Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.19pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.13pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.26pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
conflicts+5
impairment+2
impairments+1
Positive rising
advancements+2
effective+1
opportunities+1
enhance+1
Risk Factors (Item 1A)
6,634 words
Item 1A. Risk Factors
Our business, financial condition, and results of operations are and will remain subject to numerous risks and uncertainties. In addition to the factors discussed elsewhere in this Report, investors should carefully consider the following risk factors, which may have materially affected or could materially affect us, including impacting our business, financial condition, results of operations, cash flows, stock price, credit rating, or reputation. These are not the only risks we face. Additional risks and uncertainties not presently known to the Company or other unknown events or factors or risks that we do not currently consider to be material may also impair the Company’s business, financial condition, results of operations, cash flows, stock price, credit rating, or reputation.
Business and Operating Risks
Disruption of our supply chain or distribution capabilities could have an adverse effect on our business, financial condition, and results of operations.
Our ability to manufacture, move, and sell products is critical to our success. We are subject to damage or disruption to raw material supplies or our manufacturing or distribution capabilities (in particular, to the extent that our raw materials are sourced globally) due to weather, including any potential effects of climate change, natural , fire, terrorism, war, geopolitical events and regional such as the Russia-Ukraine war and in the Middle East, pandemics and public health , strikes, labor , freight transportation availability and transport capacity constraints, in logistics, import restrictions, or other factors that our ability to manufacture, move, or sell our products. to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could affect our business, financial condition, and results of operations, as well as require additional resources to restore our supply chain.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
impairment+13
recall+12
recalls+5
losses+4
restated+2
Positive rising
progress+2
gains+1
improved+1
leading+1
successfully+1
MD&A (Item 7)
9,356 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
The following discussion provides an analysis of our financial condition, results of operations, and cash flows from management's perspective and should be read in conjunction with the consolidated financial statements and related notes included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. Our objective is to also provide discussion of material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides an understanding of our financial condition, results of operations, and cash flows.
See below for discussion and analysis of our financial condition and results of operations for 2024 compared to 2023. See Item 7, Management’s Discussions and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the year ended December 31, 2023 for a detailed discussion of our financial condition, results of operations, and cash flows for 2023 compared to 2022.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See Cautionary Statement Regarding Forward-Looking Information for a discussion of the uncertainties, risks, and assumptions associated with these statements.
We are dependent upon third party suppliers and manufacturers for the manufacturing and packaging of our products. Our operating results are adversely affected if we do not manage our supply chain effectively.
The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. The inability of any supplier of raw materials or packaging, independent co-packer, or third-party distributor to deliver or perform for us in a timely or cost-effective manner, while also meeting quality standards, could cause our operating costs to increase and our profit margins to decrease, especially as it relates to our products that have a short shelf life. We must continuously monitor our inventory and product mix against forecasted demand or risk having inadequate supplies to meet consumer demand as well as having too much inventory on hand that may reach its expiration date and become unsaleable. Additionally, the potential for the consolidation of our suppliers increases the risk that adverse changes in their business operations or financial performance will have a corresponding material adverse effect on our operating results.
We are subject to product liability claims for misbranded, adulterated, contaminated, or spoiled food products.
We sell food products for human consumption, which involves risks such as product contamination or spoilage, misbranding, product tampering, and other adulteration of food products. Consumption of a misbranded, adulterated, contaminated, or spoiled product may result in personal illness or injury. We could be subject to claims or lawsuits relating to an actual or alleged contamination, illness, or injury, and we could incur liabilities that are not insured or that exceed our insurance coverage. Even if product liability claimsagainst us are not successful or fully pursued, these claims could be costly and time consuming, and may require management to divert time and resources from business operations to defending such claims. A product that has been actually or allegedlymisbranded or becomes adulterated could result in product withdrawals, product recalls, product rework, destruction of product inventory, negative publicity, temporary plant closings, and substantial costs of compliance or remediation. Any of these events, including a significant product liability judgment against us, could result in a loss of confidence in our food products, which could have an adverse effect on our financial condition, results of operations, or cash flows.
If we are unable to attract, hire or retain key employees or a highly skilled and diverse global workforce, it could have an adverse impact on our business, financial condition, and results of operations.
The competitive environment requires us to attract, hire, retain and develop key employees, including our executive officers and senior management team, and maintain a highly skilled and diverse global workforce. We compete to attract and hire highly skilled employees and our own employees are highly sought after by our competitors and other companies in part as a result of the ongoing labor shortages occurring in the U.S. economy. Competition could cause us to lose talented employees, and unplanned turnover could deplete our institutional knowledge and result in increased costs such as our recent implementation of retention programs due to increased competition for employees.
Our results of operations are adversely affected by labor shortages, turnover, and labor cost increases.
Inflationary pressures, shortages in the labor market, and increased competition within and outside our industry for talented employees have increased our labor costs, which have negatively impacted our profitability. Labor shortages or lack of skilled labor have led to increases in costs to meet demand as we pay overtime and roll out incremental programs to attract and retain talent. Labor shortages may also negatively impact us from servicing all demand or operating our manufacturing and distribution facilities efficiently. Pandemics or public health crises may cause illness as well as travel and government restrictions that can negatively impact our operations by causing labor shortages and shutdowns of manufacturing facilities. Further, we distribute our products and receive materials through the freight transportation market, and reduced trucking capacity due to shortages of drivers can increase costs and reduce service levels due to lack of freight transportation availability. Additionally, an inability to enhance robotic technology to automate processes in our manufacturing and distribution facilities could make us dependent on a labor force in tighter markets. Any substantial increase in these costs negatively impact our profitability.
As we are dependent upon a limited number of customers, the loss of a significant customer or consolidation of our customer base could adversely affect our operating results.
A limited number of customers represent a large percentage of our consolidated net sales. Our operating results are contingent on our ability to maintain our sales to these customers. The competition to supply products to these high-volume customers is very strong. We expect that a significant portion of our net sales will continue to arise from a small number of customers, consisting primarily of traditional grocery retailers, mass merchandisers, and foodservice operators. For the year ended December 31, 2024, our ten largest customers accounted for approximately 57.1% of our consolidated net sales from continuing operations, and our largest customer, Walmart Inc. and its affiliates, accounted for approximately 23.9% of our consolidated net sales from continuing operations. No other customer accounted for 10% or more of the Company’s consolidated net sales. These customers typically do not enter into written contracts with fixed purchase commitments, and the contracts that they do enter into generally are terminable at will. Our customers make purchase decisions based on a combination of price, product quality, and customer service performance. Our customers may also consider opportunities for dual sourcing, resulting in additional competition and a potential decline in sales. If our product sales to one or more of these customers decline, this reduction may have a material adverse effect on our business, results of operations, and financial condition.
Further, over the past several years, the retail grocery and foodservice industries have experienced a consolidation trend, which has resulted in mass merchandisers and non-traditional grocers, such as e-commerce grocers with direct-to-consumer channels, gaining market share. As our customer base continues to consolidate, we expect competition to intensify as we compete for the business of the remaining consolidated customers. As this consolidation trend continues and such customers grow larger, they may seek to leverage their growth and position to improve their profitability through improvedefficiency, lower pricing, or increased promotional programs. If we are unable to use our scale, product innovation, and category leadership positions to respond to these demands, our profitability or volume growth could be negatively impacted. Additionally, if the surviving entity of a consolidation or similar transaction is not a current customer of the Company, we may lose significant business once held with the acquired retailer.
Consolidation also increases the risk that adverse changes in our customers' business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.
Our business operations could be disrupted if our information technology systems fail to perform adequately or are breached.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems, including the internet, to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. These information technology systems, some of which are dependent on services provided by third parties, are susceptible to damage, invasions, disruptions, or shutdowns due to hardware failures, computer viruses, hacker attacks, and other cybersecurity risks, telecommunication failures, user errors, employee error or malfeasance, catastrophic events, natural disasters, fire or other factors. Also, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks. Additionally, as a result of state-sponsored cyber threats including those stemming from the Russia-Ukraine war, we may face increased cybersecurity risks as companies based in the United States and its allied countries have become targets of malicious cyber activity. If we are unable to prevent, anticipate or adequately respond to and resolve these breaches, disruptions or failures, our business may be materially disrupted, and we may suffer other adverse consequences such as significant data loss, financial or reputational damage or penalties, legal claims or proceedings, remediation costs, or the loss of sales or customers.
Moreover, if our data management systems, including our SAP enterprise resource planning system, do not effectively collect, store, process, and report relevant data for the operation of our business (whether due to equipment malfunction or constraints, software deficiencies, cybersecurity attack, and/or human error), our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, and the timeliness with which we report our internal and external operating results.
