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Income
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(Exact name of registrant as specified in its charter)
iDelaware
i87-3296749
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i2503 S. Hanley Road
iSt. Louis, iMissourii63144
(Address of principal executive offices) (Zip Code)
(i314) i644-7600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.01 par
value per share
iBRBR
iNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required
to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge accelerated
filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value per share – i133,573,430
shares as of January 31, 2023
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
($ in millions, except per share information and where indicated otherwise)
NOTE 1 —
iBACKGROUND AND BASIS OF PRESENTATION
Background
On October 21, 2019, BellRing Intermediate Holdings, Inc. (formerly known as BellRing Brands, Inc.) (“Old BellRing”) closed its initial public offering (the “IPO”) of i39.4
million shares of its Class A common stock, $i0.01 par value per share (the “Old BellRing Class A Common Stock”), and contributed the net proceeds from the IPO to BellRing Brands, LLC, a Delaware limited liability company and subsidiary of Old BellRing (“BellRing LLC”), in exchange for i39.4
million BellRing 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 holder of the active nutrition business of Post Holdings, Inc. (“Post”). Old BellRing, as a holding company, had no material assets other than its ownership of BellRing LLC units and its indirect interests in the subsidiaries of BellRing LLC and had no independent means of generating revenue or cash flow. The members of BellRing LLC were Post and Old BellRing.
During the second quarter of fiscal 2022, Post completed its distribution of i80.1%
of its ownership interest in BellRing Brands, Inc. (formerly known as BellRing Distribution, LLC) (“BellRing”) to Post’s shareholders. On March 9, 2022, pursuant to the Transaction Agreement and Plan of Merger, dated as of October 26, 2021 (as amended by Amendment No. 1 to the Transaction Agreement and Plan of Merger, dated as of February 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, $i0.01
par value per share (“Old BellRing Class B Common Stock”), all of its BellRing LLC units and $i550.4 of cash to BellRing (collectively, the “Contribution”) in exchange for certain limited liability company interests of BellRing (prior to the conversion of BellRing into a Delaware corporation) and the right to receive $i840.0
in aggregate principal amount of BellRing’s 7.00% Senior Notes (as defined in Note 13).
On March 10, 2022, BellRing converted into a Delaware corporation and changed its name to “BellRing Brands, Inc.”, and Post distributed an aggregate of i78.1 million, or i80.1%,
of its shares of BellRing common stock, $i0.01 par value per share (“BellRing Common Stock”) to Post shareholders in a pro-rata distribution (the “Distribution”).
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 and
$i2.97 in cash, or $i115.5 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, pursuant to Rule 12g-3(a) promulgated thereunder.
Immediately prior to the Spin-off, Post held i97.5 million BellRing LLC units, equal to i71.5%
of the economic interest in BellRing LLC, and ione share of Old BellRing Class B Common Stock, which represented i67% of the combined voting power of the common stock of Old BellRing. Immediately following
the Spin-off, Post ownedi19.4 million shares, or i14.2% of BellRing Common Stock, which did not represent a controlling interest in BellRing. As a result of
the Spin-off, the dual class voting structure in the BellRing business was eliminated.
On August 11, 2022, Post transferred i14.8 million shares of its 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 i3.4%
as of September 30, 2022. In connection with this transaction, BellRing repurchased i0.8 million of the transferred shares from certain of the financial institutions.
On November 25, 2022, Post transferred the remaining of its i4.6 million
shares of BellRing Common Stock to certain financial institutions in satisfaction of term loan obligations of Post. In connection with this transaction, BellRing repurchased i0.9 million of the transferred shares from certain of the financial institutions. Post had no ownership of BellRing Common Stock as of December 31, 2022.
The Company incurred separation-related expenses of $i0.3
and $i2.0 during the three months ended December 31, 2022 and 2021, respectively, in connection with its separation from Post. These expenses generally included third party costs for advisory services, fees charged by other service providers and government filing fees and were included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
The term the “Company” generally refers to Old BellRing and its consolidated subsidiaries during the period prior to the Spin-off and to BellRing and its consolidated subsidiaries during the period subsequent to the Spin-off, unless otherwise stated or context otherwise indicates. The term “Common Stock” generally refers to Old BellRing Class A Common Stock and Old BellRing Class B Common Stock during the period prior to the Spin-off and to BellRing Common Stock during the period 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 period
prior to the Spin-off and to net earnings available to BellRing common stockholders during the period subsequent to the Spin-off.
The Company is a consumer products holding company operating in the global convenient nutrition category and is a provider of ready-to-drink (“RTD”) protein shakes, other RTD beverages, powders and nutrition bars. The Company has a single operating and reportable segment, with its principal products being protein-based consumer goods. The Company’s primary brands are Premier Protein and Dymatize.
Basis of Presentation
These
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), under the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (the “SEC”), and on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended September 30, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with such audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended September
30, 2022, filed with the SEC on November 17, 2022.
These unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair statement of the Company’s results of operations, comprehensive income, financial position, cash flows and stockholders’ equity for the interim periods presented. Interim results are not necessarily indicative of the results for any other interim period or for the entire fiscal year. Certain reclassifications have been made to previously reported financial information to conform to current period presentation.
Prior to the Spin-off, the financial results of BellRing LLC and its subsidiaries
were consolidated with Old BellRing, and a portion of the consolidated net earnings of BellRing LLC was allocated to the redeemable noncontrolling interest (the “NCI”). The calculation of the NCI was based on Post’s ownership percentage of BellRing LLC units during the period prior to the Spin-off, and reflected the entitlement of Post to a portion of the consolidated net earnings of BellRing LLC prior to the Spin-off. During the period subsequent to the Spin-off, any remaining ownership of BellRing by Post no longer represented a NCI to the Company (see Note 5). All intercompany balances and transactions have been eliminated. See Note 4 for further information on transactions with Post included in these financial statements.
