Table of Contents
As filed with the Securities and Exchange Commission on October 26,
2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
x
|
Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended October 2, 2010
or
o
|
Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the transition period from
to
.
Commission file number 001-32316
B&G FOODS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
|
|
13-3918742
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
Identification No.)
|
incorporation or
organization)
|
|
|
4
Gatehall Drive, Suite 110, Parsippany, New Jersey
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07054
|
(Address of principal
executive offices)
|
(Zip Code)
|
Registrants telephone number, including area code:
(973)
401-6500
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post
such files). Yes
o
No
o
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
o
|
|
Accelerated filer
x
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|
|
|
Non-accelerated filer
o
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|
Smaller reporting company
o
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(Do not check if a smaller
reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of October 26, 2010, the registrant had 47,635,640 shares of common
stock, par value $0.01 per share, issued and outstanding.
Table of
Contents
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
B&G Foods, Inc. and
Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per
share data)
(Unaudited)
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October 2, 2010
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January 2, 2010
|
|
|
|
|
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Assets
|
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Current
assets:
|
|
|
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Cash
and cash equivalents
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$
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87,525
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$
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39,930
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Trade
accounts receivable, less allowance for doubtful accounts and discounts of
$610 in 2010 and $631 in 2009
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31,842
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34,488
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|
Inventories
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89,355
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|
86,134
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|
Prepaid
expenses
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|
1,881
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2,523
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Income
tax receivable
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1,166
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|
864
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Deferred
income taxes
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|
1,671
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|
1,981
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Total
current assets
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213,440
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165,920
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Property,
plant and equipment, net of accumulated depreciation of $78,543 in 2010 and
$72,217 in 2009
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54,425
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53,598
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Goodwill
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253,353
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|
253,353
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Trademarks
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227,220
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227,220
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|
Customer
relationship intangibles, net
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105,030
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109,868
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|
Net
deferred debt financing costs and other assets
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9,396
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6,935
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|
Total
assets
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|
$
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862,864
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$
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816,894
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|
|
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|
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Liabilities
and Stockholders Equity
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|
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Current
liabilities:
|
|
|
|
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Trade
accounts payable
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$
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26,613
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|
$
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22,574
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Accrued
expenses
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|
18,859
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|
18,326
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|
Dividends
payable
|
|
8,098
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|
8,052
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|
Total
current liabilities
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53,570
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48,952
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|
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Long-term
debt
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477,668
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439,541
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Other
liabilities
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19,422
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|
19,265
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Deferred
income taxes
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90,548
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|
83,528
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|
Total
liabilities
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641,208
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591,286
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|
Commitments
and contingencies (Note 11)
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Stockholders
equity:
|
|
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Preferred
stock, $0.01 par value per share. Authorized 1,000,000 shares; no shares
issued or outstanding
|
|
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Common
stock, $0.01 par value per share. Authorized 125,000,000 and 100,000,000
shares; 47,635,640 and 47,367,292 issued and outstanding as of
October 2, 2010 and January 2, 2010
|
|
476
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|
474
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Additional
paid-in capital
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208,539
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231,549
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Accumulated
other comprehensive loss
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(8,422
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)
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(9,377
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)
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Retained
earnings
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|
21,063
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2,962
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|
Total
stockholders equity
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221,656
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225,608
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Total
liabilities and stockholders equity
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$
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862,864
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$
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816,894
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|
See Notes to Consolidated Financial Statements.
1
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Thirteen Weeks Ended
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|
Thirty-nine Weeks Ended
|
|
|
|
October 2,
2010
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|
October 3,
2009
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October 2,
2010
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October 3,
2009
|
|
|
|
|
|
|
|
|
|
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Net
sales
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|
$
|
125,144
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|
$
|
123,871
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$
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371,471
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|
$
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365,408
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|
Cost
of goods sold
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|
85,960
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|
87,647
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|
250,861
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253,569
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|
Gross
profit
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39,184
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|
36,224
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|
120,610
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|
111,839
|
|
|
|
|
|
|
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|
|
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Operating
expenses:
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|
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Sales,
marketing and distribution expenses
|
|
9,901
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|
10,659
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|
32,022
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|
32,575
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|
General
and administrative expenses
|
|
2,534
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|
2,936
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|
7,928
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|
7,753
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|
Amortization
expensecustomer relationships
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|
1,613
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|
1,613
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|
4,838
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|
4,838
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|
Operating
income
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|
25,136
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|
21,016
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|
75,822
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|
66,673
|
|
|
|
|
|
|
|
|
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Other
expenses:
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|
|
|
|
|
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Interest
expense, net
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|
10,335
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|
13,570
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|
31,855
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|
39,996
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|
Loss
on extinguishment of debt
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|
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|
674
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|
15,224
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|
674
|
|
Income
before income tax expense
|
|
14,801
|
|
6,772
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|
28,743
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|
26,003
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|
Income
tax expense
|
|
5,519
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|
2,611
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|
10,642
|
|
9,900
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|
Net
income
|
|
$
|
9,282
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|
$
|
4,161
|
|
18,101
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|
16,103
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|
|
|
|
|
|
|
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Weighted
average common shares outstanding:
|
|
|
|
|
|
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Basic
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47,636
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|
37,790
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|
47,563
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|
36,644
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|
Diluted
|
|
48,601
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|
37,973
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|
48,349
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|
36,644
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|
|
|
|
|
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|
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Earnings
per common share:
|
|
|
|
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|
|
|
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Basic
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|
$
|
0.19
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$
|
0.11
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|
$
|
0.38
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|
$
|
0.44
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|
Diluted
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|
$
|
0.19
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|
$
|
0.11
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|
$
|
0.37
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|
$
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0.44
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|
|
|
|
|
|
|
|
|
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|
Cash
dividends declared per common share
|
|
$
|
0.17
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|
$
|
0.17
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|
$
|
0.51
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|
$
|
0.51
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|
See Notes to Consolidated Financial Statements.
2
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
Thirty-nine Weeks Ended
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|
October 2, 2010
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October 3, 2009
|
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|
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|
Cash flows from operating activities:
|
|
|
|
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|
Net
income
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|
$
|
18,101
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|
$
|
16,103
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|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
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|
Depreciation
and amortization
|
|
11,118
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|
10,847
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|
Amortization
of deferred debt financing costs and bond discount
|
|
1,515
|
|
2,222
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|
Deferred
income taxes
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|
5,584
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|
9,295
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|
Loss
on extinguishment of debt
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15,224
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|
674
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|
Share-based
compensation expense
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|
2,413
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|
3,273
|
|
Excess
tax benefits from share-based compensation
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(330
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)
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|
Unrealized
loss (gain) on interest rate swap
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1,820
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(108
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)
|
Reclassification
to net interest expense for interest rate swap
|
|
1,270
|
|
1,270
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|
Changes
in assets and liabilities:
|
|
|
|
|
|
Trade
accounts receivable
|
|
2,646
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|
2,699
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|
Inventories
|
|
(3,221
|
)
|
(14,655
|
)
|
Prepaid
expenses
|
|
642
|
|
391
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|
Income
tax receivable
|
|
1,188
|
|
199
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|
Other
assets
|
|
(16
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)
|
(198
|
)
|
Trade
accounts payable
|
|
4,039
|
|
3,750
|
|
Accrued
expenses
|
|
533
|
|
(1,260
|
)
|
Other
liabilities
|
|
(1,385
|
)
|
(201
|
)
|
Net
cash provided by operating activities
|
|
61,141
|
|
34,301
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Capital
expenditures
|
|
(7,082
|
)
|
(7,943
|
)
|
Net
cash used in investing activities
|
|
(7,082
|
)
|
(7,943
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Payments
for repurchase of long-term debt
|
|
(320,259
|
)
|
(6,635
|
)
|
Proceeds
from issuance of long-term debt
|
|
347,448
|
|
|
|
Payments
for repurchase of common stock
|
|
|
|
(2,334
|
)
|
Proceeds
from issuance of common stock, net
|
|
|
|
86,612
|
|
Dividends
paid
|
|
(24,245
|
)
|
(18,388
|
)
|
Excess
tax benefits from share-based compensation
|
|
330
|
|
|
|
Payments
of tax withholding on behalf of employees for net share settlement of
share-based compensation
|
|
(1,460
|
)
|
|
|
Payments
of debt financing costs
|
|
(8,246
|
)
|
(668
|
)
|
Net
cash (used in) provided by financing activities
|
|
(6,432
|
)
|
58,587
|
|
|
|
|
|
|
|
Effect
of exchange rate fluctuations on cash and cash equivalents
|
|
(32
|
)
|
124
|
|
Net
increase in cash and cash equivalents
|
|
47,595
|
|
85,069
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
39,930
|
|
32,559
|
|
Cash
and cash equivalents at end of period
|
|
$
|
87,525
|
|
$
|
117,628
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Cash
interest payments
|
|
$
|
27,945
|
|
$
|
41,864
|
|
Cash
income tax payments
|
|
$
|
3,909
|
|
$
|
1,602
|
|
Cash
income tax refunds
|
|
$
|
(2
|
)
|
$
|
(1,179
|
)
|
Non-cash
transactions:
|
|
|
|
|
|
Dividends
declared and not yet paid
|
|
$
|
8,098
|
|
$
|
8,052
|
|
See Notes to Consolidated Financial Statements.
3
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to Consolidated Financial
Statements
(Unaudited)
(1)
Nature of Operations
B&G Foods, Inc. is a
holding company, the principal assets of which are the capital stock of its
subsidiaries. Unless the context
requires otherwise, references in this report to B&G Foods, our company,
we, us and our refer to B&G Foods, Inc. and its
subsidiaries. We operate in one industry
segment and manufacture, sell and distribute a diverse portfolio of
high-quality shelf-stable foods across the United States, Canada and Puerto
Rico. Our products are marketed under
many recognized brands, including
Accent,
B&G, B&M, Brer Rabbit, Cream of Rice, Cream of Wheat, Emerils,
Grandmas Molasses, Joan of Arc, Las Palmas,
Maple Grove Farms of Vermont, Ortega, Polaner, Red Devil,
Regina, Sa-són, Trappeys, Underwood, Vermont
Maid
and
Wrights.
