B&G Foods, Inc. (NYSE:BGS) today announced financial results
for the third quarter and first three quarters of 2015.
Highlights (vs. year-ago quarter where applicable):
- Net sales increased 2.1% to $213.3
million
- Net income increased from a loss of
$4.4 million to a profit of $19.8 million
- Adjusted net income* increased 10.5% to
$22.7 million
- Diluted earnings per share increased
from a loss of $0.08 to earnings of $0.34
- Adjusted diluted earnings per share*
increased 2.6% to $0.39
- Adjusted EBITDA* increased 7.4% to
$53.1 million
- Guidance for full year fiscal 2015
(excluding the impact of the Green Giant acquisition):
- Adjusted EBITDA guidance reaffirmed at
a range of $199.0 million to $204.0 million
- Adjusted diluted earnings per share
guidance reaffirmed at a range of $1.44 to $1.50
- Net sales guidance revised to a range
of $865.0 million to $875.0 million from $875.0 million to $885.0
million
Commenting on the results, Robert C. Cantwell, President and
Chief Executive Officer of B&G Foods, stated, “During the
quarter, the Company achieved strong growth in adjusted net income
of 10.5% and adjusted EBITDA of 7.4%. Our focus on improving
margins continued to show positive results, with our adjusted
EBITDA margin increasing 1.2 percentage points to 24.9%. We expect
to continue to see margin improvements in the fourth quarter and to
yet again deliver full year company records for net sales and
adjusted EBITDA.” Mr. Cantwell continued, “We expect to close the
Green Giant acquisition during the fourth quarter. Consistent with
our acquisition strategy, the acquisition is expected to be
immediately accretive to our earnings per share and free cash flow.
And following the completion of the Green Giant acquisition
and transition, we are optimistic about future acquisition
opportunities in both the shelf stable and frozen categories.”
_____________________
* Please see “About Non-GAAP Financial Measures and
Items Affecting Comparability” below for the definition of the
non-GAAP financial measures “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 to the most comparable GAAP
financial measures.
Financial Results for the Third Quarter of 2015
Net sales for the third quarter of 2015 increased $4.3 million,
or 2.1%, to $213.3 million from $209.0 million for the third
quarter of 2014. Net sales of the Mama Mary’s brand, acquired in
July 2015, contributed $8.5 million to the Company’s net sales for
the quarter. Negatively impacting the Company’s net sales for the
quarter was a $3.4 million decrease in net sales for
Rickland Orchards compared to the third quarter of 2014, a
continuation of the weakness that caused the Company to impair the
brand’s trademark and customer relationship intangible assets in
2014.
Comparable base business net sales, which excludes the impact of
the Mama Mary’s acquisition and the Rickland Orchards shortfall,
decreased $0.8 million, or 0.4%, in the third quarter of 2015. The
$0.8 million decrease was attributable to a decrease in unit volume
of $4.5 million, partially offset by an increase in net pricing of
$3.7 million (due to increases in list prices and reduced
promotional activity).
Gross profit for the third quarter of 2015 increased $8.5
million, or 13.5%, to $71.6 million from $63.1 million for the
third quarter of 2014. Gross profit expressed as a percentage of
net sales increased to 33.6% in the third quarter of 2015 from
30.2% in the third quarter of 2014. The 3.4 percentage point
increase resulted primarily from price increases and lower delivery
costs, partially offset by minor cost increases in commodities and
packaging and the negative impact of the Canadian exchange rate on
the Company’s net sales to Canada. The increase in gross profit
percentage year over year was also favorably impacted by the third
quarter 2014 charge to cost of goods sold of approximately $3.0
million relating to a write-off of certain raw material and
finished goods inventory used in the production of
Rickland Orchards products.
Selling, general and administrative expenses increased $6.1
million, or 29.0%, to $27.3 million for the third quarter of 2015
from $21.2 million for the third quarter of 2014. This increase was
primarily due to increases in acquisition-related expenses of $2.1
million, warehousing expenses of $1.8 million (primarily related to
restructuring activity) selling expenses of $0.8 million (including
an increase of $0.9 million for salesperson compensation, slightly
offset by a decrease in brokerage expenses) and other expenses of
$1.5 million (primarily related to compensation). These increases
were slightly offset by a decrease of $0.1 million of consumer
marketing expenses. Expressed as a percentage of net sales,
selling, general and administrative expenses increased 2.7
percentage points to 12.8% for the third quarter of 2015 from 10.1%
for the third quarter of 2014.