We have invested and expect to continue to invest in technology security initiatives, information technology risk management, and disaster recovery plans. The cost and operational consequences of implementing, maintaining, and enhancing further data or system protection measures could increase significantly to overcome increasingly frequent, complex, and sophisticated cyber threats. Despite our best efforts, we are at risk from data breaches and system disruptions. Although to date we are unaware of any material data breach or system disruption, including a cyber-attack, we cannot provide any assurances that such events and impacts will not be material in the future. Our efforts to deter, identify, mitigate, and/or eliminate future breaches may require significant additional effort and expense and may not be successful.
Potential liabilities and costs from litigation could adversely affect our business.
There is no guarantee that we will be successful in defending ourselves in civil, criminal, or regulatory actions, including under general, commercial, employment, environmental, data privacy or security, intellectual property, food quality and safety, anti-trust and trade, advertising and claims, and environmental laws and regulations, or in asserting our rights under various laws. For example, our Company could face allegations of false or deceptive advertising or other criticisms which could end up in litigation and result in potential liabilities or costs. In addition, we could incur substantial costs and fees in defending ourselves and our customers or in asserting our rights in these actions or meeting new legal requirements. The costs and other effects of potential and pending litigation and administrative actions against us, and new legal requirements, cannot be determined with certainty and may differ from expectations.
The recognition of impairment charges on goodwill or long-lived assets could adversely impact our financial reporting and results of operations.
As of December 31, 2024, we have $1,819.3 million of goodwill and $212.9 million of other intangible assets. Additionally, we have $748.6 million of property, plant, and equipment and $154.4 million of operating lease right-of-use assets as of December 31, 2024.
We perform an annual impairment assessment for goodwill and our indefinite-lived intangible assets, and as necessary, for other long-lived assets. If the results of such assessments were to show that the fair value of these assets were less than the carrying values, we could be required to recognize a charge for impairment of goodwill or long-lived assets, and the amount of the impairment charge could be material. Factors which could result in an impairment include, but are not limited to, (i) reduced demand for our products, (ii) higher commodity prices, (iii) lower prices for our products or increased marketing as a result of increased competition, and (iv) significant disruptions to our operations as a result of both internal and external events.
For the year ended December 31, 2024, we recognized impairments of $19.3 million of property, plant, and equipment in our Ready-to-drink beverages asset group and $0.9 million of Operating lease right-of-use assets in our Grand Prairie asset group. For the year ended December 31, 2023, we recognized an impairment of $4.7 million of property, plant, and equipment in our Dallas facility asset group.
This impairment and future impairments on goodwill or long-lived assets could impact our future financial position and results of operations.
Multiemployer pension plans could adversely affect our business.
We participate in various multiemployer pension plans administered by labor unions representing some of our employees. We make periodic contributions to these plans to allow them to meet their pension benefit obligations to their participants. Our required contributions to these funds could increase because of a shrinking contribution base as a result of the insolvency or withdrawal of other companies that currently contribute to these funds, inability or failure of withdrawing companies to pay their withdrawal liability, lower than expected returns on pension fund assets or other funding deficiencies. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution ("withdrawal liability") to the plan, and we would have to reflect that as an expense in our results of operations. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan’s funding of vested benefits. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we may decide to discontinue participation in a plan, and in that event, we could face a withdrawal liability.
Our business could be harmed by strikes or work stoppages by our employees.
Currently, collective bargaining agreements cover a significant number of our full-time distribution, production, and maintenance employees. A dispute with a union or employees represented by a union could result in production interruptions caused by work stoppages. If a strike or work stoppage were to occur, our results of operations could be adversely affected.
Market and Other External Risks
We operate in the highly competitive and rapidly changing food industry.
The food industry is highly competitive, and faces increased competition as a result of consolidation, channel proliferation, the growth of online food retailers and new market participants, and technological advancements (including advancements in artificial intelligence technologies). We face competition across our product lines from other companies that have varying abilities to withstand changes in market conditions. Some of our competitors have substantial financial, marketing, technological, and other resources, and competition with them in our various categories and product lines could cause us to reduce prices, increase capital, marketing or other expenditures, or lose sales, which could have a material adverse effect on our business and financial results. Category sales and growth could also be adversely impacted if we are not successful in monitoring trends and introducing new products.
Some customer buying decisions are based on a periodic bidding process in which the successful bidder is reasonably assured of the sale of its selected product to the food retailer, super center, mass merchandiser, or food-away-from-home distributors, until the next bidding process. Our sales volume may decrease significantly if our offer is too high and we lose the ability to sell products through these channels, even temporarily. Alternatively, we risk reducing our margins if our offer is successful but below our desired price point. Either of these outcomes may adversely affect our results of operations. Additionally, competition can impact our ability to pass on increased costs or otherwise increase prices.
As new and evolving distribution channels acquire greater attention with consumers, we will need to evaluate whether our business methods and processes can be utilized or adopted in a manner that permits us to successfully serve these distribution channels. Our inability to offer competitive and innovative products to these customer segments could have an adverse impact on our results of operations.
Increases in input costs, such as ingredients, packaging materials, and fuel costs, could adversely affect earnings.
In recent years, the overall global economy has experienced significant inflation in packaging materials, fuel, energy, and across several agricultural commodities, and future changes in such costs may meaningfully impact our results of operations and cause our operating margins to fluctuate significantly.
While we have seen some commodities move lower relative to recent all-time highs, many of our ingredients and packaging inputs still remain elevated compared to historical levels. We manage the impact of increases in the costs of raw materials, wherever possible, by locking in prices on quantities required to meet our production requirements. However, there can be no assurance that our hedging activities will result in the optimal price. When feasible, we attempt to offset the effect of such increases by raising prices to our customers. However, competitive pressures may limit our ability to quickly raise prices in response to increased raw materials, packaging, and fuel costs. In addition, in instances of declining input costs, customers may look for price reductions in situations where we have locked into purchases at higher costs, as changes in the prices of our products may lag behind changes in the costs of our materials. Accordingly, if we are unable to increase our prices to offset increasing raw material, packaging, and fuel costs, our operating profits and margins could be materially affected. Additionally, in conditions of increasing input cost inflation, the ability to produce realistic, relevant and reliable forecast information could be materially affected, which may result in misleading guidance leading to reputational damage.
We are also subject to delays caused by interruptions in production of raw materials based on conditions not within our control. Such conditions include job actions, labor shortages or strikes by employees of suppliers, weather, crop conditions, transportation shortages and interruptions, natural disasters, sustainability issues, pandemics and public health crises, geopolitical events, or other catastrophic events. As a result, input costs could continue to be volatile due to external events such as the Russia-Ukraine war, conflicts in the Middle East, or any other geopolitical conflicts. Although we have no direct exposure to Russia, Ukraine, or the Middle East, our supply chain may be adversely impacted by the Russia-Ukraine war and conflicts in the Middle East. We continue to face other challenges and risks arising from the war including added costs to existing inflationary pressures through increased fuel and raw material prices and labor costs.
Our private label and regionally branded products may not be able to compete successfully with nationally branded products.
For sales of private label products to retailers, the principal competitive factors are price, product quality, and quality of service. For sales of private label products to consumers, the principal competitive factors are price and product quality. In many cases, competitors with nationally branded products have a competitive advantage over private label products due to name recognition. In addition, when branded competitors focus on price and promotion, the environment for private label producers becomes more challenging because the price differential between private label products and branded products may become less significant.
Competition to obtain shelf space for our branded products with retailers is primarily based on the expected or historical performance of our product sales relative to our competitors. The principal competitive factors for sales of our branded products to consumers are brand recognition and loyalty, product quality, promotion, and price. Some of our branded competitors have significantly greater resources and brand recognition than we do. There can be no assurance that retailers will provide sufficient, or any, shelf space for our products. Even if we obtain shelf space or preferable shelf placement, our new and existing products may fail to achieve the sales expectations set by our retailers, potentially causing these retailers to remove our products from their shelves.
Competitive pressures or other factors could cause us to lose sales, which may require us to lower prices, increase the use of discounting or promotional programs, or increase marketing expenditures, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability.
We may be unable to anticipate changes in consumer preferences, which may result in decreased demand for our products.
Our success depends in part on our ability to anticipate the tastes, quality demands, eating habits, and overall purchasing trends of consumers and to offer products that appeal to their preferences. Purchasing trends are influenced by macro environment factors. These include, but are not limited to, at-home vs. food-away-from home consumption, consumer income and government stimulus, inflation, and unemployment. Consumer preferences change from time to time, and our failure to timely anticipate, identify, or react to these changes could result in reduced demand for our products, which would adversely affect our operating results and profitability. Additionally, the increased use and/or prevalence of certain weight loss drugs, which may suppress a person’s appetite and/or impact a person's preferences, may impact the demand or consumption patterns for certain of our products.
New laws or regulations or changes in existing laws or regulations could adversely affect our business.
