BELLRING BRANDS, INC. (BRBR) FY 2021 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of BellRing Brands, Inc. and its consolidated subsidiaries. This discussion should be read in conjunction with the financial statements under Item 8 of this report and the “Cautionary Statement On Forward-Looking Statements” on page 1. The terms “our,” “we,” “us,” “the Company” and “BellRing” as used herein refer to BellRing Brands, Inc. and its consolidated subsidiaries.

For the period presented prior to our initial public offering (the “IPO”), these consolidated financial statements present the historical results of operations, comprehensive income, financial condition, cash flows and stockholders’ equity of the active nutrition business of Post Holdings, Inc. (“Post”) prepared on a stand-alone basis. These consolidated financial statements also include the allocation of certain Post corporate expenses related to the active nutrition business of Post for the period presented prior to our IPO. In the opinion of management, the assumptions underlying the historical consolidated financial statements of the active nutrition business of Post, including the basis on which the expenses have been allocated from Post, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as a separate company for the period presented prior to the IPO. For additional information, see “Risk Factors” in Item 1A and Note 6 within “Notes to Consolidated Financial Statements.”

OVERVIEW

We are a consumer products holding company operating in the global convenient nutrition category and a provider of ready-to-drink (“RTD”) protein shakes, other RTD beverages, powders and nutrition bars. We have a single operating and reportable segment, with our principal products being protein-based consumer goods. Our primary brands are Premier Protein and Dymatize.

On October 21, 2019, BellRing Brands, Inc. (“BellRing Inc.”) closed its IPO of 39.4 million shares of its Class A common stock, $0.01 par value per share (the “Class A Common Stock”) and contributed the net proceeds from the IPO to BellRing Brands, LLC, a Delaware limited liability company and BellRing Inc.’s subsidiary (“BellRing LLC”) in exchange for 39.4 million BellRing LLC non-voting membership units (the “BellRing LLC units”).

As a result of the IPO and certain other transactions completed in connection with the IPO (the “formation transactions”), BellRing LLC became the holder of the active nutrition business of Post. BellRing Inc., as a holding company, has no material assets other than its ownership of BellRing LLC units and its indirect interests in the subsidiaries of BellRing LLC and has no independent means of generating revenue or cash flow. For additional information on the IPO, see Note 1 within “Notes to Consolidated Financial Statements.”

The members of BellRing LLC are Post and BellRing Inc. BellRing Inc. holds the voting membership unit of BellRing LLC (which represents the power to appoint and remove the members of the Board of Managers of, and no economic interest in, BellRing LLC). BellRing Inc. has the right to appoint the members of the BellRing LLC Board of Managers, and therefore, controls BellRing LLC. The Board of Managers is responsible for the oversight of BellRing LLC’s operations and overall performance and strategy, while the management of the day-to-day operations of the business of BellRing LLC and the execution of business strategy are the responsibility of the officers and employees of BellRing LLC and its subsidiaries. Post, in its capacity as a member of BellRing LLC, does not have the power to appoint any members of the Board of Managers or voting rights with respect to BellRing LLC.

For the periods subsequent to the IPO, the financial results of BellRing LLC and its subsidiaries are consolidated with BellRing Inc., and a portion of the consolidated net earnings of BellRing LLC are allocated to the redeemable noncontrolling interest (the “NCI”). The calculation of the NCI is based on Post’s ownership percentage of BellRing LLC units during each period, and reflects the entitlement of Post to a portion of the consolidated net earnings of BellRing LLC.

Industry & Company Trends

The success of companies in the convenient nutrition category is driven by how well such companies can grow, develop and differentiate their brands. We expect the convergence of several factors to support the continued growth of the convenient nutrition category, including:

•consumers’ increasingly dedicated pursuit of active lifestyles and growing interest in nutrition and wellness;

•growing awareness of the numerous health benefits of protein, including sustained energy, muscle recovery and satiety; and

•a rise in snacking and the desire for products that can be consumed on-the-go as nutritious snacks or meal replacements.