Net interest expense for the third quarter of 2015 decreased
$0.3 million, or 2.7%, to $11.3 million from $11.6 million in the
third quarter of 2014. The decrease was primarily attributable to a
decrease in the Company’s average debt outstanding.
The Company’s reported net income under U.S. generally accepted
accounting principles (GAAP) was $19.8 million, or $0.34 per
diluted share, for the third quarter of 2015, as compared to
reported net loss of $4.4 million, or $0.08 per diluted share, for
the third quarter of 2014. The Company’s adjusted net income for
the third quarter of 2015, which excludes the after tax impact of
acquisition-related expenses and distribution restructuring
expenses, was $22.7 million, or $0.39 per adjusted diluted share.
The Company’s adjusted net income for the third quarter of 2014,
which excludes the after tax impact of acquisition-related
expenses, the non-cash impairment charges to Rickland Orchards
intangible assets and the related loss on disposal of inventory,
was $20.5 million, or $0.38 per adjusted diluted share.
For the third quarter of 2015, adjusted EBITDA, which excludes
the impact of acquisition-related expenses, distribution
restructuring expenses, the non-cash impairment charges to
Rickland Orchards intangible assets and the related loss on
disposal of inventory, increased 7.4% to $53.1 million from $49.5
million for the third quarter of 2014.
Financial Results for the First Three Quarters of
2015
Net sales for the first three quarters of 2015 increased $14.1
million, or 2.3%, to $624.1 million from $610.0 million for the
first three quarters of 2014. Net sales of the Mama Mary’s brand,
which the Company acquired in July 2015, contributed $8.5 million
to the overall increase. Net sales of Specialty Brands,
acquired in April 2014, contributed $23.1 million to the overall
increase. Net sales were negatively impacted by the Rickland
Orchards brand, whose net sales decreased by $17.1 million compared
to the first three quarters of 2014, a continuation of the weakness
that caused the Company to impair the brand’s trademark and
customer relationship intangible assets in 2014.
Net sales of Ortega products increased $6.0 million, or 5.7%.
The increase was attributable to an increase in net pricing of $3.7
million and an increase in unit volume due in part to customers
restocking inventory of products affected by the Ortega and Las
Palmas recall announced in November 2014, partially offset by $1.2
million of customer refunds relating to the recall. Excluding the
customer refunds relating to the recall, net sales of Ortega
products increased $7.2 million, or 6.9%.
Comparable base business net sales, which excludes the impact of
acquisitions, the Rickland Orchards shortfall and the Ortega
and Las Palmas recall, increased $0.8 million, or 0.1%, for the
first three quarters of 2015. The $0.8 million increase was
attributable to an increase in net pricing of $11.2 million (due to
increases in list prices and reduced promotional activity), offset
by a decrease in unit volume of $10.4 million.
Gross profit for the first three quarters of 2015 increased
$10.2 million, or 5.4%, to $201.0 million from $190.8 million for
the first three quarters of 2014. Gross profit expressed as a
percentage of net sales increased to 32.2% in the first three
quarters of 2015 from 31.3% in the first three quarters of 2014.
The 0.9 percentage point increase resulted primarily from price
increases and lower delivery costs, partially offset by minor cost
increases in commodities and packaging and the negative impact of
the Canadian exchange rate on the Company’s net sales to Canada.
The increase in gross profit percentage year over year was also
favorably impacted by the third quarter 2014 charge to cost of
goods sold of approximately $3.0 million relating to a write-off of
certain raw material and finished goods inventory used in the
production of Rickland Orchards products.
Selling, general and administrative expenses increased $0.3
million, or 0.4%, to $69.4 million for the first three quarters of
2015 from $69.1 million for the first three quarters of 2014. The
increase was primarily due to increases in warehousing expenses of
$3.2 million, selling expenses of $0.9 million (including an
increase of $1.9 million for salesperson compensation, partially
offset by a decrease in brokerage expenses of $1.2 million) and
other expenses of $2.9 million (primarily related to compensation),
partially offset by decreases in consumer marketing of $3.5 million
(primarily related to a reduction in demo spending) and
acquisition-related expenses of $3.2 million. Expressed as a
percentage of net sales, selling, general and administrative
expenses decreased 0.2 percentage points to 11.1% for the first
three quarters of 2015 from 11.3% for the first three quarters of
2014.
Net interest expense for the first three quarters of 2015
decreased $0.6 million, or 1.9%, to $33.9 million from $34.5
million in the first three quarters of 2014. The decrease was
primarily attributable to a decrease in the Company’s average debt
outstanding.
