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 Part I, Item 1A, "Risk Factors," 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 consolidated financial statements and related notes included elsewhere in this report. 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. Over the last three years, we have completed two material acquisitions. Most recently, onDecember 1, 2020 , we acquired the Crisco oils and shortening business from The J.M. Smucker Company and certain of its affiliates. OnMay 15, 2019 , we acquired theClabber Girl Corporation , including the Clabber Girl, Rumford, Davis,Hearth Club and Royal brands of - 32 -
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retail baking powder, baking soda and corn starch, and the Royal brand of foodservice dessert mixes, fromHulman & Company . We refer to these acquisitions in this report as the "Crisco acquisition" and the "Clabber Girl acquisition." 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 above before Part I of this report under the heading "Forward-Looking Statements" and in Part I, Item 1A, "Risk Factors" 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 may 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 fiscal 2021 and the second half of fiscal 2020 and moderate net cost increase increases for the first half of fiscal 2020 and fiscal 2019. We anticipate higher raw materials cost increases for 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 and oils) through fiscal 2022 and for most of our needs for maple syrup and oils through the first quarter of 2022. 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 throughout fiscal 2021. We expect freight rates to remain elevated in 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 - 33 -
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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 fiscal 2021 and fiscal 2020, our net sales to customers in foreign countries represented approximately 8.3% and 7.8%, 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. 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;
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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 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 fiscal 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 December, primarily due to the extraordinary demand for our products in March throughDecember 2020 as the COVID-19 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, policies and recommendations. Although demand remains strong and base business net sales are expected to continue to outpace fiscal 2019 levels, base business net sales declined year-over-year in fiscal 2021, given the extraordinary demand and pantry loading at the height of the pandemic in fiscal 2020 and supply chain disruptions and labor shortages during fiscal 2021, especially duringDecember 2021 and into early fiscal 2022, as a result of the COVID-19 Omicron variant. We estimate we spent approximately$4.7 million and$13.5 million on COVID-19-related costs for fiscal 2021 and fiscal 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, Supply Chain Disruptions, Labor Shortages and Input Cost Inflation.B&G Foods continued to see strong consumer demand for our products during fiscal 2021 and expects to continue to see in fiscal 2022 commensurate elevated levels of net sales relative to pre-pandemic fiscal 2019. 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, 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 have also seen and expect to continue to see material cost inflation for various inputs, including ingredients, packaging, other raw materials, transportation and labor. 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 and see Part I, Item 1A, "Risk Factors," of this report for a discussion of certain of the challenges relating to the COVID-19 pandemic that could adversely affect our businesses.
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 - 35 -
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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. Our significant accounting policies are described more fully in note 2 to our consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition and Trade and Consumer Promotion Expenses
We offer various sales incentive programs to customers and consumers, such as price discounts, in-store display incentives, slotting fees and coupons. The recognition of expense for these programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from our estimates. InMay 2014 , theFinancial Accounting Standards Board (FASB) issued authoritative guidance related to new accounting requirements for the recognition of revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services. We adopted this guidance and related amendments as of the first quarter of fiscal 2018, applying the full retrospective transition approach to all contracts. Based on our comprehensive assessment of the new guidance, including our evaluation of the five-step approach outlined within the guidance, we concluded that the adoption would not have a significant impact to our core revenue-generating activities. However, the adoption did result in a change in presentation of certain trade and consumer promotion expenses, specifically in-store display incentives, also referred to as marketing development funds. We previously recorded in-store display incentives, or marketing development funds, within selling, general and administrative expenses in our consolidated statements of operations. Upon the adoption of the new guidance, many of these cash payments did not meet the specific criteria within the new guidance of providing a "distinct" good or service, and therefore, are required to be presented as a reduction of net sales. The impact of this change resulted in a reduction of net sales, gross profit and selling, general and administrative expenses during fiscal 2018, the first year of adoption, with no impact to
net income. Long-Lived Assets Long-lived assets, such as property, plant and equipment, and intangible assets with estimated useful lives are depreciated or amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted net future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted net future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Recoverability of assets held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated costs to sell. Estimating future cash flows and calculating the fair value of assets requires significant estimates and assumptions by management.
