UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

_____________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~July 1, 2018



¨	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 001-35844

___________________________________

Pinnacle Foods Inc.

(Exact name of registrant as specified in its charter)

___________________________________



Delaware		35-2215019
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

399 Jefferson Road Parsippany, New Jersey		07054
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (973) 541-6620

___________________________________

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 ý No ¨

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

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



Large accelerated filer	ý	Accelerated filer	¨

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

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No ý

The Registrant had 119,~~171~~185,~~745~~812 shares of common stock, $0.01 par value, outstanding atas ~~April~~of July 30, 2018.

Table of Contents

	TABLE OF CONTENTSFORM 10-Q	PageNo.
PART I - FINANCIAL INFORMATION		1
ITEM 1:	FINANCIAL STATEMENTS (UNAUDITED)	1
CONSOLIDATED STATEMENTS OF OPERATIONS		1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS		2
CONSOLIDATED BALANCE SHEETS		3
CONSOLIDATED STATEMENTS OF CASH FLOWS		4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY		5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		6
1.	Summary of Business Activities	6
2.	Interim Financial Statements	6
3.	Revenue Recognition	67
4.	Acquisitions	78
5.	Fair Value Measurements	8
6.	Other Expense (Income), net	910
7.	Equity-Based Compensation and Earnings Per Share	910
8.	Accumulated Other Comprehensive Income (Loss)	1112
9.	Balance Sheet Information	1213
10.	Goodwill, Tradenames and Other Assets	1314
11.	Restructuring Charges	1517
12.	Debt and Interest Expense	1618
13.	Pension and Retirement Plans	2123
14.	Financial Instruments	2224
15.	Commitments and Contingencies	2529
16.	Segments	2629
17.	Provision for Income Taxes	2831
18.	Recently Issued Accounting Pronouncements	2932
19	Guarantor and Nonguarantor Statements	3134
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3843
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5869
ITEM 4:	CONTROLS AND PROCEDURES	5970
PART II - OTHER INFORMATION		6071
ITEM 1:	LEGAL PROCEEDINGS	6071
ITEM 1A:	RISK FACTORS	6071
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6071
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	6071
ITEM 4:	MINE SAFETY DISCLOSURES	6071
ITEM 5:	OTHER INFORMATION	6071
ITEM 6:	EXHIBITS	6172
SIGNATURES		6172

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands, except per share amounts)

	Three months ended						Six months ended
	April 1, 2018			March 26, 2017
	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Net sales	$	~~778~~741,~~832~~761		$	~~766~~744,~~074~~608		$	1,520,593		$	1,510,682
Cost of products sold	~~572~~530,~~402~~299			~~555~~580,~~501~~681			1,102,701			1,136,182
Gross profit	~~206~~211,~~430~~462			~~210~~163,~~573~~927			417,892			374,500
Marketing and selling expenses	4950,~~227~~617			5549,~~594~~470			99,844			105,064
Administrative expenses	3435,~~674~~368			3633,~~011~~630			70,042			69,641
Research and development expenses	4,~~764~~786			4,~~021~~580			9,550			8,601
Other expense, net	2,865			4,230
Tradename impairment charges	—			27,430			—			27,430
	91,530			99,856
Other expense, net	17,445			5,288			20,310			9,518
Operating income	114,900			110,717
	108,216			120,398			199,746			220,254
Non-operating income	801			491
Operating income	103,246			43,529			218,146			154,246
Earnings before interest and taxes	115,701			111,208
Non-operating income	802			491			1,603			982
Interest expense	41,894			80,731
Earnings before interest and taxes	104,048			44,020			219,749			155,228
Interest income	212			15
Interest expense	30,184			28,507			72,078			109,238
Earnings before income taxes	74,019			30,492
Interest income	16			13			228			28
Provision for income taxes	17,105			7,343
Earnings before income taxes	73,880			15,526			147,899			46,018
Net earnings	56,914			23,149
Provision (benefit) for income taxes	17,624			(3,092		)	34,729			4,251
Less: Net earnings attributable to non-controlling interest	—			223
Net earnings	56,256			18,618			113,170			41,767
Net earnings attributable to Pinnacle Foods, Inc. and subsidiaries common shareholders	$	56,914		$	22,926
Less: Net (loss) earnings attributable to non-controlling interest	(61		)	(51		)	(61		)	172
Net earnings per share attributable to Pinnacle Foods, Inc. and subsidiaries common shareholders:
Net earnings attributable to Pinnacle Foods, Inc. and subsidiaries common shareholders	$	56,317		$	18,669		$	113,231		$	41,595
Basic	$	0.48		$	0.20
Net earnings per share attributable to Pinnacle Foods, Inc. and subsidiaries common shareholders:
Weighted average shares outstanding - basic	118,496			117,624
Basic	$	0.47		$	0.16		$	0.95		$	0.35
Diluted	$	0.48		$	0.19
Weighted average shares outstanding - basic	118,774			118,114			118,635			117,869
Weighted average shares outstanding - diluted	119,813			119,332
Diluted	$	0.47		$	0.16		$	0.94		$	0.35
Dividends declared	$	0.325		$	0.285
Weighted average shares outstanding - diluted	119,948			119,607			119,881			119,469
Dividends declared	$	0.325		$	0.285		$	0.650		$	0.570

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (unaudited)

(thousands)

	Three months ended														Six months ended
	April 1, 2018							March 26, 2017
	July 1, 2018							June 25, 2017							July 1, 2018							June 25, 2017
	Pre-tax amount		Tax (expense) benefit		After-tax amount			Pre-tax amount		Tax (expense) benefit		After-tax amount			Pre-tax amount		Tax (expense) benefit		After-tax amount			Pre-tax amount		Tax (expense) benefit		After-tax amount
Net earnings					$	56,~~914~~256						$	2318,~~149~~618						$	113,170						$	41,767
Other comprehensive earnings (loss)
Foreign currency translation:
Foreign currency translation adjustments	(21,~~178~~663	)	—		(21,~~178~~663		)	~~1,113~~652		—		~~1,113~~652			(3,841	)	—		(3,841		)	1,765		—		1,765
Cash-flow hedges:
Unrealized gains (losses) arising during the period	138,~~605~~053		(32,~~464~~119	)	105,~~141~~934			~~495~~(5,147	)	~~(192~~1,973	)	~~303~~(3,174		)	21,658		(5,583	)	16,075			(4,652	)	1,781		(2,871		)
Reclassification adjustment for (gains) losses included in net earnings	(711,227	)	17314		(54913		)	~~21,875~~(278	)	~~(8,351~~106	)	~~13,524~~(172		)	(1,298	)	331		(967		)	21,597		(8,245	)	13,352
Pension:
Reclassification of net actuarial loss included in net earnings	~~259~~217		(6454	)	~~195~~163			~~269~~309		(~~102~~119	)	~~167~~190			476		(118	)	358			578		(221	)	357
Other comprehensive earnings (loss)	115,~~615~~380		(31,~~511~~859	)	83,~~104~~521			23(4,~~752~~464	)	(81,~~645~~960	)	15(2,~~107~~504		)	16,995		(5,370	)	11,625			19,288		(6,685	)	12,603
Total comprehensive earnings					6559,~~018~~777							3816,~~256~~114							124,795							54,370
Less: Comprehensive earnings attributable to non-controlling interest					—(61		)					~~223~~(51		)					(61		)					172
Comprehensive earnings attributable to Pinnacle Foods Inc. and Subsidiaries					$	6559,~~018~~838						$	3816,~~033~~165						$	124,856						$	54,198

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

(thousands, except share and per share amounts)

	April 1, 2018			December 31, 2017
	July 1, 2018			December 31, 2017
Current assets:
Cash and cash equivalents	$	7780,~~684~~431		$	249,828
Accounts receivable, net of allowances of $10,359 and $10,036, respectively	301,218			281,622
Accounts receivable, net of allowances of $9,584 and $10,036, respectively	264,358			281,622
Inventories	~~477~~507,~~342~~937			489,806
Other current assets	1715,~~489~~889			11,061
Total current assets	~~873~~868,~~733~~615			1,032,317
Plant assets, net of accumulated depreciation of $545,125 and $566,202, respectively	740,265			739,713
Plant assets, net of accumulated depreciation of $566,121 and $566,202, respectively	754,114			739,713
Tradenames	2,463,~~255~~172			2,463,374
Other assets, net	~~169~~173,~~398~~971			164,899
Goodwill	2,~~176~~175,~~391~~290			2,177,961
Total assets	$	6,~~423~~435,~~042~~162		$	6,578,264
Current liabilities:
Short-term borrowings	$	1,~~566~~842		$	2,739
Current portion of long-term obligations	5354,~~331~~126			33,934
Accounts payable	~~327~~329,~~668~~035			323,062
Accrued trade marketing expense	4132,~~060~~113			38,975
Accrued liabilities	~~129~~119,~~466~~945			122,131
Dividends payable	40,~~884~~066			40,470
Total current liabilities	~~593~~577,~~975~~127			561,311
Long-term debt	2,703,~~733~~917			2,925,594
Pension and other postretirement benefits	5250,~~142~~134			53,251
Other long-term liabilities	3328,~~885~~662			34,037
Deferred tax liabilities	~~632~~643,~~941~~792			623,833
Total liabilities	4,~~016~~003,~~676~~632			4,198,026
Commitments and contingencies (Note 15)
Shareholders' equity:
Pinnacle preferred stock: $.01 per share, 50,000,000 shares authorized, none issued	—			—
Pinnacle common stock: par value $.01 per share, 500,000,000 shares authorized; issued 120,186,810 and 120,018,215, respectively	1,202			1,200
Pinnacle common stock: par value $.01 per share, 500,000,000 shares authorized; issued 120,184,208 and 120,018,215, respectively	1,202			1,200
Additional paid-in-capital	1,~~453~~457,~~171~~492			1,453,054
Retained earnings	1,~~010~~027,~~472~~855			987,238
Accumulated other comprehensive loss	(2723,~~475~~954		)	(30,250		)
Capital stock in treasury, at cost, 1,000,000 common shares	(32,110		)	(32,110		)
Total Pinnacle Foods Inc. and subsidiaries shareholders' equity	2,~~405~~430,~~260~~485			2,379,132
Non-controlling interest	1,~~106~~045			1,106
Total Equity	2,~~406~~431,~~366~~530			2,380,238
Total liabilities and equity	$	6,~~423~~435,~~042~~162		$	6,578,264

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands)

	Three months ended
	Six months ended
	April 1, 2018			March 26, 2017
	July 1, 2018			June 25, 2017
Cash flows from operating activities
Net earnings	$	56113,~~914~~170		$	2341,~~149~~767
Non-cash charges (credits) to net earnings
Depreciation and amortization	2654,~~888~~251			2780,~~088~~899
Amortization of debt acquisition costs and discount on term loan	871			1,580
Intangible asset impairment charge	—			27,430
Recognition of deferred costs related to refinancing	10,913			28,494
Amortization of debt acquisition costs and discount on term loan	1,612			2,597
Change in value of financial instruments, including amounts reclassified from Accumulated Other Comprehensive Loss from settlement of hedges	608			22,724
Call premium on note redemptions	4,267			—
Equity-based compensation charges	4,279			4,109
Recognition of deferred costs related to refinancing	12,681			28,494
Pension expense, net of contributions	(914		)	(634		)
Change in value of financial instruments, including amounts reclassified from Accumulated Other Comprehensive Loss from settlement of hedges	1,078			25,043
Other long-term liabilities	(704		)	(1,473		)
Equity-based compensation charges	9,979			9,656
Foreign exchange losses/(gains)	525			(233		)
Pension expense, net of contributions	(2,641		)	(1,136		)
Deferred income taxes	5,697			5,058
Other long-term liabilities	(6,331		)	(1,193		)
Foreign exchange losses/(gains)	894			(398		)
Deferred income taxes	12,348			(5,780		)
Changes in working capital
Other liabilities - cash settlement of hedges related to refinancing	—			(20,722		)
Accounts receivable	~~(19~~16,~~835~~851		)	(11,~~583~~777		)
Inventories	11(19,~~913~~056		)	(831,~~747~~745		)
Accrued trade marketing expense	2(6,~~020~~973		)	(517,~~220~~748		)
Accounts payable	20,~~915~~870			2835,~~680~~379
Accrued liabilities	31,~~601~~091			(2753,~~328~~991		)
Other current assets	~~(2,113~~659		)	(19,~~949~~981		)
Net cash provided by operating activities	~~121~~214,~~578~~750			62120,~~993~~348
Cash flows from investing activities
Capital expenditures	(3560,~~876~~333		)	(2949,~~243~~355		)
Proceeds from sale of plant assets	—			~~679~~1,947
Other investing	608			—
Net cash used in investing activities	(3559,~~268~~725		)	(2847,~~564~~408		)
Cash flows from financing activities
Proceeds from bank term loans	2,~~039~~289,380			2,262,000
Repayments of long-term obligations	(2,~~250~~614,~~359~~629		)	(2,~~465~~472,~~700~~320		)
Proceeds from short-term borrowings	—			1,634
Repayments of short-term borrowings	(12,~~173~~391		)	(12,~~068~~240		)
Repayment of capital lease obligations	(4,036		)	(2,224		)
Borrowings under revolving credit facility	100,000			—
Dividends paid	(38,595		)	(33,602		)
Repayment of capital lease obligations	(6,188		)	(4,216		)
Net proceeds from issuance of common stock	762			5,894
Dividends paid	(78,171		)	(67,412		)
Taxes paid related to net share settlement of equity awards	(99		)	(303		)
Net proceeds from issuance of common stock	2,046			9,051
Debt acquisition costs	(4,145		)	(12,810		)
Taxes paid related to net share settlement of equity awards	(7,572		)	(8,926		)
Net cash used in financing activities	(258,265		)	(246,179		)
Debt acquisition costs	(6,569		)	(12,937		)
Effect of exchange rate changes on cash	(189		)	128
Net cash used in financing activities	(324,094		)	(295,366		)
Net change in cash and cash equivalents	(172,144		)	(211,622		)
Effect of exchange rate changes on cash	(328		)	219
Net change in cash and cash equivalents	(169,397		)	(222,207		)
Cash and cash equivalents - beginning of period	249,828			353,076
Cash and cash equivalents - end of period	$	7780,~~684~~431		$	~~141~~130,~~454~~869
Supplemental disclosures of cash flow information:
Interest paid	$	3260,~~987~~817		$	3562,~~479~~180
Interest received	~~591~~1,391			1528
Income taxes paid	144,~~747~~617			247,~~512~~569
Non-cash investing and financing activities:
New capital leases	417,~~909~~901			48,~~822~~951
Dividends payable	40,~~884~~066			35,~~600~~244
Accrued additions to plant assets	1412,~~504~~518			1310,~~681~~422

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)

(thousands, except share and per share amounts)

	Common Stock			Treasury Stock					AdditionalPaid InCapital		RetainedEarnings			AccumulatedOtherComprehensiveLoss			Total Shareholders' Equity			Non-Controlling Interest			TotalEquity
	Shares	Amount		Shares		Amount
Balance, December 25, 2016	119,127,269	$	1,191	(1,000,000	)	$	(32,110	)	$	1,429,447	$	601,049		$	(51,569	)	$	1,948,008		$	934		$	1,948,942
Equity-based compensation plans	~~295~~658,~~485~~775	37							9,~~698~~774								9,~~701~~781						9,~~701~~781
Dividends ($0.285 per share) (a)											(33,972		)				(33,972		)				(33,972		)
Dividends ($0.570 per share) (a)											(68,281		)				(68,281		)				(68,281		)
Non-controlling interest in acquisition																	—			~~223~~172			~~223~~172
Comprehensive earnings											2341,~~149~~767			1512,~~107~~603			3854,~~256~~370						3854,~~256~~370
Balance, March 26, 2017	119,422,754	$	1,194	(1,000,000	)	$	(32,110	)	$	1,439,145	$	590,226		$	(36,462	)	$	1,961,993		$	1,157		$	1,963,150
Balance, June 25, 2017	119,786,044	$	1,198	(1,000,000	)	$	(32,110	)	$	1,439,221	$	574,535		$	(38,966	)	$	1,943,878		$	1,106		$	1,944,984
Balance, December 31, 2017	120,018,215	$	1,200	(1,000,000	)	$	(32,110	)	$	1,453,054	$	987,238		$	(30,250	)	$	2,379,132		$	1,106		$	2,380,238
Equity-based compensation plans	~~168~~165,~~595~~993	2							~~117~~4,438								~~119~~4,440						~~119~~4,440
Dividends ($0.325 per share) (b)											(39,009		)				(39,009		)				(39,009		)
Dividends ($0.650 per share) (b)											(77,882		)				(77,882		)				(77,882		)
Reclassification of tax effects relating to U.S. tax reform											5,329			(5,329		)	—						—
Comprehensive earnings											56,914			8,104			65,018						65,018
Net earnings attributable to non-controlling interest																	—			(61		)	(61		)
Balance, April 1, 2018	120,186,810	$	1,202	(1,000,000	)	$	(32,110	)	$	1,453,171	$	1,010,472		$	(27,475	)	$	2,405,260		$	1,106		$	2,406,366
Comprehensive earnings											113,170			11,625			124,795						124,795
Balance, July 1, 2018	120,184,208	$	1,202	(1,000,000	)	$	(32,110	)	$	1,457,492	$	1,027,855		$	(23,954	)	$	2,430,485		$	1,045		$	2,431,530

(a) $0.285 per share declared February 2017 and June 2017.

(b) $0.325 per share declared February 2018 and June 2018.

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

1. Summary of Business Activities

Business Overview

Pinnacle Foods Inc. ("Pinnacle" or the "Company") is a leading manufacturer, marketer and distributor of high quality, branded convenience food products, the products and operations of which are managed and reported in four operating segments: (i) Frozen, (ii) Grocery, (iii) Boulder and (iv) Specialty.

The Frozen segment is comprised of the retail businesses of the Company's frozen brands, including vegetables (Birds Eye), complete bagged meals (Birds Eye Voila! and Birds Eye Signature Skillets), full-calorie single-serve frozen dinners and entrées (Hungry-Man), prepared seafood (Van de Kamp's and Mrs. Paul's), frozen and refrigerated bagels (Lender's) and pizza for one (Celeste). The Frozen segment also includes all of the Company’s business in Canada, including those of the Garden Protein International and Boulder Brands acquisitions. The Grocery segment is comprised of the retail businesses of the Company's grocery brands, including cake/ brownie mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), salad dressings (Wish-Bone, Western and Bernstein’s), table syrups (Log Cabin and Mrs. Butterworth's), refrigerated and shelf-stable spreads (Smart Balance), canned meat (Armour, Nalley and Brooks), pie and pastry fillings (Duncan Hines Comstock and Wilderness), and barbecue sauces (Open Pit). The Boulder segment is comprised of the retail businesses of the Company's health and wellness lifestyle brands including gluten-free products (Udi's and Glutino), natural frozen meal offerings (EVOL), plant-based refrigerated and shelf-stable spreads (Earth Balance) and plant-based protein frozen products (gardein). The Specialty Foods segment includes the Company’s snack products (Tim's Cascade and Snyder of Berlin) and all of its U.S. foodservice and private label businesses, including those of the Garden Protein International and Boulder Brands acquisitions.

~~History~~Merger ~~and~~Agreement ~~Current~~with ~~Ownership~~Conagra Brands, Inc.

On ~~April 2~~June 26, ~~2007~~2018, the Company ~~was~~entered ~~acquired~~into ~~by,~~an Agreement and ~~became~~Plan aof ~~wholly~~Merger ~~owned~~(the ~~subsidiary~~“Merger ofAgreement”) with Conagra Brands, ~~Peak~~Inc., ~~Holdings~~a ~~LLC~~Delaware ~~(“Peak~~corporation ~~Holdings”~~("Conagra"), anand ~~entity~~Patriot ~~controlled~~Merger bySub ~~investment~~Inc., ~~funds~~a ~~affiliated~~Delaware ~~with~~corporation ~~The~~and ~~Blackstone~~a ~~Group~~wholly-owned ~~L.P.~~subsidiary of Conagra (“~~Blackstone~~Merger Sub”). ~~Blackstone~~The ~~owned,~~Merger ~~through~~Agreement ~~Peak~~provides ~~Holdings,~~for ~~approximately~~the ~~98%~~merger of Merger Sub with and into the ~~common~~Company ~~stock~~(the of“Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Conagra.

