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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
__________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 1-35305
Post Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
| | |
Missouri | | 45-3355106 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2503 S. Hanley Road
St. Louis, Missouri 63144
(Address of principal executive offices) (Zip Code)
(314) 644-7600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | POST | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value – 69,906,711 shares as of February 3, 2020
POST HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
|
| | |
| | Page |
PART I. | | |
| | |
Item 1. | | |
| | |
| | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
| | |
Item 1. | | |
| | |
Item 1A. | | |
| | |
Item 2. | | |
| | |
Item 6. | | |
| | |
| | |
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Net Sales | $ | 1,456.8 |
| | $ | 1,411.3 |
|
Cost of goods sold | 985.3 |
| | 984.8 |
|
Gross Profit | 471.5 |
| | 426.5 |
|
Selling, general and administrative expenses | 235.3 |
| | 217.1 |
|
Amortization of intangible assets | 40.1 |
| | 40.3 |
|
Gain on sale of business | — |
| | (124.7 | ) |
Other operating expenses (income), net | 0.1 |
| | (0.1 | ) |
Operating Profit | 196.0 |
| | 293.9 |
|
Interest expense, net | 102.9 |
| | 59.4 |
|
Loss on extinguishment of debt, net | 12.9 |
| | 6.1 |
|
(Income) expense on swaps, net | (61.4 | ) | | 51.7 |
|
Other income, net | (3.2 | ) | | (3.7 | ) |
Earnings before Income Taxes and Equity Method Loss | 144.8 |
| | 180.4 |
|
Income tax expense | 30.4 |
| | 43.8 |
|
Equity method loss, net of tax | 7.3 |
| | 10.7 |
|
Net Earnings Including Noncontrolling Interests | 107.1 |
| | 125.9 |
|
Less: Net earnings attributable to noncontrolling interests | 7.9 |
| | 0.3 |
|
Net Earnings | 99.2 |
| | 125.6 |
|
Less: Preferred stock dividends | — |
| | 2.0 |
|
Net Earnings Available to Common Shareholders | $ | 99.2 |
| | $ | 123.6 |
|
| | | |
Earnings per Common Share: | | | |
Basic | $ | 1.40 |
| | $ | 1.85 |
|
Diluted | $ | 1.38 |
| | $ | 1.67 |
|
| | | |
Weighted-Average Common Shares Outstanding: | | | |
Basic | 70.7 |
| | 66.7 |
|
Diluted | 72.1 |
| | 75.1 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Net Earnings Including Noncontrolling Interests | $ | 107.1 |
| | $ | 125.9 |
|
Pension and postretirement benefits adjustments: | | | |
Reclassifications to net earnings | (0.5 | ) | | (1.2 | ) |
Hedging adjustments: | | | |
Unrealized net (loss) gain on derivatives | (33.3 | ) | | 24.4 |
|
Reclassifications to net earnings | 7.2 |
| | (30.1 | ) |
Foreign currency translation adjustments: | | | |
Unrealized foreign currency translation adjustments | 115.1 |
| | (40.2 | ) |
Reclassifications to net earnings (see Note 4) | — |
| | 42.1 |
|
Tax benefit (expense) on other comprehensive income: | | | |
Pension and postretirement benefits adjustments: | | | |
Reclassifications to net earnings | 0.1 |
| | 0.3 |
|
Hedging adjustments: | | | |
Unrealized gain/loss on derivatives | 8.5 |
| | (6.0 | ) |
Reclassifications to net earnings | (1.6 | ) | | 7.4 |
|
Total Other Comprehensive Income (Loss) Including Noncontrolling Interests | 95.5 |
| | (3.3 | ) |
Less: Comprehensive income attributable to noncontrolling interests | 8.4 |
| | 0.3 |
|
Total Comprehensive Income | $ | 194.2 |
| | $ | 122.3 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
|
| | | | | | | |
| December 31, 2019 | | September 30, 2019 |
ASSETS |
Current Assets | | | |
Cash and cash equivalents | $ | 812.6 |
| | $ | 1,050.7 |
|
Restricted cash | 2.5 |
| | 3.8 |
|
Receivables, net | 451.8 |
| | 445.1 |
|
Inventories | 588.2 |
| | 579.8 |
|
Prepaid expenses and other current assets | 66.1 |
| | 46.9 |
|
Total Current Assets | 1,921.2 |
| | 2,126.3 |
|
Property, net | 1,764.2 |
| | 1,736.0 |
|
Goodwill | 4,460.7 |
| | 4,399.8 |
|
Other intangible assets, net | 3,328.3 |
| | 3,338.5 |
|
Equity method investments | 138.5 |
| | 145.5 |
|
Other assets | 330.6 |
| | 205.5 |
|
Total Assets | $ | 11,943.5 |
| | $ | 11,951.6 |
|
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current Liabilities | | | |
Current portion of long-term debt | $ | 156.5 |
| | $ | 13.5 |
|
Accounts payable | 332.1 |
| | 395.6 |
|
Other current liabilities | 394.5 |
| | 393.8 |
|
Total Current Liabilities | 883.1 |
| | 802.9 |
|
Long-term debt | 6,382.6 |
| | 7,066.0 |
|
Deferred income taxes | 842.4 |
| | 688.5 |
|
Other liabilities | 523.8 |
| | 456.9 |
|
Total Liabilities | 8,631.9 |
| | 9,014.3 |
|
| | | |