Our total assets include substantial goodwill and indefinite-lived intangible assets (trademarks). These assets are tested for impairment at least annually and whenever events or circumstances occur indicating that goodwill or indefinite-lived intangible assets might be impaired. We perform the annual impairment tests as of the last day of each fiscal year. The annual goodwill impairment testing is performed by comparing our company's market capitalization with our company's carrying value, including goodwill. If the carrying value of our company exceeds our market capitalization, an impairment charge is recognized for the difference, not to exceed the amount of goodwill. As ofJanuary 1, 2022 , we had$644.9 million of goodwill recorded in our consolidated balance sheet. Our testing indicates that - 36 -
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the implied fair value of goodwill is significantly in excess of the carrying value. Therefore, we believe that only significant changes in the cash flow assumptions would result in an impairment of goodwill.
We test our indefinite-lived intangible assets by comparing the fair value with the carrying value and recognize a loss for the difference. We estimate the fair value of our indefinite-lived intangible assets based on discounted cash flows that reflect certain third-party market value indicators. Calculating our fair value for these purposes requires significant estimates and assumptions by management, including future cash flows consistent with management's expectations, annual sales growth rates, and certain assumptions underlying a discount rate based on available market data. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors to estimate the future levels of sales and cash flows. We complete our annual impairment tests during the fourth quarter of each fiscal year. We completed our annual impairment tests for fiscal 2020 with no adjustments to the carrying values of goodwill and indefinite-lived intangible assets. However, our annual impairment tests for fiscal 2021 resulted in our company recording non-cash impairment charges to intangible trademark assets for the SnackWell's, Static Guard,Molly McButter and Farmwise brands of$23.1 million in the aggregate during the fourth quarter of fiscal 2021, which is recorded in "Impairment of intangible assets" in the accompanying consolidated statement of operations for fiscal 2021. We partially impaired the Static Guard and Molly McButter brands, and we fully impaired the SnackWell's and Farmwise brands, which are being discontinued. Certain Farmwise branded products have been transitioned to the Green Giant brand. As ofJanuary 1, 2022 , we had$1,685.1 million of indefinite-lived intangible assets recorded in our consolidated balance sheet. Following the impairments, none of our indefinite-lived intangible assets had a book value in excess of their calculated fair values and the percentage excess of the aggregate calculated fair value over the aggregate book value was approximately 214.2%. However, materially different assumptions regarding the future performance of our businesses could result in significant additional impairment losses. For example, if future revenues and contributions to our operating results for the Static Guard and Molly McButter brands continue to deteriorate, or if future revenues and contributions to our operating results for any of our other brands, including newly acquired brands, deteriorate, at rates in excess of our current projections, this could result in additional impairment losses for those brands. In addition, any significant decline in our market capitalization, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or indefinite-lived intangible assets are impaired, although a non-cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations.
The table below sets forth the book value as of
January 1, 2022
Brand:
Green Giant $ 422,000
Crisco 322,445
Dash 189,000
Spices & Seasonings(1) 65,200
Ortega 32,339
Cream of Wheat 27,000
Clabber Girl(2) 19,600
Maple Grove Farms of Vermont 11,627
All other brands 595,934
Total indefinite-lived trademarks
The spices & seasonings acquisition was completed on
acquisition.
(2) The Clabber Girl acquisition was completed on
trademark values for multiple brands acquired as part of the acquisition.
All assumptions used in our impairment evaluations for goodwill and indefinite-lived intangible assets, such as forecasted growth rates and discount rate, are based on the best available market information and are consistent
with
our
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internal forecasts and operating plans. We believe these assumptions to be reasonable, but they are inherently uncertain. These assumptions could be adversely impacted by certain of the risks described in Part I, Item 1A, "Risk Factors," of this report.