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Nonetheless, the consumer food and beverage industry faces a number of challenges and uncertainties, including:

•the highly competitive nature of the industry, which involves competition from a host of nutritional food and beverage companies, including manufacturers of other branded food and beverage products as well as manufacturers of private label and store brand products;

•changing consumer preferences which require food manufacturers to identify changing preferences and to offer products that appeal to consumers;

•supply chain challenges, including labor shortages and equipment delays, which have delayed capacity expansion across the broader third party aseptic processing contract manufacturer network and are expected to continue into fiscal 2022; and

•increasing inflationary pressures, which are expected to continue into fiscal 2022, on the costs of ingredients and packaging materials and transportation.

Seasonality

We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our sales and operating profit margins because of customer spending patterns and timing of our key retailers’ promotional activity. Historically, our first fiscal quarter is seasonally low for all brands driven by a slowdown of consumption of our products during the holiday season. Sales are typically higher throughout the remainder of the fiscal year as a result of promotional activity at key retailers as well as organic growth of the business.

COVID-19 Pandemic

The COVID-19 pandemic has caused and continues to cause global economic disruption and uncertainty, including in our business. We continue to closely monitor the impact of the COVID-19 pandemic and developments related thereto on our business and remain focused on ensuring the health and safety of our employees, maintaining continuity of our supply chain to serve customers and consumers and preserving liquidity to navigate the uncertainty caused by the COVID-19 pandemic. Our primary categories returned to growth rates in line with their pre-pandemic levels during the fourth quarter of fiscal 2020 and have remained strong in fiscal 2021.

As the overall economy continues to recover from the impact of the COVID-19 pandemic, input and freight inflation, equipment delays and input and labor availability are pressuring BellRing’s supply chain. Lower than anticipated production and delays in capacity expansion across the broader third party shake contract manufacturer network have resulted in low inventories and missed sales. Service levels and fill rates remain below normal levels, and certain products have been placed on allocation. These factors are expected to improve but persist throughout fiscal 2022 and are dependent upon BellRing’s contract manufacturer partners’ ability to deliver committed volumes, add capacity on expected timelines, retain manufacturing staff and rebuild inventory levels. For additional discussion, refer to “Liquidity and Capital Resources” within this section, as well as “Cautionary Statement on Forward-Looking Statements” and “Risk Factors” in Part I of this report.

Announcement Subsequent to Period End

In October 2021, we, along with Post, announced the signing of a transaction agreement related to Post’s previously announced plan to distribute a significant portion of its interest in the Company to Post’s shareholders. We expect the distribution to be completed in the first calendar quarter of 2022, subject to certain customary conditions. See Note 18 within “Notes to Consolidated Financial Statements” for additional information on the announcement.

Items Affecting Comparability

During the years ended September 30, 2021, 2020 and 2019, net sales and/or operating profit was impacted by the following items:

•accelerated amortization expense of $29.9 million for the year ended September 30, 2021 related to the discontinuance of the Supreme Protein brand;

•restructuring and facility closure costs, including accelerated depreciation, of $5.6 million related to the closing of our Dallas, Texas office and the downsizing of our Munich, Germany location during the year ended September 30, 2021; and

•separation costs of $0.2 million, $1.9 million and $6.7 million related to our separation from Post for the years ended September 30, 2021, 2020 and 2019, respectively.

For further discussion, refer to “Results of Operations” within this section.

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RESULTS OF OPERATIONS

Net Sales

Fiscal 2021 compared to 2020

Net sales increased $258.8 million, or 26%, during the year ended September 30, 2021 compared to the prior year. Sales of Premier Protein products were up $207.8 million, or 25%, with volume up 24%. Volume increases were driven by higher RTD protein shake product volumes which primarily related to distribution gains for both existing and new products and strong velocities driven by promotional activity and continued category momentum. Sales of Dymatize products were up $47.4 million, or 43%, with volume up 29%. Volume increases were primarily driven by distribution gains for both existing and new products and strong velocities driven by continued category momentum and lower international and specialty channel volumes in the prior year, largely resulting from consumer reaction to the COVID-19 pandemic. Average net selling prices increased during the year ended September 30, 2021 due to a favorable product mix. Sales of all other products were up $3.6 million.

