B&G Foods, Inc. (NYSE:BGS) today announced financial results
for the fourth quarter and full-year 2014, which include the
favorable impact of an extra reporting week in the fourth quarter
and full-year 2014.
Highlights (vs. prior year quarter and full year where
applicable):
- Net sales increased 12.5% to $238.0
million for the quarter and 17.0% to $848.0 million for the
year
- Comparable base business net sales*,
which excludes the impact of the extra reporting week,
acquisitions, the negative impact of a significant product recall
and the Rickland Orchards shortfall described below, increased $2.6
million, or 1.2%, for the quarter and decreased $2.5 million, or
0.3% for the year
- Diluted earnings per share decreased
40% to $0.21 for the quarter, primarily due to the product recall
and an inventory write-off relating to Rickland Orchards
- Diluted earnings per share decreased
22.4% to $0.76 for the year, primarily due to the product recall,
the significant non-cash impairment charge to Rickland Orchards
intangible assets and the related inventory write-off and
acquisition-related expenses
- Adjusted diluted earnings per share*
remained consistent at $0.39 for the quarter and increased 0.7% to
$1.44 for the year
- Adjusted EBITDA* increased 4.3% to
$52.1 million for the quarter and 5.5% to $194.1 million for the
year
- The Company expects to deliver 2015
full-year adjusted EBITDA of $196.0 million to $202.0 million,
adjusted diluted earnings per share of $1.48 to $1.55 and net sales
of $860.0 million to $880.0 million
“2014 was a challenging year for the Company that included a
major recall on Ortega, our largest brand, a sizable non-cash
impairment of intangible assets due to the underperforming Rickland
Orchards brand and continued warehouse distribution issues,” stated
Robert C. Cantwell, President, Chief Executive Officer and Interim
Chief Financial Officer of B&G Foods. “On the bright side, we
were able to achieve positive volume growth on the base business
and stabilize pricing in the second half of 2014. We are moving in
the right direction as we enter 2015, and we expect that the
current year will produce results more consistent with our track
record and future expectations.”
_____________________ * Please see “About Non-GAAP Financial
Measures and Items Affecting Comparability” below for the
definition of the terms adjusted net income, adjusted diluted
earnings per share, base business net sales, comparable base
business net sales, EBITDA and adjusted EBITDA, as well as
information concerning certain items affecting comparability and
reconciliations of the non-GAAP terms adjusted net income, adjusted
diluted earnings per share, base business net sales, comparable
base business net sales, EBITDA and adjusted EBITDA to the most
comparable GAAP financial measures.
Financial Results for the Fourth Quarter of 2014
Net sales for the fourth quarter of 2014 increased 12.5% to
$238.0 million from $211.5 million for the fourth quarter of 2013.
The Company’s fourth quarter of 2014 contained 14 weeks and the
fourth quarter of 2013 contained 13 weeks. Net sales of Specialty
Brands, acquired in April 2014, contributed $32.0 million to the
overall increase. The Company estimates that the additional week in
the fourth quarter of 2014 contributed approximately $15.0 million
to the net sales increase, of which approximately $2.5 million was
attributable to Specialty Brands.
The Company estimates that during the fourth quarter of 2014,
the Ortega and Las Palmas recall reduced net sales by approximately
$8.9 million, of which $4.1 million related to customer refunds and
$4.8 million related to lost sales from the temporary suspension of
production and distribution of the affected products. Net sales
were also negatively impacted by the Rickland Orchards shortfall in
the fourth quarter of 2014 of $11.8 million, a continuation of the
weakness that caused the Company to impair the brand.
Excluding the impact of the product recall and the Rickland
Orchards shortfall, base business net sales increased $15.1
million, or 7.1%, for the fourth quarter. The increase was
attributable to an increase in unit volume of $13.9 million, $12.5
million of which was attributable to the extra week described above
and $1.2 million of which was attributable to a net price
increase.
Comparable base business net sales, which excludes the impact of
the extra reporting week, acquisitions, the negative impact of the
product recall and the Rickland Orchards shortfall, increased $2.6
million, or 1.2%, for the fourth quarter.
