BELLRING BRANDS, INC. The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources ofBellRing Brands, Inc. (formerly known asBellRing Distribution, LLC ) ("BellRing") and its consolidated subsidiaries. This discussion should be read in conjunction with the financial statements under Item 8 of this report and the "Cautionary Statement on Forward-Looking Statements" on page 1. OVERVIEW OnOctober 21, 2019 ,BellRing Intermediate Holdings, Inc. (formerly known asBellRing Brands, Inc. ) ("Old BellRing") closed its initial public offering (the "IPO") of 39.4 million shares of its Class A common stock,$0.01 par value per share (the "Old BellRing Class A Common Stock") and contributed the net proceeds from the IPO toBellRing Brands, LLC , aDelaware limited liability company and subsidiary of Old BellRing ("BellRing LLC "), in exchange for 39.4 millionBellRing LLC non-voting membership units (the "BellRing LLC units"). As a result of the IPO and certain other transactions completed in connection with the IPO (the "formation transactions"),BellRing LLC became the holding company for the active nutrition business ofPost Holdings, Inc. ("Post"). Old BellRing, as a holding company, had no material assets other than its ownership ofBellRing LLC units and its indirect interests in the subsidiaries ofBellRing LLC and had no independent means of generating revenue or cash flow. The members ofBellRing LLC were Post and Old BellRing. During the second quarter of fiscal 2022, Post completed its previously announced distribution of 80.1% of its ownership interest in BellRing to Post's shareholders. OnMarch 9, 2022 , pursuant to the Transaction Agreement and Plan of Merger, dated as ofOctober 26, 2021 (as amended by Amendment No. 1 to the Transaction Agreement and Plan of Merger, dated as ofFebruary 28, 2022 , the "Transaction Agreement"), by and among Post, Old BellRing,BellRing and BellRing Merger Sub Corporation , a wholly-owned subsidiary of BellRing ("BellRing Merger Sub"), Post contributed its share of Old BellRing Class B common stock,$0.01 par value per share ("Old BellRing Class B Common Stock"), all of itsBellRing LLC units and$550.4 million of cash to BellRing (collectively, the "Contribution") in exchange for certain limited liability company interests of BellRing (prior to the conversion of BellRing into aDelaware corporation) and the right to receive$840.0 million in aggregate principal amount of BellRing's 7.00% senior notes maturing in 2030 (the "7.00% Senior Notes"). OnMarch 10, 2022 , BellRing converted into aDelaware corporation and changed its name to "BellRing Brands, Inc. ", and Post distributed an aggregate of 78.1 million, or 80.1%, of its shares of BellRing common stock,$0.01 par value per share ("BellRing Common Stock") to Post shareholders of record as of the close of business, Central Time, onFebruary 25, 2022 (the "Record Date") in a pro-rata distribution (the "Distribution"). Post shareholders received 1.267788 shares of BellRing Common Stock for every one share of Post common stock held as of the Record Date. No fractional shares of BellRing Common Stock were issued, and instead, cash in lieu of any fractional shares was paid to Post shareholders. Upon completion of the Distribution, BellRing Merger Sub merged with and into Old BellRing (the "Merger"), with Old BellRing continuing as the surviving corporation and becoming a wholly-owned subsidiary of BellRing. Pursuant to the Merger, each outstanding share of Old BellRing Class A Common Stock was converted into one share of BellRing Common Stock plus$2.97 in cash, or$115.5 million total consideration paid to Old BellRing Class A common stockholders pursuant to the Merger. As a result of the transactions described above (collectively, the "Spin-off"), BellRing became the new public parent company of, and successor issuer to, Old BellRing, and shares of BellRing Common Stock were deemed to be registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Rule 12g-3(a) promulgated thereunder. Immediately prior to the Spin-off, Post held 97.5 millionBellRing LLC units, equal to 71.5% of the economic interest inBellRing LLC , and one share of Old BellRing Class B Common Stock, which represented 67% of the combined voting power of the common stock of Old BellRing. Immediately following the Spin-off, Post owned 19.4 million shares, or 14.2%, of the BellRing Common Stock and Post shareholders owned approximately 57.3% of the BellRing Common Stock. The former Old BellRing stockholders owned approximately 28.5% of the BellRing Common Stock, maintaining their effective ownership in the Old BellRing business prior to the Spin-off. As a result of the Spin-off, the dual class voting structure in the BellRing business was eliminated, and Post's remaining ownership did not represent a controlling interest in BellRing. OnAugust 11, 2022 , Post transferred 14.8 million of its remaining shares of BellRing Common Stock to certain financial institutions in satisfaction of term loan obligations of Post, which reduced Post's ownership of BellRing Common Stock to 3.4% as ofSeptember 30, 2022 . In connection with this transaction, BellRing repurchased 0.8 million of the transferred shares from certain of the financial institutions. 36
