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 twenty-six weeks endedJuly 2, 2022 (second quarter and first two quarters of 2022) included elsewhere in this report and the audited consolidated financial statements and related notes for the fiscal year endedJanuary 1, 2022 (fiscal 2021) included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (SEC) onMarch 1, 2022 (which we refer to as our 2021 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 into our company. Most recently, onMay 5, 2022 , we acquired the frozen vegetable manufacturing operations ofGrowers Express, LLC . We refer to this acquisition in this report as the "Yuma acquisition." 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 . We refer to this acquisition in this report as the "Crisco acquisition."
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, including the COVID-19 pandemic, the war inUkraine , 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. We experienced material net cost increases for raw materials during the second quarter and first two quarters of 2022 due to a number of factors, including the COVID-19 pandemic and the war inUkraine , and anticipate higher raw materials cost increases for the remainder of fiscal 2022 and into fiscal 2023. We are currently locked into our supply and prices for a majority of our most significant raw material commodities (excluding, among others, maple syrup and oils) through the remainder of fiscal 2022 and for most of our needs for maple syrup and oils through the third quarter of 2022. - 23 -
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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 throughout fiscal 2021 and the first two quarters of 2022. We expect freight rates to continue to increase in the remainder of fiscal 2022 and into fiscal 2023. 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 inCanada . Our sales toCanada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated inU.S. dollars. During the first two quarters of 2022 and 2021, our net sales to customers in foreign countries represented approximately 8.1% and 7.7%, respectively, of our total net sales. We also purchase a significant majority of our maple syrup requirements from suppliers located inQuébec, Canada . Any weakening of theU.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 theU.S. dollar or otherwise entered into a currency hedging arrangement in advance of any such weakening of theU.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 theU.S. dollar would have on our net sales inCanada . Our purchases of raw materials from other foreign suppliers are generally denominated inU.S. dollars. We also operate a manufacturing facility inIrapuato, Mexico for the manufacture of Green Giant frozen products and are as a result exposed to fluctuations in the Mexican peso. Our results of operations could be adversely impacted by changes in foreign currency exchange rates. Costs and expenses 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.
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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, the War in
Expectations and Risk Factors in Light of the Ongoing COVID-19 Pandemic, the War inUkraine , Supply Chain Disruptions, Labor Shortages and Input Cost Inflation.B&G Foods continued to see strong consumer demand for our products during the first two quarters of 2022 and expects to continue to see commensurate elevated levels of net sales relative to pre-pandemic fiscal 2019 throughout the remainder of fiscal 2022. 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 mandates, 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, including inflation, 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 estimate we have spent approximately$0.6 million and$4.1 million on COVID-19-related costs for the first two quarters of 2022 and the first two quarters of 2021, respectively. This includes our estimated costs to take precautionary health and safety measures, to provide our manufacturing employees temporary enhanced compensation 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. We have also seen and expect to continue to see material cost inflation for various inputs, including ingredients, packaging, other raw materials, transportation and labor attributable to a number of factors, including the COVID-19 pandemic, the war inUkraine , climate and weather conditions, supply chain disruptions (including raw material shortages) and labor shortages. 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. To date, our revenue enhancing activities and cost saving measures have not been sufficient to fully offset increases to these costs. 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. 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 2021 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 2021
Annual Report on Form 10-K.
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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 subsequent years. Our consolidated effective tax rate was approximately 20.8% and 26.1% for the first two quarters of 2022 and 2021, 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 reverted back to 30% beginning with fiscal 2021. If our interest expense deduction becomes limited or 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 and expect to be for fiscal 2022 and beyond. In fiscal 2021 our interest expense exceeded 30% of our adjusted taxable income and this limitation resulted in an increase to our taxable income of$7.8 million , and we accordingly established a deferred tax asset of$1.9 million without a valuation allowance. Beginning with fiscal 2022, our adjusted taxable income as computed for purposes of the interest expense deduction limitation will be computed after any deduction allowable for depreciation and amortization. As a result, we expect our adjusted taxable income (used to compute the limitation) to further decrease and that we will be subject to the interest expense deduction limitation in fiscal 2022 and future years. Based upon current assumptions, the increase in cash taxes resulting from the interest expense deduction limitation is expected to be approximately$14 million per year beginning in fiscal 2022, without a valuation allowance established for the deferred tax assets from the disallowed interest expense that may be carried forward indefinitely. 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. 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 2021 or the first two quarters of 2022. - 26 - Table of Contents Results of Operations
The following table sets forth the percentages of net sales represented by selected items for the second quarter and first two quarters of 2022 and 2021 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, July 3, July 2, July 3,
2022 2021 2022 2021
Statement of Operations Data:
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 84.0 % 76.0 % 82.4 % 76.3 %
Gross profit 16.0 % 24.0 % 17.6 % 23.7 %
Operating (income) and expenses:
Selling, general and administrative expenses 9.2 % 10.1 % 9.0 % 10.1 %
Amortization expense 1.2 % 1.2 % 1.1 % 1.1 %
Gain on sales of assets - % - % (0.7) % - %
Operating income 5.6 % 12.7 % 8.2 % 12.5 %
Other income and expenses:
Interest expense, net 6.2 % 5.7 % 5.6 % 5.5 %
Other income (0.4) % (0.2) % (0.4) % (0.2) %
Income (loss) before income tax expense (benefit) (0.2) % 7.2 % 3.0 % 7.2 %
Income tax expense (benefit) (0.3) % 1.9 % 0.6 % 1.9 %
Net income 0.1 % 5.3 % 2.4 % 5.3 %
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. 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 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
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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 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.