Gross profit for the fourth quarter of 2014 decreased $10.1
million, or 15.1%, to $57.0 million from $67.1 million in the
fourth quarter of 2013. Gross profit expressed as a percentage of
net sales decreased to 24.0% for the fourth quarter of 2014 from
31.7% in the fourth quarter of 2013. The 7.7 percentage point
decrease was primarily due to the Ortega and Las Palmas recall and
the write-off of certain raw material and finished goods inventory
used in the production of Rickland Orchards products, which reduced
gross profit margin by approximately 5.2 percentage points and 0.7
percentage points, respectively. Excluding the impact of the recall
and the Rickland Orchards inventory write-off, gross profit as a
percentage of net sales was approximately 29.9%. The remaining
gross profit shortfall of 1.8 percentage points was attributable to
an increase in distribution costs, a sales mix shift to lower
margin products and the negative impact of the Canadian exchange
rate, which reduced gross profit margin by approximately 1.2
percentage points, 0.9 percentage points and 0.2 percentage points,
respectively. This reduction was slightly offset by the base
business net price increase described above of 0.5 percentage
points.
Selling, general and administrative expenses increased to $24.0
million for the fourth quarter of 2014 from $23.9 million in the
fourth quarter of 2013. This was due to an increase of $1.5 million
relating to a prior year quarter gain relating to a legal
settlement, increases of $0.7 million in warehousing expenses and
$0.5 million of administrative expenses relating to the recall,
offset by decreases in acquisition-related expenses of $2.2
million, consumer marketing of $0.1 million and other expenses of
$0.3 million. Expressed as a percentage of net sales, our selling,
general and administrative expenses decreased from 11.3% to
10.1%.
Net interest expense for the fourth quarter of 2014 increased
$1.1 million, or 10.3%, to $12.0 million from $10.9 million for the
fourth quarter of 2013. The increase in net interest expense in the
fourth quarter of 2014 was primarily attributable to an increase in
the Company’s average debt outstanding due to the Company’s recent
acquisitions.
The Company’s reported net income under U.S. generally accepted
accounting principles (GAAP) was $11.5 million, or $0.21 per
diluted share, for the fourth quarter of 2014, as compared to
reported net income of $18.8 million, or $0.35 per diluted share,
for the fourth quarter of 2013. The Company’s adjusted net income
for the fourth quarter of 2014, which excludes the after tax impact
of the Rickland Orchards loss on disposal of inventory, the
loss on product recall, net of expected insurance recoveries and
acquisition-related expenses, was $21.2 million, or $0.39 per
adjusted diluted share. The Company’s adjusted net income for the
fourth quarter of 2013, which excludes the after tax impact of
acquisition-related expenses, was $20.7 million, or $0.39 per
adjusted diluted share.
For the fourth quarter of 2014, adjusted EBITDA, which excludes
the impact of the loss on product recall (net of expected insurance
recoveries), acquisition-related expenses, non-cash impairment
charges and the related loss on disposal of inventory, increased
4.3% to $52.1 million from $50.0 million for the fourth quarter of
2013.
Financial Results for Full-Year 2014
Net sales for fiscal 2014 increased 17.0% to $848.0 million from
$725.0 million for fiscal 2013. Fiscal 2014 contained 53 weeks and
fiscal 2013 contained 52 weeks. The Company estimates that the
additional week in fiscal 2014 contributed approximately $15.0
million to the net sales increase.
Additional months of ownership of Specialty Brands, Pirate
Brands, Rickland Orchards and TrueNorth in fiscal 2014 as compared
to fiscal 2013, contributed $133.6 million to the overall net sales
increase, of which approximately $2.5 million was due to the extra
week described above.
The Company estimates that the Ortega and Las Palmas recall
reduced net sales by approximately $8.9 million, of which $4.1
million related to customer refunds and $4.8 million related to
lost sales from the temporary suspension of production and
distribution of the affected products. Net sales were also
negatively impacted by the Rickland Orchards shortfall during the
fourth quarter of 2014 of $11.8 million, a continuation of the
weakness that caused the Company to impair the brand.
Excluding the impact of the Ortega and Las Palmas recall and the
Rickland Orchards shortfall, base business net sales increased
$10.1 million, or 1.4%, for fiscal 2014. The $10.1 million increase
was attributable to an increase in unit volume of $15.7 million, or
2.2%, $12.5 million of which was attributable to the extra week
described above, partially offset by a net price decrease of $5.6
million, or 0.8%.
Comparable base business net sales, which excludes the impact of
the extra reporting week, acquisitions, the negative impact of the
product recall and the Rickland Orchards shortfall, decreased $2.5
million, or 0.3% for the year.
Gross profit increased $4.9 million, or 2.0%, to $247.8 million
in fiscal 2014 from $242.9 million in fiscal 2013. Gross profit
expressed as a percentage of net sales decreased to 29.2% for
fiscal 2014 from 33.5% in fiscal 2013. The 4.3 percentage point
decrease was due in part to the Ortega and Las Palmas recall and
the $4.5 million write-off of certain raw material and finished
goods inventory used in the production of Rickland Orchards
products, which reduced gross profit margin by approximately 1.4
percentage points and 0.5 percentage points, respectively.
