TreeHouse(THS) - 2022 Q3 - Quarterly Report

Part I — Financial Information This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1 — Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of TreeHouse Foods, Inc. for the periods ended September 30, 2022, and December 31, 2021, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, recent developments, and specific financial line items Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | Change (Millions) | | :-------------------------------- | :---------------------- | :---------------------- | :------------------ | | Assets | | | | | Cash and cash equivalents | $74.7 | $304.5 | $(229.8) | | Inventories | $648.9 | $461.6 | $187.3 | | Assets of discontinued operations | $1,251.7 | $1,208.1 | $43.6 | | Total assets | $5,188.1 | $5,207.8 | $(19.7) | | Liabilities & Equity | | | | | Accounts payable | $721.9 | $625.9 | $96.0 | | Accrued expenses | $186.5 | $233.9 | $(47.4) | | Liabilities of discontinued operations | $339.4 | $282.5 | $56.9 | | Total liabilities | $3,473.1 | $3,362.4 | $110.7 | | Total stockholders' equity | $1,715.0 | $1,845.4 | $(130.4) | Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income or loss over specific reporting periods | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net sales | $875.0 | $751.7 | $2,457.8 | $2,129.6 | | Gross profit | $129.3 | $125.9 | $339.0 | $344.8 | | Operating (loss) income | $(9.5) | $9.0 | $(91.5) | $(34.2) | | Net loss from continuing operations | $(15.1) | $(4.1) | $(56.2) | $(50.1) | | Net (loss) income from discontinued operations | $(75.4) | $10.8 | $(66.7) | $66.7 | | Net (loss) income | $(90.5) | $6.7 | $(122.9) | $16.6 | | Diluted EPS - Continuing operations | $(0.27) | $(0.07) | $(1.00) | $(0.90) | | Diluted EPS - Discontinued operations | $(1.34) | $0.19 | $(1.19) | $1.19 | | Diluted EPS | $(1.61) | $0.12 | $(2.19) | $0.30 | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income alongside other comprehensive income items not recognized in net income | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net (loss) income | $(90.5) | $6.7 | $(122.9) | $16.6 | | Other comprehensive (loss) income | $(14.4) | $(9.0) | $(20.6) | $(2.0) | | Comprehensive (loss) income | $(104.9) | $(2.3) | $(143.5) | $14.6 | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in the equity accounts, including net income, dividends, and other comprehensive income - Total stockholders' equity decreased from $1,845.4 million at December 31, 2021, to $1,715.0 million at September 30, 2022, primarily due to net losses and other comprehensive losses[18] - Accumulated deficit increased significantly from $(155.7) million at December 31, 2021, to $(278.6) million at September 30, 2022, reflecting the net losses incurred[18] Condensed Consolidated Statements of Cash Flows This statement reports cash generated and used by operating, investing, and financing activities | Cash Flow Activity | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash (used in) provided by operating activities | $(114.1) | $54.2 | | Net cash (used in) provided by investing activities | $(92.4) | $7.3 | | Net cash used in financing activities | $(22.1) | $(358.2) | | Net decrease in cash and cash equivalents | $(231.1) | $(297.2) | | Cash and cash equivalents, end of period | $74.7 | $54.9 | - Interest paid decreased from $60.3 million in 2021 to $51.0 million in 2022 for the nine months ended September 30[22] Notes to Condensed Consolidated Financial Statements These notes provide essential details and explanations supporting the condensed consolidated financial statements 1. Basis of Presentation This note describes the accounting principles and significant events impacting the financial statement presentation - The Company completed the sale of a significant portion of its Meal Preparation business on October 3, 2022, for a base purchase price of $950 million, aligning with its strategy to focus on higher-growth categories; this business is now classified as discontinued operations[29] - Following the Meal Preparation business sale, the Company changed its internal organization and reporting structure, now operating as a single segment, manufacturing and distributing private label food and beverages in North America[30] 2. Recent Accounting Pronouncements This note details the adoption and impact of new accounting standards on the company's financial reporting - The Company adopted ASU 2020-04 (Reference Rate Reform) during Q2 2022 due to a modification in a receivable sale agreement, which did not materially impact financial statements[31] 3. Growth, Reinvestment, and Restructuring Programs This note outlines the costs and objectives of the company's strategic initiatives for growth and operational efficiency - The Company's