Fiscal 2020 compared to 2019

Net sales increased $133.9 million, or 16%, during the year ended September 30, 2020 compared to the prior year. Sales of Premier Protein products were up $148.2 million, or 22%, with volume up 23%. Volume increases were driven by higher RTD protein shake product volumes which primarily related to distribution gains, lapping short-term capacity constraints in fiscal 2019, incremental promotional activity and new product introductions, partially offset by lower other RTD beverages volumes. Sales of Dymatize products were down $4.0 million, or 4%, with volume down 1%. Volumes decreased primarily due to lower international and specialty channel volumes, largely resulting from consumer reaction to the COVID-19 pandemic, partially offset by higher eCommerce volumes. Sales of all other products were down $10.3 million.

Operating Profit

Fiscal 2021 compared to 2020

Operating profit increased $4.0 million, or 2%, during the year ended September 30, 2021 compared to the prior year. This increase was primarily driven by higher net sales, as previously discussed, and lower costs related to the separation from Post of $1.7 million. These positive impacts were partially offset by higher net product costs of $38.9 million due to unfavorable raw material, freight and manufacturing costs, accelerated amortization expense of $29.9 million related to the discontinuance of the Supreme Protein brand, restructuring and facility closure costs, including accelerated depreciation, of $5.6 million, increased advertising and promotional spending of $6.1 million and higher employee-related costs.

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Fiscal 2020 compared to 2019

Operating profit increased $1.5 million, or 1%, during the year ended September 30, 2020 compared to the prior year. This increase was primarily driven by higher net sales, as previously discussed, and lower costs related to the separation from Post of $4.8 million. These positive impacts were partially offset by higher net product costs of $17.4 million, as unfavorable raw material costs were partially offset by lower manufacturing and freight costs, as well as increased advertising and promotional spending of $13.1 million, incremental public company costs of $8.7 million (including higher stock-based compensation expense of $2.9 million), higher employee-related expenses of $5.0 million and higher warehousing costs of $3.7 million.

Interest Expense, Net

Fiscal 2021 compared to 2020

Interest expense, net decreased $11.5 million during the year ended September 30, 2021 compared to the prior year primarily due to lower aggregate principal amounts outstanding under BellRing LLC’s term B loan facility (the “Term B Facility”) and under BellRing LLC’s revolving credit facility (the “Revolving Credit Facility”). In addition, the weighted-average interest rate on the aggregate principal amounts outstanding under the Term B Facility and under the Revolving Credit Facility decreased to 5.3% for the year ended September 30, 2021 from 6.3% for the year ended September 30, 2020, driven by lower variable interest rates and the refinancing of the Term B Facility during the second quarter of fiscal 2021.

Fiscal 2020 compared to 2019

Interest expense, net was $54.7 million during the year ended September 30, 2020 compared to zero in the prior year. The increase in interest expense was primarily due to the issuance of debt in the first quarter of fiscal 2020. Additionally, we recognized net hedging losses of $2.8 million on interest rate swaps during the year ended September 30, 2020. We had no debt outstanding or interest rate swaps during the year ended September 30, 2019. See Note 15 and Note 13 within “Notes to Consolidated Financial Statements” for additional information on our debt and interest rate swaps, respectively.

Loss on Refinancing of Debt

During the year ended September 30, 2021, we recognized $1.6 million of losses related to refinancing fees incurred in conjunction with the refinancing of our Term B Facility. See Note 15 within “Notes to Consolidated Financial Statements” for additional information on our debt.

Income Taxes

Our effective income tax rate for fiscal 2021 was 7.1% compared to 8.4% for fiscal 2020 and 24.2% for fiscal 2019. A reconciliation of income tax expense with amounts computed at the federal statutory tax rate follows:

The decrease in our effective income tax rate for fiscal 2021 and 2020 compared to fiscal 2019 was primarily due to us taking into account for U.S. federal, state and local income tax purposes our 28.8% distributive share of the items of income, gain, loss and deduction of BellRing LLC in the periods subsequent to the IPO. Prior to the IPO and formation transactions, we reported 100% of the income, gain, loss and deduction of BellRing LLC.