The food industry is subject to a variety of federal, state, local, and foreign laws and regulations, including, but not limited to, those related to food safety, food labeling, food ingredients, and environmental matters. Governmental regulations also affect taxes and levies, healthcare costs, energy usage, international trade, immigration, and other labor issues, all of which may have a direct or indirect effect on our business or those of our customers or suppliers. Changes in these laws or regulations, or the introduction of new laws or regulations, could increase the costs of doing business for the Company, our customers, or suppliers, or restrict our actions, causing our results of operations to be adversely affected. Additionally, the change in administration following the 2024 United States presidential election could further impact trade and tariff policies, and could also result in substantial changes to fiscal, tax, or regulatory policies that may impact our business.
Our indebtedness and our ability to service our debt adversely affect our business and financial condition.
As of December 31, 2024, we had $1,409.1 million of outstanding indebtedness, including a $588.6 million term loan ("Term Loan A-1") maturing on March 26, 2026, a $316.4 million term loan ("Term Loan A" and, together with Term Loan A-1, the "Term Loans") maturing on March 26, 2028, $500.0 million of 4.0% notes due September 1, 2028 (the "2028 Notes"), and $4.1 million of finance lease obligations. The Revolving Credit Facility (as defined in Note 12) and the Term Loans are known collectively as the "Credit Agreement." The degree to which we are leveraged could have adverse consequences to us, limiting management's choices in responding to business, economic, regulatory, and other competitive conditions. In addition, our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. In addition, we and our subsidiaries may incur significant additional indebtedness in the future. Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, the risks described herein would increase.
The terms of the agreements governing our indebtedness restrict our current and future operations.
The agreements governing our indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions or repurchase or redeem our capital stock; prepay, redeem, or repurchase certain subordinated debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into transactions with affiliates; enter into agreements restricting our subsidiaries’ ability to pay dividends; and consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets.
In addition, our Credit Agreement requires us to maintain a certain consolidated net leverage ratio tested on a quarterly basis. Our ability to meet these financial covenants can be affected by events beyond our control, and we may be unable to meet the required ratio.
A breach of the covenants or restrictions under the agreements governing our indebtedness could result in an event of default under the applicable indebtedness. Such default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross acceleration or cross default provision applies. In addition, an event of default under the Credit Agreement may permit our lenders to terminate all commitments to extend further credit under those facilities. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be:
• limited in how we conduct our business;
• unable to raise additional debt or equity financing to operate during general economic or business downturns; or
• unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, substantial indebtedness and credit ratings could materially adversely affect the availability and terms of our financing.
Increases in interest rates may negatively affect earnings.
As of December 31, 2024, the aggregate principal amount of our debt instruments with exposure to interest rate risk was approximately $905.0 million, based on the outstanding debt balance of our Credit Agreement. As a result, higher interest rates will increase the cost of servicing our financial instruments with exposure to interest rate risk, and could reduce our profitability and cash flows. As of December 31, 2024, the Company had entered into long-term interest rate swap agreements to mitigate its variable debt exposures. The notional amount of these agreements is $1,750.0 million as of December 31, 2024. Under the terms of the agreements, $875.0 million of interest rate swaps mature on February 28, 2025, and the remaining $875.0 million of interest rate swaps, which are effective February 28, 2025, mature on February 29, 2028. Our variable-rate debt is nearly fully hedged through 2028 with our fixed rate interest rate swaps, but rising interest rates can impact other areas of the business, including, but not limited to, our pension plans or our suppliers. Each one percentage point change in SOFR rates would result in an approximate $0.3 million change in the annual cash interest expense, before any principal payment, on our financial instruments with exposure to interest rate risk, including the impact of the interest rate swap agreements that were effective in 2024.
Fluctuations in foreign currencies may adversely affect earnings.
The Company is exposed to fluctuations in foreign currency exchange rates. The Company’s Canadian subsidiaries purchase and sell various inputs that are based in U.S. dollars; accordingly, the profitability of the Canadian subsidiaries is subject to foreign currency transaction gains and losses that affect earnings. We may manage the impact of foreign currency fluctuations, including the Canadian dollar and other foreign currencies, related to raw material purchases and sales of finished goods using foreign currency contracts. We are also exposed to fluctuations in the value of our foreign currency investment in our Canadian subsidiaries, which includes Canadian dollar denominated intercompany notes. We translate the Canadian assets, liabilities, revenues, and expenses into U.S. dollars at applicable exchange rates. Accordingly, we are exposed to volatility in the translation of foreign currency denominated earnings due to fluctuations in the values of the Canadian dollar, which may negatively impact the Company’s results of operations and financial position.
Changes in weather conditions, natural disasters, geopolitical events, and other catastrophic events beyond our control could adversely affect our results of operations.
Changes in weather conditions or climate changes, natural disasters such as floods, droughts, frosts, earthquakes, hurricanes, tornados, fires, or pestilence, geopolitical events such as the Russia-Ukraine war and conflicts in the Middle East, and other catastrophic events may affect the cost and supply of commodities and raw materials. Additionally, these events could result in reduced supplies of raw materials or availability of critical utilities, such as power. Our competitors may be affected differently by weather conditions and natural disasters depending on the location of their suppliers and operations. Further, changes in weather could impact consumer demand and our earnings may be affected by seasonal factors including the seasonality of our supplies and such changes in consumer demand. Da mage or disruption to our production or distribution capabilities due to weather, natural disaster, fire, terrorism, war, pandemics, strikes, or other reasons could impair our ability to manufacture or sell our products. Failure to take adequate steps to reduce the likelihood or mitigate the potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single location, could adversely affect our business and results of operations, as well as require additional resources to restore our supply chain.
Climate change presents challenges to our business and could materially adversely affect our businesses, reputation, operations and supply chain.
The effects of climate change expose us to both physical and transition risk and create financial and operational risks to our business, both directly and indirectly. In addition, increased public awareness and concern regarding global climate change may result in more regulations designed to reduce greenhouse gas ("GHG") emissions. Similarly, we may incur substantial costs if such regulations are subsequently reversed or modified.
These climate changes have a negative effect on agricultural productivity, and we may be subject to decreased availability or less favorable pricing for certain raw materials that are necessary for our products, including, but not limited to, coconut oil, coffee, corn and corn syrup, cucumbers, fruit, oats, palm oil, peppers, rice, soybean oil, sugar, tea, and wheat. In addition, increases in the frequency and severity of extreme weather and natural disasters may result in material damage and disruptions to our manufacturing operations and distribution channels or our third party manufacturers’ operations, particularly where a product is primarily sourced from a single location. This may require us to make additional unplanned capital expenditures, increase the prices of our raw materials due to sourcing from other locations, increase our cost of transporting and storing raw materials, or disrupt our production schedules.
Also, the impacts of these climate events may cause unpredictable water availability or exacerbate water scarcity. Water is critical to our businesses, including the businesses of the suppliers on whom we depend upon, and the lack of available water of acceptable quality may lead to, among other things, adverse effects on our operations. The increasing concern over climate change and related environmental sustainability matters also has and may continue to result in more federal, state, local and foreign legal requirements, including requirements to reduce or mitigate the effects of greenhouse gases or conserve and replenish water. Depending on the nature of such laws, we may experience significant increases in our compliance costs, capital expenditures, and other financial obligations to adapt our business and operations to meet new regulations and standards, and we may incur substantial costs if such regulations and standards are subsequently reversed or modified. We depend upon natural gas, diesel fuel, and electricity in the manufacturing and distribution of our products. Legislation or regulation affecting these inputs could materially affect our profitability.
Further, our businesses could be adversely affected if we are unable to effectively address increased concerns from the media, shareholders and other stakeholders on climate change and related environmental sustainability and governance matters. At the same time, stakeholders and regulators have increasingly expressed or pursued opposing views, legislation, and investment expectations with respect to sustainability initiatives, including the enactment or proposal of "anti-ESG" legislation or policies.
In addition, over the years we have made public commitments regarding our intended reduction of carbon emissions and other near- and mid-term environmental sustainability goals. Although we intend to meet these goals, we may be required to expend significant resources to do so, which could significantly increase our operational costs. Further, there can be no assurance of the extent to which any of our goals or ambitions will be achieved, or that any future investments we make in furtherance of achieving such goals will meet investor expectations or any binding or non-binding legal standards regarding sustainability performance. Moreover, we may determine that it is in the best interest of our Company and our shareholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders. Any failure, or perceived failure, to achieve the goals and commitments we have and may in the future set with respect to reducing our impact on the environment or perception of a failure to act responsibly with respect to the environment, could, in addition to regulatory and legal risks related to compliance, lead to adverse publicity, which could damage our reputation, which in turn could adversely impact our results of operations. As a result, climate change, including legal and market pressures to address climate change, could have a material adverse effect to our businesses, financial condition, capital expenditures, results of operations, cash flows, and supply chain.