Shareholders’ Equity | | | |
Preferred stock | — |
| | — |
|
Common stock | 0.8 |
| | 0.8 |
|
Additional paid-in capital | 4,195.6 |
| | 3,734.8 |
|
Retained earnings | 307.0 |
| | 207.8 |
|
Accumulated other comprehensive loss | (1.8 | ) | | (96.8 | ) |
Treasury stock, at cost | (1,143.8 | ) | | (920.7 | ) |
Total Shareholders’ Equity Excluding Noncontrolling Interests | 3,357.8 |
| | 2,925.9 |
|
Noncontrolling interests | (46.2 | ) | | 11.4 |
|
Total Shareholders’ Equity | 3,311.6 |
| | 2,937.3 |
|
Total Liabilities and Shareholders’ Equity | $ | 11,943.5 |
| | $ | 11,951.6 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Cash Flows from Operating Activities | | | |
Net Earnings Including Noncontrolling Interests | $ | 107.1 |
| | $ | 125.9 |
|
Adjustments to reconcile net earnings including noncontrolling interests to net cash flow provided by operating activities: | | | |
Depreciation and amortization | 90.3 |
| | 93.6 |
|
Unrealized (gain) loss on interest rate swaps | (73.3 | ) | | 51.5 |
|
Gain on sale of business | — |
| | (124.7 | ) |
Loss on extinguishment of debt, net | 12.9 |
| | 6.1 |
|
Non-cash stock-based compensation expense | 11.4 |
| | 8.7 |
|
Equity method loss, net of tax | 7.3 |
| | 10.7 |
|
Deferred income taxes | 19.0 |
| | 8.1 |
|
Other, net | 3.2 |
| | 0.6 |
|
Other changes in operating assets and liabilities: | | | |
(Increase) decrease in receivables, net | (6.7 | ) | | 30.8 |
|
Increase in inventories | (6.1 | ) | | (16.1 | ) |
Increase in prepaid expenses and other current assets | (20.0 | ) | | (0.5 | ) |
Decrease in other assets | 2.6 |
| | 0.9 |
|
(Decrease) increase in accounts payable and other current liabilities | (41.3 | ) | | 46.7 |
|
Increase (decrease) in non-current liabilities | 2.0 |
| | (3.6 | ) |
Net Cash Provided by Operating Activities | 108.4 |
| | 238.7 |
|
Cash Flows from Investing Activities | | | |
Additions to property | (77.3 | ) | | (78.8 | ) |
Proceeds from sale of property and assets held for sale | 0.1 |
| | 2.0 |
|
Proceeds from sale of business | — |
| | 250.0 |
|
Cross-currency swap cash settlements | 1.4 |
| | 28.3 |
|
Net Cash (Used in) Provided by Investing Activities | (75.8 | ) | | 201.5 |
|
Cash Flows from Financing Activities | | | |
Proceeds from issuance of long-term debt | 2,031.0 |
| | — |
|
Repayments of long-term debt | (2,574.5 | ) | | (919.0 | ) |
Payments to appraisal rights holders | (3.8 | ) | | (253.6 | ) |
Purchases of treasury stock | (231.8 | ) | | (25.3 | ) |
Payments of preferred stock dividends | — |
| | (2.0 | ) |
Proceeds from initial public offering | 524.4 |
| | — |
|
Payments of debt issuance costs and deferred financing fees | (28.2 | ) | | (0.3 | ) |
Refund of debt issuance costs | 15.3 |
| | 7.8 |
|
Proceeds from exercises of stock awards | 2.8 |
| | — |
|
Other, net | (10.1 | ) | | (7.2 | ) |
Net Cash Used in Financing Activities | (274.9 | ) | | (1,199.6 | ) |
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | 2.9 |
| | (1.6 | ) |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | (239.4 | ) | | (761.0 | ) |
Cash, Cash Equivalents and Restricted Cash, Beginning of Year | 1,054.5 |
| | 994.5 |
|
Cash, Cash Equivalents and Restricted Cash, End of Period | $ | 815.1 |
| | $ | 233.5 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(in millions)
|
| | | | | | | |
| As Of and For The Three Months Ended December 31, |
| 2019 | | 2018 |
Preferred Stock | | | |
Beginning and end of period | $ | — |
| | $ | — |
|
Common Stock | | | |
Beginning and end of period | 0.8 |
| | 0.8 |
|
Additional Paid-in Capital | | | |
Beginning of period | 3,734.8 |
| | 3,590.9 |
|
Activity under stock and deferred compensation plans | (7.3 | ) | | (7.2 | ) |
Non-cash stock-based compensation expense | 11.1 |
| | 8.7 |
|
Initial public offering, net of tax | 457.0 |
| | — |
|
End of period | 4,195.6 |
| | 3,592.4 |
|
Retained Earnings | | | |
Beginning of period | 207.8 |
| | 88.0 |
|
Net earnings | 99.2 |
| | 125.6 |
|
Adoption of accounting standards update | — |
| | (0.9 | ) |
Preferred stock dividends declared | — |
| | (2.0 | ) |
End of period | 307.0 |
| | 210.7 |
|
Accumulated Other Comprehensive Loss |
Retirement Benefit Adjustments, net of tax | | | |
Beginning of period | 26.6 |
| | 37.9 |
|
Net change in retirement benefits, net of tax | (0.4 | ) | | (0.9 | ) |
End of period | 26.2 |
| | 37.0 |
|
Hedging Adjustments, net of tax | | | |
Beginning of period | 44.5 |
| | 37.4 |
|
Net change in hedges, net of tax | (19.4 | ) | | (4.3 | ) |
End of period | 25.1 |
| | 33.1 |
|
