UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
For the quarterly period ended September 30, 2017
or
| |
| For the quarterly period ended July 1, 2023 or |
| |
☐ | Transition Report Pursuant to Section 13 or 15(d) |
For the transition period from to .
Commission file number 001-32316
B&G FOODS, INC.
(Exact name of Registrant as specified in its charter)
| | |
Delaware | | 13-3918742 |
(State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
incorporation or organization) | | |
| | |
| | 07054 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (973) (973) 401-6500
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | BGS | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |||
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | |
| |
| | |
Emerging growth company ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2017,July 28, 2023, the registrant had 66,496,33372,291,573 shares of common stock, par value $0.01 per share, issued and outstanding.
B&G Foods, Inc. and Subsidiaries
Index
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| Consolidated Statements of | 4 | |
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| 7 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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- i -
Forward-Looking Statements
This report includes forward-looking statements, including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The words “believes,” “belief,” “expects,” “projects,” “intends,” “anticipates,” “assumes,” “could,” “should,” “estimates,” “potential,” “seek,” “predict,” “may,” “will” or “plans” and similar references to future periods are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by any forward-looking statements. We believe important factors that could cause actual results to differ materially from our expectations include the following:
● | our substantial leverage; |
● | the effects of rising costs for and/or decreases in the supply of commodities, ingredients, packaging, other raw materials, distribution and labor; |
● | crude oil prices and their impact on distribution, packaging and energy costs; |
● | our ability to successfully implement sales price increases and cost saving measures to offset any cost increases; |
● | intense competition, changes in consumer preferences, demand for our products and local economic and market conditions; |
● | our continued ability to promote brand equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand portfolios in order to compete effectively with lower priced products and in markets that are consolidating at the retail and manufacturing levels and to improve productivity; |
● | the ability of our company and our supply chain partners to continue to operate manufacturing facilities, distribution centers and other work locations without material disruption, and to procure ingredients, packaging and other raw materials when needed despite disruptions in the supply chain or labor shortages; |
● | the impact pandemics or disease outbreaks, such as the COVID-19 pandemic, may have on our business, including among other things, our supply chain, our manufacturing operations, our workforce and customer and consumer demand for our products; |
● | our ability to recruit and retain senior management and a highly skilled and diverse workforce at our corporate offices, manufacturing facilities and other work locations despite a very tight labor market and changing employee expectations as to fair compensation, an inclusive and diverse workplace, flexible working and other matters; |
● | the risks associated with the expansion of our business; |
● | our possible inability to identify new acquisitions or to integrate recent or future acquisitions, or our failure to realize anticipated revenue enhancements, cost savings or other synergies from recent or future acquisitions; |
● | our ability to successfully complete the integration of recent or future acquisitions into our enterprise resource planning (ERP) system; |
● | tax reform and legislation, including the effects of the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, U.S. Tax Cuts and Jobs Act and the U.S. CARES Act, and any future tax reform or legislation; |
● | our ability to access the credit markets and our borrowing costs and credit ratings, which may be influenced by credit markets generally and the credit ratings of our competitors; |
● | unanticipated expenses, including, without limitation, litigation or legal settlement expenses; |
● | the effects of currency movements of the Canadian dollar and the Mexican peso as compared to the U.S. dollar; |
● | the effects of international trade disputes, tariffs, quotas, and other import or export restrictions on our international procurement, sales and operations; |
- ii -
● | future impairments of our goodwill and intangible assets; |
● | our ability to protect information systems against, or effectively respond to, a cybersecurity incident, other disruption or data leak; |
● | our ability to successfully implement our sustainability initiatives and achieve our sustainability goals, and changes to environmental laws and regulations; |
● | other factors that affect the food industry generally, including: |
● | other factors discussed elsewhere in this report and in our other public filings with the Securities and Exchange Commission (SEC), including under Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K filed with the SEC on February 28, 2023, and Part, II, Item 1A, “Risk Factors,” in this report. |
Developments in any of these areas could cause our results to differ materially from results that have been or may be projected by us or on our behalf.
All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.
We caution that the foregoing list of important factors is not exclusive. There may be other factors that may cause our actual results to differ materially from the forward-looking statements in this report, including factors disclosed under the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. We urge investors not to unduly rely on forward-looking statements contained in this report.
- iii -
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
B&G Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
| | | | | |
| July 1, |
| December 31, | ||
| 2023 |
| 2022 | ||
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 42,772 | | $ | 45,442 |
Trade accounts receivable, net |
| 142,841 | |
| 150,019 |
Inventories |
| 674,682 | |
| 726,468 |
Assets held for sale | | — | | | 51,314 |
Prepaid expenses and other current assets |
| 41,451 | |
| 37,550 |
Income tax receivable |
| 12,810 | |
| 8,024 |
Total current assets |
| 914,556 | |
| 1,018,817 |
| | | | | |
Property, plant and equipment, net of accumulated depreciation of $419,243 and $390,821 as of July 1, 2023 and December 31, 2022, respectively |
| 308,405 | |
| 317,587 |
Operating lease right-of-use assets | | 64,600 | | | 65,809 |
Finance lease right-of-use assets | | 2,362 | | | 2,891 |
Goodwill |
| 619,399 | |
| 619,241 |
Other intangible assets, net |
| 1,778,097 | |
| 1,788,157 |
Other assets |
| 20,816 | |
| 19,088 |
Deferred income taxes |
| 10,472 | |
| 10,019 |
Total assets | $ | 3,718,707 | | $ | 3,841,609 |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | | | | | |
Trade accounts payable | $ | 136,308 | | $ | 127,809 |
Accrued expenses |
| 61,461 | |
| 64,137 |
Current portion of operating lease liabilities | | 15,274 | | | 14,616 |
Current portion of finance lease liabilities | | 1,057 | | | 1,046 |
Current portion of long-term debt |
| — | |
| 50,000 |
Income tax payable | | 3,346 | | | 309 |
Dividends payable |
| 13,735 | |
| 13,617 |
Total current liabilities |
| 231,181 | |
| 271,534 |
| | | | | |
Long-term debt, net of current portion |
| 2,245,630 | |
| 2,339,049 |
Deferred income taxes |
| 302,943 | |
| 288,712 |
Long-term operating lease liabilities, net of current portion | | 49,683 | | | 51,727 |
Long-term finance lease liabilities, net of current portion | | 1,263 | | | 1,795 |
Other liabilities |
| 21,644 | |
| 20,626 |
Total liabilities |
| 2,852,344 | |
| 2,973,443 |
Commitments and contingencies (Note 12) | | | | | |
| | | | | |
Stockholders’ equity: | | | | | |
Preferred stock, $0.01 par value per share. Authorized 1,000,000 shares; no shares issued or outstanding |
| — | |
| — |
Common stock, $0.01 par value per share. Authorized 125,000,000 shares; 72,291,573 and 71,668,144 shares issued and outstanding as of July 1, 2023 and December 31, 2022, respectively |
| 723 | |
| 717 |
Additional paid-in capital |
| — | |
| — |
Accumulated other comprehensive loss |
| 384 | |
| (9,349) |
Retained earnings |
| 865,256 | |
| 876,798 |
Total stockholders’ equity |
| 866,363 | |
| 868,166 |
Total liabilities and stockholders’ equity | $ | 3,718,707 | | $ | 3,841,609 |
See Notes to Consolidated Financial Statements.
|
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|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 22,615 |
| $ | 28,833 |
|
Trade accounts receivable, net |
|
| 171,343 |
|
| 119,265 |
|
Inventories |
|
| 487,390 |
|
| 356,590 |
|
Prepaid expenses and other current assets |
|
| 33,601 |
|
| 26,399 |
|
Income tax receivable |
|
| 9,567 |
|
| 10,787 |
|
Total current assets |
|
| 724,516 |
|
| 541,874 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation of $192,867 and $169,474 |
|
| 266,381 |
|
| 245,344 |
|
Goodwill |
|
| 615,770 |
|
| 614,278 |
|
Other intangibles, net |
|
| 1,615,528 |
|
| 1,629,482 |
|
Other assets |
|
| 6,292 |
|
| 4,625 |
|
Deferred income taxes |
|
| 984 |
|
| 7,902 |
|
Total assets |
| $ | 3,229,471 |
| $ | 3,043,505 |
|
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|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Trade accounts payable |
| $ | 137,205 |
| $ | 98,033 |
|
Accrued expenses |
|
| 55,474 |
|
| 62,393 |
|
Current portion of long-term debt |
|
| — |
|
| 10,515 |
|
Income tax payable |
|
| 112 |
|
| 3,875 |
|
Dividends payable |
|
| 30,921 |
|
| 30,879 |
|
Total current liabilities |
|
| 223,712 |
|
| 205,695 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 1,852,932 |
|
| 1,715,268 |
|
Other liabilities |
|
| 17,779 |
|
| 21,405 |
|
Deferred income taxes |
|
| 343,659 |
|
| 315,480 |
|
Total liabilities |
|
| 2,438,082 |
|
| 2,257,848 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share. Authorized 1,000,000 shares; no shares issued or outstanding |
|
| — |
|
| — |
|
Common stock, $0.01 par value per share. Authorized 125,000,000 shares; 66,496,333 and 66,406,314 shares issued and outstanding as of September 30, 2017 and December 31, 2016 |
|
| 665 |
|
| 664 |
|
Additional paid-in capital |
|
| 297,303 |
|
| 387,699 |
|
Accumulated other comprehensive loss |
|
| (10,792) |
|
| (19,364) |
|
Retained earnings |
|
| 504,213 |
|
| 416,658 |
|
Total stockholders’ equity |
|
| 791,389 |
|
| 785,657 |
|
Total liabilities and stockholders’ equity |
| $ | 3,229,471 |
| $ | 3,043,505 |
|
- 1 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| July 1, |
| July 2, |
| July 1, |
| July 2, | ||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net sales | $ | 469,637 | | $ | 478,965 | | $ | 981,451 | | $ | 1,011,372 |
Cost of goods sold |
| 367,361 | |
| 402,468 | |
| 764,939 | |
| 833,587 |
Gross profit |
| 102,276 | |
| 76,497 | |
| 216,512 | |
| 177,785 |
| | | | | | | | | | | |
Operating (income) and expenses: | | | | | | | | | | | |
Selling, general and administrative expenses |
| 47,872 | |
| 44,197 | |
| 94,601 | |
| 91,037 |
Amortization expense |
| 5,211 | |
| 5,359 | |
| 10,452 | |
| 10,582 |
Loss (gain) on sales of assets | | — | |
| — | |
| 85 | |
| (7,099) |
Operating income |
| 49,193 | |
| 26,941 | |
| 111,374 | |
| 83,265 |
| | | | | | | | | | | |
Other (income) and expenses: | | | | | | | | | | | |
Interest expense, net |
| 35,814 | |
| 29,941 | |
| 75,249 | |
| 56,743 |
Other income | | (936) | | | (1,848) | | | (1,857) | | | (3,687) |
Income (loss) before income tax expense (benefit) |
| 14,315 | |
| (1,152) | |
| 37,982 | |
| 30,209 |
Income tax expense (benefit) |
| 3,762 | |
| (1,408) | |
| 24,014 | |
| 6,297 |
Net income | $ | 10,553 | | $ | 256 | | $ | 13,968 | | $ | 23,912 |
| | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | |
Basic | | 72,237 | | | 69,904 | | | 72,008 | | | 69,267 |
Diluted | | 72,380 | | | 70,286 | | | 72,087 | | | 69,652 |
| | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | |
Basic | $ | 0.15 | | $ | — | | $ | 0.19 | | $ | 0.35 |
Diluted | $ | 0.15 | | $ | — | | $ | 0.19 | | $ | 0.34 |
| | | | | | | | | | | |
Cash dividends declared per share | $ | 0.190 | | $ | 0.475 | | $ | 0.380 | | $ | 0.950 |
See Notes to Consolidated Financial Statements.
- 2 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net sales |
| $ | 408,364 |
| $ | 318,247 |
| $ | 1,194,372 |
| $ | 977,601 |
|
Cost of goods sold |
|
| 285,109 |
|
| 202,821 |
|
| 833,316 |
|
| 636,545 |
|
Gross profit |
|
| 123,255 |
|
| 115,426 |
|
| 361,056 |
|
| 341,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 43,019 |
|
| 42,465 |
|
| 146,244 |
|
| 115,989 |
|
Amortization expense |
|
| 4,265 |
|
| 3,269 |
|
| 13,002 |
|
| 10,039 |
|
Impairment of intangible assets |
|
| — |
|
| — |
|
| — |
|
| 5,405 |
|
Operating income |
|
| 75,971 |
|
| 69,692 |
|
| 201,810 |
|
| 209,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| 23,374 |
|
| 17,974 |
|
| 65,019 |
|
| 55,535 |
|
Loss on extinguishment of debt |
|
| — |
|
| — |
|
| 1,163 |
|
| 2,836 |
|
Other expense (income) |
|
| 95 |
|
| 127 |
|
| (2,865) |
|
| (2,173) |
|
Income before income tax expense |
|
| 52,502 |
|
| 51,591 |
|
| 138,493 |
|
| 153,425 |
|
Income tax expense |
|
| 19,772 |
|
| 19,181 |
|
| 50,938 |
|
| 57,568 |
|
Net income |
| $ | 32,730 |
| $ | 32,410 |
| $ | 87,555 |
| $ | 95,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 66,496 |
|
| 64,758 |
|
| 66,484 |
|
| 62,135 |
|
Diluted |
|
| 66,644 |
|
| 65,038 |
|
| 66,713 |
|
| 62,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.49 |
| $ | 0.50 |
| $ | 1.32 |
| $ | 1.54 |
|
Diluted |
| $ | 0.49 |
| $ | 0.50 |
| $ | 1.31 |
| $ | 1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
| $ | 0.465 |
| $ | 0.420 |
| $ | 1.395 |
| $ | 1.260 |
|
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
|
| July 1, |
| July 2, |
| July 1, |
| July 2, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income | | $ | 10,553 | | $ | 256 | | $ | 13,968 | | $ | 23,912 |
| | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustments | |
| 4,579 | |
| (3,721) | |
| 9,739 | |
| (1,042) |
Pension (loss) gain, net of tax | |
| (6) | |
| 20 | |
| (6) | |
| 41 |
Other comprehensive income (loss) | |
| 4,573 | |
| (3,701) | |
| 9,733 | |
| (1,001) |
Comprehensive income (loss) | | $ | 15,126 | | $ | (3,445) | | $ | 23,701 | | $ | 22,911 |
See Notes to Consolidated Financial Statements.
- 3 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Comprehensive IncomeChanges in Stockholders’ Equity
As of July 1, 2023
(In thousands)thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net income |
| $ | 32,730 |
| $ | 32,410 |
| $ | 87,555 |
| $ | 95,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 713 |
|
| (3,381) |
|
| 8,350 |
|
| (3,691) |
|
Amortization of unrecognized prior service cost and pension deferrals, net of tax |
|
| 120 |
|
| 66 |
|
| 222 |
|
| 244 |
|
Other comprehensive income (loss) |
|
| 833 |
|
| (3,315) |
|
| 8,572 |
|
| (3,447) |
|
Comprehensive income |
| $ | 33,563 |
| $ | 29,095 |
| $ | 96,127 |
| $ | 92,410 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | Other | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Retained | | Stockholders’ | |||||||
|
| Shares |
| Amount |
| Capital |
| Loss |
| Earnings |
| Equity | |||||
Balance at December 31, 2022 |
| 71,668,144 | | $ | 717 | | $ | — | | $ | (9,349) | | $ | 876,798 | | $ | 868,166 |
Foreign currency translation |
| — | | | — | | | — | | | 5,160 | | | — | |
| 5,160 |
Net income |
| — | | | — | | | — | | | — | | | 3,415 | |
| 3,415 |
Share-based compensation |
| — | | | — | | | 664 | | | — | | | — | |
| 664 |
Issuance of common stock for share-based compensation |
| 557,558 | | | 5 | | | (1,666) | | | — | | | — | |
| (1,661) |
Cancellation of restricted stock for tax withholding upon vesting | | (13,488) | | | — | | | (205) | | | — | | | — | | | (205) |
Cancellation of restricted stock upon forfeiture | | (414) | | | — | | | — | | | — | | | — | |
| — |
Dividends declared on common stock, $0.19 per share |
| — | | | — | | | 1,207 | | | — | | | (14,927) | |
| (13,720) |
Balance at April 1, 2023 | | 72,211,800 | | $ | 722 | | $ | — | | $ | (4,189) | | $ | 865,286 | | $ | 861,819 |
Foreign currency translation |
| — | | | — | | | — | | | 4,579 | | | — | |
| 4,579 |
Change in pension benefit (net of $5 of income taxes) |
| — | | | — | | | — | | | (6) | | | — | |
| (6) |
Net income |
| — | | | — | | | — | | | — | | | 10,553 | |
| 10,553 |
Share-based compensation |
| — | | | — | | | 3,166 | | | — | | | — | |
| 3,166 |
Issuance of common stock for share-based compensation |
| 82,917 | | | 1 | | | (1) | | | — | | | — | |
| — |
Cancellation of restricted stock for tax withholding upon vesting | | (960) | | | — | | | (13) | | | — | | | — | |
| (13) |
Cancellation of restricted stock upon forfeiture | | (2,184) | | | — | | | — | | | — | | | — | |
| — |
Dividends declared on common stock, $0.19 per share |
| — | | | — | | | (3,152) | | | — | | | (10,583) | |
| (13,735) |
Balance at July 1, 2023 |
| 72,291,573 | | $ | 723 | | $ | — | | $ | 384 | | $ | 865,256 | | $ | 866,363 |
See Notes to Consolidated Financial Statements.
- 4 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
As of July 2, 2022
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | Other | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Retained | | Stockholders’ | |||||||
|
| Shares |
| Amount |
| Capital |
| Loss |
| Earnings |
| Equity | |||||
Balance at January 1, 2022 |
| 68,521,651 | | $ | 685 | | $ | 3,547 | | $ | (18,169) | | $ | 934,191 | | $ | 920,254 |
Foreign currency translation |
| — | | | — | | | — | | | 2,679 | | | — | |
| 2,679 |
Change in pension benefit (net of $7 of income taxes) |
| — | | | — | | | — | | | 21 | | | — | |
| 21 |
Net income |
| — | | | — | | | — | | | — | | | 23,656 | |
| 23,656 |
Share-based compensation |
| — | | | — | | | 791 | | | — | | | — | |
| 791 |
Issuance of common stock for share-based compensation |
| 261,014 | | | 3 | | | (3,707) | | | — | | | — | |
| (3,704) |
Cancellation of restricted stock for tax withholding upon vesting | | (10,871) | | | — | | | (298) | | | — | | | — | | | (298) |
Cancellation of restricted stock upon forfeiture | | (573) | | | — | | | — | | | — | | | — | |
| — |
Issuance of common stock in ATM offering | | 112,353 | | | 1 | | | 3,227 | | | — | | | — | | | 3,228 |
Stock options exercised | | 2,227 | | | — | | | 60 | | | — | | | — | | | 60 |
Dividends declared on common stock, $0.475 per share |
| — | | | — | | | (3,620) | | | — | | | (29,101) | |
| (32,721) |
Balance at April 2, 2022 | | 68,885,801 | | $ | 689 | | $ | — | | $ | (15,469) | | $ | 928,746 | | $ | 913,966 |
Foreign currency translation |
| — | | | — | | | — | | | (3,721) | | | — | |
| (3,721) |
Change in pension benefit (net of $6 of income taxes) |
| — | | | — | | | — | | | 20 | | | — | |
| 20 |
Net income |
| — | | | — | | | — | | | — | | | 256 | |
| 256 |
Share-based compensation |
| — | | | — | | | 1,924 | | | — | | | — | |
| 1,924 |
Issuance of common stock for share-based compensation |
| 47,335 | | | — | | | — | | | — | | | — | |
| — |
Cancellation of restricted stock for tax withholding upon vesting | | (1,250) | | | — | | | (28) | | | — | | | — | |
| (28) |
Cancellation of restricted stock upon forfeiture | | (1,108) | | | — | | | — | | | — | | | — | |
| — |
Issuance of common stock in ATM offering | | 2,739,568 | | | 28 | | | 61,780 | | | — | | | — | | | 61,808 |
Dividends declared on common stock, $0.475 per share |
| — | | | — | | | (34,044) | | | — | | | — | |
| (34,044) |
Balance at July 2, 2022 |
| 71,670,346 | | $ | 717 | | $ | 29,632 | | $ | (19,170) | | $ | 929,002 | | $ | 940,181 |
See Notes to Consolidated Financial Statements.
- 4 -
- 5 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| Thirty-nine Weeks Ended |
| ||||
|
| September 30, |
| October 1, |
| ||
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 87,555 |
| $ | 95,857 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 36,284 |
|
| 26,813 |
|
Amortization of deferred debt financing costs and bond discount |
|
| 4,263 |
|
| 4,101 |
|
Deferred income taxes |
|
| 35,079 |
|
| 45,555 |
|
Impairment of intangible assets |
|
| — |
|
| 5,405 |
|
Loss on sale of assets |
|
| 1,608 |
|
| — |
|
Write-off of property, plant, and equipment |
|
| 107 |
|
| — |
|
Loss on disposal of inventory |
|
| — |
|
| 791 |
|
Loss on extinguishment of debt |
|
| 1,163 |
|
| 2,836 |
|
Share-based compensation expense |
|
| 4,284 |
|
| 4,457 |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| (343) |
|
Changes in assets and liabilities, net of effects of businesses acquired: |
|
|
|
|
|
|
|
Trade accounts receivable |
|
| (52,044) |
|
| (20,551) |
|
Inventories |
|
| (127,052) |
|
| (29,922) |
|
Prepaid expenses and other current assets |
|
| (6,407) |
|
| (3,297) |
|
Income tax receivable/payable |
|
| (3,025) |
|
| (3,286) |
|
Other assets |
|
| (1,309) |
|
| (1,180) |
|
Trade accounts payable |
|
| 38,787 |
|
| 47,646 |
|
Accrued expenses |
|
| (8,130) |
|
| 17,389 |
|
Other liabilities |
|
| (3,626) |
|
| 507 |
|
Net cash provided by operating activities |
|
| 7,537 |
|
| 192,778 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Capital expenditures |
|
| (42,728) |
|
| (24,807) |
|
Proceeds from sale of assets |
|
| 2,229 |
|
| — |
|
Payments for acquisition of businesses, net of cash acquired |
|
| (117) |
|
| — |
|
Net cash used in investing activities |
|
| (40,616) |
|
| (24,807) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Repayments of long-term debt |
|
| (233,640) |
|
| (150,000) |
|
Proceeds from issuance of long-term debt |
|
| 500,000 |
|
| — |
|
Repayments of borrowings under revolving credit facility |
|
| (221,000) |
|
| (50,000) |
|
Borrowings under revolving credit facility |
|
| 85,000 |
|
| 10,000 |
|
Proceeds from issuance of common stock, net |
|
| 36 |
|
| 331,879 |
|
Dividends paid |
|
| (92,710) |
|
| (72,916) |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| 343 |
|
Payments of tax withholding on behalf of employees for net share settlement of share-based compensation |
|
| (1,962) |
|
| (1,410) |
|
Debt financing costs |
|
| (8,637) |
|
| — |
|
Net cash provided by financing activities |
|
| 27,087 |
|
| 67,896 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
| (226) |
|
| (533) |
|
Net (decrease) increase in cash and cash equivalents |
|
| (6,218) |
|
| 235,334 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 28,833 |
|
| 5,246 |
|
Cash and cash equivalents at end of period |
| $ | 22,615 |
| $ | 240,580 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash interest payments |
| $ | 41,824 |
| $ | 44,387 |
|
Cash income tax payments |
| $ | 15,084 |
| $ | 15,406 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
Dividends declared and not yet paid |
| $ | 30,921 |
| $ | 27,891 |
|
Accruals related to purchases of property, plant and equipment |
| $ | — |
| $ | 1,604 |
|
| | | | | | | |
| | Twenty-six Weeks Ended | | ||||
|
| July 1, |
| July 2, |
| ||
|
| 2023 |
| 2022 |
| ||
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 13,968 | | $ | 23,912 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 35,304 | |
| 40,299 | |
Amortization of operating lease right-of-use assets | | | 8,905 | | | 8,173 | |
Amortization of deferred debt financing costs and bond discount/premium | |
| 4,684 | |
| 2,346 | |
Deferred income taxes | |
| 15,097 | |
| 530 | |
Loss (gain) on sales of assets | | | 177 | | | (7,113) | |
Gain on extinguishment of debt | | | (786) | | | — | |
Share-based compensation expense | |
| 3,301 | |
| 2,248 | |
Changes in assets and liabilities, net of effects of businesses acquired: | | | | | | | |
Trade accounts receivable | |
| 7,381 | |
| (4,081) | |
Inventories | |
| 57,200 | |
| (56,632) | |
Prepaid expenses and other current assets | |
| (2,332) | |
| (1,977) | |
Income tax receivable/payable, net | |
| (1,078) | |
| (12,923) | |
Other assets | |
| (1,042) | |
| (887) | |
Trade accounts payable | |
| 6,639 | |
| 35,481 | |
Accrued expenses | |
| (16,046) | |
| (9,290) | |
Other liabilities | |
| 1,005 | |
| 1,041 | |
Net cash provided by operating activities | |
| 132,377 | |
| 21,127 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | |
| (10,605) | |
| (13,200) | |
Proceeds from sales of assets | | | 51,497 | | | 10,429 | |
Payments for acquisition of businesses, net of cash acquired | |
| — | |
| (27,290) | |
Net cash provided by (used in) investing activities | |
| 40,892 | |
| (30,061) | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Repurchases of senior notes | | | (23,350) | | | — | |
Repayments of borrowings under term loan facility | |
| (121,000) | |
| — | |
Repayments of borrowings under revolving credit facility | |
| (107,500) | |
| (162,500) | |
Borrowings under revolving credit facility | |
| 105,000 | |
| 185,000 | |
Proceeds from issuance of common stock, net | |
| — | |
| 65,202 | |
Dividends paid | |
| (27,337) | |
| (65,269) | |
Proceeds from exercise of stock options | | | — | | | 60 | |
Payments of tax withholding on behalf of employees for net share settlement of share-based compensation | |
| (1,879) | |
| (4,029) | |
Net cash (used in) provided by financing activities | |
| (176,066) | |
| 18,464 | |
| | | | | | | |
Effect of exchange rate fluctuations on cash and cash equivalents | |
| 127 | |
| (194) | |
Net (decrease) increase in cash and cash equivalents | |
| (2,670) | |
| 9,336 | |
| | | | | | | |
Cash and cash equivalents at beginning of period | |
| 45,442 | |
| 33,690 | |
Cash and cash equivalents at end of period | | $ | 42,772 | | $ | 43,026 | |
| | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | |
Cash interest payments | | $ | 71,916 | | $ | 53,954 | |
Cash income tax payments | | $ | 9,991 | | $ | 18,989 | |
Non-cash investing and financing transactions: | | | | | | | |
Dividends declared and not yet paid | | $ | 13,735 | | $ | 34,043 | |
Accruals related to purchases of property, plant and equipment | | $ | 1,525 | | $ | 876 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 6,750 | | $ | 2,588 | |
See Notes to Consolidated Financial Statements.