The Company’s reported net income under GAAP was $58.1 million,
or $1.03 per diluted share, for the first three quarters of 2015,
as compared to $29.5 million, or $0.55 per diluted share, for the
first three quarters of 2014. The Company’s adjusted net income for
the first three quarters of 2015, which excludes the after-tax
impact of refinancing charges, acquisition-related expenses,
distribution restructuring expenses, the non-cash impairment
charges to Rickland Orchards intangible assets and the related loss
on disposal of inventory, the loss on product recall and a non-cash
gain relating to the Rickland Orchards earn-out was $62.2
million, or $1.11 per adjusted diluted share. The Company’s
adjusted net income for the first three quarters of 2014, which
excludes the after tax impact of refinancing charges,
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 $56.3 million, or $1.05 per adjusted diluted
share.
For the first three quarters of 2015, adjusted EBITDA, which
excludes the impact of refinancing charges, acquisition-related
expenses, distribution restructuring expenses, the non-cash
impairment charges to Rickland Orchards intangible assets and the
related loss on disposal of inventory, the loss on product recall
and a non-cash gain relating to the Rickland Orchards earn-out,
increased 5.9% to $150.4 million from $142.0 million for the first
three quarters of 2014.
Guidance
B&G Foods reaffirmed adjusted EBITDA guidance for fiscal
2015 at a range of $199.0 million to $204.0 million and updated net
sales guidance to a range of $865.0 million to $875.0 million.
B&G Foods also reaffirmed its adjusted diluted earnings per
share guidance for fiscal 2015 at a range of $1.44 to $1.50. This
guidance excludes the impact of the Green Giant acquisition,
expected to close during the fourth quarter.
Agreement to Acquire Green Giant
On September 3, 2015, B&G Foods announced an agreement to
acquire the iconic Green Giant® and Le Sueur® brands, leaders
in frozen and canned vegetables, from General Mills for
approximately $765 million in cash plus an inventory adjustment at
closing. Subject to the satisfaction of customary closing
conditions, B&G Foods expects the acquisition to close during
the fourth quarter of 2015.
B&G Foods projects that the Green Giant and
Le Sueur brands will generate on an annualized basis net sales
of approximately $550 million, adjusted EBITDA of approximately $95
million to $100 million and earnings per share of $0.60. Because
the acquisition will be structured as an asset purchase, B&G
Foods expects to realize approximately $137 million in tax benefits
on a net present value basis.
B&G Foods intends to fund the purchase price, the
closing inventory adjustment, initial working capital requirements
and related fees and expenses with additional revolving loans and
new incremental terms loans under its existing credit facility.
Conference Call
B&G Foods will hold a conference call at 4:30 p.m. ET today,
October 27, 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 (888) 710-4007 for U.S. callers or (913) 312-0936 for
international callers.
A replay of the call will be available two hours after the call
and can be accessed by dialing (877) 870-5176 or
(858) 384-5517 for international callers; the password is
366301. The replay will be available from October 27, 2015
through November 10, 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 Rickland Orchards shortfall and the impact of
the Ortega and Las Palmas recall), “EBITDA” (net income (loss)
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; loss on
product recalls, including customer refunds, selling, general and
administrative expenses and the impact on cost of sales; and
distribution restructuring expenses) 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
(loss), reported diluted earnings (loss) per share and reported net
sales adjusted for certain items that affect comparability. These
non-GAAP financial measures reflect adjustments to reported net
income (loss), diluted earnings (loss) 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 (loss)
and to net cash provided by operating activities is included below
for the third quarter and first three quarters of fiscal 2015 and
2014, 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 the Company’s consolidated balance sheets and related
consolidated statements of operations, comprehensive income 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, Mama Mary’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 Static Guard, a
household product brand.