NOTE
2 — iRECENTLY ISSUED ACCOUNTING STANDARDS
The Company has considered all new accounting pronouncements and has concluded there are no new pronouncements that had or will have a material impact on the Company’s results of operations, comprehensive income, financial position, cash flows, stockholders’
equity or related disclosures based on current information.
NOTE 3 — iREVENUE
The following table presents net sales by product.
Both prior to and subsequent to the Spin-off, transactions with Post were considered related party transactions as certain of the Company’s directors continue to serve as officers or directors of Post.
The
Company sells certain products to, purchases certain products from and licenses certain intellectual property to and from Post and its subsidiaries based upon pricing governed by agreements between the Company and Post and its subsidiaries, consistent with pricing of similar arm's-length transactions. During each of the three months ended December 31, 2022 and 2021, net sales to, purchases from and royalties paid to and received from Post and its subsidiaries were immaterial.
The
Company uses certain functions and services performed by Post under a master service agreement (the “MSA”). These functions and services include finance, internal audit, treasury, information technology support, insurance and tax matters, the use of office and/or data center space, payroll processing services and tax compliance services. The MSA was amended and restated upon completion of the Spin-off to provide for similar services following the Spin-off and such other services as BellRing and Post may agree. MSA fees were $i1.3
and $i0.6 for the three months ended December 31, 2022 and 2021, respectively. MSA fees were reported in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
Prior to the Spin-off, BellRing LLC made payments to Post related to quarterly tax distributions and state corporate tax withholdings made pursuant to the terms of the amended and restated limited liability company agreement of BellRing LLC (the “BellRing LLC Agreement”). During the three months ended December 31, 2021, BellRing LLC paid $i3.2
to Post related to quarterly tax distributions.
In connection with and upon completion of the Spin-off, the Company entered into a tax matters agreement (the “Tax Matters Agreement”) by and among Post, BellRing and Old BellRing. The Tax Matters Agreement (i) governs the parties’ respective rights, responsibilities and obligations with respect to taxes, including taxes arising in the ordinary course of business and taxes, if any, that may be incurred if the Distribution fails to qualify for its intended tax treatment, (ii) addresses U.S. federal, state, local and non-U.S. tax matters and (iii) sets forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests and assistance and cooperation on tax matters.
Pursuant to the Tax Matters
Agreement, BellRing is expected to indemnify Post for (i) all taxes for which BellRing is responsible (as described in the Tax Matters Agreement) and (ii) all taxes incurred by reason of certain actions or events, or by reason of any breach by BellRing or any of its subsidiaries of any of their respective representations, warranties or covenants under the Tax Matters Agreement that, in each case, affect the intended tax-free treatment of the Spin-off. Additionally, Post is expected to indemnify BellRing for the (i) taxes for which Post is responsible (as described in the Tax Matters Agreement) and (ii) taxes attributable to a failure of the Spin-off to qualify as tax-free, to the extent incurred by any action or failure to take any action within the control of Post. There were no amounts incurred by BellRing or Post under the Tax Matters Agreement during the three months ended
December 31, 2022.
Reimbursement Agreement and Co-Packing Agreement
In the first quarter of fiscal 2022, Premier Nutrition Company, LLC (“Premier Nutrition”), a subsidiary of the Company, and Michael Foods, Inc. (“MFI”), a subsidiary of Post, entered into a reimbursement agreement relating to MFI’s acquisition and development of property intended to be used as an aseptic processing plant for MFI or another subsidiary of Post to produce RTD shakes for Premier Nutrition (the “Reimbursement Agreement”). Pursuant to the Reimbursement Agreement, prior to the execution of a definitive agreement governing such production of RTD shakes for Premier Nutrition, Premier Nutrition would reimburse
MFI for certain costs and expenses incurred in the acquisition and development of property for the processing plant. Premier Nutrition did not reimburse MFI for any amounts under the Reimbursement Agreement during fiscal 2022 and the Reimbursement Agreement terminated by its terms on September 30, 2022.
On September 30, 2022, Premier Nutrition entered into a Co-Packing Agreement with Comet Processing, Inc. (“Comet”), a wholly-owned subsidiary of Post. Under the Co-Packing Agreement, Comet will manufacture for Premier Nutrition, and Premier Nutrition will purchase from Comet, certain RTD shakes. During the three months ended December 31, 2022, Premier Nutrition made no payments to Comet pursuant to the Co-Packing Agreement.
Immediately prior to the Spin-off, Post held i97.5 million
BellRing LLC units equal to i71.5% of the economic interest in BellRing LLC. Prior to the Spin-off, Post had the right to redeem BellRing LLC units for, at BellRing LLC’s option (as determined by its Board of Managers), (i) shares of Old BellRing Class A Common Stock, at an initial redemption rate of one share of Old BellRing Class A Common Stock for one BellRing LLC unit, subject to customary redemption rate adjustments for stock splits, stock dividends and reclassification or (ii) cash (based on
the market price of the shares of Old BellRing Class A Common Stock).
Post’s ownership of BellRing LLC units prior to the Spin-off represented a NCI to the Company, which was classified outside of permanent stockholders’ equity as the BellRing LLC units were redeemable at the option of Post, through Post’s ownership of its share of Old BellRing Class B Common Stock (see Note 1). The carrying amount of the NCI was the greater of (i) the initial carrying amount, increased or decreased for the NCI’s share of net income or loss, other comprehensive income or loss (“OCI”) and distributions or dividends or (ii) the redemption value. Changes in the redemption value of the NCI were recorded to “Additional paid-in capital”, to the extent available, and “Accumulated deficit” on the Condensed Consolidated Statement of Stockholders’
Deficit.
Immediately prior to the Spin-off, Old BellRing owned i28.5% of the outstanding BellRing LLC units. Prior to the Spin-off, the financial results of BellRing LLC and its subsidiaries were consolidated with Old BellRing, and the portion of the consolidated net earnings of BellRing LLC to which Post was entitled was allocated to the NCI during the period.
