B&G FOODS, INC. 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 endedOctober 2, 2021 (third quarter and first three quarters of 2021) included elsewhere in this report and the audited consolidated financial statements and related notes for the fiscal year endedJanuary 2, 2021 (fiscal 2020) included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (SEC) onMarch 2, 2021 (which we refer to as our 2020 Annual Report on Form 10-K). The third quarter and first three quarters of 2021 included one fewer reporting week compared to the third quarter and first three quarters of 2020.
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 into our company. Most recently, onDecember 1, 2020 , we acquired the Crisco oils and shortening business from The J.M. Smucker Company and certain of its affiliates. As part of the acquisition, we also acquired a manufacturing facility and warehouse inCincinnati, Ohio . OnFebruary 19, 2020 , we acquiredFarmwise LLC , maker of Farmwise Veggie Fries, Farmwise Veggie Tots and Farmwise Veggie Rings. We refer to these acquisitions in this report as the "Crisco acquisition" and the "Farmwise acquisition," respectively. These acquisitions have been accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired businesses are included in our consolidated financial statements from the date of acquisition. These acquisitions and the application of the acquisition method of accounting 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 inU.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. 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 the third
quarter and first three quarters of 2021 and fiscal 2020 and anticipate higher
raw materials cost increases for the remainder of fiscal 2021 and into fiscal
2022. We are currently locked into our supply and prices for a majority of our
most significant raw material commodities (excluding, among others, maple syrup)
through the remainder of fiscal 2021.
In recent years, we have been negatively impacted by industry-wide increases in
the cost of distribution, primarily driven by increased freight rates. 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
2019, we were able to offset a portion of the freight cost increase through
pricing, which included both list price increases and trade spend optimization.
And in 2018 and 2019, we benefited from our distribution re-alignment efforts
which have helped to optimize both our shelf-stable and our frozen distribution
networks. Freight rates increased significantly during the fourth quarter of
2020 and the first three quarters of 2021. We expect freight rates to continue
to increase in the fourth quarter of 2021 and into fiscal 2022.
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. To the extent we are unable to avoid or
offset any present or future cost increases by locking in our costs,
implementing cost saving measures or increasing prices to our customers, our
operating results could be materially adversely affected. In addition, if input
costs begin to decline, customers may look for price reductions in situations
where we have locked into purchases at higher costs. During the past three
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.
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 2021 and 2020, our net sales to
customers in foreign countries represented approximately 8.1% and 7.6%,
respectively, of our total net sales. We also purchase a significant majority of
our maple syrup requirements from suppliers located in Québec, Canada . Any
weakening of the U.S. dollar against the Canadian dollar could significantly
increase our costs relating to the production of our maple syrup products to the
extent we have not purchased Canadian dollars in advance of any such weakening
of the U.S. dollar or otherwise entered into a currency hedging arrangement in
advance of any such weakening of the U.S. dollar. These increased costs would
not be fully offset by the positive impact the change in the relative strength
of the Canadian dollar versus the U.S. dollar would have on our net sales in
Canada . Our purchases of raw materials from other foreign suppliers are
generally denominated in U.S. dollars. We also operate a manufacturing facility
in Irapuato, Mexico for the manufacture of Green Giant frozen products and are
as a result exposed to fluctuations in the Mexican peso. Our results of
operations
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could be adversely impacted by changes in foreign currency exchange rates. Costs and expenses inMexico are recognized in local foreign currency, and therefore we are exposed to potential gains or losses from the translation of those amounts intoU.S. dollars for consolidation into our consolidated financial statements. To confront these challenges, we continue to take steps to build the value of our brands, to improve our existing portfolio of products with new product and marketing initiatives, to reduce costs through improved productivity, to address consumer concerns about food safety, quality and health and to favorably manage currency fluctuations.
Update Regarding Impact and Expected Future Impact of COVID-19 on Our Company
Business Impact. Consistent withB&G Foods' core values, the health and safety of our employees and the quality and safety of our products are our highest priorities. Commencing at the onset of the pandemic, we implemented a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. We have also been working closely with our supply chain partners and our customers to ensure that we can continue to provide uninterrupted service. Thanks to the tremendous efforts of our employees, especially those throughout our supply chain, our ability to serve our customers has not, to date, been materially impacted, although, as discussed below, we have faced supply chain constraints for certain of our products. We continue to monitor the latest guidance from theCDC , FDA and other federal, state and local authorities regarding COVID-19 and will continue to support our employees and our communities and do our part to keep our nation supplied with food during this difficult time. Precautionary measures that we have taken to protect our employees, customers, suppliers and other business partners, and to maintain our ability to supply food products, include, among many others, the following, some of which are no longer in effect as vaccination rates have risen:
? the establishment of a COVID-19 task force consisting of our executives and
other members of senior management;
social distancing and the required wearing of face masks at all manufacturing
? locations and the installation of plexiglass barriers at spots where line
workers must work in close proximity;
? enhanced sanitization procedures at all manufacturing and other work locations;
? screening of all employees, including temperature checks, before entering
manufacturing facilities;
? quarantining (with pay) of employees who may have been exposed to COVID-19 or
who are exhibiting any symptoms of COVID-19;
? manufacturing plant shutdowns for sanitization when necessary upon a COVID-19
positive test;
the notification of manufacturing employees of any COVID-19 positive tests at
? their manufacturing location and the quarantining (with pay) of employees who
may have had contact with the employee who tested positive;
? where available, facilitating the vaccination of employees at our manufacturing
facilities or locations nearby;
instituting a work from home policy for office workers, and reducing office
? capacity and implementing social distancing and other precautionary measures
for those workers returning to the office; and
? constant communication with our customers and supply chain partners.
