From time to time, we acquire businesses or brands to expand our product portfolio and distribution. We may incur unforeseen liabilities and obligations in connection with the acquisition, integration, or management of the acquired businesses or brands and may encounter unexpected difficulties and costs in integrating them into our operating and internal control structures. We may also experience delays in extending our internal control over financial reporting to a newly acquired business, which may increase the risk of failure to prevent misstatements in their financial records and in our consolidated financial statements. Our financial performance depends in large part on how well we can manage and improve the performance of acquired businesses or brands. We cannot assure you; however, that we will be able to achieve our strategic and financial objectives for such acquisitions. If we are unable to achieve such objectives, our financial condition operating results could be negatively affected.

~~We may be unable to drive revenue growth in our key products or add products that are faster-growing and more profitable.~~

The SBG industry’s overall growth is linked to population growth. Our future results will depend on our ability to drive revenue growth in our key products. Because our operations are concentrated in the United States where growth in the SBG industry has been moderate, our success also depends in part on our ability to enhance our portfolio by adding innovative new products. There can be no assurance that new products will find widespread acceptance among consumers. Our failure to drive revenue growth in our key products or develop innovative new products could materially and adversely affect our profitability, financial condition and operating results.

~~The cost to manufacture our products is subject to pricing volatility.~~

We purchase and use large quantities of commodities, including flour, sweeteners, edible oils and compound coating to manufacture our products. In addition, we purchase and use significant quantities of corrugate and films to package our products.

Prices for commodities, energy, transportation and other inputs are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, severe weather or global climate change, consumer, industrial or investment demand and changes in governmental regulation and trade, alternative energy, and agricultural programs. Rising commodity, energy, transportation and other input costs could materially and adversely affect our cost of operations, which could materially and adversely affect our financial condition and operating results.

Although we monitor our exposure to commodity prices as an integral part of our overall risk management program, and seek to utilize forward buying strategies through short-term and long-term advance purchase contracts, to lock in prices for certain high-volume raw materials, packaging components and fuel inputs, these strategies may not protect us from increases in specific raw materials costs.

Continued volatility or sustained increases in the prices of commodities, transportation and other supplies we purchase could increase the costs of our products, and our profitability could suffer. Moreover, increases in the prices of our products to cover these increased costs may result in lower sales volumes. If we are not successful in our buying strategies, or if we are unable to price our products to cover increased costs, then commodity and other input price volatility or increases could materially and adversely affect our financial condition and operating results.

We may be limited in our ability to pass cost increases on to our customers in the form of price increases or may realize a decrease in sales volume in the event price increases are implemented.

We may not be able to pass some or all of any increases in the price of raw materials, energy, and other input costs to our customers by raising prices. In the event we increase our prices, customers and consumers may choose to purchase competing products or may shift purchases to private label or other lower-priced offerings, which may adversely affect our operating results.

Consumers may be less willing or able to pay a price differential for our branded products, and may increasingly purchase lower-priced offerings and may forego some purchases altogether, especially during economic downturns. Retailers may also increase levels of promotional activity for lower-priced offerings as they seek to maintain sales volumes during times of economic uncertainty. Accordingly, sales volumes of our branded products could be reduced or lead to a shift in sales mix toward our lower-margin offerings. As a result, decreased demand for our products may adversely affect our operating results.

RISKS RELATED TO OUR GROWTH STRATEGIES

Our growth may be limited by our inability to maintain or add additional shelf or retail space for our products.

Our results will depend on our ability to drive revenue growth, in part, by expanding the distribution channels for our products. However, our ability to do so may be limited by our inability to secure additional shelf, display, or other retail space for our products. Retail space for snacks is limited and subject to competitive and other pressures, and there can be no assurance that retail operators will provide us sufficient space for our products to enable us to meet our growth objectives. If we are unable to maintain or increase our retail space we could experience an adverse impact on our product sales, financial condition and operating results.

We may not successfully identify or complete strategic acquisitions, alliances, divestitures or joint ventures.

From time to time, we may evaluate acquisition candidates, alliances or joint ventures that may strategically fit our business objectives, or we may consider divesting businesses that do not meet our strategic objectives, growth or profitability targets. These activities may present financial, managerial, and operational risks, including, but not limited to, diversion of management’s attention from existing core businesses. In addition, to the extent we undertake acquisitions, alliances or joint ventures or other developments outside our core geography or in new categories, we may face additional risks related to such developments. For example, the acquisition of Voortman in 2020 created new exposure to Canadian regulatory, market and currency exchange risks. Any of these factors could materially and adversely affect our product sales, financial condition, and operating results.

If we do not successfully integrate and manage our acquired businesses or brands, our operating results may be adversely affected.

From time to time, we acquire businesses or brands to expand our product portfolio and distribution. We may incur unforeseen liabilities and obligations in connection with the acquisition, integration, or management of the acquired businesses or brands and may encounter unexpected difficulties and costs in integrating them into our operating and internal control structures. We may also experience delays in extending our internal control over financial reporting to a newly acquired business, which may increase the risk of failure to prevent misstatements in their financial records and in our consolidated financial statements. Our financial performance depends in large part on how well we can manage and improve the performance of acquired businesses or brands. We cannot assure you, however, that we will be able to achieve our strategic and financial objectives for such acquisitions. If we are unable to achieve such objectives, our financial condition and operating results could be negatively affected.

We may be unable to drive revenue growth in our key products or add products that are faster-growing and more profitable.

The Snacking industry’s overall growth is linked to population growth. Our future results will depend on our ability to drive revenue growth in our key products. Because our operations are concentrated in the North American snacking industry, our success also depends in part on our ability to enhance our portfolio by adding innovative new products. There can be no assurance that new products will find widespread acceptance among consumers. Our failure to drive revenue growth in our key products or develop innovative new products could materially and adversely affect our profitability, financial condition and operating results.

RISKS RELATED TO OUR OPERATIONS

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, the COVID-19 pandemic which has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.

In response to the novel coronavirus (“COVID-19”), certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. More restrictive proclamations and/or directives may be issued in the future. As a food producer, we are an essential service and the majority of our employees continue to work within our production and distribution facilities. However, we have had increased labor costs resulting from the payment of overtime to certain of our employees while other employees have been on paid sick leave or unpaid leaves of absence. We have also incurred expenses related to additional sanitization and safety measures we have instituted throughout our facilities. Although the temporary reductions in production at our facilities to enable sanitization and implementation of our other safety and employee welfare programs have not materially affected our operations, other food producers have experienced significant shutdowns of production. COVID-19 has also led to delays in FDA inspections of food production facilities. We cannot assure you that our health and safety measures will prevent a widespread outbreak of COVID-19 at our facilities. Such an outbreak could lead to a suspension of production or increased labor and other costs, each of which could have a material adverse effect on our business, financial condition and results of operations.

We are actively monitoring the potential impact of the pandemic on our operations and distribution. Our products are manufactured in North America and we may experience disruptions to our operations. We are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the severity of the disease and its potential variants, the duration of outbreaks, the effectiveness of vaccines or other treatments and actions that may be taken by governmental authorities. We also cannot predict the effects of any future outbreak of other highly infectious or contagious diseases.

The cost to manufacture our products is subject to pricing volatility.

Prices for commodities, energy, transportation and other inputs are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, severe weather, the potential effects of climate change, consumer, industrial or investment demand, and changes in regulatory, trade, alternative energy, or agricultural policies. Rising commodity, energy, transportation and other input costs could materially and adversely affect our cost of operations, which could materially and adversely affect our financial condition and operating results.

We monitor our exposure to commodity prices as an integral part of our overall risk management program, and seek to utilize forward buying strategies through short-term and long-term advance purchase contracts, to lock in prices for certain high-volume raw materials, packaging components and fuel inputs. These strategies, however, may not protect us from increases in specific raw materials costs.

We are also actively monitoring the potential impact of the COVID-19 pandemic on our supply chain. We source the significant majority of our ingredients, raw materials and packaging within North America. However, global supply may become constrained, which may cause the price of certain ingredients, raw materials and packaging used in our products to increase, such ingredients may become unavailable and/or we may experience disruptions to our operations. We are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the severity of the disease, the duration of the outbreak, the timing, effectiveness and public acceptance of vaccines and actions that may be taken by governmental authorities. We also cannot predict the effects of another wave of COVID-19 or any future outbreak of other highly infectious or contagious diseases.

The ability to distribute our products is subject to significant changes in the availability and pricing of transportation.

We utilize third-party carriers to ship our products to our distribution centers and to customers. The availability of timely and reliable transportation and the associated costs are subject to market demand, carrier capacity, fuel prices and regulatory oversight. Our procurement of transportation services from a diversified group of carriers and continuous monitoring of carrier usage and pricing could be insufficient to protect us from changes in market demand or carrier capacity.

If we lose one or more of our major customers, or if any of our major customers experience significant business interruption, our operating results could be adversely affected.

We have several large customers that account for a significant portion of our sales. Wal-Mart together with its affiliates is our largest customer and represented approximately ~~21.0%~~20.2% of our net revenue for the year ended December 31, ~~2018.~~2020. Cumulatively, including Wal-Mart, our top ten customers accounted for ~~58.6%~~59.4% of total net revenue for the year ended December 31, ~~2018.~~2020.

We do not have long-term supply contracts with any of our major customers. The loss of one or more major customers, a material reduction in sales to these customers for any reason, ~~or the occurrence of~~including but not limited to a significant business interruption of our customers’ operations or our inability to forecast demand and plan production to fulfill customer orders would result in a decrease in ~~our product sales, financial condition and operating results.~~

~~Our geographic focus makes us particularly vulnerable to economic and other events and trends in the United States.~~

We operate in the United States and, therefore, are particularly susceptible to adverse United States regulations, economic climate, consumer trends, market fluctuations, including commodity price fluctuations or supply shortages of our key ingredients, and other adverse events. The concentration of our businesses in the United States could present challenges and may increase the likelihood that an adverse event in the United States would materially and adversely affect our product sales, financial condition and operating results.

~~The consolidation of retail customers could adversely affect us.~~

Retail consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material and adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases, which could materially and adversely affect our product sales, financial condition and operating results.

Our results could be adversely impacted as a result of increased labor and employee-related expenses.

Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material adverse effect on our consolidated operating results or financial condition. Our labor costs include the cost of providing

employee benefits, including health and welfare, and severance benefits. The annual costs of benefits vary with increased costs of health care and the outcome of collectively-bargained wage and benefit agreements.

Various federal and state labor laws govern our relationships with our employees and affect operating costs. These laws include employee classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, overtime, family leave, safety standards, payroll taxes, citizenship requirements and other wage and benefit requirements for employees classified as non-exempt. As our employees are paid at rates set above, but related to, the applicable minimum wage, further increases in the minimum wage could increase our labor costs. Significant additional government regulations could materially and adversely affect our business, financial condition and operating results.

~~Higher health care costs and labor costs due to statutory and regulatory changes could adversely affect our business.~~

Under the United States Patient Protection and Affordable Care Act (the “ACA”), we are required to provide affordable coverage, as defined in the ACA, to all employees, or otherwise be subject to a payment per employee based on the affordability criteria in the ACA. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. Increased health care and insurance costs could have a material adverse effect on our business, financial condition and operating results. In addition, changes in federal or state workplace regulations could adversely affect our business, financial condition and operating results.

A portion of our workforce belongs to unions. Failure to successfully negotiate collective bargaining agreements, or strikes or work stoppages could cause our business to suffer.

Approximately ~~40.0%~~41% of our employees, as of December 31, ~~2018,~~2020, are covered by collective bargaining agreements and other employees may seek to be covered by collective bargaining agreements. Strikes or work stoppages or other business interruptions could occur if we are unable to renew these agreements on satisfactory terms or enter into new agreements on satisfactory terms, which could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely impact our business, financial condition or operating results. The terms and conditions of existing, renegotiated or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy.

We may be subject to product liability claims should the consumption of any of our products cause injury, illness or death.

We sell food products for human consumption, which involves risks such as product contamination or spoilage, mislabeling, product tampering and other adulteration of food products. Consumption of a mislabeled, adulterated, contaminated or spoiled product may result in personal illness or injury. We could be subject to claims or lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or exceed our insurance coverage. Even if product liability claims against us are not successful or fully pursued, these claims could be costly and time consuming and may require our management to spend time defending the claims rather than operating the business. In addition, publicity regarding these claims could adversely affect our reputation and brands.

Product recalls may increase our costs, negatively impact our brands’ reputation, and adversely affect our business.

A product that has been actually or allegedly misbranded or becomes adulterated could result in product withdrawals or recalls, destruction of product inventory, negative publicity, temporary plant closings, substantial cost of compliance or remediation, and potentially significant product liability judgments against us. Any of these events could result in a loss of demand for our products, which would have a material adverse effect on our financial condition, operating results or cash flows. While we carry insurance to cover the direct costs of such events, we cannot guarantee that these costs will be covered. We could also be adversely affected if consumers lose confidence in our product quality, safety and integrity generally.

~~Unanticipated business disruptions could adversely affect our ability to provide our products to our customers.~~

Factors that are hard to predict or beyond our control, like weather, natural disasters, fire, explosions, terrorism, political unrest, generalized labor unrest or health pandemics could damage or disrupt our operations. In addition, our operations could be disrupted by a material equipment failure. We do not have significant redundant operating equipment to allow for such disruptions. Accordingly, if we do not effectively respond to disruptions in our operations, for example, by replacing capacity at our manufacturing locations, or cannot quickly repair damage to our information, production or

supply systems, we may be late in delivering or unable to deliver products to our customers. If that occurs, we may lose our customers’ confidence, and long-term consumer demand for our products could decline. These events could materially and adversely affect our product sales, financial condition and operating results.

We rely on third parties for services related to sales, marketing and distribution.

We utilize third-party sales and marketing services ~~centralized distribution centers~~ and common carriers to execute order fulfillment for the majority of our products. While these services have increased our market penetration and expanded our distribution reach, we are dependent upon these third parties to effectively market, sell and distribute our products. We do not have long-term contracts with any of these third-party service providers. Accordingly, any termination by a third-party provider of their services to us, or any failure by these third parties to perform their obligations to us, would have a material adverse impact on our business and operating results.

RISKS RELATED TO OUR INDUSTRY AND ECONOMIC CONDITIONS

The COVID-19 pandemic has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.

In response to the COVID-19 pandemic, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We ~~may~~cannot predict the economic impact of additional waves of COVID-19 infections or governmental measures and directives in response thereto. Although U.S. and foreign regulatory agencies have approved several vaccines for treatment of the virus, the effectiveness, public acceptance and widespread availability of the vaccines remain uncertain. While we do not ~~successfully identify~~expect that the virus will have a material adverse effect on our business or ~~complete strategic acquisitions, alliances, divestitures or joint ventures.~~

~~From time to~~financial results at this time, we ~~may evaluate acquisition candidates, alliances or joint ventures~~are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the severity of the disease, the duration of the outbreak, the economic impact on our customers, and actions that may ~~strategically fit~~be taken by governmental authorities.

We also cannot predict the effects of another wave of COVID-19 or any future outbreak of other highly infectious or contagious diseases.

Our geographic focus makes us particularly vulnerable to economic and other events and trends in North America.

We operate in North America and are particularly susceptible to adverse United States regulations, trade policies, economic climate, consumer trends, market fluctuations, including commodity price fluctuations or supply shortages of our ~~business objectives,~~ingredients and other production inputs, and other adverse events. The concentration of our businesses in North America could present challenges and may increase the likelihood that an adverse event in the United States would materially and adversely affect our product sales, financial condition and operating results.

The consolidation of retail customers could adversely affect us.

Retail customers may continue to consolidate, resulting in fewer customers for our business. Consolidation also produces larger retail customers that may seek to leverage their position to improve their profitability by demanding improved efficiency, lower pricing, increased promotional programs, or we may consider divesting businesses that do not meet our strategic objectives or growth or profitability targets. These activities may present financial, managerial, and operational risks, including, but not limited to, diversion of management’s attention from existing core businesses.specifically tailored products. In addition, larger retailers have the scale to ~~the extent we undertake acquisitions, alliances~~develop supply chains that permit them to operate with reduced inventories or ~~joint ventures or other developments outside our core geography or in new categories, we may face additional risks related~~ to ~~such developments. Any of these factors~~develop and market their own retailer brands. Retail consolidation and increased retailer power could materially and adversely affect our product sales, financial condition, and operating results.

OTHER GENERAL RISKS RELATED TO OUR BUSINESS

Unsuccessful implementation of business strategies to reduce costs may adversely affect our business, financial condition, results of operations and cash flows.

Many of our costs, such as freight, raw materials and energy, are subject to factors outside of our control. Therefore, we must seek to reduce costs in other areas, such as through operating efficiency. If we are not able to complete projects designed to reduce costs and increase operating efficiency on time or within budget, our business, financial condition, results of operations and cash flows may be adversely impacted. In addition, if the cost-saving initiatives we have implemented, or any future cost-saving initiatives, do not generate the expected cost savings and synergies, our business, financial condition, results of operations and cash flows may be adversely affected.

Legal claims or other regulatory enforcement actions could subject us to civil and criminal penalties.

As a large food company, we operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Various laws and regulations govern food production, storage, distribution, sales, labeling, advertising and marketing, as well as licensing, trade, labor, tax and environmental matters, and health and safety practices. Government authorities regularly change laws and regulations and their interpretations. Consequently, we are subject to heightened risk of legal claims or other regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliance with existing laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies and procedures. Moreover, a failure to maintain effective control processes could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition, and operating results.

~~Our insurance may not provide adequate levels of coverage against claims.~~

We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a material adverse effect on our business and operating results.

We are subject to laws and regulations relating to protection of the environment, worker health, and workplace safety. Costs to comply with these laws and regulations, or claims with respect to environmental, health and safety matters, could have a significant negative impact on our business.

Our operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace and the cleanup of contaminated sites. We are required to obtain and comply with environmental permits for many of our operations, and sometimes we are required to install pollution control equipment or to implement operational changes to limit air emissions or wastewater discharges and/or decrease the likelihood of accidental releases of hazardous materials. We could incur substantial costs, including cleanup costs, civil or criminal fines or penalties, and third-party claims for property damage or personal injury as a result of any violations of environmental laws and regulations, noncompliance with environmental permit conditions or contamination for which we may be responsible that is identified or that may occur in the future. Such costs may be material.

Under federal and state environmental laws, we may be liable for the costs of investigation, removal or remediation of certain hazardous or toxic substances, as well as related costs of investigation and damage to natural resources, at various properties, including our current and former properties and the former properties of our predecessors, as well as off-site waste handling or disposal sites that we or our predecessors have used. Liability may be imposed upon us without regard to whether we knew of or caused the presence of such hazardous or toxic substances. Any such locations we currently own or occupy, or locations that we may acquire in the future, may result in liability to us under such laws or expose us to third-party actions such as tort suits based on alleged conduct or environmental conditions. In addition, we may be liable if hazardous or toxic substances migrate from properties for which we may be responsible to other properties.

In addition to regulations applicable to our operations, failure by any of our suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations and could result in potential liability. Even if we were able to obtain insurance coverage or compensation for any losses or damages resulting from the noncompliance of a supplier with applicable regulations, our brands and reputation may be adversely affected by negative perceptions of our brands stemming from such compliance failures.

We cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted. We also cannot predict the amount of future expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to environmental claims.

Our operations are subject to regulation by the FDA, FTC and other governmental entities, and such regulations are subject to change from time to time which could impact how we manage our production and sale of products.

Our and our contract manufacturers’ operations are subject to extensive regulation by the FDA, the FTC and other national, state, and local ~~authorities.~~authorities in the US, as well as the CFIA and provincial and local authorities in Canada. For example, we are subject to the Food, Drug and Cosmetics Act (“FDCA”) and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the registration of all points in the food supply chain, manufacturing, processing, composition and ingredients, labeling, packaging, holding, distribution and safety of food. Under this program, the FDA regulates manufacturing practices for foods through, among other things, its current “good manufacturing practices” regulations, or ~~CGMPs,~~cGMPs, and specifies the ingredients for certain foods. Our processing facilities and products are subject to periodic inspection by federal, state, and local authorities. The Food Safety Modernization Act increased the number of inspections at food facilities in the United States in an effort to enhance the detection of food-borne illness outbreaks and order recalls of tainted food products. It also imposes greater responsibility upon ~~factors~~parties throughout the food chain to design and implement effective hazard analysis and critical control point program using preventive controls in food safety programs throughout the supply chain. Failure to follow cGMPs and have an adequate food safety program results in food being adulterated and could require product recalls.cGMPs require certain reports of hazardous food products to be submitted to the FDA and provides authority for the FDA to take corrective action including recall of adulterated or misbranded food products.