Immediately
following the Spin-off, Post owned i14.2% of the BellRing Common Stock, which did not represent a controlling interest in the Company. As a result of the Spin-off, the carrying amount of the NCI was reduced to izero
immediately following the Spin-off. As of December 31, 2022, Post had no ownership of BellRing Common Stock.
The following table summarizes the changes to the Company’s NCI for the three months ended December 31, 2021. There were no changes to the Company’s NCI for the three months ended December 31, 2022 as the carrying amount of the NCI was reduced to zero immediately following the Spin-off in fiscal 2022.
i
Beginning
of period
$
i2,997.3
Net earnings attributable to NCI
i31.1
Net
change in hedges, net of tax
i0.4
Foreign currency translation adjustments
(i0.3)
Redemption
value adjustment to NCI
(i247.6)
End
of period
$
i2,780.9
/
The following
table summarizes the effects of changes in NCI on the Company’s equity for the three months ended December 31, 2021. There were no transfers to or from NCI for the three months ended December 31, 2022 as the carrying amount of the NCI was reduced to zero immediately following the Spin-off in fiscal 2022.
i
Net
earnings available to common stockholders
$
i8.2
Transfers from NCI:
Changes
in equity as a result of redemption value adjustment to NCI
(i247.6)
Changes
from net earnings available to common stockholders and transfers from NCI
$
(i239.4)
/
NOTE
6 — iINCOME TAXES
Prior to the Spin-off, Old BellRing held an economic interest in BellRing LLC (see Note 1) which, as a result of the IPO and formation transactions, was treated as a partnership for U.S. federal income tax purposes. As a partnership, BellRing LLC itself was generally not subject to U.S. federal income tax under current U.S. tax laws. Generally, items of taxable income, gain, loss and deduction of BellRing LLC were passed through to its members, Old BellRing and Post. Old BellRing was responsible for its share of taxable income
or loss of BellRing LLC allocated to it in accordance with the BellRing LLC Agreement and partnership tax rules and regulations.
Subsequent to 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.
The effective income tax rate was i24.4% and i6.9%
for the three months ended December 31, 2022 and 2021, respectively. The increase in the effective income tax rate compared to the prior year period was primarily due to the Company reporting
100% of the income, gain, loss and deduction of BellRing LLC during the three months ended December 31, 2022, as a result of the Spin-off.
For additional
information on the Tax Matters Agreement by and among Post, BellRing and Old BellRing, see Note 4.
NOTE 7 —iEARNINGS PER SHARE
Prior to the Spin-off, basic earnings per share was based on the average number of shares of Old BellRing Class A Common Stock outstanding during the period. Diluted earnings per share was based
on the average number of shares of Old BellRing Class A Common Stock used for the basic earnings per share calculation, adjusted for the dilutive effect of stock options and restricted stock units using the “treasury stock” method. In addition, “Net earnings available to common stockholders for diluted earnings per share” in the table below was adjusted for diluted net earnings per share of Old BellRing Class A Common Stock attributable to NCI, to the extent it was dilutive.
Subsequent to the Spin-off, basic earnings per share is based on the average number of shares of BellRing Common Stock outstanding during the period. Diluted earnings per share is based on the average number of shares of BellRing Common Stock used for the basic earnings per share calculation, adjusted for the dilutive effect of stock options and restricted stock units using the “treasury stock” method.
Prior
to the Spin-off, the share of Old BellRing Class B Common Stock did not have economic rights, including rights to dividends or distributions upon liquidation, and was therefore not a participating security. Subsequent to the Spin-off, the share of Old BellRing Class B Common Stock was no longer outstanding. As such, separate presentation of basic and diluted earnings per share of Old BellRing Class B Common Stock under the two-class method was not presented for any periods.
The following table sets forth the computation of basic and diluted earnings per share.
Net earnings available to common stockholders for basic earnings per share
$
i44.2
$
i8.2
Dilutive
impact of net earnings attributable to NCI
i—
i0.1
Net
earnings available to common stockholders for diluted earnings per share
$
i44.2
$
i8.3
shares
in millions
Weighted-average shares for basic earnings per share
i134.9
i39.4
Effect
of dilutive securities:
Restricted stock units
i0.2
i0.2
Weighted-average
shares for diluted earnings per share
i135.1
i39.6
Basic
earnings per share of Common Stock
$
i0.33
$
i0.21
Diluted
earnings per share of Common Stock
$
i0.33
$
i0.21
/
The
following table details the securities that have been excluded from the calculation of weighted-average shares for diluted earnings per share as they were anti-dilutive.
The components of “Goodwill” on the Condensed Consolidated Balance Sheets at both December 31, 2022 and September 30, 2022 are presented in the following table.
The Company’s financial assets and liabilities include cash and cash equivalents, receivables and accounts payable for which the carrying value approximates fair value due to their short maturities (less than 12 months). The Company does not record its long-term debt at fair value on the Condensed Consolidated Balance Sheets. The fair value of outstanding
borrowings under the Revolving Credit Facility (as defined in Note 13) as of December 31, 2022 and September 30, 2022 approximated its carrying value. Based on current market rates, the fair value (Level 2) of the Company’s debt, excluding any borrowings under the Revolving Credit Facility, was $i820.1 and $i767.4
as of December 31, 2022 and September 30, 2022, respectively.
Certain assets and liabilities, including property, plant and equipment, goodwill and other intangible assets, are measured at fair value on a non-recurring basis.
On March 10, 2022, pursuant to the Transaction Agreement, the Company issued $i840.0 aggregate principal amount of i7.00%
senior notes maturing in March 2030 (the “7.00% Senior Notes”) to Post as partial 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.
The 7.00% Senior Notes were issued at par, and the Company incurred debt issuance costs of $i10.2, which were deferred and are being amortized to interest
expense over the term of the 7.00% Senior Notes. Interest payments are due semi-annually each March 15 and September 15, and began on September 15, 2022. The 7.00% Senior Notes are senior unsecured obligations of BellRing and are guaranteed by BellRing’s existing and subsequently acquired or organized direct and indirect wholly-owned domestic subsidiaries (other than immaterial subsidiaries, certain excluded subsidiaries and subsidiariesthe Company may designate as unrestricted
subsidiaries). The maturity date of the 7.00% Senior Notes is March 15, 2030.