AsAt of the ~~launch~~time of ~~our initial public offering on April 3, 2013 (~~the ~~“IPO”)~~Merger, weeach ~~were controlled by Blackstone. Effective September 12, 2014, as a result~~ of ~~Blackstone’s reduced ownership in~~ the Company,'s weshares noof ~~longer~~common ~~qualified~~stock aswill abe ~~“controlled~~converted ~~company”~~into ~~under~~the ~~applicable~~right ~~New~~to ~~York~~receive $43.11 ~~Stock~~in ~~Exchange~~cash ~~listing~~and ~~standards~~0.6494 Onshares ~~May~~of 8,Conagra ~~2015,~~common ~~Blackstone~~stock. This ~~sold~~implied ~~their~~a ~~final~~price ~~5,000,000~~of ~~shares~~$68.00 inper anshare ~~underwritten~~of ~~public~~the ~~offering.~~Company's ~~Upon~~common ~~completion~~stock ofon the ~~offering,~~date ~~Blackstone~~of nothe ~~longer~~announcement. The ~~beneficially~~final ~~owned~~purchase ~~any~~price ofis ~~the~~expected ~~Company's~~to ~~outstanding~~be valued ~~common~~at ~~stock~~approximately ~~and~~$10.9 ~~subsequently~~billion, ~~resigned~~including ~~from~~ the Company's ~~Board~~outstanding ofnet ~~Directors~~debt.

The transactions contemplated by the Merger Agreement are subject to the satisfaction of certain customary conditions, including the approval of the Merger Agreement by at least a majority of the Company's shareholders, the receipt of regulatory approvals, the absence of any legal prohibitions, the accuracy of the representations and warranties of the parties, and compliance by the parties with their respective obligations under the Merger Agreement.

Under certain circumstances defined within the Merger Agreement, in the event that the Merger Agreement is terminated, the Company would be required to pay Conagra a termination fee of approximately $264 million.

In the second quarter of 2018, the Company incurred $10.8 million of professional fees associated with this transaction. For the remainder of 2018, approximately $65 million to $70 million of additional charges for professional fees, employee incentives and other costs related to the Merger are expected to be incurred.

2. Interim Financial Statements

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting primarily of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of ~~April~~July 1, 2018, the results of operations for the three and six months ended ~~April~~July 1, 2018 and ~~March~~June 2625, 2017, and the cash flows for the ~~three~~six months ended ~~April~~July 1, 2018 and ~~March~~June 2625, 2017. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017.

3. Revenue recognition

Effective January 1, 2018, the Company adopted Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers," and all the related amendments (Accounting Standards Codification (ASC) 606) using the modified retrospective method of adoption. ASC 606 consists of a comprehensive revenue recognition standard, which requires the recognition of revenue when promised goods are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled.

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

~~occurs~~full ~~with~~fiscal ~~the transfer of control of its products~~year. Revenue is measured as the amount of net consideration expected to be received in exchange for transferring products. Revenue from product sales is governed primarily by customer pricing and trade marketing agreements (see further discussion below) and related purchase orders (“contracts”) which specify shipping terms and certain aspects of the transaction price including rebates, discounts and other sales incentives, such as trade marketing programs and product introductory fees. Contracts are at standalone pricing. The ~~performance~~accompanying ~~obligation~~unaudited inconsolidated ~~these~~financial ~~contracts~~statements ~~is determined by each of the individual purchase orders~~ and ~~the~~notes ~~respective~~thereto ~~stated~~should ~~quantities,~~be ~~with~~read ~~revenue being recognized at a point~~ in ~~time~~conjunction ~~when obligations under the terms of the agreement are satisfied. This generally occurs~~ with the ~~transfer~~audited ofconsolidated ~~control~~financial ofstatements ~~our products to the customer~~ and ~~the~~notes ~~product~~thereto is shipped. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company's customers have an implicit and explicit right to return non-conforming products. A provision for ~~payment~~the ~~discounts~~fiscal ~~and~~year ~~product~~ended ~~return~~December ~~allowances~~31, ~~which is estimated based upon the expected value method, is recorded as a reduction of sales in the same period that the revenue is recognized~~2017.

3. Revenue recognition

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of net consideration expected to be received in exchange for transferring products. Revenue from product sales is governed primarily by customer pricing and trade marketing agreements (see further discussion below) and related purchase orders (“contracts”) which specify shipping terms and certain aspects of the transaction price including rebates, discounts and other sales incentives, such as trade marketing programs and product introductory fees. Contracts are at standalone pricing. The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control of our products to the customer and the product is shipped. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company's customers have an implicit and explicit right to return non-conforming products. A provision for payment discounts and product return allowances, which is estimated based upon the expected value method, is recorded as a reduction of sales in the same period that the revenue is recognized.

Trade marketing expense, consisting primarily of customer pricing allowances and merchandising funds are offered through various programs to customers and are designed to promote our products. They include the cost of in-store product displays, feature pricing in retailers' advertisements and other temporary price reductions. These programs are offered to our customers both in fixed and variable (rate per case) amounts. The ultimate cost of these programs depends on retailer performance and is the subject of management estimates.

Certain retailers require the payment of product introductory fees in order to obtain space for the Company's products on the retailer's store shelves. This cost is typically a lump sum and is determined using the expected value based on the contract between the two parties.

Both trade marketing expense and product introductory fees are recognized as reductions of revenue at the time the transfer of control of the associated products occurs. Accruals for expected payouts under these programs are included as accrued trade marketing expense in the Consolidated Balance Sheet.

Consumer coupon redemption expenses are costs from the redemption of coupons we circulate as part of our marketing efforts. They are also recognized as reductions of net sales when the coupons are issued. Estimates of coupon redemption costs are based upon programs offered, timing of those offers, estimated redemption/usage rates from historical performance and current economic trends. These obligations are included in accrued liabilities in the Consolidated Balance Sheet.

The Company discloses revenue by reportable segment, geographical region and product type. A reconciliation of these disaggregated revenues is provided in Note 16, Segments.

The adoption of ASC 606 did not have a material impact on Pinnacle's consolidated results of operations for the three and six months ended ~~April~~ July 1, 2018.

4. Acquisitions

Acquisition of a frozen warehouse and vegetable packaging business (the "Beaver Dam acquisition")

On December 15, 2017, the Company acquired a frozen warehouse and vegetable packaging business located in Beaver Dam, Wisconsin from Ryder Integrated Logistics, Inc. The cost of the acquisition was $37.5 million, which was paid in cash. Goodwill, which is not subject to amortization, has a book value of $10.7 million, all of which is deductible for tax purposes. The entire acquisition was allocated to the Frozen segment. Transaction costs of approximately $0.1 million incurred in connection with the acquisition were expensed as incurred and recorded in Other expense (income) in the Consolidated Statements of Operations. These costs primarily relate to legal and other professional fees.

The following table summarizes the allocation of the total cost of the acquisition to the assets acquired:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

4. Acquisitions

Acquisition of a frozen warehouse and vegetable packaging business (the "Beaver Dam acquisition")

The following table summarizes the allocation of the total cost of the acquisition to the assets acquired:



Assets acquired
Land	$	700
Buildings	22,043
Plant assets	4,091
Goodwill	10,653
Total cost of acquisition	$	37,487

Unaudited pro forma revenue and net earnings related to the acquisition are not presented because the pro forma impact is not

material.

5. Fair Value Measurements

The authoritative guidance for financial assets and liabilities discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:


Level 1:	Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2:	Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


Level 3:	Unobservable inputs that reflect the Company’s assumptions.

The Company’s financial assets and liabilities subject to recurring fair value measurements and the required disclosures are as follows:

	April 1, 2018		Fair Value MeasurementsUsing Fair Value Hierarchy						December 31, 2017		Fair Value MeasurementsUsing Fair Value Hierarchy
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Assets
Interest rate derivatives	$	20,965	$	—	$	20,965	$	—	$	8,194	$	—	$	8,194	$	—
Foreign currency derivatives	15		—		15		—		—		—		—		—
Commodity derivatives	1,849		—		1,849		—		2,615		—		2,615		—
Total assets at fair value	$	22,829	$	—	$	22,829	$	—	$	10,809	$	—	$	10,809	$	—
Liabilities
Interest rate derivatives	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Foreign currency derivatives	1		—		1		—		750		—		750		—
Commodity derivatives	178		—		178		—		336		—		336		—
Total liabilities at fair value	$	179	$	—	$	179	$	—	$	1,086	$	—	$	1,086	$	—

The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

~~curves.~~ The ~~fair~~Company’s ~~values~~financial ofassets ~~interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts)~~ and ~~the~~liabilities ~~discounted~~subject expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of the authoritative guidance for fair value disclosure, the Company incorporates credit valuation adjustments to ~~appropriately~~recurring ~~reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the~~ fair value measurements~~. In~~ ~~adjusting the fair value of its derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting~~ and ~~any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Other than~~ the ~~Tradename~~required ~~discussed~~disclosures ~~below,~~are ~~the Company had no fair value measurements based upon significant unobservable inputs (Level 3)~~ as ~~of April 1, 2018 or December 31, 2017.~~follows:



	July 1, 2018		Fair Value Measurements Using Fair Value Hierarchy						December 31, 2017		Fair Value Measurements Using Fair Value Hierarchy
	July 1, 2018		Level 1		Level 2		Level 3		December 31, 2017		Level 1		Level 2		Level 3
Assets
Interest rate derivatives	$	27,505	$	—	$	27,505	$	—	$	8,194	$	—	$	8,194	$	—
Foreign currency derivatives	295		—		295		—		—		—		—		—
Commodity derivatives	1,801		—		1,801		—		2,615		—		2,615		—
Total assets at fair value	$	29,601	$	—	$	29,601	$	—	$	10,809	$	—	$	10,809	$	—

Liabilities
Foreign currency derivatives	$	—	$	—	$	—	$	—	$	750	$	—	$	750	$	—
Commodity derivatives	600		—		600		—		336		—		336		—
Total liabilities at fair value	$	600	$	—	$	600	$	—	$	1,086	$	—	$	1,086	$	—

The valuations of these instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate, commodity, and foreign exchange forward curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of the authoritative guidance for fair value disclosure, the Company incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Other than the Tradename discussed below, the Company had no fair value measurements based upon significant unobservable inputs (Level 3) as of July 1, 2018 or December 31, 2017.

In addition to the instruments named above, the Company also makes fair value measurements in connection with any goodwill and tradename impairment testing. These measurements fall into Level 3 of the fair value hierarchy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

6. Other Expense, net

Other Expense (Income), net



	Three months ended						Six months ended
	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Other expense, net consists of:
Amortization of intangibles/other assets	$	2,328		$	6,324		$	4,656		$	10,866
Foreign exchange losses/(gains)	369			(165		)	894			(398		)
Redemption premium on the early extinguishment of debt	4,267			—			4,267			—
Merger Agreement costs (Note 1)	10,836			—			10,836			—
Royalty income and other	(355		)	(871		)	(343		)	(950		)
Total other expense, net	$	17,445		$	5,288		$	20,310		$	9,518

	Three months ended
	April 1, 2018		March 26, 2017
Other expense, net consists of:
Amortization of intangibles/other assets	$	2,328	$	4,542
Foreign exchange losses/(gains)	525		(233		)
Royalty income and other	12		(79		)
Total other expense, net	$	2,865	$	4,230

Foreign exchange losses/(gains). These represent foreign exchange losses/(gains) from intra-entity loans resulting from the Company's November 2014 Garden Protein acquisition that are anticipated to be settled in the foreseeable future.

~~Foreign~~Redemption ~~exchange~~premium ~~gains.~~on ~~These~~the ~~represent~~early ~~foreign~~extinguishment ~~exchange~~of ~~gains~~debt. ~~from~~On ~~intra-entity~~May ~~loans~~30, ~~resulting~~2018, ~~from~~ the Company's ~~November~~redeemed ~~2014~~all ~~Garden~~$350.0 ~~Protein~~million ~~acquisition~~of ~~that~~its ~~are~~outstanding ~~anticipated~~4.875% toSenior beNotes ~~settled~~at a redemption price of 101.2% of the aggregate principle amount resulting in a redemption premium paid of $4.3 million (the ~~foreseeable~~"Redemption ~~future~~Premium").

7. Equity-Based Compensation Expense and Earnings Per Share

Equity-based Compensation

The Company currently grants equity awards under the Amended and Restated 2013 Omnibus Incentive Plan (the “Incentive Plan”). Equity-based compensation expense recognized during the period is based on the fair value of the portion of equity-based payment awards that is ultimately expected to vest during the period. As equity-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The authoritative guidance for equity-based compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Expense Information

The following table summarizes equity-based compensation expense which was allocated as follows:



	Three months ended						Six months ended
	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Cost of products sold	$	806		$	367		$	1,412		$	882
Marketing and selling expenses	1,391			1,746			1,900			2,913
Administrative expenses	3,302			3,247			6,288			5,554
Research and development expenses	201			187			379			307
Pre-tax equity-based compensation expense	5,700			5,547			9,979			9,656
Income tax benefit	(1,195		)	(2,113		)	(2,046		)	(3,674		)
Net equity-based compensation expense	$	4,505		$	3,434		$	7,933		$	5,982

Amended and Restated 2013 Omnibus Incentive Plan

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

	Three months ended
	April 1, 2018			March 26, 2017
Cost of products sold	$	606		$	515
Marketing and selling expenses	509			1,167
Administrative expenses	2,987			2,307
Research and development expenses	177			120
Pre-tax equity-based compensation expense	4,279			4,109
Income tax benefit	(851		)	(1,561		)
Net equity-based compensation expense	$	3,428		$	2,548

under the Amended and Restated Omnibus Incentive Plan include non-qualified stock options, restricted shares and restricted stock units ("RSU's"), the majority of which vest in full three years from the date of grant. The Company also grants performance shares ("PS's") and performance share units ("PSU's") both of which vest based on achievement of total shareholder return performance goals. Awards of PS's and PSU's will be earned by comparing the Company's total shareholder return during a three-year period to the respective total shareholder returns of companies in the Company's performance peer group. Based upon the Company's ranking in the performance peer group, a recipient of PS's or PSU's may earn a total award ranging from 0% to 200% of the initial grant.

Amended and Restated 2013 Omnibus Incentive Plan

In connection with the IPO, the Company adopted an equity incentive plan (the “2013 Omnibus Incentive Plan”) providing for the issuance of up to 11,300,000 shares of common stock. On May 25, 2016, the Company’ shareholders approved the Company’s Amended and Restated 2013 Omnibus Incentive Plan (the “Amended and Restated Omnibus Incentive Plan”). Awards granted under this plan include equity options, non-vested shares and restricted stock units ("RSU's"), the majority of which vest in full three years from the date of grant. The Company also grants nonvested performance shares ("PS's") and performance share units ("PSU's") both of which vest based on achievement of total shareholder return performance goals. Under the program, awards of PS's and PSU's will be earned by comparing the company's total shareholder return during a three-year period to the respective total shareholder returns of companies in a performance peer group. Based upon the company's ranking in the performance peer group, a recipient of PS's or PSU's may earn a total award ranging from 0% to 200% of the initial grant.

During the first quarter of 2018, as part of our ongoing equity compensation program:


•	We granted 439,110 nonqualified stock options with grant date fair values of $10.06 and exercise prices of $54.10 using the BlackScholes pricing method to value the awards.


•	We granted 141,628 PSU's with grant date fair values of $60.30 using the Monte Carlo simulation model to value the awards.


•	We granted 185,241 RSU's with grant date fair values of $55.29, which was the average closing price of our stock on the dates of grant.

During the second quarter of 2018, as part of our ongoing equity compensation program:


•	We granted 3,066 PSU's with weighted average grant date fair values of $68.06 using the Monte Carlo simulation model to value the awards.


•	We granted 20,478 RSU's with weighted average grant date fair values of $63.64, which was the average closing price of our stock on the dates of grant.

Earnings Per Share

Basic earnings per common share is computed by dividing net earnings or loss for common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net earnings by weighted-average common shares outstanding during the period plus dilutive potential common shares, which are determined as follows:

	Three months ended		Six months ended
	April 1, 2018	March 26, 2017
	July 1, 2018	June 25, 2017	July 1, 2018	June 25, 2017
Weighted-average common shares	118,~~496~~773,~~215~~942	~~117~~118,~~623~~114,~~753~~090	118,635,078	117,868,921
Effect of dilutive securities:	1,~~316~~174,~~517~~379	1,~~707~~492,~~795~~739	1,245,448	1,600,267
Dilutive potential common shares	119,~~812~~948,~~732~~321	119,~~331~~606,~~548~~829	119,880,526	119,469,188

Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities. For the three and six months ended ~~April~~July 1, 2018, conversion of securities totaling 760,575 and ~~March~~503,634, respectively, into common share equivalents were excluded from this calculation as their effect would have been anti-dilutive. For the three and six months ended June 2625, 2017, conversion of securities totaling 489,273, and 266,530, respectively, into common share equivalents were excluded from this calculation as their effect would have been anti-dilutive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

2017 conversion of securities totaling 318,583, and 20,904, respectively, into common share equivalents were excluded from this calculation as their effect would have been anti-dilutive.

8. Accumulated Other Comprehensive Loss

The components of Accumulated other comprehensive loss consist of the following:

	Currency translation adjustments			Gains (Losses) on cash flow hedges			Change in pensions			Total
Balance, December 31, 2017	$	2,095		$	6,571		$	(38,916	)	$	(30,250	)
Other comprehensive (loss)/income before reclassification	(23,~~178~~841		)	1016,~~141~~075			—			712,~~963~~234
Amounts reclassified from accumulated other comprehensive loss	—			(54967		)	~~195~~358			~~141~~(609		)
Net current period other comprehensive (loss)/income	(23,~~178~~841		)	1015,~~087~~108			~~195~~358			811,~~104~~625
Adoption of ASU 2018-02	—			1,088			(6,417		)	(5,329		)
Balance, April 1, 2018	$	(83	)	$	17,746		$	(45,138	)	$	(27,475	)
Balance, July 1, 2018	$	(1,746	)	$	22,767		$	(44,975	)	$	(23,954	)

	Currency translation adjustments			Gains (Losses) on cash flow hedges			Change in pensions			Total
Balance, December 25, 2016	$	(3,989	)	$	(8,234	)	$	(39,346	)	$	(51,569	)
Other comprehensive loss before reclassification	1,~~113~~765			~~303~~(2,871		)	—			(1,~~416~~106		)
Amounts reclassified from accumulated other comprehensive loss	—			13,~~524~~352			~~167~~357			13,~~691~~709
Net current period other comprehensive (loss)/income	1,~~113~~765			1310,~~827~~481			~~167~~357			1512,~~107~~603
Balance, March 26, 2017	$	(2,876	)	$	5,593		$	(39,179	)	$	(36,462	)
Balance, June 25, 2017	$	(2,224	)	$	2,247		$	(38,989	)	$	(38,966	)

The following table presents amounts reclassified out of Accumulated Other Comprehensive Loss ("AOCL") and into Net earnings for the three and six months ended ~~April~~July 1, 2018 and ~~March~~June 2625, 2017, respectively.

	Amounts Reclassified from AOCL
	Three months ended							Six months ended
Details about Accumulated Other Comprehensive Loss Components	~~April~~July 1, 2018			~~March~~June 2625, 2017				~~Reclassified~~July ~~from~~1, ~~AOCL to:~~2018			June 25, 2017				Reclassified from AOCL to:
Gains and (losses) on financial instrument contracts
Interest rate contracts	$	~~145~~1,166		$	~~(21,774~~122	)		~~Interest expense~~$	1,311		$	(21,652	)		Interest expense
Foreign exchange contracts	~~(74~~61		)	~~(101~~156		)		~~Cost of products sold~~(13		)	55				Cost of products sold
Total pre-tax	711,227			~~(21,875~~278		)		1,298			(21,597		)
Tax (expense) benefit	(17314		)	~~8,351~~(106		)		~~Provision for income taxes~~(331		)	8,245				Provision for income taxes
Net of tax	54913			~~(13,524~~172		)		967			(13,352		)
Pension actuarial assumption adjustments
Amortization of actuarial loss	(~~259~~217		)	(~~269~~309		)	~~(a)~~	~~Cost of products sold~~(476		)	(578		)	(a)	Cost of products sold
Tax benefit	6454			~~102~~119				~~Provision for income taxes~~118			221				Provision for income taxes
Net of tax	(~~195~~163		)	(~~167~~190		)		(358		)	(357		)
Net reclassifications into net earnings	$	~~(141~~750	)	$	(~~13,691~~18	)		$	609		$	(13,709	)

(a) This is included in the computation of net periodic pension cost (see Note 13 for additional details).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

9. Balance Sheet Information

Accounts Receivable. Customer accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for cash discounts, returns and bad debts is the Company's best estimate of these amounts. The Company determines the allowance based on historical discounts taken and write-off experience. The Company reviews its allowance for doubtful accounts quarterly. Account balances are charged off against the allowance when the Company concludes it is probable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. Accounts receivable are as follows:

	April 1, 2018			December 31, 2017
	July 1, 2018			December 31, 2017
Customers	$	~~300~~263,~~735~~631		$	280,086
Allowances for cash discounts, bad debts and returns	(109,~~359~~584		)	(10,036		)
Subtotal	~~290~~254,~~376~~047			270,050
Other receivables	10,~~842~~311			11,572
Total	$	~~301~~264,~~218~~358		$	281,622

Inventories. Inventories are as follows:

	April 1, 2018		December 31, 2017
	July 1, 2018		December 31, 2017
Raw materials	$	8698,~~078~~547	$	78,567
Work in progress (1)	4739,~~878~~684		65,800
Finished product	~~343~~369,~~386~~706		345,439
Total	$	~~477~~507,~~342~~937	$	489,806

(1) Work in progress is primarily agricultural inventory.