Shareholder activism has caused us to incur significant expense, caused disruption to our business, and impacted our stock price.
We may be subject to shareholder activism in the future, which could result in substantial costs and divert management's and our Board's attention and resources from our business. Additionally, such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers or service providers, and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors. Our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism.
Strategic Risks
Our inability to execute our business strategy could adversely affect our business.
We structured our operating model to deliver our growth objectives. We expect that the execution of our strategy, which includes disciplined capital allocation strategy in deploying proceeds to enhance depth and capabilities in growing categories, as well as supply chain initiatives and margin management opportunities, will require change management activities to align our operating model with our portfolio. Our strategic ambition to be a leader in consumer trending food and beverage categories may divert the organization’s attention from other business issues. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often-complex initiatives. Any failure to implement our initiatives could adversely affect our ability to grow margins. If we are unsuccessful in implementing or executing one or more of our business strategies, our business could be adversely affected.
Our operations are subject to the general risks associated with acquisitions, divestitures, and other strategic transactions.
We have made several acquisitions and divestitures in recent years that align with our strategic initiative of delivering long-term value to shareholders. See Note 7 of the Consolidated Financial Statements for additional information.
Potential risks associated with these transactions include the inability to consummate a transaction on favorable terms, the diversion of management’s attention from other business concerns, the potential loss of key employees and customers of current or acquired companies, the inability to integrate or divest operations successfully, potential stranded costs following a Transition Services Agreement ("TSA"), the possible assumptions of unknown liabilities, potential disputes with buyers or sellers, potential impairment charges or losses if purchase assumptions are not achieved or if a business is expected to be divested at a loss, restructuring and other disposal charges, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. Any or all of these risks could impact the Company’s financial results and business reputation.
We may not realize some or all of the anticipated benefits of our growth, reinvestment, and restructuring programs in the anticipated time frame or at all.
We depend on our ability to evolve and grow, and as changes in our business environments occur, we may adjust our business plans by introducing new growth, reinvestment, and restructuring programs, from time to time, to meet these changes. During 2024, the Company incurred approximately $28.6 million in growth, reinvestment, and restructuring program costs from continuing operations. See Note 3 of the Consolidated Financial Statements for additional information. Growth, reinvestment, and restructuring programs often require a substantial amount of management and operational resources, which may divert the Company’s attention from existing core businesses, potentially disrupting our operations and adversely affecting our relationships with suppliers and customers. In addition, events and circumstances, such as financial or strategic difficulties, delays and unexpected costs may occur that could result in our not realizing all or any of the anticipated benefits on our expected timetable or at all, and there can be no assurance that any benefits we realize from these efforts will be sufficient to offset the expenses and costs that we expect to incur from these programs.
On January 17, 2025, the Company entered into the Third Amended and Restated Credit Agreement, dated as of January 17, 2025 (the "New Credit Agreement"), among the Company, the lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
The New Credit Agreement amends, restates and replaces the Company’s existing Credit Agreement, dated as of December 1, 2017 (as amended from time to time prior to January 17, 2025), pursuant to which the Company obtained a $500.0 million revolving credit facility (the "Revolving Facility"), a $500.0 million term A loan (the "Term A Loan") and a $900.0 million tranche A-1 term loan (the "Tranche A-1 Term Loan" and, together with the Term A Loan, the "Term Loans"). Pursuant to the New Credit Agreement, the Company (i) continued and extended the maturity of the Revolving Facility and the Term Loans, (ii) decreased the aggregate size of the Term A Loan to $480.0 million and (iii) decreased the aggregate size of the Tranche A-1 Term Loan to $425.0 million. Refer to Note 12 to our Consolidated Financial Statements for additional information.
Acquisition of Private Brand Tea Business
On January 2, 2025, the Company completed the acquisition of certain subsidiaries that operate the private brand tea business of Harris Freeman & Co, Inc. ("Harris Tea"), a leading private brand tea manufacturer in the U.S., for approximately $205.0 million, subject to customary purchase price adjustments. In addition to private brand tea, Harris Tea manufactures specialty retail tea brands and foodservice tea products for restaurant and hospitality industries. The acquisition aligns with our long-term strategy to build capabilities in our higher-growth, higher-margin categories. Refer to Note 7 to our Consolidated Financial Statements for additional information.
Impact of Griddle Voluntary Recall
In the third quarter of 2024, our results of operations were impacted by a voluntary recall of frozen griddle products produced at our Brantford, Ontario, Canada facility that were still within their shelf-life. During the fourth quarter of 2024, we incurred plant restoration costs. As of the first quarter of 2025, we have resumed production of frozen griddle products at the Brantford facility. As we continue to restore the facility to its full production capacity and capability, we expect to have impacts to our sales volumes. Refer to Note 19 to our Consolidated Financial Statements for additional information.
The Company is seeking to recover the recall-related costs through its insurance coverage, and such recoveries are recorded in the period in which the recoveries are determined to be probable of realization.
Long-Lived Asset Impairment and Related Business Exit
We evaluate property, plant, and equipment, operating lease right-of-use assets, and finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. Indicators of impairment include deteriorations in operating cash flows, the anticipated sale or disposal of an asset group, and other significant changes in business conditions.
During the second quarter of 2024, as a result of forecasted cash flow losses, the Company made the decision to exit the RTD business. As a result, the Company performed a recoverability assessment over the RTD asset group in the second quarter of 2024, which indicated that the asset group was not recoverable, and we were required to determine the fair value of the business. Our fair value assessment indicated that the carrying value was in excess of the fair value, and an impairment of $19.3 million of property, plant, and equipment was recognized in our RTD beverages asset group. The impairment charge is included in Asset impairment in the Consolidated Statements of Operations. Refer to Note 8 to our Consolidated Financial Statements for additional information.
The production for the RTD business ceased during the first quarter of 2025. Refer to Note 3 to our Consolidated Financial Statements for additional information.
Restoration of One of our Broth Facilities
Since the end of 2023, our results of operations have been impacted by a voluntary recall of certain broth products produced at our Cambridge, Maryland broth facility and the subsequent restoration of this facility. The restoration impacted our results of operations throughout 2024, as we incurred costs to restore and upgrade our broth facility to full production capacity. During the first half of 2024, the Company successfully restored the key broth production lines and substantially completed upgrades to the facility. The Company continues to progress in advancing production capacity to historical levels at the facility.
During the fourth quarter of 2024, the Company recognized a $10.0 million insurance recovery in Cost of sales in the Consolidated Statements of Operations. The Company is seeking to recover additional recall-related costs through its insurance coverage, and such recoveries are recorded in the period in which the recoveries are determined to be probable of realization. Refer to Note 19 to our Consolidated Financial Statements for additional information.
Acquisition of Pickle Branded Assets
On January 2, 2024, the Company completed the acquisition of pickle branded assets, including Bick’s pickles, Habitant pickled beets, Woodman’s horseradish, and McLarens pickled onions brands, from The J.M. Smucker Co., a North American producer of coffee, consumer foods, dog snacks, and cat food, for a total purchase price of $25.9 million in cash. The allocation of the purchase price consists primarily of inventory. The acquisition is consistent with our strategy and builds depth in our Pickles category by expanding into Canada. Refer to Note 7 to our Consolidated Financial Statements for additional information.
Macroeconomic Conditions and Trends
Significant inflationary pressure on U.S. households, which persisted in recent years, contributed to sluggish overall food and beverage consumption trends. However, in the categories where TreeHouse operates, private brands have consistently gained unit market share compared to national brands, which we believe demonstrates the continued strength of the private brands market. We continue to monitor consumption trends including the increased use and/or prevalence of certain weight loss drugs, which may or may not impact consumer preferences and consumption patterns.
Industry-wide supply chain disruption over the last several years, which had previously constrained our ability to service all of the customer orders received and depressed service levels, has meaningfully improved. Additionally, TreeHouse has made considerable progress toward its long-term supply chain cost savings initiative goals throughout its business, resulting in margin improvement. TreeHouse continues to make strongprogress in enhancing our service levels and capturing demand for private brand food and beverage.
Many of our ingredients and packaging input costs still remain elevated compared to historical levels, such as the prices of coffee and cocoa. In response, we from time to time will implement pricing actions to recover inflationary costs. We will continue to monitor the inflationary environment to determine if additional pricing actions will be necessary.
We manage the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities we expect are required to meet our production requirements. In addition, as input costs rise, we seek to recover inflation by implementing higher pricing. However, our pricing actions often lag commodity cost changes temporarily, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them.
