We may have difficulties integrating acquisitions or identifying new acquisitions.
A major part of our strategy is to grow through acquisition. We completed the Back to Nature acquisition in October 2017acquisitions and we expect to pursue additional acquisitions of food product lines and businesses. However, we may be unable to identify and consummate additional acquisitions or may be unable to successfully integrate and manage the product lines or businesses that we have recently acquired or may acquire in the future. In addition, we may be unable to
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achieve a substantial portion of any anticipated cost savings from acquisitions or other anticipated benefits in the timeframe we anticipate, or at all. Moreover, any acquired product lines or businesses may require a greater than anticipated amount of trade, promotional and capital spending. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, enterprise resource planning (ERP) systems, services and products of the acquired companies, personnel turnover and the diversion of management’s attention from other business concerns. Any inability by us to integrate and manage any product lines or businesses that we have recently acquired or may acquire in the future in a timely and efficient manner, any inability to achieve a substantial portion of any anticipated cost savings or other anticipated benefits from these acquisitions in the time frame we anticipate or any unanticipated required increases in trade, promotional or capital spending could adversely affect our business, consolidated financial condition, results of operations or liquidity. Moreover, future acquisitions by us could result in our incurring substantial additional indebtedness, being exposed to contingent liabilities or incurring the impairment of goodwill and other intangible assets, all of which could adversely affect our financial condition, results of operations and liquidity.
We have substantial indebtedness, which could restrict our ability to pay dividends and impact our financing options and liquidity position.
At December 30, 2017,2023, we had total long‑termlong-term indebtedness of $2,250.1$2,064.0 million (before debt discount)discount/premium), including $650.1$1,248.6 million principal amount of senior secured indebtedness (which we subsequently reduced to $600.1 million during the first quarter of 2018) and $1,600.0$815.4 million principal amount of senior unsecured indebtedness. Our ability to pay dividends is subject to contractual restrictions contained in the instruments governing our indebtedness. Although our credit agreement and the indentures governing our senior secured notes and senior notes (which we refer to as the senior secured notes indentures)indenture and the senior notes indentures, respectively) contain covenants that restrict our ability to incur debt, as long as we meet these covenants we will be able to incur additional indebtedness. The degree to which we are leveraged on a consolidated basis could have important consequences to the holders of our securities, including:
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| our ability in the future to obtain additional financing for working capital, capital expenditures or acquisitions may be limited; |
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| we may not be able to refinance our indebtedness on terms acceptable to us or at all; |
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| a significant portion of our cash flow is likely to be dedicated to the payment of interest on our indebtedness, thereby reducing funds available for future operations, capital expenditures, acquisitions and/or dividends on our common stock; and |
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| we may be more vulnerable to economic downturns and be limited in our ability to withstand competitive pressures. |
We are subject to restrictive debt covenants and other requirements related to our debt that limit our business flexibility by imposing operating and financial restrictions on our operations.
The agreements governing our indebtedness impose significant operating and financial restrictions on us. These restrictions prohibit or limit, among other things:
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| the incurrence of additional indebtedness and the issuance of certain preferred stock or redeemable capital stock; |
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| the payment of dividends on, and purchase or redemption of, capital stock; |
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| a number of restricted payments, including investments; |
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| specified sales of assets; |
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| specified transactions with affiliates; |
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| the creation of certain types of liens; |
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| consolidations, mergers and transfers of all or substantially all of our assets; and |
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| entry into certain sale and leaseback transactions. |
Our credit agreement requires us to maintain specified financial ratios and satisfy financial condition tests, including, without limitation, a maximum leverage ratio and a minimum interest coverage ratio.
Our ability to comply with the ratios or tests may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants, or failure to meet or maintain ratios or tests could result in a default under our credit agreement and/or our senior secured notes indenture and/or our senior notes indentures. Certain events of default under our credit agreement, our senior secured notes indenture and our senior notes indentures would prohibit us from paying dividends on our common stock. In addition, upon the occurrence of an event of default under our credit agreement, our senior secured notes indenture or our senior notes indentures, the lenders could elect to declare all amounts outstanding under the credit agreement and the senior notes, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the credit agreement lenders could proceed against the security granted to them to secure that indebtedness. If the lenders accelerate the payment of the indebtedness, our assets may not be sufficient to repay in full this indebtedness and our other indebtedness.
To service our indebtedness and fund our working capital needs, capital expenditures and any future acquisitions, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to make interest payments on and to refinance our indebtedness, and to fund working capital needs, planned capital expenditures and potential acquisitions depends on our ability to generate cash flow from operations in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
A significant portion of our cash flow from operations is dedicated to servicing our debt requirements. In addition, in accordance with our current dividend policy we intend to continue distributing a significant portion of any remaining cash flow to our stockholders as dividends.
Our ability to continue to fund our working capital needs and capital expenditures and to expand our business is, to a certain extent, dependent upon our ability to borrow funds under our credit agreement and to obtain other third‑partythird-party financing, including through the issuance and sale of additional debt or equity securities.
Financial market conditions may impede our access to, or increase the cost of, financing for acquisitions.
Any future financial market disruptions or tightening of the credit markets, may make it more difficult for us to obtain financing for acquisitions or increase the cost of obtaining financing. In addition, our borrowing costs can be affected by short and long‑termlong-term debt ratings assigned by independent rating agencies that are based, in significant part, on our performance as measured by credit metrics such as interest coverage and leverage ratios. A decrease in these ratings could increase our cost of borrowing or make it more difficult for us to obtain financing.
Future disruptions in the credit markets or other factors, could impair our ability to refinance our debt upon terms acceptable to us or at all.
Our $700.0 $265.4 million of 5.25% senior notes due 2025 mature on April 1, 2025, our $800.0 million revolving credit facility matures on November 21, 2022,December 16, 2025, our $600.1$528.6 million of tranche B term loan borrowingsloans mature on November 2, 2022,October 10, 2026, our $700.0 million of 4.625% senior notes mature on June 1, 2021 and our $900.0$550.0 million of 5.25% senior notes due 2027 mature on April 1, 2025.September 15, 2027 and our $550.0 million of 8.00% senior secured notes due 2028 mature on September 15, 2028. Our ability to raise debt or equity capital in the public or private markets in order to effect a refinancing of our debt at or prior to maturity could be impaired by various factors, including factors beyond our control. For example, in recent years U.S. credit markets experienced significant dislocations and liquidity disruptions that caused the spreads on prospective debt financings to widen considerably. These circumstances materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases resulted in the unavailability of certain types of debt financing. Any future uncertainty in
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the credit markets could negatively impact our ability to access additional debt financing or to refinance existing indebtedness on favorable terms, or at all. In addition, any future uncertainty in other financial markets in the U.S. could make it more difficult or costly for us to raise capital through the issuance of common stock or other equity securities. Any of these risks could impair our ability to fund our operations or limit our ability to expand our business or increase our interest expense, which could have a material adverse effect on our financial results.
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If we are unable to refinance our indebtedness at or prior to maturity on commercially reasonable terms or at all, we would be forced to seek other alternatives, including:
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| sales of assets; |
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| sales of equity; and |
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| negotiations with our lenders or noteholders to restructure the applicable debt. |
If we are forced to pursue any of the above options, our business and/or the value of an investment in our securities could be adversely affected.
We rely on co‑packersco-packers for a significant portion of our manufacturing needs, and the inability to enter into additional or future co‑packingco-packing agreements may result in our failure to meet customer demand.
We rely upon co‑packersco-packers for a significant portion of our manufacturing needs. See Item 1, “Business—Production—Co-Packing Arrangements.” The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. We believe that there are a limited number of competent, high‑quality co‑packershigh-quality co-packers in the industry, and if we were required to obtain additional or alternative co‑packingco-packing agreements or arrangements in the future, we can provide no assurance that we would be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory co‑packingco-packing agreements could limit our ability to implement our business plan or meet customer demand.
We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.
We sell our products principally to retail outlets and wholesale distributors including, traditional supermarkets, mass merchants, warehouse clubs, wholesalers, foodservice distributors and direct accounts, specialty food distributors, military commissaries and non‑foodnon-food outlets such as drug store chains, dollar stores and e-tailers. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support. It is also possible that our customers may replace our branded products with private label products.
WePandemics or disease outbreaks, such as the COVID-19 pandemic, may disrupt our business, including among other things, our supply chain, our manufacturing operations and customer and consumer demand for our products, and could have a material adverse impact on our business.
The spread of pandemics or disease outbreaks such as COVID-19 may disrupt our third-party business partners’ ability to meet their obligations to us, which may negatively affect our operations. These third parties include those who supply our ingredients, packaging, and other necessary operating materials, contract manufacturers who supply certain finished goods, distributors, and logistics and transportation providers. In addition, we rely on customers to be able to receive shipments and stock store shelves. If a significant percentage of our workforce or the workforce of our third-party business partners or customers is unable to work, including because of illness or travel or government restrictions in connection with a pandemic or disease outbreak, our operations may be unablenegatively impacted. In addition, a significant increase in demand for food and other consumer packaged goods products as a result of pandemics or disease outbreaks may limit the availability of ingredients, packaging and other raw materials necessary to anticipate changes in consumer preferencesproduce our products, and our operations may be negatively impacted. For example, during the COVID-19 pandemic we experienced supply chain constraints for certain of our products, which negatively impacted our ability to fully satisfy customer and consumer demographics,demand for certain of our products. In addition, certain of our customers faced labor shortages as a result of the COVID-19 Omicron variant that limited their ability to receive shipments of certain of our products, which mayalso negatively impacted our ability to fully satisfy consumer demand. Conversely, pandemics or disease outbreaks could result in decreaseda widespread health crisis that could adversely affect economies and financial markets, consumer spending and confidence levels resulting in an economic downturn that could affect customer and consumer demand for our products.
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Our successefforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends in parton factors beyond our control, including the duration and severity of any pandemic or disease outbreak, as well as third-party actions taken to contain its spread and mitigate public health effects.
The ultimate impact of any pandemic or disease outbreak on our business will depend on many factors, including, among others, the duration of social distancing and stay-at-home and work-from-home mandates, policies and recommendations and whether, and the extent to which, additional waves or variants of any such pandemic or disease outbreak affects the United States and the rest of North America, our ability and the ability of our suppliers to continue to operate our and their manufacturing facilities and maintain the supply chain without material disruption and procure ingredients, packaging and other raw materials when needed despite any disruptions in the supply chain or labor shortages, our customers’ ability to anticipateadequately staff their distributions centers and offer products that appealstores, and the extent to the changing tastes, dietary habits and product packaging preferences of consumers in the market categories in which we compete. If we are not able to anticipate, identify or develop and market products that respond to these changes in consumer preferences, whethermacroeconomic conditions resulting from changingany such pandemic or disease outbreak and the pace of the subsequent recovery may impact consumer demographics or otherwise, demand for our products may declineeating and our operating results may be adversely affected. In addition, we may incur significant costs related to developing and marketing new products or expanding our existing product lines in reaction to what we perceive to be increased consumer preference or demand. Such development or marketing may not result in the volume of sales or profitability anticipated.shopping habits.
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Severe weather conditions, and natural disasters and other natural events can affect cropraw material supplies and reduce our operating results.
Severe weather conditions, and natural disasters and other natural events, such as floods, droughts, frosts, earthquakes, pestilence or pestilence,health pandemics, such as the COVID-19 pandemic, may affect the supply of the raw materials that we use for our products. Our maple syrup products, for instance, are particularly susceptible to severe freezing conditions in Québec, Canada and Vermont during the season in which maple syrup is produced. Our Green Giant frozen vegetable manufacturing facility in Irapuato, Mexico is located in a region affected by water scarcity and restrictions on usage. Pandemics or disease outbreaks may cause significant disruptions to our supply chain and operations, including disruptions in our ability to purchase raw materials, and delays in the manufacture and shipment of our products. Competing manufacturers can be affected differently by weather conditions, and natural disasters and other natural events depending on the location of their supplies. If our supplies of raw materials are delayed or reduced, we may not be able to find supplemental supply sources on favorable terms or at all, which could adversely affect our business and operating results.
Climate change, water scarcity or legal, regulatory, or market measures to address climate change or water scarcity, could negatively affect our business and operations.
In the event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products. We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could impact our manufacturing and distribution operations. For example, our Green Giant frozen vegetable manufacturing facility in Irapuato, Mexico is already affected by water scarcity in that region of Mexico. Any further restrictions on, or loss of, water rights due to water scarcity, water rights violations or otherwise for our Irapuato manufacturing facility could have a material adverse effect on our business and operating results.
The increasing concern over climate change also may result in more regional, federal, foreign and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions, and improve our energy and resource efficiency and report such efforts, we may experience significant increases in our manufacturing and distribution and administrative costs. In particular, increasing regulation of fuel emissions could substantially increase the supply chain and distribution costs associated with our products. As a result, climate change or increased concern over climate change could negatively affect our business and operations.
Most of our products are sourced from single manufacturing sites, which means disruptions in our or our co‑packersco-packers’ operations for any number of reasons could have a material adverse effect on our business.
Our products are manufactured at many different manufacturing facilities, including our tentwelve manufacturing facilities and manufacturing facilities operated by our co‑packers.co-packers. However, in most cases, individual products are produced only at a single location. If any of these manufacturing locations experiences a disruption for any reason, including a work stoppage, power failure, fire, or weather related condition or natural disaster, etc., this could result in a significant reduction or elimination of the availability of some of our products. If we were not able to obtain alternate production capability in a timely manner or on satisfactory terms, this could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
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Our operations are subject to numerous laws and governmental regulations, exposing us to potential claims and compliance costs that could adversely affect our business.
Our operations are subject to extensive regulation by the FDA, the USDA, the FTC, the SEC, the CPSC, the United States Department of Labor, the Environmental Protection Agency and various other federal, state, local and foreign authorities. We are also subject to U.S. laws affecting operations outside of the United States, including anti‑briberyanti-bribery laws such as the Foreign Corrupt Practices Act (FCPA). Any changes in these laws and regulations, or any changes in how existing or future laws or regulations will be enforced, administered or interpreted could increase the cost of developing, manufacturing and distributing our products or otherwise increase the cost of conducting our business, or expose us to additional risk of liabilities and claims, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. In addition, failure by us to comply with applicable laws and regulations, including future laws and regulations, could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. See Item 1, “Business—Government Regulation” and “—Environmental Matters.”
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Failure by third‑party co‑packersthird-party co-packers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business.
We rely on co‑packersco-packers to produce certain of our products and on other suppliers to supply raw materials. Such co‑packersco-packers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our co‑packersco-packers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a co‑packerco-packer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, consolidated financial condition, results of operations or liquidity. Additionally, actions we may take to mitigate the impact of any such disruption or potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect our business, consolidated financial condition, results of operations or liquidity.
A recall of our products could have a material adverse effect on our business. In addition, we may be subject to significant liability should the consumption of any of our products cause injury, illness or death.
The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from mislabeling, tampering by unauthorized third parties or product contamination or spoilage, including the presence of foreign objects, undeclared allergens, substances, chemicals, other agents or residues introduced during the growing, manufacturing, storage, handling or transportation phases of production. Under certain circumstances, we may be required to recall products, leading to a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. Even if a situation does not necessitate a recall, product liability claims might be asserted against us. We have from time to time been involved in product liability lawsuits, none of which have been material to our business. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health‑relatedhealth-related illness in the future we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused injury, illness or death could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance and product contamination insurance in amounts we believe to be adequate. However, we cannot assure you that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall or the damage to our reputation resulting therefrom could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
Pending and future litigation may lead us to incur significant costs.
We are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, intellectual property, product recalls, product liability, the marketing and labeling of products, employment matters, environmental matters or other aspects of our business. Even when not merited, the defense of these lawsuits may divert our management’s attention, and we may incur significant expenses in
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defending these lawsuits. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. The outcome of litigation is often difficult to predict, and the outcome of pending or future litigation may have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
Consumer concern regarding the safety and quality of food products or health concerns could adversely affect sales of certain of our products.
If consumers in our principal markets lose confidence in the safety and quality of our food products even without a product liability claim or a product recall, our business could be adversely affected. Consumers have been increasingly focused on food safety and health and wellness with respect to the food products they buy. We have been and will continue to be impacted by publicity concerning the health implications of food products generally, which could negatively influence consumer perception and acceptance of our products and marketing programs. Developments in any of these areas could cause our results to differ materially from results that have been or may be projected.
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A weakening of the U.S. dollar in relation to the Canadian dollar or the Mexican peso would significantly increase our future costs relating to the production of maple syrup or frozen vegetable products.
We purchase a significant majority of our maple syrup requirements from suppliers in Québec, Canada. A weakening of the U.S. dollar in relation to the Canadian dollar would significantly increase our future costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. These increased costs may not be fully offset by the positive impact the change in the relative strength of the Canadian dollar versus the U.S. dollar would have on our net sales in Canada. In addition, we operate a frozen vegetable manufacturing facility in Irapuato, Mexico. A weakening of the U.S. dollar in relation to the Mexican peso would significantly increase our costs relating to the production of frozen vegetable products to the extent we have not purchased Mexican pesos or otherwise entered into hedging arrangements in advance of the weakening of the U.S. dollar.
Our operations in foreign countries are subject to political, economic and foreign currency risk.
Our relationships with foreign suppliers and co‑packersco-packers as well as our manufacturing location in Irapuato, Mexico also subject us to the risks of doing business outside the United States. The countries from which we source our raw materials and certain of our finished goods may be subject to political and economic instability, and may periodically enact new or revise existing laws, taxes, duties, quotas, tariffs, currency controls or other restrictions to which we are subject, including restrictions on the transfer of funds to and from foreign countries or the nationalization of operations. Our products are subject to import duties and other restrictions, and the U.S. government may periodically impose new or revise existing duties, quotas, tariffs or other restrictions to which we are subject, including restrictions on the transfer of funds to and from foreign countries.
In particular, if the United States takes action to withdraw from or materially modify the North American Free Trade Agreement (NAFTA) or certain other international trade agreements, or establish a “border tax,” our business, financial condition and results of operations could be materially and adversely affected.affected by the United States-Mexico-Canada Agreement, or other regulatory and economic impact of changes in taxation and trade relations among the United States and other countries.
In addition, changes in respective wage rates among the countries from which we and our competitors source product could substantially impact our competitive position. Changes in exchange rates, import/export duties or relative international wage rates applicable to us or our competitors could adversely impact our business, financial condition and results of operations. These changes may impact us in a different manner than our competitors.
Our financial performance on a U.S. dollar denominated basis is subject to fluctuations in currency exchange rates. These fluctuations could cause material variations in our results of operations. Our principal exposures are to the Canadian dollar and the Mexican peso. For example, our foreign sales are primarily to customers in Canada. Net sales in Canada accounted for 5.5%approximately 7.1%, 6.4% and 6.5% of our total net sales in 2017.fiscal 2023, 2022 and 2021, respectively. Although our sales for export to other countries are generally denominated in U.S. dollars, our sales to Canada are generally denominated in Canadian dollars. As a result, our net sales to Canada are subject to the effect of foreign currency fluctuations, and these fluctuations could have an adverse impact on operating results. From time to time, we may enter into agreements that are intended to reduce the effects of our exposure to currency fluctuations, but these agreements may not be effective in significantly reducing our exposure.
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Litigation regarding our trademarks and any other proprietary rights and intellectual property infringement claims may have a significant negative impact on our business.
We maintain an extensive trademark portfolio that we consider to be of significant importance to our business. If the actions we take to establish and protect our trademarks and other proprietary rights are not adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as an alleged violation of their trademarks and proprietary rights, it may be necessary for us to initiate or enter into litigation in the future to enforce our trademark rights or to defend ourselves against claimed infringement of the rights of others. Any legal proceedings could result in an adverse determination that could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
We face risks associated with our defined benefit pension plans and multiemployer pension plan obligations.plans.
We maintain four company-sponsored defined benefit pension plans that cover approximately 40%22.2% of our employees. A deterioration in the value of plan assets resulting from poor market performance, a general financial downturn or otherwise could cause an increase in the amount of contributions we are required to make to these plans. For example, our defined benefit pension plans may from time to time move from an overfunded to underfunded status driven by
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decreases in plan asset values that may result from changes in long‑term interestslong-term interest rates and disruptions in U.S. or global financial markets. Additionally, historically low interest rates coupled with poor market performance would have the effect of decreasing the funded status of these plans which would result in greater required contributions. For a more detailed description of these plans, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates—Pension Expense”Expense” and Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10‑K.
We also participate in a multiemployer pension plan maintained by the labor union representing certain of our employees at our Portland, Maine facility. We make periodic contributions to this plan pursuant to the terms of a collective bargaining agreement. In the event that we withdraw from participation in this plan or substantially reduce our participation in this plan (such as due to a workforce reduction), applicable law could require us to make withdrawal liability payments to the plan, and we would have to reflect that liability on our balance sheet. The amount of our withdrawal liability would depend on the extent of this plan’s funding of vested benefits at the time of our withdrawal. Furthermore, our withdrawal liability could increase as the number of employers participating in this plan decreases.
For a more detailed description of this multiemployer plan, see Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10‑K.report.
An obligation to make additional, unanticipated contributions to our defined benefit plans or the multiemployer plan described above could reduce the cash available for working capital and other corporate uses, and may have a material adverse effect on our business, consolidated financial position, results of operations and liquidity.
Our financial well‑beingwell-being could be jeopardized by unforeseen changes in our employees’ collective bargaining agreements, shifts in union policy or labor disruptions in the food industry.
As of December 30, 2017,2023, approximately 61%53.6% of our 2,6802,912 employees were covered by collective bargaining agreements. A prolonged work stoppage or strike at any of our facilities with union employees or a significant work disruption from other labor disputes in the food or related industries could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
The collective bargaining agreement covering employees at our Brooklyn, New York facility, which covers approximately 41 employees, expired on December 31, 2023. During February 2024, we reached an agreement in principle with the United Food and Commercial Workers Union, Local No. 342, to extend the collective bargaining agreement for an additional four-year period ending December 21, 2027. We expect the new agreement will be ratified by the union employees at our Brooklyn facility in early March 2024.
In addition, one of our collective bargaining agreements expires in the next twelve months. The collective bargaining agreement covering our Terre Haute facility, which covers approximately 111 employees, is scheduled to expire on March 30, 2024.
While we believe that our relations with our union employees are in general good, we cannot assure you that we will be able to negotiate a new collective bargaining agreements for our Terre Haute facility on terms satisfactory to us, or at all, and without production interruptions, including labor stoppages. If, prior to the expiration of the collective bargaining agreement for the Terre Haute facility or prior to the expiration of any of our other existing collective bargaining agreements, we are unable to reach new agreements without union action or any such new agreements are not on terms satisfactory to us, our business, consolidated financial condition, results of operations or liquidity could be materially and adversely affected.
We are increasingly dependent on information technology; Disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations.
Information technology is critically important to our business operations. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to
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manage a variety of business processes and activities, including manufacturing, financial, logistics, sales, marketing and administrative functions.
We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements. These information technology systems, many of which are managed by third parties or used in connection with shared service centers, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, issues with or errors in systems’ maintenance or security, migration of applications to the cloud, power outages, hardware or software failures, computer viruses, malware, attacks by computer hackers or other cybersecurity risks, telecommunication failures, denial of service, user errors, natural disasters, terrorist attacks or other catastrophic events.
Cyberattacks and other cyber incidents are occurring more frequently in the United States, are constantly evolving in nature, are becoming more sophisticated and are being made by groups and individuals (including criminal hackers, hacktivists, state-sponsored institutions, terrorist organizations and individuals or groups participating in organized crime) with a wide range of expertise and motives (including monetization of corporate, payment or other internal or personal data, theft of trade secrets and intellectual property for competitive advantage and leverage for political, social, economic and environmental reasons). Such cyberattacks and cyber incidents can take many forms including cyber extortion, denial of service, social engineering, such as impersonation attempts to fraudulently induce employees or others to disclose information or unwittingly provide access to systems or data, introduction of viruses or malware, such as ransomware through phishing emails, website defacement or theft of passwords and other credentials. We may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents.
If any of our significant information technology systems suffer severe damage, disruption or shutdown, whether due to natural disaster, cyberattacks or otherwise, and our disaster recovery and business continuity plans, or those of our third-party providers, do not effectively respond to or resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.results, loss of intellectual property and damage to our reputation or brands. Cyberattacks, such as ransomware attacks, if successful, could interfere with our ability to access and use systems and records that are necessary to operate our business. Such attacks could materially adversely affect our reputation, relationships with customers, and operations and could require us to expend significant resources to resolve such issues.
We and third-parties with which we have shared personal information have been subject to attempts to breach the security of networks, IT infrastructure, and controls through cyberattack, malware, computer viruses, social engineering attacks, ransomware attacks, and other means of unauthorized access. For example, in February 2023, we experienced a cyberbreach resulting from a global ransomware attack that impacted thousands of network servers around the world and which encrypted certain of our network servers. In this case, our internal IT department together with third-party cybersecurity incidence response teams that we keep on retainer were able to unencrypt and restore most of the affected servers and restore others from backups within a few days and with minimal disruption to our manufacturing operations, sales, order processing, distribution and other business operations, and without paying any ransom. We cannot assure you, however, that we will be able to restore our systems so quickly and with minimal disruption to our business operations in response to a future cyberattack.
In addition, if we are unable to prevent physical and electronic break‑ins, cyber‑attackscyberattacks and other information security breaches, we may suffer financial and reputational damage, be subject to litigation or incur remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers or employees. The February 2023 ransomware attack described above resulted in the unauthorized release of sensitive personal information of certain of our current and former employees that has required remediation expenditures by our company and could adversely affect our reputation and increase the costs we already incur to protect against these risks. The mishandling or inappropriate disclosure of non‑public sensitive or protected
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information could also lead to the loss of intellectual property, negatively impact planned corporate transactions or damage our reputation and brand image. Misuse, leakage or falsification of legally protected information could also result in a violation of data privacy laws and regulations and have a negative impact on our reputation, business, financial condition and results of operations.
