NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
($ in millions, except per share information and where indicated otherwise)
NOTE 1 — BACKGROUND 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 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 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 80.1% 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, $0.01 par value per share (“Old BellRing Class B Common Stock”), all of its BellRing LLC units and $550.4 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 $840.0 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 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 and $2.97 in cash, or $115.5 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 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 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 3.4% as of September 30, 2022. In connection with this transaction, 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 transaction, 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 March 31, 2023.
The Company incurred separation-related expenses in connection with its separation from Post of $0.4 and $0.7 during the three and six months ended March 31, 2023, respectively, and $10.3 and $12.3 during the three and six months ended March 31, 2022, respectively. 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 “Company” generally refers to Old BellRing and its consolidated subsidiaries during the periods prior to the Spin-off and to BellRing and its consolidated subsidiaries during the periods 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 periods prior to the Spin-off and to BellRing Common Stock during the periods subsequent to the Spin-off. The term “Net earnings available to common stockholders” generally refers to net earnings available to Old BellRing Class A common stockholders during the periods prior to the Spin-off and to net earnings available to BellRing common stockholders during the periods subsequent to the Spin-off.
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 and powders. 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 the 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 each 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 periods 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 — RECENTLY 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 — REVENUE
The following table presents net sales by product.
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| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Shakes and other beverages | $ | 299.9 | | | $ | 246.0 | | | $ | 596.9 | | | $ | 491.0 | |
Powders | 73.8 | | | 59.1 | | | 129.9 | | | 109.9 | |
| | | | | | | |
Other | 11.9 | | | 10.1 | | | 21.5 | | | 20.8 | |
Net Sales | $ | 385.6 | | | $ | 315.2 | | | $ | 748.3 | | | $ | 621.7 | |
NOTE 4 — RELATED PARTY TRANSACTIONS
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 and six months ended March 31, 2023 and 2022, 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. For the three and six months ended March 31, 2023, MSA fees were $1.0 and $2.3, respectively. For the three and six months ended March 31, 2022, MSA fees were $1.2 and $1.8, respectively. MSA fees were reported in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
The Company had immaterial receivables and other current liabilities with Post at both March 31, 2023 and September 30, 2022 related to sales and royalty expense with Post and its subsidiaries. The Company had $0.4 and $1.4 of payables with Post at March 31, 2023 and September 30, 2022, respectively, related to MSA fees as well as related party purchases, which were recorded in “Accounts payable,” on the Condensed Consolidated Balance Sheets.
Tax Agreements
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 six months ended March 31, 2022, BellRing LLC paid $3.2 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 each of the three and six months ended March 31, 2023 and 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. Additionally, pursuant to the Co-Packing Agreement, Premier Nutrition will reimburse Comet for certain costs and expenses incurred in the acquisition and development of property for the processing plant. During the three and six months ended March 31, 2023, Premier Nutrition made no payments to Comet pursuant to the Co-Packing Agreement.
NOTE 5 — REDEEMABLE NONCONTROLLING INTEREST
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. 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 Statements of Stockholders’ Deficit.
Immediately prior to the Spin-off, Old BellRing owned 28.5% 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 each period.
Immediately following the Spin-off, Post owned 14.2% 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 zero. As of March 31, 2023, Post had no ownership of BellRing Common Stock.
The following table summarizes the changes to the Company’s NCI for the three and six months ended March 31, 2022. There were no changes to the Company’s NCI for the three and six months ended March 31, 2023 as the carrying amount of the NCI was reduced to zero immediately following the Spin-off in fiscal 2022.