Strategic Growth Initiatives, aimed at accelerating revenue and earnings growth, are expected to incur total costs of up to $130.0 million through 2023, with $91.1 million incurred to date[33] Program Category | Program Category | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Strategic Growth Initiatives | $6.5 | $13.4 | $31.1 | $43.0 | | Other | $15.9 | $3.5 | $35.3 | $14.7 | | Total | $22.4 | $16.9 | $66.4 | $57.7 | Cost Type | Cost Type | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :---------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Employee-related | $12.5 | $4.3 | $31.8 | $16.3 | | Other costs | $9.9 | $12.6 | $34.6 | $41.4 | | Total | $22.4 | $16.9 | $66.4 | $57.7 | 4. Leases This note provides details on the company's lease assets, liabilities, and associated costs Lease Type | Lease Type | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :----------------------- | :---------------------- | :---------------------- | | Operating lease right-of-use assets | $182.9 | $138.1 | | Operating lease liabilities (current) | $38.1 | $33.1 | | Operating lease liabilities (noncurrent) | $158.6 | $119.0 | | Total lease liabilities | $198.0 | $154.3 | Lease Cost Component | Lease Cost Component | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :--------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Operating lease cost | $12.1 | $8.5 | $29.0 | $25.8 | | Total finance lease cost | $0.3 | $0.3 | $0.9 | $1.2 | | Variable lease cost | $3.7 | $4.2 | $11.9 | $11.6 | | Net lease cost | $16.1 | $13.0 | $41.8 | $38.6 | 5. Receivables Sales Program This note describes the company's program for selling accounts receivable to manage liquidity - The Company uses a Receivables Sales Program to manage liquidity, with a maximum outstanding amount of $500.0 million[45] - As of September 30, 2022, $378.0 million in accounts receivable were sold[46] Metric | Metric | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | | Receivables sold | $1,782.3 | $1,312.3 | | Receivables collected and remitted to financial institutions | $(1,761.6) | $(1,316.3) | | Loss on sale of receivables (9 months) | $3.3 | $1.2 | | Loss on sale of receivables (3 months) | $2.0 | $0.5 | 6. Inventories This note details the composition and valuation of the company's inventory assets Inventory Type | Inventory Type | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :--------------------- | :---------------------- | :---------------------- | | Raw materials and supplies | $259.8 | $183.0 | | Finished goods | $389.1 | $278.6 | | Total inventories | $648.9 | $461.6 | 7. Discontinued Operations This note provides financial information and details regarding business segments that have been or are being divested - On October 3, 2022, the Company completed the sale of a significant portion of its Meal Preparation business for a base purchase price of $950.0 million, consisting of $527.5 million in cash and a $422.5 million five-year secured seller promissory note[49] - An expected loss on disposal of $73.8 million was recognized during the three and nine months ended September 30, 2022, as the fair value of the divested business was less than its carrying value[52] Metric | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net sales | $424.4 | $349.2 | $1,179.6 | $1,110.2 | | Operating income (loss) | $(63.4) | $16.8 | $(43.8) | $95.4 | | Net (loss) income from discontinued operations | $(75.4) | $10.8 | $(66.7) | $66.7 | 8. Property, Plant, and Equipment This note presents the carrying values and depreciation of the company's tangible long-term assets Asset Category | Asset Category | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :----------------------- | :---------------------- | :---------------------- | | Land | $28.5 | $28.7 | | Buildings and improvements | $315.3 | $308.0 | | Machinery and equipment | $997.4 | $999.1 | | Construction in progress | $48.6 | $51.3 | | Total PP&E, gross | $1,389.8 | $1,387.1 | | Less accumulated depreciation | $(734.0) | $(687.0) | | Property, plant, and equipment, net | $655.8 | $700.1 | 9. Goodwill and Intangible Assets This note details the company's goodwill and other intangible assets, including their carrying amounts - Goodwill decreased slightly from $1,821.9 million at December 31, 2021, to $1,817.0 million at September 30, 2022, primarily due to foreign currency exchange adjustments[59] Intangible Asset Type | Intangible Asset Type | Sep 30, 2022 Net (Millions) | Dec 31, 2021 Net (Millions) | | :-------------------------- | :-------------------------- | :-------------------------- | | Customer-related | $221.6 | $248.2 | | Trademarks (finite life) | $4.5 | $5.4 | | Formulas/recipes | $0.4 | $0.6 | | Computer software | $72.9 | $76.4 | | Trademarks (indefinite