Our products include hot
cereals, fruit spreads, canned meats and beans, spices, seasonings, marinades,
hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style
sauces, taco shells and kits, salsas, pickles, peppers and other specialty food
products. We compete in the retail
grocery, food service, specialty, private label, club and mass merchandiser
channels of distribution. We distribute
our products throughout the United States via a nationwide network of
independent brokers and distributors to supermarket chains, food service
outlets, mass merchants, warehouse clubs, non-food outlets and specialty food
distributors.
(2)
Summary
of Significant Accounting Policies
Fiscal Year
Our financial statements are
presented on a consolidated basis.
Typically, our fiscal quarters and fiscal year consist of 13 and 52
weeks, respectively, ending on the Saturday closest to December 31 in the
case of our fiscal year and fourth fiscal quarter, and on the Saturday closest
to the end of the corresponding calendar quarter in the case of our fiscal
quarters. As a result, a 53rd week is
added to our fiscal year every five or six years. In a 53-week fiscal year our fourth fiscal quarter
contains 14 weeks. Our fiscal years
ending January 1, 2011 (fiscal 2010) and January 2, 2010 (fiscal
2009) each contain 52 weeks. Each
quarter of fiscal 2010 and 2009 contains 13 weeks.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements
for the thirteen and thirty-nine week periods ended October 2, 2010 (third
quarter of 2010 and first three quarters of 2010) and October 3, 2009
(third quarter of 2009 and first three quarters of 2009) have been prepared by
our company in accordance with accounting principles generally accepted in the
United States of America pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC), and
include
the accounts of B&G Foods, Inc. and its subsidiaries. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such rules and
regulations. However, our management
believes, to the best of their knowledge, that the disclosures herein are
adequate to make the information presented not misleading. All intercompany balances and
transactions have been eliminated. The
accompanying unaudited consolidated interim financial statements contain all
adjustments (consisting only of normal and recurring adjustments) that are, in
the opinion of management, necessary to present fairly our consolidated
financial position as of October 2, 2010, the results of our operations
for the third quarter and first three quarters of 2010 and 2009, and cash flows
for the first three quarters of 2010 and 2009.
Our results of operations for the third quarter and first three quarters
of 2010 are not necessarily indicative of the results to be expected for the
full year. We have evaluated subsequent
events for disclosure through the date of issuance of the accompanying
unaudited consolidated interim financial statements. The accompanying unaudited consolidated
interim financial statements should be read in conjunction with the audited
consolidated financial statements and notes for fiscal 2009 included in our
Annual Report on Form 10-K for fiscal 2009 filed with the SEC on March 1,
2010.
4
Table of
Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(2)
Summary of Significant Accounting Policies
(Continued)
Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the Unites States of America requires our
management to make a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates and
assumptions made by management involve trade and consumer promotion expenses;
allowances for excess, obsolete and unsaleable inventories; pension benefits;
the recoverability of goodwill, trademarks, customer relationship intangibles,
property, plant and equipment and deferred tax assets;
and the accounting for share-based compensation expense. Actual results could differ significantly
from these estimates and assumptions.
Management evaluates its estimates
and assumptions on an ongoing basis using historical experience and other
factors that management believe to be reasonable under the circumstances, including
the current economic environment. We
adjust such estimates and assumptions when facts and circumstances
dictate. Recent volatility in the credit
and equity markets has increased the uncertainty inherent in certain of these
estimates and assumptions.
Recently Issued Accounting Standards
There have been no significant
developments to recently issued accounting standards, including the expected
dates of adoption and estimated effects on our consolidated financial
statements, from those disclosed in our 2009 Annual Report on Form 10-K.
(3)
Inventories
Inventories are stated at the lower
of cost or market and include direct material, direct labor, overhead,
warehousing and product transfer costs.
Cost is determined using the first-in, first-out and average cost
methods. Inventories have been reduced
by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on our
managements review of inventories on hand compared to estimated future usage
and sales.
Inventories consist of the
following, as of the dates indicated (dollars in thousands):
|
|
October 2, 2010
|
|
January 2, 2010
|
|
Raw
materials and packaging
|
|
$
|
31,182
|
|
$
|
32,793
|
|
Work
in process
|
|
527
|
|
1,239
|
|
Finished
goods
|
|
57,646
|
|
52,102
|
|
|
|
|
|
|
|
Total
|
|
$
|
89,355
|
|
$
|
86,134
|
|
(4)
Goodwill, Trademarks and Customer
Relationship Intangibles
There has been no change in the carrying amount of goodwill or
trademarks (indefinite-lived intangibles) during the first three quarters of
2010.
The following table reconciles the changes in the carrying amount of
customer relationship intangibles for the first three quarters of 2010 (dollars
in thousands):
5
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(4)
Goodwill, Trademarks and Customer
Relationship Intangibles (Continued)
|
|
Customer
Relationship
Intangibles
|
|
Less:
Accumulated
Amortization
|
|
Total
|
|
Balance
at January 2, 2010
|
|
$
|
129,000
|
|
$
|
(19,132
|
)
|
$
|
109,868
|
|
Amortization
expense
|
|
|
|
(4,838
|
)
|
(4,838
|
)
|
Balance
at October 2, 2010
|
|
$
|
129,000
|
|
$
|
(23,970
|
)
|
$
|
105,030
|
|
Customer relationship intangibles are presented at cost, net of accumulated
amortization, and are amortized on a straight-line basis over their estimated
useful lives of 20 years. Amortization
expense associated with customer relationship intangibles for each of the third
quarter and first three quarters of 2010 and 2009 was $1.6 million and $4.8
million, respectively, and is recorded in operating expenses. We expect to recognize an additional $1.7
million of amortization expense associated with our current customer
relationship intangibles during the remainder of fiscal 2010, and thereafter
$6.5 million per year for each of the next four succeeding fiscal years.
(5)
Long-term Debt
Long-term debt consists of the
following, as of the dates indicated (dollars in thousands):
|
|
October 2, 2010
|
|
January 2, 2010
|
|
Senior
secured credit facility:
|
|
|
|
|
|
Revolving
credit facility
|
|
$
|
|
|
$
|
|
|
Term
loan
|
|
130,000
|
|
130,000
|
|
7.625%
Senior Notes due 2018, net of unamortized discount of $2,332 at
October 2, 2010
|
|
347,668
|
|
|
|
12%
Senior Subordinated Notes due 2016
|
|
|
|
69,541
|
|
8% Senior
Notes due 2011
|
|
|
|
240,000
|
|
Total
long-term debt
|
|
$
|
477,668
|
|
$
|
439,541
|
|
As of October 2, 2010, the
aggregate contractual maturities of long-term debt are as follows (dollars in
thousands):
Years
ending December:
|
|
|
|
2010
|
|
$
|
|
|
2011
|
|
|
|
2012
|
|
|
|
2013
|
|
130,000
|
|
2014
|
|
|
|
Thereafter
|
|
350,000
|
|
Total
|
|
$
|
480,000
|
|
Senior Secured Credit Facility
. As amended, our
$25.0 million revolving credit facility and our $130.0 million of term loan
borrowings mature in February 2013.
The following discussion of the credit
6
Table of
Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(5)
Long-term Debt
(Continued)
facility describes the credit facility
as amended through the date of issuance of the accompanying unaudited interim
consolidated financial statements.
Interest under the revolving credit
facility, including any outstanding letters of credit, is determined based on
alternative rates that we may choose in accordance with the revolving credit
facility, including the base lending rate per annum plus an applicable margin
of 2.00%, and LIBOR plus an applicable margin of 3.00%. We pay a commitment fee of 0.50% per annum on
the unused portion of the revolving credit facility. Interest under the term loan facility is
determined based on alternative rates that we may choose in accordance with the
credit facility, including the base lending rate per annum plus an applicable
margin of 1.00%, and LIBOR plus an applicable margin of 2.00%.
Our obligations under the credit
facility are jointly and severally and fully and unconditionally guaranteed on
a senior basis by all of our existing and certain future domestic
subsidiaries. The credit facility is
secured by substantially all of our and our domestic subsidiaries assets
except our and our domestic subsidiaries real property. The credit facility provides for mandatory
prepayment upon certain asset dispositions and issuances of securities, as defined. The credit facility contains covenants that
restrict, among other things, our ability to incur additional indebtedness, pay
dividends and create certain liens. The
credit facility also contains certain financial maintenance covenants, which,
among other things, specify maximum capital expenditure limits, a minimum
interest coverage ratio and a maximum senior and total leverage ratio, each
ratio as defined. As of October 2,
2010, we were in compliance with all of the covenants in the credit facility. Proceeds of the revolving credit facility are
restricted to funding our working capital requirements, capital expenditures
and acquisitions of companies in the same or a similar line of business as our
company, subject to specified criteria.
The maximum letter of credit capacity under the revolving credit
facility is $10.0 million, with a fronting fee of 3.0% per annum for all
outstanding letters of credit.
At October 2, 2010, the
available borrowing capacity under our revolving credit facility, net of
outstanding letters of credit of $0.5 million, was $24.5 million. We have not drawn upon the revolving credit
facility since its inception in October 2004 and, based upon our cash and
cash equivalents on hand and working capital requirements, we have no plans to
do so for the foreseeable future.
Effective as of February 26,
2007, we entered into a six year interest rate swap agreement in order to
effectively fix at 7.0925% the interest rate payable for $130.0 million of term
loan borrowings through the life of the term loan, ending on February 26,
2013. The counterparty to the swap is
Lehman Special Financing Inc. (Lehman SFI) and the counterpartys guarantor is
Lehman Brothers Holdings Inc. (Lehman).
