NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. BASIS OF PRESENTATION
Description of Business.
AdvancePierre Foods Holdings, Inc. (the Company) is a leading national producer and
distributor of value-added, convenient,
ready-to-eat
sandwiches, sandwich components and other entrées and snacks. The Company sells its value-added products to
the Foodservice, Retail, Convenience and industrial channels that correspond to its reportable segments. The Company markets and distributes a broad line of products in multiple product categories including
ready-to-eat
sandwiches (such as breakfast sandwiches, peanut butter and jelly (PB&J) sandwiches and hamburgers); sandwich components (such as flame-grilled hamburgers and chicken patties and
Philly steaks); and other entrées and snacks (such as country fried steak, stuffed entrées, chicken tenders and cinnamon dough bites).
OCM Principal Opportunities Fund IV L.P. (OCM) is the Companys majority shareholder. AdvancePierre Foods, Inc.
(APF) is a wholly-owned indirect subsidiary of the Company.
Stock Split and Initial Public Offering.
On
June 16, 2016, the Company declared a
49.313-for-one
stock split of its common stock with an effective date of June 21, 2016. The par value of the common stock
was not adjusted as a result of the stock split. All share and per share amounts included herein have been retroactivity adjusted to reflect the stock split. Fractional shares resulting from the stock split were rounded up to the nearest whole
share.
On July 20, 2016, the Company completed an initial public offering (IPO) of 21,390,000 shares of its common
stock, in which 11,090,000 shares were sold by the Company and 10,300,000 were sold by the selling stockholders. On January 24, 2017, the Company completed a secondary public offering in which certain funds managed by Oaktree Capital
Management, L.P. (Oaktree), and certain members of management sold 14,375,000 shares of common stock. Oaktree is the management company for OCM.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation.
The accompanying consolidated financial statements include the accounts of the Company and its
subsidiaries. All intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current period presentation. None of the reclassifications were considered material.
Use of Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the US
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of such statements and the reported amounts of
revenues and expenses during the reporting period. Significant accounting estimates include estimates of fair values for inventory, goodwill, other intangible assets, other long-lived assets and liabilities under income tax receivable agreements, in
addition to accounting estimates for sales discounts, promotional allowances,
sales-in-transit,
self-insurance reserves, fair value of stockbased compensation
awards and useful lives assigned to intangible assets and property, plant and equipment. Actual results could differ from those estimates.
Fiscal Year.
The Company operates on a
52-week
or
53-week
fiscal year ending on the Saturday closest to December 31. The fiscal year ended December 31, 2016 (Fiscal 2016) and January 2, 2016 (Fiscal 2015) were
52-week
fiscal periods. The fiscal year ended January 3, 2015 (Fiscal 2014) was a
53-week
fiscal period. The fiscal year ending December 30, 2017
(Fiscal 2017) will be a
52-week
fiscal period.
Cash and Cash
Equivalents.
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash and cash equivalents.
F-7
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
For financial statement presentation purposes, the Companys cash and cash equivalents
are net of book overdrafts relating to outstanding checks in excess of cash in accounts with the same financial institution, if there exists a right of offset. At December 31, 2016 and January 2, 2016, cash and cash equivalents on the
consolidated balance sheets included book overdrafts of $2,686 and $4,588, respectively.
Cash in domestic bank accounts is insured by the
Federal Deposit Insurance Corporation (FDIC). From time to time, the Company may deposit cash in interest-bearing domestic bank accounts that may not be fully insured by the FDIC. Cash and cash equivalents at December 31, 2016
include short term money market and commercial paper investments with a US financial institution of $45,959 and $56,967, respectively; no short term money market or commercial paper investments were included in cash and cash equivalents at
January 2, 2016.
Accounts Receivable.
Allowances for doubtful accounts are maintained against accounts receivable for
estimated losses resulting from a customers inability to make required payments. Some of these allowances are specific (relate to certain customers considered to pose greater credit risk) as well as general (relate to estimates based on trends
in the entire customer pool). Accounts are written off against the reserve when it is evident that collection will not occur.
Concentration of Credit Risk and Significant Customers.
The Company is exposed to normal credit risk associated with the nature
of trade receivables, and generally, does not require collateral from its customers. As part of its management of such risks, the Company performs certain periodic customer evaluations. The Company is also exposed to credit risk related to a
concentration of receivables among a few customers. Sales to two of the Companys three largest customers are primarily generated in its Foodservice segment, whereas sales to the third customer is primarily generated in the Retail segment. In
Fiscal 2016, these three customers accounted for 13.7%, 12.3% and 10.8% of the Companys net sales, respectively. The equivalent percentages were 13.6%, 12.0% and 9.9% of net sales in Fiscal 2015. For Fiscal 2014, the equivalent percentages
were 12.9%, 12.2% and 10.1 % of net sales. If the Company were to lose any of such customers, the effect on its results could be material. Aggregate accounts receivable balances due from these 3 customers at December 31, 2016 and
January 2, 2016 were $22,627 and $23,234, respectively.
Inventories.
Cost for inventory is composed of the purchase
price of raw materials plus conversion costs. Inventories are stated at the lower of cost
(first-in,
first-out)
or market, accompanied by reserves to reduce the carrying
values of inventories to expected net realizable value after considering expected disposition of the inventory and if applicable, expected sales price and incremental costs to sell.
Property, Plant and Equipment.
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs which
do not significantly extend the useful lives of assets are charged to operations whereas additions and betterments, including interest costs incurred during construction, which was not material for the fiscal years presented, are capitalized.
Depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets on the straight-line basis.
Leasehold improvements are depreciated over the shorter of their estimated useful lives or the terms of the respective leases. Property under capital leases is amortized over the terms of the respective leases. When property, plant and equipment are
retired or sold, the cost and related accumulated depreciation are removed from the accounts with any gain or loss recognized in Other expense, net.
When changes in circumstances indicate that carrying amounts may not be recoverable, the Company evaluates the recoverability of property,
plant, and equipment not held for sale by comparing the carrying amount of the asset or group of assets against the estimated undiscounted future cash flows expected to result from the
F-8
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
use of the asset or group of assets and their eventual disposition. If the undiscounted future cash flows are less than the carrying value of the asset or group of assets being evaluated, an
impairment loss is recorded. The loss is measured as the difference between the fair value and carrying value of the asset or group of assets being evaluated. Assets to be disposed of are reported at the lower of the carrying amount or the fair
value less cost to sell. The estimated fair value is based on the best information available under the circumstances, including prices for similar assets or the results of valuation techniques, including the present value of expected future cash
flows using a discount rate commensurate with the risks involved.
Capitalized
Internal-use
Software Costs.
Capitalized
internal-use
software costs include external consulting fees and payroll-related costs for employees that are directly associated with, and who devote time to, the software
projects during the application development stage. Capitalization begins when the planning stage is complete and the Company commits resources to the software project. Amortization of the asset commences when the software is placed into service. The
Company amortizes
internal-use
software on a straight-line basis over the softwares estimated useful life.
Goodwill and Other Intangible Assets.
Other intangible assets include recipes, customer relationships,
non-compete
agreements, licensing agreements, water and sewer usage permits and certain trade names and trademarks.
The Company tests recorded goodwill and indefinite-lived intangible assets for impairment at least annually. The Companys policy is to
perform the annual evaluation as of the end of the third quarter. Such tests are performed more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment are reviewed on a
quarterly basis to determine if an impairment test is required. In its goodwill impairment test, the Company utilizes a
two-step
process. In the first step, the fair value of the reporting unit is compared to
its carrying value. If such fair value exceeds the carrying value, the second step is not required. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed to determine the amount, if any, of impairment
loss. In the second step, the implied fair value of the goodwill is compared with its carrying amount, and an impairment loss is recognized for the excess, if the carrying amount of the goodwill exceeds its fair value. Annual goodwill impairment
tests performed as of October 1, 2016, October 3, 2015 and September 27, 2014 resulted in no impairment charges.
Indefinite-lived intangible assets other than goodwill are evaluated for impairment annually, or more frequently, when events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The fair values of trademarks and
trade names are determined using a royalty rate method based on expected revenues by trademark or trade name. For Fiscal 2016, the Company elected to perform a step zero evaluation of its indefinite-lived intangible assets, which is a qualitative
assessment. Factors considered by the Company in the qualitative assessment included financial performance as well as the result of the previous quantitative assessment performed in Fiscal 2014 in which the fair value of its indefinite-lived
intangible assets exceeded its carrying amount by over 300%. The Companys annual evaluations of indefinite-lived intangible assets revealed no impairment charges in Fiscal 2016, Fiscal 2015 or Fiscal 2014. The Company also evaluated the useful
lives of its indefinite-lived intangible assets and concluded that they continued to be appropriate.
In Fiscal 2016, Fiscal 2015 and
Fiscal 2014, there were no indicators of impairment between the dates of the annual tests and the respective fiscal year-ends.
Intangible
assets with finite lives are reviewed for impairment if changes in circumstances indicate that the carrying amounts may not be recoverable. There were no indicators of impairment in Fiscal 2016, Fiscal 2015 or
F-9
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Fiscal 2014. Accordingly, no impairment was recorded for those years. Intangible assets with finite lives are amortized over the estimated useful lives of such assets using either a method that
is based on estimated future cash flows or on the straight-line basis.
Deferred Loan Origination Fees.
Deferred loan
origination fees associated with the Companys revolving credit facility and long-term debt are amortized based on the term of the respective loan agreements. All amortization expense related to deferred loan origination fees is included in
interest expense. In connection with refinancing transactions, the Company evaluates debt on a creditor by creditor basis to assess whether the refinancing transaction results in a modification or an extinguishment with the issuance of new debt.
Existing deferred loan origination fees are expensed or carried over and fees associated with the refinancing transaction are expensed or capitalized as appropriate.
Revenue Recognition.
The Company records revenues from sales of its food products at the time that title and risk of loss
transfers. Standard shipping terms for domestic customers are FOB destination point. Based on these terms, title and risk of loss passes at the time the product is delivered to the customer. For the majority of the Companys international
customers, shipping terms are FOB shipping point. Based on these terms, title and risk of loss passes at the time the product departs from the Companys plant or warehouse. Revenue is recognized as the net amount to be received by the Company
after deductions for estimated discounts, product returns, and other allowances. These estimates are based on historical trends and expected future payments (see also
Advertising and Promotions
below).
Cost of Goods Sold.
Cost of goods sold includes raw material costs, packaging supply costs, manufacturing labor and
manufacturing overhead including depreciation expense.
Advertising and Promotions.
Advertising costs are expensed as
incurred and are included in Selling, general and administrative expenses. Advertising expense for Fiscal 2016, Fiscal 2015 and Fiscal 2014 was $2,182, $1,523 and $986, respectively. Promotional expenses associated with rebates, marketing
promotions, and special pricing arrangements are recorded as a reduction of net sales at the time the sale is recorded. Certain of these expenses are estimated based on historical trends, expected future payments to be made and expected future
customer deductions to be taken under the respective programs. The Company believes that the estimates recorded, including the liability under these programs recorded at December 31, 2016 are reasonable. Refer to Accrued promotions and
marketing on the Companys Consolidated Balance Sheet.
USDA Commodity Program.
The Company participates in the
US Department of Agriculture (USDA) Commodity Reprocessing Program (the USDA Commodity Program) which provides food and nutrition assistance to schools. Under the provisions of the USDA Commodity Program, the Company receives
government donated raw materials, which it processes into finished food products for sale to schools. The USDA Commodity Program provides that, among other things, the Company bears the risk of loss, spoilage or obsolescence associated with donated
raw materials as well as the risk of loss, spoilage or obsolescence associated with the finished goods produced from the donated raw materials. Obligations under the USDA Commodity Program and the related inventory are recorded at the USDA
stipulated value of the donated commodity raw materials at the date the Company takes possession of the raw materials. Upon delivery of finished product to qualifying school customers, the inventory and associated liability are reduced or netted
against each other. As a result, revenues and cost of goods sold related to sales under the USDA Commodity Program are recorded exclusive of the value of the donated raw material product.
Stock-Based Compensation.
The Companys compensation structure includes a stock-based incentive program that allows for the
issuance of stock options, performance stock, restricted stock and restricted stock units (RSUs). Compensation expense related to stock-based compensation is recorded in accordance with ASC 718,
CompensationStock
Compensation.
See Note 16.
F-10
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Research and Development.
Research and development costs are expensed as
incurred. Such costs consist of employee-related costs, supplies, travel, and production costs associated with product testing. These costs are included in Selling, general and administrative expenses. Research and development expenses for Fiscal
2016, Fiscal 2015 and Fiscal 2014 was $8,946, $6,551 and $5,991, respectively.
Distribution Expenses.
Distribution costs
are expensed as incurred. Such costs include warehousing, fulfillment and freight.
Self-Insurance.
The Company is
self-insured for certain employee medical and workers compensation benefits. The Company maintains stop-loss coverage in order to limit its exposure to such claims. Self-insurance expenses are accrued based on estimates of any significant
level of the aggregate liability for uninsured claims incurred using historical claims experience.