- 5 -
- 6 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) | Nature of Operations |
B&G Foods, Inc. is a holding company whose principal assets are the shares of capital stock of its subsidiaries. Unless the context requires otherwise, references in this report to “B&G Foods,” “our company,” “we,” “us” and “our” refer to B&G Foods, Inc. and its subsidiaries. Our financial statements are presented on a consolidated basis.
We operate in a single industry segment and manufacture, sell and distribute a diverse portfolio of high-quality shelf-stable and frozen foods across the United States, Canada and Puerto Rico. Our products include frozen and canned vegetables, vegetable, canola and other cooking oils, vegetable shortening, cooking sprays, oatmeal and other hot cereals, fruit spreads, canned meats and beans, bagel chips, spices, seasonings, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, pizza crusts, Mexican-style sauces, dry soups, taco shells and kits, salsas, pickles, peppers, tomato-based products, puffedcrackers, baking powder, baking soda, corn and rice snacks,starch, nut clusters and other specialty products. Our products are marketed under many recognized brands, including Ac’cent, B&G, B&M, Baker’s Joy, Bear CreekCountry Kitchens, Brer Rabbit, Canoleo, Cary’s, Clabber Girl, Cream of Rice, Cream of Wheat, DevonsheerCrisco, Dash, Davis, Devonsheer, Don Pepino, Durkee, Emeril’s, Grandma’s Molasses, Green Giant, JJ Flats, Joan of Arc, Las Palmas, Le Sueur, MacDonald’s, Mama Mary’s, Maple Grove Farms of Vermont, McCann’s, Molly McButter, Mrs. Dash, New York Flatbreads, New York Style, Old London, Original TingsOrtega, OrtegaPolaner, Pirate’s Booty, Polaner, Red Devil, Regina, Rumford, Sa-són, Sclafani, Smart Puffs, Spice Islands,Spring Tree, Sugar Twin, Tone’s, Trappey’s, TrueNorth, Underwood, Vermont Maid, Victoria, Weber, and Wright’s. See Note 16, “Subsequent Event.” We also sell and distribute Static Guard, a household product brand.brand. We compete in the retail grocery, foodservice, specialty, private label, club and mass merchandiser channels of distribution. We sell and distribute our products directly and via a network of independent brokers and distributors to supermarket chains, foodservice outlets, mass merchants, warehouse clubs, non-food outlets and specialty distributors.
(2) | Summary of Significant Accounting Policies |
(2)Summary of Significant Accounting Policies
Fiscal Year
Typically, our fiscal quarters and fiscal year consist of 13 and 52 weeks, respectively, ending on the Saturday closest to December 31 in the case of our fiscal year and fourth fiscal quarter, and on the Saturday closest to the end of the corresponding calendar quarter in the case of our fiscal quarters. As a result, a 53rd week is added to our fiscal year every five or six years. InGenerally, in a 53-week fiscal year our fourth fiscal quarter contains 14 weeks. Our fiscal year ending December 30, 20172023 (fiscal 2017)2023) and our fiscal year ended December 31, 20162022 (fiscal 2016)2022) each containcontains 52 weeks. Each quarter of fiscal 20172023 and 20162022 contains 13 weeks.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements for the thirteen and thirty-ninetwenty-six week periods ended September 30, 2017 (thirdJuly 1, 2023 (second quarter and first threetwo quarters of 2017)2023) and October 1, 2016 (thirdJuly 2, 2022 (second quarter and first threetwo quarters of 2016)2022) have been prepared by our company in accordance with generally accepted accounting principles generally accepted in the United States of America(GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and include the accounts of B&G Foods, Inc. and its subsidiaries. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principlesGAAP have been omitted pursuant to such rules and regulations. However, our management believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. All intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated interim financial statements contain all adjustments that are, in the opinion of management, necessary to present fairly our consolidated financial position as of September 30, 2017,July 1, 2023, and the results of our operations, comprehensive income, changes in stockholders’ equity and cash flows for the thirdsecond quarter and first threetwo quarters of 20172023 and 2016.2022. Our results of operations for the thirdsecond quarter and first threetwo quarters of 20172023 are not necessarily indicative of the results to be expected for the full year. We have evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited consolidated interim financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for fiscal 20162022 filed with the SEC on March 1, 2017. Certain prior year amounts have been reclassifiedFebruary 28, 2023 (which we refer to conform to the current year presentation.
as our 2022 Annual Report on Form 10-K).
- 67 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(2)Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United StatesGAAP requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and assumptions made by management involve revenue recognition as it relates to trade and consumer promotion expenses; allowances for excess, obsolete and unsaleable inventories; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment and deferred tax assets; and the determination of the useful life of customer relationship and amortizablefinite-lived trademark intangibles.intangible assets. Actual results could differ significantly from these estimates and assumptions.
Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Volatility in the credit and equity markets can increase the uncertainty inherent in such estimates and assumptions.
Newly AdoptedRecently Issued Accounting Standards – Pending Adoption
In March 2016,October 2021, the Financial Accounting Standards Board (FASB) issued a new accounting standards updateAccounting Standards Update (ASU) that changes the accountingwhich provides an exception to fair value measurement for certain aspects of share-based payments to employees. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits received at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) and tax deficiencies (which represent the amount by which actual tax benefits received at the date of vesting or settlement is lower than the benefits recognized over the vesting period or upon issuance of share-based payments) be recordedrevenue contracts acquired in the income statement as a reduction of income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. We adopted the provisions of thisbusiness combinations. This ASU at the beginning of fiscal 2017 and applied the required changes in accounting principle on a prospective basis. As a result of this adoption, we recognized discrete tax benefits of $0.8 million in the income taxes line item of our consolidated statement of operations for the first three quarters of 2017 related to excess tax benefits upon vesting or settlement in that period. We elected to adopt the cash flow presentation of the excess tax benefits prospectively, commencing with our statement of cash flows for the first quarter of 2017, where these benefits are classified along with other income tax cash flows as an operating activity. We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the first three quarters of 2017.
In November 2015, the FASB issued a new ASU that requires deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The ASU is effective beginning with the first quarter of fiscal 2017. We adopted the provisions of this ASU at the beginning of fiscal 2017 and applied the required changes in accounting principle on a retrospective basis. Accordingly, in our consolidated balance sheet as of December 31, 2016, $7.9 million of deferred tax assets were reclassified from current assets to noncurrent assets. The update impacted presentation and disclosure only, and therefore, the adoption of this ASU did not have any impact on our results of operations or liquidity.
In July 2015, the FASB issued a new ASU that simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. We adopted the provisions of this ASU at the beginning of fiscal 2017.The adoption of this ASU did not have any impact on our consolidated financial position, results of operations or liquidity.
- 7 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(2)Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards
In March 2017, the FASB issued a new ASU that improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance revises how employers that sponsor defined benefit pension and other postretirement plans present the net periodic benefit cost in their income statement and requires that the service cost component of net periodic benefit cost be presented in the same income statement line items as other employee compensation costs from services rendered during the period. The update is effective beginning with the first quarter of fiscal 2019. We have not yet determined the impact from adoption of the ASU on our financial statements.
In January 2017, the FASB issued a new ASU which clarifies the definition of a business. The new guidance changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. The update is effective beginning with the first quarter of 2018. We have not yet determined the impact from adoption of the ASU on our financial statements.
In January 2017, the FASB issued a new ASU that simplifies the subsequent measurement of goodwill, including the elimination of the second step from the goodwill impairment test. The update is effective for annual or anyand interim impairment testsperiods in fiscal 2020 or later. The adoption of this ASU will not have any impact on our consolidated financial position, results of operations or liquidity.
In February 2016, the FASB issued a new ASU that requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current guidance. The update is effectiveyears beginning with the first quarter of fiscal 2019.after December 15, 2022. We have not yet determined the impact from adoption of the ASU on our financial statements.
In May 2014, the FASB issued guidance on revenue recognition, with final guidance issued in 2016. The guidance provides for a five-step model to determine the revenue to be recognized from the transfer of goods or services to customers. The guidance also requires improved disclosures to help users of the financial statements better understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. It also provides clarification for principal versus agent considerations, identifying performance obligations and the accounting of intellectual property licenses. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes. The two permitted transition methods under the guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings in the year of adoption (cumulative effect approach). We have not yet made a determination as to which transition method we will be using. We plancurrently expect to adopt the new guidance when it becomes effective on December 31, 2017, the first day of ourstandard for any business combinations that occur in fiscal 2018.
We have established a project plan and completed an initial review of our revenue contracts to assess the impact of the guidance on our revenue contracts by reviewing our current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts. We are also in the process of evaluating the impact, if any, on changes to our controls to support recognition and disclosures under the new guidance. Based on the foregoing,2023 or after. Currently, we do not expect the adoption of the new standardthis ASU to have a material effect onimpact to our consolidated financial statements.
(3) | Acquisitions and Divestitures |
Yuma Acquisition
(3)Acquisitions
On December 2, 2016,May 5, 2022, we acquired Victoria Fine Foods,completed the acquisition of the frozen vegetable manufacturing operations of Growers Express, LLC, whose primary business at the time of the acquisition was co-manufacturing certain Green Giant frozen vegetable products, including Green Giant Riced Veggies and Green Giant Veggie Spirals. The purchased assets include inventory, equipment, a sublease for a portion of a manufacturing facility in Yuma, Arizona, and a related entity, from Huron Capital Partners and certain other sellerslease for a purchase price of $72.0 millionwarehouse facility in cash.San Luis, Arizona. Approximately 160 employees transferred to B&G Foods. We refer to this acquisition as the “Victoria“Yumaacquisition.”
On November 21, 2016, we completed the acquisition As part of the spices & seasonings businessYuma acquisition, we also repurchased the master license agreement for certain Green Giant Fresh vegetable products and have assumed responsibility for the administration of ACH Food Companies, Inc. for a purchase price of $366.9 million. We refer to this acquisition as the “spices & seasonings acquisition.” In connection with the acquisition, as of September 30, 2017, we had receivables related to a transition services agreement with ACH Food Companies of $1.0 million included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. As of December 31, 2016, we had payables related to the transition services agreement of $12.6 million included in accrued expenses in the accompanying consolidated balance sheets.sublicense agreements.
- 8 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(3)Acquisitions (Continued)
We have accounted for each of these acquisitions using the acquisition method of accounting and, accordingly, have included the assets acquired, liabilities assumed and results of operations in our consolidated financial statements from the respective date of acquisition. The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill. Unamortizable trademarks are deemed to have an indefinite useful life and are not amortized. Customer relationship intangibles and amortizable trademarks acquired are amortized over 10 to 20 years. Goodwill and other intangible assets, except in the case of the Victoria acquisition, are deductible for income tax purposes. Inventory has been recorded at estimated selling price less costs of disposal and a reasonable selling profit and the property, plant and equipment and other intangible assets (including trademarks, customer relationships and other intangibles) acquired have been recorded at fair value as determined by our management with the assistance of a third-party valuation specialist. See Note 5, “Goodwill and Other Intangible Assets.”
The following table sets forth the preliminary allocation of the VictoriaYuma acquisition purchase price to the estimated fair value of the net assets acquired at the date of acquisition. The preliminary purchase price allocation may be adjusted as a result of the finalization of our purchase price allocation procedures related to the assets acquired and liabilities assumed. We anticipate completing the purchase price allocation during the fourth quarter of fiscal 2017.
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Victoria Acquisition (dollars in thousands): |
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Purchase Price: |
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Cash paid |
| $ | 71,972 |
Total |
| $ | 71,972 |
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Preliminary Allocation: |
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Trademarks—unamortizable intangible assets |
|
| 45,500 |
Goodwill |
|
| 12,745 |
Property, plant and equipment |
|
| 9,298 |
Inventory |
|
| 5,729 |
Customer relationship intangibles—amortizable intangible assets |
|
| 6,400 |
Long-term deferred income tax liabilities, net |
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| (5,653) |
Other working capital |
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| (2,047) |
Total |
| $ | 71,972 |
acquisition:
| | | |
Purchase Price Allocation (in thousands): | | May 5, 2022 | |
Inventories | | $ | 3,342 |
Prepaid expenses and other current assets | | | 187 |
Property, plant and equipment, net | | | 12,508 |
Operating lease right-of-use assets | | | 12,770 |
Finance lease right-of-use assets | | | 3,529 |
Other intangible assets, net | | | 4,483 |
Current portion of operating lease liabilities | | | (1,624) |
Current portion of finance lease liabilities | | | (1,035) |
Long-term operating lease liabilities, net of current portion | | | (8,756) |
Long-term finance lease liabilities, net of current portion | | | (2,493) |
Goodwill | | | 4,379 |
Total purchase price (paid in cash) | | $ | 27,290 |
- 98 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(3)Acquisitions (Continued)
The following table sets forth the preliminary allocation of the spices & seasonings acquisition purchase price to the estimated fair value of the net assets acquired at the date of acquisition. The preliminary purchase price allocation may be adjusted as a result of the finalization of our purchase price allocation procedures related to the assets acquired and liabilities assumed. We anticipate completing the purchase price allocation during the fourth quarter of fiscal 2017.
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Spices & Seasonings Acquisition (dollars in thousands): |
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Purchase Price: |
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Cash paid |
| $ | 366,932 |
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Total |
| $ | 366,932 |
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Preliminary Allocation: |
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Goodwill |
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| 120,108 |
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Customer relationship intangibles—amortizable intangible assets |
|
| 89,250 |
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Trademarks—unamortizable intangible assets |
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| 65,200 |
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Property, plant and equipment |
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| 62,193 |
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Inventory |
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| 49,571 |
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Other liabilities |
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| (17,502) | (1) |
Other working capital |
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| (1,888) |
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Total |
| $ | 366,932 |
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On August 19, 2017, we entered into an agreement to acquire Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers for approximately $162.5 million in cash, subject to customary closing and post-closing working capital adjustments. We completed the acquisition on October 2, 2017. We funded the acquisition and related fees and expenses with additional revolving loans under our existing credit facility See Note 16, “Subsequent Event.” We refer to this acquisition as the “Back to Nature acquisition.”
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(3)Acquisitions (Continued)
Unaudited Pro Forma Summary of Operations
The following pro forma summary of operations for the third quarter and first three quarters of 2016 presents our operations as if the spices & seasonings acquisition had occurred as of the beginning of fiscal 2016. In addition to including the results of operations of this acquisition, the pro forma information gives effect to the interest on additional borrowings and the amortization of customer relationship intangibles. On an actual basis, the spices & seasonings business contributed $70.4 million and $200.9 million, respectively, of consolidated net sales for the third quarter and first three quarters of 2017.
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| Thirteen Weeks Ended |
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| Thirty-nine Weeks Ended | |
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| October 1, 2016 |
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| October 1, 2016 | |
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| (dollars in thousands, except per share data) | ||||
Net sales |
| $ | 377,689 |
| $ | 1,155,926 |
Net income |
| $ | 36,540 |
| $ | 112,128 |
Basic earnings per share |
| $ | 0.63 |
| $ | 1.75 |
Diluted earnings per share |
| $ | 0.63 |
| $ | 1.74 |
The pro forma information presented above does not purport to be indicative of the results that actually would have been attained had the spices & seasonings acquisition occurred as of the beginning of fiscal 2016, and is not intended to be a projection of future results.
The VictoriaYuma acquisition was not material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.
Back to Nature Divestiture
(4)InventoriesOn December 15, 2022, we entered into an agreement to sell the Back to Nature business to a subsidiary of Barilla America, Inc. for a purchase price of $51.4 million in cash, subject to closing and post-closing adjustments based upon inventory at closing. We refer to this divestiture as the “Back to Nature sale.”
During fiscal 2022, we reclassified $157.7 million of assets related to our Back to Nature business as assets held for sale. We measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million during the third quarter of 2022. After we entered into the sale agreement, we recorded additional pre-tax, non-cash impairment charges of $2.8 million related to those assets during the fourth quarter of 2022. As a result, we had assets held for sale related to our Back to Nature business of $51.3 million at December 31, 2022.
Effective January 3, 2023, the first business day of fiscal 2023, we completed the Back to Nature sale. During the first quarter of 2023, we recognized a pre-tax loss on the Back to Nature sale of $0.1 million, as calculated below (in thousands):
| | |
Cash received | $ | 51,414 |
Less: | | |
Assets sold: | | |
Trademarks — indefinite-lived intangible assets | | 109,900 |
Goodwill | | 29,500 |
Customer relationships — finite-lived intangible assets | | 11,025 |
Inventories | | 7,323 |
Impairment of assets held for sale | | (106,434) |
Total assets sold | | 51,314 |
Expenses of sale | | 185 |
Pre-tax loss on sale of assets | $ | (85) |
As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income tax expense by $14.7 million.
(4) | Inventories |
Inventories are stated at the lower of cost or marketnet realizable value and include direct material, direct labor, overhead, warehousing and product transfer costs. Cost is determined using the first-in, first-out and average cost methods. Inventories have been reduced by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on management’s review of inventories on hand compared to estimated future usage and sales.
Inventories consist of the following, as of the dates indicated (in thousands):
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| September 30, 2017 |
| December 31, 2016 |
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| July 1, 2023 |
| December 31, 2022 | |||||||||
Raw materials and packaging |
| $ | 73,508 |
| $ | 60,532 |
| | $ | 106,425 | | $ | 126,947 |
Work-in-process |
| 124,676 |
|
| 98,664 |
| | | 148,924 | | | 208,183 | |
Finished goods |
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| 289,206 |
|
| 197,394 |
| |
| 419,333 | |
| 391,338 |
Total |
| $ | 487,390 |
| $ | 356,590 |
| ||||||
Inventories | | $ | 674,682 | | $ | 726,468 |
- 119 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(5)Goodwill and Other Intangible Assets
(5) | Goodwill and Other Intangible Assets |
The carrying amounts of goodwill and other intangible assets, as of the dates indicated, consist of the following (in thousands):
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| September 30, 2017 |
| December 31, 2016 |
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| Gross Carrying |
| Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying |
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| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount |
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Amortizable Intangible Assets |
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| July 1, 2023 | | December 31, 2022 | |||||||||||||||||||||||||||||||||
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying | |||||||||||||||||||||||||
| Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | |||||||||||||||||||||||||
Finite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Trademarks |
| $ | 6,800 |
| $ | 2,002 |
| $ | 4,798 |
| $ | 6,800 |
| $ | 1,662 |
| $ | 5,138 |
| $ | 6,800 | | $ | 4,609 | | $ | 2,191 | | $ | 6,800 | | $ | 4,382 | | $ | 2,418 |
Customer relationships |
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| 330,290 |
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| 93,361 |
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| 236,929 |
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| 330,290 |
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| 80,847 |
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| 249,443 |
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| 396,621 | |
| 195,199 | |
| 201,422 | |
| 396,565 | |
| 184,966 | |
| 211,599 |
Seed technology(1) |
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| — |
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| — |
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| — |
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| 2,000 |
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| 900 |
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| 1,100 |
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| $ | 337,090 |
| $ | 95,363 |
| $ | 241,727 |
| $ | 339,090 |
| $ | 83,409 |
| $ | 255,681 |
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Unamortizable Intangible Assets |
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Total finite-lived intangible assets | $ | 403,421 | | $ | 199,808 | | $ | 203,613 | | $ | 403,365 | | $ | 189,348 | | $ | 214,017 | |||||||||||||||||||
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Indefinite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Goodwill |
| $ | 615,770 |
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| $ | 614,278 |
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| | | | | | | $ | 619,399 | | | | | | | | $ | 619,241 |
Trademarks |
| $ | 1,373,801 |
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| $ | 1,373,801 |
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| | | | | | | | 1,574,484 | | | | | | | | | 1,574,140 |
Total indefinite-lived intangible assets | | | | | | | $ | 2,193,883 | | | | | | | | $ | 2,193,381 | |||||||||||||||||||
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Total goodwill and other intangible assets | | | | | | | $ | 2,397,496 | | | | | | | | $ | 2,407,398 |
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Amortization expense associated with amortizablefinite-lived intangible assets was $5.2 million and $10.5 million for the thirdsecond quarter and first threetwo quarters of 2017 was $4.32023, respectively, and $5.4 million and $13.0$10.6 million for the second quarter and first two quarters of 2022, respectively, and is recorded in operating expenses. Amortization expense associated with amortizable intangible assets for the third quarter and first three quarters of 2016 was $3.3 million and $10.0 million, respectively. We expect to recognize an additional $4.3$10.3 million of amortization expense associated with our amortizablefinite-lived intangible assets during the remainder of fiscal 2017,2023, and thereafter $17.1$20.8 million of amortization expense in each of fiscal 2024 and fiscal 2025, $20.1 million in fiscal 2026, $15.2 million in fiscal 2027, and $13.2 million in fiscal 2028.
We did not recognize any impairment charges for indefinite-lived intangible assets for the fiscal years 2018 through 2021. Seefirst two quarters of 2023 or the first two quarters of 2022. If, however, operating results for any of our brands, including recently impaired brands and newly acquired brands, deteriorate, at rates in excess of our current projections, we may be required to record non-cash impairment charges to certain intangible assets. In addition, any significant decline in our market capitalization or changes in discount rates, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or indefinite-lived intangible assets are impaired, although a non-cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations. For a further discussion of our annual impairment testing of goodwill and indefinite-lived intangible assets (trademarks), see Note 3, “Acquisitions.2(g), “Summary of Significant Accounting Policies—Goodwill and Other Intangible Assets”
to our 2022 Annual Report on Form 10-K.
- 1210 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6) | Long-Term Debt |
Long-term debt consists of the following, as of the dates indicated (in thousands):
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| September 30, 2017 |
| December 31, 2016 |
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Revolving credit loans |
| $ | 40,000 |
| $ | 176,000 |
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Tranche A term loans due 2019 |
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| — |
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| 233,640 |
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Tranche B term loans due 2022 |
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| 640,110 |
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| 640,110 |
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4.625% senior notes due 2021 |
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| 700,000 |
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| 700,000 |
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5.25% senior notes due 2025 |
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| 500,000 |
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| — |
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Unamortized deferred financing costs |
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| (24,790) |
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| (20,986) |
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Unamortized discount |
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| (2,388) |
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| (2,981) |
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Total long-term debt, net of unamortized deferred financing costs and discount |
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| 1,852,932 |
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| 1,725,783 |
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Current portion of long-term debt |
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| — |
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| (10,515) |
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Long-term debt, net of unamortized deferred financing costs and discount, and excluding current portion |
| $ | 1,852,932 |
| $ | 1,715,268 |
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| July 1, 2023 |
| December 31, 2022 | ||
Revolving credit loans |
| $ | 280,000 |
| $ | 282,500 |
Tranche B term loans due 2026 | | | 550,625 | | | 671,625 |
5.25% senior notes due 2025 | | | 875,610 | | | 900,000 |
5.25% senior notes due 2027 | | | 550,000 | | | 550,000 |
Unamortized deferred debt financing costs | | | (9,833) | |
| (13,196) |
Unamortized discount/premium | |
| (772) | |
| (1,880) |
Total long-term debt, net of unamortized deferred debt financing costs and discount/premium | | | 2,245,630 | | | 2,389,049 |
Current portion of long-term debt | |
| — | |
| (50,000) |
Long-term debt, net of unamortized deferred debt financing costs and discount/premium, and excluding current portion |
| $ | 2,245,630 |
| $ | 2,339,049 |
As of September 30, 2017,July 1, 2023, the aggregate contractual maturities of long-term debt arewere as follows (in thousands):
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Years ending December: |
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2017 |
| $ | — |
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2018 |
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| — |
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2019 |
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| 40,000 |
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2020 |
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| — |
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2021 |
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| 700,000 |
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Thereafter |
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| 1,140,110 |
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Total |
| $ | 1,880,110 |
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| Aggregate Contractual Maturities | |
Fiscal year: | | |
2023 remaining | $ | — |
2024 |
| — |
2025 |
| 1,155,610 |
2026 |
| 550,625 |
2027 |
| 550,000 |
Thereafter |
| — |
Total | $ | 2,256,235 |
Senior Secured Credit Agreement. On March 30, 2017, we refinanced ourOur senior secured credit agreement includes a term loan facility and a revolving credit facility. The refinancing reduced by 0.75%
During the spread over LIBOR or the applicable base rate on $640.1first quarter of 2023, we made a mandatory prepayment of $50.0 million principal amount of tranche B term loans.