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BellRing incurred separation-related expenses of
Unless otherwise indicated or the context otherwise requires, all references in
this report to "BellRing," "we," "our," "us," "the Company" and "our Company"
refer to Old BellRing and its consolidated subsidiaries during the periods prior
to the Spin-off and us and our consolidated subsidiaries during the periods
subsequent to the Spin-off. The term "Common Stock" generally refers to Old
BellRing Class A Common Stock and Old BellRing Class B Common Stock during the
periods prior to the Spin-off and to BellRing Common Stock during the periods
subsequent to the Spin-off. The term "Net earnings available to Common
Stockholders" generally refers to net earnings available to Old BellRing Class A
common stockholders during the periods prior to the Spin-off and to net earnings
available to BellRing common stockholders during the periods subsequent to the
Spin-off.
We are a consumer products holding company operating in the global convenient
nutrition category and are a provider of ready-to-drink ("RTD") protein shakes,
other RTD beverages, powders and nutrition bars. We have a single operating and
reportable segment, with our principal products being protein-based consumer
goods. Our primary brands are Premier Protein and Dymatize .
Industry & Company Trends
The success of companies in the convenient nutrition category is driven by how well such companies can grow, develop and differentiate their brands. We expect the convergence of several factors to support the continued growth of the convenient nutrition category, including:
•consumers' increasingly dedicated pursuit of active lifestyles and growing interest in nutrition and wellness;
•growing awareness of the numerous health benefits of protein, including sustained energy, muscle recovery and satiety; and
•a rise in snacking and the desire for products that can be consumed on-the-go as nutritious snacks or meal replacements.
Nonetheless, the consumer food and beverage industry faces a number of challenges and uncertainties, including:
•the highly competitive nature of the industry, which involves competition from a host of nutritional food and beverage companies, including manufacturers of other branded food and beverage products as well as manufacturers of private label and store brand products;
•changing consumer preferences which require food manufacturers to identify changing preferences and to offer products that appeal to consumers;
•supply chain challenges, including labor shortages and equipment delays, which have delayed capacity expansion across the broader third party aseptic processing contract manufacturer network and are expected to continue into fiscal 2023; and
•increasing inflationary pressures, which are expected to continue into fiscal 2023, on the costs of ingredients and packaging materials and transportation.
Seasonality
We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our sales and operating profit margins because of customer spending patterns and timing of our key retailers' promotional activity. Historically, our first fiscal quarter is seasonally low for all brands driven by a slowdown of consumption of our products during the holiday season. Sales are typically higher throughout the remainder of the fiscal year as a result of promotional activity at key retailers as well as organic growth of the business.
COVID-19 Pandemic
The COVID-19 pandemic has caused and continues to cause global economic
disruption and uncertainty, including in our business. We continue to closely
monitor the impact of the COVID-19 pandemic and remain focused on ensuring the
health and safety of our employees and serving customers and consumers. Our
primary categories returned to growth rates in line with their pre-pandemic
levels during the fourth quarter of fiscal 2020 and have remained strong in
subsequent periods.
As the overall economy continues to recover from the impact of the COVID-19
pandemic, input and freight inflation and input and labor availability are
pressuring our supply chain. Lower than anticipated production and delays in
capacity expansion across the broader third party contract manufacturer network
have resulted in low shake inventory volumes and missed sales.