Income Taxes.
The
provision or benefit for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis
of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets to an amount that is more likely than not to be realized. The Company follows accounting guidance related to accounting for uncertainty in income
taxes to record uncertainties and judgments in the application of complex tax regulations (refer to Note 11 for more information).
Fair Value Accounting.
The Company accounts for derivative financial instruments at fair value, as
required by ASC 820
Fair Value Measurement
(ASC 820). The Company did not elect the fair value option permitted by ASC 825,
Financial Instruments
, whereby a company may choose to measure, at fair value,
certain assets and liabilities that are not required to be reported at fair value.
Derivative Financial
Instruments.
From time to time, the Company may hold derivative financial instruments, including forward foreign currency exchange contracts and diesel and natural gas swap agreements. Such instruments are generally
not entered into for trading purposes. Fair value changes of such instruments are generally recorded in other comprehensive income (OCI), if they are determined to be effective as hedges, and deferred gains and losses are reclassified
from OCI to earnings in the period in which the gains and losses from the underlying transactions are recognized into earnings, including contract terminations. Changes in fair value that do not qualify for hedge accounting are immediately
recognized into earnings.
Liabilities under Tax Receivable Agreement.
In connection with the IPO, the Company entered into
an income tax receivable agreement (TRA) with its
pre-IPO
stockholders that requires the Company to pay the
pre-IPO
stockholders 85% of any realized tax
savings in US federal, state, local and foreign income tax that it actually realizes (or that it is deemed to realize) as a result of the utilization of tax attributes that originated during the
pre-IPO
period. Since this represents a transaction with shareholders, the Company simultaneously recorded a reduction of additional paid in capital when it recorded the initial liability. Any changes to the liability due to early termination or
acceleration will be recorded in additional paid in capital. Any increases or decreases to the liability that are due to new or changed circumstances (such as changes in tax rates or significant disallowed deductions) will be recorded to
non-operating
income or expenses.
Contingent Consideration.
As discussed in Note 4,
as part of the consideration for an acquisition made in Fiscal 2015, the Company agreed to make certain future payments to the seller based on the achievement of certain volumes. As a result, the Company recorded a liability related to such
contingent consideration. Since the Company believed that the minimum volumes included in the agreement would be achieved or exceeded, the fair
F-11
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
value of the liability recorded was based on the net present value of the maximum payment amount included in the agreement. Periodically, the underlying assumptions are evaluated and the fair
value of such contingent consideration is adjusted, as necessary. Any changes are recognized in earnings, pursuant to ASC 805
Business Combinations
(ASC 805). Payments by the Company are required based on the
achievement of certain minimum volumes.
New Accounting Pronouncements.
Pronouncements adopted by the Company
.
In March 2016, the FASB issued Accounting Standard Update (ASU)
No. 2016-09,
Improvements to Employee Share-Based Payment Accounting.
The new guidance simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or
liability, and classification on the statement of cash flows. This guidance was effective for the Company on January 1, 2017 and is not expected to materially impact the financial statements.
In July 2015, the FASB issued ASU
No. 2015-11,
Simplifying the Measurement of
Inventory
, which requires entities to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market.
The ASU does not apply to inventories that are measured using either the
last-in,
first-out
(LIFO) method or the Retail inventory method. The updated guidance was
effective for the Company on January 1, 2017 and is not expected to materially impact the financial statements.
In April 2015,
the FASB issued ASU
No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. The new guidance changed the presentation of debt issuance costs in financial statements. Under the
ASU, an entity is now required to present such costs in the balance sheet as a direct deduction from the related debt rather than as an asset. Amortization of the debt issuance costs continues to be reported as interest expense. The updated guidance
was effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company adopted the guidance in the first quarter of Fiscal 2016. The impact resulted in
reductions of long-term assets and long-term debt of $11,638 and $11,071 as of December 31, 2016 and January 2, 2016, respectively.
Pronouncements under consideration by the Company.
In January 2017, the FASB issued ASU
2017-04,
Intangibles-Goodwill and Other (Topic 350),
Simplifying the Test for Goodwill Impairment
.
The guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead,
entities are to record an impairment charge based on the excess of a reporting units carrying amount over its fair value (i.e. measure the charge based on the current Step 1). The revised guidance is to be applied prospectively, and is
effective for calendar
year-end
SEC filers in 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. The new guidance is not expected to have a material impact on the
Companys consolidated financial statements.
In January 2017, the FASB issued ASU
2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. The ASU clarifies the definition of a business and provides guidance to assist entities in determining whether
transactions should be accounted for as acquisitions (or disposals) of assets or whether they should be accounted for as acquisitions or disposals of a businesses. To be considered a business under the guidance, there needs to be an input and a
substantive process that together significantly contribute to the ability
F-12
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
to create output. The ASU removes the requirement to consider whether a market participant could replace missing elements. The amendments are effective for the Company on January 1, 2018,
and is to be applied prospectively. The provisions of this ASU will need to be applied to future acquisitions or dispositions, but is not expected to have a material impact on the Companys consolidated financial statements.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes (Topic 740): Intra-Entity
Transfers of Assets Other Than Inventory.
The new guidance requires the recognition of the tax consequences of intercompany asset transfers other than inventory when the transfer occurs. The guidance is effective for annual reporting periods
beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period and will require a modified retrospective adoption. The
Company is in the process of evaluating this guidance.
In August 2016, the FASB issued ASU
2016-15,
Classification of Certain Cash Receipts and Cash Payments
. The new guidance was issued to reduce diversity in practice with respect to the presentation and classification of certain
cash receipts and payments in the statement of cash flows under Topic 230,
Statement of Cash Flows
, and other Topics. The update addresses eight specific cash flow issues, including presentation of certain debt issuance costs, proceeds from
settlement of insurance claims and contingent consideration entered into in connection with acquisitions. The amendments are effective for the Company in fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years and will require retrospective adoption for all periods presented. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is in the process of evaluating this guidance.
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842). The new
guidance will require lessees to recognize the assets and liabilities that arise from leases in the balance sheet, including operating leases. The updated guidance will be effective for fiscal years beginning after December 15, 2018, including
interim periods within those annual periods. Early adoption is permitted. The Company is in the process of evaluating this guidance.
In
May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers
.
ASU 2014-09
outlines a new, single comprehensive model for
entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is
recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. ASU
2014-09,
as amended in August 2015, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The Company is continuing to assess
the impact of ASU
2014-09
on its financial statements, and, based on the progress to date, does not expect the adoption to have a material impact on the timing of its revenue recognition.
3. TAX RECEIVABLE AGREEMENT
As discussed
in Note 2, in connection with the IPO, the Company entered into a TRA with its
pre-IPO
stockholders Such tax savings or tax attributes relate to
pre-IPO
net operating
losses (NOLs), alternative minimum tax credit carryforwards (including alternative minimum tax credits that arise after the IPO as a result of limitations on the use of NOLs under the alternative minimum tax) and tax basis (including
depreciation and amortization deductions). On the TRAs effective date of July 20, 2016, the Company recorded an initial obligation of $254,155 and, since this represents a transaction with the shareholders at that time, the Company
simultaneously recorded a reduction of additional paid in capital.
F-13
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The liability at July 20, 2016 was determined by comparing the Companys expected
tax liability if the
pre-IPO
tax attributes are utilized with the expected tax liability if those
pre-IPO
tax attributes are not utilized.
The estimate of this liability was based on the tax attributes available after the Companys 2015 tax return and tax attributes generated
between January 2, 2016 and July 19, 2016 along with projections of pretax income. Certain assumptions were made regarding the projected use of the tax attributes, including NOLs. The use of different assumptions and/or estimates could
have a material effect on the estimated liability. The liability, timing and/or payments of amounts due under the TRA will vary depending on a number of factors, including the amount and timing of
pre-tax
income that the Company generates and the applicable tax rates.
Payments under the TRA, along with interest, are due annually, after the
Company files its federal tax return. Interest on the amounts due under the TRA will accrue from April 17 of each year until the payment is made and will be based on LIBOR plus 200 basis points. Based on the date that the Company expects to
file its tax returns, the Company expects to make each annual payment in the fourth quarter of each year. Payments under the TRA will continue until all
pre-IPO
tax attributes are utilized or expired
unless the company exercises its right to terminate the TRA earlier or if termination is triggered as would occur if there were to be a change of control, as defined in the TRA. In the case of a voluntary early termination election by the Company or
a change of control, the Company would be required to make a lump sum payment equal to the present value of expected future payments, which would be based on certain assumptions. In certain other cases, such as the sale of any of the
Companys subsidiaries in a transaction that is not a change of control, the Company would be required to make a lump sum payment equal to the present value of future payments under the TRA attributable to that subsidiary.
The Company expects to make the first payment in the fourth quarter of Fiscal 2017 and has therefore classified the estimated amount of
$35,793 as current. Interest will accrue on this amount at LIBOR plus 2% between April 17, 2017 and the date of payment.
4. ACQUISITIONS
On October 7, 2016, the Company acquired all of the issued and outstanding common stock of Allied Specialty Foods, Inc.
(Allied) for a purchase price of $62,319 (net of cash acquired of $440). The purchase price was funded entirely from cash on hand at the time of the acquisition. Allied is a manufacturer of raw and cooked beef and chicken Philly steak
products. The acquisition of Allied provides the Company with additional sandwich component production capacity and expands its market position in the Philly steak platform by providing entry into fully-cooked product offerings, and expands its
geographic reach. The Company expects that the acquisition will provide certain cost synergies. Allieds customers are primarily in the Foodservice industry, and are served from a 20,000 square foot manufacturing facility in Vineland, New
Jersey that has two cook lines, three raw slicing lines and one breakaway steak line. In June 2016, Allied began building a new 70,000 square foot facility with seven raw slicing/breakaway lines and four cook lines, which is expected to be
completed during the first quarter of 2017.
On January 30, 2015, the Company acquired the wholesale business and production assets
of Landshire, Inc. (Landshire), a manufacturer and marketer of sandwich products, and on April 24, 2015 acquired the business and production assets of Better Bakery, LLC (Better Bakery), a producer of high
quality, premium stuffed sandwiches and other licensed products. The acquisitions brought additional premium products to the Companys portfolio that complemented and increased its product offerings as well as provided the Company with
additional capacity for increased sandwich and bakery production. The sellers of Landshire entered into an agreement with the Company that required the payment to them of earn out payments to be paid in cash over three years, based
F-14
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
on certain volume performance. The liability recorded for the earn out payments is considered to be a contingent consideration since it is contingent on the achievement of certain targets.
The purchase prices for the acquisitions were funded by cash payments and, in the case of Landshire, a liability related to earn out payments.
Since the Company believed that the minimum volumes included in the agreement with the seller of Landshire would be achieved or exceeded, the fair value of the liability recorded was based on the net present value of the maximum payment amount
included in the agreement. Accordingly, the purchase price for each acquisition consisted of the following:
|
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|
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Allied
|
|
|
Landshire
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Better
Bakery
|
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Cash
|
|
$
|
62,319
|
|
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$
|
41,552
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$
|
30,931
|
|
Other accrued liabilities
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19,293
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Purchase price
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$
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62,319
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$
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60,845
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$
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30,931
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In connection with the three acquisitions, the Company performed valuations of the acquired assets and assumed
liabilities. Intangible assets identified in the valuations included (as applicable) customer relationships, trade names and trademarks, and
non-compete
agreements. Fair values were derived using Level 3
inputs, as defined by ASC 820. With respect to the Allied acquisition, the purchase price allocation is still preliminary. Such assets and liabilities include tangible and intangible assets for which fair values were determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as methods for which the determination of fair value required significant management judgment and/or estimates. Unobservable inputs were developed based on the best information
available, which in some instances included the Companys own data. Intangible assets with finite lives relating to the Allied acquisition are being amortized over the estimated useful lives of such assets using a method that is based on
estimated future cash flows.