The Company has various purchase commitments for raw materials and certain finished products within the ordinary course of business. Such commitments are not at prices in excess of current market prices.

Plant Assets. Plant assets are as follows:

	April 1, 2018			December 31, 2017
	July 1, 2018			December 31, 2017
Land	$	15,648		$	15,648
Buildings	~~327~~333,~~384~~519			327,501
Machinery and equipment	~~879~~897,~~320~~169			898,728
Projects in progress	6373,~~038~~899			64,038
Subtotal	1,~~285~~320,~~390~~235			1,305,915
Accumulated depreciation	(~~545~~566,~~125~~121		)	(566,202		)
Total	$	~~740~~754,~~265~~114		$	739,713

Depreciation was $2425.60 million and $2249.56 million during the three and six months ended ~~April~~July 1, 2018, respectively. Depreciation was $47.5 million and ~~March~~$70.0 million during the three and six months ended June 2625, 2017, respectively, which included accelerated depreciation charges as described in Note 11. As of ~~April~~July 1, 2018 and December 31, 2017, Plant Assets included assets under capital lease with a book value of $4758.68 million and $44.6 million (net of accumulated depreciation of $1920.58 million and $18.6 million), respectively.

1213

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Accrued Liabilities. Accrued liabilities are as follows:

	April 1, 2018		December 31, 2017
	July 1, 2018		December 31, 2017
Employee compensation and benefits	$	4351,~~105~~963	$	39,699
Interest payable	1617,~~317~~537		19,254
Consumer coupons	3,~~924~~493		2,400
Accrued restructuring charges (Note 11)	~~370~~342		1,414
Accrued financial instrument contracts (Note 14)	90543		988
Accrued broker commissions	67,~~958~~070		6,994
Accrued income taxes	366,~~266~~199		26,805
Other	2232,~~436~~798		24,577
Total	$	~~129~~119,~~466~~945	$	122,131

Other Long-Term Liabilities. Other long-term liabilities are as follows:

	April 1, 2018		December 31, 2017
	July 1, 2018		December 31, 2017
Employee compensation and benefits	$	14,~~354~~618	$	14,197
Long-term rent liability and deferred rent allowances	5,~~915~~735		6,217
Liability for uncertain tax positions	11,003		11,140
Liability for uncertain tax positions (a)	6,223		11,140
Accrued financial instrument contracts (Note 14)	8957		98
Other	2,~~524~~029		2,385
Total	$	3328,~~885~~662	$	34,037

(a) The decrease is primarily related to a change in our tax accounting methodology for capitalized inventory.

10. Goodwill, Tradenames and Other Assets

Goodwill

Goodwill by segment is as follows:

	Frozen			Grocery		Boulder		Specialty		Total
Balance, December 31, 2017	$	764,824		$	860,972	$	364,883	$	187,282	$	2,177,961
Foreign currency adjustment	(12,~~570~~671		)	—		—		—		(12,~~570~~671		)
Balance, April 1, 2018	$	763,254		$	860,972	$	364,883	$	187,282	$	2,176,391
Balance, July 1, 2018	$	762,153		$	860,972	$	364,883	$	187,282	$	2,175,290

The authoritative guidance for business combinations requires that all business combinations be accounted for at fair value under the acquisition method of accounting. The authoritative guidance for goodwill provides that goodwill will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. The Company completed its annual testing in the third quarter of 2017, which indicated no impairment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Tradenames

Tradenames by segment are as follows:

	Frozen			Grocery		Boulder		Specialty		Total
Balance, December 31, 2017	$	738,344		$	1,253,622	$	442,808	$	28,600	$	2,463,374
Foreign currency adjustment	(~~119~~202		)	—		—		—		(~~119~~202		)
Balance, April 1, 2018	$	738,225		$	1,253,622	$	442,808	$	28,600	$	2,463,255
Balance, July 1, 2018	$	738,142		$	1,253,622	$	442,808	$	28,600	$	2,463,172

13The authoritative guidance for indefinite-lived assets provides that indefinite-lived assets will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. Upon completion of the annual testing in the third quarter of 2017, the Company recorded tradename impairments of $24.8 million on Celeste, $6.5 million on Snyder of Berlin, $4.2 million on Nalley, $3.1 million on Bernstein and $0.5 million on Swanson. Celeste and Swanson are reported in the Frozen segment, Nalley and Bernstein are reported in the Grocery segment, and Snyder of Berlin is reported in the Specialty segment. These charges were the result of the Company's reassessment of the long-term sales projections for the brands during our annual planning cycle which occurs during the third quarter each year as well as a 50 basis point increase in the weighted average cost of capital assumed in the calculation. The total carrying value of these five tradenames as of July 1, 2018 is $25.4 million.

As a result of the Exit (as defined in Note 11) in the second quarter of 2017, the Company recorded a tradename impairment charge of $27.4 million on the related tradename, which resulted in a carrying value of $0. The charge is reported in the Frozen segment. See Note 11 for further details.

To estimate the fair value of our Tradenames we use the relief from royalty method, which utilizes forecasted discounted cash flows to estimate the fair value. The utilization of this method requires us to make significant assumptions including sales growth rates, implied royalty rates and discount rates. As of July 1, 2018, we identified an additional three tradenames which do not have a fair value that exceeded their carrying value by at least 15%. The total carrying value of these tradenames as of July 1, 2018 is $359.3 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

The authoritative guidance for indefinite-lived assets provides that indefinite-lived assets will not be amortized, but will be tested for impairment on an annual basis or more often when events indicate. Upon completion of the annual testing in the third quarter of 2017, the Company recorded tradename impairments of $24.8 million on Celeste, $6.5 million on Snyder of Berlin, $4.2 million on Nalley, $3.1 million on Bernstein and $0.5 million on Swanson. Celeste and Swanson are reported in the Frozen segment, Nalley and Bernstein are reported in the Grocery segment, and Snyder of Berlin is reported in the Specialty segment. These charges were the result of the Company's reassessment of the long-term sales projections for the brands during our annual planning cycle which occurs during the third quarter each year as well as a 50 basis point increase in the weighted average cost of capital assumed in the calculation. The total carrying value of these five tradenames as of April 1, 2018 is $25.4 million.

To estimate the fair value of our Tradenames we use the relief from royalty method, which utilizes forecasted discounted cash flows to estimate the fair value. The utilization of this method requires us to make significant assumptions including sales growth rates, implied royalty rates and discount rates. As of April 1, 2018, we identified an additional three tradenames which do not have a fair value that exceeded their carrying value by at least 15%. The total carrying value of these tradenames as of April 1, 2018 is $359.3 million.

Other Assets

April 1, 2018

July 1, 2018

WeightedAvg Life

GrossCarryingAmount

AccumulatedAmortization

Net

Amortizable intangibles

Recipes

51,~~498~~487

(46,~~636~~815

)

4,~~862~~672

Customer relationships - Distributors

176,~~372~~369

(6163,~~455~~229

)

~~114~~113,~~917~~140

Customer relationships - Food Service

11,400

(4,~~374~~744

)

76,~~026~~656

Total amortizable intangibles

239,~~270~~256

(~~112~~114,~~465~~788

)

~~126~~124,~~805~~468

Financial instruments (see Note 14)

1522,~~859~~949

—

1522,~~859~~949

Other (1)

31,~~786~~639

(5,~~052~~085

)

26,~~734~~554

Total other assets, net

~~169~~173,~~398~~971

Amortizable intangibles by segment

Frozen

38,~~630~~036

Grocery

4645,~~199~~511

Boulder

3231,~~416~~774

Specialty

9,~~560~~147

~~126~~124,~~805~~468



	December 31, 2017
	Weighted Avg Life	Gross Carrying Amount		Accumulated Amortization			Net
Amortizable intangibles
Recipes	10	$	51,514	$	(46,458	)	$	5,056
Customer relationships - Distributors	34	176,376		(59,681		)	116,695
Customer relationships - Food Service	10	11,400		(4,004		)	7,396
Customer relationships - Private Label	7	1,290		(1,290		)	—
Total amortizable intangibles		$	240,580	$	(111,433	)	$	129,147
Financial instruments (see Note 14)		8,160		—			8,160
Other (1)		32,607		(5,015		)	27,592
Total other assets, net							$	164,899
	Amortizable intangibles by segment
	Frozen						$	39,229
	Grocery						46,888
	Boulder						33,057
	Specialty						9,973
							$	129,147

(1) As of July 1, 2018 and December 31, 2017, Other primarily consists of cost basis investments in companies in the natural and organic food and beverage industries acquired through the Boulder Brands acquisition as well as security deposits, supplemental savings plan investments and debt acquisition costs associated with the Company's revolving credit facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

	December 31, 2017
	WeightedAvg Life	GrossCarryingAmount		AccumulatedAmortization			Net
Amortizable intangibles
Recipes	10	$	51,514	$	(46,458	)	$	5,056
Customer relationships - Distributors	34	176,376		(59,681		)	116,695
Customer relationships - Food Service	10	11,400		(4,004		)	7,396
Customer relationships - Private Label	7	1,290		(1,290		)	—
Total amortizable intangibles		$	240,580	$	(111,433	)	$	129,147
Financial instruments (see Note 14)		8,160		—			8,160
Other (1)		32,607		(5,015		)	27,592
Total other assets, net							$	164,899
	Amortizable intangibles by segment
	Frozen						$	39,229
	Grocery						46,888
	Boulder						33,057
	Specialty						9,973
							$	129,147

Amortization of intangible assets was $2.3 million and $4.7 million for the three and six months ended July 1, 2018. Amortization of intangible assets was $6.3 million and $10.9 million for the three and six months ended June 25, 2017. Estimated amortization expense for each of the next five years and thereafter is as follows: remainder of 2018 - $4.7 million; 2019 - $8.6 million; 2020 - $7.9 million; 2021 - $6.6 million; 2022 - $6.4 million and thereafter - $90.2 million.

(1) As of April 1, 2018 and December 31, 2017, Other primarily consists of cost basis investments in companies in the natural and organic food and beverage industries acquired through the Boulder Brands acquisition as well as security deposits, supplemental savings plan investments and debt acquisition costs associated with the Company's revolving credit facility.

Amortization of intangible assets was $2.3 million for the three months ended April 1, 2018. Amortization of intangible assets was $4.5 million for the three months ended March 26, 2017. Estimated amortization expense for each of the next five years and thereafter is as follows: remainder of 2018 - $7.0 million; 2019 - $8.6 million; 2020 - $7.9 million; 2021 - $6.6 million; 2022 - $6.4 million and thereafter - $90.2 million.

11. Restructuring Charges

Aunt Jemima retail and foodservice frozen breakfast products exit (the "Exit")

On May 8, 2017, in connection with the Company's ongoing portfolio strategic assessment and margin roadmap, it exited certain low-margin and non-strategic Aunt Jemima retail and foodservice frozen breakfast products following the Company's voluntary recall discussed in Note 15. This decision resulted in restructuring charges primarily related to accelerated depreciation, asset impairment, charges to adjust inventory to net realizable value, workforce reductions and other charges. These actions and the associated charges detailed below are substantially complete.

In the second quarter of 2017, the Company recorded $63.2 million of charges related to the Exit which consisted of intangible asset impairment charges of $31.2 million, accelerated depreciation charges of $22.6 million, charges to adjust inventory to net realizable value of $4.6 million and employee termination costs of $1.5 million. In addition, the Company also recorded $3.3 million of contract termination and other fees during the same time period. The net impact on 2017 pre-tax earnings of $63.2 million is included in the various lines of the Consolidated Statement of Operations as follows: $32.0 million in Cost of products sold, $27.4 million of Tradename impairment charges and accelerated amortization charges of $3.8 million in Other expense related to frozen breakfast products customer relationships. Of the total charges, $48.8 million is recorded in the Frozen segment and $14.4 million in the Specialty segment.

The following table summarizes charges accrued as of ~~April~~July 1, 2018 related to the Exit. These amounts are recorded in our Consolidated Balance Sheet in Accrued Liabilities.



	Balance							Balance
Description	December 31, 2017		Expense		Payments			July 1, 2018
Accrued restructuring charges	$	1,126	$	—	$	(784	)	$	342

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

	Balance							Balance
Description	December 31, 2017		Expense		Payments			April 1, 2018
Accrued restructuring charges	$	1,126	$	—	$	(756	)	$	370

12. Debt and Interest Expense

	April 1, 2018			December 31, 2017
	July 1, 2018			December 31, 2017
Short-term borrowings
- Notes payable	$	1,~~566~~842		$	2,739
Total short-term borrowings	$	1,~~566~~842		$	2,739
Long-term debt
- Tranche A Term Loans due 2023	$	~~790~~780,000		$	—
- New Tranche B Term Loans due 2024	1,~~239~~489,380			—
- Tranche B Term Loans due 2024	—			2,239,380
- 4.875% Senior Notes due 2021	~~350,000~~—			350,000
- 5.875% Senior Notes due 2024	350,000			350,000
- Revolving Credit Facility	100,000			—
- 3.0% Note payable to Gilster Mary Lee Corporation	—			982
- Unamortized discount on long term debt and deferred financing costs	(14,~~209~~066		)	(21,846		)
- Capital lease obligations	4152,~~893~~729			41,012
	2,757,064			2,959,528
	2,758,043			2,959,528
Less: current portion of long-term obligations	5354,~~331~~126			33,934
Total long-term debt	$	2,703,~~733~~917		$	2,925,594

Interest expense	Three months ended						Six months ended
	April 1, 2018			March 26, 2017
	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Interest expense	$	3028,~~255~~841		$	2827,~~883~~612		$	59,096		$	56,495
Amortization of debt acquisition costs	~~871~~741			1,~~580~~017			1,612			2,597
Non-cash recognition of deferred costs related to refinancing	101,~~913~~768			~~28,494~~—			12,681			28,494
Settlement of hedges related to refinancing	—			~~20,722~~—			—			20,722
Interest rate swap (gains)/losses	(~~145~~1,166		)	~~1,052~~(122		)	(1,311		)	930
Total interest expense	$	4130,~~894~~184		$	8028,~~731~~507		$	72,078		$	109,238

Fourth Amended and Restated Credit Agreement

On March 15, 2018, Pinnacle Foods Finance LLC, (1) entered into the First Amendment to the Third Amended and Restated Credit Agreement, which provided for both a six year term loan facility in the amount of $1,239.4 million (the "New Tranche B Term Loans") and a five year term loan facility in the amount of $800.0 million (the "Tranche A Term Loans") (together, the "Term Loans") (2) replaced the existing revolving credit facility with a new five year $300.0 million revolving credit facility, and (3) amended and restated the existing credit agreement (the "Fourth Amended and Restated Credit Agreement") in its entirety to make certain other amendments and modifications (the "First Quarter 2018 Refinancing").

16As a result of the First Quarter 2018 Refinancing, Pinnacle Foods Finance LLC used the proceeds from the New Tranche B Term Loans and Tranche A Term Loans and $202.5 million of cash on hand to repay all existing indebtedness, including all outstanding accrued interest and fees, under the then existing Third Amended and Restated Credit Agreement, consisting of $2,239.4 million of Tranche B Term Loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

~~amended~~In ~~and~~connection ~~restated~~with the ~~existing~~First ~~credit~~Quarter ~~agreement~~2018 ~~(the~~Refinancing, ~~"Fourth~~Pinnacle ~~Amended~~Foods ~~and~~Finance ~~Restated~~LLC ~~Credit~~incurred ~~Agreement")~~$4.8 inmillion ~~its~~of ~~entirety~~debt toacquisition ~~make~~costs, ~~certain~~which ~~other~~were ~~amendments~~recorded ~~and~~as ~~modifications~~a (reduction of the ~~"2018~~carrying ~~Refinancing")~~value of debt. Pinnacle Foods Finance LLC also incurred a non-cash charge of $10.9 million related to existing debt acquisition costs.

AsOn aMay ~~result~~30, ~~of the~~ 2018 ~~Refinancing~~, Pinnacle Foods Finance LLC, ~~used~~entered into the ~~proceeds~~First ~~from~~Amendment to the ~~New~~Fourth ~~Tranche~~Amended Band Restated Credit Agreement, to establish $250.0 million of incremental Term Loans ~~and~~(the "Incremental Term Loans") which have the same terms as the existing New Tranche AB Term Loans. ~~and~~The ~~$202.5~~proceeds ~~million~~together ofwith cash on hand toand ~~repay~~$100.0 ~~all~~million ~~existing~~borrowed ~~indebtedness,~~under ~~including~~our ~~all~~revolving ~~outstanding~~credit ~~accrued~~facility ~~interest~~were ~~and~~used ~~fees,~~to ~~under~~redeem the ~~then~~entire ~~existing~~$350.0 ~~Third~~million ~~Amended~~in ~~and~~aggregate ~~Restated~~principal ~~Credit~~amount ~~Agreement,~~of ~~consisting~~Pinnacle ofFoods ~~$2,239.~~Finance LLC's 4.875% ~~million~~Senior Notes at a redemption price of ~~Tranche~~101.2% B(the ~~Term~~"Second ~~Loans~~Quarter 2018 Refinancing").

In connection with the Second Quarter 2018 Refinancing, Pinnacle Foods Finance LLC incurred $4.1.6 million of debt acquisition costs, which were recorded as a reduction of the carrying value of debt. Pinnacle Foods Finance LLC also incurred a non-cash charge of $101.98 million related to existing debt acquisition costs.

We refer to the First Quarter 2018 Refinancing and the Second Quarter 2018 Refinancing as the "2018 Refinancings".

Third Amended and Restated Credit Agreement

On February 3, 2017, Pinnacle Foods Finance LLC, (1) entered into the Fifth Amendment to the Second Amended and Restated Credit Agreement, which provided for a seven year term loan facility in the amount of $2,262.0 million (the "Tranche B Term Loans"), (2) replaced the existing revolving credit facility with a new five year $225.0 million revolving credit facility, and (3) amended and restated the existing credit agreement (the "Third Amended and Restated Credit Agreement") in its entirety to make certain other amendments and modifications (the "2017 Refinancing").

As a result of the 2017 Refinancing, Pinnacle Foods Finance LLC used the proceeds from the Tranche B Term Loans and $213.1 million of cash on hand to repay all existing indebtedness outstanding under the then existing Third Amended and Restated Credit Agreement, consisting of (a) $1,409.6 million of Tranche G Term Loans, (b) $507.9 million of Tranche H Term Loans and (c) $544.5 million of Tranche I Term Loans.

In connection with the 2017 Refinancing, Pinnacle Foods Finance LLC incurred $12.9 million of debt acquisition costs, which were recorded as a reduction of the carrying value of debt. Pinnacle Foods Finance LLC also incurred a non-cash charge of $28.5 million related to existing debt acquisition costs.

The Company's borrowings under the March 15, 2018 Fourth Amended and Restated Credit Agreement bear interest at a floating rate and are maintained as base rate loans or as eurocurrency rate loans. Base rate loans bear interest at the base rate plus the applicable base rate margin. The base rate is defined as the highest of (i) the administrative agent's prime rate, (ii) the federal funds effective rate plus 1/2 of 1.00%, (iii) the eurocurrency rate that would be payable on such day for a eurocurrency rate loan with a one-month interest period plus 1.00%, and (iv) 1.00% per annum. Eurocurrency rate loans bear interest at the adjusted eurocurrency rate plus the applicable eurocurrency rate margin. The eurocurrency rate is determined by the administrative agent to be the offered rate which appears on the page of the Reuters Screen which displays the London interbank offered rate administered by ICE Benchmark Administration Limited (the "LIBO Rate") for deposits.

With respect to the New Tranche B Term Loans, the base rate shall be no less than 1.0% and the base rate margin is 0.75%. Further, the eurocurrency rate shall be no less than 0.0% and the eurocurrency rate margin is 1.75%.

With respect to the Tranche A Term Loans, the base rate shall be no less than 1.0%. The base rate margin is 0.50% when the Company's Total Leverage Ratio is less than or equal to 3.75:1.00, 0.625% when the Total Leverage Ratio is less than or equal to 5.00:1.00 but greater than 3.75:1.00, and 0.75% when the Total Leverage Ratio is greater than 5.00:1.00. The Total Leverage Ratio is calculated by dividing consolidated total debt less the aggregate amount of all unrestricted cash and cash equivalents by Covenant Compliance EBITDA. The eurocurrency rate shall be no less than 0.0%. The eurocurrency rate margin is 1.50% when the Company's Total Leverage Ratio is less than or equal to 3.75:1.00, 1.625% when the Total Leverage Ratio is less than or equal to 5.00:1.00 but greater than 3.75:1.00 and 1.75% when the Total Leverage Ratio is greater than 5.00:1.00.