We also rewarded our dedicated employees at our manufacturing facilities by temporarily increasing compensation for our hourly employees, supervisors and managers fromMarch 30, 2020 throughFebruary 15, 2021 . This is in addition to the continued pay we provided to workers while in quarantine (as described in the bullet points above). Financial Impact to Date. As previously disclosed, the pandemic has had a positive impact on our operating results, and significantly improved our net sales, net income, adjusted EBITDA and net cash provided by operating activities in fiscal 2020. For the first three quarters of 2021, significant year-over-year base business net sales gains in January and February were offset by a year-over-year decrease in base business net sales in March through September, primarily due to the extraordinary demand for our products in March throughSeptember 2020 as the COVID-19 - 28 -
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pandemic reachedthe United States and consumers began pantry loading and increasing their at-home consumption as a result of increased social distancing and stay-at-home and work-from-home mandates and recommendations. Although demand remains strong and base business net sales are expected to continue to outpace fiscal 2019 levels, we have seen base business net sales decline year-over-year in the first three quarters of 2021, and expect base business net sales for the full year to decline, given the extraordinary demand and pantry loading at the height of the pandemic in fiscal 2020. We estimate we have spent approximately$4.3 million and$9.2 million on COVID-19-related costs for the first three quarters of 2021 and the first three quarters of 2020, respectively. This includes our estimated costs to take the precautionary health and safety measures described above, to provide our manufacturing employees the temporary enhanced compensation described above and to pay employees while they were in quarantine. Most of these costs impact our costs of goods sold and the remaining portion impacts our selling, general and administrative expenses. Expectations and Risk Factors in Light of the Ongoing COVID-19 Pandemic and Input Cost Inflation.B&G Foods continues to see strong consumer demand for our products and expects to see commensurate elevated levels of net sales relative to pre-pandemic fiscal 2019 throughout the remainder of fiscal 2021. The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others: how long social distancing and stay-at-home and work-from home policies and recommendations remain in effect; whether, and the extent to which, additional waves or variants of COVID-19 will affectthe United States and the rest ofNorth America ; our ability to continue to operate our manufacturing facilities, maintain our supply chain without material disruption, procure ingredients, packaging and other raw materials when needed despite disruptions in the supply chain or labor shortages; the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and shopping habits; and the extent to which consumers continue to work remotely even after the pandemic subsides and how that may impact consumer habits. We have also seen and expect to continue to see significant cost inflation for various inputs, including ingredients, packaging and transportation. We have initiated various revenue enhancing activities (including list price increases and trade spending initiatives) and cost savings initiatives to offset these costs but there can be no assurance at this point of the ultimate effectiveness of these activities and initiatives. See "-General-Fluctuations in Commodity Prices and Production and Distribution Costs" above.
Critical Accounting Policies; Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles inthe 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 2020 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 2020 Annual Report on Form 10-K.
OnDecember 22, 2017 , the Tax Cuts and Jobs Act, which we refer to as the "U.S. Tax Act," was signed into law. TheU.S. Tax Act provides for significant changes in theU.S. Internal Revenue Code of 1986, as amended. The changes in theU.S. Tax Act are broad and complex and we continue to examine the impact theU.S. Tax Act may have on our business and financial results. TheU.S. Tax Act contains provisions with separate effective dates but was generally effective for taxable years beginning afterDecember 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 onJanuary 1, 2018 , theU.S. Tax Act lowered theU.S. federal corporate income tax rate from 35% to 21% on ourU.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 - 29 -
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subsequent years. Our consolidated effective tax rate was approximately 26.3% and 24.0% for the first three quarters of 2021 and 2020, respectively. 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.
The
OnMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the "U.S. CARES Act," was signed into law. TheU.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. TheU.S. CARES Act increased the adjusted taxable income limitation from 30% to 50% for business interest deductions for tax years beginning in 2019 and 2020 and the limitation will revert back to 30% in future periods. This modification increased the allowable interest expense deduction and resulted in a net operating loss (NOL) for the year 2019. We were able to carryback the 2019 NOL and receive a tax refund of$7.2 million in fiscal 2020. The NOL carryback to the 2014 and 2015 tax years generated a refund of previously paid income taxes at an approximate 35% federal tax rate. This resulted in a benefit related to tax rate differential of$2.6 million in fiscal 2020,$2.3 million of which was recorded as a discrete item in the first quarter of 2020. We were not subject to an interest expense deduction limitation in fiscal 2020 and do not expect a significant interest deduction limitation in fiscal 2021. TheU.S. Treasury issued several regulations supplementing theU.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 2020 or first three quarters of 2021. - 30 - Table of Contents 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 2021 and 2020 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:
Thirteen Weeks Fourteen Weeks Thirty-nine Forty Weeks
Ended Ended Weeks Ended Ended
October 2, October 3, October 2, October 3,
2021 2020 2021 2020
Statement of Operations Data:
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 79.5 % 72.6 % 77.4 % 74.3 %
Gross profit 20.5 % 27.4 % 22.6 % 25.7 %
Operating expenses:Selling, general and administrative expenses 9.0 %
8.8 % 9.7 % 8.7 % Amortization expense 1.0 % 0.9 % 1.1 % 1.0 % Operating income 10.5 % 17.7 % 11.8 % 16.0 % Other income and expenses: Interest expense, net 5.2 % 5.3 % 5.4 % 5.3 % Other income (0.2) % (0.1) % (0.2) % (0.1) % Income before income tax expense 5.5 % 12.5 % 6.6 % 10.8 % Income tax expense 1.5 % 3.1 % 1.7 % 2.6 % Net income 4.0 % 9.4 % 4.9 % 8.2 %
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. 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.
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).