Income Tax Expense Estimates and Policies
As part of the income tax provision process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we establish a valuation allowance. Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we include such charge in our tax provision, or reduce our tax benefits in our consolidated statements of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. There are various factors that may cause these tax assumptions to change in the near term, and we may have to record a valuation allowance against our deferred tax assets. We cannot predict whether futureU.S. federal, state and international income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes to theU.S. federal, state and international income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new regulations and legislation are enacted. We recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that such tax position will be sustained based upon its technical merits. See "U.S. Tax Act andU.S. CARES Act" below for a discussion of theU.S. Tax Cuts and Jobs Act that was signed into law onDecember 22, 2017 , which we refer to as the "U.S. Tax Act," as well as the Coronavirus Aid, Relief and Economic Security Act that was signed into law onMarch 27, 2020 , which we refer to as the "U.S. CARES Act," and the impact both have had, and may have, on our business and financial results.
Pension Expense
We maintain four company-sponsored defined benefit pension plans covering approximately 32.7% of our employees. Our funding policy for company-sponsored defined benefit pension plans is to contribute annually not less than the amount recommended by our actuaries. The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates, employee-related demographic factors, such as turnover, retirement age and mortality, and the rate of salary increases. Certain assumptions reflect our historical experience and management's best judgment regarding future expectations. Due to the significant management judgment involved, our assumptions could have a material impact on the measurement of our pension expenses and obligations. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by statute. We made total contributions to our company-sponsored pension plans of$2.5 million and$11.0 million during fiscal 2021 and fiscal 2020, respectively. Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions in fiscal 2022 and beyond. Our discount rate assumption for our four company-sponsored defined benefit plans changed from 2.23% - 2.46% atJanuary 2, 2021 to 2.62% - 2.78% atJanuary 1, 2022 . While we do not currently anticipate a change in our fiscal 2022 assumptions, as a sensitivity measure, a 0.25% decrease or increase in our discount rate would increase or decrease our pension expense by approximately$0.4 million to$0.6 million . Similarly, a 0.25% decrease or increase in the expected return on pension plan assets would increase or decrease our pension expense by approximately$0.5 million . During fiscal 2022 we expect to make contributions of approximately$2.5 million for our four company-sponsored defined benefit pension plans. During the fourth quarter of fiscal 2021, we closed our manufacturing facility inPortland, Maine and withdrew from participation in a multi-employer defined benefit pension plan maintained by the labor union that represented certain of our employees at the facility. Prior to the withdrawal, we made periodic contributions to this plan pursuant to the terms of a collective bargaining agreement. Our withdrawal from the plan requires us to make withdrawal liability - 38 - Table of Contents
payments to the plan of approximately
For a more detailed description about our pension expense, the company-sponsored pension plans to which we contribute, and the multi-employer pension plan withdrawal liability, see Note 12, "Pension Benefits," to our consolidated financial statements in Part II, Item 8 of this report.
Acquisition Accounting
Our consolidated financial statements and results of operations include an acquired business's operations after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred.
The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Accordingly, for significant items, we typically obtain assistance from third-party valuation specialists. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can materially impact our results of operations. InMay 2020 , theSEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses. The amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X. Among other things, the final rule modifies the tests provided in Rule 1-02(w) of Regulation S-X used to determine whether a subsidiary or an acquired or disposed business is significant and modifies the number of years of audited financial statements required for acquisitions with significance levels greater than specified percentages. We early adopted the rule in the fourth quarter of fiscal 2020 and we applied the rule to our financial statement disclosure requirements for the Crisco acquisition. See Note 3, "Acquisitions," to our consolidated financial statements in Part II, Item 8 of this report.
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 28.1% and 25.6% for fiscal 2021 and fiscal 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. TheU.S. Tax Act also limits the deduction for net interest expense (including the treatment of depreciation and other deductions in arriving at adjusted taxable income) incurred by a corporate taxpayer to 30% of the taxpayer's adjusted taxable income. In fiscal 2019 this limitation resulted in an increase to our taxable income of$30.2 million , and we accordingly established a deferred tax asset of$7.4 million without a valuation allowance. 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 reverts back to 30% beginning with fiscal 2021. 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,
fully recognizing the
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$7.4 million deferred tax asset described above, and received 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. 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 are subject to the limitation in fiscal 2021. 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 in the range of approximately$9 million to$11 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. See "-Liquidity and Capital Resources - Cash Flows - Cash Income Tax Payments" and Note 10, "Income Taxes," to our consolidated financial statements in Part II, Item 8 of this report. 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 2021, 2020 or 2019 tax rates. See Note 10, "Income Taxes," to our consolidated financial statements in Part II, Item 8 of this report.