F-15
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The acquisitions were recorded in accordance with ASC 805. The net purchase prices were
allocated to assets acquired and liabilities assumed based on estimated fair values at the date of each acquisition. The allocation of the purchase price for the three acquisitions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied
|
|
|
Landshire
|
|
|
Better
Bakery
|
|
Current assets
|
|
$
|
7,184
|
|
|
$
|
4,763
|
|
|
$
|
5,704
|
|
Property, plant and equipment
|
|
|
13,821
|
|
|
|
12,037
|
|
|
|
2,115
|
|
Other intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
(15-year
estimated useful
life)
|
|
|
17,682
|
|
|
|
20,800
|
|
|
|
10,400
|
|
Allied trade name
(20-year
weighted average life)
|
|
|
12,910
|
|
|
|
|
|
|
|
|
|
Landshire trade names and trademarks
(19-year
weighted
average lives)
|
|
|
|
|
|
|
8,600
|
|
|
|
|
|
Better Bakery trade names and trademarks
(17-year
weighted
average lives)
|
|
|
|
|
|
|
|
|
|
|
9,600
|
|
Non-compete
agreements (useful lives of between 3 and 5
years)
|
|
$
|
1,110
|
|
|
$
|
700
|
|
|
$
|
400
|
|
Goodwill
|
|
|
30,685
|
|
|
|
14,506
|
|
|
|
9,940
|
|
Deferred tax liabilities
|
|
|
(13,958
|
)
|
|
|
|
|
|
|
|
|
Assumed liabilities
|
|
|
(7,115
|
)
|
|
|
(561
|
)
|
|
|
(7,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
62,319
|
|
|
$
|
60,845
|
|
|
$
|
30,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed as part of the Allied acquisition were, in large part, accounts payable and accrued
liabilities incurred in the normal course of business. The assumed liability for Better Bakery of $7,228 primarily related to an onerous broker contract, the amount of which was determined by reference to prevailing market brokerage rates for the
Company and projected future sales under the contract. The goodwill arising from the acquisitions consisted largely of the synergies and economies of scale expected from combining the acquired businesses and integrating them into the Company, as
well as the value attributed to the assembled workforce. Except for the goodwill that arose from the Allied acquisition, all goodwill is deductible for tax purposes. Other expense, net for Fiscal 2016 and Fiscal 2015 includes acquisition-related
legal and professional fees of $284 and $1,125, respectively, related to these acquisitions.
The following data table presents summarized
pro forma results of the Company had the Fiscal 2016 acquisition (Allied) occurred on January 3, 2015 and the Fiscal 2015 acquisitions (Landshire and Better Bakery) occurred on December 29, 2013 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
Net sales
|
|
$
|
1,613,992
|
|
|
$
|
1,670,846
|
|
Net income
|
|
|
139,397
|
|
|
|
39,343
|
|
The Fiscal 2016 pro forma net income includes
non-recurring
exit costs
of $734. The Fiscal 2015 pro forma net income includes
non-recurring
expenses of $1,879, of which $927 related to manufacturing start up inefficiencies and $952 related to severance, professional fees, travel
and contract exit costs.
The Companys consolidated net sales and net income for Fiscal 2016 and Fiscal 2015 included the following
amounts for Allied (acquired November 7, 2016) for Better Bakery (acquired April 24, 2015) and
F-16
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Landshire (acquired January 30, 2015) for the periods between the acquisition date and the end of the applicable fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
|
Allied
|
|
|
Landshire
|
|
|
Better Bakery
|
|
Net sales
|
|
$
|
13,938
|
|
|
$
|
40,646
|
|
|
$
|
8,220
|
|
Net income
|
|
|
368
|
|
|
|
7,768
|
|
|
|
(148
|
)
|
5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
Trade accounts receivable
|
|
$
|
77,092
|
|
|
$
|
72,161
|
|
Other receivables
|
|
|
6,516
|
|
|
|
11,577
|
|
Reserves for sales returns and uncollectible accounts receivable
|
|
|
(1,150
|
)
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,458
|
|
|
$
|
82,618
|
|
|
|
|
|
|
|
|
|
|
Other receivables at December 31, 2016 and January 2, 2016 includes $2,329 and $9,398, respectively,
for a product contamination insurance policy claim related to the recall of stuffed chicken breast products that occurred in Fiscal 2015. Such amounts were recognized based on a loss contingency model and primarily relate to a claim for net
sales reductions due to product returns, marketing expenses to support post-recall sales, professional fees and travel. The amount recorded represents the amount expected to be collected under the policy. The full amount of the insurance claim
is $19,196, of which $1,000 is subject to self-insurance retention. The amount claimed also includes unrecorded contingent gains of $5,867 representing claims for business interruption. The activity in the recall receivable account was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 2,
|
|
|
|
2016
|
|
|
2016
|
|
Balance, beginning of year
|
|
$
|
9,398
|
|
|
$
|
|
|
Claim additions
|
|
|
1,535
|
|
|
|
11,794
|
|
Self-insurance retention
|
|
|
|
|
|
|
(1,000
|
)
|
Payments received
|
|
|
(8,604
|
)
|
|
|
(1,396
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,329
|
|
|
$
|
9,398
|
|
|
|
|
|
|
|
|
|
|
Of the $1,535 recorded as claim additions in Fiscal 2016, $345, $30, $1,001 and $159 were recorded to cost of
goods sold, distribution expenses, selling, general and administrative expenses and other expense, net, respectively. Of the $11,794 recorded in Fiscal 2015, $6,244, $196, $1,700 and $3,654 were recorded to Cost of goods sold, Distribution expenses,
Selling, general and administrative expenses, and Other expense, net, respectively.
F-17
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
6. INVENTORIES
Inventories by major classification are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
Finished goods
|
|
$
|
115,312
|
|
|
$
|
136,762
|
|
Raw materials
|
|
|
53,364
|
|
|
|
48,894
|
|
Work in process
|
|
|
2,810
|
|
|
|
2,330
|
|
Reserves for excess and obsolete inventory
|
|
|
(5,860
|
)
|
|
|
(4,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
165,626
|
|
|
$
|
183,536
|
|
|
|
|
|
|
|
|
|
|
7. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment along with their respective estimated useful lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
(years)
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
Land
|
|
|
n/a
|
|
|
$
|
5,866
|
|
|
$
|
5,396
|
|
Land improvements
|
|
|
5
|
|
|
|
4,959
|
|
|
|
4,594
|
|
Buildings
|
|
|
20 30
|
|
|
|
156,144
|
|
|
|
146,930
|
|
Machinery and equipment
|
|
|
5 15
|
|
|
|
214,999
|
|
|
|
195,561
|
|
Software
|
|
|
3 5
|
|
|
|
20,974
|
|
|
|
18,229
|
|
Furniture and fixtures
|
|
|
3 10
|
|
|
|
2,774
|
|
|
|
2,421
|
|
Vehicles
|
|
|
2 5
|
|
|
|
1,257
|
|
|
|
1,302
|
|
Construction in progress
|
|
|
n/a
|
|
|
|
26,071
|
|
|
|
7,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433,044
|
|
|
|
382,182
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
|
|
175,744
|
|
|
|
144,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,300
|
|
|
$
|
237,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net book value of
internal-use
software costs included in software
above was $5,261 and $5,777 as of December 31, 2016 and January 2, 2016, respectively. Depreciation of capitalized
internal-use
computer software costs included in depreciation expense for Fiscal
2016, Fiscal 2015 and Fiscal 2014 was $3,262, $3,153 and $2,876, respectively.
Depreciation expense for Fiscal 2016, Fiscal 2015 and
Fiscal 2014 was $33,448, $31,149 and $28,182, respectively.
F-18
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
8. GOODWILL AND OTHER INTANGIBLES
Cost and accumulated amortization (as applicable) of Other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
Amortizable intangibles:
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Formulas (weighted average life 10 years)
|
|
$
|
10,307
|
|
|
$
|
10,307
|
|
Trade name and trademarks (weighted average life 13 and 12 years,
respectively)
|
|
|
119,002
|
|
|
|
106,092
|
|
Non-compete
(weighted average life
4 years)
|
|
|
3,419
|
|
|
|
2,309
|
|
Customer relationships (weighted average life 14 years)
|
|
|
288,292
|
|
|
|
270,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,020
|
|
|
|
389,318
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
Formulas
|
|
$
|
(7,760
|
)
|
|
$
|
(6,784
|
)
|
Trade name and trademarks
|
|
|
(44,682
|
)
|
|
|
(36,263
|
)
|
Non-compete
|
|
|
(1,759
|
)
|
|
|
(1,220
|
)
|
Customer relationships
|
|
|
(154,376
|
)
|
|
|
(133,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(208,577
|
)
|
|
|
(177,302
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
Formulas
|
|
|
2,547
|
|
|
|
3,523
|
|
Trade name and trademarks
|
|
|
74,320
|
|
|
|
69,829
|
|
Non-compete
|
|
|
1,660
|
|
|
|
1,089
|
|
Customer relationships
|
|
|
133,916
|
|
|
|
137,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,443
|
|
|
|
212,016
|
|
|
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
|
|
|
Trade name and trademarks
|
|
|
27,175
|
|
|
|
27,175
|
|
Water and sewer usage permits
|
|
|
2,919
|
|
|
|
2,919
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
242,537
|
|
|
$
|
242,110
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to other intangibles was $31,275, $31,708 and $29,823 for Fiscal 2016, Fiscal
2015 and Fiscal 2014, respectively.
F-19
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
At December 31, 2016, expected future amortization expense for other intangibles was as
follows:
|
|
|
|
|
Fiscal Year
|
|
Amortization
Expense
|
|
2017
|
|
$
|
30,217
|
|
2018
|
|
|
28,441
|
|
2019
|
|
|
25,173
|
|
2020
|
|
|
23,595
|
|
2021
|
|
|
18,833
|
|
Thereafter
|
|
|
86,184
|
|
|
|
|
|
|
|
|
$
|
212,443
|
|
|
|
|
|
|
The carrying amounts of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foodservice
|
|
|
Retail
|
|
|
Convenience
|
|
|
Total
|
|
Balance at December 28, 2013 and January 3, 2015
|
|
$
|
187,136
|
|
|
$
|
46,236
|
|
|
$
|
41,890
|
|
|
$
|
275,262
|
|
Fiscal 2015 acquisitions
|
|
|
1,272
|
|
|
|
11,462
|
|
|
|
11,712
|
|
|
|
24,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2016
|
|
|
188,408
|
|
|
|
57,698
|
|
|
|
53,602
|
|
|
|
299,708
|
|
Fiscal 2016 acquisitions
|
|
|
28,847
|
|
|
|
333
|
|
|
|
1,505
|
|
|
|
30,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
217,255
|
|
|
$
|
58,031
|
|
|
$
|
55,107
|
|
|
$
|
330,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no accumulated goodwill impairment losses at December 31, 2016, January 2, 2016 and
January 3, 2015.
9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company periodically enters into swap agreements to mitigate its exposure to fluctuations in the price of diesel fuel and natural gas. Such
derivatives are generally designated as cash flow hedges and are usually recognized in the Consolidated Balance Sheets at fair value.
Diesel Fuel Risk.
The Companys products are delivered by independent freight carriers. Generally, such carriers charge the
Company a basic rate per mile, but that rate is usually subject to a mileage surcharge that may be triggered if the price of diesel fuel increases. To manage the fluctuations in such prices, in Fiscal 2014, the Company entered into a variable to
fixed rate commodity swap agreement with a financial counterparty that hedged approximately 60% of its diesel fuel requirements. The hedge agreement was not entered into for speculative purposes. Instead, it was entered into to mitigate the
variability in monthly cash flows attributable to fuel surcharge rates related to changes in U.S. No 2 Diesel Retail prices. The hedging instruments consisted of a series of financially settled fixed forward contracts with varying expiration dates,
none of which exceeded twelve months. The net amounts were settled monthly and the amounts paid or received each month were recorded as adjustments to freight expense. The effective changes in fair value were recorded in Accumulated Other
Comprehensive Income (Loss) (AOCI), a component of shareholders equity.
Natural Gas Risk.
The Companys
natural gas is sourced from multiple providers. In Fiscal 2014, the Company entered into a series of variable to fixed rate commodity swap agreements with a financial counterparty that hedged approximately 40% of its natural gas requirements. The
hedge agreements were not entered into for
F-20
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
speculative purposes. Instead, they were entered into to mitigate the variability in monthly cash flows attributable to changes in NYMEX (New York Mercantile Exchange) pricing. The hedging
instruments consisted of a series of financially settled fixed forward contracts with varying expiration dates, none of which exceeded twelve months. The net amounts were settled monthly and the amounts paid or received each month were recorded as
adjustments to utilities expense. The effective changes in fair value were recorded in AOCI, a component of shareholders equity.
No
diesel fuel or natural gas hedge agreements were entered into during Fiscal 2016 or Fiscal 2015, and none were outstanding at December 31, 2016 or January 2, 2016. As a result, there were no amounts in AOCI related to diesel fuel or
natural gas hedge agreements at December 31, 2016 or January 2, 2016.
The effects of derivative instruments on the consolidated
statements of operations for Fiscal 2015 and Fiscal 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss)
Recognized
in OCI
|
|
|
|
|
Loss Reclassified
from AOCI into Income
|
|
|
|
Fiscal
2015
|
|
|
Fiscal
2014
|
|
|
|
|
Fiscal
2015
|
|
|
Fiscal
2014
|
|
Diesel fuel swap
|
|
$
|
2,002
|
|
|
$
|
(2,002
|
)
|
|
|
|
$
|
(2,946
|
)
|
|
$
|
(64
|
)
|
Natural gas swap
|
|
|
292
|
|
|
|
(292
|
)
|
|
|
|
|
(427
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,294
|
|
|
$
|
(2,294
|
)
|
|
|
|
$
|
(3,373
|
)
|
|
$
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of the diesel fuel swap is recorded in Distribution expenses and the effect of the natural gas swap
is recorded in Cost of goods sold. There was no tax impact of such derivatives on the consolidated financial statements.