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Service levels and fill rates remain below normal levels, and certain products have been placed on allocation. These factors are expected to improve but persist throughout fiscal 2023 and are dependent upon our contract manufacturer partners' ability to deliver committed volumes, add capacity on expected timelines, retain manufacturing staff and rebuild inventory levels. Raw material, packaging and freight inflation has been widespread, rapid and significant, and has put downward pressure on profit margins. As a result, we have taken pricing actions on nearly all products. For additional discussion, refer to "Liquidity and Capital Resources" within this section, as well as "Cautionary Statement on Forward-Looking Statements"on page 1 of this report and "Risk Factors" in Part I of this report.
Items Affecting Comparability
During the years ended
•accelerated amortization expense of
•restructuring and facility closure costs, including accelerated depreciation, of$0.3 million and$5.6 million related to the closing of ourDallas, Texas office and the downsizing of ourMunich, Germany location during the years endedSeptember 30, 2022 and 2021, respectively; •separation-related expenses of$14.5 million ,$0.2 million and$1.9 million for the years endedSeptember 30, 2022 , 2021 and 2020, respectively, in connection with our separation from Post; and
•$8.0 million of expense for the year ended
For further discussion, refer to "Results of Operations" within this section.
RESULTS OF OPERATIONS
Fiscal 2022 compared to 2021 Fiscal 2021 compared to 2020
favorable/(unfavorable) favorable/(unfavorable)
dollars in millions 2022 2021 $ Change % Change 2021 2020 $ Change % ChangeNet Sales $ 1,371.5 $ 1,247.1 $ 124.4 10 %$ 1,247.1 $ 988.3 $ 258.8 26 % Operating Profit$ 212.4 $ 168.0 $ 44.4 26 %$ 168.0 $ 164.0 $ 4.0 2 % Interest expense, net 49.2 43.2 (6.0) (14) % 43.2 54.7 11.5 21 % Loss on extinguishment and refinancing of debt, net 17.6 1.6 (16.0) (1,000) % 1.6 - (1.6) (100) % Income tax expense 29.6 8.8 (20.8) (236) % 8.8 9.2 0.4 4 % Less: Net earnings attributable to redeemable noncontrolling interest 33.7 86.8 53.1 61 % 86.8 76.6 (10.2) (13) % Net Earnings Available to Common Stockholders$ 82.3 $ 27.6 $ 54.7 198 %$ 27.6 $ 23.5 $ 4.1 17 %Net Sales
Fiscal 2022 compared to 2021
Net sales increased$124.4 million , or 10%, during the year endedSeptember 30, 2022 compared to the prior year. Sales of Premier Protein products were up$75.2 million , or 7%, driven by higher average net selling prices. Average net selling prices increased in the year endedSeptember 30, 2022 due to targeted price increases and decreased promotional spending. These positive impacts were partially offset by volume decreases of 8%, which were primarily the result of supply constraints and reduced demand-driving activity. Sales ofDymatize products were up$54.3 million , or 35%, driven by higher average net selling prices. Average net selling prices increased in the year endedSeptember 30, 2022 due to targeted price increases and decreased promotional spending. These positive impacts were partially offset by volume decreases of 5%, which were driven by elasticities due to inflation-driven price increases and product discontinuations. Sales of all other products were down$5.1 million . 38
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Fiscal 2021 compared to 2020
Net sales increased$258.8 million , or 26%, during the year endedSeptember 30, 2021 compared to the prior year. Sales of Premier Protein products were up$207.8 million , or 25%, with volume up 24%. Volume increases were driven by higher RTD protein shake product volumes which primarily related to distribution gains for both existing and new products and strong velocities driven by promotional activity and category momentum. Sales ofDymatize products were up$47.4 million , or 43%, with volume up 29%. Volume increases were primarily driven by distribution gains for both existing and new products and strong velocities driven by category momentum and lower international and specialty channel volumes in the prior year, largely resulting from consumer reaction to the COVID-19 pandemic. Average net selling prices increased during the year endedSeptember 30, 2021 due to a favorable product mix. Sales of all other products were up$3.6 million .