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,
net sales, and overall expectations for fiscal 2015; and the
planned acquisition of the Green Giant and Le Sueur brands and
the timing and financing thereof; the expected impact of the
planned acquisition, including without limitation, the expected
impact on B&G Foods’ earnings per share, net sales,
adjusted EBITDA and free cash flow, and the expected tax benefits
of the acquisition. 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) Assets
October 3, 2015 January 3, 2015 Current
assets: Cash and cash equivalents $ 45,943 $ 1,490 Trade accounts
receivable, net 63,419 55,925 Inventories 133,209 106,557 Prepaid
expenses and other current assets 9,389 14,830 Income tax
receivable 3,057 14,442 Deferred income taxes 3,185
3,275 Total current assets 258,202 196,519
Property, plant and equipment, net of
accumulated depreciation of $141,465 and $129,253
118,311
116,197
Goodwill 388,044 370,424 Other intangibles, net 982,622 947,895
Other assets 15,888 18,318 Total assets
$ 1,763,067 $ 1,649,353
Liabilities and
Stockholders’ Equity Current liabilities: Trade accounts
payable $ 34,163 $ 38,052 Accrued expenses 27,066 17,644 Current
portion of long-term debt 24,375 18,750 Dividends payable
20,292 18,246 Total current liabilities
105,896 92,692 Long-term debt 954,491 1,007,107 Other
liabilities 5,339 7,352 Deferred income taxes 230,638
204,207 Total liabilities 1,296,364 1,311,358
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; 57,976,744
and
53,663,697 shares issued and outstanding
as of
October 3, 2015 and January 3, 2015,
respectively
580 537 Additional paid-in capital 180,726 110,349 Accumulated
other comprehensive loss (10,876 ) (11,034 ) Retained earnings
296,273 238,143 Total stockholders’
equity 466,703 337,995 Total
liabilities and stockholders’ equity $ 1,763,067 $ 1,649,353
B&G Foods, Inc. and
Subsidiaries Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
Third Quarter Ended First Three Quarters Ended
October 3, 2015
September 27, 2014
October 3, 2015
September 27, 2014
Net sales $ 213,300 $ 208,998 $ 624,067 $ 610,027 Cost of
goods sold 141,704 145,936 423,066
419,269 Gross profit 71,596 63,062 201,001 190,758
Operating expenses: Selling, general and administrative
expenses 27,307 21,173 69,352 69,065 Amortization expense 2,726
3,391 8,072 9,986 Impairment of intangible assets — 34,154 — 34,154
Gain on change in fair value of contingent consideration —
— — (8,206 ) Operating income 41,563
4,344 123,577 85,759 Other expenses: Interest expense, net
11,272 11,587 33,873 34,532 Loss on extinguishment of debt —
— — 5,748 Income (loss) before
income tax expense (benefit) 30,291 (7,243 ) 89,704 45,479 Income
tax expense (benefit) 10,476 (2,830 ) 31,574
15,977 Net income (loss) $ 19,815 $ (4,413 ) $ 58,130
$ 29,502 Weighted average shares outstanding: Basic
57,977 53,664 56,121 53,656 Diluted 58,057 53,664 56,180 53,730
Basic earnings (loss) per share $ 0.34 $ (0.08 ) $ 1.04 $
0.55 Diluted earnings (loss) per share $ 0.34 $ (0.08 ) $ 1.03 $
0.55 Cash dividends declared per share $ 0.35 $ 0.34 $ 1.03
$ 1.02
B&G Foods, Inc. and
Subsidiaries Reconciliation of EBITDA and Adjusted EBITDA to
Net Income (Loss) and to Net Cash Provided by Operating
Activities (In thousands) (Unaudited)
Third Quarter Ended First Three Quarters Ended
October 3, 2015
September 27, 2014
October 3, 2015
September 27, 2014
Net income (loss) $ 19,815 $ (4,413 ) $ 58,130 $ 29,502
Income tax expense (benefit) 10,476 (2,830 ) 31,574 15,977 Interest
expense, net 11,272 11,587 33,873 34,532 Depreciation and
amortization 7,136 6,838 20,512 20,783 Loss on extinguishment of
debt — — — 5,748
EBITDA(1) 48,699 11,182 144,089 106,542 Acquisition-related
expenses 3,239 1,141 3,301 6,524 Impairment of intangible assets —
34,154 — 34,154 Loss on disposal of inventory — 2,978 — 2,978 Loss
on product recall — — 1,868 — Distribution restructuring expenses
1,172 — 1,172 — Gain on change in fair value of contingent
consideration — — —
(8,206 ) Adjusted EBITDA(1) 53,110 49,455 150,430 141,992
Income tax (expense) benefit (10,476 ) 2,830 (31,574 ) (15,977 )
Interest expense, net (11,272 ) (11,587 ) (33,873 ) (34,532 )
Acquisition-related expenses (3,239 ) (1,141 ) (3,301 ) (6,524 )
Loss on product recall — — (1,868 ) — Distribution restructuring
expenses (1,172 ) — (1,172 ) — Deferred income taxes 4,405 (3,511 )
13,638 5,083 Amortization of deferred financing costs and bond
discount 875 879 2,631 2,907 Share-based compensation expense 1,187
386 3,704 2,128 Excess tax benefits from share-based compensation —
27 (518 ) (2,356 ) Acquisition-related contingent consideration