Similarly, the facility in Burlington, Ontario is subject to the Canadian Food and Drugs Act (“CFDA”) and the Safe Food for Canadian’s Act (“SFCA”) and regulations promulgated thereunder by Health Canada and the CFIA. The CFDA and SFCA govern the import, export, manufacture, distribution, composition, packaging, labelling, advertising, and sale of food products in Canada. Under the SFCA, the CFIA, among other things, issues licenses for the importation, manufacturing, processing, packaging and labelling of foods, and enforces requirements for food safety, preventive controls, traceability, and product complaints, investigations and recalls. Failure to implement appropriate preventive controls and have an adequate food safety program may result in food being unsafe and could require product recalls. Under the SFCA, companies are required to report to the CFIA if a food presents a risk of injury to human health, whether due to adulteration or misbranding, and CFIA has authority to take corrective action including recall of the affected food products.

The FDA also has extensive and specific regulations concerning food labeling, including use of certain terms such as sugar free, healthy, low sodium, and low fat. Improper labeling of a food causes it to be misbranded and could result in a recall. Under the FDCA, the FDA can issue a Warning Letter or Untitled Letter, or take other regulatory action such as a product seizure and detention, product recall, refuse to allow the export of the product, or with the Department of Justice, criminal or civil penalties, injunction against or restriction of product manufacture or distribution, consent decrees, disgorgement, restitution, against misbranded or adulterated food products. The FTC and ~~other~~state authorities regulate how we market and advertise our products, and we could be the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations. In Canada, the CFIA enforces the detailed labelling and advertising requirements and restrictions promulgated under the CFDA and the SFCA, and has broad authority to take regulatory action such as product seizure and detention, stop sale, product recall, license suspension, impose administrative monetary penalties or pursue criminal prosecution for non-compliant food product or food advertising that is allegedly false or deceptive. Changes in these laws or regulations or the introduction of new laws or regulations could increase the costs of doing business for us or our customers or suppliers or restrict our actions, causing our operating results to be adversely affected.

We seek to comply with applicable laws and regulations through a combination of employing internal personnel to ensure quality-assurance compliance and contracting with third-party laboratories that conduct analysis of products for the nutritional-labeling requirements. Compliance with regulations is costly and time-consuming. ~~Failure~~From time to time, we have been subject to civil claims alleging that we failed to comply with applicable laws and ~~regulations~~regulations. Any failure to comply or maintain permits and licenses relating to our operations could subject us to ~~civil remedies, including~~ fines, injunctions, recalls or seizures, as well as potential criminal sanctions or suspensions or revocations of our registration, permits or licenses, which could result in increased operating costs resulting in a material adverse effect on our business, financial condition, and operating results. Requirements to comply with applicable laws and regulations or maintain permits and licenses relating to our operations have resulted in civil litigation against us alleging non-compliance and could subject us to fines, injunctions, recalls or seizures, as well as potential criminal sanctions or suspensions or revocations of our registration, permits or licenses, which could result in increased operating costs resulting in a material adverse effect on our business, financial condition, and operating results.

Significant additional labeling or warning requirements or limitations on the marketing or sale of our products may reduce demand for such products and could adversely affect our business or operating results.

Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, product labeling or warning requirements or limitations on the marketing or sale of certain of our products as a result of ingredients or substances contained in such products. These types of provisions have required that we provide a label that highlights perceived concerns about a product or warns consumers to avoid consumption of certain ingredients or substances present in our ~~products.~~products and have also prohibited or limited the use of certain words or phrases in connection with describing a products’ qualities,. For example, in California, Proposition 65 requires a specific warning on any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects, unless the level of such substance in the product is below a safe harbor level. We have been subject to civil claims alleging non-compliance with these requirements and may be subject to such claims in the future.

In addition, the United States has imposed new nutrition labeling regulations that require food manufacturers to declare the quantity of added sugar, as well as ~~update serving sizes and labeling requirements for certain package sizes. As we transition our packaging~~a national bio-engineered food disclosure standard that requires food manufacturers to ~~comply with the proposed January 1, 2020 compliance deadline, our~~disclose bio-engineered food ingredients. Our new product labeling may impact the consumption and public perception of our products.

The imposition or proposed imposition of additional product labeling or warning requirements could reduce overall consumption of our products, lead to negative publicity (whether based in scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs. Such factors could adversely affect our business and operating results.

~~Changes in laws, regulations or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results of operations.~~

We are subject to laws, regulations and rules enacted by national, regional and local governments and NASDAQ. In particular, we are required to comply with certain SEC, NASDAQ and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations or rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business and operating results. A failure to comply with applicable laws, regulations or rules, as interpreted and applied, could have a material adverse effect on our business and operating results.

~~Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.~~

We are subject to income taxes in the United States, and our domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

•~~changes in the valuation of our deferred tax assets and liabilities;~~

•~~expected timing and amount of the release of any tax valuation allowances;~~

•~~tax effects of stock-based compensation;~~

•~~costs related to intercompany restructurings;~~

•~~changes in tax laws, regulations or interpretations thereof; and~~

~~lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.~~

In addition, we may be subject to audits of our income, sales and other transaction taxes by United States federal and state authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

A material impairment in the carrying value of acquired goodwill or other intangible assets could negatively affect our consolidated operating results and net worth.

A significant portion of our assets isare goodwill and other intangible assets, the majority of which are not amortized but are reviewed for impairment at least annually and more often if indicators of impairment exist. ~~At December 31, 2018, the carrying value of goodwill and other intangible assets totaled $2.5 billion, compared to total assets of $3.0 billion and total stockholders’ equity of $1.2 billion.~~ If the carrying value of these assets exceeds the current estimated fair value, the asset is considered impaired, and this would result in a noncash charge to earnings, which could be material. Events and conditions that could result in impairment include a sustained drop in the market price of our Class A common stock, increased competition or loss of market share, obsolescence, product claims that result in a significant loss of sales or profitability over the product life, deterioration in macroeconomic conditions, or declining financial performance in comparison to projected results.

Our business operations could be disrupted if our information technology systems fail to perform adequately.

The efficient operation of our business depends on our information technology systems, most of which are managed by third-party service providers. We rely on our information technology systems to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction

errors, processing inefficiencies, and the loss of sales and customers, causing our business and operating results to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, the potential effects of climate change, power outages, systems failures, security breaches, cyber-attacks and viruses. Any such damage or interruption could have a material adverse effect on our business.

We continuously monitor and update our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, and other events that could have a security impact. We invest to protect our data and business processes against risk of data security breach and cyber-attacks. We believe our security processes provide adequate measures of protection against security breaches. Nevertheless, despite continued vigilance in these areas, disruptions in information technology systems, including unauthorized use of data, are possible and could have a negative impact on our operations or business reputation. Failure of our systems, including failures due to cyber-attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to our operations, our employees and those with whom we do business. This in turn could have a negative impact on our financial condition and results or operations.

We may be unable to hire or retain and develop key personnel or a highly skilled and diverse workforce or manage changes in our workforce.

We must hire, retain and develop a highly skilled and diverse workforce. We compete to hire new personnel in the many regions in which we manufacture and market our products and then to develop and retain their skills and competencies. Unplanned turnover or failure to develop adequate succession plans for leadership positions or hire and retain a diverse 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.

We also face increased personnel-related risks. These risks could lead to operational challenges, including increased competition for employees with the skills we require to achieve our business goals, and higher employee turnover, including employees with key capabilities. Furthermore, we might be unable to manage changes in, or that affect, our workforce appropriately or satisfy the legal requirements associated with how we manage and compensate our employees. These risks could materially and adversely affect our reputation, ability to meet the needs of our customers, product sales, financial condition and operating results.

Risks Related to Our Capital Structure

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt, and prevent us from meeting our obligations under our indebtedness.

~~We are highly leveraged.~~ As of December 31, ~~2018,~~2020, our total balance on long term debt, excluding deferred financing charges, discount, premium, and ~~capital~~ lease obligations, was ~~approximately $983.8~~$1,102.8 million. Our ~~high~~ degree of leverage could have important consequences, including:

•requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, and future business opportunities or to pay dividends;

•exposing us to the risk of increased interest rates because the portion of our borrowings not hedged by swap agreements are subject to variable rates;

•making it more difficult for us to make payments on our indebtedness;

•increasing our vulnerability to general economic and industry conditions;

•restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

•subjecting us to restrictive covenants that may limit our flexibility in operating our business;

•limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and

•placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

Despite our significant leverage, we may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our significant leverage.

Changes in interest rates may adversely affect our earnings and/or cash flows.

Our term loan and revolving line of credit bear interest at variable interest rates that use the London Inter-Bank Offered Rate (“LIBOR”) as a benchmark rate. On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR quotations after 2021 (the “FCA Announcement”). The FCA Announcement, as updated by more recent pronouncements, indicates that the continuation of LIBOR on the current basis cannot and will not be assured after 2023, and LIBOR may cease to exist or otherwise be unsuitable for use as a benchmark. Recent proposals for LIBOR reforms may result in the establishment of new methods of calculating LIBOR or the establishment of one or more alternative benchmark rates. Although our credit agreement provides for successor base rates, the successor base rates may be related to LIBOR, and the consequences of any potential cessation, modification or other reform of LIBOR cannot be predicted at this time. We work to reduce our exposure to LIBOR through swap contracts which effectively fix a portion of our variable-rate interest payments. If LIBOR ceases to exist, we may need to amend our credit agreement and swap contracts. As a result, our interest expense may increase, and our available cash flow may be adversely affected.

We may be unable to obtain additional financing to fund our operations and growth.

We may require additional financing to fund our operations or growth. The failure to secure additional financing could have a material adverse effect on our continued development or growth. None of our officers, directors or stockholders are required to provide any financing to us.

~~The Metropoulos Entities have significant influence over us.~~

~~As of~~ ~~February 22, 2019,~~ the Metropoulos Entities beneficially own approximately 24% of our common stock, including 100% of our Class B common stock. Holders of our Class B stock are entitled to vote on all matters presented to the Company’s stockholders, but do not have any economic rights to the distributions of the Company. As long as the Metropoulos Entities own or control a significant percentage of our outstanding voting power, they will have the ability to significantly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of our board, certain amendments to our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets.

The Metropoulos Entities’ interests may not align with the interests of our other stockholders. The Metropoulos Entities are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. The Metropoulos Entities may also pursue acquisition opportunities that may be complementary to our business.

We are required to pay the Tax Receivable Agreement counterparties for a significant portion of the tax benefit relating to any additional tax depreciation or amortization deductions we claim as a result of any step up in the tax basis of the assets of our operating subsidiaries resulting from the Metropoulos Entities’ exchange of shares of Class B common stock and Class B units of Hostess Holdings for shares of our Class A common stock.

Class B units in Hostess Holdings may be exchanged (together with the cancellation of shares of our Class B common stock) by the holders thereof for, at the Company’s election, shares of Class A common stock, on a one-for-one basis (subject to customary anti-dilution adjustments), or the cash equivalent of such shares. The exchanges may result in increases to our share of the tax basis of the tangible and intangible assets of our operating subsidiaries that otherwise would not have been available, although the United States Internal Revenue Service may challenge all or part of that tax basis increase, and a court could sustain such a challenge by the United States Internal Revenue Service. These increases in tax basis, if sustained, may reduce the amount of tax that we would otherwise be required to pay in the future.

We are party to a Tax Receivable Agreement that provides for the payment by us of approximately 85% of the net cash savings, if any, in United States federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) as a result of: (i) certain increases in tax basis resulting from the Hostess Business Combination; (ii) certain tax attributes of Hostess Holdings and its subsidiaries existing prior to the Hostess Business Combination ~~and prior to subsequent exchanges of Class B units~~; (iii) certain increases in tax basis resulting from exchanges of Class B units; (iv) imputed interest deemed to be paid by the Company as a result of payments that it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments that the Company makes under the Tax Receivable Agreement.

In January 2018, in exchange for $34.0 million, the Apollo Funds agreed to terminate their rights to all future payment obligations under the Tax Receivable Agreement. As a result, the Company will retain a greater portion of the net cash tax savings derived from the tax attributes subject to the Tax Receivable Agreement.

If our dividend policy is materially different than the distribution policy of Hostess Holdings, upon the exchange of any Class B units, the limited partners of Hostess Holdings could receive a disproportionate interest in the aggregate distributions by our operating subsidiaries that have not been distributed by us.

We and the Metropoulos Entities are limited partners of Hostess Holdings. To the extent Hostess Holdings distributes to its limited partners a greater share of income received from our operating subsidiaries than we distribute to our stockholders, then any of the Metropoulos Entities who participate in such distribution by Hostess Holdings and subsequently exercise their rights to exchange limited partnership units in Hostess Holdings for Class A common stock may receive a disproportionate interest in the aggregate distributions by our operating subsidiaries that have not been distributed by us. The reason is that such Metropoulos Entity could receive both (i) the benefit of a distribution by Hostess Holdings to its limited partners, including such Metropoulos Entity, and (ii) the benefit of a distribution by the Company to the holders of Class A common stock, including such Metropoulos Entity. Consequently, if our dividend policy does not match the distribution policy of Hostess Holdings, other holders of Class A common stock as of the date of an exchange could experience a reduction in their interest in the profits previously distributed by our operating

subsidiaries that have not been distributed by us. Our current dividend policy could result in distributions to our common stockholders that are different from the distributions made by Hostess Holdings to its limited partners.

Our only significant asset is our ownership interest in our operating subsidiaries and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or satisfy our other financial obligations, including our obligations under the Tax Receivable Agreement.

We have no direct operations and no significant assets other than our ownership interest in our operating subsidiaries. We depend on our operating subsidiaries for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company, to pay any dividends with respect to our common stock, and to satisfy our obligations under the Tax Receivable Agreement. See Note 9. Tax receivable agreement to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information on the Tax Receivable Agreement. The financial condition and operating requirements of our operating subsidiaries may limit our ability to obtain cash from our operating subsidiaries. The earnings from, or other available assets of, our operating subsidiaries may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or satisfy our other financial obligations, including our obligations under the Tax Receivable Agreement.

The ability of our operating subsidiaries (other than subsidiaries which have been designated as unrestricted pursuant to our ability to do so in certain limited circumstances) to make distributions, loans and other payments to us for the purposes described above and for any other purpose are governed by the terms of our credit facilities and will be subject to the negative covenants set forth therein. Any loans or other extensions of credit will be subject to the investment covenants contained therein, which provide for several exceptions including, among others (i) a general investment basket equal to the greater of a fixed dollar amount and a percentage of EBITDA and (ii) an unlimited investment basket based on satisfying a total net leverage ratio on a pro forma basis. Similarly, any dividends, distributions or similar payments will be subject to the dividends and distributions covenant under such credit facilities, which also provide for several exceptions including, among others (i) for payment of overhead and certain fees and expenses of parent companies, (ii) for tax distributions, subject to certain limitations, (iii) a general dividend and distribution basket equal to the greater of a fixed dollar amount and a percentage of EBITDA and (iv) an unlimited dividend and distribution basket based on satisfying a total net leverage ratio on a pro forma basis.

~~Risks Related to~~ RISKS RELATED TO OUR CLASS A COMMON STOCK

Our ~~Class A Common Stock~~stock price may be volatile

~~Resales of the shares of Class A common stock could depress the~~The market price of our Class A common ~~stock.~~

~~There~~stock could be subject to wide fluctuations in response to various factors, many of which are beyond our control. Purchases or sales of large quantities of our stock, or significant short positions in our stock could have an unusual or adverse effect on our market price. These fluctuations may ~~be a large number of shares of Class A common stock sold in~~also cause short sellers to periodically enter the market in the ~~near future. These sales, or the perception~~belief that we will have poor results in the future. Abnormal trading activity, including activity that is considered market ~~that~~manipulation, can lead to irrational and/or temporary movements in the ~~holders of a large number of shares intend to sell shares, could reduce the market~~ price of our Class A common ~~stock. As~~stock, which, in turn, may increase its risk and volatility. We cannot predict the actions of ~~February 22, 2019~~,market participants and, therefore, can offer no assurances that the Metropoulos Entities held approximately 24% of our Common Stock, including 100% of our Class B common stock. All such shares of Class A common stock held by or obtainable in exchange for Class B common stock and Class B units held by the Metropoulos Entities have been registered for resale under the Securities Act pursuant to a shelf registration statement filed in 2016.

~~We have approximately 100,046,392~~ ~~shares of Class A common stock outstanding as ofFebruary 22, 2019. There are~~ also remaining registered shares of Class A common stock that we may issue under the Hostess Brands, Inc. 2016 Equity Incentive Plan, which shares may be freely sold in the public market upon issuance, subject to compliance with stock ownership guidelines and volume limitations applicable to affiliates.

In addition, as of December 31, 2018, there were 48,274,307 public warrants and 8,225,583 private warrants outstanding. Each warrant entitles its holder to purchase one half of one share of our Class A common stock at an exercise price of $5.75 per half share, to be exercised only for a whole number of shares of our Class A common stock.

~~Such sales of shares of Class A common stock or the perception of such sales may depress the market price of our Class A common stock.~~

~~A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.~~

The price of our securities may fluctuate significantly due to general market and economic conditions. An active trading market for our securities may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities become delisted from NASDAQ for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on NASDAQ or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

If securities or industry analysts cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Class A common stock adversely, then the price and trading volume of our Class A common stock could decline.

~~The trading~~ market for our Class A common stock will be ~~influenced by the research and reports that industry~~stable or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts may cease to publish research on us. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A common stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.appreciate over time.

~~If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results.~~

We are required to comply with Section 404 of the Sarbanes Oxley Act, which requires, among other things, that companies maintain disclosure controls and procedures to ensure timely disclosure of material information, and that management review the effectiveness of those controls on a quarterly basis. Effective internal controls are necessary for us to provide reliable financial reports and to help prevent fraud, and our management and other personnel devote a substantial amount of time to these compliance requirements. Moreover, these rules and regulations increased our legal and financial compliance costs and make some activities more time-consuming and costly. We cannot be certain that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes Oxley Act. Section 404 of the Sarbanes Oxley Act also requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K. If we fail to maintain the adequacy of our internal controls, we cannot assure you that we will be able to conclude in the future that we have effective internal control over financial reporting and/or we may encounter difficulties in implementing or improving our internal controls, which could harm our operating results or cause us to fail to meet our reporting obligations. If we fail to maintain effective internal controls, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and may also result in delayed filings with the SEC.

Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.

~~Our quarterly operating results may fluctuate significantly because of seasonality and several other factors, including:~~

~~labor availability and costs for hourly and management personnel;~~

~~profitability of our products, especially in new markets and due to seasonal fluctuations;~~

~~changes in interest rates;~~

~~impairment of long-lived assets;~~

~~macroeconomic conditions, both nationally and locally;~~

~~disruption in production by us or a co-manufacturer;~~

~~negative publicity relating to products we sell;~~

~~changes in consumer preferences and competitive conditions;~~

~~expansion to new markets;~~

~~fluctuations in commodity prices; and~~

~~actions by our competitors (e.g., pricing promotions).~~

Fluctuations in our operating results due to the foregoing or other factors could cause our results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our certificate of incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:

~~a staggered board providing for three classes of directors, which limits the ability of a stockholder or group to gain control of our board;~~

•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

•the right of our board to elect a director to fill a vacancy created by the expansion of our board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our board;

•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

•a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by members of our board, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

~~the requirement that changes or amendments to certain provisions of our certificate of incorporation or bylaws must be approved by holders of at least two-thirds of our common stock; and~~

•advance notice procedures that stockholders must comply with in order to nominate candidates to our board or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

Item 1B. Unresolved Staff Comments

None.

Item 2. ~~Properties.~~Properties

As of December 31, ~~2018,~~2020, we operated ~~six bakeries and five distribution centers and occupied a corporate headquarters,~~the following facilities, supporting our Snacking reporting segment's operations, as shown in the chart below.

Type

Location

Owned/Leased

Size (Sq. Ft.)

