UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ______
Commission file number:
001 - 37510
BLUE BUFFALO PET PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
46-0552933
(State or Other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 

11 River Road
Wilton, Connecticut 06897
(Address of Principal Executive Offices, Including Zip Code)
(203) 762-9751
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes (X) No ( )
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer (X)
 
Accelerated Filer ( )
Non-Accelerated Filer ( )
 
Smaller Reporting Company ( )
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( X ) No (X)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock
 
Outstanding Shares at May 4, 2017
Common stock, par value $0.01 per share
 
196,815,317
 






Blue Buffalo Pet Products, Inc.
Index


Page
 
 
 
 
 
 
 
 
 
 
 
Exhibits    
 
 
 
 






SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements. Words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Risk Factors” in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017, as such risk factors may be updated from time to time in our periodic filings with the SEC, and which are accessible on the SEC’s website at www.sec.gov, including the following:
We may not be able to successfully implement our growth strategy on a timely basis or at all;

The growth of our business depends on our ability to accurately predict consumer trends and demand and successfully introduce new products and product line extensions and improve existing products;

Any damage to our reputation or our brand could have a material adverse effect on our business, financial condition, and results of operations;

Our growth and business are dependent on trends that may change or not continue, and our historical growth may not be indicative of our future growth;

There may be decreased spending on pets in a challenging economic climate;

Our business depends, in part, on the sufficiency and effectiveness of our marketing and trade promotion programs;

If we are unable to maintain or increase prices, our margins may decrease;

We are dependent on a relatively limited number of customers for a significant portion of our sales; and

We rely upon a limited number of contract manufacturers to provide a significant portion of our supply of products.






We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

We use the terms "we," "us" and the "Company" in this Quarterly Report on Form 10-Q to refer to Blue
Buffalo Pet Products, Inc. and its subsidiaries. We use the term "Wholesome Natural" in this Quarterly Report on Form 10-Q to refer to the pet food market consisting of brands that achieve their nutritional targets using only natural ingredients (as defined by the Association of American Feed Control Officials), which may include added vitamins, minerals and other trace nutrients. All Wholesome Natural dry foods have whole meats and/or meat meals, with the type of animal protein clearly identified, as their principal ingredients. Wholesome Natural products (dry foods, wet foods and treats) do not include chicken or poultry by-product meals, which we believe pet parents do not desire. Wholesome Natural products also do not rely on grain proteins, such as corn gluten meal, wheat gluten and soybean meal, as principal sources of protein, as grain proteins have a narrower array of amino acids compared to animal proteins. In addition, these products also do not use corn, wheat, soy or fractionated grains, such as brewer’s rice, as sources of starch. For more information regarding our definitions of market segments, see the description set forth under the "Terms Used in This Annual Report on Form 10-K" and "Item 1. Business" sections of our Annual Report on Form 10-K.






PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Blue Buffalo Pet Products, Inc.
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands, except for share data)




 
March 31,
2017
 
December 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
338,232

 
$
292,656

Receivables, net
110,053

 
115,446

Inventories
80,544

 
70,941

Prepaid expenses and other current assets
5,474

 
6,130

Total current assets
534,303

 
485,173

 
 
 
 
Restricted cash
781

 
781

Property, plant and equipment, net
167,803

 
162,232

Deferred income taxes
52

 
1,311

Other assets
373

 
853

Total assets
$
703,312

 
$
650,350

 
 
 
 
LIABILITIES AND STOCKHOLDERS  EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
3,960

 
$
3,960

Accounts payable
40,266

 
35,238

Other current liabilities
63,288

 
59,629

Total current liabilities
107,514

 
98,827

 
 
 
 
Long-term debt
378,187

 
379,177

Deferred income taxes
13,885

 
12,660

Other long-term liabilities
11,152

 
13,348

Total liabilities
510,738

 
504,012

 
 
 
 
Commitments and contingencies

 

Stockholders  equity:
 
 
 
Preferred stock; $0.01 par value; 150,000,000 shares authorized; none issued or outstanding at March 31, 2017 and December 31, 2016

 

Common stock, voting; $0.01 par value; 1,500,000,000 shares authorized; 196,812,039 and 196,524,010 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
1,968

 
1,965

Additional paid-in capital
74,133

 
71,420

Retained earnings
116,782

 
72,692

Accumulated other comprehensive (loss) income
(309
)
 
261

Total stockholders  equity
192,574

 
146,338

Total liabilities and stockholders  equity
$
703,312

 
$
650,350


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

Blue Buffalo Pet Products, Inc.
Unaudited Condensed Consolidated Statements of Income
(dollars in thousands, except for share data)




 
Three Months Ended March 31,
 
2017
 
2016
Net sales
$
301,951

 
$
279,836

Cost of sales
163,276

 
156,604

Gross profit
138,675

 
123,232

Selling, general and administrative expenses
66,311

 
59,756

Operating income
72,364

 
63,476

Interest expense, net
3,066

 
3,637

Income before income taxes
69,298

 
59,839

Provision for income taxes
25,208

 
22,506

Net income
$
44,090

 
$
37,333

 
 
 
 
Basic net income per common share
$
0.22

 
$
0.19

Diluted net income per common share
$
0.22

 
$
0.19

Basic weighted average shares
196,621,906

 
196,217,311

Diluted weighted average shares
199,524,913

 
198,160,465



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

Blue Buffalo Pet Products, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(dollars in thousands)



 
 
Three Months Ended March 31,
 
 
2017
 
2016
Net income
 
$
44,090

 
$
37,333

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
 
(570
)
 
28

Other comprehensive income (loss), before tax
 
(570
)
 
28

Income tax expense on other comprehensive income (loss)
 

 

Other comprehensive income (loss), net of tax
 
(570
)
 
28

Comprehensive income
 
$
43,520

 
$
37,361



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Blue Buffalo Pet Products, Inc.
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity
(dollars in thousands, except for share amounts)




 
Common shares outstanding
 
Common stock
 
Additional paid-in capital
 
Retained earnings
 
Accumulated other comprehensive (loss) income
 
Total
Balance at December 31, 2016
196,524,010

 
$
1,965

 
$
71,420

 
$
72,692

 
$
261

 
$
146,338

Other comprehensive income

 

 

 

 
(570
)
 
(570
)
Issuance of restricted stock awards
35,430

 

 
815

 

 

 
815

Exercise of stock options
252,599

 
3

 
1,423

 

 

 
1,426

Stock-based compensation expense

 

 
475

 

 

 
475

Net income

 

 

 
44,090

 

 
44,090

Balance at March 31, 2017
196,812,039

 
$
1,968

 
$
74,133

 
$
116,782

 
$
(309
)
 
$
192,574



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

Blue Buffalo Pet Products, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)




 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
44,090

 
$
37,333

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
2,407

 
2,194

Amortization of debt issuance costs
30

 
30

Stock-based compensation
1,290

 
447

Loss on disposal of fixed assets
384

 
13

Deferred income taxes
2,484

 
11,373

Tax benefit from exercise of stock options

 
(3
)
Payment of class action legal settlement

 
(32,000
)
Effect of changes in operating assets and liabilities:
 
 
 
Receivables
5,461

 
16,387

Inventories
(9,545
)
 
7,306

Prepaid expenses and other assets
1,112

 
1,740

Accounts payable
4,272

 
1,970

Other liabilities
1,383

 
(4,257
)
Net cash provided by operating activities
53,368

 
42,533

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(8,362
)
 