On September 15, 2008, Lehman filed for protection under Chapter 11
of the U.S. Bankruptcy Code. Lehman SFI
filed for protection under Chapter 11 of the U.S. Bankruptcy Code on October 3,
2008.
We initially designated the swap as
a cash flow hedge. Prior to Lehmans
bankruptcy filing, we recorded changes in the fair value of the swap in
accumulated other comprehensive loss, net of tax in our consolidated balance
sheet. However, as a result of the
Lehman bankruptcy filing, we determined in September 2008 that the
interest rate swap was no longer an effective hedge for accounting
purposes. Accordingly, subsequent to
that determination, we record changes in the swaps fair value in current
earnings in net interest expense in our consolidated statements of
operations. We obtain third-party
verification of the fair value at the end of each reporting period. As of October 2, 2010, the fair value of
our interest rate swap was an unrealized loss of $13.4 million and is recorded
in other liabilities on our consolidated balance sheet. The amount recorded in accumulated other
comprehensive loss will be reclassified to net interest expense over the
remaining life of the term loan borrowings as we make interest payments. Net interest expense in the third quarter and
first three quarters of 2010 includes a charge of $0.5 million and $1.8
million, respectively, relating to the unrealized loss on our interest rate
swap and a reclassification of $0.4 million and $1.3 million,
7
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(5)
Long-term Debt
(Continued)
respectively, of the amount recorded
in accumulated other comprehensive loss related to the swap. Net interest in the third quarter and first
three quarters of 2010 also includes a reduction in interest income primarily
due to lower interest rates. As of October 2,
2010, we expect to reclassify $4.1 million to net interest expense during the
remainder of the life of the swap, with $1.7 million being reclassified in the
next twelve months.
7.625% Senior Notes due 2018
. In January 2010,
we issued $350.0 million aggregate principal amount of 7.625% senior notes due
2018 at a public offering price of 99.271% of face value. The original issue discount of $2.6 million
will be amortized over the life of the notes as interest expense. Interest on the senior notes is payable on January 15
and July 15 of each year. The
senior notes will mature on January 15, 2018, unless earlier retired or
redeemed as described below.
On or after January 15, 2014,
we may redeem some or all of the senior notes at a redemption price of 103.813%
beginning January 15, 2014 and thereafter at prices declining annually to
100% on or after January 15, 2017.
We may redeem up to 35% of the aggregate principal amount of the notes
prior to January 15, 2013 with the net proceeds from certain equity
offerings. We may also redeem some or
all of the notes at any time prior to January 15, 2014 at a redemption
price equal to a specified make-whole amount.
In addition, if we undergo a change of control, we may be required to
offer to repurchase the notes at the repurchase price of 101% plus accrued and
unpaid interest to the date of redemption.
We may also, from time to time, seek
to retire senior notes through cash repurchases of senior notes and/or
exchanges of senior notes for equity securities, in open market purchases,
privately negotiated transactions or otherwise.
Such repurchases or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be
material.
Our obligations under the senior
notes are jointly and severally and fully and unconditionally guaranteed on a
senior basis by all of our existing and certain future domestic
subsidiaries. The senior notes and the
subsidiary guarantees are our and the guarantors general unsecured obligations
and are effectively junior in right of payment to all of our and the guarantors
secured indebtedness and to the indebtedness and other liabilities of our
non-guarantor subsidiaries; are
pari passu
in
right of payment to all of our and the guarantors existing and future
unsecured senior debt; and are senior in right of payment to all of our and the
guarantors future subordinated debt.
Our foreign subsidiary is not a guarantor, and any future foreign or
partially owned domestic subsidiaries will not be guarantors, of our senior
notes.
Our senior notes indenture contains
covenants with respect to us and the guarantors and restricts the incurrence of
additional indebtedness and the issuance of capital stock; the payment of
dividends or distributions on, and redemption of, capital stock; a number of
other restricted payments, including certain investments; specified creation of
liens, certain sale-leaseback transactions and sale of certain specified
assets; fundamental changes, including consolidation, mergers and transfers of
all or substantially all of our assets; and specified transactions with
affiliates. Each of the covenants is
subject to a number of important exceptions and qualifications. As of October 2, 2010, we were in
compliance with all of the covenants in the senior notes indenture.
12% Senior Subordinated Notes due
2016
. During the third quarter and first three
quarters of 2009, we repurchased $6.3 million principal amount of our senior
subordinated notes for $6.6 million plus accrued and unpaid interest. In January 2010, we repurchased $44.7
million aggregate principal amount of the senior subordinated notes with a
portion of the proceeds of our public offering of 7.625% senior notes due 2018
at a repurchase price of 106.5% of such principal amount plus accrued and
unpaid interest, and set aside sufficient proceeds of the offering to
repurchase or redeem the remaining senior subordinated notes. In February 2010,
8
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(5)
Long-term Debt
(Continued)
we repurchased or redeemed the
remaining $24.8 million aggregate principal amount of the senior subordinated
notes at a price equal to 106.0% of such principal amount, plus accrued and
unpaid interest.
8% Senior Notes due 2011.
In
January 2010, we repurchased $238.9 million aggregate principal amount of
the 8% senior notes with a portion of the proceeds of our public offering of
7.625% senior notes due 2018 at a repurchase price of 102.375% of such
principal amount plus accrued and unpaid interest, and set aside sufficient
proceeds of the offering to repurchase or redeem the remaining 8% senior
notes. In February 2010, we
repurchased or redeemed the remaining $1.1 million aggregate principal amount
of the 8% senior notes at a price equal to 102.0% of such principal amount,
plus accrued and unpaid interest.
Subsidiary Guarantees
. We have no assets
or operations independent of our direct and indirect subsidiaries. All of our present domestic subsidiaries
jointly and severally and fully and unconditionally guarantee our long-term
debt, and management has determined that our Canadian subsidiary, which is our
only subsidiary that is not a guarantor of our long-term debt, is a minor
subsidiary as that term is used in Rule 3-10 of Regulation S-X
promulgated by the SEC. There are no
significant restrictions on our ability and the ability of our subsidiaries to
obtain funds from our respective subsidiaries by dividend or loan. Consequently, separate financial statements
have not been presented for our subsidiaries because management has determined
that they would not be material to investors.
Deferred Debt Financing Costs
. In connection with
the issuance of our 7.625% senior notes in January 2010, we capitalized
approximately $8.2 million of debt financing costs during the first quarter of
2010, which will be amortized over the term of the senior notes. During the first quarter of 2010, we
wrote-off and expensed $4.5 million of deferred debt financing costs relating
to the retirement during the quarter of our remaining $69.5 million principal
amount of 12% senior subordinated notes and $240.0 million principal amount of
8% senior notes. As of October 2,
2010 and January 2, 2010 we had net deferred debt financing costs of $9.1
million and $6.7 million, respectively.
In connection with the retirement of
our remaining 8% senior notes and 12% senior subordinated notes, we incurred a
loss on extinguishment of debt of approximately $15.2 million during the first
quarter of fiscal 2010, including the repurchase premium and other expenses of
$10.7 million and a write-off and expense of $4.5 million of deferred debt
financing costs.
At October 2, 2010 and January 2,
2010 accrued interest of $6.6 million and $7.3 million, respectively, is
included in accrued expenses in the accompanying consolidated balance sheets.
(6)
Fair Value Measurements
The authoritative accounting
literature relating to fair value measurements defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (an
exit price). The accounting literature outlines a valuation framework and
creates a fair value hierarchy in order to increase the consistency and
comparability of fair value measurements and the related disclosures. Under
generally accepted accounting principles, certain assets and liabilities must
be measured at fair value, and the accounting literature details the
disclosures that are required for items measured at fair value.
Financial assets and liabilities
are measured using inputs from the three levels of the fair value hierarchy
under the accounting literature. The three levels are as follows:
Level 1Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities.
9
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(6)
Fair Value Measurements (Continued)
Level 2I
nputs, other than quoted market prices included within Level
1, that are observable for the asset or liability, either directly or
indirectly. We use a discounted cash
flow analysis of the implied yield curves to value our interest rate swap. We
also consider our credit risk and counterparty credit risk in estimating the
fair value of our interest rate swap. While these inputs are observable, they
are not all quoted market prices, so the fair values of our interest rate swap
fall in Level 2.
Level 3Unobservable inputs that
reflect our assumptions about the assumptions that market participants would
use in pricing the asset or liability.
In accordance with the fair value
hierarchy described above, the following table shows the fair value of our
interest rate swap as of October 2, 2010 and January 2, 2010, which
is included in other liabilities in our consolidated balance sheet (dollars in
thousands):
|
|
|
|
Fair Value Measurements
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
October 2,
2010
|
|
Interest rate swap
|
|
$
|
|
|
$
|
13,396
|
|
$
|
|
|
January 2,
2010
|
|
Interest rate swap
|
|
$
|
|
|
$
|
11,576
|
|
$
|
|
|
Cash and cash equivalents, trade
accounts receivable, income tax receivable, trade accounts payable, accrued
expenses and dividends payable are reflected in the consolidated balance sheets
at carrying value, which approximates fair value due to the short-term nature
of these instruments.
The carrying values and fair values
of our term loan borrowings, senior notes and senior subordinated notes as of October 2,
2010 and January 2, 2010 are as follows (dollars in thousands):
|
|
October 2, 2010
|
|
January 2, 2010
|
|
|
|
Carrying Value
|
|
Fair Value(1)
|
|
Carrying Value
|
|
Fair Value(1)
|
|
Senior
Secured Term Loan due 2013
|
|
$
|
130,000
|
|
$
|
129,025
|
|
$
|
130,000
|
|
$
|
127,400
|
|
8%
Senior Notes due 2011
|
|
|
|
|
|
240,000
|
|
243,000
|
|
7.625%
Senior Notes due 2018
|
|
347,668
|
(2)
|
364,875
|
|
|
|
|
|
12%
Senior Subordinated Notes due 2016
|
|
|
|
|
|
69,541
|
|
69,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Fair values are estimated based on quoted market prices.