LIQUIDITY AND CAPITAL RESOURCES

On October 21, 2019, BellRing Inc. closed its IPO of 39.4 million shares of Class A Common Stock and received net proceeds from the IPO of $524.4 million, after deducting underwriting discounts and commissions.

On October 11, 2019, in connection with the IPO and the formation transactions, Post entered into a $1,225.0 million Bridge Facility Agreement (the “Bridge Loan Facility”) and borrowed $1,225.0 million under the Bridge Loan Facility (the “Bridge Loan”). Certain of Post’s domestic subsidiaries (other than BellRing Inc. but including BellRing LLC and its

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domestic subsidiaries) guaranteed the Bridge Loan. On October 21, 2019, BellRing LLC entered into a Borrower Assignment and Assumption Agreement with Post and the administrative agent under the Bridge Loan Facility, under which (i) BellRing LLC became the borrower under the Bridge Loan and assumed all interest of $2.2 million thereunder, and Post and its subsidiary guarantors (other than BellRing LLC and its domestic subsidiaries) were released from all material obligations under the Bridge Loan, (ii) the domestic subsidiaries of BellRing LLC continued to guarantee the Bridge Loan and (iii) BellRing LLC’s obligations under the Bridge Loan became secured by a first priority security interest in substantially all of BellRing LLC’s assets and substantially all of the assets of its subsidiary guarantors (other than real property). BellRing LLC did not receive any of the proceeds of the Bridge Loan.

On October 21, 2019, BellRing LLC entered into a credit agreement (as subsequently amended, the “Credit Agreement”) which provided for the Term B Facility in an aggregate principal amount of $700.0 million and the Revolving Credit Facility in an aggregate principal amount of $200.0 million. In connection with the IPO, BellRing LLC borrowed the full amount under the Term B Facility and $120.0 million under the Revolving Credit Facility and used the proceeds, together with the net proceeds of the IPO that were contributed to it by BellRing Inc., (i) to repay in full the $1,225.0 million of borrowings under the Bridge Loan and all interest thereunder and related costs and expenses, (ii) to pay directly, or reimburse Post for, as applicable, all fees and expenses incurred by BellRing LLC or Post in connection with the IPO and the formation transactions, (iii) to reimburse Post for the amount of cash on BellRing LLC’s balance sheet immediately prior to the completion of the IPO and (iv) for general corporate and working capital purposes, as well as to repay certain borrowings under the Revolving Credit Facility.

On February 26, 2021, BellRing LLC entered into a second amendment to the Credit Agreement (the “Amendment”). The Amendment provided for the refinancing of the Term B Facility on substantially the same terms as in effect prior to the Amendment, except that it (i) reduced the interest rate margin by 100 basis points resulting in (A) for Eurodollar rate loans, an interest rate of the Eurodollar rate plus a margin of 4.00% and (B) for base rate loans, an interest rate of the base rate plus a margin of 3.00%, (ii) reduced the floor for the Eurodollar rate to 0.75%, (iii) modified the Credit Agreement to address the anticipated unavailability of the London Interbank Offered Rate (used to determine the interest rate for Eurodollar rate loans) as a reference interest rate and (iv) provided that if on or before August 26, 2021 BellRing LLC repaid the Term B Facility in whole or in part with the proceeds of new or replacement debt at a lower effective interest rate, or further amended the Credit Agreement to reduce the effective interest rate applicable to the Term B Facility, BellRing LLC would have paid a 1.00% premium on the amount repaid or subject to the interest rate reduction.

During the year ended September 30, 2021, BellRing LLC borrowed $20.0 million under the Revolving Credit Facility and repaid $50.0 million under the Revolving Credit Facility. BellRing LLC had $200.0 million of borrowing capacity and no outstanding letters of credit under the Revolving Credit Facility as of September 30, 2021. Letters of credit are available under the Revolving Credit Facility in an aggregate amount of up to $20.0 million. The Credit Agreement provides for potential incremental revolving and term facilities at BellRing LLC’s request and at the discretion of the lenders thereunder or other persons providing such incremental facilities, in each case on terms to be determined, and also permits BellRing LLC to incur other secured or unsecured debt, in all cases subject to conditions and limitations on the amount as specified in the Credit Agreement.