On April 3, 2017, we repaid allloans with proceeds from the Back to Nature sale and optional prepayments of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans using a portion of the net proceeds of our registered public offering of $500.0 million aggregate principal amount of 5.25% senior notes due 2025.
At September 30, 2017, $640.1$71.0 million of tranche B term loans and $40.0from cash on hand. Following the prepayments, as of July 1, 2023, $550.6 million of revolvingtranche B term loans were outstanding underremained outstanding. The tranche B term loans mature on October 10, 2026.
During the second quarter of 2023, we amended our credit agreement.agreement to transition the interest rate based on LIBOR available for borrowings under the credit agreement and related LIBOR-based mechanics to an interest rate based on SOFR and related SOFR-based mechanics, effective July 1, 2023. Prior to the transition to SOFR, interest under the tranche B term loan facility was determined based on alternative rates that we chose in accordance with our credit agreement, including a base rate per annum plus an applicable margin of 1.00%, and LIBOR plus an applicable margin of 2.50%. Effective July 1, 2023, interest under the tranche B term loan facility is determined based on alternative rates that we may choose in accordance with our credit agreement, including a base rate per annum plus an applicable margin of 1.00%, and SOFR plus an applicable margin of 2.50%.
At September 30, 2017,As of July 1, 2023, the available borrowing capacity under ourthe revolving credit facility, net of outstanding letters of credit of $2.0$4.6 million, was $458.0$515.4 million. See Note 16, “Subsequent Event.” Proceeds of the revolving credit facility may be used for general corporate purposes, including acquisitions of targets in the same or a similar line of business as our company, subject to specified criteria. The revolving credit facility matures on December 16, 2025.
Prior to the transition to SOFR, interest under the revolving credit facility, including any outstanding letters of credit, was determined based on alternative rates that we chose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.25% to 0.75%, and LIBOR plus an applicable margin ranging
- 11 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
from 1.25% to 1.75%, in each case depending on our consolidated leverage ratio. Effective July 1, 2023, interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.25% to 0.75%, and SOFR plus an applicable margin ranging from 1.25% to 1.75%, in each case depending on our consolidated leverage ratio.
We are required to pay a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility. The maximum letter of credit capacity under the revolving credit facility is $50.0 million, with a fronting fee of 0.25% per annum for all outstanding letters of credit and a letter of credit fee equal to the applicable margin for revolving loans that are Eurodollar (LIBOR)SOFR (previously LIBOR) loans. The revolving credit facility matures on June 5, 2019.
The entire $640.1 million principal amount of tranche B term loans outstanding are due and payable at maturity on November 2, 2022.
- 13 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6)Long-Term Debt (Continued)
We may prepay the term loans or permanently reduce the revolving credit facility commitment under the credit agreement at any time without premium or penalty (other than customary “breakage” costs with respect to the early termination of LIBORSOFR (previously LIBOR) loans). Subject to certain exceptions, the credit agreement provides for mandatory prepayment upon certain asset dispositions or casualty events and issuances of indebtedness.
Interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.50% to 1.00%, and LIBOR plus an applicable margin ranging from 1.50% to 2.00%, in each case depending on our consolidated leverage ratio. At September 30, 2017, the revolving credit facility interest rate was approximately 3.24%.
Interest under the tranche B term loan facility is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin of 1.25%, and LIBOR plus an applicable margin of 2.25%. At September 30, 2017, the tranche B term loan interest rate was approximately 3.49%.
Our obligations under the credit agreement are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries.subsidiaries (other than a domestic subsidiary that is a holding company for one or more foreign subsidiaries). The credit agreement is secured by substantially all of our and our domestic subsidiaries’ assets except our and our domestic subsidiaries’ real property. The credit agreement contains customary restrictive covenants, subject to certain permitted amounts and exceptions, including covenants limiting our ability to incur additional indebtedness, pay dividends and make other restricted payments, repurchase shares of our outstanding stock and create certain liens.
The credit agreement also contains certain financial maintenance covenants, which, among other things, specify a maximum consolidated leverage ratio and a minimum interest coverage ratio, each ratio as defined in the credit agreement. OurOn June 28, 2022, we amended our credit agreement to temporarily increase the maximum consolidated leverage ratio permitted under our revolving credit facility. The amendment provides that our maximum consolidated leverage ratio (defined as the ratio, determined on a pro forma basis, of our consolidated net debt, as of the last day of any period of four consecutive fiscal quarters to our adjusted EBITDA (as defined in the credit agreement) before share-based compensation for such period), may not exceed 6.50increased from 7.00 to 1.00.1.00 to 7.50 to 1.00 for the quarter ended July 2, 2022, and then increased to 8.00 to 1.00 for the quarter ended October 1, 2022 through the quarter ending September 30, 2023. The maximum consolidated leverage ratio will decrease to 7.50 to 1.00 for the quarter ending December 30, 2023 before returning to 7.00 to 1.00 for the quarters ending March 30, 2024 and thereafter. We are also required to maintain a consolidated interest coverage ratio (defined as the ratio, determined on a pro forma basis, of at least 1.75 to 1.00 as of the last day ofour adjusted EBITDA (before share-based compensation) for any period of four consecutive fiscal quarters.quarters to our consolidated interest expense for such period payable in cash) of at least 1.75 to 1.00. As of September 30, 2017,July 1, 2023, we were in compliance with all of the covenants, including the financial covenants, in the credit agreement.
The credit agreement also provides for an incremental term loan and revolving loan facility, pursuant to which we may request that the lenders under the credit agreement, and potentially other lenders, provide unlimited additional amounts of term loans or revolving loans or both on terms substantially consistent with those provided under the credit agreement. Among other things, the utilization of the incremental facility is conditioned on our ability to meet a maximum senior secured leverage ratio of 4.00 to 1.00, and a sufficient number of lenders or new lenders agreeing to participate in the facility.
4.625% Senior5.25% Senior Notes due 2021.2025. On June 4, 2013,April 3, 2017, we issued $700.0$500.0 million aggregate principal amount of 4.625%5.25% senior notes due 20212025 at a price to the public of 100% of their face value. On November 20, 2017, we issued an additional $400.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 101% of their face value plus accrued interest from October 1, 2017. The notes issued in November 2017 were issued as additional notes under the same indenture as our 5.25% senior notes due 2025 that were issued in April 2017, and, as such, form a single series and trade interchangeably with the previously issued 5.25% senior notes due 2025.
- 12 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
We used the net proceeds of the April 2017 offering to repay all of the then outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans, to pay related fees and expenses and for general corporate purposes. We used the net proceeds of the November 2017 offering to repay all of the then outstanding borrowings and amounts due under our revolving credit facility, to pay related fees and expenses and for general corporate purposes.
Interest on the 4.625%5.25% senior notes due 2025 is payable on JuneApril 1 and DecemberOctober 1 of each year.year, commencing October 1, 2017. The 4.625%5.25% senior notes due 2025 will mature on JuneApril 1, 2021,2025, unless earlier retired or redeemed. redeemed as described below.
We may redeem some or all of the 4.625%5.25% senior notes due 2025 at a redemption price of 103.469% beginning June 1, 2016 and thereafter at prices declining annually to 100% on or after June 1, 2019, in each caseof the principal amount plus accrued and unpaid interest to the date of redemption. In addition, if we undergo a change of control or upon certain asset sales, we may be required to offer to repurchase the 4.625%5.25% senior notes due 2025 at the repurchase price set forth in the indenture plus accrued and unpaid interest to the date of repurchase.
We may also, from time to time, seek to retire the 4.625%5.25% senior notes due 2025 through cash repurchases of the 4.625%5.25% senior notes due 2025 and/or exchanges of the 4.625%5.25% senior notes due 2025 for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. For example, during the second quarter of 2023, we repurchased $24.4 million aggregate principal amount of the 5.25% senior notes due 2025 in open market purchases at an average discounted repurchase price of 95.74% of such principal amount plus accrued and unpaid interest. This resulted in a pre-tax gain on extinguishment of debt in our second quarter of 2023 of $0.8 million, net of the accelerated amortization of deferred debt financing costs of $0.2 million, which is included in interest expense. As of July 1, 2023, $875.6 million aggregate principal amount of the 5.25% senior notes due 2025 remained outstanding.
- 14 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6)Long-Term Debt (Continued)
Our obligations under the 4.625%5.25% senior notes due 2025 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries. The 4.625%5.25% senior notes due 2025 and the subsidiary guarantees are our and the guarantors’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantors’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantors’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantors’ future subordinated debt. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 4.625%5.25% senior notes.notes due 2025.
The indenture governing the 4.625%5.25% senior notes due 2025 contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of specified liens, certain sale-leaseback transactions and sales of certain specified assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. As of September 30, 2017,July 1, 2023, we were in compliance with all of the covenants in the indenture governing the 4.625%5.25% senior notes.notes due 2025.
5.25% Senior Notes due 20252027. On April 3, 2017,September 26, 2019, we issued $500.0$550.0 million aggregate principal amount of 5.25% senior notes due 20252027 at a price to the public of 100% of their face value.
We used the net proceeds of the offering, together with the proceeds of incremental term loans made during the fourth quarter of 2019, to repayredeem all of theour outstanding 4.625% senior notes due 2021, repay a portion of our borrowings and amounts due under our revolving credit facility, and tranche A term loans, and to pay related fees and expenses. We intend to use the remaining net proceedsexpenses and for general corporate purposes, which could include, among other things, repayment of other long term debt or possible acquisitions.purposes.
Interest on the 5.25% senior notes due 2027 is payable on April 1March 15 and October 1September 15 of each year, commencing October 1, 2017.March 15, 2020. The 5.25% senior notes due 2027 will mature on April 1, 2025,September 15, 2027, unless earlier retired or redeemed. On or after April 1, 2020, weredeemed as described below.
- 13 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
We may redeem some or all of the 5.25% senior notes due 2027 at a redemption price of 103.9375%102.625% of the principal amount beginning AprilMarch 1, 20202023 and thereafter at prices declining annually to 101.313% on March 1, 2024 and 100% on or after AprilMarch 1, 2023,2025, in each case plus accrued and unpaid interest to the date of redemption. In addition, if we undergo a change of control or upon certain asset sales, we may be required to offer to repurchase the 5.25% senior notes due 2027 at the repurchase price set forth in the indenture plus accrued and unpaid interest to the date of repurchase.
We may also, from time to time, seek to retire the 5.25% senior notes due 2027 through cash repurchases of the 5.25% senior notes due 2027 and/or exchanges of the 5.25% senior notes due 2027 for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Our obligations under the 5.25% senior notes due 2027 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries. The 5.25% senior notes due 2027 and the subsidiary guarantees are our and the guarantors’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantors’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantors’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantors’ future subordinated debt. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes.notes due 2027.
The indenture governing the 5.25% senior notes due 2027 contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of specified liens, certain sale-leaseback transactions and sales of certain specified assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. As of July 1, 2023, we were in compliance with all of the covenants in the indenture governing the 5.25% senior notes due 2027.
- 15 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6)Long-Term Debt (Continued)
Subsidiary Guarantees.We have no assets or operations independent of our direct and indirect subsidiaries. All of our present domestic subsidiaries jointly and severally and fully and unconditionally guarantee our long-term debt. There are no significant restrictions on our ability and the ability of our subsidiaries to obtain funds from our respective subsidiaries by dividend or loan. See Note 15, “GuarantorPart I, Item 2, “Management’s Discussion and Non-GuarantorAnalysis of Financial Information.Condition and Results of Operations—Supplemental Financial Information about B&G Foods and Guarantor Subsidiaries.”
Accrued Interest. At September 30, 2017July 1, 2023 and December 31, 2016,2022, accrued interest of $23.9$21.2 million and $5.0$21.7 million, respectively, is included in accrued expenses in the accompanying unaudited consolidated balance sheets.
Deferred Debt Financing Costs. During the first three quarters of 2017, we capitalized $7.4 million of debt financing costs relating to our issuance of the 5.25% senior notes and $1.2 million of debt financing costs relating to the refinancing of our tranche B term loans.
Loss on Extinguishment of Debt. During the second quarter of 2017, the repayment of all outstanding borrowings under the tranche A term loans resulted in a loss on extinguishment of debt, which includes the write-off of deferred debt financing costs of $0.9 million and the write-off of unamortized discount of $0.2 million. During the first quarter of 2017, we incurred a loss on extinguishment of debt in connection with the refinancing of our tranche B term loans, which includes the write-off of deferred debt financing costs and the write-off of unamortized discount of less than $0.1 million. During the first quarter of 2016, we incurred a loss on extinguishment of debt in connection with the repayment of $40.1 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans. The loss on extinguishment includes the write-off of deferred debt financing costs of $2.2 million and the write-off of unamortized discount of $0.6 million.
(7)Fair Value Measurements
(7) | Fair Value Measurements |
The authoritative accounting literature relating to fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The accounting literature outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under generally accepted accounting principles,GAAP, certain assets and liabilities must be measured at fair value, and the accounting literature details the disclosures that are required for items measured at fair value.
Financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy under the accounting literature. The three levels are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived
- 14 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
valuations whose inputs are observable or whose significant value driver is observable for the asset or liability, either directly or indirectly.
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
Cash and cash equivalents, trade accounts receivable, income tax receivable, trade accounts payable, accrued expenses, income tax payable and dividends payable are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.
- 16 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(7)Fair Value Measurements (Continued)
The carrying values and fair values of our revolving credit loans, term loans and senior notes as of September 30, 2017July 1, 2023 and December 31, 2016 are2022 were as follows (in thousands):
| | | | | | | | | | | | | |
| | | July 1, 2023 | | | December 31, 2022 |
| ||||||
|
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| ||||
Revolving credit loans | | $ | 280,000 | | $ | 280,000 | (1) | $ | 282,500 | | $ | 282,500 | (1) |
Tranche B term loans due 2026 | | | 549,009 | (2) | | 539,401 | (3) | | 668,532 | (2) | | 636,777 | (3) |
5.25% senior notes due 2025 | | | 876,454 | (4) | | 839,205 | (3) | | 901,213 | (4) | | 790,625 | (3) |
5.25% senior notes due 2027 | | $ | 550,000 | | $ | 470,250 | (3) | $ | 550,000 | | $ | 420,558 | (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||
|
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| ||||
Revolving credit loans |
|
| 40,000 |
|
| 40,000 | (1) |
| 176,000 |
|
| 176,000 | (1) |
Tranche A term loans due 2019 |
|
| — |
|
| — |
|
| 233,378 | (2) |
| 232,795 | (1) |
Tranche B term loans due 2022 |
|
| 637,722 | (3) |
| 641,707 | (1) |
| 637,391 | (3) |
| 645,358 | (1) |
4.625% senior notes due 2021 |
|
| 700,000 |
|
| 713,125 | (4) |
| 700,000 |
|
| 714,000 | (4) |
5.25% senior notes due 2025 |
|
| 500,000 |
|
| 509,375 | (4) |
| — |
|
| — |
|
(1) |
| Fair values are estimated based on Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active. |
(2) |
| The carrying |
|
|
(3) |
| Fair values are estimated based on quoted market prices. |
(4) | The carrying value of the 5.25% senior notes due 2025 includes a premium. At July 1, 2023 and December 31, 2022, the face amount of the 5.25% senior notes due 2025 was $875.6 million and $900.0 million, respectively. |
There was no Level 3 activity during the thirdsecond quarter or first threetwo quarters of 20172023 or 2016.2022.
(8)Accumulated Other Comprehensive Loss
(8) | Accumulated Other Comprehensive Loss |
The reclassifications from accumulated other comprehensive loss (AOCL) for the thirdsecond quarter and first threetwo quarters of 20172023 and 2016 are2022 were as follows (in thousands):
| | | | | | | | | | | | | |
| Amounts Reclassified from AOCL | | Amounts Reclassified from AOCL | | | ||||||||
| Thirteen Weeks Ended | | Twenty-six Weeks Ended | | Affected Line Item in | ||||||||
| July 1, |
| July 2, |
| July 1, |
| July 2, | | the Statement Where | ||||
Details about AOCL Components | 2023 |
| 2022 |
| 2023 |
| 2022 |
| Net Income is Presented | ||||
Defined benefit pension plan items | | | | | | | | | | | | | |
Amortization of unrecognized (gain) loss | $ | (11) | | $ | 26 | | $ | (11) | | $ | 54 | | See (1) below |
Accumulated other comprehensive (gain) loss before tax |
| (11) | |
| 26 | |
| (11) | |
| 54 | | Total before tax |
Tax benefit (expense) |
| 5 | |
| (6) | |
| 5 | |
| (13) | | Income tax expense (benefit) |
Total reclassification | $ | (6) | | $ | 20 | | $ | (6) | | $ | 41 | | Net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amounts Reclassified from AOCL |
|
|
|
|
|
|
|
|
| ||||
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended |
| Affected Line Item in |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| the Statement Where |
| ||||
Details about AOCL Components |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Net Income is Presented |
| ||||
Defined benefit pension plan items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost |
| $ | 9 |
| $ | 11 |
| $ | 27 |
| $ | 33 |
| See (1) below |
|
Amortization of unrecognized loss |
|
| 185 |
|
| 95 |
|
| 331 |
|
| 359 |
| See (1) below |
|
|
|
| 194 |
|
| 106 |
|
| 358 |
|
| 392 |
| Total before tax |
|
|
|
| (74) |
|
| (40) |
|
| (136) |
|
| (148) |
| Income tax expense |
|
Total reclassification |
| $ | 120 |
| $ | 66 |
| $ | 222 |
| $ | 244 |
| Net of tax |
|
(1) |
| These items are included in the computation of net periodic pension cost. See Note |
- 1715 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(8)Accumulated Other Comprehensive Loss (Continued)
Changes in AOCL for the first threetwo quarters of 2017 are2023 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
| Foreign Currency |
|
|
|
| ||||||||||
|
| Defined Benefit |
| Translation |
|
|
|
| |||||||||||
|
| Pension Plan Items |
| Adjustments |
| Total |
| ||||||||||||
Beginning balance |
| $ | (7,200) |
| $ | (12,164) |
| $ | (19,364) |
| |||||||||
| | | | | | | | | | ||||||||||
| | | | | Foreign Currency | | | | |||||||||||
| | Defined Benefit | | Translation | | | | ||||||||||||
|
| Pension Plan Items |
| Adjustments |
| Total | |||||||||||||
Balance at December 31, 2022 |
| $ | 2,445 |
| $ | (11,794) |
| $ | (9,349) | ||||||||||
Other comprehensive income before reclassifications |
|
| — |
|
| 8,350 |
|
| 8,350 |
| |
| — | |
| 9,739 | |
| 9,739 |
Amounts reclassified from AOCL |
|
| 222 |
|
| — |
|
| 222 |
| |
| (6) | |
| — | |
| (6) |
Net current period other comprehensive income |
|
| 222 |
|
| 8,350 |
|
| 8,572 |
| |
| (6) | |
| 9,739 | |
| 9,733 |
Ending balance |
| $ | (6,978) |
| $ | (3,814) |
| $ | (10,792) |
| |||||||||
Balance at July 1, 2023 |
| $ | 2,439 |
| $ | (2,055) |
| $ | 384 |
(9)Pension Benefits
Company Sponsored
(9)Stockholders’ Equity
At-The-Market Equity Offering Program. We did not sell any shares of our common stock under our “at-the-market” (ATM) equity offering program during the first two quarters of 2023.
During the first quarter of 2022, we sold 112,353 shares of our common stock under the ATM equity offering program. We generated $3.3 million in gross proceeds, or $29.37 per share, from the sales and paid commissions to the sales agents of approximately $0.1 million. During the second quarter of 2022, we sold 2,739,568 shares of our common stock under the ATM equity offering program. We generated $63.2 million in gross proceeds, or $23.08 per share, from the sales and paid commissions to the sales agents of approximately $1.3 million and incurred other fees and expenses of approximately $0.1 million. We used the net proceeds from shares sold under the ATM equity offering program during the first two quarters of 2022 to repay revolving credit loans, to pay offering fees and expenses, and for general corporate purposes.
Future sales of shares, if any, under the ATM equity offering program will be made by means of transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including block trades and sales made in ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of the sale, at prices related to prevailing market prices or at negotiated prices. The timing and amount of any sales will be determined by a variety of factors considered by us.
We intend to use the net proceeds from any future sales of our common stock under the ATM offering for general corporate purposes, which could include, among other things, repayment, refinancing, redemption or repurchase of long-term debt or possible acquisitions.
As of July 1, 2023, 10,000,000 shares of our common stock remain authorized and available for issuance under our ATM equity offering program.
Omnibus Incentive Compensation Plan. At the annual meeting of stockholders of B&G Foods held on May 17, 2023, our stockholders approved an amendment to our Omnibus Incentive Compensation Plan. Upon the recommendation of our compensation committee, our board of directors had previously adopted the amendment to our Omnibus Plan, subject to stockholder approval. The amendment increases the number of shares of common stock available for grant under the Omnibus Plan by 5,000,000. As of July 1, 2023, 5,432,804 shares of common stock remained available for grant under the Omnibus Plan.
- 16 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(10) | Pension Benefits |
Company-Sponsored Defined Benefit Pension Plans. As of July 1, 2023, we had four company-sponsored defined benefit pension plans covering approximately 22% of our employees. Three of these defined benefit pension plans are for the benefit of certain of our union employees and one is for the benefit of salaried and certain hourly employees. The benefits in the salaried and hourly plan are based on each employee’s years of service and compensation, as defined. Newly hired employees are no longer eligible to participate in any of our four company-sponsored defined benefit pension plans. Net periodic pension cost for company sponsoredour four company-sponsored defined benefit pension plans for the thirdsecond quarter and first threetwo quarters of 20172023 and 20162022 includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Service cost—benefits earned during the period |
| $ | 1,798 |
| $ | 790 |
| $ | 4,538 |
| $ | 2,535 |
|
Interest cost on projected benefit obligation |
|
| 1,284 |
|
| 666 |
|
| 3,714 |
|
| 2,050 |
|
Expected return on plan assets |
|
| (1,771) |
|
| (1,121) |
|
| (5,271) |
|
| (3,312) |
|
Amortization of unrecognized prior service cost |
|
| 9 |
|
| 11 |
|
| 27 |
|
| 33 |
|
Amortization of unrecognized loss |
|
| 185 |
|
| 95 |
|
| 331 |
|
| 359 |
|
Net periodic pension cost |
| $ | 1,505 |
| $ | 441 |
| $ | 3,339 |
| $ | 1,665 |
|
| | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| July 1, | | July 2, | | July 1, | | July 2, | ||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Service cost—benefits earned during the period | $ | 1,305 | | $ | 2,192 | | $ | 2,593 | | $ | 4,488 |
Interest cost on projected benefit obligation |
| 1,858 | |
| 1,365 | |
| 3,718 | |
| 2,736 |
Expected return on plan assets |
| (2,782) | |
| (3,236) | |
| (5,563) | |
| (6,473) |
Amortization of unrecognized (gain) loss |
| (11) | |
| 26 | |
| (11) | |
| 54 |
Net periodic pension cost | $ | 370 | | $ | 347 | | $ | 737 | | $ | 805 |
During the first threetwo quarters of 2017,2023 and 2022, we made $8.5 million ofdid not make any contributions to our company-sponsored defined benefit pension plan contributions. We do not plan to make additional contributions duringplans. During the remainder of fiscal 2017.2023, we expect to make approximately $2.5 million of contributions.
Multi-Employer Defined Benefit Pension Plan. WePrior to the closure of our Portland, Maine manufacturing facility during the fourth quarter of 2021, we also contributecontributed to the Bakery and Confectionery Union and Industry International Pension Fund (EIN 52-6118572, Plan No. 001), a multi-employer defined benefit pension plan, sponsored by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM). The plan provides multiple plan benefits on behalf of certain employees at the Portland, Maine facility.
In connection with corresponding contribution rates that are collectively bargained between participating employersthe closure and their affiliated BCTGM local unions.
We were notified that forsale of the Portland, Maine manufacturing facility, we withdrew from participation in the plan year beginning January 1, 2012,during the fourth quarter of 2021. As a result, we are required to make monthly withdrawal liability payments to the plan was in critical status and classified inover 20 years. These payments amount to approximately $0.9 million on an annual basis beginning March 1, 2022. Accordingly, the Red Zone. Aspresent value of the dateremaining payments amounting to $13.2 million as of July 1, 2023 is reflected as a liability on our unaudited consolidated balance sheet.
(11) | Leases |
Operating Leases and Finance Lease. We determine whether an arrangement is a lease at inception. We have operating and finance leases for certain of our manufacturing facilities, distribution centers, warehouse and storage facilities, machinery and equipment, and office equipment. Our leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to ten years, and some of which include options to terminate the lease within one year. We consider these options in determining the lease term used to establish our right-of use assets and lease liabilities.