~~Segment~~

Bakery

Emporia, Kansas

Owned

278,500

~~SBG~~

Bakery

Columbus, Georgia

Leased⁽¹⁾

313,700

~~SBG~~

Bakery

Indianapolis, Indiana

Owned

195,000

~~SBG~~

Bakery

Chicago, Illinois

Owned

137,000

~~SBG~~

Bakery

~~Southbridge, Massachusetts~~Burlington, Ontario

~~Owned~~Leased

~~37,850~~250,000

~~ISB~~

~~Bakery~~Distribution Center

~~Southbridge, Massachusetts~~Chicago, Illinois

Leased

~~47,640~~64,816

~~ISB~~

Distribution Center

~~Chicago, Illinois~~Edgerton, Kansas

Leased

~~64,816~~765,000

~~SBG~~

Distribution Center

~~Chicago, Illinois~~Emporia, Kansas

~~Other~~⁽²⁾

Leased

—24,112

~~SBG/ISB~~

~~Distribution Center~~Commercial Office Space

~~Shorewood,~~Chicago, Illinois

Leased

~~507,187~~9,325

~~SBG~~

~~Distribution Center~~Office Space

~~Carthage, Missouri~~Burlington, Ontario

~~Other~~⁽²⁾

Leased

—12,647

~~SBG/ISB~~

~~Distribution Center~~Corporate Headquarters

~~Hobart, Indiana~~Lenexa, Kansas

~~Other~~⁽²⁾

Owned

—50,200

~~SBG/ISB~~

~~Corporate Headquarters~~Third-Party Warehouse

Kansas City, ~~Missouri~~Kansas

~~Leased~~

Other(2)

~~40,450~~—

Third-Party Warehouse

~~SBG/ISB~~Brantford, Ontario

Other(2)

—

Third-Party Warehouse

Carthage, Missouri

Other(2)

—

Third-Party Warehouse

Hobart, Indiana

Other(2)

—

Third-Party Warehouse

Belvidere, Illinois

Other(2)

—

Third-Party Warehouse

Atlanta, Georgia

Other(2)

—

Third-Party Warehouse

Fogelsville, Pennsylvania

Other(2)

—

⁽¹⁾The Columbus, GAGeorgia facility is available to the Company for the purchase amount of $100.

⁽²⁾Variable usage fees ~~related to the third-party distribution center include storage and pallet-related charges.~~are charged on a per-pallet basis.

Item 3. Legal Proceedings

We are involved in lawsuits, claims and proceedings arising in the ordinary course of business. These matters may involve personnel and employment issues, personal injury, contract and other proceedings arising in the ordinary course of ~~business, which have not resulted in any material losses to date.~~business. Although we do not expect the outcome of these proceedings to have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements or claims that could materially impact our results.

The information required to be furnished by us under this Part I, Item 3 (Legal Proceedings) is incorporated by reference to the information contained in Note ~~14--Commitments~~15. Commitments and Contingencies to the consolidated financial statements included in Part II, Item 8 on this Annual Report on Form 10-K.

Item 4. Mine Safety ~~Disclosures.~~Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class A common stock and warrants are currently quoted on ~~NASDAQ~~Nasdaq under the symbols “TWNK” and “TWNKW,” respectively.

As of February 22, ~~2019,~~2021, there were approximately 85 stockholders of record of our Class A common stock and ~~one stockholder~~no stockholders of record of our Class B common stock. Our Board of Directors periodically reviews our capital return policy to determine whether the payment of cash dividends or repurchases of securities are in the best interests of the Company and our stockholders.

We currently do not pay dividends and have not paid any cash dividends on our common stock to date.

Securities Authorized for Issuance Under Equity Compensation Plans


Plan Category	(A) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		(B) Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights			(C) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan (excluding securities reflected in column (A))
Equity Compensation Plans approved by stockholders	3,219,648	(1)	$	13.43	(2)	2,770,885	(3)
Equity Compensation Plans not approved by stockholders	—		—			—
Total	3,219,648		$	13.43		2,770,885

Plan Category
(A)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights

(B)
Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights

(C)
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan (excluding securities reflected in column (A))

Equity Compensation Plans approved by stockholders 1,875,464
(1) $ 14.96
(2 ) 4,748,036
(3)
Equity Compensation Plans not approved by stockholders —
— —

Total 1,875,464
$ 14.96
4,748,036

(1)Consists of shares subject to outstanding stock options, restricted stock units and performance restricted stock units under the Hostess Brands, Inc. 2016 Equity Incentive Plan (the “2016 Plan”), some of which are vested and some of which remain subject to the vesting and/or performance criteria relating to the respective equity award.


~~(1)~~	Consists of shares subject to outstanding stock options, restricted stock units and performance restricted stock units under the Hostess Brands, Inc. 2016 Equity Incentive Plan (the “2016 Plan”), some of which are vested and some of which remain subject to the vesting and/or performance criteria relating to the respective equity award.


~~(2)~~	~~Represents the weighted average exercise price of 943,939 stock options and excludes the impact of 931,525 shares of restricted stock units for which no exercise price is payable~~


~~(3)~~	~~Consists of shares available for future issuance under the 2016 Plan.~~

(2)Represents the weighted average exercise price of 2,071,115 stock options and excludes the impact of 1,148,533 shares of restricted stock units for which no exercise price is payable.

(3)Consists of shares available for future issuance under the 2016 Plan.

For additional information, refer to Item 1211 of Part III of this Annual Report on Form 10-K.

Unregistered Sales of Equity Securities and Use of Proceeds

~~The~~During the year ended December 31, 2020, the Metropoulos Entities ~~may exchange the~~exchanged their remaining Class B units in Hostess Holdings, together with shares of Class B common stock for ~~share~~shares of our Class A common stock on a one-for-one basis. At December 31, 2020, there were no remaining Class B units or shares of Class B common stock outstanding. Other than any shares of Class A common stock ~~executed on~~issued in such exchanges, we did not issue any equity securities without registration during the period covered by this ~~annual report~~Annual Report on Form 10-K.

Issuer Purchase of Equity Securities


Period	Total number of securities repurchased	Average price paid per share		Total number of securities purchased as part of publicly announced plans or programs	Approximate dollar value of securities that may yet be purchased under the program (in millions) (1)
October 1 - 31, 2020	—	—		—	$	100.0
November 1 - 30, 2020 (2)	444,444	$	13.50	444,444	94.0
November 1 - 30, 2020 (3)	2,000,000	1.00		2,000,000	92.0
December 1 - 31, 2020	—	—		—	92.0
	2,444,444			2,444,444

(1)In November 2020, the Company's Board of Directors approved a securities repurchase program of up to $100 million of its outstanding securities. The program has no expiration date. The program may be amended, suspended or discontinued at any time at the Company's discretion and does not commit the Company ~~did not have any repurchases~~to repurchase its securities.

(2)Repurchase of shares of Class A common stock

(3)Repurchase of Private Placement warrants, each exercisable for ~~the year ended December 31, 2018.~~

one half share of Class A common stock

Warrants

As of December 31, ~~2018,~~2020, there were ~~48,274,307~~53,936,776 public warrants and ~~8,225,583~~541,658 private placement warrants outstanding. Each warrant entitles its holder to purchase one half of one share of our Class A common stock at an exercise price of $5.75 per half share, to be exercised only for a whole number of shares of our Class A common stock. The warrants became exercisable on December 4, 2016 and expire ~~five years after that date~~on November 4, 2021 or earlier upon redemption or liquidation. The Company may redeem the outstanding public warrants at a price $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30 trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders. The private placement warrants, however, are nonredeemable so long as they are held by Gores Sponsor, LLC or its permitted transferees. The private warrants were registered with the SEC for future potential sales to the public. When sold to the public, the private placement warrants will become public warrants. During the year ended December 31, 2020, we repurchased 2,000,000 private placement warrants for cash.

Performance Graph

The following graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the Commission, nor shall such information be incorporated by reference into any future filing, except to the extent that we specifically incorporate it by reference into such ~~filing.The~~filing. The following stock performance graph compares, for the period November 30, 2015 (the first day our common stock was traded following our initial public offering) through December 31, ~~2018~~2020 (the last trading day of our fiscal year), the cumulative total stockholder return for (1) the Company’s common stock, (2) the Standard & Poor’s 500 and (3) the Standard & Poor’s ~~500~~composite 1500 Packaged Foods and Meats ~~Index.~~Sub-Index. The graph assumes the value of the investment in our common stock and each index was $100.00 on November 30, 2015 and assumes reinvestment of any ~~dividends.The~~dividends. The stock price performance below is not necessarily indicative of future stock price performance.

Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data for the last five years. The selected consolidated financial data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.Not applicable.

~~As a result of the co~~mpletion of the Hostess Business Combination on November 4, 2016, our selected financial data below are presented: as “2018” for December 31, 2018 or for the year ended December 31, 2018 (Successor); as “2017” for December 31, 2017 or for the year ended December 31, 2017 (Successor); as “2016” for December 31, 2016 or for the period November 4, 2016 to December 31, 2016 (Successor); “2016” for the period January 1, 2016 to November 3, 2016 (Predecessor); as “2015” for December 31, 2015 or for the year ended December 31, 2015 (Predecessor); as “2014” for December 31, 2014 and for the year ended December 31, 2014.

As a result of the Hostess Business Combination, we are the acquirer for accounting purposes and Hostess Holdings is the acquiree and accounting predecessor. Our financial statement presentation includes the financial statements of Hostess Holdings as “Predecessor” for periods prior to the Closing Date and “Successor” for periods after the Closing Date, including the consolidation of Hostess Holdings.

(In thousands except for per share data) 2018 (1) 2017 (2) 2016 (3) 2015 2014
(Successor) (Successor) (Successor) (Predecessor) (Predecessor) (Predecessor)
Statement of operations:
Net revenue $ 850,389
$ 776,188
$ 111,998
$ 615,588
$ 620,815
$ 554,695
Gross profit 267,277
326,898
38,714
266,529
262,203
233,932
Net income (loss) 81,426
258,108
(8,485 ) 60,425
88,760
81,464
Net income (loss) per basic Class A share (4) 0.63
2.26
(0.05 )
Net income (loss) per diluted Class A share (4) 0.61
2.13
(0.05 )
Balance sheet:
Total assets 3,010,713
2,966,275
2,847,892
643,529
765,494
683,678
Long-term debt and capital leases obligations 988,004
999,188
993,374
1,193,667
473,175
479,602
Liquidity:
Capital expenditures (5) 53,748
36,383
7,627
31,477
27,267
54,728

~~Notes to the selected financial data:~~

During the year ended December 31, 2018, we entered into an agreement to buyout a counterparty’s rights to all current and future tax savings under the tax receivable agreement entered into in connection with the Hostess Business Combination (the “Tax Receivable Agreement”) in exchange for a $34.0 million cash payment, resulting in a gain of $12.4 million. We also acquired the Cloverhill Business in February 2018.


2.	During the year ended December 31, 2017, we recognized a gain of $161.5 million related to the remeasurement of deferred tax items and the Tax Receivable Agreement primarily due to enacted tax laws referred to as “Tax Reform”.


3.	2016 Predecessor and Successor financial results reflect certain transactions related to the Hostess Business Combination, including business combination costs of $31.8 million in the Predecessor Period and stock compensation expense of $26.4 million in the Successor Period. We also completed the acquisition of Superior in May of 2016.


4.	~~Earnings per basic and diluted share is not presented for the Predecessor, which is a partnership.~~


5.	~~Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or accrued during the period.~~

~~RECONCILIATION OF NON-GAAP FINANCIAL MEASURES~~

Adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted net income attributed to Class A stockholders and adjusted EPS are non-GAAP financial measures commonly used in the Company's industry and should not be construed as an alternative to gross profit, net income or earnings per share as indicators of operating performance or as alternatives to cash provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). These measures may not be comparable to similarly titled measures reported by other companies. The Company has included these measures because it believes the measures provide management and investors with additional information to measure the Company's performance and liquidity, estimate the Company's value and evaluate the Company's ability to service debt.

~~Adjusted Gross Profit and Adjusted Gross Margin~~

Gross profit and gross margin are adjusted to exclude certain items that affect comparability. The adjustments are itemized below. You are encouraged to evaluate these adjustments and the reason the Company considers them appropriate for supplemental analysis.

~~Adjusted EBITDA~~

The Company defines adjusted EBITDA as net income adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization and (iii) income taxes, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate for supplemental analysis.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under GAAP. For example, adjusted EBITDA:

~~does not reflect the Company's capital expenditures, future requirements for capital expenditures or contractual commitments;~~

~~does not reflect changes in, or cash requirements for, the Company's working capital needs;~~

~~does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt; and~~

~~does not reflect payments related to income taxes, the Tax Receivable Agreement or distributions to the non-controlling interest to reimburse its tax liability.~~

~~Adjusted Net Income attributed to Class A stockholders and Adjusted EPS~~

Net income attributed to Class A stockholders is adjusted to exclude certain items that the Company does not consider indicative of its ongoing operating performance, then divided by weighted average diluted Class A shares outstanding to determine adjusted EPS. The adjustments are itemized below. Adjusted EPS is only presented for the periods subsequent to the Hostess Business Combination since the Predecessor was a partnership. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate for supplemental analysis.

(In thousands) 2018 2017 2016 2015 2014
(Successor) (Successor) (Successor) (Predecessor) (Predecessor) (Predecessor)
Reconciliation of Adjusted Gross Profit
Gross profit $ 267,277
$ 326,898
$ 38,714
$ 266,529
$ 262,203
$ 233,932
Non-GAAP adjustments:
Acquisition and integration costs 10,137
—
8,914
—
—
—
Special employee incentive compensation 1,965
—
—
2,195
2,649
—
Adjusted gross profit $ 279,379
$ 326,898
$ 47,628
$ 268,724
$ 264,852
$ 233,932

Adjusted gross margin 32.9 % 42.1 % 42.5 % 43.7 % 42.7 % 42.2 %

Reconciliation of Adjusted EBITDA
Net income $ 81,426
$ 258,108
$ (8,485 ) $ 60,425
$ 88,760
$ 81,464
Non-GAAP adjustments:
Income tax provision 12,954
(67,204 ) (7,762 ) 439
—
—
Interest expense, net 39,404
39,174
6,649
60,384
50,011
37,447
Depreciation and amortization 41,411
38,170
5,843
10,265
9,836
7,113
Share-based compensation 5,600
7,413
26,748
3,890
1,381
372
Tax Receivable Agreement remeasurement and gain on buyout (14,237 ) (50,222 ) —
—
—
—
Impairment of property and equipment, intangible assets and goodwill 4,717
1,003
—
7,300
2,700
13,241
Special employee incentive compensation 3,444
—
—
4,698
3,923
—
Acquisition and integration costs 10,434
—
8,914
31,832
—
—
Loss (gain) on debt modification —
2,554
(763 ) 25,880
—
Loss (gain) on sale/abandonment of property and equipment and bakery shutdown costs (recoveries) 253
(144 ) —
2,551
4,182
5,150
Other 770
1,360
751
1,624
(8,743 ) 556
Adjusted EBITDA $ 186,176
$ 230,212
$ 31,895
$ 183,408
$ 177,930
$ 145,343

i. For the year ended December 31, 2018, other expenses included transaction and other non-operating professional fees. For the year ended December 31, 2017, other expense primarily included professional fees incurred related to the secondary public offering of common stock and the registration of certain privately held warrants offset by a gain recognized related to the modification of long-term debt.

(In thousands, except share and per share data) 2018 2017 2016
Reconciliation of Adjusted EPS (Successor) (Successor) (Successor)
Net income (loss) attributed to Class A stockholders $ 62,895
$ 223,897
$ (4,404 )
Non-GAAP adjustments:
Tax Receivable Agreement remeasurement and gain on buyout (14,237 ) (50,222 ) —
Executive chairman agreement termination and execution —
—
26,748
Remeasurement of deferred taxes (5,375 ) (108,621 ) —
Impairment of property and equipment, intangible assets and goodwill 4,717
1,003
—
Special employee incentive compensation 3,444
—
—
Acquisition and integration costs 10,434
—
8,914
Loss (gain) on debt modification —
2,554
(763 )
Loss (gain) on sale/abandonment of property and equipment and bakery shutdown costs (recoveries) 253
(144 ) —
Tax impact of adjustments (2,027 ) (717 ) (10,470 )
Non-controlling interest allocation of adjustments (4,343 ) (1,077 ) (9,772 )
Adjusted Net income attributed to Class A stockholders $ 55,761
$ 66,673
$ 10,253
Weighted average Class A shares outstanding-diluted 103,098,394
105,307,293
97,791,658
Adjusted EPS $ 0.54
$ 0.63
$ 0.10

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Item 1A “Risk Factors” of this Annual Report on Form 10-K.

Overview

We are a leading ~~United States~~ packaged food company focused on developing, manufacturing, marketing, selling and distributing ~~fresh sweet baked goods coast-to-coast,~~snack products in North America, providing a wide range of snack cakes, donuts, sweet rolls, breakfast pastries, cookies, snack pies and related products. As of December 31, ~~2018,~~2020, we operate ~~six~~five baking facilities and ~~five primary~~utilize distribution ~~centers.~~centers and third-party warehouses to distribute our products. Our DTW product distribution system allows us to deliver to our customers’ warehouses. Our customers in turn distribute to their retail stores and/or distributors.

~~We have two~~The Company has one reportable ~~segments: “Sweet Baked Goods” and “In-Store Bakery”.~~segment: Snacking (formerly referred to as Sweet Baked Goods, or “SBG”). The Snacking segment consists of ~~fresh and frozen~~ sweet baked goods, cookies, bread and ~~bread~~buns and frozen retail products that are sold under the Hostess®, Dolly Madison®, Cloverhill®, ~~and~~ Big Texas®~~brands along with store branded products.~~, and Voortman® brands. Through August 30, 2019, we operated in two reportable segments: SBG and In-Store Bakery ~~consists primarily~~(“ISB”). The In-Store Bakery segment consisted of Superior on Main® ~~branded eclairs, madeleines, brownies,~~ and ~~iced cookies~~private label products sold inthrough the in-store bakery section of grocery and club stores. The Company divested its In-Store Bakery segment's operations on August 30, 2019.

Hostess® is the second leading brand by market share within the ~~SBG~~Sweet Baked Goods ("SBG") category, according to Nielsen U.S. total universe. For the ~~52 week~~52-week period ended December ~~29, 2018~~26, 2020 our branded SBG products (which include Hostess®, Dolly Madison®, Cloverhill®, and Big Texas®) market share was ~~18.0%~~19.5% per Nielsen’s U.S. SBG category data.

Our Voortman® branded products include the #1 creme wafer and sugar-free cookie products within the larger cookie category.

Principal Components of Operating Results

Net Revenue

We generate revenue ~~primarily~~ through selling ~~sweet baked goods and other products~~packaged snacks under the Hostess® group of brands, which includes iconic products such as CupCakes, Twinkies®, ~~CupCakes,~~Donettes®, Ding Dongs®, Zingers®, ~~HoHos®~~Danishes, Honey Buns and ~~Donettes®.~~Coffee Cakes, as well as cookies, wafers and sugar-free products under the Voortman® brand. We also sell products under the Dolly Madison®, ~~Superior on Main®,~~ Cloverhill^®and Big Texas® brands along with ~~store branded~~private label products. Our product assortment is sold to customers’ warehouses and distribution centers by the case or in ~~display ready~~display-ready corrugate units. Retailers display and sell our products to the end consumer in single-serve, multi-pack or club-pack formats. We sell our products primarily to supermarket chains, national mass merchandisers and convenience and ~~drug~~dollar stores, along with a smaller portion of our product sales going to ~~dollar~~club stores, vending, ~~club,~~drug, and other retail outlets.

Our revenues are driven by average net price and total volume of products sold. Factors that impact unit pricing and sales volume include product mix, the cost of ingredients, ~~the~~ promotional activities, ~~implemented by the Company and its competitors,~~ industry capacity, new product initiatives and quality and consumer preferences. We do not keep a significant backlog of finished goods inventory, as our ~~fresh~~ baked products are promptly shipped to our distribution centers after being produced and then distributed to customers.

Cost of Goods Sold

Cost of goods sold consists of ingredients, packaging, labor, energy, other production costs, warehousing and transportation costs including in-bound freight, inter-plant transportation and distribution of our products to customers. The cost of ingredients and packaging represent the majority of our total costs of goods sold. All costs that are incurred at the bakeries, including the depreciation of bakery facilities and equipment, are included in cost of goods sold. We do not allocate any corporate functions into cost of goods sold.

Our cost of ingredients consists principally of flour, sweeteners, edible oils and ~~cocoa,~~compound coating, which are subject to substantial price fluctuations, as is the cost of paper, corrugate, films and plastics used to package our products. The prices for raw materials are influenced by a number of factors, including the weather, crop production, transportation and processing costs, government regulation and policies and worldwide market supply and demand. We also rely on fuel products, such as natural gas, diesel, propane and electricity, to operate our bakeries and produce our products. Fluctuations in the prices of the

raw materials or fuel products used in the production, packaging or transportation of our products affect the cost of products sold and our product pricing strategy. We utilize forward buying strategies through short-term and long-term advance purchase contracts to lock in prices for certain high-volume raw materials, packaged components and certain fuel inputs. Through these initiatives, we believe we are able to obtain competitive pricing.

Advertising and Marketing

Our advertising and marketing expenses relate to ~~our advertising campaigns, which include social media, print, online advertising, local promotional events and monthly agency fees. We also invest in~~ wire racks and corrugate displays delivered to customers to display our products off shelf, field marketing and merchandising services to reset and check ~~the~~our store inventory on a regular ~~basis~~basis. We also invest in ~~addition to marketing employment~~advertising campaigns, which include social media, print, online advertising, local promotional events, monthly agency fees and payroll costs.

Selling Expense

Selling expenses primarily include sales management, employment, travel, and related expenses, as well as broker fees. We utilize brokers for sales support, including managing promotional activities and order processing.

