BGS 10-Q
B&G Foods, Inc. (BGS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
Quarterly Report Pursuant to Section 13 or 15(d) |
For the quarterly period ended | |
Transition Report Pursuant to Section 13 or 15(d) |
For the transition period from to .
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Securities registered pursuant to Section 12(b) of the Act:
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Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | ||
Emerging growth company | ||||
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As of November 3, 2023, the registrant had
B&G Foods, Inc. and Subsidiaries
Index
- 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)
September 30, |
| December 31, | |||
2023 |
| 2022 | |||
Assets | |||||
Current assets: | |||||
Cash and cash equivalents | $ | | $ | | |
Trade accounts receivable, net |
| |
| | |
Inventories |
| |
| | |
Assets held for sale | | | |||
Prepaid expenses and other current assets |
| |
| | |
Income tax receivable |
| |
| | |
Total current assets |
| |
| | |
Property, plant and equipment, net of accumulated depreciation of $ |
| |
| | |
Operating lease right-of-use assets | | | |||
Finance lease right-of-use assets | | | |||
Goodwill |
| |
| | |
Other intangible assets, net |
| |
| | |
Other assets |
| |
| | |
Deferred income taxes |
| |
| | |
Total assets | $ | | $ | | |
Liabilities and Stockholders’ Equity | |||||
Current liabilities: | |||||
Trade accounts payable | $ | | $ | | |
Accrued expenses |
| |
| | |
Current portion of operating lease liabilities | | | |||
Current portion of finance lease liabilities | | | |||
Current portion of long-term debt |
| |
| | |
Income tax payable | | | |||
Dividends payable |
| |
| | |
Total current liabilities |
| |
| | |
Long-term debt, net of current portion |
| |
| | |
Deferred income taxes |
| |
| | |
Long-term operating lease liabilities, net of current portion | | | |||
Long-term finance lease liabilities, net of current portion | | | |||
Other liabilities |
| |
| | |
Total liabilities |
| |
| | |
Commitments and contingencies (Note 12) | |||||
Stockholders’ equity: | |||||
Preferred stock, $ |
|
| |||
Common stock, $ |
| |
| | |
Additional paid-in capital |
| |
| — | |
Accumulated other comprehensive loss |
| ( |
| ( | |
Retained earnings |
| |
| | |
Total stockholders’ equity |
| |
| | |
Total liabilities and stockholders’ equity | $ | | $ | | |
See Notes to Consolidated Financial Statements.
- 1 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||
September 30, |
| October 1, |
| September 30, |
| October 1, | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net sales | $ | | $ | | $ | | $ | | |||
Cost of goods sold |
| |
| |
| |
| | |||
Gross profit |
| |
| |
| |
| | |||
Operating (income) and expenses: | |||||||||||
Selling, general and administrative expenses |
| |
| |
| |
| | |||
Amortization expense |
| |
| |
| |
| | |||
Loss (gain) on sales of assets | — |
| — |
| |
| ( | ||||
Impairment of assets held for sale | | | | | |||||||
Operating income (loss) |
| ( |
| ( |
| |
| | |||
Other (income) and expenses: | |||||||||||
Interest expense, net |
| |
| |
| |
| | |||
Other income | ( | ( | ( | ( | |||||||
Loss before income tax benefit |
| ( |
| ( |
| ( |
| ( | |||
Income tax benefit |
| ( |
| ( |
| ( |
| ( | |||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||
Weighted average shares outstanding: | |||||||||||
Basic | | | | | |||||||
Diluted | | | | | |||||||
Loss per share: | |||||||||||
Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||
Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||
Cash dividends declared per share | $ | | $ | | $ | | $ | | |||
See Notes to Consolidated Financial Statements.
- 2 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
| September 30, |
| October 1, |
| September 30, |
| October 1, | |||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments |
| ( |
| ( |
| |
| ( | ||||
Pension (loss) gain, net of tax |
| ( |
| |
| ( |
| | ||||
Other comprehensive income (loss) |
| ( |
| ( |
| |
| ( | ||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
See Notes to Consolidated Financial Statements.
- 3 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
As of September 30, 2023
(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 December 31, 2022 |
| | $ | | $ | — | $ | ( | $ | | $ | | |||||
Foreign currency translation |
| — | — | — | | — |
| | |||||||||
Net income |
| — | — | — | — | |
| | |||||||||
Share-based compensation |
| — | — | | — | — |
| | |||||||||
Issuance of common stock for share-based compensation |
| | | ( | — | — |
| ( | |||||||||
Cancellation of restricted stock for tax withholding upon vesting | ( | — | ( | — | — | ( | |||||||||||
Cancellation of restricted stock upon forfeiture | ( | — | — | — | — |
| — | ||||||||||
Dividends declared on common stock, $ |
| — | — | | — | ( |
| ( | |||||||||
Balance at April 1, 2023 | | $ | | $ | — | $ | ( | $ | | $ | | ||||||
Foreign currency translation |
| — | — | — | | — |
| | |||||||||
Change in pension benefit (net of $ |
| — | — | — | ( | — |
| ( | |||||||||
Net income |
| — | — | — | — | |
| | |||||||||
Share-based compensation |
| — | — | | — | — |
| | |||||||||
Issuance of common stock for share-based compensation |
| | | ( | — | — |
| — | |||||||||
Cancellation of restricted stock for tax withholding upon vesting | ( | — | ( | — | — |
| ( | ||||||||||
Cancellation of restricted stock upon forfeiture | ( | — | — | — | — |
| — | ||||||||||
Dividends declared on common stock, $ |
| — | — | ( | — | ( |
| ( | |||||||||
Balance at July 1, 2023 | | $ | | $ | — | $ | | $ | | $ | | ||||||
Foreign currency translation |
| — | — | — | ( | — |
| ( | |||||||||
Change in pension benefit (net of $ |
| — | — | — | ( | — |
| ( | |||||||||
Net loss |
| — | — | — | — | ( |
| ( | |||||||||
Share-based compensation |
| — | — | | — | — |
| | |||||||||
Issuance of common stock in ATM offering | | | | — | — | | |||||||||||
Dividends declared on common stock, per share |
| — | — | ( | — | — |
| ( | |||||||||
Balance at September 30, 2023 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||
See Notes to Consolidated Financial Statements.
- 4 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
As of October 1, 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 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||
Foreign currency translation |
| — | — | — | | — |
| | |||||||||
Change in pension benefit (net of $ |
| — | — | — | | — |
| | |||||||||
Net income |
| — | — | — | — | |
| | |||||||||
Share-based compensation |
| — | — | | — | — |
| | |||||||||
Issuance of common stock for share-based compensation |
| | | ( | — | — |
| ( | |||||||||
Cancellation of restricted stock for tax withholding upon vesting | ( | — | ( | — | — | ( | |||||||||||
Cancellation of restricted stock upon forfeiture | ( | — | — | — | — |
| — | ||||||||||
Issuance of common stock in ATM offering | | | | — | — | | |||||||||||
Stock options exercised | | — | | — | — | | |||||||||||
Dividends declared on common stock, $ |
| — | — | ( | — | ( |
| ( | |||||||||
Balance at April 2, 2022 | | $ | | $ | — | $ | ( | $ | | $ | | ||||||
Foreign currency translation |
| — | — | — | ( | — |
| ( | |||||||||
Change in pension benefit (net of $ |
| — | — | — | | — |
| | |||||||||
Net income |
| — | — | — | — | |
| | |||||||||
Share-based compensation |
| — | — | | — | — |
| | |||||||||
Issuance of common stock for share-based compensation |
| | — | — | — | — |
| — | |||||||||
Cancellation of restricted stock for tax withholding upon vesting | ( | — | ( | — | — |
| ( | ||||||||||
Cancellation of restricted stock upon forfeiture | ( | — | — | — | — |
| — | ||||||||||
Issuance of common stock in ATM offering | | | | — | — | | |||||||||||
Dividends declared on common stock, $ |
| — | — | ( | — | — |
| ( | |||||||||
Balance at July 2, 2022 | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Foreign currency translation |
| — | — | — | ( | — |
| ( | |||||||||
Change in pension benefit (net of $ |
| — | — | — | | — |
| | |||||||||
Net loss |
| — | — | — | — | ( |
| ( | |||||||||
Share-based compensation |
| — | — | | — | — |
| | |||||||||
Cancellation of restricted stock for tax withholding upon vesting | ( | — | ( | — | — |
| ( | ||||||||||
Cancellation of restricted stock upon forfeiture | ( | — | — | — | — |
| — | ||||||||||
Issuance of common stock in ATM offering | | — | | — | — | | |||||||||||
Dividends declared on common stock, $ |
| — | — | ( | — | ( |
| ( | |||||||||
Balance at October 1, 2022 |
| | $ | | $ | — | $ | ( | $ | | $ | | |||||
See Notes to Consolidated Financial Statements.