- 17 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Our operating and finance leases are included in the accompanying unaudited consolidated interim financial statements,balance sheets in the plan remains in critical status. following line items (in thousands):
| | | | | |
| July 1, |
| December 31, | ||
| 2023 |
| 2022 | ||
Right-of-use assets: | | | | | |
Operating lease right-of-use assets | $ | 64,600 | | $ | 65,809 |
Finance lease right-of-use assets | | 2,362 | | | 2,891 |
Total lease right-of-use assets | $ | 66,962 | | $ | 68,700 |
| | | | | |
Operating lease liabilities: | | | | | |
Current portion of operating lease liabilities | $ | 15,274 | | $ | 14,616 |
Long-term operating lease liabilities, net of current portion | | 49,683 | | | 51,727 |
Total operating lease liabilities | $ | 64,957 | | $ | 66,343 |
| | | | | |
Finance lease liabilities: | | | | | |
Current portion of finance lease liabilities | $ | 1,057 | | $ | 1,046 |
Long-term finance lease liabilities, net of current portion | | 1,263 | | | 1,795 |
Total finance lease liabilities | $ | 2,320 | | $ | 2,841 |
The law requires that all contributing employers payfollowing table shows supplemental information related to leases (in thousands):
| | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| July 1, |
| July 2, |
| July 1, |
| July 2, | ||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Operating cash flow information: | | | | | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 4,488 | | $ | 4,273 | | $ | 9,082 | | $ | 8,194 |
Cash paid for amounts included in the measurement of finance lease liabilities | $ | 274 | | $ | — | | $ | 549 | | $ | — |
| | | | | | | | | | | |
The components of operating lease costs were as follows: | | | | | | | | | | | |
Cost of goods sold | $ | 2,728 | | $ | 2,595 | | $ | 5,464 | | $ | 4,849 |
Selling, general and administrative expenses | | 1,727 | | | 1,718 | | | 3,441 | | | 3,324 |
Total operating lease costs | $ | 4,455 | | $ | 4,313 | | $ | 8,905 | | $ | 8,173 |
| | | | | | | | | | | |
The components of finance lease costs were as follows: | | | | | | | | | | | |
Depreciation of finance right-of-use assets | $ | 266 | | $ | 109 | | $ | 530 | | $ | 109 |
Interest on finance lease liabilities | | 14 | | | 8 | | | 30 | | | 8 |
Total finance lease costs | $ | 280 | | $ | 117 | | $ | 560 | | $ | 117 |
| | | | | | | | | | | |
Total net lease costs | $ | 4,735 | | $ | 4,430 | | $ | 9,465 | | $ | 8,290 |
Total rent expense was $5.1 million, including the plan a surcharge to help correct the plan’s financial situation. The amountoperating lease costs of the surcharge is equal to a percentage of the amount an employer is otherwise required to contribute to the plan under the applicable collective bargaining agreement. During$4.5 million stated above, for the second quarter of 2015, we agreed to a collective bargaining agreement that, among other things, implements a rehabilitation plan. As a result, our contributions to2023 and $10.1 million, including the plan are expected to increase by at least 5.0% per year.
B&G Foods made contributions to the planoperating lease costs of $0.7$8.9 million instated above, for the first threetwo quarters of 20172023. Total rent expense was $4.6 million, including the operating lease costs of $4.3 million stated above, for the second quarter of 2022 and expects to pay surcharges$9.1 million, including the operating lease costs of less than $0.1$8.2 million stated above, for the first two quarters of 2022.
Because none of our operating or finance leases provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in fiscal 2017 assuming consistent hours are worked. B&G Foods contributed $0.8 million in fiscal 2016determining the present value of lease payments. We have lease agreements that contain both lease and paid less than $0.1 million in surcharges. These contributions represented less than five percentnon-lease components. With the exception of total contributions made to the plan.
our real estate leases, we account for our leases as a single lease component.
- 18 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The following table shows the weighted average lease term and weighted average discount rate for our ROU assets:
| | | | | |
| July 1, | | December 31, | ||
| 2023 | | 2022 | ||
Weighted average remaining lease term (years) | | | | | |
Operating leases | | 5.2 | | | 5.3 |
Finance lease | | 2.2 | | | 2.7 |
Weighted average discount rate | | | | | |
Operating leases | | 2.91% | | | 2.72% |
Finance lease | | 2.30% | | | 2.30% |
(10)Commitments and Contingencies
Operating Leases. As of September 30, 2017, future minimumJuly 1, 2023, the maturities of lease payments under non-cancelable operating leases in effect at quarter-end (with initial or remaining lease terms in excess of one year) for the periods set forth belowliabilities were as follows (in thousands):
|
|
|
|
Fiscal year ending: |
|
|
|
2017 |
| $ | 2,643 |
2018 |
|
| 9,645 |
2019 |
|
| 8,632 |
2020 |
|
| 8,163 |
2021 |
|
| 6,106 |
Thereafter |
|
| 8,060 |
Total |
| $ | 43,249 |
| | | | | | | | |
| Operating Leases |
| Finance Lease | | Total Maturities of Lease Liabilities | |||
Fiscal year: | | | | | | | | |
2023 remaining | $ | 8,597 | | $ | 549 | | $ | 9,146 |
2024 | | 16,004 | | | 1,099 | | | 17,103 |
2025 |
| 15,315 | |
| 732 | |
| 16,047 |
2026 |
| 10,693 | |
| — | |
| 10,693 |
2027 |
| 6,841 | |
| — | |
| 6,841 |
Thereafter | | 12,588 | | | — | | | 12,588 |
Total undiscounted future minimum lease payments | | 70,038 | | | 2,380 | | | 72,418 |
Less: Imputed interest |
| (5,081) | |
| (60) | |
| (5,141) |
Total present value of future lease liabilities | $ | 64,957 | | $ | 2,320 | | $ | 67,277 |
(12) | Commitments and Contingencies |
Legal Proceedings. We are from time to time involved in various claims and legal actions arising in the ordinary course of business, including proceedings involving product liability claims, product labeling claims, worker’s compensation and other employee claims, and tort and other general liability claims, as well as trademark, copyright, patent infringement and related claims and legal actions. While we cannot predict with certainty the results of these claims and legal actions in which we are currently, or in the future may be, involved, we do not expect that the ultimate disposition of any currently pending claims or actions will have a material adverse effect on our consolidated financial position, results of operations or liquidity.
Environmental.We are subject to environmental laws and regulations in the normal course of business. We did not make any material expenditures during the first threetwo quarters of 20172023 or 20162022 in order to comply with environmental laws and regulations. Based on our experience to date, management believes that the future cost of compliance with existing environmental laws and regulations (and liability for any known environmental conditions) will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, 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, nor can we 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 such environmental claims.
Collective Bargaining Agreements.Agreements. As of September 30, 2017, approximately 1,550July 1, 2023, 1,678 of our 2,5483,047 employees, or 60.8%approximately 55.1%, were covered by collective bargaining agreements. None
As of the date of this report, two of our collective bargaining agreements are scheduled to expire in the next twelve months. The collective bargaining agreement for our Brooklyn, New York facility, which covers approximately 52 employees, is scheduled to expire within one year.on December 31, 2023, and the collective bargaining agreement for our Terre Haute, Indiana facility, which covers approximately 103 employees, is scheduled to expire on March 30, 2024.
- 19 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
While we believe that our relations with our union employees are in general good, we cannot assure you that we will be able to negotiate new collective bargaining agreements for our Brooklyn or Terre Haute facilities on terms satisfactory to us, or at all, and without production interruptions, including labor stoppages. At this time, however, management does not expect that the outcome of these negotiations will have a material adverse impact on our business, financial condition or results of operations.
Severance and Change of Control Agreements.We have employment agreements with our chief executive officer and each of our executive officers except for our interim chief financial officer.vice presidents. The agreements generally continue until terminated by the executive or by us, and provide for severance payments under certain circumstances, including termination by us without cause (as defined in the agreements) or as a result of the employee’s death or disability, or termination by us or a deemed termination upon a change of control (as defined in the agreements). Severance benefits generally include payments for salary continuation, continuation of health care and insurance benefits, present value of additional pension credits and, in the case of a change of control,certain cases, accelerated vesting under compensation plans and, in certain cases, potential gross up payments for excise tax liability.plans.
- 19 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(13) | Earnings per Share |
Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding plus all additional shares of common stock that would have been outstanding if potentially dilutive shares of common stock had been issued upon the exercise of stock options or in connection with performance shares that may be earned under long-term incentive awards as of the grant date, in the case of the stock options, and as of the beginning of the period, in the case of the performance shares, using the treasury stock method. For the thirdsecond quarter of 20172023 and 2022, there were 349,0151,695,755 and for the third quarter of 2016 there were 22,692721,427, respectively, shares of common stock issuable upon the exercise of stock options excluded from the calculation of diluted weighted average shares outstanding because the effect would have been anti-dilutive on diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 66,496,333 |
|
| 64,757,962 |
|
| 66,484,105 |
|
| 62,134,846 |
|
Net effect of potentially dilutive share-based compensation awards |
|
| 147,310 |
|
| 280,084 |
|
| 228,979 |
|
| 202,912 |
|
Diluted |
|
| 66,643,643 |
|
| 65,038,046 |
|
| 66,713,084 |
|
| 62,337,758 |
|
| | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| July 1, |
| July 2, |
| July 1, |
| July 2, | ||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Weighted average shares outstanding: | | | | | | | | | | | |
Basic | | 72,237,482 | | | 69,903,828 | | | 72,008,119 | | | 69,266,967 |
Net effect of potentially dilutive share-based compensation awards | | 142,332 | | | 382,505 | | | 79,063 | | | 384,638 |
Diluted | | 72,379,814 | | | 70,286,333 | | | 72,087,182 | | | 69,651,605 |
(12)Business and Credit Concentrations and Geographic Information
(14) | Business and Credit Concentrations and Geographic Information |
Our exposure to credit loss in the event of non-payment of accounts receivable by customers is estimated in the amount of the allowance for doubtful accounts. We perform ongoing credit evaluations of the financial condition of our customers. Our top ten customers accounted for approximately 53.8%61.1% and 55.3%60.6% of consolidated net sales for the first threetwo quarters of 20172023 and 2016,2022, respectively. Our top ten customersOther than Walmart, which accounted for approximately 47.9%29.7% and 53.4% of our consolidated trade accounts receivables as of September 30, 2017 and December 31, 2016, respectively. Other than Wal-Mart, which accounted for 24.7% and 24.3%28.9% of our consolidated net sales for the first threetwo quarters of 20172023 and 2016,2022, respectively, no single customer accounted for more than 10.0% of our consolidated net sales for the first threetwo quarters of 20172023 or 2016. Other than Wal-Mart, which2022.
Our top ten customers accounted for 23.6%approximately 64.7% and 21.2%60.3% of our consolidated trade accounts receivables as of September 30, 2017July 1, 2023 and December 31, 2016, respectively,2022, respectively. Other than Walmart, which accounted for approximately 30.6% and 30.6% of our consolidated trade accounts receivables as of July 1, 2023 and December 31, 2022, no single customer accounted for more than 10.0% of our consolidated trade accounts receivables. As of September 30, 2017,July 1, 2023, we do not believe we have any significant concentration of credit risk with respect to our consolidated trade accounts receivablereceivables with any single customer whose failure or nonperformance would materially affect our results other than as described above with respect to Wal-Mart.Walmart.
During the first threetwo quarters of 20172023 and 2016,2022, our sales to customers in foreign countries represented approximately 6.4%8.6% and 8.4%8.1%, respectively, of net sales. Our foreign sales are primarily to customers in Canada.
(13)Share-Based Payments
Our company makes annual grants of stock options and performance share long-term incentive awards (LTIAs) to our executive officers and certain other members of senior management. The performance share LTIAs entitle the participants to earn shares of common stock upon the attainment of certain performance goals. In addition, our non-employee directors receive annual equity grants as part of their non-employee director compensation and may elect to receive a portion of their annual cash retainer in stock options.
- 20 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(13)Share-Based Payments (Continued)
(15) | Share-Based Payments |
The following table details our stock option activity for the first threetwo quarters of fiscal 20172023 (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
| Weighted |
| Weighted Average |
|
|
| ||||||||||||
|
|
|
| Average |
| Contractual Life |
| Aggregate |
| ||||||||||||
|
| Options |
| Exercise Price |
| Remaining (Years) |
| Intrinsic Value |
| ||||||||||||
Outstanding at beginning of fiscal 2017 |
| 714,580 |
| $ | 31.65 |
|
|
|
|
|
| ||||||||||
| | | | | | | | | | | |||||||||||
| | | | Weighted | | Weighted Average | | | |||||||||||||
| | | | Average | | Contractual Life | | Aggregate | |||||||||||||
|
| Options |
| Exercise Price |
| Remaining (Years) |
| Intrinsic Value | |||||||||||||
Outstanding at December 31, 2022 |
| 820,141 | | $ | 31.38 |
| 6.24 | | $ | — | |||||||||||
Granted |
| 159,385 |
| $ | 41.31 |
|
|
|
|
|
|
| 949,995 | | $ | 20.00 |
| | | | |
Exercised |
| (1,300) |
| $ | 27.77 |
|
|
|
|
|
|
| — | | $ | — | | | | | |
Forfeited |
| (35,758) |
| $ | 28.31 |
|
|
|
|
|
|
| — | | $ | — | | | | | |
Outstanding at end of third quarter of 2017 |
| 836,907 |
| $ | 33.42 |
| 7.87 |
| $ | 4,227 |
| ||||||||||
Exercisable at end of third quarter of 2017 |
| 24,396 |
| $ | 42.62 |
| 8.61 |
| $ | 12 |
| ||||||||||
Expired | | (24,386) | | $ | 37.04 | | | | | | |||||||||||
Outstanding at July 1, 2023 |
| 1,745,750 | | $ | 25.11 |
| 7.93 | | $ | 48 | |||||||||||
Exercisable at July 1, 2023 |
| 566,873 | | $ | 30.05 |
| 5.11 | | $ | — |
The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model utilizing certainthe following assumptions. Expected volatility was based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The expected term of the options granted represents the period of time that options were expected to be outstanding and is generally based on the “simplified method” in accordance with accounting guidance. We utilizedgenerally utilize the simplified method to determine the expected term of the options as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. However, a portion of the options granted during the first quarter of 2023 were granted with exercise prices significantly above the closing price on the date of grant. For those options, we modified the method for determining the expected term and adjusted to or towards the full remaining contractual life. The risk-free interest rate for the expected term of the optionoptions is based on the U.S. Treasury implied yield at the date of grant.
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Weighted average grant date fair value |
| $ | 7.29 |
| $ | 5.26 |
|
Expected volatility |
|
| 27.5% - 29.2% |
|
| 27.7% |
|
Expected term |
|
| 5.5 - 6.5 years |
|
| 5.5 - 6.5 years |
|
Risk-free interest rate |
|
| 1.8% - 2.4% |
|
| 1.5% - 1.7% |
|
Dividend yield |
|
| 4.5% - 5.22% |
|
| 3.9% - 4.9% |
|
The following table sets forthassumptions used in the compensation expense recognizedBlack-Scholes option-pricing model for share-based payments (performance share LTIAs, stock options non-employee director stock grants and other share based payments)granted during the third quarter and first threetwo quarters of 20172023 and 2016 and where that expense is reflected in our consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
Consolidated Statements of Operations Location |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Compensation expense included in cost of goods sold |
| $ | 217 |
| $ | 273 |
| $ | 689 |
| $ | 785 |
|
Compensation expense included in selling, general and administrative expenses |
|
| 865 |
|
| 1,068 |
|
| 3,595 |
|
| 3,672 |
|
Total compensation expense for share-based payments |
| $ | 1,082 |
| $ | 1,341 |
| $ | 4,284 |
| $ | 4,457 |
|
As of September 30, 2017, there was $2.2 million of unrecognized compensation expense related to performance share LTIAs, which is expected to be recognized over the next 2.25 years and $1.4 million of unrecognized compensation expense related to stock options, which is expected to be recognized over the next 2.5 years.2022 were as follows:
| | | | | | |
|
| 2023 |
| 2022 | ||
Weighted average grant date fair value | | $ | 2.71 |
| $ | 3.73 |
Expected volatility | | | 39.6% - 43.3% | | | 39.5% |
Expected term | | | 5.5 years - 8.3 years | | | 5.5 years |
Risk-free interest rate | | | 3.6% - 3.7% | | | 3.0% |
Dividend yield | | | 5.4% - 5.9% | | | 8.5% |
- 21 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(13)Share-Based Payments (Continued)
The following table details the activity in our non-vested performance share LTIAslong-term incentive awards (LTIAs) for the first threetwo quarters of 2017:2023:
| | | | | |
|
| |
| Weighted Average | |
| | Number of | | Grant Date Fair Value | |
|
| Performance Shares(1) |
| (per share)(2) | |
Outstanding at December 31, 2022 |
| 1,072,274 | | $ | 20.26 |
Granted |
| 998,191 | | $ | 13.00 |
Vested |
| (360,926) | | $ | 10.84 |
Forfeited |
| (102,771) | | $ | 29.32 |
Outstanding at July 1, 2023 |
| 1,606,768 | | $ | 17.29 |
|
|
|
|
|
|
|
|
|
|
| Weighted Average |
| |
|
| Number of |
| Grant Date Fair Value |
| |
|
| Performance Shares (1) |
| (per share)(2) |
| |
Beginning of fiscal 2017 |
| 436,554 |
| $ | 26.81 |
|
Granted |
| 132,000 |
| $ | 36.15 |
|
Vested |
| (110,528) |
| $ | 27.50 |
|
Forfeited |
| (19,456) |
| $ | 28.08 |
|
End of third quarter of 2017 |
| 438,570 |
| $ | 29.38 |
|
(1) |
| Solely for purposes of this table, the number of performance shares is based on the participants earning the maximum number of performance shares (i.e., |
(2) |
| The fair value of the awards was determined based upon the closing price of our common stock on the applicable measurement dates (i.e., the deemed grant dates for accounting purposes), reduced by the present value of expected dividends using the risk-free interest-rate, as the award holders are not entitled to dividends or dividend equivalents during the vesting period. |
- 21 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The following table details the activity in our restricted stock for the first two quarters of 2023:
| | | | | |
|
| |
| Weighted Average | |
| | Number of Shares | | Grant Date Fair Value | |
|
| of Restricted Stock |
| (per share)(1) | |
Outstanding at December 31, 2022 |
| 83,294 | | $ | 26.51 |
Granted |
| 329,821 | | $ | 15.17 |
Vested |
| (40,944) | | $ | 24.66 |
Forfeited |
| (2,598) | | $ | 18.63 |
Outstanding at July 1, 2023 |
| 369,573 | | $ | 16.65 |
(1) | The fair value of the awards was determined based upon the closing price of our common stock on the applicable measurement dates (i.e., the deemed grant dates for accounting purposes). |
The following table details the number of shares of common stock issued by our company during the second quarter and first threetwo quarters of 20172023 and 20162022 upon the vesting of performance share LTIAs, the exercise of stock options, the issuance of restricted stock and other share-based compensation net of cancellations:
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
|
| July 1, |
| July 2, |
| July 1, |
| July 2, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Number of performance shares vested |
| | — |
| | — |
| | 360,926 |
| | 337,284 |
Shares withheld for tax withholding |
| | — |
| | — |
| | (131,803) |
| | (125,152) |
Shares of common stock issued for performance share LTIAs |
| | — |
| | — |
| | 229,123 |
| | 212,132 |
Shares of common stock issued upon the exercise of stock options | | | — | | | — | | | — | | | 2,227 |
Shares of common stock issued to non-employee directors for annual equity grants |
| | 81,531 |
| | 46,773 |
| | 81,531 |
| | 46,773 |
Shares of restricted common stock issued to employees | | | 1,386 | | | 562 | | | 329,821 | | | 49,444 |
Shares of restricted stock withheld and cancelled for tax withholding upon vesting | | | (960) | | | (1,250) | | | (14,448) | | | (12,121) |
Shares of restricted stock cancelled upon forfeiture | | | (2,184) | | | (1,108) | | | (2,598) | | | (1,681) |
Net shares of common stock issued |
| | 79,773 |
| | 44,977 |
| | 623,429 |
| | 296,774 |
The following table sets forth the compensation expense recognized for share-based payments (performance share based payments (dollarsLTIAs, restricted stock, stock options, non-employee director stock grants and other share-based payments) during the second quarter and first two quarters of 2023 and 2022 and where that expense is reflected in our consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
| Thirty-nine Weeks Ended |
| ||||
| September 30, |
| October 1, |
| ||
| 2017 |
| 2016 |
| ||
Number of performance shares vested |
| 110,528 |
|
| 101,094 |
|
Shares withheld to fund statutory minimum tax withholding |
| 42,368 |
|
| 37,596 |
|
Shares of common stock issued for performance share LTIAs |
| 68,160 |
|
| 63,498 |
|
Shares of common stock issued upon the exercise of stock options |
| 1,300 |
|
| — |
|
Shares of common stock issued to non-employee directors for annual equity grants |
| 20,559 |
|
| 16,072 |
|
Total shares of common stock issued |
| 90,019 |
|
| 79,570 |
|
Excess tax (deficiency) benefit | $ | 820 | (1) | $ | 343 |
|
|
|
| | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| July 1, | | July 2, | | July 1, | | July 2, | ||||
Consolidated Statements of Operations Location | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Compensation expense included in cost of goods sold | $ | 620 | | $ | 232 | | $ | 734 | | $ | 439 |
Compensation expense included in selling, general and administrative expenses |
| 1,754 | |
| 926 | |
| 2,567 | |
| 1,809 |
Total compensation expense for share-based payments | $ | 2,374 | | $ | 1,158 | | $ | 3,301 | | $ | 2,248 |
As of July 1, 2023, there was $10.2 million of unrecognized compensation expense related to performance share LTIAs, which is expected to be recognized over the next 2.5 years, $5.1 million of unrecognized compensation expense related to restricted stock, which is expected to be recognized over the next 2.8 years, and $2.8 million of unrecognized compensation expense related to stock options, which is expected to be recognized over the next 3.8 years.
- 22 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(16) | Net Sales by Brand |
The following table sets forth net sales by brand (in thousands):
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| | July 1, | | July 2, | | July 1, | | July 2, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Brand:(1)(2) | | | | | | | | | | | | |
Crisco | | $ | 67,002 | | $ | 71,849 | | $ | 139,451 | | $ | 150,932 |
Clabber Girl(3) | | | 27,443 | | | 19,102 | | | 54,935 | | | 40,090 |
Back to Nature(4) | | | 1,878 | | | 11,312 | | | 3,464 | | | 27,306 |
All Other Specialty Brands Total | | | 57,514 | | | 52,584 | | | 118,610 | | | 115,266 |
Specialty Brands Total | | | 153,837 | | | 154,847 | | | 316,460 | | | 333,594 |
| | | | | | | | | | | | |
Green Giant - Frozen(5) |
| | 78,087 |
| | 82,425 | | | 169,184 |
| | 180,398 |
Green Giant - Shelf-Stable | | | 21,284 | | | 23,077 | | | 47,560 | | | 50,562 |
Green Giant - Le Sueur | | | 8,391 | | | 7,089 | | | 17,224 | | | 17,396 |
Frozen & Vegetables Brands Total | | | 107,762 | | | 112,591 | | | 233,968 | | | 248,356 |
| | | | | | | | | | | | |
Ortega | | | 35,633 | | | 35,825 | | | 74,077 | | | 78,384 |
Maple Grove Farms of Vermont | | | 22,003 | | | 21,377 | | | 44,502 | | | 43,286 |
Cream of Wheat | | | 17,626 | | | 17,300 | | | 38,246 | | | 38,267 |
All Other Meals Brands Total | | | 38,881 | | | 37,072 | | | 79,267 | | | 77,551 |
Meals Brands Total | | | 114,143 | | | 111,574 | | | 236,092 | | | 237,488 |
| | | | | | | | | | | | |
Spices & Seasonings(6) | | | 64,194 | | | 67,544 | | | 134,639 | | | 130,620 |
Dash | | | 17,061 | | | 17,642 | | | 34,810 | | | 34,256 |
All Other Spices & Flavor Solutions Brands | | | 12,640 | | | 14,767 | | | 25,482 | | | 27,058 |
Spices & Flavor Solutions Brands Total | | | 93,895 | | | 99,953 | | | 194,931 | | | 191,934 |
| | | | | | | | | | | | |
Total Net Sales | | $ | 469,637 | | $ | 478,965 | | $ | 981,451 | | $ | 1,011,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended | ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Brand:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Green Giant |
| $ | 121,118 |
| $ | 113,780 |
| $ | 351,771 |
| $ | 351,157 |
Ortega |
|
| 33,461 |
|
| 35,090 |
|
| 105,429 |
|
| 106,709 |
Tone's(2) |
|
| 30,484 |
|
| — |
|
| 79,127 |
|
| — |
Pirate Brands |
|
| 27,159 |
|
| 22,447 |
|
| 70,099 |
|
| 66,941 |
Maple Grove Farms of Vermont |
|
| 15,776 |
|
| 16,667 |
|
| 50,887 |
|
| 53,990 |
Mrs. Dash |
|
| 14,791 |
|
| 14,655 |
|
| 46,532 |
|
| 47,247 |
Cream of Wheat |
|
| 14,732 |
|
| 14,126 |
|
| 43,789 |
|
| 43,608 |
Victoria(3) |
|
| 9,708 |
|
| — |
|
| 30,073 |
|
| — |
Weber(2) |
|
| 7,342 |
|
| — |
|
| 29,888 |
|
| — |
Bear Creek Country Kitchens |
|
| 12,907 |
|
| 13,633 |
|
| 29,584 |
|
| 32,611 |
Las Palmas |
|
| 8,843 |
|
| 8,913 |
|
| 26,292 |
|
| 27,017 |
Polaner |
|
| 8,663 |
|
| 7,506 |
|
| 26,219 |
|
| 25,058 |
New York Style |
|
| 9,293 |
|
| 8,313 |
|
| 25,843 |
|
| 24,792 |
Mama Mary's |
|
| 8,207 |
|
| 9,355 |
|
| 25,374 |
|
| 28,733 |
All other brands(4) |
|
| 85,880 |
|
| 53,762 |
|
| 253,465 |
|
| 169,738 |
Total |
| $ | 408,364 |
| $ | 318,247 |
| $ | 1,194,372 |
| $ | 977,601 |
(1) |
| Table includes net sales for each of our brands whose net sales for the first |
(2) | Net sales for each brand includes branded net sales and, if applicable, any private label and foodservice net sales attributable to the brand. |
(3) |
|
|
(4) |
| We completed the |
| January 3, 2023. See Note 3, “Acquisitions and Divestitures.” Net sales for |
(5) | For the second quarter and |
(6) | Includes net sales for multiple brands acquired as part of the spices & seasonings acquisition |
(15)Guarantor and Non-Guarantor Financial Information
As further discussed in Note 6, “Long-Term Debt,” our obligations under the 4.625% senior notes and the 5.25% senior notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries, which we refer to in this note as the guarantor subsidiaries. Our foreign subsidiaries, which we refer to in this note as the non-guarantor subsidiaries, do not guarantee the 4.625% senior notes or the 5.25% senior notes.