(796
)
Net cash used in investing activities
(8,362
)
 
(796
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments on long-term debt
(990
)
 
(990
)
Proceeds from exercise of stock options
1,426

 
61

Tax benefit from exercise of stock options

 
3

Net cash provided by (used in) financing activities
436

 
(926
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
134

 
23

Net increase in cash and cash equivalents
45,576

 
40,834

Cash and cash equivalents at beginning of period
292,656

 
224,253

Cash and cash equivalents at end of period
$
338,232

 
$
265,087



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



Note 1 – The Company

Blue Buffalo Pet Products, Inc. (“BBPP”, and together with its subsidiaries, the “Company,” “we,” “us,” “its,” and “our”) was incorporated in the state of Delaware in July 2012 and conducts its business exclusively through its wholly-owned operating subsidiary, Blue Buffalo Company, Ltd. (“Blue”) (formerly The Blue Buffalo Company, LLC) and its subsidiaries. Blue was formed in August 2002, and is the parent company of five wholly-owned subsidiaries: Great Plains Leasing, LLC, Heartland Pet Food Manufacturing Holding, LLC, Sierra Pet Products, LLC, Blue Buffalo Pet Products Canada, Ltd., and Blue Buffalo Japan Kabushiki Kaisha. Additionally, Blue Buffalo Import Mexico, S. de R.L. de C.V., Blue Buffalo Mexico, S. de R.L. de C.V., Heartland Pet Food Manufacturing, Inc. and Heartland Pet Food Manufacturing Indiana, LLC are indirect wholly-owned subsidiaries of BBPP. BBPP and its subsidiaries develop, produce, market, and sell pet food under the following product lines: BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom, and BLUE Natural Veterinary Diet, and our recently introduced BLUE Earth's Essentials. Our products are produced domestically at our Heartland facility and through contract manufacturers for distribution to retailers in specialty channels throughout the United States of America, Canada, Japan, and Mexico.
In July 2012, Blue formed Heartland Pet Food Manufacturing, Inc. (“Heartland”) for the purpose of commencing internal manufacturing operations to eventually supplement its contract manufacturers. Manufacturing operations commenced at our Heartland facility in Joplin, Missouri in September 2014. In April 2016, Blue formed Heartland Pet Food Manufacturing Holding, LLC for the purpose of consolidating all manufacturing entities under one holding company. In April 2016, Heartland Pet Food Manufacturing Indiana, LLC was formed for our planned internal manufacturing operations in Indiana.

Initial Public Offering

On July 27, 2015, BBPP completed the initial public offering (“IPO”) of shares of its common stock. Existing stockholders of BBPP sold 38,906,286 shares of common stock in the IPO at an initial offering price of $20.00 per share, including 5,074,732 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares. In addition, BBPP issued 30,682 shares of common stock to approximately 1,700 non-management employees at no cost to them.

Secondary Offerings
In July 2016 and September 2016, BBPP completed two secondary offerings of shares of its common stock. Certain existing stockholders of BBPP sold 17,250,000 and 14,300,000 shares of common stock, respectively, in the July and September secondary offerings.

Note 2 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of BBPP and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of

6

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




operations for interim periods may not be representative of results to be expected for a full year. Certain prior year amounts have been reclassified to conform to the current period presentation.

On July 7, 2015, BBPP effected a 4.2 -for-1 stock split of all outstanding shares of BBPP’s common stock. All share, option, and per share information presented in the accompanying unaudited condensed consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented and all share information is rounded down to the nearest whole share after reflecting the stock split.

Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements and related notes for the year ended December 31, 2016 , included in BBPP’s Annual Report on Form 10-K, filed with the SEC pursuant to Rule 424(b) of the Securities Act, on March 1, 2017.

Accounting Standards Adopted in 2016

In March 2016, the FASB Issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
The Company elected to early adopt ASU 2016-09 in the third quarter of fiscal 2016 which requires the Company to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. Under ASU 2016-09, all excess tax benefits and deficiencies related to employee share-based compensation will be recognized within the provision for income taxes rather than additional paid-in capital under the prior guidance. The adoption of ASU 2016-09 resulted in the recognition of excess tax benefits in our provision for income taxes of $1.4 million for the nine months ended September 30, 2016. Upon early adopting ASU 2016-09, the Company elected to change its accounting policy to record forfeitures as they occur rather than based on an estimate. This change was applied on a modified retrospective basis and the cumulative-effect adjustment was not recorded to retained earnings as of January 1, 2016 as the amount was immaterial.
Additionally, under the guidance of ASU 2016-09, the Company is required to present excess tax benefits as an operating activity in the same manner as other cash flows related to income taxes on the statement of cash flows rather than as a financing activity. The Company elected not to adjust prior year cash presentations as the impact was not material.
In August 2015, the FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update).” The new standard is intended to address the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements which was previously not addressed in ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The Company adopted this standard on January 1, 2016. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows or financial position.

7

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




Accounting Standards to be Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which clarifies the principles for recognizing revenue. The guidance is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Further, the guidance requires improved disclosures as well as additional disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. In 2015, the FASB issued a deferral of the effective date of the standard to the first quarter of 2018, with early adoption in fiscal 2017 permitted. In 2016, FASB issued final amendments clarifying the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for intellectual property licenses. Upon becoming effective, the Company will apply the amendments in the updated standard either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company is currently evaluating the provisions of ASU No. 2014-09 and assessing the impact on its financial statements. As part of our assessment work to-date, we have formed an implementation work team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and documentation. It has not yet been determined if the full retrospective or the modified retrospective method will be applied.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability of organizations by requiring lease assets and lease liabilities to be recognized on the balance sheet and disclosing key information about lease arrangements. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The standard is effective for the Company beginning January 1, 2019, with early application permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory", which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard must be adopted using a modified retrospective transition method which is a cumulative-effective adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently in the process of evaluating the impact of this new standard on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which provides guidance on the classification of restricted cash in the statement of cash flows. ASU 2016-18 is effective after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-18 to have a material effect on its consolidated financial statements.

8

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)





Note 3 – Receivables

Receivables consisted of the following:
(dollars in thousands)
March 31,
2017
 
December 31,
2016
Trade receivables, net
$
104,512

 
$
110,873

Other receivables
5,541

 
4,573

Total
$
110,053

 
$
115,446


Other receivables consist primarily of reimbursable amounts due from co-manufacturers for packaging of $4.1 million and $3.8 million at March 31, 2017 and December 31, 2016 , respectively. As of March 31, 2017 and December 31, 2016 the allowance for doubtful accounts was $1.2 million and $0.4 million , respectively.

Note 4 – Inventories

Inventories consisted of the following:
(dollars in thousands)
March 31,
2017
 
December 31,
2016
Finished goods
$
76,655

 
$
67,187

Work in process
208

 
286

Raw materials
2,556

 
2,346

Packaging and supplies
1,125

 
1,122

Total
$
80,544

 
$
70,941



9

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




Note 5 – Property, Plant and Equipment

Property, plant and equipment consisted of the following:
(dollars in thousands)
March 31,
2017
 
December 31,
2016
Buildings
$
59,314

 
$
59,314

Machinery and equipment
49,278

 
49,079

Computer software
15,441

 
14,849

Computer equipment
4,729

 
4,599

Furniture and fixtures
1,774

 
1,772

Leasehold improvements
1,480

 
1,477

Land improvements
493

 
493

Land
395

 
401

Buildings improvements
192

 
189

Construction in progress
60,725

 
53,891

 
193,821

 
186,064

Accumulated depreciation and amortization
(26,018)

 
(23,832)

Total
$
167,803

 
$
162,232


Depreciation and amortization expense was approximately $2.4 million and $2.2 million for the three months ended March 31, 2017 and 2016 , respectively.