(2)
The carrying value of the 7.625% senior notes is net of
discount.
Our term loan borrowings are subject
to an interest rate swap discussed in Notes 5 and 7.
(7)
Disclosures about Derivative
Instruments and Hedging Activities
We recognize all derivative
instruments either as an asset or a liability on our balance sheet and measure
such instruments at fair value. We do
not engage in derivative instruments for trading purposes.
The following table presents the
fair value and the location within our consolidated balance sheets of all
assets and liabilities associated with derivative instruments not designated as
hedging instruments for accounting purposes (dollars in thousands):
10
Table of
Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(7)
Disclosures about Derivative
Instruments and Hedging Activities (Continued)
Derivatives not
|
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
designated as hedging
instruments
|
|
Balance Sheet
Location
|
|
Fair Value at
October 2, 2010
|
|
Fair Value at
October 2, 2010
|
|
Fair Value at
January 2, 2010
|
|
Fair Value at
January 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap
|
|
Other liabilities
|
|
|
|
$
|
13,396
|
|
|
|
$
|
11,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes 5 and 6 for additional
information regarding our interest rate swap.
We do not currently have any derivatives designated as hedging
instruments.
The following tables present the impact
of derivative instruments and their location within our consolidated statements
of operations (dollars in thousands):
Derivatives not
|
|
Amount of (Gain)
Loss Recognized in
Income on Derivatives
|
|
Amount of (Gain)
Loss Recognized in
Income on Derivatives
|
|
Amount of (Gain)
Loss Recognized in
Income on Derivatives
|
|
Amount of (Gain)
Loss Recognized in
Income on Derivatives
|
|
Location of (Gain)
Loss Recognized
|
|
designated as
hedging instruments
|
|
Thirteen Weeks
Ended October 2, 2010
|
|
Thirteen Weeks
Ended October 3, 2009
|
|
Thirty-nine Weeks
Ended October 2, 2010
|
|
Thirty-nine Weeks
Ended October 3, 2009
|
|
in Income on
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
894
|
*
|
$
|
1,055
|
*
|
$
|
3,090
|
*
|
$
|
1,162
|
*
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
The amount included in net interest expense for the
third quarter and first three quarters of 2010 consists of $471 and $1,820
unrealized loss on our interest rate swap, and $423 and $1,270 (pre-tax)
reclassified to net interest expense from accumulated other comprehensive loss,
respectively. The amount included in net
interest expense for the third quarter and first three quarters of 2009
consists of $631 unrealized loss and $108 unrealized gain on our interest rate
swap, and $424 and $1,270 (pre-tax) reclassified to net interest expense from
accumulated other comprehensive income, respectively.
(8)
Comprehensive Income
Comprehensive income includes net
income, foreign currency translation adjustments relating to assets and
liabilities located in our Canadian subsidiary, changes in our pension
benefits, net of tax and the change in the fair value of an interest rate swap
during the period it was designated as an effective cash flow hedge, net of
tax. The amount recorded in accumulated
other comprehensive loss related to the swap will be reclassified to net
interest expense over the remaining life of the term loan as we make interest
payments.
The components of comprehensive
income are as follows (dollars in thousands):
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
|
|
October 2,
2010
|
|
October 3,
2009
|
|
October 2,
2010
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,282
|
|
$
|
4,161
|
|
$
|
18,101
|
|
$
|
16,103
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
(6
|
)
|
270
|
|
(7
|
)
|
193
|
|
Amortization
of unrecognized prior service cost and pension deferrals, net of tax
|
|
49
|
|
134
|
|
173
|
|
355
|
|
Reclassification
to net interest expense for interest rate swap, net of tax
|
|
263
|
|
263
|
|
789
|
|
788
|
|
Comprehensive
income
|
|
$
|
9,588
|
|
$
|
4,828
|
|
$
|
19,056
|
|
$
|
17,439
|
|
11
Table of
Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(9)
Capital Stock
Authorized Common Stock.
During
the third quarter of 2010, we amended our certificate of incorporation to (1) rename
our Class A common stock simply as common stock, (2) eliminate our
25,000,000 authorized shares of Class B common stock, none of which were
then outstanding, and (3) increase our authorized shares of common stock
from 100 million to 125 million.
Common Stock Repurchases.
We
did not repurchase any shares of common stock during the first three quarters
of fiscal 2010 or during the third quarter of 2009. During the first three quarters of 2009 we
repurchased and retired 403,500 shares of common stock at an average cost per
share (excluding fees and commissions) of $5.76, or $2.3 million in the
aggregate. Our stock repurchase program
expired pursuant to its terms during the third quarter of 2010.
(10)
Pension Benefits
Net pension costs for the third
quarter and first three quarters of 2010 and 2009 include the following
components (dollars in thousands):
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
|
|
October 2,
2010
|
|
October 3,
2009
|
|
October 2,
2010
|
|
October 3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Service
costbenefits earned during the period
|
|
$
|
352
|
|
$
|
411
|
|
$
|
1,145
|
|
$
|
1,249
|
|
Interest
cost on projected benefit obligation
|
|
443
|
|
461
|
|
1,374
|
|
1,323
|
|
Expected
return on plan assets
|
|
(521
|
)
|
(355
|
)
|
(1,530
|
)
|
(1,107
|
)
|
Amortization
of unrecognized prior service cost
|
|
11
|
|
11
|
|
33
|
|
33
|
|
Amortization
of loss
|
|
67
|
|
205
|
|
245
|
|
539
|
|
Net
pension cost
|
|
$
|
352
|
|
$
|
733
|
|
$
|
1,267
|
|
$
|
2,037
|
|
During the first three quarters of
2010, we made approximately $2.6 million of contributions to our defined
benefit pension plans, half of which was made in each of the first two quarters
of 2010. We do not expect to make any
contributions to our defined benefit pension plans during the remainder of
fiscal 2010.
(11)
Commitments and Contingencies
Environmental.
We
are subject to environmental laws and regulations in the normal course of
business. We did not make any material
expenditures during the third quarter or first three quarters of 2010 or 2009
in order to comply with environmental laws and regulations. Based on our experience to date, management
believes that the future cost of compliance with existing environmental laws
and regulations (and liability for any known environmental conditions) will not
have a material adverse effect on our consolidated financial position, results
of operations or liquidity. However, we
cannot predict what environmental or health
12
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(11)
Commitments and Contingencies (Continued)
and safety legislation or
regulations will be enacted in the future or how existing or future laws or
regulations will be enforced, administered or interpreted, nor can we predict
the amount of future expenditures that may be required in order to comply with
such environmental or health and safety laws or regulations or to respond to
such environmental claims.
Legal Proceedings.
We
are from time to time involved in various claims and legal actions arising in
the ordinary course of business, including proceedings involving product
liability claims, workers compensation and other employee claims, and tort and
other general liability claims, as well as trademark, copyright, patent
infringement and related claims and legal actions. In the opinion of our management, the ultimate
disposition of any currently pending claims or actions will not have a material
adverse effect on our consolidated financial position, results of operations or
liquidity.
In April 2008, the U.S.
Government informed us that it was investigating SK Foods, LP, then one of our
suppliers. The Government believed, and
subsequent plea agreements confirmed, that SK Foods, together with a broker
acting at the direction of certain SK Foods executives, was bribing purchasing
managers at several large food companies, including, among others, Frito Lay,
Kraft and B&G Foods. As a result of the investigation, several senior
executives at SK Foods have pleaded guilty to various criminal charges,
including conspiracy to commit honest services fraud through bribery, resulting
in the sale of products at inflated prices and the fraudulent labeling of such
products. In addition, the former owner
and president of SK Foods has been charged with violations of the Racketeer
Influenced and Corrupt Organizations Act (RICO), wire fraud, obstruction of
justice, and conspiracy to fix prices and rig bids in violation of the Sherman
Antitrust Act, and is currently under house arrest pending trial. As a result of SK Foods criminal and civil
misconduct and numerous material breaches of a Co-Pack Agreement between
B&G Foods and SK Foods, B&G Foods terminated the Co-Pack Agreement in April 2009. On May 7, 2009, SK Foods filed a
voluntary petition for relief under chapter 11 of the United States Bankruptcy
Code. In September 2009, B&G
Foods filed proofs of claim in SK Foods bankruptcy cases to
assert substantial damage claims against SK Foods and its affiliates
for, among other things, fraud, breach of contract, indemnity, RICO and
antitrust violations, and to preserve offset and recoupment rights for
such claims against any amounts allegedly owing to SK Foods or its affiliates
and certain other claims against SK Foods and its affiliates. On March 24, 2010, the bankruptcy trustee
in the bankruptcy proceedings involving SK Foods filed an adversary proceeding
against our company alleging, among other things, breach of contract, avoidance
of setoff, violation of the automatic stay, goods sold and delivered, objection
to claims and equitable subordination and asserting damages of approximately
$16.0 million. B&G Foods answered
the complaint denying the bankruptcy trustees allegations against B&G
Foods as being without merit and we are vigorously defending against the
trustees action. In addition, B&G
Foods filed a counterclaim alleging, among other things, breach of multiple
contracts, breach of express indemnity, breach of warranties, fraudulent
inducement, negligent and intentional misrepresentation, violations of the
Sherman Antitrust Act, violations of the Robinson-Patman Act, violations of
Californias Cartwright Act, violations of Californias Unfair Practices Act,
violations of Californias Unfair Competition Law, RICO violations, account
stated and recoupment. During the third
quarter of 2010, to avoid expense and the uncertainly of litigation, we entered
into a settlement agreement with the bankruptcy trustee and the Bank of
Montreal, the agent for SK Foods secured lenders, pursuant to which we have
agreed to pay the Bank of Montreal, on behalf of the secured lenders, $1.6
million in exchange for a mutual release pursuant to which the bankruptcy
trustee and the Bank of Montreal (as agent for the secured lenders), on the one
hand, and B&G Foods, on the other, will release each other from all claims and
counter-claims related to the adversary proceeding and B&G Foods proofs of
claim in SK Foods bankruptcy cases. The
settlement remains subject to approval by the bankruptcy court. If approved, we expect to record a gain of
approximately $1.3 million related to the settlement during the fourth quarter
of 2010, resulting from the write-off of $3.1 million of accounts payable on
our books relating to SK Foods, partially offset by the $1.6 million settlement
payment and approximately $0.2 million of related expenses. There can be no assurance, however, that the
settlement agreement will be approved by the bankruptcy court.