Credit Agreement
On March 10, 2022, pursuant to the Transaction Agreement, the Company entered into a credit agreement (as amended, the “Credit Agreement”), which provides for a revolving credit facility in an aggregate principal amount of $i250.0
(the “Revolving Credit Facility”), with commitments made available to the Company in U.S. Dollars, Euros and United Kingdom (“U.K.”) Pounds Sterling. Letters of credit are available under the Credit Agreement in an aggregate amount of up to $i20.0. The outstanding amounts under the Credit Agreement must be repaid on or before March 10, 2027.
Borrowings under the Revolving Credit Facility
bear interest at an annual rate equal to: (i) in the case of loans denominated in U.S. Dollars, at the Company’s option, the base rate (as defined in the Credit Agreement) plus a margin which was initially i2.00% and thereafter will range from i2.00%
to i2.75% depending on the Company’s secured net leverage ratio (as defined in the Credit Agreement), or the adjusted term SOFR rate (as defined in the Credit Agreement) for the applicable interest period plus a margin which was initially i3.00%
and thereafter will range from i3.00% to i3.75% depending on the Company’s secured
net leverage ratio; (ii) in the case of loans denominated in Euros, the adjusted Eurodollar rate (as defined in the Credit Agreement) for the applicable interest period plus a margin which was initially i3.00% and thereafter will range from i3.00%
to i3.75% depending on the Company’s secured net leverage ratio; and (iii) in the case of loans denominated in U.K. Pounds Sterling, the adjusted daily simple RFR (as defined in the Credit Agreement) plus a margin which was initially i3.00%
and thereafter will range from i3.00% to i3.75% depending on the Company’s secured
net leverage ratio. Facility fees on the daily unused amount of commitments under the Revolving Credit Facility initially accrued at the rate of i0.25% per annum, and thereafter, will accrue at rates ranging from i0.25%
to i0.375% per annum, depending on the Company’s secured net leverage ratio.
The Company incurred $i1.5
of financing fees in connection with the Revolving Credit Facility, which were deferred and are being amortized to interest expense over the term of the Revolving Credit Facility. During the three months ended December 31, 2022, the Company borrowed $i55.0 under the Revolving Credit Facility and repaid $i40.0
under the Revolving Credit Facility. The interest rates on the utilized portion of the Revolving Credit Facility ranged from i7.42% to i9.50% as of December
31, 2022 and i5.95% to i8.25% as of September 30, 2022. The available borrowing
capacity under the Revolving Credit Facility was $i136.0 and $i151.0 as of December 31, 2022 and September
30, 2022, respectively. There were iino/
outstanding letters of credit as of December 31, 2022 or September 30, 2022.
Under the terms of the Credit Agreement, the Company is required to maintain a total net leverage ratio (as defined in the Credit Agreement) not to exceed i6.00:1.00, measured as of the last day of each fiscal quarter. The total net leverage ratio of the
Company did not exceed this threshold as of December 31, 2022.
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 as specified in the Credit Agreement.
Furthermore, the Credit Agreement provides for customary events of default. Upon the occurrence and during the continuance of an event of default, the maturity of the loans under the Credit Agreement may accelerate and the administrative agent and lenders under the Credit Agreement may exercise other rights and remedies available at law or under the loan documents, including with respect to the collateral securing, and guarantees of, the Company’s obligations under the Credit Agreement.
The Company’s obligations under the Credit Agreement are unconditionally guaranteed by its existing
and subsequently acquired or organized direct and indirect subsidiaries (other than immaterial subsidiaries, certain excluded subsidiaries and subsidiariesthe Company may designate as unrestricted subsidiaries) and are secured by security interests in substantially all of the Company’s assets and the assets of its subsidiary guarantors, but excluding,
in each case, real property.
Old Credit Agreement
On October 21, 2019, BellRing LLC entered into a credit agreement (as subsequently amended, the “Old Credit Agreement”) which provided for a term B loan facility in an aggregate original principal amount of $i700.0 (the “Term B Facility”) and a revolving credit facility in an aggregate principal amount of up to $i200.0
(the “Old Revolving Credit Facility”), with the commitments under the Old Revolving Credit Facility to be made available to BellRing LLC in U.S. Dollars, Euros and U.K. Pounds Sterling. Letters of credit were available under the Old Credit Agreement in an aggregate amount of up to $i20.0.
On March 10, 2022, with certain of the proceeds from the transactions related to the Spin-off, BellRing LLC repaid the aggregate outstanding
principal balance of $i519.8 on its Term B Facility and terminated all obligations and commitments under the Old Credit Agreement. Following the termination of the Old Credit Agreement, BellRing LLC and the guarantors had no further obligations under the Old Credit Agreement and the related guarantees other than customary indemnification obligations which continue.
The Term B Facility required quarterly scheduled amortization payments of $i8.75
which began on March 31, 2020. Interest was paid on each Interest Payment Date (as defined in the Old Credit Agreement) during the period prior to the termination of the Old Credit Agreement. The Term B Facility contained customary mandatory prepayment provisions, and during the three months ended December 31, 2021, the Company repaid $i81.4 on its Term B Facility as a mandatory prepayment from fiscal 2021 excess cash flow (as defined
in the Old Credit Agreement), which was in addition to the scheduled amortization payments.
There were iino/
borrowings under or repayments on the Old Revolving Credit Facility during the three months ended December 31, 2021.
NOTE 14 — iCOMMITMENTS AND CONTINGENCIES
Legal Proceedings
Joint Juice Litigation
In March 2013, a complaint was filed
on behalf of a putative, nationwide class of consumers against Premier Nutrition in the U.S. District Court for the Northern District of California seeking monetary damages and injunctive relief. The case asserted that some of Premier Nutrition’s advertising claims regarding its Joint Juice line of glucosamine and chondroitin dietary supplement beverages were false and misleading. In April 2016, the district court certified a California-only class of consumers in this lawsuit (this lawsuit is hereinafter referred to as the “California Federal Class Lawsuit”).