In August of 2016, Heartland and the City of Joplin, Missouri, or Joplin, entered into agreements by which Joplin agreed to issue up to an aggregate principal amount of approximately $83.3 million of industrial revenue bonds to purchase the land on which the current Heartland facility resides and the land on which the expansion of the Heartland facility will reside, and the associated buildings, structures, and fixtures, including the additional manufacturing equipment which will be included in the expansion of the Heartland facility (collectively, the “Property”). Heartland agreed to purchase such industrial revenue bonds and which Property was then agreed to be leased back to Heartland. As Heartland will become the owner of the Property at the end of the lease term, the lease meets the requirements of a capital lease and the equipment and land are recorded as property, plant and equipment our balance sheet. The Company has the right and intends to set-off any obligation to make payments under the lease agreement with the amounts due under the industrial revenue bonds. As of March 31, 2017 , Joplin had issued and Heartland had purchased approximately $10.8 million of industrial revenue bonds and Joplin had purchased from, and leased back to, Heartland the land for a corresponding amount.

10

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




Note 6 – Long-term Debt

Long-term debt consisted of the following:

(dollars in thousands)
March 31, 2017
 
December 31, 2016
Term loan
$
382,147

 
$
383,137

Less current maturities
(3,960
)
 
(3,960
)
Total long-term debt
$
378,187

 
$
379,177


At March 31, 2017 , we had $382.1 million of term loan borrowings (fair value of $385.0 million ) at an effective interest rate of 3.83% and no outstanding borrowings under the revolving credit facility. At December 31, 2016 , the Company had $383.1 million of term loan borrowings (fair value of $386.5 million ) at an effective interest rate of 3.79% and no outstanding borrowings under the revolving credit facility. Principal payments on the term loan borrowings are due and payable in quarterly installments of approximately $1.0 million with the then expected remaining balance of $373.2 million due on August 8, 2019.

During each of the three-month periods ended March 31, 2017 and 2016, the Company recorded amortization expense for deferred debt issuance costs of approximately $30,000 .

The Company’s term loan and revolving credit facility (the “Amended Facility”) contains and defines financial covenants, including a secured leverage ratio (defined as, with certain adjustments, the ratio of (i) the Company’s indebtedness less unrestricted cash and cash equivalents up to $40.0 million to (ii) consolidated net income before interest, taxes, depreciation and amortization) for the most recently ended 4 quarters not to exceed 3.75 :1.00. The Amended Facility also sets forth mandatory and optional prepayment conditions, including an annual excess cash flow requirement, as defined, that may result in our use of cash to reduce our debt obligations. For the year ended December 31, 2016 , the Company was not required to make an excess cash flow payment. As of March 31, 2017 , the Company is in compliance with its financial debt covenants.

Note 7 – Fair Value Measurements

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, other current liabilities, and debt, none of which are measured at fair value on a recurring basis. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair value due to the short-term nature of these financial instruments. The Company’s long-term financial liabilities consist of the long-term debt. Long-term debt is recorded on the unaudited condensed consolidated balance sheets at issuance price and adjusted for any applicable unamortized discounts or premiums.

11

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




The Company accounts for its fair value measurements in accordance with accounting guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The fair value hierarchy for disclosure of fair value measurements is as follows:

Level 1 -  Quoted prices in active markets for identical assets or liabilities
Level 2 -  Quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 -  Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

At March 31, 2017 and December 31, 2016 , the Company had approximately $271.0 million and $270.9 million , respectively, of cash invested in money market deposit accounts which were included in cash and cash equivalents on the accompanying unaudited condensed consolidated balance sheets (Level 1).

The Company reports transfers in and out of Levels 1, 2 and 3, as applicable, using the fair value of the individual securities as of the beginning of the reporting period in which the transfer(s) occurred. There were no transfers in or out of Level 1, 2, or 3 during the three months ended March 31, 2017 and the year ended December 31, 2016 .

Assets that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets. For these assets, the Company does not periodically adjust carrying value to fair value, except in the event of impairment. When the Company determines that an impairment has occurred, the carrying value is reduced to fair value and the difference is recorded as an impairment loss in our consolidated statements of income.

As of March 31, 2017 , the carrying value of the Company’s outstanding borrowings under the Amended Facility was approximately $382.1 million as compared to a fair value of $385.0 million (Level 2). As of December 31, 2016 , the carrying value of the Company’s outstanding borrowings under the Amended Facility was approximately $383.1 million as compared to a fair value of $386.5 million (Level 2). The estimated fair value of the Company’s debt was based primarily on reported market values, recently completed market transactions and estimates based upon interest rates, maturities and credit risk.
Note 8 – Stock-Based Compensation

Incentive Plans

Under the Company’s 2012 Blue Buffalo Pet Products, Inc. Stock Purchase and Option Plan (the “Plan”), the Board of Directors is authorized to award stock options (ISOs and non-qualified), stock appreciation rights (SARs), restricted stock, performance units, performance-based stock awards, dividend equivalent rights and other stock-based grants. Participation in the Plan is limited to key employees, officers and directors.
 
On March 4, 2013, the Plan was amended to increase the maximum number of shares of stock available under the Plan by 210,000 shares to 14,242,061 shares (the “Amended Plan”). As of March 31, 2017 , there were 5,230,642 shares of common stock reserved under the Amended Plan. As of March 31, 2017 , the maximum number of shares available for grant under the Amended Plan was 110,066 .

In July 2015, the Board of Directors adopted and our shareholders approved the Company’s 2015 Omnibus Incentive Plan (“2015 Plan”). The 2015 Plan provides that the total number of shares of common stock that

12

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




may be issued under our 2015 Plan is 8,400,000 . The 2015 Plan provides for the grant of stock options (ISOs and non-qualified), SARs, restricted stock awards (RSAs), restricted stock units (RSUs), performance units, performance-based stock awards, dividend equivalent rights and other stock-based incentive awards. As of March 31, 2017 , the maximum number of shares available for grant under the 2015 Plan was 7,507,532 .
Stock Options

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. Stock options granted under the 2012 plan are subject to pro-rata vesting and grants under the 2015 Plan are subject to cliff vesting. The fair value of stock options is expensed on a straight-line basis over the vesting period.

Prior to the Company’s initial public offering, the Company used a third party valuation specialist to assist it in the estimation of the fair value of its common stock. The Company believed these valuations to be appropriate; however, the valuation of the equity of any private company involves various estimates and assumptions that may differ from actual values. Effective with our initial public offering, the Company bases its common stock value on quoted market prices. The expected volatility assumption is based on the combination of the Company's historical volatility and selected companies from its peer group. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant. The weighted-average expected term is determined with reference to historical exercise and post-vesting cancellation experience, and the vesting period and contractual term of the awards.

The following are the weighted-average assumptions used for grants issued during the three month period ended March 31:
 
2017
Volatility
30.66
%
Risk-free interest rate
1.93
%
Expected term (years)
5

Dividend yield

Grant-date fair value
$
7.00


There were no grants issued during the three month period ended March 31, 2016.