Collective Bargaining Agreements
. As of October 2,
2010, approximately 340 of our 719 employees, or 47.3%, were covered by
collective bargaining agreements, of which 162 were covered by collective
13
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(11)
Commitments and Contingencies (Continued)
bargaining agreements expiring
within the next 12 months. Our
collective bargaining agreement with the Drivers, Salesmen, Warehousemen, Milk
Processors, Cannery, Dairy Employees and Helpers Union (Local No. 695)
that covers are Stoughton, Wisconsin employees is scheduled to expire on March 31,
2011. We expect to begin negotiations
for a new collective bargaining agreement for our Stoughton, Wisconsin
employees during the first quarter of 2011. While we believe that our
relations with our union employees are good, we cannot assure you that we will
be able to negotiate the Stoughton, Wisconsin collective bargaining agreement
on terms satisfactory to us, or at all, and without production interruptions,
including labor stoppages. At this time, however, management does not
expect that the outcome of these negotiations will have a material adverse impact
on our business, financial condition or results of operations.
Severance and Change of Control
Agreements.
We have employment agreements with each of our six executive
officers. The agreements generally
continue until terminated by the executive or by us, and provide for severance
payments under certain circumstances, including termination by us without cause
(as defined) or as a result of the employees disability, or termination by us
or a deemed termination upon a change of control (as defined). Severance benefits include payments for
salary continuation, continuation of health care and insurance benefits,
present value of additional pension credits and, in the case of a change of
control, accelerated vesting under compensation plans and potential excise tax
liability and gross up payments.
(12)
Earnings per Share
Basic earnings per share for our
common stock is calculated by dividing net income by the weighted average
number of shares of common stock outstanding.
Diluted earnings per share for the common stock is calculated by
dividing net income by the weighted average number of shares of common stock
outstanding plus all additional common shares that would have been outstanding
if potentially dilutive common shares related to performance shares that may be
earned under long-term incentive awards had been issued as of the beginning of
the period using the treasury stock method.
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
|
|
October 2,
2010
|
|
October 3,
2009
|
|
October 2,
2010
|
|
October 3,
2009
|
|
|
|
(Shares in thousands)
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
47,636
|
|
37,790
|
|
47,563
|
|
36,644
|
|
Net
effect of dilutive share-based compensation awards
|
|
965
|
|
183
|
|
786
|
|
|
|
Diluted
|
|
48,601
|
|
37,973
|
|
48,349
|
|
36,444
|
|
(13)
Business and Credit Concentrations
and Geographic Information
Our exposure to credit loss in the
event of non-payment of accounts receivable by customers is estimated in the
amount of the allowance for doubtful accounts.
We perform ongoing credit evaluations of our customers financial
conditions. Our top ten customers
accounted for approximately 50.1% of consolidated net sales for the first three
quarters of 2010 and 2009. Our top ten
customers accounted for approximately 48.8% and 52.7% of our receivables as of October 2,
2010 and January 2, 2010, respectively.
Other than Wal-Mart, which accounted for 16.1% and 15.9% of our
consolidated net sales for the first three quarters of 2010 and 2009,
respectively, no single customer accounted for more than 10.0% of our
consolidated net sales for the first three quarters of 2010 or 2009. Other than Wal-Mart, which accounted for
13.5% of our consolidated receivables as of October 2, 2010, no single
customer accounted for more than 10.0% of our consolidated receivables as of
the end of the first three quarters of 2010.
Other than Wal-Mart and C&S Wholesale
14
Table of Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(13)
Business and Credit Concentrations
and Geographic Information (Continued)
Grocery, which accounted for 12.5%
and 11.1% of our consolidated receivables, respectively, as of January 2,
2010, no single customer accounted for more than 10.0% of our consolidated
receivables as of the end of fiscal 2009.
During the first three quarters
of 2010 and 2009, our sales to foreign countries represented less than 1.0% of net
sales. Our foreign sales are primarily
to customers in Canada.
(14)
Share-Based Compensation
Beginning in fiscal 2008, our
compensation committee has made annual grants of performance share long-term
incentive awards (LTIAs) to our executive officers and certain other members of
senior management under the 2008 Omnibus Incentive Compensation Plan. The LTIAs entitle the participant to earn
shares of common stock upon the attainment of certain performance goals over
the applicable performance period. The
LTIAs, each have a threshold, target and maximum payout. The awards are settled based upon our
performance over the applicable performance period. For the LTIAs granted to date, the applicable
performance metric is and has been excess cash (as defined in the award
agreements). If our performance fails to
meet the performance threshold, then the awards will not vest and no shares
will be issued pursuant to the awards.
If our performance meets or exceeds the performance threshold, then a
varying amount of shares from the threshold amount (50% of the target number of
shares) up to the maximum amount (300% of the target number of shares) may be
earned. No shares are earned if the
performance threshold is not met.
Based on the actual results of our company
for the 2008 to 2009 performance period, 399,842 shares of common stock were
earned under the 2008 to 2009 LTIAs.
During the first quarter of 2010, 251,368 shares of common stock were
issued to participants with a market price at the date of issuance of $9.83 per
share. The remaining 148,474 shares of
common stock were withheld to fund required statutory minimum withholding taxes
on behalf of employees. The excess tax
benefit recorded to additional paid in capital as a result of the issuance of
common stock was $0.3 million.
During the third quarter and first
three quarters of 2010, we recognized $0.9 million and $2.2 million,
respectively, of compensation expense for performance share LTIAs. Of the $0.9 million recognized during the third
quarter of 2010, $0.6 million is reflected in general and administrative
expenses, $0.1 million is reflected in cost of goods sold and $0.2 million is
reflected in sales, marketing and distribution expenses in our consolidated
statement of operations. Of the $2.2
million recognized during the first three quarters of 2010, $1.4 million is
reflected in general and administrative expenses, $0.4 million in cost of goods
sold, and $0.4 million is reflected in sales, marketing and distribution
expenses in our consolidated statement of operations. During the third quarter and first three
quarters of 2009, we recognized $1.5 million and $3.1 million, respectively, of
compensation expense for performance share LTIAs. Of the $1.5 million
recognized during the third quarter of 2009, $0.9 million is reflected in
general and administrative expenses, $0.3 million is reflected cost of goods
sold and $0.3 million is reflected in sales, marketing and distribution
expenses in our consolidated statement of operations. Of the $3.1 million recognized during the
first three quarters of 2009, $1.9 million is reflected in general and
administrative expenses, $0.6 million is reflected in sales, marketing and
distribution expenses, and $0.6 million is reflected in cost of goods sold in our
consolidated statement of operations. As
of October 2, 2010, there was $4.6 million of unrecognized compensation
expense related to performance share LTIAs, which is expected to be recognized
over the next 27 months.
The following table details the activity
in our performance share LTIAs for the first three quarters of 2010:
15
Table of
Contents
B&G Foods, Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
(14)
Share-Based Compensation (Continued)
|
|
Number of
Performance Shares (1)
|
|
Weighted Average
Grant Date Fair
Value (per share)(2)
|
|
|
|
|
|
|
|
Beginning
of fiscal 2010
|
|
1,918,466
|
|
$
|
4.09
|
|
Granted
|
|
595,254
|
|
$
|
7.63
|
|
Vested
|
|
(399,842
|
)
|
$
|
7.65
|
|
Forfeited
|
|
(72,441
|
)
|
$
|
3.13
|
|
At
October 2, 2010
|
|
2,041,437
|
|
$
|
4.46
|
|
(1)
Solely for purposes of this table, the number of
performance shares granted is based on the participants earnings their maximum
number of performance shares (i.e., 300% of the target number of performance
shares).
(2)
The fair value of the awards was determined based upon
the closing price of our common stock on the applicable measurement dates
(i.e., the deemed grant dates for accounting purposes) reduced by the present
value of expected dividends using the risk-free interest-rate as the award
holders are not entitled to dividends or dividend equivalents during the
vesting period.
Non-Employee
Director Stock Grants.
Each of our non-employee directors receives an annual
equity grant as part of his or her non-employee director compensation. These shares fully vest when issued. On June 1, 2010, 16,980 shares of common
stock in the aggregate were issued to the non-employee directors based upon the
closing price of our common stock on May 28, 2010 (the business day
immediately prior to the date of grant) of $10.60 per share. On June 1, 2009, 24,135 shares of common
stock in the aggregate were issued to the non-employee directors based upon the
closing price of our common stock on May 29, 2009 (the business day
immediately prior to the date of grant) of $7.25 per share. For the first three quarters of 2010 and
2009, share-based compensation expense of $0.2 million relating to the non-employee
director grants is reflected in general and administrative expenses in our
consolidated statements of operations.
16
Table of
Contents
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
The following Managements
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under the heading Forward-Looking
Statements below and elsewhere in this report.
The following discussion should be read in conjunction with the
unaudited consolidated interim financial statements and related notes for the
thirteen and thirty-nine weeks ended October 2, 2010 (third quarter of
2010 and first three quarters of 2010) included elsewhere in this report and
the audited consolidated financial statements and related notes for the fiscal
year ended January 2, 2010 (fiscal 2009) included in our 2009 Annual
Report on Form 10-K.
General
We manufacture, sell and distribute
a diverse portfolio of branded, high quality, shelf-stable food products, many
of which have leading regional or national market shares. In general, we position our branded products
to appeal to the consumer desiring a high quality and reasonably priced
product. We complement our branded
product retail sales with institutional and food service sales and limited
private label sales.