Foreign Currency Translation Adjustments | | | |
Beginning of period | (167.9 | ) | | (114.7 | ) |
Foreign currency translation adjustments | 114.8 |
| | 1.9 |
|
End of period | (53.1 | ) | | (112.8 | ) |
Treasury Stock | | | |
Beginning of period | (920.7 | ) | | (589.9 | ) |
Purchases of treasury stock | (223.1 | ) | | (25.3 | ) |
End of period | (1,143.8 | ) | | (615.2 | ) |
Total Shareholders’ Equity Excluding Noncontrolling Interests | 3,357.8 |
| | 3,146.0 |
|
Noncontrolling Interests | | | |
Beginning of period | 11.4 |
| | 10.1 |
|
Initial public offering | (66.3 | ) | | — |
|
Net earnings attributable to noncontrolling interests | 7.9 |
| | 0.3 |
|
Non-cash stock-based compensation expense | 0.3 |
| | — |
|
Net change in hedges, net of tax | 0.2 |
| | — |
|
Foreign currency translation adjustments | 0.3 |
| | — |
|
End of period | (46.2 | ) | | 10.4 |
|
Total Shareholders’ Equity | $ | 3,311.6 |
| | $ | 3,156.4 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in millions, except per share information and where indicated otherwise)
NOTE 1 — 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 Securities and Exchange Commission (the “SEC”), and on a basis substantially consistent with the audited consolidated financial statements of Post Holdings, Inc. (herein referred to as “Post,” “the Company,” “us,” “our” or “we,” and unless otherwise stated or context otherwise indicates, all such references herein mean Post Holdings, Inc. and its consolidated subsidiaries) as of and for the fiscal year ended September 30, 2019. 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, 2019, filed with the SEC on November 22, 2019.
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 condition, cash flows and shareholders’ 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.
On October 21, 2019, BellRing Brands, Inc. (“BellRing”), a subsidiary of the Company, closed its initial public offering (the “IPO”) of 39.4 shares of its Class A common stock, $0.01 par value per share (the “Class A Common Stock”), which number of shares included the underwriters’ exercise in full of their option to purchase up to an additional 5.1 shares of Class A Common Stock. The IPO was completed at an offering price of $14.00 per share and BellRing received net proceeds from the IPO of $524.4, after deducting underwriting discounts and commissions. As a result of the IPO and certain other transactions completed in connection with the IPO (the “formation transactions”), BellRing is a publicly-traded company whose Class A Common Stock is traded on the New York Stock Exchange under the ticker symbol “BRBR”. BellRing is a holding company of BellRing Brands, LLC, a Delaware limited liability company (“BellRing LLC”), owning 28.8% of its non-voting membership units (the “BellRing LLC units”). Post owns 71.2% of the BellRing LLC units and one share of BellRing’s Class B common stock, $0.01 par value per share (the “Class B Common Stock” and, collectively with the Class A Common Stock, the “BellRing Common Stock”). The Class B Common Stock has voting rights but no rights to dividends or other economic rights. For so long as Post or its affiliates (other than BellRing and its subsidiaries) directly own more than 50% of the BellRing LLC units, the Class B Common Stock represents 67% of the combined voting power of the BellRing Common Stock. BellRing LLC is the holding company for Post’s historical active nutrition business, reported herein as the BellRing Brands segment and reported historically as the Active Nutrition segment. In connection with the IPO, the Company incurred transaction-related expenses of $2.1 and $1.2 during the three months ended December 31, 2019 and 2018, respectively. These expenses generally included third party costs for due diligence, advisory services and government filing fees and were recorded as “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
Effective October 21, 2019, the financial results of BellRing and its subsidiaries were consolidated within Post’s financial results and 28.8% of the consolidated net income and net assets of BellRing and its subsidiaries, representing the percentage of economic interest in BellRing LLC held by BellRing (and therefore indirectly held by the public stockholders of BellRing through their ownership of the Class A Common Stock), is allocated to noncontrolling interest (“NCI”) (see Note 5). The term “BellRing” as used herein generally refers to BellRing Brands, Inc.; however, in discussions related to debt facilities, the term “BellRing” refers to BellRing Brands, LLC.
