B&G Foods, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Forward-Looking Statements” before Part I of this report and elsewhere in this report. The following discussion should be read in conjunction with the unaudited consolidated interim financial statements and related notes for the thirteen and thirty-nine weeks ended September 30, 2023 (third quarter and first three quarters of 2023) included elsewhere in this report and the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2022 (fiscal 2022) included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 28, 2023 (which we refer to as our 2022 Annual Report on Form 10-K).

General

We manufacture, sell and distribute a diverse portfolio of branded, high quality, shelf-stable and frozen foods and household products, many of which have leading regional or national market shares. In general, we position our branded products to appeal to the consumer desiring a high quality and reasonably priced product. We complement our branded product retail sales with institutional and foodservice sales and private label sales.

Our company has been built upon a successful track record of acquisition-driven growth. Our goal is to continue to increase sales, profitability and cash flows through strategic acquisitions, new product development and organic growth. We intend to implement our growth strategy through the following initiatives: expanding our brand portfolio with disciplined acquisitions of complementary branded businesses, continuing to develop new products and delivering them to market quickly, leveraging our multiple channel sales and distribution system and continuing to focus on higher growth customers and distribution channels.

Since 1996, we have successfully acquired and integrated more than 50 brands or businesses into our company. Most recently, on May 5, 2022, we acquired the frozen vegetable manufacturing operations of Growers Express, LLC. We refer to this acquisition in this report as the “Yuma acquisition.” This acquisition has been accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired business are included in our consolidated financial statements from the date of acquisition. This acquisition and the application of the acquisition method of accounting affects comparability between periods.

On January 3, 2023, we completed the sale of the Back to Nature business. We refer to this divestiture in this report as the “Back to Nature sale” or “Back to Nature divestiture.” On November 8, 2023, we completed the sale of the Green Giant U.S. shelf-stable product line. These divestitures affect comparability between periods.

We are subject to a number of challenges that may adversely affect our businesses. These challenges, which are discussed below and under the heading “Forward-Looking Statements,” include:

Fluctuations in Commodity Prices and Production and Distribution Costs. We purchase raw materials, including agricultural products, oils, meat, poultry, ingredients and packaging materials from growers, commodity processors, other food companies and packaging suppliers located in U.S. and foreign locations. Raw materials and other input costs, such as fuel and transportation, are subject to fluctuations in price attributable to a number of factors, including pandemics, other disease outbreaks, the war in Ukraine, climate and weather conditions, supply chain disruptions (including raw material shortages) and labor shortages. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.

We attempt to manage cost inflation risks by locking in prices through short-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers generally lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs.

We experienced material net cost increases for raw materials during fiscal 2022 due to a number of factors, including the war in Ukraine and the ongoing COVID-19 pandemic, and anticipate raw materials costs to remain elevated during the remainder of fiscal 2023 and into fiscal 2024. We are currently locked into our supply and prices for all of our most significant raw material commodities through the end of fiscal 2023.

In recent years, we have been negatively impacted by industry-wide increases in the cost of distribution, primarily driven by increased freight rates. Freight rates increased significantly during the fourth quarter of 2020 throughout fiscal 2021 and fiscal 2022. We attempt to offset all or a portion of these increases through price increases and cost savings initiatives. For example, despite higher rates for freight in 2021 and 2022, we were able to offset a portion of the freight cost increases through pricing, which included both list price increases and trade spend optimization. Although freight rates have begun to decline, we expect freight rates to remain elevated during the remainder of fiscal 2023 and into fiscal 2024.

In addition, during the past several years, our cost saving measures and sales price increases have not been sufficient to fully offset increases to our raw material, ingredient and packaging and distribution costs. We plan to continue managing inflation risk by entering into short-term supply contracts and advance commodities purchase agreements from time to time, and, when necessary, by raising prices. Beginning in the fourth quarter of 2022 through the third quarter of 2023, we have seen improvements in our gross profit and gross profit margins as our net pricing has begun to catch up with input cost increases. However, to the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially adversely affected. In addition, if input costs decline, customers may look for price reductions in situations where we have locked into purchases at higher costs.

Consolidation in the Retail Trade and Consequent Inventory Reductions. As customers, such as supermarkets, discounters, e-commerce merchants, warehouse clubs and food distributors, continue to consolidate and grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. These customers are also reducing their inventories and increasing their emphasis on private label products.

Changing Consumer Preferences and Channel Shifts. Consumers in the market categories in which we compete frequently change their taste preferences, dietary habits and product packaging preferences. In addition, the rapid growth of some channels and changing consumer preferences for these channels, in particular in e-commerce, which has expanded significantly following the outbreak of COVID-19, may impact our current operations or strategies more quickly than we planned for, create consumer price deflation, alter the buying behavior of consumers or disrupt our retail customer relationships. As a result of changing consumer preferences for products and channels, we may need to increase or reallocate spending on existing and new distribution channels and technologies, marketing, advertising and new product innovation to protect or increase revenues, market share and brand significance. These expenditures may not be successful, including those related to our e-commerce and other technology-focused efforts, and might not result in trade and consumer acceptance of our efforts. If we are unable to effectively and timely adapt to changes in consumer preferences and channel shifts, our products may lose market share or we may face significant price erosion, and our business, consolidated financial condition, results of operations or liquidity could be materially and adversely affected.

Consumer Concern Regarding Food Safety, Quality and Health. The food industry is subject to consumer concerns regarding the safety and quality of certain food products. If consumers in our principal markets lose confidence in the safety and quality of our food products, even as a result of a product liability claim or a product recall by a food industry competitor, our business could be adversely affected.