General and Administrative

General and administrative expenses primarily include employee and related expenses for the accounting, planning, customer service, legal, human resources, corporate operations, research and development, purchasing, logistics and executive functions. Also included are professional service fees related to audit and tax, legal, outsourced information technology functions, transportation planning, headquarters and ~~corporate site~~other office sites and insurance costs, as well as the depreciation and amortization of corporate assets.

Non-Controlling Interest

During the years ended December 31, 2020 and 2019, Mr. Metropoulos and the Metropoulos Entities ~~hold their~~held equity investment in us primarily through Class B limited partnership units in the Company’s subsidiary, Hostess Holdings (“Class B Units”), and an equal number of shares of the Company’s Class B common stock (“Class B Stock”). Our Class B Stock ~~has~~had voting, but no economic rights, while Hostess Holdings’ Class B Units ~~have~~had economic, but no voting rights. Each Class B Unit, together with a share of Class B Stock held by the Metropoulos Entities, iswas exchangeable for a share of the Company’s Class A common stock (or at the option of the Company, the cash equivalent thereof). The Company holds 100% of the general partnership interest in Hostess Holdings and, ~~a majority~~since the final exchange described below, all of the limited partnership interests and consolidates Hostess Holdings in the Company’s consolidated financial statements. The interest of the Metropoulos Entities in Hostess Holdings’ Class B Units prior to the final exchange is reflected in our consolidated financial statements as a non-controlling interest.

~~For periods prior to~~ The Metropoulos Entities have eliminated their ownership through a series of exchanges of shares of Class B Stock and Class B Units for an equal number of Class A shares. As part of the ~~Hostess Business Combination, Hostess Holdings consolidated~~final exchange, we repurchased 0.4 million shares of Class A common stock from the ~~financial position and results~~Metropoulos Entities. The remaining shares were purchased by third parties. At December 31, 2020, there were no outstanding shares of operations of New Hostess Holdco, LLC. The portion of New Hostess Holdco, LLC not owned by Hostess Holdings (which constituted a profits interest plan for management) was recognized as a non-controlling interest in its consolidated financial statements.

Class B common stock.

Factors Impacting Recent Results

COVID-19

~~Acquisitions~~The acute and far-reaching impact of the COVID-19 pandemic and actions taken by governments to contain the spread of the virus have impacted our operations during the year ended December 31, 2020. As consumers prepared for extended stays at home, we experienced an increase in consumption during the first and second quarters, particularly in our multi-pack products sold through grocery and mass retailer channels. Conversely, we experienced lower consumption of single-serve products, often consumed away from home. This trend has moderated during the remainder of the year; however, we cannot predict if these trends will sustain or reverse in future periods.

We have established a COVID-19 task force to monitor the rapidly evolving situation and recommend risk mitigation actions as deemed necessary. To date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of our ingredients, and packaging or other sourced materials, though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with all of our contract manufacturers, distributors and other external business partners. As a food producer, we are an essential service and our production and distribution facilities continue to operate. To protect our employees and ensure continuity of operations, we have implemented additional safety and sanitation measures in all of our facilities. We are monitoring our employees’ health and providing additional resources and protocols to enable effective social distancing and adherence to our stringent internal food safety guidelines, industry best practices and evolving CDC and other governmental guidelines. Although our corporate headquarters and other offices have remained open with additional safety and sanitation protocols, many non-production and warehouse team members, including sales, marketing and corporate employees, are adhering to social distancing guidelines by working from home and reducing person-to-person contact while supporting our ability to bring products to consumers.

We have adequate liquidity to pay for the costs associated with these additional measures while servicing our on-going operating and capital needs. However, we continue to actively monitor and will take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate in this dynamic environment.

On ~~February 1, 2018,~~March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provided a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. Under the provisions of this act, we ~~acquired certain U.S. breakfast assets~~were able to defer the payment of $5.6 million of 2020 employer payroll taxes until 2021. Apart from ~~Aryzta, LLC (Aryzta)~~this deferral and their impact on the general economy, including the labor market and consumer demand, neither the CARES Act nor any other government program intended to address COVID-19 had any material impact on our consolidated financial statements for the year ended December 31, 2020. We continue to monitor any effects that may result from the CARES Act and other stimulus programs.

Acquisition

On January 3, 2020, we completed the acquisition of all of the shares of the parent company of Voortman Cookies Limited (“Voortman”), ~~which included~~ a ~~bakery, inventory,~~manufacturer of premium, branded wafers and cookies as well as sugar-free products. By adding the ~~Big Texas®~~Voortman® brand, we believe we have greater growth opportunities provided by a more diverse portfolio of brands and Cloverhill® brand names (collectively referred to as the “Cloverhill Business”). We acquired these assets to expand our product portfolio and to gain previously outsourced manufacturing capabilities for our existing product portfolio.products. Our consolidated statement of operations includes the operation of these assets from ~~February 1, 2018~~January 3, 2020 through December 31, ~~2018. We evaluated~~2020. In December 2020, we asserted claims for indemnification against the ~~impact~~sellers under the terms of the ~~acquisition~~Share Purchase Agreement pursuant to which we acquired Voortman for an aggregate of approximately $90 million Canadian Dollar (“CAD”) in damages arising out of alleged breaches by the sellers of certain representations, warranties and covenants contained in such agreement relating to periods prior to the closing of the Cloverhill Business on our financial statements and concluded that the impact was not significant and did not require the inclusion of pro forma financial results assuming the acquisition had occurred on January 1, 2016.

~~Tax Receivable Agreement Buyout~~

~~On January 26, 2018, we entered into a transaction~~acquisition. We have also submitted claims relating to ~~terminate all future payments~~these alleged breaches under the ~~Tax Receivable Agreement payable~~representation and warranty insurance policy we purchased in connection with the acquisition. Such insurance policy has a coverage limit of $42.5 million CAD. Although we strongly believe that our claims are meritorious, no assurance can be given as to ~~the Apollo Funds in exchange for a cash payment of $34.0 million, which was recognized as a financing outflow on the consolidated statement of cash flow. This transaction did not affect the portion~~whether we will recover all, or any part, of the ~~rights under the Tax Receivable Agreement payable~~amounts for which we have made such claims. No gains or receivables have been recognized related to the Metropoulos Entities. We recognized a $12.4 million gain in the non-operating section of our consolidated statement of operations, which represented the difference between the $46.4 million carrying value of the portion of the Tax Receivable Agreement liability which was terminated and the $34.0 million of cash payments.

~~Tax Reform~~

During the year ended December 31, 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was signed into law. Tax Reform significantly changed U.S. tax law by lowering the corporate income tax rate permanently from a maximum of 35% to a flat 21% rate, effective January 1, 2018. This impacted the valuation of our tax items and the Tax Receivable Agreement.

~~Note on Financial Presentation~~

~~As a result of the completion of the Hostess Business Combination on November 4, 2016, our consolidated financial statements included elsewhere in this Annual Report are presented: (i)~~these claims as of December 31, ~~2018~~2020.

Disposition

On August 30, 2019, we sold the In-Store Bakery operations, including relevant trademarks and ~~for~~licensing agreements, to an unrelated party. The In-Store Bakery operations provided products that were primarily sold in the ~~year ended December 31, 2018 (Successor); (ii) as~~in-store bakery section of ~~December 31, 2017 and for~~ the ~~year ended December 31, 2017 (Successor); (iii) as~~U.S. retail channels under the Superior on Main® brand or store-branded. We divested the operations to focus more on future investment in areas of ~~December 31, 2016 and for the period November 4, 2016 to December 31, 2016 (Successor); (iv) for the period January 1, 2016 to November 3, 2016 (Predecessor).~~our business that better leverage our core competencies.

Results of Operations

Comparison of Results of Operations for the Year Ended December 31, 2018 (Successor), Year Ended December 31, 2017 (Successor), Period From November 4, 2016 through December 31, 2016 (Successor) (“2016 Successor Period”), and From January 1, 2016 through November 3, 2016 (Predecessor) (“2016 Predecessor Period”)


(In thousands, except per share data)	Year Ended December 31, 2020			Year Ended December 31, 2019
Net revenue	$	1,016,609		$	907,675


Gross profit	355,639			299,834
As a % of net revenue	35.0		%	33.0		%












Operating costs and expenses	$	220,329		$	163,738
Operating income	135,310			136,096




Other expense	46,549			41,639

Income tax expense	20,405			16,892
Net income	68,356			77,565

Net income attributable to Class A shareholders	64,735			63,115

Earnings per Class A share:
Basic	0.52			0.57
Diluted	0.51			0.55

As discussed above, the financial information presented herein for periods prior to the completion of the Hostess Business Combination is of our accounting Predecessor, Hostess Holdings, and, for periods from and after the Hostess Business Combination, is of Hostess Brands, Inc. The financial information for the year ended December 31, 2016 is divided into Predecessor and Successor periods and is not comparable to the full years ended December 31, 2018 or 2017~~. Accordingly, such periods are presented on a historical stand-alone basis without comparison.~~

2018 2017 2016
(In thousands, except share and per share data)
Year
Ended
December 31

Year
Ended
December 31

From November 4
through
December 31

From January 1
through
November 3
(Successor) (Successor) (Successor) (Predecessor)
Net revenue $ 850,389
$ 776,188
$ 111,998
$ 615,588
Gross profit 267,277
326,898
38,714
266,529
As a % of net revenue 31.4 % 42.1 % 34.6 % 43.3 %
Operating costs and expenses $ 145,719
$ 92,906
$ 48,321
$ 143,657
Operating income (loss) 121,558
233,992
(9,607 ) 122,872
As a % of net revenue 14.3 % 30.1 % (8.6 )% 20.0 %
Other expense $ 27,178
$ 43,088
$ 6,640
$ 62,008
Income tax expense (benefit) 12,954
(67,204 ) (7,762 ) 439
Net income (loss) 81,426
258,108
(8,485 ) 60,425
Net income (loss) attributable to Class A shareholders $ 62,895
$ 223,897
$ (4,404 ) $ 57,211

Earnings (loss) per Class A share:
Basic $ 0.63
$ 2.26
$ (0.05 )
Diluted $ 0.61
$ 2.13
$ (0.05 )

Adjusted EBITDA(1) $ 186,176
$ 230,212
$ 31,895
$ 183,408

~~(1) Adjusted EBITDA is a non-GAAP measure. See Item 6~~ ~~of this Annual Report on Form 10-K -~~ ~~Selected Financial Data for definition of Adjusted EBITDA and a reconciliation to net income for each period presented.~~

Results for the Year Ended December 31, ~~2018~~2020 Compared to Results for the Year Ended December 31, ~~2017~~2019

Net Revenue

Net revenue for the year ended December 31, ~~2018~~2020 increased ~~9.6%~~$108.9 million, or ~~$74.2 million~~12.0%, compared to the year ended December 31, ~~2017.~~2019. Excluding In-Store Bakery, net revenue increased $137.6 million or 15.7%. The ~~Cloverhill Business~~acquisition of Voortman contributed ~~$74.2~~$96.2 million of ~~incremental~~ net revenue. ~~Our organic net revenue~~The remaining increase was ~~flat for the year~~attributed to higher volume of Hostess® branded multi-pack and bagged-donut products due to ~~declines~~strong demand partially offset by lower sales of private label and non-Hostess® branded products. From a sales channel perspective, strong growth in the grocery, convenience and dollar channels was offset by lower sales in the mass ~~retail channel offset by net revenue growth in the dollar, small format and grocery channels. These gains were driven by our current and prior year product innovation including Bakery Petites~~®, our premium snack line introduced in late 2017, and new branded breakfast products introduced in the fourth quarter of 2018. We also experienced gains in core products such as Donettes and Cupcakes and Coffee Cakes.

channel.

Gross Profit

Gross profit was ~~31.4%~~35.0% of net revenue for the year ended December 31, ~~2018, compared to~~ ~~42.1%~~2020, an increase of 195 basis points from a gross margin of 33.0% for the year ended December 31, ~~2017.~~2019. The ~~decline was~~increase resulted primarily ~~attributable to a combination of~~from the ~~shift in mix of revenue to include our recently acquired non-Hostess® branded products~~accretion from Voortman and ~~the incremental costs incurred to transform the Cloverhill Business, which collectively resulted in 650 basis points~~efficiencies from higher sales volume as well as lower profit margin. Significant capital improvements completed in the fourth quarter of 2018 are expected to further increase efficiency and profitability in 2019. Also contributing to the lower gross profit margin during 2018promotional activity. These benefits were higher transportation costs and other inflationary pressures, including increasing customer allowances which in total resulted in a 340 basis point decrease in gross margin. We executed multi-faceted pricing actions in the fourth quarter to partially offset ~~inflation while maintaining growth potential.~~by higher operating costs due to COVID-19.

Operating Costs and Expenses

Operating costs and expenses for the year ended December 31, ~~2018~~2020 increased by ~~56.8%~~34.6% from the year ended December 31, ~~2017. The increase was attributable to the $50.2 million gain on the remeasurement of the Tax Receivable Agreement in 2017~~2019. These costs increased primarily due to ~~Tax Reform~~transition costs incurred to shift Voortman from a direct-to-store delivery operating model to a direct-to-warehouse model including contract termination costs for the independent distributors and ~~a change in state tax rates,~~severance costs, as well as ~~a forfeiture~~normal costs of ~~share-based compensation. Additionally, in 2018 there were~~Voortman's continuing operations. 2020 operating costs also increased ~~costs related~~due to ~~temporary displays in support of promotional programs partially offset by lower corporate~~higher employee incentive ~~compensation.~~

~~During the fourth quarter of 2018, we recognized~~compensation and an impairment charges of $3.3 million to the goodwill and intangible assets within the In-Store Bakery reporting unit. These charges reflect the decision to discontinue the Hostess Bake Shop product line as compared to expectations when the In-Store Bakery reporting unit was remeasured during the Hostess Business Combination. Based on the impairment assessment, the fair value of the In-Store Bakery reporting unit continues to be well in excess of the initial cash purchase price of the Superior on Main business acquired in 2016. Also in 2018, we recognized a $1.4 million impairmentcharge related to the planned disposition of ~~certain~~ production ~~equipment before~~equipment. 2019 operating costs reflect a $7.1 million gain on the ~~end~~valuation of ~~its useful life.~~a foreign currency contract originated to hedge the January 2020 purchase of Voortman in Canadian dollars.

Operating Income

Operating income for the year ended December 31, ~~2018~~2020 was ~~$121.6~~$135.3 million compared to ~~$234.0~~$136.1 million for the year ended December 31, ~~2017.~~2019. The ~~decrease in operating income is due~~additional profits from Voortman's operations and higher Hostess® branded sales volume were offset by transition costs to shift Voortman to a ~~decrease in gross margin attributed to~~warehouse model and lapping the ~~transformation of the Cloverhill Business and inflationary pressures in transportation and production input costs. The $50.2 million~~prior year gain on remeasurement of the ~~Tax Receivable Agreement due to Tax Reform and changes in state tax law in 2017 also significantly impacted operating income.~~foreign currency contract.

Other Expense

For the years ended December 31, ~~2018~~2020 and ~~2017,~~2019, interest expense related to our ~~Third Term Loan~~term loan was ~~$41.3~~$41.8 million and ~~$40.0~~$43.3 million, respectively. ~~Also during the year ended December 31, 2018, we recognized a~~ ~~$12.4 million~~ ~~gain related to the buyout of the Tax Receivable Agreement.~~ During the year ended December 31, ~~2017,~~2020 we also recognized a ~~$2.6 million~~ ~~loss~~unrealized losses related to the ~~repricing~~remeasurement of ~~our First Term Loan.~~certain CAD denominated liabilities.

Income Taxes

Our effective tax rate was ~~13.7%~~23.0% for the year ended December 31, 2020 compared to 17.9% for the year ended December 31, 2019. The increase in the effective tax rate was primarily due to the Class B for Class A share exchanges during 2019 and 2020. Subsequent to these exchanges, more income from Hostess Holdings, L.P was allocated to Hostess Brands, Inc. This increase was partially offset by state tax credits generated in 2020.

Net Income

For the year ended December 31, 2020, net income was $68.4 million compared to $77.6 million for the year ended December 31, 2019. Higher gross margin due to the accretion of Voortman and the benefit of higher Hostess® branded sales volume was offset by costs incurred to transition Voortman DSD to warehouse distribution. In 2020, we also lapped the $7.1 million foreign currency contract remeasurement gain in 2019.

Earnings Per Share

Our earnings per Class A share was $0.52 (basic) and $0.51 (dilutive) for the year ended December 31, 2020, compared to $0.57 (basic) and $0.55 (dilutive) for the year ended December 31, 2019. The decrease in basic and diluted earnings per share was due to the net income impacts noted above.

For a discussion of our results for the year ended December 31, 2019 compared to our results for the year ended December 31, 2018, ~~compared to (35.2)%~~please see Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2017 due to the impact of Tax Reform. For the year ended December 31, 2017, the Company recognized a $111.3 million tax benefit as a result of revaluing its deferred tax liabilities due to the reduced U.S. corporate income tax rate of 21%. The effective tax rate of 13.7% for the year ended December 31, 2018 reflects the benefit of the permanent reduction in the U.S. corporate income tax rate, the tax impact of the gain on the buyout of the Tax Receivable Agreement, and the tax benefit related to revaluing its deferred tax liabilities due to a change in the Company’s estimated state tax rate.

~~Net Income~~

For the year ended December 31, 2018, net income was $81.4 million compared to $258.1 million for the year ended December 31, 2017. In 2017, the remeasurement of deferred tax items and the Tax Receivable Agreement, collectively, impacted net income by $161.5 million. In 2018, net income was impacted by transformation costs for the Cloverhill Business and inflationary pressures on transportation and other production costs.

~~Earnings Per Share~~

Our earnings per class A share was $0.63 (basic) and $0.61 (dilutive) for the year ended December 31, 2018, compared to $2.26 (basic) and $2.13 (dilutive) for the year ended December 31, 2017. The impact of Tax Reform added appro~~ximately $1.50 to~~ ~~our dilutive EPS in 2017.~~

~~Adjusted EBITDA~~

Adjusted EBITDA was $186.2 million for the year ended December 31, 2018, compared to $230.2 million for the year ended December 31, 2017. Losses on the operation of the Cloverhill Business, increased costs due to inflationary pressures from transportation and other input costs and a decline in mass channel sales volume each contributed to the decrease in adjusted EBITDA from the prior year.

~~Results for the 2016 Successor Period and 2016 Predecessor Period~~

~~Net Revenue~~

Net revenues in the 2016 Predecessor Period were $615.6 million and $112.0 million for the 2016 Successor Period. During the 2016 Predecessor Period, we acquired Superior on Main on May 10, 2016 and reported net revenues of $19.9 million from Superior from the date of acquisition through November 3, 2016. During the 2016 Successor Period, the net revenues for Superior on Main were $6.8 million.

~~Gross Profit~~

For the 2016 Predecessor Period, gross profit, including the effect of the special employee incentive compensation paid as a result of the Hostess Business Combination, was $266.5 million, or 43.3% of net revenue.

For the 2016 Successor Period, gross profit was $38.7 million, or 34.6% of net revenue. Excluding the impact of the inventory fair value step-up which resulted from the Hostess Business Combination, adjusted gross margin for the Successor period was 42.5% of net revenue. Adjusted gross margin for the Successor Period compared to the gross margin for the 2016 Predecessor Period declined slightly due to overall changes in mix of products sold.

~~Operating Costs and Expenses~~

For the 2016 Predecessor Period, operating costs and expenses were $143.7 million. For the 2016 Successor Period, total operating costs and expenses were $48.3 million, or 43.1% of net revenue, and operating loss was $9.6 million or 8.6% of net revenue. Higher field marketing costs as well as paying a special bonus payment of $2.5 million to certain corporate employees as compensation for their efforts in connection2019, filed with the ~~Hostess Business Combination occurred in the Predecessor Period.~~

Additionally, amortization of customer relationships in the 2016 Successor Period was significantly higher than in the 2016 Predecessor Period primarily due to the higher fair value measurement at November 4, 2016 as a result of the Hostess Business Combination compared to the overall fair value of the customer relationships in the Predecessor period. There were no significant changes in the nature of the customer relationships, including overall useful lives in the comparative periods.

Also, during the 2016 Predecessor Period, we recorded an impairment of $7.3 million as we closed multiple production lines at our Indianapolis, Indiana bakery and transitioned production to other facilities.There were no such impairments in the 2016 Successor Period.

For the 2016 Predecessor Period, related party expenses were $3.5 million, or 0.6% of net revenue. These amounts represent the annual cash payments associated with our employment arrangements with Mr. Metropoulos as Chief Executive Officer and/or Executive Chairman. For the 2016 Successor Period, the Company expensed $26.8 million, or 23.9% of net revenue, as a result of a grant of stock awarded to Mr. Metropoulos as required under his new employment arrangements.