A reconciliation of base business net sales to net sales for the second quarter and first two quarters of 2022 and 2021 follows (in thousands):
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, July 3, July 2, July 3,
2022 2021 2022 2021
Net sales $ 478,965 $ 464,375 $ 1,011,372 $ 969,509 Net sales from acquisitions(1) (642) - (642) - Net sales from discontinued brands(2) (48) (816)
(287) (1,818) Base business net sales$ 478,275 $ 463,559 $ 1,010,443 $ 967,691
Reflects net sales from the Yuma acquisition, for which there is no (1) comparable period of net sales during the second quarter and first two
quarters of 2021, respectively. The Yuma acquisition was completed on
(2) Reflects net sales of the SnackWell's and Farmwise brands, which have been
discontinued.
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 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); loss on extinguishment of debt; 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, net income or any other GAAP
measure as an indicator of operating performance. EBITDA and adjusted EBITDA are
not complete net cash flow measures because EBITDA and adjusted EBITDA are
measures of liquidity that do not include reductions for cash payments for an
entity's obligation to service its debt, fund its working capital, capital
expenditures and acquisitions and pay its income taxes and dividends. Rather,
EBITDA and adjusted
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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.
Reconciliations of net income and net cash provided by (used in) operating activities to EBITDA and adjusted EBITDA for the second quarter and first two quarters of 2022 and 2021 along with the components of EBITDA and adjusted EBITDA follows (in thousands):
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, July 3, July 2, July 3,
2022 2021 2022 2021
Net income $ 256 $ 24,551 $ 23,912 $ 51,429 Income tax expense (benefit) (1,408) 8,968 6,297 18,191 Interest expense, net 29,941 26,713 56,743 53,682 Depreciation and amortization 20,474 20,238 40,299 40,529 EBITDA 49,263 80,470 127,251 163,831 Acquisition/divestiture-related and non-recurring expenses(1) 4,877 3,319 4,790 7,829 Gain on sale of assets, net of facility closure costs(2) - - (4,928) - Amortization of acquisition-related inventory step-up(3) - - - 5,054 Adjusted EBITDA$ 54,140 $ 83,789 $ 127,113 $ 176,714 Thirteen Weeks Ended Twenty-six Weeks Ended July 2, July 3, July 2, July 3, 2022 2021 2022 2021 Net cash provided by (used in) operating activities$ (4,104) $ 39,945 $ 21,127 $ 65,965 Income tax (expense) benefit 1,408 (8,968)
(6,297) (18,191) Interest expense, net (29,941) (26,713) (56,743) (53,682) Gain on sales of assets - (4) (7,113) (30) Deferred income taxes (2,383) 5,182 530 11,370 Amortization of deferred debt financing costs and bond discount/premium 1,177 1,148 2,346 2,289 Share-based compensation expense 1,158 1,402 2,248 2,125 Changes in assets and liabilities, net of effects of business combinations (24,786) (12,572) (41,095) (41,747) EBITDA 49,263 80,470 127,251 163,831 Acquisition/divestiture-related and non-recurring expenses(1) 4,877 3,319 4,790 7,829 Gain on sale of assets, net of facility closure costs(2) - - (4,928) - Amortization of acquisition-related inventory step-up(3) - - - 5,054 Adjusted EBITDA$ 54,140 $ 83,789 $ 127,113 $ 176,714
Acquisition/divestiture-related and non-recurring expenses for the second
quarter and first two quarters of 2022 of
respectively, primarily includes acquisition and integration expenses for (1) Yuma and Crisco acquisitions, and certain cost savings initiatives.