Excluding the impact of the recall and the Rickland Orchards
inventory write-off, gross profit as a percentage of net sales was
31.1%. The remaining gross profit shortfall of 2.4 percentage
points was attributable to an increase in distribution costs, the
base business net price decrease described above, a sales mix shift
to lower margin products and the negative impact of the Canadian
exchange rate, which reduced gross profit margin by approximately
1.0 percentage points, 0.6 percentage points, 0.6 percentage points
and 0.2 percentage points, respectively.
Selling, general and administrative expenses increased $14.0
million, or 17.7%, to $93.0 million for fiscal 2014 from $79.0
million for fiscal 2013. This increase is primarily due to the
Company’s recent acquisitions. During fiscal 2014, the Company
experienced increases in consumer marketing of $4.9 million,
brokerage expenses of $3.5 million, warehousing expenses of $2.4
million, acquisition-related expenses of $1.4 million,
administrative expenses relating to the recall of $0.5 million and
all other expenses of $1.3 million. Expressed as a percentage of
net sales, our selling, general and administrative expenses
increased to 11.0% in fiscal 2014 from 10.9% in fiscal 2013 because
the increases in selling, general and administrative expenses were
primarily the result of the recent acquisitions that also resulted
in increased net sales.
Net interest expense for fiscal 2014 increased $4.8 million or
11.4% to $46.6 million from $41.8 million in fiscal 2013. The
increase was primarily due to the increase in the Company’s average
debt outstanding attributable to the Company’s recent
acquisitions.
The Company’s reported net income under GAAP was $41.0 million,
or $0.76 per diluted share, for fiscal 2014, as compared to $52.3
million, or $0.98 per diluted share, for fiscal 2013. The Company’s
adjusted net income for fiscal 2014, which excludes the after tax
impact of the loss on product recall (net of expected insurance
recoveries), loss on extinguishment of debt, acquisition-related
expenses, the non-cash impairment charges to Rickland Orchards
intangible assets and the related loss on disposal of inventory,
and a non-cash gain relating to the Rickland Orchards earn-out, was
$77.1 million, or $1.44 per adjusted diluted share. The Company’s
adjusted net income for fiscal 2013, which excludes the after tax
impact of loss on extinguishment of debt and acquisition-related
expenses, was $76.3 million, and adjusted diluted earnings per
share was $1.43.
Adjusted EBITDA, which excludes the loss on product recall (net
of expected insurance recoveries), acquisition-related expenses,
the non-cash impairment charges and the related loss on disposal of
inventory, and the non-cash gain relating to the earn-out,
increased 5.5% to $194.1 million in fiscal 2014 from $184.0 million
for fiscal 2013.
Product Recall
On November 14, 2014, the Company announced a voluntary recall
for certain Ortega and Las Palmas products after learning that one
or more of the spice ingredients purchased from a third party
supplier contained peanuts and almonds, allergens that are not
declared on the products’ ingredient statements. The cost impact of
this recall during fiscal 2014 (not including lost sales during the
period of time production and distribution of the affected products
were suspended), net of expected insurance recoveries of $5.0
million, was $12.8 million, of which $4.1 million was recorded as a
decrease in net sales related to customer refunds; $8.2 million was
recorded as an increase in cost of goods sold primarily related to
costs associated with product retrieval, destruction charges,
customer fees and inventory write-offs; and $0.5 million was
recorded as an increase in selling, general, and administrative
expenses related to administrative costs. The charges the Company
recorded are based upon costs incurred to date and management’s
estimates of costs that have yet to be incurred that relate to
2014. As of January 3, 2015, the reserves related to the recall
remaining on the Company’s consolidated balance sheet include $4.0
million in accounts receivable reserves and $0.6 million of accrued
expenses. The Company has recorded a $5.0 million receivable for
the expected insurance recoveries in prepaid expenses in its
consolidated balance sheet as of January 3, 2015.
In connection with the recall, the Company temporarily suspended
production and distribution of the affected products for several
weeks. The Company estimates that this negatively impacted net
sales of the Ortega and Las Palmas brands by approximately $4.8
million during the fourth quarter of fiscal 2014. However, it is
possible that the Company may experience an increase in net sales
for these two brands during fiscal 2015, as customers restock their
inventory of affected products.