NOTE 2 — RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
The Company has considered all new accounting pronouncements and has concluded there are no new pronouncements (other than the ones described below) that had or will have a material impact on the Company’s results of operations, comprehensive income, financial condition, cash flows, shareholders’ equity or disclosures based on current information.
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” This ASU requires a company to recognize right-of-use (“ROU”) assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for lessees, lessors and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” This ASU provides an additional transition method by allowing entities to initially apply the new lease standard at the date of adoption with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. This ASU also gives lessors the option of electing, as a practical expedient by class of underlying asset, not to separate the lease and non-lease
components of a contract when those lease contracts meet certain criteria. The Company adopted these ASUs on October 1, 2019, as required by the ASUs, and utilized the cumulative effect adjustment approach. At adoption, the Company recognized ROU assets and lease liabilities of $158.1 and $168.2, respectively, on the balance sheet at October 1, 2019. The new standard did not materially impact the statements of operations or cash flows. In addition, the Company provides expanded disclosures related to its leasing arrangements in accordance with theses ASUs. For additional information, refer to Note 14.
NOTE 3 — RESTRUCTURING
In February 2018, the Company announced its plan to close its ready-to-eat (“RTE”) cereal manufacturing facility in Clinton, Massachusetts, which manufactured certain Weetabix products distributed in North America. The transfer of production capabilities to other Post Consumer Brands facilities and the closure of the facility was completed at September 30, 2019. Final cash payments for employee-related costs were made in the first quarter of fiscal 2020. No additional restructuring costs have been or are expected to be incurred in fiscal 2020. For additional information on assets held for sale related to the closure, see Note 4.
Restructuring charges and the related liabilities are shown in the following table. Employee-related costs were included in “Selling, general and administrative expenses” and accelerated depreciation expense was included in “Cost of goods sold” in the Condensed Consolidated Statement of Operations for the three months ended December 31, 2018. These expenses are not included in the measure of segment performance (see Note 18).
|
| | | | | | | | | | | |
| Employee-Related Costs | | Accelerated Depreciation | | Total |
Balance, September 30, 2018 | $ | 2.7 |
| | $ | — |
| | $ | 2.7 |
|
Charge to expense | 0.7 |
| | 1.8 |
| | 2.5 |
|
Non-cash charges | — |
| | (1.8 | ) | | (1.8 | ) |
Balance, December 31, 2018 | $ | 3.4 |
| | $ | — |
| | $ | 3.4 |
|
| | | | | |
Balance, September 30, 2019 | $ | 0.1 |
| | $ | — |
| | $ | 0.1 |
|
Cash payments | (0.1 | ) | | — |
| | (0.1 | ) |
Balance, December 31, 2019 | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | |
Total expected restructuring charge | $ | 4.9 |
| | $ | 9.9 |
| | $ | 14.8 |
|
Cumulative restructuring charges incurred to date | 4.9 |
| | 9.9 |
| | 14.8 |
|
Remaining expected restructuring charge | $ | — |
| | $ | — |
| | $ | — |
|
NOTE 4 — DIVESTITURES AND AMOUNTS HELD FOR SALE
Divestiture
On October 1, 2018, 8th Avenue Food & Provisions, Inc. (“8th Avenue”) was separately capitalized through a series of transactions (the “8th Avenue Transactions”), and 8th Avenue became the holding company for Post’s historical private brands business. Post received total gross proceeds of $875.0, as well as $16.8 received in the second quarter of fiscal 2019 related to final working capital adjustments, from the 8th Avenue Transactions. Post’s gross proceeds consisted of (i) $250.0 from a third party and (ii) $625.0 from a committed senior increasing rate bridge loan (the “2018 Bridge Loan”), which was funded in fiscal 2018 prior to the closing of the 8th Avenue Transactions (see Note 15). During the three months ended December 31, 2018, the Company recorded a gain of $124.7 (adjusted to $126.6 during the year ended September 30, 2019) related to the 8th Avenue Transactions, which was reported as “Gain on sale of business” in the Condensed Consolidated Statement of Operations. The gain included foreign exchange losses previously recorded in accumulated other comprehensive loss (“OCI”) of $42.1. In connection with the 8th Avenue Transactions, the Company incurred transaction-related expenses of $9.1 during the three months ended December 31, 2018. These expenses generally included third party costs for advisory services and transaction success fees, and were recorded as “Selling, general and administrative expenses” in the Condensed Consolidated Statement of Operations. No such gain or loss or transaction-related expenses were recorded during the three months ended December 31, 2019.