- 5 -
B&G Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirty-nine Weeks Ended | |||||||
| September 30, |
| October 1, |
| |||
| 2023 |
| 2022 |
| |||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization |
| |
| | |||
Amortization of operating lease right-of-use assets | | | |||||
Amortization of deferred debt financing costs and bond discount/premium |
| |
| | |||
Deferred income taxes |
| ( |
| ( | |||
Impairment of assets held for sale | | | |||||
Loss (gain) on sales of assets | | ( | |||||
Gain on extinguishment of debt | ( | — | |||||
Share-based compensation expense |
| |
| | |||
Changes in assets and liabilities, net of effects of businesses acquired: | |||||||
Trade accounts receivable |
| ( |
| ( | |||
Inventories |
| |
| ( | |||
Prepaid expenses and other current assets |
| ( |
| ( | |||
Income tax receivable/payable, net |
| |
| ( | |||
Other assets |
| ( |
| ( | |||
Trade accounts payable |
| |
| | |||
Accrued expenses |
| ( |
| ( | |||
Other liabilities |
| ( |
| | |||
Net cash provided by (used in) operating activities |
| |
| ( | |||
Cash flows from investing activities: | |||||||
Capital expenditures |
| ( |
| ( | |||
Proceeds from sales of assets | | | |||||
Payments for acquisition of businesses, net of cash acquired |
| — |
| ( | |||
Net cash provided by (used in) investing activities |
| |
| ( | |||
Cash flows from financing activities: | |||||||
Repurchases of senior notes | ( | — | |||||
Repayments of borrowings under term loan facility |
| ( |
| — | |||
Proceeds from issuance of senior secured notes |
| |
| — | |||
Repayments of borrowings under revolving credit facility |
| ( |
| ( | |||
Borrowings under revolving credit facility |
| |
| | |||
Proceeds from issuance of common stock, net |
| |
| | |||
Dividends paid |
| ( |
| ( | |||
Proceeds from exercise of stock options | — | | |||||
Payments of tax withholding on behalf of employees for net share settlement of share-based compensation |
| ( |
| ( | |||
Payments of debt financing costs | ( | — | |||||
Net cash provided by financing activities |
| |
| | |||
Effect of exchange rate fluctuations on cash and cash equivalents |
| ( |
| ( | |||
Net increase in cash and cash equivalents |
| |
| | |||
Cash and cash equivalents at beginning of period |
| |
| | |||
Cash and cash equivalents at end of period | $ | | $ | | |||
Supplemental disclosures of cash flow information: | |||||||
Cash interest payments | $ | | $ | | |||
Cash income tax payments | $ | | $ | | |||
Non-cash investing and financing transactions: | |||||||
Dividends declared and not yet paid | $ | | $ | | |||
Accruals related to purchases of property, plant and equipment | $ | | $ | | |||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | | $ | | |||
See Notes to Consolidated Financial Statements.
- 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, crackers, baking powder, baking soda, corn 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 Creek Country Kitchens, Brer Rabbit, Canoleo, Cary’s, Clabber Girl, Cream of Rice, Cream of Wheat, Crisco, Dash, Davis, Devonsheer, Don Pepino, Durkee, Emeril’s, Grandma’s Molasses, Green Giant, Joan of Arc, Las Palmas, Le Sueur, MacDonald’s, Mama Mary’s, Maple Grove Farms of Vermont, McCann’s, Molly McButter, New York Flatbreads, New York Style, Old London, Ortega, Polaner, Red Devil, Regina, Rumford, Sa-són, Sclafani, Spice Islands, Spring Tree, Sugar Twin, Tone’s, Trappey’s, TrueNorth, Underwood, Vermont Maid, Victoria, Weber and Wright’s. We also sell and distribute Static Guard, a household product 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 |
Fiscal Year
Typically, our fiscal quarters and fiscal year consist of
Basis of Presentation
The accompanying unaudited consolidated interim financial statements for the thirteen and thirty-nine week periods ended September 30, 2023 (third quarter and first three quarters of 2023) and October 1, 2022 (third quarter and first three quarters of 2022) have been prepared by our company in accordance with generally accepted accounting principles in the United States (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 GAAP 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, 2023, and the results of our operations, comprehensive loss, changes in stockholders’ equity and cash flows for the third quarter and first three quarters of 2023 and 2022. Our results of operations for the third quarter and first three quarters of 2023 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 2022 filed with the SEC on February 28, 2023 (which we refer to as our 2022 Annual Report on Form 10-K).
- 7 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Use of Estimates
The preparation of financial statements in accordance with GAAP requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and assumptions made by management involve revenue recognition as it relates to trade and consumer promotion expenses; 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 finite-lived trademark 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.
Recently Issued Accounting Standards – Pending Adoption
In October 2021, the Financial Accounting Standards Board (FASB) issued a new Accounting Standards Update (ASU) which provides an exception to fair value measurement for revenue contracts acquired in business combinations. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2022. We currently expect to adopt the standard for any business combinations that occur in fiscal 2023 or after. Currently, we do not expect the adoption of this ASU to have a material impact to our consolidated financial statements.
(3) | Acquisitions and Divestitures |
Yuma Acquisition
On May 5, 2022, we completed the acquisition of the frozen vegetable manufacturing operations of Growers Express, LLC, whose primary business at the time of the acquisition was co-manufacturing certain Green Giant frozen vegetable products, including Green Giant Riced Veggies and Green Giant Veggie Spirals. The purchased assets include inventory, equipment, a sublease for a portion of a manufacturing facility in Yuma, Arizona, and a lease for a warehouse facility in San Luis, Arizona. Approximately
The following table sets forth the allocation of the Yuma acquisition purchase price to the estimated fair value of the net assets acquired at the date of acquisition:
Purchase Price Allocation (in thousands): | May 5, 2022 | ||
Inventories | $ | | |
Prepaid expenses and other current assets | | ||
Property, plant and equipment, net | | ||
Operating lease right-of-use assets | | ||
Finance lease right-of-use assets | | ||
Other intangible assets, net | | ||
Current portion of operating lease liabilities | ( | ||
Current portion of finance lease liabilities | ( | ||
Long-term operating lease liabilities, net of current portion | ( | ||
Long-term finance lease liabilities, net of current portion | ( | ||
Goodwill | | ||
Total purchase price (paid in cash) | $ | | |
Unaudited Pro Forma Summary of Operations
The Yuma acquisition was not material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.
- 8 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Back to Nature Divestiture
On December 15, 2022, we entered into an agreement to sell the Back to Nature business to a subsidiary of Barilla America, Inc. for a purchase price of $
During fiscal 2022, we reclassified $
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 $
January 3, 2023 | ||
Cash received | $ | |
Less: | ||
Assets sold: | ||
Trademarks — indefinite-lived intangible assets | | |
Goodwill | | |
Customer relationships — finite-lived intangible assets | | |
Inventories | | |
Impairment of assets held for sale | ( | |
Total assets sold | | |
Expenses of sale | | |
Pre-tax loss on sale of assets | $ | ( |
As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income taxes by $
Divestiture of Green Giant U.S. Shelf-Stable Product Line
See Note 19, “Subsequent Events.”
(4) | Inventories |
Inventories are stated at the lower of cost or net realizable value and include direct material, direct labor, overhead, warehousing and product transfer costs. Cost is determined using the first-in, first-out and average cost methods. Inventories have been reduced by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on management’s review of inventories on hand compared to estimated future usage and sales.
During the third quarter of 2023, we reclassified $
Inventories consist of the following, as of the dates indicated (in thousands):
| September 30, 2023 |
| December 31, 2022 | |||
Raw materials and packaging | $ | | $ | | ||
Work-in-process | | | ||||
Finished goods |
| |
| | ||
Inventories | $ | | $ | |||
- 9 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(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):
September 30, 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 | $ | | $ | | $ | | $ | | $ | | $ | | |||||
Customer relationships |
| |
| |
| |
| |
| |
| | |||||
Total finite-lived intangible assets | $ | | $ | | $ | | $ | | $ | | $ | | |||||
Indefinite-Lived Intangible Assets | |||||||||||||||||
Goodwill | $ | | $ | | |||||||||||||
Trademarks | | | |||||||||||||||
Total indefinite-lived intangible assets | $ | | $ | | |||||||||||||
Total goodwill and other intangible assets | $ | | $ | | |||||||||||||
Amortization expense associated with finite-lived intangible assets was $
In connection with the divestiture of our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $
During the third quarter of 2022, we reclassified the assets of our Back to Nature business as assets held for sale because we decided to divest the business, which became no longer core to our overall business or long-term strategy. As a result, we reclassified $
During the third quarter of 2023, we impaired brand assets relating to our Green Giant U.S. shelf-stable product line, and during third quarter of 2022, we partially impaired the Back to Nature brand. If 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 2(g), “Summary of Significant Accounting Policies—Goodwill and Other Intangible Assets” to our 2022 Annual Report on Form 10-K.