We may experience difficulties fully implementing our new enterprise resource planning system.- 25 -
Failure to Comply with Data Privacy and Data Breach Laws May Subject Our Company to Fines, Administrative Actions and Reputational Harm.
We are implementing a new enterprise resource planning (ERP) system.subject to data privacy and data breach laws in the states and countries in which we do business, and as we expand into other states and countries, we may be subject to additional data privacy laws and regulations. In many states, state data privacy laws (such as the California Consumer Privacy Act), including application and interpretation, are rapidly evolving. The implementationrapidly evolving nature of the new ERP system has required,state and will continuefederal privacy laws, including potential inconsistencies between such laws and uncertainty as to require, the investmenttheir application, adds additional compliance costs and increases our risk of significant financial and human resources. Wenon-compliance. While we attempt to comply with such laws, we may not be ablein compliance at all times in all respects. Failure to complete successfully the full implementation of the ERP systems without experiencing difficulties. Any disruptions, delays or deficiencies in the designcomply with such laws may subject us to fines, administrative actions, and implementation of the new ERP system could adversely affect our ability to produce products, process orders, ship products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, integrate acquisitions, or otherwise operate our business. It is also possible that the migration to a new ERP system could adversely affect our internal controls over financial reporting.reputational harm.
If we are unable to hire or retain our key management personnel, and a highly skilled and diverse workforce or effectively manage changes in our workforce or respond to shifts in labor availability, our growth and future success may be impaired and our results of operations could suffer as a result.
We must hire, retain and develop effective leaders and a highly skilled and diverse workforce at our corporate offices, manufacturing facilities and other work locations. We compete to hire new personnel with the variety of skills needed to manufacture, sell and distribute our products. Unplanned or increased turnover of employees with key capabilities, failure to attract and develop personnel with key capabilities, including emerging capabilities such as e-commerce and digital marketing skills, or failure to develop adequate succession plans for leadership positions or to hire and retain a workforce with the skills and in the locations we need to operate and grow our business could deplete our institutional knowledge base and erode our competitiveness. Our success depends to a significant degree upon the continued contributions of senior management and other highly skilled employees, certain of whom would be difficult to replace. As
The labor market has become increasingly tight and competitive and we may face sudden and unforeseen challenges in the availability of labor, such as we have experienced during the COVID-19 pandemic, which was exacerbated as a result departureof the Omicron variant. A sustained labor shortage or increased turnover rates within our workforce caused by membersa public health crisis or related policies and mandates, or as a result of general macroeconomic or other factors, have led and could in the future lead to production or shipping delays, increased costs, including increased wages to attract and retain employees and increased overtime to meet demand. Similarly, we have been negatively impacted and may in the future continue to be negatively impacted by labor shortages or increased labor costs experienced by our third-party business partners, including our external manufacturing partners, third-party logistics providers and customers. Our ability to recruit and retain a highly skilled and diverse workforce at our corporate offices, manufacturing facilities and other work locations could also be materially impacted if we fail to adequately respond to rapidly changing employee expectations regarding fair compensation, an inclusive and diverse workplace, flexible working or other matters.
If we fail to recruit and retain senior management could haveand a material adverse effect onhighly skilled and diverse workforce, our businessgrowth and future success may be impaired and our results of operations. In addition, we do not maintain key‑man life insurance on any of our executive officers.operations may be materially and adversely effected.
We are a holding company and we rely on dividends, interest and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company, with all of our assets held by our direct and indirect subsidiaries, and we rely on dividends and other payments or distributions from our subsidiaries to meet our debt service obligations and to enable us to pay dividends. The ability of our subsidiaries to pay dividends or make other payments or distributions to us depends on their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends), agreements of those subsidiaries, our credit agreement, our senior secured notes indenture, our senior notes indentures and the covenants of any future outstanding indebtedness we or our subsidiaries incur.
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Future changes that increase cash taxes payable by us could significantly decrease our future cash flow available to make interest and dividend payments with respect to our securities.securities and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
We are able to amortize goodwill and certain intangible assets within the meaning ofin accordance with Section 197 of the Internal Revenue Code of 1986. We expect to be able to amortize for tax purposes approximately $1,265.3$880.7 million between 20182024 and 2032.2038. The expected annual deductions are approximately $123.5$116.0 million for fiscal 2018, approximately $118.8 million for fiscal 2019, approximately $117.4 million for fiscal 2020, approximately $114.4 million for fiscal 2021, approximately $103.4 million for fiscal 2022, approximately $101.2 million pereach year for fiscal 2023 through fiscal 2024 approximately $100.9 million forthrough fiscal 2025, approximately $97.0$111.8 million for fiscal 2026, approximately $77.1$92.1 million for fiscal 2027, approximately $68.3$90.6 million for fiscal 2028, approximately $61.0$90.4 million for fiscal 2029, approximately $54.9$84.3 million for fiscal 2030, approximately $51.6 million for fiscal 2031, approximately $34.8 million for fiscal 2032, approximately $34.0 million for fiscal 2033, approximately $30.6 million for fiscal 2034, approximately $27.0 million for fiscal 2035, approximately $1.2 million for fiscal 2036, approximately $0.6 million for fiscal 2037 and approximately $0.1 million for fiscal 2038.
We also take material annual deductions for net interest expense due to our substantial indebtedness. However, the U.S. Tax Cuts and Jobs Act, signed into law on December 22, 2017, limits the deduction for net interest expense (including the treatment of depreciation and other deductions in arriving at adjusted taxable income) incurred by a corporate taxpayer to 30% of the taxpayer’s adjusted taxable income.
If we are unable to fully utilize our interest expense deductions in future periods, our cash taxes will increase. Beginning with fiscal 2022, our adjusted taxable income as computed for purposes of the interest expense deduction limitation is computed after any deduction allowable for depreciation and amortization. As a result, our adjusted taxable income (used to compute the limitation) decreased and we were subject to the interest expense deduction limitation in fiscal 2023 and fiscal 2022, resulting in an increase to taxable income of $107.7 million and $90.2 million, respectively. We may continue to be subject to the interest deduction limitation in future years. We have recorded a deferred tax asset of $46.9 million and $22.2 million for fiscal 2031,2023 and fiscal 2022, respectively, related to the interest deduction carryover, without a valuation allowance, as the disallowed interest may be carried forward indefinitely. The increase in our cash taxes resulting from the interest expense deduction limitation was approximately $4.0$25.0 million and $20.6 million for fiscal 2032. 2023 and 2022, respectively. There are various factors that may cause tax assumptions to change in the future, and we may have to record a valuation allowance against these deferred tax assets. See Note 10, “Income Taxes,” to our consolidated financial statements in Part II, Item 8 of this report.
If there is a change in U.S. federal tax policylaw or, in the case of the interest deduction, a change in our net interest expense relative to our adjusted taxable income that reduces any of these available deductions, eliminates, limits or reduces our ability to amortize and deduct goodwill and certain intangible assets or the interest deduction we receive on our substantial indebtedness, or otherwise results in an increase in our corporate tax rate, our cash taxes payable would increase, which could significantly reduce our future cash and impact our ability to make interest and dividend payments. payments and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
Likewise, the ultimate impact of the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017 on our reported results in fiscal 20182024 and beyond may differ from the estimates provided in this report, possibly materially, due to among other things, changes in interpretations and assumptions we have made, guidance that may be issued and other actions we may take as a result of the newthis tax law different from that currently contemplated. See Note 10, “Income Taxes,” to our consolidated financial statements in Part II, Item 8 of this report for information about the U.S. Tax Cuts and Jobs Act.
Other changes in tax laws in the United States or in other countries where we have significant operations, including rate changes or corporate tax provisions that could disallow or tax perceived base erosion or profit shifting payments or subject us to new types of tax, could have a material adverse effect on our effective tax rate and our deferred tax assets and liabilities. In addition, aspects of U.S. tax laws may lead foreign jurisdictions to respond by enacting additional tax legislation that is unfavorable to us. For example, numerous countries have now enacted the Organization of Economic Cooperation and Development’s model rules on a global minimum tax of 15%, with the earliest effective date being for taxable years beginning as early as 2024 and with widespread implementation of a global minimum tax expected by 2025. This increasingly complex global tax environment has in the past and could continue to increase tax uncertainty, resulting in higher compliance costs. Based on the guidance available thus far, we do not expect this legislation to have a material impact on our consolidated financial statements, but we will continue to evaluate it as additional guidance and clarification becomes available.
We are also subject to tax audits by governmental authorities. Although we believe our tax estimates are reasonable, if a taxing authority disagrees with the positions we have taken, we could face additional tax liabilities,
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including interest and penalties. Unexpected results from one or more such tax audits could significantly adversely affect our effective rate and increase our cash taxes payable, which could significantly reduce our future cash and impact our ability to make interest and dividend payments and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
A change in the assumptions used to value our goodwill or our unamortizableindefinite-lived intangible assets could negatively affect our consolidated results of operations and net worth.
Our total assets include substantial goodwill and unamortizableindefinite-lived intangible assets (trademarks). These assets are tested for impairment through qualitative and quantitative assessments at least annually and whenever events or circumstances occur indicating that goodwill or unamortizable intangiblesindefinite-lived intangible assets might be impaired. The annual goodwill impairment test involves a two‑step process. The first step of the impairment test involves comparing our company’s market capitalization with our company’s carrying value, including goodwill. If the carrying value of our company exceeds our market capitalization, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the carrying value and recognizing a loss for the difference. We test our unamortizable intangiblesgoodwill and indefinite-lived intangible assets by comparing the fair valuevalues with the carrying valuevalues and recognize a loss for the difference. We estimate the fair value of our unamortizable intangibles based on discounted cash flows that reflect certain third party market value indicators. Estimating our fair value for these purposes requires significant estimates and assumptions by management. management, including future cash flows consistent with management’s expectations, annual sales growth rates, and certain assumptions underlying a discount rate based on available market data. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors to estimate the future levels of sales and cash flows.
We completed our annual impairment tests for fiscal 2017, 20162023, fiscal 2022 and 2015fiscal 2021 with no adjustments to the carrying values of goodwill. As of December 30, 2023, we had $619.4 million of goodwill and unamortizable intangibles. However, an interim impairment analysis relating to onerecorded in our consolidated balance sheet. Our testing indicates that the implied fair value of our brands performed duringcompany is in excess of the carrying value. However, a change in the cash flow assumptions could result in an impairment of goodwill.
Our annual impairment tests for fiscal 2014,2023 resulted in our company recording non‑cash impairment charges to amortizable trademarks and customer relationship intangibles for the brand of $26.9 million and $7.3 million, respectively, during fiscal 2014. During the second quarter of 2016, we discontinued that brand because there was not sufficient demand to warrant continued production. Accordingly, we wrote off the related intangible assets and recordedpre-tax, non-cash impairment charges to amortizable trademarksintangible trademark assets for our Baker’s Joy, Molly McButter, Sugar Twin and customer relationship intangiblesNew York Flatbreads brands of $4.5$20.5 million and $0.9 million, respectively,in the aggregate during the fourth quarter of 2023, which areis recorded in “Impairment of intangible assets” on the accompanyingin our consolidated statement of operations for fiscal 2016. 2023. We partially impaired the Baker’s Joy and Sugar Twin brands, and we fully impaired the Molly McButter and New York Flatbreads brands.
Additionally, in connection with the divestiture of our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash charges of $132.9 million during the third quarter of 2023. During the fourth quarter of 2023, we completed the Green Giant U.S. shelf-stable divestiture and recorded a loss on sale of $4.8 million during the quarter, resulting in a total loss on sale of $137.7 million during fiscal 2023. See Note 3, “Acquisitions and Divestitures” to our consolidated financial statements in Part II, Item 8 of this report.
We completed our annual impairment tests for fiscal 2022 with no adjustments to the carrying values of indefinite-lived intangible assets. However, in connection with our decision to sell the Back to Nature business, during fiscal 2022 we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale. We measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $106.4 million during fiscal 2022 relating to those assets. See Note 3, “Acquisitions and Divestitures” to our consolidated financial statements in Part II, Item 8 of this report.
Our annual impairment tests for fiscal 2021 resulted in our company recording non-cash impairment charges to intangible trademark assets for the SnackWell’s, Static Guard, Molly McButter and Farmwise brands of $23.1 million in the aggregate during the fourth quarter of fiscal 2021, which is recorded in “Impairment of intangible assets” in our consolidated statement of operations for fiscal 2021. We partially impaired the Static Guard and Molly McButter brands, and we fully impaired the SnackWell’s and Farmwise brands, which have been discontinued.
If future revenues and contributions to our operating results for any of our other brands, including newly acquired brands, deteriorate, at rates in excess of our current projections, we may be required to record additional non‑cashnon-cash impairment charges to certain intangible assets. In addition, any significant decline in our market capitalization or changes in discount rates, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or unamortizableindefinite-lived intangible assets are impaired, although a non‑cashnon-cash charge to operations, could have a material adverse effect on our business, consolidated financial condition
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and results of operations. For a further discussion of our annual impairment testing of goodwill and indefinite-lived intangible assets (trademarks), see Note 2(g), “Summary of Significant Accounting Policies—Goodwill and Other Intangible Assets” to our consolidated financial statements in Part II, Item 8 of this report.
Any future financial market disruptions or tightening of the credit markets could expose us to additional credit risks from customers and supply risks from suppliers and co‑packers.co-packers.
Any future financial market disruptions or tightening of the credit markets could result in some of our customers experiencing a significant decline in profits and/or reduced liquidity. A significant adverse change in the financial and/or credit position of a customer could require us to assume greater credit risk relating to that customer and could limit our ability to collect receivables. A significant adverse change in the financial and/or credit position of a supplier or co‑packerco-packer could result in an interruption of supply. This could have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
Risks Relating to our Securities
Holders of our common stock may not receive the level of dividends provided for in our dividend policy or any dividends at all.
Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Our board of directors may, in its sole discretion, decrease the level of dividends provided for in our dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our capital stock, if any, depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions (including restrictions in our credit agreement, senior secured notes indenture and senior notes indentures), business opportunities, provisions of applicable law (including certain provisions of the Delaware General Corporation Law) and other factors that our board of directors may deem relevant.
If our cash flows from operating activities were to fall below our minimum expectations (or if our assumptions as to capital expenditures or interest expense were too low or our assumptions as to the sufficiency of our revolving credit facility to finance our working capital needs were to prove incorrect), we may need either to reduce or eliminate dividends or, to the extent permitted under our credit agreement, senior secured notes indenture and senior notes indentures, fund a portion of our dividends with borrowings or from other sources. If we were to use working capital or permanent borrowings to fund
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dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively impact our financial condition, results of operations, liquidity and ability to maintain or expand our business.
Our dividend policy may negatively impact our ability to finance capital expenditures, operations or acquisition opportunities.
Under our dividend policy, a substantial portion of our cash generated by our business in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and assets is in general distributed as regular quarterly cash dividends to the holders of our common stock. As a result, we may not retain a sufficient amount of cash to finance growth opportunities or unanticipated capital expenditure needs or to fund our operations in the event of a significant business downturn. We may have to forego growth opportunities or capital expenditures that would otherwise be necessary or desirable if we do not find alternative sources of financing. If we do not have sufficient cash for these purposes, our financial condition and our business will suffer.
Our certificate of incorporation authorizes us to issue without stockholder approval preferred stock that may be senior to our common stock in certain respects.
Our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval and, in the case of preferred stock, upon such terms as the board of directors may determine. The rights of the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that may be issued in the future, including any preferential rights that we may grant to the holders of preferred stock. The terms of any preferred stock we issue may place restrictions on the payment of dividends to the holders of our common stock. If we issue preferred stock that is senior to our common stock in right of dividend payment, and our cash flows from operating activities or surplus are insufficient to support dividend payments to the holders of preferred stock, on the one hand, and to the holders of common stock, on the other hand, we may be forced to reduce or eliminate dividends to the holders of our common stock.
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Future sales or the possibility of future sales of a substantial number of shares of our common stock or other securities convertible or exchangeable into common stock may depress the price of our common stock.
We may issue shares of our common stock or other securities convertible or exchangeable into common stock from time to time in future financings or as consideration for future acquisitions and investments. In the event any such future financing, acquisition or investment is significant, the number of shares of our common stock or other securities convertible or exchangeable into common stock that we may issue may in turn be significant. In addition, we may grant registration rights covering shares of our common stock or other securities convertible or exchangeable into common stock, as applicable, issued in connection with any such future financing, acquisitions and investments.
Future sales or the availability for sale of a substantial number of shares of our common stock or other securities convertible or exchangeable into common stock, whether issued and sold pursuant to our currently effective shelf registration statement or otherwise, would dilute our earnings per share and the voting power of each share of common stock outstanding prior to such sale or distribution, could adversely affect the prevailing market price of our securities and could impair our ability to raise capital through future sales of our securities.
Our certificate of incorporation and bylaws and several other factors could limit another party’s ability to acquire us and deprive our investors of the opportunity to obtain a takeover premium for their securities.
Our certificate of incorporation and bylaws contain certain provisions that may make it difficult for another company to acquire us and for holders of our securities to receive any related takeover premium for their securities. For example, our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval and upon such terms as the board of directors may determine. The rights of the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that may be issued in the future.
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Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Cybersecurity Risk Management and Strategy. Our enterprise risk management framework considers cybersecurity risk alongside other company risks as part of our overall risk assessment process. As part of our enterprise risk management, we maintain a comprehensive information technology, data governance and cybersecurity program that leverages people, processes and technology, to support the effectiveness of our information technology systems and identify, prevent and mitigate information technology and data security risks. Our cybersecurity program is aligned to the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF). Our cybersecurity team utilizes a variety of tools, processes and outside resources to continue to raise and maintain its maturity across the elements of NIST CSF.
Our cybersecurity program also addresses cybersecurity risks associated with our use of third-party service providers. We use systems and processes that are designed to assess, identify and reduce the potential impact of a cybersecurity incident at any of our third-party service providers. We assess information security controls of certain of our third-party service providers as part of our third-party information technology risk due diligence, and we conduct third-party vulnerability analysis.
We have an information security policy, which is supported by a security awareness program. We also have an information security training and compliance program in place. Our information technology (IT) department has engaged a third party to provide regular cybersecurity awareness training to our employees. We also have business continuity plans and incident response plans in place to prepare us to act quickly in the event of cyber incidents. We test our business continuity plans and incident response procedures at least annually.
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Cybersecurity Governance. Our chief information officer, who leads our IT department, oversees our cybersecurity program. Our chief information officer has twenty-eight years of IT experience. Our chief information officer reports to our chief financial officer. As part of our company’s risk management function, our chief information officer provides periodic updates about our cybersecurity risk profile to our executive leadership team. We have an incident response program that provides for the prompt escalation of certain cybersecurity incidents to certain members of management, including our chief financial officer and our general counsel, so that decisions regarding disclosure and reporting of such incidents can be made in a timely manner.
Our chief information officer meets at least annually with the risk committee of our board of directors and/or the full board of directors to provide them with updates on IT matters, including cybersecurity. At least two members of our Board of Directors have IT and cybersecurity experience or expertise, including the chairs of our audit committee and risk committee. While our board of directors is ultimately responsible for risk oversight at our company, the risk committee of our board of directors assists the board in fulfilling its oversight responsibilities by reviewing risks in certain areas, including cybersecurity.
Cybersecurity Threats and Incidents. To date, there have not been any cybersecurity threats or incidents that have materially affected, or are reasonably likely to materially affect, our company, including our business strategy, results of operations or financial condition. However, we and third-parties with which we have shared personal information have been subject to attempts to breach the security of networks, IT infrastructure, and controls through cyberattack, malware, computer viruses, social engineering attacks, ransomware attacks, and other means of unauthorized access.
For example, in February 2023, we experienced a cyberbreach resulting from a global ransomware attack that impacted thousands of network servers around the world and which encrypted certain of our network servers. In this case, our internal IT department together with third-party cybersecurity incidence response teams that we keep on retainer were able to unencrypt and restore most of the affected servers and restore others from backups within a few days and with minimal disruption to our manufacturing operations, sales, order processing, distribution and other business operations, and without paying any ransom. We incurred costs relating to the cyberattack, including costs to unencrypt and restore our servers, scan our network to ensure there was no remaining malware or other problematic remnants of the attack and to enhance our cybersecurity defenses.
The February 2023 ransomware attack also resulted in the unauthorized release of sensitive personal information of certain of our current and former employees that has required remediation expenditures by our company, including, without limitation, expenditures to scan the leaked files to identify the specific individuals impacted and the scope of the sensitive personal information, and expenditures to notify and provide free credit monitoring to our employees and certain former employees and other individuals.
Despite our ongoing efforts to continuously improve our ability to prevent and minimize the impact of future cyber incidents, we cannot assure you that we will not be the subject of future threats or incidents. While the February 2023 cyberattack and our remediation efforts have not had and are not expected to have a material adverse impact on our consolidated financial position, results of operations or liquidity, we cannot assure you that in response to a future cyberattack we will be able to restore our systems so quickly and with minimal disruption to our business operations and without incurring material costs. In addition, the mishandling or inappropriate disclosure of non‑public sensitive or protected information could also lead to the loss of intellectual property, negatively impact planned corporate transactions or damage our reputation and brand image. Misuse, leakage or falsification of legally protected information could also result in a violation of data privacy laws and regulations and have a negative impact on our reputation, business, financial condition and results of operations.
Please refer to the risk factor captioned “We are increasingly dependent on information technology; Disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations” included in Part I, Item 1A, “Risk Factors,” of this report, for further information about cybersecurity risks and potential related impacts on our company.
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Our corporate headquarters are located at Four Gatehall Drive, Parsippany, NJ 07054. Our manufacturing facilities are generally located near major customer markets and raw materials. Of our tentwelve active manufacturing facilities, eightseven are owned, three are leased and two consist of multiple buildings, some of which are owned and twosome of which are leased. Management believes that our manufacturing facilities, together with our current and available contract manufacturers, have sufficient capacity to accommodate our planned growth. Listed below are our manufacturing facilities and the principal warehouses, distribution centers and offices that we own or lease.
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Facility Location | Owned/Leased | Description | |||
Parsippany, New Jersey |
| Leased |
| Corporate Headquarters | |
Mississauga, Ontario | | Leased | | Canadian Headquarters | |
Ankeny, Iowa | | Owned | | Manufacturing/Warehouse | |
Hurlock, Maryland |
| Owned |
| Manufacturing/Warehouse | |
Irapuato, Mexico |
| Owned |
| Manufacturing/Warehouse | |
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St. Johnsbury, Vermont |
| Owned |
| Manufacturing/Warehouse | |
Stoughton, Wisconsin |
| Owned | Manufacturing/Warehouse | ||
Williamstown, New Jersey |
| Owned |
| Manufacturing/Warehouse | |
Yadkinville, North Carolina |
| Owned |
| Manufacturing/Warehouse | |
Brooklyn, New York | | Leased | | Manufacturing/Warehouse | |
Roseland, New Jersey |
| Leased |
| Manufacturing/Warehouse | |
Yuma, Arizona | | Leased | | Manufacturing/Warehouse | |
Cincinnati, Ohio | | Owned/Leased | | Manufacturing/Warehouse | |
Terre Haute, Indiana | | Owned/Leased | | Manufacturing/Warehouse | |
Easton, Pennsylvania |
| Leased |
| Distribution Center | |
Fontana, California | | Leased | | Distribution Center | |
| | Leased | | Distribution Center | |
Union City, Georgia |
| Leased |
| Distribution Center | |
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St. Evariste, Québec |
| Owned |
| Storage Facility | |
Bentonville, Arkansas |
| Leased |
| Sales Office |
The information set forth under the heading “Legal Proceedings” in Note 1314 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10‑K10-K is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Shares of our common stock are traded on the New York Stock Exchange under the symbol “BGS” and have been so traded since May 23, 2007. The following table sets forth the high and low sales prices of shares of our common stock for each of the quarterly periods indicated.
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| High |
| Low |
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Fiscal 2017 |
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Fourth Quarter |
| $ | 39.75 |
| $ | 31.51 |
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Third Quarter |
| $ | 37.50 |
| $ | 29.50 |
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Second Quarter |
| $ | 43.10 |
| $ | 35.45 |
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First Quarter |
| $ | 47.75 |
| $ | 38.85 |
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Fiscal 2016 |
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Fourth Quarter |
| $ | 49.15 |
| $ | 39.10 |
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Third Quarter |
| $ | 52.84 |
| $ | 44.55 |
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Second Quarter |
| $ | 48.44 |
| $ | 31.81 |
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First Quarter |
| $ | 40.50 |
| $ | 33.18 |
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Holders
According to the records of our transfer agent, we had 70471 holders of record of our common stock as of February 23, 2018,22, 2024, including Cede & Co. as nominee for The Depository Trust Company (DTC). Cede & Co. as nominee for DTC holds shares of our common stock on behalf of participants in the DTC system, which in turn hold the shares of common stock on behalf of beneficial owners.
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Performance Graph
Set forth below is a line graph comparing the change in the cumulative total shareholder return on our company’s common stock with the cumulative total return of the Russell 2000 Index and the S&P Packaged Foods & Meats Index for the period from December 29, 20122018 to December 30, 2017,2023, assuming the investment of $100 on December 29, 20122018 and the reinvestment of dividends. The common stock price performance shown on the graph only reflects the change in our company’s common stock price relative to the noted indices and is not necessarily indicative of future price performance.