Acquisition/divestiture-related and non-recurring expenses for the second
quarter and first two quarters of 2021 of
respectively, primarily includes acquisition and integration expenses for the
Crisco and Clabber Girl acquisitions, and certain cost savings initiatives.
During the first quarter of 2022, we completed the closure and sale of our
was partially offset by approximately
during the quarter relating to the closure of the facility and the transfer
of manufacturing operations, resulting in a net benefit of
the gain on sale.
For the first two quarters of 2021, amortization of acquisition-related
(3) inventory step-up of
adjustments made to inventory acquired in the Crisco acquisition.
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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 second quarter and first two quarters of 2022 and 2021
along with the components of adjusted net income and adjusted diluted earnings
per share follows (in thousands):
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, July 3, July 2, July 3,
2022 2021 2022 2021
Net income $ 256 $ 24,551 $ 23,912 $ 51,429
Acquisition/divestiture-related and
non-recurring expenses(1) 4,877 3,319 4,790 7,829
Gain on sale of assets, net of facility
closure costs(2) - - (4,928) -
Amortization of acquisition-related
inventory step-up(3) - - - 5,054
Credit agreement amendment fee(4) 1,600 - 1,600 -
Tax effects of non-GAAP adjustments(5) (1,587) (813) (358) (3,156)
Adjusted net income $ 5,146 $ 27,057 $ 25,016 $ 61,156
Adjusted diluted earnings per share $ 0.07 $ 0.41 $
0.36
Acquisition/divestiture-related and non-recurring expenses for the second
quarter and first two quarters of 2022 primarily includes acquisition and
integration expenses for the Yuma and Crisco acquisitions, and certain cost (1) savings initiatives. Acquisition/divestiture-related and non-recurring
expenses for the second quarter and first two quarters of 2021 primarily
includes acquisition and integration expenses for the Crisco and Clabber Girl
acquisitions, and certain cost savings initiatives.
During the first quarter of 2022, we completed the closure and sale of our
was partially offset by approximately
during the quarter relating to the closure of the facility and the transfer
of manufacturing operations, resulting in a net benefit of
the gain on sale.
For the first two quarters of 2021, amortization of acquisition-related
(3) inventory step-up of
the purchase accounting adjustments made to inventory acquired in the Crisco
acquisition.
During the second quarter of 2022, we paid a fee of
temporarily increase the maximum consolidated leverage ratio permitted under
our revolving credit facility.
(5) Represents the tax effects of the non-GAAP adjustments listed above assuming
a tax rate of 24.5%.
Second quarter of 2022 compared to the second quarter of 2021
Net Sales . Net sales for the second quarter of 2022 increased$14.6 million , or 3.1%, to$479.0 million from$464.4 million for the second quarter of 2021. The increase was primarily due to increases in net pricing and the impact of product mix, partially offset by volume declines primarily due to price elasticity and supply chain challenges in the second quarter of 2022. Base business net sales for the second quarter of 2022 increased$14.7 million , or 3.2%, to$478.3 million from$463.6 million for the second quarter of 2021. The increase in base business net sales for the second quarter of 2022 was driven by an increase in net pricing and the impact of product mix of$20.5 million , or 4.4% of base business net sales, partially offset by a decrease in unit volume of$5.0 million and the negative impact of foreign
currency of$0.8 million . - 30 - Table of Contents Net sales of Green Giant products in the aggregate (including Le Sueur) increased$6.2 million , or 5.9%, in the second quarter of 2022, as compared to the second quarter of 2021. Net sales of Green Giant frozen (excluding net sales from the Yuma acquisition, which are not included in base business net sales) increased$7.6 million , or 10.4%, for the quarter. Net sales of Green Giant shelf-stable (including Le Sueur) decreased$1.4 million , or 4.6%, for the second 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 for each of our brands whose net sales for the first two quarters of 2022 or fiscal 2021 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 second quarter of
2022:
2022 vs. 2021
Base Business
Net Sales Increase (Decrease)
Dollars
(in millions) Percentage
Brand:
Green Giant - frozen(1) $ 7.6 10.4 %
Cream of Wheat 3.1 21.5 %
Clabber Girl 1.5 8.7 %
Maple Grove Farms of Vermont 1.2 6.1 %
Ortega (5.1) (12.3) %
Spices & Seasonings(2) (4.1) (5.6) %
Dash (2.4) (11.9) %
Green Giant - shelf-stable(3) (1.4) (4.6) %
All other brands 14.3 0.6 %Base business net sales (decrease) increase $ 14.7 3.2 %
Excludes net sales from the Yuma acquisition, which are not included in base
(1) business net sales. The Yuma acquisition was completed on
Note 3, "Acquisitions."