Other Income. Other income includes income or expense resulting from the
remeasurement of monetary assets denominated in a foreign currency into
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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 income, changes in stockholders' equity and cash flows. Base BusinessNet 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. 2021 Compared to 2020
A reconciliation of base business net sales to net sales for the third quarter and first three quarters of 2021 and 2020 follows (in thousands):
Thirteen Fourteen Thirty-nine Forty Weeks
Weeks Ended Weeks Ended Weeks Ended Ended
October 2, October 3, October 2, October 3,
2021 2020 2021 2020
Net sales $ 514,965 $ 495,759 $ 1,484,474 $ 1,457,668 Net sales from acquisitions(1) (71,217) -
(187,915) - Base business net sales$ 443,748 $ 495,759 $ 1,296,559 $ 1,457,668
Primarily reflects
for the third quarter and first three quarters of 2021, respectively, for (1) which there is no comparable period of net sales during the third quarter and
first three quarters of 2020, respectively. The Crisco acquisition closed on
December 1, 2020 .
2021 Compared to 2019
A reconciliation of base business net sales to net sales for the third quarter and first three quarters of 2021 and 2019 follows (in thousands):
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 2, September 28, October 2, September 28,
2021 2019 2021 2019Net sales$ 514,965 $ 406,311 $ 1,484,474 $ 1,190,242 Net sales from acquisitions(2) (71,318) - (213,852) - Base business net sales$ 443,647 $ 406,311
Primarily reflects (a)
Crisco for the third quarter and first three quarters of 2021, respectively,
and (b)
comparable period of net sales during the third quarter and first three
quarters of 2019, respectively. The Crisco acquisition closed on
2020 and the Clabber Girl acquisition closed on May 15, 2019 .
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EBITDA, Adjusted EBITDA and Adjusted EBITDA Before COVID-19 Expenses. EBITDA,
adjusted EBITDA and adjusted EBITDA before COVID-19 expenses are non-GAAP
financial measures used by management to measure operating performance. We
define EBITDA as net income before net interest expense, income taxes,
depreciation and amortization and loss on extinguishment of debt. 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 assets); and non-recurring expenses, gains and losses,
including severance and other expenses relating to the separation of our former
chief executive officer in fiscal 2020, a workforce reduction in fiscal 2019 and
an accrual for the estimated present value of a multi-employer pension plan
withdrawal liability. We define adjusted EBITDA before COVID-19 expenses as
adjusted EBITDA adjusted for COVID-19 expenses. 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, adjusted EBITDA
and adjusted EBITDA before COVID-19 expenses 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, adjusted
EBITDA and adjusted EBITDA before COVID-19 expenses 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, adjusted EBITDA
and adjusted EBITDA before COVID-19 expenses 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, adjusted EBITDA and adjusted EBITDA before COVID-19 expenses are not
recognized terms under GAAP and do not purport to be alternatives to operating
income, net income or any other GAAP measure as an indicator of operating
performance. EBITDA, adjusted EBITDA and adjusted EBITDA before COVID-19
expenses are not complete net cash flow measures because EBITDA, adjusted EBITDA
and adjusted EBITDA before COVID-19 expenses 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, adjusted EBITDA and adjusted
EBITDA before COVID-19 expenses are potential indicators of an entity's ability
to fund these cash requirements. EBITDA, adjusted EBITDA and adjusted EBITDA
before COVID-19 expenses 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, adjusted EBITDA and adjusted EBITDA before COVID-19
expenses may not be comparable to other similarly titled measures of other
companies. However, EBITDA, adjusted EBITDA and adjusted EBITDA before COVID-19
expenses can still be useful in evaluating our performance against our peer
companies because management believes these measures provide users with valuable
insight into key components of GAAP amounts.
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A reconciliation of EBITDA, adjusted EBITDA and adjusted EBITDA before COVID-19
expenses to net income and to net cash provided by operating activities for the
third quarter and first three quarters of 2021 and 2020 along with the
components of EBITDA, adjusted EBITDA and adjusted EBITDA before COVID-19
expenses follows (in thousands):
Thirteen Fourteen Thirty-nine Forty Weeks
Weeks Ended Weeks Ended Weeks Ended Ended
October 2, October 3, October 2, October 3,
2021 2020 2021 2020
Net income $ 20,747 $ 46,813 $ 72,176 $ 119,816
Income tax expense 7,613 15,355 25,804 37,853
Interest expense, net 26,630 26,430 80,312 77,318
Depreciation and amortization 20,728 15,589 61,257 46,508
EBITDA 75,718 104,187 239,549 281,495
Acquisition/divestiture-related and
non-recurring expenses(1) 6,388 423 14,217 6,403
Amortization of acquisition-related
inventory step-up(2) - - 5,054 -
Accrual for expected multi-employer
pension plan withdrawal liability(3) 14,056 -
14,056 -
Adjusted EBITDA 96,162 104,610 272,876 287,898
COVID-19 expenses(4) 209 4,786 4,299 9,225Adjusted EBITDA before COVID-19 expenses 96,371 109,396
277,175 297,123
Income tax expense (7,613) (15,355) (25,804) (37,853)
Interest expense, net (26,630) (26,430) (80,312) (77,318)
Acquisition/divestiture-related and
non-recurring expenses(1) (6,388) (423) (14,217) (6,403)
Amortization of acquisition-related
inventory step-up(2) - - (5,054) -
Accrual for expected multi-employer
pension plan withdrawal liability(3) (14,056) - (14,056) -
Net loss (gain) on sales and disposals
of property, plant and equipment 30 - - (61)
Deferred income taxes 3,524 5,587 14,894 19,868
Amortization of deferred debt financing
costs and bond discount/premium 1,155 1,965 3,444 3,764
Share-based compensation expense 1,103 2,817 3,228 7,061
Changes in assets and liabilities, net
of effects of business combinations (100,466) (86,834) (142,213) 35,347
Net cash provided by (used in) operating
activities $ (53,179) $ (14,063) Acquisition/divestiture-related and non-recurring expenses for the third
quarter and first three quarters of 2021 of
respectively, primarily includes acquisition and integration expenses for the
Crisco acquisition and certain cost savings initiatives. (1) Acquisition/divestiture-related and non-recurring expenses for the third
quarter and first three quarters of 2020 of
respectively, primarily includes acquisition and integration expenses for the
Clabber Girl and Farmwise acquisitions, and severance and other expenses
primarily relating to a workforce reduction in fiscal 2019 and certain cost
savings initiatives.