Comparison of 5 Year Cumulative Total Return
Among B&G Foods, Inc. Common Stock, the Russell 2000 Index
and the S&P Packaged Foods & Meats Index
| | | | | | | | | | | | | | |
|
| 12/29/2018 | * | 12/28/2019 |
| 1/2/2021 |
| 1/1/2022 |
| 12/31/2022 |
| 12/30/2023 |
| |
B&G Foods, Inc. (NYSE: BGS) | | $ | 100.00 | | 64.99 | | 110.12 | | 129.55 | | 51.05 | | 51.19 | |
Russell 2000 Index | | $ | 100.00 | | 125.52 | | 150.58 | | 172.90 | | 137.56 | | 160.85 | |
S&P Packaged Foods & Meats Index | | $ | 100.00 | | 130.82 | | 136.75 | | 154.64 | | 169.14 | | 156.37 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12/29/2012* |
| 12/28/2013 |
| 1/3/2015 |
| 1/2/2016 |
| 12/31/2016 |
| 12/30/2017 |
| |
B&G Foods, Inc. (NYSE: BGS) |
| $ | 100.00 |
| 127.56 |
| 116.74 |
| 143.70 |
| 187.09 |
| 158.13 |
|
Russell 2000 Index |
| $ | 100.00 |
| 138.82 |
| 145.62 |
| 139.19 |
| 168.85 |
| 193.58 |
|
S&P Packaged Foods & Meats Index |
| $ | 100.00 |
| 130.84 |
| 145.90 |
| 171.27 |
| 186.92 |
| 189.45 |
|
* | $100 invested on December 29, 2018 in B&G Foods’ common stock or index, including reinvestment of dividends. Indexes calculated on month-end basis. |
- 33 -
*$100 invested on December 29, 2012 in B&G Foods’ common stock or index, including reinvestmentTable of dividends. Indexes calculated on month‑end basis.Contents
Dividend Policy
General
Our dividend policy reflects a basic judgment that our stockholders are better served when we distribute a substantial portion of our cash available to pay dividends to them instead of retaining it in our business. Under this policy, a substantial portion of the cash generated by our company in excess of operating needs, interest and principal payments on indebtedness and capital expenditures sufficient to maintain our properties and other assets is distributed as regular quarterly cash dividends to the holders of our common stock and not retained by us. We have paid dividends every quarter since our initial public offering in October 2004.
For fiscal 20172023 and fiscal 2016,2022, we had cash flows from operating activities of $37.8$247.8 million and $289.7$6.0 million, respectively, and distributed $123.6$56.0 million and $100.8$133.4 million as dividends, respectively. AtBased on our current intended dividend rate of $1.86$0.76 per share per annum and our current number of shares outstanding, we expect our aggregate dividend payments in 20182024 to be approximately $123.7$60.0 million.
- 25 -
The following table sets forth the dividends per share we have declared in each of the quarterly periods of 20172023 and 2016:2022:
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| ||
Fourth Quarter |
| $ | 0.465 |
| $ | 0.465 |
|
Third Quarter |
| $ | 0.465 |
| $ | 0.420 |
|
Second Quarter |
| $ | 0.465 |
| $ | 0.420 |
|
First Quarter |
| $ | 0.465 |
| $ | 0.420 |
|
| | | | | | |
|
| Fiscal 2023 |
| Fiscal 2022 | ||
Fourth Quarter | | $ | 0.190 | | $ | 0.190 |
Third Quarter | | $ | 0.190 | | $ | 0.475 |
Second Quarter | | $ | 0.190 | | $ | 0.475 |
First Quarter | | $ | 0.190 | | $ | 0.475 |
Under U.S. federal income tax law, distributions to holders of our common stock are taxable to the extent they are paid out of current or accumulated earnings and profits. Generally, the portion of the distribution treated as a return of capital should reduce the tax basis in the shares of common stock up to a holder’s adjusted basis in the common stock, with any excess treated as capital gains. Qualifying dividend income and the return of capital, if any, will be allocated on a pro‑pro forma basis to all distributions for each fiscal year. Based on U.S. federal income tax laws, B&G Foods has determined that for fiscal 20172023 and fiscal 2016, 69.5% and 34.6%, respectively,2022, 100.0% of distributions paid on common stock will bewere treated as a return of capital and 30.5% and 65.4%, respectively, will be0.0% were treated as a taxable dividend paid from earnings and profits.
Our dividend policy is based upon our current assessment of our business and the environment in which we operate, and that assessment could change based on competitive or other developments (which could, for example, increase our need for capital expenditures or working capital), new acquisition opportunities or other factors. Our board of directors is free to depart from or change our dividend policy at any time and could do so, for example, if it was to determine that we have insufficient cash to fund capital expenditure or working capital needs, reduce leverage or ensure compliance with our maximum consolidated leverage ratio under our credit agreement, or take advantage of growth opportunities.
Restrictions on Dividend Payments
Our ability to pay future dividends, if any, with respect to shares of our capital stock will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. Under Delaware law, our board of directors may declare dividends only to the extent of our “surplus” (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal years. Our board of directors will periodically and from time to time assess the appropriateness of the then current dividend policy before actually declaring any dividends.
In general, our senior secured notes indenture and senior notes indentures restrict our ability to declare and pay dividends on our common stock as follows:
| ● | under our senior secured notes indenture, we may use up to $600 million plus 100% of our excess cash (as defined below) for the period (taken as one accounting period) from and including July 1, 2023 to the end of our most recent fiscal quarter for which internal financial statements are available at the time of such payments, plus certain incremental funds described in the senior secured notes indenture for the payment of dividends so long as the fixed charge coverage ratio for the four most recent fiscal quarters for which internal financial statements are available is not less than 1.6 to 1.0; |
- 34 -
| ● |
| under our senior notes indentures, we may use up to 100% of our excess cash (as defined below) for the period (taken as one accounting period) from and including March 31, 2013 to the end of our most recent fiscal quarter for which internal financial statements are available at the time of such payments, plus certain incremental funds described in the senior notes indentures for the payment of dividends so long as the fixed charge coverage ratio for the four most recent fiscal quarters for which internal financial statements are available is not less than 1.6 to 1.0; and |
| ● |
| we may not pay any dividends on any dividend payment date if a default or event of default under our senior secured notes indenture or senior notes indentures has occurred or is continuing. |
Excess cash is defined in our senior secured notes indenture, senior notes indentures and under the terms of our credit agreement. Excess cash is calculated as “consolidated cash flow,” as defined in the indentures and under the terms of our credit agreement (which, in each case, allows for certain adjustments and which is generally equivalent to the term adjusted EBITDA)EBITDA before share-based compensation), minus the sum of cash tax expense, cash interest expense, certain capital expenditures, excess tax benefit from issuance of LTIAperformance share long-term incentive award (LTIA) shares, certain repayment of indebtedness and the cash portion of restructuring charges.
- 26 -
In addition, the terms of our credit agreement also restrict our ability to declare and pay dividends on our common stock. In accordance with the terms of our credit agreement, we are not permitted to declare or pay dividends unless we are permitted to do so under our senior notes indentures. In addition, our credit agreement does not permit us to pay dividends unless we maintain:
| ● |
| a “consolidated interest coverage ratio” (defined as the ratio on a pro forma basis of our adjusted EBITDA before share-based compensation for any period of four consecutive fiscal quarters to our consolidated interest expense for such period payable in cash) of not less than 1.75 to 1.00; and |
| ● |
| a “consolidated leverage ratio” (defined as the ratio on a pro forma basis of our consolidated net debt, as of the last day of any period of four consecutive fiscal quarters to our adjusted EBITDA before share-based compensation for such period) of not more than 7.50 to 1.00 for the quarter ended December 30, 2023, and 7.00 to |
Recent Sales of Unregistered Equity Securities
We did not issue any unregistered equity securities in fiscal 2017.2023.
Issuer Purchases of Equity Securities
We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2017.Not applicable.
Item 6. Selected Financial Data.[Reserved]
The following selected historical consolidated financial data should be read in conjunction with Item 7, “Management’s7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes to those statements included in this report. The selected historical consolidated financial data as of and for the fiscal years ended December 30, 2017 (fiscal 2017), December 31, 2016 (fiscal 2016), January 2, 2016 (fiscal 2015), January 3, 2015 (fiscal 2014) and December 28, 2013 (fiscal 2013) have been derived from our audited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| Fiscal 2014 |
| Fiscal 2013 |
| |||||
|
| (In thousands, except per share data and ratios) |
| |||||||||||||
Consolidated Statement of Operations Data(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(2) |
| $ | 1,668,056 |
| $ | 1,391,257 |
| $ | 966,358 |
| $ | 848,017 |
| $ | 724,973 |
|
Cost of goods sold(3) |
|
| 1,205,809 |
|
| 943,295 |
|
| 676,794 |
|
| 600,246 |
|
| 482,050 |
|
Gross profit |
|
| 462,247 |
|
| 447,962 |
|
| 289,564 |
|
| 247,771 |
|
| 242,923 |
|
Selling, general and administrative expenses(4) |
|
| 205,234 |
|
| 174,759 |
|
| 105,939 |
|
| 93,033 |
|
| 79,043 |
|
Amortization expense(5) |
|
| 17,611 |
|
| 13,803 |
|
| 11,255 |
|
| 12,692 |
|
| 9,884 |
|
Impairment of intangible assets(6) |
|
| — |
|
| 5,405 |
|
| — |
|
| 34,154 |
|
| — |
|
Gain on change in fair value of contingent consideration(7) |
|
| — |
|
| — |
|
| — |
|
| (8,206) |
|
| — |
|
Operating income |
|
| 239,402 |
|
| 253,995 |
|
| 172,370 |
|
| 116,098 |
|
| 153,996 |
|
Interest expense, net |
|
| 91,784 |
|
| 74,456 |
|
| 51,131 |
|
| 46,573 |
|
| 41,813 |
|
Loss on extinguishment of debt(8) |
|
| 1,163 |
|
| 2,836 |
|
| — |
|
| 5,748 |
|
| 31,291 |
|
Other income(9) |
|
| (1,607) |
|
| (363) |
|
| — |
|
| — |
|
| — |
|
Income before income tax (benefit) expense |
|
| 148,062 |
|
| 177,066 |
|
| 121,239 |
|
| 63,777 |
|
| 80,892 |
|
Income tax (benefit) expense |
|
| (69,401) |
|
| 67,641 |
|
| 52,149 |
|
| 22,821 |
|
| 28,549 |
|
Net income |
| $ | 217,463 |
| $ | 109,425 |
| $ | 69,090 |
| $ | 40,956 |
| $ | 52,343 |
|
Earnings per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding |
|
| 66,487 |
|
| 63,203 |
|
| 56,585 |
|
| 53,658 |
|
| 52,998 |
|
Weighted average diluted common shares outstanding |
|
| 66,706 |
|
| 63,420 |
|
| 56,656 |
|
| 53,747 |
|
| 53,182 |
|
Cash dividends declared per common share |
| $ | 1.86 |
| $ | 1.73 |
| $ | 1.38 |
| $ | 1.36 |
| $ | 1.23 |
|
Basic earnings per common share |
| $ | 3.27 |
| $ | 1.73 |
| $ | 1.22 |
| $ | 0.76 |
| $ | 0.99 |
|
Diluted earnings per common share |
| $ | 3.26 |
| $ | 1.73 |
| $ | 1.22 |
| $ | 0.76 |
| $ | 0.98 |
|
Other Financial Data(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
| $ | 37,799 |
| $ | 289,661 |
| $ | 128,479 |
| $ | 99,126 |
| $ | 114,910 |
|
Capital expenditures |
|
| (59,802) |
|
| (42,418) |
|
| (18,574) |
|
| (19,025) |
|
| (14,649) |
|
Cash payments for acquisition of businesses |
|
| (162,965) |
|
| (438,787) |
|
| (873,811) |
|
| (154,277) |
|
| (247,281) |
|
Net cash provided by financing activities |
|
| 359,336 |
|
| 216,005 |
|
| 767,444 |
|
| 71,619 |
|
| 131,828 |
|
EBITDA(10) |
| $ | 290,181 |
| $ | 291,624 |
| $ | 201,023 |
| $ | 143,532 |
| $ | 178,073 |
|
Ratio of earnings to fixed charges(11) |
|
| 2.5x |
|
| 3.3x |
|
| 3.3x |
|
| 2.3x |
|
| 2.8x |
|
Senior debt / EBITDA(12) |
|
| 7.8x |
|
| 6.0x |
|
| 8.8x |
|
| 7.2x |
|
| 4.9x |
|
Total debt / EBITDA |
|
| 7.8x |
|
| 6.0x |
|
| 8.8x |
|
| 7.1x |
|
| 4.9x |
|
EBITDA / cash interest expense(13) |
|
| 3.4x |
|
| 4.2x |
|
| 4.3x |
|
| 3.4x |
|
| 4.8x |
|
Consolidated Balance Sheet Data (at end of period)(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 206,506 |
| $ | 28,833 |
| $ | 5,246 |
| $ | 1,490 |
| $ | 4,107 |
|
Total assets |
|
| 3,561,038 |
|
| 3,043,505 |
|
| 2,571,715 |
|
| 1,649,353 |
|
| 1,484,343 |
|
Total debt |
|
| 2,251,741 |
|
| 1,746,769 |
|
| 1,759,616 |
|
| 1,025,857 |
|
| 870,885 |
|
Total stockholders’ equity |
| $ | 880,819 |
| $ | 785,657 |
| $ | 457,685 |
| $ | 337,995 |
| $ | 378,363 |
|
|
|
- 28 -
|
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|
- 29 -
|
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|
|
EBITDA and adjusted EBITDA are not recognized terms under GAAP and do not purport to be an alternative to operating income or net income or any other GAAP measure as an indicator of operating performance. EBITDA and adjusted EBITDA are not complete net cash flow measures because EBITDA and adjusted EBITDA are measures of liquidity that do not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends. Rather, EBITDA and adjusted EBITDA are two potential indicators of an entity’s ability to fund these cash requirements. EBITDA and adjusted EBITDA are not complete measures of an entity’s profitability because they do not include costs and
- 30 -
expenses for depreciation and amortization, interest and related expenses, loss on extinguishment of debt, acquisition-related and other non-recurring expenses, gains and losses and income taxes, intangible asset impairment charges and related asset write‑offs, gains or losses related to changes in the fair value of contingent liabilities from earn‑outs, loss on product recalls and distribution restructuring expenses. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies. However, EBITDA and adjusted EBITDA can still be useful in evaluating our performance against our peer companies because management believes these measures provide users with valuable insight into key components of GAAP amounts.
A reconciliation of EBITDA and adjusted EBITDA to net income and to net cash provided by operating activities for fiscal 2017, 2016, 2015, 2014 and 2013 along with the components of EBITDA and adjusted EBITDA follows:
|
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|
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|
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|
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|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| Fiscal 2014 |
| Fiscal 2013 |
| |||||
|
| (In thousands) |
| |||||||||||||
Net income |
| $ | 217,463 |
| $ | 109,425 |
| $ | 69,090 |
| $ | 40,956 |
| $ | 52,343 |
|
Income tax (benefit) expense |
|
| (69,401) |
|
| 67,641 |
|
| 52,149 |
|
| 22,821 |
|
| 28,549 |
|
Interest expense, net |
|
| 91,784 |
|
| 74,456 |
|
| 51,131 |
|
| 46,573 |
|
| 41,813 |
|
Depreciation and amortization |
|
| 49,172 |
|
| 37,266 |
|
| 28,653 |
|
| 27,434 |
|
| 24,077 |
|
Loss on extinguishment of debt(A) |
|
| 1,163 |
|
| 2,836 |
|
| — |
|
| 5,748 |
|
| 31,291 |
|
EBITDA |
|
| 290,181 |
|
| 291,624 |
|
| 201,023 |
|
| 143,532 |
|
| 178,073 |
|
Acquisition-related and other non-recurring expenses |
|
| 35,745 |
|
| 17,523 |
|
| 6,118 |
|
| 7,315 |
|
| 5,932 |
|
Amortization of acquisition-related inventory step-up(B) |
|
| 2,380 |
|
| 5,424 |
|
| 6,127 |
|
| — |
|
| — |
|
Impairment of intangible assets(C) |
|
| — |
|
| 5,405 |
|
| — |
|
| 34,154 |
|
| — |
|
Loss on disposal of inventory(D) |
|
| 3,287 |
|
| 791 |
|
| — |
|
| 4,535 |
|
| — |
|
Loss on sale of assets |
|
| 1,608 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Loss on product recall, net of insurance recoveries(E) |
|
| — |
|
| — |
|
| 1,868 |
|
| 12,798 |
|
| — |
|
Distribution restructuring expenses(F) |
|
| — |
|
| 1,273 |
|
| 2,665 |
|
| — |
|
| — |
|
Gain on change in fair value of contingent consideration(G) |
|
| — |
|
| — |
|
| — |
|
| (8,206) |
|
| — |
|
Adjusted EBITDA |
|
| 333,201 |
|
| 322,040 |
|
| 217,801 |
|
| 194,128 |
|
| 184,005 |
|
Income tax (benefit) expense |
|
| 69,401 |
|
| (67,641) |
|
| (52,149) |
|
| (22,821) |
|
| (28,549) |
|
Interest expense, net |
|
| (91,784) |
|
| (74,456) |
|
| (51,131) |
|
| (46,573) |
|
| (41,813) |
|
Acquisition-related and other non-recurring expenses |
|
| (35,745) |
|
| (17,523) |
|
| (6,118) |
|
| (7,315) |
|
| (5,932) |
|
Loss on product recall, net of insurance recoveries |
|
| — |
|
| — |
|
| (1,868) |
|
| (12,798) |
|
| — |
|
Distribution restructuring expenses |
|
| — |
|
| (1,273) |
|
| (2,665) |
|
| — |
|
| — |
|
Write-off of property, plant and equipment(H) |
|
| 208 |
|
| 337 |
|
| (107) |
|
| — |
|
| — |
|
Deferred income taxes |
|
| (80,525) |
|
| 56,190 |
|
| 29,152 |
|
| 13,855 |
|
| 20,800 |
|
Amortization of deferred financing costs and bond discount |
|
| 5,812 |
|
| 5,426 |
|
| 3,900 |
|
| 3,790 |
|
| 4,400 |
|
Amortization of acquisition-related inventory step-up |
|
| (2,380) |
|
| (5,424) |
|
| (6,127) |
|
| — |
|
| — |
|
Share-based compensation expense |
|
| 4,615 |
|
| 5,798 |
|
| 5,817 |
|
| 2,235 |
|
| 3,935 |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| (343) |
|
| (539) |
|
| (2,356) |
|
| (4,192) |
|
Acquisition-related contingent consideration expense, including interest accretion |
|
| — |
|
| — |
|
| — |
|
| 432 |
|
| 208 |
|
Changes in assets and liabilities, net of effects of business combinations |
|
| (165,004) |
|
| 66,530 |
|
| (7,487) |
|
| (23,451) |
|
| (17,952) |
|
Net cash provided by operating activities |
| $ | 37,799 |
| $ | 289,661 |
| $ | 128,479 |
| $ | 99,126 |
| $ | 114,910 |
|
|
|
|
|
- 31 -
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|
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| Fiscal 2014 |
| Fiscal 2013 |
| |||||
|
| (In thousands, except ratios) |
| |||||||||||||
Current and former senior secured credit agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility |
| $ | — |
| $ | 176,000 |
| $ | 40,000 |
| $ | 34,000 |
| $ | 40,000 |
|
Tranche A term loan due 2016 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 131,250 |
|
Tranche A term loan due 2019 |
|
| — |
|
| 233,640 |
|
| 273,750 |
|
| 292,500 |
|
| — |
|
Tranche B term loan due 2022 |
|
| 650,110 |
|
| 640,110 |
|
| 750,000 |
|
| — |
|
| — |
|
4.625% senior notes due 2021 |
|
| 700,000 |
|
| 700,000 |
|
| 700,000 |
|
| 700,000 |
|
| 700,000 |
|
5.25% senior notes due 2025 |
|
| 900,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Senior debt |
| $ | 2,250,110 |
| $ | 1,749,750 |
| $ | 1,763,750 |
| $ | 1,026,500 |
| $ | 871,250 |
|
EBITDA |
| $ | 290,181 |
| $ | 291,624 |
| $ | 201,023 |
| $ | 143,532 |
| $ | 178,073 |
|
Senior debt / EBITDA |
|
| 7.8x |
|
| 6.0x |
|
| 8.8x |
|
| 7.2x |
|
| 4.9x |
|
Adjusted EBITDA |
| $ | 333,201 |
| $ | 322,040 |
| $ | 217,801 |
| $ | 194,128 |
| $ | 184,005 |
|
Senior debt /adjusted EBITDA |
|
| 6.8x |
|
| 5.4x |
|
| 8.1x |
|
| 5.3x |
|
| 4.7x |
|
See Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report, for more information about our long-term debt. As of December 30, 2017, we were in compliance with all of the covenants, including the financial covenants, in our credit agreement and the indentures governing the 4.625% senior notes and 5.25% senior notes.
|
|
- 32 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| Fiscal 2014 |
| Fiscal 2013 |
| |||||
|
| (In thousands, except ratios) |
| |||||||||||||
Interest expense, net |
| $ | 91,784 |
| $ | 74,456 |
| $ | 51,131 |
| $ | 46,573 |
| $ | 41,813 |
|
Amortization of deferred financing and bond discount |
|
| (5,812) |
|
| (5,426) |
|
| (3,900) |
|
| (3,790) |
|
| (4,400) |
|
Cash interest expense |
| $ | 85,972 |
| $ | 69,030 |
| $ | 47,231 |
| $ | 42,783 |
| $ | 37,413 |
|
EBITDA |
| $ | 290,181 |
| $ | 291,624 |
| $ | 201,203 |
| $ | 143,532 |
| $ | 178,073 |
|
EBITDA / cash interest expense |
|
| 3.4x |
|
| 4.2x |
|
| 4.3x |
|
| 3.4x |
|
| 4.8x |
|
Adjusted EBITDA |
| $ | 333,201 |
| $ | 322,040 |
| $ | 217,801 |
| $ | 194,128 |
| $ | 184,005 |
|
Adjusted EBITDA / cash interest expense |
|
| 3.9x |
|
| 4.7x |
|
| 4.6x |
|
| 4.5x |
|
| 4.9x |
|
- 33 -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Part I, Item 1A, “Risk Factors” andFactors,” under the heading “Forward-Looking Statements” belowbefore Part I of this report and elsewhere in this report. The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.
General
We manufacture, sell and distribute a diverse portfolio of branded, high quality, shelf‑stableshelf-stable and frozen foods and household products, many of which have leading regional or national market shares. In general, we position our branded products to appeal to the consumer desiring a high quality and reasonably priced product. We complement our branded product retail sales with institutional and foodservice sales and private label sales.
Our company has been built upon a successful track record of acquisition-driven growth. Our goal is to continue to increase sales, profitability and cash flows through strategic acquisitions, new product development and organic
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growth. We intend to implement our growth strategy through the following initiatives: expanding our brand portfolio with disciplined acquisitions of complementary branded businesses, continuing to develop new products and delivering them to market quickly, leveraging our multiple channel sales and distribution system and continuing to focus on higher growth customers and distribution channels.
Since 1996, we have successfully acquired and integrated more than 4550 brands into our company. Most recently, on October 2, 2017, we completed the acquisition of Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers. On December 2, 2016,May 5, 2022, we acquired Victoria Fine Foods, LLC, and a related entity, from Huron Capital Partners and certain other sellers. On November 21, 2016, we completed the acquisitionfrozen vegetable manufacturing operations of the spices & seasonings business of ACH Food Companies, Inc. On November 2, 2015, we completed the acquisition of the Green Giant and Le Sueur brands from General Mills, Inc. And on July 10, 2015, we acquired Spartan Foods of America, Inc., and related entities, including the Mama Mary’s brand, from Linsalata Capital Partners and certain other sellers.Growers Express, LLC. We refer to these acquisitionsthis acquisition in this report as the “Back to Nature“Yuma acquisition.” This acquisition” “Victoria acquisition,” “spices & seasonings acquisition,” “Green Giant acquisition” and “Mama Mary’s acquisition,” respectively. Each of these recent acquisitions has been accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired businessesbusiness are included in our consolidated financial statements from the respective datesdate of acquisition. These acquisitionsThis acquisition and the application of the acquisition method of accounting affect comparability between periods.
On January 3, 2023, we completed the sale of the Back to Nature business to a subsidiary of Barilla America, Inc. We refer to this divestiture in this report as the “Back to Nature sale.” On November 8, 2023, we completed the sale of the Green Giant U.S. shelf-stable product line to Seneca Foods Corporation. We refer to this divestiture in this report as the “Green Giant U.S. shelf-stable divestiture.” These divestitures affect comparability between periods.
We are subject to a number of challenges that may adversely affect our businesses. These challenges, which are discussed above before Part I of this report under the heading “Forward-Looking Statements” and in Part I, Item 1A, “Risk Factors” and below under the heading “Forward‑Looking Statements,” include:
Fluctuations in Commodity Prices and Production and Distribution Costs.We purchase raw materials, including agricultural products, oils, meat, poultry, ingredients and packaging materials from growers, commodity processors, other food companies and packaging suppliers located in U.S. and foreign locations. Raw materials and other input costs, such as fuel and transportation, are subject to fluctuations in price attributable to a number of factors.factors, including climate and weather conditions, supply chain disruptions (including raw material shortages), labor shortages, wars and pandemics. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.
We attempt to manage cost inflation risks by locking in prices through short‑termshort-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers may lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs.
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We expect to see moderateexperienced material net cost increases for raw materials during early fiscal 2023, fiscal 2022 and fiscal 2021 due to a number of factors, including the war in Ukraine and the marketplaceCOVID-19 pandemic. Raw material costs remained elevated in fiscal 2023 and we anticipate that certain raw material costs will remain elevated during 2018 andfiscal 2024. We are currently locked into our supply and prices for a majority of our most significant raw material commodities (excluding, among others, maple syrup)oils) through the first half of fiscal 2018 at a cost increase2024, and for most of less than 1%our needs for oils through the first quarter and into the second quarter of fiscal 2024.