Guidance
Adjusted EBITDA for full-year 2015 is expected to be
approximately $196.0 million to $202.0 million, adjusted diluted
earnings per share is expected to be $1.48 to $1.55 and net sales
is expected to be approximately $860.0 million to $880.0
million.
Conference Call
B&G Foods will hold a conference call at 4:30 p.m. ET today,
February 18, 2015. The call will be webcast live from B&G
Foods’ website at www.bgfoods.com under “Investor Relations—Company
Overview.” The call can also be accessed live over the phone by
dialing (800) 306-6784 for U.S. callers or (913) 312-9323 for
international callers.
A replay of the call will be available one hour after the call
and can be accessed by dialing (877) 870-5176 or
(858) 384-5517 for international callers; the password is
7398662. The replay will be available from February 18, 2015
through March 4, 2015. Investors may also access a web-based replay
of the call at the Investor Relations section of B&G Foods’
website, www.bgfoods.com.
About Non-GAAP Financial Measures and Items Affecting
Comparability
“Adjusted net income,” “adjusted diluted earnings per share,”
“base business net sales” (net sales without the impact of
acquisitions until the acquisitions are included in both comparable
periods), “comparable base business net sales” (base business net
sales, excluding the impact of the extra reporting week, the
negative impact of the product recall and the Rickland Orchards
shortfall), “EBITDA” (net income before net interest expense,
income taxes, depreciation and amortization and loss on
extinguishment of debt) and “adjusted EBITDA” (EBITDA as adjusted
for cash and non-cash acquisition-related expenses, gains and
losses (which may include third party fees and expenses,
integration, restructuring and consolidation expenses); intangible
asset impairment charges and related asset write-offs; gains or
losses related to changes in the fair value of contingent
liabilities from earn-outs; and loss on product recalls, including
customer refunds, selling, general and administrative expenses and
the impact on cost of sales are “non-GAAP financial measures.” A
non-GAAP financial measure is a numerical measure of financial
performance that excludes or includes amounts so as to be different
than the most directly comparable measure calculated and presented
in accordance with GAAP in B&G Foods’ consolidated balance
sheets and related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity and cash
flows. Non-GAAP financial measures should not be considered in
isolation or as a substitute for the most directly comparable GAAP
measures. The Company’s non-GAAP financial measures may be
different from non-GAAP financial measures used by other
companies.
The Company uses “adjusted net income,” “adjusted diluted
earnings per share,” “base business net sales” and “comparable base
business net sales,” which are calculated as reported net income,
reported diluted earnings per share and reported net sales adjusted
for certain items that affect comparability. These non-GAAP
financial measures reflect adjustments to reported net income,
diluted earnings per share and net sales to eliminate the items
identified above. This information is provided in order to allow
investors to make meaningful comparisons of the Company’s operating
performance between periods and to view the Company’s business from
the same perspective as the Company’s management. Because the
Company cannot predict the timing and amount of these items,
management does not consider these items when evaluating the
Company’s performance or when making decisions regarding allocation
of resources.
Additional information regarding EBITDA and adjusted EBITDA, and
a reconciliation of EBITDA and adjusted EBITDA to net income and to
net cash provided by operating activities is included below for the
fourth quarter and full year of fiscal 2014 and 2013, along with
the components of EBITDA and adjusted EBITDA. Also included below
are reconciliations of the non-GAAP terms adjusted net income,
adjusted diluted earnings per share, base business net sales and
comparable base business net sales to 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 (loss), changes in stockholders’
equity and cash flows.
About B&G Foods, Inc.
B&G Foods and its subsidiaries manufacture, sell and
distribute a diversified portfolio of high-quality, branded
shelf-stable foods across the United States, Canada and Puerto
Rico. Based in Parsippany, New Jersey, B&G Foods’
products are marketed under many recognized brands, including
Ac’cent, B&G, B&M, Baker’s Joy, Bear Creek Country
Kitchens, Brer Rabbit, Canoleo, Cary’s, Cream of Rice,
Cream of Wheat, Devonsheer, Don Pepino, Emeril’s,
Grandma’s Molasses, JJ Flats, Joan of Arc,
Las Palmas, MacDonald’s, Maple Grove Farms, Molly McButter,
Mrs. Dash, New York Flatbreads, New York Style,
Old London, Original Tings, Ortega, Pirate’s Booty, Polaner,
Red Devil, Regina, Rickland Orchards, Sa-són, Sclafani,
Smart Puffs, Spring Tree, Sugar Twin, Trappey’s, TrueNorth,
Underwood, Vermont Maid and Wright’s. B&G Foods also sells
and distributes two branded household products, Static Guard
and Kleen Guard.