The obligations under the Fourth Amended and Restated Credit Agreement are unconditionally and irrevocably guaranteed by Peak Finance Holdings LLC, any subsidiary of Peak Finance Holdings LLC that directly or indirectly owns 100% of the issued and outstanding equity interests of Pinnacle Foods Finance LLC, subject to certain exceptions, each of Pinnacle Foods Finance LLC's direct or indirect material wholly-owned domestic subsidiaries (collectively, the "Guarantors").

~~A commitment fee of 0.30% per annum is applied to the unused portion of the revolving credit facility.~~ 19

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

~~payable~~A incommitment ~~respect~~fee of ~~the applicable letter of credit. The fronting fee is equal to~~ 0.~~125~~30% per annum ofis ~~the~~applied ~~daily maximum amount then available~~ to bethe ~~drawn~~unused ~~under~~portion ~~such letter~~ of ~~credit. The fronting fees are computed on a quarterly basis in arrears. Total letters of credit issued under~~ the revolving credit facility ~~cannot exceed $50~~.0 ~~million.~~

Pinnacle Foods Finance LLC pays a fee for all outstanding letters of credit drawn against the revolving credit facility at an annual rate equivalent to the applicable eurocurrency rate margin then in effect under the revolving credit facility, plus the fronting fee payable in respect of the applicable letter of credit. The fronting fee is equal to 0.125% per annum of the daily maximum amount then available to be drawn under such letter of credit. The fronting fees are computed on a quarterly basis in arrears. Total letters of credit issued under the revolving credit facility cannot exceed $50.0 million.

Under the terms of the Fourth Amended and Restated Credit Agreement, Pinnacle Foods Finance LLC is required to use 50% of its "Excess Cash Flow" to prepay the Term Loans under the Senior Secured Credit Facility (which percentage will be reduced to 25% at a total net leverage ratio of between 4.50 and 5.49 and to 0% at a total net leverage ratio below 4.50). Excess Cash Flow is defined as consolidated net income (as defined), as adjusted for certain items, including (1) all non-cash charges and credits included in arriving at consolidated net income, (2) changes in working capital, (3) capital expenditures (to the extent they were not financed with debt), (4) the aggregate amount of principal payments on indebtedness and (5) certain other items defined in the Senior Secured Credit Facility.

No scheduled repayments of the New Tranche B Term Loans shall be required prior to the maturity date.

The Tranche A Term Loans amortize in quarterly installments of 1.25% of their aggregate funded total principal amount. The scheduled principal payments of the Tranche A Term Loans outstanding as of ~~April~~July 1, 2018 are $2010.0 million in 2018, $40.0 million in 2019, $40.0 million in 2020, $40.0 million in 2021, $40.0 million in 2022, and $610.0 million in 2023.

Pursuant to the terms of the Senior Secured Credit Facility, Pinnacle Foods Finance LLC is required to maintain a ratio of Net First Lien Secured Debt to Adjusted EBITDA of no greater than 5.75 to 1.00. Net First Lien Secured Debt is defined as aggregate consolidated secured indebtedness, less the aggregate amount of all unrestricted cash and cash equivalents. In addition, under the Senior Secured Credit Facility and the indenture governing the Senior Notes, Pinnacle Foods Finance LLC's ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to the Senior Secured Leverage Ratio (which is currently the same as the ratio of Net First Lien Secured Debt to Adjusted EBITDA described above), in the case of the Senior Secured Credit Facility, or to the ratio of Adjusted EBITDA to fixed charges for the most recently concluded four consecutive fiscal quarters, in the case of the Senior Notes. The Senior Secured Credit Facility also permits restricted payments up to an aggregate amount of (together with certain other amounts) the greater of $75 million and 2% of Pinnacle Foods Finance LLC's consolidated total assets, so long as no default has occurred and is continuing and its pro forma Senior Secured Leverage Ratio would be no greater than 4.25 to 1.00. As of ~~April~~July 1, 2018, the Company is in compliance with all covenants and other obligations under the Senior Secured Credit Facility and the indenture governing the Senior Notes.

Senior Notes

The Company's ~~4.875% Senior Notes due 2021 (the "4.875% Senior Notes") and~~ 5.875% Senior Notes ~~(together the "Senior Notes")~~ are general senior unsecured obligations of Pinnacle Foods Finance LLC, effectively subordinated to all existing and future senior secured indebtedness of Pinnacle Foods Finance LLC to the extent of the value of the assets securing that indebtedness and guaranteed on a full, unconditional, joint and several basis by Pinnacle Foods Finance LLC’s wholly-owned domestic subsidiaries that guarantee other indebtedness of Pinnacle Foods Finance LLC and by the Company. See Note 19 for Guarantor and Nonguarantor Financial Statements.

Pinnacle Foods Finance LLC may redeem some or all of the 5.875% Senior Notes at any time prior to January 15, 2019 at a price equal to 100% of the principal amount of the 5.875% Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the redemption date, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date. The “Applicable Premium” is defined as the greater of (1) 1.0% of the principal amount of such 5.875% Senior Notes and (2) the excess, if any, of (a) the present value at such redemption date of (i) the redemption price of such 5.875% Senior Notes at January 15, 2019, plus (ii) all required interest payments due on such 5.875% Senior Notes through January 15, 2019 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the treasury rate plus 50 basis points over (b) the principal amount of such 5.875% Senior Notes.

Pinnacle Foods Finance LLC may redeem the 45.875% Senior Notes at the redemption prices listed below, if redeemed during the twelve-month period beginning on ~~May~~January ~~1st~~15th of each of the years indicated below:

Year	Percentage
2018	101.219%
2019 and thereafter	100.000%

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Pinnacle Foods Finance LLC may redeem the 5.875% Senior Notes at the redemption prices listed below, if redeemed during the twelve-month period beginning on January 15th of each of the years indicated below:



Year	Percentage
2019	104.406%
2020	102.938%
2021	101.469%
2022 and thereafter	100.000%

In addition, until January 15, 2019 for the 5.875% Senior Notes, Pinnacle Foods Finance LLC may redeem up to 35% of the aggregate principal amount of the 5.875% Senior Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, subject to the right of holders of the 5.875% Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds received by Pinnacle Foods Finance LLC from one or more equity offerings; provided that (i) at least 50% of the aggregate principal amount of the 5.875% Senior Notes originally issued under the indenture remains outstanding immediately after the occurrence of each such redemption and (ii) each such redemption occurs within 120 days of the date of closing of each such equity offering.

Debt acquisition costs

As part of the 2018 ~~Refinancing~~Refinancings, for the six months ended July 1, 2018, debt acquisition costs of $46.14 million were incurred ~~and recorded~~ as a reduction of the carrying value of debt ~~during~~and ~~the three months ended April 1, 2018 while~~ non-cash charges ~~of $10.9 million~~ related to existing debt acquisition costs of $12.7 million were recognized in ~~the~~interest ~~period~~expense.

All debt acquisition costs are amortized into interest expense over the life of the related debt using the effective interest method. Amortization of these costs were $0.97 million and $1.5 million during the three and six months ended ~~April~~July 1, 2018, respectively. Amortization of these costs were $1.0 million and $2.5 million during the three and six months ended ~~March~~June 2625, 2017, respectively.

The following summarizes debt acquisition cost activity during the ~~three~~six months ended ~~April~~July 1, 2018:

	GrossCarryingAmount			AccumulatedAmortization			Net
Balance, December 31, 2017	$	29,689		$	(7,843	)	$	21,846
Additions	46,~~145~~440			—			46,~~145~~440
Amortization	—			(~~869~~1,539		)	(~~869~~1,539		)
Recognition of deferred costs resulting from the 2018 Refinancing	(12,936		)	2,023			(10,913		)
Recognition of deferred costs	(17,638		)	4,957			(12,681		)
Balance, April 1, 2018	$	20,898		$	(6,689	)	$	14,209
Balance, July 1, 2018	$	18,491		$	(4,425	)	$	14,066

19Estimated fair value

The estimated fair value of the Company’s long-term debt, including the current portion, as of July 1, 2018, is as follows:



	July 1, 2018
Issue	Face Value		Fair Value
Tranche A Term Loans	780,000		780,000
New Tranche B Term Loans	1,489,380		1,489,380
5.875% Senior Notes	350,000		364,875
	$	2,619,380	$	2,634,255

The estimated fair value of the Company’s long-term debt, including the current portion, as of December 31, 2017, is as follows:

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Estimated fair value

The estimated fair value of the Company’s long-term debt, including the current portion, as of April 1, 2018, is as follows:

	April 1, 2018
Issue	Face Value		Fair Value
Tranche A Term Loans	790,000		790,000
New Tranche B Term Loans	1,239,380		1,245,577
4.875% Senior Notes	350,000		350,875
5.875% Senior Notes	350,000		360,938
	$	2,729,380	$	2,747,390

The estimated fair value of the Company’s long-term debt, including the current portion, as of December 31, 2017, is as follows:



	December 31, 2017
Issue	Face Value		Fair Value
Tranche B Term Loans	$	2,239,380	$	2,259,534
3.0% Note payable to Gilster Mary Lee Corporation	982		982
4.875% Senior Notes	350,000		353,938
5.875% Senior Notes	350,000		370,125
	$	2,940,362	$	2,984,579

The estimated fair values of the Company's long-term debt are classified as Level 2 in the fair value hierarchy. The fair value is based on the quoted market price for such notes and loans and borrowing rates currently available to the Company for notes and loans with similar terms and maturities.

2022

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

13. Pension and Retirement Plans

The Company accounts for pension and retirement plans in accordance with the authoritative guidance for retirement benefit compensation. This guidance requires recognition of the funded status of a benefit plan in the statement of financial position. The guidance also requires recognition in accumulated other comprehensive earnings of certain gains and losses that arise during the period but are deferred under pension accounting rules.

The Company maintains a defined benefit plan, the Pinnacle Foods Group LLC Pension Plan (the "Plan"), which is frozen for future benefit accruals. The Company also has two 401(k) plans, three non-qualified supplemental savings plans and the Company participates in a multi-employer defined benefit plan.

Pinnacle Foods Group LLC Pension Plan

The Plan covers eligible employees and provides benefits generally based on years of service and employees’ compensation. The Plan is frozen for future benefits and is funded in conformity with the funding requirements of applicable government regulations. The Plan assets consist principally of cash equivalents, equity and fixed income common collective trusts. The Plan assets do not include any of the Company’s equity or debt securities.

The following represents the components of net periodic (benefit):

	Three months ended						Six months ended
Pension Benefits	~~April~~July 1, 2018			~~March~~June 2625, 2017			July 1, 2018			June 25, 2017
Interest cost	1,871			1,993			3,741			3,985
Expected return on assets	(2,~~930~~931		)	(2,753		)	(5,862		)	(5,507		)
Amortization of actuarial loss	259			269			518			539
Net periodic (benefit)	$	(801	)	$	(491	)
Net periodic benefit	$	(802	)	$	(491	)	$	(1,603	)	$	(983	)

As noted in Note 18, Recently Issued Accounting Pronouncements, we adopted guidance on the presentation of net periodic pension and postretirement benefit cost during the first quarter of fiscal year 2018. The amendments require that non-service related costs are presented outside of operating income in "Non-operating income."

Cash Flows

Contributions. The Company made no contributions of $0.9 million to the Plan during the ~~first~~second quarter of 2018, ~~but~~and plans to make contributions of approximately $76.0 million infor the remainder of fiscal 2018. The Company made contributions to the Plan totaling $0.3 million in fiscal 2017.

Multi-employer Plans

The Company contributes to the United Food and Commercial Workers International Union Industry Pension Fund (EIN 51-6055922) (the "UFCW Plan") under the terms of the collective-bargaining agreement with its Fort Madison employees.

For the three and six months ended ~~April~~July 1, 2018, contributions to the UFCW Plan were $0.2 million and ~~March~~$0.3 million, respectively. For the three and six months ended June 2625, 2017 contributions to the UFCW Plan were $0.21 million and $0.23 million, respectively. The contributions to this UFCW Plan are paid monthly based upon the number of employees. They represent less than 5% of the total contributions received by this UFCW Plan using available information during the most recent plan year.

The risks of participating in multi-employer plans are different from single-employer plans in the following aspects: (a) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (b) if a participating employer stops contributing to the multi-employer plan, the unfunded obligations of the plan may be borne by the remaining participating employers and (c) if the Company chooses to stop participating in the plan, the Company may be required to pay a withdrawal liability based on the underfunded status of the plan.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

The UFCW Plan received a Pension Protection Act “green” zone status for the plan year ending June 30, 2017. The zone status is based on information the Company received from the UFCW Plan and is certified by the UFCW Plan's actuary. Among other factors, plans in the "green" zone are at least 80 percent funded. The UFCW Plan did not utilize any extended amortization provisions that affect its placement in the "green" zone. The UFCW Plan has never been required to implement a funding improvement plan nor is one pending at this time.

14. Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, foreign exchange rates or commodity prices.

The Company manages interest rate risk based on the varying circumstances of anticipated borrowings and existing variable and fixed rate debt, including the Company’s revolving credit facility. Examples of interest rate management strategies include capping interest rates using targeted interest cost benchmarks, hedging portions of the total amount of debt, or hedging a period of months and not always hedging to maturity, and at other times locking in rates to fix interests costs.

Certain parts of the Company’s foreign operations in Canada expose the Company to fluctuations in foreign exchange rates. The Company’s goal is to reduce its exposure to such foreign exchange risks on its foreign currency cash flows and fair value fluctuations on recognized foreign currency denominated assets, liabilities and unrecognized firm commitments to acceptable levels primarily through the use of foreign exchange-related derivative financial instruments. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency. The Company does not enter into these transactions for non-hedging purposes.

The Company purchases raw materials in quantities expected to be used in a reasonable period of time in the normal course of business. The Company generally enters into agreements for either spot market delivery or forward delivery. The prices paid in the forward delivery contracts are generally fixed, but may also be variable within a capped or collared price range. Forward derivative contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company’s manufacturing processes.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the three and six months ended ~~April~~July 1, 2018 and ~~March~~June 2625, 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

The 2017 Refinancing (Note 12) resulted in significant changes to the Company's debt obligations. For the interest rate swaps in place at the time that were scheduled to mature between April 2017 and April 2020, it became probable that the associated original forecasted transactions would not occur. As such, the Company discontinued hedge accounting, accelerated the reclassification of amounts in Accumulated other comprehensive loss ("AOCL") and settled the interest rate swaps with the various counter parties. In the first quarter of 2017, these accelerated amounts resulted in a $20.7 million charge to interest expense ($13.2 million, net of tax benefits).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

As of ~~April~~July 1, 2018, the Company had the following interest rate swaps that were designated as cash flow hedges of interest rate risk:



Product	Number of Instruments	Current Notional Amount		Trade Dates	Maturity Dates
Interest Rate Swaps	14	$	1,499,000	Feb 2017 - Jan 2018	Jan 2019 - Feb 2023

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCL in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCL related to derivatives will be reclassified to Interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $68.49 million will be reclassified as a decrease to Interest expense.

Cash Flow Hedges of Foreign Exchange Risk

The Company’s operations in Canada expose the Company to changes in the U.S. Dollar – Canadian Dollar ("USD-CAD") foreign exchange rate. From time to time, the Company’s Canadian subsidiary purchases inventory denominated in U.S. Dollars ("USD"), a currency other than its functional currency. The subsidiary sells that inventory in Canadian dollars ("CAD"). The subsidiary uses currency forward and collar agreements to manage its exposure to fluctuations in the USD-CAD exchange rate. Currency forward agreements involve fixing the USD-CAD exchange rate for delivery of a specified amount of foreign currency on a specified date. Currency collar agreements involve the sale of CAD currency in exchange for receiving USD if exchange rates rise above an agreed upon rate and purchase of USD currency in exchange for paying CAD currency if exchange rates fall below an agreed upon rate at specified dates.

As of ~~April~~July 1, 2018, the Company had the following foreign currency exchange contracts (in aggregate) that were designated as cash flow hedges of foreign exchange risk:

Product		Number ofInstruments		NotionalPurchased inAggregate in USD		Trade Date		MaturityDates
CAD $ Contracts		96		$2114,~~018~~017		Jul 2017		~~May~~Aug 2018 - Dec 2018

The changes in the fair value of derivatives designated that qualify as cash flow hedges of foreign exchange risk is recorded in AOCL in the Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts excluded from the assessment of hedge effectiveness, are recognized directly in Cost of products sold in the Consolidated Statements of Operations. During the next twelve months, the Company estimates that an additional $0.03 million will be reclassified as a decrease to Cost of Products Sold expense.

Non-designated Hedges of Commodity Risk

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to commodity price risk but do not meet the authoritative guidance for hedge accounting. From time to time, the Company enters into commodity forward contracts to fix the price of diesel fuel, heating oil, natural gas and soybean oil purchases and other commodities at a future delivery date. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in Cost of products sold in the Consolidated Statements of Operations.

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

As of ~~April~~July 1, 2018, the Company had the following derivative instruments that were not designated in qualifying hedging relationships:

Commodity Contracts		Number ofInstruments		Notional Purchased in Aggregate in USD		Trade Dates		MaturityDates
Commodity Contracts		4668		$712,~~383~~388		Feb 2017 - ~~Feb~~May 2018		~~Apr~~July 2018 - Dec 2019

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the Consolidated Balance Sheets as of ~~April~~July 1, 2018 and December 31, 2017.

	Tabular Disclosure of Fair Values of Derivative Instruments
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Valueas ~~ofApril~~ofJuly 1, 2018		Balance Sheet Location	Fair Valueas ~~ofApril~~ofJuly 1, 2018
Derivatives designated as hedging instruments
Interest Rate Contracts	Other current assets	$	54,~~106~~556	Accrued liabilities	$	—
	Other assets, net	1522,~~859~~949		Other long-term liabilities	—
Foreign Exchange Contracts	Other current assets	15295		Accrued liabilities	1—
	Other assets, net	—		Other long-term liabilities	—
Total derivatives designated as hedging instruments		$	2027,~~980~~800		$	1—
Derivatives not designated as hedging instruments
Commodity Contracts	Other current assets	$	1,~~849~~801	Accrued liabilities	$	89543
	Other assets, net	—		Other long-term liabilities	8957
Total derivatives not designated as hedging instruments		$	1,~~849~~801		$	~~178~~600
	Balance Sheet Location	Fair Valueas ofDecember 31, 2017		Balance Sheet Location	Fair Valueas ofDecember 31, 2017
Derivatives designated as hedging instruments
Interest Rate Contracts	Other current assets	$	34	Accrued liabilities	$	—
	Other assets, net	8,160		Other long-term liabilities	—
Foreign Exchange Contracts	Other current assets	—		Accrued liabilities	750
Total derivatives designated as hedging instruments		$	8,194		$	750
Derivatives not designated as hedging instruments
Commodity Contracts	Other current assets	$	2,615	Accrued liabilities	$	238
	Other assets, net	—		Other long-term liabilities	98
Total derivatives not designated as hedging instruments		$	2,615		$	336

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

The Company has elected not to offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if the Company were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheets as of ~~April~~July 1, 2018 and December 31, 2017 would be adjusted as detailed in the following table:

	April 1, 2018						December 31, 2017
	July 1, 2018						December 31, 2017
Derivative Instrument	Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements		Net Amount		Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements		Net Amount
Total asset derivatives	$	2229,~~829~~601	(~~179~~283	)	$	2229,~~650~~318	$	10,809	(1,086	)	$	9,723
Total liability derivatives	$	~~179~~600	(~~179~~283	)	$	—317	$	1,086	(1,086	)	$	—

The table below presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations and AOCL for the three months ended April 1, 2018 and March 26, 2017.27

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

The table below presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations and AOCL for the three and six months ended July 1, 2018 and June 25, 2017.