Includes net sales for multiple brands acquired as part of the spices &
seasonings acquisition that we completed on
Does not include net sales for Dash and our other legacy spices & seasonings
brands.
(3) Includes net sales of the Le Sueur brand.
Gross Profit. Gross profit was$76.5 million for the second quarter of 2022, or 16.0% of net sales. Excluding the negative impact of$2.3 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the second quarter of 2022, our gross profit would have been$78.8 million , or 16.5% of net sales. Gross profit was$111.6 million for the second quarter of 2021, or 24.0% of net sales. Excluding the negative impact of$0.4 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the second quarter of 2021, our gross profit would have been$112.0 million , or 24.1% of net sales. During the second quarter of 2022, 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 will continue to have a significant industry-wide impact during the remainder of 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 in 2021 and again during the first and second quarters of 2022. However, increases in the prices we charge our customers generally lag behind rising input costs. As such, we did not fully offset the incremental costs that we faced in the second quarter of 2022 and may not fully offset the incremental costs that we are facing and we expect to continue to face in the remainder of fiscal 2022. - 31 -
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Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased$2.9 million , or 6.1%, to$44.2 million for the second quarter of 2022 from$47.1 million for the second quarter of 2021. The decrease was composed of decreases in warehousing expenses of$2.2 million , consumer marketing expenses of$0.8 million , general and administrative expenses of$0.4 million , and acquisition/divestiture-related and non-recurring expenses of$0.4 million , partially offset by an increase in selling expenses of$0.9 million . Expressed as a percentage of net sales, selling, general and administrative expenses improved by 0.9 percentage points to 9.2% for the second quarter of 2022, as compared to 10.1% for the second quarter of 2021.
Amortization Expense. Amortization expense was
Operating Income. As a result of the foregoing, operating income decreased$32.2 million , or 54.4%, to$26.9 million for the second quarter of 2022 from$59.1 million for the second quarter of 2021. Operating income expressed as a percentage of net sales decreased to 5.6% in the second quarter of 2022 from 12.7% in the second quarter of 2021. Net Interest Expense. Net interest expense increased$3.2 million , or 12.1%, to$29.9 million for the second quarter of 2022 from$26.7 million in the second quarter of 2021. The increase was primarily attributable to a$1.6 million fee for an amendment to our credit agreement, and a higher effective cost of borrowing and additional borrowings on our revolving credit facility during the second quarter of 2022, as compared to the second quarter of 2021. See "-Liquidity and Capital Resources - Debt" below. Other Income. Other income for the second quarter of 2022 and 2021 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs, in the amount of$1.8 million and$1.1 million , respectively. Other income for the second quarter of 2022 and 2021 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 (Benefit). Income tax expense (benefit) decreased$10.4 million to a$1.4 million income tax benefit for the second quarter of 2022 from a$9.0 million income tax expense for the second quarter of 2021, primarily due to decreased operating income, as described above. Our effective tax rate was 122.2% for the second quarter of 2022 and 26.8% for the second quarter of 2021. See "U.S. Tax Act andU.S. CARES Act" above for a discussion of the impact of the tax legislation on income tax expense (benefit).