The following condensed consolidating financial information presents the condensed consolidating balance sheet as of September 30, 2017 and December 31, 2016, the related condensed consolidating statement of operations for the thirteen weeks and thirty-nine weeks ended September 30, 2017, and the related condensed consolidating statement of cash flows for the thirty-nine weeks ended September 30, 2017 for:
1.B&G Foods, Inc. (the Parent),
2.the guarantor subsidiaries,
3.the non-guarantor subsidiaries, and
4.the Parent and all of its subsidiaries on a consolidated basis.
- 23 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(17) | Sale of Portland, Maine Manufacturing Facility |
(15)GuarantorDuring the first quarter of 2022, we completed the sale of our Portland, Maine manufacturing facility and Non-Guarantor Financial Information (Continued)
13.5 acre property and separately sold certain equipment that had been used at the facility. We received sales proceeds for the property and the equipment of approximately $11.1 million in the aggregate and recognized a gain of $7.1 million, which is recorded in “Gain on sales of assets” in the accompanying unaudited consolidated statements of operations. The information includes elimination entries necessary to consolidatepositive impact during the Parent with the guarantor subsidiaries and non-guarantor subsidiaries. The guarantor subsidiaries and non-guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial information for eachfirst quarter of 2022 of the guarantor subsidiariesgain on sales was partially offset by approximately $2.2 million of expenses incurred during the first quarter of 2022 relating to the closure of the facility and non-guarantor subsidiaries are not presented because management believes such financial statements would not be meaningful to investors.the transfer of manufacturing operations, resulting in a net benefit of $4.9 million from the gain on sale.
Condensed Consolidating Balance Sheet
As of September 30, 2017
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 19,133 |
| $ | 3,482 |
| $ | — |
| $ | 22,615 |
|
Trade accounts receivable, net |
|
| — |
|
| 158,101 |
|
| 13,242 |
|
| — |
|
| 171,343 |
|
Inventories, net |
|
| — |
|
| 422,291 |
|
| 65,099 |
|
| — |
|
| 487,390 |
|
Prepaid expenses and other current assets |
|
| — |
|
| 29,168 |
|
| 4,433 |
|
| — |
|
| 33,601 |
|
Income tax receivable |
|
| — |
|
| 8,698 |
|
| 869 |
|
| — |
|
| 9,567 |
|
Total current assets |
|
| — |
|
| 637,391 |
|
| 87,125 |
|
| — |
|
| 724,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| — |
|
| 221,173 |
|
| 45,208 |
|
| — |
|
| 266,381 |
|
Goodwill |
|
| — |
|
| 615,770 |
|
| — |
|
| — |
|
| 615,770 |
|
Other intangibles, net |
|
| — |
|
| 1,615,528 |
|
| — |
|
| — |
|
| 1,615,528 |
|
Other assets |
|
| — |
|
| 6,278 |
|
| 14 |
|
| — |
|
| 6,292 |
|
Deferred income taxes |
|
| — |
|
| — |
|
| 984 |
|
| — |
|
| 984 |
|
Investments in subsidiaries |
|
| 2,700,032 |
|
| 89,846 |
|
| — |
|
| (2,789,878) |
|
| — |
|
Total assets |
| $ | 2,700,032 |
| $ | 3,185,986 |
| $ | 133,331 |
| $ | (2,789,878) |
| $ | 3,229,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
| $ | — |
| $ | 104,376 |
| $ | 32,829 |
| $ | — |
| $ | 137,205 |
|
Accrued expenses |
|
| — |
|
| 52,539 |
|
| 2,935 |
|
| — |
|
| 55,474 |
|
Income tax payable |
|
| — |
|
| — |
|
| 112 |
|
| — |
|
| 112 |
|
Dividends payable |
|
| 30,921 |
|
| — |
|
| — |
|
| — |
|
| 30,921 |
|
Intercompany payables |
|
| — |
|
| (7,609) |
|
| 7,609 |
|
| — |
|
| — |
|
Total current liabilities |
|
| 30,921 |
|
| 149,306 |
|
| 43,485 |
|
| — |
|
| 223,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 1,877,722 |
|
| (24,790) |
|
| — |
|
| — |
|
| 1,852,932 |
|
Other liabilities |
|
| — |
|
| 17,779 |
|
| — |
|
| — |
|
| 17,779 |
|
Deferred income taxes |
|
| — |
|
| 343,659 |
|
| — |
|
| — |
|
| 343,659 |
|
Total liabilities |
|
| 1,908,643 |
|
| 485,954 |
|
| 43,485 |
|
| — |
|
| 2,438,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Common stock |
|
| 665 |
|
| — |
|
| — |
|
| — |
|
| 665 |
|
Additional paid-in capital |
|
| 297,303 |
|
| 2,208,836 |
|
| 68,253 |
|
| (2,277,089) |
|
| 297,303 |
|
Accumulated other comprehensive loss |
|
| (10,792) |
|
| (10,792) |
|
| (3,814) |
|
| 14,606 |
|
| (10,792) |
|
Retained earnings |
|
| 504,213 |
|
| 501,988 |
|
| 25,407 |
|
| (527,395) |
|
| 504,213 |
|
Total stockholders’ equity |
|
| 791,389 |
|
| 2,700,032 |
|
| 89,846 |
|
| (2,789,878) |
|
| 791,389 |
|
Total liabilities and stockholders’ equity |
| $ | 2,700,032 |
| $ | 3,185,986 |
| $ | 133,331 |
| $ | (2,789,878) |
| $ | 3,229,471 |
|
- 24 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(15)Guarantor and Non-Guarantor Financial Information (Continued)
Condensed Consolidating Balance Sheet
As of December 31, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| ||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 25,119 |
| $ | 3,714 |
| $ | — |
| $ | 28,833 |
Trade accounts receivable, net |
|
| — |
|
| 111,350 |
|
| 7,915 |
|
| — |
|
| 119,265 |
Inventories, net |
|
| — |
|
| 309,584 |
|
| 47,006 |
|
| — |
|
| 356,590 |
Prepaid expenses and other current assets |
|
| — |
|
| 20,296 |
|
| 6,103 |
|
| — |
|
| 26,399 |
Income tax receivable |
|
| — |
|
| 10,780 |
|
| 7 |
|
| — |
|
| 10,787 |
Intercompany receivables |
|
| — |
|
| — |
|
| 12,183 |
|
| (12,183) |
|
| — |
Total current assets |
|
| — |
|
| 477,129 |
|
| 76,928 |
|
| (12,183) |
|
| 541,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| — |
|
| 211,843 |
|
| 33,501 |
|
| — |
|
| 245,344 |
Goodwill |
|
| — |
|
| 614,278 |
|
| — |
|
| — |
|
| 614,278 |
Other intangibles, net |
|
| — |
|
| 1,629,482 |
|
| — |
|
| — |
|
| 1,629,482 |
Other assets |
|
| — |
|
| 4,612 |
|
| 13 |
|
| — |
|
| 4,625 |
Deferred income taxes |
|
| — |
|
| 7,036 |
|
| 866 |
|
| — |
|
| 7,902 |
Investments in subsidiaries |
|
| 2,563,305 |
|
| 96,187 |
|
| — |
|
| (2,659,492) |
|
| — |
Total assets |
| $ | 2,563,305 |
| $ | 3,040,567 |
| $ | 111,308 |
| $ | (2,671,675) |
| $ | 3,043,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
| $ | — |
| $ | 88,668 |
| $ | 9,365 |
| $ | — |
| $ | 98,033 |
Accrued expenses |
|
| — |
|
| 60,957 |
|
| 1,436 |
|
| — |
|
| 62,393 |
Current portion of long-term debt |
|
| 10,515 |
|
| — |
|
| — |
|
| — |
|
| 10,515 |
Income tax payable |
|
| — |
|
| — |
|
| 3,875 |
|
| — |
|
| 3,875 |
Dividends payable |
|
| 30,879 |
|
| — |
|
| — |
|
| — |
|
| 30,879 |
Intercompany payables |
|
| — |
|
| 11,738 |
|
| 445 |
|
| (12,183) |
|
| — |
Total current liabilities |
|
| 41,394 |
|
| 161,363 |
|
| 15,121 |
|
| (12,183) |
|
| 205,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 1,736,254 |
|
| (20,986) |
|
| — |
|
| — |
|
| 1,715,268 |
Other liabilities |
|
| — |
|
| 21,405 |
|
| — |
|
| — |
|
| 21,405 |
Deferred income taxes |
|
| — |
|
| 315,480 |
|
| — |
|
| — |
|
| 315,480 |
Total liabilities |
|
| 1,777,648 |
|
| 477,262 |
|
| 15,121 |
|
| (12,183) |
|
| 2,257,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 664 |
|
| — |
|
| — |
|
| — |
|
| 664 |
Additional paid-in capital |
|
| 387,699 |
|
| 2,168,236 |
|
| 86,833 |
|
| (2,255,069) |
|
| 387,699 |
Accumulated other comprehensive loss |
|
| (19,364) |
|
| (19,364) |
|
| (12,164) |
|
| 31,528 |
|
| (19,364) |
Retained earnings |
|
| 416,658 |
|
| 414,433 |
|
| 21,518 |
|
| (435,951) |
|
| 416,658 |
Total stockholders’ equity |
|
| 785,657 |
|
| 2,563,305 |
|
| 96,187 |
|
| (2,659,492) |
|
| 785,657 |
Total liabilities and stockholders’ equity |
| $ | 2,563,305 |
| $ | 3,040,567 |
| $ | 111,308 |
| $ | (2,671,675) |
| $ | 3,043,505 |
- 25 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(15)Guarantor and Non-Guarantor Financial Information (Continued)
Condensed Consolidating Statement of Operations and Comprehensive Income
Thirteen Weeks Ended September 30, 2017
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net sales |
| $ | — |
| $ | 374,514 |
| $ | 45,697 |
| $ | (11,847) |
| $ | 408,364 |
|
Cost of goods sold |
|
| — |
|
| 260,077 |
|
| 36,879 |
|
| (11,847) |
|
| 285,109 |
|
Gross profit |
|
| — |
|
| 114,437 |
|
| 8,818 |
|
| — |
|
| 123,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| — |
|
| 39,877 |
|
| 3,142 |
|
| — |
|
| 43,019 |
|
Amortization expense |
|
| — |
|
| 4,265 |
|
| — |
|
| — |
|
| 4,265 |
|
Operating income |
|
| — |
|
| 70,295 |
|
| 5,676 |
|
| — |
|
| 75,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| — |
|
| 23,374 |
|
| — |
|
| — |
|
| 23,374 |
|
Other income |
|
| — |
|
| 95 |
|
| — |
|
| — |
|
| 95 |
|
Income before income tax expense |
|
| — |
|
| 46,826 |
|
| 5,676 |
|
| — |
|
| 52,502 |
|
Income tax expense |
|
| — |
|
| 18,415 |
|
| 1,357 |
|
| — |
|
| 19,772 |
|
Equity in earnings of subsidiaries |
|
| 32,730 |
|
| 4,319 |
|
| — |
|
| (37,049) |
|
| — |
|
Net income |
| $ | 32,730 |
| $ | 32,730 |
| $ | 4,319 |
| $ | (37,049) |
| $ | 32,730 |
|
Comprehensive income |
| $ | 33,563 |
| $ | 32,609 |
| $ | 5,031 |
| $ | (37,640) |
| $ | 33,563 |
|
Condensed Consolidating Statement of Operations and Comprehensive Income
Thirty-Nine Weeks Ended September 30, 2017
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| |||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Net sales |
| $ | — |
| $ | 1,121,897 |
| $ | 124,895 |
| $ | (52,420) |
| $ | 1,194,372 |
Cost of goods sold |
|
| — |
|
| 776,312 |
|
| 109,424 |
|
| (52,420) |
|
| 833,316 |
Gross profit |
|
| — |
|
| 345,585 |
|
| 15,471 |
|
| — |
|
| 361,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| — |
|
| 136,921 |
|
| 9,323 |
|
| — |
|
| 146,244 |
Amortization expense |
|
| — |
|
| 13,002 |
|
| — |
|
| — |
|
| 13,002 |
Operating income |
|
| — |
|
| 195,662 |
|
| 6,148 |
|
| — |
|
| 201,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| — |
|
| 65,019 |
|
| — |
|
| — |
|
| 65,019 |
Loss on extinguishment of debt |
|
| — |
|
| 1,163 |
|
| — |
|
| — |
|
| 1,163 |
Other income |
|
| — |
|
| (2,865) |
|
| — |
|
| — |
|
| (2,865) |
Income before income tax expense |
|
| — |
|
| 132,345 |
|
| 6,148 |
|
| — |
|
| 138,493 |
Income tax expense |
|
| — |
|
| 48,679 |
|
| 2,259 |
|
| — |
|
| 50,938 |
Equity in earnings of subsidiaries |
|
| 87,555 |
|
| 3,889 |
|
| — |
|
| (91,444) |
|
| — |
Net income |
| $ | 87,555 |
| $ | 87,555 |
| $ | 3,889 |
| $ | (91,444) |
| $ | 87,555 |
Comprehensive income |
| $ | 96,127 |
| $ | 87,333 |
| $ | 12,239 |
| $ | (99,572) |
| $ | 96,127 |
- 26 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(15)Guarantor and Non-Guarantor Financial Information (Continued)
Condensed Consolidating Statement of Operations and Comprehensive Income
Thirteen Weeks Ended October 1, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net sales |
| $ | — |
| $ | 294,871 |
| $ | 30,573 |
| $ | (7,197) |
| $ | 318,247 |
|
Cost of goods sold |
|
| — |
|
| 188,720 |
|
| 21,298 |
|
| (7,197) |
|
| 202,821 |
|
Gross profit |
|
| — |
|
| 106,151 |
|
| 9,275 |
|
| — |
|
| 115,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| — |
|
| 39,619 |
|
| 2,846 |
|
| — |
|
| 42,465 |
|
Amortization expense |
|
| — |
|
| 3,269 |
|
| — |
|
| — |
|
| 3,269 |
|
Operating income |
|
| — |
|
| 63,263 |
|
| 6,429 |
|
| — |
|
| 69,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| — |
|
| 17,974 |
|
| — |
|
| — |
|
| 17,974 |
|
Other income |
|
| — |
|
| 127 |
|
| — |
|
| — |
|
| 127 |
|
Income before income tax expense |
|
| — |
|
| 45,162 |
|
| 6,429 |
|
| — |
|
| 51,591 |
|
Income tax expense |
|
| — |
|
| 17,351 |
|
| 1,830 |
|
| — |
|
| 19,181 |
|
Equity in earnings of subsidiaries |
|
| 32,410 |
|
| 4,599 |
|
| — |
|
| (37,009) |
|
| — |
|
Net income |
| $ | 32,410 |
| $ | 32,410 |
| $ | 4,599 |
| $ | (37,009) |
| $ | 32,410 |
|
Comprehensive income (loss) |
| $ | 29,095 |
| $ | 32,344 |
| $ | 1,218 |
| $ | (33,562) |
| $ | 29,095 |
|
Condensed Consolidating Statement of Operations and Comprehensive Income
Thirty-Nine Weeks Ended October 1, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| |||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Net sales |
| $ | — |
| $ | 912,945 |
| $ | 86,294 |
| $ | (21,638) |
| $ | 977,601 |
Cost of goods sold |
|
| — |
|
| 593,688 |
|
| 64,495 |
|
| (21,638) |
|
| 636,545 |
Gross profit |
|
| — |
|
| 319,257 |
|
| 21,799 |
|
| — |
|
| 341,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| — |
|
| 111,538 |
|
| 4,451 |
|
| — |
|
| 115,989 |
Amortization expense |
|
| — |
|
| 10,039 |
|
| — |
|
| — |
|
| 10,039 |
Impairment of intangible assets |
|
| — |
|
| 5,405 |
|
| — |
|
| — |
|
| 5,405 |
Operating income |
|
| — |
|
| 192,275 |
|
| 17,348 |
|
| — |
|
| 209,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| — |
|
| 55,535 |
|
| — |
|
| — |
|
| 55,535 |
Loss on extinguishment of debt |
|
| — |
|
| 2,836 |
|
| — |
|
| — |
|
| 2,836 |
Other income |
|
| — |
|
| (2,173) |
|
| — |
|
| — |
|
| (2,173) |
Income before income tax expense |
|
| — |
|
| 136,077 |
|
| 17,348 |
|
| — |
|
| 153,425 |
Income tax expense |
|
| — |
|
| 52,745 |
|
| 4,823 |
|
| — |
|
| 57,568 |
Equity in earnings of subsidiaries |
|
| 95,857 |
|
| 12,525 |
|
| — |
|
| (108,382) |
|
| — |
Net income |
| $ | 95,857 |
| $ | 95,857 |
| $ | 12,525 |
| $ | (108,382) |
| $ | 95,857 |
Comprehensive income (loss) |
| $ | 92,410 |
| $ | 95,613 |
| $ | 8,834 |
| $ | (104,447) |
| $ | 92,410 |
- 27 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(15)Guarantor and Non-Guarantor Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows
Thirty-Nine Weeks Ended September 30, 2017
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net cash provided by operating activities |
| $ | — |
| $ | (2,069) |
| $ | 9,606 |
| $ | — |
| $ | 7,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| (32,348) |
|
| (10,380) |
|
| — |
|
| (42,728) |
|
Proceeds from sale of assets |
|
| — |
|
| 2,229 |
|
| — |
|
| — |
|
| 2,229 |
|
Payments for acquisition of businesses, net of cash acquired |
|
| — |
|
| (117) |
|
| — |
|
| — |
|
| (117) |
|
Net cash used in investing activities |
|
| — |
|
| (30,236) |
|
| (10,380) |
|
| — |
|
| (40,616) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
| (233,640) |
|
| — |
|
| — |
|
| — |
|
| (233,640) |
|
Proceeds from issuance of long-term debt |
|
| 500,000 |
|
| — |
|
| — |
|
| — |
|
| 500,000 |
|
Repayments of borrowings under revolving credit facility |
|
| (221,000) |
|
| — |
|
| — |
|
| — |
|
| (221,000) |
|
Borrowings under revolving credit facility |
|
| 85,000 |
|
| — |
|
| — |
|
| — |
|
| 85,000 |
|
Proceeds from issuance of common stock, net |
|
| 36 |
|
| — |
|
| — |
|
| — |
|
| 36 |
|
Dividends paid |
|
| (92,710) |
|
| — |
|
| — |
|
| — |
|
| (92,710) |
|
Payments of tax withholding on behalf of employees for net share settlement of share-based compensation |
|
| — |
|
| (1,962) |
|
| — |
|
| — |
|
| (1,962) |
|
Debt financing costs |
|
| — |
|
| (8,637) |
|
| — |
|
| — |
|
| (8,637) |
|
Intercompany transactions |
|
| (37,686) |
|
| 36,918 |
|
| 768 |
|
| — |
|
| — |
|
Net cash provided by financing activities |
|
| — |
|
| 26,319 |
|
| 768 |
|
| — |
|
| 27,087 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
| — |
|
| — |
|
| (226) |
|
| — |
|
| (226) |
|
Net increase (decrease) in cash and cash equivalents |
|
| — |
|
| (5,986) |
|
| (232) |
|
| — |
|
| (6,218) |
|
Cash and cash equivalents at beginning of period |
|
| — |
|
| 25,119 |
|
| 3,714 |
|
| — |
|
| 28,833 |
|
Cash and cash equivalents at end of period |
| $ | — |
| $ | 19,133 |
| $ | 3,482 |
| $ | — |
| $ | 22,615 |
|
- 28 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(15)Guarantor and Non-Guarantor Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows
Thirty-Nine Weeks Ended October 1, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net cash provided by operating activities |
| $ | — |
| $ | 165,362 |
| $ | 27,416 |
| $ | — |
| $ | 192,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| (20,557) |
|
| (4,250) |
|
| — |
|
| (24,807) |
|
Net cash used in investing activities |
|
| — |
|
| (20,557) |
|
| (4,250) |
|
| — |
|
| (24,807) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
| (150,000) |
|
| — |
|
| — |
|
| — |
|
| (150,000) |
|
Repayments of borrowings under revolving credit facility |
|
| (50,000) |
|
| — |
|
| — |
|
| — |
|
| (50,000) |
|
Borrowings under revolving credit facility |
|
| 10,000 |
|
| — |
|
| — |
|
| — |
|
| 10,000 |
|
Proceeds from issuance of common stock, net |
|
| 331,879 |
|
| — |
|
| — |
|
| — |
|
| 331,879 |
|
Dividends paid |
|
| (72,916) |
|
| — |
|
| — |
|
| — |
|
| (72,916) |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| 343 |
|
| — |
|
| — |
|
| 343 |
|
Payments of tax withholding on behalf of employees for net share settlement of share-based compensation |
|
| — |
|
| (1,410) |
|
| — |
|
| — |
|
| (1,410) |
|
Intercompany transactions |
|
| (68,963) |
|
| 85,655 |
|
| (16,692) |
|
| — |
|
| — |
|
Net cash provided by (used in) financing activities |
|
| — |
|
| 84,588 |
|
| (16,692) |
|
| — |
|
| 67,896 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
| — |
|
| — |
|
| (533) |
|
| — |
|
| (533) |
|
Net increase in cash and cash equivalents |
|
| — |
|
| 229,393 |
|
| 5,941 |
|
| — |
|
| 235,334 |
|
Cash and cash equivalents at beginning of period |
|
| — |
|
| 1,964 |
|
| 3,282 |
|
| — |
|
| 5,246 |
|
Cash and cash equivalents at end of period |
| $ | — |
| $ | 231,357 |
| $ | 9,223 |
| $ | — |
| $ | 240,580 |
|
(16)Subsequent Event
Back to Nature Acquisition. On October 2, 2017, we completed our acquisition of Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers for approximately $162.5 million in cash, subject to customary closing and post-closing working capital adjustments. We funded the acquisition and related fees and expenses with additional revolving loans under our existing credit facility. The primary assets of the business purchased include intellectual property, business and customer information, equipment, accounts receivable and inventory. Due to the relatively short time from the date of acquisition to the completion of the accompanying unaudited interim consolidated financial statements, the initial accounting for the acquisition, including our preliminary evaluation of the fair value for certain significant assets and liabilities, including goodwill and intangibles, is not complete. The Back to Nature acquisition is not material to our consolidated results of operations or financial position. We will provide the preliminary purchase price allocation with our Annual Report on Form 10-K for fiscal 2017.
- 29 -
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Forward-Looking Statements” belowbefore Part I of this report and elsewhere in this report. The following discussion should be read in conjunction with the unaudited consolidated interim financial statements and related notes for the thirteen and thirty-ninetwenty-six weeks ended September 30, 2017 (thirdJuly 1, 2023 (second quarter and first threetwo quarters of 2017)2023) included elsewhere in this report and the audited consolidated financial statements and related notes for the fiscal year ended December 31, 20162022 (fiscal 2016)2022) included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 1, 2017February 28, 2023 (which we refer to as our 20162022 Annual Report on Form 10-K).
General
We manufacture, sell and distribute a diverse portfolio of branded, high quality, shelf-stable and frozen foods and household products, many of which have leading regional or national market shares. In general, we position our branded products to appeal to the consumer desiring a high quality and reasonably priced product. We complement our branded product retail sales with institutional and foodservice sales and private label sales.
Our company has been built upon a successful track record of acquisition-driven growth. Our goal is to continue to increase sales, profitability and cash flows through strategic acquisitions, new product development and organic growth. We intend to implement our growth strategy through the following initiatives: expanding our brand portfolio with disciplined acquisitions of complementary branded businesses, continuing to develop new products and delivering them to market quickly, leveraging our multiple channel sales and distribution system and continuing to focus on higher growth customers and distribution channels.
Since 1996, we have successfully acquired and integrated more than 4550 brands or businesses into our company. Most recently, on October 2, 2017,May 5, 2022, we acquired Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers. On December 2, 2016, we acquired Victoria Fine Foods, LLC, and a related entity, from Huron Capital Partners and certain other sellers. On November 21, 2016, we completed the acquisitionfrozen vegetable manufacturing operations of the spices & seasonings business of ACH Food Companies, Inc.Growers Express, LLC. We refer to these acquisitionsthis acquisition in this report as the “Victoria acquisition” and the “spices & seasonings“Yumaacquisition.” This acquisition” respectively. Each of these recent acquisitions has been accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired businessesbusiness are included in our consolidated financial statements from the respective datesdate of acquisition. These acquisitionsThis acquisition and the application of the acquisition method of accounting affectaffects comparability between periods.
On January 3, 2023, we completed the sale of the Back to Nature business. We refer to this divestiture in this report as the “Back to Nature sale” or “Back to Nature divestiture.” This divestiture affects comparability between periods.