Operating Profit
Fiscal 2022 compared to 2021
Operating profit increased$44.4 million , or 26%, during the year endedSeptember 30, 2022 compared to the prior year. This increase was primarily driven by higher net sales, due to higher average selling prices as previously discussed, reduced advertising costs of$16.5 million and lower restructuring and facility closure costs. In addition, prior year operating profit was negatively impacted by$29.9 million of accelerated amortization related to the discontinuance of the Supreme Protein brand. These positive impacts were partially offset by higher net product costs of$140.5 million due to unfavorable raw material, freight and manufacturing costs, higher costs related to the separation from Post of$14.3 million and higher expenses for legal matters of$8.0 million .
Fiscal 2021 compared to 2020
Operating profit increased$4.0 million , or 2%, during the year endedSeptember 30, 2021 compared to the prior year. This increase was primarily driven by higher net sales, as previously discussed, and lower costs related to the separation from Post of$1.7 million . These positive impacts were partially offset by higher net product costs of$38.9 million due to unfavorable raw material, freight and manufacturing costs, accelerated amortization expense of$29.9 million related to the discontinuance of the Supreme Protein brand, restructuring and facility closure costs, including accelerated depreciation of$5.6 million , increased advertising costs of$6.1 million and higher employee-related costs. Interest Expense, Net Fiscal 2022 compared to 2021 Interest expense, net increased$6.0 million during the year endedSeptember 30, 2022 compared to the prior year. This increase was primarily due to higher outstanding principal amounts of debt and a higher weighted-average interest rate compared to the prior year, partially offset by increased net hedging gains (compared to losses in the prior year period) of$3.8 million recognized on interest rate swaps. The weighted-average interest rate on our total outstanding debt increased to 6.2% for the year endedSeptember 30, 2022 from 5.3% for the year endedSeptember 30, 2021 , driven by the issuance of our 7.00% Senior Notes during the second quarter of fiscal 2022.
Fiscal 2021 compared to 2020
Interest expense, net decreased$11.5 million during the year endedSeptember 30, 2021 compared to the prior year primarily due to lower principal amounts of debt outstanding. In addition, the weighted-average interest rate on our total outstanding debt decreased to 5.3% for the year endedSeptember 30, 2021 from 6.3% for the year endedSeptember 30, 2020 , driven by lower variable interest rates and the refinancing of our Term B Facility (as defined in "Liquidity and Capital Resources") during the second quarter of fiscal 2021.
See Notes 14 and 12 within "Notes to Consolidated Financial Statements" for additional information on our debt and interest rate swaps, respectively.
Loss on Extinguishment and Refinancing of Debt, Net
During the year endedSeptember 30, 2022 , we recognized a$17.6 million loss related to the termination of our Old Credit Agreement (as defined in "Liquidity and Capital Resources"). This loss included (i) a$6.9 million write-off of unamortized discounts and debt extinguishment fees, (ii) a$6.1 million write-off of unamortized net hedging losses recorded within accumulated other comprehensive income or loss related to the Term B Facility and (iii) a$4.6 million write-off of debt issuance costs and deferred financing fees. During the year endedSeptember 30, 2021 , we recognized$1.6 million of losses related to refinancing fees incurred in conjunction with the refinancing of our Term B Facility.
See Note 14 within "Notes to Consolidated Financial Statements" for additional information on our debt.
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Income Tax Expense
Our effective income tax rate for fiscal 2022 was 20.3% compared to 7.1% for
fiscal 2021 and 8.4% for fiscal 2020. The following table presents the
reconciliation of income tax expense with amounts computed at the federal
statutory tax rate.