- 10 -
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):
| September 30, 2023 |
| December 31, 2022 | |||
Revolving credit loans |
| $ | — |
| $ | |
Tranche B term loans due 2026 | | | ||||
| | |||||
| | |||||
| — | |||||
Unamortized deferred debt financing costs | ( |
| ( | |||
Unamortized discount/premium |
| ( |
| ( | ||
Total long-term debt, net of unamortized deferred debt financing costs and discount/premium | | | ||||
Current portion of long-term debt |
| ( |
| ( | ||
Long-term debt, net of unamortized deferred debt financing costs and discount/premium, and excluding current portion |
| $ | |
| $ | |
As of September 30, 2023, the aggregate contractual maturities of long-term debt were as follows (in thousands):
Aggregate Contractual Maturities | ||
Fiscal year: | ||
2023 remaining | $ | |
2024 |
| |
2025 |
| |
2026 |
| |
2027 |
| |
Thereafter |
| |
Total | $ | |
Senior Secured Credit Agreement. Our senior secured credit agreement includes a term loan facility and a revolving credit facility.
During the first quarter of 2023, we made a mandatory prepayment of $
During the second quarter of 2023, we amended our credit 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
As of September 30, 2023, the available borrowing capacity under the revolving credit facility, net of outstanding letters of credit of $
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
- 11 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
from
We are required to pay a commitment fee of
We may prepay 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 SOFR (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.
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 (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. On 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), increased from
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
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
- 12 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
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
We may redeem some or all of the
We may also, from time to time, seek to retire the
Our obligations under the
The indenture governing the
We used the proceeds of the offering, together with the proceeds of incremental term loans made during the fourth quarter of 2019, to redeem all of our outstanding
Interest on the
- 13 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
We may redeem some or all of the
We may also, from time to time, seek to retire the
Our obligations under the
The indenture governing the
The net proceeds from the offering were $
Interest on the
We may redeem some or all of the
- 14 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
We may also, from time to time, seek to retire the
The
The indenture governing the
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 Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Financial Information about B&G Foods and Guarantor Subsidiaries.”
Accrued Interest. At September 30, 2023 and December 31, 2022, accrued interest of $
(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 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:
- 15 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable for the asset or liability, either directly or indirectly.
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
Cash and cash equivalents, trade accounts receivable, income tax receivable, trade accounts payable, accrued expenses, income tax payable and dividends payable are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.
The carrying values and fair values of our revolving credit loans, term loans and senior notes as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023 | December 31, 2022 |
| |||||||||||
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| |||||
Revolving credit loans | $ | — | $ | — | (1) | $ | | $ | | (1) | |||
Tranche B term loans due 2026 | | (2) | | (3) | | (2) | | (3) | |||||
| (4) | | (3) | | (4) | | (3) | ||||||
| | (3) | | | (3) | ||||||||
$ | | (5) | $ | | (3) | $ | — | $ | — | ||||
| (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 value of the tranche B term loans includes a discount. At September 30, 2023 and December 31, 2022, the face amount of the tranche B term loans was $ |
| (3) | Fair values are estimated based on quoted market prices. |
| (4) | The carrying value of the |
| (5) | The carrying value of |
There was
- 16 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(8) | Accumulated Other Comprehensive Loss |
The reclassifications from accumulated other comprehensive loss (AOCL) for the third quarter and first three quarters of 2023 and 2022 were as follows (in thousands):
Amounts Reclassified from AOCL | Amounts Reclassified from AOCL | Affected Line Item in | |||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | the Statement Where | |||||||||||
September 30, |
| October 1, |
| September 30, |
| October 1, | Net Loss | ||||||
Details about AOCL Components | 2023 |
| 2022 |
| 2023 |
| 2022 |
| is Presented | ||||
Defined benefit pension plan items | |||||||||||||
Amortization of unrecognized (gain) loss | $ | ( | $ | | $ | ( | $ | | See (1) below | ||||
Accumulated other comprehensive (gain) loss before tax |
| ( |
| |
| ( |
| | Total before tax | ||||
Tax benefit (expense) |
| |
| ( |
| |
| ( | Income tax benefit | ||||
Total reclassification | $ | ( | $ | | $ | ( | $ | | Net of tax | ||||
| (1) | These items are included in the computation of net periodic pension cost. See Note 10, “Pension Benefits,” for additional information. |
Changes in AOCL for the first three quarters of 2023 were as follows (in thousands):
Foreign Currency | |||||||||
Defined Benefit | Translation | ||||||||
| Pension Plan Items |
| Adjustments |
| Total | ||||
Balance at December 31, 2022 |
| $ | |
| $ | ( |
| $ | ( |
Other comprehensive income before reclassifications |
| — |
| |
| | |||
Amounts reclassified from AOCL |
| ( |
| — |
| ( | |||
Net current period other comprehensive (loss) income |
| ( |
| |
| | |||
Balance at September 30, 2023 |
| $ | |
| $ | ( |
| $ | ( |
(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 third quarter of 2023, we sold
During the first quarter of 2022, we sold
- 17 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
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 September 30, 2023,
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
(10) | Pension Benefits |
Company-Sponsored Defined Benefit Pension Plans. As of September 30, 2023, we had
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||
September 30, | October 1, | September 30, | October 1, | ||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Service cost—benefits earned during the period | $ | | $ | | $ | | $ | ||||
Interest cost on projected benefit obligation |
| |
| |
| |
| ||||
Expected return on plan assets |
| ( |
| ( |
| ( |
| ( | |||
Amortization of unrecognized (gain) loss |
| ( |
| |
| ( |
| | |||
Net periodic pension cost | $ | | $ | | $ | | $ | | |||
During the first three quarters of 2023, we made contributions to our company-sponsored defined benefit pension plans of $
Multi-Employer Defined Benefit Pension Plan. Prior to the closure of our Portland, Maine manufacturing facility during the fourth quarter of 2021, we also contributed 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) on behalf of certain employees at the Portland, Maine facility.
In connection with the closure and sale of the Portland, Maine manufacturing facility, we withdrew from participation in the plan during the fourth quarter of 2021. As a result, we are required to make monthly withdrawal liability payments to the plan over
- 18 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(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
Our operating and finance leases are included in the accompanying unaudited consolidated balance sheets in the following line items (in thousands):
September 30, |
| December 31, | |||
2023 |
| 2022 | |||
Right-of-use assets: | |||||
Operating lease right-of-use assets | $ | | $ | | |
Finance lease right-of-use assets | | | |||
Total lease right-of-use assets | $ | | $ | | |
Operating lease liabilities: | |||||
Current portion of operating lease liabilities | $ | | $ | | |
Long-term operating lease liabilities, net of current portion | | | |||
Total operating lease liabilities | $ | | $ | | |
Finance lease liabilities: | |||||
Current portion of finance lease liabilities | $ | | $ | | |
Long-term finance lease liabilities, net of current portion | | | |||
Total finance lease liabilities | $ | | $ | | |
The following table shows supplemental information related to leases (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||
September 30, |
| October 1, |
| September 30, |
| October 1, | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Operating cash flow information: | |||||||||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | | $ | | $ | | $ | | |||
Cash paid for amounts included in the measurement of finance lease liabilities | $ | | $ | — | $ | | $ | — | |||
The components of operating lease costs were as follows: | |||||||||||
Cost of goods sold | $ | | $ | | $ | | $ | | |||
Selling, general and administrative expenses | | | | | |||||||
Total operating lease costs | $ | | $ | | $ | | $ | | |||
The components of finance lease costs were as follows: | |||||||||||
Depreciation of finance right-of-use assets | $ | | $ | | $ | | $ | | |||
Interest on finance lease liabilities | | | | | |||||||
Total finance lease costs | $ | | $ | | $ | | $ | | |||
Total net lease costs | $ | | $ | | $ | | $ | | |||
Total rent expense was $
- 19 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
above, for the third quarter of 2022 and $
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 determining the present value of lease payments. We have lease agreements that contain both lease and non-lease components. With the exception of our real estate leases, we account for our leases as a single lease component.
The following table shows the weighted average lease term and weighted average discount rate for our ROU assets:
September 30, | December 31, | ||||
2023 | 2022 | ||||
Weighted average remaining lease term (years) | |||||
Operating leases | |||||
Finance lease | |||||
Weighted average discount rate | |||||
Operating leases | |||||
Finance lease | |||||
As of September 30, 2023, the maturities of lease liabilities were as follows (in thousands):
Operating Leases |
| Finance Lease | Total Maturities of Lease Liabilities | |||||
Fiscal year: | ||||||||
2023 remaining | $ | | $ | | $ | | ||
2024 | | | | |||||
2025 |
| |
| |
| | ||
2026 |
| |
| — |
| | ||
2027 |
| |
| — |
| | ||
Thereafter | | — | | |||||
Total undiscounted future minimum lease payments | | | | |||||
Less: Imputed interest |
| ( |
| ( |
| ( | ||
Total present value of future lease liabilities | $ | | $ | | $ | | ||
(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 three quarters of 2023 or 2022 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. As of September 30, 2023,
- 20 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
As of the date of this report,
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 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 certain cases, accelerated vesting under compensation plans.