Tabular Disclosure of the Effect of Derivative Instruments

Gain/(Loss)
Derivatives in Cash Flow HedgingRelationships	Recognized inAOCL onDerivative			Portionreclassified from AOCL to:	Reclassifiedfrom AOCLinto Earnings				Consolidated Statements of Operations Hedged Items impact	Income/(Expense) related to Hedged Items
Interest Rate Contracts	$	127,~~916~~708		Interest expense	$	~~145~~1,166			Interest expense	$	(1112,~~598~~610	)
Foreign Exchange Contracts	~~689~~345			Cost of products sold	~~(74~~61		)		Cost of products sold	(67,~~997~~001		)
Three months ended April 1, 2018	$	13,605			$	71
Three months ended July 1, 2018	$	8,053			$	1,227
Interest Rate Contracts	$	~~239~~20,623		Interest expense	$	~~(21~~1,~~774~~311	)	~~(a)~~	Interest expense	$	(1024,~~852~~208	)
Foreign Exchange Contracts	~~256~~1,035			Cost of products sold	(~~101~~13		)		Cost of products sold	(613,~~718~~998		)
Three months ended March 26, 2017	$	495			$	(21,875	)
Six months ended July 1, 2018	$	21,658			$	1,298
Interest Rate Contracts	$	(5,108	)	Interest expense	$	122			Interest expense	$	(11,236	)
Foreign Exchange Contracts	(39		)	Cost of products sold	156				Cost of products sold	(6,846		)
Three months ended June 25, 2017	$	(5,147	)		$	278
Interest Rate Contracts	$	(4,869	)	Interest expense	$	(21,652	)	(a)	Interest expense	$	(22,087	)
Foreign Exchange Contracts	217			Cost of products sold	55				Cost of products sold	(13,564		)
Six months ended June 25, 2017	$	(4,652	)		$	(21,597	)
Derivatives Not Designated as Hedging Instruments				Recognized in Earnings in:	Recognized inEarnings
Commodity Contracts				Cost of products sold	$	~~381~~598
Three months ended April 1, 2018					$	381
Three months ended July 1, 2018					$	598
Commodity Contracts				Cost of products sold	$	~~(1,969~~980	)
Three months ended March 26, 2017					$	(1,969	)
Six months ended July 1, 2018					$	980
Commodity Contracts				Cost of products sold	$	(2,034	)
Interest Rate Contracts				Interest expense	—
Three months ended June 25, 2017					$	(2,034	)
Commodity Contracts				Cost of products sold	$	(4,003	)
Interest Rate Contracts				Interest expense	20,723
Six months ended June 25, 2017					$	16,720

(a) Includes $20.7 million of accelerated reclassifications out of AOCL, related to the ~~January~~ 2017 Refinancing.

~~Credit risk-related contingent features~~28

The Company has agreements with certain counterparties that contain a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of April 1, 2018, the fair value of derivatives, which includes accrued interest but excludes any adjustment for nonperformance risk, was in a net asset position by counterparty. As of April 1, 2018, the Company has not posted any collateral related to these agreements.

15. Commitments and Contingencies

General

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Credit risk-related contingent features

The Company has agreements with certain counterparties that contain a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of July 1, 2018, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was $0.3 million. As of July 1, 2018, the Company has not posted any collateral related to these agreements. If the Company has breached any of these provisions at July 1, 2018, it could have been required to settle its obligations under the agreements at their termination value of $0.3 million.

15. Commitments and Contingencies

General

From time to time, the Company and its subsidiaries are parties to, or targets of, lawsuits, claims, investigations, and proceedings, which are being handled and defended in the ordinary course of business. Although the outcome of such items cannot be determined with certainty, the Company’s general counsel and management are of the opinion that the final outcome of these matters will not have a material effect on the Company’s financial condition, results of operations or cash flows.

Aunt Jemima retail and foodservice frozen breakfast products recall (the "Recall")

On May 5, 2017, the Company issued a voluntary recall for certain Aunt Jemima retail and foodservice frozen breakfast products due to potential bacterial contamination. The cost impact of the Recall for the fiscal year ended December 31, 2017 is a charge to gross margin of $13.0 million, of which $10.8 million is recorded as a reduction of Net Sales related to customer returns with the remaining $2.2 million relating to freight and disposal costs, charged directly to Cost of products sold. Of these costs, $6.5 million is reported in the Frozen segment, with an additional $6.5 million recorded in the Specialty segment. The Company has insurance coverage that it expects will cover a portion of the cost of the Recall. Any insurance proceeds will be recorded in the period they are received.

16. Segments

The Company is a leading manufacturer, marketer and distributor of high quality, branded food products in North America. The ~~businesses~~business is comprised of four reportable segments: Frozen, Grocery, Boulder and Specialty.

The Frozen segment is comprised of the retail businesses of the Company’s frozen brands, including vegetables (Birds Eye), complete bagged meals (Birds Eye Voila! and Birds Eye Signature Skillets), full-calorie single-serve frozen dinners and entrées (Hungry-Man), prepared seafood (Van de Kamp's and Mrs. Paul's), frozen and refrigerated bagels (Lender's) and pizza for one (Celeste). The Frozen segment also includes all of the Company’s business in Canada, including those of the Garden Protein International and Boulder Brands acquisitions.

The Grocery segment is comprised of the retail businesses of the Company’s grocery brands, including cake/brownie mixes and frostings (Duncan Hines), shelf-stable pickles (Vlasic), salad dressings (Wish-Bone, Western and Bernstein’s), table syrups (Log Cabin and Mrs. Butterworth's), refrigerated and shelf-stable spreads (Smart Balance), canned meat (Armour, Nalley and Brooks), pie and pastry fillings (Duncan Hines Comstock and Wilderness) and barbecue sauces (Open Pit).

The Boulder segment is comprised of the retail businesses of the Company’s health and wellness lifestyle brands, including gluten- free products (Udi's and Glutino), natural frozen meal offerings (EVOL), plant-based refrigerated and shelf-stable spreads (Earth Balance) and plant-based protein frozen products (gardein).

The Specialty segment includes the Company’s snack products (Tim's Cascade and Snyder of Berlin) and all of its U.S. foodservice and private label businesses, including those of the Garden Protein International and Boulder Brands acquisitions.

Segment performance is evaluated by the Company’s Chief Operating Decision Maker and is based on earnings before interest and taxes. Transfers between segments and geographic areas are recorded at cost plus markup or at market. Identifiable assets are those assets, including goodwill, which are identified with the operations in each segment or geographic region. Corporate assets consist of prepaid and deferred tax assets. Unallocated corporate expenses consist of corporate overhead such as executive management, finance and legal functions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

	Three months ended						Six months ended
SEGMENT INFORMATION	~~April~~July 1, 2018			~~March~~June 2625, 2017			July 1, 2018			June 25, 2017
Net sales
Frozen	$	~~344~~308,~~871~~504		$	~~320~~295,~~942~~893		$	653,375		$	616,835
Grocery	~~261~~256,~~007~~620			~~259~~276,~~350~~057			517,627			535,407
Boulder	9798,~~756~~898			9794,~~292~~654			196,654			191,946
Specialty	7577,~~198~~739			8878,~~490~~004			152,937			166,494
Total	$	~~778~~741,~~832~~761		$	~~766~~744,~~074~~608		$	1,520,593		$	1,510,682
Earnings before interest and taxes
Frozen	$	5349,~~711~~740		$	50(12,~~922~~260	)	$	103,451		$	38,662
Grocery	4952,~~748~~131			5161,~~807~~870			101,879			113,677
Boulder	1116,~~851~~018			612,~~672~~249			27,869			18,921
Specialty	89,~~216~~489			8(10,~~888~~648		)	17,705			(1,760		)
Unallocated corporate expenses	(723,~~825~~330		)	(7,~~081~~191		)	(31,155		)	(14,272		)
Total	$	~~115~~104,~~701~~048		$	~~111~~44,~~208~~020		$	219,749		$	155,228
Depreciation and amortization
Frozen	$	11,~~634~~805		$	1038,~~569~~625		$	23,439		$	49,194
Grocery	7,~~749~~838			87,~~076~~824			15,587			15,900
Boulder	4,~~352~~565			3,~~761~~686			8,917			7,447
Specialty	3,~~153~~155			43,~~682~~676			6,308			8,358
Total	$	2627,~~888~~363		$	2753,~~088~~811		$	54,251		$	80,899
Capital expenditures (1)
Frozen	$	24,~~274~~272		$	138,~~318~~275		$	48,546		$	21,593
Grocery	9,~~180~~244			76,~~530~~214			18,424			13,744
Boulder	32,~~892~~790			75,~~745~~477			6,682			13,222
Specialty	31,~~439~~143			54,~~472~~275			4,582			9,747
Total	$	4037,~~785~~449		$	3424,~~065~~241		$	78,234		$	58,306
NET SALES BY PRODUCT TYPE
Net sales
Frozen	$	~~429~~395,~~739~~637		$	~~407~~391,~~860~~929		$	825,376		$	799,789
Shelf stable and meal enhancers	~~237~~248,~~675~~520			~~247~~238,~~406~~695			486,195			486,101
Desserts	7762,~~748~~530			77,~~246~~389			140,278			154,635
Snacks	3335,~~670~~074			3336,~~562~~595			68,744			70,157
Total	$	~~778~~741,~~832~~761		$	~~766~~744,~~074~~608		$	1,520,593		$	1,510,682
GEOGRAPHIC INFORMATION
Net sales
United States	$	~~764~~727,~~193~~661		$	~~754~~729,~~587~~927		$	1,491,854		$	1,484,514
Canada	4137,~~374~~445			3637,~~694~~501			78,819			74,195
Intercompany	(2623,~~735~~345		)	(2522,~~207~~820		)	(50,080		)	(48,027		)
Total	$	~~778~~741,~~832~~761		$	~~766~~744,~~074~~608		$	1,520,593		$	1,510,682


(1)	Includes new capital leases.

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(thousands, except share and per share amounts and where noted in millions)

SEGMENT INFORMATION	~~April~~July 1, 2018		December 31, 2017
Total assets
Frozen	$	2,~~342~~347,~~616~~290	$	2,417,543
Grocery	2,~~724~~731,~~171~~780		2,787,209
Boulder	~~999~~994,~~166~~489		1,005,209
Specialty	~~346~~351,~~602~~620		357,040
Corporate	109,~~487~~983		11,263
Total	$	6,~~423~~435,~~042~~162	$	6,578,264
GEOGRAPHIC INFORMATION
Plant assets
United States	$	~~710~~724,~~255~~124	$	707,670
Canada	3029,~~010~~990		32,043
Total	$	~~740~~754,~~265~~114	$	739,713

17. Provision for Income Taxes

The provision for income taxes and related effective tax rates for the three and six months ended ~~April~~July 1, 2018 and ~~March~~June 2625, 2017, respectively, were as follows:

	Three months ended						Six months ended
Provision for income taxes	April 1, 2018			March 26, 2017
Provision (benefit) for income taxes	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Current	$	1110,~~408~~973		$	27,~~285~~746		$	22,381		$	10,031
Deferred	56,~~697~~651			5(10,~~058~~838		)	12,348			(5,780		)
Total	$	17,~~105~~624		$	7(3,~~343~~092	)	$	34,729		$	4,251
Effective tax rate	23.19		%	24(19.19		)%	23.5		%	9.2		%

Income taxes are accounted for in accordance with the authoritative guidance for accounting for income taxes under which deferred tax assets and liabilities are determined based on the difference between their financial statement basis and tax basis, using enacted tax rates in effect for the year in which the differences are expected to reverse. In the first quarter of 2017, we retrospectively adopted the guidance of ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” and in connection, are presenting all deferred tax asset and liability balances as non-current on our consolidated balance sheet for the three months ended April 1, 2018 and the year ended December 31, 2017 in this filing.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduced the federal statutory corporate income tax rate from 35.0% to 21.0%. The Company continues to evaluate the impact of certain foreign and domestic income provisions of the Act and for the three and six months ended ~~April~~ July 1, 2018 has determined those provisions will not have a material effect on its fiscal year 2018 financial statements. Once the Company finalizes its analysis of the Act it will be able to conclude on any further adjustments to be recorded in these provisional amounts. Any such adjustment is reported as a component of income taxes in the reporting period in which such adjustments are determined, which will be no later than the fourth quarter of 2018, or as a component of our 2018 annualized effective income tax rate, depending on the nature of the adjustment.

Our effective income tax rate for the three and six months ended ~~April~~ July 1, 2018 reflects a decrease in the federal rate to 21.0% as a result of the Act. The rate also includes a benefit of 1.91% and 1.5%, respectively, from share based payment transactions being recorded as an item of continuing operations in accordance with ASU 2016-09, “Improvements to Employee Share-Based Payment

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~~operations~~Accounting” ineffective ~~accordance~~for ~~with~~our ~~ASU~~2017 ~~2016-09~~fiscal year, ~~“Improvements~~a tobenefit ~~Employee~~of ~~Share-Based~~1.6% ~~Payment~~and ~~Accounting”~~0.8%, ~~effective~~respectively ~~for~~from ~~our~~an ~~2017~~adjustment ~~fiscal~~to ~~year~~our ~~Note~~income 18tax ~~and~~liability, a charge of 0.6% and 1.40%, ~~related~~respectively, tofrom changes in state tax law and a charge of 1.0% and .5%, respectively, from non-deductible transaction costs in connection with the Merger Agreement.

Our effective income tax rate for the three and six months ended ~~March~~June 2625, 2017 reflects the former 35.0% federal rate ~~offset~~and byincludes a benefit of 1240.46% and 21.9%, respectively, from share based payment transactions being recorded as an item of continuing operations in accordance with ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” effective for our 2017 fiscal year and a benefit of 115.65% and 5.2%, respectively, from ~~the~~changes ~~domestic~~in ~~production~~state ~~activities~~tax ~~deduction~~law.

The Company regularly evaluates its deferred tax assets for future realization. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company's tax provision in the period of change. There was no significant movement in our valuation allowances during the three and six months ended ~~April~~ July 1, 2018 and June 25, 2017.

The Company is a loss corporation as defined by Internal Revenue Code (“the Code”) Section 382. Section 382 places an annual limitation on our ability to use our federal net operating loss (“NOL”) carryovers and other attributes to reduce future taxable income. As of ~~April~~ July 1, 2018, we have federal NOL carryovers of $408.3 million subject to an annual limitation of $17.1 million. As a result, $237.2 million of the carryovers exceed the estimated available Section 382 limitation. The Company has reduced its deferred tax assets for this limitation.

18. Recently Issued Accounting Pronouncements

Accounting Pronouncement Adopted in 2018

In May 2014, the FASB issued ASU No. 2014-09, guidance based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. In August 2015, the FASB deferred the effective date by one year while providing the option to early adopt the standard on the original effective date. Accordingly, the Company adopted the standard in the first quarter of fiscal 2018. We analyzed the impact that the new guidance has on our policies, processes, controls, and disclosures. This assessment required, among other things, a review of the contracts we have with our customers. Substantially all of our revenue is earned pursuant to agreements under which we have one performance obligation, which is satisfied at a point-in-time. Based on our analysis, this ASU did not have a material effect on the timing or amount of revenue recognition, our results of operations, our financial position or our control environment. Our disclosures changed as appropriate to comply with the new guidance. See Note 3 for further details.

In March 2017, the FASB issued ASU 2017-07, "Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". ASU 2017-07 requires the service cost component of net periodic benefit cost be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and other components of the net periodic benefit cost be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. The Company adopted this guidance during the first quarter of 2018. The amendments have been applied retrospectively for the income statement presentation requirements. Prior to adoption of the guidance, we classified all net periodic benefit costs within operating costs, specifically Cost of products sold on the consolidated statements of operations. The line item classification changes required by the new guidance did not impact the Company's pre-tax earnings or net income; however, Gross Profit and Non-operating income changed by immaterial offsetting amounts.

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting". ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in the update are effective for all annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this guidance in the first quarter of fiscal 2018. This guidance did not have an impact on our consolidated financial statements upon adoption.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities". ASU 2017-12 provides guidance that amends hedge accounting. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. The guidance is effective for fiscal years beginning

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(thousands, except share and per share amounts and where noted in millions)

after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company early adopted this guidance in the first quarter of 2018. This guidance did not have a material impact on our consolidated financial statements upon adoption. Currently all of the Company's commodity risk derivatives are not designated as hedges and thus do not qualify for hedge accounting. As new derivative contracts are executed, the Company expects a portion of these commodity risk derivatives to qualify for hedge accounting and its disclosures to be updated accordingly.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The update allows for a reclassification from accumulated other comprehensive earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company early adopted this guidance in the first quarter of 2018. As a result, in the first quarter of 2018, the Company reclassified $5.3 million out of Accumulated Other Comprehensive Loss as an increase to Retained Earnings.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The FASB is amending the FASB Accounting Standards Codification ("ASC") and creating Topic 842, Leases, which will supersede Topic 840, Leases. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Under the new guidance, lessees will be required to recognize the assets and liabilities arising from leases on the balance sheet. The updated guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In transition to the new guidance, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company ishas made progress in ~~the~~its ~~process~~data collection and evaluation of ~~evaluating~~its ~~this~~leasing arrangements, practical expedients and accounting policy elections. The Company continues to evaluate the guidance but is currently unable to reasonably estimate the expected increase in assets and liabilities on its balance sheet from operating leases.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.

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(thousands, except share and per share amounts and where noted in millions)

19. Guarantor and Nonguarantor Statements

The Senior Notes are general senior unsecured obligations of Pinnacle Foods Finance LLC, effectively subordinated in right of payment to all existing and future senior secured indebtedness of Pinnacle Foods Finance LLC and guaranteed on a full, unconditional, joint and several basis by the Company and Pinnacle Foods Finance LLC's 100% owned domestic subsidiaries that guarantee other indebtedness of the Pinnacle Foods Finance LLC. The indenture governing the Senior Notes contains customary exceptions under which a guarantee of a guarantor subsidiary will terminate, including (1) the sale, exchange or transfer (by merger or otherwise) of the capital stock or all or substantially all of the assets of such guarantor subsidiary, (2) the release or discharge of the guarantee by such guarantor subsidiary of the Fourth Amended and Restated Credit Agreement or other guarantee that resulted in the creation of the guarantee, (3) the designation of such guarantor subsidiary as an “unrestricted subsidiary” in accordance with the indentures governing the Senior Notes and (4) upon the legal defeasance or covenant defeasance or discharge of the indentures governing the Senior Notes.

The following condensed consolidating financial information presents:

(1) (a) Condensed consolidating balance sheets as of ~~April~~July 1, 2018 and December 31, 2017.

(b) The related condensed consolidating statements of operations and comprehensive earnings for the Company, Pinnacle Foods Finance LLC, all guarantor subsidiaries and the non-guarantor subsidiaries for the following:

i. Three months ended ~~April~~July 1, 2018; and

ii. Three months ended ~~March~~June 2625, 2017.

(c) The related condensed consolidating statements of cash flows for the Company, Pinnacle Foods Finance LLC, all guarantor subsidiaries and the non-guarantor subsidiaries for the following:

i. ~~Three~~Six months ended ended ~~April~~July 1, 2018; and

ii. ~~Three~~Six months ended ended ~~March~~June 2625, 2017.


(2)	Elimination entries necessary to consolidate the Company, Pinnacle Foods Finance LLC with its guarantor subsidiaries and non-guarantor subsidiaries.

Investments in subsidiaries are accounted for by the parent using the equity method of accounting. The guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions and include a reclassification entry of net non-current deferred tax assets to non-current deferred tax liabilities.