Results of Operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table presents certain information concerning our financial results, including information presented as a percentage of consolidated net sales:
Year Ended December 31,
Increase / (Decrease)
(Dollars in millions, except per share amounts)
Dollars
Percent
Dollars
Percent
$ Change
% Change
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling and distribution
General and administrative
Amortization expense
Asset impairment
Other operating expense, net
Total operating expenses
Operating income
Other expense:
Interest expense
Interest income
Loss (gain) on foreign currency exchange
Other expense, net
Total other expense
Income before income taxes
Income tax expense
Net income from continuing operations
Net loss from discontinued operations
Net income
Earnings (loss) per common share - diluted:
Continuing operations
Discontinued operations
Net earnings per share diluted (1)
(1) The sum of the individual per share amounts may not add due to rounding.
Year Ended December 31,
Increase / (Decrease)
(Dollars in millions, except per share amounts)
Dollars
Dollars
$ Change
% Change
Other financial data: (1)
EBITDA from continuing operations
Adjusted EBITDA from continuing operations
Adjusted net sales
Adjusted cost of sales
Adjusted gross profit
Adjusted total operating expenses
Adjusted operating income
Adjusted total other expense
Adjusted income tax expense
Adjusted net income from continuing operations
Adjusted diluted earnings per share from continuing operations
(1) Other financial data includes Non-GAAP financial metrics. See "Non-GAAP Measures" for definitions and reconciliations of our Net income (loss) from continuing operations to EBITDA from continuing operations and Adjusted EBITDA from continuing operations, Net sales to Adjusted net sales, Cost of sales to Adjusted cost of sales, Gross profit to Adjusted gross profit, Total operating expenses to Adjusted total operating expenses, Operating income to Adjusted operating income, Total other expense (income) to Adjusted total other expense, Income tax expense to Adjusted income tax expense, Net income (loss) from continuing operations to Adjusted net income from continuing operations, and Diluted earnings per share from continuing operations to Adjusted diluted earnings per share from continuing operations.
Continuing Operations
Net Sales — Net sales for the year ended December 31, 2024 totaled $3,354.0 million compared to $3,431.6 million for the year ended December 31, 2023, a decrease of $77.6 million, or 2.3%. The change in net sales from 2023 to 2024 was due to the following:
Dollars
Percent
Volume/mix
Facilities restoration impact
Product recall returns
Pricing
Foreign currency
Business acquisitions
Total change in net sales
Product recall returns
Total change in adjusted net sales (1)
(1) Adjusted net sales is a Non-GAAP financial measure. Refer to the "Non-GAAP Measures" section for additional information.
The net sales decrease of 2.3% was primarily due to targeted commodity-driven pricing adjustments in select categories. Additionally, the decrease was due to the restoration of one of our broth facilities and the voluntary recall of frozen griddle products, as well as unfavorable volume/mix related to planned distribution exits. These items were partially offset by volume/mix from the acquisition of the Coffee Roasting Capability, as well as new business wins.
Gross Profit — Gross profit as a percentage of net sales was 16.4% for the year ended December 31, 2024 compared to 16.8% for the year ended December 31, 2023, a decrease of 0.4 percentage points. The decrease is primarily due to a voluntary recall of frozen griddle products, which impacted Gross profit by 1.1 percentage points, as well as costs incurred from the restoration of one of our broth facilities related to the broth recall. This was partially offset by the execution of supply chain savings initiatives as well as a $10.0 million insurance recovery related to the broth recall received during the fourth quarter of 2024.
Total Operating Expenses — Total operating expenses were $445.3 million for the year ended December 31, 2024 compared to $429.2 million for the year ended December 31, 2023, an increase of $16.1 million. The increase in expense was primarily due to a decrease in TSA income of $41.1 million and non-cash impairment charge of $19.3 million related to the RTD beverages asset group recorded in the second quarter of 2024. Refer to Note 8 of our Consolidated Financial Statements for additional details. This was partially offset by lower employee incentive compensation expense, lower freight costs, and TSA-related expense reductions.
Total Other Expense — Total other expense was $70.0 million for the year ended December 31, 2024 compared to $63.5 million for the year ended December 31, 2023, an increase in expense of $6.5 million. The increase in expense was primarily due to a decrease in interest income of $34.5 million from the Seller Promissory Note, which was repaid in the fourth quarter of 2023. Additionally, unfavorable currency exchange rate impacts of $10.8 million between the U.S. and Canada contributed to the increase in expense. This was partially offset by a favorable change of $21.8 million in non-cash mark-to-market impacts from hedging activities, largely driven by interest rate swaps, a decrease of $11.4 million in interest expense, primarily due to a decrease in borrowings on our Revolving Credit Facility, and a decrease of $4.4 million in costs related to the Receivables Sales Program due to decreased usage.
Income Taxes — Income taxes were recognized at an effective rate of 18.7% in 2024 compared to 29.3% in 2023. The change in the Company's effective tax rate is primarily driven by changes in the amount of the effect of cross-border tax laws, income tax credits, unrecognized tax benefits, and the impact of the jurisdictional mix of earnings on state income taxes. These items are partially offset by a change in the amount of tax deductible stock-based compensation.
Discontinued Operations
Discontinued Operations — Net loss from discontinued operations decreased by $5.9 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease is primarily a result of a non-recurring net loss from the Snack Bars Business due to its divestiture on September 29, 2023. Additionally, during the year ended December 31, 2023, the Company recognized an expected loss on disposal adjustment of $2.2 million related to the divestiture of a significant portion of the Meal Preparation business on October 3, 2022. Refer to Note 7 of our Consolidated Financial Statements for additional details.
Liquidity and Capital Resources
Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities. The Company remains in a strong financial position, with resources available for reinvesting in existing businesses, conducting acquisitions, and managing its capital structure on a short and long-term basis.
Receivables Sales Program
The Company achieves a more efficient cash conversion cycle while strategically managing customer payment terms and counterparty risk through its Receivables Sales Program. Our Receivables Sales Program provides us timely and lower cost access to liquidity that is more effective than other working capital tools, including offering early payment discounts, negotiating shorter payment terms, or drawing on our Revolving Credit Facility. Due to the seasonal nature of our business, we generally increase use of the Receivables Sales Program in the fourth quarter in preparation for our relatively high cash needs in the first half of the year as inventory levels are replenished in anticipation of accelerating sales in the second half of the year.
Approximately $22.5 million was available under the Receivables Sales Program operating limit as of December 31, 2024. See Note 5 to our Consolidated Financial Statements for additional information regarding our Receivables Sales Program.
Revolving Credit Facility
If additional borrowings are needed, approximately $467.7 million of the aggregate commitment of $500.0 million was available under the Revolving Credit Facility as of December 31, 2024. See Note 12 to our Consolidated Financial Statements for additional information regarding our Revolving Credit Facility. We are in compliance with the terms of the Revolving Credit Facility and expect to meet foreseeable financial requirements.
Share Repurchases
During the year ended December 31, 2024, the Company repurchased approximately 4.1 million shares of common stock at a weighted average share price of $36.28 for a total of $149.7 million. See Note 13 to our Consolidated Financial Statements for additional information regarding our stock repurchase program.
Cash Flow
The following table is derived from our Consolidated Statements of Cash Flows:
Year Ended December 31,
(In millions)
Net Cash Flows Provided By (Used In):
Operating activities of continuing operations
Investing activities of continuing operations
Financing activities of continuing operations
Cash flows from discontinued operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Operating Activities From Continuing Operations
Net cash provided by operating activities from continuing operations was $265.8 million in 2024 compared to $157.3 million in 2023, an increase of $108.5 million in cash provided. The increase in net cash provided by operating activities was driven by improved working capital management, resulting in an increase in cash flows from accounts payable and from the Receivables Sales Program. Refer to Note 5 to our Consolidated Financial Statements for additional information regarding the Receivables Sales Program.
Investing Activities From Continuing Operations
Net cash used in investing activities from continuing operations was $138.3 million in 2024 compared to $241.4 million in 2023, a decrease in cash used of $103.1 million. The decrease in net cash used was primarily driven by $100.6 million of cash used in the second quarter of 2023 for the acquisitions of the seasoned pretzel and coffee roasting capabilities and the exercise of a purchase option on the lease of our Cambridge, Maryland facility for $8.1 million during the first quarter of 2023. This activity was partially offset by an increase in remaining capital expenditures during 2024 related to growth initiatives and integration activities from recent acquisitions.
Financing Activities From Continuing Operations
Net cash used in financing activities from continuing operations was $159.3 million in 2024 compared to $107.5 million in 2023, an increase in cash used of $51.8 million. The increase in cash used is primarily due to incremental common stock repurchases of $49.7 million in 2024 compared to 2023. Refer to Note 13 to our Consolidated Financial Statements for additional information.
Cash Flows From Discontinued Operations
There was no cash provided by discontinued operations in 2024 compared to $468.1 million in 2023, a decrease in cash provided of $468.1 million. The decrease in cash provided by discontinued operations is primarily due to the $425.2 million repayment of principal on its Seller Note Credit Agreement on October 19, 2023 and the completion of the sale of the Snack Bars Business on September 29, 2023, which resulted in a non-recurring cash inflow of $58.7 million from the buyer. Refer to Note 7 to our Consolidated Financial Statements for additional information.