Year Ended September 30,
dollars in millions 2022 2021 2020
Computed tax (21%) $ 30.6 $ 25.9 $ 23.0
Income tax expense attributable to redeemable
noncontrolling interest (7.6) (19.5) (16.2)
State income taxes, net of effect on federal tax 4.7 4.0 3.0
Transaction costs 2.0 - (1.2)
Uncertain tax position - - 1.5
Other, net (none in excess of 5% of computed tax) (0.1) (1.6) (0.9)
Income tax expense $ 29.6 $ 8.8 $ 9.2
The increase in our effective income tax rate for fiscal 2022 compared to each
of the prior years was primarily due to the change in tax expense allocation
related to the Spin-off. After the Spin-off, the Company reported 100% of the
income, gain, loss and deduction of BellRing LLC for U.S. federal, state and
local income tax purposes, whereas in fiscal 2021 and 2020, the Company reported
28.8% of such activity.
LIQUIDITY AND CAPITAL RESOURCES
On March 10, 2022 , in connection with the Transaction Agreement, we issued the
7.00% Senior Notes to Post as partial non-cash consideration for the
Contribution in connection with the Distribution. Post subsequently delivered
the 7.00% Senior Notes to certain financial institutions in satisfaction of term
loan obligations of Post in an equal principal amount.
On March 10, 2022 , in connection with the Transaction Agreement, we entered into
a credit agreement (as amended, the "Credit Agreement"), which provides for a
revolving credit facility in an aggregate principal amount of $250.0 million
(the "Revolving Credit Facility"), with commitments to be made available to us
in U.S. Dollars, Euros, and United Kingdom Pounds Sterling. The outstanding
amounts under the Credit Agreement must be repaid on or before March 10, 2027 .
Prior to the Transaction Agreement, BellRing LLC had entered into a credit
agreement on October 21, 2019 (as subsequently amended, the "Old Credit
Agreement") which provided for debt facilities consisting of a $700.0 million
term B loan facility (the "Term B Facility") and a $200.0 million revolving
credit facility (the "Old Revolving Credit Facility"). On March 10, 2022 , with
certain of the proceeds from the debt financing transactions described above,
BellRing LLC repaid the aggregate outstanding principal balance of $519.8
million on the Term B Facility and terminated all obligations and commitments
under the Old Credit Agreement.
During the year ended September 30, 2022 , we borrowed $164.0 million under the
Revolving Credit Facility and repaid $65.0 million under the Revolving Credit
Facility. We had $151.0 million of borrowing capacity and no outstanding letters
of credit under the Revolving Credit Facility as of September 30, 2022 . Letters
of credit are available under the Revolving Credit Facility in an aggregate
amount of up to $20.0 million . The Credit Agreement provides for potential
incremental revolving and term facilities at the Company's request and at the
discretion of the lenders or other persons providing such incremental
facilities, in each case on terms to be determined, and also permits the Company
to incur other secured or unsecured debt, in all cases subject to conditions and
limitations on the amount as specified in the Credit Agreement.
During the year ended September 30, 2022 , prior to the Spin-Off, we repurchased
0.8 million shares of Old BellRing Class A Common Stock at an average share
price of $23.36 per share for a total cost of $18.1 million , including broker's
commissions. In connection with the Spin-off, 0.8 million shares of Old BellRing
Class A Common Stock held in treasury stock immediately prior to the Merger
effective time were cancelled pursuant to the Transaction Agreement. On May 23,
2022 , our Board of Directors approved a $50.0 million share repurchase
authorization with respect to the shares of BellRing Common Stock. Our prior
share repurchase authorization for Old BellRing Class A Common Stock was no
longer applicable subsequent to the Spin-off. During the year ended September
30, 2022 , subsequent to the Spin-off, we repurchased 1.1 million shares of
BellRing Common Stock at an average share price of $23.18 per share for a total
cost of $24.7 million , including broker's commissions.
For additional information on the Spin-off, Credit Agreement and share repurchases, see Notes 1, 14 and 17 within "Notes to Consolidated Financial Statements."