~~Operating Income (Loss)~~

For the 2016 Predecessor Period operating income was $122.9 million, or 20.0% of net revenue. Operating loss for the 2016 Successor Period was significantly impacted by the related party expense discussed above.

~~Other Expense~~

For the 2016 Predecessor Period, Other Expense was $62.0 million as compared to $6.6 million in the 2016 Successor Period. The lower interest expense in the 2016 Successor Period is a result of the reduced applicable interest rates following the refinancing of our First Term Loan. Additionally, in connection with the refinancing, we recorded a net gainSEC on a partial extinguishment of debt in the amount of $0.8 million. The gain consisted of the write-off of approximately $4.0 million of debt premium and deferred financing costs, partially offset by prepayment penalties of $3.0 million and the write-off of deferred financing costs of $0.2 million.

Professional and transactional costs for acquisition activity, which has since been abandoned, partially offset by a gain from the settlement in connection with a product recall matter with one of our suppliers of approximately $0.8 million.

~~Income Tax Expense (Benefit)~~

For the 2016 Predecessor Period, the Company was a series of limited liability companies and, therefore, had no tax income expense or benefit, except insignificant amounts for Superior, a C corporation.

For the 2016 Successor Period, the income tax benefit was $7.8 million. This represented an effective tax rate of 47.8% which exceeds the statutory rates primarily due to the reversal of a previously recorded valuation allowance.February 26, 2020.

Segments

~~The Company has two~~We have one reportable ~~segments:~~segment: Snacking (formerly referred to as Sweet Baked Goods, ~~and In-Store Bakery.~~or “SBG”). The ~~Company’s Sweet Baked Goods~~Snacking segment consists of ~~fresh and frozen~~sweet baked goods, cookies, bread and ~~bread~~buns retail products that are sold under the Hostess®, Dolly Madison®, Cloverhill®, Big Texas®, and ~~Big Texas®~~Voortman® brands. Through August 30, 2019, we operated in two reportable segments: SBG and In-Store Bakery. The In-Store Bakery segment ~~consists~~consisted of Superior on Main® ~~branded~~ and ~~store-branded~~private label products sold through the in-store bakery section of grocery and club stores.

The Company divested its In-Store Bakery segment's operations on August 30, 2019.

We evaluate performance and allocate resources based on net revenue and gross profit. Information regarding the operations of these reportable segments is as follows:


(In thousands)	Year Ended December 31, 2020		Year Ended December 31, 2019

Net revenue:
Snacking	$	1,016,609	$	878,973
In-Store Bakery	—		28,702
Net revenue	$	1,016,609	$	907,675

Gross profit:
Snacking	$	355,639	$	293,648
In-Store Bakery	—		6,186
Gross profit	$	355,639	$	299,834

Capital expenditures (1):
Snacking	$	58,953	$	35,354
In-Store Bakery	—		182
Capital expenditures	$	58,953	$	35,536

(1)For all periods presented, capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable.

(In thousands) Year Ended
December 31,
2018 Year Ended
December 31,
2017 From November 4
through
December 31,
2016 From January 1
through
November 3, 2016

(Successor) (Successor) (Successor) (Predecessor)
Net revenue:

Sweet Baked Goods $ 808,355
$ 733,827
$ 105,211
$ 595,645
In-Store Bakery 42,034
42,361
6,787
19,943
Net revenue $ 850,389
$ 776,188
$ 111,998
$ 615,588

Gross profit:
Sweet Baked Goods $ 258,995
$ 316,916
$ 37,387
$ 260,876
In-Store Bakery 8,282
9,982
1,327
5,653
Gross profit $ 267,277
$ 326,898
$ 38,714
$ 266,529

Capital expenditures (1):

Sweet Baked Goods $ 53,394
$ 35,609
$ 7,544
$ 31,254
In-Store Bakery 354
774
83
223
Capital expenditures $ 53,748
$ 36,383
$ 7,627
$ 31,477
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES


~~(1)~~	~~For all periods presented, capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable.~~

~~Sweet Baked Goods~~Adjusted net revenue, adjusted gross profit, adjusted operating income, adjusted net income, adjusted Class A net income, adjusted EBITDA and adjusted EPS collectively referred to as “Non-GAAP Financial Measures,” are commonly used in our industry and should not be construed as an alternative to net revenue, gross profit, operating income, net income, net income attributed to Class A stockholders or earnings per share as indicators of operating performance (as determined in accordance with GAAP). These Non-GAAP Financial Measures may not be comparable to similarly titled measures reported by other companies. We included these Non-GAAP Financial Measures because we believe the measures provide management and investors with additional information to measure the Company's performance, estimate the Company's value and evaluate the Company's ability to service debt.

Non-GAAP Financial Measures are adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason we consider them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of Non-GAAP Financial Measures should not be construed as an inference that future results will be unaffected by unusual or recurring items.

For example, we define adjusted EBITDA as net income adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization (iii) income taxes and (iv) share-based compensation, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under GAAP. For example, adjusted EBITDA:

•does not reflect the Company's capital expenditures, future requirements for capital expenditures or contractual commitments;

•does not reflect changes in, or cash requirements for, the Company's working capital needs;

•does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt; and

•does not reflect payments related to income taxes, the Tax Receivable Agreement or distributions to the non-controlling interest to reimburse its tax liability.


	Year Ended December 31, 2020
	Net Revenue		Gross Profit		Operating Income		Net Income		Class A Net Income		Diluted EPS
GAAP Results	$	1,016,609	$	355,639	$	135,310	$	68,356	$	64,735	$	0.51
Non-GAAP adjustments:
Foreign currency impacts	—		—		—		2,065		1,966		0.02
Acquisition, disposal and integration related costs (1)	6,821		7,963		29,166		29,166		27,569		0.22
Facility transition costs (2)	—		3,681		5,710		5,710		5,396		0.04
Impairment of property and equipment	—		—		3,009		3,009		2,909		0.02
Tax Receivable Agreement remeasurement	—		—		760		760		760		—
COVID-19 costs (3)	—		2,082		2,388		2,388		2,257		0.02
Other	—		—		100		1,766		1,681		0.01
Remeasurement of tax liabilities	—		—		—		(455)		(455)		—
Tax impact of adjustments	—		—		—		(10,961)		(10,961)		(0.09)

Adjusted Non-GAAP results	$	1,023,430	$	369,365	$	176,443	$	101,804	$	95,857	$	0.75

Income tax							31,821
Interest expense							42,826
Depreciation and amortization							54,940
Share-based compensation							8,671
Adjusted EBITDA							$	240,062

(1) Adjustments to net revenue represent initial slotting fees paid to to customers to obtain space in customer warehouses for the Voortman transition. Adjustments to operating costs included $8.0 million of selling expense, $8.9 million of general and administrative expenses and $4.3 million of business combination transaction costs on the consolidated statement of operations.

(2) Facility transition operating costs are included in general and administrative expenses on the consolidated statement of operations.

(3) COVID-19 operating costs are included in general and administrative expenses on the consolidated statement of operations. Total COVID-19 non-GAAP adjustments primarily consist of costs of incremental cleaning and sanitation, personal protective equipment and employee bonuses in the first half of 2020.


	Year Ended December 31, 2019
	Net Revenue		Gross Profit		Operating Income		Net Income		Class A Net Income		Diluted EPS
GAAP Results	$	907,675	$	299,834	$	136,096	$	77,565	$	63,115	$	0.55
Non-GAAP adjustments:
Foreign currency impacts	—		—		(7,127)		(7,127)		(6,721)		(0.07)
Acquisition, disposal and integration related costs	—		1,563		5,484		5,484		5,172		0.05
Special employee incentive compensation (1)	—		33		1,910		1,910		1,801		0.02
Facility transition costs (2)	—		9,381		12,080		12,080		11,392		0.10
Tax Receivable Agreement remeasurement	—		—		186		186		186		—
Impairment of property and equipment, intangible assets and goodwill	—		—		1,976		1,976		1,863		0.02
Loss on debt refinancing	—		—		1,487		2,023		1,908		0.02
Remeasurement of tax liabilities	—		—		—		(4,564)		(4,564)		(0.05)
Other	—		—		—		1,233		1,163		0.01
Tax impact of adjustments	—		—		—		(3,918)		(3,918)		(0.04)

Adjusted Non-GAAP results	$	907,675	$	310,811	$	152,092	$	86,848	$	71,397	$	0.61

Income tax							25,374
Interest expense							39,870
Depreciation and amortization							43,334
Share-based compensation							9,231
Adjusted EBITDA							$	204,657

(1) Special employee incentive compensation is included in general and administrative expenses on the consolidated statement of operations.

(2) Facility transition costs are included in general and administrative expenses on the consolidated statement of operations.

Adjusted EBITDA

Adjusted EBITDA was $240.1 million for the year ended December 31, ~~2018 increased $74.5~~2020, compared to $204.7 million or 10.2%, from the year ended December 31, 2017. The operations of the recently acquired Cloverhill Business contributed $74.2 million of net revenue. Excluding the Cloverhill Business, the segment’s net revenue grew from the prior period due to higher sales in our small format, grocery and dollar channels partially offset by lower revenue in our mass retail channel.

~~Sweet Baked Goods gross profit~~ for the year ended December 31, ~~2018~~2019. The improvement in adjusted EBITDA was ~~32.0%~~driven by the contribution of ~~net revenue, compared to 43.2%~~Voortman and higher volume of ~~net revenue~~Hostess® branded products.

Adjusted EPS

Adjusted EPS was $0.75 for the year ended December 31, ~~2017. The decline was primarily attributed~~2020, compared to ~~the addition of the Cloverhill Business revenue at negative margins during the transformation of the business as well as higher transportation costs and other inflationary pressures.~~

~~In-Store Bakery net revenue~~$0.61 for the year ended December 31, ~~2018 decreased 0.8% from the year ended ended December 31, 2017 due to a shift~~2019. The improvement in ~~product mix resulting from the discontinuance of certain~~adjusted EPS was driven by Voortman profitability and strong demand for Hostess® branded products previously sold in the In-Store Bakery channel. In-Store Bakery gross profit for the year ended December 31, 2018 was 19.7% of net revenue compared to 23.6% for the year ended December 31, 2017. The decrease in gross profit was attributed to lower sales volume and higher overhead absorption. Gross profit was further affected by higher transportation and other inflationary costs.

Sweet Baked Goods net revenue was $595.6 million for the 2016 Predecessor Period and $105.2 million for the 2016 Successor Period, while In-Store Bakery had net revenue of $19.9 million and $6.8 million for the 2016 Predecessor and 2016 Successor Periods respectively. Sweet Baked Goods gross profit for the 2016 Predecessor Period was $260.9 million compared to $37.4 million for the 2016 Successor Period.products.

Liquidity and Capital Resources

Our primary sources of liquidity are from the cash and cash equivalents on the balance sheet, future cash flow generated from operations, and availability under our revolving credit agreement (“Revolver”). We believe that cash flows from operations and the current cash and cash equivalents on the balance sheet will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next 12 months. Our future cash requirements include the purchase commitments for certain raw materials and packaging used in our production process, scheduled rent on leased facilities, scheduled debt service payments on our term loan and settlements on related interest rate swap contracts, payments on our Tax Receivable Agreement, settlements on our outstanding foreign currency contracts and outstanding purchase orders on capital projects.

Our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. In addition, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors, including any expansion of our business that we undertake, including acquisitions. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

We had working capital, excluding cash, as of December 31, ~~2018~~2020 and ~~2017~~2019 of ~~$12.0~~$7.0 million and ~~$15.5~~$8.1 million, respectively. We have the ability to borrow under our Revolver to meet obligations as they come due. As of December 31, ~~2018,~~2020, we had approximately~~$96.1~~ $94.5 million available for borrowing, net of letters of credit, under our Revolver.

Cash Flows from Operating Activities

Cash flows provided by operating activities for the ~~year~~years ended December 31, ~~2018~~2020 and 2019 were ~~$143.7~~$159.2 million ~~compared to~~and $144.0 million, respectively. The increase in operating cash flows was driven by an increase in net income after adjusting for non-cash items such as the current year increase in depreciation and amortization and prior year gain on the remeasurement of foreign currency contracts. Our operating cash flow also benefited from the deferral of certain employer payroll taxes allowed under the CARES Act.

Cash Flows provided by and used in Investing Activities

Investing activities used $374.3 million of cash for the year ended December 31, ~~2017~~2020 compared to providing $22.9 million of ~~$163.7 million, $13.6 million~~cash for the ~~successor period from November 4, 2016 through~~year ended December 31, ~~2016~~2019. During 2020, we funded $316.0 million of the net cash required to purchase Voortman from cash on hand and ~~$102.2~~the proceeds from an incremental term loan on our existing credit facility. During 2019, we received proceeds of $63.3 million from the sale of our In-Store Bakery business. Cash used for the ~~2016 Predecessor Period. The decrease~~purchase of property and equipment reflects planned investments in operating cash flows from 2017 to 2018 were driven by a decrease in operating income from 2017, countered by the timing of vendor payments as well as lower tax payments. Cash flows provided by operating activities during 2017 was driven by an increase in income before taxesour bakeries, including Voortman, and benefits from accounts payable and customer trade allowances, offset by higher inventory, accounts receivable, and prepaid expense balances. Cash flows provided by operating activities for both 2016 periods was reduced by the payment of transaction costs related to the Hostess Business Combination.our centralized distribution center.

Cash Flows ~~used in Investing Activities~~

~~Cash flows used in investing activities for the years ended December 31, 2018~~provided by and 2017 were $70.9 million and $35.2 million, $428.2 million for the 2016 Successor Period and $76.6 million for the 2016 Predecessor Period. During 2018, our investing cash outflow was primarily attributed to the purchase of the Cloverhill Business and subsequent capital investment in the property and equipment in the purchased bakery. In 2017, our investing cash outflow was primarily related to investment in the production lines at our other bakeries. The acquisition of Superior and Hostess during the 2016 Predecessor Period and 2016 Successor Period, respectively, represented a significant investment of cash. Our property and equipment capital expenditures primarily consisted of strategic growth initiatives, maintenance and productivity improvements.

~~Cash Flows~~ used in Financing Activities

~~Cash flows used in financing~~Financing activities ~~were $62.0~~provided $103.2 million ~~and $19.6 million~~of cash for ~~the years ended December 31, 2018, and 2017, $232.3 million for the 2016 Successor Period and $31.6 million for the 2016 Predecessor Period. During~~ the year ended December 31, ~~2018,~~2020 compared to using $28.1 million of cash for the year ended December 31, 2019. During 2020, cash proceeds of $140.0 million from the incremental term loan used to finance the purchase of Voortman were partially offset by related charges of $3.1 million. This incremental term loan increased the amount of principal repayments during 2020. Also during 2020, we ~~bought out a portion~~paid $8.0 million to repurchase 2.0 million warrants and 0.4 million shares from the Metropoulos Entities as part of the exchange of their last remaining Class B units in Hostess Holdings, LP. In 2019, we incurred costs to refinance our First Lien Term Loan. Payments on the Tax Receivable Agreement ~~for $34.0 million, we also made~~increased in 2020 due to additional taxable basis created by Metropoulos Entity exchanges in 2019, which were monetized in 2020. These same exchanges decreased the ~~first payment to the remaining Tax Receivable Agreement counterparties as well as the scheduled principal payments on our long-term debt and~~amount of distributions to the non-controlling interest to cover ~~income~~ tax payments. For the year ended December 31, 2017, financing activities were primarily attributed to scheduled principal payments on long term debt and distributions to the non-controlling interest. For the 2016 Successor Period, we had $13.1 million of deferred underwriting costsliabilities related to ~~the Hostess Business Combination.~~

In the 2016 Successor Period, we extinguished the former second term loan through early principal payments and refinanced our first lien term loan which accounted for the primary use of cash used in financing activities. In the 2016 Predecessor Period, distributions of $23.6 million were paidnet income allocated to ~~partners, and $1.0 million were paid to non-controlling interest.~~Class B units.

Long-Term Debt

As of December 31, ~~2018, $983.8~~2020, $1,102.8 million aggregate principal amount of ~~the Third Amended First Lien Term Loan~~our term loan and ~~$3.9~~ $5.5 million aggregate principal amount of letters of credit, reducing the amount available under the Revolver, were outstanding. See Note ~~14 - “Commitments~~15. Commitments and ~~Contingencies”~~Contingencies to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information regarding the letters of credit. We had no outstanding borrowings under our Revolver as of December 31, ~~2018.~~2020. As of December 31, ~~2018,~~2020, we were in compliance with all covenants under ~~the Third Amended First Lien Term Loan~~our term loan and the Revolver. The Revolver contains certain restrictive financial covenants. Based on our current and projected financial performance, we believe that we will comply with these covenants for the foreseeable future.

~~Commitments and Contingencies~~

As of December 31, 2018, the Company has commitments and contingencies for tax receivable arrangements, debt, operating leases, and advance purchase commitments. Refer to Note 14 -“Commitments and Contingencies” to the consolidated financial statements included in Part II, Item 8 on this Annual Report on Form 10-K.

Contractual Commitments as of December 31, 2018
Total
Committed

Less than
1 year
1 to 3 years
3 to 5
years

More
than
5 years
(In thousands)
Tax receivable agreement $ 69,063
$ 4,400
$ 8,400
$ 8,000
$ 48,263
First term loan 983,825
9,938
973,887
—
—
Interest payments on term loan 167,693
42,571
125,122
—
—
Operating leases 832
832
—
—

Capital lease 433
200
233
—
—
Ingredient procurement 76,188
76,188
—
—
—
Packaging procurement 17,168
17,168
—
—
—
$ 1,315,202
$ 151,297
$ 1,107,642
$ 8,000
$ 48,263

~~Tax receivable agreement~~

The tax receivable agreement entered into in connection with the Hostess Business Combination (the “Tax Receivable Agreement”) generally provides for the payment by the Company to the Legacy Hostess Equityholders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the closing of the Hostess Business Combination (which periods may extend, unless the Tax Receivable Agreement is terminated early in accordance with its terms, for more than 15 years following any exchange of Class B units of Hostess Holdings for shares of the Company’s Class A common stock or the cash equivalent thereof) as a result of (i) certain increases in tax basis resulting from the Hostess Business Combination; (ii) certain tax attributes of Hostess Holdings and its subsidiaries existing prior to the Hostess Business Combination and prior to subsequent exchanges of Class B units; (iii) certain increases in tax basis resulting from exchanges of Class B units; (iv) imputed interest deemed to be paid by the Company as a result of payments it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments the Company makes under the Tax Receivable Agreement. The Company retained the benefit of the remaining 15% of these cash savings. Certain payments under the Tax Receivable Agreement will be made to the Metropoulos Entities in accordance with specified percentages, regardless of the source of the applicable tax attribute. The most significant estimate utilized by management to calculate the corresponding liability is the Company’s future cash tax savings rates, which are projected based on current tax laws and the Company’s historical and projected future tax profile.

In January 2018, we entered into an agreement with the Apollo Funds terminating all future payment obligations to the Apollo Funds in exchange for a payment of $34.0 million. Subsequent to the agreement, we will now retain a greater portion of the net cash tax savings related to tax attributes subject to the Tax Receivable Agreement.

~~During the year ended December 31, 2017, we recognized a gain of $51.8 million related to the adjustment to the Tax Receivable Agreement due to the impact of Tax Reform.~~

Critical Accounting Policies

The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires the use of judgment, estimates and assumptions. We make such subjective determinations after careful consideration of our historical performance, management’s experience, current economic trends and events and information from outside sources. Inherent in this process is the possibility that actual results could differ from these estimates and assumptions for any particular period.

Our significant accounting policies are detailed in Note 1 to our consolidated financial statements within Item 8. The following areas are the most important and require the most difficult, subjective judgments.

Trade and consumer promotion programs

We offer various sales incentive programs to customers, ~~and consumers,~~ such as feature price discounts, in-store display incentives, cooperative advertising programs and new product introduction ~~fees, and coupons.~~fees. The mix between promotional programs, which are classified as reductions in revenue in the ~~Statement~~statements of ~~Operations,~~operations, and advertising or other marketing activities, which are classified as marketing and selling expenses in the ~~Statement~~consolidated statements of ~~Operations,~~operations, fluctuates between periods based on our overall marketing plans, and such fluctuations have an impact on revenues. These trade programs also require management to make estimates about the expected total cost of the programs and related allocations amongst participants (who might have different levels of incentives based on various program requirements). These estimates are inherently uncertain and are generally based on historical experience, adjusted for any new facts or circumstances that might impact the ultimate cost estimate for a particular program or programs.