Additionally, we entered into a tax receivable agreement with Post and BellRing LLC that provides for the payment by us or one of our subsidiaries to Post (or certain of its transferees or other assignees) of 85% of the amount of cash savings, if any, in U.S. federal income tax, as well as state and local income tax and franchise tax (using an assumed tax rate) and foreign tax that we realize (or, in some circumstances, are deemed to realize) as a result of (a) the increase in the tax basis of assets of BellRing LLC attributable to (i) the redemption of Post’s (or certain transferees’ or assignees’) BellRing LLC units for shares of our Class A Common Stock or cash, (ii) deemed sales by Post (or certain of its transferees or assignees) of BellRing LLC units or assets to us, (iii) certain actual or deemed distributions from BellRing LLC to Post (or certain transferees or assignees) and (iv) certain formation transactions, (b) disproportionate allocations of tax benefits to us as a result of Section 704(c) of the Internal Revenue Code and (c) certain tax benefits (e.g., imputed interest, basis adjustments, etc.) attributable to payments under the tax receivable agreement.

For additional information on the IPO, the formation transactions, the tax receivable agreement and the Credit Agreement, see Notes 1, 8 and 15 within “Notes to Consolidated Financial Statements.”

We expect to generate positive cash flows from operations and believe our cash on hand, cash flows from operations and possible future credit facilities will be sufficient to satisfy our future working capital requirements, research and development activities, debt repayments, including both scheduled amortization payments and any mandatory prepayments required from excess cash flow, and other financing requirements for the foreseeable future. Our asset-light business model requires modest capital expenditures, with annual capital expenditures over the last three fiscal years averaging less than 1% of net sales. No significant capital expenditures are planned for fiscal 2022. Our cash requirements under our various contractual obligations and commitments include:

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•Debt Obligations and Interest Payments — See Note 15 within “Notes to Consolidated Financial Statements” for additional information on our debt and the timing of expected future principal and interest payments.

•Operating Leases — See Note 12 within “Notes to Consolidated Financial Statements” for additional information on our operating leases and the timing of expected future payments.

•Tax Receivable Agreement — See Note 6 within “Notes to Consolidated Financial Statements” and above for additional information on our tax receivable agreement between Post and BellRing LLC.

•Purchase Obligations — Purchase obligations are legally binding agreements to purchase goods, services or equipment that specify all significant terms, including: fixed or minimum quantities to be purchased and/or penalties imposed for failing to meet contracted minimum purchase quantities (such as “take-or-pay” contracts); fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of September 30, 2021, the Company had total purchase commitments of $515.6 million (with $327.7 million due in fiscal 2022) which extend through fiscal 2027.

Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures and other business risk factors. If we are unable to generate sufficient cash flows from operations, or otherwise to comply with the terms of BellRing LLC’s credit facilities, we may be required to seek additional financing alternatives. Additionally, we may seek to repurchase shares of our Class A Common Stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Under its amended and restated limited liability company agreement (the “BellRing LLC agreement”), BellRing LLC may make distributions to its members from time to time at the discretion of the Board of Managers. Such distributions are made to the members on a pro rata basis in proportion to the number of BellRing LLC units held by each member, except that the Board of Managers may cause BellRing LLC to make non-proportionate distributions to BellRing Inc. in connection with any cash redemption of BellRing Inc.’s Class A Common Stock. The BellRing LLC agreement provides, to the extent cash is available, for distributions pro rata to the holders of BellRing LLC units such that members receive an amount of cash sufficient to cover the estimated taxes payable by them including, in the case of BellRing Inc., an amount sufficient to allow BellRing Inc. to make any payments required under the tax receivable agreement. In addition, the BellRing LLC agreement provides that BellRing LLC will reimburse BellRing Inc. for any reasonable out-of-pocket expenses incurred on behalf of BellRing LLC, including all fees, costs and expenses of BellRing Inc. associated with being a public company and maintaining its corporate existence.

The following table shows select cash flow data, which is discussed below.