Amounts Held For Sale
In connection with the closure of the Company’s Post Consumer Brands RTE cereal manufacturing facility in Clinton, Massachusetts (see Note 3), the Company had a manufacturing plant (the “Clinton Plant”) held for sale with a book value of $8.4 at both December 31, 2019 and September 30, 2019. Additionally, the Company had land and a building with a combined book value of $1.5 classified as held for sale at its Post Consumer Brands RTE cereal manufacturing facility in Asheboro, North Carolina (the “Asheboro Facility”) at both December 31, 2019 and September 30, 2019. In accordance with Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment,” these assets held for sale were classified as current, and were reported as “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheets.
There were no held for sale gains or losses recorded in the three months ended December 31, 2019. During the three months ended December 31, 2018, the Company recorded a held for sale gain of $124.7 (adjusted to $126.6 during the year ended September 30, 2019), which was reported as “Gain on sale of business,” and a held for sale loss of $2.6, which was included in “Loss on extinguishment of debt, net,” in the Condensed Consolidated Statement of Operations related to the 8th Avenue Transactions. A gain of $0.6 was recorded related to the sale of the Company’s Post Consumer Brands RTE cereal warehouse in Clinton, Massachusetts and was included in “Other operating expenses (income), net” in the Condensed Consolidated Statement of Operations.
NOTE 5 — EQUITY INTERESTS AND RELATED PARTY TRANSACTIONS
BellRing
As a result of the IPO on October 21, 2019 (see Note 1), the Company (other than BellRing and its subsidiaries) owned 71.2% of the BellRing LLC units and one share of Class B Common Stock. The Class B Common Stock has voting rights but no rights to dividends or other economic rights. For so long as the Company (other than BellRing and its subsidiaries) directly owns more than 50% of the BellRing LLC units, the Class B Common Stock represents 67% of the combined voting power of the BellRing Common Stock, which provides the Company control over BellRing’s Board of Directors and results in the full consolidation of BellRing and its subsidiaries into the Company’s financial statements. The remaining interest in BellRing’s consolidated net income and net assets will be allocated to NCI. The BellRing LLC units held by the Company include a redemption feature that allows the Company to, at BellRing LLC’s option (as determined by its Board of Managers), redeem BellRing LLC units for either (i) Class A Common Stock of BellRing or (ii) cash equal to the market value of the BellRing Class A Common Stock at the time of redemption.
In the event the Company (other than BellRing and its subsidiaries) holds 50% or less of the BellRing LLC units, the holder of the share of Class B Common Stock will be entitled to a number of votes equal to the number of BellRing LLC units held by all persons other than BellRing and its subsidiaries. In such situation, the Company, as the holder of the share of Class B Common Stock, will only be entitled to cast a number of votes equal to the number of BellRing LLC units held by the Company (other than BellRing and its subsidiaries). Also, in such situation, if any BellRing LLC units are held by persons other than the Company, then the Company, as the holder of the share of Class B Common Stock, will cast the remainder of votes to which the share of Class B Common Stock is entitled only in accordance with the instructions and directions from such other holders of the BellRing LLC units.
As of December 31, 2019, the Company owned 71.2% of the BellRing LLC units and the net income and net assets of BellRing and its subsidiaries were consolidated within the Company’s financial statements, and the remaining 28.8% of the consolidated net income and net assets of BellRing and its subsidiaries, representing the percentage of economic interest in BellRing LLC held by BellRing (and therefore indirectly held by the public stockholders of BellRing through their ownership of the Class A Common Stock), were allocated to NCI.
The following table summarizes the effects of changes in ownership of BellRing on the Company’s equity:
|
| | | |
| Three Months Ended December 31, 2019 |
Increase in additional paid-in capital related to net proceeds from IPO | $ | 524.4 |
|
Increase in additional paid-in capital related to establishment of noncontrolling interest | 66.3 |
|
Decrease in additional paid-in capital related to tax effects of IPO | (133.7 | ) |
Net transfers from noncontrolling interest | $ | 457.0 |
|
8th Avenue
The Company has a 60.5% common equity interest in 8th Avenue that is accounted for using the equity method. In determining the accounting treatment of the common equity interest, management concluded that 8th Avenue was not a variable interest entity as defined by ASC Topic 810, “Consolidation” and, as such, was evaluated under the voting interest model. Based on the terms of 8th Avenue’s governing documents, management determined that the Company does not have a controlling voting interest in 8th Avenue due to substantive participating rights held by third parties associated with the governance of 8th Avenue. However, Post does retain significant influence, and therefore, the use of the equity method of accounting is required.
