	$	120,467		100.0	%
Cost of sales		101,515		79.1			93,862		77.9

Gross profit		26,888		20.9			26,605		22.1
Freight out and commissions		2,399		1.9			2,724		2.3
Direct selling and marketing		1,075		0.8			891		0.7

Direct operating income	$	23,414		18.2	%	$	22,990		19.1	%

Net sales in the Industrial and Export segment increased $7.9 million or 6.6% in the first six months of 2011 compared to the prior year. The change in net sales from 2010 to 2011 was due to the following:


	Dollars			Percent
	(Dollars in thousands)
2010 Net sales	$	120,467
Volume		(7,976	)		(6.6	)%
Pricing		7,029			5.8
Acquisition		1,963			1.6
Foreign currency		192			0.2
Mix/other		6,728			5.6

2011 Net sales	$	128,403			6.6	%

The increase in net sales is primarily due to price increases, a favorable product mix and the addition of the Sturm co-pack business. The lower volume is mainly due to a decrease in the co-pack soup business.

Cost of sales, as a percentage of net sales, increased from 77.9% in the first six months of 2010 to 79.1% in 2011 primarily due to cost increases in raw material, ingredient and packaging costs.

Freight out and commissions paid to independent sales brokers were $2.4 million in the first six months of 2011 compared to $2.7 million in 2010, a decrease of 11.9%, due to the decrease in sales volume partially offset by increases in distribution costs.

Direct selling and marketing was $1.1 million in the first six months of 2011 compared to $0.9 million in 2010.

30

Liquidity and Capital Resources

Cash Flow

Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company continues to generate substantial cash flow from operating activities and remains in a strong financial position, with resources available for reinvestment in existing businesses, acquisitions and managing its capital structure on a short and long-term basis. If additional borrowings are needed, approximately $304.8 million was available under the revolving credit facility as of June 30, 2011. See Note 10 to our Condensed Consolidated Financial Statements for additional information regarding our revolving credit facility. We believe that, given our cash flow from operating activities and our available credit capacity, we can comply with the current terms of the revolving credit facility and meet foreseeable financial requirements.

The Company’s cash flows from operating, investing and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows are summarized in the following tables:


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)
Cash flows from operating activities:

Net income	$	34,153		$	37,971
Depreciation and amortization		40,347			32,497
Stock-based compensation		9,449			7,798
Loss on foreign currency exchange		720			668
Write-down of tangible assets		2,330			—
Curtailment of postretirement benefit obligation		—			(2,357	)
Deferred income taxes		907			7,199
Changes in operating assets and liabilities, net of acquisitions		(12,710	)		32,455
Other		(4,160	)		531

Net cash provided by operating activities	$	71,036		$	116,762

Our cash from operations was $71.0 million in the first six months of 2011 compared to $116.8 million 2010, a decrease of $45.8 million. The decrease in cash from operating activities is due to an increase in working capital, primarily resulting from higher input costs of our inventories.


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)
Cash flows from investing activities:

Additions to property, plant and equipment	$	(29,839	)	$	(16,625	)
Additions to other intangible assets		(6,183	)		(6,614	)
Acquisition of business, net of cash acquired		3,243			(664,655	)
Other		56			—

Net cash used in investing activities	$	(32,723	)	$	(687,894	)

In the first six months of 2011, cash used in investing activities decreased by $655.2 million compared to 2010 primarily due to the acquisition of Sturm in 2010 for $664.7 million.

We expect capital spending programs to be approximately $85 million in 2011. Capital spending in 2011 will focus on food safety, quality, productivity improvements, improvements to our San Antonio facility, installation of an Enterprise Resource Planning system (ERP) and routine equipment upgrades or replacements at our plants, and will be funded with cash from operations.

31


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)
Cash flows from financing activities:

Proceeds from issuance of debt for acquisitions	$	—		$	400,000
Borrowings under revolving credit facility		125,600			270,900
Payments under revolving credit facility		(162,200	)		(187,100	)
Proceeds from issuance of common stock, net of expenses		—			110,688
Payment of deferred financing costs		—			(10,783	)
Net payments related to stock-based award activities		(9,394	)		(12,256	)
Other		3,072			(1,027	)

Net cash (used in) provided by financing activities	$	(42,922	)	$	570,422

Net cash used in financing activities in 2011 was $43.0 million compared to $570.4 million provided by financing activities in 2010. In the first six months of 2010, we issued $400.0 million of new debt, common stock in the net amount of $110.7 million and borrowings under our revolving credit facility to finance the Sturm acquisition. The first six months of 2011 consisted of only normal borrowings and repayments under our line of credit.

Cash provided by operating activities is used to pay down debt and fund additions to property, plant and equipment and intangible assets.

Our short-term financing needs are primarily for financing working capital during the year. Due to the seasonality of pickle and fruit production, driven by harvest cycles which occur primarily during late spring and summer, inventories generally are at a low point in late spring and at a high point during the fall, increasing our working capital requirements. In addition, we build inventories of salad dressings in the spring and soup in the late summer months in anticipation of large seasonal shipments that begin late in the second and third quarters, respectively. Our long-term financing needs will depend largely on potential acquisition activity. We expect our revolving credit facility, plus cash flow from operations, to be adequate to provide liquidity for current operations.