Goodwill and Indefinite-lived trade names

When evaluating goodwill and indefinite-lived intangible assets for impairment under U.S. GAAP, we may first perform an assessment of qualitative factors to determine if the fair value of the reporting unit or the intangible asset is more-likely-than-not greater than the carrying amount. Such qualitative factors include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, competitive environment, share price fluctuations, overall financial performance and results of past impairment tests. Based on a review of the qualitative factors, if we determine it is not more-likely-than-not that the fair value is less than the carrying value, we may bypass the quantitative impairment test. We also may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. For our ~~2018~~2020 and 2019 annual impairment testing, we elected to perform ~~a quantitative assessment~~qualitative assessments for ~~all of~~ our reporting units. ~~This~~No indicators of impairment were noted.

If a quantitative test ~~estimated~~were to be utilized for any reporting unit, it would estimate the fair value ~~of each~~ of the reporting units and compared it to ~~the~~its carrying value. IfTo the extent the fair value was in excess of the carrying value, no impairment ~~existed.~~would be recognized. Otherwise, an impairment loss would ~~have been~~be recognized for the amount that the carrying value of a reporting unit, including goodwill, exceeded its fair value.

In performing the quantitative test of goodwill, fair value ~~was~~would be determined based on a calculation which ~~gave~~would give consideration to an income approach utilizing the discounted cash flow method and the market approach using the market comparable ~~method~~ and market transaction ~~method.~~methods.

~~Significant assumptions used to determine fair value under~~During the discounted cash flow method included future trends in sales, operating expenses, capital expenditures and changes in working capital. When forecasting these future trends, we utilized historical financial performance, expected terminal growth rates, known industry-specific trends as well internal forecasts and planned initiatives including expected innovation which would impact financial performance. In addition to projected financial information, we also developed an appropriate discount rate for each reporting unit reflecting the reporting unit’s estimated cost of equity capital and after-tax cost of debt, which we estimated by considering the reporting unit’s current borrowing rate, required return on invested capital and future economic and market conditions.

Significant assumptions used to determine the fair value under the market comparable and market transaction methods utilized for the market approach included the identification of publicly-traded companies and transactions involving a purchase or sale. When identifying such companies or transactions, we considered size, industry, product and geographic diversification and cost structure.

Based on the results of this testing, the fair value of Sweet Baked Goods reporting unit exceeded its carrying value by 3.1%. The fair value of the In-Store Bakery reporting unit was less than its carrying value andyear ended December 31, 2019, we recognized an impairment charge to the In-Store Bakery reporting segment goodwill of $1.0 million reflecting a change in certain market assumptions (level 1 inputs).

Our indefinite-lived intangible assets consist of trademarks and trade names. The $1,538.6 million and $1,408.6 million balances at December 31, 2020 and 2019, respectively, were recognized as part of the Hostess Business Combination and the Voortman and Cloverhill acquisitions. The trademarks and trade names are integral to the Company’s identity and are expected to contribute indefinitely to our corporate cash flows. Fair value for trademarks and trade names was determined using the income approach. The application of the income approach was premised on a royalty savings method, whereby the trademark and trade names are valued by reference to the amount of royalty income they could generate if they were licensed, in an arm’s-length transaction, to a third party. These assets have been assigned an indefinite life and therefore are not amortized but rather evaluated for impairment annually using the qualitative or quantitative methods similar to goodwill. For 2020 and 2019, we performed a qualitative test. No indicators of impairment were noted.

Changes in certain significant assumptions could have a significant impact on the estimated fair value, and therefore, a future impairment or additional impairments could result for a portion of goodwill, long-lived assets or intangible assets.

Our indefinite-lived intangible assets consist of trademarks and trade names. The $1,410.5 million and $1,408.8 million balances at December 31, 2018 and 2017, respectively, were recognized as part of the Hostess Business Combination and the acquisition of the Cloverhill Business. The trademarks and trade names are integral to the Company’s identity and are expected to contribute indefinitely to our corporate cash flows. Fair value for trademarks and tradenames was determined using the income approach. The application of the income approach was premised on a royalty savings method, whereby the trademark and tradenames are valued by reference to the amount of royalty income they could generate if they were licensed, in an arm’s‑length transaction, to a third party. These assets have been assigned an indefinite life and therefore are not amortized but rather evaluated for impairment annually using the qualitative or quantitative methods similar to goodwill. During 2018, we performed a quantitative assessment. For this assessment, the valuation of trademarks and trade names are determined using the relief from royalty method. significant assumptions used in this method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.

~~As a result of these quantitative tests, we recognized impairment charges of $3.3 million to the In-Store Bakery goodwill and intangibles during the year ended December 31, 2018.~~

Business Combinations

We account for business acquisitions using the purchase method of accounting. Assets acquired, liabilities assumed, and non-controlling interests are recorded at their estimated fair values at the acquisition date. The excess of purchase price over fair value of the net assets acquired, including the amount assigned to identifiable intangible assets, is recorded as goodwill. Given the time it takes to obtain pertinent information to finalize the acquired company’s balance sheet, it may be multiple quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for the initial estimates to be subsequently revised.

Tax Receivable Agreement

We recognize a liability on the consolidated balance sheet based on the undiscounted estimated future payments under the Tax Receivable Agreement.See Note 9. Tax Receivable Agreement to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information on the Tax Receivable Agreement. The most significant estimates utilized by management to calculate the corresponding liability is the Company’s increase in tax basis related to exchanges, future cash tax savings rates, which are projected based on current tax laws and the Company’s historical and future tax profile, and the allocation of the liability between short-term and long-term based on when the Company realizes certain tax attributes.

New Accounting Pronouncements

Refer to Note ~~1.Summary~~1. Summary of Significant Accounting Policies of the ~~Notes~~notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding recently issued accounting standards.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks related to interest ~~rate market risk.~~rates, commodity pricing and foreign currency exchange rates.

Market risk on variable-rate financial instruments

Our ~~Third Term Loan~~term loan and Revolver each bear interest on outstanding borrowings thereunder at variable interest rates. The rate in effect at December 31, ~~2018~~2020 for the outstanding ~~Third Term Loan~~term loan was a LIBOR-based rate of ~~4.6%~~3% per annum. At December 31, ~~2018, the subsidiary borrower~~2020, we had an aggregate principal balance of ~~$983.8~~$1,102.8 million outstanding under the ~~Third Term Loan. At December 31, 2018, the subsidiary borrower had $96.1~~term loan and $94.5 million available for borrowing, net of letters of credit of ~~$3.9~~$5.5 million, under ~~its~~the Revolver. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease.

To manage the risk related to our variable rate debt, we have entered into an interest rate swap ~~contract~~contracts with a counter ~~party~~parties to make ~~a series of~~ payments based on a fixed interest ~~rate of~~rates ranging from 1.11% to 1.78% and receive ~~a series of~~ payments based on the greater of LIBOR or 0.75%. ~~Both the fixed and floating payment streams are based on~~At December 31, 2020, a notional amount of ~~$500 million at the inception of the contract and will be reduced by $100 million each year of the five year contract. At December 31, 2018, a notional amount of $400~~$700.0 million remained outstanding on the swap ~~contract.~~contracts. This notional amount will decrease $100.0 million each year until a notional amount of $500.0 million remains outstanding through the maturity of our term loan in August 2025.

The change in interest expense and earnings before income taxes resulting from a change in market interest rates would be dependent upon the weighted average outstanding borrowings and the portion of those borrowings that are hedged by our swap contract during the reporting period following an increase in market interest rates. An increase ~~or decrease~~ in applicable interest rates of 1% ~~would result in an increase or decrease in interest payable of approximately $5.6 million~~ for the year ended December 31, ~~2018,~~2020 would result in an increase in interest expense of approximately $11 million, or approximately $4 million after accounting for the impact of our swap ~~contract.~~contracts.

Foreign Currency Risk

We are exposed to fluctuations of the Canadian Dollar (“CAD”) relative to the US Dollar (“USD”) due to the operations of our Burlington, Ontario facility and sales to customers denominated in CAD. Revenue generated from Canadian customers, offset by the related selling expense and the operations of this facility, including certain raw materials, production labor and overhead, creates a net exposure to CAD denominated expenses. In December of 2020, we entered into a series of contracts to purchase a total of $14.6 million Canadian dollars at fixed exchange rates and varying dates from January 2021 through December 2021. At December 31, 2020, a 10% change in the USD to CAD exchange rate would change the aggregate fair value of these contracts by approximately $1 million.

Item 8. Financial Statements and Supplementary Data



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm			4342
Consolidated Balance Sheets as of December 31, ~~2018~~2020 and ~~December 31, 2017~~2019			4544
Consolidated Statements of Operations for the years ended December 31, ~~2018~~2020, 2019 and ~~2017 (Successor), from November 4, 2016 through December 31, 2016 (Successor), and from January 1, 2016 through November 3, 2016 (Predecessor)~~2018			4745
Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the years ended December 31, ~~2018~~2020, 2019 and ~~2017 (Successor), from November 4, 2016 through December 31, 2016 (Successor), and from January 1, 2016 through November 3, 2016 (Predecessor)~~2018			4846
Consolidated Statements of Stockholders’ Equity for the years ended December 31, ~~2018~~2020, 2019 and ~~2017 (Successor), from November 4, 2016 through December 31, 2016 (Successor), and Partners’ Equity (Deficit) from January 1, 2016 through November 3, 2016 (Predecessor)~~2018			4947
Consolidated Statements of Cash Flows for the years ended December 31, ~~2018~~2020, 2019 and ~~2017 (Successor), November 4, 2016 through December 31, 2016 (Successor), and from January 1, 2016 through November 3, 2016 (Predecessor)~~2018			5048
Notes to Consolidated Financial Statements			5149

Report of Independent Registered Public Accounting Firm

To the ~~Shareholders~~Stockholders and Board of Directors

Hostess Brands, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Hostess Brands, Inc. and subsidiaries (the Company) as of December 31, ~~2018~~2020 and ~~2017,~~2019, the related consolidated statements of operations, comprehensive income, ~~(loss),~~ stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018 and 2017 and for the period November 4, 2016 through December 31, 2016, and the related notes. We have also audited the accompanying consolidated statements of operations, partners’ equity (deficit), and cash flows for the period January 1, 2016 through November 3, 2016 of Hostess Holdings, L.P. and subsidiaries,2020, and the related notes (collectively, ~~with~~ the consolidated financial ~~statements of Hostess Brands, Inc., the “consolidated financial statements”)~~statements). We also have audited the Company’s internal control over financial reporting as of December 31, ~~2018,~~2020, based on criteria established in Internal Control -– Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ~~Hostess Brands, Inc. and subsidiaries~~the Company as of December 31, ~~2018~~2020 and ~~2017,~~2019, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the years in the three-year period ended December 31, 2018 and 2017 and for the period November 4, 2016 through December 31, 2016, in conformity with U.S. generally accepted accounting principles. It is also our opinion that the financial statements present fairly, in all material respects, the results of Hostess Holdings, L.P. and subsidiaries’ operations and cash flows for the period January 1, 2016 through November 3, 2016,2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2018,~~2020 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, 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 ~~Management’s~~Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements 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. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of customer trade allowances

As discussed in Note 1 to the consolidated financial statements, the Company has recorded a provision for customer trade allowances, consisting primarily of pricing allowances and merchandising programs associated with sales to customers. The liability recorded for the estimated cost of these programs is dependent on factors such as the ultimate purchase volume activity, participation levels of customers, and the related settlement rates for these programs. The Company’s liability for customer trade allowances as of December 31, 2020 was $46.8 million.

We have identified the evaluation of the customer trade allowance as a critical audit matter because of the higher degree of auditor judgment required to evaluate the Company’s estimates. This is due to uncertainty around the amount of settlements, which typically occur in a period subsequent to the related sales transactions, and in particular, the estimate of purchase volumes made by retailers from distributors.

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 related to the Company’s trade process at disaggregated levels. This included controls related to the Company’s trade spend trending and lookback analyses based on final settlement. We analyzed the liability by trade allowance type to identify unusual trends. We assessed the Company’s historical ability to accurately estimate its customer trade allowances by comparing historical estimates to final settlements. We compared a sample of settlements subsequent to period end to the amount previously recognized by the Company.

Acquisition-date fair value of acquired trade name

As discussed in Note 2 to the consolidated financial statements, on January 3, 2020, the Company acquired Voortman Cookies, Limited (Voortman), including the associated trade name. The acquisition-date fair value of the Voortman trade name was $130.0 million.

We have identified the evaluation of the acquisition-date fair value of the trade name acquired in the Voortman acquisition as a critical audit matter. A high degree of subjective auditor judgment was involved in evaluating discrete period revenue growth rates and royalty rate assumptions used in the relief from royalty method to estimate the acquisition-date fair value of the trade name.

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 acquisition-date valuation process. This included controls over the assumptions listed above used to estimate the acquisition-date fair value of the trade name. We evaluated the reasonableness of the discrete period revenue growth rates by comparing the Company’s estimates of forecasted revenue growth to historical actual results and current period performance. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the reasonableness of:

● the discrete period revenue growth rates by comparing the forecasted amounts to publicly available market data for comparable companies

● the royalty rate by comparing the rate determined by management against publicly available market data for comparable transactions.

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.

Kansas City, Missouri

February ~~27, 2019~~24, 2021

HOSTESS BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except ~~shares and per share data)~~shares)


	December 31,		December 31,			December 31,		December 31,
ASSETS	2018		2017		ASSETS	2020		2019
	(Successor)		(Successor)
Current assets:					Current assets:
Cash and cash equivalents	$	146,377	$	135,701	Cash and cash equivalents	$	173,034	$	285,087
Accounts receivable, net	105,679		101,012		Accounts receivable, net	125,550		104,892
Inventories	38,580		34,345		Inventories	49,348		47,608
Prepaids and other current assets	8,806		7,970		Prepaids and other current assets	21,614		15,569
Total current assets	299,442		279,028		Total current assets	369,546		453,156
Property and equipment, net	220,349		174,121		Property and equipment, net	303,959		242,384
Intangible assets, net	1,901,215		1,923,088		Intangible assets, net	1,967,903		1,853,315
Goodwill	575,645		579,446		Goodwill	706,615		535,853
Other assets, net	14,062		10,592		Other assets, net	17,446		12,993
Total assets	$	3,010,713	$	2,966,275	Total assets	$	3,365,469	$	3,097,701

LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:					Current liabilities:
Long-term debt and capital lease obligation payable within one year	$	11,268	$	11,268
Tax receivable agreement payments payable within one year	4,400		14,200
Long-term debt and lease obligations payable within one year					Long-term debt and lease obligations payable within one year	$	13,811	$	11,883
Tax receivable agreement obligations payable within one year					Tax receivable agreement obligations payable within one year	11,800		12,100
Accounts payable	65,288		49,992		Accounts payable	61,428		68,566
Customer trade allowances	42,010		40,511		Customer trade allowances	46,779		45,715
Accrued expenses and other current liabilities	18,137		11,880		Accrued expenses and other current liabilities	55,715		21,661
Total current liabilities	141,103		127,851		Total current liabilities	189,533		159,925
Long-term debt and capital lease obligation	976,736		987,920
Tax receivable agreement	64,663		110,160
Long-term debt and lease obligations					Long-term debt and lease obligations	1,113,037		975,405
Tax receivable agreement obligations					Tax receivable agreement obligations	144,744		126,096
Deferred tax liability	277,954		267,771		Deferred tax liability	295,009		256,051
Other long-term liabilities					Other long-term liabilities	1,560		0
Total liabilities	1,460,456		1,493,702		Total liabilities	1,743,883		1,517,477
Commitments and Contingencies (Note 14)
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 100,046,392 and 99,791,245 shares issued and outstanding at December 31, 2018 and 2017, respectively	10		10
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 30,255,184 and 30,319,564 shares issued and outstanding at December 31, 2018 and 2017, respectively	3		3
Commitments and Contingencies (Note 15)					Commitments and Contingencies (Note 15)	0		0
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 130,347,464 and 122,108,086 issued and outstanding at December 31, 2020 and 2019, respectively					Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 130,347,464 and 122,108,086 issued and outstanding at December 31, 2020 and 2019, respectively	13		12
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, NaN issued or outstanding at December 31, 2020, 8,409,834 issued and outstanding at December 31, 2019					Class B common stock, $0.0001 par value, 50,000,000 shares authorized, NaN issued or outstanding at December 31, 2020, 8,409,834 issued and outstanding at December 31, 2019	0		1
Additional paid in capital	925,902		920,723		Additional paid in capital	1,238,765		1,152,055
Accumulated other comprehensive income	2,523		1,318
Accumulated other comprehensive loss					Accumulated other comprehensive loss	(10,407)		(756)
Retained earnings	271,365		208,279		Retained earnings	399,215		334,480
Treasury stock					Treasury stock	(6,000)		0
Stockholders’ equity	1,199,803		1,130,333		Stockholders’ equity	1,621,586		1,485,792
Non-controlling interest	350,454		342,240		Non-controlling interest	0		94,432
Total liabilities, stockholders’ equity and non-controlling interest	$	3,010,713	$	2,966,275	Total liabilities, stockholders’ equity and non-controlling interest	$	3,365,469	$	3,097,701

See accompanying notes to the consolidated financial statements.

HOSTESS BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except shares and per share data)


	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018

Net revenue	$	1,016,609	$	907,675	$	850,389
Cost of goods sold	660,970		607,841		583,112

Gross profit	355,639		299,834		267,277

Operating costs and expenses:
Advertising and marketing	45,724		39,775		35,069
Selling expense	46,729		30,719		30,071
General and administrative	92,860		69,423		52,760

Amortization of customer relationships	26,510		23,377		24,057

Business combination transaction costs	4,282		1,914		297
Tax receivable agreement liability remeasurement	760		186		(1,866)
Gain on foreign currency contract	0		(7,128)		0
Other operating expense	3,464		5,472		5,331
Total operating costs and expenses	220,329		163,738		145,719
Operating income	135,310		136,096		121,558
Other (income) expense:
Interest expense, net	42,826		39,870		39,404
Gain on buyout of tax receivable agreement	0		0		(12,372)
Other expense	3,723		1,769		146
Total other expense	46,549		41,639		27,178
Income before income taxes	88,761		94,457		94,380
Income tax expense	20,405		16,892		12,954
Net income	68,356		77,565		81,426
Less: Net income attributable to the non-controlling interest	3,621		14,450		18,531
Net income attributable to Class A stockholders	$	64,735	$	63,115	$	62,895

Earnings per Class A share:
Basic	0.52		0.57		0.63
Diluted	0.51		0.55		0.61
Weighted-average shares outstanding:
Basic	124,927,535		110,540,264		99,957,049
Diluted	127,723,488		114,699,447		103,098,394

Year Ended
December 31, 2018 Year Ended
December 31, 2017 From
November 4, 2016
through
December 31, 2016 From
January 1, 2016
through
November 3, 2016

(Successor) (Successor) (Successor) (Predecessor)
Net revenue $ 850,389
$ 776,188
$ 111,998
$ 615,588
Cost of goods sold 583,112
449,290
73,284
349,059
Gross profit 267,277
326,898
38,714
266,529

Operating costs and expenses:
Advertising and marketing 35,069
33,004
5,245
30,626
Selling expense 30,071
32,086
5,033
25,730
General and administrative 52,760
52,943
7,322
38,391
Amortization of customer relationships 24,057
23,855
3,922
1,185
Business combination transaction costs 297
—
—
31,832
Related party expenses 362
381
26,799
3,539
Tax receivable agreement liability remeasurement (1,866 ) (50,222 ) —
—
Other operating expense 4,969
859
—
12,354
Total operating costs and expenses 145,719
92,906
48,321
143,657
Operating income (loss) 121,558
233,992
(9,607 ) 122,872
Other (income) expense:

Interest expense, net 39,404
39,174
6,649
60,384
Gain on buyout of tax receivable agreement (12,372 ) —
—
—
Other expense (income) 146
3,914
(9 ) 1,624
Total other expense 27,178
43,088
6,640
62,008
Income (loss) before income taxes 94,380
190,904
(16,247 ) 60,864
Income tax expense (benefit) 12,954
(67,204 ) (7,762 ) 439
Net income (loss) 81,426
258,108
(8,485 ) 60,425
Less: Net income (loss) attributable to the non-controlling interest 18,531
34,211
(4,081 ) 3,214
Net income (loss) attributable to Class A stockholders/partners $ 62,895
$ 223,897
$ (4,404 ) $ 57,211

Earnings (loss) per Class A share:

Basic 0.63
2.26
(0.05 )
Diluted 0.61
2.13
(0.05 )
Weighted-average shares outstanding:

Basic 99,957,049
99,109,629
97,791,658

Diluted 103,098,394
105,307,293
97,791,658

~~See accompanying notes to the consolidated financial statements.~~

~~HOSTESS BRANDS, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(Amounts in thousands)~~

Year Ended
December 31,
2018 Year Ended
December 31,
2017 From
November 4, 2016
through
December 31, 2016 From
January 1, 2016
through
November 3, 2016
(Successor) (Successor) (Successor) (Predecessor)
Net income (loss) $ 81,426
$ 258,108
$ (8,485 ) $ 60,425
Other comprehensive income:

Unrealized income on interest rate swap designated as a cash flow hedge 2,187
2,878
—
—
Income tax expense (470 ) (890 ) —
—
Comprehensive income (loss) 83,143
260,096
(8,485 ) 60,425
Less: Comprehensive income (loss) attributed to non-controlling interest 19,050
34,881
(4,081 ) 3,214
Comprehensive income (loss) attributed to class A shareholders/partners $ 64,093
$ 225,215
$ (4,404 ) $ 57,211

See accompanying notes to the consolidated financial statements.