The following table presents the calculation of the Company’s equity method loss attributable to 8th Avenue:
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
8th Avenue’s net loss available to 8th Avenue’s common shareholders | $ | (8.7 | ) | | $ | (11.5 | ) |
| 60.5 | % | | 60.5 | % |
Equity method loss available to Post | $ | (5.3 | ) | | $ | (7.0 | ) |
Less: Amortization of basis difference, net of tax (a) | 1.7 |
| | 3.6 |
|
Equity method loss, net of tax | $ | (7.0 | ) | | $ | (10.6 | ) |
| |
(a) | The Company adjusted the historical basis of 8th Avenue’s assets and liabilities to fair value and recognized a basis difference of $70.3. The basis difference related to inventory of $2.0, net of tax, was included in equity method loss in the three months ended December 31, 2018. The basis difference related to property, plant and equipment and other intangible assets is being amortized over the weighted average useful lives of the assets. At December 31, 2019 and September 30, 2019, the remaining basis difference to be amortized was $59.8 and $61.5, respectively. |
Summarized financial information of 8th Avenue is presented in the following table.
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Net sales | $ | 218.4 |
| | $ | 214.1 |
|
Gross profit | $ | 38.4 |
| | $ | 33.7 |
|
| | | |
Net loss | $ | (0.9 | ) | | $ | (4.5 | ) |
Less: Preferred stock dividend | 7.8 |
| | 7.0 |
|
Net Loss Available to 8th Avenue Common Shareholders | $ | (8.7 | ) | | $ | (11.5 | ) |
The Company provides services to 8th Avenue under a master services agreement (the “MSA”), as well as certain advisory services for a fee. The Company recorded MSA and advisory income of $1.0 during the three months ended December 31, 2019 and 2018, respectively, which was recorded in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
During the three months ended December 31, 2019 and 2018, the Company had net sales to 8th Avenue of $1.6 and $1.1, respectively, and purchases from and royalties paid to 8th Avenue of $2.8 and $2.3, respectively. Sales and purchases between the Company and 8th Avenue were all made at arm’s-length. The investment in 8th Avenue was $133.5 and $140.5 at December 31, 2019 and September 30, 2019, respectively, and was included in “Equity method investments” on the Condensed Consolidated Balance Sheets. The Company had current receivables, current payables and a long-term liability with 8th Avenue of $3.6, $0.5 and $0.7, respectively, at December 31, 2019 and current receivables, current payables and a long-term liability of $5.1, $0.6 and $0.7, respectively, at September 30, 2019. The current receivables, current payables and long-term liability related to the separation of 8th Avenue from the Company, the closing of the 8th Avenue Transactions, MSA fees, pass through charges owed by 8th Avenue to the Company and related party sales and purchases were included in “Receivables, net,” “Accounts payable” and “Other liabilities,” respectively, on the Condensed Consolidated Balance Sheets.
Alpen and Weetabix East Africa
The Company holds an equity interest in two legal entities, Alpen Food Company South Africa (Pty) Limited (“Alpen”) and Weetabix East Africa Limited (“Weetabix East Africa”).
Alpen is a South African-based company that produces RTE cereal and muesli. The Company owns 50% of Alpen’s common stock with no other indicators of control, and accordingly, the Company accounts for its investment in Alpen using the equity method. The investment in Alpen was $5.0 and $5.0 at December 31, 2019 and September 30, 2019, respectively, and was included in “Equity method investments” on the Condensed Consolidated Balance Sheets. The Company had a note receivable balance with Alpen of $0.6 and $0.5 at December 31, 2019 and September 30, 2019, respectively, which was included in “Other assets” on the Condensed Consolidated Balance Sheets.
Weetabix East Africa is a Kenyan-based company that produces RTE cereal and muesli. The Company owns 50.1% of Weetabix East Africa and holds a controlling voting and financial interest through its appointment of management and representation on Weetabix East Africa’s Board of Directors. Accordingly, Weetabix East Africa is fully consolidated into the Company’s financial
statements and its assets and results from operations are reported in the Weetabix segment (see Note 18). The remaining interest in the consolidated net income and net assets of Weeatbix East Africa is allocated to NCI.
NOTE 6 — EARNINGS PER SHARE
Basic earnings per share is based on the average number of common shares outstanding during the period. Diluted earnings per share is based on the average number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of stock options, stock appreciation rights and restricted stock equivalents using the “treasury stock” method. The impact of potentially dilutive convertible preferred stock was calculated using the “if-converted” method. In addition, diluted earnings per share has been adjusted for the effect of BellRing stock awards issued to employees of BellRing and its subsidiaries, to the extent they are dilutive.
The following table sets forth the computation of basic and diluted earnings per share.