In recent years, we have been negatively impacted by industry-wide increases in the cost of goods sold. Duringdistribution, primarily driven by increased freight rates. Freight rates increased significantly during the fourth quarter of 2020 throughout fiscal 2017,2021 and fiscal 2022. We attempt to offset all or a portion of these increases through price increases and cost savings initiatives. For example, despite higher rates for freight in 2021 and 2022, we hadwere able to offset a minimalportion of the freight cost increase forincreases through pricing, which included both list price increases and trade spend optimization. Although freight rates began to decline in 2023, we expect freight rates to remain elevated in 2024.
We plan to continue managing inflation risk by entering into short-term supply contracts and advance commodities purchase agreements from time to time, and, when necessary, by raising prices. Beginning in the fourth quarter of 2022 through the fourth quarter of 2023, we have seen improvements in our gross profit and gross profit margins as our net pricing has to a majority of our most significant commodities (excluding, among others, maple syrup). Tolarge extent caught up with input cost increases. However, to the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially adversely affected. In addition, if input costs begin to decline, customers may look for price reductions in situations where we have locked into purchases at higher costs. During the past several years, our cost saving measures and sales price increases have not been sufficient to fully offset increases to our raw material, ingredient and packaging and distribution costs.
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Consolidation in the Retail Trade and Consequent Inventory Reductions.As the retail grocery trade continuescustomers, such as supermarkets, discounters, e-commerce merchants, warehouse clubs and food distributors, continue to consolidate and our retail customers grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. These customers are also reducing their inventories and increasing their emphasis on private label products.
Changing Consumer Preferences.Preferences and Channel Shifts. Consumers in the market categories in which we compete frequently change their taste preferences, dietary habits and product packaging preferences. In addition, the rapid growth of some channels and changing consumer preferences for these channels, in particular in e-commerce, which has expanded significantly following the outbreak of COVID-19, may impact our current operations or strategies more quickly than we planned for, create consumer price deflation, alter the buying behavior of consumers or disrupt our retail customer relationships. As a result of changing consumer preferences for products and channels, we may need to increase or reallocate spending on existing and new distribution channels and technologies, marketing, advertising and new product innovation to protect or increase revenues, market share and brand significance. These expenditures may not be successful, including those related to our e-commerce and other technology-focused efforts, and might not result in trade and consumer acceptance of our efforts. If we are unable to effectively and timely adapt to changes in consumer preferences and channel shifts, our products may lose market share or we may face significant price erosion, and our business, consolidated financial condition, results of operations or liquidity could be materially and adversely affected.
Consumer Concern Regarding Food Safety, Quality and Health.The food industry is subject to consumer concerns regarding the safety and quality of certain food products. If consumers in our principal markets lose confidence in the safety and quality of our food products, even as a result of a product liability claim or a product recall by a food industry competitor, our business could be adversely affected.
Fluctuations in Currency Exchange Rates.Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars. During fiscal 2017, 20162023 and 2015,fiscal 2022, our net sales to customers in foreign countries represented approximately 6.3%, 7.1%8.6% and 5.2%7.8%, respectively, of our total net sales. We also purchase a significant majority of our maple syrup requirements from suppliers located in Québec, Canada. Any weakening of the U.S. dollar against the Canadian dollar could significantly increase our costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars in advance of any such weakening of the U.S. dollar or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. These increased costs would not be fully offset by the positive impact the change in the relative strength of the Canadian dollar versus the U.S. dollar would have on our net sales in Canada. Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars. We also operate a manufacturing facility in Irapuato, Mexico for the manufacture of Green Giant frozen products and are as a result exposed to fluctuations in the Mexican peso. Our results of operations could be adversely impacted by changes in foreign currency exchange rates. Costs and expenses in Mexico are recognized in local foreign currency, and therefore we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our consolidated financial statements.
To confront these challenges, we continue to take steps to build the value of our brands, to improve our existing portfolio of products with new product and marketing initiatives, to reduce costs through improved productivity, to address consumer concerns about food safety, quality and health and to favorably manage currency fluctuations.
Critical Accounting Policies; Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles generally accepted in the United States (GAAP) requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and assumptions made by management involve revenue recognition as it relates to trade and consumer promotion expenses; allowances for excess, obsolete and unsaleable inventories; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment, and deferred tax assets; and the determination of the useful life of customer relationship and amortizablefinite-lived trademark intangibles; the fair value of contingent consideration liabilities; and the accounting for share‑based compensation expense.intangible assets. Actual results could differ significantly from these estimates and assumptions.
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Our significant accounting policies are described more fully in note 2 to our consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
- 37 -
Revenue Recognition and Trade and Consumer Promotion Expenses
We offer various sales incentive programs to customers and consumers, such as price discounts, in‑storein-store display incentives, slotting fees and coupons. The recognition of expense for these programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from our estimates.
In May 2014, the FASB issuedThe core principle of authoritative guidance from the Financial Accounting Standards Board (FASB) related to new accounting requirements for the recognition of revenue from contracts with customers. The core principle of the guidancecustomers is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services.
We adopted this guidance and related amendments as of the first quarter of fiscal 2018 applying the full retrospective transition approach to all contracts. Based on our comprehensive assessment of the new guidance, including our evaluation of the five-step approach outlined within the guidance, we concluded that the adoption will not have a significant impact to our core revenue generating activities. However, the adoption will result in a change in presentation of certain trade and consumer promotion expenses, specifically in-store display incentives also referred to as marketing development funds.Long-Lived Assets
We previously recorded in-store display incentives or marketing development funds within selling, general and administrative expenses in our consolidated statements of operations. Upon the adoption of the new guidance, many of these cash payments will not meet the specific criteria within the new guidance of providing a “distinct” good or service, and therefore, will be required to be presented as a reduction of net sales. We currently anticipate that the impact of this change will result in a reduction of net sales, gross profit and selling, general and administrative expenses by approximately $20 million during fiscal 2018, the first year of adoption, with no impact to net income. See Note 2(s), “Summary of Significant Accounting Policies — Recently Issued Accounting Standards,” to our consolidated financial statements in Part II, Item 8 of this report for the expected adjustments to net sales, gross profit and selling, general and administrative expenses for fiscal 2017, 2016 and 2015 as a result of the newly adopted revenue recognition standard.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first in, first out and average cost methods. Inventories have been reduced by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on our management’s review of inventories on hand compared to estimated future usage and sales.
Long‑Lived Assets
Long‑livedLong-lived assets, such as property, plant and equipment, and intangiblesintangible assets with estimated useful lives are depreciated or amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted net future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted net future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Recoverability of assets held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated costs to sell. Estimating future cash flows and calculating the fair value of assets requires significant estimates and assumptions by management.
Goodwill and Other Intangible Assets
Our total assets include substantial goodwill and unamortizableindefinite-lived intangible assets (trademarks). TheseGoodwill and indefinite-lived intangible assets are not amortized. As a result, these assets are tested for impairment through qualitative and quantitative assessments at least annually and whenever events or circumstances occur indicating that goodwill or
- 36 -
unamortizable intangibles indefinite-lived intangible assets might be impaired. We perform the annual impairment tests as of the last day of each fiscal year. The annual goodwill impairment test involves a two‑step process. The first step of the impairment test involves comparing our company’s market capitalization with our company’s carrying value, including goodwill. If the carrying value of our company exceeds our market capitalization, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the carrying value and recognizing a loss for the difference. As of December 30, 2017, we had $649.3 million of goodwill recorded in our consolidated balance sheet. Our testing indicates that the implied fair value of goodwill is significantly in excess of the carrying value. Therefore, we believe that only significant changes in the cash flow assumptions would result in an impairment of goodwill.
We test our unamortizable intangiblesgoodwill and indefinite-lived intangible assets by comparing the fair valuevalues with the carrying valuevalues and recognize a loss for the difference. We estimate
The annual goodwill impairment testing is performed by estimating the fair value of our unamortizable intangiblescompany based on discounted cash flows that reflect certain third partythird-party market value indicators. Calculating ourSimilarly, the annual impairment testing for indefinite-lived intangible assets is performed by estimating the fair value of our indefinite-lived intangible assets based on discounted cash flows that reflect certain third-party market value indicators.
Calculating the fair values of goodwill and indefinite-lived intangible assets for these purposes requires significant estimates and assumptions by management, including future cash flows consistent with management’s expectations, annual sales growth rates, and certain assumptions underlying a discount rate based on available market data. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors to estimate the future levels of sales and cash flows.
We completed our annual impairment tests for fiscal 2023, fiscal 2022 and fiscal 2021 with no adjustments to the carrying values of goodwill. As of December 30, 2017,2023, we had $1,483.6$619.4 million of unamortizable intangiblesgoodwill recorded in our consolidated balance sheetsheet. Our testing indicates that the implied fair value of our company is in excess of the carrying value. However, a change in the cash flow assumptions could result in an impairment of goodwill.
Our annual impairment tests for fiscal 2023 resulted in our company recording pre-tax, non-cash impairment charges to intangible trademark assets for our Baker’s Joy, Molly McButter, Sugar Twin andNew York Flatbreads brands of $20.5 million in the aggregate during the fourth quarter of 2023, which is recorded in “Impairment of intangible assets” in our consolidated statement of operations for fiscal 2023. We partially impaired the Baker’s Joy and Sugar Twin brands, and we fully impaired the Molly McButter and New York Flatbreads brands.
Additionally, in connection with the divestiture of our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash charges of $132.9 million during the third quarter of 2023.
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During the fourth quarter of 2023, we completed the Green Giant U.S. shelf-stable divestiture and recorded a loss on sale of $4.8 million during the quarter, resulting in a total loss on sale of $137.7 million during fiscal 2023. See Note 3, “Acquisitions and Divestitures” to our consolidated financial statements in Part II, Item 8 of this report.
We completed our annual impairment tests for fiscal 2022 with no adjustments to the carrying values of indefinite-lived intangible assets. However, in connection with our decision to sell the Back to Nature business, during fiscal 2022 we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale. We measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $106.4 million during fiscal 2022 relating to those assets. See Note 3, “Acquisitions and Divestitures” to our consolidated financial statements in Part II, Item 8 of this report.
Our annual impairment tests for fiscal 2021 resulted in our company recording non-cash impairment charges to intangible trademark assets for the SnackWell’s, Static Guard, Molly McButter and Farmwise brands of $23.1 million in the aggregate during the fourth quarter of fiscal 2021, which is recorded in “Impairment of intangible assets” in the accompanying consolidated statement of operations for fiscal 2021. We partially impaired the Static Guard and Molly McButter brands, and we fully impaired the SnackWell’s and Farmwise brands, which have been discontinued.
As of December 30, 2023, we had $1,438.6 million of indefinite-lived intangible assets recorded in our consolidated balance sheet. Following the impairments recorded in fiscal 2023, fiscal 2022 and fiscal 2021, none of the balances exceedour indefinite-lived intangible assets had a book value in excess of their calculated fair values and the percentage excess of the aggregate calculated fair value over the aggregate book value was 205.0%approximately 228.7%. However, materially different assumptions regarding the future performance of our businesses or more. discount rates could result in significant additional impairment losses. For example, if future revenues and contributions to our operating results for any of our brands, including newly acquired brands, deteriorate, at rates in excess of our current projections, this could result in additional impairment losses for those brands. In addition, any significant decline in our market capitalization or changes in discount rates or changes in discount rates, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or indefinite-lived intangible assets are impaired, although a non-cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations.
The table below sets forth the book value as of December 30, 2017,2023 of the indefinite-lived trademarks offor each of our brands whose fiscal 2017 net sales were equal toequaled or exceeded 3% of our total fiscal 20172023 or fiscal 2022 net sales and for “all other brands” in the aggregate.aggregate (in thousands):
| | | |
|
| December 30, 2023 | |
Brand: | | | |
Crisco | | $ | 321,683 |
Green Giant | | | 306,660 |
Dash | | | 189,000 |
Spices & Seasonings(1) | | | 65,200 |
Ortega | | | 32,339 |
Cream of Wheat | |
| 27,000 |
Clabber Girl(2) | | | 19,600 |
Maple Grove Farms of Vermont | |
| 11,627 |
All other brands | |
| 465,534 |
Total indefinite-lived trademarks | | $ | 1,438,643 |
|
|
|
|
|
| Fiscal 2017 | |
Brand: |
| (in thousands) | |
Green Giant |
| $ | 422,000 |
Mrs. Dash |
|
| 189,000 |
Pirate Brands |
|
| 152,800 |
Bear Creek Country Kitchens |
|
| 113,400 |
Spices & Seasonings(1) |
|
| 65,200 |
Ortega |
|
| 32,339 |
Cream of Wheat |
|
| 27,000 |
Maple Grove Farms of Vermont |
|
| 11,627 |
All other brands |
|
| 470,235 |
Total |
| $ | 1,483,601 |
| (1) |
| The spices & seasonings acquisition was completed on November 21, 2016. Includes trademark values for multiple brands acquired as part of the acquisition. |
| (2) | The Clabber Girl acquisition was completed on May 15, 2019. Includes trademark values for multiple brands acquired as part of the acquisition. |
All assumptions used in our impairment evaluations for goodwill and unamortizable intangibles,indefinite-lived intangible assets, such as forecasted growth rates and discount rate, are based on the best available market information and are consistent with our internal forecasts and operating plans. We believe these assumptions to be reasonable, but they are inherently uncertain.
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These assumptions could be adversely impacted by certain of the risks described in Part I, Item 1A, “Risk Factors”Factors,” of this report.
We completed our annual impairment tests for fiscal 2017, 2016 and 2015 with no adjustments to the carrying values of goodwill and unamortizable intangibles. However, materially different assumptions regarding the future performance of our businesses could result in significant impairment losses. For example, an interim impairment analysis relating to one of our brands performed during fiscal 2014, resulted in our company recording non cash impairment charges to amortizable trademarks and customer relationship intangibles for the brand of $26.9 million and $7.3 million, respectively, during fiscal 2014. During the second quarter of 2016, we discontinued that brand because there was not sufficient demand to warrant continued production. Accordingly, we wrote off the related intangible assets and recorded non-cash impairment charges to amortizable trademarks and customer relationship intangibles of $4.5 million and $0.9
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million, respectively, which are recorded in “Impairment of intangible assets” on the accompanying consolidated statement of operations for fiscal 2016. In addition, any significant decline in our market capitalization, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or unamortizable intangible assets are impaired, although a non‑cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations.
Income Tax Expense Estimates and Policies
As part of the income tax provision process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we establish a valuation allowance. Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we include such charge in our tax provision, or reduce our tax benefits in our consolidated statements of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets.
There are various factors that may cause these tax assumptions to change in the near term, and we may have to record a valuation allowance against our deferred tax assets. We cannot predict whether future U.S. federal, state and stateinternational income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes to the U.S. federal, state and stateinternational income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new regulations and legislation are enacted. We recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that such tax position will be sustained based upon its technical merits.
See “U.S. Tax Act” below for a discussion of the U.S. Tax Cuts and Jobs Act that was signed into law on December 22, 2017, which we refer to as the “U.S. Tax Act,” and the impact it has had, and may have, on our business and financial results.
Pension Expense
We havemaintain four company-sponsored defined benefit pension plans covering approximately 40%22.2% of our employees. Our funding policy for company-sponsored defined benefit pension plans is to contribute annually not less than the amount recommended by our actuaries. The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates, employee-related demographic factors, such as turnover, retirement age and mortality, and the rate of salary increases. Certain assumptions reflect our historical experience and management’s best judgment regarding future expectations. Due to the significant management judgment involved, our assumptions could have a material impact on the measurement of our pension expenses and obligations. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by statute. During fiscal 2017, weWe made total contributions to our company-sponsored pension plans of $8.7 million. During$2.5 million during fiscal 2016, we made total2023. We did not make any contributions to our company-sponsored defined benefit pension plans of $3.5 million.in fiscal 2022. Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions in fiscal 20182024 and beyond.
Our discount rate assumption for our four company-sponsored defined benefit plans changed from 4.039%4.95% - 5.00% at December 31, 20162022 to 3.45%-3.56%4.75% - 4.81% at December 30, 2017. While we do not currently anticipate a change in our fiscal 2018 assumptions, as2023. As a sensitivity measure, a 0.25% declinedecrease or increase in our discount rate would increase or decrease our pension expense by approximately $0.5 million to $0.6$0.1 million. Similarly, a 0.25% decrease or increase in the expected return on pension plan assets would increase or decrease our pension expense by approximately $0.3$0.4 million. WeDuring fiscal 2024 we expect to make $1.1contributions of approximately $2.5 million for our four company-sponsored defined benefit pension plans.
During the fourth quarter of fiscal 2021, we closed our manufacturing facility in Portland, Maine and withdrew from participation in a multi-employer defined benefit pension plan maintained by the labor union that represented certain of our employees at the facility. Prior to the withdrawal, we made periodic contributions during fiscal 2018.to this plan pursuant to the terms of a collective bargaining agreement. Our withdrawal from the plan requires us to make withdrawal liability payments to the plan of approximately $0.9 million per year for 20 years commencing March 1, 2022. The remaining estimated present value of that liability of $12.9 million is recorded on our consolidated balance sheet as of December 30, 2023.
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For a more detailed description about our pension expense, the company-sponsored pension plans to which we contribute, and the multi-employer pension plan withdrawal liability, see Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of this report.
Acquisition Accounting
Our consolidated financial statements and results of operations include an acquired business’s operations after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which
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requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred.
The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Accordingly, for significant items, we typically obtain assistance from third partythird-party valuation specialists. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can materially impact our results of operations.
Share‑based Compensation Expense
We provide compensation benefits in the form of stock options, performance share long‑term incentive awards (LTIAs) and common stock to employees and non‑employee directors. The cost of share based compensation is recorded at fair value at the date of grant and expensed in our consolidated statements of operations over the requisite service period, if any.
Performance share LTIAs granted to our executive officers and certain other members of senior management entitle each participant to earn shares of common stock upon the attainment of certain performance goals over the applicable performance period. The recognition of compensation expense for the performance share LTIAs is initially based on the probable outcome of the performance condition based on the fair value of the award on the date of grant and the anticipated number of shares to be awarded on a straight‑line basis over the applicable performance period. The fair value of the awards on the date of grant is determined based upon the closing price of our common stock on the applicable measurement dates (i.e., the deemed grant dates for accounting purposes) reduced by the present value of expected dividends using the risk‑free interest‑rate as the award holders are not entitled to dividends or dividend equivalents during the vesting period. Our company’s performance against the defined performance goals are re‑evaluated on a quarterly basis throughout the applicable performance period and the recognition of compensation expense is adjusted for subsequent changes in the estimated or actual outcome. The cumulative effect of a change in the estimated number of shares of common stock to be issued in respect of performance share awards is recognized as an adjustment to earnings in the period of the revision.
The fair value of stock option awards is estimated on the date of grant using the Black‑Scholes option pricing model and is recognized in expense over the vesting period of the options using the straight‑line method. The Black‑Scholes option pricing model requires various assumptions, including the expected volatility of our stock, the expected term of the option, the risk‑free interest rate and the expected dividend yield. Expected volatility is based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The risk‑free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. All stock option grants have an exercise price equal to the fair market value of our common stock on the date of grant, have a 10‑year term and cliff vest three years from the date of grant.
We recognize compensation expense for only that portion of share based awards that are expected to vest. We utilize historical employee termination behavior to determine our estimated forfeiture rates. If the actual forfeitures differ from those estimated by management, adjustments to compensation expense will be made in future periods.
Product Recall
On November 14, 2014, we announced a voluntary recall for certain Ortega and Las Palmas products after learning that one or more of the spice ingredients purchased from a third party supplier contained peanuts and almonds, allergens that are not declared on the products’ ingredient statements. A significant majority of the costs of this recall were incurred in the fourth quarter of 2014. The cost impact of this recall during fiscal 2015 was $1.9 million, of which $1.2 million was recorded as a decrease in net sales related to customer refunds; $0.5 million was recorded as an increase in cost of goods sold primarily related to costs associated with product retrieval, destruction charges and customer fees; and $0.2 million was recorded as an increase in selling, general, and administrative expenses related to administrative costs. In fiscal 2015, we received an insurance recovery of $5.0 million related to this recall.
- 39 -
U.S. Tax Act
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, which we refer to as the “U.S. Tax Act.Act,” was signed into law. The U.S. Tax Act provides for significant changes in the U.S. Internal Revenue Code of 1986, as amended. The changes in the U.S. Tax Act are broad and complex and we continue to examine the impact the U.S. Tax Act may have on our business and financial results. The U.S. Tax Act contains provisions with separate effective dates but iswas generally effective for taxable years beginning after December 31, 2017.
Under FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. TheBeginning on January 1, 2018, the U.S. Tax Act lowerslowered the U.S. federal corporate income tax rate from 35% to 21%. In the fourth quarter of fiscal 2017 we revalued on our prior year U.S. deferred tax assetsearnings from that date and liabilities at the lower U.S. corporate income tax rate, which resulted in a discrete tax benefit of approximately $133.3 million. This tax benefit was partially offset by an increase in our blended state rate of approximately $5.8 million and a repatriation expense of $0.9 million.
beyond. The reduction in the corporate income tax rate from 35% to 21% will bewas effective for our fiscal 2018. We estimate that our2018 and subsequent years. Our consolidated effective tax rate was approximately 1.4% and 39.9% for fiscal 20182023 and fiscal 2022, respectively. The reduction in the income tax rate has reduced our cash income tax payments. However, we expect the impact will be approximately 25%.
We also expect to realizepartially offset as a cash tax benefit for futureresult of the phase-out by the end of 2026 of bonus depreciation on certain business additions, which, together with the reduced income tax rate, we expect to reduce our cash income tax payments.additions.
The U.S. Tax Act also limits the deduction for net interest expense (including the treatment of depreciation and other deductions in arriving at adjusted taxable income) incurred by a corporate taxpayer to 30% of the taxpayer’s adjusted taxable income. While
If we do not currently expect thatare unable to fully utilize our interest expense deductions in future periods, our cash taxes will exceed 30% ofincrease. Beginning with fiscal 2022, our adjusted taxable income as computed for purposes of the interest expense deduction limitation is computed after any deduction allowable for depreciation and amortization. As a result, our adjusted taxable income (used to compute the limitation) decreased and we were subject to the interest expense deduction limitation in any event we do not believe thisfiscal 2023 and fiscal 2022, resulting in an increase to taxable income of $107.7 million and $90.2 million, respectively. We may continue to be subject to the interest deduction limitation willin future years. We have recorded a material adverse impact on our business or financial results because anydeferred tax asset of $46.9 million and $22.2 million for fiscal 2023 and fiscal 2022, respectively, related to the interest that is non-deductiblededuction carryover, without a valuation allowance, as the disallowed interest may be carried forward indefinitely. The increase in our cash taxes resulting from the interest expense deduction limitation was approximately $25.0 million and $20.6 million for fiscal 2023 and fiscal 2022, respectively. There are various factors that may cause tax assumptions to change in the future, and we may have to record a valuation allowance against these deferred tax assets. See “—Liquidity and Capital Resources—Cash Flows–Cash Income Tax Payments” and Note 10, “Income Taxes,” to our consolidated financial statements in Part II, Item 8 of this report.
The Securities and Exchange CommissionU.S. Treasury issued guidance on December 23, 2017 providing a one-year measurement period from a registrant’s reporting period that includes the U.S. Tax Act’s enactment date to allow the registrant sufficient time to obtain, prepare and analyze information to complete the accounting required under ASC 740. As of December 30, 2017, we have recorded all known and estimable impacts ofseveral regulations supplementing the U.S. Tax Act that are effective for fiscal 2017. Future adjustments toin 2018, including detailed guidance clarifying the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.
The ultimate impactcalculation of the U.S. Tax Actmandatory tax on our reported results in fiscal 2018 and beyond may differ from the estimates provided in this report, possibly materially, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and other actions we may take as a resultpreviously unrepatriated earnings, application of the U.S. Tax Act different from that currently contemplated.
existing foreign tax credit rules to newly created categories and expanding details for application of the base erosion tax on affiliate payments. These regulations are to be applied retroactively and did not materially impact our 2023, 2022 or 2021 tax rates. See Note 10, “Income Taxes,” to our consolidated financial statements in Part II, Item 8 of this report.
- 4041 -
Results of Operations
The following table sets forth the percentages of net sales represented by selected items for fiscal 2023 and fiscal 2022 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| |||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
Net sales |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
|
Cost of goods sold |
| 72.3 | % |
| 67.8 | % |
| 70.0 | % |
|
Gross profit |
| 27.7 | % |
| 32.2 | % |
| 30.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
| 12.3 | % |
| 12.5 | % |
| 11.0 | % |
|
Amortization expense |
| 1.0 | % |
| 1.0 | % |
| 1.2 | % |
|
Impairment of intangible assets |
| — | % |
| 0.4 | % |
| — | % |
|
Operating income |
| 14.4 | % |
| 18.3 | % |
| 17.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
| 5.5 | % |
| 5.4 | % |
| 5.3 | % |
|
Loss on extinguishment of debt |
| 0.1 | % |
| 0.2 | % |
| — | % |
|
Other income |
| (0.1) | % |
| — | % |
| — | % |
|
Income before income tax (benefit) expense |
| 8.9 | % |
| 12.7 | % |
| 12.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
| (4.2) | % |
| 4.8 | % |
| 5.4 | % |
|
Net income |
| 13.1 | % |
| 7.9 | % |
| 7.1 | % |
|
| | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||
Statement of Operations Data: | | | | | | |
Net sales |
| 100.0 | % | | 100.0 | % |
Cost of goods sold |
| 77.9 | % | | 81.1 | % |
Gross profit |
| 22.1 | % | | 18.9 | % |
| | | | | | |
Operating expenses (income): | | | | | | |
Selling, general and administrative expenses |
| 9.5 | % | | 8.8 | % |
Amortization expense | | 0.9 | % | | 0.9 | % |
Loss (gain) on sales of assets | | 6.7 | % | | (0.3) | % |
Impairment of assets held for sale | | 0.1 | % | | 4.9 | % |
Impairment of intangible assets | | 1.0 | % | | — | % |
Operating income |
| 3.9 | % | | 4.6 | % |
| | | | | | |
Other (income) and expenses: | | | | | | |
Interest expense, net |
| 7.4 | % | | 5.8 | % |
Other income | | (0.2) | % | | (0.3) | % |
Loss before income tax benefit |
| (3.3) | % | | (0.9) | % |
Income tax benefit |
| (0.1) | % | | (0.4) | % |
Net loss |
| (3.2) | % | | (0.5) | % |
As used in this section, the terms listed below have the following meanings:
Net Sales. Our net sales represents gross sales of products shipped to customers plus amounts charged to customers for shipping and handling, less cash discounts, coupon redemptions, slotting fees and trade promotional spending.spending, including marketing development funds.