expense, including interest accretion — — — 432 Changes in assets
and liabilities (4,283 ) (12,790 ) (11,400 )
(32,464 ) Net cash provided by operating activities $ 29,135
$ 24,548 $ 86,697 $ 60,689 (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
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; loss on product recalls, including
customer refunds, selling, general and administrative expenses and
the impact on cost of sales; and distribution restructuring
expenses. 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, loss on product
recalls and distribution restructuring expenses 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, loss on
product recalls and distribution restructuring expenses. 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) (Unaudited) Third Quarter Ended
First Three Quarters Ended
October 3, 2015
September 27, 2014
October 3, 2015
September 27, 2014
Reported net income (loss) $ 19,815 $ (4,413 ) $ 58,130 $ 29,502
Loss on extinguishment of debt, net of tax(1) — — — 3,742
Acquisition-related expenses, net of tax 2,089 743 2,129 4,247
Distribution restructuring expenses, net of tax(2) 756 — 756 —
Impairment of intangible assets, net of tax(3) — 22,234 — 22,234
Loss on disposal of inventory, net of tax(3) — 1,939 — 1,939 Loss
on product recall, net of tax(4) — — 1,205 — Gain on contingent
consideration, net of tax(3) — — —
(5,342 ) Adjusted net income $ 22,660 $ 20,503 $
62,220 $ 56,322 Adjusted diluted earnings per share (5) $
0.39 $ 0.38 $ 1.11 $ 1.05
_____________________
(1) Loss on extinguishment of debt for the first three
quarters of 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. (2)
Distribution restructuring expenses for the third quarter and first
three quarters of 2015 includes expenses relating to our
transitioning of the operations of our three primary distribution
centers to a third party logistics provider. We expect this
transition and the incurrence of related distribution restructuring
expenses to be completed during the first half of 2016. (3)
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.
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.
(4)
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 the first three quarters of 2015, was
$1.9 million, of which $1.2 million was recorded as a decrease in
net sales related to customer refunds; $0.5 million was recorded as
an increase in cost of goods sold primarily related to costs
associated with product retrieval, destruction charges and customer
fees; and $0.2 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. As of October 3, 2015, accounts receivables in our
unaudited consolidated balance sheet includes a $0.3 million
reserve relating to the recall.
(5) For the third quarter of 2015, 551,330 shares of common
stock issuable upon the exercise of stock options have not been
included in the calculation of diluted weighted average shares
outstanding because the effect would be antidilutive.
B&G Foods, Inc. and Subsidiaries Items
Affecting Comparability — Reconciliation of Base Business Net Sales
and Comparable Base Business Net Sales to Reported Net
Sales (In thousands) (Unaudited) Third
Quarter Ended First Three Quarters Ended
October 3, 2015
September 27, 2014
October 3, 2015
September 27, 2014
Reported net sales $ 213,300 $ 208,998 $ 624,067 $ 610,027 Net
sales from acquisitions(1) (8,492 ) —
(31,545 ) — Base business net sales 204,808 208,998
592,522 610,027 Net sales of Rickland Orchards(2) (1,057 ) (4,461 )
(3,172 ) (20,250 ) Customer refunds related to recall(3) —
— 1,225 —
Comparable base business net sales $ 203,751 $ 204,537
$ 590,575 $ 589,777
_____________________
(1)
Reflects net sales for Mama Mary’s and
Specialty Brands for the portion of the third quarter and first
three quarters of 2015 for which there is no comparable period of
net sales during the same period in 2014. Mama Mary’s was acquired
in July 2015 and Specialty Brands was acquired in April 2014.
(2)
Net sales were negatively impacted by the
Rickland Orchards shortfall in the third quarter and first three
quarters of 2015, a continuation of the weakness that caused the
Company to impair the brand’s trademark and customer relationship
intangible assets in 2014.
(3)
Reflects customer refunds relating to the
Ortega and Las Palmas recall announced in November 2014.
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version on businesswire.com: http://www.businesswire.com/news/home/20151027006865/en/
Investor Relations:ICR, Inc.Don Duffy, 866-211-8151orMedia
Relations:ICR, Inc.Matt Lindberg, 203-682-8214
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