We are subject to a number of challenges that may adversely affect our businesses. These challenges, which are discussed below and under the heading “Forward‑Looking“Forward-Looking Statements,” include:
Fluctuations in Commodity Prices and Production and Distribution Costs.We purchase raw materials, including agricultural products, oils, meat, poultry, ingredients and packaging materials from growers, commodity processors, other food companies and packaging suppliers located in U.S. and foreign locations. Raw materials and other input costs, such as fuel and transportation, are subject to fluctuations in price attributable to a number of factors.factors, including pandemics, other disease outbreaks, the war in Ukraine, climate and weather conditions, supply chain disruptions (including raw material shortages) and labor shortages. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.
We attempt to manage cost inflation risks by locking in prices through short‑termshort-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers maygenerally lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs.
- 3025 -
We have seen and expect to continue to see moderateexperienced material net cost increases for raw materials during fiscal 2022 due to a number of factors, including the war in Ukraine and the marketplaceongoing COVID-19 pandemic, and anticipate raw materials costs to remain elevated during 2017 andfiscal 2023. We are currently locked into our supply and prices for a majority of our most significant raw material commodities (excluding, among others, maple syrup)oils) through the remainderend of fiscal 2017 at a cost increase2023, and for most of less than 1%our needs for oils through the third quarter of fiscal 2023.
In recent years, we have been negatively impacted by industry-wide increases in the cost of goods sold. Duringdistribution, primarily driven by increased freight rates. Freight rates increased significantly during the fourth quarter of 2020 throughout fiscal 2016,2021 and fiscal 2022. We attempt to offset all or a portion of these increases through price increases and cost savings initiatives. For example, despite higher rates for freight in 2021 and 2022, we hadwere able to offset a minimalportion of the freight cost decrease for a majorityincreases through pricing, which included both list price increases and trade spend optimization. Although freight rates have begun to decline, we expect freight rates to remain elevated during fiscal 2023.
In addition, during the past several years, our cost saving measures and sales price increases have not been sufficient to fully offset increases to our raw material, ingredient and packaging and distribution costs. We plan to continue managing inflation risk by entering into short-term supply contracts and advance commodities purchase agreements from time to time, and, when necessary, by raising prices. Beginning in the fourth quarter of 2022 through the first two quarters of 2023, we have seen improvements in our most significant commodities (excluding, among others, maple syrup). Togross profit and gross profit margins as our net pricing has begun to catch up with input cost increases. However, to the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially adversely affected. In addition, if input costs begin to decline, customers may look for price reductions in situations where we have locked into purchases at higher costs.
Consolidation in the Retail Trade and Consequent Inventory Reductions.Reductions. As the retail grocery trade continuescustomers, such as supermarkets, discounters, e-commerce merchants, warehouse clubs and food distributors, continue to consolidate and our retail customers grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. These customers are also reducing their inventories and increasing their emphasis on private label products.
Changing Consumer Preferences.Preferences and Channel Shifts. Consumers in the market categories in which we compete frequently change their taste preferences, dietary habits and product packaging preferences. In addition, the rapid growth of some channels and changing consumer preferences for these channels, in particular in e-commerce, which has expanded significantly following the outbreak of COVID-19, may impact our current operations or strategies more quickly than we planned for, create consumer price deflation, alter the buying behavior of consumers or disrupt our retail customer relationships. As a result of changing consumer preferences for products and channels, we may need to increase or reallocate spending on existing and new distribution channels and technologies, marketing, advertising and new product innovation to protect or increase revenues, market share and brand significance. These expenditures may not be successful, including those related to our e-commerce and other technology-focused efforts, and might not result in trade and consumer acceptance of our efforts. If we are unable to effectively and timely adapt to changes in consumer preferences and channel shifts, our products may lose market share or we may face significant price erosion, and our business, consolidated financial condition, results of operations or liquidity could be materially and adversely affected.
Consumer Concern Regarding Food Safety, Quality and Health.The food industry is subject to consumer concerns regarding the safety and quality of certain food products. If consumers in our principal markets lose confidence in the safety and quality of our food products, even as a result of a product liability claim or a product recall by a food industry competitor, our business could be adversely affected.
Fluctuations in Currency Exchange Rates.Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars. During the first threetwo quarters of 20172023 and 2016,2022, our net sales to customers in foreign countries represented approximately 6.4%8.6% and 8.4%8.1%, respectively, of our total net sales. We also purchase a significant majority of our maple syrup requirements from suppliers located in Québec, Canada. Any weakening of the U.S. dollar against the Canadian dollar could significantly increase our costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars in advance of any such weakening of the U.S. dollar or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. These increased costs would not be fully offset by the positive impact the change in the relative strength of the Canadian dollar versus the U.S. dollar would have on our net sales in Canada. Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars. We also operate a manufacturing facility in Irapuato, Mexico for the manufacture of
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Green Giant frozen products and are as a result exposed to fluctuations in the Mexican peso. Our results of operations could be adversely impacted by changes in foreign currency exchange rates. Costs and expenses in Mexico are recognized in local foreign currency, and therefore we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our consolidated financial statements. For example, our results of operations from our Green Giant frozen operations in Mexico have been negatively impacted during the first two quarters of 2023 as a result of the Mexican peso appreciating by nearly 14% against the U.S. dollar during the first two quarters of 2023.
To confront these challenges, we continue to take steps to build the value of our brands, to improve our existing portfolio of products with new product and marketing initiatives, to reduce costs through improved productivity, to address consumer concerns about food safety, quality and health and to favorably manage currency fluctuations.
Critical Accounting Policies; Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles generally accepted in the United States (GAAP) requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and assumptions made by management involveinvolve: revenue recognition as it relates to trade and consumer promotion expenses; allowances for excess, obsolete and unsaleable inventories; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment, and deferred tax assets; and the determination of the useful life of customer relationship and amortizablefinite-lived trademark intangibles; and the accounting for share-based compensation expense.intangible assets. Actual results could differ significantly from these estimates and assumptions.
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In our 20162022 Annual Report on Form 10-K, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our unaudited consolidated interim financial statements. There have been no material changes to these policies from those disclosed in our 20162022 Annual Report on Form 10-K.
U.S. Tax Act and U.S. CARES Act
On December 22, 2017, the Tax Cuts and Jobs Act, which we refer to as the “U.S. Tax Act,” was signed into law. The U.S. Tax Act provides for significant changes in the U.S. Internal Revenue Code of 1986, as amended. The changes in the U.S. Tax Act are broad and complex and we continue to examine the impact the U.S. Tax Act may have on our business and financial results. The U.S. Tax Act contains provisions with separate effective dates but was generally effective for taxable years beginning after December 31, 2017.
Under FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. Beginning on January 1, 2018, the U.S. Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% on our U.S. earnings from that date and beyond. The reduction in the corporate income tax rate from 35% to 21% was effective for our fiscal 2018 and subsequent years. We also expect to realize a cash tax benefit for future bonus depreciation on certain business additions, which, together with the reduced income tax rate, we expect to reduce our cash income tax payments. Our consolidated effective tax rate was approximately 63.2% and 20.8% for the first two quarters of 2023 and 2022, respectively.
The U.S. Tax Act also limits the deduction for net interest expense (including the treatment of depreciation and other deductions in arriving at adjusted taxable income) incurred by a corporate taxpayer to 30% of the taxpayer’s adjusted taxable income.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the “U.S. CARES Act,” was signed into law. The U.S. CARES Act, among other things, includes provisions related to net operating loss carryback periods, modifications to the interest deduction limitation and technical corrections to tax depreciation for qualified improvement property. The U.S. CARES Act increased the adjusted taxable income limitation from 30% to 50% for business interest deductions for tax years 2019 and 2020 and the limitation reverted back to 30% beginning in 2021.
If we are unable to fully utilize our interest expense deductions in future periods, our cash taxes will increase. We were not subject to an interest expense deduction limitation in fiscal 2020 but were subject to the limitation in fiscal 2021, which increased our taxable income by $6.7 million. Beginning with fiscal 2022, our adjusted taxable income as computed for purposes of the interest expense deduction limitation is computed after any deduction allowable
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for depreciation and amortization. As a result, our adjusted taxable income (used to compute the limitation) decreased and we are subject to the interest expense deduction limitation in fiscal 2022, resulting in an increase to taxable income of $90.2 million. We may continue to be subject to the interest deduction limitation in future years. We have recorded a deferred tax asset of $22.2 million related to the interest deduction carryover, without a valuation allowance, as the disallowed interest may be carried forward indefinitely. The increase in our cash taxes resulting from the interest expense deduction limitation was approximately $20.6 million for fiscal 2022. There are various factors that may cause tax assumptions to change in the future, and we may have to record a valuation allowance against these deferred tax assets. See “—Liquidity and Capital Resources—Cash Flows–Cash Income Tax Payments.”
The U.S. Treasury issued several regulations supplementing the U.S. Tax Act in 2018, including detailed guidance clarifying the calculation of the mandatory tax on previously unrepatriated earnings, application of the existing foreign tax credit rules to newly created categories and expanding details for application of the base erosion tax on affiliate payments. These regulations are to be applied retroactively and did not materially impact our tax rates in fiscal 2022 or the first two quarters of 2023.
Results of Operations
The following table sets forth the percentages of net sales represented by selected items for the thirdsecond quarter and first threetwo quarters of each of 20172023 and 20162022 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:
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| October 1, |
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| October 1, |
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| 2016 |
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| 2016 |
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| | July 1, | | July 2, | | July 1, | | July 2, | |||||||||||||||||
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| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||||||||||||||
Statement of Operations Data: |
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Net sales |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
|
| 100.0 | % | | 100.0 | % |
| 100.0 | % | | 100.0 | % |
Cost of goods sold |
| 69.8 | % |
| 63.7 | % |
| 69.8 | % |
| 65.1 | % |
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| 78.2 | % | | 84.0 | % |
| 77.9 | % | | 82.4 | % |
Gross profit |
| 30.2 | % |
| 36.3 | % |
| 30.2 | % |
| 34.9 | % |
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| 21.8 | % | | 16.0 | % |
| 22.1 | % | | 17.6 | % |
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Operating (income) and expenses: | | | | | | | | | | | | | |||||||||||||
Selling, general and administrative expenses |
| 10.5 | % |
| 13.4 | % |
| 12.2 | % |
| 11.9 | % |
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| 10.2 | % | | 9.2 | % |
| 9.6 | % | | 9.0 | % |
Amortization expense |
| 1.0 | % |
| 1.0 | % |
| 1.1 | % |
| 1.0 | % |
| | 1.1 | % | | 1.2 | % | | 1.2 | % | | 1.1 | % |
Impairment of intangible assets |
| — | % |
| — | % |
| — | % |
| 0.6 | % |
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Loss (gain) on sales of assets | | — | % | | — | % | | — | % | | (0.7) | % | |||||||||||||
Operating income |
| 18.7 | % |
| 21.9 | % |
| 16.9 | % |
| 21.4 | % |
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| 10.5 | % | | 5.6 | % |
| 11.3 | % | | 8.2 | % |
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Other (income) and expenses: | | | | | | | | | | | | | |||||||||||||
Interest expense, net |
| 5.8 | % |
| 5.7 | % |
| 5.4 | % |
| 5.6 | % |
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| 7.7 | % | | 6.2 | % |
| 7.6 | % | | 5.6 | % |
Loss on extinguishment of debt |
| — | % |
| — | % |
| 0.1 | % |
| 0.3 | % |
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Other expense (income) |
| — | % |
| — | % |
| (0.2) | % |
| (0.2) | % |
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Income before income tax expense |
| 12.9 | % |
| 16.2 | % |
| 11.6 | % |
| 15.7 | % |
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Income tax expense |
| 4.8 | % |
| 6.0 | % |
| 4.3 | % |
| 5.9 | % |
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Other income | | (0.2) | % | | (0.4) | % | | (0.2) | % | | (0.4) | % | |||||||||||||
Income (loss) before income tax expense (benefit) |
| 3.0 | % | | (0.2) | % |
| 3.9 | % | | 3.0 | % | |||||||||||||
Income tax expense (benefit) |
| 0.8 | % | | (0.3) | % |
| 2.5 | % | | 0.6 | % | |||||||||||||
Net income |
| 8.1 | % |
| 10.2 | % |
| 7.3 | % |
| 9.8 | % |
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| 2.2 | % | | 0.1 | % |
| 1.4 | % | | 2.4 | % |
As used in this section, the terms listed below have the following meanings:
Net Sales. Our net sales represents gross sales of products shipped to customers plus amounts charged to customers for shipping and handling, less cash discounts, coupon redemptions, slotting fees and trade promotional spending.spending, including marketing development funds.
Gross Profit. Our gross profit is equal to our net sales less cost of goods sold. The primary components of our cost of goods sold are cost of internally manufactured products, purchases of finished goods from co‑packers,co-packers, a portion of our warehousing expenses plus freight costs to our distribution centers and to our customers.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses include costs related to selling our products, as well as all other general and administrative expenses. Some of these costs include administrative, marketing and internal sales force employee compensation and benefits costs, consumer advertising programs, brokerage costs, a portion of our warehousing expenses, information technology and communication costs, office rent, utilities, supplies, professional services, acquisition‑relatedseverance, acquisition/divestiture-related and non-recurring expenses and other general corporate expenses.
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Amortization Expense.Amortization expense includes the amortization expense associated with customer relationships, amortizablefinite-lived trademarks and other intangibles.intangible assets.
Impairment of Intangible Assets. Impairment of intangible assets represents a reduction of the carrying value of amortizable intangible assets to fair value when the carrying value of the assets is no longer recoverable.
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Net Interest Expense.Net interest expense includes interest relating to our outstanding indebtedness, amortization of bond discountdiscount/premium and amortization of deferred debt financing costs (net of interest income).
LossGain on Extinguishment of Debt. LossGain on extinguishment of debt includes costsgains relating to the retirement of indebtedness, including any repurchase premium, if any, and write‑offdiscount net of the accelerated amortization of deferred debt financing costs.
Other Income. Other income includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs, and unamortized discount, if any.
Other Expense (Income). Otherincome or expense (income) includes expense or income resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes.
Non-GAAP Financial Measures
Certain disclosures in this report include non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP)GAAP in our consolidated balance sheets and related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows.
Base Business Net Sales. Base business net sales is a non-GAAP financial measure used by management to measure operating performance. We define base business net sales as our net sales excluding (1) the impactnet sales of acquisitions until the net sales from such acquisitions are included in both comparable periods and (2) net sales of discontinued or divested brands. The portion of current period net sales attributable to recent acquisitions for which there is no corresponding period in the comparable period of the prior year is excluded. For each acquisition, the excluded period starts at the beginning of the most recent fiscal period being compared and ends on the first anniversary of the acquisition date. For discontinued or divested brands, the entire amount of net sales is excluded from each fiscal period being compared. Management hasWe have included this financial measure because our management believes it provides useful and comparable trend information regarding the results of our business without the effect of the timing of acquisitions and the effect of discontinued or divested brands.
A reconciliation of net sales to base business net sales to reported net sales for the thirdsecond quarter and first threetwo quarters of 20172023 and 20162022 follows (in thousands):
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| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| | July 1, | | July 2, | | July 1, | | July 2, | ||||
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| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net sales | | $ | 469,637 | | $ | 478,965 | | $ | 981,451 | | $ | 1,011,372 |
Net sales from acquisitions(1) | |
| (123) | |
| — | | | (550) | |
| — |
Net sales from discontinued or divested brands(2) | | | 1 | | | (9,856) | | | 31 | | | (24,496) |
Base business net sales | | $ | 469,515 | | $ | 469,109 | | $ | 980,932 | | $ | 986,876 |
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| October 1, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Reported net sales |
| $ | 408,364 |
| $ | 318,247 |
| $ | 1,194,372 |
| $ | 977,601 |
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Net sales from acquisitions(1) |
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| (80,082) |
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| — |
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| (231,000) |
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| — |
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Net sales of Rickland Orchards(2) |
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| — |
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| — |
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| — |
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| (528) |
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Base business net sales |
| $ | 328,282 |
| $ | 318,247 |
| $ | 963,372 |
| $ | 977,073 |
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(1) |
| Reflects net sales |
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(2) | For the second quarter and first two quarters of 2022, reflects net sales of the Back to Nature brand, which was sold on January 3, 2023, and net sales of the SnackWell’s and Farmwise brands, which have been discontinued. For the second quarter and first two quarters of 2023, reflects a net credit paid to customers relating to the discontinued brands. |
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EBITDA and Adjusted EBITDA. EBITDA and adjusted EBITDA are non‑GAAPnon-GAAP financial measures used by management to measure operating performance. We define EBITDA as net income before net interest expense, income taxes and depreciation and amortization and loss on extinguishment of debt.amortization. We define adjusted EBITDA as EBITDA adjusted for cash and non-cash acquisition-relatedacquisition/divestiture-related expenses, gains and losses (which may include third party fees and expenses, integration, restructuring and consolidation expenses, amortization of acquired inventory fair value step-up, intangible asset impairment charges and related asset write offs, and gains and losses on the sale of certain assets),; gains and distribution restructuring expenses.losses on extinguishment of debt; impairment of assets held for sale; impairment of intangible assets; and non-recurring expenses, gains and losses. Management believes that it is useful to eliminate net interest expense, income taxes, depreciation and amortization, loss on extinguishment of debt, acquisition-related expenses, gains and losses, non-cash intangible asset impairment charges and related asset write offs and distribution restructuring expensesthese items because it allows management to focus on what it deems to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. We use EBITDA and adjusted EBITDA in our
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business operations to, among other things, evaluate our operating performance, develop budgets and measure our performance against those budgets, determine employee bonuses and evaluate our cash flows in terms of cash needs. We also present EBITDA and adjusted EBITDA because we believe they are useful indicators of our historical debt capacity and ability to service debt and because covenants in our credit agreement and our senior notes indentures contain ratios based on these measures. As a result, reports used by internal management reports used during monthly operating reviews feature the EBITDA and adjusted EBITDA metrics. However, management uses these metrics in conjunction with traditional GAAP operating performance and liquidity measures as part of its overall assessment of company performance and liquidity, and therefore does not place undue reliance on these measures as its only measures of operating performance and liquidity.
EBITDA and adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to operating income, net income (loss) or any other GAAP measure as an indicator of operating performance. EBITDA and adjusted EBITDA are not complete net cash flow measures because EBITDA and adjusted EBITDA are measures of liquidity that do not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends. Rather, EBITDA and adjusted EBITDA are two potential indicators of an entity’s ability to fund these cash requirements. EBITDA and adjusted EBITDA are not complete measures of an entity’s profitability because they do not include certain costs and expenses for depreciation and amortization, interest and related expenses, loss on extinguishment of debt, acquisition-related expenses, gains and losses income taxes, intangible asset impairment charges and related asset write offs, and distribution restructuring expenses.described above. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies. However, EBITDA and adjusted EBITDA can still be useful in evaluating our performance against our peer companies because management believes these measures provide users with valuable insight into key components of GAAP amounts.
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A reconciliation of EBITDA and adjusted EBITDA to net income and to net cash provided by operating activities to EBITDA and adjusted EBITDA for the thirdsecond quarter and first threetwo quarters of each of 20172023 and 20162022 along with the components of EBITDA and adjusted EBITDA follows (in thousands):
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| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| | July 1, | | July 2, | | July 1, | | July 2, | ||||
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| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income | | $ | 10,553 | | $ | 256 | | $ | 13,968 | | $ | 23,912 |
Income tax expense (benefit) | |
| 3,762 | |
| (1,408) | |
| 24,014 | |
| 6,297 |
Interest expense, net(1) | |
| 35,814 | |
| 29,941 | |
| 75,249 | |
| 56,743 |
Depreciation and amortization | |
| 17,286 | |
| 20,474 | |
| 35,304 | |
| 40,299 |
EBITDA | |
| 67,415 | |
| 49,263 | |
| 148,535 | |
| 127,251 |
Acquisition/divestiture-related and non-recurring expenses(2) | |
| 1,036 | |
| 4,877 | |
| 2,196 | |
| 4,790 |
Loss (gain) on sales of assets, net of facility closure costs(3) | | | — | |
| — | | | 85 | | | (4,928) |
Adjusted EBITDA | | $ | 68,451 | | $ | 54,140 | | $ | 150,816 | | $ | 127,113 |
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| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| | July 1, | | July 2, | | July 1, | | July 2, | ||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net cash provided by (used in) operating activities | | $ | 62,850 | | $ | (4,104) | | $ | 132,377 | | $ | 21,127 |
Income tax expense (benefit) | |
| 3,762 | |
| (1,408) | |
| 24,014 | |
| 6,297 |
Interest expense, net(1) | |
| 35,814 | |
| 29,941 | |
| 75,249 | |
| 56,743 |
Gain on extinguishment of debt(1) | | | 786 | | | — | | | 786 | | | — |
(Loss) gain on sales of assets(2) | | | (84) | |
| — | | | (177) | | | 7,113 |
Deferred income taxes | |
| (78) | |
| 2,383 | |
| (15,097) | |
| (530) |
Amortization of deferred debt financing costs and bond discount/premium | |
| (1,036) | |
| (1,177) | |
| (4,684) | |
| (2,346) |
Share-based compensation expense | |
| (2,374) | |
| (1,158) | |
| (3,301) | |
| (2,248) |
Changes in assets and liabilities, net of effects of business combinations | |
| (32,225) | |
| 24,786 | |
| (60,632) | |
| 41,095 |
EBITDA | | | 67,415 | | | 49,263 | | | 148,535 | | | 127,251 |
Acquisition/divestiture-related and non-recurring expenses(3) | |
| 1,036 | |
| 4,877 | |
| 2,196 | |
| 4,790 |
Loss (gain) on sales of assets, net of facility closure costs(2) | | | — | |
| — | |
| 85 | |
| (4,928) |
Adjusted EBITDA | | $ | 68,451 | | $ | 54,140 | | $ | 150,816 | | $ | 127,113 |
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|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 32,730 |
| $ | 32,410 |
| $ | 87,555 |
| $ | 95,857 |
|
Income tax expense |
|
| 19,772 |
|
| 19,181 |
|
| 50,938 |
|
| 57,568 |
|
Interest expense, net |
|
| 23,374 |
|
| 17,974 |
|
| 65,019 |
|
| 55,535 |
|
Depreciation and amortization |
|
| 11,737 |
|
| 8,655 |
|
| 36,284 |
|
| 26,813 |
|
Loss on extinguishment of debt |
|
| — |
|
| — |
|
| 1,163 |
|
| 2,836 |
|
EBITDA |
|
| 87,613 |
|
| 78,220 |
|
| 240,959 |
|
| 238,609 |
|
Acquisition-related expenses |
|
| 6,448 |
|
| 6,544 |
|
| 20,141 |
|
| 10,475 |
|
Amortization of acquisition-related inventory step-up |
|
| — |
|
| — |
|
| 1,550 |
|
| 3,074 |
|
Impairment of intangible assets |
|
| — |
|
| — |
|
| — |
|
| 5,405 |
|
Loss on disposal of inventory |
|
| — |
|
| — |
|
| — |
|
| 791 |
|
Loss on sale of assets |
|
| — |
|
| — |
|
| 1,608 |
|
| — |
|
Distribution restructuring expenses |
|
| — |
|
| 325 |
|
| — |
|
| 1,273 |
|
Adjusted EBITDA |
|
| 94,061 |
|
| 85,089 |
|
| 264,258 |
|
| 259,627 |
|
Income tax expense |
|
| (19,772) |
|
| (19,181) |
|
| (50,938) |
|
| (57,568) |
|
Interest expense, net |
|
| (23,374) |
|
| (17,974) |
|
| (65,019) |
|
| (55,535) |
|
Acquisition-related expenses |
|
| (6,448) |
|
| (6,544) |
|
| (20,141) |
|
| (10,475) |
|
Distribution restructuring expenses |
|
| — |
|
| (325) |
|
| — |
|
| (1,273) |
|
Write-off of property, plant and equipment |
|
| 2 |
|
| — |
|
| 107 |
|
| — |
|
Deferred income taxes |
|
| 15,087 |
|
| 9,888 |
|
| 35,079 |
|
| 45,555 |
|
Amortization of deferred financing costs and bond discount |
|
| 1,468 |
|
| 1,319 |
|
| 4,263 |
|
| 4,101 |
|
Amortization of acquisition-related inventory step-up |
|
| — |
|
| — |
|
| (1,550) |
|
| (3,074) |
|
Share-based compensation expense |
|
| 1,082 |
|
| 1,341 |
|
| 4,284 |
|
| 4,457 |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| — |
|
| — |
|
| (343) |
|
Changes in assets and liabilities, net of effects of business combinations |
|
| (74,393) |
|
| (61,508) |
|
| (162,806) |
|
| 7,306 |
|
Net cash (used in) provided by operating activities |
| $ | (12,287) |
| $ | (7,895) |
| $ | 7,537 |
| $ | 192,778 |
|
- 30 -
Adjusted Net Income and Adjusted Diluted Earnings Per Share. AdustedAdjusted net income and adustedadjusted diluted earnings per share are non-GAAP financial measures used by management to measure operating performance. We define adjusted net income and adjusted diluted earnings per share as net income and diluted earnings per share adjusted for certain items that affect comparability. These non-GAAP financial measures reflect adjustments to net income and diluted earnings per share to eliminate the items identified in the reconciliation below. This information is provided in order to allow investors to make meaningful comparisons of our operating performance between periods and to view the our business from the same perspective as the our management. Because we cannot predict the timing and amount of these items, management does not consider these items when evaluating our company’s performance or when making decisions regarding allocation of resources.