Forward-Looking Statements
Statements in this press release that are not statements of
historical or current fact constitute “forward-looking statements.”
The forward-looking statements contained in this press release
include, without limitation, statements related to B&G Foods’
adjusted EBITDA, adjusted diluted earnings per share and net sales
expectations for fiscal 2015 and our expectation that fiscal 2015
will produce results more consistent with our track record and
future expectations. Such forward-looking statements involve known
and unknown risks, uncertainties and other unknown factors that
could cause the actual results of B&G Foods to be
materially different from the historical results or from any future
results expressed or implied by such forward-looking statements. In
addition to statements that explicitly describe such risks and
uncertainties readers are urged to consider statements labeled with
the terms “believes,” “belief,” “expects,” “projects,” “intends,”
“anticipates” or “plans” to be uncertain and forward-looking. The
forward-looking statements contained herein are also subject
generally to other risks and uncertainties that are described from
time to time in B&G Foods’ filings with the Securities and
Exchange Commission, including under Item 1A, “Risk Factors” in the
Company’s most recent Annual Report on Form 10-K and in its
subsequent reports on Forms 10-Q and 8-K. Investors are cautioned
not to place undue reliance on any such forward-looking statements,
which speak only as of the date they are made. B&G Foods
undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise.
B&G Foods, Inc. and
Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per
share data)
(Unaudited)
January 3, 2015 December 28, 2013
Assets Current assets: Cash and cash equivalents $ 1,490 $
4,107 Trade accounts receivable, less allowance for doubtful
accounts and discounts of $1,005 and $1,081 in 2014 and 2013,
respectively 55,925 62,763 Inventories 106,557 101,251 Prepaid
expenses and other current assets 14,830 8,079 Income tax
receivable 14,442 3,422 Deferred income taxes 3,275
2,115 Total current assets 196,519 181,737
Property, plant and equipment, net 116,197 110,374 Goodwill 370,424
319,292 Other intangibles, net 947,895 844,141 Other assets
18,318 28,799 Total assets $ 1,649,353
$ 1,484,343
Liabilities and Stockholders’
Equity Current liabilities: Trade accounts payable $
38,052 $ 42,638 Accrued expenses 17,644 19,189 Current portion of
long-term debt 18,750 26,250 Dividends payable 18,246
17,637 Total current liabilities 92,692 105,714
Long-term debt 1,007,107 844,635 Other liabilities 7,352
8,692 Deferred income taxes 204,207 146,939
Total liabilities 1,311,358 1,105,980 Commitments and
contingencies Stockholders’ equity: Preferred stock, $0.01
par value per share. Authorized 1,000,000 shares; no shares issued
or outstanding — — Common stock, $0.01 par value per share.
Authorized 125,000,000 shares; 53,663,697 and 53,445,910 issued and
outstanding as of January 3, 2015 and December 28, 2013,
respectively 537 534 Additional paid-in capital 110,349 183,113
Accumulated other comprehensive loss (11,034 ) (2,471 ) Retained
earnings 238,143 197,187 Total
stockholders’ equity 337,995 378,363
Total liabilities and stockholders’ equity $ 1,649,353 $
1,484,343
B&G Foods, Inc. and
Subsidiaries
Consolidated Statements of
Operations
(In thousands, except per share
data)
(Unaudited)
Fourth Quarter Ended Fiscal Year Ended
January 3, 2015 December 28, 2013 January
3, 2015 December 28, 2013 Net sales $
237,990 $ 211,547 $ 848,017 $ 724,973 Cost of goods sold
180,977 144,399 600,246 482,050 Gross
profit 57,013 67,148 247,771 242,923 Operating expenses:
Selling, general and administrative expenses 23,968 23,946 93,033
79,043 Amortization expense 2,706 3,276 12,692 9,884 Impairment of
intangible assets — — 34,154 — Gain on change in fair value of
contingent consideration — — (8,206 ) —
Operating income 30,339 39,926 116,098 153,996 Other
expenses: Interest expense, net 12,041 10,913 46,573 41,813 Loss on
extinguishment of debt — — 5,748
31,291 Income before income tax expense 18,298 29,013 63,777 80,892
Income tax expense 6,844 10,221 22,821
28,549 Net income $ 11,454 $ 18,792 $ 40,956 $ 52,343
Weighted average shares outstanding: Basic 53,665 53,398
53,658 52,998 Diluted 53,797 53,660 53,747 53,182 Earnings
per share: Basic $ 0.21 $ 0.35 $ 0.76 $ 0.99 Diluted $ 0.21 $ 0.35
$ 0.76 $ 0.98 Cash dividends declared per share $ 0.34 $
0.33 $ 1.36 $ 1.23
B&G Foods, Inc. and
Subsidiaries
Reconciliation of EBITDA and Adjusted
EBITDA to Net Income and to Net Cash Provided by Operating
Activities
(In thousands)
(Unaudited)
Fourth Quarter Ended Fiscal Year Ended
January 3, 2015 December 28, 2013 January
3, 2015 December 28, 2013 Net income $
11,454 $ 18,792 $ 40,956 $ 52,343 Income tax expense 6,844 10,221
22,821 28,549 Interest expense, net 12,041 10,913 46,573 41,813
Depreciation and amortization 6,651 7,075 27,434 24,077 Loss on
extinguishment of debt — — 5,748