Fluctuations in Currency Exchange Rates. Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars. During the first three quarters of 2023 and 2022, our net sales to customers in foreign countries represented approximately 8.7% and 8.2%, respectively, of our total net sales. We also purchase a significant majority of our maple syrup requirements from suppliers located in Québec, Canada. Any weakening of the U.S. dollar against the Canadian dollar could significantly increase our costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars in advance of any such weakening of the U.S. dollar or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. These increased costs would not be fully offset by the positive impact the change in the relative strength of the Canadian dollar versus the U.S. dollar would have on our net sales in Canada. Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars. We also operate a manufacturing facility in Irapuato, Mexico for the manufacture of

Green Giant frozen products and are as a result exposed to fluctuations in the Mexican peso. Our results of operations could be adversely impacted by changes in foreign currency exchange rates. Costs and expenses in Mexico are recognized in local foreign currency, and therefore we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our consolidated financial statements. For example, our results of operations from our Green Giant frozen operations in Mexico have been negatively impacted during the first three quarters of 2023 as a result of the Mexican peso appreciating by nearly 12% against the U.S. dollar during the first three quarters of 2023.

To confront these challenges, we continue to take steps to build the value of our brands, to improve our existing portfolio of products with new product and marketing initiatives, to reduce costs through improved productivity, to address consumer concerns about food safety, quality and health and to favorably manage currency fluctuations.

Critical Accounting Policies; Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (GAAP) requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and assumptions made by management involve: revenue recognition as it relates to trade and consumer promotion expenses; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment, and deferred tax assets; and the determination of the useful life of customer relationship and finite-lived trademark intangible assets. Actual results could differ significantly from these estimates and assumptions.

In our 2022 Annual Report on Form 10-K, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our unaudited consolidated interim financial statements. There have been no material changes to these policies from those disclosed in our 2022 Annual Report on Form 10-K.

U.S. Tax Act and U.S. CARES Act

On December 22, 2017, the Tax Cuts and Jobs Act, which we refer to as the “U.S. Tax Act,” was signed into law. The U.S. Tax Act provides for significant changes in the U.S. Internal Revenue Code of 1986, as amended. The changes in the U.S. Tax Act are broad and complex and we continue to examine the impact the U.S. Tax Act may have on our business and financial results. The U.S. Tax Act contains provisions with separate effective dates but was generally effective for taxable years beginning after December 31, 2017.

Under FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. Beginning on January 1, 2018, the U.S. Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% on our U.S. earnings from that date and beyond. The reduction in the corporate income tax rate from 35% to 21% was effective for our fiscal 2018 and subsequent years. We also expect to realize a cash tax benefit for future bonus depreciation on certain business additions, which, together with the reduced income tax rate, we expect to reduce our cash income tax payments. Our consolidated effective tax rate was approximately 0.9% and 29.5% for the first three quarters of 2023 and 2022, respectively.

The U.S. Tax Act also limits the deduction for net interest expense (including the treatment of depreciation and other deductions in arriving at adjusted taxable income) incurred by a corporate taxpayer to 30% of the taxpayer’s adjusted taxable income.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the “U.S. CARES Act,” was signed into law. The U.S. CARES Act, among other things, includes provisions related to net operating loss carryback periods, modifications to the interest deduction limitation and technical corrections to tax depreciation for qualified improvement property. The U.S. CARES Act increased the adjusted taxable income limitation from 30% to 50% for business interest deductions for tax years 2019 and 2020 and the limitation reverted back to 30% beginning in 2021.

If we are unable to fully utilize our interest expense deductions in future periods, our cash taxes will increase. We were not subject to an interest expense deduction limitation in fiscal 2020 but were subject to the limitation in fiscal 2021, which increased our taxable income by $6.7 million. Beginning with fiscal 2022, our adjusted taxable income as computed for purposes of the interest expense deduction limitation is computed after any deduction allowable for depreciation and amortization. As a result, our adjusted taxable income (used to compute the limitation) decreased and we are subject to the interest expense deduction limitation in fiscal 2022, resulting in an increase to taxable income of $90.2 million. We may continue to be subject to the interest deduction limitation in future years. We have recorded a deferred tax asset of $22.2 million related to the interest deduction carryover, without a valuation allowance, as the disallowed interest may be carried forward indefinitely. The increase in our cash taxes resulting from the interest expense deduction limitation was approximately $20.6 million for fiscal 2022. There are various factors that may cause tax assumptions to change in the future, and we may have to record a valuation allowance against these deferred tax assets. See “—Liquidity and Capital Resources—Cash Flows–Cash Income Tax Payments.”

The U.S. Treasury issued several regulations supplementing the U.S. Tax Act in 2018, including detailed guidance clarifying the calculation of the mandatory tax on previously unrepatriated earnings, application of the existing foreign tax credit rules to newly created categories and expanding details for application of the base erosion tax on affiliate payments. These regulations are to be applied retroactively and did not materially impact our tax rates in fiscal 2022 or the first three quarters of 2023.

Results of Operations

The following table sets forth the percentages of net sales represented by selected items for the third quarter and first three quarters of 2023 and 2022 reflected in our consolidated statements of operations. The comparisons of financial results are not necessarily indicative of future results:

As used in this section, the terms listed below have the following meanings:

Net Sales. Our net sales represents gross sales of products shipped to customers plus amounts charged to customers for shipping and handling, less cash discounts, coupon redemptions, slotting fees and trade promotional spending, including marketing development funds.

Gross Profit. Our gross profit is equal to our net sales less cost of goods sold. The primary components of our cost of goods sold are cost of internally manufactured products, purchases of finished goods from co-packers, a portion of our warehousing expenses plus freight costs to our distribution centers and to our customers.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses include costs related to selling our products, as well as all other general and administrative expenses. Some of these costs include administrative, marketing and internal sales force employee compensation and benefits costs, consumer advertising programs, brokerage costs, a portion of our warehousing expenses, information technology and communication costs, office rent, utilities, supplies, professional services, severance, acquisition/divestiture-related and non-recurring expenses and other general corporate expenses.

Amortization Expense. Amortization expense includes the amortization expense associated with customer relationships, finite-lived trademarks and other intangible assets.

Impairment of Assets Held for Sale. Impairment of assets held for sale consists of pre-tax, non-cash charges to assets held for sale. We measure assets held for sale at the lower of their carrying value and fair value less anticipated costs to sell, and record non-cash impairment charges to the extent the fair value less anticipated costs to sell is less than their carrying value.