The following table summarizes stock option activity during the year and also presents stock options outstanding and exercisable as of March 31, 2017 (dollars in millions, except for per share data):





Number of
Shares
 
Weighted Average Exercise Price Per Share
Options outstanding at December 31, 2016
4,248,156

 
$
7.21

Granted
375,027

 
$
23.00

Exercised
(252,599
)
 
$
5.64

Forfeited
(8,323
)
 
$
19.73

Expired
(7,171
)
 
$
7.52

Options outstanding at March 31, 2017
4,355,090

 
$
8.63

Options exercisable at March 31, 2017
2,709,410

 
$
5.78


13

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)





During the three months ended March 31, 2017 , the Company granted 176,034 ISOs and 198,993 non-qualified stock option grants.
Restricted Stock

The following table summarizes RSA and RSU activity for the three months ended March 31, 2017 :
 
RSAs
 
RSUs





Number of
Shares
 
Weighted Average Grant Date Fair Value
 
Number of
Shares
 
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016

 
$

 
61,861

 
$
25.45

Granted
35,430

 
$
23.00

 
103,863

 
$
23.00

Vested
(35,430
)
 
$
23.00

 

 
$

Forfeited

 
$

 
(2,304
)
 
$
25.57

Outstanding at March 31, 2017

 
$

 
163,420

 
$
23.89


During the three months ended March 31, 2017 , members of the Company's Board of Directors received a fully-vested grant of 35,430 RSAs with a three-year holding restriction under the 2015 Plan. The total fair value of these restricted stock awards on the date of grant was $0.8 million , of which the full amount was recognized as a component of stock-based compensation expense during the three months ended March 31, 2017.

During the three months ended March 31, 2017, the Company granted 103,863 RSUs under the 2015 Plan to its employees. The stock-based compensation cost for RSUs is measured based on the closing fair market value of the Company's common stock on the date of grant. RSUs have a three-year cliff vesting term. The total fair value of these restricted stock units on the date of grant was $2.4 million , which will be recognized as a component of stock-based compensation expense and amortized on a straight-line basis over the three-year vesting term.

Stock-based Compensation Expense

Stock-based compensation costs charged to operations (as a component of selling, general, and administrative expenses) during the three months ended March 31, 2017 and 2016 was approximately $1.3 million and $0.4 million , respectively.

Unrecognized stock-based compensation related to outstanding unvested stock options is expected to be recognized in the Company’s statements of income as follows (by fiscal year):

(dollars in thousands)
 
2017 (period from April 1, to December 31, 2017)
$
2,666

2018
3,074

2019
2,061

2020
470

Total
$
8,271


14

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




Note 9 – Earnings Per Share

The details of the computation of basic and diluted earnings per common share are as follows:

 
Three Months Ended March 31,
(dollars in thousands, except for per share data)
2017
 
2016
Net income
$
44,090

 
$
37,333

 
 
 
 
Basic weighted average number of shares outstanding
196,621,906

 
196,217,311

Dilutive effect of stock options and RSUs
2,903,007

 
1,943,154

Diluted weighted average number of shares outstanding
199,524,913

 
198,160,465

 
 
 
 
Basic net income per common share
$
0.22

 
$
0.19

Diluted net income per common share
$
0.22

 
$
0.19

Anti-dilutive shares excluded from diluted earnings per share computation
239,025

 
102,990

Note 10 – Related Parties

Invus Partners LLC which, as of March 31, 2017 , beneficially owned 44.4% of the Company's outstanding common stock, holds $19.7 million of the Company’s outstanding debt under the Amended Facility. Several of the members of the Company's Board of Directors (“BOD”) are members of Invus Partners LLC, as well as managing directors and officers of the general partner of Invus Partners LLC.

In addition, Kunkemueller Enterprises LP, which is owned in part by the wife of one of the members of our BOD, holds $1.4 million of our debt under the Amended Facility.

Note 11 – Legal Proceedings
In the normal course of business, we are subject to proceedings, lawsuits and other claims and assessments, which typically include consumer complaints and post-termination employment claims. We have assessed such contingent liabilities and believe that other than the litigations described below the potential of these liabilities is not expected to have a material, if any, effect on our financial position, our results of operations or our cash flows.
Nestlé Purina and Related Litigations
On May 6, 2014, Nestlé Purina Petcare Company (“Nestlé Purina”) filed a lawsuit against us in the United States District Court for the Eastern District of Missouri, which alleged that we had engaged in false advertising, commercial disparagement, unfair competition, and unjust enrichment (the “Nestlé Purina litigation”). Nestlé Purina asserted, among other things, that, contrary to our advertising and labeling claims, certain BLUE products contained chicken or poultry by-product meals, artificial preservatives and/or corn and that certain products in the BLUE grain-free lines contained grains. Nestlé Purina sought an injunction prohibiting us from making these alleged false and misleading statements, as well as treble damages,

15

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




restitution and disgorgement of our profits, among other things. In addition, Nestlé Purina issued press releases and made other public announcements, including advertising and promotional communications through emails and internet and social media websites that made claims similar to those contained in their lawsuit. Nestlé Purina sought a declaratory judgment that these statements were true and did not constitute defamation.
In the course of pretrial discovery in the consolidated Nestlé Purina lawsuit, beginning in September 2014 documents and information were revealed that indicate that a facility owned by a major supplier of ingredients to the pet food industry, including Blue Buffalo, for a period of time, had mislabeled as “chicken meal” or “turkey meal” ingredients that contained other poultry-based ingredients that were inappropriate for inclusion in “chicken meal” or “turkey meal” under industry standards, and it appeared that this mislabeling was deliberate. This conduct was undertaken by the supplier without our knowledge, and we have since ceased purchasing ingredients from this facility. This supplier was one of our primary sources of chicken meal and turkey meal. As a result of the supplier’s conduct, our advertising claims of “no chicken or poultry by-product meals” were inaccurate as to products containing the mislabeled ingredients. Therefore, we were exposed to false advertising liability to Nestlé Purina and are similarly exposed to such liability to others to the extent a claimant can prove they were injured by our actions. Such liability may be material. We brought third-party indemnity and damages claims, with respect to the Nestlé Purina lawsuit, against the supplier that mislabeled the ingredients, as well as a broker involved in those transactions for such mislabeled ingredients. The trial court narrowed certain of our third party claims in response to motions to dismiss filed by the third parties but allowed numerous claims to proceed. In addition, we maintain insurance coverage for some of the Nestlé Purina claims.
On October 15, 2014, we initiated a separate false advertising lawsuit against Nestlé Purina in state court in Connecticut. Nestlé Purina subsequently removed the case to the United States District Court for the District of Connecticut, and the Connecticut District Court then granted Nestlé Purina’s motion to transfer this matter to the same court where Nestlé Purina’s lawsuit against us was pending. Our complaint sought an injunction prohibiting Nestlé Purina from continuing these false and misleading advertisements, as well as damages and disgorgement of profits, among other things. On July 31, 2015, Nestlé Purina filed an amended answer in this case that also asserted counterclaims against us.
On November 2, 2016, we entered into a settlement agreement with Nestlé Purina pursuant to which we paid Nestlé Purina $32.0 million , each party dismissed all of its claims and counterclaims against the other with prejudice, and we dismissed, with prejudice, our claims against Nestlé Purina’s advertising and public relations agencies (the “Nestlé Purina Settlement”). We plan to continue to pursue our claims against the third party ingredient supplier and broker that sold us mislabeled ingredients, as well as against our insurance providers as further described below. However, we may not be able to fully recover from such supplier or broker, or from our insurance providers the full amount paid in the Nestlé Purina Settlement or other damages incurred in connection with our litigation with Nestlé Purina. In addition, our lawsuits against (i) the third party ingredient supplier and broker, and (ii) our insurance providers, are currently subject to a stay. On March 9, 2017, the United States District Court for the Eastern District of Missouri, which is presiding over our lawsuit against the third party ingredient supplier and broker, granted a motion by the United States Department of Justice to stay all proceedings in our lawsuit through at least July 19, 2017, due to the potential for the lawsuit to interfere with an ongoing criminal investigation. The Department of Justice has already filed criminal charges against both the third party ingredient supplier and broker for violations of the Federal Food, Drug and Cosmetic Act, and has indicated that its investigation is ongoing.
In addition, a number of related putative consumer class action lawsuits were filed in various states in the U.S. making allegations similar to Nestlé Purina’s and seeking monetary damages and injunctive relief. We