For the first three quarters of 2021, amortization of acquisition-related
(2) inventory step-up of
adjustments made during the first quarter of 2021 to inventory acquired in
the Crisco acquisition.
During the third quarter of 2021, we reached an agreement to sell our
withdrawal liability with an estimated present value of approximately
million, payable over 20 years in installments of approximately
per year.
COVID-19 expenses of
first three quarters of 2021, respectively, and
for the third quarter and first three quarters of 2020, respectively,
primarily includes temporary enhanced compensation for our manufacturing
(4) employees from
to pay manufacturing employees while in quarantine (which was incremental to
the compensation we paid to the manufacturing employees who produced our
products while others were in quarantine); and expenses relating to other
precautionary health and safety measures.
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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 and diluted earnings per share
adjusted for certain items that affect comparability. These non-GAAP financial
measures reflect adjustments to net income and diluted earnings per share to
eliminate the items identified in the reconciliation below. This information is
provided in order to allow investors to make meaningful comparisons of our
operating performance between periods and to view 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.
A reconciliation of adjusted net income and adjusted diluted earnings per share
to net income for the third quarter and first three quarters of 2021 and 2020
along with the components of adjusted net income and adjusted diluted earnings
per share follows (in thousands):
Thirteen Fourteen Thirty-nine Forty Weeks
Weeks Ended Weeks Ended Weeks Ended Ended
October 2, October 3, October 2, October 3,
2021 2020 2021 2020
Net income $ 20,747 $ 46,813 $ 72,176 $ 119,816
Acquisition/divestiture-related and
non-recurring expenses, net of tax(1) 4,823 319 10,734 4,834
Accelerated amortization of deferred debt
financing costs - 808 - 808
Tax benefit(2) - - - (2,258)
Amortization of acquisition-related inventory
step-up, net of tax(3) - - 3,816 -
Accrual for expected multi-employer pension
plan withdrawal liability(4) 10,612 - 10,612 -
Adjusted net income $ 36,182 $ 47,940 $ 97,338 $ 123,200
Adjusted diluted earnings per share $ 0.55 $
0.74 $ 1.49
Acquisition/divestiture-related and non-recurring expenses for the third
quarter and first three quarters of 2021 primarily includes acquisition and
integration expenses for the Crisco acquisition and certain cost savings (1) initiatives. Acquisition/divestiture-related and non-recurring expenses for
the third quarter and first three quarters of 2020 primarily includes
acquisition and integration expenses for the Clabber Girl and Farmwise
acquisitions, and severance and other expenses primarily relating to a
workforce reduction in fiscal 2019 and certain cost savings initiatives.
The first three quarters of 2020 includes a
quarter of 2020. See "-
For the first three quarters of 2021, amortization of acquisition-related
(3) inventory step-up of
the purchase accounting adjustments made during the first quarter of 2021 to
inventory acquired in the Crisco acquisition.
During the third quarter of 2021, we reached an agreement to sell our
withdrawal liability with an estimated present value of approximately
million (or
of approximately
Third quarter of 2021 compared to the third quarter of 2020
Net Sales . Net sales for the third quarter of 2021 increased$19.2 million , or 3.9%, to$515.0 million from$495.8 million for the third quarter of 2020. The increase was primarily due to the Crisco acquisition, largely offset by comparisons against the extraordinary demand resulting from the COVID-19 pandemic during the third quarter of 2020, as well as one fewer reporting week in the third quarter of 2021 compared to the third quarter of 2020. We estimate that the additional week in the third quarter of 2020 contributed approximately$35.0 million to our net sales for the third quarter of 2020. Net sales of Crisco, acquired onDecember 1, 2020 , contributed$71.2 million to our net sales for the quarter. Net sales for the third quarter of 2021 were 26.7% higher than pre-pandemic net sales for the third quarter of 2019. On a two-year compound annual growth basis, relative to pre-pandemic levels, third quarter net sales increased 12.6%. - 35 - Table of Contents Base business net sales for the third quarter of 2021 decreased$52.1 million , or 10.5%, to$443.7 million from$495.8 million for the third quarter of 2020. The decrease in base business net sales for the third quarter of 2021 reflected a decrease in unit volume of$68.5 million , partially offset by an increase in net pricing and the impact of product mix of$14.5 million and the positive impact of foreign currency of$1.9 million . Base business net sales for the third quarter of 2021 were 9.2% higher than pre-pandemic base business net sales for the third quarter of 2019. On a two-year compound annual growth basis, relative to pre-pandemic levels, third quarter base business net sales increased 4.5%. Despite continued strong demand for Green Giant products during the third quarter of 2021, sales of Green Giant products in the aggregate (including Le Sueur) decreased$17.0 million , or 10.7%, in the third quarter of 2021, as compared to the third quarter of 2020. Net sales of Green Giant frozen decreased$16.5 million , or 16.2%, for the quarter. Net sales of Green Giant shelf-stable (including Le Sueur) decreased$0.5 million , or 0.8%, for the third quarter of 2021. The decrease in Green Giant net sales was primarily attributable to two factors. First, Green Giant was one of our brands that benefited the most from COVID-related demand during fiscal 2020. Second, Green Giant, as well as certain of its competitor brands, have faced supply chain constraints that did not ease until we reached the new