Gross Profit. Our gross profit is equal to our net sales less cost of goods sold. The primary components of our cost of goods sold are cost of internally manufactured products, purchases of finished goods from co‑packers,co-packers, a portion of our warehousing expenses plus freight costs to our distribution centers and to our customers.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses include costs related to selling our products, as well as all other general and administrative expenses. Some of these costs include administrative, marketing and internal sales force employee compensation and benefits costs, consumer advertising programs, brokerage costs, a portion of our warehousing expenses, information technology and communication costs, office rent, utilities, supplies, professional services, acquisition-relatedseverance, acquisition/divestiture-related and other non-recurring expenses and other general corporate expenses.
Amortization Expense.Amortization expense includes the amortization expense associated with customer relationships, amortizablefinite-lived trademarks and other intangibles.intangible assets.
Impairment of Assets Held for Sale. Impairment of assets held for sale consists of pre-tax, non-cash charges to assets held for sale. We measure assets held for sale at the lower of their carrying value and fair value less anticipated costs to sell, and record non-cash impairment charges to the extent the fair value less anticipated costs to sell is less than their carrying value.
Impairment of Intangible Assets.Assets. Impairment ofon intangible assets represents a reduction of the carrying value of amortizable intangible assets to fair value when the carrying value of the assets is no longer recoverable.
Net Interest Expense.Net interest expense includes interest relating to our outstanding indebtedness, amortization of bond discountdiscount/premium and amortization of deferred debt financing costs (net of interest income).
Loss on Extinguishment- 42 -
Other Income.Other income includes expense and/income or incomeexpense resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes.
- 41 -
Non-GAAP Financial Measures
Certain disclosures in this report include non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP)GAAP in our consolidated balance sheets and related consolidated statements of operations, comprehensive (loss) income, changes in stockholders’ equity and cash flows.
Base Business Net Sales. Base business net sales is a non-GAAP financial measure used by management to measure operating performance. We define base business net sales as our net sales excluding (1) the impactnet sales of acquisitions until at least one full quarter ofthe net sales from such acquisitions are included in both comparable periods and (2) net sales of discontinued or divested brands. The portion of current period net sales attributable to recent acquisitions for which there is not at least one full quarter of net salesno corresponding period in the comparable period of the prior year is excluded. For each acquisition, the excluded period starts at the beginning of the most recent fiscal period being compared and ends on the last day of the quarter in which the first anniversary of the date of acquisition occurs, and the period from the date of acquisition to the end of the quarter in which the acquisition occurred.date. For discontinued or divested brands, the entire amount of net sales is excluded from each fiscal period being compared. Management hasWe have included this financial measure because our management believes it provides useful and comparable trend information regarding the results of our business without the effect of the timing of acquisitions and the effect of discontinued or divested brands.
The definitionA reconciliation of base business net sales set forth above, as it relates to acquisitions, has been modified from the definition we have used in prior annual reports. Under our previous definition of base business net sales for each acquisition, the excluded period started at the beginning of the most recent fiscal period being compared2023 and ended on the first anniversary of the acquisition date. We believe that it is more useful to measure base business net sales on a full quarter basis and accordingly have updated the fiscal 2016 versus 2015 base business net sales presentation below to reflect this change.
A reconciliation of base business net sales to reported net sales for fiscal 2017 and 20162022 follows (in thousands):
| | | | | | |
|
| Fiscal 2023 |
| Fiscal 2022 | ||
Net sales | | $ | 2,062,313 | | $ | 2,163,000 |
Net sales from acquisitions(1) | |
| (550) | |
| — |
Net sales from discontinued or divested brands(2) | | | (64,599) | | | (135,813) |
Base business net sales | | $ | 1,997,164 | | $ | 2,027,187 |
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| ||
Reported net sales |
| $ | 1,668,056 |
| $ | 1,391,257 |
|
Net sales from acquisitions(1) |
|
| (323,794) |
|
| (31,437) |
|
Net sales of Rickland Orchards(2) |
|
| — |
|
| (528) |
|
Base business net sales |
|
| 1,344,262 |
|
| 1,359,292 |
|
| (1) |
| Reflects |
| (2) | For fiscal 2022, reflects net sales of the Green Giant U.S. shelf-stableproduct line, which was sold on November 8, 2023, net sales of the Back to Nature brand, which was sold on January 3, 2023, and net sales |
|
|
A reconciliation of base business net sales to reported net sales for fiscal 2016 and 2015 follows (in thousands):
|
|
|
|
|
|
|
|
|
| Fiscal 2016 |
| Fiscal 2015 |
| ||
Reported net sales |
| $ | 1,391,257 |
| $ | 966,358 |
|
Net sales from acquisitions(1) |
|
| (573,894) |
|
| (124,531) |
|
Net sales of Rickland Orchards(2) |
|
| (528) |
|
| (4,106) |
|
Base business net sales |
| $ | 816,835 |
| $ | 837,721 |
|
|
|
|
|
- 42 -
EBITDA and Adjusted EBITDA. EBITDA and adjusted EBITDA are non‑GAAPnon-GAAP financial measures used by management to measure operating performance. We define EBITDA as net income (loss) before net interest expense, income taxes, and depreciation and amortization and loss on extinguishment of debt.amortization. We define adjusted EBITDA as EBITDA adjusted for cash and non-cash acquisition-relatedacquisition/divestiture-related expenses, gains and losses (which may include third partythird-party fees and expenses, integration, restructuring and consolidation expenses, and amortization of acquired inventory fair value step-up, and gains and losses on the sale of certain assets); gains and otherlosses on extinguishment of debt; impairment of assets held for sale; impairment of intangible assets; and non-recurring expenses, gains and losses; intangible asset impairment charges and related asset write-offs; gains or losses related to changes in the fair value of contingent liabilities from earn-outs; loss on product recalls, including customer refunds, selling, general and administrative expenses and the impact on cost of sales; and distribution restructuring expenses. losses.
Management believes that it is useful to eliminate net interest expense, income taxes, depreciation and amortization, loss on extinguishment of debt, acquisition-related and other non-recurring expenses, gains and losses, non-cash intangible asset impairment charges and related asset write-offs, loss on product recalls and distribution restructuring expensesthese items because it allows management to focus on what it deems to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. We use EBITDA and adjusted EBITDA in our business operations to, among other things, evaluate our operating performance, develop budgets and measure our performance against those budgets, determine employee bonuses and evaluate our cash flows in terms of cash needs. We also present EBITDA and adjusted EBITDA because we believe they are useful indicators of our historical debt capacity and ability to service debt and because covenants in our credit agreement and our senior notes indentures contain ratios based on these measures. As a result, reports used by internal management reports used during monthly operating reviews feature the EBITDA and adjusted EBITDA metrics. However, management uses these metrics in conjunction with traditional GAAP operating performance and liquidity measures as part of its overall assessment of company performance and liquidity, and therefore does not place undue reliance on these measures as its only measures of operating performance and liquidity.
- 43 -
EBITDA and adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to operating income, net income (loss) or any other GAAP measure as an indicator of operating performance. EBITDA and adjusted EBITDA are not complete net cash flow measures because EBITDA and adjusted EBITDA are measures of liquidity that do not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends. Rather, EBITDA and adjusted EBITDA are two potential indicators of an entity’s ability to fund these cash requirements. EBITDA and adjusted EBITDA are not complete measures of an entity’s profitability because they do not include certain costs and expenses for depreciation and amortization, interest and related expenses, loss on extinguishment of debt, acquisition-related and other non-recurring expenses, gains and losses income taxes, intangible asset impairment charges and related asset write-offs, gains or losses related to changes in the fair value of contingent liabilities from earn-outs, loss on product recalls and distribution restructuring expenses.described above. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies. However, EBITDA and adjusted EBITDA can still be useful in evaluating our performance against our peer companies because management believes these measures provide users with valuable insight into key components of GAAP amounts.
- 43 -
A reconciliation of EBITDAnet loss and adjusted EBITDA to net income and to net cash provided by operating activities to EBITDA and adjusted EBITDA for fiscal 2017, 20162023 and 2015fiscal 2022 along with the components of EBITDA and adjusted EBITDA follows:follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| |||
|
| (In thousands) |
| |||||||
Net income |
| $ | 217,463 |
| $ | 109,425 |
| $ | 69,090 |
|
Income tax (benefit) expense |
|
| (69,401) |
|
| 67,641 |
|
| 52,149 |
|
Interest expense, net |
|
| 91,784 |
|
| 74,456 |
|
| 51,131 |
|
Depreciation and amortization |
|
| 49,172 |
|
| 37,266 |
|
| 28,653 |
|
Loss on extinguishment of debt |
|
| 1,163 |
|
| 2,836 |
|
| — |
|
EBITDA |
|
| 290,181 |
|
| 291,624 |
|
| 201,023 |
|
Acquisition-related and other non-recurring expenses |
|
| 35,745 |
|
| 17,523 |
|
| 6,118 |
|
Amortization of acquisition-related inventory step-up |
|
| 2,380 |
|
| 5,424 |
|
| 6,127 |
|
Impairment of intangible assets |
|
| — |
|
| 5,405 |
|
| — |
|
Loss on disposal of inventory |
|
| 3,287 |
|
| 791 |
|
| — |
|
Loss on sale of assets |
|
| 1,608 |
|
| — |
|
| — |
|
Loss on product recall, net of insurance recoveries |
|
| — |
|
| — |
|
| 1,868 |
|
Distribution restructuring expenses |
|
| — |
|
| 1,273 |
|
| 2,665 |
|
Adjusted EBITDA |
|
| 333,201 |
|
| 322,040 |
|
| 217,801 |
|
Income tax benefit (expense) |
|
| 69,401 |
|
| (67,641) |
|
| (52,149) |
|
Interest expense, net |
|
| (91,784) |
|
| (74,456) |
|
| (51,131) |
|
Acquisition-related and other non-recurring expenses |
|
| (35,745) |
|
| (17,523) |
|
| (6,118) |
|
Loss on product recall, net of insurance recoveries |
|
| — |
|
| — |
|
| (1,868) |
|
Distribution restructuring expenses |
|
| — |
|
| (1,273) |
|
| (2,665) |
|
Write-off of property, plant and equipment |
|
| 208 |
|
| 337 |
|
| 107 |
|
Deferred income taxes |
|
| (80,525) |
|
| 56,190 |
|
| 29,152 |
|
Amortization of deferred financing costs and bond discount |
|
| 5,812 |
|
| 5,426 |
|
| 3,900 |
|
Amortization of acquisition-related inventory step-up |
|
| (2,380) |
|
| (5,424) |
|
| (6,127) |
|
Share-based compensation expense |
|
| 4,615 |
|
| 5,798 |
|
| 5,817 |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| (343) |
|
| (539) |
|
Changes in assets and liabilities, net of effects of business combinations |
|
| (165,004) |
|
| 66,530 |
|
| (7,701) |
|
Net cash provided by operating activities |
| $ | 37,799 |
| $ | 289,661 |
| $ | 128,479 |
|
| | | | | | |
|
| Fiscal 2023 |
| Fiscal 2022 | ||
Net loss | | $ | (66,198) | | $ | (11,370) |
Income tax benefit | | | (935) | | | (7,537) |
Interest expense, net(1) | | | 151,333 | | | 124,915 |
Depreciation and amortization | | | 69,620 | | | 80,528 |
EBITDA | | | 153,820 | | | 186,536 |
Acquisition/divestiture-related and non-recurring expenses(2) | | | 5,877 | | | 12,921 |
Loss (gain) on sales of assets, net of facility closure costs(3) | | | 137,798 | | | (4,928) |
Impairment of assets held for sale(4) | | | — | | | 106,434 |
Impairment of intangible assets(5) | | | 20,500 | | | — |
Adjusted EBITDA | | $ | 317,995 | | $ | 300,963 |
| | | | | | |
|
| Fiscal 2023 |
| Fiscal 2022 | ||
Net cash provided by operating activities | | $ | 247,759 | | $ | 5,963 |
Income tax benefit | | | (935) | | | (7,537) |
Interest expense, net(1) | | | 151,333 | | | 124,915 |
Gain on extinguishment of debt(1) | | | 911 | | | — |
(Loss) gain on sales of assets(3) | | | (138,523) | | | 7,086 |
Deferred income taxes | | | 26,395 | | | 26,897 |
Amortization of deferred debt financing costs and bond discount/premium | | | (7,510) | | | (4,723) |
Share-based compensation expense | | | (7,191) | | | (3,917) |
Changes in assets and liabilities, net of effects of business combinations | | | (97,919) | | | 144,286 |
Impairment of assets held for sale(4) | | | — | | | (106,434) |
Impairment of intangible assets(5) | | | (20,500) | | | — |
EBITDA | | | 153,820 | | | 186,536 |
Acquisition/divestiture-related and non-recurring expenses(2) | | | 5,877 | | | 12,921 |
Loss (gain) on sales of assets, net of facility closure costs(3) | | | 137,798 | | | (4,928) |
Impairment of assets held for sale(4) | | | — | | | 106,434 |
Impairment of intangible assets(5) | | | 20,500 | | | — |
Adjusted EBITDA | | $ | 317,995 | | $ | 300,963 |
We use “adjusted
Adjusted Net Income and Adjusted Diluted Earnings Per Share. Adjusted net income”income and “adjustedadjusted diluted earnings per share” which are calculated as reportednon-GAAP financial measures used by management to measure operating performance. We define adjusted net income and reportedadjusted diluted earnings per share as net income and diluted earnings per share adjusted for certain items that affect comparability. These non-GAAP financial measures reflect adjustments to reported net income and diluted earnings per share to eliminate the items identified in the reconciliation below. This information is provided in order to allow investors to make meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. Because we cannot predict the timing and amount of these items, management does not consider these items when evaluating our company’s performance or when making decisions regarding allocation of resources.
- 44 -
A reconciliation of net loss to adjusted net income and adjusted diluted earnings per share for fiscal 2023 and fiscal 2022, along with the components of adjusted net income and adjusted diluted earnings per share, follows (in thousands):
| | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | ||
Net loss | | $ | (66,198) | | $ | (11,370) |
Gain on extinguishment of debt(1) | | | (911) | |
| — |
Acquisition/divestiture-related and non-recurring expenses(2) | | | 5,877 | | | 12,921 |
Loss (gain) on sales of assets, net of facility closure costs(3) | | | 137,798 | | | (4,928) |
Credit agreement amendment fee(6) | | | — | | | 1,600 |
Impairment of assets held for sale(4) | | | — | | | 106,434 |
Impairment of intangible assets(5) | | | 20,500 | | | — |
Tax adjustment related to Back to Nature divestiture(7) | | | 14,736 | | | — |
Tax effects of non-GAAP adjustments(8) | | | (37,925) | | | (28,427) |
Adjusted net income | | $ | 73,877 | | $ | 76,230 |
Adjusted diluted earnings per share | | $ | 0.99 | | $ | 1.08 |
| (1) | Net interest expense for fiscal 2023 was reduced by $0.9 million (or $0.7 million, net of tax) as a result of a net gain on extinguishment of debt related to our 5.25% senior notes due 2025. During fiscal 2023, we repurchased $79.2 million aggregate principal amount of our 5.25% senior notes due 2025 in the open market at discounted repurchase prices and recorded a gain of $1.9 million, net of the accelerated amortization of deferred debt financing costs of $0.3 million. In addition, in October 2023, we redeemed $555.4 million aggregate principal amount of our 5.25% senior notes due 2025 at par and recorded a loss resulting from the accelerated amortization of deferred debt financing costs of $1.0 million. |
| (2) | Acquisition/divestiture-related and non-recurring expenses for fiscal 2023 of $5.9 million (or $4.4 million, net of tax) primarily includes acquisition and integration expenses for the Crisco acquisition and divestiture-related expenses for the Green Giant U.S. shelf-stable and Back to Nature divestitures. Acquisition/divestiture-related and non-recurring expenses for fiscal 2022 of $12.9 million (or $9.8 million, net of tax) primarily includes acquisition and integration expenses for the Crisco and Yuma acquisitions. |
| (3) | In connection with the sale of assets relating to our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash charges of $132.9 million (or $100.4 million, net of tax) during the third quarter of 2023. During the fourth quarter of 2023, we completed the Green Giant U.S. shelf-stable divestiture and recorded a loss on sale of $4.8 million (or $3.6 million, net of tax) during the quarter, resulting in a total loss on sale of $137.7 million (or $104.0 million, net of tax) during fiscal 2023. |
On the first business day of fiscal 2023, we completed the Back to Nature divestiture and we recorded a loss on the sale of $0.1 million. See note (4) below.
During the first quarter of 2022, we completed the closure and sale of our Portland, Maine manufacturing facility. We recorded a gain on the sale of the Portland property, plant and equipment of $7.1 million during the first quarter of 2022. The positive impact during the quarter of the gain on sale was partially offset by approximately $2.2 million of expenses incurred during the quarter relating to the closure of the facility and the transfer of manufacturing operations, resulting in a net benefit of $4.9 million (or $3.7 million, net of tax) from the gain on sale.
| (4) | In connection with our decision to sell our Back to Nature business, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale during fiscal 2022. During the third quarter of 2022, we measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million (or $78.2 million, net of tax), and during the fourth quarter of 2022, we recorded an additional $2.8 million (or $2.1 million, net of tax) of pre-tax, non-cash impairment charges related to those assets after we entered into an agreement to sell the Back to Nature business. On January 3, 2023, the Company completed the sale of the Back to Nature business. See note (3) above. |
| (5) | During the fourth quarter of 2023, we recorded pre-tax, non-cash impairment charges of $20.5 million (or $15.5 million, net of tax) related to intangible trademark assets for the Baker’s Joy, Molly McButter, Sugar Twin, and New York Flatbreads brands. We partially impaired the Baker’s Joy and Sugar Twin brands, and we fully impaired the Molly McButter and New York Flatbreads brands. |
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| (6) | During the second quarter of 2022, we paid a fee of $1.6 million (or $1.2 million, net of tax) to amend our senior secured credit agreement to temporarily increase the maximum consolidated leverage ratio permitted under our revolving credit facility. |
| (7) | As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income taxes by $14.7 million, or $0.21 per share. |
| (8) | Represents the tax effects of the non-GAAP adjustments listed above, assuming a tax rate of 24.5%. |
Adjusted Gross Profit and Adjusted Gross Profit Percentage. Adjusted gross profit and adjusted gross profit percentage are non-GAAP financial measures used by management to measure operating performance. We define adjusted gross profit as gross profit adjusted for acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold and adjusted gross profit percentage as gross profit percentage (i.e., gross profit as a percentage of net sales) adjusted for acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold. These non-GAAP financial measures reflect adjustments to gross profit and gross profit percentage to eliminate the items identified in the reconciliation below. This information is provided in order to allow investors to make meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. Because we cannot predict the timing and amount of these items, management does not consider these items when evaluating our performance or when making decisions regarding allocation of resources.
A reconciliation of gross profit to adjusted net incomegross profit and gross profit percentage to adjusted diluted earnings per share to net incomegross profit percentage for fiscal 2017, 20162023, 2022 and 2015 along with the components of adjusted net income and adjusted diluted earnings per share2021 follows (in thousands)thousands, except percentages):
| | | | | | | | | |
| | Fiscal Year Ended | |||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2021 | |||
Gross profit | | $ | 455,521 | | $ | 409,624 | | $ | 436,966 |
Acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold(1) | | | 2,921 | | | 9,117 | | | 33,571 |
Adjusted gross profit | | $ | 458,442 | | $ | 418,741 | | $ | 470,537 |
| | | | | | | | | |
Gross profit percentage | | | 22.1% | | | 18.9% | | | 21.3% |
Acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold as a percentage of net sales | | | 0.1% | | | 0.4% | | | 1.6% |
Adjusted gross profit percentage | | | 22.2% | | | 19.4% | | | 22.9% |
|
|
|
|
|
|
|
|
|
|
| Fiscal 2017 |
| Fiscal 2016 |
| Fiscal 2015 |
| |||
| (In thousands) |
| |||||||
Reported net income | $ | 217,463 |
| $ | 109,425 |
| $ | 69,090 |
|
Non-recurring adjustment to deferred income taxes(1) |
| (109,641) |
|
| 881 |
|
| 7,166 |
|
Loss on extinguishment of debt, net of tax(2) |
| 847 |
|
| 1,770 |
|
| — |
|
Acquisition-related and other non-recurring expenses, net of tax(3) |
| 26,497 |
|
| 10,934 |
|
| 3,842 |
|
Distribution restructuring expenses, net of tax(4) |
| — |
|
| 794 |
|
| 1,674 |
|
Acquisition-related inventory step-up, net of tax(5) |
| 1,733 |
|
| 3,385 |
|
| 3,848 |
|
Impairment of intangible assets, net of tax(6) |
| — |
|
| 3,373 |
|
| — |
|
Loss on disposal of inventory, net of tax(6) |
| 2,393 |
|
| 494 |
|
| — |
|
- 44 -
Loss on product recall, net of insurance recoveries and tax(6) |
| — |
|
| — |
|
| 1,173 |
|
Loss on sale of assets, net of tax(7) |
| 1,171 |
|
| — |
|
| — |
|
Adjusted net income | $ | 140,463 |
| $ | 131,056 |
| $ | 86,793 |
|
Adjusted diluted earnings per share | $ | 2.12 |
| $ | 2.07 |
| $ | 1.53 |
|
| (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 20172023 Compared to Fiscal 20162022
Net Sales.Net sales increased by $276.8for fiscal 2023 decreased $100.7 million, or approximately 20.0%4.7%, to $1.67 billion$2,062.3 million from $2,163.0 million for fiscal 2017 from $1.39 billion2022. The decrease was primarily attributable to the Back to Nature divestiture, the Green Giant U.S. shelf-stable divestiture, a decrease in 2016. The net sales increase was due tounit volume and the negative impact of foreign currency, which were partially offset by an increase in unit volume of $287.5 million, partially offset by a decrease in net pricing and the impact of $10.7 million. The unit volume increase was primarily driven by an additional eleven plus monthsproduct mix. Net sales of netBack to Nature, which we divested on January 3, 2023, and therefore not part of ourfiscal 2023 results, were $46.3 million during fiscal 2022. Net sales of the spices & seasonings business, acquiredGreen Giant U.S. shelf-stable product line, which we divested on November 21, 2016, an additional eleven months of net sales of Victoria, acquired on December 2, 2016, and three months of net sales of Back8, 2023, were $24.6 million lower in fiscal 2023 compared to Nature, acquired on October 2, 2017.fiscal 2022, primarily due to the divestiture.
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Base business net sales for fiscal 20172023 decreased by approximately $15.0$30.0 million, or 1.1%.1.5%, to $1,997.2 million from $2,027.2 million for fiscal 2022. The decrease in base business net sales was driven by a decrease in unit volume of $4.3$118.2 million or 0.3%, and a decreasethe negative impact of foreign currency of $5.1 million, partially offset by an increase in net pricing and the impact of $10.7product mix of $93.3 million, or 0.8%. 4.6% of base business net sales.
- 46 -
Net sales of Green Giant frozen and shelf-stable products benefitting fromin the strong performance of new innovation products, increased $33.6 million, or 11.1%, andaggregate (including Le Sueur but excluding net sales of Pirate Brands, benefitting from new distribution gains, plus momentum from a strong back-to-school season and successful promotional events, increased $5.2the Green Giant U.S. shelf-stable product line) decreased $28.7 million, or 6.1%. Net sales of Green Giant shelf-stable products decreased $30.6 million, or 19.6%6.6%, primarily due to weak consumption trends and distribution losses with a key customer. Net sales of our maple syrup products decreased $7.0 million, or 7.0%, primarily due to the Company’s decision during the first quarter of 2017 to discontinue certain private label sales. And net sales of Ortega decreased $3.0 million, or 2.1%, primarily due to heightened competitive activity. The overall decline in base business net sales in fiscal 2017 was concentrated in the first half of the year. Base business net sales in the third and fourth quarters of fiscal 2017 increased 1.2%2023, as compared to the third and fourth quarters of 2016.
The spices & seasonings business and Victoria, each acquired in the fourth quarter of 2016, generated fiscal 2017 net sales of $260.7 million and $42.8 million, respectively, compared to our initial forecasts at the time of acquisition of $220.0 million of net sales for the spices & seasonings business and $41.0 million of net sales for Victoria. 2022.
See Note 15,16, “Net Sales by Brand,” to our consolidated financial statements in Part I,II, Item 18 of this report, for detailed information regarding total net sales by brand for fiscal 20172023 and fiscal 20162022 for each of our brands thatwhose net sales equaled or exceeded approximately 3% of our fiscal 2017total net sales for those periods and for all other brands in the aggregate.