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We expect to generate positive cash flows from operations and believe our cash on hand, cash flows from operations and possible future credit facilities will be sufficient to satisfy our future working capital requirements, research and development activities, debt repayments, share repurchases and other financing requirements for the foreseeable future. Our asset-light business model requires modest capital expenditures, with annual capital expenditures over the last three fiscal years averaging less than 1% of net sales. No significant capital expenditures are planned for fiscal 2023. Our cash requirements under our various contractual obligations and commitments include:
•Debt Obligations and Interest Payments - See Note 14 within "Notes to Consolidated Financial Statements" for additional information on our debt and the timing of expected future principal and interest payments.
•Operating Leases - See Note 11 within "Notes to Consolidated Financial Statements" for additional information on our operating leases and the timing of expected future payments.
•Purchase Obligations - Purchase obligations are legally binding agreements to purchase goods, services or equipment that specify all significant terms, including: fixed or minimum quantities to be purchased and/or penalties imposed for failing to meet contracted minimum purchase quantities (such as "take-or-pay" contracts); fixed, minimum or variable price provisions; and the approximate timing of the transaction. As ofSeptember 30, 2022 , the Company had total purchase commitments of$679.0 million (with$406.5 million due in fiscal 2023) which extend through fiscal 2027. •Other liabilities - Other liabilities include obligations associated with certain employee benefit programs, general liability claim losses and provisions for legal matters, unrecognized tax benefits and various other long-term liabilities, all of which have some inherent uncertainty as to the amount and timing of payments and were reflected on our Consolidated Balance Sheet as ofSeptember 30, 2022 . Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures and other business risk factors. If we are unable to generate sufficient cash flows from operations, or otherwise to comply with the terms of our credit facilities, we may be required to seek additional financing alternatives. Additionally, we may seek to repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
The following table shows select cash flow data, which is discussed below.
Year Ended September 30,
dollars in millions 2022 2021 2020
Cash provided by (used in):
Operating activities $ 21.0 $ 226.1 $ 97.2
Investing activities (1.8) (1.6) (2.1)
Financing activities (135.0) (120.9) (52.6)
Effect of exchange rate changes on cash and cash
equivalents (1.0) 0.3 0.7
Net (decrease) increase in cash and cash equivalents
Operating Activities Fiscal 2022 compared to 2021 Cash provided by operating activities for the year endedSeptember 30, 2022 decreased$205.1 million compared to the prior year. The decrease was primarily driven by unfavorable changes related to an increase in inventory and fluctuations in the timing of sales and collections of trade receivables and purchases and payments of trade payables. Inventory increases were driven by input cost inflation, increased powder finished goods due to rebuilding inventory from supply-constrained levels at prior fiscal year end and increased raw material levels. Additionally, tax payments (net of refunds) increased by$22.6 million and interest payments increased by$9.3 million due to higher outstanding principal amounts of debt and a higher weighted-average interest rate as compared to the prior year period. 41
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Fiscal 2021 compared to 2020
Cash provided by operating activities for the year endedSeptember 30, 2021 increased$128.9 million compared to the prior year. The increase was primarily driven by favorable changes related to fluctuations in the timing of purchases and payments of trade payables and the decrease in the current year inventory balance due to higher net sales outpacing production levels. In addition, interest payments decreased$13.1 million compared to the prior year due to lower aggregate principal amounts outstanding under the Term B Facility and Old Revolving Credit Facility, as well as the refinancing of the Term B Facility. These positive impacts were partially offset by restructuring costs payments of$4.7 million and increased tax payments of$1.9 million .