(13) | Loss per Share |
Basic loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding. Diluted loss per share is calculated by dividing net loss 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 third quarter of 2022, there were
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||
September 30, |
| October 1, |
| September 30, |
| October 1, | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Weighted average shares outstanding: | |||||||||||
Basic | | | | | |||||||
Net effect of potentially dilutive share-based compensation awards(1) | — | | — | | |||||||
Diluted | | | | | |||||||
| (1) | For the third quarter and first three quarters of 2023, there are no potentially dilutive share-based compensation awards included in the calculation of diluted weighted average common shares outstanding, as their effect was antidilutive. |
(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
Our top
- 21 -
B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
consolidated trade accounts receivables with any single customer whose failure or nonperformance would materially affect our results other than as described above with respect to Walmart.
During the first three quarters of 2023 and 2022, our sales to customers in foreign countries represented approximately
(15) | Share-Based Payments |
The following table details our stock option activity for the first three quarters of fiscal 2023 (dollars in thousands, except per share data):
Weighted | Weighted Average | |||||||||
Average | Contractual Life | Aggregate | ||||||||
| Options |
| Exercise Price |
| Remaining (Years) |
| Intrinsic Value | |||
Outstanding at December 31, 2022 |
| | $ | |
| $ | — | |||
Granted |
| | $ | |
| |||||
Exercised |
| — | $ | — | ||||||
Forfeited |
| — | $ | — | ||||||
Expired | ( | $ | | |||||||
Outstanding at September 30, 2023 |
| | $ | |
| $ | — | |||
Exercisable at September 30, 2023 |
| | $ | |
| $ | — | |||
The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following assumptions. Expected volatility was based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The expected term of the options granted represents the period of time that options were expected to be outstanding and is generally based on the “simplified method” in accordance with accounting guidance. We generally 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 options is based on the U.S. Treasury implied yield at the date of grant. The assumptions used in the Black-Scholes option-pricing model for options granted during the first three quarters of 2023 and 2022 were as follows:
| 2023 |
| 2022 | |||
Weighted average grant date fair value | $ |
| $ | |||
Expected volatility | ||||||
Expected term | ||||||
Risk-free interest rate | ||||||
Dividend yield | ||||||
The following table details the activity in our performance share long-term incentive awards (LTIAs) for the first three quarters of 2023:
|
| Weighted Average | |||
Number of | Grant Date Fair Value | ||||
| Performance Shares(1) |
| (per share)(2) | ||
Outstanding at December 31, 2022 |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Forfeited |
| ( | $ | | |
Outstanding at September 30, 2023 |
| | $ | | |
| (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., |
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B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| (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. |
The following table details the activity in our restricted stock for the first three quarters of 2023:
|
| Weighted Average | |||
Number of Shares | Grant Date Fair Value | ||||
| of Restricted Stock |
| (per share)(1) | ||
Outstanding at December 31, 2022 |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Forfeited |
| ( | $ | | |
Outstanding at September 30, 2023 |
| | $ | | |
| (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 third quarter and first three quarters of 2023 and 2022 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 | Thirty-nine Weeks Ended | |||||||||||
| September 30, |
| October 1, |
| September 30, |
| October 1, | |||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Number of performance shares vested |
| — |
| — |
| |
| | ||||
Shares withheld for tax withholding |
| — |
| — |
| ( |
| ( | ||||
Shares of common stock issued for performance share LTIAs |
| — |
| — |
| |
| | ||||
Shares of common stock issued upon the exercise of stock options | — | — | — | | ||||||||
Shares of common stock issued to non-employee directors for annual equity grants |
| — |
| — |
| |
| | ||||
Shares of restricted common stock issued to employees | — | — | | | ||||||||
Shares of restricted stock withheld and cancelled for tax withholding upon vesting | — | ( | ( | ( | ||||||||
Shares of restricted stock cancelled upon forfeiture | — | ( | ( | ( | ||||||||
Net shares of common stock issued |
| — |
| ( |
| |
| | ||||
The following table sets forth the compensation expense recognized for share-based payments (performance share LTIAs, restricted stock, stock options, non-employee director stock grants and other share-based payments) during the third quarter and first three quarters of 2023 and 2022 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 | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Compensation expense included in cost of goods sold | $ | | $ | | $ | | $ | ||||
Compensation expense included in selling, general and administrative expenses |
| |
| |
| |
| ||||
Total compensation expense for share-based payments | $ | | $ | | $ | | $ | | |||
As of September 30, 2023, there was $
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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 | Thirty-nine Weeks Ended | |||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Brand:(1)(2) | ||||||||||||
Crisco | $ | | $ | | $ | | $ | | ||||
Clabber Girl(3) | | | | | ||||||||
Back to Nature(4) | | | | | ||||||||
All Other Specialty Brands Total | | | | | ||||||||
Specialty Brands Total | | | | | ||||||||
Green Giant - Frozen(5) |
| |
| | |
| | |||||
Green Giant - Shelf-Stable | | | | | ||||||||
Green Giant - Le Sueur | | | | | ||||||||
Frozen & Vegetables Brands Total | | | | | ||||||||
Ortega | | | | | ||||||||
Maple Grove Farms of Vermont | | | | | ||||||||
Cream of Wheat | | | | | ||||||||
All Other Meals Brands Total | | | | | ||||||||
Meals Brands Total | | | | | ||||||||
Spices & Seasonings(6) | | | | | ||||||||
Dash | | | | | ||||||||
All Other Spices & Flavor Solutions Brands | | | | | ||||||||
Spices & Flavor Solutions Brands Total | | | | | ||||||||
Total Net Sales | $ | | $ | | $ | | $ | | ||||
| (1) | Table includes net sales for each of our brands whose net sales for the first three quarters of 2023 or 2022 equaled or exceeded |
| (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) | Includes net sales for multiple brands acquired as part of the Clabber Girl acquisition that we completed on May 15, 2019, including, among others, the Clabber Girl, Rumford, Davis, Hearth Club and Royal brands of retail baking powder, baking soda and corn starch, and the Royal brand of foodservice dessert mixes. |
| (4) | We completed the Back to Nature sale on January 3, 2023. See Note 3, “Acquisitions and Divestitures.” Net sales for the third quarter and first three quarters of 2023 includes net sales of certain Back to Nature products not part of the divestiture that we will soon transition to another brand name. |
| (5) | For the third quarter and first three quarters of 2023, includes net sales from the Yuma acquisition, which was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures.” |
| (6) | 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. |
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B&G Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(17) | Sale of Portland, Maine Manufacturing Facility |
During the first quarter of 2022, we completed the sale of our Portland, Maine manufacturing facility and
(18) | Assets Held for Sale |
During the third quarter of 2023, we reclassified $
The following table sets forth the assets held for sale at September 30, 2023 relating to the sale of the Green Giant U.S. shelf-stable product line (in thousands):
September 30, 2023 | ||
Trademarks — indefinite-lived intangible assets | $ | |
Customer relationships — finite-lived intangible assets | | |
Inventories | | |
Assets held for sale before impairments | | |
Impairments of assets held for sale | ( | |
Assets held for sale | $ | |
(19) | Subsequent Events |
Partial Redemption of
Late in the third quarter of 2023, we used a portion of the net proceeds of the
Following the partial redemption and as of November 8, 2023, $
Divestiture of Green Giant U.S. Shelf-Stable Product Line. On November 8, 2023, we completed the sale of our Green Giant U.S. shelf-stable product line to Seneca Foods Corporation. The sale did not include our Green Giant frozen business, Green Giant Canada business or the Le Sueur brand. Because we retained the Green Giant trademarks, we have agreed to license the Green Giant trademarks to Seneca on a perpetual, royalty-free basis for use in connection with the Green Giant U.S. shelf-stable product line. We have also agreed to provide certain transition services associated with the Green Giant U.S. shelf-stable product line to Seneca for up to approximately six months. See Note 18, “Assets Held for Sale.”
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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” before 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-nine weeks ended September 30, 2023 (third quarter and first three quarters of 2023) included elsewhere in this report and the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2022 (fiscal 2022) included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 28, 2023 (which we refer to as our 2022 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 50 brands or businesses into our company. Most recently, on May 5, 2022, we acquired the frozen vegetable manufacturing operations of Growers Express, LLC. We refer to this acquisition in this report as the “Yuma acquisition.” This acquisition has been accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired business are included in our consolidated financial statements from the date of acquisition. This acquisition and the application of the acquisition method of accounting affects 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.” On November 8, 2023, we completed the sale of the Green Giant U.S. shelf-stable product line. These divestitures affect comparability between periods.
We are subject to a number of challenges that may adversely affect our businesses. These challenges, which are discussed below and under the heading “Forward-Looking Statements,” include:
Fluctuations in Commodity Prices and Production and Distribution Costs. We purchase raw materials, including agricultural products, oils, meat, poultry, ingredients and packaging materials from growers, commodity processors, other food companies and packaging suppliers located in U.S. and foreign locations. Raw materials and other input costs, such as fuel and transportation, are subject to fluctuations in price attributable to a number of factors, 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-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 generally lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs.