The following charttable sets forth the most significant base business net sales increases and decreases by brand for those brands for fiscal 2017:2023:
| | | | | | |
| | 2023 vs. 2022 | | |||
| | Base Business | | |||
| | Net Sales Increase (Decrease) | | |||
|
| Dollars |
| Percentage | | |
Brand: | | | | | | |
Clabber Girl | | $ | 31.1 |
| 32.1 | % |
Spices & Seasonings(1) | | | 14.0 |
| 5.4 | % |
Green Giant - shelf-stable(2) | | | 3.0 |
| 3.6 | % |
Maple Grove Farms of Vermont | | | 2.4 | | 2.9 | % |
Crisco | | | (38.2) | | (10.3) | % |
Green Giant - frozen(3) |
| | (31.7) |
| (8.9) | % |
Ortega | | | (6.4) |
| (4.1) | % |
Cream of Wheat | | | (2.9) |
| (3.6) | % |
Dash | | | (0.9) |
| (1.3) | % |
All other brands | |
| (0.4) |
| (0.1) | % |
Base business net sales decrease |
| $ | (30.0) |
| (1.5) | % |
|
|
|
|
|
|
|
|
|
| Base Business |
|
| |||
|
| Net Sales Increase (Decrease) |
|
| |||
|
| Dollars |
| Percentage |
|
| |
|
| (in millions) |
|
|
|
| |
Brand: |
|
|
|
|
|
|
|
Green Giant - frozen |
| $ | 33.6 |
| 11.1 | % |
|
Pirate Brands |
|
| 5.2 |
| 6.1 | % |
|
New York Style |
|
| 2.6 |
| 7.7 | % |
|
Underwood |
|
| 1.6 |
| 8.0 | % |
|
Grandma's |
|
| 1.0 |
| 7.5 | % |
|
|
|
|
|
|
|
|
|
Green Giant - shelf stable |
|
| (30.6) |
| (19.6) | % |
|
Maple Grove Farms of Vermont |
|
| (4.5) |
| (6.2) | % |
|
Ortega |
|
| (3.0) |
| (2.1) | % |
|
Mama Mary's |
|
| (2.9) |
| (8.0) | % |
|
Bear Creek Country Kitchens |
|
| (2.1) |
| (4.0) | % |
|
Las Palmas |
|
| (2.1) |
| (5.3) | % |
|
Spring Tree |
|
| (1.9) |
| (10.3) | % |
|
B&M |
|
| (1.4) |
| (7.4) | % |
|
Bloch & Guggenheimer |
|
| (1.4) |
| (5.6) | % |
|
TrueNorth |
|
| (1.3) |
| (10.3) | % |
|
Emeril |
|
| (1.3) |
| (8.9) | % |
|
All other brands |
|
| (6.5) |
| (2.1) | % |
|
Base business net sales decrease |
| $ | (15.0) |
| (1.1) | % |
|
| (1) | Includes net sales for multiple brands acquired as part of the spices & seasonings acquisition that we completed on November 21, 2016, as well as more recent spices & seasonings products launched and sold under license. Does not include net sales for Dash and our other legacy spices & seasonings brands. |
| (2) | Excludes net sales of the Green Giant U.S. shelf-stable product line, which was divested on November 8, 2023. Includes net sales of the Le Sueur brand and the Green Giant Canada shelf-stable product line. See Note 3, “Acquisitions and Divestitures,” to our consolidated financial statements in Part II, Item 8 of this report. |
| (3) | For fiscal 2023, excludes net sales from the Yuma acquisition from January 1, 2023 through May 5, 2023. The Yuma acquisition was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures,” to our consolidated financial statements in Part II, Item 8 of this report. |
Gross Profit. Gross profit increased $14.3 million, or 3.2%, to $462.2was $455.5 million for fiscal 2017 from $448.02023, or 22.1% of net sales. Adjusted gross profit, which excludes the negative impact of $2.9 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during fiscal 2023, was $458.4 million, or 22.2% of net sales. Gross profit was $409.6 million for fiscal 2016. Gross profit expressed as a percentage2022, or 18.9% of net salessales. Adjusted gross profit, which excludes the negative impact of $9.1 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during fiscal 2022, was 27.7% for fiscal 2017 compared to 32.2% for fiscal 2016. Excluding the 2.5 percentage point impact due to product mix,$418.7 million, or 19.4% of net sales.
The improvements in gross profit and gross profit as a percentage of net sales decreased 2.0 percentage points. Approximately 1.4 percentage pointswere driven by an increase in net pricing relative to input costs as compared to fiscal 2022, the moderation of input cost inflation, lower transportation and warehousing costs, and lower depreciation expense. Beginning in the decreasefourth quarter of 2022, we have realized the benefits of previously announced list price increases, which, together with additional list price increases in 2023, partially offset by certain list price decreases, contributed to our recovery in gross profit and gross profit as a percentage was due to an increase in warehousingof net sales during fiscal 2023.
Selling, General and distribution costs and 0.6 percentage points of the decrease was due to a decrease in net pricing.
- 46 -
Selling, general and administrative expensesAdministrative Expenses. Selling, general and administrative expenses were $205.2 million in fiscal 2017, compared to $174.8 million in fiscal 2016, an increase of $30.5increased $5.6 million, or 17.4%.3.0%, to $196.0 million for fiscal 2023 from $190.4 million for fiscal 2022. The increase was attributable to increased warehousingcomposed of increases in general and administrative expenses of $12.8$14.1 million acquisition-related and other non-recurring expenses of $11.4 million, selling expenses of $7.2 million (which includes increases on brokerage expenses of $5.9 million and $0.6 million of salesperson compensation) and consumer marketing expenses of $0.6$3.1 million, slightlypartially offset by decreases of $1.3 million of distribution restructuring expenses and all otherin warehousing expenses of $0.2$5.3 million, selling expenses of $3.2 million and
- 47 -
acquisition/divestiture-related and non-recurring expenses of $3.1 million. Expressed as a percentage of net sales, selling, general and administrative expenses improvedincreased by 0.30.7 percentage points to 12.3%9.5% for fiscal 20172023, as compared to 12.5%8.8% for 2016.fiscal 2022.
Amortization Expense. Amortization expense increased $3.8decreased $0.5 million to $17.6$20.8 million for fiscal 20172023 from $13.8$21.3 million for fiscal 2016 due to2022.
(Loss) Gain on Sales of Assets. In connection with the Back to Nature acquisition completed indivestiture of our Green Giant U.S. shelf-stable product line during fiscal 2017 and the spices & seasonings and Victoria acquisitions completed in fiscal 2016.
Impairment2023, we reclassified $115.3 million of Intangible Assets. Impairment ofindefinite-lived trademark intangible assets, $82.3 million of $5.4inventories and $4.1 million for fiscal 2016 includes a $4.5 million loss for the impairment of amortizable trademarks and a $0.9 million loss for the impairment offinite-lived customer relationship intangibles, both relatingintangible assets to Rickland Orchards, as we discontinuedassets held for sale during fiscal 2023. During the Rickland Orchards brand during the secondthird quarter of 2016 because there was not sufficient demand2023, we measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to warrant continued production.
Operating Income. As a resultsell, and recorded pre-tax, non-cash charges of the foregoing, operating income decreased $14.6 million, or 5.7%, to $239.4 million for fiscal 2017 from $254.0 million for fiscal 2016. Operating income expressed as a percentage of net sales decreased to 14.4% in fiscal 2017 from 18.3% in fiscal 2016.
Net Interest Expense. Net interest expense was $91.8 million in fiscal 2017, compared to $74.5 million in fiscal 2016. The increase was primarily attributable to additional borrowings made in$132.9 million. During the fourth quarter of 2016 to fund2023, we completed the spices & seasonings acquisitionGreen Giant U.S. shelf-stable divestiture and recorded a loss on sale of $4.8 million during the Victoria acquisition andquarter, resulting in a total loss on sale of $137.7 million during fiscal 2023.
During the fourthfirst quarter of 2017 to fund2023, we completed the Back to Nature acquisition, divestiture and our senior notes offerings in second quarter and fourth quarterwe recorded a loss on the sale of 2017. See “—Liquidity and Capital Resources – Debt” below.
Loss on Extinguishment of Debt. Loss on extinguishment of debt for fiscal 2017 includes the write-off of deferred debt financing costs and unamortized discount of $0.9 million and $0.2 million, respectively, relating to the repayment of all outstanding borrowings under the tranche A term loans. Loss on extinguishment of debt for fiscal 2016 includes the write-off of deferred debt financing costs and unamortized discount of $2.2 million and $0.6 million, respectively, relating to the repayment of $40.1 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans. See “Liquidity and Capital Resources ‑Debt” below.
Other Income. Other income for fiscal 2017 includes remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of $1.6$0.1 million. Other income for fiscal 2016 includes remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of $0.4 million.
Income Tax (Benefit) Expense. Income tax (benefit) expense changed $137.0 million to a tax benefit of $(69.4) million in fiscal 2017 from a tax expense of $67.6 million for fiscal 2016. See “U.S. Tax Act” above for a discussion of the impact of the recently enacted tax legislation on Income Tax (Benefit) Expense. Without the impact of the U.S. Tax Act, our income tax expense for fiscal 2017 would have been approximately $57.1 million and our effective tax rate would have been 38.6%.
Fiscal 2016 Compared to Fiscal 2015
Net Sales. Net sales increased $424.9 million, or 44.0%, to $1,391.3 million for fiscal 2016 from $966.4 million for fiscal 2015. An additional ten months of net sales of Green Giant, acquired on November 2, 2015, and an additional almost six months of net sales of Mama Mary’s, acquired on July 10, 2015, contributed $397.6 million and $19.4 million, respectively, to the overall net sales increase. In addition, net sales of the spices & seasonings business, acquired on November 21, 2016, and net sales of Victoria, acquired on December 2, 2016, contributed $28.2 million and $3.2 million, respectively, to the overall net sales increase.
- 47 -
Base business net sales for fiscal 2016 decreased $20.9 million, or 2.5%, to $816.8 million from $837.7 million for fiscal 2015. The $20.9 million decrease was attributable to a decrease in unit volume of $14.2 million, or 1.7%, a decrease in net pricing of $6.0 million, or 0.7%, and the negative impact of currency fluctuations on foreign sales of approximately $0.7 million, or 0.1%.
A primary driver of the decline in base business net sales for fiscal 2016 was our syrup business. The net sales of those brands declined in the aggregate $7.7 million for the year. The decline was primarily attributable to maple syrup price deflation due to the strength of the U.S. dollar relative to the Canadian dollar, which resulted in increased competition in the maple syrup category and contractually mandated price reductions with certain of our foodservice customers. Another significant factor in the decline in base business net sales for fiscal 2016 was the TrueNorth brand, which declined $6.4 million, or 33.9%. The TrueNorth net sales decline was primarily the result of historically high almond prices in 2015. In response to increased almond costs, we increased the selling price for TrueNorth products, which had a negative impact on consumer demand. Although we rolled back pricing as almond prices began to return to historical norms, consumer demand did not return to prior levels. Base business net sales were also negatively impacted by net sales of our Ortega products, which decreased $3.7 million, or 2.6%. A portion of the decrease was attributable to the effects of the product recall we announced in November 2014, which caused an increase in net sales of Ortega in fiscal 2015 due to customers restocking inventory of products affected by the recall, partially offset by $1.2 million of customer refunds related to the recall. $1.5 million of the decrease in net sales of Ortega was due to a net pricing decrease in fiscal 2016.
See Note 15, “Net Sales by Brand,3, “Acquisitions and Divestitures,” to our consolidated financial statements in Part I,II, Item 18 of this report, for detailed information regarding total net sales by brand for fiscal 2016report.
During the first quarter of 2022, we completed the closure and fiscal 2015 for eachsale of our brands that equaled or exceeded approximately 3% of our fiscal 2017 netPortland, Maine manufacturing facility. We received combined sales and for all other brands in the aggregate.
The following chart sets forth the most significant base business net sales increases and decreases by brand for fiscal 2016:
|
|
|
|
|
|
|
|
|
| Base Business |
| ||||
|
| Net Sales Increase (Decrease) |
| ||||
|
| Dollars |
| Percentage |
| ||
|
| (in millions) |
|
|
|
| |
Brand: |
|
|
|
|
|
|
|
Pirate Brands |
| $ | 3.2 |
|
| 3.9 | % |
Las Palmas |
|
| 2.4 |
|
| 6.6 | % |
|
|
|
|
|
|
|
|
TrueNorth |
|
| (6.4) |
|
| (33.9) | % |
Maple Grove Farms of Vermont |
|
| (4.9) |
|
| (6.3) | % |
Ortega |
|
| (3.7) |
|
| (2.6) | % |
Mrs. Dash |
|
| (2.6) |
|
| (4.0) | % |
Spring Tree |
|
| (2.4) |
|
| (11.3) | % |
New York Style |
|
| (2.4) |
|
| (6.7) | % |
All other brands |
|
| (4.1) |
|
| (1.2) | % |
Base business net sales decrease |
| $ | (20.9) |
|
| (2.5) | % |
Gross Profit. Gross profit increased $158.4 million, or 54.7%, to $448.0 million for fiscal 2016 from $289.6 million for fiscal 2015.Gross profit expressed as a percentage of net sales increased to 32.2% in fiscal 2016 from 30.0% in fiscal 2015, an increase of 2.2 percentage points. The increase in gross profit percentage was primarily driven by the acquisition of Green Giant. Gross profit percentage was also positively impacted by decreased costs for commodities, packaging and distributionproceeds for the base businessproperty and improved product mix, whichthe equipment of approximately $11.1 million and recognized a gain of $7.1 million. The positive impact during the first quarter of 2022 of the gain on sales was partially offset by approximately $2.2 million of expenses incurred during the unfavorable impactfirst quarter of 2022 resulting from the decrease in base business sales volume had on cost absorption, a net reduction in base business pricing,closure of the facility and the impacttransfer of manufacturing operations.
Impairment of Assets Held for Sale.During the third quarter of 2022, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale during fiscal 2022. We then measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million. During the fourth quarter of 2022, we recorded an additional $2.8 million of pre-tax, non-cash impairment charges related to those assets after we entered into an agreement to sell the Back to Nature business on December 15, 2022. The sale of the write-offBack to Nature business was completed on January 3, 2023 (the first business day of Rickland Orchards inventory in connection with our decision to discontinue the brand. See Note 6, “Goodwill and Other Intangible Assets” to our consolidated financial statements for a more detailed description of this write-off.fiscal 2023).
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Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $68.9 million, or 65.0%, to $174.8 million for fiscal 2016 from $105.9 million for fiscal 2015, primarily due to the Green Giant acquisition. Acquisition-related expenses and distribution restructuring expenses increased $10.0 million for fiscal 2016. The remaining $58.9 million of the increase was attributable to increases in consumer marketing of $41.6 million, selling expenses of $8.7 million (which includes a $7.5 million increase in brokerage expenses and a $1.2 million increase in salesperson compensation), warehousing expenses of $7.4 million and general and administrative expenses of $1.2 million (primarily related to compensation). Expressed as a percentage of net sales, selling, general and administrative expenses increased 1.5 percentage points to 12.5% for fiscal 2016 from 11.0% for fiscal 2015.
Amortization Expense. Amortization expense increased $2.5 million to $13.8 million for fiscal 2016 from $11.3 million for fiscal 2015 due to the Victoria and spices & seasonings acquisitions completed in fiscal 2016 and the Green Giant and Mama Mary’s acquisitions completed in fiscal 2015.
Impairment of Intangible Assets. Assets. Impairment of intangible assets of $5.4$20.5 million for fiscal 20162023 includes a $4.5 millionpre-tax, non-cash loss for the impairment of amortizable trademarksintangible trademark assets relating to the Baker’s Joy, Molly McButter, Sugar Twin and a $0.9 million lossNew York Flatbreads brands, due primarily to our projections for reduced net sales and lower margins for the impairment of customer relationship intangibles, both relating to Rickland Orchards, as we discontinued the Rickland Orchards brand because there was not sufficient demand to warrant continued production.brands. See Note 6, “Goodwill and Other Intangible Assets” to our consolidated financial statements for a more detailed description of the impairment of intangible assets related to Rickland Orchards.in fiscal 2023.
Operating Income. As a result of the foregoing, operating income increased $81.6decreased $18.2 million, or 47.4%18.5%, to $254.0$80.4 million for fiscal 20162023 from $172.4$98.6 million for fiscal 2015.2022. Operating income expressed as a percentage of net sales increaseddecreased to 18.3%3.9% in fiscal 20162023 from 17.8%4.6% in fiscal 2015.2022.
Net Interest Expense.Net interest expense increased $23.4$26.4 million, or 45.6%21.1%, to $74.5$151.3 million for fiscal 20162023 from $51.1$124.9 million in fiscal 2015.2022. The increase was primarily attributable to additional indebtedness outstanding during fiscal 2016 as compared to fiscal 2015 as a result ofhigher interest rates on our long-term debt, the Green Giant acquisition, the spices & seasonings acquisition, and the Victoria acquisition. See “—Liquidity and Capital Resources—Debt” below.
Loss on Extinguishment of Debt. Loss on extinguishment of debt for fiscal 2016 includes the write-offaccelerated amortization of deferred debt financing costs and unamortized discount of $2.2 million and $0.6 million, respectively, relating to the repayment of $40.1long-term debt prepayments, and a $0.5 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans. We did not incur a loss on extinguishment of debt for fiscal 2015. See “‑Debt” below.during the fourth quarter of 2023, partially offset by a reduction in average long-term debt outstanding, a $0.8 million gain on the extinguishment of debt during the second quarter of 2023 and a $0.6 million gain on extinguishment of debt during the third quarter of 2023.
Other Income. Other income for fiscal 20162023 primarily includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $3.8 million and the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of $0.4less than $0.1 million. Other income for fiscal 2022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $7.4 million and the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of less than $0.1 million.
Income Tax Expense. Benefit. Income tax expense increased $15.5benefit decreased $6.6 million to $67.6$0.9 million for fiscal 20162023 from $52.1$7.5 million for fiscal 2015. Our2022, and our effective tax rate was 38.2%decreased from 39.9% to 1.4%. The decrease in income tax benefit and the
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decrease in effective tax rate were primarily due to the establishment of a valuation allowance on a capital loss carryforward. See “U.S. Tax Act” above for a discussion of the impact of the tax legislation on income tax benefit.
Fiscal 2022 Compared to Fiscal 2021
For a discussion of fiscal 20162022 compared to fiscal 2021, please refer to our 2022 Annual Report on Form 10-K, Part II, Item 7. Management’s Discussion and 43.0% for fiscal 2015.Analysis of Financial Condition and Results of Operations, filed with the SEC on March 1, 2022.
Liquidity and Capital Resources
Our primary liquidity requirements include debt service, capital expenditures and working capital needs. See also, “Dividend Policy” and “Commitments and Contractual Obligations” below. We fund our liquidity requirements, as well as our dividend payments and financing for acquisitions, primarily through cash generated from operations and external sources of financing, including our revolving credit facility. We do not have any off-balance sheet financing arrangements.
Cash Flows
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased $251.9increased $241.8 million to $37.8$247.8 million for fiscal 20172023 from $289.7$6.0 million for fiscal 2016.2022. The decreaseincrease was largely due to an increase in net cash providedgross profit and favorable working capital comparisons in fiscal 2023 compared to fiscal 2022, primarily comprised of inventories, accrued expenses and lease liabilities, and trade accounts receivable, partially offset by operating activities primarily reflects unfavorable working capital (comprised of changes in inventories, other current assets,comparisons related to trade accounts payable and accrued expenses) comparisons to the fiscal year 2016. This decrease is primarily due to a other liabilities.
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significant increase in inventory net of businesses acquired in 2017 compared to a decrease in inventory net of businesses acquired in 2016, and the timing of payments received from post-acquisition transition services agreements.Net Cash Provided by (Used in) Investing Activities. Net cash provided by operatinginvesting activities increased $161.2$120.7 million to $289.7$81.6 million for fiscal 20162023 from $128.5$39.1 million of net cash used in investing activities for fiscal 2015.2022. The increase in net cash provided by operating activities in fiscal 2016 as compared to fiscal 2015 was primarily dueattributable to the sales proceeds received from the Back to Nature and Green Giant U.S. shelf-stable divestitures during fiscal 2023, partially offset by the cash used to pay the purchase price for the Yuma acquisition including the favorable impact of an increase in cash provided by working capital and higher net income forduring fiscal 2016, as compared to fiscal 2015.2022.
Net Cash Used in Investing(Used in) Provided by Financing Activities. Net cash used in investingfinancing activities decreased $260.7increased $379.0 million to $220.5$333.7 million for fiscal 20172023 from $481.2$45.3 million for fiscal 2016. The decrease was primarily attributable to the decrease in payments made for the acquisition of businesses, net of cash acquired, and an increase in proceeds from the sale of assets, partially offset by an increase in capital spending. Capital expenditures in fiscal year 2017 and 2016 included expenditures for building improvements, purchases of manufacturing equipment, expenditures in connection with the implementation of a new enterprise resource planning (ERP) system and capitalized interest.
Net Cash Provided by Financing Activities. Net cash provided by financing activities for fiscal 2017 increased $143.32022. The increase was primarily driven by higher net debt repayments of $1,005.4 million, to $359.3partially offset by net proceeds of $538.3 million from $216.0 million for fiscal 2016. Net cash provided by financing activities for the fiscal year 2017 consisted of $914.0 million of proceeds from the issuance of our 5.25%8.00% senior secured notes and $395.0 million of revolving credit facility borrowings, partially offset by $233.6 million repayment of our tranche A term loans, $571.0 million of repayments of revolving credit facility borrowings, $123.6 million ofdue 2028, lower dividend payments $19.5of $77.3 million, higher net proceeds of debt financing costs$8.6 million from the sale of common stock and $2.0 million oflower payments of $2.2 million related to tax withholdingwithholdings on behalf of employees for net share settlement of share basedshare-based compensation. Net cash provided by financing activities for fiscal 2016 decreased $551.4 million to $216.0 million from $767.4 million for fiscal 2015. The decrease was primarily attributable to differences in the net effects of our equity offerings in March and August of 2016, prepayments of long-term debt and borrowings under our revolving credit facility in fiscal 2016, as compared to fiscal 2015. See “—Debt” below.
Cash Income Tax Payments. During fiscal 2017 weWe made net cash tax payments of approximately $17.2$24.8 million even though we recorded a tax benefit for financial reporting purposes. See “U.S. Tax Act” above for a discussion of the impact and expected impact of the U.S. Tax Act on our cash income tax payments. Based on a number of factors, including amortization for tax purposes of our trademarks, goodwill$25.6 million during fiscal 2023 and other intangible assets acquired in prior acquisitions, we realized a significant reduction in cash taxes in fiscal 2016 and 2015 as compared to our tax expense for financial reporting purposes. During the second quarter of 2016, we discontinued the Rickland Orchards brand, which resulted in a one-time cash taxes benefit of $17.3 million for fiscal 2016.2022, respectively. We believe that we will realize a benefit to our cash taxes payable from amortization of our trademarks, goodwill and other intangible assets for the taxable years 20182024 through 2032.2038. See “U.S. Tax Act” above for a discussion of the impact and expected impact of the U.S. Tax Act on our cash income tax payments, including the impact the U.S. Tax Act had in fiscal 2023 and fiscal 2022 and is expected to have in fiscal 2024 and beyond on our interest expense deductions and our cash taxes. If there is a change in U.S. federal tax policy or, in the case of the interest deduction, a change in our net interest expense relative to our adjusted taxable income that eliminates, limits or reduces our ability to amortize and deduct goodwill and certain intangible assets or the interest deduction we receive on our substantial indebtedness, or otherwise that reduces any of these available deductions or results in an increase in our corporate tax rate, our cash taxes payable may increase further, which could significantly reduce our future liquidity and impact our ability to make interest and dividend payments.payments and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
Dividend Policy
For a discussion of our dividend policy, see the information set forth under the heading “Dividend Policy” in Part II, Item 5 of this report.
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Acquisitions
Our liquidity and capital resources have been significantly impacted by acquisitions and may be impacted in the foreseeable future by additional acquisitions. As discussed elsewhere in this report, as part of our growth strategy we plan to expand our brand portfolio with disciplined acquisitions of complementary brands. We have historically financed acquisitions by incurring additional indebtedness, issuing equity and/or using cash flows from operating activities. Our interest expense has over time increased as a result of additional indebtedness we have incurred in connection with acquisitions and will increase with any additional indebtedness we may incur to finance future acquisitions. Although we may subsequently issue equity and use the proceeds to repay all or a portion of the additional indebtedness incurred to finance an acquisition and reduce our interest expense, the additional shares of common stock would increase the amount of cash flows from operating activities necessary to fund dividend payments.
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We financed the Mama Mary'sYuma acquisition, completed in July 2015,May 2022, with cash on hand from the proceeds of a public offering of common stock we completed in May 2015. We financed the Green Giant acquisition, completed in November 2015, with additional indebtedness, and we repaid a portion of that additional indebtedness with the proceeds of a public offering of common stock we completed in March 2016. We financed the spices & seasonings acquisition, completed in November 2016, with cash on hand, including the net proceeds of our August 2016 public offering of common stock, and additional revolving loans under our existing credit facility. We financed the Victoria acquisition, completed in December 2016, with cash on hand and additional revolving loans under our existing credit facility. We financed the Back to Nature acquisition, completed in October 2017, with cash on hand and additional revolving loans under our existing credit facility. The impact of future acquisitions, whether financed with additional indebtedness or otherwise, may have a material impact on our liquidity and capital resources.
Debt
Senior Secured Credit Agreement. In fiscal 2017, we refinanced our senior secured credit facility twice by amending and restating our senior secured credit agreement, first on March 30, 2017, and again on November 20, 2017.
The first refinancing, on March 30, 2017, reduced by 0.75% the spread over LIBOR or the applicable base rate on $640.1 million of tranche B term loans.
On April 3, 2017, we repaid all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans using a portion of the net proceeds of our registered public offering of $500.0 million aggregate principal amount of 5.25% senior notes due 2025.
On November 20, 2017, we again refinanced our senior secured credit facility. This second refinancing increased the principal amount of the tranche B term loans by $10 million to $650.1 million, reduced by 25 basis points the spread over LIBOR or the applicable base rate on the tranche B term loans and any revolving loans, increased the aggregate commitments under our revolving credit facility from $500 million to $700 million, and extended the maturity date applicable to our revolving credit facility from June 2019 to November 2022.