Net Interest Expense. Net interest expense includes interest relating to our outstanding indebtedness, amortization of bond discount/premium and amortization of deferred debt financing costs (net of interest income).

Gain on Extinguishment of Debt. Gain on extinguishment of debt includes gains relating to the retirement of indebtedness, including any repurchase discount net of the accelerated amortization of deferred debt financing costs.

Other Income. Other income includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs, and income or expense resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes.

Non-GAAP Financial Measures

Certain disclosures in this report include non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with GAAP in our consolidated balance sheets and related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows.

Base Business Net Sales. Base business net sales is a non-GAAP financial measure used by management to measure operating performance. We define base business net sales as our net sales excluding (1) the net sales of acquisitions until the net sales from such acquisitions are included in both comparable periods and (2) net sales of discontinued or divested brands. The portion of current period net sales attributable to recent acquisitions for which there is no corresponding period in the comparable period of the prior year is excluded. For each acquisition, the excluded period starts at the beginning of the most recent fiscal period being compared and ends on the first anniversary of the acquisition date. For discontinued or divested brands, the entire amount of net sales is excluded from each fiscal period being compared. We have included this financial measure because our management believes it provides useful and comparable trend information regarding the results of our business without the effect of the timing of acquisitions and the effect of discontinued or divested brands.

A reconciliation of net sales to base business net sales for the third quarter and first three quarters of 2023 and 2022 follows (in thousands):

(1) Reflects net sales from the Yuma acquisition, for which there is no comparable period of net sales during the first four months of the first three quarters of 2022. The Yuma acquisition was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures.”

(2) For the third quarter and first three quarters of 2022, reflects net sales of the Back to Nature brand, which was sold on January 3, 2023, and net sales of the SnackWell’s and Farmwise brands, which have been discontinued. For the third quarter and first three quarters of 2023, reflects a net credit paid to customers relating to the discontinued brands.

EBITDA and Adjusted EBITDA. EBITDA and adjusted EBITDA are non-GAAP financial measures used by management to measure operating performance. We define EBITDA as net income (loss) before net interest expense, income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA adjusted for cash and non-cash acquisition/divestiture-related expenses, gains and losses (which may include third party fees and expenses, integration, restructuring and consolidation expenses, amortization of acquired inventory fair value step-up, and gains and losses on the sale of certain assets); gains and losses on extinguishment of debt; impairment of assets held for sale; impairment of intangible assets; and non-recurring expenses, gains and losses.

Management believes that it is useful to eliminate these items because it allows management to focus on what it deems to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. We use EBITDA and adjusted EBITDA in our business operations to, among other things, evaluate our operating performance, develop budgets and measure our performance against those budgets, determine employee bonuses and evaluate our cash flows in terms of cash needs. We also present EBITDA and adjusted EBITDA because we believe they are useful indicators of our historical debt capacity and ability to service debt and because covenants in our credit agreement and our senior notes indentures contain ratios based on these measures. As a result, reports used by internal management during monthly operating reviews feature the EBITDA and adjusted EBITDA metrics. However, management uses these metrics in conjunction with traditional GAAP operating performance and liquidity measures as part of its overall assessment of company performance and liquidity, and therefore does not place undue reliance on these measures as its only measures of operating performance and liquidity.

EBITDA and adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to operating income (loss), net income (loss) or any other GAAP measure as an indicator of operating performance. EBITDA and adjusted EBITDA are not complete net cash flow measures because EBITDA and adjusted EBITDA are measures of liquidity that do not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends. Rather, EBITDA and adjusted EBITDA are potential indicators of an entity’s ability to fund these cash requirements. EBITDA and adjusted EBITDA are not complete measures of an entity’s profitability because they do not include certain costs and expenses and gains and losses described above. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies. However, EBITDA and adjusted EBITDA can still be useful in evaluating our performance against our peer companies because management believes these measures provide users with valuable insight into key components of GAAP amounts.

Reconciliations of net loss and net cash provided by (used in) operating activities to EBITDA and adjusted EBITDA for the third quarter and first three quarters of 2023 and 2022 along with the components of EBITDA and adjusted EBITDA follows (in thousands):

Adjusted Net Income and Adjusted Diluted Earnings Per Share. Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures used by management to measure operating performance. We define adjusted net income and adjusted diluted earnings per share as net income (loss) and diluted earnings (loss) per share adjusted for certain items that affect comparability. These non-GAAP financial measures reflect adjustments to net income (loss) and diluted earnings (loss) per share to eliminate the items identified in the reconciliation below. This information is provided in order to allow investors to make meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. Because we cannot predict the timing and amount of these items, management does not consider these items when evaluating our company’s performance or when making decisions regarding allocation of resources.

A reconciliation of net loss to adjusted net income and adjusted diluted earnings per share for the third quarter and first three quarters of 2023 and 2022 along with the components of adjusted net income and adjusted diluted earnings per share follows (in thousands):

(1) Net interest expense for the third quarter and first three quarters of 2023 were reduced by $0.6 million and $1.4 million, respectively, as a result of gains on extinguishment of debt related to our repurchases of $20.2 million aggregate principal amount and $44.6 million aggregate principal amount, respectively, of our 5.25% senior notes due 2025 in open market purchases during the third quarter and first three quarters of 2023 at discounted repurchase prices, which resulted in pre-tax gains of $0.6 million and $1.4 million, respectively, net of the accelerated amortization of deferred debt financing costs of $0.1 million and $0.3 million, respectively, for the third quarter and first three quarters of 2023.

(2) Acquisition/divestiture-related and non-recurring expenses for the third quarter and first three quarters of 2023 of $1.7 million (or $1.3 million, net of tax) and $3.9 million (or $3.0 million, net of tax), respectively, primarily includes acquisition and integration expenses for the Crisco acquisition and divestiture-related expenses for the Back to Nature divestiture. Acquisition/divestiture-related and non-recurring expenses for the third quarter and first three quarters of 2022 of $4.8 million (or $3.6 million, net of tax) and $9.6 million (or $7.2 million, net of tax), respectively, primarily includes acquisition and integration expenses for the Yuma and Crisco acquisitions.