In 2016 and 2017, the lead plaintiff’s counsel in the California Federal Class Lawsuit filed ten additional class action complaints in the U.S. District Court for the Northern District of California on behalf of putative classes of consumers under the laws of Connecticut, Florida, Illinois, New Jersey, New Mexico, New
York, Maryland, Massachusetts, Michigan and Pennsylvania (the “Related Federal Actions”). These complaints contain factual allegations similar to the California Federal Class Lawsuit, also seeking monetary damages and injunctive relief. The action on behalf of New Jersey consumers was voluntarily dismissed. Trial in the action on behalf of New York consumers was held beginning in May 2022, and the jury delivered its verdict in favor of plaintiff in June 2022. In August 2022, the Court entered a judgment in that case in favor of plaintiff in the amount of $i12.9,
which includes statutory damages and prejudgment interest. In October 2022, Premier Nutrition filed its Notice of Appeal to the Ninth Circuit. The other eight Related Federal Actions remain pending, and the court has certified individual state classes in each of those cases (except New Mexico).
In April 2018, the district court dismissed the California Federal Class Lawsuit with prejudice. This dismissal was upheld on appeal by the U.S. Court of Appeals for the Ninth Circuit in 2020, and plaintiff’s petition for an en banc rehearing by the Ninth Circuit was denied.
In September
2020, the same lead counsel re-filed the California Federal Class Lawsuit against Premier Nutrition in California Superior Court for the County of Alameda, alleging identical claims and seeking restitution and injunctive relief on behalf of the same putative class of California consumers as the California Federal Class Lawsuit. Following the federal district court’s denial of Premier Nutrition’s motion to permanently enjoin the Alameda action under the doctrine of res judicata, Premier Nutrition appealed to the Ninth Circuit. In September 2022, the Ninth Circuit affirmed the district court’s denial of Premier Nutrition’s motion to enjoin the Alameda action, holding that the Alameda Superior Court would have to decide whether plaintiff’s claims are barred by res judicata. The hearing on Premier Nutrition’s motion for judgment based on res judicata
is currently set for the second quarter of fiscal 2023, in the Alameda Superior Court.
In January 2019, the same lead counsel filed an additional class action complaint against Premier Nutrition in California Superior Court for the County of Alameda, alleging claims similar to the above actions and seeking monetary damages and injunctive relief on behalf of a putative class of California consumers, beginning after the California Federal Class Lawsuit class period. This matter is set for trial in June 2023.
The Company continues to vigorously defend these cases and intends to appeal any adverse judgements and awards of damages. The Company does not believe that the ultimate resolution of these cases will have a
material adverse effect on its financial condition, results of operations or cash flows.
Other than legal fees, no expense related to this litigation was incurred during the three months ended December 31, 2022 or 2021. At both December 31, 2022 and September 30, 2022, the Company had an estimated liability of $ii16.0/
related to these matters that was included in “Other current liabilities” on the Condensed Consolidated Balance Sheets.
Other
In the fourth quarter of fiscal 2022, a voluntary product recall was initiated by one of the Company’s contract manufacturers which produces RTD shakes for Premier Nutrition. The recall covered the Company’s products produced from December 8, 2021 through July 9, 2022 at one of the contract
manufacturer’s facilities. The Company is continuing to assess the impact of the recall and does not believe it will have a material adverse effect on its financial condition, results of operations or cash flows.
The Company is subject to various other legal proceedings and actions arising in the normal course of business. In the opinion of management, based upon the information presently known, the ultimate liability, if any, arising from such pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are likely to be asserted, taking into account established accruals for estimated liabilities (if any), are not expected to be material individually or in the aggregate to the consolidated financial condition,
results of operations or cash flows of the Company. In addition, although it is difficult to estimate the potential financial impact of actions regarding expenditures for compliance with regulatory matters, in the opinion of management, based upon the information currently available, the ultimate liability arising from such compliance matters is not expected to be material to the consolidated financial condition, results of operations or cash flows of the Company.
NOTE 15 — iSTOCKHOLDERS’
DEFICIT
On May 23, 2022, the Company’s Board of Directors approved a $i50.0 share repurchase authorization with respect to shares of BellRing Common Stock (the “Prior Authorization”). On December 5, 2022, the Company’s Board of Directors approved a new $i50.0
share repurchase authorization with respect to shares of BellRing Common Stock (the “New Authorization”).
The following table summarizes the Company’s repurchases of BellRing Common Stock during the three months endedDecember 31, 2022.
i
Shares
repurchased (in millions)
i1.8
Average price per share including broker’s commissions
The following table summarizes the Company’s repurchases of Old BellRing Class A Common Stock during the three months ended December 31, 2021.
i
Shares
repurchased (in millions)
i0.8
Average price per share including broker’s commissions
$
i23.36
Total
cost including broker’s commissions
$
i18.1
/
In connection with the Spin-off, i0.8 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. The Company’s prior share repurchase authorization approved in fiscal 2021 for Old BellRing Class A Common Stock was no longer applicable subsequent to the Spin-off.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of BellRing Brands, Inc. (formally known as BellRing Distribution, LLC) (“BellRing”) and its consolidated subsidiaries. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein, our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, and the “Cautionary Statement on Forward-Looking Statements”
section included below.
OVERVIEW
On October 21, 2019, BellRing Intermediate Holdings, Inc. (formerly known as BellRing 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 to BellRing Brands, LLC, a Delaware limited liability company and subsidiary of Old BellRing (“BellRing LLC”), in exchange for 39.4 million BellRing 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 of Post Holdings, Inc. (“Post”).
Old BellRing, as a holding company, had no material assets other than its ownership of BellRing LLC units and its indirect interests in the subsidiaries of BellRing LLC and had no independent means of generating revenue or cash flow. The members of BellRing LLC were Post and Old BellRing.