10. FINANCING ARRANGEMENTS
Credit facilities
On
June 2, 2016, the Company entered into a new first lien term loan in the aggregate amount of $1,300,000, which matures on June 2, 2023 (the 2016 First Lien Term Loan) and an amendment to its asset-based revolving credit
facility (the ABL Facility) to extend its maturity date to June 2, 2021. The net proceeds from the 2016 First Lien Term Loan of $1,293,500 (which was net of original issue discount of $6,500), were used to repay the amounts
outstanding under the 2012 issuance of a $925,000 first lien term loan (the 2012 First Lien Term Loan) and the 2012 issuance of a $375,000 second lien term loan (the 2012 Second Lien Term Loan) (collectively, the Prior
Term Loans), pay related accrued interest of $11,990, pay a prepayment penalty of $3,735 and pay debt issuance costs of $15,449. Proceeds of $3,619 were retained for working capital and other purposes.
On July 21, 2016, using proceeds from the sale of its common stock in the IPO, the Company voluntarily repaid $205,000 of the 2016 First
Lien Term Loan. The Company applied the voluntary repayment to all the scheduled payments that would have fallen due prior to the maturity of the 2016 First Lien Term Loan and also to a portion of the single payment due June 2, 2023.
On December 7, 2016, the Company issued $400,000 in aggregate principal amount of 5.50% Senior Unsecured Notes due 2024 (the Senior
Unsecured Notes), and used the net proceeds of $395,931 together with cash on hand, to voluntarily repay $400,000 of outstanding borrowings under its 2016 First Lien Term Loan.
F-21
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Concurrently, the Company completed a repricing amendment that resulted in a 75 basis point decrease in interest rates for the 2016 First Lien Term Loan. As a result of these repayments, at
December 31, 2016, the only required future payment under the 2016 First Lien Term Loan is a single payment of $695,000 due on its maturity date of June 2, 2023.
The Companys debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
2016 First Lien Term Loan, with floating interest rates, maturing June 2, 2023, net of
original issue discount of $4,526
|
|
$
|
663,720
|
|
|
$
|
|
|
2016 First Lien Term Loan, held by related party, net of original issue discount of $181
|
|
|
26,573
|
|
|
|
|
|
Senior Unsecured Notes (including related party principal of $40,000)
|
|
|
400,000
|
|
|
|
|
|
2012 First Lien Term Loan, net of original issue discount of $2,399
|
|
|
|
|
|
|
894,851
|
|
2012 Second Lien Term Loan, net of original issue discount of $2,438
|
|
|
|
|
|
|
340,562
|
|
2012 Second Lien Term Loan, held by related party, net of original issue discount of $228
|
|
|
|
|
|
|
31,772
|
|
Debt issuance costs
|
|
|
(11,638
|
)
|
|
|
(11,071
|
)
|
Capitalized lease obligations maturing through Fiscal 2018
|
|
|
276
|
|
|
|
861
|
|
Insurance premium financing
|
|
|
|
|
|
|
1,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,078,931
|
|
|
|
1,258,558
|
|
Less: current maturities
|
|
|
(274
|
)
|
|
|
(24,721
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
1,078,657
|
|
|
$
|
1,233,837
|
|
|
|
|
|
|
|
|
|
|
As a result of the Fiscal 2016 financing transactions discussed above, deferred loan fees, original issue
discount and new third party fees were assessed and accounted for pursuant to ASC
470-50
as follows:
|
|
|
In connection with the issuance of the 2016 First Lien Term Loan and repayment of the Prior Term Loans on June 2, 2016, the Company recognized $825 and $1,336 in expense related to the write off of original issue
discount and a portion of the unamortized deferred financing fees, respectively, associated with the Prior Term Loans. Of the $15,449 debt issuance costs incurred in connection with these transactions, $11,896 were expensed and $3,553 were
capitalized. Fees capitalized of $2,896 related to the 2016 First Lien Term Loan are recognized in Long-term debt, net of current maturities and $657 related to the ABL Facility are recognized in Other assets. After
considering the impact of the amortization of original issue discount and deferred financing fees, the effective interest rate for the 2016 First Lien Term Loan was approximately 5.03% at the issue date.
|
|
|
|
In connection with the voluntary prepayment of $205,000 that occurred on July 21, 2016, the Company wrote off $1,900 and $1,466 in deferred financing fees and original issue discount, respectively, during the third
quarter of 2016.
|
|
|
|
In connection with the repricing amendment, the Company wrote off nominal amounts of deferred financing fees and original issue discount. New fees incurred to effect the repricing totaled $2,693, of which $1,949 were
expensed and $744 were capitalized.
|
|
|
|
In connection with the prepayment of $400,000 that occurred on December 7, 2016, the Company wrote off $2,732 and $3,811 of original issue discount and deferred financing fees, respectively, during the fourth
quarter of 2016.
|
F-22
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Fees capitalized are being amortized over the term of the 2016 First Lien Term Loan. The
effective interest rate for the 2016 First Lien Term Loan was approximately 4.27% at December 7, 2016. Deferred financing fees and original issue discount written off as well as new fees expensed are recognized in Refinancing charges in the
Consolidated Statements of Operations and Comprehensive Income.
Interest on borrowings under the 2016 First Lien Term Loan varies based
on either LIBOR or a bank base rate, plus a margin as set forth in the following table:
|
|
|
|
|
|
|
|
|
Total Net
Leverage Ratio
|
|
LIBOR
Loans
|
|
|
Bank Base
Rate Loans
|
|
Less than or equal to 4.00:1.00
|
|
|
3.50
|
%
|
|
|
2.50
|
%
|
Greater than 4.00:1.00
|
|
|
3.00
|
%
|
|
|
2.00
|
%
|
During both Fiscal 2016 and Fiscal 2015, the Companys debt was subject to LIBOR loan margins. At
December 31, 2016, the interest rate for the 2016 First Lien Term Loan was 4.00%. At January 2, 2016, the interest rate for borrowings on the 2012 First Lien Term Loan was 5.75% and for the 2012 Second Lien Term Loan it was 9.50%.
The 2016 First Lien Term Loan is collateralized by a first-priority security interest in substantially all of the Companys assets,
except for accounts receivable, inventory and cash and cash equivalents, which together serve as first-priority collateral for the ABL Facility, on which the 2016 First Lien Term Loan maintains a second-priority interest. The 2016 First Lien Term
Loan agreement includes certain
non-financial
covenants, which include limitations on the Companys ability to incur additional indebtedness, issue preferred stock, pay dividends, make distributions on
its capital stock, repurchase its capital stock, make certain investments, create liens on its assets, enter into transactions with affiliates, transfer and sell assets, merge, consolidate or sell all or substantially all of its assets. Such
covenants also create restrictions on dividends and certain payments by its restricted subsidiaries. At December 31, 2016, the Company was in compliance with all such covenants. The 2016 First Lien Term Loan agreement also includes financial
maintenance covenants that only apply under certain conditions. The 2016 First Lien Term Loan agreement also requires mandatory annual prepayment of certain excess cash flow, as applicable. No excess cash flow prepayment is required with respect to
Fiscal 2016.
The 2012 First Lien Term Loan agreement also required a mandatory prepayment of certain excess cash flow. In the second
quarter of Fiscal 2016, the Company made a mandatory prepayment related to an excess cash flow of approximately $13,407 that related to Fiscal 2015. However, certain debt holders exercised their option to reject the prepayment and, therefore, $2,815
of the prepayment was returned to the Company.
F-23
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The maximum borrowing limit on the ABL Facility is $175,000 and such maximum
borrowing limit is further subject to a borrowing base limitation that is derived from applying defined calculations to inventory and accounts receivable balances. The ABL Facility agreement includes certain
non-financial
covenants, as well as certain financial maintenance covenants that only apply under certain conditions. Availability under the ABL Facility was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
Borrowing base limitation
|
|
$
|
125,114
|
|
|
$
|
130,941
|
|
Less: outstanding letters of credit
|
|
|
5,469
|
|
|
|
5,498
|
|
|
|
|
|
|
|
|
|
|
Net availability
|
|
$
|
119,645
|
|
|
$
|
125,443
|
|
|
|
|
|
|
|
|
|
|
The Senior Unsecured Notes were issued pursuant to an indenture, dated December 7, 2016 (the
Indenture), at an issue price of 100% of the principal amount of the Notes, in a private placement to qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933, and outside the US to
non-U.S.
persons pursuant to Regulation S under the Securities Act. The Notes mature on December 15, 2024 and bear interest at a rate of 5.50% per annum, payable semi-annually on June 15 and
December 15 of each year, commencing on June 15, 2017. The Senior Unsecured Notes are guaranteed, jointly and severally, by all of the Companys subsidiaries.
Aggregate fees of $5,087 were incurred in connection with the issuance of the Senior Unsecured Notes. Such fees were capitalized and are being
amortized over the term of the Senior Unsecured Notes. The effective interest rate for the Senior Unsecured Notes was approximately 5.63% at December 7, 2016.
The Company may redeem the Senior Unsecured Notes, in whole or in part as follows:
|
|
|
at any time prior to December 15, 2019 at a redemption price equal to 100% of the principal amount, plus applicable accrued and unpaid interest, if any, plus an Applicable Premium, as described in the Indenture and
as summarized below; and
|
|
|
|
at any time on or after December 15, 2019, at a redemption price equal to the following percentages of the principal amount, plus applicable accrued and unpaid interest, if any:
|
|
|
|
|
|
Year ending December 14,
|
|
Percentage
|
|
2020
|
|
|
104.125
|
%
|
2021
|
|
|
102.750
|
%
|
2022
|
|
|
101.375
|
%
|
2023 and thereafter
|
|
|
100.000
|
%
|
The Applicable Premium is the greater of:
|
A)
|
1.0% of the principal amount of such Note; and
|
|
B)
|
the excess, if any, of (a) the present value at such redemption date of (i) the redemption price at December 15, 2019 (see redemption prices above) plus (ii) all required interest payments due
through December 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 then outstanding principal amount.
|
At any time prior to December 15, 2019, the Company may also redeem up to 40% of the aggregate principal amount of the Senior Unsecured
Notes with the proceeds from certain equity offerings at a redemption
F-24
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
price equal to 105.50% of the aggregate principal amount of the Notes, plus applicable accrued and unpaid interest, if any. Upon the occurrence of certain change of control transactions, the
Company will be required to offer to repurchase the Notes at 101% of the principal amount, plus applicable accrued and unpaid interest, if any.
The Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to incur or
guarantee additional indebtedness or issue disqualified stock or preferred stock; pay dividends and make other restricted payments; incur restrictions on the payment of dividends or other distributions from restricted subsidiaries that are not
guarantors; create or incur certain liens; make certain investments; transfer or sell assets; engage in transactions with affiliates; and merge or consolidate with other companies or transfer all or substantially all of its assets. These covenants
are subject to a number of limitations and exceptions as set forth in the Indenture.
The Indenture also provides for customary events of
default, including failure to pay any principal or interest when due, failure to comply with covenants and cross acceleration provisions. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding
amounts of the Senior Unsecured Notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the trustee or holders of at least 30% in aggregate principal
amount of the then outstanding Senior Unsecured Notes may declare all of the Senior Unsecured Notes to be immediately due and payable.
Future maturities of long-term debt were as follows at December 31, 2016:
|
|
|
|
|
Fiscal year 2017
|
|
$
|
274
|
|
Fiscal year 2018
|
|
|
2
|
|
Thereafter
|
|
|
1,095,000
|
|
|
|
|
|
|
|
|
|
1,095,276
|
|
Less: amounts representing interest resulting from amortization of original issue
discount
|
|
|
(4,707
|
)
|
|
|
|
|
|
|
|
$
|
1,090,569
|
|
|
|
|
|
|
11. INCOME TAXES
The Companys income tax (benefit) provision consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
Federal income tax (benefit) provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,609
|
|
|
$
|
870
|
|
|
$
|
|
|
Deferred
|
|
|
(47,621
|
)
|
|
|
6,517
|
|
|
|
7,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net federal income tax (benefit) provision
|
|
|
(46,012
|
)
|
|
|
7,387
|
|
|
|
7,333
|
|
|
|
|
|
State income tax (benefit) provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
816
|
|
|
|
591
|
|
|
|
331
|
|
Deferred
|
|
|
(11,794
|
)
|
|
|
941
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net state income tax (benefit) provision
|
|
|
(10,978
|
)
|
|
|
1,532
|
|
|
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
$
|
(56,990
|
)
|
|
$
|
8,919
|
|
|
$
|
8,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The following is a reconciliation between the reported income tax (benefit) provision and the
income tax provision based on applying the federal statutory rate to the Companys pretax income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
|
|
Amount
|
|
|
Percent
of Pre-tax
Income
|
|
|
Amount
|
|
|
Percent
of Pre-
tax
Income
|
|
|
Amount
|
|
|
Percent
of Pre-
tax
Income
|
|
Income tax provision (benefit) computed at statutory rate
|
|
$
|
27,754
|
|
|
|
35.0
|
%
|
|
$
|
16,109
|
|
|
|
35.0
|
%
|
|
$
|
(10,344
|
)
|
|
|
35.0
|
%
|
Permanent book/tax difference:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
8,259
|
|
|
|
10.4
|
%
|
|
|
5,501
|
|
|
|
12.0
|
%
|
|
|
67
|
|
|
|
(0.2
|
)%
|
Merger, acquisition and
IPO-related
costs
|
|
|
4,439
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other permanent differences
|
|
|
220
|
|
|
|
0.2
|
%
|
|
|
199
|
|
|
|
0.4
|
%
|
|
|
205
|
|
|
|
(0.7
|
)%
|
State and local income tax
|
|
|
12,019
|
|
|
|
15.2
|
%
|
|
|
2,814
|
|
|
|
6.1
|
%
|
|
|
(12,021
|
)
|
|
|
40.7
|
%
|
Change in valuation allowance
|
|
|
(109,690
|
)
|
|
|
(138.3
|
)%
|
|
|
(15,812
|
)
|
|
|
(34.4
|
)%
|
|
|
30,545
|
|
|
|
(103.4
|
)%
|
Other
|
|
|
9
|
|
|
|
0.0
|
%
|
|
|
108
|
|
|
|
0.2
|
%
|
|
|
(63
|
)
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
$
|
(56,990
|
)
|
|
|
(71.9
|
)%
|
|
$
|
8,919
|
|
|
|
19.4
|
%
|
|
$
|
8,389
|
|
|
|
(28.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to July 20, 2016, the Companys restricted stock awards were accounted for as liability
awards. Accordingly, the fair value of the awards were
re-measured
each quarter and compensation expense adjusted based on the
re-measured
fair value. However, as
discussed in Note 16, the liability award was converted to an equity award as of July 20, 2016. Accordingly, the fair value of such awards is no longer required to be
re-measured.