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We experienced material net cost increases for raw materials during fiscal 2022 due to a number of factors, including the war in Ukraine and the ongoing COVID-19 pandemic, and anticipate raw materials costs to remain elevated during the remainder of fiscal 2023 and into fiscal 2024. We are currently locked into our supply and prices for all of our most significant raw material commodities through the end of fiscal 2023.
In recent years, we have been negatively impacted by industry-wide increases in the cost of distribution, primarily driven by increased freight rates. Freight rates increased significantly during the fourth quarter of 2020 throughout fiscal 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 were able to offset a portion of the freight cost increases 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 the remainder of fiscal 2023 and into fiscal 2024.
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 third quarter of 2023, we have seen improvements in our gross 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 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. As customers, such as supermarkets, discounters, e-commerce merchants, warehouse clubs and food distributors, continue to consolidate and 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 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 three quarters of 2023 and 2022, our net sales to customers in foreign countries represented approximately 8.7% and 8.2%, 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 three quarters of 2023 as a result of the Mexican peso appreciating by nearly 12% against the U.S. dollar during the first three 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 in the United States (GAAP) requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and assumptions made by management involve: revenue recognition as it relates to trade and consumer promotion expenses; 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 finite-lived trademark intangible assets. Actual results could differ significantly from these estimates and assumptions.
In our 2022 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 2022 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 0.9% and 29.5% for the first three 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 three quarters of 2023.
Results of Operations
The following table sets forth the percentages of net sales represented by selected items for the third quarter and first three quarters of 2023 and 2022 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Statement of Operations Data: | ||||||||||||
Net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % | ||
Cost of goods sold |
| 77.4 | % | 80.0 | % |
| 77.7 | % | 81.6 | % | ||
Gross profit |
| 22.6 | % | 20.0 | % |
| 22.3 | % | 18.4 | % | ||
Operating (income) and expenses: | ||||||||||||
Selling, general and administrative expenses |
| 9.6 | % | 9.0 | % |
| 9.6 | % | 9.0 | % | ||
Amortization expense | 1.0 | % | 1.0 | % | 1.1 | % | 1.1 | % | ||||
Loss (gain) on sales of assets | — | % | — | % | — | % | (0.5) | % | ||||
Impairment of assets held for sale | 26.4 | % | 19.6 | % | 9.0 | % | 6.7 | % | ||||
Operating income (loss) |
| (14.4) | % | (9.6) | % |
| 2.6 | % | 2.1 | % | ||
Other (income) and expenses: | ||||||||||||
Interest expense, net |
| 7.1 | % | 6.0 | % |
| 7.5 | % | 5.8 | % | ||
Other income | (0.1) | % | (0.3) | % | (0.2) | % | (0.4) | % | ||||
Loss before income tax benefit |
| (21.4) | % | (15.3) | % |
| (4.7) | % | (3.3) | % | ||
Income tax benefit |
| (4.9) | % | (4.0) | % |
| (0.1) | % | (1.0) | % | ||
Net loss |
| (16.5) | % | (11.3) | % |
| (4.6) | % | (2.3) | % | ||
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, 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, a portion of our warehousing expenses plus freight costs to our distribution centers and to our customers.
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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, severance, acquisition/divestiture-related and non-recurring expenses and other general corporate expenses.
Amortization Expense. Amortization expense includes the amortization expense associated with customer relationships, finite-lived trademarks and other intangible assets.
Impairment of Assets Held for Sale. Impairment of assets held for sale consists of pre-tax, non-cash charges to assets held for sale. We measure assets held for sale at the lower of their carrying value and fair value less anticipated costs to sell, and record non-cash impairment charges to the extent the fair value less anticipated costs to sell is less than their carrying value.
Net Interest Expense. Net interest expense includes interest relating to our outstanding indebtedness, amortization of bond discount/premium and amortization of deferred debt financing costs (net of interest income).
Gain on Extinguishment of Debt. Gain on extinguishment of debt includes gains relating to the retirement of indebtedness, including any repurchase discount 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 income or expense 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 GAAP in our consolidated balance sheets and related consolidated statements of operations, comprehensive loss, 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 net 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. We 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.
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A reconciliation of net sales to base business net sales for the third quarter and first three quarters of 2023 and 2022 follows (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net sales | $ | 502,734 | $ | 528,396 | $ | 1,484,185 | $ | 1,539,768 | ||||
Net sales from acquisitions(1) |
| — |
| — | (550) |
| — | |||||
Net sales from discontinued or divested brands(2) | 9 | (10,146) | 40 | (34,642) | ||||||||
Base business net sales | $ | 502,743 | $ | 518,250 | $ | 1,483,675 | $ | 1,505,126 | ||||
| (1) | Reflects net sales from the Yuma acquisition, for which there is no comparable period of net sales during the first four months of the first three quarters of 2022. The Yuma acquisition was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures.” |
| (2) | For the third quarter and first three 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 third quarter and first three quarters of 2023, reflects a net credit paid to customers relating to the discontinued brands. |
EBITDA and Adjusted EBITDA. EBITDA and adjusted EBITDA are non-GAAP financial measures used by management to measure operating performance. We define EBITDA as net income (loss) before net interest expense, income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA adjusted for cash and non-cash acquisition/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, and gains and losses on the sale of certain assets); gains and 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 these items because it allows management to focus on what it deems to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. We use EBITDA and adjusted EBITDA in our business operations to, among other things, evaluate our operating performance, develop budgets and measure our performance against those budgets, determine employee bonuses and evaluate our cash flows in terms of cash needs. We also present EBITDA and adjusted EBITDA because we believe they are useful indicators of our historical debt capacity and ability to service debt and because covenants in our credit agreement and our senior notes indentures contain ratios based on these measures. As a result, reports used by internal management 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 (loss), 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 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 and gains and losses 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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Reconciliations of net loss and net cash provided by (used in) operating activities to EBITDA and adjusted EBITDA for the third quarter and first three quarters of 2023 and 2022 along with the components of EBITDA and adjusted EBITDA follows (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net loss | $ | (82,741) | $ | (59,583) | $ | (68,773) | $ | (35,671) | ||||
Income tax benefit |
| (24,661) |
| (21,255) |
| (647) |
| (14,958) | ||||
Interest expense, net(1) |
| 35,859 |
| 31,874 |
| 111,108 |
| 88,617 | ||||
Depreciation and amortization |
| 17,282 |
| 20,766 |
| 52,586 |
| 61,065 | ||||
EBITDA |
| (54,261) |
| (28,198) |
| 94,274 |
| 99,053 | ||||
Acquisition/divestiture-related and non-recurring expenses(2) |
| 1,716 |
| 4,785 |
| 3,912 |
| 9,575 | ||||
Loss (gain) on sales of assets, net of facility closure costs(3) | — |
| — | 85 | (4,928) | |||||||
Impairment of assets held for sale(4) |
| 132,949 |
| 103,625 |
| 132,949 |
| 103,625 | ||||
Adjusted EBITDA | $ | 80,404 | $ | 80,212 | $ | 231,220 | $ | 207,325 | ||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Net cash provided by (used in) operating activities | $ | 23,304 | $ | (69,535) | $ | 155,681 | $ | (48,408) | ||||
Income tax benefit |
| (24,661) |
| (21,255) |
| (647) |
| (14,958) | ||||
Interest expense, net(1) |
| 35,859 |
| 31,874 |
| 111,108 |
| 88,617 | ||||
Gain on extinguishment of debt(1) | 582 | — | 1,368 | — | ||||||||
(Loss) gain on sales of assets(3) | (598) |
| (19) | (775) | 7,094 | |||||||
Deferred income taxes |
| 34,037 |
| 27,945 |
| 18,940 |
| 27,415 | ||||
Amortization of deferred debt financing costs and bond discount/premium |
| (1,007) |
| (1,184) |
| (5,691) |
| (3,530) | ||||
Share-based compensation expense |
| (2,151) |
| (736) |
| (5,452) |
| (2,984) | ||||
Changes in assets and liabilities, net of effects of business combinations |
| 13,323 |
| 108,337 |
| (47,309) |
| 149,432 | ||||
Impairment of assets held for sale(4) | (132,949) |
| (103,625) | (132,949) | (103,625) | |||||||
EBITDA | (54,261) | (28,198) | 94,274 | 99,053 | ||||||||
Acquisition/divestiture-related and non-recurring expenses(2) |
| 1,716 |
| 4,785 |
| 3,912 |
| 9,575 | ||||
Loss (gain) on sales of assets, net of facility closure costs(3) | — |
| — |
| 85 |
| (4,928) | |||||
Impairment of assets held for sale(4) | 132,949 | 103,625 | 132,949 | 103,625 | ||||||||
Adjusted EBITDA | $ | 80,404 | $ | 80,212 | $ | 231,220 | $ | 207,325 | ||||
Adjusted Net Income and Adjusted Diluted Earnings Per Share. Adjusted net income and adjusted 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 (loss) and diluted earnings (loss) per share adjusted for certain items that affect comparability. These non-GAAP financial measures reflect adjustments to net income (loss) and diluted earnings (loss) per share to eliminate the items identified in the reconciliation below. This information is provided in order to allow investors to make meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. Because we cannot predict the timing and amount of these items, management does not consider these items when evaluating our company’s performance or when making decisions regarding allocation of resources.