pack season during the third quarter of 2021. As a result, we made the difficult decision during the fourth quarter of 2020 to place certain of the brands' products on allocation with our customers to avoid running out of products prior to the start of the new pack season, which negatively impacted net sales of Green Giant products through the early part of the third quarter of 2021. See Note 17, "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 for each of our brands whose net sales for the first three quarters of 2021 or fiscal 2020 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 2021: 2021 vs. 2020 2021 vs. 2019 Base Business Base Business Net Sales Increase (Decrease) Net Sales Increase (Decrease) Dollars Dollars (in millions) Percentage (in millions) Percentage Brand: Ortega $ 1.6 4.2 % $ 2.6 7.3 % Green Giant - frozen (16.5) (16.2) % 5.1 6.3 % Spices & Seasonings(1) (10.5) (13.3) % 6.9 11.4 % Clabber Girl (4.3) (17.2) % 0.3 1.9 % Dash (2.2) (11.2) % 2.9 20.7 % Cream of Wheat (1.2) (7.4) % 1.2 8.5 % Maple Grove Farms of Vermont (0.5) (2.4) % 2.7 15.3 % Green Giant - shelf-stable(2) (0.5) (0.8) % 15.9 40.1 % All other brands (18.0) (12.7) % (0.3) (0.3) %
Base business net sales (decrease) increase$ (52.1) (10.5) % $ 37.3 9.2 %
Includes net sales for multiple brands acquired as part of the spices &
(1) seasonings acquisition that we completed on
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$105.7 million for the third quarter of 2021, or 20.5% of net sales. Excluding the negative impact of a$14.1 million accrual for the estimated present value of a multi-employer pension plan withdrawal liability in connection with the pending sale and closure of ourPortland, Maine manufacturing facility, and$2.8 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2021, our gross profit would have been$122.6 million , or 23.8% of net sales. Gross profit was$136.0 million for the third quarter of 2020, or 27.4% of net sales. Excluding the negative impact of$0.1 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2020, our gross profit would have been$136.1 million , or 27.5% of net sales. - 36 -
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During the third quarter of 2021, our gross profit was negatively impacted by higher than expected input cost inflation, including materially increased costs for raw materials and transportation. We expect input cost inflation to be materially higher in the fourth quarter of 2021 than it was in the fourth quarter of 2020 and that cost inflation will continue to have a significant industry-wide impact during fiscal 2022. As discussed above, we are attempting to mitigate the impact of inflation on our gross profit by locking in prices through short-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures. We have also announced list price increases and have reduced trade promotions to our customers for certain of our products. However, increases in the prices we charge our customers generally lag behind rising input costs. As such, we do not expect to fully offset the incremental costs that we are facing in fiscal 2021 and we expect continued cost inflation in fiscal 2022. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased$3.0 million , or 6.9%, to$46.4 million for the third quarter of 2021 from$43.4 million for the third quarter of 2020. The increase was composed of increases in warehousing expenses of$3.5 million and acquisition/divestiture-related and non-recurring expenses of$3.3 million , partially offset by decreases in selling expenses of$1.7 million , consumer marketing expenses of$1.2 million and general and administrative expenses of$0.9 million . The increase in warehousing expenses was primarily driven by the Crisco acquisition and customer fines related to COVID-19 shortages and delays, partially offset by one fewer reporting week in the third quarter of 2021 compared to the third quarter of 2020. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 0.2 percentage points to 9.0% for the third quarter of 2021, compared to 8.8% for the third quarter of 2020.
Amortization Expense. Amortization expense increased
Operating Income. As a result of the foregoing, operating income decreased$34.0 million , or 38.7%, to$53.9 million for the third quarter of 2021 from$87.9 million for the third quarter of 2020. Operating income expressed as a percentage of net sales decreased to 10.5% in the third quarter of 2021 from 17.7% in the third quarter of 2020. Net Interest Expense. Net interest expense increased$0.2 million , or 0.8%, to$26.6 million for the third quarter of 2021 from$26.4 million in the third quarter of 2020. The increase was primarily attributable to an increase in average long-term debt outstanding during the third quarter of 2021 as compared to the third quarter of 2020, primarily as a result of incremental borrowings we made in the fourth quarter of 2020 to fund the Crisco acquisition and related fees and expenses. The increase in net interest expense was partially offset by a lower effective cost of borrowing during the third quarter of 2021, as well as one fewer reporting week in the third quarter of 2021 compared to the third quarter of 2020. See "-Liquidity and Capital Resources - Debt" below. Other Income. Other income for the third quarter of 2021 and 2020 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs, in the amount of$1.1 million and$0.7 million , respectively. Other income for the third quarter of 2021 and 2020 also includes remeasurement of monetary assets denominated in a foreign currency intoU.S. dollars of less than$0.1 million in both periods. Income Tax Expense. Income tax expense decreased$7.8 million to$7.6 million for the third quarter of 2021 from$15.4 million for the third quarter of 2020, primarily due to decreased operating income, as described above. Our effective tax rate was 26.8% for the third quarter of 2021 and 24.7% for the third quarter of 2020. See "U.S. Tax Act andU.S. CARES Act" above.