Prior to July 20,
2016, stock-based compensation expense created a permanent book/tax difference because employee elections under Section 83(b) of the Internal Revenue Code established the basis for the Companys income tax deduction for employee
compensation as of the grant dates, whereas the Companys recognition of compensation expense under the liability method of accounting (see Note 16) was affected by increases in restricted stock values subsequent to the grant dates.
F-26
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The approximate tax effect of each type of temporary difference that gave rise to the
Companys deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
January 2, 2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory cost capitalization and reserves
|
|
$
|
5,420
|
|
|
$
|
4,789
|
|
Other reserves and accruals
|
|
|
7,071
|
|
|
|
4,209
|
|
Federal net operating loss carryforwards
|
|
|
42,207
|
|
|
|
76,678
|
|
State net operating loss carryforwards
|
|
|
3,533
|
|
|
|
11,153
|
|
Alternative minimum tax carryforward
|
|
|
3,111
|
|
|
|
1,502
|
|
State income tax credit
|
|
|
6,565
|
|
|
|
10,100
|
|
Other
|
|
|
1,380
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,287
|
|
|
|
108,738
|
|
Less: Valuation allowance
|
|
|
|
|
|
|
(109,690
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
69,287
|
|
|
|
(952)
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Other reserves and accruals
|
|
|
(998
|
)
|
|
|
(940
|
)
|
Basis difference in property, plant and equipment
|
|
|
(16,669
|
)
|
|
|
(16,794
|
)
|
Amortization of intangible assets
|
|
|
(45,246
|
)
|
|
|
(23,261
|
)
|
Other
|
|
|
(3,667
|
)
|
|
|
(803
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(66,580
|
)
|
|
|
(41,798
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) net
|
|
$
|
2,707
|
|
|
$
|
(42,750
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, the Company had net operating losses (NOL) carryforwards of $120,498
and $85,427 for federal and state purposes, respectively, which expire during the following years (as revised):
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
State
|
|
2017 2021
|
|
|
|
|
|
|
9,500
|
|
2022 2026
|
|
|
|
|
|
|
5,812
|
|
2027 2031
|
|
|
|
|
|
|
5,483
|
|
2032 2035
|
|
|
120,498
|
|
|
|
64,632
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. At each reporting date, the Company considers both negative and positive evidence that impacts the
assessment of the realization of deferred tax assets. The Company historically maintained a full valuation allowance against its deferred tax assets because the existing negative evidence outweighed the positive evidence such that it was not more
likely than not that the deferred tax assets were realizable. Principal among the negative evidence has been the sustained history of cumulative tax losses, in part related to fluctuations in commodity costs and the Companys high degree
of financial leverage. Although the Company reported
pre-tax
income in Fiscal 2015, the Company continued to provide for a full valuation allowance against its deferred tax assets through January 2,
2016 because the Company reported significant
pre-tax
losses in previous historical periods.
F-27
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
In Fiscal 2016, the Company continued the trend of realizing
pre-tax
income that began in the first quarter of Fiscal 2015 and its cumulative income in the recent past became positive. In addition, its forecasts for Fiscal 2017 indicated continued
pre-tax
income. Additionally, the Company was able to refinance its debt during Fiscal 2016 on more favorable terms, which has and will result in significant annual savings. The Company also considered
forecasts of future taxable income and evaluated the utilization of tax attributes prior to their expiration. After considering these factors, the Company determined that the positive evidence outweighed the negative evidence and concluded
during Fiscal 2016, that it was more likely than not that its deferred tax assets were realizable. As a result, the Company made the determination to release the full valuation allowance of $109,690 in Fiscal 2016.
The following shows the activity in the valuation allowance for deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
Balance at beginning of period
|
|
$
|
109,690
|
|
|
$
|
126,392
|
|
|
$
|
94,952
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
31,440
|
|
Valuation allowance released
|
|
|
(109,690
|
)
|
|
|
(15,812
|
)
|
|
|
|
|
Other deductions
|
|
|
|
|
|
|
(890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
|
|
|
$
|
109,690
|
|
|
$
|
126,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the deductions recorded during Fiscal 2015, $890 was recorded in OCI. Of the additions recorded during
Fiscal 2014, $895 was recorded in OCI.
Net deferred tax assets and income tax expense can be significantly affected by changes in tax
laws and rates and by unexpected adverse events that could impact managements conclusions as to the ultimate realizability of deferred tax assets.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. As of December 31, 2016, the
Companys federal and state tax returns for fiscal year 2011 through Fiscal 2015 remain open under the relevant statutes.
Management
believes that substantially all tax positions taken and expected to be taken and reflected in the consolidated financial statements at December 31, 2016 and January 2, 2016 are more likely than not to be sustained, based upon the technical
merits, upon examination. As a result, no material amounts were recorded to reverse the impact of tax benefits as of December 31, 2016 and January 2, 2016.
12. STOCKHOLDERS EQUITY
Concurrent
with the restricted stock awards discussed in Note 16, employees and other recipients made elections under section 83(b) of the Internal Revenue Code (the 83(b) elections), which triggered immediate recognition of compensation
for federal income tax purposes. To assist the recipients with the tax liability arising from the 83(b) elections, the Company provided loans to these employees, evidenced by promissory notes (the Stockholder Notes), for
amounts that approximate each recipients tax liability under the 83(b) elections. The Stockholder Notes are secured by the shares issued to the respective recipients under the Companys 2009 Omnibus Equity Incentive Plan which,
effective August 18, 2016, was renamed the AdvancePierre Foods Holdings, Inc. 2009 Omnibus Equity Incentive Plan (the Equity Incentive Plan) or any other equity incentive plan. In addition, the Stockholder Notes have
recourse in the event of default by the recipient. Interest is charged on the outstanding balances at the
mid-term
applicable federal rate in effect at the issue date. As of December 31,
F-28
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
2016 and January 2, 2016, the interest rates on the Stockholder Notes ranged between 0.95% and 2.04%. Balances outstanding at December 31, 2016 and January 2, 2016 (which
represent principal and related accrued interest) were $902 and $3,884, respectively, and are presented in the Consolidated Balance Sheets as deductions from stockholders equity. Interest on such Stockholder Notes, which are included in
related party interest in the Consolidated Statements of Operations and Comprehensive Income, were nominal for the periods presented. During Fiscal 2016, prior to the IPO, all Stockholder Notes due from the executive officers were repaid and/or
retired. Accordingly, Stockholder Notes at December 31, 2016 represent amounts due from other employees.
13. LEASED PROPERTIES
The Company leases certain property, plant and equipment some of which are classified as capital leases. The capital leases have original terms
ranging from one to six years and the carrying amounts of assets covered under these leases were approximately $276 and $861 as of December 31, 2016 and January 2, 2016, respectively.
The Company also leases cold storage space, machinery, equipment and real estate classified as operating leases with terms that are effective
for varying periods through fiscal year 2025. Certain of these leases have remaining renewal clauses, exercisable at the Companys option.
At December 31, 2016, the Company had minimum rental payments required under
non-cancelable
operating and capital leases as follows:
|
|
|
|
|
|
|
|
|
|
|
Minimum Rental
Payments
|
|
Fiscal Year
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
2017
|
|
$
|
3,329
|
|
|
$
|
277
|
|
2018
|
|
|
2,099
|
|
|
|
2
|
|
2019
|
|
|
1,113
|
|
|
|
|
|
2020
|
|
|
610
|
|
|
|
|
|
2021
|
|
|
468
|
|
|
|
|
|
Thereafter
|
|
|
1,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,923
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
Less: amount representing interest
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments under capital leases
|
|
|
|
|
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|
Components of rent expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
Real estate
|
|
$
|
1,554
|
|
|
$
|
1,994
|
|
|
$
|
1,795
|
|
Cold storage
|
|
|
3,995
|
|
|
|
3,931
|
|
|
|
2,919
|
|
Equipment
|
|
|
4,102
|
|
|
|
4,107
|
|
|
|
3,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,651
|
|
|
$
|
10,032
|
|
|
$
|
7,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
In 2012, the Company entered into an agreement to sell and lease back from the purchaser a
distribution center for a minimum period of twenty years. The Company or a successor lessee may be required to provide certain financial assurances that could be deemed to be collateral for the sale-leaseback transaction, and therefore, the
transaction does not qualify as a sale. Accordingly, the real estate and related building and equipment remain on the Companys books and the proceeds from the sale are being accounted for as a long-term liability, except for the current
portion of $671, which is included in accrued liabilities. The lease agreement does not have a stated interest rate; the implicit interest rate is 7.12% over the term of the agreement. Future payments under the agreement related to this lease are as
follows as of December 31, 2016:
|
|
|
|
|
Fiscal Year
|
|
Required Payments
|
|
2017
|
|
$
|
2,332
|
|
2018
|
|
|
2,356
|
|
2019
|
|
|
2,379
|
|
2020
|
|
|
2,403
|
|
2021
|
|
|
2,427
|
|
Thereafter
|
|
|
28,355
|
|
|
|
|
|
|
|
|
|
40,252
|
|
Less amounts representing interest:
|
|
|
16,617
|
|
|
|
|
|
|
|
|
$
|
23,635
|
|
|
|
|
|
|
During Fiscal 2014, the Company entered into an operating lease for additional office space in Cincinnati, OH.
A portion of the rent was abated at the start of the lease term. Pursuant to ASC 840
Leases
(ASC 840), the rent expense is being recognized on a straight-line basis over the lease term with corresponding
entries to deferred rent. At December 31, 2016 and January 2, 2016, deferred rent related to this lease was $316 and $342, respectively.
14.
OTHER LONG-TERM LIABILITIES
As discussed in Note 4, the Company acquired Landshire and Better Bakery during Fiscal 2015. A component
of the purchase price for Landshire related to contingent consideration for earn out payments based on achieving minimum annual volume targets. At December 31, 2016 and January 2, 2016, respectively, the fair value of the liability for the
earn out payments was $9,875 and $19,628 respectively, of which $6,621 and $9,956, respectively, were included in other accrued liabilities; the remainder of these amounts were included in other long-term liabilities as the contract will be settled
by March 15, 2018.
As part of the acquisition of Better Bakery, the Company assumed an onerous broker contract. At December 31,
2016 and January 2, 2016, the liability for this contract was $4,198 and $6,821, respectively. The entire balance at December 31, 2016 was included in other accrued liabilities as the contract expires in Fiscal 2017. At
January 2, 2016, the entire amount was included in other long-term liabilities. During Fiscal 2016, payments made with respect to the earn out agreement and the onerous broker contract were $10,000 and $1,674, respectively.
15. RESTRUCTURING AND OTHER EXPENSE, NET
Over the past three years, the Company has initiated a number of restructuring programs, including initiatives to integrate acquired
businesses, to improve the efficiency of its manufacturing and distribution network, to consolidate certain activities and to reorganize its management structure. Expenses related to such initiatives were minimal in Fiscal 2016 as they were
substantially complete during Fiscal 2015.
F-30
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Fiscal 2015 Initiatives
In connection with the integration of Landshire and Better Bakery in Fiscal 2015, the Company incurred expenses of $1,887, of which, $927
related primarily to the reconfiguration of production lines and associated ramp up inefficiencies, and was charged to gross profit. The remainder of $960, which was charged to operating income/expense, represented travel, meals, legal and
professional fees, facility closing costs and related severance.