First two quarters of 2022 compared to the first two quarters of 2021
Net Sales . Net sales for the first two quarters of 2022 increased$41.9 million , or 4.3%, to$1,011.4 million from$969.5 million for the first two quarters of 2021. The increase was primarily due to increases in net pricing and the impact of product mix, partially offset by volume declines primarily due to price elasticity and supply chain challenges in the first two quarters of 2022 resulting from the COVID-19 Omicron variant. Base business net sales for the first two quarters of 2022 increased$42.7 million , or 4.4%, to$1,010.4 million from$967.7 million for the first two quarters of 2021. The increase in base business net sales was driven by increases in net pricing and the impact of product mix of$56.7 million , or 5.9% of base business net sales, partially offset by a decrease in unit volume of$13.2 million and the negative impact of foreign currency of$0.8 million . Net sales of Green Giant products in the aggregate (including Le Sueur) increased$9.5 million , or 4.0%, in the first two quarters of 2022, as compared to the first two quarters of 2021. Net sales of Green Giant frozen (excluding net sales from the Yuma acquisition, which are not included in base business net sales) increased$7.0 million , or 4.0%, for the first two quarters of 2022. Net sales of Green Giant shelf-stable (including Le Sueur) increased$2.5 million , or 3.7%, for the first two quarters of 2022. - 32 -
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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 two quarters of 2022 or fiscal 2021 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 two quarters of 2022: 2022 vs. 2021 Base Business Net Sales Increase (Decrease) Dollars (in millions) Percentage Brand: Crisco $ 34.4 29.6 % Green Giant - frozen(1) 7.0 4.0 % Cream of Wheat 5.9 18.1 % Clabber Girl 5.1 14.6 % Maple Grove Farms of Vermont 2.5 6.0 % Green Giant - shelf-stable(2) 2.5 3.7 % Spices & Seasonings(3) (17.4) (11.7) % Dash (3.9) (10.4) % Ortega (1.4) (1.8) % All other brands 8.0 3.4 %
Base business net sales (decrease) increase $ 42.7
4.4 %
Excludes net sales from the Yuma acquisition, which are not included in base
(1) business net sales. The Yuma acquisition was completed on
Note 3, "Acquisitions."
(2) Includes net sales of the Le Sueur brand.
Includes net sales for multiple brands acquired as part of the spices &
seasonings acquisition that we completed on
Does not include net sales for Dash and our other legacy spices & seasonings
brands.
Gross Profit. Gross profit was$177.8 million for the first two quarters of 2022, or 17.6% of net sales. Excluding the negative impact of$4.4 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first two quarters of 2022, our gross profit would have been$182.2 million , or 18.0% of net sales. Gross profit was$229.4 million for the first two quarters of 2021, or 23.7% of net sales. Excluding the negative impact of$5.9 million of acquisition/divestiture-related expenses, the amortization of acquisition-related inventory fair value step-up and non-recurring expenses included in cost of goods sold during the first two quarters of 2021, our gross profit would have been$235.3 million , or 24.3% of net sales. During the first two quarters of 2022, 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 will continue to have a significant industry-wide impact during the remainder of 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 in 2021 and again during the first and second quarters of 2022. However, increases in the prices we charge our customers generally lag behind rising input costs. As such, we did not fully offset the incremental costs that we faced in the first two quarters of 2022 and may not fully offset the incremental costs that we are facing and we expect to continue to face in the remainder of fiscal 2022. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased$6.5 million , or 6.6%, to$91.0 million for the first two quarters of 2022 from$97.5 million for the first two quarters of 2021. The decrease was composed of decreases in acquisition/divestiture-related and non-recurring expenses of$4.4 million , consumer marketing expenses of$2.4 million , warehousing expenses of$2.1 million , and general and administrative expenses of$0.2 million , partially offset by an increase in selling expenses of$2.6 million . Expressed as a percentage of net sales, selling, general and administrative expenses improved by 1.1 percentage points to 9.0% for the first two quarters of 2022, as compared to 10.1% for the first two quarters of 2021. - 33 - Table of Contents
Amortization Expense. Amortization expense decreased
Gain on sales of assets. During the first quarter of 2022, we completed the closure and sale of ourPortland, Maine manufacturing facility. We recorded a gain on the sale of thePortland 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. Operating Income. As a result of the foregoing, operating income decreased$37.8 million , or 31.2%, to$83.3 million for the first two quarters of 2022 from$121.1 million for the first two quarters of 2021. Operating income expressed as a percentage of net sales decreased to 8.2% in the first two quarters of 2022 from 12.5% in the first two quarters of 2021. Net Interest Expense. Net interest expense increased$3.0 million , or 5.7%, to$56.7 million for the first two quarters of 2022 from$53.7 million in the first two quarters of 2021. The increase was primarily attributable to a$1.6 million fee for an amendment to our credit agreement, and a higher effective cost of borrowing and additional borrowings on our revolving credit facility during the first two quarters of 2022, as compared to the first two quarters of 2021. See "-Liquidity and Capital Resources - Debt" below. Other Income. Other income for the first two quarters of 2022 and 2021 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of$3.7 million and$2.2 million , respectively. Other income for the first two quarters of 2022 and 2021 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. Income Tax Expense. Income tax expense decreased$11.9 million to$6.3 million for the first two quarters of 2022 from$18.2 million for the first two quarters of 2021, primarily due to decreased operating income, as described above. Our effective tax rate was 20.8% for the first two quarters of 2022 and 26.1% for the first two quarters of 2021. 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. We do not have any off-balance sheet financing arrangements.