- 35 -
A reconciliation of net income to adjusted net income and adjusted diluted earnings per share to net income for the thirdsecond quarter and first threetwo quarters of each of 20172023 and 20162022 along with the components of adjusted net income and adjusted diluted earnings per share follows (in thousands):
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-six Weeks Ended | ||||||||
| | July 1, | | July 2, | | July 1, | | July 2, | ||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income | | $ | 10,553 | | $ | 256 | | $ | 13,968 | | $ | 23,912 |
Gain on extinguishment of debt(1) | | | (786) | | | — | | | (786) | | | — |
Acquisition/divestiture-related and non-recurring expenses(3) | | | 1,036 | | | 4,877 | | | 2,196 | | | 4,790 |
Loss (gain) on sales of assets, net of facility closure costs(2) | | | — | | | — | | | 85 | | | (4,928) |
Credit agreement amendment fee(4) | | | — | | | 1,600 | | | — | | | 1,600 |
Tax adjustment(5) | | | — | | | — | | | 14,736 | | | — |
Tax effects of non-GAAP adjustments(6) | | | (61) | | | (1,587) | | | (366) | | | (358) |
Adjusted net income | | $ | 10,742 | | $ | 5,146 | | $ | 29,833 | | $ | 25,016 |
Adjusted diluted earnings per share | | $ | 0.15 | | $ | 0.07 | | $ | 0.41 | | $ | 0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Thirty-nine Weeks Ended | ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Reported net income |
| $ | 32,730 |
| $ | 32,410 |
| $ | 87,555 |
| $ | 95,857 |
Non-recurring adjustment to deferred taxes(1) |
|
| — |
|
| — |
|
| — |
|
| 564 |
Loss on extinguishment of debt, net of tax(2) |
|
| — |
|
| — |
|
| 727 |
|
| 1,784 |
Acquisition-related expenses, net of tax |
|
| 4,028 |
|
| 4,116 |
|
| 12,582 |
|
| 6,588 |
Distribution restructuring expenses, net of tax(3) |
|
| — |
|
| 204 |
|
| — |
|
| 801 |
Acquisition-related inventory step-up, net of tax(4) |
|
| — |
|
| — |
|
| 968 |
|
| 1,934 |
Impairment of intangible assets, net of tax(5) |
|
| — |
|
| — |
|
| — |
|
| 3,400 |
Loss on disposal of inventory, net of tax(5) |
|
| — |
|
| — |
|
| — |
|
| 498 |
Loss on sale of assets, net of tax(6) |
|
| — |
|
| — |
|
| 1,005 |
|
| — |
Adjusted net income |
| $ | 36,758 |
| $ | 36,730 |
| $ | 102,837 |
| $ | 111,426 |
Adjusted diluted earnings per share |
| $ | 0.55 |
| $ | 0.56 |
| $ | 1.54 |
| $ | 1.79 |
(1) |
|
|
|
|
(2) |
|
|
|
|
(3) |
| During the first |
| $0.1 million. During the first |
(4) | During the second quarter of 2022, we paid a fee of $1.6 million |
(5) | As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income tax expense by $14.7 million, or $0.21 per share. |
(6) | Represents the tax effects of the non-GAAP adjustments listed above, assuming a tax rate of 24.5%. |
- 3631 -
ThirdSecond quarter of 20172023 compared to the thirdsecond quarter of 20162022
Net Sales. Net sales increased $90.2for the second quarter of 2023 decreased $9.4 million, or 28.3%1.9%, to $408.4$469.6 million from $479.0 million for the thirdsecond quarter of 2017 from $318.2 million for2022. The decrease was primarily attributable to the third quarter of 2016.Back to Nature divestiture. Net sales of Back to Nature, which we divested on January 3, 2023, and therefore not part of our fiscal 2023 results, were $9.8 million during the spices & seasonings business, acquired on November 21, 2016, and net salessecond quarter of Victoria, acquired on December 2, 2016, contributed $70.4 million and $9.7 million, respectively, to the overall net sales increase.2022.
Base business net sales for the thirdsecond quarter of 20172023 increased $10.1$0.4 million, or 3.2%0.1%, to $328.3$469.5 million from $318.2$469.1 million for the thirdsecond quarter of 2016.2022. The $10.1 million increase in base business net sales was attributable todriven by an increase in unit volumenet pricing and the impact of $13.0product mix of $54.1 million, or 4.1%,11.5% of base business net sales, largely offset by a decrease in net pricingunit volume of $2.9$52.1 million or 0.9%.
Net sales increased across halfand the negative impact of our brands, led by Green Giant which increased by $7.3 million for the third quarter. Green Giant frozen products increased by $11.6 million, driven by the brand’s new innovation products. The increase was offset by a decrease in net salesforeign currency of Green Giant shelf-stable and other products of $4.3 million, primarily attributable to forecasted distribution losses with certain customers. $1.6 million.
Net sales of Pirate Brands increased $4.7Green Giant products in the aggregate (including Le Sueur) decreased $4.9 million, benefitting from a strong back-to-school season, new distribution gains and the shiftor 4.4%, in timing of certain promotional spending from the second quarter of last year2023, as compared to the thirdsecond quarter of this year. Other brands that contributed to the net sales growth for the quarter include Polaner, Underwood, New York Style and Cream of Wheat.2022.
See Note 14,16, “Net Sales by Brand,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, for detailed information regarding total net sales by brand for the third quarter of 2017 and the third quarter of 2016 for each of our brands that exceed approximately 2%whose net sales for the first two quarters of 2023 or fiscal 2022 equaled or exceeded 3% of our fiscal 2017 or fiscal 2016total net sales for those periods, and for all other brands in the aggregate.
The following charttable sets forth the most significant base business net sales increases and decreases by brand for those brands for the thirdsecond quarter of 2017:2023:
| | | | | | | |
| | Second Quarter |
| | |||
| | 2023 vs. 2022 | | | |||
| | Base Business | | | |||
| | Net Sales Increase (Decrease) |
| | |||
|
| Dollars |
| Percentage |
| | |
Brand: | | | | | | | |
Clabber Girl | | $ | 8.3 | | 43.7 | % | |
Maple Grove Farms of Vermont | | | 0.6 |
| 2.9 | % | |
Cream of Wheat | | | 0.3 |
| 1.9 | % | |
Crisco | | | (4.8) |
| (6.7) | % | |
Green Giant - frozen(1) |
| | (4.4) |
| (5.4) | % | |
Spices & Seasonings(2) | | | (3.3) | | (5.0) | % | |
Dash | | | (0.5) |
| (3.3) | % | |
Green Giant - shelf-stable(3) | | | (0.5) | | (1.6) | % | |
Ortega | | | (0.2) |
| (0.5) | % | ��� |
All other brands | |
| 4.9 |
| 4.7 | % | |
Base business net sales increase |
| $ | 0.4 |
| 0.1 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Base Business |
|
| |||
|
| Net Sales Increase (Decrease) |
|
| |||
|
| Dollars |
| Percentage |
|
| |
|
| (in millions) |
|
|
|
| |
Brand: |
|
|
|
|
|
|
|
Green Giant |
| $ | 7.3 |
| 6.4 | % |
|
Pirate Brands |
|
| 4.7 |
| 21.0 | % |
|
Polaner |
|
| 1.2 |
| 15.4 | % |
|
Underwood |
|
| 1.0 |
| 20.6 | % |
|
New York Style |
|
| 1.0 |
| 11.8 | % |
|
Cream of Wheat |
|
| 0.6 |
| 4.3 | % |
|
|
|
|
|
|
|
|
|
Ortega |
|
| (1.6) |
| (4.6) | % |
|
Mama Mary's |
|
| (1.1) |
| (12.3) | % |
|
Maple Grove Farms of Vermont |
|
| (0.9) |
| (5.3) | % |
|
Bear Creek Country Kitchens |
|
| (0.7) |
| (5.3) | % |
|
|
|
|
|
|
|
|
|
All other brands |
|
| (1.4) |
| (2.0) | % |
|
Base business net sales decrease |
| $ | 10.1 |
| 3.2 | % |
|
(1) | For the second quarter of 2023, includes net sales from the Yuma acquisition from May 5, 2023 through July 1, 2023, as net sales prior to May 5, 2023 are not included in base business net sales. The Yuma acquisition was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures.” |
(2) | Includes net sales for multiple brands acquired as part of the spices & seasonings acquisition that we completed on November 21, 2016, as well as more recent spices & seasonings products launched and sold under license. Does not include net sales for Dash and our other legacy spices & seasonings brands. |
(3) | Includes net sales of the Le Sueur brand. |
Gross Profit. Gross profit increased $7.9 million, or 6.8%, to $123.3was $102.3 million for the thirdsecond quarter of 2017 from $115.42023, or 21.8% of net sales. Excluding the negative impact of $0.4 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the second quarter of 2023, our gross profit would have been $102.7 million, or 21.9% of net sales. Gross profit was $76.5 million for the thirdsecond quarter of 2016. Gross2022, or 16.0% of net sales. Excluding the negative impact of $2.3 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the second quarter of 2022, our gross profit expressedwould have been $78.8 million, or 16.5% of net sales.
The improvements in gross profit and gross profit as a percentage of net sales was 30.2%were driven by an increase in net pricing as compared to the thirdsecond quarter of 2017 compared to 36.3% in2022 and the thirdimpact of moderating input cost inflation and lower transportation and warehousing costs. During the fourth quarter of 2016. Excluding spices & seasonings2022, we began to more fully realize the benefits of previously announced list price increases. This trend continued during the first and Victoria, approximately 2.9 percentage pointssecond quarters of 2023, with the
- 32 -
impact of previously announced list price increases the decreaseprimary driver of recoveries in gross profit and gross profit as a percentage was due to an increase in warehousing and distribution costs, 1.0 percentage point of the decrease was due to an increase in coupon and slotting expenses and 0.9 percentage points of the decrease was due to a decrease in pricing. The remaining 1.3 percentage points of the decrease was due to an increase in all other costs, including the impact of product mix.net sales.
- 37 -
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.5$3.7 million, or 1.3%8.3%, to $43.0$47.9 million for the thirdsecond quarter of 20172023 from $42.5$44.2 million for the thirdsecond quarter of 2016.2022. The increase was composed of increases in general and administrative expenses of $3.0 million, consumer marketing expenses of $2.0 million, selling expenses of $0.6 million, and warehousing expenses of $1.4$0.1 million, and selling expenses of $1.4 million (which includes a $2.1 million increase in brokerage expensespartially offset by a $0.6 million decrease in salesperson compensation), offset by decreases in marketingacquisition/divestiture-related and non-recurring expenses of $0.9 million and all other expenses of $1.4$2.0 million. Expressed as a percentage of net sales, selling, general and administrative expenses improvedincreased by 2.91.0 percentage points to 10.5%10.2% for the thirdsecond quarter of 20172023, as compared to 13.4%9.2% for the thirdsecond quarter of 2016.2022.
Amortization Expense. Amortization expense increased $1.0decreased $0.2 million, or 2.8%, to $4.3$5.2 million for the thirdsecond quarter of 20172023 from $3.3$5.4 million for the thirdsecond quarter of 2016 due to the spices & seasonings and Victoria acquisitions completed in fiscal 2016.2022.
Operating Income. As a result of the foregoing, operating income increased $6.3$22.3 million, or 9.0%82.6%, to $76.0$49.2 million for the thirdsecond quarter of 20172023 from $69.7$26.9 million for the thirdsecond quarter of 2016.2022. Operating income expressed as a percentage of net sales decreasedincreased to 18.7%10.5% in the thirdsecond quarter of 20172023 from 21.9%5.6% in the thirdsecond quarter of 2016.2022.
Net Interest Expense. Net interest expense increased $5.4$5.9 million, or 30.0%19.6%, to $23.4$35.8 million for the thirdsecond quarter of 20172023 from $18.0$29.9 million infor the thirdsecond quarter of 2016.2022. The increase was primarily attributable to additionalhigher interest rates on our variable rate borrowings, madepartially offset by a reduction in the fourth quarteraverage long-term debt outstanding of 2016 to fund the spices & seasonings acquisition$49.2 million and the Victoria acquisition anda $0.8 million gain on extinguishment of debt. The reduction in average long-term debt outstanding in the second quarter of 2017 in connection with2023 as compared to the second quarter of 2022 resulted primarily from our credit agreement refinancinguse of $50.0 million of the gross proceeds of the Back to Nature divestiture and an additional $71.0 million of cash on hand to make aggregate prepayments of $121.0 million principal amount of term loans during the first quarter of 2023, as well as our repurchase of $24.4 million aggregate principal amount of our 5.25% senior notes offering.due 2025 in open market purchases at an average discounted repurchase price of 95.74% of such principal amount plus accrued and unpaid interest during the second quarter of 2023, partially offset by an increase in average revolver borrowings outstanding of approximately $77.9 million. See “—Liquidity and Capital Resources—Debt”Resources — Debt” below.
Other Expense. Income.Other expenseincome for the thirdsecond quarter of 20172023 and 20162022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $0.9 million and $1.8 million, respectively. Other income for the second quarter of 2023 and 2022 also includes income resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes of less than $0.1 million and $0.1 million, respectively.in both periods.
Income Tax Expense. Expense (Benefit). Income tax expense increased $0.6$5.2 million to $19.8an income tax expense of $3.8 million for the thirdsecond quarter of 20172023 from $19.2an income tax benefit of $1.4 million for the thirdsecond quarter of 2016.2022, primarily due to an increase in operating income. Our effective tax rate was 37.7%26.3% for the thirdsecond quarter of 20172023 and 37.2%122.2% for the thirdsecond quarter of 2016.2022. See “U.S. Tax Act and U.S. CARES Act” above for a discussion of the impact of the tax legislation on income tax expense (benefit).
First threetwo quarters of 20172023 compared to the first threetwo quarters of 20162022
Net Sales. Net sales increased $216.8for the first two quarters of 2023 decreased $29.9 million, or 22.2%3.0%, to $1,194.4$981.5 million from $1,011.4 million for the first threetwo quarters of 20172022. The decrease was primarily attributable to the Back to Nature divestiture, partially offset by the Yuma acquisition. Net sales of Back to Nature, which we divested on January 3, 2023, and therefore not part of our fiscal 2023 results, were $24.2 million during the first two quarters of 2022. An additional four months of net sales from $977.6the Yuma acquisition, which was completed on May 5, 2022, contributed an incremental $0.6 million to our net sales for the first threetwo quarters of 2016. Net sales of the spices & seasonings business, acquired on November 21, 2016, and net sales of Victoria, acquired on December 2, 2016, contributed $200.9 million and $30.1 million, respectively, to the overall net sales increase.2023.
Base business net sales for the first threetwo quarters of 20172023 decreased $13.7$6.0 million, or 1.4%0.6%, to $963.4$980.9 million from $977.1$986.9 million for the first threetwo quarters of 2016.2022. The $13.7 million decrease in base business net sales was attributable to decreasesdriven by a decrease in unit volume of $8.6$119.6 million and the negative impact of foreign currency of $3.6 million, largely offset by an increase in net pricing and the impact of product mix of $117.3 million, or 0.9%, and net pricing11.9% of $5.1 million, or 0.5%.
Our base business net sales decline for the first three quarters of 2017 was largely attributable to our maple syrup products, Mama Mary’s and Bear Creek Country Kitchens. sales.
Net sales of our maple syrupGreen Giant products in the aggregate (including Le Sueur) decreased $5.2$14.9 million, or 7.0%6.0%, primarily due to our decision duringin the first quartertwo quarters of 20172023, as compared to discontinue certain private label sales. Net sales of Mama Mary’s decreased $3.4 million, or 11.7%, generally in line with a category decline of approximately 8.4%. Net sales of Bear Creek Country Kitchens, which faced aggressive competition and a category decline of approximately 4.0% during the first threetwo quarters of 2017, decreased $3.0 million, or 9.3%. For the first three quarters2022.
- 33 -
See Note 14,16, “Net Sales by Brand,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, for detailed information regarding total net sales by brand for the first three quarters of 2017 and the first three quarters of 2016 for each of our brands that exceed approximately 2%whose net sales for the first two quarters of 2023 or fiscal 2022 equaled or exceeded 3% of our fiscal 2017 or fiscal 2016total net sales for those periods, and for all other brands in the aggregate.
- 38 -
The following charttable sets forth the most significant base business net sales increases and decreases by brand for those brands for the first threetwo quarters of 2017:2023:
| | | | | | | |
| | First Two Quarters | | ||||
| | 2023 vs. 2022 | | ||||
| | Base Business | | ||||
| | Net Sales Increase (Decrease) | | ||||
|
| Dollars |
| Percentage | | ||
Brand: | | | | | | | |
Clabber Girl | | $ | 14.8 | | 37.0 | % | |
Spices & Seasonings(1) | | | 4.0 |
| 3.1 | % | |
Maple Grove Farms of Vermont | | | 1.2 |
| 2.8 | % | |
Dash | | | 0.5 |
| 1.6 | % | |
Green Giant - frozen(2) |
| | (11.7) |
| (6.5) | % | |
Crisco | | | (11.4) | | (7.6) | % | |
Ortega | | | (4.3) |
| (5.5) | % | |
Green Giant - shelf-stable(3) | | | (3.2) |
| (4.7) | % | |
Cream of Wheat | | | (0.1) |
| (0.1) | % | |
All other brands | |
| 4.2 |
| 1.8 | % | |
Base business net sales decrease |
| $ | (6.0) |
| (0.6) | % | |
|
|
|
|
|
|
|
|
|
| Base Business |
|
| |||
|
| Net Sales Increase (Decrease) |
|
| |||
|
| Dollars |
| Percentage |
|
| |
|
| (in millions) |
|
|
|
| |
Brand: |
|
|
|
|
|
|
|
Pirate Brands |
| $ | 3.2 |
| 4.7 | % |
|
Underwood |
|
| 1.3 |
| 9.1 | % |
|
Polaner |
|
| 1.2 |
| 4.6 | % |
|
New York Style |
|
| 1.1 |
| 4.2 | % |
|
Green Giant |
|
| 0.6 |
| 0.2 | % |
|
|
|
|
|
|
|
|
|
Mama Mary's |
|
| (3.4) |
| (11.7) | % |
|
Maple Grove Farms of Vermont |
|
| (3.1) |
| (5.7) | % |
|
Bear Creek Country Kitchens |
|
| (3.0) |
| (9.3) | % |
|
SpringTree |
|
| (1.7) |
| (12.2) | % |
|
B&M |
|
| (1.5) |
| (10.0) | % |
|
TrueNorth |
|
| (1.3) |
| (15.7) | % |
|
Bloch & Guggenheimer |
|
| (1.3) |
| (6.7) | % |
|
Ortega |
|
| (1.3) |
| (1.2) | % |
|
Emeril's |
|
| (1.2) |
| (11.2) | % |
|
|
|
|
|
|
|
|
|
All other brands |
|
| (3.3) |
| (1.6) | % |
|
Base business net sales decrease |
| $ | (13.7) |
| (1.4) | % |
|
(1) | Includes net sales for multiple brands acquired as part of the spices & seasonings acquisition that we completed on November 21, 2016, as well as more recent spices & seasonings products launched and sold under license. Does not include net sales for Dash and our other legacy spices & seasonings brands. |
(2) | For the first two quarters of 2023, includes net sales from the Yuma acquisition from May 5, 2023 through July 1, 2023, as net sales prior to May 5, 2023 are not included in base business net sales. The Yuma acquisition was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures.” |
(3) | Includes net sales of the Le Sueur brand. |
Gross Profit. Gross profit increased $20.0 million, or 5.9%, to $361.1was $216.5 million for the first threetwo quarters of 2017 from $341.12023, or 22.1% of net sales. Excluding the negative impact of $1.1 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first two quarters of 2023, our gross profit would have been $217.6 million, or 22.2% of net sales. Gross profit was $177.8 million for the first threetwo quarters of 2016. Gross2022, or 17.6% of net sales. Excluding the negative impact of $4.4 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first two quarters of 2022, our gross profit expressedwould have been $182.2 million, or 18.0% of net sales.
The improvements in gross profit and gross profit as a percentage of net sales was 30.2%were driven by an increase in net pricing as compared to the first threetwo quarters of 2017 compared2022 and the impact of moderating input cost inflation and lower transportation and warehousing costs. During the fourth quarter of 2022, we began to 34.9% inmore fully realize the benefits of previously announced list price increases. This trend continued during the first threetwo quarters of 2016. Excluding spices & seasonings and Victoria, approximately 2.9 percentage points2023, with the impact of previously announced list price increases the decreaseprimary driver of recoveries in gross profit and gross profit as a percentage was due to an increase in warehousing and distribution costs, 0.7 percentage points of the decrease was due to an increase in coupon and slotting expenses and 0.5 percentage points of the decrease was due to a decrease in pricing. The remaining 0.6 percentage points of the decrease was due to an increase of all other costs, including the impact of product mix.net sales.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $30.2$3.6 million, or 26.1%3.9%, to $146.2$94.6 million for the first threetwo quarters of 20172023 from $116.0$91.0 million for the first threetwo quarters of 2016.2022. The increase was composed of increases in general and administrative expenses of $5.2 million and consumer marketing expenses of $10.4$1.8 million, acquisition-relatedpartially offset by decreases in acquisition/divestiture-related and non-recurring expenses of $9.7$1.5 million, warehousing expenses of $9.3$1.4 million, and selling expenses of $3.5 million (which includes a $3.6 million increase in brokerage expenses and a $0.7 million decrease in salesperson compensation) and a loss on sale of assets of $1.6 million, partially offset by a decrease in distribution restructuring expenses of $1.3 million and all other expenses of $3.0$0.5 million. Expressed as a percentage of net sales, selling, general and administrative expenses increased 0.3by 0.6 percentage points to 12.2%9.6% for the first threetwo quarters of 2017 from 11.9%2023, as compared to 9.0% for the first threetwo quarters of 2016.2022.
Amortization Expense. Amortization expense increased $3.0decreased $0.1 million, or 1.2%, to $13.0$10.5 million for the first threetwo quarters of 20172023 from $10.0$10.6 million for the first threetwo quarters of 2016 due2022.
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(Loss) gain on sales of assets. During the first quarter of 2023, we completed the Back to Nature divestiture and we recorded a loss on the sale of $0.1 million. During the first quarter of 2022, we completed the closure and sale of our Portland, Maine manufacturing facility. We recorded a gain on the sale of the Portland property, plant and equipment of $7.1 million during the first quarter of 2022. The positive impact during the first two quarters of 2022 of the gain on sale was partially offset by approximately $2.2 million of expenses incurred during the quarter relating to the spices & seasoningsclosure of the facility and Victoria acquisitions completed in fiscal 2016.the transfer of manufacturing operations.
Impairment of Intangible Assets. Impairment of intangible assets of $5.4 million for the first three quarters of 2016 includes a $4.5 million loss for the impairment of amortizable trademarks and a $0.9 million loss for the impairment of customer relationship intangibles, both relating to Rickland Orchards, as we discontinued the Rickland Orchards brand during the second quarter of 2016 because there was not sufficient demand to warrant continued production.
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Operating Income. As a result of the foregoing, operating income decreased $7.8increased $28.1 million, or 3.7%33.8%, to $201.8$111.4 million for the first threetwo quarters of 20172023 from $209.6$83.3 million for the first threetwo quarters of 2016.2022. Operating income expressed as a percentage of net sales decreasedincreased to 16.9%11.3% in the first threetwo quarters of 20172023 from 21.4%8.2% in the first threetwo quarters of 2016.2022.
Net Interest Expense.Net interest expense increased $9.5$18.5 million, or 17.1%32.6%, to $65.0$75.2 million for the first threetwo quarters of 20172023 from $55.5$56.7 million infor the first threetwo quarters of 2016.2022. The increase was primarily attributable to additionalhigher interest rates on our variable rate borrowings, made inas well as the fourth quarter of 2016 to fund the spices & seasonings acquisition and the Victoria acquisition and in the second quarter of 2017 in connection with our credit agreement refinancing and senior notes offering. See “—Liquidity and Capital Resources—Debt” below.
Loss on Extinguishment of Debt. Loss on extinguishment of debt for the first three quarters of 2017 includes the write-offaccelerated amortization of deferred debt financing costs and unamortized discount of $0.9 million and $0.2 million, respectively, relating to the repaymentprepayments described below, partially offset by a reduction in average long-term debt outstanding of all$12.9 million and a $0.8 million gain on extinguishment of debt during the second quarter of 2023. The reduction in average long-term debt outstanding borrowings underin the tranche Afirst two quarters of 2023 as compared to the first two quarters of 2022 resulted primarily from our use of $50.0 million of the gross proceeds of the Back to Nature divestiture and an additional $71.0 million of cash on hand to make aggregate prepayments of $121.0 million principal amount of term loans. Duringloans during the first quarter of 2017, we incurred a loss on extinguishment2023 as well as our repurchase of debt relating to the refinancing of our tranche B term loans of less than $0.1 million. Loss on extinguishment of debt for the first three quarters of 2016 includes the write-off of deferred debt financing costs and unamortized discount of $2.2 million and $0.6 million, respectively, relating to the repayment of $40.1$24.4 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate5.25% senior notes due 2025 in open market purchases at an average discounted repurchase price of 95.74% of such principal amount plus accrued and unpaid interest during the second quarter of our tranche B term loans.2023, partially offset by an increase in average revolver borrowings outstanding of approximately $77.8 million. See “—Liquidity and Capital Resources — Debt” below.
Other Income.Other income for the first threetwo quarters of 20172023 and 20162022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $1.9 million and $3.7 million, respectively. Other income for the first two quarters of 2023 and 2022 also includes income resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes of $2.9less than $0.1 million and $2.2 million, respectively.in both periods.
Income Tax Expense. Income tax expense decreased $6.7increased $17.7 million to $50.9$24.0 million for the first threetwo quarters of 20172023 from $57.6$6.3 million for the first threetwo quarters of 2016.2022. As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income tax expense by $14.7 million, or $0.21 per share. Our effective tax rate was 36.8%63.2% for the first threetwo quarters of 20172023 and 37.5%20.8% for the first threetwo quarters of 2016.2022. See “U.S. Tax Act and U.S. CARES Act” above for a discussion of the impact of the tax legislation on income tax expense.