Investing Activities
Fiscal 2022 compared to 2021
Cash used in investing activities for the year ended
Fiscal 2021 compared to 2020
Cash used in investing activities for the year ended
Financing Activities Fiscal 2022 Cash used in financing activities for the year endedSeptember 30, 2022 was$135.0 million . We repaid the outstanding principal balance of the Term B Facility of$609.9 million , repaid$65.0 million under the Revolving Credit Facility, and paid$115.5 million to Old BellRing Class A common stockholders pursuant to the Merger. In addition, we paid$11.9 million of debt issuance costs, debt extinguishment costs and deferred financing fees related to the issuance of the 7.00% Senior Notes and the Revolving Credit Facility, and we paid$42.8 million , including broker's commissions, for the repurchase of Common Stock. We received$550.4 million of cash from Post in connection with the Spin-off, which was partially offset by cash distributions to Post prior to the Spin-off of$3.2 million related to quarterly tax distributions pursuant toBellRing LLC's amended and restated limited liability company agreement (the "BellRing LLC Agreement"). Additionally, we borrowed$164.0 million under the Revolving Credit Facility. Fiscal 2021 Cash used in financing activities for the year endedSeptember 30, 2021 was$120.9 million .BellRing LLC drew an aggregate of$20.0 million under the Old Revolving Credit Facility, repaid$63.8 million on the principal balance of the Term B Facility and repaid$50.0 million on the Old Revolving Credit Facility during the year. In addition,BellRing LLC paid Post$24.6 million related to tax distributions pursuant to the BellRing LLC Agreement and state tax withholdings payments on behalf of Post.
Fiscal 2020
Cash used in financing activities for the year endedSeptember 30, 2020 was$52.6 million .BellRing LLC received proceeds of$686.0 million , net of discount, related to the issuance of the Term B Facility and drew an aggregate of$195.0 million under the Old Revolving Credit Facility. In addition, we received$524.4 million from the issuance of the Old BellRing Class A Common Stock in conjunction with the IPO.BellRing LLC had net cash transfers of$32.1 million to Post which included cash deposits and borrowings prior to the IPO, tax distributions to Post pursuant to the BellRing LLC Agreement and state tax withholdings payments on behalf of Post.BellRing LLC also repaid the$1,225.0 million outstanding principal balance of a bridge loan assumed from Post in connection with the IPO, repaid$165.0 million on the Old Revolving Credit Facility and repaid$26.3 million on the principal balance of the Term B Facility. In connection with the issuance ofBellRing LLC's long-term debt,BellRing LLC paid$9.6 million in debt issuance costs and deferred financing fees. Debt Covenants The Credit Agreement contains customary affirmative and negative covenants applicable to us and our restricted subsidiaries for agreements of this type, including delivery of financial and other information; compliance with laws; maintenance of property, existence, insurance and books and records; inspection rights; obligation to provide collateral and guarantees by certain new subsidiaries; delivery of environmental reports; participation in an annual meeting with the agent and the lenders; further assurances; and limitations with respect to indebtedness, liens, fundamental changes, restrictive agreements, use of proceeds, amendments of organization documents, prepayments and amendments of certain indebtedness, dispositions of assets, acquisitions and other investments, sale leaseback transactions, changes in the nature of business, transactions with affiliates and dividends and redemptions or repurchases of stock. Under the terms of the Credit Agreement, we are also required 42
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to comply with a financial covenant requiring us to maintain a total net leverage ratio (as defined in the Credit Agreement) not to exceed 6.00:1.00, measured as of the last day of each fiscal quarter, which began with the fiscal quarter endingJune 30, 2022 . We were in compliance with the financial covenant as ofSeptember 30, 2022 , and we do not believe non-compliance is reasonably likely in the foreseeable future. The Credit Agreement provides for potential incremental revolving and term facilities at our request and at the discretion of the lenders or other persons providing such incremental facilities, in each case on terms to be determined, and also permits us to incur other secured or unsecured debt, in all cases subject to conditions and limitations on the amount as specified in the Credit Agreement. In addition, the indenture governing the 7.00% Senior Notes contains customary negative covenants that limit our ability and the ability of our restricted subsidiaries to, among other things: borrow money or guarantee debt; create liens; pay dividends on, or redeem or repurchase, stock; make specified types of investments and acquisitions; enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us; enter into new lines of business; enter into transactions with affiliates; and sell assets or merge with other companies. Certain of these covenants are subject to suspension when and if the 7.00% Senior Notes receive investment grade ratings. COMMODITY TRENDS We are exposed to price fluctuations primarily from purchases of ingredients and packaging materials, transportation costs and energy. Our principal ingredients are milk-based, whey-based and soy-based proteins, protein blends, sweeteners and vitamin and mineral blends. Our principal packaging materials consist of aseptic foil and plastic lined cardboard cartons, flexible and rigid plastic film and containers, beverage packaging and corrugate. These