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A reconciliation of net loss to adjusted net income and adjusted diluted earnings per share for the third quarter and first three quarters of 2023 and 2022 along with the components of adjusted net income and adjusted diluted earnings per share follows (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Net loss | $ | (82,741) | $ | (59,583) | $ | (68,773) | $ | (35,671) | ||||
Gain on extinguishment of debt(1) | (582) | — | (1,368) | — | ||||||||
Acquisition/divestiture-related and non-recurring expenses(2) | 1,716 | 4,785 | 3,912 | 9,575 | ||||||||
Loss (gain) on sales of assets, net of facility closure costs(3) | — | — | 85 | (4,928) | ||||||||
Impairment of assets held for sale(4) | 132,949 | 103,625 | 132,949 | 103,625 | ||||||||
Credit agreement amendment fee(5) | — | — | — | 1,600 | ||||||||
Tax adjustment related to Back to Nature divestiture(6) | — | — | 14,736 | — | ||||||||
Tax effects of non-GAAP adjustments(7) | (30,846) | (26,560) | (31,213) | (26,919) | ||||||||
Adjusted net income | $ | 20,496 | $ | 22,267 | $ | 50,328 | $ | 47,282 | ||||
Adjusted diluted earnings per share | $ | 0.27 | $ | 0.31 | $ | 0.69 | $ | 0.67 | ||||
| (1) | Net interest expense for the third quarter and first three quarters of 2023 were reduced by $0.6 million and $1.4 million, respectively, as a result of gains on extinguishment of debt related to our repurchases of $20.2 million aggregate principal amount and $44.6 million aggregate principal amount, respectively, of our 5.25% senior notes due 2025 in open market purchases during the third quarter and first three quarters of 2023 at discounted repurchase prices, which resulted in pre-tax gains of $0.6 million and $1.4 million, respectively, net of the accelerated amortization of deferred debt financing costs of $0.1 million and $0.3 million, respectively, for the third quarter and first three quarters of 2023. |
| (2) | Acquisition/divestiture-related and non-recurring expenses for the third quarter and first three quarters of 2023 of $1.7 million (or $1.3 million, net of tax) and $3.9 million (or $3.0 million, net of tax), respectively, primarily includes acquisition and integration expenses for the Crisco acquisition and divestiture-related expenses for the Back to Nature divestiture. Acquisition/divestiture-related and non-recurring expenses for the third quarter and first three quarters of 2022 of $4.8 million (or $3.6 million, net of tax) and $9.6 million (or $7.2 million, net of tax), respectively, primarily includes acquisition and integration expenses for the Yuma and Crisco acquisitions. |
| (3) | 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 quarter of the gain on sale was partially offset by approximately $2.2 million of expenses incurred during the quarter relating to the closure of the facility and the transfer of manufacturing operations, resulting in a net benefit of $4.9 million (or $3.7 million, net of tax) from the gain on sale. |
| (4) | In connection with the divestiture of our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash impairment charges of $132.9 million during the third quarter of 2023. See Note 18, “Assets Held for Sale,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report. |
In connection with our decision to sell our Back to Nature business, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale during fiscal 2022. During the third quarter of 2022, we measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million (or $78.2 million, net of tax). On January 3, 2023, we completed the sale of the Back to Nature business.
| (5) | During the second quarter of 2022, we paid a fee of $1.6 million (or $1.2 million, net of tax) to amend our senior secured credit agreement to temporarily increase the maximum consolidated leverage ratio permitted under our revolving credit facility. |
| (6) | As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income taxes by $14.7 million, or $0.21 per share. |
| (7) | Represents the tax effects of the non-GAAP adjustments listed above, assuming a tax rate of 24.5%. |
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Third quarter of 2023 compared to the third quarter of 2022
Net Sales. Net sales for the third quarter of 2023 decreased $25.7 million, or 4.9%, to $502.7 million from $528.4 million for the third quarter of 2022. The decrease was primarily attributable to a decrease in unit volume and the 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 $10.2 million during the third quarter of 2022.
Base business net sales for the third quarter of 2023 decreased $15.6 million, or 3.0%, to $502.7 million from $518.3 million for the third quarter of 2022. The decrease in base business net sales was driven by a decrease in unit volume of $13.2 million, the negative impact of foreign currency of $1.3 million, and a decrease in net pricing and the impact of product mix of $1.1 million, or 0.2% of base business net sales.
Net sales of Green Giant products in the aggregate (including Le Sueur) decreased $13.2 million, or 10.7%, in the third quarter of 2023, as compared to the third quarter of 2022.
See Note 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 each of our brands whose net sales for the first three quarters of 2023 or fiscal 2022 equaled or exceeded 3% of our total net sales for those periods, and for all other brands in the aggregate. The following table sets forth the most significant base business net sales increases and decreases by brand for those brands for the third quarter of 2023:
Third Quarter |
| ||||||
2023 vs. 2022 | |||||||
Base Business | |||||||
Net Sales Increase (Decrease) |
| ||||||
| Dollars |
| Percentage |
| |||
Brand: | |||||||
Clabber Girl | $ | 8.1 | 31.5 | % | |||
Spices & Seasonings(1) | 7.2 | 11.5 | % | ||||
Maple Grove Farms of Vermont | 0.5 |
| 2.4 | % | |||
Crisco | (16.1) |
| (16.4) | % | |||
Green Giant - frozen |
| (11.8) |
| (14.4) | % | ||
Ortega | (1.7) |
| (4.3) | % | |||
Green Giant - shelf-stable(2) | (1.4) | (3.5) | % | ||||
Dash | (1.2) |
| (7.5) | % | |||
Cream of Wheat | (0.6) |
| (3.5) | % | |||
All other brands |
| 1.4 |
| 1.3 | % | ||
Base business net sales decrease |
| $ | (15.6) |
| (3.0) | % | |
| (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) | Includes net sales of the Le Sueur brand. |
Gross Profit. Gross profit was $113.8 million for the third quarter of 2023, or 22.6% of net sales. Excluding the negative impact of $0.3 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2023, our gross profit would have been $114.1 million, or 22.7% of net sales. Gross profit was $105.8 million for the third quarter of 2022, or 20.0% of net sales. Excluding the negative impact of $2.2 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2022, our gross profit would have been $108.0 million, or 20.4% of net sales.
The improvements in gross profit and gross profit as a percentage of net sales were driven by an increase in net pricing relative to input costs as compared to the third quarter of 2022, the moderation of input cost inflation and lower transportation and warehousing costs. Beginning in the fourth quarter of 2022, we have realized the benefits of previously announced list price increases, which has contributed to our recovery in gross profit and gross profit as a percentage of net sales through the third quarter of 2023.
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Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.7 million, or 1.4%, to $48.2 million for the third quarter of 2023 from $47.5 million for the third quarter of 2022. The increase was composed of increases in general and administrative expenses of $3.2 million and consumer marketing expenses of $0.3 million, partially offset by decreases in warehousing expenses of $1.3 million, acquisition/divestiture-related and non-recurring expenses of $1.2 million and selling expenses of $0.3 million. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 0.6 percentage points to 9.6% for the third quarter of 2023, as compared to 9.0% for the third quarter of 2022.
Amortization Expense. Amortization expense decreased $0.2 million, or 4.2%, to $5.2 million for the third quarter of 2023 from $5.4 million for the third quarter of 2022.
Impairment of Assets Held for Sale. In connection with the divestiture of assets relating to the Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash impairment charges of $132.9 million during the third quarter of 2023. See Note 18, “Assets Held for Sale,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
During the third quarter of 2022, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories relating to our Back to Nature business to assets held for sale. We then measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million during the third quarter of 2022. During the fourth quarter of 2022, we recorded an additional $2.8 million of pre-tax, non-cash impairment charges related to those assets after we entered into an agreement to sell the Back to Nature business. The sale of the Back to Nature business was completed on January 3, 2023 (the first business day of fiscal 2023).
Operating Loss. As a result of the foregoing, operating loss increased $21.7 million, or 42.7%, to $72.5 million for the third quarter of 2023 from $50.8 million for the third quarter of 2022. Operating loss expressed as a percentage of net sales increased to 14.4% in the third quarter of 2023 from 9.6% in the third quarter of 2022.
Net Interest Expense. Net interest expense increased $4.0 million, or 12.5%, to $35.9 million for the third quarter of 2023 from $31.9 million for the third quarter of 2022. The increase was primarily attributable to higher interest rates on our variable rate borrowings, partially offset by a reduction in average long-term debt outstanding as compared to the third quarter of 2022 and a $0.6 million gain on extinguishment of debt. See “—Liquidity and Capital Resources — Debt” below.