(3) During the first quarter of 2023, we completed the Back to Nature divestiture and we recorded a loss on the sale of $0.1 million. During the first quarter of 2022, we completed the closure and sale of our Portland, Maine manufacturing facility. We recorded a gain on the sale of the Portland property, plant and equipment of $7.1 million during the first quarter of 2022. The positive impact during the quarter of the gain on sale was partially offset by approximately $2.2 million of expenses incurred during the quarter relating to the closure of the facility and the transfer of manufacturing operations, resulting in a net benefit of $4.9 million (or $3.7 million, net of tax) from the gain on sale.

(4) In connection with the divestiture of our Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash impairment charges of $132.9 million during the third quarter of 2023. See Note 18, “Assets Held for Sale,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

In connection with our decision to sell our Back to Nature business, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories to assets held for sale during fiscal 2022. During the third quarter of 2022, we measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million (or $78.2 million, net of tax). On January 3, 2023, we completed the sale of the Back to Nature business.

(5) During the second quarter of 2022, we paid a fee of $1.6 million (or $1.2 million, net of tax) to amend our senior secured credit agreement to temporarily increase the maximum consolidated leverage ratio permitted under our revolving credit facility.

(6) As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income taxes by $14.7 million, or $0.21 per share.

(7) Represents the tax effects of the non-GAAP adjustments listed above, assuming a tax rate of 24.5%.

Third quarter of 2023 compared to the third quarter of 2022

Net Sales. Net sales for the third quarter of 2023 decreased $25.7 million, or 4.9%, to $502.7 million from $528.4 million for the third quarter of 2022. The decrease was primarily attributable to a decrease in unit volume and the Back to Nature divestiture. Net sales of Back to Nature, which we divested on January 3, 2023, and therefore not part of our fiscal 2023 results, were $10.2 million during the third quarter of 2022.

Base business net sales for the third quarter of 2023 decreased $15.6 million, or 3.0%, to $502.7 million from $518.3 million for the third quarter of 2022. The decrease in base business net sales was driven by a decrease in unit volume of $13.2 million, the negative impact of foreign currency of $1.3 million, and a decrease in net pricing and the impact of product mix of $1.1 million, or 0.2% of base business net sales.

Net sales of Green Giant products in the aggregate (including Le Sueur) decreased $13.2 million, or 10.7%, in the third quarter of 2023, as compared to the third quarter of 2022.

See Note 16, “Net Sales by Brand,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, for detailed information regarding total net sales by brand for each of our brands whose net sales for the first three quarters of 2023 or fiscal 2022 equaled or exceeded 3% of our total net sales for those periods, and for all other brands in the aggregate. The following table sets forth the most significant base business net sales increases and decreases by brand for those brands for the third quarter of 2023:

(1) Includes net sales for multiple brands acquired as part of the spices & seasonings acquisition that we completed on November 21, 2016, as well as more recent spices & seasonings products launched and sold under license. Does not include net sales for Dash and our other legacy spices & seasonings brands.

(2) Includes net sales of the Le Sueur brand.

Gross Profit. Gross profit was $113.8 million for the third quarter of 2023, or 22.6% of net sales. Excluding the negative impact of $0.3 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2023, our gross profit would have been $114.1 million, or 22.7% of net sales. Gross profit was $105.8 million for the third quarter of 2022, or 20.0% of net sales. Excluding the negative impact of $2.2 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2022, our gross profit would have been $108.0 million, or 20.4% of net sales.

The improvements in gross profit and gross profit as a percentage of net sales were driven by an increase in net pricing relative to input costs as compared to the third quarter of 2022, the moderation of input cost inflation and lower transportation and warehousing costs. Beginning in the fourth quarter of 2022, we have realized the benefits of previously announced list price increases, which has contributed to our recovery in gross profit and gross profit as a percentage of net sales through the third quarter of 2023.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.7 million, or 1.4%, to $48.2 million for the third quarter of 2023 from $47.5 million for the third quarter of 2022. The increase was composed of increases in general and administrative expenses of $3.2 million and consumer marketing expenses of $0.3 million, partially offset by decreases in warehousing expenses of $1.3 million, acquisition/divestiture-related and non-recurring expenses of $1.2 million and selling expenses of $0.3 million. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 0.6 percentage points to 9.6% for the third quarter of 2023, as compared to 9.0% for the third quarter of 2022.

Amortization Expense. Amortization expense decreased $0.2 million, or 4.2%, to $5.2 million for the third quarter of 2023 from $5.4 million for the third quarter of 2022.

Impairment of Assets Held for Sale. In connection with the divestiture of assets relating to the Green Giant U.S. shelf-stable product line during the fourth quarter of 2023, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash impairment charges of $132.9 million during the third quarter of 2023. See Note 18, “Assets Held for Sale,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

During the third quarter of 2022, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories relating to our Back to Nature business to assets held for sale. We then measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million during the third quarter of 2022. During the fourth quarter of 2022, we recorded an additional $2.8 million of pre-tax, non-cash impairment charges related to those assets after we entered into an agreement to sell the Back to Nature business. The sale of the Back to Nature business was completed on January 3, 2023 (the first business day of fiscal 2023).

Operating Loss. As a result of the foregoing, operating loss increased $21.7 million, or 42.7%, to $72.5 million for the third quarter of 2023 from $50.8 million for the third quarter of 2022. Operating loss expressed as a percentage of net sales increased to 14.4% in the third quarter of 2023 from 9.6% in the third quarter of 2022.

Net Interest Expense. Net interest expense increased $4.0 million, or 12.5%, to $35.9 million for the third quarter of 2023 from $31.9 million for the third quarter of 2022. The increase was primarily attributable to higher interest rates on our variable rate borrowings, partially offset by a reduction in average long-term debt outstanding as compared to the third quarter of 2022 and a $0.6 million gain on extinguishment of debt. See “—Liquidity and Capital Resources — Debt” below.

