2.Product Recall

On April 23, 2015, we announced a voluntary product recall of certain varieties of the Company’s Fresh FrozenTM line of frozen vegetables, as well as select varieties of our Jamba® “At Home” line of smoothie kits because the Jefferson, Georgia facility tested positive for Listeria monocytogenes. The impacts recorded in our consolidated statement of operations attributable to the recall for the quarter and nine months ended September 26, 2015 are summarized as follows (in thousands):

	Quarter Ended September 26, 2015			Nine Months Ended September 26, 2015
Net revenues	$	—		$	—
Cost of revenues (1)	418			16,805

Gross profit	(418		)	(16,805		)
Operating expenses:
Selling, general & administrative expenses (2)	594			2,094
Impairment of intangible asset (3)	—			9,277

Operating loss	(1,012		)	(28,176		)
Interest expense	—			—

Loss before income taxes	(1,012		)	(28,176		)
Income tax benefit	240			9,904

Net loss	$	(772	)	$	(18,272	)

(1)

Additional cost of revenues represents the provision for the write-down of inventory on hand and for additional costs estimated to be incurred related to the recall, including product expected to be returned from customers and consumers, partially offset by recall-related insurance recoveries. Through September 26, 2015, the Company has incurred an estimated $18.8 million of product recall charges, $3.5 million of which was recorded during the quarter ended September 26, 2015. Approximately $1.5 million of the estimated product recall charges remain unsettled as of September 26, 2015. Additionally, during the quarter and nine months ended September 26, 2015, the Company incurred approximately $1.1 million and $2.2 million, respectively, of incremental production costs as a result of utilizing co-packers. These charges were partially offset by recall-related insurance recoveries of $4.2 million recorded during the quarter and nine months ended September 26, 2015.

(2)

Additional selling, general and administrative costs consists of approximately $0.6 million and $2.1 million for the quarter and nine months ended September 26, 2015, respectively, of professional fees associated with the recall.

(3)

Amount reflects a $9.3 million impairment charge recorded to write-off the carrying value of the Fresh Frozen customer relationships intangible asset.

We expect there will be additional costs related to this recall recorded in subsequent quarterly periods. Additionally, while it is too soon to reliably estimate the impact of this recall on the Company’s future sales of the Fresh FrozenTM brand and the Jamba® “At Home” line of smoothie kits, net revenues of the frozen vegetable products affected by the recall declined in the second and third fiscal quarters of 2015 compared to prior periods and are expected to be negatively impacted in subsequent quarterly periods.