Other Income. Other income for the third quarter of 2023 and 2022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $1.0 million and $1.8 million, respectively. Other income for the third 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 in both periods.
Income Tax Benefit. Income tax benefit increased $3.4 million to $24.7 million for the third quarter of 2023 from $21.3 million for the third quarter of 2022. Our effective tax rate was 23.0% for the third quarter of 2023 and 26.3% for the third quarter of 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 benefit.
First three quarters of 2023 compared to the first three quarters of 2022
Net Sales. Net sales for the first three quarters of 2023 decreased $55.6 million, or 3.6%, to $1,484.2 million from $1,539.8 million for the first three quarters of 2022. The decrease was primarily attributable to the Back to Nature divestiture and a decrease in unit volume and the negative impact of foreign currency, which were largely offset by an increase in net pricing and the impact of product mix. Net sales of Back to Nature, which we divested on January 3, 2023, and therefore not part of our fiscal 2023 results, were $34.4 million during the first three quarters of 2022.
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Base business net sales for the first three quarters of 2023 decreased $21.4 million, or 1.4%, to $1,483.7 million from $1,505.1 million for the first three quarters of 2022. The decrease in base business net sales was driven by a decrease in unit volume of $132.8 million and the negative impact of foreign currency of $4.8 million, largely offset by an increase in net pricing and the impact of product mix of $116.2 million, or 7.7% of base business net sales.
Net sales of Green Giant products in the aggregate (including Le Sueur) decreased $28.1 million, or 7.6%, in the first three quarters of 2023, as compared to the first three quarters of 2022.
See Note 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 each of our brands whose net sales for the first three quarters of 2023 or fiscal 2022 equaled or exceeded 3% of our total net sales for those periods, and for all other brands in the aggregate. The following table sets forth the most significant base business net sales increases and decreases by brand for those brands for the first three quarters of 2023:
First Three Quarters | |||||||
2023 vs. 2022 | |||||||
Base Business | |||||||
Net Sales Increase (Decrease) | |||||||
| Dollars |
| Percentage | ||||
Brand: | |||||||
Clabber Girl | $ | 23.0 | 34.8 | % | |||
Spices & Seasonings(1) | 11.3 |
| 5.8 | % | |||
Maple Grove Farms of Vermont | 1.7 |
| 2.7 | % | |||
Crisco | (27.6) | (11.1) | % | ||||
Green Giant - frozen(2) |
| (23.5) |
| (9.0) | % | ||
Ortega | (5.9) |
| (5.1) | % | |||
Green Giant - shelf-stable(3) | (4.6) |
| (4.2) | % | |||
Cream of Wheat | (0.7) |
| (1.2) | % | |||
Dash | (0.6) |
| (1.2) | % | |||
All other brands |
| 5.5 |
| 1.7 | % | ||
Base business net sales decrease |
| $ | (21.4) |
| (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 three quarters of 2023, includes net sales from the Yuma acquisition from May 5, 2023 through September 30, 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 was $330.4 million for the first three quarters of 2023, or 22.3% of net sales. Excluding the negative impact of $1.4 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first three quarters of 2023, our gross profit would have been $331.8 million, or 22.3% of net sales. Gross profit was $283.5 million for the first three quarters of 2022, or 18.4% of net sales. Excluding the negative impact of $6.6 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first three quarters of 2022, our gross profit would have been $290.1 million, or 18.8% of net sales.
The improvements in gross profit and gross profit as a percentage of net sales were driven by an increase in net pricing relative to input costs as compared to the first three quarters of 2022, the moderation of input cost inflation and lower transportation and warehousing costs. Beginning in the fourth quarter of 2022, we have realized the benefits of previously announced list price increases, which has contributed to our recovery in gross profit and gross profit as a percentage of net sales through the third quarter of 2023.
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Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $4.2 million, or 3.1%, to $142.8 million for the first three quarters of 2023 from $138.6 million for the first three quarters of 2022. The increase was composed of increases in general and administrative expenses of $8.3 million and consumer marketing expenses of $2.1 million, partially offset by decreases in warehousing expenses of $2.8 million, acquisition/divestiture-related and non-recurring expenses of $2.6 million, and selling expenses of $0.8 million. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 0.6 percentage points to 9.6% for the first three quarters of 2023, as compared to 9.0% for the first three quarters of 2022.
Amortization Expense. Amortization expense decreased $0.4 million, or 2.2%, to $15.6 million for the first three quarters of 2023 from $16.0 million for the first three quarters of 2022.
Impairment of Assets Held for Sale. In connection with the divestiture of assets relating to the Green Giant U.S. shelf-stable product line, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash impairment charges of $132.9 million during the third quarter of 2023. See Note 18, “Assets Held for Sale,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
During the third quarter of 2022, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories relating to our Back to Nature business to assets held for sale. We then measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million during the third quarter of 2022. During the fourth quarter of 2022, we recorded an additional $2.8 million of pre-tax, non-cash impairment charges related to those assets after we entered into an agreement to sell the Back to Nature business. The sale of the Back to Nature business was completed on January 3, 2023 (the first business day of fiscal 2023).
(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 three 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 closure of the facility and the transfer of manufacturing operations.
Operating Income. As a result of the foregoing, operating income increased $6.4 million, or 19.8%, to $38.9 million for the first three quarters of 2023 from $32.5 million for the first three quarters of 2022. Operating income expressed as a percentage of net sales increased to 2.6% in the first three quarters of 2023 from 2.1% in the first three quarters of 2022.
Net Interest Expense. Net interest expense increased $22.5 million, or 25.4%, to $111.1 million for the first three quarters of 2023 from $88.6 million for the first three quarters of 2022. The increase was primarily attributable to higher interest rates on our variable rate borrowings, as well as the accelerated amortization of deferred debt financing costs relating to long-term debt prepayments, partially offset by a reduction in average long-term debt outstanding, a $0.8 million gain on extinguishment of debt during the second quarter of 2023 and a $0.6 million gain on extinguishment of debt during the third quarter of 2023. See “—Liquidity and Capital Resources — Debt” below.
Other Income. Other income for the first three quarters of 2023 and 2022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $2.8 million and $5.5 million, respectively. Other income for the first three 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 less than $0.1 million in both periods.
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Income Tax Benefit. Income tax benefit decreased $14.4 million to $0.6 million for the first three quarters of 2023 from $15.0 million for the first three quarters of 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 taxes by $14.7 million, or $0.21 per share. Our effective tax rate was 0.9% for the first three quarters of 2023 and 29.5% for the first three quarters of 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 benefit.
Liquidity and Capital Resources
Our primary liquidity requirements include debt service, capital expenditures and working capital needs. See also, “Dividend Policy” 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 (Used in) Operating Activities. Net cash provided by operating activities increased $204.1 million to $155.7 million of net cash provided by operating activities for the first three quarters of 2023, as compared to $48.4 million of net cash used in operating activities for the first three quarters of 2022. The increase was due to an increase in operating income and favorable working capital comparisons in the first three quarters of 2023 compared to the first three quarters of 2022, primarily comprised of inventories, trade accounts receivable, and income tax receivable/payable, net; partially offset by unfavorable working capital comparisons for trade accounts payable.
Net Cash Provided by (Used in) Investing Activities. Cash flows provided by investing activities increased $69.0 million to $34.7 million of net cash provided by investing activities for the first three quarters of 2023, as compared to $34.3 million of net cash used in investing activities for the first three quarters of 2022. The increase was primarily attributable to the Back to Nature sale, which produced gross proceeds from the sale of assets of $51.4 million in the first three quarters of 2023, an increase of $41.2 million compared to the gross proceeds from the sale of assets in the first three quarters of 2022. Net cash used in investing activities for the first three quarters of 2022 includes $27.3 million of cash used to pay the purchase price for the Yuma acquisition, compared to no payments for acquisitions during the first three quarters of 2023.
Net Cash Provided by Financing Activities. Cash flows provided by financing activities increased $14.9 million to $124.3 million for the first three quarters of 2023, as compared to $109.4 million for the first three quarters of 2022. The increase was primarily driven by $550.0 million of proceeds from the issuance of aggregate principal amount of 8.00% senior secured notes due 2028 during the third quarter of 2023; a $58.2 million decrease in dividends paid during the first three quarters of 2023 compared to the first three quarters of 2022; an $8.6 million increase in the proceeds received from the issuance of common stock for the first three quarters of 2023 compared to the first three quarters of 2022; partially offset by a $430.0 million decrease in net borrowings under our revolving credit facility during the first three quarters of 2023 compared to the first three quarters of 2022; $121.0 million of mandatory and optional payments on our tranche B term loans during the first quarter of 2023 and our repurchase of $44.6 million aggregate principal amount of our 5.25% senior notes due 2025 during the first three quarters of 2023; and $10.2 million of debt financing costs during the first three quarters of 2023 compared to no debt financing costs during the first three quarters of 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 2023 through 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 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 and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.