Our goal is to continue to increase
sales, profitability and cash flows by enhancing our existing portfolio of
branded shelf stable products and by capitalizing on our competitive
strengths. We intend to implement our
growth strategy through the following initiatives: expanding our brand portfolio
with disciplined acquisitions of complementary branded businesses, continuing
to develop new products and delivering them to market quickly, leveraging our
multiple channel sales and distribution system and continuing to focus on
higher growth customers and distribution channels. Since 1996, we have successfully acquired and
integrated 18 separate brands into our operations.
We are subject to a number of
challenges that may adversely affect our businesses. These challenges, which are discussed below
and under the heading Forward-Looking Statements, include:
Fluctuations in Commodity Prices
and Production and Distribution Costs:
We purchase raw materials, including
agricultural products, meat, poultry, other raw materials, ingredients and packaging
materials from growers, commodity processors, other food companies and
packaging manufacturers. Raw materials,
ingredients and packaging materials are subject to fluctuations in price
attributable to a number of factors.
Fluctuations in commodity prices can lead to retail price volatility and
intensive price competition, and can influence consumer and trade buying
patterns.
We purchase maple syrup primarily
from Quebec, Canada and Vermont. In
2008, maple syrup production in Canada, which represents the great majority of
global production, was significantly below industry needs due to growing global
demand and one of the worst crop yields in nearly 40 years. As a result, the price we paid for maple
syrup increased significantly and we were faced with a shortfall in supply as
compared to our needs, which had a negative impact on our sales volume of maple
syrup products during fiscal 2008 that continued through the first two quarters
of 2009. The 2010 maple syrup crop yield
was more consistent with historic levels.
The cost of labor, manufacturing,
energy, fuel, packaging materials and other costs related to the production and
distribution of our food products can from time to time increase significantly
and unexpectedly. We attempt to manage
these risks by entering into short-term supply contracts and advance
commodities purchase agreements from time to time, by implementing cost saving
measures and by raising sales prices. To
date, our cost saving measures and sales price increases have offset increases
to our raw material, ingredient and packaging costs. To the extent we are unable to offset present
and future cost increases, our operating results will be negatively impacted.
17
Table of
Contents
Consolidation in the Retail Trade
and Consequent Inventory Reductions:
As the retail grocery trade continues to
consolidate and our retail customers grow larger and become more sophisticated,
our retail customers may demand lower pricing and increased promotional
programs. These customers are also
reducing their inventories and increasing their emphasis on private label
products.
Changing Customer Preferences:
Consumers in the
market categories in which we compete frequently change their taste
preferences, dietary habits and product packaging preferences.
Consumer Concern Regarding Food
Safety, Quality and Health:
The food industry is subject to consumer
concerns regarding the safety and quality of certain food products. If consumers in our principal markets lose
confidence in the safety and quality of our food products even as a result of a
product liability claim or a product recall by a food industry competitor, our
business could be adversely affected.
Fluctuations in Currency Exchange
Rates:
We purchase the majority of our maple syrup
requirements from suppliers located in Québec, Canada. Any weakening of the U.S. dollar against the
Canadian dollar, could significantly increase our costs relating to the
production of our maple syrup products to the extent we have not purchased
Canadian dollars in advance of any such weakening of the U.S. dollar.
To confront these challenges, we
continue to take steps to build the value of our brands, to improve our
existing portfolio of products with new product and marketing initiatives, to
reduce costs through improved productivity, to address consumer concerns about
food safety, quality and health and to favorably manage currency fluctuations.
Critical Accounting Policies; Use of Estimates
The preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America requires our management to make a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Some of the more
significant estimates and assumptions made by management involve trade and
consumer promotion expenses; allowances for excess, obsolete and unsaleable
inventories; pension benefits; the recoverability of goodwill, trademarks,
customer relationship intangibles, property, plant and equipment, and deferred
tax assets; and the accounting for share-based compensation expense. Actual results could differ significantly
from these estimates and assumptions.
In our 2009 Annual Report on Form 10-K,
we identified the critical accounting policies which affect our more
significant estimates and assumptions used in preparing our consolidated
financial statements. There have been no significant changes to these policies
since January 2, 2010.
Results of
Operations
The following table sets forth the
percentages of net sales represented by selected items for the third quarter
and first three quarters of 2010 and 2009 reflected in our consolidated
statements of operations. The comparisons
of financial results are not necessarily indicative of future results:
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
|
|
October 2,
2010
|
|
October 3,
2009
|
|
October 2,
2010
|
|
October 3,
2009
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost
of goods sold
|
|
68.7
|
%
|
70.8
|
%
|
67.5
|
%
|
69.4
|
%
|
Gross
profit
|
|
31.3
|
%
|
29.2
|
%
|
32.5
|
%
|
30.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Sales,
marketing and distribution expenses
|
|
7.9
|
%
|
8.6
|
%
|
8.6
|
%
|
8.9
|
%
|
General
and administrative expenses
|
|
2.0
|
%
|
2.3
|
%
|
2.2
|
%
|
2.2
|
%
|
Amortization
expensecustomer relationships
|
|
1.3
|
%
|
1.3
|
%
|
1.3
|
%
|
1.3
|
%
|
Operating
income
|
|
20.1
|
%
|
17.0
|
%
|
20.4
|
%
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
8.3
|
%
|
11.0
|
%
|
8.6
|
%
|
10.9
|
%
|
Loss
on extinguishment of debt
|
|
|
|
0.5
|
%
|
4.0
|
%
|
0.2
|
%
|
Income
before income tax expense
|
|
11.8
|
%
|
5.5
|
%
|
7.8
|
%
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
4.4
|
%
|
2.1
|
%
|
2.9
|
%
|
2.7
|
%
|
Net
income
|
|
7.4
|
%
|
3.4
|
%
|
4.9
|
%
|
4.4
|
%
|
18
Table of Contents
As used in this section the terms
listed below have the following meanings:
Net Sales.
Our net sales
represents gross sales of products shipped to customers plus amounts charged to
customers for shipping and handling, less cash discounts, coupon redemptions,
slotting fees and trade promotional spending.
Gross Profit.
Our gross profit is
equal to our net sales less cost of goods sold.
The primary components of our cost of goods sold are cost of internally
manufactured products, purchases of finished goods from co-packers plus freight
costs to our distribution centers and to our customers.
Sales, Marketing
and Distribution Expenses.
Our sales, marketing and distribution
expenses include costs for marketing personnel, consumer advertising programs,
internal sales forces, brokerage costs and warehouse facilities.
General and
Administrative Expenses.
Our general and administrative expenses
include administrative employee compensation and benefit costs, as well as
information technology infrastructure and communication costs, office rent and
supplies, professional services and other general corporate expenses.
Amortization
ExpenseCustomer Relationships.
Amortization expensecustomer relationships includes the amortization expense
associated with customer relationship intangibles, which are amortized over
their useful lives of 20 years.
Net Interest
Expense.
Net interest expense includes interest
relating to our outstanding indebtedness, amortization of bond discount and
amortization of deferred debt financing costs, net of interest income and
subsequent to our determination in September 2008 that our interest rate
swap was no longer an effective hedge for accounting purposes, unrealized gains
or losses on the interest rate swap and the reclassification of amounts recorded
in accumulated other comprehensive loss related to the swap.
Loss on
Extinguishment of Debt.
Loss on extinguishment of debt includes costs
relating to the retirement of indebtedness, including any repurchase premium
and write-off of deferred debt financing costs.
19
Table of Contents
Non-GAAP Financial
Measures
Certain disclosures in this report
include non-GAAP financial measures. A
non-GAAP financial measure is defined as a numerical measure of our financial
performance that excludes or includes amounts so as to be different than the
most directly comparable measure calculated and presented in accordance with
GAAP in our consolidated balance sheets and related consolidated statements of
operations, changes in stockholders equity and comprehensive income, and cash
flows.
EBITDA is a measure used by
management to measure operating performance.
We define EBITDA as net income before net interest expense (as defined
above), income taxes, depreciation and amortization and loss on extinguishment
of debt (as defined above). Management believes that it is useful to eliminate
net interest expense, income taxes, depreciation and amortization and loss on
extinguishment of debt because it allows management to focus on what it deems
to be a more reliable indicator of ongoing operating performance and our
ability to generate cash flow from operations. We use EBITDA in our business
operations, among other things, to evaluate our operating performance, develop
budgets and measure our performance against those budgets, determine employee
bonuses and evaluate our cash flows in terms of cash needs. We also present
EBITDA because we believe it is a useful indicator of our historical debt
capacity and ability to service debt and because covenants in our credit
facility and our senior notes indenture contain ratios based on this
measure. As a result, internal
management reports used during monthly operating reviews feature the EBITDA
metric. However, management uses this metric in conjunction with traditional
GAAP operating performance and liquidity measures as part of its overall
assessment of company performance and liquidity and therefore does not place
undue reliance on this measure as its only measure of operating performance and
liquidity.
EBITDA is not a recognized term
under GAAP and does not purport to be an alternative to operating income or net
income as an indicator of operating performance or any other GAAP measure.
EBITDA is not a complete net cash flow measure because EBITDA is a measure of
liquidity that does not include reductions for cash payments for an entitys
obligation to service its debt, fund its working capital, capital expenditures
and acquisitions and pay its income taxes and dividends. Rather, EBITDA is a
potential indicator of an entitys ability to fund these cash requirements.
EBITDA is not a complete measure of an entitys profitability because it does
not include costs and expenses for depreciation and amortization, interest and
related expenses, loss on extinguishment of debt and income taxes. Because not
all companies use identical calculations, this presentation of EBITDA may not
be comparable to other similarly titled measures of other companies. However,
EBITDA can still be useful in evaluating our performance against our peer
companies because management believes this measure provides users with valuable
insight into key components of GAAP amounts.