Debt Obligations
As of December 31, 2024, $467.7 million of the aggregate commitment of $500.0 million of the Revolving Credit Facility was available. Under the Second Amended and Restated Credit Agreement (the "Credit Agreement"), the Revolving Credit Facility matured on March 26, 2026. In addition, as of December 31, 2024, there were $32.3 million in letters of credit under the Revolving Credit Facility that were issued but undrawn. On January 17, 2025, the Company entered into the Third Amended and Restated Credit Agreement, dated as of January 17, 2025, among the Company, the lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the “New Credit Agreement”) The New Credit Agreement amends, restates and replaces the Credit Agreement. Pursuant to the New Credit Agreement, the Company (i) continued and extended the maturity of the Revolving Facility and the Term Loans, (ii) decreased the aggregate size of the Term A Loan to $480.0 million and (iii) decreased the aggregate size of the Tranche A-1 Term Loan to $425.0 million. Refer to Note 12 to our Consolidated Financial Statements for additional information.
Our long-term debt outstanding, including the current portion, was $1,409.1 million at December 31, 2024 and $1,405.6 million at December 31, 2023, an increase of $3.5 million. This increase was primarily due to an increase of finance lease obligations by $3.5 million during the year ended December 31, 2024.
At December 31, 2024, we had $316.4 million outstanding under Term Loan A, $588.6 million outstanding under Term Loan A-1, $500.0 million of the 2028 Notes outstanding, and $4.1 million of finance lease obligations.
The Company has long-term interest rate swap agreements to fix the interest rate base in order to mitigate the Company's exposure to interest rate risk. As of December 31, 2024, we have an outstanding variable-rate debt balance of $905.0 million, and our interest rate swap agreements have a notional value of $1,750.0 million. Under the terms of the agreements, $875.0 million of interest rate swaps mature on February 28, 2025. Following the maturity of those interest rate swaps, the remaining $875.0 million of interest rate swaps become effective February 28, 2025 and mature on February 29, 2028. As a result, our variable-rate debt is nearly fully hedged with our fixed rate interest rate swaps through 2028.
The Credit Agreement contained various financial and restrictive covenants and required that the Company maintain a consolidated net leverage ratio of no greater than 4.50 to 1.0, and our debt obligations contain customary representations and events of default. We are in compliance with all applicable debt covenants as of December 31, 2024.
See Note 12 to our Consolidated Financial Statements for information on our debt obligations.
Guarantor Summarized Financial Information
The 2028 Notes issued by TreeHouse Foods, Inc. are fully and unconditionally, as well as jointly and severally, guaranteed by our directly and indirectly owned domestic subsidiaries, which are collectively known as the "Guarantor Subsidiaries." The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances, only upon the occurrence of certain customary conditions. There are no significant restrictions on the ability of the parent company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The following tables present summarized financial information of TreeHouse Foods, Inc. and the Guarantor Subsidiaries on a combined basis. The combined summarized financial information eliminates intercompany balances and transactions among TreeHouse Foods, Inc. and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.
TreeHouse Foods, Inc. and Guarantor Subsidiaries
Summarized Statement of Operations
Year Ended December 31, 2024
(In millions)
Net sales
Gross profit (1)
Net income
TreeHouse Foods, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet
December 31, 2024
(In millions)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities (2)
(1) During the year ended December 31, 2024, TreeHouse Foods, Inc. and Guarantor Subsidiaries recorded $94.1 million of net sales to the Non-Guarantor Subsidiaries and $288.7 million of purchases from the Non-Guarantor Subsidiaries.
(2) Includes an amount due from Non-Guarantor Subsidiaries of $20.3 million as of December 31, 2024.
Cash Requirements
Our cash requirements within the next twelve months include working capital requirements, interest payments, and capital expenditures. We believe our current cash balances, strong cash flows, and our available sources of liquidity and capital, including a $500.0 million Revolving Credit Facility, as well as possible future sources of liquidity and capital will be sufficient to meet these twelve month and long-term cash requirements and capital expenditures.
Our cash requirements under our various contractual obligations and commitments include:
• Debt obligations and interest payments – See Note 12 to our Consolidated Financial Statements for information on our debt obligations and the timing of future principal. Estimated future interest payments on the Company’s debt are expected to be $180.3 million (with $73.8 million expected in 2025) based on the interest rates at December 31, 2024. Additionally, the Company has entered into interest rate swap agreements to lock into a fixed Term SOFR interest rate base. See Note 20 to our Consolidated Financial Statements for information on our interest rate swap agreements and the future obligations.
• Operating and finance lease obligations – See Note 4 to our Consolidated Financial Statements for information on our operating and finance lease obligations and the amount and timing of future payments.
• Purchase obligations – Purchase obligations primarily represent commitments to purchase minimum quantities of raw materials used in our production processes. We enter into these contracts from time to time in an effort to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are a part of our production process. Minimum amounts committed to as of December 31, 2024 were $462.5 million (with $450.1 million due in 2025).
• Pension and other postretirement benefit obligations – Future payments related to pension and postretirement benefits are estimated by an actuarial valuation. See Note 17 to our Consolidated Financial Statements for information on our pension and postretirement benefit obligations and the amount and timing of future payments.
• Exit or disposal cost obligations – See Note 3 to our Consolidated Financial Statements for information on our exit or disposal cost obligations and the amount and timing of future payments. Our exit or disposal cost obligations primarily consist of severance obligations.
• Unrecognized tax benefits – See Note 11 to our Consolidated Financial Statements for information on our unrecognized tax benefits and the amount and timing of future payments.
• Acquisition – See Note 7 to our Consolidated Financial Statements for information on our acquisition of certain subsidiaries that operate the private brand tea business of Harris Freeman & Co, Inc. ("Harris Tea").
• Other liabilities – Other liabilities include obligations associated with certain employee benefit programs, employee health care, workers' compensation claims, other casualty losses, in addition to contingent liabilities related to the ordinary course of litigation and investigation, and various other long-term liabilities, all of which have some inherent uncertainty as to the amount and timing of payments and were reflected on our Consolidated Balance Sheet as of December 31, 2024. See Note 19 to our Consolidated Financial Statements for more information about the Company’s commitments and contingent obligations.
Capital Expenditures
We continue to make investments in property, plant, and equipment and software for our business offices, manufacturing, and distribution facilities. This includes planned capital expenditure commitments at our Princeton, Kentucky cracker manufacturing facility for capacity expansion and safety advancements. Our preliminary estimate of capital expenditures for 2025 is approximately $125 million. Our capital expenditures were $139.7 million and $140.8 million for the years ended December 31, 2024 and 2023, respectively.
Our capital plan includes investment in climate-related projects in order to achieve our broader environmental goals. These climate-related projects are for investments in energy and water efficiency as well as waste reduction initiatives. Our investments are expected to be approximately $7 million in 2025.
Critical Accounting Estimates
Critical accounting estimates are defined as those most important to the portrayal of a company’s financial condition and results, and require the most difficult, subjective, or complex judgments. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP with no need for the application of our judgment. In certain circumstances, however, the preparation of the Consolidated Financial Statements in conformity with GAAP requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. We have identified the estimates described below as our critical accounting estimates. See Note 1 to the Consolidated Financial Statements for a detailed discussion of significant accounting policies.
Trade Allowances — We maintain an allowance for customer promotional programs, marketing co-op programs, and other sales and marketing expenses. These customer promotional programs are generally more significant for branded products compared to the majority of our private label products. This allowance is based on a combination of historical average program activity and specific customer program accruals, and can fluctuate due to the level of sales and marketing programs, and timing of deductions. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by the customer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are immaterial and recognized as a change in management estimate in a subsequent period. This allowance was $17.3 million and $20.2 million at December 31, 2024 and 2023, respectively.
Long-Lived Assets — We evaluate property, plant, and equipment, operating lease right-of-use assets, and finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable (a "triggering event"). Indicators of impairment include deteriorations in operating cash flows, the anticipated sale or disposal of an asset group, and other significant changes in business conditions. Undiscounted cash flow analyses are used to determine if impairment exists. We utilize current cash flow information and expected growth rates related to the asset group from our internal projections and operating plans. If the carrying values of asset groups are determined not to be recoverable, the impairmentloss is calculated based on estimated fair value. Impairment charges are measured by comparing the carrying values of the asset groups to their estimated fair values. The fair value of these assets is based on expected future discounted cash flows using Level 3 inputs. Long-lived assets held for sale are reported at the lower of the carrying amount or fair value less the cost to sell.