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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 three quarters of 2023 and 2022, we had net cash provided by operating activities of $155.7 million and net cash used in operating activities of $48.4 million, respectively, and distributed as dividends $41.1 million and $99.3 million, respectively.
Including the dividend payment that we made in the fourth quarter on October 30, 2023, we paid quarterly dividends of $56.0 million in fiscal 2023. Based upon our current intended dividend rate of $0.76 per share per annum and our current number of outstanding shares, we expect our aggregate dividend payments in fiscal 2024 to be approximately $59.8 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.
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.
The impact of future acquisitions, whether financed with additional indebtedness or otherwise, may have a material impact on our liquidity and capital resources.
Debt
See Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report for a description of our senior secured credit agreement, including our revolving credit facility and tranche B term loans; our 5.25% senior notes due 2025; our 5.25% senior notes due 2027; and our 8.00% senior secured notes due 2028.
Equity
See Note 9, “Stockholder’s Equity,” to our unaudited consolidated interim financial statements in Part I, Item I of this report for information about our “at-the-market” (ATM) equity offering program.
Future Capital Needs
We are highly leveraged. On September 30, 2023, our total long-term debt of $2,506.1 million, net of our cash and cash equivalents of $359.9 million, was $2,146.2 million. Stockholders’ equity as of that date was $840.6 million.
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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 $35.0 million in the aggregate during fiscal 2023. During the first three quarters of 2023, we made capital expenditures of $19.4 million, of which $16.9 million were paid in cash. Our projected capital expenditures for fiscal 2023 primarily relate to asset sustainability projects, productivity and cost saving initiatives, environmental compliance, and 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
See “—General—Fluctuations in Commodity Prices and Production and Distribution Costs” above.
Contingencies
See Note 12, “Commitments and Contingencies,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies —Recently Issued Accounting Standards – Pending Adoption,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
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Supplemental 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 this report, our obligations under the 5.25% senior notes due 2025, the 5.25% senior notes due 2027, and the 8.00% senior secured notes due 2028 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries, which we refer to in this section as the guarantor subsidiaries. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes due 2025, the 5.25% senior notes due 2027, or the 8.00% senior secured notes due 2028. In this section, we refer to these foreign subsidiaries and future foreign or partially owned domestic subsidiaries as the non-guarantor subsidiaries. See Note 6, “Long-Term Debt” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
The 5.25% senior notes due 2025 and 5.25% senior notes due 2027 and the related subsidiary guarantees are our and the guarantor subsidiaries’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantor subsidiaries’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantor subsidiaries’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantor subsidiaries’ future subordinated debt.
The 8.00% senior secured notes due 2028 are our senior secured obligations. The 8.00% senior secured notes due 2028 notes have the same guarantors as our credit agreement. The 8.00% senior secured notes due 2028 notes and the related guarantees are secured by, subject to permitted liens, first-priority security interests in certain collateral (which generally includes most of our and our guarantors’ right or interest in or to property of any kind, except for our and our guarantors’ real property and certain intangible assets), which assets also secure (and will continue to secure) our credit agreement on a pari passu basis. Pursuant to the terms of the applicable indenture, the related collateral agreement and an intercreditor agreement, the 8.00% senior secured notes due 2028 notes and the guarantees rank (1) pari passu (equally and ratably) in right of payment to all of our and the guarantors’ existing and future senior debt, including existing and future senior debt under our existing or any future senior secured credit agreement (including the term loan borrowings under our existing senior secured credit facility, any obligations under our existing revolving credit facility and all other borrowings and obligations under our credit agreement), (2) effectively senior in right of payment to our and such guarantors’ existing and future senior unsecured debt, including our 5.25% senior notes due 2025 and 5.25% senior notes due 2027 to the extent of the value of the collateral, (3) effectively junior to our and the guarantors’ future secured debt, secured by assets that do not constitute collateral, to the extent of the value of the collateral securing such debt, (4) senior in right of payment to our and such guarantors’ other existing and future subordinated debt and (5) structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 8.00% senior secured notes due 2028.
Each guarantee contains a provision intended to limit the guarantor subsidiary’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, we cannot assure you that this provision will be effective to protect the subsidiary guarantees from being voided under fraudulent transfer laws.
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 best interests of B&G Foods and is not materially disadvantageous to the holders of the senior notes or the senior secured notes, as applicable.
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The following tables present summarized unaudited financial information on a combined basis for B&G Foods and each of the guarantor subsidiaries described above after elimination of (1) intercompany transactions and balances among B&G Foods and the guarantor subsidiaries and (2) investments in any subsidiary that is a non-guarantor (in thousands):
September 30, |
| December 31, | |||
2023 |
| 2022 | |||
Current assets(1) | $ | 1,178,572 | $ | 930,287 | |
Non-current assets | 2,600,553 | 2,746,965 | |||
Current liabilities(2) | $ | 260,811 | $ | 200,307 | |
Non-current liabilities | 2,828,643 | 2,751,661 | |||
| (1) | Current assets includes amounts due from non-guarantor subsidiaries of $46.7 million and $37.7 million as of September 30, 2023 and December 31, 2022, respectively. |
| (2) | Current liabilities includes amounts due to non-guarantor subsidiaries of $21.3 million and $7.7 million as of September 30, 2023 and December 31, 2022, respectively. |
Thirty-nine Weeks Ended | |||||
September 30, | October 1, | ||||
2023 | 2022 | ||||
Net sales | $ | 1,392,881 | $ | 1,447,081 | |
Gross profit | 333,064 | 276,185 | |||
Operating income | 38,716 | 22,433 | |||
Loss before income taxes | (69,573) | (60,651) | |||
Net loss | $ | (70,611) | $ | (42,882) | |
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 “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.
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, 2023, we had $1,955.4 million of fixed rate debt and $550.6 million of variable rate debt.
Based upon our principal amount of long-term debt outstanding at September 30, 2023, a hypothetical 1.0% increase or decrease in interest rates would have affected our annual interest expense by approximately $5.5 million.
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The carrying values and fair values of our revolving credit loans, term loans and senior notes as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023 | December 31, 2022 |
| |||||||||||
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| |||||
Revolving credit loans | $ | — | $ | — | (1) | $ | 282,500 | $ | 282,500 | (1) | |||
Tranche B term loans due 2026 | 549,118 | (2) | 540,195 | (3) | 668,532 | (2) | 636,777 | (3) | |||||
5.25% senior notes due 2025 | 856,150 | (4) | 839,027 | (3) | 901,213 | (4) | 790,625 | (3) | |||||
5.25% senior notes due 2027 | 550,000 | 459,250 | (3) | 550,000 | 420,558 | (3) | |||||||
8.00% senior secured notes due 2028 | $ | 547,261 | (5) | $ | 547,945 | (3) | $ | — | $ | — | |||
| (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 value of the tranche B term loans includes a discount. At September 30, 2023 and December 31, 2022, the face amount of the tranche B term loans was $550.6 million and $671.6 million, respectively. |
| (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 September 30, 2023 and December 31, 2022, the face amount of the 5.25% senior notes due 2025 was $855.4 million and $900.0 million, respectively. During the fourth quarter of 2023, we redeemed $555.4 million aggregate principal amount of our 5.25% senior notes due 2025. See Note 6, “Long-Term Debt,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report for additional information. |
| (5) | The carrying value of 8.00% senior secured notes due 2028 includes a discount. At September 30, 2023, the face amount of 8.00% senior secured notes due 2028 was $550.0 million. |
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. Our net sales to customers in foreign countries represented approximately 8.7% and 8.2% of our total net sales during the first three quarters of 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 three quarters of 2023 as a result of the Mexican peso appreciating by nearly 12% against the U.S. dollar during the first three 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.
Market Fluctuation Risks Relating to our Defined Benefit Pension Plans. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates” and Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of our 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.
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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 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 over 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 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.
During fiscal 2022 and the first three quarters of 2023, we continued to implement additional modules and transition recently acquired businesses into the enterprise resource planning (ERP) system that we use for substantially all of our operations other than our operations in Mexico. In connection with each 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.
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings |
The information set forth under the heading “Legal Proceedings” in Note 12 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.
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Item 1A. Risk Factors
We do not believe there have been any material changes in our risk factors as previously disclosed in our 2022 Annual Report on Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
Rule 10b5-1 Trading Arrangements. During the period covered by this report, none of our directors or officers
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Item 6. | Exhibits |
EXHIBIT |
| DESCRIPTION |
4.1 | ||
4.2 | Form of 8.00% Senior Secured Notes due 2028 (included in Exhibit 4.1) | |
10.1 | ||
10.2 | ||
22.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
101 | The following unaudited financial information from B&G Foods’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information. | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 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.
Dated: November 9, 2023 | B&G FOODS, INC. | |
By: | /s/ Bruce C. Wacha | |
Bruce C. Wacha Executive Vice President of Finance (Principal Financial Officer and Authorized Officer) | ||
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