life) | $6.0 | $6.0 | | Total intangible assets | $305.4 | $336.6 | 10. Accrued Expenses This note itemizes the various accrued liabilities of the company Accrued Expense Type | Accrued Expense Type | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :------------------------------------------ | :---------------------- | :---------------------- | | Payroll and benefits | $79.4 | $46.0 | | Trade promotion liabilities | $22.1 | $21.8 | | Operating lease liabilities | $38.1 | $33.1 | | Derivative contracts | $0.1 | $52.1 | | Other accrued liabilities | $12.0 | $46.9 | | Total | $186.5 | $233.9 | 11. Income Taxes This note explains the components of income tax expense and the effective tax rate - The effective tax rate for the three months ended September 30, 2022, was (15.3)% compared to 8.9% in 2021, primarily due to changes in valuation allowance, tax expense from Canadian subsidiary restructuring, and the impact of the CARES Act[62] - Management estimates a possible decrease of up to $0.6 million in unrecognized tax benefits within the next 12 months, with approximately $0.3 million potentially affecting net income[63] 12. Long-Term Debt This note provides details on the company's long-term borrowing arrangements and debt covenants Debt Type | Debt Type | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :------------------ | :---------------------- | :---------------------- | | Term Loan A | $491.3 | $496.3 | | Term Loan A-1 | $913.7 | $923.0 | | 2028 Notes | $500.0 | $500.0 | | Finance leases | $1.3 | $2.2 | | Total outstanding debt | $1,906.3 | $1,921.5 | | Total long-term debt | $1,879.4 | $1,890.0 | - In October 2022, the Company paid down $500.0 million of debt on Term Loan A and Term Loan A-1 using net proceeds from the Meal Preparation business divestiture[69] - The Credit Agreement was amended in February and August 2022 to temporarily increase the leverage covenant threshold and allow for investments related to disposed business units, respectively[65][66] 13. Earnings Per Share This note presents the calculation of basic and diluted earnings per share - Weighted average common shares outstanding for basic and diluted EPS were 56.1 million for the three months ended September 30, 2022, and 56.0 million for the nine months ended September 30, 2022[72] - Equity awards totaling 1.6 million (3 months) and 1.4 million (9 months) were excluded from diluted EPS computation in 2022 as they were anti-dilutive due to net loss from continuing operations[72] 14. Stock-Based Compensation This note details the expense and unrecognized costs related to the company's stock-based incentive plans Metric | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :--------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Compensation expense related to stock-based payments | $6.1 | $1.4 | $15.2 | $10.1 | | Related income tax benefit | $1.5 | $0.3 | $3.6 | $2.5 | - Unrecognized compensation costs for nonvested stock options totaled $4.7 million at September 30, 2022, expected to be recognized over 2.6 years[76] - Unrecognized compensation costs for nonvested restricted stock units were approximately $24.4 million at September 30, 2022, to be recognized over 1.9 years[78] 15. Accumulated Other Comprehensive Loss This note breaks down the components of accumulated other comprehensive income or loss Component | Component | Balance at Dec 31, 2021 (Millions) | Other Comprehensive (Loss) Income (Millions) | Balance at Sep 30, 2022 (Millions) | | :------------------------------------ | :--------------------------------- | :------------------------------------------- | :--------------------------------- | | Foreign Currency Translation | $(70.9) | $(20.8) | $(91.7) | | Pension and Postretirement Benefits | $17.3 | $0.2 | $17.5 | | Total Accumulated Other Comprehensive Loss | $(53.6) | $(20.6) | $(74.2) | 16. Employee Retirement and Postretirement Benefits This note provides information on the company's pension and postretirement benefit plans Component of Net Periodic Pension Benefit | Component of Net Periodic Pension Benefit | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :---------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Service cost | $0.1 | $0.4 | $0.4 | $0.8 | | Interest cost | $2.3 | $2.3 | $6.9 | $6.6 | | Expected return on plan assets | $(3.8) | $(3.5) | $(11.4) | $(10.4) | | Net periodic pension benefit | $(1.3) | $(1.3) | $(3.9) | $(3.2) | - Net periodic postretirement cost was $0.2 million for the three months and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively[87] 17. Other Operating Expense, Net This note details the components of other operating expenses, including restructuring costs Expense Type | Expense Type | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Restructuring | $22.4 | $16.9 | $66.4 | $57.7 | | Other | $1.0 | $0.0 | $0.0 | $0.1 | | Total | $23.4 | $16.9 | $66.4 | $57.8 | 18. Commitments and Contingencies This note describes the company's legal proceedings, claims, and other potential liabilities - The Company is involved in four shareholder derivative suits with similar claims alleging false and misleading statements and underperformance, which are currently being responded to or briefed[89][90][92] - A federal securities class action (MPERS) with similar allegations was settled for $27.0 million, funded by D&O insurance, and received final court approval in November 2021[91] - The Company is also a party to an antitrust lawsuit against Keurig Green Mountain, seeking monetary damages and injunctive relief, which remains pending[94] 19. Derivative Instruments This note explains the company's use of derivative financial instruments to manage market risks - The Company uses interest rate swap agreements with a notional value of $875.0 million to hedge exposure to interest rate changes, fixing LIBOR at approximately 2.91% through 2025[96] - Commodity contracts, with a notional value of $12.3 million as of September 30, 2022, are used to manage market price risk for diesel, oil, plastics, natural gas, electricity, resin, and other raw materials[98] Derivative Type | Derivative Type | Sep 30, 2022 Fair Value (Millions) | Dec 31, 2021 Fair Value (Millions) | | :------------------------ | :--------------------------------- | :--------------------------------- | | Asset derivatives: | | | | Commodity contracts | $5.4 | $3.9 | | Interest rate swap agreements | $25.8 | $0.0 | | Liability derivatives: | | | | Commodity contracts | $0.0 | $0.9 | | Interest rate swap agreements | $0.0 | $51.2 | | Total return swap contract | $0.1 | $0.0 | 20. Disaggregation of Revenue This note breaks down the company's net sales by product category and sales channel Product Category Group | Product Category Group | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :----------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Snacking | $347.4 | $293.8 | $980.0 | $833.7 | | Beverages & drink mixes | $290.6 | $241.6 | $797.2 | $694.5 | | Grocery | $237.0 | $216.3 | $680.6 | $601.4 | | Total net sales | $875.0 | $751.7 | $2,457.8 | $2,129.6 | Sales Channel | Sales Channel | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Retail grocery | $682.9 | $575.2 | $1,884.6 | $1,653.6 | | Co-manufacturing | $128.4 | $116.3 | $382.9 | $306.9 | | Food-away-from-home and other | $63.7 | $60.2 | $190.3 | $169.1 | | Total net sales | $875.0 | $751.7 | $2,457.8 | $2,129.6 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, changes in financial condition, and results of operations. It covers business overview, recent developments, executive summary, known trends and uncertainties, detailed results of operations for continuing and discontinued segments, liquidity and capital resources, and non-GAAP financial measures Business Overview This section describes the company's primary business activities and market position - TreeHouse Foods, Inc. is a leading private label food and beverage manufacturer in North America, focusing on snacking and beverage growth categories such as crackers, non-dairy creamer, pickles, and single-serve beverages[105][106] Recent Developments This section highlights significant events and strategic changes impacting the company's operations - The Company completed the sale of a significant portion of its Meal Preparation business on October 3, 2022, for $950 million, using $500.0 million of net proceeds to pay down debt[108] - As a result of the divestiture, the Company transitioned to operating as a single segment in the third quarter of 2022[109] Executive Summary This section provides a high-level overview of the company's financial performance and key drivers Metric | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | % Change | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $875.0 | $751.7 | 16.4% | $2,457.8 | $2,129.6 | 15.4% | | Net loss from continuing operations | $(15.1) | $(4.1) | (268.3)% | $(56.2) | $(50.1) | (12.2)% | | Net (loss) income | $(90.5) | $6.7 | (1,450.7)% | $(122.9) | $16.6 | (840.4)% | | Diluted loss per share from continuing operations | $(0.27) | $(0.07) | (285.7)% | $(1.00) | $(0.90) | (11.1)% | | Adjusted EBITDA from continuing operations | $76.6 | $85.8 | (10.7)% | $167.0 | $218.5 | (23.6)% | - Net sales increased by 16.4% for the three months and 15.4% for the nine months ended September 30, 2022, primarily due to pricing actions to offset commodity and freight cost inflation[113] - Profitability was adversely impacted by global labor and supply chain disruption compared to Q3 2021, despite sequential