Other Income. Other income for the third quarter of 2023 and 2022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $1.0 million and $1.8 million, respectively. Other income for the third quarter of 2023 and 2022 also includes income resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes of less than $0.1 million in both periods.

Income Tax Benefit. Income tax benefit increased $3.4 million to $24.7 million for the third quarter of 2023 from $21.3 million for the third quarter of 2022. Our effective tax rate was 23.0% for the third quarter of 2023 and 26.3% for the third quarter of 2022. See “U.S. Tax Act and U.S. CARES Act” above for a discussion of the impact of the tax legislation on income tax benefit.

First three quarters of 2023 compared to the first three quarters of 2022

Net Sales. Net sales for the first three quarters of 2023 decreased $55.6 million, or 3.6%, to $1,484.2 million from $1,539.8 million for the first three quarters of 2022. The decrease was primarily attributable to the Back to Nature divestiture and a decrease in unit volume and the negative impact of foreign currency, which were largely offset by an increase in net pricing and the impact of product mix. Net sales of Back to Nature, which we divested on January 3, 2023, and therefore not part of our fiscal 2023 results, were $34.4 million during the first three quarters of 2022.

Base business net sales for the first three quarters of 2023 decreased $21.4 million, or 1.4%, to $1,483.7 million from $1,505.1 million for the first three quarters of 2022. The decrease in base business net sales was driven by a decrease in unit volume of $132.8 million and the negative impact of foreign currency of $4.8 million, largely offset by an increase in net pricing and the impact of product mix of $116.2 million, or 7.7% of base business net sales.

Net sales of Green Giant products in the aggregate (including Le Sueur) decreased $28.1 million, or 7.6%, in the first three quarters of 2023, as compared to the first three quarters of 2022.

See Note 16, “Net Sales by Brand,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, for detailed information regarding total net sales by brand for each of our brands whose net sales for the first three quarters of 2023 or fiscal 2022 equaled or exceeded 3% of our total net sales for those periods, and for all other brands in the aggregate. The following table sets forth the most significant base business net sales increases and decreases by brand for those brands for the first three quarters of 2023:

(1) Includes net sales for multiple brands acquired as part of the spices & seasonings acquisition that we completed on November 21, 2016, as well as more recent spices & seasonings products launched and sold under license. Does not include net sales for Dash and our other legacy spices & seasonings brands.

(2) For the first three quarters of 2023, includes net sales from the Yuma acquisition from May 5, 2023 through September 30, 2023, as net sales prior to May 5, 2023 are not included in base business net sales. The Yuma acquisition was completed on May 5, 2022. See Note 3, “Acquisitions and Divestitures.”

(3) Includes net sales of the Le Sueur brand.

Gross Profit. Gross profit was $330.4 million for the first three quarters of 2023, or 22.3% of net sales. Excluding the negative impact of $1.4 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first three quarters of 2023, our gross profit would have been $331.8 million, or 22.3% of net sales. Gross profit was $283.5 million for the first three quarters of 2022, or 18.4% of net sales. Excluding the negative impact of $6.6 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold during the first three quarters of 2022, our gross profit would have been $290.1 million, or 18.8% of net sales.

The improvements in gross profit and gross profit as a percentage of net sales were driven by an increase in net pricing relative to input costs as compared to the first three quarters of 2022, the moderation of input cost inflation and lower transportation and warehousing costs. Beginning in the fourth quarter of 2022, we have realized the benefits of previously announced list price increases, which has contributed to our recovery in gross profit and gross profit as a percentage of net sales through the third quarter of 2023.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $4.2 million, or 3.1%, to $142.8 million for the first three quarters of 2023 from $138.6 million for the first three quarters of 2022. The increase was composed of increases in general and administrative expenses of $8.3 million and consumer marketing expenses of $2.1 million, partially offset by decreases in warehousing expenses of $2.8 million, acquisition/divestiture-related and non-recurring expenses of $2.6 million, and selling expenses of $0.8 million. Expressed as a percentage of net sales, selling, general and administrative expenses increased by 0.6 percentage points to 9.6% for the first three quarters of 2023, as compared to 9.0% for the first three quarters of 2022.

Amortization Expense. Amortization expense decreased $0.4 million, or 2.2%, to $15.6 million for the first three quarters of 2023 from $16.0 million for the first three quarters of 2022.

Impairment of Assets Held for Sale. In connection with the divestiture of assets relating to the Green Giant U.S. shelf-stable product line, we reclassified $115.3 million of indefinite-lived trademark intangible assets, $82.3 million of inventories and $4.1 million of finite-lived customer relationship intangible assets to assets held for sale as of the end of the third quarter of 2023. We then measured the assets held for sale at the lower of their carrying value or fair value less the estimated costs to sell, and recorded pre-tax, non-cash impairment charges of $132.9 million during the third quarter of 2023. See Note 18, “Assets Held for Sale,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

During the third quarter of 2022, we reclassified $109.9 million of indefinite-lived trademark intangible assets, $29.5 million of goodwill, $11.0 million of finite-lived customer relationship intangible assets and $7.3 million of inventories relating to our Back to Nature business to assets held for sale. We then measured the assets held for sale at the lower of their carrying value or fair value less anticipated costs to sell and recorded pre-tax, non-cash impairment charges of $103.6 million during the third quarter of 2022. During the fourth quarter of 2022, we recorded an additional $2.8 million of pre-tax, non-cash impairment charges related to those assets after we entered into an agreement to sell the Back to Nature business. The sale of the Back to Nature business was completed on January 3, 2023 (the first business day of fiscal 2023).

(Loss) gain on sales of assets. During the first quarter of 2023, we completed the Back to Nature divestiture and we recorded a loss on the sale of $0.1 million. During the first quarter of 2022, we completed the closure and sale of our Portland, Maine manufacturing facility. We recorded a gain on the sale of the Portland property, plant and equipment of $7.1 million during the first quarter of 2022. The positive impact during the first three quarters of 2022 of the gain on sale was partially offset by approximately $2.2 million of expenses incurred during the quarter relating to the closure of the facility and the transfer of manufacturing operations.