Operating Activities

Fiscal 2021 compared to 2020

Cash provided by operating activities for the year ended September 30, 2021 increased $128.9 million compared to the prior year. The increase was primarily driven by favorable working capital changes of $85.8 million, which were primarily due to fluctuations in the timing of purchases and payments of trade payables and the decrease in the current year inventory balance due to higher net sales outpacing production levels. In addition, interest payments decreased $13.1 million compared to the prior year due to lower aggregate principal amounts outstanding under the Term B Facility and Revolving Credit Facility, as well as the refinancing of the Term B Facility. These positive impacts were partially offset by restructuring costs payments of $4.7 million and increased tax payments of $1.9 million.

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Fiscal 2020 compared to 2019

Cash provided by operating activities for the year ended September 30, 2020 decreased $1.1 million compared to the prior year. The decrease was primarily driven by higher interest payments of $48.8 million due to the increase in the principal balance of our outstanding debt and incremental income tax payments of $9.8 million. These higher payments were partially offset by favorable working capital changes of $26.2 million primarily due to the build up of inventory in fiscal 2019 related to short-term supply constraints, partially offset by fluctuations in the timing of sales and collections of trade receivables and the timing of purchases and payments of trade payables.

Investing Activities

Fiscal 2021 compared to 2020

Cash used in investing activities for the year ended September 30, 2021 decreased $0.5 million compared to the prior year, resulting from a decrease in capital expenditures.

Fiscal 2020 compared to 2019

Cash used in investing activities for the year ended September 30, 2020 decreased $1.1 million compared to the prior year, resulting from a decrease in capital expenditures.

Financing Activities

Fiscal 2021

Cash used in financing activities for the year ended September 30, 2021 was $120.9 million. BellRing LLC drew an aggregate of $20.0 million under the Revolving Credit Facility, repaid $63.8 million on the principal balance of the Term B Facility and repaid $50.0 million on the Revolving Credit Facility during the year. In addition, BellRing LLC paid Post $24.6 million related to tax distributions pursuant to the BellRing LLC agreement and state tax withholdings payments on behalf of Post.

Fiscal 2020

Cash used in financing activities for the year ended September 30, 2020 was $52.6 million. BellRing LLC received proceeds of $686.0 million, net of discount, related to the issuance of the Term B Facility and drew an aggregate of $195.0 million under the Revolving Credit Facility. In addition, BellRing Inc. received $524.4 million from the issuance of its Class A Common Stock in conjunction with the IPO. BellRing LLC had net cash transfers of $32.1 million to Post which included cash deposits and borrowings prior to the IPO, tax distributions to Post pursuant to the BellRing LLC agreement and state tax withholdings payments on behalf of Post. BellRing LLC also repaid the $1,225.0 million outstanding principal balance of the Bridge Loan assumed from Post, repaid $165.0 million on the Revolving Credit Facility and repaid $26.3 million on the principal balance of the Term B Facility. In connection with the issuance of BellRing LLC’s long-term debt, BellRing LLC paid $9.6 million in debt issuance costs and deferred financing fees.

Fiscal 2019

Cash used in financing activities for the year ended September 30, 2019 was $100.2 million, which primarily related to cash transfers to and from Post. The components of net transfers included cash deposits to Post and cash borrowings received from Post used to fund operations or capital expenditures and allocations of Post’s corporate expenses.

Debt Covenants

Under the terms of the Credit Agreement, BellRing LLC is required to comply with a financial covenant requiring BellRing LLC to maintain a total net leverage ratio (as defined in the Credit Agreement) not to exceed 6.00 to 1.00, measured as of the last day of each fiscal quarter. BellRing LLC was in compliance with its financial covenant as of September 30, 2021, and we do not believe non-compliance is reasonably likely in the foreseeable future.

The Credit Agreement provides for potential incremental revolving and term facilities, and also permits BellRing LLC to incur other secured or unsecured debt, in all cases subject to conditions and limitations on the amount as specified in the Credit Agreement.