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Pinnacle Foods Inc.Condensed Consolidating Balance SheetApril 1, 2018
Pinnacle Foods Inc.Condensed Consolidating Balance SheetJuly 1, 2018
	PinnacleFoodsInc.			PinnacleFoodsFinance LLC			GuarantorSubsidiaries			NonguarantorSubsidiaries			EliminationsandReclassifications			ConsolidatedTotal
Current assets:
Cash and cash equivalents	$	—		$	—		$	7674,~~226~~106		$	16,~~458~~325		$	—		$	7780,~~684~~431
Accounts receivable, net	—			—			~~289~~255,~~752~~703			118,~~466~~655			—			~~301~~264,~~218~~358
Intercompany accounts receivable	~~107~~101,~~602~~958			—			1,~~235~~273,~~500~~461			~~1,442~~—			(1,~~344~~375,~~544~~419		)	—
Inventories, net	—			—			~~458~~484,~~300~~820			1923,~~042~~117			—			~~477~~507,~~342~~937
Other current assets	—			6,~~970~~652			98,~~855~~638			~~664~~599			—			1715,~~489~~889
Total current assets	~~107~~101,~~602~~958			6,~~970~~652			2,~~069~~096,~~633~~728			3438,~~072~~696			(1,~~344~~375,~~544~~419		)	~~873~~868,~~733~~615
Plant assets, net	—			—			~~710~~724,~~255~~124			3029,~~010~~990			—			~~740~~754,~~265~~114
Investment in subsidiaries	2,~~343~~368,~~571~~797			3,~~214~~246,~~585~~303			4243,~~684~~116			—			(5,~~600~~658,~~840~~216		)	—
Intercompany note receivable	—			2,~~918~~929,~~747~~846			45,~~308~~382			9,800			(2,~~973~~985,~~855~~028		)	—
Tradenames	—			—			2,458,681			4,~~574~~491			—			2,463,~~255~~172
Other assets, net	—			1623,~~464~~649			~~142~~140,~~971~~388			9,~~963~~934			—			~~169~~173,~~398~~971
Deferred tax assets	—			~~241~~238,~~135~~233			—			~~599~~—			(~~241~~238,~~734~~233		)	—
Goodwill	—			—			2,115,731			6059,~~660~~559			—			2,~~176~~175,~~391~~290
Total assets	$	2,~~451~~470,~~173~~755		$	6,~~397~~444,~~901~~683		$	7,~~585~~624,~~263~~150		$	~~149~~152,~~678~~470		$	(10,~~160~~256,~~973~~896	)	$	6,~~423~~435,~~042~~162
Current liabilities:
Short-term borrowings	$	—		$	—		$	1,~~566~~842		$	—		$	—		$	1,~~566~~842
Current portion of long-term obligations	—			40,000			1314,~~329~~124			2			—			5354,~~331~~126
Accounts payable	~~4,825~~—			—			~~317~~321,~~015~~724			57,~~828~~311			—			~~327~~329,~~668~~035
Intercompany accounts payable	—			1,~~323~~353,~~136~~051			—			2122,~~408~~367			(1,~~344~~375,~~544~~418		)	—
Accrued trade marketing expense	—			—			3729,~~433~~095			3,~~627~~018			—			4132,~~060~~113
Accrued liabilities	204			1517,~~934~~464			~~108~~97,~~118~~000			5,~~210~~277			—			~~129~~119,~~466~~945
Dividends payable	40,~~884~~066			—			—			—			—			40,~~884~~066
Total current liabilities	4540,~~913~~270			1,~~379~~410,~~070~~515			~~477~~463,~~461~~785			3637,~~075~~975			(1,~~344~~375,~~544~~418		)	~~593~~577,~~975~~127
Long-term debt	—			2,~~675~~665,~~171~~314			2838,~~517~~565			4538			—			2,703,~~733~~917
Intercompany note payable	—			—			2,~~908~~919,~~285~~752			65,~~570~~277			(2,~~973~~985,~~855~~029		)	—
Pension and other postretirement benefits	—			—			5250,~~142~~134			—			—			5250,~~142~~134
Other long-term liabilities	—			8957			3227,~~915~~781			~~881~~824			—			3328,~~885~~662
Deferred tax liabilities	—			—			~~871~~877,~~358~~830			34,~~317~~195			(~~241~~238,~~734~~233		)	~~632~~643,~~941~~792
Total liabilities	4540,~~913~~270			4,~~054~~075,~~330~~886			4,~~370~~377,~~678~~847			~~105~~108,~~888~~309			(4,~~560~~598,~~133~~680		)	4,~~016~~003,~~676~~632
Commitments and contingencies (Note 15)
Shareholders' equity:
Pinnacle common stock	1,202			—			—			—			—			1,202
Additional paid-in-capital	1,~~453~~457,~~171~~492			1,~~454~~458,~~373~~694			1,~~376~~380,~~295~~615			32,~~772~~771			(2,~~863~~872,~~440~~080		)	1,~~453~~457,~~171~~492
Retained earnings	1,~~010~~027,~~472~~855			~~916~~934,~~673~~057			1,~~869~~898,~~511~~201			1213,~~001~~889			(2,~~798~~846,~~185~~147		)	1,~~010~~027,~~472~~855
Accumulated other comprehensive (loss)/gain	(2723,~~475~~954		)	(2723,~~475~~954		)	(3132,~~221~~513		)	(23,~~089~~544		)	60,~~785~~011			(2723,~~475~~954		)
Capital stock in treasury, at cost	(32,110		)	—			—			—			—			(32,110		)
Total Pinnacle Foods Inc. and Subsidiaries stockholders' equity	2,~~405~~430,~~260~~485			2,~~343~~368,~~571~~797			3,~~214~~246,~~585~~303			4243,~~684~~116			(5,~~600~~658,~~840~~216		)	2,~~405~~430,~~260~~485
Non-controlling interest	—			—			—			1,~~106~~045			—			1,~~106~~045
Total Equity	2,~~405~~430,~~260~~485			2,~~343~~368,~~571~~797			3,~~214~~246,~~585~~303			4344,~~790~~161			(5,~~600~~658,~~840~~216		)	2,~~406~~431,~~366~~530
Total liabilities and equity	$	2,~~451~~470,~~173~~755		$	6,~~397~~444,~~901~~683		$	7,~~585~~624,~~263~~150		$	~~149~~152,~~678~~470		$	(10,~~160~~256,~~973~~896	)	$	6,~~423~~435,~~042~~162

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Pinnacle Foods Inc. Condensed Consolidating Balance Sheet December 31, 2017

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Current assets:
Cash and cash equivalents	$	—		$	—		$	241,772		$	8,056		$	—		$	249,828
Accounts receivable, net	—			—			272,401			9,221			—			281,622
Intercompany accounts receivable	102,335			—			1,001,329			—			(1,103,664		)	—
Inventories, net	—			—			469,813			19,993			—			489,806
Other current assets	—			2,649			8,124			288			—			11,061
Total current assets	102,335			2,649			1,993,439			37,558			(1,103,664		)	1,032,317
Plant assets, net	—			—			707,670			32,043			—			739,713
Investment in subsidiaries	2,317,445			3,180,932			43,056			—			(5,541,433		)	—
Intercompany note receivable	—			2,907,799			45,226			9,800			(2,962,825		)	—
Tradenames	—			—			2,458,681			4,693			—			2,463,374
Other assets, net	—			8,802			145,489			10,608			—			164,899
Deferred tax assets	—			233,391			—			—			(233,391		)	—
Goodwill	—			—			2,115,731			62,230			—			2,177,961
Total assets	$	2,419,780		$	6,333,573		$	7,509,292		$	156,932		$	(9,841,313	)	$	6,578,264
Current liabilities:
Short-term borrowings	$	—		$	—		$	2,739		$	—		$	—		$	2,739
Current portion of long-term obligations	—			22,620			11,311			3			—			33,934
Accounts payable	—			—			315,142			7,920			—			323,062
Intercompany accounts payable	—			1,078,535			—			25,129			(1,103,664		)	—
Accrued trade marketing expense	—			—			36,484			2,491			—			38,975
Accrued liabilities	178			19,913			95,010			7,030			—			122,131
Dividends payable	40,470			—			—			—			—			40,470
Total current liabilities	40,648			1,121,068			460,686			42,573			(1,103,664		)	561,311
Long-term debt	—			2,894,962			30,594			38			—			2,925,594
Intercompany note payable	—			—			2,896,811			66,014			(2,962,825		)	—
Pension and other postretirement benefits	—			—			53,251			—			—			53,251
Other long-term liabilities	—			98			32,971			968			—			34,037
Deferred tax liabilities	—			—			854,047			3,177			(233,391		)	623,833
Total liabilities	40,648			4,016,128			4,328,360			112,770			(4,299,880		)	4,198,026
Commitments and contingencies (Note 15)
Shareholders' equity:
Pinnacle common stock	1,200			—			—			—			—			1,200
Additional paid-in-capital	1,453,054			1,454,253			1,376,175			32,771			(2,863,199		)	1,453,054
Retained earnings	987,238			893,441			1,834,555			10,756			(2,738,752		)	987,238
Accumulated other comprehensive loss	(30,250		)	(30,249		)	(29,798		)	(471		)	60,518			(30,250		)
Capital stock in treasury, at cost	(32,110		)	—			—			—			—			(32,110		)
Total Pinnacle Foods Inc. and Subs stockholders equity	2,379,132			2,317,445			3,180,932			43,056			(5,541,433		)	2,379,132
Non-controlling interest	—			—			—			1,106			—			1,106
Total Equity	2,379,132			2,317,445			3,180,932			44,162			(5,541,433		)	2,380,238
Total liabilities and shareholders' equity	$	2,419,780		$	6,333,573		$	7,509,292		$	156,932		$	(9,841,313	)	$	6,578,264

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive EarningsFor the three months ended April 1, 2018
Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive EarningsFor the three months ended July 1, 2018
	PinnacleFoodsInc.			PinnacleFoodsFinance LLC			GuarantorSubsidiaries			NonguarantorSubsidiaries			Eliminations			ConsolidatedTotal
Net sales	$	—		$	—		$	~~764~~727,~~192~~662		$	4137,~~374~~445		$	(2623,~~734~~346	)	$	~~778~~741,~~832~~761
Cost of products sold	—			—			~~562~~522,~~753~~192			3631,~~265~~171			(2623,~~616~~064		)	~~572~~530,~~402~~299
Gross profit	—			—			~~201~~205,~~439~~470			56,~~109~~274			(~~118~~282		)	~~206~~211,~~430~~462
Marketing and selling expenses	—			—			4849,~~567~~539			~~660~~1,078			—			4950,~~227~~617
Administrative expenses	—			—			33,~~039~~813			1,~~635~~555			—			3435,~~674~~368
Research and development expenses	—			—			4,~~581~~626			~~183~~160			—			4,~~764~~786
Intercompany royalties	—			—			(~~167~~146		)	~~167~~146			—			—
Intercompany management fees	—			—			—			~~118~~282			(~~118~~282		)	—
Intercompany technical service fees	—			—			—			—			—			—
Other (income) expense, net	—			~~525~~4,637			212,~~156~~638			~~184~~170			—			217,~~865~~445
Equity in (earnings) loss of investees	(56,~~914~~317		)	(7367,~~967~~623		)	(1,~~483~~948		)	—			~~132~~125,~~364~~888			—
	(56,914		)	(73,442		)	86,693			2,947			132,246			91,530
	(56,317		)	(62,986		)	98,522			3,391			125,606			108,216
Operating income	56,~~914~~317			7362,~~442~~986			~~114~~106,~~746~~948			2,~~162~~883			(~~132~~125,~~364~~888		)	~~114~~103,~~900~~246
Non-operating income	—			—			~~801~~802			—			—			~~801~~802
Earnings before interest and taxes	56,~~914~~317			7362,~~442~~986			~~115~~107,~~547~~750			2,~~162~~883			(~~132~~125,~~364~~888		)	~~115~~104,~~701~~048
Intercompany interest (income) expense	—			(18,~~752~~750		)	18,~~533~~532			~~219~~218			—			—
Interest expense	—			4129,~~135~~338			~~742~~844			172			—			4130,~~894~~184
Interest income	—			—			~~200~~7			129			—			~~212~~16
Earnings before income taxes	56,~~914~~317			5152,~~059~~398			9688,~~472~~381			12,~~938~~672			(~~132~~125,~~364~~888		)	7473,~~019~~880
(Benefit) provision for income taxes	—			(53,~~855~~919		)	2220,~~505~~758			~~455~~785			—			17,~~105~~624
Net earnings	56,~~914~~317			56,~~914~~317			7367,~~967~~623			1,~~483~~887			(~~132~~125,~~364~~888		)	56,~~914~~256
Less: Net loss attributable to non-controlling interest	—			—			—			—(61		)	—			—(61		)
Net earnings attributable to Pinnacle Foods, Inc. and Subsidiaries common stockholders	$	56,~~914~~317		$	56,~~914~~317		$	7367,~~967~~623		$	1,~~483~~948		$	(~~132~~125,~~364~~888	)	$	56,~~914~~317
Total comprehensive earnings	6559,~~018~~777			6559,~~018~~777			7266,~~543~~271			~~(136~~434		)	(~~137~~126,~~425~~482		)	6559,~~018~~777
Less: Comprehensive loss attributable to non-controlling interest	—			—			—			—(61		)	—			—(61		)
Comprehensive earnings attributable to Pinnacle Foods, Inc. and Subsidiaries	$	6559,~~018~~777		$	6559,~~018~~777		$	7266,~~543~~271		$	~~(136~~495	)	$	(~~137~~126,~~425~~482	)	$	6559,~~018~~838

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive EarningsFor the three months ended March 26, 2017
Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive EarningsFor the three months ended June 25, 2017
	PinnacleFoodsInc.			PinnacleFoodsFinance LLC			GuarantorSubsidiaries			NonguarantorSubsidiaries			Eliminations			ConsolidatedTotal
Net sales	$	—		$	—		$	~~754~~729,~~587~~927		$	3637,~~694~~501		$	(2522,~~207~~820	)	$	~~766~~744,~~074~~608
Cost of products sold	—						~~546~~571,~~212~~215			3331,~~856~~803			(2422,~~567~~337		)	~~555~~580,~~501~~681
Gross profit	—			—			~~208~~158,~~375~~712			25,~~838~~698			(~~640~~483		)	~~210~~163,~~573~~927
Marketing and selling expenses	—			—			5448,~~703~~485			~~891~~985			—			5549,~~594~~470
Administrative expenses	—			—			3432,~~385~~319			1,~~626~~311			—			3633,~~011~~630
Research and development expenses	—			—			34,~~837~~441			~~184~~139			—			4,~~021~~580
Intercompany royalties	—			—			(188		)	188						—
Tradename impairment charges	—			—			27,430			—			—			27,430
Intercompany royalties	—			—			(166		)	166			—			—
Intercompany management fees										391			(391		)	—
Intercompany technical service fees	—			—			—			~~249~~92			(~~249~~92		)	—
Other expense, net				(~~233~~164		)	46,~~020~~026			~~443~~(574		)	—			45,~~230~~288
Equity in (earnings) loss of investees	(2218,~~926~~669		)	(5823,~~177~~402		)	1(2,~~352~~472		)	—			7944,~~751~~543			—
	(22,926		)	(58,410		)	98,109			3,972			79,111			99,856
	(18,669		)	(23,566		)	116,063			2,510			44,060			120,398
Operating income	2218,~~926~~669			5823,~~410~~566			~~110~~42,~~266~~649			(13,~~134~~188		)	(7944,~~751~~543		)	~~110~~43,~~717~~529
Non-operating income	—			—			491			—			—			491
Earnings before interest and taxes	2218,~~926~~669			5823,~~410~~566			~~110~~43,~~757~~140			(13,~~134~~188		)	(7944,~~751~~543		)	~~111~~44,~~208~~020
Intercompany interest (income) expense	—			(2219,~~305~~624		)	2219,~~087~~416			~~218~~208			—			—
Interest expense	—			8027,~~170~~772			~~551~~722			1013			—			8028,~~731~~507
Interest income	—			—			10			53			—			1513
Earnings before income taxes	2218,~~926~~669			~~545~~15,418			8823,~~129~~012			(12,~~357~~970		)	(7944,~~751~~543		)	3015,~~492~~526
(Benefit) provision for income taxes	—			(223,~~381~~251		)	~~29,952~~(390		)	~~(228~~549		)	—			7(3,~~343~~092		)
Net earnings	2218,~~926~~669			2218,~~926~~669			5823,~~177~~402			(12,~~129~~421		)	(7944,~~751~~543		)	2318,~~149~~618
Less: Net (loss) earnings attributable to non-controlling interest	—			—			—			~~223~~(51		)	—			~~223~~(51		)
Net earnings (loss) attributable to Pinnacle Foods, Inc. and Subsidiaries common stockholders	$	2218,~~926~~669		$	2218,~~926~~669		$	5823,~~177~~402		$	(12,~~352~~472	)	$	(7944,~~751~~543	)	$	2218,~~926~~669
Total comprehensive earnings (loss)	3816,~~033~~165			3816,~~033~~165			5924,~~681~~101			~~246~~2,928			(9743,~~737~~245		)	3816,~~256~~114
Less: Comprehensive (loss) attributable to non-controlling interest	—			—			—			~~223~~(51		)	—			~~223~~(51		)
Comprehensive earnings (loss) attributable to Pinnacle Foods, Inc. and Subsidiaries	$	3816,~~033~~165		$	3816,~~033~~165		$	5924,~~681~~101		$	232,979		$	(9743,~~737~~245	)	$	3816,~~033~~165

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Pinnacle Foods Inc.Condensed Consolidating Statement of Cash FlowsFor the three months ended April 1, 2018
Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive EarningsFor the six months ended July 1, 2018
	PinnacleFoodsInc.			PinnacleFoodsFinance LLC			GuarantorSubsidiaries			NonguarantorSubsidiaries			~~EliminationsandReclassifications~~Eliminations			ConsolidatedTotal
Cash flows from operating activities
Net sales	$	—		$	—		$	1,491,854		$	78,819		$	(50,080	)	$	1,520,593
Net cash (used in) provided by operating activities	$	—		$	(4,890	)	$	124,927		$	1,541		$	—		$	121,578
Cost of products sold	—			—			1,084,945			67,436			(49,680		)	1,102,701
Cash flows from investing activities
Gross profit	—			—			406,909			11,383			(400		)	417,892
Intercompany accounts receivable/payable	—			218,077			8,451			—			(226,528		)	—
Marketing and selling expenses	—			—			98,106			1,738			—			99,844
Investment in Subsidiary	37,932			38,890			—			—			(76,822		)	—
Administrative expenses	—			—			66,852			3,190			—			70,042
Capital expenditures	—			—			(35,800		)	(76		)	—			(35,876		)
Research and development expenses	—			—			9,207			343			—			9,550
Other investing	—			—			—			608			—			608
Intercompany royalties	—			—			(313		)	313			—			—
Net cash provided by (used in) investing activities	37,932			256,967			(27,349		)	532			(303,350		)	(35,268		)
Intercompany management fees	—			—			—			400			(400		)	—
Cash flows from financing activities
Intercompany technical service fees	—			—			—			—			—			—
Net proceeds from issuance of common stock	762			—			—			—			—			762
Other (income) expense, net	—			5,162			14,794			354			—			20,310
Taxes paid related to net share settlement of equity awards	(99		)	—			—			—			—			(99		)
Equity in (earnings) loss of investees	(113,231		)	(141,590		)	(3,431		)	—			258,252			—
Dividends paid	(38,595		)	—			—			—			—			(38,595		)
	(113,231		)	(136,428		)	185,215			6,338			257,852			199,746
Proceeds from bank term loans	—			2,039,380			—			—			—			2,039,380
Operating income	113,231			136,428			221,694			5,045			(258,252		)	218,146
Repayments of long-term obligations	—			(2,249,380		)	(979		)	—			—			(2,250,359		)
Non-operating income	—			—			1,603			—			—			1,603
Repayments of short-term borrowing	—			—			(1,173		)	—			—			(1,173		)
Earnings before interest and taxes	113,231			136,428			223,297			5,045			(258,252		)	219,749
Intercompany accounts receivable/payable	—			—			(218,077		)	(8,451		)	226,528			—
Intercompany interest (income) expense	—			(37,502		)	37,065			437			—			—
Return of capital	—			(37,932		)	(38,890		)	—			76,822			—
Interest expense	—			70,473			1,586			19			—			72,078
Repayment of capital lease obligations	—			—			(4,005		)	(31		)	—			(4,036		)
Interest income	—			—			207			21			—			228
Debt acquisition costs	—			(4,145		)	—			—			—			(4,145		)
Earnings before income taxes	113,231			103,457			184,853			4,610			(258,252		)	147,899
Net cash (used in) provided by financing activities	(37,932		)	(252,077		)	(263,124		)	(8,482		)	303,350			(258,265		)
(Benefit) provision for income taxes	—			(9,774		)	43,263			1,240			—			34,729
Effect of exchange rate changes on cash										(189		)				(189		)
Net earnings	113,231			113,231			141,590			3,370			(258,252		)	113,170
Net change in cash and cash equivalents	—			—			(165,546		)	(6,598		)	—			(172,144		)
Less: Net loss attributable to non-controlling interest	—			—			—			(61		)	—			(61		)
Cash and cash equivalents - beginning of period	—			—			241,772			8,056			—			249,828
Net earnings attributable to Pinnacle Foods, Inc. and Subsidiaries common stockholders	$	113,231		$	113,231		$	141,590		$	3,431		$	(258,252	)	$	113,231
Cash and cash equivalents - end of period	$	—		$	—		$	76,226		$	1,458		$	—		$	77,684
Total comprehensive earnings	124,795			124,795			138,814			298			(263,907		)	124,795
Less: Comprehensive loss attributable to non-controlling interest	—			—			—			(61		)	—			(61		)
Comprehensive earnings attributable to Pinnacle Foods, Inc. and Subsidiaries	$	124,795		$	124,795		$	138,814		$	359		$	(263,907	)	$	124,856