During the second quarter of 2024, as a result of forecasted cash flow losses, the Company made the decision to exit the RTD business. As a result, the Company performed a recoverability assessment over the RTD asset group in the second quarter of 2024, which indicated that the asset group was not recoverable, and we were required to determine the fair value of the business. Our fair value assessment indicated that the carrying value was in excess of the fair value, and an impairment of $19.3 million of Property, plant, and equipment, net was recognized in our RTD beverages asset group.
Additionally, as the Company continued to execute upon integration activities associated with the Coffee Roasting Capability acquisition, the Company exited a distribution center in Grand Prairie, Texas during the third quarter of 2024. As a result of this distribution center exit, an impairment of $0.9 million of Operating lease right-of-use assets was recognized in our Grand Prairie asset group in the third quarter of 2024.
Further, as a result of the Dallas plant closure in the fourth quarter of 2023, the Company performed a recoverability assessment on the Dallas facility asset group, which indicated that the asset group was not recoverable. Our fair value assessment indicated that the carrying value was in excess of the fair value, and an impairment of $4.7 million within Property, plant, and equipment, net was recognized.
Gain or Loss on Disposal of a Business — On September 29, 2023, the Company completed the sale of its Snack Bars business to John B. Sanfilippo & Son, Inc. for approximately $58.7 million in cash. The Company classified the proceeds within Net cash provided by investing activities - discontinued operations. The Company recognized a gain on disposal of $1.1 million during the year ended December 31, 2023. The gain on disposal is recognized within Net loss from discontinued operations in the Company's Consolidated Statements of Operations. The gain on disposal was calculated as the difference between the fair value of the disposal group and the carrying value of the associated assets. The fair value was determined based on the consideration transferred less costs to sell.
Purchase Price Allocation — We record acquisitions using the acquisition method of accounting. All of the assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. In a business combination, the difference between the purchase price and the estimated fair values of the identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements may be exposed to potential impairment of the intangible assets and goodwill, as discussed in the Goodwill and Indefinite Lived Intangible Assets critical accounting estimates section.
Goodwill and Indefinite Lived Intangible Assets — Goodwill and indefinite lived intangible assets totaled $1,825.3 million and $1,830.7 million as of December 31, 2024 and 2023, respectively, resulting primarily from acquisitions. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities, including but not limited to inventory, accounts payable, trademarks, and customer-related intangible assets, with any remaining purchase price recorded as goodwill. Goodwill and indefinite lived trademarks are not amortized.
The Company has one reporting unit within its single reportable and operating segment. The Company completed its annual goodwill and indefinite lived intangible asset impairment analysis as of December 31, 2024. Our assessment did not result in an impairment. Our analysis employed the use of an income approach, corroborated by the market approach. The Company believes the income approach is the most reliable indicator of the fair value of the reporting unit. Significant assumptions used in the income approach include growth and discount rates, margins, and the Company’s weighted average cost of capital. We used historical performance and management estimates of future performance to determine margins and growth rates. The income approach utilizes projected cash flow estimates developed by the Company to determine fair value, which are unobservable, Level 3 inputs. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available. The Company developed our estimates using the best information available at the time. Discount rates selected for the reporting unit approximated the total Company discount rate. Our weighted average cost of capital included a review and assessment of market and capital structure assumptions. The Company's single reporting unit has a fair value that the Company considers to be substantially in excess of its carrying values. Therefore, we believe that only significant changes in the assumptions would result in an impairment of goodwill. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Assumptions used, such as forecasted growth rates and our cost of capital, are consistent with our internal projections and operating plans. Changes in our estimates or any of our other assumptions used in our analysis could result in a different conclusion.
We reviewed our indefinite lived intangible assets, which consist of trademarks totaling $6.0 million as of December 31, 2024, using the relief from royalty method. Significant assumptions include the royalty rates, growth, margins, and discount rates. Our assumptions were based on historical performance and management estimates of future performance, as well as available data on licenses of similar products. The Company’s policy is that indefinite lived assets must have a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. When these criteria are no longer met, the Company changes the classification. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Changes in our estimates or any of our other assumptions used in our analysis could result in a different conclusion. Our testing of our trademarks indicated that the implied fair value was significantly in excess of the carrying values. The fair values of our trademarks exceed book value by a minimum of 82% as of December 31, 2024. Therefore, we believe that only significant changes in the assumptions would result in an impairment of any trademark.
Income Taxes — Deferred taxes are recognized for future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We periodically estimate our probable tax obligations using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretations of tax regulations in the jurisdictions in which we operate. These judgments and estimates made at a point in time may change based on the outcome of tax audits and changes to, or further interpretations of, regulations. If such changes take place, there is a risk that our tax rate may increase or decrease in any period, which would impact our earnings. Future business results may affect deferred tax liabilities or the valuation of deferred tax assets over time.
Employee Benefit Plan Costs — We provide a range of benefits to our employees, including pension and postretirement benefits to our eligible employees and retirees. We record annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions, such as discount rates, assumed investment rates of return, compensation increases, employee turnover rates, and health care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. As required by GAAP, the effect of such modifications is generally deferred and subsequently amortized over future periods. Different assumptions that we make could result in the recognition of different amounts of expense over different periods.
While a number of the key assumptions related to our qualified pension plans are long-term in nature, including assumed investment rates of return, compensation increases, employee turnover rates, and mortality rates, GAAP requires that our discount rate assumption be more heavily weighted to current market conditions. As such, our discount rates will likely change frequently. We used a discount rate for each plan to determine our estimated future benefit obligations, and our weighted average discount rate was 5.61% at December 31, 2024. If the discount rate of each plan were one percent higher, the pension plan liability would have been approximately 8.0%, or $15.9 million, lower as of December 31, 2024. If the discount rate of each plan were one percent lower, the pension plan liability would have been approximately 9.3%, or $18.6 million, higher as of December 31, 2024. The projected benefit obligation was $199.5 million and $216.9 million at December 31, 2024 and 2023, respectively, for our pension benefit plans. The projected benefit obligation was $14.4 million and $15.1 million at December 31, 2024 and 2023, respectively, for our postretirement benefit plans.
See Note 17 to our Consolidated Financial Statements for more information regarding our employee pension and retirement benefit plans.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in Note 2 to the Consolidated Financial Statements.
Non-GAAP Measures
We have included in this report measures of financial performance that are not defined by GAAP ("Non-GAAP”). A Non-GAAP financial measure is a numerical measure of financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the Company’s Consolidated Financial Statements. We believe these measures provide useful information to the users of the financial statements as we also have included these measures in other communications and publications.
For each of these Non-GAAP financial measures, we provide a reconciliation between the Non-GAAP measure and the most directly comparable GAAP measure, an explanation of why management believes the Non-GAAP measure provides useful information to financial statement users, and any additional purposes for which management uses the Non-GAAP measure. This Non-GAAP financial information is provided as additional information for the financial statement users and is not in accordance with, or an alternative to, GAAP. These Non-GAAP measures may be different from similar measures used by other companies.
Organic Net Sales
Organic net sales is defined as net sales excluding the impacts of business acquisitions, divestitures, and foreign currency. This information is provided in order to allow investors to make meaningful comparisons of the Company's sales between periods and to view the Company's business from the same perspective as Company management. The following table reconciles the Company's 2024 net sales as presented in the Consolidated Statements of Operations to organic net sales.
Dollars
(In millions)
2024 Net sales
Business acquisitions
Foreign currency
2024 Organic net sales
EBITDA from Continuing Operations, EBITDA from Continuing Operations Margin, Adjusted EBITDA from Continuing Operations, and Adjusted EBITDA from Continuing Operations Margin, Adjusting for Certain Items Affecting Comparability
EBITDA from continuing operations margin is defined as EBITDA from continuing operations as a percentage of net sales. Adjusted EBITDA from continuing operations margin is defined as adjusted EBITDA from continuing operations as a percentage of adjusted net sales. EBITDA from continuing operations represents net income from continuing operations before interest expense, interest income, income tax expense, and depreciation and amortization expense. Adjusted EBITDA from continuing operations reflects adjustments to EBITDA from continuing operations to identify items that, in management’s judgment, significantly affect the assessment of earnings results between periods. This information is provided in order to allow investors to make meaningful comparisons of the Company’s earnings performance between periods and to view the Company’s business from the same perspective as Company management. As the Company cannot predict the timing and amount of charges that include, but are not limited to, items such as product recalls and related costs, growth, reinvestment, and restructuring programs, acquisition, integration, divestiture, and related costs, impairment of assets, foreign currency exchange impact on the re-measurement of intercompany notes, mark-to-market adjustments on derivative contracts, and other items that may arise from time to time that would impact comparability, management does not consider these costs when evaluating the Company’s performance, when making decisions regarding the allocation of resources, in determining incentive compensation, or in determining earnings estimates. EBITDA from continuing operations, and adjusted EBITDA from continuing operations are performance measures commonly used by management to assess operating performance and incentive compensation, and the Company believes they are commonly reported and widely used by investors and other interested parties as a measure of a company’s operating performance between periods and as a component of our debt covenant calculations.