A reconciliation of EBITDA to net
income and to net cash provided by operating activities for the third quarter
and first three quarters of 2010 and 2009 along with the components of EBITDA
follows:
20
Table of
Contents
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
|
|
October 2,
2010
|
|
October 3,
2009
|
|
October 2,
2010
|
|
October 3,
2009
|
|
|
|
(Dollars in thousands)
|
|
Net
income
|
|
$
|
9,282
|
|
$
|
4,161
|
|
$
|
18,101
|
|
$
|
16,103
|
|
Income
tax expense
|
|
5,519
|
|
2,611
|
|
10,642
|
|
9,900
|
|
Interest
expense, net
|
|
10,335
|
|
13,570
|
|
31,855
|
|
39,996
|
|
Depreciation
and amortization
|
|
3,761
|
|
3,677
|
|
11,118
|
|
10,847
|
|
Loss
on extinguishment of debt
|
|
|
|
674
|
|
15,224
|
|
674
|
|
EBITDA
|
|
28,897
|
|
24,693
|
|
86,940
|
|
77,520
|
|
Income
tax expense
|
|
(5,519
|
)
|
(2,611
|
)
|
(10,642
|
)
|
(9,900
|
)
|
Interest
expense, net
|
|
(10,335
|
)
|
(13,570
|
)
|
(31,855
|
)
|
(39,996
|
)
|
Deferred
income taxes
|
|
2,825
|
|
3,348
|
|
5,584
|
|
9,295
|
|
Amortization
of deferred financing costs and bond discount
|
|
500
|
|
610
|
|
1,515
|
|
2,222
|
|
Unrealized
loss (gain) on interest rate swap
|
|
471
|
|
631
|
|
1,820
|
|
(108
|
)
|
Reclassification
to net interest expense for interest rate swap
|
|
423
|
|
424
|
|
1,270
|
|
1,270
|
|
Share-based
compensation expense
|
|
943
|
|
1,471
|
|
2,413
|
|
3,273
|
|
Excess
tax benefits from share-based compensation
|
|
|
|
|
|
(330
|
)
|
|
|
Changes
in assets and liabilities
|
|
(559
|
)
|
1,973
|
|
4,426
|
|
(9,275
|
)
|
Net cash provided by operating activities
|
|
$
|
17,646
|
|
$
|
16,969
|
|
$
|
61,141
|
|
$
|
34,301
|
|
Third quarter of 2010 compared to the third quarter of 2009.
Net Sales.
Net
sales increased $1.2 million or 1.0% to $125.1 million for the third quarter of
2010 from $123.9 million for the third quarter of 2009. The increase was attributable to sales price
and unit volume increases of $0.4 million and $0.3 million, respectively, and a
reduction in coupons and slotting expenses of $0.5 million. Net sales of our lines of
Ortega, B&M
and
Polaner
products
increased
by $2.1 million, $0.6
million and $0.6 million or 6.8%, 12.2% and 6.2%, respectively. These increases were offset by a reduction in
net sales of our
Cream of Wheat
and
B&G
products of $1.5 million and $0.7 million or 9.2%
and 8.4%, respectively. In the
aggregate, net sales for all other brands increased $0.1 million, or 0.7%.
Gross Profit.
Gross
profit increased $3.0 million or 8.2% to $39.2 million for the third quarter of
2010 from $36.2 million for the third quarter of 2009. Gross profit expressed as a percentage of net
sales increased 2.1 percentage points to 31.3% in the third quarter of 2010
from 29.2% in the third quarter of 2009.
This increase in gross profit expressed as a percentage of net sales was
attributable to increased sales prices and a reduction in coupons and slotting,
which accounted for 0.5 percentage points.
The remaining 1.6 percentage points is attributable to decreases in
commodity and ingredient costs and a sales mix shift to higher margin products,
slightly offset by an increase in packaging and fuel surcharge costs.
Sales, Marketing
and Distribution Expenses.
Sales, marketing and distribution expenses decreased $0.8
million or 7.1% to $9.9 million for the third quarter of 2010 from $10.7
million for the third quarter of 2009.
This decrease is primarily due to a decrease in warehousing costs of $0.6
million attributable to warehouse consolidations, and a decrease in consumer
marketing and trade spending of $0.2 million.
Expressed as a percentage of net sales, our sales, marketing and
distribution expenses decreased to 7.9% for the third quarter of 2010 from 8.6%
for the third quarter of 2009.
General and
Administrative Expenses.
General and administrative expenses decreased $0.4 million
or 13.7% to $2.5 million for the third quarter of 2010 from $2.9 million in the
third quarter of 2009. The decrease in
general and administrative expenses primarily resulted from a reduction in
share based compensation expense.
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Amortization
Expense
Customer Relationships.
Amortization expensecustomer relationships remained consistent
at $1.6 million for the third quarter of 2010 as compared to the third quarter
of 2009.
Operating
Income.
As
a result of the foregoing, operating income increased $4.1 million or 19.6% to
$25.1 million for the third quarter of 2010 from $21.0 million for the third
quarter of 2009. Operating income
expressed as a percentage of net sales increased to 20.1% in the third quarter
of 2010 from 17.0% in the third quarter of 2009.
Net Interest
Expense.
Net
interest expense decreased $3.3 million or 23.8% to $10.3 million for the third
quarter of 2010 from $13.6 million in the third quarter of 2009. The decrease in net interest expense in the
third quarter of 2010 was primarily attributable to a decrease of 1.7
percentage points in the effective interest rate on our long-term debt to 7.9%
in the third quarter of 2010 from 9.6% in the third quarter of 2009 and a
reduction in the average principal amount of our long-term debt outstanding
during the third quarter of 2010 as compared to the third quarter of 2009. The decrease in the effective interest rate
and the reduction in the average principal amount of our long-term debt
outstanding is the result of the refinancing of our 8% senior notes and 12%
senior subordinated notes with the proceeds of the issuance of our 7.625%
senior notes during the first quarter of 2010 and our public offering of common
stock completed in the third quarter of 2009.
See Liquidity and Capital ResourcesDebt below.
Loss on
Extinguishment of Debt.
Loss on extinguishment of debt for the third quarter of 2009
includes $0.7 million of costs relating to our repurchase of senior
subordinated notes during the third quarter of 2009, including $0.4 million for
the payment of a repurchase premium and a non-cash charge of $0.3 million for
the write-off of unamortized deferred debt financing costs associated with the
notes repurchased. During the third
quarter of 2010, we did not extinguish any debt.
Income Tax
Expense.
Income
tax expense increased $2.9 million to $5.5 million for the third quarter of
2010 from $2.6 million for the third quarter of 2009. Our effective tax rate was 37.3% for the
third quarter of 2010 and 38.6% for the third quarter of 2009. The decrease in our effective tax rate is
primarily due to incremental tax deductions for manufacturing credits.
First three quarters of 2010 compared to first three quarters of 2009.
Net Sales.
Net
sales increased $6.1 million or 1.7% to $371.5 million for the first three
quarters of 2010 from $365.4 million for the first three quarters of 2009. The increase was attributable to sales price
and unit volume increases of $3.9 million and $2.9 million, respectively, partially
offset by an increase in coupon expenses of $0.7 million. Net sales of our lines of
Ortega, Maple Grove Farms of Vermont, Las Palmas,
Cream of Wheat, Accent, Polaner
and
Underwood
products
increased
in the amounts of $5.3
million, $1.8 million, $1.2 million, $1.1 million, $0.7 million, $0.6 million
and $0.5 million or 5.9%, 3.8%, 5.6%, 2.6%, 5.4%, 2.1% and 3.2%,
respectively. These increases were
offset by a reduction in net sales of our
B&G, B&M, Joan of
Arc
and
Regina
products
of $2.3 million, $2.0 million, $0.5 million and $0.4 million or 8.0%, 9.9%,
5.8% and 5.5%. In the aggregate, net
sales for all other brands increased $0.1 million, or 0.3%.
Gross Profit.
Gross
profit increased $8.8 million or 7.8% to $120.6 million for the first three quarters
of 2010 from $111.8 million for the first three quarters of 2009. Gross profit expressed as a percentage of net
sales increased 1.9 percentage points to 32.5% in the first three quarters of
2010 from 30.6% in the first three quarters of 2009. This increase in gross profit expressed as a
percentage of net sales was attributable to increased sales prices net of
increased coupon expenses, which accounted for 0.6 percentage points. The remaining 1.3 percentage points was
primarily attributable to decreases in commodity and ingredient costs and a
sales mix shift to higher margin products, slightly offset by an increase in
packaging and fuel surcharge costs.
Sales, Marketing
and Distribution Expenses.
Sales, marketing and distribution expenses decreased $0.6
million or 1.7% to $32.0 million for the first three quarters of 2010 from
$32.6 million for the first three
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quarters of 2009. The decrease is primarily due to decreases in
warehousing costs of $1.2 million due to warehouse consolidations and brokerage
of $0.4 million, offset by increases in consumer marketing and trade spending
of $1.0 million. Expressed as a
percentage of net sales, our sales, marketing and distribution expenses
decreased to 8.6% for the first three quarters of 2010 from 8.9% for the first
three quarters of 2009.
General and
Administrative Expenses.
General and administrative expenses increased $0.1 million
or 2.3% to $7.9 million for the first three quarters of 2010 from $7.8 million
in the first three quarters of 2009. The
increase in general and administrative expenses primarily resulted from an
increase in professional fees of $0.2 million, other expenses including fringes
of $0.4 million, partially offset by a reduction in share based compensation
expense of $0.5 million.
Amortization
ExpenseCustomer Relationships.
Amortization expensecustomer relationships
remained consistent at $4.8 million for the first three quarters of 2010 as
compared to the first three quarters of 2009.
Operating
Income.
As
a result of the foregoing, operating income increased $9.1 million or 13.7% to
$75.8 million for the first three quarters of 2010 from $66.7 million for the
first three quarters of 2009. Operating
income expressed as a percentage of net sales increased to 20.4% in the first
three quarters of 2010 from 18.2% in the first three quarters of 2009.