31,291 EBITDA (1) 36,990 47,001 143,532
178,073 Acquisition-related expenses 791 2,999 7,315 5,932
Impairment of intangible assets — — 34,154 — Loss on disposal of
inventory 1,557 — 4,535 — Loss on product recall, net of expected
insurance recoveries 12,798 — 12,798 — Gain on change in fair value
of contingent consideration — —
(8,206 ) — Adjusted EBITDA (1) 52,136 50,000 194,128
184,005 Income tax expense (6,844 ) (10,221 ) (22,821 ) (28,549 )
Interest expense, net (12,041 ) (10,913 ) (46,573 ) (41,813 )
Deferred income taxes 8,772 8,737 13,855 20,800 Amortization of
deferred financing costs and bond discount 883 1,082 3,790 4,400
Acquisition-related expenses (791 ) (2,999 ) (7,315 ) (5,932 ) Loss
on product recall, net of expected insurance recoveries (12,798 ) —
(12,798 ) — Share-based compensation expense 107 666 2,235 3,935
Excess tax benefits from share-based compensation — — (2,356 )
(4,192 ) Acquisition-related contingent consideration expense,
including interest accretion — 208 432 208 Changes in assets and
liabilities, net of effects of business combinations 9,013
9,457 (23,451 ) (17,952 ) Net
cash provided by operating activities $ 38,437 $ 46,017
$ 99,126 $ 114,910 (1) EBITDA
and adjusted EBITDA are non-GAAP financial measures used by
management to measure operating performance. 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
(loss), changes in stockholders’ equity and cash flows. We define
EBITDA as net income (loss) 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-related expenses, gains or losses (which may
include third party fees and expenses, integration, restructuring
and consolidation expenses); intangible asset impairment charges
and related asset write-offs; gains or losses related to changes in
the fair value of contingent liabilities from earn-outs; and loss
on product recalls, including customer refunds, selling, general
and administrative expenses and the impact on cost of sales.
Management believes that it is useful to eliminate net interest
expense, income taxes, depreciation and amortization, loss on
extinguishment of debt, acquisition-related expenses, gains and
losses, non-cash intangible asset impairment charges and related
asset write-offs, gains or losses related to changes in the fair
value of contingent liabilities from earn-outs and loss on product
recalls because it allows management to focus on what it deems to
be a more reliable indicator of ongoing operating performance and
our ability to generate cash flow from operations. We use EBITDA
and adjusted EBITDA in our business operations to, among other
things, evaluate our operating performance, develop budgets and
measure our performance against those budgets, determine employee
bonuses and evaluate our cash flows in terms of cash needs. We also
present EBITDA and adjusted EBITDA because we believe they are
useful indicators of our historical debt capacity and ability to
service debt and because covenants in our credit agreement and our
senior notes indenture contain ratios based on these measures. As a
result, internal management reports used during monthly operating
reviews feature the EBITDA and adjusted EBITDA metrics. However,
management uses these metrics in conjunction with traditional GAAP
operating performance and liquidity measures as part of its overall
assessment of company performance and liquidity and therefore does
not place undue reliance on these measures as its only measures of
operating performance and liquidity. EBITDA and adjusted
EBITDA are not recognized terms under GAAP and do not purport to be
an alternative to operating income or net income (loss) or any
other GAAP measure as an indicator of operating performance. EBITDA
and adjusted EBITDA are not complete net cash flow measures because
EBITDA and adjusted EBITDA are measures of liquidity that do not
include reductions for cash payments for an entity’s obligation to
service its debt, fund its working capital, capital expenditures
and acquisitions and pay its income taxes and dividends. Rather,
EBITDA and adjusted EBITDA are two potential indicators of an
entity’s ability to fund these cash requirements. EBITDA and
adjusted EBITDA are not complete measures of an entity’s
profitability because they do not include costs and expenses for
depreciation and amortization, interest and related expenses, loss
on extinguishment of debt, acquisition-related expenses, gains and
losses and income taxes, intangible asset impairment charges and
related asset write-offs, gains or losses related to changes in the
fair value of contingent liabilities from earn-outs and loss on
product recalls. Because not all companies use identical
calculations, this presentation of EBITDA and adjusted EBITDA may
not be comparable to other similarly titled measures of other
companies. However, EBITDA and adjusted EBITDA can still be useful
in evaluating our performance against our peer companies because
management believes these measures provide users with valuable
insight into key components of GAAP amounts.