16

Blue Buffalo Pet Products, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)




also brought damages and indemnity claims against our former ingredient supplier and broker with respect to these U.S. class action lawsuits. In December 2015, we entered into a settlement agreement with the plaintiffs to resolve all of the U.S. class action lawsuits (the “Class Action Settlement”). Under the terms of the Class Action Settlement, we agreed to pay $32.0 million into a settlement fund, and on January 8, 2016, we paid this $32.0 million into an escrow account pending final court approval. Attorneys’ fees awarded by the court and all costs of notice and claims administration will be paid from the settlement fund. The Class Action Settlement received final court approval on May 19, 2016, and has since been appealed to the United States Court of Appeals for the Eighth Circuit. The amount that each class member who submits a claim for reimbursement will receive will depend on the total amount of Blue Buffalo products purchased by the claimant during the class period and certain other conditions including whether the claimant has a proof of purchase. The Class Action Settlement value does not take into account any potential recovery from insurance or from our former ingredient supplier or broker, against whom we will continue to pursue our claims for indemnity and other damages. However, we may not be able to fully recover from such supplier or broker, or from our insurance providers, the full amount of paid in the Class Action Settlement or other damages incurred in connection with the U.S. class action lawsuits.
In addition to the U.S. class actions, which are the subject of the Settlement, in February 2016, a putative class action was filed in the Ontario Superior Court of Justice in Ottawa, Ontario, seeking damages and injunctive relief based on allegations similar to those made in the U.S. class actions. We believe the claims are without merit and plan to vigorously defend ourselves.
On July 11, 2016, we filed a lawsuit in State of Connecticut Superior Court against Travelers Property and Casualty Company of America and The Travelers Indemnity Company of Connecticut (together, “Travelers”), which provided our primary and excess commercial general liability insurance coverage from February 2007 to February 2011 (collectively, the “Travelers Policies”), as well as the Hartford Fire Insurance Company, Hartford Underwriters Insurance Company, and Hartford Casualty Insurance Company (collectively, “Hartford”). Hartford has provided our primary and excess commercial general liability insurance coverage since February 2011 (collectively, the “Hartford Policies”). Our lawsuit alleges that Travelers and Hartford, among other things, (a) breached their duties under the Travelers Policies and the Hartford Policies, respectively, by failing to (i) pay all reasonable defense fees and costs in connection with the Nestlé Purina litigation, the U.S. class action lawsuits and the putative class action in Ontario; and (ii) indemnify us for the $32.0 million U.S. class action settlement; (b) breached their covenants of good faith and fair dealing owed to us and acted in bad faith; and (c) violated the Connecticut Unfair Insurance Practices Act and the Connecticut Unfair Trade Practices Act. Our lawsuit also seeks declaratory judgment that we are entitled under the Travelers Policies and Hartford Policies to (x) a full defense, including payment of all reasonable and necessary defense fees and costs, in the Nestlé Purina litigation and the putative class action in Ontario; (y) coverage for the legal fees and costs incurred in our prosecution of any of our third party claims against the ingredient supplier and broker that sold us mislabeled “chicken meal” or “turkey meal” ingredients; and (z) full indemnity against (i) the settlement in the Nestlé Purina litigation, (ii) any settlement or judgment in the putative class action in Ontario and (iii) the $32.0 million settlement in the U.S. class action lawsuits.
On March 13, 2017, the court granted a joint motion by the parties to stay this litigation pending resolution of our claims against the third party ingredient supplier and broker discussed above.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following is a discussion of our results of operations and current financial condition. This should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2016 and related notes included in our Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Our Business

We are the fastest growing major pet food company in the United States, selling dog and cat food made with whole meats, fruits and vegetables, and other high-quality, natural ingredients. BLUE is a billion dollar brand and is the #1 brand in the Wholesome Natural market. We develop, produce, market, and sell pet food under six product lines: BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom, BLUE Natural Veterinary Diet lines, and our recently introduced BLUE Earth's Essentials.

Our products are produced domestically through a hybrid network of owned and contracted manufacturing facilities and distributed from owned and contracted distribution centers to retailers in the specialty channels throughout the United States of America, Canada, Japan, and Mexico.

Results of Operations

The following tables present our selected statement of income data in dollars and expressed as a percentage of net sales for the periods presented:

 
Three Months Ended March 31,
 
% of Net Sales
(dollars in thousands, except for per share amounts and percentages)
2017
 
2016
 
2017
 
2016
Net sales
$
301,951

 
$
279,836

 
100.0
%
 
100.0
%
Cost of sales
163,276

 
156,604

 
54.1
%
 
56.0
%
Gross profit
138,675

 
123,232

 
45.9
%
 
44.0
%
Selling, general, and administrative expenses
66,311

 
59,756

 
22.0
%
 
21.4
%
Operating income
72,364

 
63,476

 
24.0
%
 
22.7
%
Interest expense, net
3,066

 
3,637

 
1.0
%
 
1.3
%
Income before income taxes
69,298

 
59,839

 
23.0
%
 
21.4
%
Provision for income taxes
25,208

 
22,506

 
8.3
%
 
8.0
%
Net income
$
44,090

 
$
37,333

 
14.6
%
 
13.3
%
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.22

 
$
0.19

 
 
 
 
Diluted net income per common share
$
0.22

 
$
0.19

 
 
 
 




18





Three Months Ended March 31, 2017 Compared With Three Months Ended March 31, 2016

Net Sales
Net sales in creased $22.1 million , or 7.9% , to $302.0 million for the three months ended March 31, 2017 , compared to $279.8 million for the three months ended March 31, 2016 . Volume growth accounted for 5.2 percentage points of the increase in net sales, favorable mix contributed 2.1 percentage points, and favorable net pricing contributed 0.6 percentage point.

Net sales of Dry Foods in creased $14.7 million , or 6.4% , to $245.2 million for the three months ended March 31, 2017 , compared to $230.5 million for the three months ended March 31, 2016 . Volume growth accounted for 4.9 percentage points of the increase in net sales of Dry Foods, favorable net pricing contributed 1.2 percentage points, and favorable product mix contributed 0.3 percentage point. The strong performance of our BLUE Wilderness primarily drove the growth in net sales of Dry Foods.