Operating Income. As a result of the foregoing, operating income increased $6.4 million, or 19.8%, to $38.9 million for the first three quarters of 2023 from $32.5 million for the first three quarters of 2022. Operating income expressed as a percentage of net sales increased to 2.6% in the first three quarters of 2023 from 2.1% in the first three quarters of 2022.

Net Interest Expense. Net interest expense increased $22.5 million, or 25.4%, to $111.1 million for the first three quarters of 2023 from $88.6 million for the first three quarters of 2022. The increase was primarily attributable to higher interest rates on our variable rate borrowings, as well as the accelerated amortization of deferred debt financing costs relating to long-term debt prepayments, partially offset by a reduction in average long-term debt outstanding, a $0.8 million gain on extinguishment of debt during the second quarter of 2023 and a $0.6 million gain on extinguishment of debt during the third quarter of 2023. See “—Liquidity and Capital Resources — Debt” below.

Other Income. Other income for the first three quarters of 2023 and 2022 includes the non-service portion of net periodic pension cost and net periodic post-retirement benefit costs of $2.8 million and $5.5 million, respectively. Other income for the first three quarters of 2023 and 2022 also includes income resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes of less than $0.1 million in both periods.

Income Tax Benefit. Income tax benefit decreased $14.4 million to $0.6 million for the first three quarters of 2023 from $15.0 million for the first three quarters of 2022. As a result of the Back to Nature divestiture, we incurred a capital loss for tax purposes, for which we recorded a deferred tax asset during the first quarter of 2023. A valuation allowance has been recorded against this deferred tax asset, which negatively impacted our first quarter of 2023 income taxes by $14.7 million, or $0.21 per share. Our effective tax rate was 0.9% for the first three quarters of 2023 and 29.5% for the first three quarters of 2022. See “U.S. Tax Act and U.S. CARES Act” above for a discussion of the impact of the tax legislation on income tax benefit.

Liquidity and Capital Resources

Our primary liquidity requirements include debt service, capital expenditures and working capital needs. See also, “Dividend Policy” below. We fund our liquidity requirements, as well as our dividend payments and financing for acquisitions, primarily through cash generated from operations and external sources of financing, including our revolving credit facility. We do not have any off-balance sheet financing arrangements.

Cash Flows

Net Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities increased $204.1 million to $155.7 million of net cash provided by operating activities for the first three quarters of 2023, as compared to $48.4 million of net cash used in operating activities for the first three quarters of 2022. The increase was due to an increase in operating income and favorable working capital comparisons in the first three quarters of 2023 compared to the first three quarters of 2022, primarily comprised of inventories, trade accounts receivable, and income tax receivable/payable, net; partially offset by unfavorable working capital comparisons for trade accounts payable.

Net Cash Provided by (Used in) Investing Activities. Cash flows provided by investing activities increased $69.0 million to $34.7 million of net cash provided by investing activities for the first three quarters of 2023, as compared to $34.3 million of net cash used in investing activities for the first three quarters of 2022. The increase was primarily attributable to the Back to Nature sale, which produced gross proceeds from the sale of assets of $51.4 million in the first three quarters of 2023, an increase of $41.2 million compared to the gross proceeds from the sale of assets in the first three quarters of 2022. Net cash used in investing activities for the first three quarters of 2022 includes $27.3 million of cash used to pay the purchase price for the Yuma acquisition, compared to no payments for acquisitions during the first three quarters of 2023.

Net Cash Provided by Financing Activities. Cash flows provided by financing activities increased $14.9 million to $124.3 million for the first three quarters of 2023, as compared to $109.4 million for the first three quarters of 2022. The increase was primarily driven by $550.0 million of proceeds from the issuance of aggregate principal amount of 8.00% senior secured notes due 2028 during the third quarter of 2023; a $58.2 million decrease in dividends paid during the first three quarters of 2023 compared to the first three quarters of 2022; an $8.6 million increase in the proceeds received from the issuance of common stock for the first three quarters of 2023 compared to the first three quarters of 2022; partially offset by a $430.0 million decrease in net borrowings under our revolving credit facility during the first three quarters of 2023 compared to the first three quarters of 2022; $121.0 million of mandatory and optional payments on our tranche B term loans during the first quarter of 2023 and our repurchase of $44.6 million aggregate principal amount of our 5.25% senior notes due 2025 during the first three quarters of 2023; and $10.2 million of debt financing costs during the first three quarters of 2023 compared to no debt financing costs during the first three quarters of 2022.

Cash Income Tax Payments. We believe that we will realize a benefit to our cash taxes payable from amortization of our trademarks, goodwill and other intangible assets for the taxable years 2023 through 2037. See “U.S. Tax Act and U.S. CARES Act” above for a discussion of the impact and expected impact of the U.S. CARES Act and the U.S. Tax Act on our cash income tax payments, including the impact the U.S. Tax Act had in fiscal 2022 and is expected to have in fiscal 2023 and beyond on our interest expense deductions and our cash taxes. If there is a change in U.S. federal tax policy or, in the case of the interest deduction, a change in our net interest expense relative to our adjusted taxable income that eliminates, limits or reduces our ability to amortize and deduct goodwill and certain intangible assets or the interest deduction we receive on our substantial indebtedness, or otherwise that reduces any of these available deductions or results in an increase in our corporate tax rate, our cash taxes payable may increase further, which could significantly reduce our future liquidity and impact our ability to make interest and dividend payments and have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.

Dividend Policy

Our dividend policy reflects a basic judgment that our stockholders are better served when we distribute a substantial portion of our cash available to pay dividends to them instead of retaining it in our business. Under this policy, a substantial portion of the cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, capital expenditures sufficient to maintain our properties and other assets is distributed as regular quarterly cash dividends to the holders of our common stock and not retained by us. We have paid dividends every quarter since our initial public offering in October 2004.

For the first three quarters of 2023 and 2022, we had net cash provided by operating activities of $155.7 million and net cash used in operating activities of $48.4 million, respectively, and distributed as dividends $41.1 million and $99.3 million, respectively.