At December 30, 2017, $650.1 million of tranche B term loans and no amount of revolving loans were outstanding under our credit agreement. During the first quarter of 2018, we made an optional prepayment of $50.0 million aggregate principal amount of our tranche B term loans. As of the date of this report, $600.1 million of tranche B term loans remains outstanding.
Our credit agreement is secured by substantially all of our and our domestic subsidiaries’ assets except our and our domestic subsidiaries’ real property.
At December 30, 2017, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $2.2 million, was $697.8 million. Proceeds of the revolving credit facility may be used for general corporate purposes, including acquisitions of targets in the same or a similar line of business as our company, subject to specified criteria. The revolving credit facility matures on November 21, 2022.
The entire $600.1 million principal amount of tranche B term loans outstanding are due and payable at maturity on November 2, 2022.
Interest under the revolving credit facility, including any outstanding letters of credit is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.25% to 0.75%, and LIBOR plus an applicable margin ranging from 1.25% to 1.75%, in each case depending on our consolidated leverage ratio.
Interest under the tranche B term loan facility is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin of 1.00%, and LIBOR plus an applicable margin of 2.00%. At December 30, 2017, the tranche B term loan interest rate was approximately 3.569%.
For further information regarding our credit agreement, including a description of optional and mandatory prepayment terms, and financial and restrictive covenants, see Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report.
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4.625% Senior Notes due 2021. On June 4, 2013, we issued $700.0 million aggregate principal amount of 4.625% senior notes due 2021 at a price to the public of 100% of their face value. We used the net proceeds from the issuance of the 4.625% senior notes to purchase or redeem all $248.5 million principal amount of our then existing 7.625% senior notes due 2018, to repay $222.2 million principal amount of our then existing tranche B term loans and approximately $40.0 million principal amount of revolving loans under our then existing credit agreement, and to pay related premiums, fees and expenses. We used the remaining net proceeds for our acquisition of Pirate Brands, completed in July 2013.
Interest on the 4.625% senior notes is payable on June 1 and December 1 of each year. The 4.625% senior notes will mature on June 1, 2021, unless earlier retired or redeemed as permitted or required by the terms of the indenture governing the 4.625% senior notes as described in Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report. We may also, from time to time, seek to retire the 4.625% senior notes through cash repurchases of the 4.625% senior notes or exchanges of the 4.625% senior notes for equity securities or both, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
We may also, from time to time, seek to retire the 4.625% senior notes through cash repurchases of the 4.625% senior notes and/or exchanges of the 4.625% senior notes for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
See Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report for a more detailed description of the 4.625%our senior notes.
5.25% Senior Notes due 2025. On April 3, 2017, we issued $500.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 100% of their face value. On November 20, 2017, we issued an additional $400.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public 101% of their face value plus accrued interest from October 1, 2017, which equates to a yield to worst of 5.03%. The notes issued in November were issued as additional notes under the same indenture assecured credit agreement, including our revolving credit facility and tranche B term loans, our 5.25% senior notes due 2025, that were issued in April, and, as such, form a single series and trade interchangeably with the previously issued 5.25% senior notes.
We used the net proceeds of the April offering to repay all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans, and to pay related fees and expenses. We used the net proceeds of the November offering to repay all of the then outstanding borrowings and amounts due under our revolving credit facility and to pay related fees and expenses. We have used a portion of, and intend to use the remaining portion of, the net proceeds of the April and November offerings for general corporate purposes, which have included and could include, among other things, repayment of other long term debt or possible acquisitions.
Interest on the 5.25% senior notes is payable on April 1due 2027 and October 1 of each year, commencing October 1, 2017. The 5.25%our 8.00% senior secured notes will mature on April 1, 2025, unless earlier retired or redeemed as permitted or required by the terms of the indenture governing the 5.25% senior notes as described in Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report.due 2028.
We may also, from time to time, seek to retire the 5.25% senior notes through cash repurchases of the 5.25% senior notes and/or exchanges of the 5.25% senior notes for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Equity
See Note 7, “Long-Term Debt,11, “Capital Stock,” to our consolidated financial statements in Part II, Item 8 of this report for a more detailed description ofinformation about our “at-the-market” (ATM) equity offering program.
Future Capital Needs
We are highly leveraged. On December 30, 2023, the 5.25% senior notes.
Deferred Debt Financing Costs. During fiscal 2017, we wrote off and expensed $0.9 million of debt financing costs in connection with the repayment of all outstanding borrowings under the tranche A term loans and less than $0.1 million in connection with the refinancing of our tranche B term loans. During fiscal 2016, we wrote-off and expensed $2.2 million of debt financing costs in connection with the repayment of $40.1 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans. During fiscal 2015, we
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capitalized $14.5 million of debt financing costs relating to the tranche B term loans, which are being amortized over the seven year scheduled term of the tranche B term loans.
Future Capital Needs
On December 30, 2017, our total long-term debt (including current portion) of $2,217.6$2,064.0 million, net of our cash and cash equivalents of $206.5$41.1 million, was $2,011.1$2,022.9 million. Stockholders’ equity as of that date was $880.8$835.5 million.
Our ability to generate sufficient cash to fund our operations depends generally on our results of operations and the availability of financing. Our management believes that our cash and cash equivalents on hand, cash flow from operating activities and available borrowing capacity under our revolving credit facility will be sufficient for the foreseeable future to fund operations, meet debt service requirements, fund capital expenditures, make future acquisitions, if any, and pay our anticipated quarterly dividends on our common stock.
We expect to make capital expenditures of approximately $50.0$35.0 million to $55.0$40.0 million in the aggregate during fiscal 2018.2024. Our projected capital expenditures for fiscal 2018 include anticipated capital expenditures of approximately $2.5 million2024 primarily relate to move equipment used in the production of certain Green Giant products from General Mills’ Belvidere, Illinois manufacturing facility to an existing B&G Foods co-packer, approximately $2.0 million for new productivityasset sustainability projects, $5.5 million to fund infrastructure optimization projects, $3.6 million for IT infrastructurecost savings initiatives, environmental compliance and information technology systems (hardware and software), including cyber security, and approximately $12.4 million in connection with the implementation of a new enterprise resource planning (ERP) system.cybersecurity.
Seasonality
Sales of a number of our products tend to be seasonal and may be influenced by holidays, changes in seasons or certain other annual events. In general our sales are higher during the first and fourth quarters.
We purchase most of the produce used to make our frozen and shelf-stable vegetables, shelf-stable pickles, relishes, peppers, tomatoes and other related specialty items during the months of June through October, and we generally purchase the majority of our maple syrup requirements during the months of April through August. Consequently, our liquidity needs are greatest during these periods.
Inflation
We are currently locked into pricingSee “—General—Fluctuations in Commodity Prices and supply for substantially all of our major commodities, other than maple syrup, through fiscal 2018 at a cost increase of less than 1% of cost of goods soldProduction and will continue to manage inflation risk by entering into short term supply contracts and advance commodities purchase agreements from time to time, and, if necessary, by raising prices. During each of fiscal 2016 and fiscal 2015 we had a minimal cost decrease. To the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially and adversely affected. In addition, if input costs begin to decline, customers may look for price reductions in situations where we have locked into purchases at higher costs.Distribution Costs” above.
Contingencies
See Note 13,14, “Commitments and Contingencies,” to our consolidated financial statements in Part II, Item 8 of this report.
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Recent Accounting Pronouncements
See Note 2(s), “Summary of Significant Accounting Policies — Recently Issued Accounting Standards – Pending Adoption,” to our consolidated financial statements in Part II, Item 8 of this report.
Supplemental Financial Information about B&G Foods and Guarantor Subsidiaries
As further discussed in Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report, our obligations under our 5.25% senior notes due 2025, the 5.25% senior notes due 2027, and the 8.00% senior secured notes due 2028 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries, which we refer to in this section as the guarantor subsidiaries. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes due 2025, the 5.25% senior notes due 2027, or the 8.00% senior secured notes due 2028. In this section, we refer to these foreign subsidiaries and future foreign or partially owned domestic subsidiaries as the non-guarantor subsidiaries. See Note 7, “Long-Term Debt” to our consolidated financial statements in Part II, Item 8 of this report.
The 5.25% senior notes due 2025 and the 5.25% senior notes due 2027 and the related subsidiary guarantees are our and the guarantor subsidiaries’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantor subsidiaries’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantor subsidiaries’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantor subsidiaries’ future subordinated debt.
The 8.00% senior secured notes due 2028 are our senior secured obligations. The 8.00% senior secured notes due 2028 notes have the same guarantors as our credit agreement. The 8.00% senior secured notes due 2028 notes and the related guarantees are secured by, subject to permitted liens, first-priority security interests in certain collateral (which generally includes most of our and our guarantors’ right or interest in or to property of any kind, except for our and our guarantors’ real property and certain intangible assets), which assets also secure (and will continue to secure) our credit agreement on a pari passu basis. Pursuant to the terms of the applicable indenture, the related collateral agreement and an intercreditor agreement, the 8.00% senior secured notes due 2028 notes and the guarantees rank (1) pari passu (equally and ratably) in right of payment to all of our and the guarantors’ existing and future senior debt, including existing and future senior debt under our existing or any future senior secured credit agreement (including the term loan borrowings under our existing senior secured credit facility, any obligations under our existing revolving credit facility and all other borrowings and obligations under our credit agreement), (2) effectively senior in right of payment to our and such guarantors’ existing and future senior unsecured debt, including our 5.25% senior notes due 2025 and 5.25% senior notes due 2027 to the extent of the value of the collateral, (3) effectively junior to our and the guarantors’ future secured debt, secured by assets that do not constitute collateral, to the extent of the value of the collateral securing such debt, (4) senior in right of payment to our and such guarantors’ other existing and future subordinated debt and (5) structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 8.00% senior secured notes due 2028.
Each guarantee contains a provision intended to limit the guarantor subsidiary’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, we cannot assure you that this provision will be effective to protect the subsidiary guarantees from being voided under fraudulent transfer laws.
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Off-balance Sheet Arrangements
AsA guarantor subsidiary’s guarantee will be automatically released: (1) in connection with any sale or other disposition of December 30, 2017, we didall or substantially all of the assets of that guarantor subsidiary (including by way of merger or consolidation) to a person or entity that is not have(either before or after giving effect to such transaction) B&G Foods or a “restricted subsidiary” of B&G Foods under the applicable indenture, if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (2) in connection with any off-balance sheet arrangements as definedsale or other disposition of all of the capital stock of that guarantor subsidiary to a person or entity that is not (either before or after giving effect to such transaction) B&G Foods or a “restricted subsidiary” of B&G Foods, if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (3) if B&G Foods designates any “restricted subsidiary” that is a guarantor subsidiary to be an “unrestricted subsidiary” in Item 303(a)(4)(ii)accordance with the applicable provisions of Regulation S-K.
Commitmentsthe indenture; (4) upon legal defeasance, covenant defeasance or satisfaction and Contractual Obligations
Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness, future minimum operating lease obligations, future purchase obligations and future pension obligations as set forthdischarge of the applicable indenture; (5) if such guarantor subsidiary no longer constitutes a domestic subsidiary; or (6) if it is determined in good faith by B&G Foods that a liquidation, dissolution or merger out of existence of such guarantor subsidiary is in the best interests of B&G Foods and is not materially disadvantageous to the holders of the senior notes.
The following tabletables present summarized unaudited financial information on a combined basis for B&G Foods and each of the guarantor subsidiaries of the senior notes described above after elimination of (1) intercompany transactions and balances among B&G Foods and the guarantor subsidiaries and (2) investments in any subsidiary that is a non-guarantor (in thousands):
| | | | | | |
|
| December 30, |
| December 31, | ||
| | 2023 | | 2022 | ||
Current assets(1) | | $ | 711,926 | | $ | 930,287 |
Non-current assets | | | 2,577,910 | | | 2,746,965 |
Current liabilities(2) | | | 239,904 | | | 200,307 |
Non-current liabilities | | $ | 2,365,338 | | $ | 2,751,661 |
| (1) | Current assets includes amounts due from non-guarantor subsidiaries of $53.6 million and $37.7 million as of
Item 7A.Quantitative and Qualitative Disclosures About Market Our principal market risks are exposure to changes in commodity prices, interest rates on borrowings and foreign currency exchange rates and market fluctuation risks related to our defined benefit pension plans. Commodity Prices and Inflation. The information under the heading “Inflation” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference. Interest Rate Risk. In the normal course of operations, we are exposed to market risks relating to our long-term debt arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value of a financial asset or liability resulting from an adverse movement in interest rates. Changes in interest rates impact our fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas for variable rate debt, a change in the interest rates will impact interest expense and cash flows. At December 30, Based upon our principal amount of long-term debt outstanding at December 30, - 52 - The carrying values and fair values of our revolving credit loans, term loans and senior notes as of December 30,
Cash and cash equivalents, trade accounts receivable, income tax receivable/payable, trade accounts payable, accrued expenses and dividends payable are reflected on our consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. For more information, see Note 7, “Long-Term Debt,” to our consolidated financial statements in Part II, Item 8 of this report. Foreign Currency Risk.Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S.
dollars. During fiscal In addition, we operate a frozen vegetable manufacturing facility in Irapuato, Mexico. A weakening of the U.S. dollar in relation to the Mexican peso would significantly increase our costs relating to the production of frozen vegetable products to the extent we have not purchased Mexican pesos or otherwise entered into hedging arrangements in advance of the weakening of the U.S. dollar. As a result, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an adverse impact on operating results. Market Fluctuation Risks Relating to our Defined Benefit Pension Plans. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates – Pension - Item 8. Financial Statements and Supplementary Data. The consolidated balance sheets at December 30,
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Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors B&G Foods, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of B&G Foods, Inc. and subsidiaries (the We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the carrying values of certain indefinite-lived intangible assets As discussed in Notes 2 and 6 to the consolidated financial statements, the Company had $1,438.6 million of indefinite-lived trademark assets as of December 30, 2023, which included certain indefinite-lived intangible assets. The Company performs indefinite-lived intangible assets impairment testing as of the last day of each fiscal year. The Company tests the indefinite-lived intangible assets by comparing the fair value with the carrying value and recognizes a loss for the difference. The Company estimates the fair value of the indefinite-lived intangible assets based on discounted cash flows that reflect certain third-party market value indicators. Based upon the analysis performed, the Company recognized impairment charges on certain indefinite-lived intangible assets of $20.5 million during the year ended December 30, 2023. - 55 - We identified the assessment of the carrying value of certain indefinite-lived intangible assets as a critical audit matter. The forecasted revenue growth rates, including the terminal growth rate, margins and discount rate assumptions used to calculate the fair value of certain indefinite-lived intangible assets were challenging to audit due to the significant estimation in the assumptions and that minor changes to these assumptions would have a significant effect on the Company’s assessment of the carrying value of the indefinite-lived intangible assets. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s indefinite-lived intangible asset impairment assessment process, including controls related to the determination of the fair value of the indefinite-lived intangible assets, related forecasted revenue growth rates, including terminal growth rate, margins and determination of the discount rate. We evaluated the Company’s forecasted revenue growth rates and margins by comparing them to historical actual results of the Company and other industry data, as applicable. In addition, we compared the Company’s historical revenue forecasts and margins to actual results. We involved valuation professionals with specialized skill and knowledge, who assisted in: ■ evaluating the Company’s terminal growth rate by comparing to publicly available industry market data and long-term economic growth assumptions ■ evaluating the Company’s discount rate assumptions by comparing it to discount rates that were independently developed using publicly available market data for comparable entities. /s/ KPMG LLP We have served as the Company’s auditor since 1996.
Short Hills, New Jersey
2024 -
To the Stockholders and Board of Directors B&G Foods, Inc.: Opinion on Internal Control Over Financial Reporting We have audited B&G Foods, Inc. and We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Short Hills, New Jersey
2024 - B&G FOODS, INC. AND SUBSIDIARIES Consolidated Balance (In thousands, except share and per share data)
See accompanying Notes to Consolidated Financial Statements.
- 58 - B&G FOODS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data)
See accompanying Notes to Consolidated Financial Statements. - B&G FOODS, INC. AND SUBSIDIARIES Consolidated Statements of (In
See accompanying Notes to Consolidated Financial Statements. - B&G FOODS, INC. AND SUBSIDIARIES Consolidated Statements of (In
See accompanying Notes to Consolidated Financial Statements. - B&G FOODS, INC. AND SUBSIDIARIES Consolidated Statements of (In
See accompanying Notes to Consolidated Financial Statements. - B&G FOODS, INC. AND SUBSIDIARIES
Organization and Nature of Operations B&G Foods, Inc. is a holding company whose principal assets are the shares of capital stock of its subsidiaries. Unless the context requires otherwise, references in this report to “B&G Foods,” “our company,” “we,” “us” and “our” refer to B&G Foods, Inc. and its subsidiaries. Our financial statements are presented on a consolidated basis. We operate in a single industry segment and manufacture, sell and distribute a diverse portfolio of high-quality shelf-stable and frozen foods across the United States, Canada and Puerto Rico. Our products include frozen and canned vegetables, vegetable, canola and other cooking oils, vegetable shortening, cooking sprays, oatmeal and other hot cereals, fruit spreads, canned meats and beans, bagel chips, spices, seasonings, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, pizza crusts, Mexican-style sauces, dry soups, taco shells and kits, salsas, pickles, peppers, tomato-based products, Sales of a number of our products tend to be seasonal and may be influenced by holidays, changes in seasons/weather or certain other annual events. In general, our sales are higher in the first and fourth quarter. We purchase most of the produce used to make our frozen and shelf-stable canned vegetables, pickles, relishes, peppers, tomatoes and other related specialty items during the months of June through October, and we generally purchase the majority of our maple syrup requirements during the months of April through August. Consequently, our liquidity needs are greatest during these periods. Fiscal Year
Our fiscal year ending December 28, 2024 (fiscal 2024) contains, and our fiscal years ended December 30, Business and Credit Concentrations Our exposure to credit loss in the event of non-payment of accounts receivable by customers is estimated in the amount of the allowance for doubtful accounts. We perform ongoing credit evaluations of the financial condition of our customers. Our top ten customers accounted for approximately - 63 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 accounts receivables as of the end of fiscal During fiscal
(2)Summary of Significant Accounting Policies (a)Basis of Presentation The consolidated financial statements include the accounts of B&G Foods, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. (b)Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Volatility in the credit and equity markets can increase the uncertainty inherent in such estimates and assumptions. (c)Subsequent Events We have evaluated subsequent events for disclosure through the date of issuance of the accompanying consolidated financial statements. (d)Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, all highly liquid instruments with maturities of three months or less when acquired are considered to be cash and cash equivalents. (e)Inventories Inventories are stated at the lower of cost or net realizable value and include direct material, direct labor, overhead, warehousing and product transfer costs. Cost is determined using the first-in, first-out and average cost methods. Inventories have been reduced by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on our management’s review of inventories on hand compared to estimated future usage and sales. (f)Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, 10 to 30 years for buildings and improvements, 5 to 12 years for machinery and equipment, and 2 to 5 years for office furniture and vehicles. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Expenditures for maintenance, repairs and minor replacements are charged to current operations. Expenditures for major replacements - 64 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 and betterments are capitalized. We capitalize interest on qualifying assets based on our effective interest rate. During fiscal
(g)Goodwill and Other Intangible Assets Goodwill and We test our Calculating Customer
(h)Deferred Debt Financing Costs
(i)Long-Lived Assets Long-lived assets, such as property, plant and equipment, and Assets to be disposed of are separately presented in the consolidated balance sheets and are no longer depreciated.
(j)Accumulated Other Comprehensive Accumulated other comprehensive (k)Revenue Recognition Revenues are recognized when our performance obligation is satisfied. Our primary performance obligation is satisfied when products are shipped. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to shipping and handling. Shipping and handling costs are included in cost of goods - 65 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 sold. Consideration from a vendor to a retailer is presumed to be a reduction to the selling prices of the vendor’s products and, therefore, is characterized as a reduction of sales when recognized in the vendor’s income statement. As a result, coupon incentives, slotting and promotional expenses are recorded as a reduction of sales. (l)Selling, General and Administrative Expenses We promote our products with advertising, consumer incentives and trade promotions. These programs include, but are not limited to, discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. We expense our advertising costs either in the period the advertising first takes place or as incurred. Advertising expenses were approximately (m)Pension Plans We (n) We provide compensation benefits in the form of Performance share LTIAs granted to our executive officers and certain other members of senior management entitle each participant to earn shares of common stock upon the attainment of certain performance goals over the applicable performance period. The recognition of compensation expense for the performance share LTIAs is initially based on the probable outcome of the performance condition based on the fair value of the award on the date of grant and the anticipated number of shares to be awarded on a straight-line basis over the applicable performance period. The fair value of the awards on the date of grant is determined based upon the closing price of our common stock on the applicable measurement dates (i.e., the deemed grant dates for accounting purposes) reduced by the present value of expected dividends using the risk-free interest-rate as the award holders are not entitled to dividends or dividend equivalents during the vesting period. Our company’s performance against the defined performance goals are re-evaluated on a quarterly basis throughout the applicable performance period and the recognition of compensation expense is adjusted for subsequent changes in the estimated or actual outcome. The cumulative effect of a change in the estimated number of shares of common stock to be issued in respect of performance share awards is recognized as an adjustment to earnings in the period of the revision.
The fair value of stock option awards is estimated on the date of grant using the Black-Scholes option pricing model and is recognized in expense over the vesting period of the options using the straight-line method. The Black-Scholes option pricing model requires various assumptions, including the expected volatility of our stock, the expected term of the option, the risk-free interest rate and the expected dividend yield. Expected volatility is based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. All stock option grants have an exercise price equal to or greater than the fair market value of our common stock on the date of grant and have a 10-year - 66 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and We recognize compensation expense for only that portion of (o)Income Tax Expense Estimates and Policies Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities of our company are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. As part of the income tax provision process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we establish a valuation allowance. Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we include such charge in our tax provision, or reduce our tax benefits in our consolidated statements of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. There are various factors that may cause these tax assumptions to change in the near term, and we may have to record a valuation allowance against our deferred tax assets. We cannot predict whether future U.S. federal and state income tax laws and regulations might be passed that could have a material effect on our results of operations. See Note 10, “Income Taxes,” for a discussion of the (p)Dividends Cash dividends, if any, are accrued as a liability on our consolidated balance sheets when declared and recorded as a decrease to additional paid-in capital, or as a decrease to retained earnings when
(q)Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding plus all additional shares of common stock that would have been outstanding if potentially dilutive shares of common stock had been issued upon the exercise of stock options or in connection with performance share LTIAs that may be earned as of the beginning of the period using the treasury stock method.
- 67 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 The table below shows net income, weighted average common shares outstanding and earnings per share for fiscal 2023, 2022 and 2021, respectively (in thousands, except share and per share data):
(r) In (s)Recently Issued Accounting Standards – Pending Adoption In
In
We
- 68 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 trademarks, customer relationships and other Yuma Acquisition On May 5, 2022, we completed the acquisition of the frozen vegetable manufacturing operations of Growers Express, LLC, whose primary business at the time of the acquisition was co-manufacturing certain Green Giant frozen vegetable products, including Green Giant® Riced Veggies and Green GiantVeggie Spirals®. The purchased assets include inventory, equipment, a sublease for a portion of a manufacturing facility in Yuma, Arizona, and a lease for a warehouse facility in San Luis, Arizona. Approximately 160 employees transferred to B&G Foods. We refer to this acquisition as the “Yuma acquisition.” As part of the Yuma acquisition, we also repurchased the master license agreement for certain Green Giant Fresh vegetable products and have assumed responsibility for the administration of related sublicense agreements. The following table sets forth the
acquisition:
Unaudited Pro Forma Summary of Operations The
During the third quarter of 2023, we reclassified $201.8 million of assets related to our Green Giant U.S. shelf-stable product line as assets held for sale because we had decided to divest the product line, which was no longer core to our overall business and long-term strategy. We then measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash charges of $132.9 million during the third quarter of 2023. On November 8, 2023, we completed the sale of the Green Giant U.S. shelf-stable product line to Seneca Foods Corporation and we recorded a loss on sale of $4.8 million during the fourth quarter, resulting in a total loss on sale of $137.7 million during fiscal 2023. The sale did not include our Green Giant frozen business, Green Giant Canada business, or the Le Sueur brand. Because we retained the Green Giant trademarks, we agreed to license the Green Giant trademarks to Seneca on a perpetual, royalty-free basis for use in connection with the Green Giant U.S. shelf-stable product line. In connection with the sale, we provided certain transition services to Seneca from the closing date through February 6, 2024. - 69 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 During the fourth quarter of 2023, we recognized a pre-tax loss on the divestiture of $137.7 million, as calculated below (in thousands):
Back to Nature Divestiture On December 15, 2022, we entered into an agreement to sell the Back to Nature business to a subsidiary of Barilla America, Inc. for a purchase price of $51.4 million in cash, subject to closing and post-closing adjustments based upon inventory at closing. We refer to this divestiture as the “Back to Nature sale.” During fiscal 2022, we reclassified $157.7 million of assets related to our Back to Nature business as assets held for sale. We measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million during the third quarter of 2022. After we entered into the sale agreement, we recorded additional pre-tax, non-cash impairment charges of $2.8 million related to those assets during the fourth quarter of 2022. As a result, we had assets held for sale related to our Back to Nature business of $51.3 million at December 31, 2022. Effective January 3, 2023, the first business day of fiscal 2023, we completed the Back to Nature sale. During the first quarter of 2023, we recognized a pre-tax loss on the Back to Nature sale of $0.1 million, as calculated below (in thousands):
As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our income tax expense for the first quarter of 2023 by $14.7 million. - 70 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022
Inventories consist of the following, as of the dates indicated (in thousands):
(5)Property, Plant and Equipment, net Property, plant and equipment, net, consists of the following as of the dates indicated (in thousands):
Depreciation expense was
The carrying amounts of goodwill and other intangible assets, as of the dates indicated, consist of the following (in thousands):
Amortization expense associated with finite-lived intangible assets was $20.8 million, $21.3 million and $21.6 million during fiscal
- 71 - B&G FOODS, INC. AND SUBSIDIARIES Notes to December 30, 2023, December 31, 2022 and Our annual impairment tests for fiscal 2023 resulted in our company recording pre-tax, non-cash impairment charges to Additionally, in connection with the divestiture of our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship We completed our annual impairment tests for fiscal 2022 with no adjustments to the carrying values of indefinite-lived intangible assets. However, in connection with our decision to sell the Back to Nature business, during fiscal 2022 we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale. We measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $106.4 million during fiscal 2022 relating to those assets. See Note 3, “Acquisitions and Divestitures.” Our annual impairment tests for fiscal 2021 resulted in our company recording non-cash impairment charges to trademarks for the Static Guard, SnackWell’s, Molly McButter and Farmwise brands of $23.1 million in the aggregate during the fourth quarter of fiscal 2021, which
indefinite-lived intangible assets (trademarks), see Note 2(g), “Summary of Significant Accounting Policies—Goodwill and Other Intangible Assets.” - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30,
Long-term debt consists of the following, as of the dates indicated (in thousands):
Senior Secured Credit Agreement. During the first
- 73 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 During the second quarter of 2023, we amended our credit
Prior to the transition to SOFR, interest under the revolving credit facility, including any outstanding letters of credit, was determined based on alternative rates that we chose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.25% to 0.75%, and LIBOR plus an applicable margin ranging from 1.25% to 1.75%, in each case depending on our consolidated leverage ratio. Effective July 1, 2023, interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.25% to 0.75%, and SOFR plus an applicable margin ranging from 1.25% to 1.75%, in each case depending on our consolidated leverage ratio. We are required to pay a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility. The maximum letter of credit capacity under the revolving credit facility is $50.0 million, with a fronting fee of 0.25% per annum for all outstanding letters of credit and a letter of credit fee equal to the applicable margin for revolving loans that are
We may prepay
Our obligations under the credit agreement are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic The credit agreement also contains certain financial maintenance covenants, which, among other things, specify a maximum consolidated leverage ratio and a minimum interest coverage ratio, each ratio as defined in the credit agreement. - 74 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 period payable in cash) of at least 1.75 to 1.00. As of December 30,
The credit agreement also provides for an incremental term loan and revolving loan facility, pursuant to which we may request that the lenders under the credit agreement, and potentially other lenders, provide unlimited additional amounts of term loans or revolving loans or both on terms substantially consistent with those provided under the credit agreement. Among other things, the utilization of the incremental facility is conditioned on our ability to meet a maximum senior secured leverage ratio of 4.00 to 1.00, and a sufficient number of lenders or new lenders agreeing to participate in the facility.