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| | | As of and for the Three Months Ended March 31, 2022 | | | | As of and for the Six Months Ended March 31, 2022 |
| | | | | | | |
Beginning of period | | | $ | 2,780.9 | | | | | $ | 2,997.3 | |
Net earnings attributable to NCI | | | 2.6 | | | | | 33.7 | |
Net change in hedges, net of tax | | | 4.7 | | | | | 5.1 | |
Foreign currency translation adjustments | | | (0.2) | | | | | (0.5) | |
| | | | | | | |
Redemption value adjustment to NCI | | | (122.9) | | | | | (370.5) | |
Impact of Spin-off | | | (2,665.1) | | | | | (2,665.1) | |
End of period | | | $ | — | | | | | $ | — | |
The following table summarizes the effects of changes in NCI on the Company’s equity for the three and six months ended March 31, 2022. There were no transfers to or from NCI for the three and six months ended March 31, 2023 as the carrying amount of the NCI was reduced to zero immediately following the Spin-off in fiscal 2022.
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| | | Three Months Ended March 31, 2022 | | | | Six Months Ended March 31, 2022 |
| | | | | | | |
Net earnings available to common stockholders | | | $ | 1.3 | | | | | $ | 9.5 | |
Transfers from NCI: | | | | | | | |
| | | | | | | |
Changes in equity as a result of redemption value adjustment to NCI | | | (122.9) | | | | | (370.5) | |
Increase in equity as a result of the Spin-off | | | (2,665.1) | | | | | (2,665.1) | |
Changes from net earnings available to common stockholders and transfers from NCI | | | $ | (2,786.7) | | | | | $ | (3,026.1) | |
NOTE 6 — INCOME 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 25.0% and 45.1% for the three months ended March 31, 2023 and 2022, respectively. The decrease in the effective income tax rate compared to the prior year was primarily due to higher separation-related expenses incurred in connection with the Spin-off in the prior year period that were treated as non-deductible, partially offset by the Company reporting 100% of the income, gain, loss and deduction of BellRing LLC in the periods subsequent to the Spin-off.
The effective income tax rate was 24.7% and 12.4% for the six months ended March 31, 2023 and 2022, 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 in the periods subsequent to the Spin-off.
For additional information on the Tax Matters Agreement by and among Post, BellRing and Old BellRing, see Note 4.
NOTE 7 — EARNINGS 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 each 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 the dilutive impact of net earnings per share of Old BellRing Class A Common Stock attributable to NCI.
Subsequent to the Spin-off, basic earnings per share is based on the average number of shares of BellRing Common Stock outstanding during each 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.
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| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net earnings available to common stockholders for basic earnings per share | $ | 30.9 | | | $ | 1.3 | | | $ | 75.1 | | | $ | 9.5 | |
Dilutive impact of net earnings attributable to NCI | — | | | — | | | — | | | — | |
| | | | | | | |
Net earnings available to common stockholders for diluted earnings per share | $ | 30.9 | | | $ | 1.3 | | | $ | 75.1 | | | $ | 9.5 | |
| | | | | | | |
shares in millions | | | | | | | |
Weighted-average shares for basic earnings per share | 133.4 | | | 62.7 | | | 134.1 | | | 51.0 | |
Effect of dilutive securities: | | | | | | | |
Stock options | 0.1 | | | — | | | 0.1 | | | — | |
Restricted stock units | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | |
Performance-based restricted stock units | 0.8 | | | — | | | 0.4 | | | — | |
| | | | | | | |
| | | | | | | |
Weighted-average shares for diluted earnings per share | 134.5 | | | 62.9 | | | 134.8 | | | 51.2 | |
| | | | | | | |
Basic earnings per share of Common Stock | $ | 0.23 | | | $ | 0.02 | | | $ | 0.56 | | | $ | 0.19 | |
Diluted earnings per share of Common Stock | $ | 0.23 | | | $ | 0.02 | | | $ | 0.56 | | | $ | 0.19 | |
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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.