Including the dividend payment that we made in the fourth quarter on October 30, 2023, we paid quarterly dividends of $56.0 million in fiscal 2023. Based upon our current intended dividend rate of $0.76 per share per annum and our current number of outstanding shares, we expect our aggregate dividend payments in fiscal 2024 to be approximately $59.8 million.

Our dividend policy is based upon our current assessment of our business and the environment in which we operate, and that assessment could change based on competitive or other developments (which could, for example, increase our need for capital expenditures or working capital), new acquisition opportunities or other factors. Our board of directors is free to depart from or change our dividend policy at any time and could do so, for example, if it was to determine that we have insufficient cash to fund capital expenditure or working capital needs, reduce leverage or ensure compliance with our maximum consolidated leverage ratio under our credit agreement, or take advantage of growth opportunities.

Acquisitions

Our liquidity and capital resources have been significantly impacted by acquisitions and may be impacted in the foreseeable future by additional acquisitions. As discussed elsewhere in this report, as part of our growth strategy we plan to expand our brand portfolio with disciplined acquisitions of complementary brands. We have historically financed acquisitions by incurring additional indebtedness, issuing equity and/or using cash flows from operating activities. Our interest expense has over time increased as a result of additional indebtedness we have incurred in connection with acquisitions and will increase with any additional indebtedness we may incur to finance future acquisitions. Although we may subsequently issue equity and use the proceeds to repay all or a portion of the additional indebtedness incurred to finance an acquisition and reduce our interest expense, the additional shares of common stock would increase the amount of cash flows from operating activities necessary to fund dividend payments.

The impact of future acquisitions, whether financed with additional indebtedness or otherwise, may have a material impact on our liquidity and capital resources.

Debt

See Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report for a description of our senior secured credit agreement, including our revolving credit facility and tranche B term loans; our 5.25% senior notes due 2025; our 5.25% senior notes due 2027; and our 8.00% senior secured notes due 2028.

Equity

See Note 9, “Stockholder’s Equity,” to our unaudited consolidated interim financial statements in Part I, Item I of this report for information about our “at-the-market” (ATM) equity offering program.

Future Capital Needs

We are highly leveraged. On September 30, 2023, our total long-term debt of $2,506.1 million, net of our cash and cash equivalents of $359.9 million, was $2,146.2 million. Stockholders’ equity as of that date was $840.6 million.

Our ability to generate sufficient cash to fund our operations depends generally on our results of operations and the availability of financing. Our management believes that our cash and cash equivalents on hand, cash flow from operating activities and available borrowing capacity under our revolving credit facility will be sufficient for the foreseeable future to fund operations, meet debt service requirements, fund capital expenditures, make future acquisitions, if any, and pay our anticipated quarterly dividends on our common stock.

We expect to make capital expenditures of approximately $35.0 million in the aggregate during fiscal 2023. During the first three quarters of 2023, we made capital expenditures of $19.4 million, of which $16.9 million were paid in cash. Our projected capital expenditures for fiscal 2023 primarily relate to asset sustainability projects, productivity and cost saving initiatives, environmental compliance, and information technology (hardware and software), including cybersecurity.

Seasonality

Sales of a number of our products tend to be seasonal and may be influenced by holidays, changes in seasons or certain other annual events. In general, our sales are higher during the first and fourth quarters.

We purchase most of the produce used to make our frozen and shelf-stable vegetables, shelf-stable pickles, relishes, peppers, tomatoes and other related specialty items during the months of June through October, and we generally purchase the majority of our maple syrup requirements during the months of April through August. Consequently, our liquidity needs are greatest during these periods.

Inflation

See “—General—Fluctuations in Commodity Prices and Production and Distribution Costs” above.

Contingencies

See Note 12, “Commitments and Contingencies,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies —Recently Issued Accounting Standards – Pending Adoption,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

Supplemental Financial Information about B&G Foods and Guarantor Subsidiaries

As further discussed in Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, our obligations under the 5.25% senior notes due 2025, the 5.25% senior notes due 2027, and the 8.00% senior secured notes due 2028 are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries, which we refer to in this section as the guarantor subsidiaries. Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes due 2025, the 5.25% senior notes due 2027, or the 8.00% senior secured notes due 2028. In this section, we refer to these foreign subsidiaries and future foreign or partially owned domestic subsidiaries as the non-guarantor subsidiaries. See Note 6, “Long-Term Debt” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

The 5.25% senior notes due 2025 and 5.25% senior notes due 2027 and the related subsidiary guarantees are our and the guarantor subsidiaries’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantor subsidiaries’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantor subsidiaries’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantor subsidiaries’ future subordinated debt.

The 8.00% senior secured notes due 2028 are our senior secured obligations. The 8.00% senior secured notes due 2028 notes have the same guarantors as our credit agreement. The 8.00% senior secured notes due 2028 notes and the related guarantees are secured by, subject to permitted liens, first-priority security interests in certain collateral (which generally includes most of our and our guarantors’ right or interest in or to property of any kind, except for our and our guarantors’ real property and certain intangible assets), which assets also secure (and will continue to secure) our credit agreement on a pari passu basis. Pursuant to the terms of the applicable indenture, the related collateral agreement and an intercreditor agreement, the 8.00% senior secured notes due 2028 notes and the guarantees rank (1) pari passu (equally and ratably) in right of payment to all of our and the guarantors’ existing and future senior debt, including existing and future senior debt under our existing or any future senior secured credit agreement (including the term loan borrowings under our existing senior secured credit facility, any obligations under our existing revolving credit facility and all other borrowings and obligations under our credit agreement), (2) effectively senior in right of payment to our and such guarantors’ existing and future senior unsecured debt, including our 5.25% senior notes due 2025 and 5.25% senior notes due 2027 to the extent of the value of the collateral, (3) effectively junior to our and the guarantors’ future secured debt, secured by assets that do not constitute collateral, to the extent of the value of the collateral securing such debt, (4) senior in right of payment to our and such guarantors’ other existing and future subordinated debt and (5) structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 8.00% senior secured notes due 2028.