Results of Operations
The following table sets forth the percentages of net sales represented by selected items for fiscal 2021 and fiscal 2020 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:
Fiscal 2021 Fiscal 2020
Statement of Operations Data:
Net sales 100.0 % 100.0 %
Cost of goods sold 78.7 % 75.5 %
Gross profit 21.3 % 24.5 %
Operating expenses: Selling, general and administrative expenses 9.5 % 9.5 % Amortization expense
1.1 % 1.0 %
Impairment of intangible assets 1.2 % - %Operating income 9.5 % 14.0 % Other income and expenses: Interest expense, net 5.1 % 5.1 % Other income (0.2) % (0.1) %
Income before income tax expense 4.6 % 9.0 % Income tax expense 1.3 % 2.3 % Net income 3.3 % 6.7 %
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. - 40 -
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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.
Impairment of Intangible Assets. Impairment on intangible assets represents a reduction of the carrying value of intangible assets to fair value when the carrying value of the assets is no longer recoverable.
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). Loss on Extinguishment of Debt. Loss on extinguishment of debt includes costs relating to the retirement of indebtedness, including repurchase premium, if any, and write-off of deferred debt financing costs and unamortized discount, if any.
Other Income. Other income includes income or expense resulting from the
remeasurement of monetary assets denominated in a foreign currency into
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. - 41 - Table of Contents 2021 Compared to 2020 A reconciliation of base business net sales to net sales for fiscal 2021 and 2020 follows (in thousands): Fiscal 2021 Fiscal 2020 Net sales$ 2,056,264 $ 1,967,909 Net sales from acquisitions(1) (255,721) - Net sales from discontinued brands(2) (2,450) (7,699) Base business net sales$ 1,798,093 $ 1,960,210 2021 Compared to 2019 Fiscal 2021 Fiscal 2019 Net sales$ 2,056,264 $ 1,660,414
Net sales from acquisitions(3) (318,952)
-
Net sales from divested and discontinued brands(2) (2,450) (11,444) Base business net sales
$ 1,734,862 $ 1,648,970
Reflects net sales for Crisco for fiscal 2021, for which there is no (1) comparable period of net sales during fiscal 2020. The Crisco acquisition
closed on
(2) Reflects net sales of the SnackWell's and Farmwise brands, which are being
discontinued.
Reflects (a)
sales for fiscal 2019. The Crisco acquisition closed on
the Clabber Girl acquisition closed on
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;
intangible asset impairment charges; and an accrual for the 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.
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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.
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
fiscal 2021 and fiscal 2020, along with the components of EBITDA, adjusted
EBITDA and adjusted EBITDA before COVID-19 expenses, follows (in thousands):
Fiscal 2021 Fiscal 2020
Net income $ 67,363 $ 131,988
Income tax expense 26,291 45,374
Interest expense, net 106,889 101,634
Depreciation and amortization 82,888 63,701
EBITDA 283,431 342,697
Acquisition/divestiture-related and non-recurring
expenses(1) 32,504 17,227
Amortization of acquisition-related inventory step-up(2) 5,054
1,323
Accrual for multi-employer pension plan withdrawal liability(3) 13,907 - Impairment of intangible assets(4) 23,088
-
Adjusted EBITDA 357,984 361,247
COVID-19 expenses(5) 4,650 13,521Adjusted EBITDA before COVID-19 expenses 362,634
374,768
Income tax expense (26,291) (45,374)
Interest expense, net (106,889) (101,634)
Acquisition/divestiture-related and non-recurring
expenses(1) (32,504) (17,227)
Amortization of acquisition-related inventory step-up(2) (5,054)
(1,323)
Accrual for multi-employer pension plan withdrawal liability(3) (13,907) - Net loss/(gain) on sales and disposals of property, plant and equipment 775
(50)
Deferred income taxes 7,269
42,613
Amortization of deferred debt financing costs and bond discount/premium 4,606
4,691
Share-based compensation expense 5,383
10,618
Changes in assets and liabilities, net of effects of business combinations (97,494)
27,916
Net cash provided by operating activities$ 93,878
Acquisition/divestiture-related and non-recurring expenses for fiscal 2021 of
Crisco acquisition, expenses for the closure and pending sale of our
distribution facilities and other cost savings initiatives, expenses related (1) to the transition of our chief executive officer, and other non-recurring
expenses. Acquisition/divestiture-related and non-recurring expenses for
fiscal 2020 of
expenses for the Crisco, Clabber Girl and Farmwise acquisitions, and
severance and other expenses primarily relating to the separation of our
former chief executive officer in fiscal 2020 and a workforce reduction in
fiscal 2019 and other non-recurring expenses.