margin improvement from Q2 2022[113] Known Trends or Uncertainties This section discusses external and internal factors that could influence future financial results - Demand for private label products is strengthening due to inflation, but the Company's ability to service this demand is constrained by industry-wide supply chain disruption and labor availability challenges[114] - Significant cost increases across raw materials, packaging, fuel, energy, and agricultural commodities continue, with pricing actions implemented to recover costs, though often with a lag[116][118] - Rising interest rates have favorably impacted the fair value of the Company's interest rate swap agreements, resulting in a $24.8 million unrealized gain for the three months and $77.0 million for the nine months ended September 30, 2022[119] - A strengthening U.S. Dollar adversely impacts Canadian operations, leading to a $3.0 million loss on foreign currency exchange for both the three and nine months ended September 30, 2022[120] Results of Operations This section analyzes the company's financial performance, including revenue, gross profit, and net income Metric | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net sales | $875.0 | $751.7 | $2,457.8 | $2,129.6 | | Gross profit | $129.3 | $125.9 | $339.0 | $344.8 | | Operating (loss) income | $(9.5) | $9.0 | $(91.5) | $(34.2) | | Net loss from continuing operations | $(15.1) | $(4.1) | $(56.2) | $(50.1) | | Net (loss) income from discontinued operations | $(75.4) | $10.8 | $(66.7) | $66.7 | | Net (loss) income | $(90.5) | $6.7 | $(122.9) | $16.6 | - Net sales increased by 16.4% (3 months) and 15.4% (9 months) primarily due to pricing actions (20.7% and 15.6% respectively), partially offset by volume/mix decreases due to labor/supply chain disruptions and exiting lower-margin business[123][124][131] - Gross profit margin decreased by 1.9 percentage points (3 months) and 2.4 percentage points (9 months) due to incremental costs from labor and supply chain disruption, and warehouse capacity challenges, partially offset by pricing actions[125][132] - Net loss from discontinued operations was $75.4 million (3 months) and $66.7 million (9 months) in 2022, a significant decrease from income in 2021, primarily due to a $73.8 million expected loss on disposal of the Meal Preparation business[130][137] Liquidity and Capital Resources This section evaluates the company's ability to meet its short-term and long-term financial obligations - The Company remains in a strong financial position, with resources available for reinvesting in existing businesses and managing its capital structure[138] - A five-year secured seller promissory note of approximately $422.5 million was issued as part of the Meal Preparation business sale, bearing interest rates from 10% to 13% annually[139][140] - Net cash used in operating activities from continuing operations increased to $90.4 million in the first nine months of 2022 from $57.0 million in 2021, primarily due to lower cash earnings and working capital changes[147] - Net cash used in discontinued operations increased significantly to $59.9 million in the first nine months of 2022 from $171.3 million provided in 2021, largely due to the non-recurrence of proceeds from the RTE Cereal business sale and lower cash earnings[150] - The Company reduced its revolving credit commitment from $750.0 million to $500.0 million in October 2022, with $714.2 million available as of September 30, 2022[143][153] Guarantor Summarized Financial Information This section provides condensed financial data for the company's guarantor subsidiaries - The 2028 Notes are fully and unconditionally guaranteed by the Company's domestic subsidiaries, with no significant restrictions on funds transfer[159] Metric | Metric | 9 Months Ended Sep 30, 2022 (Millions) | | :-------------------------------- | :------------------------------------- | | Net sales | $2,423.8 | | Gross profit | $329.5 | | Net loss from continuing operations | $(34.9) | | Net loss from discontinued operations | $(72.8) | | Net loss | $(107.7) | Balance Sheet Item | Balance Sheet Item | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :------------------- | :---------------------- | :---------------------- | | Current assets | $1,929.7 | $1,910.0 | | Noncurrent assets | $2,769.2 | $2,813.7 | | Current liabilities | $1,144.6 | $1,047.2 | | Noncurrent liabilities | $2,115.2 | $2,164.8 | Non-GAAP Measures This section reconciles non-GAAP financial metrics to their most directly comparable GAAP measures - The Company uses Non-GAAP financial measures like Organic Net Sales, Adjusted Diluted EPS, Adjusted Net Income, Adjusted EBIT, Adjusted EBITDA, and Adjusted EBITDAS to provide meaningful comparisons of