5.25% Senior Notes due 2025. On April 3, 2017, we issued $500.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 100% of their face value. On November 20, 2017, we issued an additional $400.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 101% of their face value plus accrued interest from October 1,
We used the net proceeds of the April Interest on the 5.25% senior notes due 2025 is payable on April 1 and October 1 of each year, commencing October 1, 2017. The 5.25% senior notes due 2025 will mature on April 1, 2025, unless earlier retired or We may redeem some or all of the 5.25% senior notes due 2025 at a redemption price of We may also, from time to time, seek to retire the 5.25% senior notes due 2025 through cash repurchases of the 5.25% senior notes due 2025 and/or exchanges of the 5.25% senior notes due 2025 for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. During fiscal 2023, we repurchased $79.2 million aggregate principal amount of the 5.25% senior notes due 2025 in open market purchases at an average discounted repurchase price of 97.24% of such principal amount plus accrued and unpaid interest. We used the net proceeds from the issuance of our 8.00% senior secured notes due 2028, together with cash on hand, to redeem at par $555.4 million aggregate principal amount of our 5.25% senior notes due 2025 on October 12, 2023 and to pay accrued and unpaid interest and related fees and expenses. As of December 30, 2023, $265.4 million aggregate principal amount of the 5.25% senior notes due 2025 remain outstanding. Our obligations under the 5.25% senior notes due 2025 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries. The 5.25% senior notes due 2025 and the subsidiary guarantees are our and the guarantors’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantors’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantors’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantors’ future subordinated debt. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior - 75 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 The indenture governing the 5.25% senior notes due 2025 contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of 5.25% Senior Notes due 2027. On September 26, 2019, we issued $550.0 million aggregate principal amount of 5.25% senior notes due 2027 at a price to the public of 100% of their face value. We used the proceeds of the offering, together with the proceeds of incremental term loans made during the fourth quarter of 2019, to redeem all of our outstanding 4.625% senior notes due 2021, repay a portion of our borrowings under our revolving credit facility, pay related fees and expenses and for general corporate purposes. Interest on the 5.25% senior notes due 2027 is payable on March 15 and September 15 of each year, commencing March 15, 2020. The 5.25% senior notes due 2027 will mature on September 15, 2027, unless earlier retired or redeemed as described below. We may redeem some or all of the 5.25% senior notes due 2027 at a redemption price of 102.625% of the principal amount beginning March 1, 2023 and thereafter at prices declining annually to 101.313% on March 1, 2024 and 100% on or after March 1, 2025, in each case plus accrued and unpaid interest to the date of redemption. In addition, if we undergo a change of control or upon certain asset sales, we may be required to offer to repurchase the 5.25% senior notes due 2027 at the repurchase price set forth in the indenture plus accrued and unpaid interest to the date of repurchase. We may also, from time to time, seek to retire the 5.25% senior notes due 2027 through cash repurchases of the 5.25% senior notes due 2027 and/or exchanges of the 5.25% senior notes due 2027 for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Our obligations under the 5.25% senior notes due 2027 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries. The 5.25% senior notes due 2027 and the subsidiary guarantees are our and the guarantors’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantors’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantors’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantors’ future subordinated debt. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes due 2027. The indenture governing the 5.25% senior notes due 2027 contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of certain liens; certain sale-leaseback transactions; certain asset sales; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. As of December 30, 2023, we were in compliance with all of the covenants in the indenture governing the 5.25% senior notes due 2027. 8.00% Senior Secured Notes due 2028. On September 26, 2023, we issued $550.0 million aggregate principal amount of 8.00% senior secured notes due 2028 at a price of 99.502%. - 76 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 The net proceeds from the offering were $538.3 million after deducting discounts, fees and expenses related to the offering. We used the net proceeds of the offering, together with cash on hand, to redeem $555.4 million aggregate principal amount of our 5.25% senior notes due 2025 on October 12, 2023 and to pay related fees and expenses. Interest on the 8.00% senior secured notes due 2028 is payable on March 15 and September 15 of each year, commencing March 15, 2024. The 8.00% senior secured notes due 2028 will mature on September 15, 2028, unless earlier retired or redeemed as described below. We may redeem some or all of the 8.00% senior secured notes due 2028 at a redemption price of 104.00% of the principal amount beginning September 15, 2025 and thereafter at prices declining annually to 102.00% on September 15, 2026 and 100.00% on or after September 15, 2027, in each case plus accrued and unpaid interest to (but not including) the date of redemption. We may redeem up to 40% of the aggregate principal amount of the 8.00% senior secured notes due 2028 prior to September 15, 2025 at a redemption price of 108.00% plus accrued and unpaid interest to (but not including) the date of redemption with the net proceeds from certain equity offerings. We may also redeem some or all of the 8.00% senior secured notes due 2028 at any time prior to September 15, 2025 at a redemption price equal to the make-whole amount set forth in the indenture plus accrued and unpaid interest to (but not including) the date of redemption. In addition, if we undergo a change of control, we may be required to offer to repurchase the 8.00% senior secured notes due 2028 at 101.00% of the aggregate principal amount, plus accrued and unpaid interest to (but not including) the date of repurchase. Upon certain asset dispositions we may be required to offer to purchase a portion of the 8.00% senior secured notes due 2028 at 100.00% of the aggregate principal amount, plus accrued and unpaid interest to (but not including) the date of repurchase. See “Offer to Partially Redeem 8.00% Senior Secured Notes Due 2028 Upon Asset Sale”below. We may also, from time to time, seek to retire the 8.00% senior secured notes due 2028 through cash repurchases of the 8.00% senior secured notes due 2028 and/or exchanges of the 8.00% senior secured notes due 2028 for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. The 8.00% senior secured notes due 2028 are our senior secured obligations and are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by each of our existing and future domestic subsidiaries (other than immaterial subsidiaries). The 8.00% senior secured notes due 2028 have the same guarantors as our credit agreement. The 8.00% senior secured notes due 2028 and the related guarantees are secured by, subject to permitted liens, first-priority security interests in certain collateral (which generally includes most of our and our guarantors’ right or interest in or to property of any kind, except for our and our guarantors’ real property and certain intangible assets), which assets also secure (and will continue to secure) our credit agreement on a pari passu basis. Pursuant to the terms of the indenture, the related collateral agreement and an intercreditor agreement, the 8.00% senior secured notes due 2028 and the guarantees rank (1) pari passu (equally and ratably) in right of payment to all of our and the guarantors’ existing and future senior debt, including existing and future senior debt under our existing or any future senior secured credit agreement (including the term loan borrowings under our existing senior secured credit facility, any obligations under our existing revolving credit facility and all other borrowings and obligations under our credit agreement), (2) effectively senior in right of payment to our and such guarantors’ existing and future senior unsecured debt, including our 5.25% senior notes due 2025 and 5.25% senior notes due 2027 to the extent of the value of the collateral, (3) effectively junior to our and the guarantors’ future secured debt, secured by assets that do not constitute collateral, to the extent of the value of the collateral securing such debt, (4) senior in right of payment to our and such guarantors’ other existing and future subordinated debt and (5) structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 8.00% senior secured notes due 2028. The indenture governing the 8.00% senior secured notes due 2028 contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of certain liens; certain sale-leaseback transactions; certain asset sales; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with - 77 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. As of December 30, 2023, we were in compliance with all of the covenants in the indenture governing the 8.00% senior secured notes due 2028. Offer to Partially Redeem 8.00% Senior Secured Notes Due 2028 Upon Asset Sale. During the first quarter of 2024, B&G Foods expects to commence an offer to purchase for cash up to $22.0 million principal amount of our 8.00% senior secured notes due 2028 from holders of the notes at a purchase price equal to 100.00% of the principal amount of such notes, plus accrued and unpaid interest, if any, to, but not including, the date fixed for the purchase of the notes tendered pursuant to the offer. The offer will not be conditioned upon a minimum principal amount of the notes being tendered. Pursuant to the indenture governing the 8.00% senior secured notes due 2028, the offer is required to be made as a result of the Green Giant U.S. shelf-stable divestiture. As discussed above under “Senior Secured Credit Agreement,” during the fourth quarter of 2023, we made a mandatory prepayment of $22.0 million principal amount of tranche B term loans with proceeds from the sale of the Green Giant U.S. shelf-stable product line. If less than $22.0 million principal amount of the 8.00% senior secured notes due 2028 are tendered in connection with the offer, B&G Foods will be required to make an additional mandatory prepayment of tranche B term loans in an amount equal to $22.0 million less the principal amount of the notes purchased pursuant to the offer. Subsidiary Guarantees.We have no assets or operations independent of our direct and indirect subsidiaries. All of our present domestic subsidiaries jointly and severally and fully and unconditionally guarantee our long-term debt. There are no significant restrictions on our ability and the ability of our subsidiaries to obtain funds from our respective subsidiaries by dividend or loan. See
Contractual Maturities. As of December 30,
Accrued Interest. At December 30, - 78 -
Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022
The authoritative accounting literature relating to fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The accounting literature outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under Financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy under the accounting literature. The three levels are as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable for the asset or liability, either directly or indirectly. Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. Cash and cash equivalents, trade accounts receivable, income tax receivable, trade accounts payable, accrued expenses, income tax payable and dividends payable are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.
The carrying values and fair values of our revolving credit loans, term loans
There was no Level 3 activity during fiscal - 79 -
Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022
The reclassifications from accumulated other comprehensive
Changes in
The components of (loss) income before income tax (benefit) expense consist of the following (in thousands):
- 80 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 Income tax (benefit) expense consists of the following (in thousands):
Income tax (benefit) expense differs from the expected income tax (benefit) expense (computed by applying the U.S. federal income tax rate of
In fiscal - 81 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income and reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, a valuation allowance of $23.3 million, $2.3 million and $2.5 million was recorded during fiscal 2023, 2022 and 2021, respectively, to record only the portion of the deferred tax asset that management believes
At December 30, At December 30, 2023 we had intangible assets of $880.7 million for tax purposes, which are amortizable through We operate in multiple taxing jurisdictions within the United States, Canada and Mexico and from time to time face audits from various tax authorities regarding the deductibility of certain expenses, state income tax nexus, intercompany transactions, transfer pricing and other matters. - 82 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 jurisdictions until the applicable statutes of limitations expire. As of December 30,
U.S. Tax Act. On December 22, 2017, Under FASB ASC Topic 740, Income Taxes, we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. Beginning on January 1, 2018, the U.S. Tax Act The U.S. Tax Act also limits the deduction for net interest expense (including treatment of depreciation and other deductions in arriving at adjusted taxable income) incurred by a corporate taxpayer to 30% of the taxpayer’s adjusted taxable income. If we are unable to fully utilize our interest expense deductions in future periods, our cash taxes will increase. We were subject to the limitation in fiscal 2021, which increased our taxable income by $6.7 million (after a $1.1 million return to provision adjustment in fiscal 2022). Beginning with fiscal 2022, our adjusted taxable income as computed for purposes of the interest expense deduction limitation is computed after any deduction allowable for depreciation and amortization. As a result, our adjusted taxable income (used to compute the limitation) decreased and we were subject to the interest expense deduction limitation in fiscal 2023 and fiscal 2022, resulting in an increase to taxable income of $107.7 million and $90.2 million, respectively. We may continue to be subject to the interest deduction limitation in future years. We have recorded a deferred tax asset of $46.9 million and $22.2 million for fiscal 2023 and fiscal 2022, respectively, related to the interest deduction carryover, without a valuation allowance, as the disallowed interest may be carried forward indefinitely. The increase in our cash taxes resulting from the interest expense deduction limitation was approximately $25.0 million and $20.6 million for fiscal 2023 and fiscal 2022, respectively. There are The
Voting Rights.The holders of our common stock are entitled to one vote per share with respect to each matter on which the holders of our common stock are entitled to vote. The holders of our common stock are not entitled to cumulate their votes in the election of our directors. Dividends.The holders of our common stock are entitled to receive dividends, if any, as they may be lawfully declared from time to time by our board of directors, subject to any preferential rights of holders of any outstanding - 83 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 shares of preferred stock. In the event of any liquidation, dissolution or winding up of our company, common stockholders are entitled to share ratably in our assets available for distribution to the stockholders, subject to the prior rights of holders of any outstanding preferred stock. Additional Issuance of Our Authorized Common Stock and Preferred Stock.Additional shares of our authorized common stock and preferred stock may be issued, as determined by our board of directors from time to time, without approval of holders of our common stock, except as may be required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Our board of directors has the authority by resolution to determine and fix, with respect to each series of preferred stock prior to the issuance of any shares of the series to which such resolution relates, the designations, powers, preferences and rights of the shares of preferred stock of such series and any qualifications, limitations or restrictions thereof. Stock
During fiscal 2021, we sold 3,695,706 shares of our common stock under the ATM equity offering program. We generated $112.5 million in gross proceeds, or $30.44 per share, from the sales, paid commissions to the During fiscal 2022, we sold 2,853,342 shares of our common stock under the ATM equity offering program. We generated $66.6 million in gross proceeds, or $23.33 per During fiscal 2023, we sold 6,332,846 shares of our common stock under the ATM equity offering program. We generated $75.3 million in gross proceeds, or $11.90 per share, from the sales, paid commissions to the sales agents of approximately $1.5 million and incurred other fees and expenses of approximately $0.1 million. In the aggregate since the inception of the ATM equity offering Future sales of shares, if any, under the ATM equity offering We used the net proceeds
Plans. As of December 30, - 84 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 defined benefit pension plans are for the benefit of certain of our union employees and one is for the benefit of salaried and certain hourly employees. The benefits in the salaried and hourly plan are based on each employee’s years of service and The following table sets forth our defined benefit pension plans’ benefit obligation, fair value of plan assets and funded status recognized in the consolidated balance sheets. We used December 30,
- 85 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 The accumulated benefit obligations of these plans were
our benefit obligation as of December 30,
The discount rate used to determine year-end fiscal The overall expected long-term rate of return on plan assets assumption is based upon a building-block method, whereby the expected rate of return on each asset class is broken down into the following components: (1) inflation; (2) the real risk-free rate of return (i.e., the long-term estimate of future returns on default-free U.S. government securities); and (3) the risk premium for each asset class (i.e., the expected return in excess of the risk-free rate). All three components are based primarily on historical data, with modest adjustments to take into account additional relevant information that is currently available. For the inflation and risk-free return components, the most significant additional information is that provided by the market for nominal and inflation-indexed U.S. Treasury securities. That market provides implied forecasts of both the inflation rate and risk-free rate for the period over which currently available securities mature. The historical data on risk premiums for each asset class is adjusted to reflect any systemic changes that have occurred in the relevant markets; e.g., the higher current valuations for equities, as a multiple of earnings, relative to the longer-term average for such valuations. Net periodic pension cost includes the following components (in thousands):
- B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, The following table sets forth the changes in amounts recorded in accumulated other comprehensive income (loss) for fiscal 2023, 2022 and 2021, respectively (in thousands):
Our pension plan assets are managed by outside investment managers; assets are rebalanced at the end of each quarter. Our investment strategy with respect to pension assets is to maximize return while protecting principal. The investment manager has the flexibility to adjust the asset allocation and move funds to the asset class that offers the most opportunity for investment returns.
The asset allocation for our pension plans at December 30, 2023 and December 31, 2022, and the target allocation for fiscal 2023, by asset category, follows:
The general investment objective of each of the pension plans is to grow the plan assets in relation to the plan liabilities while prudently managing the risk of a decrease in the plan’s assets relative to those liabilities. To meet this objective, our management has adopted the above target allocations that it reconsiders from time to time as circumstances change. The actual plan asset allocations may be within a range around these targets. The actual asset allocations are reviewed and rebalanced on a periodic basis. The fair values of our pension plan assets at December 30,
The investment portfolio contains a diversified blend of common stocks, bonds, cash equivalents and other investments, which may reflect varying rates of return. The investments are further diversified within each asset classification. The portfolio diversification provides protection against a single security or class of securities having a disproportionate impact on aggregate performance. Of the - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30,
We We also sponsor defined contribution plans covering substantially all of our employees. Employees may contribute to these plans and these contributions are matched by us at varying amounts. Contributions for the matching component of these plans amounted to Multi-Employer Defined Benefit Pension Plan.
B&G Foods made contributions to the plan of
For more information about the closure and sale of the Portland manufacturing facility, see Note 17, “Sale of Portland, Maine Manufacturing Facility.”
Operating Leases and Finance Lease. We determine whether an arrangement is a lease at inception. We have operating leases for certain of our manufacturing facilities, distribution centers, warehouse and storage facilities, machinery and equipment, and office equipment. Our leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to ten years, and some of which include options to terminate the lease within one year. We consider these options in determining the lease term used to establish our right-of use assets and lease liabilities. As a result of the Yuma acquisition, we - 88 - B&G FOODS, INC. AND SUBSIDIARIES Notes to December 30, 2023, December 31, Operating leases and a finance lease are included in the accompanying consolidated balance
The following table shows supplemental information related to
Total rent expense was $20.5 million, Because neither our operating leases nor our finance lease provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of our real estate leases, we account for our leases as a single lease component. - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30,
As of December 30,
Legal Proceedings. We are from time to time involved in various claims and legal actions arising in the ordinary course of business, including proceedings involving product liability claims, product labeling claims, worker’s compensation and other employee claims, and tort and other general liability claims, as well as trademark, copyright, patent infringement and related claims and legal actions. While we cannot predict with certainty the results of these claims and legal actions in which we are currently or in the future may be involved, we do not expect that the ultimate disposition of any currently pending claims or actions will have a material adverse effect on our consolidated financial position, results of operations or liquidity. Environmental.We are subject to environmental laws and regulations in the normal course of business. We did not make any material expenditures during fiscal Collective Bargaining Agreements.As of December 30, - 90 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 While we believe that our relations with our union employees are in general good, we cannot assure you that we will be able to negotiate a new collective bargaining agreement for our Terre Haute facility on terms satisfactory to us, or at all, and without production interruptions, including labor stoppages. At this time, however, management does not expect that the outcome of these negotiations will have a material adverse impact on our business, financial condition or results of operations. Severance and Change of Control Agreements.We have employment agreements with our chief executive officer and each of our executive
Annual Bonus Omnibus Incentive Compensation Plan.Upon the recommendation of our compensation committee, our board of directors on March 10, 2008 adopted (subject to stockholder approval) the B&G Foods, Inc. 2008 Omnibus Incentive Compensation Plan, which we refer to as the Omnibus Plan. Our stockholders approved the Omnibus Plan at our annual meeting on May 6, 2008. Our stockholders reapproved the material terms of the performance goals in our Omnibus Plan at our annual meeting on May 16, 2013. Upon the recommendation of our compensation committee, our board of directors in March 2017 approved (subject to stockholder approval) the amendment and restatement of the Omnibus Plan, renamed the Omnibus Incentive Compensation Plan. Our stockholders approved the amended and restated Omnibus Plan, including the materials terms of the performance goals, at our annual meeting on May 23, 2017. Upon the recommendation of our compensation committee, our board of directors in March 2023 adopted an amendment to our Omnibus Plan (subject to stockholder approval), to increase the number of shares of common stock available for issuance under the plan by 5,000,000. Our stockholders approved the amendment at our annual meeting on May 17, 2023. The Omnibus Plan authorizes the grant of performance share awards, restricted stock, options, stock appreciation rights, deferred stock, stock units and cash-based awards to employees, non-employee directors and consultants. Performance Share Awards.Beginning in fiscal 2008, our compensation committee has made annual grants of performance share LTIAs to our executive officers and certain other members of senior management under the Omnibus Plan. The performance share LTIAs entitle the participants to earn shares of common stock upon the attainment of certain performance goals over the applicable performance period. The performance period is typically three years. Each performance share LTIA has a threshold, target and maximum payout. The awards are settled subject to and based upon - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30,
Subject to the performance goal for the applicable performance period being certified in writing by our compensation committee as having been achieved, shares of common stock are issued prior to March 15 following the completion of the performance period. The following table details the activity in our performance share LTIAs for fiscal
Restricted Stock. The following table details the activity in our restricted stock for fiscal 2023:
Stock Options. The following table details our stock option activity for fiscal
2023 (dollars in thousands, except per share data):
- B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30,
The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following assumptions. Expected volatility was based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The expected term of the options granted represents the period of time that options were expected to be outstanding and is generally based on the “simplified method” in accordance with accounting guidance. We
The assumptions used in the Black-Scholes option-pricing model during fiscal 2023 and fiscal 2022 were as follows:
Non-Employee Director Grants.Each of our non-employee directors receives an annual grant of common stock as part of his or her non-employee director compensation. These shares fully vest when issued. In addition, each of our non-employee directors is given the option to receive all or a portion of his or her annual board service fee in cash or an equivalent amount of stock options. Such stock options are reflected in the information provided above under “Stock Options.” The following table details the net number of shares of common stock issued by our company during fiscal
The following table sets forth the compensation expense recognized for share-based payments (performance share LTIAs, restricted stock, stock options, non-employee director stock grants, and other
As of December 30, - 93 - B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30, 2023, December 31, 2022 and January 1, 2022 fiscal years, and
The following table sets forth net sales by brand (in thousands):
- B&G FOODS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 30,
During the first quarter of - B&G FOODS, INC. AND SUBSIDIARIES Schedule of Valuation and Qualifying Accounts (In thousands)
- Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures. As required by Rule Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules Based on our evaluation under the framework of Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective at December 30, Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published consolidated financial statements in accordance with
Changes in Internal Control over Financial Reporting. As required by Rule
internal control over financial reporting during the last quarter of fiscal
During fiscal 2021, fiscal 2022 and fiscal 2023, we continued to implement additional modules and transition recently acquired Inherent Limitations on Effectiveness of Controls. Our company’s management, including the chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in Item 9B. Other Information. Rule 10b5-1 Trading Arrangements. During the 13 weeks ended December 30, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as such terms are defined under Item 408(a) of Regulation S-K. Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
- PART III Item 10. Directors, Executive Officers and Corporate Governance. With the exception of the information relating to our Code of Business Conduct and Ethics that is presented in Part I, Item 1 of this report under the heading “Available Information,” the information required by this Item will appear in the sections entitled “Corporate Governance,” “Proposal 1—Election of Directors,” “Our Item 11. Executive Compensation. The information required by this item will appear in the section entitled “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation” and “Report of the Compensation Committee” included in our definitive proxy statement to be filed on or before April
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Securities Authorized for Issuance Under Equity Compensation Plans.The following table summarizes information, as of December 30, Equity Compensation Plan Information
The remaining information required by this item will appear in the section entitled “Security Ownership of Certain Beneficial Owners and Management” included in our definitive proxy statement to be filed on or before April - 99 - Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item will appear in the section entitled “Certain Relationships and Related Transactions” and “Corporate Governance” included in our definitive proxy statement to be filed on or before April Item 14. Principal Accountant Fees and Services. The information required by this item will appear in the section entitled “Independent Registered Public Accounting Firm Fees” included in our definitive proxy statement to be filed on or before April - PART IV Item 15. Exhibits, Financial Statement Schedules.
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None. - 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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