B&G Foods, Inc. and
Subsidiaries
Items Affecting Comparability —
Reconciliation of Adjusted Information to GAAP Information
(In thousands, except per share
data)
(Unaudited)
Fourth Quarter Ended Fiscal Year Ended
January 3, 2015 December 28, 2013 January
3, 2015 December 28, 2013 Reported net income $
11,454 $ 18,792 $ 40,956 $ 52,343 Loss on extinguishment of debt,
net of tax(1) — — 3,690 20,120 Acquisition-related expenses, net of
tax 508 1,928 4,696 3,814 Impairment of intangible assets, net of
tax(2) — — 21,927 — Loss on disposal of inventory, net of tax(2)
1,000 — 2,911 — Gain on contingent consideration, net of tax(2) — —
(5,268 ) — Loss on product recall, net of expected insurance
recoveries and net of tax(3) 8,216 — 8,216
— Adjusted net income $ 21,178 $ 20,720 $ 77,128
$ 76,277 Adjusted diluted earnings per share(4) $ 0.39 $
0.39 $ 1.44 $ 1.43
_____________________
(1) Loss on extinguishment of debt for the full-year 2014
includes costs relating to the termination of our prior credit
agreement, which included the repayment of $121.9 million aggregate
principal amount of tranche A term loans and $215.0 million
aggregate principal amount of revolving loans, and the write-off of
deferred debt financing costs and unamortized discount of $5.4
million and $0.3 million, respectively. Loss on extinguishment of
debt for the full-year 2013 includes costs relating to our
repurchase of $248.5 million aggregate principal amount of 7.625%
senior notes and our repayment of $222.2 million aggregate
principal amount of tranche B term loans, including the repurchase
premium and other expenses of $20.2 million, the write-off of
deferred debt financing costs of $8.3 million and the write-off of
unamortized discount of $2.8 million. (2)
On October 7, 2013, we completed the
Rickland Orchards acquisition for a base purchase price of $57.5
million, of which $37.4 million was paid in cash and approximately
$20.1 million was paid in shares of B&G Foods common stock. The
purchase agreement also provided that the purchase price could be
increased by contingent earn-out consideration of up to $15.0
million in the aggregate based upon the achievement of revenue
growth targets during fiscal 2014, 2015 and 2016 meant to achieve
operating results in excess of base purchase price acquisition
model assumptions.
As of the date of acquisition we estimated
the original fair value of the contingent consideration to be
approximately $7.6 million. During the remainder of fiscal 2013 and
the first two quarters of 2014, we recorded interest accretion
expense on the contingent consideration liability of $0.2 million
and $0.4 million, respectively. At June 28, 2014, we remeasured the
fair value of the contingent consideration using actual operating
results through June 28, 2014 and revised forecasted operating
results for Rickland Orchards for the remainder of fiscal 2014,
2015 and 2016. As a result of lower than expected net sales results
for Rickland Orchards, and the unlikelihood of Rickland Orchards
achieving the revenue growth targets, the fair value of the
contingent consideration was reduced to zero, resulting in a
non-cash gain of $8.2 million that is included in gain on change in
fair value of contingent consideration in the consolidated
statements of operations for fiscal 2014. We did not have any
contingent earn-out obligations during 2013.
Based on the results of an interim
impairment analysis performed at September 27, 2014, we recorded
non-cash impairment charges to amortizable trademarks and customer
relationship intangibles of Rickland Orchards of $26.9 million and
$7.3 million, respectively, which are recorded in Impairment of
Intangible Assets in the consolidated statement of operations for
fiscal 2014. As of January 3, 2015, the remaining balances of the
Rickland Orchards amortizable trademark and customer relationship
intangibles were $5.3 million and $1.1 million, respectively. If
operating results for the Rickland Orchards brand continue to
deteriorate at rates in excess of our current projections, we may
be required to record an additional non-cash charge for the
impairment of long-lived intangibles relating to Rickland Orchards,
and these non-cash charges would be material.