For fiscal 2021 and fiscal 2020, amortization of acquisition-related
(2) inventory step-up of
relates to the purchase accounting adjustments made to inventory acquired in
the Crisco acquisition.
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In connection with the closure and pending sale of our Portland, Maine
manufacturing facility in fiscal 2021, we incurred a multi-employer pension
(3) plan withdrawal liability with a present value of approximately
million, payable over 20 years in installments of approximately
per year.
During the fourth quarter of 2021, we recorded impairment charges of
million related to intangible trademark assets for the SnackWell's, Static
(4) Guard,
Guard and Molly McButter brands, and we fully impaired the SnackWell's and
Farmwise brands, which are being discontinued. Certain Farmwise branded
products have been transitioned to the Green Giant brand.
COVID-19 expenses of $4.7 million for fiscal 2021 and $13.5 million forfiscal 2020, respectively, primarily includes temporary enhanced compensation
for our manufacturing employees from
(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.
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 fiscal 2021 and fiscal 2020, along with the components of
adjusted net income and adjusted diluted earnings per share, follows (in
thousands):
Fiscal Year Ended
Fiscal 2021 Fiscal 2020
Net income $ 67,363 $ 131,988
Acquisition/divestiture-related and non-recurring
expenses, net of tax(1) 24,541 13,006
Accelerated amortization of deferred debt financing costs(2) -
808
Tax benefit(3) -
(2,258)
Amortization of acquisition-related inventory step-up, net of tax(4) 3,816
999
Accrual for multi-employer pension plan withdrawal liability, net of tax(5) 10,500
-
Impairment of intangible assets, net of tax(6) 17,431
-
Tax true-ups(7) - 1,432
Adjusted net income $ 123,651 $ 145,975 Adjusted diluted earnings per share$ 1.88 $
2.26
Acquisition/divestiture-related and non-recurring expenses for fiscal 2021
primarily includes acquisition and integration expenses for the Crisco
acquisition, expenses for the closure and pending sale of our
manufacturing facility, the re-alignment of certain distribution facilities
and other cost savings initiatives, and expenses related to the transition of (1) our chief executive officer, and other non-recurring expenses.
Acquisition/divestiture-related and non-recurring expenses for fiscal 2020
primarily includes acquisition and integration expenses for the Crisco,
Clabber Girl and Farmwise acquisitions, and severance and other expenses
primarily relating to the separation of our former chief executive officer in
fiscal 2020 and a workforce reduction in fiscal 2019 and other non-recurring
expenses.
Interest expense for fiscal 2020 includes the accelerated amortization of
(2) deferred debt financing costs of
resulting from our voluntary partial prepayment of tranche B term loans.
Fiscal 2020 includes a
Tax Act and U.S. CARES Act" above.
For fiscal 2021 and fiscal 2020, amortization of acquisition-related
inventory step-up of
purchase accounting adjustments made to inventory acquired in the Crisco
acquisition.
In connection with the closure and pending sale of our Portland, Maine
manufacturing facility in fiscal 2021, we incurred a multi-employer pension
(5) plan withdrawal liability with a present value of approximately
(or $10.5 million , net of tax), payable over 20 years in installments of
approximately $0.9 million per year.
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During the fourth quarter of 2021, we recorded impairment charges of
million (
for the SnackWell's, Static Guard,
impaired the SnackWell's and Farmwise brands, which are being discontinued.