HOSTESS BRANDS, INC.

CONSOLIDATED STATEMENTS OF ~~EQUITY (DEFICIT)~~COMPREHENSIVE INCOME

(Amounts in ~~thousands, except shares data)~~

thousands)

Partners’ Equity (Deficit)
Hostess Holdings, LP
(Predecessor)

Class A Class C Total Partners’
Equity (Deficit) Non-controlling
Interest
Balance – December 31, 2015 $ (276,084 ) $ (346,046 ) $ (622,130 ) $ (37,991 )
Distributions to partners (9,817 ) (13,765 ) (23,582 ) (1,027 )
Unit based compensation 1,945 1,945 3,890
—
Net income 28,605 28,606 57,211
3,214
Balance – November 3, 2016 $ (255,351 ) $ (329,260 ) $ (584,611 ) $ (35,804 )


	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018
Net income	$	68,356	$	77,565	$	81,426
Other comprehensive income:
Unrealized gain (loss) on interest rate swap designated as a cash flow hedge	(16,870)		(4,063)		2,962
Reclassification into net income	3,886		(1,705)		(775)
Income tax benefit (expense)	3,421		1,222		(470)
Comprehensive income	58,793		73,019		83,143
Less: Comprehensive income attributed to non-controlling interest	2,749		13,292		19,050
Comprehensive income attributed to Class A shareholders	$	56,044	$	59,727	$	64,093

Stockholders’ Equity
Hostess Brands, Inc.
(Successor)
Class A Voting
Common Stock Class B Voting
Common Stock Additional
Paid-in Capital Accumulated Other Comprehensive Income Accumulated
Losses / Retained Earnings Total
Stockholders’
Equity Non-controlling
Interest
Shares Amount Shares Amount
Balance–November 4, 2016 97,589,217
$ 10
29,870,688
$ 3
$ 901,157
$ —
$ (11,214 ) $ 889,956
$ 326,601
Comprehensive income —
—
—
—
—
—
(4,404 ) (4,404 ) (4,081 )
Share-based compensation —
—
2,496,000
—
5,718
—
—
5,718
17,889
Exchanges 661,700
—
(661,700 ) —
6,217
—
—
6,217
(6,217 )
Tax receivable agreement arising from exchanges, net of income taxes of $420 —
—
—
—
(268 ) —
—
(268 ) —
Balance–December 31, 2016 98,250,917
10
31,704,988
3
912,824
—
(15,618 ) 897,219
334,192
Comprehensive income —
—
—
—
—
1,318
223,897
225,215
34,881
Share-based compensation, net of income taxes of $2,610 154,849
—
—
—
4,803
—
—
4,803
—
Exchanges 1,385,424
—
(1,385,424 ) —
13,848
—
—
13,848
(13,848 )
Distributions —
—
—
—
—
—
—
—
(12,985 )
Payment of taxes for employee stock awards —
—
—
—
(436 ) —
—
(436 ) —
Exercise of public warrants 55
—
—
—
1
—
—
1
—
Tax receivable agreement arising from exchanges, net of income taxes of $1,898 —
—
—
—
(10,317 ) —
—
(10,317 ) —
Balance–December 31, 2017 99,791,245
10
30,319,564
3
920,723
1,318
208,279
1,130,333
342,240
Adoption of new accounting standards net of income taxes of $83 —
—
—
—
—
7
191
198
85
Comprehensive income —
—
—
—
—
1,198
62,895
64,093
19,050
Share-based compensation, net of income taxes of $505 190,767
—
—
—
5,095
—
—
5,095
—
Exchanges 64,380
—
(64,380 ) —
1,370
—
1,370
(1,370 )
Distributions —
—
—
—
—
—
—
—
(9,551 )
Payment of taxes for employee stock awards —
—
—
—
(1,025 ) —
—
(1,025 ) —
Tax receivable agreement arising from exchanges, net of income taxes of $33 —
—
—
—
(261 ) —
—
(261 ) —
Balance–December 31, 2018 100,046,392
$ 10
30,255,184
$ 3
$ 925,902
$ 2,523
$ 271,365
$ 1,199,803
$ 350,454

See accompanying notes to the consolidated financial statements.

HOSTESS BRANDS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Amounts in thousands)


	Class A Voting Common Stock			Class B Voting Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Losses)		Retained Earnings		Treasury Stock			Total Stockholders’ Equity		Non-controlling Interest
	Shares	Amount		Shares	Amount								Shares	Amount
Balance–December 31, 2017	99,791	$	10	30,320	$	3	$	920,723	$	1,318	$	208,279	0	$	0	$	1,130,333	$	342,240
Adoption of new accounting standards net of income taxes of $83	—	—		—	—		—		7		191		—	—		198		85
Comprehensive income	—	—		—	—				1,198		62,895		—	—		64,093		19,050
Share-based compensation, net of income taxes of $505	191	—		—	—		5,095		—		—		—	—		5,095		—
Exchanges	64	—		(64)	—		1,370		—				—	—		1,370		(1,370)
Distributions	—	—		—	—				—		—		—	—		—		(9,551)
Payment of taxes for employee stock awards	—	—		—	—		(1,025)		—		—		—	—		(1,025)		—
Tax receivable agreement arising from exchanges, net of income taxes of $33	—	—		—	—		(261)		—		—		—	—		(261)		—
Balance–December 31, 2018	100,046	10		30,256	3		925,902		2,523		271,365		0	0		1,199,803		350,454
Comprehensive income	—	—		—	—		—		(3,388)		63,115		—	—		59,727		13,292
Share-based compensation, net of income taxes of $1,354	209	—		—	—		7,877		—		—		—	—		7,877		—
Exchanges	21,845	2		(21,845)	(2)		262,547		109		—		—	—		262,656		(262,656)
Distributions	—	—		—	—		—		—		—		—	—		—		(6,658)
Exercise of employee stock options	7	—		—	—		23		—		—		—	—		23		—
Payment of taxes for employee stock awards	—	—		—	—		(1,431)		—		—		—	—		(1,431)		—

Tax receivable agreement arising from exchanges, net of income taxes of $28,817	—	—		—	—		(42,863)		—		—		—	—		(42,863)		—
Balance–December 31, 2019	122,107	12		8,411	1		1,152,055		(756)		334,480		0	0		1,485,792		94,432
Comprehensive income	—	—		—	—		—		(8,691)		64,735		—	—		56,044		2,749
Share-based compensation, including income taxes of $2,167	223	—		—	—		10,838		—		—		—	—		10,838		—
Exchanges	8,411	1		(8,411)	(1)		94,719		(960)		—		—	—		93,759		(93,759)
Distributions	—	—		—	—		—		—		—		—	—		—		(3,422)
Exercise of employee stock options and warrants	50	—		—	—		690		—		—		—	—		690		—
Payment of taxes for employee stock awards	—	—		—	—		(1,440)		—		—		—	—		(1,440)		—

Repurchase of private placement warrants	—	—		—	—		(2,000)		—		—		—	—		(2,000)		—
Repurchase of common stock	(444)	—		—	—		—		—		—		444	(6,000)		(6,000)		—
Tax receivable agreement arising from exchanges, net of income taxes of $11,818	—	—		—	—		(16,097)		—		—		—	—		(16,097)		—
Balance-December 31, 2020	130,347	$	13	0	$	—	$	1,238,765	$	(10,407)	$	399,215	444	$	(6,000)	$	1,621,586	$	0

See accompanying notes to the consolidated financial statements.

HOSTESS BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)


	Year Ended December 31, 2018			Year Ended December 31, 2017			November 4, 2016 through December 31, 2016			January 1, 2016 through November 3, 2016
	(Successor)			(Successor)			(Successor)			(Predecessor)				Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018
Operating activities													Operating activities
Net income (loss)	$	81,426		$	258,108		$	(8,485	)	$	60,425
Net income													Net income	$	68,356	$	77,565	$	81,426
Depreciation and amortization	41,411			38,170			5,843			10,265			Depreciation and amortization	54,940		43,334		41,411
Impairment of property, goodwill and intangibles	4,717			1,003			—			7,300
Non-cash loss (gain) on debt modification	—			1,453			(3,974		)	—
Impairment and loss on sale of assets													Impairment and loss on sale of assets	3,329		1,976		4,970
Non-cash loss on debt modification													Non-cash loss on debt modification	0		531		0
Debt discount (premium) amortization	(1,079		)	(925		)	(197		)	2,790			Debt discount (premium) amortization	1,289		(747)		(1,079)
Tax receivable agreement remeasurement and gain on buyout	(14,237		)	(50,222		)	—			—			Tax receivable agreement remeasurement and gain on buyout	760		185		(14,237)
Stock-based compensation	5,600			7,413			26,748			3,890
Loss on sale/abandonment of property and equipment	253			11			—			2,551
Non-cash fees on sale of business													Non-cash fees on sale of business	0		1,414		0
Unrealized loss (gain) on foreign currency													Unrealized loss (gain) on foreign currency	2,061		(7,128)		0
Non-cash lease expense													Non-cash lease expense	571		0		0
Share-based compensation													Share-based compensation	8,671		9,231		5,600

Deferred taxes	10,255			(81,270		)	(7,815		)	—			Deferred taxes	16,806		14,121		10,255
Change in operating assets and liabilities
Change in operating assets and liabilities, net of acquisitions and dispositions:													Change in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable	(3,667		)	(11,775		)	3,705			(19,869		)	Accounts receivable	4,434		(2,570)		(3,667)
Inventories	3,569			(3,901		)	8,895			(2,994		)	Inventories	5,824		(12,477)		3,569
Prepaids and other current assets	(510		)	(3,039		)	(1,694		)	(1,049		)	Prepaids and other current assets	(5,301)		265		(510)
Accounts payable and accrued expenses	14,418			4,839			(11,296		)	33,886			Accounts payable and accrued expenses	1,900		14,072		14,418
Customer trade allowances	1,499			3,820			2,225			4,828			Customer trade allowances	(4,397)		4,202		1,499
Other	—			—			(344		)	198

Net cash provided by operating activities	143,655			163,685			13,611			102,221			Net cash provided by operating activities	159,243		143,974		143,655

Investing activities													Investing activities
Purchases of property and equipment	(44,585		)	(32,913		)	(6,494		)	(28,633		)	Purchases of property and equipment	(51,983)		(34,875)		(44,585)
Acquisition of business, net of cash	(23,160		)	—			(421,242		)	(49,735		)	Acquisition of business, net of cash	(316,013)		0		(23,160)
Proceeds from sale of business, net of cash													Proceeds from sale of business, net of cash	0		63,345		0
Proceeds from sale of assets	639			85			—			4,000			Proceeds from sale of assets	0		0		639
Acquisition and development of software assets	(3,839		)	(2,381		)	(460		)	(2,211		)	Acquisition and development of software assets	(6,269)		(5,609)		(3,839)
Net cash used in investing activities	(70,945		)	(35,209		)	(428,196		)	(76,579		)

Net cash provided by (used in) investing activities													Net cash provided by (used in) investing activities	(374,265)		22,861		(70,945)
Financing activities													Financing activities
Repayments of long-term debt and capital lease obligation	(10,105		)	(5,144		)	(217,400		)	(6,987		)
Payment of deferred underwriting costs	—			—			(13,125		)	—
Debt fees	—			(1,066		)	(1,820		)	—
Distributions to partners	—			—			—			(23,582		)
Repayments of long-term debt and financing lease obligations													Repayments of long-term debt and financing lease obligations	(11,168)		(9,894)		(10,105)
Proceeds from long-term debt origination, net of fees paid													Proceeds from long-term debt origination, net of fees paid	136,888		0		0
Debt refinancing costs													Debt refinancing costs	0		(7,433)		0
Distributions to non-controlling interest	(9,551		)	(12,985		)	—			(1,027		)	Distributions to non-controlling interest	(3,422)		(6,658)		(9,551)
Repurchase of warrants													Repurchase of warrants	(2,000)		0		0
Repurchase of common stock													Repurchase of common stock	(6,000)		0		0
Payment of taxes related to the net issuance of employee stock awards	(1,025		)	(436		)	—			—			Payment of taxes related to the net issuance of employee stock awards	(1,440)		(1,431)		(1,025)
Payments on tax receivable agreement	(41,353		)	—			—			—			Payments on tax receivable agreement	(10,327)		(2,732)		(41,353)
Proceeds from the exercise of warrants	—			1			—			—			Proceeds from the exercise of warrants	690		23		0
Net cash used in financing activities	(62,034		)	(19,630		)	(232,345		)	(31,596		)
Net cash provided by (used in) financing activities													Net cash provided by (used in) financing activities	103,221		(28,125)		(62,034)
Effect of exchange rate changes on cash and cash equivalents													Effect of exchange rate changes on cash and cash equivalents	(252)		0		0
Net increase (decrease) in cash and cash equivalents	10,676			108,846			(646,930		)	(5,954		)	Net increase (decrease) in cash and cash equivalents	(112,053)		138,710		10,676
Cash and cash equivalents at beginning of period	135,701			26,855			673,785			64,473			Cash and cash equivalents at beginning of period	285,087		146,377		135,701
Cash and cash equivalents at end of period	$	146,377		$	135,701		$	26,855		$	58,519		Cash and cash equivalents at end of period	$	173,034	$	285,087	$	146,377

Supplemental Disclosures of Cash Flow Information													Supplemental Disclosures of Cash Flow Information
Interest paid	$	37,617		$	45,431		$	—		$	68,606		Interest paid	$	41,776	$	43,986	$	37,617
Taxes paid	$	3,422		$	16,617		$	43		$	—		Taxes paid	$	5,825	$	1,840	$	3,422
Supplemental disclosure of non-cash investing													Supplemental disclosure of non-cash investing
Accrued capital expenditures	$	7,858		$	1,089		$	673		$	633		Accrued capital expenditures	$	4,718	$	2,910	$	7,858

See accompanying notes to the consolidated financial statements.

HOSTESS BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Description of Business

Hostess Brands, Inc. is a Delaware corporation headquartered in ~~Kansas City, Missouri.~~Lenexa, Kansas. The consolidated financial statements include the accounts of Hostess Brands, Inc. and its ~~wholly owned~~ subsidiaries (collectively, the “Company”). The Company is a leading packaged food company ~~primarily~~ focused on developing, manufacturing, marketing, selling and distributing ~~fresh~~snack products, including sweet baked goods, cookies and wafers in ~~the United States.~~North America. The Hostess® brand dates back to 1919 when ~~the~~ Hostess® CupCake was introduced to the public, followed by ~~Twinkies~~®Twinkies® in 1930. In 2013, the Legacy Hostess Equityholders (as defined below) acquired the Hostess brand and other assets out of the bankruptcy liquidation proceedings of its prior owners, free and clear of all past liabilities. After a brief hiatus in production, the Company began providing Hostess products to consumers and retailers across the nation in July 2013. Today, the Company produces a variety of new and classic treats primarily under the Hostess®, Dolly Madison®, Cloverhill®, Big Texas®, and Superior on Main® brands, including Twinkies®, CupCakes, Ding Dongs®, HoHos®, Donettes® and Fruit Pies.

On November 4, 2016 (the “Closing Date”), in a transaction referred to as the “Hostess Business Combination,” the Company, then known as Gores Holdings, Inc. (“Gores Holdings”), acquired a controlling interest in Hostess Holdings, L.P. (“Hostess Holdings”), an entity owned indirectly by entities controlled by C. Dean Metropoulos (the “Metropoulos Entities”) and certain equity funds managed by affiliates of Apollo Global Management, LLC (the “Apollo Funds”, and together with the Metropoulos entities, the “Legacy Hostess Equityholders”). “2016 Predecessor Period” refers to the period from January 1, 2016 to November 3, 2016, while the “2016 Successor Period” refers to the period from November 4, 2016 to December 31, 2016. Our “Sponsor” refers to Gores Sponsor, LLC, a Delaware limited liability company and the principal stockholder of Gores Holdings, Inc. prior to the Hostess Business Combination, and the “The Gores Group” refers to The Gores Group LLC, an affiliate of our Sponsor. In connection with the closing of the Hostess Business Combination, Gores Holdings, Inc. changed its name to “Hostess Brands, Inc.” and its trading symbols on NASDAQ from “GRSH” and “GRSHW,” to “TWNK” and “TWNKW”.

As a result of the Hostess Business Combination, for accounting purposes, Hostess Brands, Inc. is the acquirer and Hostess Holdings is the acquired party and accounting predecessor. The Company’s financial statement presentation includes the financial statements of Hostess Holdings and its subsidiaries as “Predecessor” for periods prior to the completion of the Hostess Business Combination and of Hostess Brands, Inc., including the consolidation of Hostess Holdings and its subsidiaries, for periods from and after the Closing Date (referred to as the “Successor”). Unless the context requires otherwise, the “Company” refers to the Predecessor for periods prior to the Hostess Business Combination and to the Successor for periods after the Hostess Business Combination.

Basis of Presentation

The Company’s operations are conducted through operating subsidiaries that are wholly-owned by the Company. The consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned, majority-owned or controlled subsidiaries, collectively referred to as ~~either Hostess or~~ the Company. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with current period presentation.

Prior to the final exchange of Class B stock (as described below), the Company's operating subsidiaries were wholly-owned by Hostess Holdings, a direct subsidiary of Hostess Brands, Inc. Hostess Brands, Inc. held 100% of the general partnership interest in Hostess Holdings and a majority of the limited partnership interests therein and consolidated Hostess Holdings in the Company’s consolidated financial statements. The remaining limited partnership interests in Hostess Holdings were held by the holders of Class B stock.

C. Dean Metropoulos and entities under his control (the “Metropoulos Entities”) held their equity investment in the Company primarily through Class B limited partnership units (“Class B Units”) in Hostess Holdings LP (“Hostess Holdings”) and an equal number of shares of the Company’s Class B common stock (“Class B Stock”). Each Class B Unit, together with a share of Class B Stock held by the Metropoulos Entities, was exchangeable for a share of the Company’s Class A common stock. The interest of the Class B Units was reflected in the consolidated financial statements as a non-controlling interest. During the year ended December 31, 2020, the Metropoulos Entities exchanged all of their remaining Class B Units and Class B Stock for Class A common stock. At December 31, 2020, there are no outstanding Class B Units or Class B stock and there is no non-controlling interest reported on the December 31, 2020 consolidated balance sheet.

Subsequent to the Metropoulos Entities' final exchange of Class B Units, all subsidiaries including, Hostess Holdings, are wholly owned by the Company.

Prior to the final exchange of Class B Units, the Company ~~has~~ determined that Hostess Holdings, a limited partnership, iswas a variable interest entity (“VIE”) and that the Company iswas the primary beneficiary of the VIE. The Company determined that, due to its ownership of Hostess Holdings’ general partnership units, the Company ~~has~~had the power to direct all of the activities of Hostess Holdings, with no substantive kick-out rights or participating rights by the limited partners individually or as a group. Hostess Holdings ~~constitutes~~constituted the majority of the assets of the Company.

Mr. Metropoulos and the Metropoulos Entities hold their equity investment in the Company primarily through Class B limited partnership units in the Company’s subsidiary, Hostess Holdings (“Class B Units”) and an equal number of shares of the Company’s Class B common stock (“Class B Stock”). The Company’s Class B Stock has voting, but no

~~HOSTESS BRANDS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

economic, rights, while Hostess Holdings’ Class B Units have economic, but no voting rights. Each Class B Unit, together with a share of Class B Stock held by the Metropoulos Entities, is exchangeable for a share of the Company’s Class A common stock (or at the option of the Company, the cash equivalent thereof). The interest of the Metropoulos Entities in Hostess Holdings’ Class B Units is reflected in our consolidated financial statements as a non-controlling interest. The non-controlling interest was recorded at fair value at November 4, 2016 as a result of the Hostess Business Combination.

For the Predecessor Periods, Hostess Holdings consolidated the financial position and results of operations of New Hostess Holdco, LLC. The portion of the New Hostess Holdco, LLC not owned by Hostess Holdings was recognized as a non-controlling interest in the consolidated financial statements. The non-controlling interest presented in the accompanying consolidated balance sheet represents the amount of cash that would be payable to the non-controlling interest holders if the Company were liquidated at book value as of the balance sheet date. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, is the share of the earnings or losses allocated to non-controlling interest for the period.