Debt Obligations

At June 30, 2011, we had $436.0 million in borrowings outstanding under our revolving credit facility, 7.75% High Yield Notes due 2018 of $400 million outstanding, Senior Notes of $100 million outstanding and $5.6 million of tax increment financing and other obligations. In addition, at June 30, 2011, there were $9.2 million in letters of credit under the revolving credit facility that were issued but undrawn.

Our revolving credit facility provides for an aggregate commitment of $750 million, of which $304.8 million was available at June 30, 2011. Interest rates on debt outstanding under our revolving credit facility as of June 30, 2011 averaged 2.18%.

We are in compliance with applicable debt covenants as of June 30, 2011.

See Note 10 to our Condensed Consolidated Financial Statements for additional information regarding our indebtedness and related agreements.

Other Commitments and Contingencies

We also have the following commitments and contingent liabilities, in addition to contingent liabilities related to the ordinary course of litigation, investigations and tax audits:

	•		certain lease obligations, and

	•		selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses.

See Note 17 to our Condensed Consolidated Financial Statements and Note 19 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 for more information about our commitments and contingent obligations.

32

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is provided in Note 2 to the Company’s Condensed Consolidated Financial Statements.

Critical Accounting Policies

A description of the Company’s critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2010. There were no material changes to our critical accounting policies in the six months ended June 30, 2011.

Off-Balance Sheet Arrangements

We do not have any obligations that meet the definition of an off-balance sheet arrangement, other than operating leases and letters of credit, which have or are reasonably likely to have a material effect on our Condensed Consolidated Financial Statements.

Forward Looking Statements

From time to time, we and our representatives may provide information, whether orally or in writing, including certain statements in this Quarterly Report on Form 10-Q, which are deemed to be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward-looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.

The words “anticipate,” “believe,” “estimate,” “project,” “expect,” “intend,” “plan,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. We do not intend to update these forward-looking statements.

In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Quarterly Report on Form 10-Q and other public statements we make. Such factors include, but are not limited to: the outcome of litigation and regulatory proceedings to which we may be a party; the impact of product recalls; actions of competitors; changes and developments affecting our industry; quarterly or cyclical variations in financial results; our ability to obtain suitable pricing for our products; development of new products and services; our level of indebtedness; the availability of financing on commercially reasonable terms; cost of borrowing; our ability to maintain and improve cost efficiency of operations; changes in foreign currency exchange rates; interest rates; raw material and commodity costs; changes in economic conditions; political conditions; reliance on third parties for manufacturing of products and provision of services; general U.S. and global economic conditions; the financial condition of our customers and suppliers; consolidations in the retail grocery and foodservice industries; our ability to continue to make acquisitions in accordance with our business strategy or effectively manage the growth from acquisitions; and other risks that are set forth in the Risk Factors section, the Legal Proceedings section, the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and other sections of this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2010 and from time to time in our filings with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Fluctuations

The Company is party to an unsecured revolving credit facility with an aggregate commitment of $750 million. The interest rate under the revolving credit facility 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 revolving credit facility) plus a margin ranging from 0.25% to 1.05%.

The Company has a $50 million interest rate swap agreement with a termination date of August 19, 2011 with a fixed 2.9% interest rate. Under the terms of the Company’s revolving credit agreement and in conjunction with our credit spread, this will result in an all-in borrowing cost on the swapped principal of $50 million being no more than 4.95% until August 19, 2011. The Company did not apply hedge accounting to this swap.

33

In July 2006, we 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 our Condensed Consolidated Balance Sheets. The loss is reclassified ratably to our Condensed 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 our senior notes.

We do not utilize financial instruments for trading purposes or hold any derivative financial instruments, which could expose us to significant interest rate market risk, other than our interest rate swap agreement, as of June 30, 2011. Our exposure to market risk for changes in interest rates relates primarily to the increase in the amount of interest expense we expect to pay with respect to our revolving credit facility, which is tied to variable market rates. Based on our outstanding debt balance of $436.0 million under our revolving credit facility at June 30, 2011, and adjusting for the $50 million fixed rate swap amount, as of June 30, 2011, each 1% rise in our interest rate would increase our interest expense by approximately $3.9 million annually.

Input Costs

The costs of raw materials, packaging materials and fuel, have varied widely in recent years and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly. We experienced increases in costs of most raw materials, ingredients, and packaging materials in the first six months of 2011 compared to 2010. In addition, fuel costs, which represent the most important factor affecting utility costs at our production facilities, as well as our transportation costs rose significantly in the first six months of 2011. We expect the volatile nature of these costs to continue with an overall upward trend.

We manage the cost of certain raw materials by entering into forward purchase contracts. Forward purchase contracts help us manage our business and reduce cost volatility.