Certain Farmwise branded products have been transitioned to the Green Giant
brand.
Tax true-ups for fiscal 2020 reflects
officer of our company in fiscal 2020 and $0.5 million for the impact of
enacted state rate changes and other tax adjustments.
Fiscal 2021 Compared to Fiscal 2020
Net Sales . Net sales for fiscal 2021 increased$88.4 million , or 4.5%, to$2,056.3 million from$1,967.9 million for fiscal 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 fiscal 2020, one fewer reporting week in fiscal 2021 compared to fiscal 2020, and supply chain disruptions in the fourth quarter of 2021 resulting from the COVID-19 Omicron variant. We estimate that the additional week in the third quarter of 2020 contributed approximately$35.0 million to our net sales for fiscal 2020. An extra eleven months of net sales of Crisco, acquired onDecember 1, 2020 , contributed$255.7 million to our net sales for fiscal 2021. Net sales for fiscal 2021 were 23.8% higher than pre-pandemic net sales for fiscal 2019. On a two-year compound annual growth basis, net sales for fiscal 2021 increased 11.3%. Base business net sales for fiscal 2021 decreased$162.1 million , or 8.3%, to$1,798.1 million from$1,960.2 million for fiscal 2020. The decrease in base business net sales reflected a decrease in unit volume of$222.6 million , partially offset by an increase in net pricing and the impact of product mix of$54.3 million , or 2.8% of base business net sales, and the positive impact of foreign currency of$6.2 million . Base business net sales for fiscal 2021 were 5.2% higher than pre-pandemic base business net sales for fiscal 2019. On a two-year compound annual growth basis, base business net sales increased 2.6%. Despite continued strong demand for Green Giant products during fiscal 2021, sales of Green Giant products in the aggregate (including Le Sueur) decreased$95.1 million , or 14.9%, in fiscal 2021, as compared to fiscal 2020. Net sales of Green Giant shelf-stable (including Le Sueur) decreased$37.5 million , or 16.4%, for fiscal 2021. Net sales of Green Giant frozen decreased$57.6 million , or 14.0%, for fiscal 2021 as compared to fiscal 2020. 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 begin to 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 16, "Net Sales by Brand," to our consolidated financial statements in Part II, Item 8 of this report, for detailed information regarding total net sales by brand for fiscal 2021 and fiscal 2020 for each of our brands whose net sales equaled or exceeded 3% of our total net sales for those periods and for all other brands in the aggregate. - 45 -
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The following table sets forth the most significant base business net sales increases and decreases by brand for those brands for fiscal 2021:
2021 vs. 2020 2021 vs. 2019
Base Business Base Business
Net Sales Increase (Decrease) Net Sales Increase (Decrease)
Dollars Percentage Dollars
(in millions) (in millions) Percentage
Brand:Spices & Seasonings(1) $ 8.0 3.1 % $ 20.1 8.1 % Maple Grove Farms of Vermont 4.5 5.9 % 10.6 15.1 % Dash 0.4 0.5 % 13.8 23.6 % Green Giant - frozen (57.6) (14.0) % (10.2) (2.8) % Green Giant - shelf stable(2) (37.5)
(16.4) % 27.3 16.7 % Clabber Girl(3) (17.9) (18.4) % 0.4 0.7 % Ortega (7.1) (4.5) % 10.8 7.6 % Cream of Wheat (5.5) (7.6) % 7.4 12.4 % All other brands (49.4) (8.5) % 5.7 1.1 %
Base business net sales (decrease) increase$ (162.1) (8.3) % $ 85.9 5.2 %
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.