performance between periods[163][165][166][175][176] - Adjustments to GAAP measures exclude items such as divestiture/acquisition costs, mark-to-market adjustments on derivatives, foreign currency impacts, growth/restructuring programs, and litigation matters to better reflect core operating performance[167][170][171][172][176] Metric | Metric | 3 Months Ended Sep 30, 2022 (Non-GAAP) | 3 Months Ended Sep 30, 2021 (Non-GAAP) | 9 Months Ended Sep 30, 2022 (Non-GAAP) | 9 Months Ended Sep 30, 2021 (Non-GAAP) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Adjusted diluted EPS (Continuing Operations) | $0.30 | $0.42 | $0.19 | $0.71 | | Adjusted net income (loss) (Total) | $10.3 | $25.7 | $0.6 | $62.4 | | Adjusted EBITDA (Total) | $89.4 | $106.9 | $213.3 | $304.2 | | Adjusted EBITDAS (Total) | $93.9 | $108.6 | $226.2 | $314.7 | Metric | Metric | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | | Cash flow used in operating activities from continuing operations (GAAP) | $(90.4) | $(57.0) | | Less: Capital expenditures | $(61.3) | $(70.4) | | Free cash flow from continuing operations (Non-GAAP) | $(151.7) | $(127.4) | Other Commitments and Contingencies This section outlines additional potential liabilities and obligations not covered elsewhere - The Company has property and casualty risks related to employee health care, workers' compensation, and other casualty losses, in addition to contingent liabilities from litigation and tax audits[185] Recent Accounting Pronouncements This section refers to the notes for details on newly adopted accounting standards - Information regarding recent accounting pronouncements is provided in Note 2 to the Condensed Consolidated Financial Statements[187] Critical Accounting Estimates This section confirms no material changes to the company's significant accounting judgments - There were no material changes to the Company's critical accounting estimates during the three and nine months ended September 30, 2022[188] Cautionary Statement Regarding Forward Looking Statements This section warns readers about the inherent risks and uncertainties in forward-looking information - The report contains forward-looking statements subject to risks and uncertainties, including impacts from the Meal Preparation Business divestiture, COVID-19, growth programs, indebtedness, market disruptions, and commodity costs[189][190] Item 3 — Quantitative and Qualitative Disclosures About Market Risk This section addresses the Company's exposure to market risks and its use of derivative instruments to manage these risks, noting no significant changes from the prior year-end - The Company uses derivative instruments to manage market risks, with additional information provided in Note 19 to the Condensed Consolidated Financial Statements[191] - There have been no significant changes in the Company's portfolio of financial instruments or market risk exposures since the 2021 year-end[192] Item 4 — Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2022, and states that no material changes occurred in internal control over financial reporting during the quarter - Management, with CEO and CFO participation, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022[194] - No material changes in the Company's internal control over financial reporting occurred during the quarter ended September 30, 2022[195] Part II — Other Information This section includes legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report Item 1 — Legal Proceedings This section refers to Note 18 of the Condensed Consolidated Financial Statements for detailed information on legal proceedings - Information regarding legal proceedings is available in Note 18 to the Condensed Consolidated Financial Statements[196] Item 1A — Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred from the risk factors previously disclosed in the Company's 2021 Annual Report on Form 10-K[197] Item 2 — Unregistered Sale of Equity Securities and Use of Proceeds This item is marked as not applicable for this reporting period - This item is not applicable[198] Item 6 — Exhibits This section lists all exhibits filed with the Form 10-Q, including the Stock Purchase Agreement, Credit Agreement amendments, certifications, and XBRL documents - Key exhibits include the Stock Purchase Agreement for the Meal Preparation business sale, Amendment No. 5 to the Credit Agreement, and the Seller Note Credit Agreement[200] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[200] Signatures This section contains the required signatures for the Form 10-Q filing, confirming its submission on behalf of TreeHouse Foods, Inc - The report was signed by Patrick M. O'Donnell, Interim Chief Financial Officer and Chief Accounting Officer, on November 7, 2022[204]