Restructuring expenses charged against gross profit in Fiscal 2015 also
included $1,191 that was related to the reconfiguration of its production lines at its Portland, Maine manufacturing facility.
Fiscal 2013
Initiatives
Certain expenses related to various initiatives undertaken in fiscal year 2013 to improve commercial effectiveness and
reduce operating costs continued into Fiscal 2015 and Fiscal 2014 and, to a lesser extent, into Fiscal 2016. Such initiatives included the following:
|
|
|
The consolidation of the Companys business unit leadership and shared services teams in its Cincinnati, Ohio area facilities along with the closure of an administrative office previously located in Edmond,
Oklahoma;
|
|
|
|
The reorganization of its senior leadership team; and
|
|
|
|
The implementation of staffing reductions and certain facility closures in its manufacturing, logistics and commercial operations.
|
The following table summarizes the classification of restructuring costs in the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
|
|
Gross
Profit
|
|
|
Operating
Income
|
|
|
Gross
Profit
|
|
|
Operating
Income
|
|
|
Gross
Profit
|
|
|
Operating
Income
|
|
Initiatives prior to 2013
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
432
|
|
|
$
|
37
|
|
2013 initiatives
|
|
|
|
|
|
|
143
|
|
|
|
374
|
|
|
|
1,288
|
|
|
|
1,614
|
|
|
|
5,228
|
|
2015 initiatives
|
|
|
|
|
|
|
(23
|
)
|
|
|
2,118
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
|
|
|
$
|
120
|
|
|
$
|
2,492
|
|
|
$
|
2,248
|
|
|
$
|
2,046
|
|
|
$
|
5,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None of the restructuring charges were directly attributable to any of the Companys reportable segments.
F-31
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The following table summarizes the activity for liabilities related to restructuring charges.
The balance at January 2, 2016 was reflected in accrued liabilities:
|
|
|
|
|
|
|
Total
|
|
Balance at December 28, 2013
|
|
$
|
3,352
|
|
Accruals
|
|
|
7,311
|
|
Payments, net
|
|
|
(10,096
|
)
|
|
|
|
|
|
Balance at January 3, 2015
|
|
$
|
567
|
|
Accruals
|
|
|
4,740
|
|
Payments, net
|
|
|
(4,811
|
)
|
|
|
|
|
|
Balance at January 2, 2016
|
|
$
|
496
|
|
Accruals
|
|
|
120
|
|
Payments, net
|
|
|
(616
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
|
|
|
|
|
|
|
Other expense, net for Fiscal 2016 consisted primarily of the $9,000 success fee paid to Oaktree, in
connection with the IPO, and approximately $5,000 related to certain public filing expenses and certain merger and acquisition expenses. Other expenses, net for Fiscal 2015 consisted primarily of professional fees associated with merger and
acquisition activity, and costs associated with a recall of stuffed chicken breasts (refer to Note 5).
16. STOCK-BASED COMPENSATION AND EMPLOYEE
BENEFITS
Stock-based Compensation
Effective January 15, 2009, the Companys board of directors adopted the Equity Incentive Plan for the purpose of providing
additional incentives to selected employees, directors and consultants whose contributions are considered essential to the growth and success of its business. The Equity Incentive Plan provides for the grant of stock options, share appreciation
rights, restricted stock, RSUs, deferred shares, performance shares, unrestricted shares, other share-based awards or any combination of the foregoing. Awards under the Equity Incentive Plan, as amended on July 20, 2016 and August 18,
2016, are limited to 16,562,730 shares of the Companys common stock, subject to adjustment as provided for in the Equity Incentive Plan document. The Equity Incentive Plan provides for board of directors discretion in determining
vesting periods, contractual lives and stock option exercise prices for each award issuance under the Equity Incentive Plan. The amendment on July 20, 2016 provided for the increase in the maximum grants allowed to 16,562,730 shares, and the
amendment on August 18, 2016 effected the name change to the Equity Incentive Plan that is disclosed in Note 12.
Restricted Stock
Prior to July 20, 2016, the only awards issued under the Equity Incentive Plan were restricted stock, and, pursuant to the First Amended
and Restated Stockholders Agreement by and among the Company and its stockholders and the individual award agreements, transfers of such awards were restricted. In addition, prior to July 20, 2016, such restricted stock provided the
Company with the right, but not the obligation to repurchase all or any portion of the vested equity interests in the event that the awardees employment was terminated for any reason. The purchase price that the Company paid for the restricted
stock was based on a valuation made in good faith by its board of directors. Since the Company had previously exercised this right in every instance of employment termination, the awardees did not bear the risks and rewards of ownership.
Therefore, the Company
F-32
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
determined that liability classification of these awards was appropriate until the point that the shares had been vested for six months, a sufficient period of time to allow the holder to fully
bear the risks and rewards of ownership. If the employee remained with the Company after the six month period, the award was reclassified from liabilities to equity. In connection with the IPO, The First Amended and Restated Stockholders Agreement
was terminated.
Under liability classification, the Company was required to recognize a liability based on the stock awards fair
value at each reporting date with reference to its vesting schedule. The liability recognized at July 2, 2016 and January 2, 2016 were based on fair values of $17.65 and $10.24, respectively.
Following the IPO, more than 25% of the Companys common stock was available for trading on The New York Stock Exchange on July 20,
2016, thereby resulting in a termination of the call right on that date. Hence, 24 awardees began to bear the risks and rewards of ownership. As a result, the liability award was converted to an equity award as of July 20, 2016, since the call
right feature was the only condition that prevented it from being classified as an equity award. As of that date, the fair value of the award was determined to be $23.53, based on the opening price of the Companys common stock, and additional
compensation expense of $6,477 was recognized for the period that spanned the beginning of the third fiscal quarter of 2016 to July 20, 2016. This additional compensation expense is included in stock-based compensation expense. On the same
date, the amount of $35,312 was transferred from liabilities to equity. While the award was a liability award, pursuant to ASC 718, the Company was required to
re-measure
the fair value of the award at each
reporting date and record additional compensation with reference to the vesting schedule. Fair values were, at those times, estimated at the grant dates using estimates of enterprise value, adjusted by liquidity discounts. The enterprise value
estimates were calculated by applying market benchmark multiples to the most recent quarters Adjusted EBITDA for the trailing twelve months period. Annually, those computations were also compared with the Companys estimated future
discounted cash flows.
Further, during the third quarter of 2016, the dividend provision of the restricted stock award agreement was
modified to provide for the payment of
non-forfeitable
dividends even on unvested restricted stock.
F-33
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The table below reflects recent restricted stock activity as well as other information
related to awards of restricted stock that were granted under the Equity Incentive Plan. Restricted stock granted under the Equity Incentive Plan generally vests over a three- or four-year period on a graded-vesting basis with equal proportions of
the shares vesting at the annual anniversary date of the grant in each of the three or four years in the vesting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
Unvested Restricted Shares
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of fiscal year
|
|
|
1,625,477
|
|
|
$
|
2.46
|
|
|
|
2,247,565
|
|
|
$
|
1.22
|
|
|
|
2,851,824
|
|
|
$
|
1.42
|
|
Granted
|
|
|
237,049
|
|
|
$
|
11.46
|
|
|
|
779,154
|
|
|
$
|
4.09
|
|
|
|
505,460
|
|
|
$
|
1.01
|
|
Vested
|
|
|
(1,212,472
|
)
|
|
$
|
2.73
|
|
|
|
(1,228,646
|
)
|
|
$
|
1.43
|
|
|
|
(1,060,406
|
)
|
|
$
|
1.68
|
|
Forfeited
|
|
|
(98,543
|
)
|
|
$
|
1.01
|
|
|
|
(172,596
|
)
|
|
$
|
1.01
|
|
|
|
(49,313
|
)
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
|
|
551,511
|
|
|
$
|
5.99
|
|
|
|
1,625,477
|
|
|
$
|
2.46
|
|
|
|
2,247,565
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested Restricted Shares
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of fiscal year
|
|
|
2,913,207
|
|
|
$
|
1.72
|
|
|
|
1,857,157
|
|
|
$
|
1.85
|
|
|
|
1,186,968
|
|
|
$
|
2.81
|
|
Vested
|
|
|
1,212,472
|
|
|
$
|
2.73
|
|
|
|
1,228,646
|
|
|
$
|
1.43
|
|
|
|
1,060,406
|
|
|
$
|
1.68
|
|
Repurchased
|
|
|
(259,249
|
)
|
|
$
|
1.51
|
|
|
|
(172,596
|
)
|
|
$
|
1.01
|
|
|
|
(390,217
|
)
|
|
$
|
4.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
|
|
3,866,430
|
|
|
$
|
2.05
|
|
|
|
2,913,207
|
|
|
$
|
1.72
|
|
|
|
1,857,157
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the unvested restricted stock awards at December 31, 2016, 534,966 shares are expected to vest.
During Fiscal 2016, the Company granted restricted shares with weighted average grant date fair values per share as follows:
|
|
|
|
|
|
|
|
|
Grants Made During the Quarter Ended
|
|
Number of
Restricted Shares
Granted
|
|
|
Weighted Average
Fair Value of
Common Stock per
Share on Date of
Grant
|
|
April 2, 2016
|
|
|
130,682
|
|
|
$
|
10.24
|
|
July 2, 2016
|
|
|
93,696
|
|
|
$
|
11.25
|
|
December 31, 2016
|
|
|
12,671
|
|
|
$
|
25.65
|
|
The fair values of the restricted shares were determined contemporaneously with the grants.
Compensation expense, included in Selling, general and administrative expenses, associated with outstanding restricted stock awards, including
credits for stock forfeitures, was $27,704, $17,198 and $2,744 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively. As of December 31, 2016, total unrecognized compensation expense was approximately $6,040 related to unvested stock-based
compensation arrangements related to unvested restricted stock awards granted under the Equity Incentive Plan. This cost is expected to be recognized over the weighted average period of 1.39 years.
F-34
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
In Fiscal 2016 (prior to July 20, 2016), the Company repurchased terminated
employees vested stock with cash of $1,577. Shares repurchased were retired upon purchase. Such purchases in Fiscal 2015 totaled $963 and were also retired upon purchase. In Fiscal 2014, OCM and another related party, Maine Street
Holdings, Inc. (Maine) purchased terminated employees vested stock with cash of $449. Such related party purchases were reported as capital contributions and also as redemption of stock in the Companys Consolidated
Statement of Stockholders Deficit in Fiscal 2014.
Since all the restricted stock awards were reclassified from liabilities to
equity as of July 20, 2016, there was no liability to holders of grants as of December 31, 2016. As of January 2, 2016, the Companys liability to holders of those grants was $17,393. Such liability was classified as current
(part of other accrued liabilities) in the Consolidated Balance Sheet at January 2, 2016 since, at the time, the employees could have resigned at will or through termination which would have resulted in a call on the stock.
Under the previous liability classification, the Company was required to recognize the liability based on the stock awards fair value at
each reporting period with reference to its vesting schedule. The fair value of the restricted stock was $1.01 as of the beginning of Fiscal 2014, increased to $1.52 at the beginning of Fiscal 2015 and then increased to $10.24 as of January 2,
2016. As a result, additional compensation expense was recorded in those years to reflect the increase in fair values and the liability was accordingly adjusted.
RSUs and Stock Options
Between
August 26, 2016 and December 31, 2016, the Company awarded certain of its employees and nonemployee directors RSUs as well as nonqualified stock options (stock options) with the right to acquire shares of its common stock.
These awards vest on a graded-vesting basis over varying periods ranging between two and four years. The awards are subject to service conditions only. Each RSU may be exchanged on the vesting date for one share of the Companys common stock
and can only be settled in shares. Awardees of the RSUs are also entitled to
non-forfeitable
dividend-equivalent payments on vested and unvested RSUs. The contractual term of the stock option award is 10
years. A summary of the Fiscal 2016 awards of RSUs and stock options were as follows:
|
|
|
|
|
|
|
|
|
Awards Granted During the Quarter Ended
|
|
Number of
Awards
Granted
|
|
|
Weighted Average
Fair Value on Date of
Grant
|
|
RSUs:
|
|
|
|
|
|
|
|
|
October 1, 2016
|
|
|
240,843
|
|
|
$
|
25.69
|
|
December 31, 2016
|
|
|
587,140
|
|
|
$
|
25.68
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
October 1, 2016
|
|
|
648,301
|
|
|
$
|
4.74
|
|
December 31, 2016
|
|
|
8,960
|
|
|
$
|
4.91
|
|
F-35
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Compensation expense for the RSUs and the stock options are being recognized over the vesting
period on a graded-vesting basis based on their grant-date fair values. The grant date fair values of the RSUs are based on the closing price of the Companys common stock on the date of grant. The grant-date fair value of the stock option
awards are determined using the Black-Scholes model. Weighted average inputs to the Black-Scholes model were as follows:
|
|
|
|
|
Stock price on date of grant
|
|
$
|
26.24
|
|
Exercise price
|
|
$
|
25.70
|
|
Expected term
|
|
|
4.74 years
|
|
Risk-free interest rate (range 0.74% to 1.36%)
|
|
|
1.18%
|
|
Expected dividend yield (range 2.2% to 2.5%)
|
|
|
2.29%
|
|
Expected volatility
|
|
|
23.8%
|
|
For awards for which the expected term was not known, the Company used 6 years, which was determined using the
simplified method specified in SEC Staff Accounting Bulletin Topic 14 because the Company has no exercise history on which to base estimates of future exercise behavior. The expected volatility of 23.8% was calculated by taking the average
historical volatility of a group of peer companies over a six year period. Expected volatility based on peer group volatility was used instead of volatility based on the Companys historical stock price because there was insufficient trading
history on which to base historical volatility. The risk-free interest rate was based on the implied yield on U.S. treasury
zero-coupon
issues with a remaining term equal to the expected term. The dividend
yield was based on expected dividend payments.