When comparing base business net sales for fiscal 2021 versus fiscal 2019,
(3) includes for fiscal 2021, net sales of Clabber Girl from
business net sales. Clabber Girl was acquired on
Gross Profit. Gross profit was$437.0 million for fiscal 2021, or 21.3% of net sales. Excluding the negative impact of a$13.9 million accrual for the present value of a multi-employer pension plan withdrawal liability in connection with the closure and pending sale of ourPortland, Maine manufacturing facility,$14.6 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 fiscal 2021, our gross profit would have been$470.6 million , or 22.9% of net sales. Gross profit was$481.7 million for fiscal 2020, or 24.5% of net sales. Excluding the negative impact of$5.0 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 fiscal 2020, our gross profit would have been$486.7 million , or 24.7% of net sales. During fiscal 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 will continue to have a significant industry-wide impact during fiscal 2022. 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 also announced list price increases in 2021 and again during the first quarter of 2022, and, where appropriate, 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 did not fully offset the incremental costs that we faced in fiscal 2021 and may not fully offset the incremental costs that we are facing and expect to continue to face in fiscal 2022. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased$10.0 million , or 5.4%, to$196.2 million for fiscal 2021 from$186.2 million for fiscal 2020. The increase was composed of increases in warehousing expenses of$12.0 million , acquisition/divestiture-related and non-recurring expenses of$4.3 million , and consumer marketing expenses of$2.7 million , partially offset by decreases in selling expenses of$6.0 million and general and administrative expenses of$3.0 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 fiscal 2021 compared to fiscal 2020. Expressed as a percentage of net sales, selling, general and administrative expenses remained flat at 9.5% for fiscal 2021 as compared to fiscal 2020.
Amortization Expense. Amortization expense increased
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Impairment of Intangible Assets. Impairment of intangible assets of$23.1 million for fiscal 2021 includes a loss for the impairment of intangible trademark assets relating to the Static Guard, SnackWell's, Molly McButter and Farmwise brands, due primarily to our projections for reduced net sales for the Static Guard and Molly McButter brands and our discontinuation of the SnackWell's and Farmwise brands. We did not have any impairment of intangible assets during fiscal 2020. See Note 6, "Goodwill and Other Intangible Assets" to our consolidated financial statements for a more detailed description of the impairment of intangible assets in fiscal 2021. Operating Income. As a result of the foregoing, operating income decreased$80.3 million , or 29.1%, to$196.1 million for fiscal 2021 from$276.4 million for fiscal 2020. Operating income expressed as a percentage of net sales decreased to9.5% in fiscal 2021 from 14.0% in fiscal 2020. Net Interest Expense. Net interest expense increased$5.3 million , or 5.2%, to$106.9 million for fiscal 2021 from$101.6 million in fiscal 2020. The increase was primarily attributable to an increase in average long-term debt outstanding during fiscal 2021 as compared to fiscal 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 fiscal 2021, as well as one fewer reporting week in fiscal 2021 compared to fiscal 2020. See "-Liquidity and Capital Resources - Debt" below. Other Income. Other income for fiscal 2021 primarily includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of$4.4 million and the remeasurement of monetary assets denominated in a foreign currency intoU.S. dollars of$0.1 million . Other income for fiscal 2020 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of$2.6 million and the remeasurement of monetary assets denominated in a foreign currency intoU.S. dollars of less than$0.1 million . Income Tax Expense. Income tax expense decreased$19.1 million to$26.3 million in fiscal 2021 from$45.4 million for fiscal 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 temporarily increased the interest expense deduction limitation from 30% to 50% of the adjusted taxable income for business interest deductions in fiscal 2020. Our effective tax rate was 28.1% for fiscal 2021 and 25.6% for fiscal 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.
Fiscal 2020 Compared to Fiscal 2019
For a discussion of fiscal 2020 compared to fiscal 2019, please refer to our 2020 Annual Report on Form 10-K, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, filed with theSEC onMarch 2, 2021 .
Liquidity and Capital Resources
Our primary liquidity requirements include debt service, capital expenditures and working capital needs. See also, "Dividend Policy" below. We fund our liquidity requirements, as well as our dividend payments and financing for acquisitions, primarily through cash generated from operations and external sources of financing, including our revolving credit facility. We do not have any off-balance sheet financing arrangements.