Liquidity and Capital Resources
Our primary liquidity requirements include debt service, capital expenditures and working capital needs. See also, “Dividend Policy” and “Commitments and Contractual Obligations” below. We fund our liquidity requirements, as well as our dividend payments and financing for acquisitions, primarily through cash generated from operations and external sources of financing, including our revolving credit facility. We do not have any off-balance sheet financing arrangements.
Cash Flows
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased $185.3increased $111.3 million to $7.5$132.4 million for the first threetwo quarters of 2017 from $192.82023, as compared to $21.1 million for the first threetwo quarters of 2016.2022. The decrease in net cash provided by operating activities primarily reflects unfavorable working capital (comprised of changes in inventories, accounts receivable and accrued expenses) comparisons to the first three quarters of 2016. This decrease is mainlyincrease was due to an increase in inventoryoperating income and favorable working capital comparisons in the timingfirst two quarters of payments received2023 compared to the first two quarters of 2022, primarily comprised of inventories, income tax receivable/payable, net, and trade accounts receivable, partially offset by unfavorable working capital comparisons for trade accounts payable and accrued expenses.
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Net Cash Provided by (Used in) Investing Activities. Cash flows provided by investing activities increased $71.0 million to $40.9 million of net cash provided by investing activities for the first two quarters of 2023, as compared to $30.1 million of net cash used in investing activities for the first two quarters of 2022. The increase was primarily attributable to the Back to Nature sale, which produced gross proceeds from post-acquisition transition services agreements.
the sale of assets of $51.4 million in the first two quarters of 2023, an increase of $41.1 million compared to the gross proceeds from the sale of assets in the first two quarters of 2022. Net cash used in investing activities for the first threetwo quarters of 2017 increased $15.82022 includes $27.3 million of cash used to $40.6 million from $24.8 millionpay the purchase price for the Yuma acquisition, compared to no payments for acquisitions during the first threetwo quarters of 2016. The increase was attributable to an increase2023. Net cash provided by investing activities also benefited from a reduction in capital spending, partially offset by the proceeds from the sale of assets. Capital expenditures in the first threetwo quarters of 2017 and 2016 included expenditures for building improvements, purchases of manufacturing and computer equipment and capitalized interest. During2023 compared to the first threetwo quarters of 2017, we sold2022.
Net Cash (Used in) Provided by Financing Activities. Cash flows used in financing activities increased $194.6 million to a third-party co-packer our Le Sueur, Minnesota research center, including$176.1 million of net cash used in financing activities for the seed technology assets, property, plant and equipment, which we acquiredfirst two quarters of 2023, as partcompared to $18.5 million of the Green Giant acquisition, resulting in a $1.6 million loss on sale of assets.
Netnet cash provided by financing activities for the first threetwo quarters of 2017 decreased $40.82022. The increase was primarily driven by $121.0 million to $27.1 million from net cash used in financing activities of $67.9 million formandatory and optional payments on our tranche B term loans during the first three quartersquarter of 2016. Net cash provided by financing activities for the first three quarters2023 and our repurchase of 2017 consisted of $500.0$24.4 million of proceeds from the issuanceaggregate principal amount of our 5.25% senior notes and $85.0 milliondue 2025 during the second quarter of revolving credit facility borrowings, partially offset by $233.6 million
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repayment of our tranche A term loan, $221.0 million of repayments of revolving credit facility borrowings, $92.7 million of dividend payments, $8.6 million of debt financing costs and $2.0 million of payments of tax withholding on behalf of employees for net share settlement of share based compensation. Net cash provided by financing activities for the first three quarters of 2016 consisted of $331.9 million of2023; no proceeds from the issuance of common stock $10.0during the first two quarters of 2023 compared to $65.2 million during the first two quarters of 2022; and a $25.0 million decrease in net borrowings under our revolving credit facility borrowings, and $0.3 million excess tax benefitsduring the first two quarters of share-based compensation,2023 compared to the first two quarters of 2022; partially offset by $150.0a $37.9 million decrease in dividends paid during the first two quarters of term loan repayment, $50.0 million of repayments of revolving credit facility borrowings, $72.9 million of dividend payments and $1.4 million of payments of tax withholding on behalf of employees for net share settlement of share based compensation.
Based on a number of factors, including amortization for tax purposes of our trademarks, goodwill and other intangible assets acquired in prior acquisitions, we realized a significant reduction in cash taxes in fiscal 2016 as2023 compared to our tax expense for financial reporting purposes. During the second quarterfirst two quarters of 2016, we discontinued the Rickland Orchards brand, which resulted in a one-time cash taxes benefit of $17.3 million for fiscal 2016.2022.
Cash Income Tax Payments. We believe that we will realize a benefit to our cash taxes payable from amortization of our trademarks, goodwill and other intangible assets for the taxable years 20172023 through 2031.2037. See “U.S. Tax Act and U.S. CARES Act” above for a discussion of the impact and expected impact of the U.S. CARES Act and the U.S. Tax Act on our cash income tax payments, including the impact the U.S. Tax Act had in fiscal 2022 and fiscal 2021 and is expected to have in fiscal 2023 and beyond on our interest expense deductions and our cash taxes. If there is a change in U.S. federal tax policy or, in the case of the interest deduction, a change in our net interest expense relative to our adjusted taxable income that eliminates, limits or reduces our ability to amortize and deduct goodwill and certain intangible assets or the interest deduction we receive on our substantial indebtedness, or otherwise that reduces any of these available deductions or results in an increase in our corporate tax rate, our cash taxes payable may increase further, which could significantly reduce our future liquidity and impact our ability to make interest and dividend payments.payments and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
Dividend Policy
Our dividend policy reflects a basic judgment that our stockholders are better served when we distribute a substantial portion of our cash available to pay dividends to them instead of retaining it in our business. Under this policy, a substantial portion of the cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, capital expenditures sufficient to maintain our properties and other assets is distributed as regular quarterly cash dividends to the holders of our common stock and not retained by us. We have paid dividends every quarter since our initial public offering in October 2004.
For the first threetwo quarters of 20172023 and 2016,2022, we had net cash flows provided by operating activities of $7.5$132.4 million and $192.8$21.1 million, respectively, and distributed as dividends of $92.7$27.3 million and $72.9$65.3 million, respectively.
Beginning with the dividend payment declared on November 8, 2022 and paid on January 30, 2023, the current intended dividend rate for our common stock has been reduced from $1.90 per share per annum to $0.76 per share per annum. Based upon ourthe new current intended dividend rate of $1.86$0.76 per share per annum and our current number of outstanding shares, we expect our aggregate dividend payments in fiscal 20172023 to be approximately $123.6$54.9 million.
Our dividend policy is based upon our current assessment of our business and the environment in which we operate, and that assessment could change based on competitive or other developments (which could, for example, increase our need for capital expenditures or working capital), new acquisition opportunities or other factors. Our board of directors is free to depart from or change our dividend policy at any time and could do so, for example, if it was to determine that we have insufficient cash to fund capital expenditure or working capital needs, reduce leverage or ensure compliance with our maximum consolidated leverage ratio under our credit agreement, or take advantage of growth opportunities.
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Acquisitions
Our liquidity and capital resources have been significantly impacted by acquisitions and may be impacted in the foreseeable future by additional acquisitions. As discussed elsewhere in this report, as part of our growth strategy we plan to expand our brand portfolio with disciplined acquisitions of complementary brands. We have historically financed acquisitions by incurring additional indebtedness, issuing equity and/or using cash flows from operating activities. Our interest expense has over time increased as a result of additional indebtedness we have incurred in connection with acquisitions and will increase with any additional indebtedness we may incur to finance future acquisitions. Although we may subsequently issue equity and use the proceeds to repay all or a portion of the additional indebtedness incurred to finance an acquisition and reduce our interest expense, the additional shares of common stock would increase the amount of cash flows from operating activities necessary to fund dividend payments.
We financed the Back to Nature acquisition, completed in October 2017, with additional revolving loans under our senior secured revolving credit facility. We financed the spices & seasonings acquisition, completed in November
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2016, with cash on hand, including the net proceeds of our August 2016 public offering of common stock, and additional revolving loans under our senior secured credit facility. We financed the Victoria acquisition, completed in December 2016, with cash on hand and additional revolving loans under our senior secured credit facility. The impact of future acquisitions, whether financed with additional indebtedness or otherwise, may have a material impact on our liquidity and capital resources.
Debt
Debt
Senior Secured Credit Agreement. On March 30, 2017, we refinanced our senior secured credit facility. The refinancing reduced by 0.75% the spread over LIBOR or the applicable base rate on $640.1 million of tranche B term loans. On April 3, 2017, we repaid all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans using the net proceeds of our registered public offering of $500.0 million aggregate principal amount of 5.25% senior notes due 2025. At September 30, 2017, $640.1 million of tranche B term loans and $40.0 million of revolving loans were outstanding under our credit agreement. The credit agreement is secured by substantially all of our and our domestic subsidiaries’ assets except our and our domestic subsidiaries’ real property. At September 30, 2017, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $2.0 million, was $458.0 million. See Note 16, “Subsequent Event,” to our unaudited consolidated interim financial statements in Part 1, Item 1 of this report. Proceeds of the revolving credit facility may be used for general corporate purposes, including acquisitions of targets in the same or a similar line of business as our company, subject to specified criteria. The revolving credit facility matures on June 5, 2019.
The entire $640.1 million principal amount of tranche B term loans outstanding are due and payable at maturity on November 2, 2022.
Interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.50% to 1.00%, and LIBOR plus an applicable margin ranging from 1.50% to 2.00%, in each case depending on our consolidated leverage ratio. At September 30, 2017, the revolving credit facility interest rate was approximately 3.24%.
Interest under the tranche B term loan facility is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin of 1.25%, and LIBOR plus an applicable margin of 2.25%. At September 30, 2017, the tranche B term loan interest rate was approximately 3.49%.
For further information regarding our senior secured credit agreement, including a description of optional and mandatory prepayment terms, and financial and restrictive covenants, see Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
4.625% Senior Notes due 2021. On June 4, 2013, we issued $700.0 million aggregate principal amount of 4.625% senior notes due 2021 at a price to the public of 100% of their face value. Interest on the 4.625% senior notes is payable on June 1 and December 1 of each year. The 4.625% senior notes will mature on June 1, 2021, unless earlier retired or redeemed as permitted or required by the terms of the indenture governing the 4.625% senior notes as described in Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements. We may also, from time to time, seek to retire the 4.625% senior notes through cash repurchases of the 4.625% senior notes or exchanges of the 4.625% senior notes for equity securities or both, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. See Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statementsreport for a more detailed description of the 4.625%our senior notes.
5.25% Senior Notes due 2025. On April 3, 2017, we issued $500.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 100% of their face value. We used the net proceeds of the offering to repay all of the outstanding borrowings and amounts due undersecured credit agreement, including our revolving credit facility and tranche A
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B term loans, and to pay related fees and expenses, and for general corporate purposes, which could include, among other things, repayment of other long term debt or possible acquisitions. Interest on theloans; our 5.25% senior notes is payable on April 1due 2025; and October 1 of each year, commencing October 1, 2017. Theour 5.25% senior notes will mature on April 1, 2025, unless earlier retired or redeemed as permitted or required by the terms of the indenture governing the 5.25% senior notes as described in Note 6, “Debt,” to our unaudited consolidated interim financial statements. We may also, from time to time, seek to retire the 5.25% senior notes through cash repurchases of the 5.25% senior notes or exchanges of the 5.25% senior notes for equity securities or both, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. due 2027.
Equity
See Note 6 “Debt,” to our unaudited consolidated interim financial statements for a more detailed description of the 5.25% senior notes.
Future Capital Needs
On September 30, 2017, our total long-term debt of $1,852.9 million, net of our cash and cash equivalents of $22.6 million, was $1,830.3 million. See Note 16, “Subsequent Event,9, “Stockholder’s Equity,” to our unaudited consolidated interim financial statements in Part 1,I, Item 1I of this report.report for information about our “at-the-market” (ATM) equity offering program.
Future Capital Needs
We are highly leveraged. On July 1, 2023, our total long-term debt of $2,245.6 million, net of our cash and cash equivalents of $42.8 million, was $2,202.8 million. Stockholders’ equity as of that date was $791.4$866.4 million.
Our ability to generate sufficient cash to fund our operations depends generally on our results of operations and the availability of financing. Our management believes that our cash and cash equivalents on hand, cash flow from operating activities and available borrowing capacity under our revolving credit facility will be sufficient for the foreseeable future to fund operations, meet debt service requirements, fund capital expenditures, make future acquisitions, if any, and pay our anticipated quarterly dividends on our common stock.
We expect to make capital expenditures of approximately $60.0$35.0 million to $40.0 million in the aggregate during fiscal 2017, $42.72023. During the first two quarters of 2023, we made capital expenditures of $12.1 million, of which $10.6 million were made during the first three quarters.paid in cash. Our projected capital expenditures for fiscal 2017 include anticipated capital expenditures of approximately $9.8 million2023 primarily relate to move equipment used in the production of certain Green Giant products from General Mills’ Belvidere, Illinois manufacturing facility to an existing B&G Foods manufacturing facilityasset sustainability projects, productivity and one or more co-packers, approximately $11.0 million for the purchase of equipment for innovation products for Green Giantcost saving initiatives, environmental compliance, and approximately $12.2 million in connection with the implementation of a new enterprise resource planning (ERP) system.information technology (hardware and software), including cybersecurity.
Seasonality
Sales of a number of our products tend to be seasonal and may be influenced by holidays, changes in seasons or certain other annual events. In general, our sales are higher during the first and fourth quarters.
We purchase most of the produce used to make our frozen and shelf-stable vegetables, shelf-stable pickles, relishes, peppers, tomatoes and other related specialty items during the months of June through October, and we generally purchase the majority of our maple syrup requirements during the months of April through August. Consequently, our liquidity needs are greatest during these periods.
Inflation
We are currently locked into pricingSee “—General—Fluctuations in Commodity Prices and supply for substantially all of our major commodities, other than maple syrup, through the remainder of fiscal 2017 at a cost increase of less than 1% of cost of goods soldProduction and will continue to manage inflation risk by entering into short term supply contracts and advance commodities purchase agreements from time to time, and, if necessary, by raising prices. During fiscal 2016, we had a minimal cost decrease for a majority of our most significant commodities (excluding, among others, maple syrup). To the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially and adversely affected. In addition, if input costs begin to decline, customers may look for price reductions in situations where we have locked into purchases at higher costs.Distribution Costs” above.
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Contingencies
See Note 10,12, “Commitments and Contingencies,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
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Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies —Newly Adopted Accounting Standards”and “—Recently Issued Accounting Standards – Pending Adoption,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
Off-balance Sheet ArrangementsSupplemental Financial Information about B&G Foods and Guarantor Subsidiaries
As further discussed in Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of September 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Commitments and Contractual Obligations
Our contractualthis report, our obligations and commitments principally include obligations associated with our outstanding indebtedness, future minimum operating lease obligations and future pension obligations. Duringunder the first three quarters of 2017, except for the refinancing of our tranche B term loans and the issuance of our 5.25% senior notes see “—Debt” above, there were no material changes outsidedue 2025 and the ordinary course5.25% senior notes due 2027 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of business in the specified contractual obligations set forth in the Commitmentsour existing and Contractual Obligations table in our 2016 Annual Report on Form 10-K.
Forward-Looking Statements
This report includes forward-looking statements, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The words “believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates,” “projects” and similar expressions are intendedcertain future domestic subsidiaries, which we refer to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by any forward-looking statements. We believe important factors that could cause actual results to differ materially from our expectations include the following:
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Developments in any of these areas could cause our results to differ materially from results that have been or may be projected by or on our behalf.
All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.
We caution that the foregoing list of important factors is not exclusive. There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed elsewhere in this section as the guarantor subsidiaries. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes due 2025 or the 5.25% senior notes due 2027. In this section, we refer to these foreign subsidiaries and future foreign or partially owned domestic subsidiaries as the non-guarantor subsidiaries. See Note 6, “Long-Term Debt” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report. You should evaluate
The senior notes and the subsidiary guarantees are our and the guarantor subsidiaries’ general unsecured obligations and are effectively junior in right of payment to all forward-looking statements madeof our and the guarantor subsidiaries’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantor subsidiaries’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantor subsidiaries’ future subordinated debt.
Each guarantee contains a provision intended to limit the guarantor subsidiary’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, we cannot assure you that this reportprovision will be effective to protect the subsidiary guarantees from being voided under fraudulent transfer laws.
A guarantor subsidiary’s guarantee will be automatically released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that guarantor subsidiary (including by way of merger or consolidation) to a person or entity that is not (either before or after giving effect to such transaction) B&G Foods or a “restricted subsidiary” of B&G Foods under the applicable indenture, if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (2) in connection with any sale or other disposition of all of the capital stock of that guarantor subsidiary to a person or entity that is not (either before or after giving effect to such transaction) B&G Foods or a “restricted subsidiary” of B&G Foods, if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (3) if B&G Foods designates any “restricted subsidiary” that is a guarantor subsidiary to be an “unrestricted subsidiary” in accordance with the applicable provisions of the indenture; (4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the applicable indenture; (5) if such guarantor subsidiary no longer constitutes a domestic subsidiary; or (6) if it is determined in good faith by B&G Foods that a liquidation, dissolution or merger out of existence of such guarantor subsidiary is in the contextbest interests of these risksB&G Foods and uncertainties. We urge investorsis not materially disadvantageous to unduly relythe holders of the senior notes.
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The following tables present summarized unaudited financial information on forward-looking statements containeda combined basis for B&G Foods and each of the guarantor subsidiaries of the senior notes described above after elimination of (1) intercompany transactions and balances among B&G Foods and the guarantor subsidiaries and (2) investments in this report.any subsidiary that is a non-guarantor (in thousands):
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| July 1, |
| December 31, | ||
| 2023 |
| 2022 | ||
Current assets(1) | $ | 834,550 | | $ | 930,287 |
Non-current assets | | 2,724,703 | | | 2,746,965 |
Current liabilities(2) | $ | 227,688 | | $ | 200,307 |
Non-current liabilities | | 2,621,071 | | | 2,751,661 |
(1) | Current assets includes amounts due from non-guarantor subsidiaries of $46.3 million and $37.7 million as of July 1, 2023 and December 31, 2022, respectively. |
(2) | Current liabilities includes amounts due to non-guarantor subsidiaries of $19.2 million and $7.7 million as of July 1, 2023 and December 31, 2022, respectively. |
| | | | | |
| Twenty-six Weeks Ended | ||||
| July 1, | | July 2, | ||
| 2023 | | 2022 | ||
Net sales | $ | 923,082 | | $ | 952,428 |
Gross profit | | 215,695 | | | 169,101 |
Operating income | | 107,074 | | | 70,951 |
Income before income tax expense | | 33,682 | | | 17,895 |
Net income | $ | 10,720 | | $ | 14,755 |
Item 3.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Our principal market risks are exposure to changes in commodity prices, interest rates on borrowings and foreign currency exchange rates and market fluctuation risks related to our defined benefit pension plans.
Commodity Prices and Inflation. The information under the heading “Inflation”“General—Fluctuations in Commodity Prices and Production and Distribution Costs” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.
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Interest Rate Risk. In the normal course of operations, we are exposed to market risks relating to our long-term debt arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value of a financial asset or liability resulting from an adverse movement in interest rates.
Changes in interest rates impact our fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas for variable rate debt, a change in the interest rates will impact interest expense and cash flows. At September 30, 2017,July 1, 2023, we had $1,200.0$1,425.6 million of fixed rate debt and $680.1$830.6 million of variable rate debt.
Based upon our principal amount of long-term debt outstanding at September 30, 2017,July 1, 2023, a hypothetical 1.0% increase or decrease in interest rates would have affected our annual interest expense by approximately $6.8$8.3 million.
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The carrying values and fair values of our revolving credit loans, term loans 4.625% senior notes and 5.25% senior notes as of September 30, 2017July 1, 2023 and December 31, 2016 are2022 were as follows (in thousands):
| | | | | | | | | | | | | |
| | | July 1, 2023 | | | December 31, 2022 |
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|
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| ||||
Revolving credit loans | | $ | 280,000 | | $ | 280,000 | (1) | $ | 282,500 | | $ | 282,500 | (1) |
Tranche B term loans due 2026 | | | 549,009 | (2) | | 539,401 | (3) | | 668,532 | (2) | | 636,777 | (3) |
5.25% senior notes due 2025 | | | 876,454 | (4) | | 839,205 | (3) | | 901,213 | (4) | | 790,625 | (3) |
5.25% senior notes due 2027 | | $ | 550,000 | | $ | 470,250 | (3) | $ | 550,000 | | $ | 420,558 | (3) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||
|
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| ||||
Revolving credit loans |
|
| 40,000 |
|
| 40,000 | (1) |
| 176,000 |
|
| 176,000 | (1) |
Tranche A term loans due 2019 |
|
| — |
|
| — |
|
| 233,378 | (2) |
| 232,795 | (1) |
Tranche B term loans due 2022 |
|
| 637,722 | (3) |
| 641,707 | (1) |
| 637,391 | (3) |
| 645,358 | (1) |
4.625% senior notes due 2021 |
|
| 700,000 |
|
| 713,125 | (4) |
| 700,000 |
|
| 714,000 | (4) |
5.25% senior notes due 2025 |
|
| 500,000 |
|
| 509,375 | (4) |
| — |
|
| — |
|
(1) |
| Fair values are estimated based on Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active. |
(2) |
| The carrying |
|
|
(3) |
| Fair values are estimated based on quoted market prices. |
(4) | The carrying value of the 5.25% senior notes due 2025 includes a premium. At July 1, 2023 and December 31, 2022, the face amount of the 5.25% senior notes due 2025 was $875.6 million and $900.0 million, respectively. |
Cash and cash equivalents, trade accounts receivable, income tax receivable/payable, trade accounts payable, accrued expenses and dividends payable are reflected on our consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.
For more information, see Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
Foreign Currency Risk. Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars. During the first three quarters of 2017, ourOur net sales to customers in foreign countries represented approximately 6.4%8.6% and 8.1% of our total net sales. Duringsales during the first threetwo quarters of 2016, our net sales to customers in foreign countries represented approximately 8.4% of our total net sales.2023 and 2022, respectively. We also purchase certain raw materials from foreign suppliers. For example, we purchase a significant majority of our maple syrup requirements from suppliers in Québec, Canada. These purchases are made in Canadian dollars. A weakening of the U.S. dollar in relation to the Canadian dollar would significantly increase our future costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars, but certain purchases of raw materials in Mexico are denominated in Mexican pesos. In addition, we operate a frozen vegetable manufacturing facility in Irapuato, Mexico. A weakening of the U.S. dollar in relation to the Mexican peso would significantly increase our costs relating to the production of frozen vegetable products to the extent we have not purchased Mexican pesos or otherwise entered into hedging arrangements in advance of the weakening of the U.S. dollar. For example, our results of operations from our Green Giant frozen operations in Mexico have been negatively impacted during the first two quarters of 2023 as a result of the Mexican peso appreciating by nearly 14% against the U.S. dollar during the first two quarters of 2023.
As a result, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an adverse impact on operating results.
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Market Fluctuation Risks Relating to our Defined Benefit Pension Plans. See Part I,II, Item 2,7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates” and Note 9,12, “Pension Benefits,” to our unaudited consolidated interim financial statements in Part I,II, Item 18 of this reportour 2022 Annual Report on Form 10-K for a discussion of the exposure of our defined benefit pension plan assets to risks related to market fluctuations.
Item 4.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, our management, including our chief executive officer and our chief financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures that we use that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure
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controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Overover Financial Reporting. As required by Rule 13a-15(d) under the Exchange Act, our management, including our chief executive officer and our chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change in our internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our chief executive officer and our chief financial officer concluded that except as described below, there has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We transitioned ourDuring fiscal 2022 and the first two quarters of 2023, we continued to implement additional modules and transition recently acquired spices & seasonings business to a newbusinesses into the enterprise resource planning (ERP) system during the third quarter of 2017. We plan to continue implementing the ERP system throughout the remainderthat we use for substantially all of our businesses over the course of approximately the next two years.operations other than our operations in Mexico. In connection with these implementationseach implementation, integration and transition, and resulting business process changes, we continue to review and enhance the design and documentation of our internal control over financial reporting processes to maintain effective controls over our financial reporting following the completion of each such implementation, integration and transition. To date, the implementations, integrations and transitions have not materially affected our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls.Our company’s management, including the chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II
Item 1. | Legal Proceedings |
The information set forth under the heading “Legal Proceedings” in Note 1012 to our unaudited consolidated interim financial statements in Part I, Item 1 of this quarterly report on Form 10-Q is incorporated herein by reference.
We do not believe there have been any material changes in our risk factors as previously disclosed in our 20162022 Annual Report on Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
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Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4.Mine Safety Disclosures
Item 4. | Mine Safety Disclosures |
Not applicable.
Not applicable.
Item 5. | Other Information |
Rule 10b5-1 Trading Arrangements. During the period covered by this report, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as such terms are defined under Item 408(a) of Regulation S-K.
Item 6. | Exhibits |
EXHIBIT | DESCRIPTION | |
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31.1 | | |
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31.2 | | |
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32.1 | | |
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| | The following unaudited financial information from B&G Foods’ Quarterly Report on Form 10-Q for the quarter ended |
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104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2023, formatted in iXBRL and contained in Exhibit 101. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dated: | B&G FOODS, INC. | |
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| By: | /s/ |
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(Principal Financial |
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