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Net earnings for basic earnings per share | $ | 99.2 |
| | $ | 123.6 |
|
Dilutive preferred stock dividends | — |
| | 2.0 |
|
Net earnings for diluted earnings per share | $ | 99.2 |
| | $ | 125.6 |
|
| | | |
Weighted-average shares for basic earnings per share | 70.7 |
| | 66.7 |
|
Effect of dilutive securities: | | | |
Stock options | 0.7 |
| | 2.0 |
|
Stock appreciation rights | 0.1 |
| | 0.1 |
|
Restricted stock units | 0.5 |
| | 0.4 |
|
Performance-based restricted stock awards | 0.1 |
| | — |
|
Preferred shares conversion to common | — |
| | 5.9 |
|
Total dilutive securities | 1.4 |
| | 8.4 |
|
Weighted-average shares for diluted earnings per share | 72.1 |
| | 75.1 |
|
| | | |
Basic earnings per common share | $ | 1.40 |
| | $ | 1.85 |
|
Diluted earnings per common share | $ | 1.38 |
| | $ | 1.67 |
|
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.
|
| | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Stock options | 0.1 |
| | 0.3 |
|
Restricted stock units | 0.1 |
| | 0.2 |
|
Performance-based restricted stock awards | 0.1 |
| | 0.1 |
|
NOTE 7 — INVENTORIES
|
| | | | | | | |
| December 31, 2019 | | September 30, 2019 |
Raw materials and supplies | $ | 105.7 |
| | $ | 99.4 |
|
Work in process | 20.0 |
| | 19.4 |
|
Finished products | 429.3 |
| | 425.4 |
|
Flocks | 33.2 |
| | 35.6 |
|
| $ | 588.2 |
| | $ | 579.8 |
|
NOTE 8 — PROPERTY, NET |
| | | | | | | |
| December 31, 2019 | | September 30, 2019 |
Property, at cost | $ | 2,818.5 |
| | $ | 2,736.9 |
|
Accumulated depreciation | (1,054.3 | ) | | (1,000.9 | ) |
| $ | 1,764.2 |
| | $ | 1,736.0 |
|
NOTE 9 — GOODWILL
The changes in the carrying amount of goodwill by segment are noted in the following table.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Post Consumer Brands | | Weetabix | | Foodservice | | Refrigerated Retail | | BellRing Brands | | Total |
Balance, September 30, 2019 | | | | | | | | | | | |
Goodwill (gross) | $ | 2,011.8 |
| | $ | 850.7 |
| | $ | 1,335.6 |
| | $ | 793.6 |
| | $ | 180.7 |
| | $ | 5,172.4 |
|
Accumulated impairment losses | (609.1 | ) | | — |
| | — |
| | (48.7 | ) | | (114.8 | ) | | (772.6 | ) |
Goodwill (net) | $ | 1,402.7 |
| | $ | 850.7 |
| | $ | 1,335.6 |
| | $ | 744.9 |
| | $ | 65.9 |
| | $ | 4,399.8 |
|
Currency translation adjustment | 0.1 |
| | 60.8 |
| | — |
| | — |
| | — |
| | 60.9 |
|
Balance, December 31, 2019 | | | | | | | | | | | |
Goodwill (gross) | $ | 2,011.9 |
| | $ | 911.5 |
| | $ | 1,335.6 |
| | $ | 793.6 |
| | $ | 180.7 |
| | $ | 5,233.3 |
|
Accumulated impairment losses | (609.1 | ) | | — |
| | — |
| | (48.7 | ) | | (114.8 | ) | | (772.6 | ) |
Goodwill (net) | $ | 1,402.8 |
| | $ | 911.5 |
| | $ | 1,335.6 |
| | $ | 744.9 |
| | $ | 65.9 |
| | $ | 4,460.7 |
|
NOTE 10 — INTANGIBLE ASSETS, NET
Total intangible assets are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | September 30, 2019 |
| Carrying Amount | | Accumulated Amortization | | Net Amount | | Carrying Amount | | Accumulated Amortization | | Net Amount |
Subject to amortization: | | | | | | | | | | | |
Customer relationships | $ | 2,309.0 |
| | $ | (593.3 | ) | | $ | 1,715.7 |
| | $ | 2,297.2 |
| | $ | (562.2 | ) | | $ | 1,735.0 |
|
Trademarks and brands | 795.7 |
| | (235.9 | ) | | 559.8 |
| | 793.7 |
| | (225.2 | ) | | 568.5 |
|
Other intangible assets | 3.1 |
| | (3.1 | ) | | — |
| | 3.1 |
| | (3.1 | ) | | — |
|
| 3,107.8 |
| | (832.3 | ) | | 2,275.5 |
| | 3,094.0 |
| | (790.5 | ) | | 2,303.5 |
|
Not subject to amortization: | | | | | | | | | | | |
Trademarks and brands | 1,052.8 |
| | — |
| | 1,052.8 |
| | 1,035.0 |
| | — |
| | 1,035.0 |
|
| $ | 4,160.6 |
| | $ | (832.3 | ) | | $ | 3,328.3 |
| | $ | 4,129.0 |
| | $ | (790.5 | ) | | $ | 3,338.5 |
|
NOTE 11 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
In the ordinary course of business, the Company is exposed to commodity price risks relating to the purchases of raw materials and supplies, interest rate risks relating to variable rate debt and foreign currency exchange rate risks. The Company utilizes derivative financial instruments, including (but not limited to) futures contracts, option contracts, forward contracts and swaps, to manage certain of these exposures by hedging when it is practical to do so. The Company does not hold or issue financial instruments for speculative or trading purposes.