Cash Flows
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased$187.6 million to$93.9 million for fiscal 2021 from$281.5 million for fiscal 2020. The decrease was largely due to lower net income in fiscal 2021 compared to fiscal 2020 (primarily as a result of our company's extraordinary performance during fiscal 2020, and partially due to one fewer reporting week in fiscal 2021 compared to fiscal 2020, as well as higher than expected input cost inflation during fiscal 2021). The decrease was also due to unfavorable working capital comparisons in fiscal 2021 compared to fiscal 2020, primarily comprised of inventories, accrued expenses (including 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) and trade accounts receivable, partially offset by favorable working capital comparisons related to prepaid expenses and other current assets, income tax receivable/payable, and other liabilities. - 47 -
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Net Cash Used in Investing Activities. Net cash used in investing activities decreased$526.1 million to$42.8 million for fiscal 2021 from$568.9 million for fiscal 2020. Net cash used in investing activities for fiscal 2020 includes the$539.3 million purchase price paid for the Crisco acquisition, compared to no payments for acquisitions during fiscal 2021. The decrease in payments for acquisitions of businesses was partially offset by an increase in capital expenditures from$26.7 million in fiscal 2020 compared to$43.6 million in fiscal 2021.Net Cash (Used in) Provided by Financing Activities. Net cash provided by financing activities decreased$397.8 million from$328.0 million cash provided by financing activities for fiscal 2020 to$69.8 million cash used in financing activities for fiscal 2021. The decrease was primarily driven by net borrowings under our term loan facility of$221.6 million in fiscal 2020 compared to no net borrowings under our term loan facility in fiscal 2021, and a$305.0 million decrease in net borrowings under our revolving credit facility during fiscal 2021 compared to fiscal 2020, partially offset by$110.2 million of proceeds from the issuance of common stock during fiscal 2021 compared to no proceeds from the issuance of common stock during fiscal 2020, and$14.8 million of proceeds from the exercise of stock options in fiscal 2021 compared to$2.4 million of proceeds from the exercise of stock options in fiscal 2020. Cash Income Tax Payments. We made net cash tax payments of approximately$5.7 million and$9.8 million (comprised of$17.4 million of cash tax payments less$7.6 million of cash tax refunds received, including a$7.2 million refund received as a result of theU.S. CARES Act, as discussed below) during fiscal 2021 and fiscal 2020, respectively. The decrease was primarily attributable to lower operating income in fiscal 2021 compared to fiscal 2020. 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 2035. 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. 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 2021 and fiscal 2020 and is expected to have in fiscal 2022 and beyond on our interest expense deductions and our cash taxes. In addition, 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
For a discussion of our dividend policy, see the information set forth under the heading "Dividend Policy" in Part II, Item 5 of this report.
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. We financed the Clabber Girl acquisition, completed inMay 2019 , with cash on hand and additional revolving loans under our credit facility. The impact of future acquisitions, whether financed with additional indebtedness or otherwise, may have a material impact on our liquidity and capital resources. - 48 - Table of Contents Debt See Note 7, "Long-Term Debt," to our consolidated financial statements in Part II, Item 8 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.
We did not repurchase any shares of our common stock during fiscal 2021 or
fiscal 2020. As of
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 . 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 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
OnJanuary 1, 2022 , our total long-term debt of$2,267.8 million , net of our cash and cash equivalents of$33.7 million , was$2,234.1 million . Stockholders' equity as of that date was$920.3 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$50.0 million in the aggregate during fiscal 2022. Our projected capital expenditures for fiscal 2022 primarily relate to productivity and cost saving initiatives, asset sustainability projects, and information technology (hardware and software). - 49 - Table of Contents 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 14, "Commitments and Contingencies," to our consolidated financial statements in Part II, Item 8 of this report.
Recent Accounting Pronouncements
See Note 2(s), "Summary of Significant Accounting Policies - Recently Issued Accounting Standards - Pending Adoption," to our consolidated financial statements in Part II, Item 8 of this report.
Supplemental Financial Information about
As further discussed in Note 7, "Long-Term Debt," to our consolidated financial statements in Part II, Item 8 of this report, our obligations under our 5.25% senior notes due 2025 and 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 7, "Long-Term Debt" to our consolidated financial statements in Part II, Item 8 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 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. - 50 - Table of Contents
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):January 1 ,January 2, 2022 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
Fiscal 2021
Net sales $ 1,933,665
Gross profit 424,501
Operating income 197,831
Income before income tax expense 95,406
Net income $ 68,951 © Edgar Online, source