Cash Flows
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased$44.9 million to$21.1 million for the first two quarters of 2022 from$66.0 million for the first two quarters of 2021. The decrease in net cash provided by operating activities was primarily due to lower net income in the first two quarters of 2022 compared to the first two quarters of 2021.Net Cash Used in Investing Activities. Net cash used in investing activities increased$10.4 million to$30.1 million for the first two quarters of 2022 from$19.7 million for the first two quarters of 2021. The increase was primarily attributable to cash used to pay the purchase price for the Yuma acquisition, partially offset by proceeds from the sales of assets (primarily related to the sale of ourPortland, Maine manufacturing facility) as well as lower capital expenditures during the first two quarters of 2022 compared to the first two quarters of 2021. - 34 - Table of Contents
Net Cash Provided by (Used in) Financing Activities. Cash flows provided by financing activities increased$77.0 million to$18.5 million of net cash provided by financing activities for the first two quarters of 2022, as compared to$58.5 million net cash used in financing activities for the first two quarters of 2021. The increase was primarily driven by$65.2 million of net proceeds from the sale of common stock during the first two quarters of 2022 and a$32.5 million increase in net borrowings under our revolving credit facility during the first two quarters of 2022 compared to the first two quarters of 2021, partially offset by a$14.7 million decrease in proceeds from the exercise of stock options, a$4.0 million increase in dividends paid and a$2.3 million increase in payments of tax withholdings on behalf of employees for net share settlement of share-based compensation during the first two quarters of 2022 compared to the first two quarters of 2021. 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 2022 through 2037. 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 is expected to have in fiscal 2022 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.
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 two quarters of 2022 and 2021, we had net cash provided by
operating activities of
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.
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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.
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 . The stock repurchase program authorization expired onMarch 15, 2022 .
We did not repurchase any shares of our common stock during the first two quarters of 2022 or the first two quarters of 2021.
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. During fiscal 2021, we sold 3,695,706 shares of our common stock under the ATM equity offering program. We generated$112.5 million in gross proceeds, or$30.44 per share, from the sales and paid commissions to the sales agents of approximately$2.2 million and incurred other fees and expenses of approximately$0.4 million . During the first two quarters of 2021, we did not sell any shares of our common stock under the ATM equity offering program. During the first quarter of 2022, we sold 112,353 shares of our common stock under the ATM equity offering program. We generated$3.3 million in gross proceeds, or$29.37 per share, from the sales and paid commissions to the sales agents of approximately$0.1 million . During the second quarter of 2022, we sold 2,739,568 shares of our common stock under the ATM equity offering program. We generated$63.2 million in gross proceeds, or$23.08 per share, from the sales and paid commissions to the sales agents of approximately$1.3 million and incurred other fees and expenses of approximately$0.1 million . In the aggregate since the inception of the ATM equity offering program during the third quarter of 2021, we have sold 6,547,627 shares of common stock and generated$179.0 million in gross proceeds, or$27.34 per share, and paid commissions to the sales agents of approximately$3.6 million and incurred other fees and expenses of approximately$0.5 million . 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 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 used the net proceeds from shares sold under the ATM equity offering program during fiscal 2021 and the first two quarters of 2022 to repay revolving credit loans, to pay offering fees and expenses, and for general corporate purposes. 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. Future Capital Needs
On
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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$40.0 million in the aggregate during fiscal 2022. During the first two quarters of 2022, we made capital expenditures of$14.1 million , of which$13.2 million were paid in cash. Our projected capital expenditures for fiscal 2022 primarily relate to productivity and cost saving initiatives, asset sustainability projects, and information technology (hardware and software).
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 - Accounting Standards Adopted in Fiscal 2021 or Fiscal 2022" and "-Recently Issued Accounting Standards - Pending Adoption," 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 - 37 -
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"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 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):July 2 ,January 1, 2022 2022
Current assets(1)
Current assets includes amounts due from non-guarantor subsidiaries of
respectively.
(2) Current liabilities includes amounts due to non-guarantor subsidiaries of
less than $0.1 million as of both July 2, 2022 and January 1, 2022 .
Twenty-six Weeks Ended
July 2, July 3,
2022 2021
Net sales $ 952,428 $ 918,946
Gross profit 169,101 227,327
Operating income 70,951 119,125
Income before income tax expense 17,895 67,651
Net income $ 14,755 $ 49,617 © Edgar Online, source