costs have been volatile in recent years, and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly. We manage the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities through purchase commitments required to meet our production requirements. In addition, we may attempt to offset the effect of increased costs by raising prices to our customers. However, for competitive reasons, we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them. Inflationary pressures can also have an adverse effect on us through higher raw material and energy costs. We experienced inflationary headwinds across our business during the year endedSeptember 30, 2022 ; however, these impacts were largely mitigated through sales price increases and cost savings measures, when possible. We expect inflationary pressures to continue into fiscal 2023, and this trend could have a materially adverse impact in the future if inflation rates were to significantly exceed our ability to achieve price increases or cost savings. CURRENCY Certain sales and costs of our foreign operations are denominated in the Euro. Consequently, profits from these operations are impacted by fluctuations in the value of this currency relative to theU.S. Dollar. We incur gains and losses within our stockholders' equity due to the translation of our financial statements from foreign currencies intoU.S. Dollars. Our income statement trends may be impacted by the translation of the income statements of our foreign operations intoU.S. Dollars. The exchange rates used to translate our foreign sales intoU.S. Dollars negatively affected net sales by less than 1% during the year endedSeptember 30, 2022 , and did not have a material impact to our operating profit or net earnings during the year endedSeptember 30, 2022 . CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted inthe United States of America ("GAAP") requires the use of judgment, estimates and assumptions. We make these subjective determinations after considering our historical performance, management's experience, current economic trends and events and information from outside sources. Inherent in this process is the possibility that actual results could differ from these estimates and assumptions for any particular period. Our significant accounting policies are described in Note 2 within "Notes to Consolidated Financial Statements." Our critical accounting estimates are those that involve a significant amount of estimation uncertainty and have a meaningful impact on the reporting of our financial condition and results of operations. Revenue, Allowance for Trade Promotions - Many of our contracts with customers include some form of variable or fixed consideration. The most common forms of variable and fixed consideration are trade promotions, rebates and discount programs. Variable consideration is treated as a reduction of revenue at the time product revenue is recognized. Methodologies for determining these provisions are dependent on specific customer pricing and promotional practices, which range from contractually fixed percentage price reductions to reimbursement based on actual occurrence or performance. The majority of 43
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trade promotions are redeemed in the form of invoice credits against trade. However, the recognition of certain trade promotions requires significant management judgement regarding estimated purchase volumes and program participation. We review and update estimates of variable consideration quarterly. Uncertainties related to the estimates of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration. Approximately 1% of our annual net sales represent variable consideration that will be resolved in the subsequent period. We do not believe that there will be significant changes to our estimates of variable consideration when any uncertainties are resolved with customers. However, significant changes in our estimates could have a material impact on our results of operations. Income Tax - We estimate income tax expense based on income earned and taxed in variousU.S. federal and state, as well as foreign, jurisdictions in accordance with our policy in Note 2 within "Notes to Consolidated Financial Statements." We record valuation allowances to reduce deferred tax assets to the extent that it is more likely than not that the future benefits will not be realized. When assessing the need for valuation allowances, we consider future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, we would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding adjustment to our provision for/(benefit from) income taxes. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The tax benefits recognized from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Our liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, new or emerging legislation and tax planning. The tax position will be de-recognized when it is no longer more likely than not of being sustained. We are subject to periodic audits by governmental tax authorities of our income tax returns. These audits generally include questions regarding our tax filing positions, including the amount and timing of deductions and the allocation of income among various tax jurisdictions. We evaluate our exposures associated with our tax filing positions, including state and local taxes, and record reserves for estimated exposures. See Note 7 within "Notes to Consolidated Financial Statements" for more information about estimates affecting income taxes. RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
See Note 3 within "Notes to Consolidated Financial Statements" for a discussion regarding recently issued and adopted accounting standards.
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