During the second quarter of fiscal 2022, Post completed its distribution of 80.1% of its ownership interest in BellRing to Post’s shareholders. On March 9, 2022, pursuant to the Transaction Agreement and Plan of Merger, dated as of October 26, 2021 (as amended by Amendment No. 1 to the Transaction Agreement and Plan
of Merger, dated as of February 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 its BellRing 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 a Delaware 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”).
On March 10, 2022, BellRing converted into a Delaware 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 in a pro-rata distribution (“the Distribution”).
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 million BellRing LLC units, equal to 71.5% of the economic interest in BellRing 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 BellRing Common Stock, which did not represent a controlling interest in BellRing. As a result of the Spin-off, the dual class voting structure in the BellRing business was eliminated.
On August 11, 2022,
Post transferred 14.8 million shares its 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 of September 30, 2022. In connection with this transactions, BellRing repurchased 0.8 million of the transferred shares from certain of the financial institutions.
On November 25, 2022, Post transferred the remaining of its 4.6 million shares of BellRing Common Stock to certain financial institutions in satisfaction of term loan obligations of Post. In connection with this transactions, BellRing repurchased 0.9 million of the transferred shares from certain of the financial institutions. Post had no ownership of BellRing Common Stock as of December 31, 2022.
BellRing incurred separation-related expenses of $0.3 million and $2.0 million during the three months ended December 31, 2022 and 2021, respectively, in connection with its separation from Post. These expenses generally included third party costs for advisory services, fees charged by other service providers and government filing fees and were included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
The terms “our”, “we”, “us” and the “Company” generally refer to Old BellRing and its consolidated subsidiaries during the period prior to the
Spin-off and to us and our consolidated subsidiaries during the period subsequent to the Spin-off unless otherwise stated or context otherwise indicates. The term “Common Stock” generally refers to Old BellRing Class A Common Stock and Old BellRing Class B Common Stock during the period prior to the Spin-off and to BellRing Common Stock during the period 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 period prior to the Spin-off and to net earnings available to BellRing common stockholders during the period 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.
Market Trends
Events such as the COVID-19 pandemic have resulted in certain ongoing impacts to the global economy, including market disruptions, supply chain challenges and inflationary pressures. During the first quarter of fiscal 2023, input cost inflation continued to pressure our supply chain. 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. We expect inflationary pressures to continue during the fiscal year, 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 or if such price increases impact demand for our products.
For additional discussion, refer to “Liquidity and Capital Resources” and “Cautionary Statement on Forward-Looking Statements” within this section.
RESULTS OF OPERATIONS
Three
Months Ended December 31,
favorable/(unfavorable)
dollars in millions
2022
2021
$ Change
%
Change
Net Sales
$
362.7
$
306.5
$
56.2
18
%
Operating
Profit
$
75.2
$
50.6
$
24.6
49
%
Interest expense, net
16.7
8.4
(8.3)
(99)
%
Income
tax expense
14.3
2.9
(11.4)
(393)
%
Less: Net earnings attributable to redeemable noncontrolling interest
—
31.1
31.1
100
%
Net
Earnings Available to Common Stockholders
$
44.2
$
8.2
$
36.0
439
%
Net Sales
Net sales increased $56.2 million,
or 18%, during the three months ended December 31, 2022, compared to the prior year period. Sales of Premier Protein products were up $57.2 million, or 23%, driven by higher average net selling prices. Average net selling prices increased in the three months ended December 31, 2022 primarily due to targeted price increases. Volumes increased 5% primarily driven by the lapping of lower volumes in the prior year period as a result of supply constraints. Sales of Dymatize products were up $1.1 million, or 3%, driven by higher average net selling prices. Average net selling prices increased in the three months ended December
31, 2022 due to targeted price increases and favorable product mix, partially offset by increased promotional spending. This increase in average net selling prices was partially offset by volume decreases of 19%, which were primarily driven by the lapping of prior year product discontinuations and the timing of quarterly shipments, partially offset by distribution gains. Sales of all other products were down $2.1 million.
Operating Profit
Operating profit increased $24.6 million, or 49%, during the three months ended December 31, 2022, compared to the prior year period. This increase was primarily driven by higher net sales, as previously discussed, and $1.7 million
of lower costs related to the separation from Post. These positive impacts were partially offset by higher net product costs of $24.8 million, as
unfavorable raw material costs were only partially offset by lower manufacturing and freight costs, and increased advertising expenses of $1.0 million.
Interest Expense, Net
Interest expense, net increased $8.3 million during the three months ended December 31, 2022, compared to the prior year period. This increase
was primarily due to higher outstanding principal amounts of debt and a higher weighted-average interest rate compared to the prior year period.The weighted-average interest rate on our total outstanding debt increased to 7.1% for the three months ended December 31, 2022 from 4.8% for the three months ended December 31, 2021, primarily driven by the issuance of our 7.00% Senior Notes during the second quarter of fiscal 2022. See Note 13 within “Notes to Condensed Consolidated Financial Statements” for additional information on our debt.
Income Tax Expense
Prior to the Spin-off, Old BellRing held an economic interest in BellRing LLC which, as a result of the IPO and formation transactions, was treated as a partnership for United
States (“U.S.”) federal income tax purposes. As a partnership, BellRing LLC itself was generally not subject to U.S. federal income tax under applicable U.S. tax laws. Generally, items of taxable income, gain, loss and deduction of BellRing LLC were passed through to its members, Old BellRing and Post. Old BellRing was responsible for its share of taxable income or loss of BellRing LLC allocated to it in accordance with the amended and restated limited liability company agreement of BellRing LLC and partnership tax rules and regulations.
Subsequent to the Spin-off, we reported 100% of the income, gain, loss and deduction of BellRing LLC for U.S. federal, state and local income tax purposes.
Our effective income tax rate was 24.4% and 6.9% for the three months ended December 31, 2022 and 2021,
respectively. The increase in the effective income tax rate compared to the prior year period was primarily due to the Company reporting 100% of the income, gain, loss and deduction of BellRing LLC during the three months ended December 31, 2022, as a result of the Spin-off.
In accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” we recorded income tax expense for interim periods using the estimated annual effective income tax rate for the full fiscal year adjusted for the impact of discrete items occurring during the interim periods.
LIQUIDITY AND CAPITAL RESOURCES
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 the remainder of fiscal 2023. 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.
During the three months ended December 31, 2022, we borrowed $55.0 million under our revolving credit facility, which is provided for under our credit agreement entered into on March 10, 2022 (as amended, the “Credit Agreement”) in an aggregate principal amount of $250.0 million (the “Revolving Credit Facility”), and repaid $40.0 million under the Revolving Credit Facility. We had available borrowing capacity under the Revolving Credit Facility of $136.0 million
and no outstanding letters of credit under the Revolving Credit Facility as of December 31, 2022. Letters of credit are available under the Revolving Credit Facility in an aggregate amount of up to $20.0 million. Our 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 three months ended December
31, 2022, we repurchased 1.8 million shares ofBellRing Common Stock at an average share price of $23.34 per share for a total cost of $41.2 million, including broker’s commissions.
In December 2022, we entered into a co-manufacturing agreement for the manufacturing and packaging of our RTD shakes (the “Agreement”). The Agreement included a minimum purchase quantity requirement and a “take-or-pay” provision, which increased our purchase commitments by $200.0 million through fiscal 2028 (with $40.0 million due in the next 12 months).
The
following table shows select cash flow data, which is discussed below.
Three Months Ended December 31,
dollars in millions
2022
2021
Cash provided by (used in):
Operating activities
$
36.3
$
(9.1)
Investing
activities
(0.3)
(0.6)
Financing activities
(28.4)
(112.5)
Effect of exchange rate changes on cash and cash equivalents
0.5
—
Net increase (decrease) in cash and cash equivalents
$
8.1
$
(122.2)
Operating
Activities
Cash provided by operating activities for the three months ended December 31, 2022 was $36.3 million compared to cash used in operating activities of $9.1 million for the three months ended December 31, 2021. This increase was primarily driven by favorable changes related tofluctuations in the timing of purchases and payments of trade payables and sales and collections of trade receivables. Additionally, interest payments decreased $5.9 million due to the shift in timing of interest payments related to the 7.00% Senior Notes as compared to its previous term B facility in the prior year period. These positive impacts were partially offset by increasedtax payments (net of refunds)
by $14.3 million.
Investing Activities
Cash used in investing activities for the three months ended December 31, 2022 decreased $0.3 million compared to the prior year period resulting from a decrease in capital expenditures.
Cash used in financing activities for the three months ended December 31, 2022 was $28.4 million. We paid $41.2 million, including broker’s commissions, for the repurchase of shares of our Common Stock and repaid $40.0 million under the Revolving Credit Facility. Additionally, we borrowed $55.0 million
under the Revolving Credit Facility.
Cash used in financing activities for the three months ended December 31, 2021 was $112.5 million. BellRing LLC repaid $90.1 million on the principal balance of its previous term B facility. We paid $18.1 million, including broker’s commissions, for the repurchase of shares of Old BellRing Class A Common Stock during the quarter. In addition, we had net cash distributions to Post of $3.2 million related to quarterly tax distributions pursuant to BellRing LLC’s amended and restated limited liability company agreement.
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 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. We were in compliance with the financial covenant as of December 31, 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates are more fully described in our Annual Report on Form 10-K for the year ended September 30, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on November 17, 2022. There
have been no significant changes to our critical accounting policies and estimates since September 30, 2022.
RECENTLY ISSUED ACCOUNTING STANDARDS
We have considered all new accounting pronouncements and have concluded there are no new pronouncements that had or will have a material impact on our results of operations, comprehensive income, financial position, cash flows, stockholders’ equity or related disclosures based on current information.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, are made throughout this report, including statements regarding unanticipated developments
that negatively impact the BellRing Common Stock. These forward-looking statements are sometimes identified from the use of forward-looking words such as “believe,”“should,”“could,”“potential,”“continue,”“expect,”“project,”“estimate,”“predict,”“anticipate,”“aim,”“intend,”“plan,”“forecast,”“target,”“is likely,”“will,”“can,”“may” or “would” or the negative of these terms or similar expressions elsewhere in this report. Our financial condition, results of operations and cash flows may differ materially from those in the forward-looking statements. Such statements are based on management’s current views and assumptions and involve risks and uncertainties that could affect expected results. Those risks and uncertainties include, but are not limited to, the following:
•our
dependence on sales from our RTD protein shakes;
•our ability to continue to compete in our product categories and our ability to retain our market position and favorable perceptions of our brands;
•disruptions or inefficiencies in our supply chain, including as a result of our reliance on third party suppliers or manufacturers for the manufacturing of many of our products, pandemics (including the COVID-19 pandemic) and other outbreaks of contagious diseases, labor shortages, fires and evacuations related thereto, changes in weather conditions, natural disasters, agricultural diseases and pests and other events beyond our control;
•our dependence on a limited number of third party contract
manufacturers for the manufacturing of most of our products, including one manufacturer for the majority of our RTD protein shakes;
•the ability of our third party contract manufacturers to produce an amount of our products that enables us to meet customer and consumer demand for the products;
•our reliance on a limited number of third party suppliers to provide certain ingredients and packaging;
•significant volatility in the cost or availability of inputs to our business (including freight, raw materials, packaging, energy, labor and other supplies);
•the impact of the COVID-19 pandemic, including negative impacts
on the global economy and capital markets, the health of our employees, our ability and the ability of our third party contract manufacturers to manufacture and deliver our products, operating costs, demand for our on-the-go products and our operations generally;
•our ability to anticipate and respond to changes in consumer and customer preferences and behaviors and introduce new products;
•consolidation in our distribution channels;
•our ability to expand existing market penetration and enter into new markets;
•the loss of, a significant reduction of purchases by or the bankruptcy of a major customer;
•legal and regulatory factors, such as compliance with existing laws and regulations, as well as new laws and regulations and changes to existing laws and regulations and interpretations thereof, affecting our business, including current and future laws and regulations regarding food safety, advertising, labeling, tax matters and environmental matters;
•fluctuations in our business due to changes in our promotional activities and seasonality;
•our ability to maintain the net selling prices of our products and manage promotional activities with respect to our products;