Net sales of Wet Foods, Treats and Other Products in creased $7.5 million , or 15.1% , to $56.8 million for the three months ended March 31, 2017 , compared to $49.3 million for the three months ended March 31, 2016 . Favorable product mix accounted for 10.0 percentage points of the increase in net sales of Wet Foods, Treats and Other Products, volume accounted for 6.8 percentage points, which was partially offset by unfavorable net pricing of 1.7 percentage points. The strong performance of BLUE Wilderness and BLUE Life Protection Formula product lines drove the growth in net sales of Wet Foods, Treats and Other Products.

Gross Profit
Gross profit in creased $15.4 million , or 12.5% , to $138.7 million for the three months ended March 31, 2017 , compared to $123.2 million for the three months ended March 31, 2016 , driven primarily by increased volume and supply chain efficiencies. Gross margin in creased to 45.9% for the three months ended March 31, 2017 from 44.0% for the three months ended March 31, 2016 , driven primarily by supply chain efficiencies including lower input costs.

Selling, General and Administrative Expenses
Selling, general and administrative expenses were $66.3 million for the three months ended March 31, 2017 , up $6.6 million , or 11.0% , from $59.8 million for the three months ended March 31, 2016 . The increase was primarily due to incremental expense related to our ongoing investments in advertising and marketing consistent with our strategy to invest in our brand and product lines.
Interest Expense, Net
Interest expense, net de creased $0.6 million , or 15.7% , to $3.1 million for the three months ended March 31, 2017 , compared to $3.6 million for the three months ended March 31, 2016 . This decrease was primarily due to capitalized interest expense recorded during the three months ended March 31, 2017. There was no capitalized interest recorded during the three months ended March 31, 2016 . Our effective interest rate quarter-over-quarter was 3.83% and 3.86% for the three months ended March 31, 2017 and 2016, respectively.

Provision for Income Taxes
Provision for income taxes in creased $2.7 million , or 12.0% , to $25.2 million for the three months ended March 31, 2017 , compared to $22.5 million for the three months ended March 31, 2016 . Our effective tax rate was 36.4% for the three months ended March 31, 2017 as compared to 37.6% for the three months ended

19





March 31, 2016 . The decrease in our effective tax rate was primarily driven by the effects of stock option exercises, which was partially offset by an increase in state taxes.

Net Income
As a result of the factors above, net income in creased $6.8 million , or 18.1% , to $44.1 million for the three months ended March 31, 2017 , compared to $37.3 million for the three months ended March 31, 2016 .
Financial Condition, Liquidity, and Capital Resources

Overview
Historically, our primary source of liquidity has been cash flow from operations. In addition, we also have a $40.0 million revolving credit facility to provide us with an additional source of liquidity but have not had to draw on our revolving credit facility. As of March 31, 2017 , our cash and cash equivalents were $338.2 million compared to cash and cash equivalents as of December 31, 2016 of $292.7 million . On August 8, 2012, we entered into a $350.0 million term loan facility and obtained an additional $50.0 million of term loans on December 6, 2012 through an incremental term loan facility. The aggregate gross proceeds of $400.0 million were used to pay dividends to our stockholders. As of March 31, 2017 , we had outstanding indebtedness of $382.1 million under the term loan facilities. Pursuant to the terms of the term loan facilities, we are required to make quarterly payments of approximately $1.0 million, with the remaining balance of $373.2 million due on August 8, 2019, the maturity date of the term loan facilities.

Our primary cash needs are for capital expenditures and working capital. Capital expenditures typically vary depending on the timing of infrastructure-related investments. We plan to make capital expenditures of approximately $150.0 million to $170.0 million in fiscal 2017, which we expect to fund from cash generated from operations. We expect the majority of expenditures in fiscal 2017 will be used to fund our multi-year program to expand our internal manufacturing capabilities.

Our primary working capital requirements are for product and product-related costs, the payment of payroll, rent and distribution costs, advertising and marketing expenditures and the costs related to the development and commercialization of new products. Fluctuations in working capital are primarily driven by fluctuations in accounts receivable. As of March 31, 2017 , we had working capital of $426.8 million , compared to $386.3 million as of December 31, 2016 .

We believe that our operating cash flow and cash on hand will be adequate to meet our operating, investing and financing needs for the foreseeable future. If necessary, we can borrow funds under our revolving credit facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. Our ability to meet our operating, investing and financing needs depend to a significant extent on our future financial performance, which will
be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control, described in the “Risk Factors” section of our Annual Report on Form 10-K, as filed with the SEC on March 1, 2017. In addition to these general economic and industry factors, the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will be our ability to provide attractive products to our customers and consumers, increase prices to offset higher commodity costs, manage production and our supply chain and improve our productivity. In the event that we need access to additional cash, we may not be able to access the credit markets on commercially acceptable terms or at all. We may need to refinance all or a portion of the principal amounts outstanding under our term loan

20





facilities on or before August 8, 2019. We expect to continually assess our performance, the economic environment and market conditions to guide our decisions regarding our uses of cash, including capital expenditures.
Cash Flows
Operating Activities
Net cash provided by operating activities was $53.4 million for the three months ended March 31, 2017 , compared to $42.5 million for the three months ended March 31, 2016 . The in crease in net cash provided by operating activities was primarily driven by an increase in net income partially offset by less favorable working capital changes. During the three months ended March 31, 2016 , we made a $32.0 million payment related to our settlement agreement in the U.S. consumer class action lawsuits.

Investing Activities
Net cash used in investing activities was $8.4 million for the three months ended March 31, 2017 , compared to $0.8 million for three months ended March 31, 2016 . The increase in net cash used in investing activities were primarily the result of capital expenditures for investments made in our three-year program to expand our internal manufacturing capabilities.

Financing Activities
Net cash provided by financing activities was $0.4 million for the three months ended March 31, 2017 , compared to net cash used in financing activities of $0.9 million for the three months ended March 31, 2016 . The increase in net cash provided by financing activities was primarily due to an increase in proceeds received from the exercise of stock options during the three months ended March 31, 2017 .

Description of Indebtedness
As of March 31, 2017 , our senior secured credit facilities consisted of $382.1 million of outstanding term loans maturing on August 8, 2019 and an undrawn $40.0 million revolving credit facility (which includes borrowing capacity available for letters of credit and for short-term borrowings) maturing on August 8, 2017. Blue, a wholly owned subsidiary of BBPP, is the borrower under our senior secured credit facilities. As of March 31, 2017 , the interest rate on the term loan facilities was 3.78% .
  
All obligations under our senior secured credit facilities are unconditionally guaranteed by Blue Pet Products, Inc., a wholly-owned subsidiary of BBPP and the direct parent of the borrower, and, subject to certain exceptions, each of our material current and future U.S. wholly-owned restricted subsidiaries. All obligations under our senior secured credit facilities, and the guarantees of those obligations, are secured by substantially all of the following assets of the borrower and each guarantor, subject to certain exceptions:

a pledge of 100% of the capital stock of the borrower and 100% of the equity interests directly held by the borrower and each guarantor in any wholly-owned material subsidiary of the borrower or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such non-U.S. subsidiary), subject to certain exceptions; and

a security interest in, and mortgages on, substantially all tangible and intangible assets of the borrower
and each guarantor, subject to certain exceptions.