The most important raw material used in our pickle operations is cucumbers. We purchase cucumbers under seasonal grower contracts with a variety of growers strategically located to supply our production facilities. Bad weather or disease in a particular growing area can damage or destroy the crop in that area, which would impair crop yields. If we are not able to buy cucumbers from local suppliers, we would likely either purchase cucumbers from foreign sources, such as Mexico or India, or ship cucumbers from other growing areas in the United States, thereby increasing our production costs.

Changes in the prices of our products may lag behind changes in the costs of our products. We experienced a lag in our pricing in the second quarter relative to increased input costs. Although we expect the trend of increased input costs to continue, we anticipate that we will realize the impact of our pricing efforts in the second half of the year, which will partially offset such increased costs. Competitive pressures also may limit our ability to quickly raise prices in response to increased raw materials, packaging and fuel costs. Accordingly, if we are unable to increase our prices to offset increasing raw material, packaging and fuel costs, our operating profits and margins could be materially adversely affected. In addition, in instances of declining input costs, customers may be looking for price reductions in situations where we have locked into pricing at higher costs.

Fluctuations in Foreign Currencies

The Company is exposed to fluctuations in the value of our foreign currency investment in E.D. Smith, located in Canada. Input costs for certain Canadian sales are denominated in U.S. dollars, further impacting the effect foreign currency fluctuations may have on the Company.

The Company’s financial statements are presented in U.S. dollars, which require the Canadian assets, liabilities, revenues, and expenses to be translated into U.S. dollars at the applicable exchange rates. Accordingly, we are exposed to volatility in the translation of foreign currency earnings due to fluctuations in the value of the Canadian dollar, which may negatively impact the Company’s results of operations and financial position. For the six months ended June 30, 2011 the Company recognized a net gain of $6.8 million, of which a gain of $7.4 million was recorded as a component of Accumulated other comprehensive loss and a loss of $0.6 million was recorded on the Company’s Condensed Consolidated Statements of Income within the Loss on foreign currency exchange. For the six months ended June 30, 2010, the Company recognized a net foreign currency exchange gain of $2.8 million, of which a gain of $0.7 million was recorded as a component of Accumulated other comprehensive loss and a gain of $2.1 million was recorded on the Company’s Condensed Consolidated Statements of Income within the Loss on foreign currency exchange.

The Company has entered into foreign currency contracts due to the exposure to Canadian/U.S. dollar currency fluctuations on cross border transactions. The Company does not apply hedge accounting to these contracts and records them at fair value on the Condensed Consolidated Balance Sheets. The contracts were entered into for the purchase of U.S. dollar denominated raw materials by our Canadian subsidiary. As of June 30, 2011, the Company had a liability of $0.1 million and realized a gain of approximately $0.1 million in the six months ended June 30, 2011.

34

Item 4. Controls and Procedures

Evaluations were carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon those evaluations, the Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2011, these disclosure controls and procedures were effective. We have excluded S.T. Foods from our evaluation of disclosure controls and procedures, as of June 30, 2011, because S.T. Foods was acquired by the Company in October of 2010. The net sales and total assets of S.T. Foods represented approximately 4.9%, and, 9.0%, respectively, of the related Condensed Consolidated Financial Statement amounts as of and for the quarter ended June 30, 2011.

During the second quarter of 2011, we continued migrating certain financial processing systems to an enterprise resource planning system. This software implementation is part of our ongoing business transformation initiative, and we plan to continue implementing such software and related process throughout our businesses over the course of the next few years. In connection with this implementation and resulting business process changes, we continue to enhance the design and documentation of our internal control processes to ensure suitable controls over our financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
TreeHouse Foods, Inc.
Oak Brook, IL

We have reviewed the accompanying condensed consolidated balance sheet of TreeHouse Foods, Inc. and subsidiaries (the “Company”) as of June 30, 2011, and the related condensed consolidated statements of income for the three and six month periods ended June 30, 2011 and 2010 and of cash flows for the six month periods ended June 30, 2011 and 2010. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of TreeHouse Foods, Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
August 5, 2011

36

Part II — Other Information

Item 1. Legal Proceedings

We are party to a variety of legal proceedings arising out of the conduct of our business. While the results of proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our consolidated financial statements, annual results of operations or cash flows.

Item 1A. Risk Factors

Information regarding risk factors appears in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Information Related to Forward-Looking Statements, in Part I — Item 2 of this Form 10-Q and in Part I — Item 1A of the TreeHouse Foods, Inc. Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes from the risk factors previously disclosed in the TreeHouse Foods, Inc. Annual Report on Form 10-K for the year ended December 31, 2010.

Item 6. Exhibits


12.1		Computation of Ratio of Earnings to Fixed Changes.

15.1		Awareness Letter from Deloitte & Touche LLP regarding unaudited financial information.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

*Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statement of Income for the three and six months ended June 30, 2011 and 2010, (ii) the Condensed Consolidated Balance Sheet at June 30, 2011 and December 31, 2010, (iii) the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements for the six months ended June 30, 2011. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

37

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	TREEHOUSE FOODS, INC.
	/s/ Dennis F. Riordan
	Dennis F. Riordan
	Executive Vice President and Chief Financial Officer

August 5, 2011

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TreeHouse Foods - 10-Q quarterly report FY2011 Q2

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