The Company has ~~two~~1 reportable segment: Snacking (formerly known as Sweet Baked Goods). For the year ended December 31, 2019, the Company had 2 reportable segments: Sweet Baked Goods and In-Store Bakery.

~~Adoption of New Accounting Standards~~

~~On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Topic 606), using the modified retrospective transition method. Under this method, results for reporting periods beginning January 1, 2018 are presented under Topic 606. Prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under Topic 605, with the cumulative effect of applying Topic 606 to prior period amounts recognized as an adjustment to opening retained earnings. The Company has elected to apply the new standard to contracts that were not complete as of January 1, 2018. Under this transition method, the Company deemed contracts to be not complete if, as of the date of transition, the Company had not fulfilledsold its ~~performance obligations. The impact of the adoption of Topic 606 is further described in the Revenue Recognition section of this footnote.~~

~~On January 1, 2018, the Company adopted ASU No. 2017-12,~~ ~~Derivatives and Hedging: Targeted Improvements to~~

~~Accounting for Hedging Activities~~ ~~(ASU 2017-12). The adoption of this standard did not have a material impact~~In-Store Bakery operations on ~~the consolidated financial statements.~~

~~In March 2018, the Company adopted ASU 2018-05,~~ ~~Income Taxes (Topic 740): Amendments to SEC Paragraphs~~

~~Pursuant to SEC Staff Accounting Bulletin No. 118,~~ which updates the income tax accounting in U.S. GAAP to reflect the SEC’s interpretive guidance released on December 22, 2017, when the legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform”) was signed into law. Additional information regarding the adoption of this standard is contained in Note 13-Income Taxes.

~~In September 2018, the Company adopted ASU 2018-15,~~ ~~Intangibles-Goodwill and Other Internal-Use Software~~

~~(Subtopic 350-40)~~: ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement~~

~~That Is a Service Contract,~~ ~~which aligns the requirements for capitalizing implementation costs incurred in a hosting~~

arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this standard did not have a material impact on the consolidated financial statements.

August 30, 2019.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries (including those for which the Company iswas the primary beneficiary of a ~~variable interest entity)~~VIE), collectively referred to as the Company. All intercompany balances and transactions have been eliminated in consolidation.



☒	x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended	December 31, ~~2018~~2020

☐	o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to



Title of Each Class	Ticker Symbol	Name of Each Exchange on Which Registered
Class A Common Stock, par value of $0.0001 per share	~~NASDAQ Capital~~TWNK	The Nasdaq Stock Market LLC
~~56,499,890~~ Warrants, each exercisable for half share of Class A Common Stock	~~NASDAQ Capital~~TWNKW	The Nasdaq Stock Market LLC



	Page
Part I
Item 1.		Business	4
Item 1A.		Risk Factors	11
Item 1B.		Unresolved Staff Comments	2324
Item 2.		Properties	2425
Item 3.		Legal Proceedings	2425
Item 4.		Mine Safety Disclosures	2425
Part II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2526
Item 6.		Selected Financial Data	2729
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3029
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk	4239
Item 8.		Financial Statements and Supplementary Data	4341
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7774
Item 9A.		Controls and Procedures	7775
Item 9B.		Other Information	7875
Part III
Item 10.		Directors, Executive Officers and Corporate Governance	7875
Item 11.		Executive Compensation	7875
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7875
Item 13.		Certain Relationships and Related Transactions, and Director Independence	7876
Item 14.		Principal Accounting Fees and Services	7876
Part IV
Item 15.		Exhibits, Financial Statement Schedules	7876



Board of Directors:						Management:
~~Mr. C. Dean Metropoulos,~~Jerry D. Kaminski, Chairman						Andy P. Callahan, President and Chief Executive Officer
Andy P. Callahan, Director						~~Thomas A. Peterson,~~Brian T. Purcell, Executive Vice President, - Chief Financial Officer
Laurence E. Bodner, Director						Michael J. Cramer, Executive Vice President, - Chief Administrative Officer
Gretchen R. Crist, Director						Andrew W. Jacobs, Executive Vice President, - Chief Operating Officer
~~Neil DeFoe,~~Rachel P. Cullen, Director						John L. Kalal, Senior Vice President of Bakery Operations and Supply Chain
~~Jerry Kaminski,~~Ioannis Skoufalos, Director						Darryl P. Riley, Senior Vice President of Quality, Food Safety and R&D
Craig D. Steeneck, Director						Jolyn J. Sebree, Senior Vice President, - General Counsel and Secretary
						Robert C. Weber, Senior Vice President, Chief Human Resources Officer


(In thousands)	December 31, 2018		December 31, 2017		(In thousands)	December 31, 2020		December 31, 2019
	(Successor)		(Successor)
Ingredients and packaging	$	18,865	$	14,826	Ingredients and packaging	$	22,965	$	21,439
Finished goods	16,446		15,471		Finished goods	23,583		22,513
Inventory in transit to customers	3,269		4,048		Inventory in transit to customers	2,800		3,656
	$	38,580	$	34,345		$	49,348	$	47,608



(In thousands except for per share data)	2018 (1)		2017 (2)		2016 (3)					2015		2014
	(Successor)		(Successor)		(Successor)			(Predecessor)		(Predecessor)		(Predecessor)
Statement of operations:
Net revenue	$	850,389	$	776,188	$	111,998		$	615,588	$	620,815	$	554,695
Gross profit	267,277		326,898		38,714			266,529		262,203		233,932
Net income (loss)	81,426		258,108		(8,485		)	60,425		88,760		81,464
Net income (loss) per basic Class A share (4)	0.63		2.26		(0.05		)
Net income (loss) per diluted Class A share (4)	0.61		2.13		(0.05		)
Balance sheet:
Total assets	3,010,713		2,966,275		2,847,892			643,529		765,494		683,678
Long-term debt and capital leases obligations	988,004		999,188		993,374			1,193,667		473,175		479,602
Liquidity:
Capital expenditures (5)	53,748		36,383		7,627			31,477		27,267		54,728



	2018			2017			2016
(In thousands, except share and per share data)	Year Ended December 31			Year Ended December 31			From November 4 through December 31			From January 1 through November 3
	(Successor)			(Successor)			(Successor)			(Predecessor)
Net revenue	$	850,389		$	776,188		$	111,998		$	615,588
Gross profit	267,277			326,898			38,714			266,529
As a % of net revenue	31.4		%	42.1		%	34.6		%	43.3		%
Operating costs and expenses	$	145,719		$	92,906		$	48,321		$	143,657
Operating income (loss)	121,558			233,992			(9,607		)	122,872
As a % of net revenue	14.3		%	30.1		%	(8.6		)%	20.0		%
Other expense	$	27,178		$	43,088		$	6,640		$	62,008
Income tax expense (benefit)	12,954			(67,204		)	(7,762		)	439
Net income (loss)	81,426			258,108			(8,485		)	60,425
Net income (loss) attributable to Class A shareholders	$	62,895		$	223,897		$	(4,404	)	$	57,211

Earnings (loss) per Class A share:
Basic	$	0.63		$	2.26		$	(0.05	)
Diluted	$	0.61		$	2.13		$	(0.05	)

Adjusted EBITDA(1)	$	186,176		$	230,212		$	31,895		$	183,408



(In thousands)	Year Ended December 31, 2018		Year Ended December 31, 2017		From November 4 through December 31, 2016		From January 1 through November 3, 2016
	(Successor)		(Successor)		(Successor)		(Predecessor)
Net revenue:
Sweet Baked Goods	$	808,355	$	733,827	$	105,211	$	595,645
In-Store Bakery	42,034		42,361		6,787		19,943
Net revenue	$	850,389	$	776,188	$	111,998	$	615,588

Gross profit:
Sweet Baked Goods	$	258,995	$	316,916	$	37,387	$	260,876
In-Store Bakery	8,282		9,982		1,327		5,653
Gross profit	$	267,277	$	326,898	$	38,714	$	266,529

Capital expenditures (1):
Sweet Baked Goods	$	53,394	$	35,609	$	7,544	$	31,254
In-Store Bakery	354		774		83		223
Capital expenditures	$	53,748	$	36,383	$	7,627	$	31,477



Contractual Commitments as of December 31, 2018	Total Committed		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
(In thousands)
Tax receivable agreement	$	69,063	$	4,400	$	8,400	$	8,000	$	48,263
First term loan	983,825		9,938		973,887		—		—
Interest payments on term loan	167,693		42,571		125,122		—		—
Operating leases	832		832		—		—
Capital lease	433		200		233		—		—
Ingredient procurement	76,188		76,188		—		—		—
Packaging procurement	17,168		17,168		—		—		—
	$	1,315,202	$	151,297	$	1,107,642	$	8,000	$	48,263



	Year Ended December 31, 2018			Year Ended December 31, 2017			From November 4, 2016 through December 31, 2016			From January 1, 2016 through November 3, 2016
	(Successor)			(Successor)			(Successor)			(Predecessor)
Net revenue	$	850,389		$	776,188		$	111,998		$	615,588
Cost of goods sold	583,112			449,290			73,284			349,059
Gross profit	267,277			326,898			38,714			266,529

Operating costs and expenses:
Advertising and marketing	35,069			33,004			5,245			30,626
Selling expense	30,071			32,086			5,033			25,730
General and administrative	52,760			52,943			7,322			38,391
Amortization of customer relationships	24,057			23,855			3,922			1,185
Business combination transaction costs	297			—			—			31,832
Related party expenses	362			381			26,799			3,539
Tax receivable agreement liability remeasurement	(1,866		)	(50,222		)	—			—
Other operating expense	4,969			859			—			12,354
Total operating costs and expenses	145,719			92,906			48,321			143,657
Operating income (loss)	121,558			233,992			(9,607		)	122,872
Other (income) expense:
Interest expense, net	39,404			39,174			6,649			60,384
Gain on buyout of tax receivable agreement	(12,372		)	—			—			—
Other expense (income)	146			3,914			(9		)	1,624
Total other expense	27,178			43,088			6,640			62,008
Income (loss) before income taxes	94,380			190,904			(16,247		)	60,864
Income tax expense (benefit)	12,954			(67,204		)	(7,762		)	439
Net income (loss)	81,426			258,108			(8,485		)	60,425
Less: Net income (loss) attributable to the non-controlling interest	18,531			34,211			(4,081		)	3,214
Net income (loss) attributable to Class A stockholders/partners	$	62,895		$	223,897		$	(4,404	)	$	57,211

Earnings (loss) per Class A share:
Basic	0.63			2.26			(0.05		)
Diluted	0.61			2.13			(0.05		)
Weighted-average shares outstanding:
Basic	99,957,049			99,109,629			97,791,658
Diluted	103,098,394			105,307,293			97,791,658



Partners’ Equity (Deficit) Hostess Holdings, LP (Predecessor)
	Class A			Class C			Total Partners’ Equity (Deficit)			Non-controlling Interest
Balance – December 31, 2015	$	(276,084	)	$	(346,046	)	$	(622,130	)	$	(37,991	)
Distributions to partners	(9,817		)	(13,765		)	(23,582		)	(1,027		)
Unit based compensation	1,945			1,945			3,890			—
Net income	28,605			28,606			57,211			3,214
Balance – November 3, 2016	$	(255,351	)	$	(329,260	)	$	(584,611	)	$	(35,804	)



	Balance at December 31, 2017		Adjustments Due to Topic 606			Balance at January 1, 2018
Current assets:
Accounts receivable, net	$	101,012	$	1,000		$	102,012
Inventories	34,345		(531		)	33,814

Current liabilities:
Accounts payable	49,992		103			50,095

Long-term liabilities:
Deferred tax liability	267,771		83			267,854

Stockholders' equity:
Retained earnings	208,279		191			208,470
Non-controlling interest	342,240		85			342,325



	Year Ended December 31, 2018		Year Ended December 31, 2017		From November 4, 2016 through December 31, 2016		From January 1, 2016 through November 3, 2016
	(Successor)		(Successor)		(Successor)		(Predecessor)
Sweet Baked Goods	20.4	%	19.7	%	19.3	%	21.2	%
In-Store Bakery	0.6	%	0.7	%	0.7	%	0.4	%
Total	21.0	%	20.4	%	20.0	%	21.6	%


(In thousands)
Cash	$	1,639
Accounts receivable	24,848
Inventory	7,564
Income tax receivable	7,522
Other current assets	420
Property and equipment	32,028
Customer relationships (1)	11,100
Trade names (2)	130,000
Goodwill (3)	170,762
Other non-current assets	1,320
Accounts payable and accrued expenses	(6,172)
Customer trade allowances	(5,428)
Lease liabilities	(6,420)
Deferred taxes	(39,149)
Other non-current liabilities	(1,320)
Assets acquired and liabilities assumed	$	328,714



(In thousands)
Inventory	$	8,335
Other current assets	500
Property and equipment	13,272
Trade name and trademarks	1,648
Customer relationships	1,136
Other current liabilities	(1,731		)
Net assets acquired	$	23,160



	Year Ended December 31, 2016
(In thousands)	(Pro Forma) (Unaudited)
Net Revenue	$	727,586
Net Income	82,442


	Twelve Months Ended
(In thousands)	December 31, 2020		December 31, 2019
	(unaudited, pro forma)
Net revenue	$	1,016,609	$	1,007,140
Net income	68,356		70,428


(In thousands)	Severance		Contract Termination		Total
Charges recorded	$	4,632	$	8,278	$	12,910
Payments made	(4,063)		(7,913)		(11,976)
Impact of change in exchange rates on CAD denominated liability	(33)		(365)		(398)
Reserve balance as of December 31, 2020	$	536	$	0	$	536


						Restricted Stock Units	Weighted Average Grant Date Fair Value
	Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested units as of December 31, 2016 (Successor)	—		$	—
Unvested as of December 31, 2018					Unvested as of December 31, 2018	895,784	$	14.46
Total Granted	1,448,736		15.73		Total Granted	721,985	12.76
Forfeited	(390,038	)	15.78		Forfeited	(298,601)	14.96
Vested⁽¹⁾	(142,804	)	15.55
Unvested as of December 31, 2017 (Successor)	915,894		$	15.73
Vested(1)					Vested(1)	(415,033)	14.26
Unvested as of December 31, 2019					Unvested as of December 31, 2019	904,135	12.99
Total Granted	440,883		12.92		Total Granted	628,801	12.99
Forfeited	(172,257	)	15.46		Forfeited	(285,991)	14.54
Vested⁽²⁾	(288,736	)	15.61
Unvested as of December 31, 2018 (Successor)	895,784		$	14.46
Vested(2)					Vested(2)	(198,677)	12.17
Unvested as of December 31, 2020					Unvested as of December 31, 2020	1,048,268	$	13.95


	Year Ended December 31, 2020	Year Ended December 31, 2019
Expected volatility (1)	26.34%	26.66%
Expected dividend yield (2)	0%	0%
Expected option term (3)	6.00 years	6.00 years
Risk-free rate (4)	1.6%	1.8%



	Year Ended December 31, 2018	Year Ended December 31, 2017
Expected volatility ⁽¹⁾	27.13%	27.46%
Expected dividend yield ⁽²⁾	—%	—%
Expected option term ⁽³⁾	6.25 years	6.24 years
Risk-free rate ⁽⁴⁾	2.98%	2.09%


~~(1)~~	~~The expected volatility assumption was calculated based on a peer group analysis of stock price volatility with a look back period based on the expected term and ending on the grant date.~~


~~(2)~~	From its inception through December 31, 2018, the Company has not paid any dividends on its common stock. As of the stock option grant date, the Company does not anticipate paying any dividends on common stock over the term of the stock options. Option holders have no right to dividends prior to the exercise of the options.


~~(3)~~	The Company utilized the simplified method to determine the expected term of the stock options since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.


~~(4)~~	~~The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant which corresponds to the expected term of the stock options.~~


	Number of Options	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price
Outstanding as of December 31, 2018	943,939	5.54	$	13.54
Granted	905,421	—	11.59
Exercised	(7,463)	—	13.11
Forfeited	(124,226)	—	12.42
Outstanding as of December 31, 2019	1,717,671	8.35	$	13.35
Exercisable as of December 31, 2019	486,663	7.35	$	15.43
Granted	703,329	—	13.69
Exercised	(44,257)	—	11.35
Forfeited	(305,628)	—	13.93
Outstanding as of December 31, 2020	2,071,115	7.95	$	13.43
Exercisable as of December 31, 2020	787,671	7.01	$	14.20


~~(1)~~	~~Depreciation and amortization include charges to net income classified as costs of goods sold and general and administrative expenses on the consolidated statement of operations.~~



(In thousands)	December 31, 2018			December 31, 2017
Intangible assets with indefinite lives (Trademarks and Trade Names)	$	1,410,497		$	1,408,848
Intangible assets with definite lives (Customer Relationships)	543,120			542,011
Less accumulated amortization (Customer Relationships)	(51,802		)	(27,771		)
Less accumulated impairment charges (Trademarks and Trade Names)	(600		)	—
Intangible assets, net	$	1,901,215		$	1,923,088


(In thousands)
2021	$	23,512
2022	23,512
2023	23,512
2024	23,512
2025	22,752
2026 and thereafter	312,472



(In thousands)
2019	$	24,036
2020	24,036
2021	24,036
2022	24,036
2023	24,036
2024 and thereafter	371,138


(In thousands)
Balance December 31, 2018	$	69,063
Exchange of Class B units for Class A shares	71,679
Remeasurement due to disposal of In-Store Bakery operations	1,779
Remeasurement due to change in estimated state tax rate	(1,593)
Payments	(2,732)
Balance December 31, 2019	138,196
Exchange of Class B units for Class A shares	27,915
Remeasurement due to tax law change	610
Remeasurement due to change in estimated state tax rate	150
Payments	(10,327)
Balance December 31, 2020	$	156,544



(In thousands)
Balance December 31, 2016	$	165,384
Measurement period adjustments	(3,017		)
Exchanges of Class B units for Class A shares	12,215
Remeasurement due to change in state tax rate	1,589
Remeasurement due to Tax Reform	(51,811		)
Balance December 31, 2017 (Successor)	$	124,360
Exchange of Class B units for Class A shares	294
Reduction of future payments due to Buyout	(46,372		)
Remeasurement due to change in estimated state tax rate	(1,866		)
Payments	(7,353		)
Balance December 31, 2018 (Successor)	$	69,063


(In thousands)
2021	$	11,167
2022	11,167
2023	11,167
2024	11,167
2025	1,058,095



	Year Ended December 31, 2018		Year Ended December 31, 2017		From November 4, 2016 through December 31, 2016
	(Successor)		(Successor)		(Successor)
Numerator:
Net income (loss) attributable to Class A stockholders (in thousands)	$	62,895	$	223,897	$	(4,404	)
Denominator:
Weighted-average Class A shares outstanding - basic (excluding non-vested restricted stock awards)	99,957,049		99,109,629		97,791,658
Dilutive effect of warrants	3,021,239		6,113,053		—
Dilutive effect of RSAs and RSUs	120,106		84,611		—
Weighted-average shares outstanding - diluted	103,098,394		105,307,293		97,791,658
Earnings (loss) per Class A share - basic	$	0.63	$	2.26	$	(0.05	)
Earnings (loss) per Class A share - dilutive	$	0.61	$	2.13	$	(0.05	)


(In thousands)	As of December 31, 2018			As of December 31, 2017			(In thousands)	As of December 31, 2020		As of December 31, 2019
	(Successor)			(Successor)
Deferred tax assets							Deferred tax assets
Imputed interest	$	3,064		$	4,967		Imputed interest	$	6,744	$	6,198
Tax credits	2,696			2,337			Tax credits	4,582		2,599
Disallowed interest carryforward	2,374			—
Derivative instruments							Derivative instruments	3,495		0
Net operating loss carryforwards	1,000			578			Net operating loss carryforwards	2,601		249
Accrued liabilities							Accrued liabilities	4,870		0
Stock-based compensation							Stock-based compensation	3,449		0
Other	1,252			1,002			Other	4,443		1,343
Total deferred tax assets	10,386			8,884			Total deferred tax assets	30,184		10,389
Valuation allowance	—			(242		)
Total deferred tax assets, net of valuation allowance	10,386			8,642

Deferred tax liabilities							Deferred tax liabilities
Investment in partnership	(279,015		)	(266,900		)	Investment in partnership	0		(266,440)
Goodwill and intangible assets	(7,023		)	(7,512		)	Goodwill and intangible assets	(277,563)		0
Property and equipment	(1,261		)	(1,394		)	Property and equipment	(46,732)		0
Other	(1,041		)	(607		)	Other	(898)		0
Total deferred tax liabilities	(288,340		)	(276,413		)	Total deferred tax liabilities	(325,193)		(266,440)

Total deferred tax assets and liabilities	$	(277,954	)	$	(267,771	)
Total Deferred tax assets and liabilities							Total Deferred tax assets and liabilities	$	(295,009)	$	(256,051)