21





Our senior secured credit facilities contain a number of covenants that, among other things, restrict the ability of the borrower and its restricted subsidiaries to (subject to certain exceptions): incur additional indebtedness or issue preferred stock; create liens on assets; enter into sale and leaseback transactions; engage in mergers or consolidations; sell assets; pay dividends and distributions or repurchase our capital stock; make investments, loans or advances; repay subordinated indebtedness; make certain acquisitions; engage in certain transactions with affiliates; amend material agreements governing its subordinated indebtedness; and change its lines of business. The credit agreement covenants also restrict the ability of Blue Pet Products, Inc. to engage in certain mergers or consolidations. The credit agreement also contains certain customary affirmative covenants and events of default (including change of control). In addition, the credit agreement includes maintenance covenants that require compliance with certain secured leverage ratios. The availability of certain baskets and the ability to enter into certain transactions (including the ability of the borrower to pay dividends to the parent guarantor) may also be subject to compliance with such secured leverage ratios. The Company believes it was in compliance with its financial debt covenants in the credit agreement as of March 31, 2017 .

Pricing Options
Borrowings under the term loan facilities bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% and (d) a floor of 2.00% or (2) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than 1.00%. The applicable margin for borrowings under the term loan facilities is 2.75% with respect to LIBOR borrowings and 1.75% with respect to base-rate borrowings. As of March 31, 2017 , the interest rate applicable to borrowings under the term loan facilities was 3.78% .

Borrowings under the revolving credit facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (i) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Citibank, N.A., (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. The applicable margin for borrowings under the revolving credit facility is 3.25% with respect to LIBOR borrowings and 2.25% with respect to base-rate borrowings. As of March 31, 2017 , the interest rate on the revolving credit facility was 4.25% .

Interest Expense
Interest on borrowings under our senior secured credit facilities is payable (1) on the last day of any interest period with respect to LIBOR borrowing with an applicable interest period of three months or less, (2) every three months with respect to LIBOR borrowings with an interest period of greater than three months or (3) on the last business day of each March, June, September and December with respect to base rate borrowings. In addition, we are required to pay a commitment fee on any unutilized commitments under the revolving credit facility. The initial commitment fee rate is 0.50% per annum and varies based upon a leverage-based pricing grid. We are also required to pay customary letter of credit fees.
Recent Accounting Pronouncements
Refer to Note 2 - "Basis of Presentation" of the unaudited condensed consolidated financial statements.

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Off-Balance Sheet Arrangements
In August of 2016, Heartland and the City of Joplin, Missouri, or Joplin, entered into agreements by which Joplin agreed to issue up to an aggregate principal amount of approximately $83.3 million of industrial revenue bonds to purchase the land on which the current Heartland facility resides and the land on which the expansion of the Heartland facility will reside, and the associated buildings, structures, and fixtures, including the additional manufacturing equipment which will be included in the expansion of the Heartland facility (collectively, the “Property”). Heartland agreed to purchase such industrial revenue bonds and which Property was then agreed to be leased back to Heartland. As Heartland will become the owner of the Property at the end of the lease term, the lease meets the requirements of a capital lease and the equipment and land are recorded as property, plant and equipment our balance sheet. The Company has the right and intends to set-off any obligation to make payments under the lease agreement with the amounts due under the industrial revenue bonds. As of March 31, 2017 , Joplin had issued and Heartland had purchased approximately $10.8 million of industrial revenue bonds and Joplin had purchased from, and leased back to, Heartland the land for a corresponding amount.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A summary of significant accounting policies and a description of accounting policies that are considered critical including revenue recognition, stock-based compensation, income taxes and inventories may be found in our audited consolidated financial statements and related notes for the year ended December 31, 2016 included in our Annual Report on Form 10-K. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from transactions in the normal course of our business. Such risk is principally associated with interest rates and commodity price fluctuations. We currently do not enter into derivatives or other financial instruments for trading or speculative purposes.
Interest Rate Risk
We are exposed to changes in interest rates because the indebtedness incurred under our senior secured credit facilities is variable rate debt. Interest rate changes generally do not affect the market value of our senior secured credit facilities but do affect the amount of our interest payments and, therefore, our future earnings and cash flows. As of March 31, 2017 , we had variable rate debt of approximately $382.1 million under our senior secured credit facilities. An increase of 1% would have increased our interest expense for the three months ended March 31, 2017 by approximately $1.0 million .
Commodity Price Risk
We use raw materials that are subject to price volatility caused by supply conditions, weather, political and economic variables and other unpredictable factors. We purchase some of our raw materials in the open market. We manage our raw material exposures by entering into contracts for our dry food ingredients and through ongoing productivity initiatives. In 2016, under our Commodity Price Risk Management Policy, we expect to contract approximately 90% of our ingredients for our forward twelve-month needs, as well as enter into fixed price and/or fixed quantity contracts for a pre-determined amount of our ingredients to reduce short term price volatility in certain commodities. Although we do not currently engage in hedging activities, we expect to adopt certain hedging strategies in the future consistent with our Commodity Price Risk Management Policy. If commodity price changes result in unexpected increases in raw materials, we may not be able to increase our prices to offset these increased costs without suffering reduced volume, net sales and operating results.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the our management, including our Chief Executive Officer and Executive Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this annual report, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer

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and Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our first quarter of fiscal 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are from time to time subject to, and are presently involved in, litigation and other proceedings. Other than the litigation and related class action lawsuits described below, we believe that there are no pending lawsuits or claims that, individually or in the aggregate, may have a material adverse effect on our business, financial condition or results of operations.
Nestlé Purina and Related Litigations
On May 6, 2014, Nestlé Purina Petcare Company (“Nestlé Purina”) filed a lawsuit against us in the United States District Court for the Eastern District of Missouri, which alleged that we had engaged in false advertising, commercial disparagement, unfair competition, and unjust enrichment (the “Nestlé Purina litigation”). Nestlé Purina asserted, among other things, that, contrary to our advertising and labeling claims, certain BLUE products contained chicken or poultry by-product meals, artificial preservatives and/or corn and that certain products in the BLUE grain-free lines contained grains. Nestlé Purina sought an injunction prohibiting us from making these alleged false and misleading statements, as well as treble damages, restitution and disgorgement of our profits, among other things. In addition, Nestlé Purina issued press releases and made other public announcements, including advertising and promotional communications through emails and internet and social media websites that made claims similar to those contained in their lawsuit. Nestlé Purina sought a declaratory judgment that these statements were true and did not constitute defamation.
On May 14, 2014, we filed a lawsuit against Nestlé Purina in the United States District Court for the Eastern District of Missouri, which alleged that Nestlé Purina has engaged in false advertising, unfair competition, unjust enrichment, and defamation. We alleged, among other things, that the statements made by Nestlé Purina advertising the allegations of their lawsuit were false and misleading, and we denied that our product formulas contain chicken or poultry by-product meals, artificial preservatives or corn and we denied that any of our grain-free products contain grains. Our complaint in this lawsuit sought, among other things, a preliminary and permanent injunction prohibiting Nestlé Purina from disseminating such false information, as well as damages (including punitive damages), restitution and disgorgement of all profits attributable to their false and deceptive advertising. On June 4, 2014, this lawsuit was consolidated with the Nestlé Purina lawsuit. We later amended our pleading to name as additional defendants the two advertising and public relations agencies that assisted Nestlé Purina with its advertising campaign.
In the course of pretrial discovery in the consolidated Nestlé Purina lawsuit, beginning in September 2014 documents and information were revealed that indicate that a facility owned by a major supplier of ingredients to the pet food industry, including Blue Buffalo, for a period of time, had mislabeled as “chicken meal” or “turkey meal” ingredients that contained other poultry-based ingredients that were inappropriate for inclusion in “chicken meal” or “turkey meal” under industry standards, and it appeared that this mislabeling was deliberate. This conduct was undertaken by the supplier without our knowledge, and we have since ceased purchasing ingredients from this facility. This supplier was one of our primary sources of chicken meal and turkey meal. As a result of the supplier’s conduct, our advertising claims of “no chicken or poultry by-product meals” were inaccurate as to products containing the mislabeled ingredients. Therefore, we were exposed to false advertising liability to Nestlé Purina and are similarly exposed to such liability to others to the extent a claimant can prove they were injured by our actions. Such liability may be material. We brought third-party indemnity and damages claims, with respect to the Nestlé Purina lawsuit, against the supplier that mislabeled the ingredients, as well as a broker involved in those transactions for such mislabeled ingredients.