Each guarantee contains a provision intended to limit the guarantor subsidiary’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, we cannot assure you that this provision will be effective to protect the subsidiary guarantees from being voided under fraudulent transfer laws.

A guarantor subsidiary’s guarantee will be automatically released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that guarantor subsidiary (including by way of merger or consolidation) to a person or entity that is not (either before or after giving effect to such transaction) B&G Foods or a “restricted subsidiary” of B&G Foods under the applicable indenture, if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (2) in connection with any sale or other disposition of all of the capital stock of that guarantor subsidiary to a person or entity that is not (either before or after giving effect to such transaction) B&G Foods or a “restricted subsidiary” of B&G Foods, if the sale or other disposition complies with the asset sale provisions of the applicable indenture; (3) if B&G Foods designates any “restricted subsidiary” that is a guarantor subsidiary to be an “unrestricted subsidiary” in accordance with the applicable provisions of the indenture; (4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the applicable indenture; (5) if such guarantor subsidiary no longer constitutes a domestic subsidiary; or (6) if it is determined in good faith by B&G Foods that a liquidation, dissolution or merger out of existence of such guarantor subsidiary is in the best interests of B&G Foods and is not materially disadvantageous to the holders of the senior notes or the senior secured notes, as applicable.

The following tables present summarized unaudited financial information on a combined basis for B&G Foods and each of the guarantor subsidiaries described above after elimination of (1) intercompany transactions and balances among B&G Foods and the guarantor subsidiaries and (2) investments in any subsidiary that is a non-guarantor (in thousands):

(1) Current assets includes amounts due from non-guarantor subsidiaries of $46.7 million and $37.7 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Current liabilities includes amounts due to non-guarantor subsidiaries of $21.3 million and $7.7 million as of September 30, 2023 and December 31, 2022, respectively.

Our principal market risks are exposure to changes in commodity prices, interest rates on borrowings and foreign currency exchange rates and market fluctuation risks related to our defined benefit pension plans.

Commodity Prices and Inflation. The information under the heading “General—Fluctuations in Commodity Prices and Production and Distribution Costs” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

Interest Rate Risk. In the normal course of operations, we are exposed to market risks relating to our long-term debt arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value of a financial asset or liability resulting from an adverse movement in interest rates.

Changes in interest rates impact our 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 for variable rate debt, a change in the interest rates will impact interest expense and cash flows. At September 30, 2023, we had $1,955.4 million of fixed rate debt and $550.6 million of variable rate debt.

Based upon our principal amount of long-term debt outstanding at September 30, 2023, a hypothetical 1.0% increase or decrease in interest rates would have affected our annual interest expense by approximately $5.5 million.

The carrying values and fair values of our revolving credit loans, term loans and senior notes as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

(1) Fair values are estimated based on Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active.

(2) The carrying value of the tranche B term loans includes a discount. At September 30, 2023 and December 31, 2022, the face amount of the tranche B term loans was $550.6 million and $671.6 million, respectively.

(3) Fair values are estimated based on quoted market prices.

(4) The carrying value of the 5.25% senior notes due 2025 includes a premium. At September 30, 2023 and December 31, 2022, the face amount of the 5.25% senior notes due 2025 was $855.4 million and $900.0 million, respectively. During the fourth quarter of 2023, we redeemed $555.4 million aggregate principal amount of our 5.25% senior notes due 2025. See Note 6, “Long-Term Debt,” and Note 19, “Subsequent Events,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report for additional information.

(5) The carrying value of 8.00% senior secured notes due 2028 includes a discount. At September 30, 2023, the face amount of 8.00% senior secured notes due 2028 was $550.0 million.

Cash and cash equivalents, trade accounts receivable, income tax receivable/payable, trade accounts payable, accrued expenses and dividends payable are reflected on our consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.

For more information, see Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

Foreign Currency Risk. Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars. Our net sales to customers in foreign countries represented approximately 8.7% and 8.2% of our total net sales during the first three quarters of 2023 and 2022, respectively. We also purchase certain raw materials from foreign suppliers. For example, we purchase a significant majority of our maple syrup requirements from suppliers in Québec, Canada. These purchases are made in Canadian dollars. A weakening of the U.S. dollar in relation to the Canadian dollar would significantly increase our future costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars, but certain purchases of raw materials in Mexico are denominated in Mexican pesos. In addition, we operate a frozen vegetable manufacturing facility in Irapuato, Mexico. A weakening of the U.S. dollar in relation to the Mexican peso would significantly increase our costs relating to the production of frozen vegetable products to the extent we have not purchased Mexican pesos or otherwise entered into hedging arrangements in advance of the weakening of the U.S. dollar. For example, our results of operations from our Green Giant frozen operations in Mexico have been negatively impacted during the first three quarters of 2023 as a result of the Mexican peso appreciating by nearly 12% against the U.S. dollar during the first three quarters of 2023.

As a result, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an adverse impact on operating results.

Market Fluctuation Risks Relating to our Defined Benefit Pension Plans. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates” and Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of our 2022 Annual Report on Form 10-K for a discussion of the exposure of our defined benefit pension plan assets to risks related to market fluctuations.

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, our management, including our chief executive officer and our chief financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures that we use that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting. As required by Rule 13a-15(d) under the Exchange Act, our management, including our chief executive officer and our chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change in our internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our chief executive officer and our chief financial officer concluded that there has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

During fiscal 2022 and the first three quarters of 2023, we continued to implement additional modules and transition recently acquired businesses into the enterprise resource planning (ERP) system that we use for substantially all of our operations other than our operations in Mexico. In connection with each implementation, integration and transition, and resulting business process changes, we continue to review and enhance the design and documentation of our internal control over financial reporting processes to maintain effective controls over our financial reporting following the completion of each such implementation, integration and transition. To date, the implementations, integrations and transitions have not materially affected our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls. Our company’s management, including the chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II

OTHER INFORMATION

We do not believe there have been any material changes in our risk factors as previously disclosed in our 2022 Annual Report on Form 10-K.