At December 31, 2019, the Company’s derivative instruments consisted of:
Not designated as hedging instruments under ASC Topic 815
| |
• | Commodity and energy futures and option contracts, which relate to inputs that generally will be utilized within the next year; |
| |
• | pay-fixed, receive-variable interest rate swaps maturing in May 2021 and May 2024 that require monthly settlements and have the effect of hedging interest payments on debt expected to be issued but not yet priced; and |
| |
• | rate-lock interest rate swaps that require six lump sum settlements with the first settlement occurring in July 2020 and the last in July 2023 and have the effect of hedging interest payments on debt expected to be issued but not yet priced. |
Designated as hedging instruments under ASC Topic 815
| |
• | Pay-fixed, receive-fixed cross-currency swaps maturing in July 2022 that require quarterly cash settlements and are used as net investment hedges of the Company’s investment in Weetabix, which is denominated in Pounds Sterling; and |
| |
• | pay-fixed, receive-variable interest rate swaps maturing in December 2022 that require monthly settlements beginning in January 2020 and are used as cash flow hedges of forecasted interest payments on BellRing’s variable rate debt. |
In the first quarter of fiscal 2020, contemporaneously with the repayment of its term loan, the Company changed the designation of one of its interest rate swap contracts from a cash flow hedge to a non-designated hedging instrument. In connection with the de-designation, the Company reclassified losses previously recorded in accumulated OCI of $7.2 to “Interest expense, net” in the Condensed Consolidated Statement of Operations for the three months ended December 31, 2019.
In the first quarter of fiscal 2019, the Company terminated $800.0 and $214.2 notional value of its interest rate swap and cross-currency swap contracts, respectively, that were designated as hedging instruments. In connection with the interest rate swap terminations, the Company received cash proceeds of $29.8, and reclassified previously recorded gains from accumulated OCI to “Interest expense, net” in the Condensed Consolidated Statement of Operations for the three months ended December 31, 2018. In connection with the cross-currency swap terminations, the Company received cash proceeds of $26.2, which were recorded to accumulated OCI. Reclassification of amounts recorded in accumulated OCI into earnings will only occur in the event all United Kingdom-based operations are liquidated.
The following table shows the notional amounts of derivative instruments held.
|
| | | | | | | | |
| | December 31, 2019 | | September 30, 2019 |
Not designated as hedging instruments under ASC Topic 815: | | | | |
Commodity contracts | | $ | 63.8 |
| | $ | 47.1 |
|
Energy contracts | | 38.5 |
| | 39.8 |
|
Interest rate swaps | | 272.8 |
| | 73.1 |
|
Interest rate swaps - Rate-lock swaps | | 1,399.3 |
| | 1,531.0 |
|
Designated as hedging instruments under ASC Topic 815: | | | | |
Foreign exchange contracts - Cross-currency swaps | | 448.7 |
| | 448.7 |
|
Interest rate swaps | | 350.0 |
| | 200.0 |
|
The following table presents the balance sheet location and fair value of the Company’s derivative instruments, along with the portion designated as hedging instruments under ASC Topic 815. The Company does not offset derivative assets and liabilities within the Condensed Consolidated Balance Sheets.
|
| | | | | | | | | | | | | | | | | | |
| | | | Fair Value | | Portion Designated as Hedging Instruments |
| | Balance Sheet Location | | December 31, 2019 | | September 30, 2019 | | December 31, 2019 | | September 30, 2019 |
Asset Derivatives: | | | | | | | | | | |
Commodity contracts | | Prepaid expenses and other current assets | | $ | 2.8 |
| | $ | 1.9 |
| | $ | — |
| | $ | — |
|
Energy contracts | | Prepaid expenses and other current assets | | 2.6 |
| | 0.7 |
| | — |
| | — |
|
Commodity contracts | | Other assets | | — |
| | 0.1 |
| | — |
| | — |
|
Foreign exchange contracts | | Prepaid expenses and other current assets | | — |
| | 1.3 |
| | — |
| | 1.3 |
|
Foreign exchange contracts | | Other assets | | — |
| | 19.2 |
| | — |
| | 19.2 |
|
Interest rate swaps | | Prepaid expenses and other current assets | | 0.4 |
| | — |
| | 0.4 |
| | — |
|
Interest rate swaps | | Other assets | | 0.2 |
| | — |
| | 0.2 |
| | — |
|
| | | | $ | 6.0 |
| | $ | 23.2 |
| | $ | 0.6 |
| | $ | 20.5 |
|
| | | | | | |
|