First three quarters of 2021 compared to the first three quarters of 2020
Net Sales . Net sales for the first three quarters of 2021 increased$26.8 million , or 1.8%, to$1,484.5 million from$1,457.7 million for the first three quarters of 2020. The increase was primarily due to the Crisco acquisition, largely offset by comparisons against the extraordinary demand resulting from the COVID-19 pandemic during the first three quarters of 2020, as well as one fewer reporting week in the first three quarters of 2021 compared to the first three quarters of 2020. We estimate that the additional week in the third quarter of 2020 contributed approximately$35.0 million to our net sales for the first three quarters of 2020. Net sales of Crisco, acquired onDecember 1, 2020 , contributed$187.7 million to our net sales for the first three quarters. Net sales for the first three quarters of 2021 were 24.7% higher than pre-pandemic net sales for the first three quarters of 2019. On a two-year compound annual growth basis, relative to pre-pandemic levels, net sales for the first three quarters of 2021 increased 11.7%. - 37 -
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Base business net sales for the first three quarters of 2021 decreased$161.1 million , or 11.1%, to$1,296.6 million from$1,457.7 million for the first three quarters of 2020. The decrease in base business net sales for the first three quarters of 2021 reflected a decrease in unit volume of$193.7 million , partially offset by an increase in net pricing and the impact of product mix of$27.3 million and the positive impact of foreign currency of$5.3 million . Base business net sales for the first three quarters of 2021 were 6.8% higher than pre-pandemic base business net sales for the first three quarters of 2019. On a two-year compound annual growth basis, relative to pre-pandemic levels, base business net sales for the first three quarters of 2021 increased 3.3%. Despite continued strong demand for Green Giant products during the first quarter of 2021, sales of Green Giant products in the aggregate (including Le Sueur) decreased$101.3 million , or 21.1%, in the first three quarters of 2021, as compared to the first three quarters of 2020. Net sales of Green Giant shelf-stable (including Le Sueur) decreased$44.1 million , or 26.7%, for the first three quarters of 2021. Net sales of Green Giant frozen decreased$57.2 million , or 18.1%, for the first three quarters of 2021. The decrease in Green Giant net sales was primarily attributable to two factors. First, Green Giant was one of our brands that benefited the most from COVID-related demand during fiscal 2020. Second, Green Giant, as well as certain of its competitor brands, have faced supply chain constraints that did not ease until we reached the new pack season during the third quarter of 2021. As a result, we made the difficult decision during the fourth quarter of 2020 to place certain of the brands' products on allocation with our customers to avoid running out of products prior to the start of the new pack season, which negatively impacted net sales of Green Giant products through the early part of the third quarter of 2021. See Note 17, "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 2021 or fiscal 2020 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 2021: 2021 vs. 2020 2021 vs. 2019 Base Business Base Business Net Sales Increase (Decrease) Net Sales Increase (Decrease) Dollars Dollars (in millions) Percentage (in millions) Percentage Brand: Spices & Seasonings(1) $ 17.2 8.7 % $ 30.7 16.6 % Maple Grove Farms of Vermont 3.8 6.7 % 7.8 14.7 % Dash 0.6 1.3 % 11.5 26.3 % Green Giant - frozen (57.2) (18.1) % (10.8) (4.0) % Green Giant - shelf-stable(2) (44.1) (26.7) % 20.8 20.8 % Clabber Girl(3) (14.4) (20.6) % 1.4 5.1 % Cream of Wheat (5.7) (10.7) % 4.5 10.5 % Ortega (4.2) (3.5) % 11.1 10.4 % All other brands (57.1) (13.6) % 3.4 0.9 %
Base business net sales (decrease) increase
80.4 6.8 %
Includes net sales for multiple brands acquired as part of the spices &
(1) seasonings acquisition that we completed on
include net sales for Dash and our other legacy spices & seasonings brands.
(2) Includes net sales of the Le Sueur brand.
When comparing base business net sales for 2021 versus 2019, includes for the
(3) first three quarters of 2021, net sales of Clabber Girl from
through
in base business net sales. Clabber Girl was acquired on May 15, 2019 .
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Gross Profit. Gross profit was$335.0 million for the first three quarters of 2021, or 22.6% of net sales. Excluding the negative impact of a$14.1 million accrual for the estimated present value of a multi-employer pension plan withdrawal liability in connection with the pending sale and closure of ourPortland, Maine manufacturing facility,$3.6 million of acquisition/divestiture-related and non-recurring expenses, and$5.1 million of amortization of acquisition-related inventory fair value step-up included in cost of goods sold, during the first three quarters of 2021, our gross profit would have been$357.8 million , or 24.1% of net sales. Gross profit was$375.0 million for the first three quarters of 2020, or 25.7% of net sales. Excluding the negative impact of$2.8 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first three quarters of 2020, our gross profit would have been$377.8 million , or 25.9% of net sales. During the first three quarters of 2021, our gross profit was negatively impacted by higher than expected input cost inflation, including materially increased costs for raw materials and transportation. We expect input cost inflation to be materially higher in the fourth quarter of 2021 than it was in the fourth quarter of 2020 and that cost inflation will continue to have a significant industry-wide impact during fiscal 2022. As discussed above, we are attempting to mitigate the impact of inflation on our gross profit by locking in prices through short-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures. We have also announced list price increases and have reduced trade promotions to our customers for certain of our products. However, increases in the prices we charge our customers generally lag behind rising input costs. As such, we do not expect to fully offset the incremental costs that we are facing in fiscal 2021 and we expect continued cost inflation in fiscal 2022. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased$16.2 million , or 12.6%, to$143.9 million for the first three quarters of 2021 from$127.7 million for the first three quarters of 2020. The increase was composed of increases in warehousing expenses of$12.1 million , acquisition/divestiture-related and non-recurring expenses of$7.0 million and consumer marketing expenses of$3.2 million , partially offset by decreases in selling expenses of$5.0 million and general and administrative expenses of$1.1 million . The increase in warehousing expenses was primarily driven by the Crisco acquisition and customer fines related to COVID-19 shortages and delays, partially offset by one fewer reporting week in the first three quarters of 2021 compared to the first three quarters of 2020. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 1.0 percentage points to 9.7% for the first three quarters of 2021, compared to 8.7% for the first three quarters of 2020. Amortization Expense. Amortization expense increased$2.0 million to$16.2 million for the first three quarters of 2021 from$14.2 million for the first three quarters of 2020 due to the Crisco acquisition completed in the fourth quarter of 2020. Operating Income. As a result of the foregoing, operating income decreased$58.1 million , or 25.0%, to$175.0 million for the first three quarters of 2021 from$233.1 million for the first three quarters of 2020. Operating income expressed as a percentage of net sales decreased to 11.8% in the first three quarters of 2021 from 16.0% in the first three quarters of 2020. Net Interest Expense. Net interest expense increased$3.0 million , or 3.9%, to$80.3 million for the first three quarters of 2021 from$77.3 million in the first three quarters of 2020. The increase was primarily attributable to an increase in average long-term debt outstanding during the first three quarters of 2021 as compared to the first three quarters of 2020, primarily as a result of incremental borrowings we made in the fourth quarter of 2020 to fund the Crisco acquisition and related fees and expenses. The increase in net interest expense was partially offset by a lower effective cost of borrowing during the first three quarters of 2021, as well as one fewer reporting week in the first three quarters of 2021 compared to the first three quarters of 2020. See "-Liquidity and Capital Resources - Debt" below. Other Income. Other income for the first three quarters of 2021 and 2020 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of$3.3 million and$1.9 million , respectively. Other income for the first three quarters of 2021 and 2020 also includes income resulting from the remeasurement of monetary assets denominated in a foreign currency intoU.S. dollars for financial reporting purposes of less than$0.1 million in both periods. - 39 - Table of Contents Income Tax Expense. Income tax expense decreased$12.1 million to$25.8 million for the first three quarters of 2021 from$37.9 million for the first three quarters of 2020, primarily due to decreased operating income, as described above, partially offset by the impact of a$2.3 million tax benefit that reduced our income tax expense in the first quarter of 2020, resulting from theU.S. CARES Act, which increased the adjusted taxable income limitation from 30% to 50%. Our effective tax rate was 26.3% for the first three quarters of 2021 and 24.0% for the first three quarters of 2020. See "U.S. Tax Act andU.S. CARES Act" above for a discussion of the impact of the tax legislation on income tax expense.
Liquidity and Capital Resources
Our primary liquidity requirements include debt service, capital expenditures and working capital needs. See also, "Dividend Policy" and "Commitments and Contractual Obligations" below. We fund our liquidity requirements, as well as our dividend payments and financing for acquisitions, primarily through cash generated from operations and external sources of financing, including our revolving credit facility.
Cash Flows
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased$219.5 million to$12.8 million for the first three quarters of 2021 from$232.3 million for the first three quarters of 2020. The decrease in net cash provided by operating activities was primarily due to unfavorable working capital comparisons in the first three quarters of 2021 compared to the first three quarters of 2020, primarily comprised of inventories, trade accounts receivable and accrued expenses, partially offset by favorable working capital comparisons related to other liabilities, trade accounts payable and prepaid expenses and other current assets. The decrease was also due to lower net income in the first three quarters of 2021 compared to the first three quarters of 2020 (partially due to one fewer reporting week in the first three quarters of 2021 compared to the first three quarters of 2020), and an additional$12.6 million of incentive compensation paid in cash during the first quarter of 2021 as compared to the first quarter of 2020, primarily as a result of our company's extraordinary performance during fiscal 2020 as compared to fiscal 2019.Net Cash Used in Investing Activities. Net cash used in investing activities increased$11.6 million to$31.0 million for the first three quarters of 2021 from$19.4 million for the first three quarters of 2020. The increase was primarily attributable to higher capital expenditures during the first three quarters of 2021 compared to the first three quarters of 2020, partially offset by the purchase price payment for the Farmwise acquisition in the first quarter of 2020.Net Cash Used in Financing Activities. Cash flows used in financing activities decreased$160.3 million to$7.1 million for the first three quarters of 2021 as compared to$167.4 million for the first three quarters of 2020. The decrease was primarily driven by$78.4 million of repayments of long-term debt during the first three quarters of 2020 compared to no repayments of long-term debt during the first three quarters of 2021, a$70.0 million increase in net borrowings under our revolving credit facility during the first three quarters of 2021 compared to the first three quarters of 2020, and$14.8 million of proceeds we received from the exercise of stock options during the first three quarters of 2021 compared to$2.4 million of proceeds from the exercise of stock options during the first three quarters of 2020. 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 2021 through 2036. In fiscal 2020, our cash taxes were positively impacted by theU.S. CARES Act, which allowed us to carryback our 2019 net operating loss and receive a tax refund of$7.2 million in fiscal 2020. In fiscal 2019, our cash taxes were negatively impacted by theU.S. Tax Act's limitations on the deductibility of interest expense. See "U.S. Tax Act andU.S. CARES Act" above for a discussion of the impact and expected impact of theU.S. CARES Act and theU.S. Tax Act on our cash income tax payments, including the impact theU.S. Tax Act had in fiscal 2019 and is expected to have in fiscal 2021 and beyond on our interest expense deductions. If there is a change inU.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. - 40 - Table of Contents 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 inOctober 2004 . For the first three quarters of 2021 and 2020, we had net cash provided by operating activities of$12.8 million and$232.3 million , respectively, and distributed as dividends$92.1 million and$91.4 million , respectively. Including the dividend payment that we made in the fourth quarter onNovember 1, 2021 , we paid quarterly dividends of$122.9 million in fiscal 2021. Based upon our current dividend rate of$1.90 per share per annum and our current number of outstanding shares, we expect our aggregate dividend payments in fiscal 2022 to be approximately$123.3 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 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. We financed the Crisco acquisition, completed inDecember 2020 , with revolving loans under our existing credit facility, a portion of which we subsequently refinanced with add-on tranche B term loans. We financed the Farmwise acquisition, completed inFebruary 2020 , with cash on hand. 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; and our 5.25% senior notes due 2027. See also "-Acquisitions" above regarding the long-term debt incurred in connection with the Crisco acquisition.