Additional information relating to the RSU awards follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair value
per Share
|
|
Unvested RSUs:
|
|
|
|
|
|
|
|
|
Balance at beginning of fiscal year
|
|
|
|
|
|
|
|
|
Granted
|
|
|
827,983
|
|
|
$
|
25.69
|
|
Vested
|
|
|
(4,948
|
)
|
|
$
|
25.69
|
|
Forfeited
|
|
|
(2,626
|
)
|
|
$
|
25.69
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
|
|
820,409
|
|
|
$
|
25.69
|
|
|
|
|
|
|
|
|
|
|
RSUs Expected to vest
|
|
|
769,352
|
|
|
$
|
25.69
|
|
|
|
|
|
|
|
|
|
|
Vested RSUs:
|
|
|
|
|
|
|
|
|
Balance at beginning of fiscal year
|
|
|
|
|
|
|
|
|
Vested
|
|
|
4,948
|
|
|
$
|
25.69
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
|
|
4,948
|
|
|
$
|
25.69
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, unrecognized compensation expense related to the RSUs was $18,212 which is
expected to be recognized over the weighted average period of 1.8 years and does not reflect the Companys estimate of potential forfeitures. Compensation expense recognized with respect to the RSUs in Fiscal 2016 was $2,932.
F-36
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Between the award date and December 31, 2016, none of the stock options vested, none
were exercised and none expired. Additional information relating to the stock option awards follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value (1)
(in thousands)
|
|
Balance at beginning of fiscal year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
657,261
|
|
|
$
|
25.70
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(7,876
|
)
|
|
$
|
25.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at end of period
|
|
|
649,385
|
|
|
$
|
25.70
|
|
|
|
9.66 years
|
|
|
$
|
2,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest
|
|
|
610,940
|
|
|
$
|
25.70
|
|
|
|
9.66 years
|
|
|
$
|
2,491
|
|
(1)
|
Represents the total
pre-tax
intrinsic value, based on the closing price of the Companys common stock on the New York Stock Exchange on December 31, 2016 and is the
amount the option holders would have received had all option holders exercised their options on December 31, 2016.
|
As
of December 31, 2016, unrecognized compensation expense related to the stock option awards was $1,992, which is expected to be recognized over the weighted average period of 1.2 years and does not reflect the Companys estimate of
potential forfeitures. Compensation expense recognized with respect to the stock options in Fiscal 2016 was $849.
At December 31,
2016, a total of 5,015,293 shares remained available for grant under the Equity Incentive Plan.
Employee Benefits
The Company maintains a 401(k) retirement plan for employees, which provides for an employer match. For Fiscal 2016, Fiscal 2015 and Fiscal
2014, the Company match was 100% of the first 3% of its employees salaries, and 50% of the next 2%. The Companys contributions expensed under the 401(k) retirement plan were $4,919, $4,606 and $4,415 for Fiscal 2016, Fiscal 2015 and
Fiscal 2014, respectively.
The Company also provides employee health insurance benefits through self-insurance group medical plans.
Contributions expensed for the self-insured group medical plans were approximately $24,938, $22,251 and $18,784 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively.
17. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value is the amount that would be received from the sale of an asset or paid for transfer of a liability in an orderly transaction between
market participants, i.e., an exit price. To estimate an exit price, a three-level hierarchy is used. The three-level hierarchy for fair value measurements is based on the transparency of inputs to the valuation of an asset or liability as of
the measurement date. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or a liability. The hierarchy is as follows:
|
|
|
Level 1 Valuation based upon unadjusted quoted prices for identical assets or liabilities in active markets.
|
F-37
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
|
|
|
Level 2 Valuation based upon quoted prices for similar assets or liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instruments.
|
|
|
|
Level 3 Valuation based upon other unobservable inputs that are significant to the fair value measurements and are developed based on the best information available, which in some instances include a
companys own data.
|
In many cases, a valuation technique used to measure fair value includes inputs from multiple
levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.
The Companys
non-derivative
financial instruments consist primarily of cash and cash equivalents
(including commercial paper and money market instruments with original maturities of three months or less), trade receivables, trade payables and long-term debt. The estimated fair values of the financial instruments have been determined using
available market information and appropriate valuation techniques. Considerable judgment is required, however, to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.
At December 31, 2016 and January 2, 2016, except for the 2016 First Lien Term Loan, the Prior Term Loans and the Senior Unsecured
Notes, the book values of
non-derivative
financial instruments recorded in the accompanying Consolidated Balance Sheets are considered to approximate fair values due to those instruments being subject to
variable interest rates, having short terms to maturity and/or being outstanding for short periods of time.
Principal, net of original
issue discount, of the 2016 First Lien Term Loan at December 31, 2016 was $690,293. Principal outstanding under the Senior Unsecured Notes at December 31, 2016 was $400,000. Principal, net of original issue discount, of the 2012 First Lien
Term Loan and the 2012 Second Lien Term Loan at January 2, 2016 was $894,851 and $372,334, respectively.
As discussed in Note 4, the
Company recorded a liability of $19,293 when it acquired Landshire, which represented the fair value of a contingent consideration related to volume earn out. Other than the accretion of the liability due to the passage of time, there has been
no change in the underlying assumptions used to calculate the fair value of the earn out since the acquisition date.
The following table
summarizes the fair values of the Companys term Loans and the contingent consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
January 2, 2016
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 2
|
|
|
Level 3
|
|
Term Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 First Lien Term Loan
|
|
$
|
705,425
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
2012 First Lien Term Loan
|
|
|
|
|
|
|
|
|
|
|
895,007
|
|
|
|
|
|
2012 Second Lien Term Loan
|
|
|
|
|
|
|
|
|
|
|
367,500
|
|
|
|
|
|
Senior Unsecured Notes
|
|
|
404,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
|
|
|
|
9,875
|
|
|
|
|
|
|
|
19,628
|
|
F-38
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The table below summarizes recent activity related to the contingent consideration referred
to in the table above:
|
|
|
|
|
|
|
Total
|
|
Balance at January 2, 2016
|
|
$
|
19,628
|
|
Accruals
|
|
|
247
|
|
Payments, net
|
|
|
(10,000
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
9,875
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the fair value of each class of financial
instrument:
|
|
|
The term loan instruments and Senior Unsecured Notes were based on Level 2 inputs, based on the observable trading value of these instruments;
|
|
|
|
The contingent consideration financial instrument was estimated using Level 3 significant inputs not observable in the market. Key assumptions included in the discount cash flow valuation model were predetermined
payment dates, actual volume performance, managements forecasted volume performance, risk-free interest rates plus a credit risk premium rate, historic asset volatility of comparable companies and managements assessment of the
probability of achieving the earn out targets.
|
18. TRANSACTIONS WITH RELATED PARTIES
Prior to July 20, 2016, Oaktree provided certain management, advisory and consulting services to the Company pursuant to a Management
Services Agreement that became effective on September 30, 2010. Oaktree is the management company for OCM. Maine also provided certain management, advisory and consulting services to the Company pursuant to a Management Services Agreement
that became effective on September 30, 2010, but the agreement with Maine was terminated on September 30, 2015. Maine is controlled by certain minority owners of the Company. In consideration for the services provided, the
Company was required to pay a quarterly management fee of $750, in advance, to both Oaktree and Maine. The Company was also required to reimburse Oaktree and Maine for certain
out-of-pocket
expenses incurred with respect to the performance of services. With respect to the agreement with Oaktree, the Company recorded expenses of $5,214,
$11,566 and $13,111, in Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively, for fees and
out-of-pocket
expenses. Similar expenses recorded for Maine in Fiscal 2015
and Fiscal 2014, were $2,250 and $3,000, respectively. Such expenses are included in Selling, general and administrative expenses. The Company also paid Oaktree an aggregate success fee of $9,000 on July 20, 2016 pursuant to the Management
Services Agreement which required payment in an amount equal to three times the annual management fee in the event of consummation of an IPO of the Companys equity securities or equity interests or a sale of all or substantially all of the
Companys assets. The Management Services Agreement with Oaktree was terminated effective July 20, 2016 in connection with the IPO.
As discussed in Note 3, on July 20, 2016, the Company entered into a TRA with its
pre-IPO
stockholders, including affiliates of Oaktree, Maine, the Companys management team and its board members. Substantially all of the liabilities due under the TRA is considered to be due from related parties, and is therefore disclosed as
primarily due from related parties in the accompanying Consolidated Balance Sheet as of December 31, 2016.
As discussed in Note 10,
on December 7, 2016, the Company issued the Senior Unsecured Notes. Amounts due to Oaktree and its affiliates are disclosed as related party amounts in the accompanying Consolidated
F-39
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Balance Sheet as of December 31, 2016. Interest expense recorded in Fiscal 2016 and accrued at December 31, 2016 with respect to the Senior Unsecured Notes held by Oaktree and its
affiliates was $147.
At December 31, 2016, Oaktree and its affiliates held $26,320 of the carrying value of the 2016 First Lien Term
Loan. At January 2, 2016, Oaktree and its affiliates held $31,495 of the carrying value of the 2012 Second Lien Term Loan. Interest accrued and not paid to Oaktree and its affiliates was $6 and $692 as of December 31, 2016 and
January 2, 2016, respectively, and is included in accrued interest in the accompanying Consolidated Balance Sheets. Interest expense recorded with respect to such related party debt was $2,407 for Fiscal 2016. Interest expense on debt held
by Oaktree and its affiliates in Fiscal 2015 and Fiscal 2014 was $3,074 and $3,133, respectively.
Written procedures adopted by the
Company and its Audit Committee currently restrict and govern related party transactions. Pursuant to those procedures, related party transactions require review by the Companys general counsel, and certain related party transactions
require
pre-approval
by the Audit Committee before such transactions can be binding.
19. EARNINGS (LOSS) PER
COMMON SHARE (EPS)
For Fiscal 2016, the Company computed earnings per share using the
two-class
method, in which there was an allocation of its earnings between holders of its common stock and holders of its participating securities. The Company applied this method in Fiscal 2016 since during
the third quarter of Fiscal 2016, holders of its restricted stock and vested and unvested RSUs were granted
non-forfeitable
rights to dividends and dividend-equivalents, respectively, and hence became
participating holders of its common stock for purposes of computing basic earnings per share (see Note 16). Basic earnings per share for all periods presented were calculated based on the weighted average number of outstanding shares of common stock
for the period. Diluted earnings per share was calculated consistent with the basic earnings per share calculation plus the effect of dilutive unissued shares of common stock related to stock options, restricted stock and RSUs, as applicable,
to the extent that they were considered dilutive. The table below details the computation of the Companys basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2016
|
|
|
Fiscal
2015
|
|
|
Fiscal
2014
|
|
Numerator
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
136,288
|
|
|
$
|
37,111
|
|
|
$
|
(37,943
|
)
|
Less: Distributed earnings allocated to nonvested awards
|
|
|
(461
|
)
|
|
|
|
|
|
|
|
|
Less: Undistributed earnings allocated to nonvested awards
|
|
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings (loss) per share
|
|
$
|
134,764
|
|
|
$
|
37,111
|
|
|
$
|
(37,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding Basic
|
|
$
|
71,101,484
|
|
|
$
|
65,350,463
|
|
|
$
|
64,209,838
|
|
Potential effect of nonvested restricted stock awards
|
|
|
|
|
|
|
831,402
|
|
|
|
|
|
Potential effect of nonvested stock options
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding Diluted
|
|
|
71,102,053
|
|
|
|
66,181,865
|
|
|
|
64,209,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common shareBasic
|
|
$
|
1.90
|
|
|
$
|
0.57
|
|
|
$
|
(0.59
|
)
|
Net income (loss) per common shareDiluted
|
|
$
|
1.90
|
|
|
$
|
0.56
|
|
|
$
|
(0.59
|
)
|
Dividend per share
|
|
$
|
0.28
|
|
|
$
|
|
|
|
$
|
|
|
Antidilutive awards excluded from the computation of diluted EPS (incremental
shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
332,955
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
|
360,130
|
|
|
|
|
|
|
|
|
|
F-40
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
For Fiscal 2016, the Company applied the
two-class
method of computing earnings per share, which is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends distributed and participation rights in undistributed earnings.