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Pinnacle Foods Inc.Condensed Consolidating Statement of Cash Flows For the three months ended March 26, 2017
Pinnacle Foods Inc. Condensed Consolidating Statement of Operations and Comprehensive EarningsFor the six months ended June 25, 2017
	PinnacleFoodsInc.			PinnacleFoodsFinance LLC			GuarantorSubsidiaries			NonguarantorSubsidiaries			~~EliminationsandReclassifications~~Eliminations			ConsolidatedTotal
Cash flows from operating activities
Net sales	$	—		$	—		$	1,484,514		$	74,195		$	(48,027	)	$	1,510,682
Net cash provided by (used in) operating activities				$	(16,463	)	$	76,870		$	2,586		$	—		$	62,993
Cost of products sold	—			—			1,117,427			65,659			(46,904		)	1,136,182
Cash flows from investing activities
Gross profit	—			—			367,087			8,536			(1,123		)	374,500
Intercompany accounts receivable/payable	—			235,763			7,580			—			(243,343		)	—
Marketing and selling expenses	—			—			103,188			1,876			—			105,064
Investment in subsidiaries	28,011			24,271			—			—			(52,282		)	—
Administrative expenses	—			—			66,704			2,937			—			69,641
Capital expenditures	—			—			(28,744		)	(499		)	—			(29,243		)
Research and development expenses	—			—			8,278			323			—			8,601
Sale of plant assets	—			—			—			679			—			679
Tradename impairment charges	—			—			27,430			—			—			27,430
Net cash (used in) provided by investing activities	28,011			260,034			(21,164		)	180			(295,625		)	(28,564		)
Intercompany royalties							(354		)	354			—			—
Cash flows from financing activities
Intercompany management fees	—			—			—			782			(782		)	—
Net proceeds from the issuance of common stock	5,894			—			—			—			—			5,894
Intercompany technical service fees	—			—			—			341			(341		)	—
Taxes paid related to net share settlement of equity awards	(303		)	—			—			—			—			(303		)
Other expense, net	—			(397		)	10,046			(131		)	—			9,518
Dividends paid	(33,602		)	—			—			—			—			(33,602		)
Equity in (earnings) loss of investees	(41,595		)	(81,579		)	(1,120		)	—			124,294			—
Proceeds from bank term loan	—			2,262,000			—			—			—			2,262,000
	(41,595		)	(81,976		)	214,172			6,482			123,171			220,254
Repayments of long-term obligations	—			(2,464,750		)	(950		)	—			—			(2,465,700		)
Operating income	41,595			81,976			152,915			2,054			(124,294		)	154,246
Proceeds from short-term borrowing	—			—			1,634			—			—			1,634
Non-operating income	—			—			982			—			—			982
Repayments of short-term borrowing	—			—			(1,068		)	—			—			(1,068		)
Earnings before interest and taxes	41,595			81,976			153,897			2,054			(124,294		)	155,228
Intercompany accounts receivable/payable	—			—			(235,763		)	(7,580		)	243,343			—
Intercompany interest (income) expense	—			(41,929		)	41,503			426			—			—
Return of capital	—			(28,011		)	(24,271		)	—			52,282			—
Interest expense	—			107,942			1,273			23			—			109,238
Repayment of capital lease obligations	—			—			(2,206		)	(18		)	—			(2,224		)
Interest income	—			—			20			8			—			28
Debt acquisition costs	—			(12,810		)	—			—			—			(12,810		)
Earnings before income taxes	41,595			15,963			111,141			1,613			(124,294		)	46,018
Net cash (used in) provided by financing activities	(28,011		)	(243,571		)	(262,624		)	(7,598		)	295,625			(246,179		)
(Benefit) provision for income taxes	—			(25,632		)	29,562			321			—			4,251
Effect of exchange rate changes on cash	—			—			—			128			—			128
Net earnings	41,595			41,595			81,579			1,292			(124,294		)	41,767
Net change in cash and cash equivalents	—			—			(206,918		)	(4,704		)	—			(211,622		)
Less: Net (loss) earnings attributable to non-controlling interest	—			—			—			172			—			172
Cash and cash equivalents - beginning of period	—			—			341,238			11,838			—			353,076
Net earnings (loss) attributable to Pinnacle Foods, Inc. and Subsidiaries common stockholders	$	41,595		$	41,595		$	81,579		$	1,120		$	(124,294	)	$	41,595
Cash and cash equivalents - end of period	$	—		$	—		$	134,320		$	7,134		$	—		$	141,454
Total comprehensive earnings (loss)	54,198			54,198			83,782			3,174			(140,982		)	54,370
Less: Comprehensive (loss) attributable to non-controlling interest	—			—			—			172			—			172
Comprehensive earnings (loss) attributable to Pinnacle Foods, Inc. and Subsidiaries	$	54,198		$	54,198		$	83,782		$	3,002		$	(140,982	)	$	54,198

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)



Pinnacle Foods Inc. Condensed Consolidating Statement of Cash Flows For the six months ended July 1, 2018
	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Cash flows from operating activities
Net cash (used in) provided by operating activities	$	—		$	(8,245	)	$	216,288		$	6,707		$	—		$	214,750
Cash flows from investing activities
Intercompany accounts receivable/payable	—			249,338			7,038			—			(256,376		)	—
Investment in Subsidiary	83,697			73,442			—			—			(157,139		)	—
Capital expenditures	—			—			(58,716		)	(1,617		)	—			(60,333		)
Other investing	—			—			—			608			—			608
Net cash provided by (used in) investing activities	83,697			322,780			(51,678		)	(1,009		)	(413,515		)	(59,725		)
Cash flows from financing activities
Net proceeds from issuance of common stock	2,046			—			—			—			—			2,046
Taxes paid related to net share settlement of equity awards	(7,572		)	—			—			—			—			(7,572		)
Dividends paid	(78,171		)	—			—			—			—			(78,171		)
Proceeds from bank term loans	—			2,289,380			—			—			—			2,289,380
Repayments of long-term obligations	—			(2,613,649		)	(980		)	—			—			(2,614,629		)
Repayments of short-term borrowing	—			—			(2,391		)	—			—			(2,391		)
Borrowings under revolving credit facility	—			100,000			—			—			—			100,000
Intercompany accounts receivable/payable	—			—			(249,338		)	(7,038		)	256,376			—
Return of capital	—			(83,697		)	(73,442		)	—			157,139			—
Repayment of capital lease obligations	—			—			(6,125		)	(63		)	—			(6,188		)
Debt acquisition costs	—			(6,569		)	—			—			—			(6,569		)
Net cash (used in) provided by financing activities	(83,697		)	(314,535		)	(332,276		)	(7,101		)	413,515			(324,094		)
Effect of exchange rate changes on cash										(328		)				(328		)
Net change in cash and cash equivalents	—			—			(167,666		)	(1,731		)	—			(169,397		)
Cash and cash equivalents - beginning of period	—			—			241,772			8,056			—			249,828
Cash and cash equivalents - end of period	$	—		$	—		$	74,106		$	6,325		$	—		$	80,431

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PINNACLE FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(thousands, except share and per share amounts and where noted in millions)

Pinnacle Foods Inc. Condensed Consolidating Statement of Cash Flows For the six months ended June 25, 2017

	Pinnacle Foods Inc.			Pinnacle Foods Finance LLC			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations and Reclassifications			Consolidated Total
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	—		$	(18,025	)	$	138,670		$	(297	)	$	—		$	120,348
Cash flows from investing activities
Intercompany accounts receivable/payable	—			248,150			2,571			—			(250,721		)	—
Investment in subsidiaries	67,287			58,504			—			—			(125,791		)	—
Capital expenditures	—			—			(48,271		)	(1,084		)	—			(49,355		)
Sale of plant assets	—			—			517			1,430			—			1,947
Net cash (used in) provided by investing activities	67,287			306,654			(45,183		)	346			(376,512		)	(47,408		)
Cash flows from financing activities
Net proceeds from the issuance of common stock	9,051			—			—			—			—			9,051
Taxes paid related to net share settlement of equity awards	(8,926		)	—			—			—			—			(8,926		)
Dividends paid	(67,412		)	—			—			—			—			(67,412		)
Proceeds from bank term loan	—			2,262,000			—			—			—			2,262,000
Repayments of long-term obligations	—			(2,470,405		)	(1,915		)	—			—			(2,472,320		)
Proceeds from short-term borrowing	—			—			1,634			—			—			1,634
Repayments of short-term borrowing	—			—			(2,240		)	—			—			(2,240		)
Intercompany accounts receivable/payable	—			—			(248,150		)	(2,571		)	250,721			—
Return of capital	—			(67,287		)	(58,504		)	—			125,791			—
Repayment of capital lease obligations	—			—			(4,180		)	(36		)	—			(4,216		)
Debt acquisition costs	—			(12,937		)	—			—			—			(12,937		)
Net cash (used in) provided by financing activities	(67,287		)	(288,629		)	(313,355		)	(2,607		)	376,512			(295,366		)
Effect of exchange rate changes on cash	—			—			—			219			—			219
Net change in cash and cash equivalents	—			—			(219,868		)	(2,339		)	—			(222,207		)
Cash and cash equivalents - beginning of period	—			—			341,238			11,838			—			353,076
Cash and cash equivalents - end of period	$	—		$	—		$	121,370		$	9,499		$	—		$	130,869

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements.” These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than our financial statements, including the Notes thereto, and statements of historical facts included elsewhere in this Report on Form 10-Q, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, financing needs, plans or intentions relating to acquisitions, business trends and other information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. When used in this report, the words “estimates,” “expects,” “contemplates”, “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this report. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth in our Form 10-K filed with the SEC on March 1, 2018 under the section entitled “Risk Factors,” the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations” in this report and the following risks, uncertainties and factors:


•	competition;


•	our ability to predict, identify, interpret and respond to changes in consumer preferences;


•	the loss of any of our major customers;


•	our reliance on a single source provider for the manufacturing, co-packing and distribution of many of our products;


•	fluctuations in the price and supply of food ingredients, packaging materials and freight;


•	volatility in commodity prices and our failure to mitigate the risks related to commodity price fluctuation and foreign exchange risk through the use of derivative instruments;

• ~~costs~~the ~~and~~impact ~~timeliness~~ of ~~integrating~~significant ~~future~~ acquisitions ~~or our failure to realize anticipated cost savings~~, ~~revenue~~dispositions ~~enhancements~~and or other ~~synergies~~similar ~~therefrom~~transactions;


•	our failure to realize anticipated cost savings, revenue enhancements or other synergies;


•	litigation or claims regarding our intellectual property rights or termination of our material licenses;


•	our ability to drive revenue growth in our key product categories or to add products that are in faster growing and more profitable categories;


•	potential product liability claims;


•	seasonality;


•	the funding of our defined benefit pension plan;


•	changes in our collective bargaining agreements or shifts in union policy;


•	changes in the cost of compliance with laws and regulations, including environmental, worker health and workplace safety laws and regulations;


•	our failure to comply with U.S Food & Drug Administration, U.S. Department of Agriculture or Federal Trade Commission regulations and the impact of governmental budget cuts;


•	disruptions in our information technology systems;


•	future impairments of our goodwill and intangible assets;


•	difficulty in the hiring or the retention of key management personnel; and


•	changes in tax statutes, tax rates, or case laws which impact tax positions we have taken.

You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this report apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

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ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollars in millions, except where noted)

You should read the following discussion of our results of operations and financial condition together with the audited consolidated financial statements appearing in our annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 1, 2018 and the unaudited Consolidated Financial Statements and the notes thereto included in this quarterly report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Form 10-K, and the section entitled “Special Note Regarding Forward-Looking Statements” in this report. Actual results may differ materially from those contained in any forward-looking statements.

Overview

The Company is a leading manufacturer, marketer and distributor of high quality, branded food products in North America. The Company’s business is organized into the following four reportable segments: The Frozen segment, The Grocery segment, The Boulder segment and The Specialty segment.

Business Drivers and Measures

In operating our business and monitoring its performance, we pay attention to trends in the food manufacturing industry and a number of performance measures and operational factors. The industry experiences volatility in overall commodity prices from time to time, which has historically been managed by increasing retail prices. However, over the past several years, a difficult retail landscape driven by a highly competitive environment has hampered the ability of the industry to pass along higher input costs.

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Industry Trends

Growth in our industry is driven primarily by population growth, changes in product selling prices and changes in consumption between out-of-home and in-home eating. Consumers are looking for value alternatives, which have caused an increase in the percentage of products sold on promotion and a shift from traditional retail grocery to mass merchandisers, club stores, dollar store channels and e-commerce outlets. We believe we are well positioned in grocery and non-traditional channels, maintaining strong customer relationships across key retailers in each segment.

In order to maintain and grow our business, we must successfully react to, and offer products that respond to, evolving consumer needs, such as changing health trends, the focus on convenience and the growth of smaller households. Incremental growth in the industry is principally driven by product and packaging innovation.

Revenue Factors

Our net sales are driven principally by the following factors:


•	Gross sales, which change as a function of changes in volume and list price; and


•	the costs that we deduct from gross sales to arrive at net sales, which consist of:


◦	Cash discounts, returns and other allowances.


◦	Trade marketing expenses, which include the cost of temporary price reductions (“on sale” prices), promotional displays and advertising space in store circulars.


◦	New product introductory expenses, which are the costs of having certain retailers stock a new product, including amounts retailers charge for updating their warehousing systems, allocating shelf space and in-store systems set-up, among other things.


◦	Consumer coupon redemption expenses, which are costs from the redemption of coupons we circulate as part of our marketing efforts.

Cost Factors


•	Costs recorded in Cost of products sold in the consolidated statement of operations include:


•	Raw materials, such as vegetables and fruits, proteins, grains and oils, sugars, seafood and other agricultural products, among others, are available from numerous independent suppliers but are subject to price fluctuations due to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, weather conditions and insects, among others.


•	Packaging costs. Our broad array of products entails significant costs for packaging and is subject to fluctuations in the price of steel, aluminum, glass jars, plastic bottles, corrugated fiberboard, and various poly-films.


•	Conversion costs, which include all costs necessary to convert raw materials into finished product. Key components of this cost include direct labor, and plant overhead such as salaries, benefits, utilities and depreciation.


•	Freight and distribution. We use a combination of common carriers and inter-modal rail to transport our products from our manufacturing facilities to distribution centers and to deliver products to our customers from both those centers and directly from our manufacturing plants. Our freight and distribution costs are influenced by fuel costs as well as capacity within the industry.


•	Costs recorded in marketing and selling expenses in the consolidated statement of operations include:


•	Advertising and other marketing expenses. These expenses represent advertising and other consumer and trade-oriented marketing programs.


•	Brokerage commissions and other overhead expenses.


•	Costs recorded in administrative and research and development expenses in the consolidated statement of operations include:


•	Administrative expenses. These expenses consist of personnel and facility charges and also include third party professional and other services.


•	Research and Development. These expenses consist of personnel and facility charges and include expenditures on new products and the improvement and maintenance of existing products and processes.

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Working Capital

Our working capital is primarily driven by accounts receivable, accounts payable and inventories, which fluctuate throughout the year due to seasonality in both sales and production. See “Seasonality” below. We will continue to focus on reducing our working capital requirements while simultaneously maintaining our customer service levels and fulfilling our production requirements. We have historically relied on internally generated cash flows and temporary borrowings under our revolving credit facility to satisfy our working capital requirements.

Other Factors

Other factors that have influenced our results of operations and may do so in the future include:

• Interest Expense. As a result of our previous acquisitions and the recent Boulder Brands acquisition, we have significant indebtedness. However, our ~~February 3,~~ 2017 Refinancing, ~~March~~and ~~15,~~our 2018 ~~Refinancing~~Refinancings as well as our ~~principle~~principal pay-down have significantly reduced our expected future interest expense. See Note 12 to the Consolidated Financial Statements for further details. Although we expect to continue to reduce our leverage over time, we expect interest expense to continue to be a significant component of our expenses for the foreseeable future.

Seasonality

Our sales and cash flows are affected by seasonal cyclicality. Sales of frozen foods, including frozen vegetables and frozen complete bagged meals, tend to be marginally higher during the winter months. Seafood sales peak during Lent, in advance of the Easter holiday. Sales of pickles, relishes, barbecue sauces, potato chips and salad dressings tend to be higher in the spring and summer months, and demand for Duncan Hines products, Birds Eye vegetables and our pie and pastry fruit fillings tend to be higher around the Easter, Thanksgiving, and Christmas holidays. Since many of the raw materials we process under the Birds Eye, Vlasic, Duncan Hines Comstock and Wilderness brands are agricultural crops, production of these products is predominantly seasonal, occurring during and immediately following the purchase of such crops. We also increase our Duncan Hines inventories in advance of the peak fall selling season. As a result, our inventory levels tend to be higher during August, September, and October, and thus we require more working capital during these months.

Inflation

To the extent possible, we strive to offset the effects of inflation with cost reduction and productivity programs. We spend approximately $2.3 billion annually on Cost of products sold, therefore each 1% change in our weighted average cost of inputs would increase our Cost of products sold by approximately $23 million. If we experience significant inflation, price increases may be necessary in order to preserve our margins and returns. However, over the past several years, a difficult retail landscape driven by a highly competitive environment has hampered the ability of the industry to pass along higher input costs. Severe increases in inflation could have an adverse impact on our business, financial condition and results of operations.

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Results of Operations:

Consolidated Statements of Operations

The following tables set forth our statement of operations data expressed in dollars and as a percentage of net sales.

	Three months ended								Six months ended
	April 1, 2018				March 26, 2017
	July 1, 2018				June 25, 2017				July 1, 2018				June 25, 2017
Net sales	$	~~778~~741.8	100.0	%	$	~~766~~744.16	100.0	%	$	1,520.6	100.0	%	$	1,510.7	100.0	%
Cost of products sold	~~572~~530.43		7371.5	%	~~555~~580.57		7278.50	%	1,102.7		72.5	%	1,136.2		75.2	%
Gross profit	~~206~~211.45		2628.5	%	~~210~~163.69		2722.50	%	417.9		27.5	%	374.5		24.8	%
Marketing and selling expenses	$	4950.26	6.38	%	$	5549.65	76.36	%	$	99.8	6.6	%	$	105.1	7.0	%
Administrative expenses	3435.74		4.58	%	3633.06		4.75	%	70.0		4.6	%	69.6		4.6	%
Research and development expenses	4.8		0.6	%	4.06		0.56	%	9.6		0.6	%	8.6		0.6	%
Other expense, net	2.9		0.4	%	4.2		0.5	%
Tradename impairment charges	—		—	%	27.4		3.7	%	—		—	%	27.4		1.8	%
	$	91.5	11.7	%	$	99.9	13.0	%
Other expense, net	17.4		2.3	%	5.3		0.7	%	20.3		1.3	%	9.5		0.6	%
Non-operating income	0.8		0.1	%	0.5		0.1	%
	$	108.2	14.6	%	$	120.4	16.2	%	$	199.7	13.1	%	$	220.3	14.6	%
Earnings before interest and taxes	$	115.7	14.9	%	$	111.2	14.5	%
Non-operating income	0.8		0.1	%	0.5		0.1	%	1.6		0.1	%	1.0		0.1	%
Earnings before interest and taxes	$	104.0	14.0	%	$	44.0	5.9	%	$	219.7	14.4	%	$	155.2	10.3	%

	Three months ended						Six months ended
	April 1, 2018			March 26, 2017
	July 1, 2018			June 25, 2017			July 1, 2018			June 25, 2017
Net sales
Frozen	$	~~344~~308.95		$	~~320~~295.9		$	653.4		$	616.8
Grocery	~~261~~256.06			~~259~~276.41			517.6			535.4
Boulder	9798.89			9794.37			196.7			191.9
Specialty	7577.27			8878.50			152.9			166.5
Total	$	~~778~~741.8		$	~~766~~744.16		$	1,520.6		$	1,510.7
Earnings before interest and taxes
Frozen	$	5349.7		$	50(12.93	)	$	103.5		$	38.7
Grocery	4952.71			5161.89			101.9			113.7
Boulder	1116.90			612.72			27.9			18.9
Specialty	89.25			8(10.96		)	17.7			(1.8		)
Unallocated corporate expense	(723.83		)	(7.12		)	(31.2		)	(14.3		)
Total	$	~~115~~104.70		$	~~111~~44.20		$	219.7		$	155.2
Depreciation and amortization
Frozen	$	11.8		$	38.6		$	23.4		$	49.2
Grocery	7.8			7.8			15.6			15.9
Boulder	4.6			3.7			8.9			7.4
Specialty	3.2			3.7			6.3			8.4
Total	$	27.4		$	53.8		$	54.3		$	80.9

~~Three months ended April 1, 2018 compared to the three months ended March 26, 2017~~ 47

Net sales

Net sales for the three months ended April 1, 2018 increased $12.8 million, or 1.7%, versus year-ago to $778.8 million, driven by favorable volume/mix of 3.5% which included the favorable impact of the earlier Easter as compared to 2017, higher net price realization of 0.7% and a 0.1% increase from foreign currency. These increases were partially offset by a 2.6% decline from the Exit (as defined in Note 11 to the consolidated financial statements). In an industry generally marked by low growth and a challenging environment to fully pass on price increases, we continue to outpace the performance of our composite categories, with market share growth of 0.4 percentage points in the first quarter of 2018.

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Three months ended July 1, 2018 compared to the three months ended June 25, 2017

Net sales

Net sales for the three months ended July 1, 2018 decreased $2.8 million, or 0.4%, versus year-ago to $741.8 million, driven by unfavorable volume/mix of 2.0%, which included comparison against a later Easter in 2017, and a 0.9% decline from the Exit (as defined in Note 11 to the consolidated financial statements). These decreases were partially offset by higher net price realization of 1.4%, a 1.0% benefit from lapping the impact of the Recall (as defined in Note 15 to the consolidated financial statements) and a 0.1% increase from foreign currency. In an industry generally marked by low growth and a challenging environment to fully pass on price increases, we continue to perform in line or above the performance of our composite categories, with market share that was even with the year-ago period.