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The trial court narrowed certain of our third party claims in response to motions to dismiss filed by the third parties but allowed numerous claims to proceed. In addition, we maintain insurance coverage for some of the Nestlé Purina claims.
On October 15, 2014, we initiated a separate false advertising lawsuit against Nestlé Purina in state court in Connecticut. Nestlé Purina subsequently removed the case to the United States District Court for the District of Connecticut, and the Connecticut District Court then granted Nestlé Purina’s motion to transfer this matter to the same court where Nestlé Purina’s lawsuit against us was pending. Our complaint sought an injunction prohibiting Nestlé Purina from continuing these false and misleading advertisements, as well as damages and disgorgement of profits, among other things. On July 31, 2015, Nestlé Purina filed an amended answer in this case that also asserted counterclaims against us.
On November 2, 2016, we entered into a settlement agreement with Nestlé Purina pursuant to which we paid Nestlé Purina $32.0 million, each party dismissed all of its claims and counterclaims against the other with prejudice, and we dismissed, with prejudice, our claims against Nestlé Purina’s advertising and public relations agencies (the “Nestlé Purina Settlement”). We plan to continue to pursue our claims against the third party ingredient supplier and broker that sold us mislabeled ingredients, as well as against our insurance providers as further described below. However, we may not be able to fully recover from such supplier or broker, or from our insurance providers, the full amount paid in the Nestlé Purina Settlement or other damages incurred in connection with our litigation with Nestlé Purina. In addition, our lawsuits against (i) the third party ingredient supplier and broker, and (ii) our insurance providers, are currently subject to a stay. On March 9, 2017, the United States District Court for the Eastern District of Missouri, which is presiding over our lawsuit against the third party ingredient supplier and broker, granted a motion by the United States Department of Justice to stay all proceedings in our lawsuit through at least July 19, 2017, due to the potential for the lawsuit to interfere with an ongoing criminal investigation. The Department of Justice has already filed criminal charges against both the third party ingredient supplier and broker for violations of the Federal Food, Drug and Cosmetic Act, and has indicated that its investigation is ongoing.
In addition, a number of related putative consumer class action lawsuits were filed in various states in the U.S. making allegations similar to Nestlé Purina’s and seeking monetary damages and injunctive relief. We also brought damages and indemnity claims against our former ingredient supplier and broker with respect to these U.S. class action lawsuits. In December 2015, we entered into a settlement agreement with the plaintiffs to resolve all of the U.S. class action lawsuits (the “Class Action Settlement”). Under the terms of the Class Action Settlement, we agreed to pay $32.0 million into a settlement fund, and on January 8, 2016, we paid this $32.0 million into an escrow account pending final court approval. Attorneys’ fees awarded by the court and all costs of notice and claims administration will be paid from the settlement fund. The Class Action Settlement received final court approval on May 19, 2016, and has since been appealed to the United States Court of Appeals for the Eighth Circuit. The amount that each class member who submits a claim for reimbursement will receive will depend on the total amount of Blue Buffalo products purchased by the claimant during the class period and certain other conditions including whether the claimant has a proof of purchase. The Class Action Settlement value does not take into account any potential recovery from insurance or from our former ingredient supplier or broker, against whom we will continue to pursue our claims for indemnity and other damages. However, we may not be able to fully recover from such supplier or broker, or from our insurance providers the full amount of paid in the Class Action Settlement or other damages incurred in connection with the U.S. class action lawsuits.
In addition to the U.S. class actions, which are the subject of the Settlement, in February 2016, a putative class action was filed in the Ontario Superior Court of Justice in Ottawa, Ontario, seeking damages and

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injunctive relief based on allegations similar to those made in the U.S. class actions. We believe the claims are without merit and plan to vigorously defend ourselves.
On July 11, 2016, we filed a lawsuit in State of Connecticut Superior Court against Travelers Property and Casualty Company of America and The Travelers Indemnity Company of Connecticut (together, “Travelers”), which provided our primary and excess commercial general liability insurance coverage from February 2007 to February 2011 (collectively, the “Travelers Policies”), as well as the Hartford Fire Insurance Company, Hartford Underwriters Insurance Company, and Hartford Casualty Insurance Company (collectively, “Hartford”). Hartford has provided our primary and excess commercial general liability insurance coverage since February 2011 (collectively, the “Hartford Policies”). Our lawsuit alleges that Travelers and Hartford, among other things, (a) breached their duties under the Travelers Policies and the Hartford Policies, respectively, by failing to (i) pay all reasonable defense fees and costs in connection with the Nestlé Purina litigation, the U.S. class action lawsuits and the putative class action in Ontario; and (ii) indemnify us for the $32.0 million U.S. class action settlement; (b) breached their covenants of good faith and fair dealing owed to us and acted in bad faith; and (c) violated the Connecticut Unfair Insurance Practices Act and the Connecticut Unfair Trade Practices Act. Our lawsuit also seeks declaratory judgment that we are entitled under the Travelers Policies and Hartford Policies to (x) a full defense, including payment of all reasonable and necessary defense fees and costs, in the Nestlé Purina litigation and the putative class action in Ontario; (y) coverage for the legal fees and costs incurred in our prosecution of any of our third party claims against the ingredient supplier and broker that sold us mislabeled “chicken meal” or “turkey meal” ingredients; and (z) full indemnity against (i) the settlement in the Nestlé Purina litigation, (ii) any settlement or judgment in the putative class action in Ontario and (iii) the $32.0 million settlement in the U.S. class action lawsuits.
On March 13, 2017, the court granted a joint motion by the parties to stay this litigation pending resolution of our claims against the third party ingredient supplier and broker discussed above.
ITEM 1A. RISK FACTORS

There have been no material changes to our principal risks that we believe are material to our business, results of operations and financial condition from the risk factors disclosed in our Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable
ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS     
31.1
Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS
XBRL Instance Document (filed herewith).

101.SCH
XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB
XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

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

BLUE BUFFALO PET PRODUCTS, INC.
 
 
By:
/s/ William Bishop, Jr.
 
William Bishop, Jr.
 
Chief Executive Officer and President
 
(Principal Executive Officer)

 
 
By:
/s/ Michael Nathenson
 
Michael Nathenson
 
Executive Vice President, Chief Financial Officer and Treasurer
 
(Principal Financial and Accounting Officer)

Dated: May 10, 2017

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