•our leverage, our ability to obtain additional financing (including both
secured and unsecured debt) and our ability to service our outstanding debt (including covenants that restrict the operation of our business);
•the accuracy of our market data and attributes and related information;
•changes in estimates in critical accounting judgments;
•uncertain or unfavorable economic conditions that limit customer and consumer demand for our products or increase our costs;
•risks related to our ongoing relationship with Post following the Spin-off, including our obligations under various agreements with Post;
•conflicting interests or the appearance of conflicting interests resulting from certain of our directors
also serving as officers or directors of Post;
•risks related to the previously completed Spin-off, including our inability to take certain actions because such actions could jeopardize the tax-free status of the Distribution and our possible responsibility for U.S. federal tax liabilities related to the Distribution;
•the ultimate impact litigation or other regulatory matters may have on us;
•risks associated with our international business;
•our ability to protect our intellectual property and other assets and to continue to use third party intellectual property subject to intellectual property licenses;
•costs, business disruptions
and reputational damage associated with information technology failures, cybersecurity incidents and/or information security breaches;
•impairment in the carrying value of goodwill or other intangibles;
•our ability to identify, complete and integrate or otherwise effectively execute acquisitions or other strategic transactions and effectively manage our growth;
•our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002;
•significant differences in our actual operating results from any guidance we may give regarding our performance;
•our ability to hire and retain talented personnel, employee absenteeism,
labor strikes, work stoppages or unionization efforts; and
•other risks and uncertainties included under “Risk Factors” in this report and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November 17, 2022.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform
these statements to actual results or to changes in our expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
In the ordinary course of business, the Company is exposed to commodity price risks relating to the purchases of raw materials. The Company manages the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities through purchase commitments required to meet production requirements. In addition, the
Company may attempt to offset the effect of increased costs by raising prices to customers. However, for competitive reasons,
the Company may not be able to pass along the full effect of increases in raw materials and other input costs as they are incurred.
Foreign Currency Risk
Related to Active Nutrition International GmbH whose functional currency is the Euro, the
Company is exposed to risks of fluctuations in future cash flows and earnings due to changes in exchange rates.
Interest Rate Risk
As of December 31, 2022 and September 30, 2022, the Company had outstanding principal value of indebtedness of $840.0 million related to its 7.00% Senior Notes. Additionally, the Company had an aggregate principal amount of $114.0 million and $99.0 million outstanding under its Revolving Credit Facility as of December 31, 2022 and September
30, 2022, respectively. Borrowings under the Revolving Credit Facility bear interest at variable rates.
As of December 31, 2022 and September 30, 2022, the fair value of the Company’s debt, excluding any borrowings under its Revolving Credit Facility, was $820.1 million and $767.4 million, respectively. Changes in interest rates impact fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows. A hypothetical 10% decrease in interest rates would have increased the fair value of the fixed rate debt by approximately $18 million and $17 million as of December
31, 2022 and September 30, 2022, respectively. A hypothetical 10% increase in interest rates would have had an immaterial impact on both interest expense and interest paid during each of the three months ended December 31, 2022 and 2021. For additional information regarding the Company’s debt, see Note 13 within “Notes to Condensed Consolidated Financial Statements.”
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Management, with the Executive
Chairman, Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Company, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Executive Chairman, CEO and CFO concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance of achieving the desired control objectives.
Changes in Internal Control Over Financial Reporting
There were no significant changes in the
Company’s internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The information required under this Item 1 is set forth in Note 14 within “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report, which is incorporated herein by reference. For disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, the Company has elected to disclose matters where the Company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Applying this threshold, there are no such environmental proceedings to disclose for the three months ended December
31, 2022.
ITEM 1A. RISK FACTORS.
In addition to the information set forth elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), you should carefully consider the risk factors we previously disclosed in our Annual Report on Form 10-K, filed with the SEC on November 17, 2022, as of and for the year ended September 30, 2022 (the “Annual Report”). As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed in the Annual Report. These risks could materially and adversely affect our business, financial condition, results of operations and cash flows. The enumerated risks have
been or may be heightened, or in some cases manifested, by the impacts of the COVID-19 pandemic and the ongoing conflict in Ukraine and are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table sets forth information with respect to repurchases of shares of BellRing Common Stock, $0.01 par value per share, during the three months ended December 31, 2022 and our BellRing Common Stock repurchase authorization.
Period
Total
Number of Shares Purchased
Average Price Paid per Share (a)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (b)
(b)On May 23, 2022, the Company’s Board of Directors approved a $50,000,000 repurchase authorization with respect to shares of BellRing Common Stock (the “Prior Authorization”). The Prior Authorization was effective May 23, 2022 and had an expiration date of May 23, 2024. On December 5, 2022, the Company’s Board of Directors approved a new $50,000,000 repurchase authorization with respect to shares of BellRing Common Stock effective December 5, 2022
(the “New Authorization”). The New Authorization expires on December 5, 2024. On February 1, 2023, the Company’s Board of Directors approved the termination of its Prior Authorization.
Interactive
Data File (Form 10-Q for the quarterly period ended December 31, 2022 filed in iXBRL (Inline eXtensible Business Reporting Language)). The financial information contained in the iXBRL-related documents is “unaudited” and “unreviewed.”
104
The cover page from the Company’s Form 10-Q for the quarterly period ended December 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101
*
Exhibits
and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission (the “SEC”) a copy of any omitted exhibit or schedule upon request by the SEC.
†
These exhibits constitute management contracts, compensatory plans and arrangements.
‡
Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10).
Certain agreements
and other documents filed as exhibits to this Quarterly Report on Form 10-Q contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements and other documents.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, BellRing Brands, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