Frozen Segment:

Net sales in the three months ended ~~April~~July 1, 2018 increased $2312.96 million, or 74.53%, versus year-ago to $~~344~~308.95 million, reflecting favorable volume/mix of 72.32%, which included the ~~favorable~~unfavorable impact of ~~the~~Easter ~~earlier~~timing, a ~~Easter~~1.5% asbenefit ~~compared~~from tolapping ~~2017~~the impact of the Recall, higher net price realization of 21.52%, and a 0.31% increase from foreign currency. These increases were partially offset by a 20.67% decline from the Exit. ~~Strong~~The ~~growth~~favorable involume/mix ~~the~~is ~~period~~primarily ~~from~~attributable to continued growth of our Birds Eye ~~franchise~~ ~~included~~frozen ~~the~~vegetables ~~benefit~~business, ~~from~~specifically ~~our~~with the Veggie Made innovation platform that launched in 2017 ~~which~~and isnow ~~currently~~includes ~~expanding~~Veggie ~~into~~Made pasta, Veggie Made ~~broccoli~~fries and ~~cauliflower~~tots, ~~fries~~Veggie Made mashed cauliflower and ~~tots~~sweet aspotato ~~well~~and asVeggie ~~new~~Made ~~pasta~~riced ~~offerings~~cauliflower. ~~The~~Also ~~period~~benefiting ~~also~~the ~~benefited~~quarter ~~from~~was higher ~~net~~ sales ~~from~~of our seafood ~~and Canadian businesses~~products. Partially offsetting ~~the~~these ~~strong~~increases ~~growth~~were ~~in the quarter was~~ lower net sales ofin ~~Celeste~~the ~~pizza~~highly competitive frozen meals segment.

Grocery Segment:

Net sales in the three months ended ~~April~~July 1, 2018 were $~~261~~256.06 million, ana ~~increase~~decline of $119.74 million, or 07.60% versus year-ago, driven by ~~higher~~lower volume/mix of 07.94%, which included the ~~favorable~~unfavorable impact of ~~the earlier~~ Easter astiming. ~~compared~~The todecrease ~~2017,~~was ~~offset~~ partially offset by ~~lower~~higher net price realization of 0.34%. ~~Growth~~ inThe unfavorable impact of the ~~period~~lower volume/mix was driven by ~~higher~~lower net sales of ~~Vlasic~~our ~~pickles,~~Duncan ~~including~~Hines ~~the~~products ~~benefit~~which of was impacted by both the ~~launch~~phasing of ~~Purely~~Easter ~~Pickles~~ as well as ~~higher~~the ~~sales~~lapping of ~~Nalley's~~a ~~chili~~very ~~products~~strong ~~and~~year-ago toperiod. aAlso ~~lesser~~impacting ~~extent,~~the ~~Duncan~~quarter ~~Hines~~were ~~baking~~lower ~~products~~sales of Wish-Bone and Smart Balance. Partially offsetting ~~these~~the ~~increases~~decreases were ~~lower~~higher net sales of our ~~Wish-Bone~~Vlasic ~~dressings~~pickles and, to a lesser extent, ~~the~~Armour ~~syrups~~canned ~~business~~meats.

Boulder Segment:

Net sales in the three months ended ~~April~~July 1, 2018 were $9798.89 million, an increase of $04.52 million, or 04.5% versus year-ago, reflecting a 3.17% increase from volume/mix, ~~partially~~and ~~offset~~favorable ~~by unfavorable~~ net price realization of 20.68%. During the period we realized double digit growth from our gardein and Earth Balance products, partially offset by lower net sales of our ~~Evol~~gluten-free ~~and Udi's~~ products.

Specialty Segment:

Net sales in the three months ended ~~April~~July 1, 2018 were $7577.27 million, a decline of $130.3 million, or ~~15.~~0.3% versus year-ago, reflecting a 136.13% decline from the Exit asand ~~well~~lower asnet ~~lower~~price ~~volume/mix~~realization of 2.1.3%, partially offset by ~~higher~~a ~~net~~3.6% ~~price~~benefit ~~realization~~from lapping the impact of 0the Recall and higher volume/mix of 3.27%.

Gross profit

Gross profit for the three months ended ~~April~~July 1, 2018 was $~~206~~211.45 million, or 2628.5% of net sales, compared to $~~210~~163.69 million, or 2722.50% of net sales, in the comparable prior year period. Excluding items affecting comparability, Adjusted Gross Profit ~~declined~~increased 34.16% to $~~211~~212.26 million and Adjusted Gross Profit as a Percentage of Sales ~~decreased~~increased approximately ~~130~~140 basis points to 2728.17%. See Adjusted Gross Profit reconciliation later in the document for further details.

The following table outlines the factors resulting in the year-on-year change in gross profit and gross margin percentage in the three months ended ~~April~~July 1, 2018.

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	$ (in millions)			% of net sales
Productivity	$	2125.03		23.74	%
Higher net price realization, including new product introductory fees	49.84			01.40
Lower acquisition integration and other restructuring charges	13.63			0.25
Lower mark to market losses on financial instruments	1.49			0.2
Foreign exchange gains	0.3			—
Inflation	(25.6		)	(3.5	)
Inflation	(21.0		)	(2.7	)
Unfavorable product mix	(12.6		)	(1.6	)
Negative product mix	(7.7		)	(1.5	)
Aunt Jemima retail and foodservice frozen breakfast products exit	36.5			5.2
Aunt Jemima retail and foodservice frozen breakfast products exit	(2.3		)	0.4
Aunt Jemima retail and foodservice frozen breakfast products recall	8.6			0.9
Higher depreciation expense	(1.7		)	(0.2	)
Lower strategic manufacturing investments	4.3			0.6
Other (a)	(3.6		)	(0.5	)
Higher depreciation expense	(1.0		)	(0.1	)
Subtotal	$	(7.2	)	(1.0	)%
Other	(0.4		)	(0.1	)
Higher sales volume	3.1
Subtotal	$	49.7		6.5	%
Total	$	(4.1	)
Lower sales volume	(2.2		)
Total	$	47.5

(a) Primarily higher compensation expense related to new hires.

Marketing and selling expenses

Marketing and selling expenses ~~decreased~~increased 112.53% to $4950.26 million, or 6.38% of net sales, for the three months ended ~~April~~July 1, 2018, compared to $5549.65 million, or 76.36% of net sales for the prior year period. The ~~decrease~~increase was primarily driven by ~~lower~~higher consumer marketing ~~driven~~offset partially by ~~timing of innovation as well as~~ lower compensation ~~expenses~~expense.

Administrative expenses

Administrative expenses were $3435.74 million, or 4.58% of net sales, for the three months ended ~~April~~July 1, 2018, compared to $3633.06 million, or 4.75% of net sales, for the comparable prior year period. The ~~decrease~~increase was primarily driven by ~~lower~~higher ~~external~~professional ~~services~~fees as well as ~~lower~~higher ~~compensation~~personnel ~~expenses~~costs.

Research and development expenses

Research and development expenses were $4.8 million, or 0.6% of net sales, for the three months ended ~~April~~July 1, 2018 compared to $4.06 million, or 0.56% of net sales, for the prior year period. The increase was primarily driven by ~~timing~~higher ofcompensation ~~certain innovation trials~~expenses.

Other income and expense

	Three months ended
	April 1, 2018			March 26, 2017
	July 1, 2018			June 25, 2017
Other expense, net consists of:
Amortization of intangibles/other assets	$	2.3		$	46.53
Foreign exchange (gains)/losses	0.5			(0.2		)
Foreign exchange losses/(gains)	0.4			(0.2		)
Royalty income and other	—			(0.1		)
Redemption premium on the early extinguishment of debt	4.3			—
Total other expense, net	$	2.9		$	4.2
Merger Agreement costs (Note 1)	10.8			—
Royalty income and other	(0.4		)	(0.9		)
Total other expense, net	$	17.4		$	5.3

Amortization of intangibles/other assets. The lower amortization expense was primarily driven by certain recipe intangible assets becoming fully amortized in the first quarter of 2017 in addition to accelerated amortization being recognized in the first quarter of 2017 related to the exit of the gardein Private Label business.49

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~~Foreign~~Amortization ~~exchange~~of ~~(gains))~~intangibles/~~losses~~other assets. ~~Represents~~The ~~foreign~~lower ~~exchange~~amortization ~~(gains)/losses~~expense ~~from~~was ~~intra-entity~~primarily ~~loans~~driven ~~resulting~~by ~~from~~accelerated ~~the~~amortization ~~November~~being ~~2014~~recognized ~~Garden~~in ~~Protein~~the ~~acquisition~~second ~~that~~quarter ~~are~~of ~~anticipated~~2017 related to bethe ~~settled~~exit inof ~~the~~Aunt ~~foreseeable~~Jemima ~~future~~and other frozen breakfast products.

Foreign exchange losses/(gains). Represents foreign exchange (gains)/losses from intra-entity loans resulting from the November 2014 Garden Protein acquisition that are anticipated to be settled in the foreseeable future.

Redemption premium on the early extinguishment of debt. On May 30, 2018, the Company redeemed all $350.0 million of its outstanding 4.875% Senior Notes at a redemption price of 101.2% of the aggregate principle amount resulting in a redemption premium paid of $4.3 million (the "Redemption Premium").

Earnings before interest and taxes

Earnings before interest and taxes increased $460.50 million, or 4136.04%, to $~~115~~104.70 million, primarily resulting from ~~lower marketing and selling expenses, as well as the~~ favorable impact of items affecting comparability, which totaled $516.97 million and $970.2 million in the three months ended ~~April~~July 1, 2018 and ~~March~~June 2625, 2017, respectively. The variance in items affecting comparability primarily resulted from lower ~~restructuring~~charges associated with the Exit, partially offset by the charges related to the Merger Agreement and ~~integration~~the ~~costs~~Redemption Premium. Excluding items affecting comparability, Adjusted Earnings Before Interest and Taxes increased $16.25 million, or 15.07%, to $~~121~~120.67 million.

Frozen Segment:

Earnings before interest and taxes for the three months ended ~~April~~July 1, 2018 were $5349.7 million, an increase of ~~5.5%, or~~ $262.80 million, as compared to ~~earnings~~losses before interest and taxes of $5012.93 million in the year-ago period, largely reflecting ~~higher~~the ~~net~~favorable ~~sales,~~impact ~~productivity~~of ~~and~~items affecting comparability, primarily lower ~~consumer~~charges ~~marking~~related ~~expense.~~to ~~These~~the ~~benefits~~Exit, ~~were~~as ~~partially~~well ~~offset~~as bycomparison ~~input~~against ~~cost~~the ~~inflation,~~strategic ~~primarily~~manufacturing ~~higher~~investments ~~logistics~~made ~~costs~~in 2017. In addition, higher net sales and productivity contributed to the ~~unfavorable~~increase. ~~impact~~These ofbenefits ~~items~~were ~~affecting~~partially ~~comparability~~offset by input cost inflation, primarily from higher ~~acquisition~~logistics ~~integration charges~~costs. Excluding items affecting comparability, Adjusted Earnings Before Interest and Taxes increased 11$12.82 million, or 32.2%, to $5850.03 million as compared to $38.1 million in the year-ago period.

Grocery Segment:

Earnings before interest and taxes for the three months ended ~~April~~July 1, 2018 were $4952.71 million, a decrease of 415.07%, or $29.17 million, as compared to $61.9 million in the year-ago period, reflecting negative product mix and lower sales, input cost inflation, primarily higher logistics costs, partially offset by ~~higher sales and~~ productivity. Excluding items affecting comparability, Adjusted Earnings Before Interest and Taxes decreased 4$10.35 million, or 16.7%, to $5052.5 million as compared to $63.1 million in the year-ago period.

Boulder Segment:

Earnings before interest and taxes for the three months ended ~~April~~July 1, 2018 were $1116.90 million, an increase of 7730.68%, or $53.28 million, as compared to $612.72 million in the year-ago period, ~~largely~~ reflecting higher sales and the favorable impact of items affecting comparability, primarily lower acquisition integration charges, as well as productivity. ~~This~~These ~~benefit~~benefits ~~was~~were partially offset by input cost inflation. Excluding items affecting comparability, Adjusted Earnings Before Interest and Taxes ~~decreased~~increased $0.7 million, or 4.25%, to $1216.65 million as compared to $15.8 million in the year-ago period.

Specialty Segment:

Earnings before interest and taxes for the three months ended ~~April~~July 1, 2018 were $89.25 million, aan ~~decrease~~increase of ~~7.6%, or~~ $020.71 million, compared to ~~earnings~~losses before interest and taxes of $810.96 million during the year-ago period, largely reflecting the ~~lower sales and input cost inflation. These items were partially offset by productivity as well as the~~ favorable impact of items affecting comparability, primarily lower ~~accelerated~~charges ~~amortization~~related ~~charges~~to the Exit. Excluding items affecting comparability, Adjusted Earnings Before Interest and Taxes ~~decreased~~increased 14$5.21 million, or 115.5%, to $89.36 million as compared to $4.4 million in the year-ago period.

Unallocated corporate expense:

Unallocated corporate expense for the three months ended ~~April~~July 1, 2018 was $723.83 million, an increase of 10224.54%, or $016.71 million, as compared to $7.2 million in the year-ago period, largely reflecting the unfavorable impact of items affecting comparability, primarily driven by ~~higher~~charges ~~equity~~related to the Merger Agreement and the Redemption Premium. Excluding items affecting comparability, Adjusted unallocated corporate expense increased $1.0 million, or 14.4%, to $8.2 million as compared to $7.2 million in the year-~~based~~ago ~~compensation~~period.

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Interest expense, net

Net interest expense ~~decreased~~increased 485.49%, or $391.07 million, to $4130.72 million in the three months ended ~~April~~July 1, 2018, compared to $8028.75 million in the three months ended ~~March~~June 2625, 2017. Included in net interest in the ~~first~~second quarter of 2018 is a $101.98 million non-cash charge ~~related~~for ~~to the 2018 Refinancing from~~ deferred financing costs. ~~Included in net interest expense in the first quarter of 2017 is $49.5 million of charges~~ related to the ~~2017~~Second ~~Refinancing.~~Quarter ~~These~~2018 ~~charges consisted of a $28~~Refinancing.5 ~~million non-cash charge from deferred financing costs and a $20.7 million cash charge resulting from the de-designation and early settlement of interest rate swaps.~~ Excluding ~~these~~this ~~charges~~charge, Adjusted net interest expense in the ~~first~~second quarter ~~decreased~~remained ~~1.6%~~flat ~~to $30.8 million,~~ compared to ~~$31.3 million in~~ the year-ago period, ~~primarily~~despite ~~driven~~a byrising ~~lower amortization of debt acquisition costs as well as lower~~ interest rate ~~swap losses discussed below~~environment.

We utilize interest rate swap agreements to reduce the potential exposure to interest rate movements and to achieve a desired proportion of variable versus fixed-rate debt. Any gains or losses realized on the interest rate swap agreements, excluding the AOCL portion, are recorded as an adjustment to interest expense. Included in net interest expense was a $0.1.2 million ofgain ~~gains~~ in the ~~first~~second quarter of 2018 and a $10.1 million ofgain ~~losses~~in ~~for~~ the ~~first~~second quarter of 2017.

Provision for income taxes

The effective tax rate was 23.19% for the three months ended ~~April~~July 1, 2018 compared to 24(19.19)% for the three months ended ~~March~~June 2625, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduced the federal statutory corporate income tax rate from 35.0% to 21.0%. The Company continues to evaluate the impact of certain foreign and domestic income provisions of the Act and for the three months ended ~~April~~July 1, 2018 has determined those provisions will not have a material effect on its fiscal year 2018 financial statements. Once the Company finalizes its analysis of the Act it will be able to conclude on any further adjustments to be recorded in these provisional amounts. Any such adjustment is reported as a component of income taxes in the reporting period in which such adjustments are determined, which will be no later than the fourth quarter of 2018, or as a component of our 2018 annualized effective income tax rate, depending on the nature of the adjustment.

The rate for the three months ended ~~April~~July 1, 2018 reflects a decrease in the federal rate to 21.0% as a result of the Act. The rate also includes a benefit of 1.91% from share based payment transactions being recorded as an item of continuing operations in accordance with ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” effective for our 2017 fiscal year, ~~Note~~a 18benefit ~~and~~of 1.6% from an adjustment to our income tax liability, a charge of 10.46% ~~related~~from to changes in state tax law and a charge of 1.0% from non-deductible transaction costs in connection with the Merger Agreement.

The rate for the three months ended ~~March~~June 2625, 2017 reflects the former 35.0% federal rate offset by a benefit of 1240.46% from share based payment transactions and a benefit of 115.65% from ~~the~~changes ~~domestic~~in ~~production~~state ~~activities~~tax ~~deduction.~~law

The Company is a loss corporation as defined by Section 382 of the Code. Section 382 places an annual limitation on our ability to use our NOL carryovers and other attributes to reduce future taxable income. As of ~~September 24~~July 1, ~~2017~~2018, we have federal NOL carryovers of $408.3 million subject to an annual limitation of $17.1 million. As a result, $237.2 million of the carryovers exceed the estimated available Section 382 limitation. The Company has reduced its deferred tax assets for this limitation.

We have significant tax-deductible intangible asset amortization and federal and state NOLs, which resulted in federal and state cash tax savings in 2017 and prior years. We expect continued amortization and utilization of our NOLs will generate additional cash tax savings in 2018 and thereafter.

Six months ended July 1, 2018 compared to the six months ended June 25, 2017

Net sales

Net sales for the six months ended July 1, 2018 increased $9.9 million, or 0.7%, versus a year-ago to $1,520.6 million, reflecting higher net price realization of 1.1%, a 0.8% increase from volume/mix, a 0.5% benefit from lapping the impact of the Recall, and a 0.1% increase from foreign currency. These increases were offset by a 1.8% decrease from the impact of the Exit. In an industry generally marked by low growth and a challenging environment to fully pass on price increases, we continue to perform above the performance of our composite categories, with market share growth in the six months of 0.2 percentage points.

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Frozen Segment:

Net sales in the six months ended July 1, 2018 increased $36.5 million, or 5.9%, versus year-ago to $653.4 million, reflecting a 4.9% increase from volume/mix, higher net price realization of 1.8%, a 0.7% benefit from lapping the impact of the Recall and a 0.2% increase from foreign currency. These increases were partially offset by a 1.7% decline resulting from the Exit. During the period we realized continued strong sales from the Birds Eye franchise, specifically the Veggie Made innovation, and our seafood businesses, which was partially offset by the impacts of the Recall and Exit as well as lower net sales of Celeste frozen pizza and Hungry-Man entrées.

Grocery Segment:

Net sales in the six months ended July 1, 2018 were $517.6 million, a decrease of $17.8 million, or 3.3%, versus year-ago, reflecting a 3.6% decrease from volume/mix, partially offset by higher net price realization of 0.3%. The decline in the period was driven by lower sales of Duncan Hines baking products and Wish-Bone dressings due to a highly competitive environment. Partially offsetting these decreases were consumption gains for Vlasic pickles and Armour canned meat.

Boulder Segment:

Net sales in the six months ended July 1, 2018 increased $4.7 million, or 2.5%, versus year-ago to $196.7 million reflecting a 3.4% increase from volume/mix, partially offset by a 0.9% decrease due to lower net price realization. During the period we realized double digit growth from our gardein and Earth Balance products, partially offset by lower net sales of our gluten-free products.

Specialty Segment:

Net sales in the six months ended July 1, 2018 were $152.9 million, a decline of $13.6 million, or 8.1% versus year-ago, reflecting a 9.9% decline resulting from the Exit and a 0.5% decrease due to lower net price realization, partially offset by a 1.7% benefit from lapping the impact of the Recall and an increase of 0.6% in volume/mix.

Gross profit

Gross profit for the six months ended July 1, 2018 was $417.9 million, or 27.5% of net sales, compared to $374.5 million, or 24.8% of net sales, in the comparable prior year period. Excluding items affecting comparability, Adjusted Gross Profit increased 0.6% to $423.8 million and Adjusted Gross Profit as a Percentage of Sales remained flat versus a year-ago. See Adjusted Gross Profit reconciliation later in the document for further details.

The following table outlines the factors resulting in the year-on-year change in gross profit and gross margin percentage in the six months ended July 1, 2018

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	$ (in millions)			% of net sales
Productivity	$	46.3		3.0	%
Higher net price realization, including new product introductory fees	14.2			0.7
Lower acquisition integration and other restructuring charges	4.9			0.3
Lower mark to market losses on financial instruments	3.2			0.2
Foreign exchange gains	0.3			—
Inflation	(46.6		)	(3.1	)
Unfavorable product mix	(20.3		)	(1.5	)
Aunt Jemima retail and foodservice frozen breakfast products exit	34.2			2.7
Aunt Jemima retail and foodservice frozen breakfast products recall	8.6			0.4
Lower strategic manufacturing investments	4.3			0.3
Higher depreciation expense	(2.7		)	(0.1	)
Other (a)

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