Equity
Stock Repurchase Program. OnMarch 9, 2021 , our board of directors authorized an extension of our stock repurchase program fromMarch 15, 2021 toMarch 15, 2022 . In extending the repurchase program, our board of directors also reset the repurchase authority to up to$50.0 million . Under the authorization, we may purchase shares of common stock from time to time in the open market or in privately negotiated transactions in compliance with the applicable rules and regulations of theSEC . The timing and amount of future stock repurchases, if any, under the program will be at the discretion of management, and will depend on a variety of factors, including price, available cash, general business and market conditions and other investment opportunities. Therefore, we cannot assure you as to the number or aggregate dollar amount of additional shares, if any, that will be repurchased under the program. We may discontinue the program at any time. Any shares repurchased pursuant to the
program will be retired.
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We did not repurchase any shares of our common stock during the first three quarters of 2021 or the first three quarters of 2020. As ofOctober 2, 2021 , we had$50.0 million available for future repurchases of common stock under the stock repurchase program. At-The-Market Equity Offering Program. OnAugust 23, 2021 , we entered into an "at-the-market" (ATM) equity offering sales agreement withBofA Securities, Inc. ,Barclays Capital Inc. ,Deutsche Bank Securities Inc. ,RBC Capital Markets, LLC ,BMO Capital Markets Corp. ,Citigroup Global Markets Inc. ,Goldman Sachs & Co. LLC ,Citizens Capital Markets, Inc. ,SMBC Nikko Securities America, Inc. andTD Securities (USA) LLC , as sales agents to sell up to 7.5 million shares of our common stock from time to time through an ATM equity offering program. Sales of shares, if any, 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 theNew 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 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. During the third quarter of 2021, we sold 70,791 shares of our common stock under the ATM equity offering program. We generated$2.2 million in gross proceeds from the sales and paid commissions to the sales agents of approximately$43,000 . Additionally, we incurred other fees and expenses of approximately$0.6 million to establish the program, which have been deferred and are included in other assets in our consolidated balance sheet as ofOctober 2, 2021 . These deferred issuance costs will be charged against the gross proceeds of the offering on a pro rata basis as shares are sold based on the number of shares sold compared to the maximum number of shares available for sale under the program. During the third quarter of 2021, we charged approximately 1% of the deferred issuance costs against the gross proceeds of the shares sold during the quarter.
Future Capital Needs
OnOctober 2, 2021 , our total long-term debt of$2,406.8 million , net of our cash and cash equivalents of$27.1 million , was$2,379.7 million . Stockholders' equity as of that date was$830.6 million . Our ability to generate sufficient cash to fund our operations depends generally on our results of operations and the availability of financing. Our management believes that our cash and cash equivalents on hand, cash flow from operating activities and available borrowing capacity under our revolving credit facility will be sufficient for the foreseeable future to fund operations, meet debt service requirements, fund capital expenditures, make future acquisitions, if any, and pay our anticipated quarterly dividends on our common stock. We expect to make capital expenditures of approximately$42.5 million in the aggregate during fiscal 2021. During the first three quarters of 2021, we made capital expenditures of$33.5 million , of which$31.7 million were paid in cash. Our projected capital expenditures for fiscal 2021 primarily relate to productivity and cost saving initiatives, asset sustainability projects, information technology (hardware and software), and the Crisco integration.
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.
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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 - Accounting Standards Adopted in Fiscal 2020 or Fiscal 2021" and "-Recently Issued Accounting Standards - Pending Adoption," to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
Off-balance Sheet Arrangements
As of
Commitments and Contractual Obligations
Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness, future purchase obligations, future operating lease obligations and future pension obligations.
During the first three quarters of 2021, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in the Commitments and Contractual Obligations table in our 2020 Annual Report on Form 10-K, except that in connection with the sale and closure of ourPortland, Maine manufacturing facility we expect to incur a multi-employer pension plan withdrawal liability with a present value of approximately$14.1 million , which liability is recorded in our balance sheet and will be payable over 20 years in annual installments of approximately$0.9 million . See Note 10, "Pension Benefits-Multi-Employer Defined Benefit Pension Plan," to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.
Supplemental Financial Information about
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 and the 5.25% senior notes due 2027 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries, 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 or the 5.25% senior notes due 2027. In this section, we refer to these foreign subsidiaries and future foreign or partially owned domestic subsidiaries as the non-guarantor subsidiaries. See Note 6, "Long-Term Debt" to our unaudited consolidated interim financial statements in Part I, Item 1 of this report. The senior notes and the subsidiary guarantees are our and the guarantor subsidiaries' general unsecured obligations and are effectively junior in right of payment to all 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. 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" ofB&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" ofB&G Foods , if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (3) ifB&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 - 43 -
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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 byB&G Foods that a liquidation, dissolution or merger out of existence of such guarantor subsidiary is in the best interests ofB&G Foods and is not materially disadvantageous to the holders of the senior notes. The following tables present summarized unaudited financial information on a combined basis forB&G Foods and each of the guarantor subsidiaries of the senior notes described above after elimination of (1) intercompany transactions and balances amongB&G Foods and the guarantor subsidiaries and (2) investments in any subsidiary that is a non-guarantor (in thousands):October 2 ,January 2, 2021 2021
Current assets(1)
Current assets includes amounts due from non-guarantor subsidiaries of
respectively.
Current liabilities includes amounts due to non-guarantor subsidiaries of
(2) less than
January 2, 2021 , respectively. Thirty-nine Weeks Ended October 2, 2021 Net sales $ 1,399,993 Gross profit 323,685 Operating income 174,365 Income before income tax expense 97,392 Net income $ 71,354
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