In connection with the impairment of the
Rickland Orchards intangibles, we also recorded a charge to cost of
goods sold of approximately $1.5 million and $4.5 million during
the fourth quarter and full-year 2014, respectively, relating to
the write-off of certain raw material and finished goods inventory
used in the production of Rickland Orchards products.
(3)
On November 14, 2014, we announced a
voluntary recall for certain Ortega and Las Palmas products after
learning that one or more of the spice ingredients purchased from a
third party supplier contained peanuts and almonds, allergens that
are not declared on the products’ ingredient statements. The cost
impact of this recall during fiscal 2014 (not including lost sales
during the period of time production and distribution of the
affected products were suspended), net of expected insurance
recoveries of $5.0 million, was $12.8 million, of which $4.1
million was recorded as a decrease in net sales related to customer
refunds; $8.2 million was recorded as an increase in cost of goods
sold primarily related to costs associated with product retrieval,
destruction charges, customer fees and inventory write-offs; and
$0.5 million was recorded as an increase in selling, general, and
administrative expenses related to administrative costs. The
charges we recorded are based upon costs incurred to date and
management’s estimates of costs that have yet to be incurred that
relate to 2014. As of January 3, 2015, the reserves related to the
recall remaining on our consolidated balance sheet include $4.0
million in accounts receivable reserves and $0.6 million of accrued
expenses. We have recorded a $5.0 million receivable for the
expected insurance recoveries in prepaid expenses in its
consolidated balance sheet as of January 3, 2015.
In connection with the recall, we
temporarily suspended production and distribution of the affected
products for several weeks. We estimate that this negatively
impacted net sales of the Ortega and Las Palmas brands by
approximately $4.8 million during the fourth quarter of fiscal
2014. However, it is possible that we may experience an increase in
net sales for these two brands during fiscal 2015, as our customers
restock their inventory of affected products.
(4) For the fourth quarter and full-year 2014, 418,158
outstanding stock options were excluded from diluted earnings per
share as the effect was antidilutive.
B&G Foods, Inc. and
Subsidiaries
Reconciliation of Base Business Net
Sales and Comparable Base Business Net Sales to Net Sales
(In thousands)
(Unaudited)
Fourth Quarter Ended Fiscal Year Ended
January 3, 2015 December 28, 2013 January
3, 2015 December 28, 2013 Reported net sales $
237,990 $ 211,547 $ 848,017 $ 724,973 Net sales from
acquisitions(1) (31,965 ) — (133,635 )
— Base business net sales $ 206,025 $ 211,547 $ 714,382 $ 724,973
Extra reporting week(2) (12,500 ) — (12,500 ) — Product recall(3)
8,863 — 8,863 —
Rickland Orchards shortfall(4)
11,774 — 11,774 —
Comparable base business net sales $ 214,162 $ 211,547 $
722,519 $ 724,973 (1)
For the fourth quarter of 2014, net sales
of Specialty Brands, acquired in April 2014, contributed $32.0
million to our overall net sales increase, of which approximately
$2.5 million was due to the extra reporting week. For fiscal 2014,
additional months of ownership of Specialty Brands, Pirate Brands,
Rickland Orchards and TrueNorth as compared to fiscal 2013,
contributed $133.6 million to our overall net sales increase, of
which approximately $2.5 million was due to the extra reporting
week.
(2) The Company’s fourth quarter of 2014 contained 14 weeks and the
fourth quarter of 2013 contained 13 weeks. Fiscal 2014 contained 53
weeks and fiscal 2013 contained 52 weeks. Net sales attributable to
the extra reporting week for the fourth quarter of 2014 and fiscal
2014 exclude $2.5 million of net sales of Specialty Brands
attributable to the extra reporting week. See note (1) above. (3)
The Company estimates that during the
fourth quarter of 2014, the Ortega and Las Palmas recall reduced
net sales by approximately $8.9 million, of which $4.1 million
related to customer refunds and $4.8 million related to lost sales
from the temporary suspension of production and distribution of the
affected products.
(4)
Net sales were negatively impacted by the
Rickland Orchards shortfall in the fourth quarter of 2014, a
continuation of the weakness that caused the Company to impair the
brand.
Investor Relations:ICR, Inc.Don Duffy, 866-211-8151orMedia
Relations:ICR, Inc.Matt Lindberg, 203-682-8214
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