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| Three Months Ended March 31, | | Six Months Ended March 31, |
shares in millions | 2023 | | 2022 | | 2023 | | 2022 |
Restricted stock units | — | | | 0.2 | | | 0.1 | | | 0.1 | |
Performance-based restricted stock units | — | | | 0.1 | | | 0.3 | | | 0.1 | |
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NOTE 8 — INVENTORIES | | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
Raw materials and supplies | $ | 91.2 | | | $ | 58.3 | |
Work in process | 0.1 | | | 0.1 | |
Finished products | 174.2 | | | 141.4 | |
| | | |
Inventories | $ | 265.5 | | | $ | 199.8 | |
NOTE 9 — PROPERTY, NET | | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
Property, at cost | $ | 23.0 | | | $ | 21.5 | |
Accumulated depreciation | (14.7) | | | (13.5) | |
Property, net | $ | 8.3 | | | $ | 8.0 | |
NOTE 10 — GOODWILL
The components of “Goodwill” on the Condensed Consolidated Balance Sheets at both March 31, 2023 and September 30, 2022 are presented in the following table.
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| |
| |
Goodwill, gross | $ | 180.7 | |
Accumulated impairment losses | (114.8) | |
Goodwill | $ | 65.9 | |
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NOTE 11 — INTANGIBLE ASSETS, NET
Total intangible assets are as follows:
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| March 31, 2023 | | September 30, 2022 |
| Carrying Amount | | Accumulated Amortization | | Net Amount | | Carrying Amount | | Accumulated Amortization | | Net Amount |
| | | | | | | | | | | |
Customer relationships | $ | 178.4 | | | $ | (89.8) | | | $ | 88.6 | | | $ | 178.3 | | | $ | (84.9) | | | $ | 93.4 | |
Trademarks and brands | 194.0 | | | (88.9) | | | 105.1 | | | 195.1 | | | (85.2) | | | 109.9 | |
Other intangible assets | 3.1 | | | (3.1) | | | — | | | 3.1 | | | (3.1) | | | — | |
Intangible assets, net | $ | 375.5 | | | $ | (181.8) | | | $ | 193.7 | | | $ | 376.5 | | | $ | (173.2) | | | $ | 203.3 | |
NOTE 12 — FAIR VALUE MEASUREMENTS
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 March 31, 2023 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 $854.5 and $767.4 as of March 31, 2023 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.
NOTE 13 — LONG-TERM DEBT
The following table presents the components of “Long-term debt” on the Condensed Consolidated Balance Sheets.
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| March 31, 2023 | | September 30, 2022 |
7.00% Senior Notes maturing in March 2030 | $ | 840.0 | | | $ | 840.0 | |
| | | |
Revolving Credit Facility | 139.0 | | | 99.0 | |
| | | |
Total principal amount of debt | 979.0 | | | 939.0 | |
| | | |
Less: Debt issuance costs, net | 8.9 | | | 9.5 | |
| | | |
Long-term debt | $ | 970.1 | | | $ | 929.5 | |
Senior Notes
On March 10, 2022, pursuant to the Transaction Agreement, the Company issued $840.0 aggregate principal amount of 7.00% 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 $10.2, 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 subsidiaries the 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 $250.0 (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 $20.0. 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 2.00% and thereafter will range from 2.00% to 2.75% 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 3.00% and thereafter will range from 3.00% to 3.75% 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 3.00% and thereafter will range from 3.00% to 3.75% 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 3.00% and thereafter will range from 3.00% to 3.75% 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 0.25% per annum, and thereafter, will accrue at rates ranging from 0.25% to 0.375% per annum, depending on the Company’s secured net leverage ratio.
The Company incurred $1.5 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 six months ended March 31, 2023 and 2022, the Company borrowed $115.0 and $109.0 under the Revolving Credit Facility, respectively, and repaid $75.0 and zero under the Revolving Credit Facility, respectively. The interest rates on the utilized portion of the Revolving Credit Facility ranged from 7.86% to 10.00% as of March 31, 2023 and 5.95% to 8.25% as of September 30, 2022. The available borrowing capacity under the Revolving Credit Facility was $111.0 and $151.0 as of March 31, 2023 and September 30, 2022, respectively. There were no outstanding letters of credit as of March 31, 2023 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 6.00:1.00, 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 March 31, 2023.