For diluted earnings per share, it requires dilutive earnings per share to be computed using two methods, and the most dilutive method selected. The incremental shares shown in the table above were excluded from the computation of diluted earnings
per share because the treasury stock method was determined to be less dilutive.
20. SEGMENT INFORMATION
The Company operates in four reportable segments: Foodservice, Retail, Convenience and Industrial.
The Foodservice segment supplies the diverse US food-away-from-home industry. The Foodservice customers include leading
national and regional distributors with whom the Company has long-standing and collaborative relationships. The Company also supplies 95 of the largest 100 school districts in the U.S., working closely with schools to develop nutritious meal
options of good quality and value. The Companys diverse portfolio of products includes
ready-to-eat
sandwiches (such as breakfast sandwiches and PB&J
sandwiches), sandwich components (such as Philly steaks and flame-grilled hamburger patties), and other entrées and snacks (such as country-fried steak, stuffed entrées and chicken tenders).
The Retail segment supplies national and regional grocery chains, major warehouse club stores, mass retailers and dollar stores. The Company
sells both branded and private label
ready-to-eat
sandwiches (such as grilled chicken sandwiches and stuffed pockets), sandwich components (such as chicken patties and
Philly steaks) and other entrées and snacks (such as stuffed chicken breasts).
Customers in the Companys Convenience segment
include national and regional convenience chains and vending providers. In the Convenience segment, the Company sells customized
ready-to-eat
sandwiches (such as
breakfast sandwiches and burgers), sandwich components (such as chicken patties) and other entrées and snacks (such as cinnamon dough bites).
The Industrial segment primarily supplies other food producers, such as packaged food companies under short-term
co-manufacturing
agreements.
Segment performance is evaluated by the Companys chief operating
decision maker (CODM) and is based on net sales and operating income. Unallocated corporate income (expenses) primarily relate to executive management, finance and legal functions and refinancing related charges.
F-41
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The following summarizes the Companys net sales and operating income by reportable
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Foodservice
|
|
$
|
849,933
|
|
|
$
|
886,095
|
|
|
$
|
829,563
|
|
Retail
|
|
|
409,612
|
|
|
|
395,941
|
|
|
|
399,621
|
|
Convenience
|
|
|
229,837
|
|
|
|
201,845
|
|
|
|
159,659
|
|
Industrial
|
|
|
78,877
|
|
|
|
127,730
|
|
|
|
188,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,568,259
|
|
|
$
|
1,611,611
|
|
|
$
|
1,577,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foodservice
|
|
$
|
168,266
|
|
|
$
|
134,287
|
|
|
$
|
70,592
|
|
Retail
|
|
|
38,331
|
|
|
|
28,543
|
|
|
|
13,488
|
|
Convenience
|
|
|
38,925
|
|
|
|
29,776
|
|
|
|
18,230
|
|
Industrial
|
|
|
3,080
|
|
|
|
2,767
|
|
|
|
1,998
|
|
Unallocated corporate expenses, net
|
|
|
(64,609
|
)
|
|
|
(44,966
|
)
|
|
|
(28,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
183,993
|
|
|
$
|
150,407
|
|
|
$
|
76,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company manages assets on a total company basis, not by operating segment. Its CODM does not
regularly review any asset information by operating segment and, accordingly, the Company does not report asset information by operating segment. Total assets were approximately $1,247,011 and $1,096,159 at December 31, 2016 and
January 2, 2016, respectively.
Net sales by product category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandwiches
|
|
$
|
474,085
|
|
|
$
|
455,107
|
|
|
$
|
412,009
|
|
Sandwich components
|
|
|
572,646
|
|
|
|
630,928
|
|
|
|
610,780
|
|
Other entrées and snacks
|
|
|
521,528
|
|
|
|
525,576
|
|
|
|
554,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,568,259
|
|
|
$
|
1,611,611
|
|
|
$
|
1,577,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
21. QUARTERLY RESULTS (unaudited)
The following summarizes the Companys Fiscal 2016 quarterly financial data (net income for the fiscal quarter ended July 2, 2016 was
impacted by the valuation allowance released in Fiscal 2016, $56,496 of which was released during the quarter - see Note 11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
April 2,
2016
|
|
|
July 2,
2016
|
|
|
October 1,
2016
|
|
|
December 31,
2016
|
|
|
|
13 Weeks
|
|
|
13 Weeks
|
|
|
13 Weeks
|
|
|
13 Weeks
|
|
Net sales
|
|
$
|
394,495
|
|
|
$
|
370,687
|
|
|
$
|
393,654
|
|
|
$
|
409,423
|
|
Gross profit
|
|
|
100,191
|
|
|
|
100,935
|
|
|
|
105,426
|
|
|
|
116,544
|
|
Net income
|
|
|
16,564
|
|
|
|
64,134
|
|
|
|
22,445
|
|
|
|
33,145
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.97
|
|
|
$
|
0.29
|
|
|
$
|
0.42
|
|
Weighted average shares outstandingBasic
|
|
|
66,025,281
|
|
|
|
65,836,860
|
|
|
|
74,878,851
|
|
|
|
77,664,944
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.96
|
|
|
$
|
0.29
|
|
|
$
|
0.42
|
|
Weighted average shares outstandingDiluted
|
|
|
66,880,841
|
|
|
|
66,837,810
|
|
|
|
74,878,851
|
|
|
|
77,667,330
|
|
The following summarizes the Companys Fiscal 2015 quarterly financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
April 4,
2015
|
|
|
July 4,
2015
|
|
|
October 3,
2015
|
|
|
January 2,
2016
|
|
|
|
13 Weeks
|
|
|
13 Weeks
|
|
|
13 Weeks
|
|
|
13 Weeks
|
|
Net sales
|
|
$
|
426,509
|
|
|
$
|
391,878
|
|
|
$
|
407,170
|
|
|
$
|
386,054
|
|
Gross profit
|
|
|
87,154
|
|
|
|
83,814
|
|
|
|
87,718
|
|
|
|
95,688
|
|
Net income
|
|
|
10,529
|
|
|
|
2,260
|
|
|
|
12,635
|
|
|
|
11,687
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.03
|
|
|
$
|
0.19
|
|
|
$
|
0.18
|
|
Weighted average shares outstandingBasic
|
|
|
65,145,051
|
|
|
|
65,269,159
|
|
|
|
65,334,001
|
|
|
|
65,653,641
|
|
Diluted
|
|
$
|
0.16
|
|
|
$
|
0.03
|
|
|
$
|
0.19
|
|
|
$
|
0.18
|
|
Weighted average shares outstandingDiluted
|
|
|
66,258,254
|
|
|
|
66,617,909
|
|
|
|
66,847,945
|
|
|
|
66,557,204
|
|
22. LEGAL PROCEEDINGS, CONTINGENCIES AND RISKS
The Company is subject to risks and uncertainties inherent in the food processing industry, many of which are outside the Companys
control, including raw material, energy and fuel costs, interest rates and general economic conditions. Commodity-based raw materials, including beef, chicken and pork, flour, seasonings, soy, and corrugate represent a significant portion of the
Companys total annual expenditures. Unexpected or sustained increases in commodity prices underlying the Companys primary raw materials could materially increase the Companys cost of operations. Management continually monitors
changes in the operating environment and takes action to mitigate the impact of adverse changes, including the implementation of price increases, productivity and cost savings programs and deferral or elimination of discretionary spend.
As part of its ongoing operations in the food processing industry, the Company is subject to various claims and contingencies arising in the
normal course of business, including, but not limited to, governmental investigations and proceedings, product liability as well as matters related to employees, safety, health, antitrust laws, taxes, commercial activities and the environment. In
particular, the Company is subject to extensive
F-43
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
federal, state, and local regulations, and its food processing facilities and food products are subject to frequent inspection, audits and inquiries by the USDA, the FDA, and various local health
and agricultural agencies. The Company is also subject to federal, state, and local agencies responsible for the enforcement of environmental, labor, and other laws and regulations. In addition, the Company is involved in various legal actions
arising in the normal course of business.
Any litigation-related matters are subject to uncertainties and the outcomes are generally not
predictable. Consequently, an estimate of the possible loss or range of loss associated with these actions cannot be made. Certain litigation matters could be decided unfavorably against the Company and could have a material adverse effect on its
results of operations and financial condition.
Claims, including product and general liability, workers compensation, auto
liability and employment related matters have deductibles and self-insured retentions in the US ranging from zero to $2,000 per occurrence or per claim, depending on type of coverage and policy period. For international claims, deductibles and
self-insured retentions are lower. The Company is also generally self-insured up to certain stop-loss limits for certain employee health benefits, including medical, drug and dental. Estimated reserves are based upon a number of factors,
including known claims, estimated incurred but not reported claims using third-party actuarial data, which is based on historical information as well as certain assumptions about future events. Estimated reserves are included in accrued liabilities
and other long-term liabilities in the Consolidated Balance Sheets.
The Company evaluates contingencies based on the best available
information and believes it has recorded appropriate liabilities to the extent necessary in cases where the outcome of such liabilities is considered probable and reasonably estimable. The Company also believes that its assessment of contingencies
is reasonable. To the extent that resolution of contingencies results in amounts that vary from managements estimates, future earnings will be charged or credited accordingly.
23. SUPPLEMENTAL CASH FLOW INFORMATION
Other changes in certain operating assets and liabilities (excluding amounts for acquisitions) consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
|
January 3,
2015
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
Accounts receivable
|
|
|
4,008
|
|
|
|
18,945
|
|
|
|
(4,841
|
)
|
Inventories
|
|
|
20,956
|
|
|
|
14,298
|
|
|
|
(25,006
|
)
|
Prepaid expenses and other current assets
|
|
|
(620
|
)
|
|
|
4,509
|
|
|
|
4,555
|
|
Accounts payable and accrued liabilities
|
|
|
2,526
|
|
|
|
(16,573
|
)
|
|
|
7,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,870
|
|
|
|
21,179
|
|
|
|
(18,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts related to debt refinancing consist of:
|
|
|
|
|
Non-cash
write-off
of deferred loan fees and original issue discount related to debt extinguishments
|
|
$
|
12,084
|
|
Prepayment premium on term loans
|
|
|
(2,518
|
)
|
Original issue discount retirement of term loans
|
|
|
(14,230
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(4,664
|
)
|
|
|
|
|
|
F-44
ADVANCEPIERRE FOODS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Information regarding supplemental cash flow disclosures is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2016
|
|
|
January 2,
2016
|
|
|
January 3,
2015
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
Cash paid (received) during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
89,519
|
|
|
$
|
94,928
|
|
|
$
|
94,681
|
|
Income taxes, net
|
|
|
1,830
|
|
|
|
1,850
|
|
|
|
(59
|
)
|
Significant
non-cash
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities under tax receivable agreement (primarily due to related parties)
|
|
|
254,155
|
|
|
|
|
|
|
|
|
|
Accounts payable for construction in progress
|
|
|
3,325
|
|
|
|
1,982
|
|
|
|
1,358
|
|
Insurance premiums financed
|
|
|
|
|
|
|
3,266
|
|
|
|
4,288
|
|
Capital leases
|
|
|
|
|
|
|
305
|
|
|
|
839
|
|
Common stock surrendered to retire stockholder notes receivable
|
|
|
476
|
|
|
|
|
|
|
|
|
|
24. SUBSEQUENT EVENTS
On January 24, 2017, the Company completed a secondary public offering in which certain funds managed by Oaktree and certain members of
management sold 14,375,000 shares of common stock at a price of $27.00 per share, including 1,875,000 shares purchased by the underwriters who fully exercised their option to purchase such shares. The Company received no proceeds from such offering
but incurred fees of $850 ($508 in Fiscal 2016 and $342 in Fiscal 2017). Proceeds of $373,570, net of underwriting fees, were received by the selling stockholders. As a result of such secondary offering, the Company ceased being a controlled
company within the meaning of the corporate governance standards of the New York Stock Exchange.
F-45
SCHEDULE II
ADVANCEPIERRE FOODS HOLDINGS, INC.
Valuation and Qualifying Accounts
For the Fiscal Years Ended December 31, 2016, January 2, 2016 and January 3, 2015
(In thousands)
DESCRIPTION
Reserve deducted from related asset:
Reserves for excess and obsolete inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning
of period
|
|
|
Charged
to costs
And
Expenses
|
|
|
Charged
To
Other
Accounts
|
|
|
Deductions
net of
Recoveries (a)
|
|
|
Balance
at end
of period
|
|
Fiscal year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
4,450
|
|
|
$
|
11,660
|
|
|
$
|
|
|
|
$
|
(10,250
|
)
|
|
$
|
5,860
|
|
January 2, 2016
|
|
$
|
3,419
|
|
|
$
|
12,107
|
|
|
$
|
|
|
|
$
|
(11,076
|
)
|
|
$
|
4,450
|
|
January 3, 2015
|
|
$
|
4,417
|
|
|
$
|
10,746
|
|
|
$
|
|
|
|
$
|
(11,744
|
)
|
|
$
|
3,419
|
|
(a)
|
primarily dispositions of distressed, expired and discontinued product and write-offs
|