COMMODITY TRENDS

We are exposed to price fluctuations primarily from purchases of ingredients and packaging materials, transportation costs and energy. Our principal ingredients are milk-based, whey-based and soy-based proteins, protein blends, sweeteners and vitamin and mineral blends. Our principal packaging materials consist of aseptic foil and plastic lined cardboard cartons, flexible and rigid plastic film and containers, beverage packaging and corrugate. These costs have been volatile in recent years,

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and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly. We manage the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities through purchase commitments required to meet our production requirements. In addition, we attempt to offset the effect of increased costs by raising prices to our customers. However, for competitive reasons, we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them. In addition, inflationary pressures can have an adverse effect on our business through higher raw material and fuel costs. We believe that inflation has not had a material adverse impact on our operations for the years ended September 30, 2021, 2020 and 2019, but could have a material impact in the future if inflation rates were to significantly exceed our ability to achieve price increases.

CURRENCY

Certain sales and costs of our foreign operations are denominated in the Euro. Consequently, profits from these operations are impacted by fluctuations in the value of this currency relative to the U.S. Dollar.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of judgment, estimates and assumptions. We make these subjective determinations after considering our historical performance, management’s experience, current economic trends and events and information from outside sources. Inherent in this process is the possibility that actual results could differ from these estimates and assumptions for any particular period.

Prior to the IPO, our operations were conducted by and accounted for as part of the active nutrition business of Post. These historical consolidated financial statements were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting records of Post. The consolidated financial statements prior to the IPO reflect the historical results of operations, financial position and cash flows of the active nutrition business of Post and the allocation of certain Post corporate expenses relating to the active nutrition business of Post based on the historical financial statements and accounting records of Post. In the opinion of management, the assumptions underlying the historical consolidated financial statements, including the basis on which the expenses have been allocated from Post, are reasonable. However, the allocations may not reflect the expenses that BellRing Inc. may have incurred as a separate company for the periods presented.

Our significant accounting policies are described in Note 2 within “Notes to Consolidated Financial Statements.” Our critical accounting estimates are those that have a meaningful impact on the reporting of our financial condition and results of operations.

Revenue Recognition — We recognize revenue when performance obligations have been satisfied by transferring control of the goods to customers. Control is generally transferred upon delivery of the goods to the customer. At the time of delivery, the customer is invoiced using previously agreed-upon credit terms. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed fulfillment activities and are accounted for as fulfillment costs. Our contracts with customers generally contain one performance obligation.

Many of our contracts with customers include some form of variable or fixed consideration. The most common forms of variable and fixed consideration are trade promotions, rebates and discount programs. Variable consideration is treated as a reduction of revenue at the time product revenue is recognized. Methodologies for determining these provisions are dependent on specific customer pricing and promotional practices, which range from contractually fixed percentage price reductions to reimbursement based on actual occurrence or performance. We do not believe that there will be significant changes to our estimates of variable consideration when any uncertainties are resolved with customers. We review and update estimates of variable consideration each period. Uncertainties related to the estimates of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration. The majority of trade promotions are redeemed in the form of invoice credits against trade receivables.

Our products are sold with no right of return, except in the case of goods which do not meet product specifications or are damaged. No services beyond this assurance-type warranty are provided to customers. Customer remedies include either a cash refund or an exchange of the product. As a result, the right of return and related refund liability is estimated and recorded as a reduction of revenue based on historical sales return experience.

Long-Lived Assets — We review long-lived assets, including leasehold improvements, property and equipment and amortized intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell. Estimating future cash flows and calculating the fair value of assets requires significant estimates and assumptions by management. There were no indicators, including adverse trends in the business, that indicated it was more likely than not that our long-lived assets were impaired in fiscal 2021, 2020 or 2019.

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Income Tax — We estimate income tax expense based on taxes in each jurisdiction. We estimate current tax exposures together with temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These temporary differences result in deferred tax assets and liabilities. We believe that sufficient income will be generated in the future to realize the benefit of most of our deferred tax assets. Where there is not sufficient evidence that such income is likely to be generated, we establish a valuation allowance against the related deferred tax assets.

See Note 8 within “Notes to Consolidated Financial Statements” for more information about estimates affecting income taxes.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 3 within “Notes to Consolidated Financial Statements” for a discussion regarding recently issued accounting standards.