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 subsidiaries the 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 $700.0 (the “Term B Facility”) and a revolving credit facility in an aggregate principal amount of up to $200.0 (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 $20.0.
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 $519.8 on its Term B Facility and terminated all obligations and commitments under the Old Credit Agreement. The Company recorded a loss of $17.6 during the three and six months ended March 31, 2022, which was included in “Loss on extinguishment of debt, net” in the Condensed Consolidated Statements of Operations. This loss included (i) a $6.9 write-off of unamortized discounts and debt extinguishment fees, (ii) a $6.1 write-off of unamortized net hedging losses recorded within accumulated OCI related to the Term B Facility and (iii) a $4.6 write-off of debt issuance costs and deferred financing fees.
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 $8.75 which began on March 31, 2020. Interest was paid on each Interest Payment Date (as defined in the Old Credit Agreement) during the periods prior to the termination of the Old Credit Agreement. The Term B Facility contained customary mandatory prepayment provisions, and during the six months ended March 31, 2022 and prior to the termination of the Old Credit Agreement, the Company repaid $81.4 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 no borrowings under or repayments on the Old Revolving Credit Facility during the six months ended March 31, 2022 prior to the facility being terminated.
NOTE 14 — COMMITMENTS 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 $12.9, which includes statutory damages and prejudgment interest. In October 2022, each plaintiff and Premier Nutrition filed Notices of Appeal to the Ninth Circuit, on February 7, 2023 plaintiff filed its Opening Brief and on April 28, 2023 Premier Nutrition filed its Answering Brief. 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 currently in the Alameda Superior Court was held on February 24, 2023 and on March 23, 2023 the Court granted the motion in part and denied it in part. On April 14, 2023, Plaintiff filed a motion for reconsideration and Premier Nutrition filed a motion for judgment on the pleadings. Both motions remain pending. This case is set for trial in September 2023 and will be consolidated for trial with the case set forth in the following paragraph.
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 case is set for trial in September 2023 and will be consolidated for trial with the case set forth in the immediately preceding paragraph..
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 or six months ended March 31, 2023 or 2022. At both March 31, 2023 and September 30, 2022, the Company had an estimated liability of $16.0 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 believes the impact of the recall on the financial condition, results of operations and cash flows of the Company has been and will continue to be immaterial.
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 — STOCKHOLDERS’ DEFICIT
The following table summarizes the Company’s repurchases of BellRing Common Stock. There were no repurchases of BellRing Common Stock during the three and six months ended March 31, 2022.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Six Months Ended March 31, 2023 |
| | | | | | | |
Shares repurchased (in millions) | 0.9 | | | | 2.7 | | |
Average price per share (a) | $ | 29.74 | | | | | $ | 25.52 | | | |
Total share repurchase cost (b) | $ | 27.6 | | | | | $ | 68.8 | | | |
(a)Average price per share excludes accrued excise tax and broker’s commissions, which are included in “Total share repurchase cost” within this table.
(b)“Purchases of treasury stock” in the Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2023 excluded $0.3 of accrued excise tax that had not been paid as of March 31, 2023 and was included in “Other current liabilities” on the Condensed Consolidated Balance Sheets at March 31, 2023.
The following table summarizes the Company’s repurchases of Old BellRing Class A Common Stock. There were no repurchases of Old BellRing Class A Common Stock during the three months ended March 31, 2022.
| | | | | | | | | | | |
| | | | | Six Months Ended March 31, 2022 | | |
| | | |
| | | | | | | |
Shares repurchased (in millions) | | | | | 0.8 | | | |
Average price per share (a) | | | | | $ | 23.34 | | | |
Total share repurchase cost | | | | | $ | 18.1 | | | |
(a)Average price per share excludes broker’s commissions, which are included in “Total share repurchase cost” within this table.
In connection with the Spin-off, 0.8 million shares of Old BellRing Class A Common Stock held in treasury stock immediately prior to the Merger effective time were cancelled pursuant to the Transaction Agreement.