Adjusted Net Sales, Adjusted Cost of Sales, Adjusted Gross Profit, Adjusted Total Operating Expenses, Adjusted Operating Income, Adjusted Total Other Expense, Adjusted Income Tax Expense, Adjusted Net Income from Continuing Operations, and Adjusted Diluted Earnings Per Share from Continuing Operations, Adjusting for Certain Items Affecting Comparability
Adjusted net sales, adjusted cost of sales, adjusted gross profit, adjusted total operating expenses, adjusted operating income, adjusted total other expense, adjusted income tax expense, and adjusted net income from continuing operations represent their respective GAAP presentation line item adjusted for items such as product recalls and related costs, growth, reinvestment, and restructuring programs, acquisition, integration, divestiture, and related costs, impairment of assets, foreign currency exchange impact on the re-measurement of intercompany notes, mark-to-market adjustments on derivative contracts, and other items that may arise from time to time that would impact comparability. Management does not consider these costs when evaluating the Company’s performance, when making decisions regarding the allocation of resources, in determining incentive compensation, or in determining earnings estimates. This information is provided in order to allow investors to make meaningful comparisons of the Company’s earnings performance between periods and to view the Company’s business from the same perspective as Company management. The Company has presented each of these adjusted Non-GAAP measures as a percentage of adjusted net sales compared to its respective reported GAAP presentation line item as a percentage of net sales. Adjusted diluted earnings per share from continuing operations ("Adjusted diluted EPS") is determined by dividing adjusted net income from continuing operations by the weighted average diluted common shares outstanding. Adjusted diluted EPS reflects adjustments to GAAP earnings (loss) per diluted share to identify items that, in management's judgment, significantly affect the assessment of earnings results between periods.
The following table reconciles the Company's net income from continuing operations as presented in the Consolidated Statements of Operations, the relevant GAAP measure, to EBITDA from continuing operations and Adjusted EBITDA from continuing operations for the years ended December 31, 2024 and 2023:
Acquisition, integration, divestiture, and related costs (4)
Foreign currency loss (gain) on remeasurement of intercompany notes (5)
Mark-to-market adjustments (6)
Shareholder activism (7)
Tax indemnification (8)
Adjusted EBITDA from continuing operations (Non-GAAP)
% of net sales
Net income from continuing operations margin
EBITDA from continuing operations margin
% of adjusted net sales
Adjusted EBITDA from continuing operations margin
Griddle Recall and Related Costs
On October 18, 2024, the Company initiated a voluntary recall of certain frozen waffle products produced at its Brantford, Ontario, Canada facility, and on October 22, 2024, the Company expanded its voluntary recall to include all products manufactured at the Brantford facility that are still within their shelf-life. For the year ended December 31, 2024, the Company recognized incremental charges of $36.6 million, which includes $21.0 million for product returns, non-cash inventory write-offs of $7.4 million, plant shutdown charges of $6.5 million, and other costs, including logistics, of $1.7 million.
Broth Recall and Related Costs
On September 22, 2023, the Company initiated a voluntary recall of certain broth products produced at its Cambridge, Maryland facility. Since the voluntary recall, the Company executed a turnaround plan to restore the facility operations. As a result of these restoration activities, for the year ended December 31, 2024, the Company incurred incremental costs (benefits) of $4.5 million, which included plant shutdown charges of $8.9 million, other costs, including product returns and logistics of $4.2 million, non-cash inventory write-offs of $1.4 million, and an insurance recovery of $(10.0) million. For the year ended December 31, 2023, the Company incurred incremental costs related to the product recall of $27.0 million, which include plant shutdown charges of $12.5 million, non-cash inventory write-offs of $10.4 million, and other costs, including product returns and logistics, of $4.1 million. Additionally, the Company recognized a non-cash inventory write-off of $2.2 million for a packaging quality matter for the year ended December 31, 2023.
Refer to Note 19 of the Consolidated Financial Statements for additional information.
The Company’s growth, reinvestment, and restructuring activities are part of an enterprise-wide transformation to improve long-term growth and profitability for the Company. During 2024, the Company recognized $0.2 million of accelerated depreciation within the Company's growth, reinvestment, and restructuring activities as depreciation expense.
Refer to Note 3 of the Consolidated Financial Statements for additional information.
During the second quarter of 2024, the Company incurred $19.3 million of non-cash impairment charges related to property, plant, and equipment. The impairment is due to forecasted cash flow losses in the Ready-to-drink beverages business resulting in a decision to exit this business.
Refer to Note 8 of the Consolidated Financial Statements for additional information.
Acquisition, integration, divestiture, and related costs represent costs associated with completed and potential acquisitions, the related integration of the acquisitions, completed and potential divestitures, and gains or losses on the divestiture of a business. During the year ended December 31, 2024, $6.7 million were classified in General and administrative, $2.0 million were classified in Cost of sales, and $0.2 million were classified in Other operating expense, net. During the year ended December 31, 2023, $15.0 million were classified in General and administrative, $0.8 million were classified in Cost of sales, and $0.9 million were classified in Other operating expense, net.
Refer to Note 7 to our Consolidated Financial Statements for additional information.
The Company has foreign currency denominated intercompany loans and incurred foreign currency gains/losses to re-measure the loans at quarter end. These amounts are non-cash and the loans are eliminated in consolidation.
The Company's derivative contracts are marked-to-market each period. The non-cash unrealized changes in fair value recognized in Other expense (income), net, within the Consolidated Statements of Operations are treated as Non-GAAP adjustments. As the contracts are settled, realized gains and losses are recognized, and only the mark-to-market impacts are treated as Non-GAAP adjustments.
Refer to Note 20 to our Consolidated Financial Statements for additional information.
The Company incurred fees related to shareholder activism which include directly applicable third-party advisory and professional service fees.
Tax indemnification represents the non-cash write off of indemnification assets that were recorded in connection with acquisitions from prior years. These write-offs arose as a result of the related uncertain tax position being released due to the statute of limitationlapse or settlement with taxing authorities.
The following tables provide a reconciliation of Adjusted net sales, Adjusted cost of sales, Adjusted gross profit, Adjusted total operating expenses, Adjusted operating income (loss), Adjusted total other expense (income), Adjusted income tax expense (benefit), and Adjusted net income from continuing operations to their most directly comparable GAAP measure, for each of the periods presented:
Year Ended December 31, 2024
(Unaudited, in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income
Total other expense
Income tax expense
Net income from continuing operations
As reported (GAAP)
Adjustments:
Product recalls and related costs (1)
Growth, reinvestment, restructuring programs & other, including accelerated depreciation (2)
Impairment (3)
Acquisition, integration, divestiture, and related costs (4)
Foreign currency loss on remeasurement of intercompany notes (5)
Mark-to-market adjustments (6)
Taxes on adjusting items
As adjusted (Non-GAAP)
As reported (% of net sales)
As adjusted (% of adjusted net sales)
Earnings per share from continuing operations:
Diluted
Adjusted diluted
Weighted average common shares:
Diluted for net income from continuing operations
Diluted for adjusted net income from continuing operations
Year Ended December 31, 2023
(Unaudited, in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income
Total other expense
Income tax expense
Net income from continuing operations
As reported (GAAP)
Adjustments:
Product recalls and related costs (1)
Growth, reinvestment, restructuring programs & other (2)
Acquisition, integration, divestiture, and related costs (4)
Foreign currency gain on remeasurement of intercompany notes (5)
Mark-to-market adjustments (6)
Shareholder activism (7)
Tax indemnification (8)
Taxes on adjusting items
As adjusted (Non-GAAP)
As reported (% of net sales)
As adjusted (% of adjusted net sales)
Earnings per share from continuing operations:
Diluted
Adjusted diluted
Weighted average common shares:
Diluted for net income from continuing operations
Diluted for adjusted net income from continuing operations
Free Cash Flow From Continuing Operations
In addition to measuring our cash flow generation and usage based upon the operating, investing, and financing classifications included in the Consolidated Statements of Cash Flows, we also measure free cash flow from continuing operations (a Non-GAAP measure) which represents net cash provided by operating activities from continuing operations less capital expenditures. We believe free cash flow is an important measure of operating performance because it provides management and investors a measure of cash generated from operations that is available for mandatory payment obligations and investment opportunities such as funding acquisitions, repaying debt, repurchasing public debt, and repurchasing our common stock.
The following table reconciles cash flow provided by operating activities from continuing operations (a GAAP measure) to our free cash flow from continuing operations (a Non-GAAP measure):
Year Ended December 31,
(In millions)
Cash flow provided by operating activities from continuing operations