Net Interest
Expense.
Net
interest expense decreased $8.1 million or 20.4% to $31.9 million for the first
three quarters of 2010 from $40.0 million in the first three quarters of
2009. The decrease in net interest
expense in the first three quarters of 2010 was primarily attributable to a
decrease of 1.7 percentage points in the effective interest rate on our
long-term debt to 8.1% in the first three quarters of 2010 from 9.8% in the
first three quarters of 2009 and a reduction in the average principal amount of
our long-term debt outstanding during the first three quarters of 2010 as
compared to the first three quarters of 2009.
The decrease in the effective interest rate and the reduction in the
average principal amount of our long-term debt outstanding is the result of the
refinancing of our 8% senior notes and 12% senior subordinated notes with the
proceeds of the issuance of our 7.625% senior notes during the first quarter of
2010 and our public offering of common stock completed in the third quarter of
2009. See Liquidity and Capital ResourcesDebt
below.
Loss on
Extinguishment of Debt.
Loss on extinguishment of debt increased $14.5 million to
$15.2 million for the first three quarters of 2010 from $0.7 million in the
first three quarters of 2009. Loss on
extinguishment of debt for the first three quarters of 2010 includes $15.2
million of costs relating to our repurchase and redemption of $69.5 million
aggregate principal amount of senior subordinated notes and $240.0 million
aggregate principal amount of senior notes, including $10.7 million for the
payment of a repurchase premium and a non-cash charge of $4.5 million for the
write-off of unamortized deferred debt financing costs associated with the
notes repurchased. Loss on
extinguishment of debt during the first three quarters of 2009 included $0.7
million of costs relating to our repurchase of senior subordinated notes during
the third quarter of 2009, including $0.4 million for the payment of a
repurchase premium and a non-cash charge of $0.3 million for the write-off of
unamortized deferred financing costs associated with the notes repurchased.
Income Tax Expense.
Income tax expense increased $0.7 million to $10.6
million for the first three quarters of 2010 from $9.9 million for the first
three quarters of 2009. Our effective
tax rate was 37.0% for the first three quarters of 2010 and 38.1% for the first
three quarters of 2009. The decrease in
our effective tax rate is primarily due to incremental tax deductions for
manufacturing credits.
Liquidity
and Capital Resources
Our primary liquidity requirements
include debt service, capital expenditures and working capital needs. See also, Dividend Policy and Commitments
and Contractual Obligations below. We
fund our
23
Table of Contents
liquidity requirements, as well as
our dividend payments and financing for acquisitions, primarily through cash
generated from operations and to the extent necessary, through borrowings under
our credit facility.
Cash Flows
. Cash provided by
operating activities increased $26.8 million to $61.1 million for the first
three quarters of 2010 from $34.3 million for the first three quarters of
2009. The increase in cash provided by
operating activities in the first three quarters of 2010 as compared to the
first three quarters of 2009 was primarily due to an increase in net sales,
improved profitability and working capital improvements, with the largest
improvement relating to the change in finished goods inventory.
Net cash used in investing
activities for the first three quarters of 2010 decreased $0.8 million to $7.1
million from $7.9 million for the first three quarters of 2009. Net cash used in investing activities for the
first three quarters of 2010 and 2009 consisted entirely of capital
spending. Capital expenditures in the
first three quarters of 2010 and 2009 included expenditures for building
improvements, purchases of manufacturing and computer equipment and capitalized
interest.
Net cash used in financing
activities for the first three quarters of 2010 was $6.4 million as compared to
net cash provided by financing activities of $58.6 million for the first three
quarters of 2009. Net cash used in
financing activities for the first three quarters of 2010 include $320.3
million in payments for the repurchase and redemption of $69.5 million
principal amount of our 12% senior subordinated notes and $240.0 million
principal amount of our 8% senior notes, $24.2 million of dividend payments,
$8.2 million of deferred financing costs and $1.5 million in payments of tax
withholding on behalf of employees for net share settlement of share-based
compensation. Net cash used in financing
activities were reduced by net proceeds of $347.4 million from the issuance of
our 7.625% senior notes and a $0.3 million excess tax benefits from share-based
compensation. Net cash provided by
financing activities for the first three quarters of 2009 consisted of our
public offering of common stock completed during the third quarter of 2009,
which resulted in net proceeds of $86.6 million, after deducting underwriting
discounts and commissions and other transaction expenses, offset by $18.4
million of dividend payments and $6.6 million in payments for the repurchase
and redemption of $6.3 million principle amount of our senior subordinated
notes, $2.3 million for the repurchase of common stock and $0.7 million of
deferred financing costs.
Based on a number of factors,
including our trademark, goodwill and customer relationship intangibles
amortization for tax purposes from our prior acquisitions, we realized a
significant reduction in cash taxes in fiscal 2009 and 2008 as compared to our
tax expense for financial reporting purposes.
We believe that we will realize a benefit to our cash taxes payable from
amortization of our trademarks, goodwill and customer relationship intangibles
for the taxable years 2010 through 2022.
Dividend Policy
Our dividend policy reflects a basic
judgment that our stockholders would be better served if we distributed a
substantial portion of our cash available to pay dividends to them instead of
retaining it in our business. Under this
policy, a substantial portion of the cash generated by our company in excess of
operating needs, interest and principal payments on indebtedness, capital
expenditures sufficient to maintain our properties and other assets is in
general distributed as regular quarterly cash dividends (up to the intended
dividend rate as determined by our board of directors) to the holders of our
common stock and not retained by us.
From the date of our initial public offering in October 2004
through the dividend payment we made on October 30, 2008, the dividend
rate for our common stock was $0.848 per share per annum. Beginning with the dividend payment we made
on January 30, 2009, the current intended dividend rate for our common
stock is $0.68 per share per annum.
Dividend payments, however, are not
mandatory or guaranteed and holders of our common stock do not have any legal
right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in
its sole discretion, amend or repeal this dividend policy. Our board of directors may decrease the level
of dividends below the intended dividend rate or discontinue entirely the
payment of dividends. Future dividends
24
Table of Contents
with respect to shares of our common
stock depend on, among other things, our results of operations, cash
requirements, financial condition, contractual restrictions, business
opportunities, acquisition opportunities, the condition of the debt and equity
financing markets, provisions of applicable law and other factors that our
board of directors may deem relevant.
Our board of directors is free to depart from or change our dividend
policy at any time and could do so, for example, if it was to determine that we
have insufficient cash to take advantage of growth opportunities. In addition, over time, our EBITDA and
capital expenditure, working capital and other cash needs will be subject to
uncertainties, which could impact the level of dividends, if any, we pay in the
future. Our senior notes indenture and
the terms of our credit facility contain significant restrictions on our
ability to make dividend payments. In
addition, certain provisions of the Delaware General Corporation Law may limit
our ability to pay dividends.
As a result of our dividend policy,
we may not retain a sufficient amount of cash to finance growth opportunities
or unanticipated capital expenditure needs or to fund our operations in the
event of a significant business downturn.
We may have to forego growth opportunities or capital expenditures that
would otherwise be necessary or desirable if we do not find alternative sources
of financing. If we do not have
sufficient cash for these purposes, our financial condition and our business
will suffer.
For the first three quarters of 2010
and 2009, we had cash flows provided by operating activities of $61.1 million
and $34.3 million, and distributed $24.2 million and $18.4 million,
respectively, as dividends. At our current intended dividend rate of $0.680 per
share per annum, we expect our aggregate dividend payments in fiscal 2010 to be
$32.3 million. If our cash flows from
operating activities for future periods were to fall below our minimum expectations
(or if our assumptions as to capital expenditures or interest expense were too
low or our assumptions as to the sufficiency of our revolving credit facility
to finance our working capital needs were to prove incorrect), we would need
either to further reduce or eliminate dividends or, to the extent permitted
under our senior notes indenture and the terms of our credit facility, fund a
portion of our dividends with borrowings or from other sources. If we were to use working capital or
permanent borrowings to fund dividends, we would have less cash and/or
borrowing capacity available for future dividends and other purposes, which
could negatively impact our financial position, our results of operations, our
liquidity and our ability to maintain or expand our business.
Acquisitions
Our liquidity and capital resources
have been significantly impacted by acquisitions and may be impacted in the
foreseeable future by additional acquisitions.
As discussed elsewhere in this report, as part of our growth strategy we
plan to expand our brand portfolio with disciplined acquisitions of
complementary brands. We have
historically financed acquisitions with borrowings and cash flows from
operating activities. As a result, our interest
expense has in the past increased as a result of additional indebtedness we
have incurred in connection with acquisitions, and will increase with any
additional indebtedness we may incur to finance future acquisitions, if
any. The impact of future acquisitions,
whether financed with additional indebtedness or otherwise, may have a material
impact on our liquidity.
Environmental and Health
and Safety Costs
We have not made any material
expenditures during the first three quarters of 2010 in order to comply with
environmental laws or regulations. Based
on our experience to date, we believe that the future cost of compliance with
existing environmental laws and regulations (and liability for known
environmental conditions) will not have a material adverse effect on our
consolidated financial condition, results of operations or liquidity. However, we cannot predict what environmental
or health and safety legislation or regulations will be enacted in the future
or how existing or future laws or regulations will be enforced, administered or
interpreted, nor can we predict the amount of future expenditures that may be
required in order to comply with such environmental or health and safety laws
or regulations or to respond to such environmental claims.
25
Table of Contents
Debt
Senior Secured Credit Facility.
As amended, our
$25.0 million revolving credit facility and our $130.0 million of term loan
borrowings mature in February 2013.
The following discussion of the credit facility describes the credit
facility as amended through the date of issuance of the accompanying unaudited
interim consolidated financial statements.
Interest under the revolving credit
facility, including any outstanding letters of credit, is determined based on
alternative rates that we may choose in accordance with the revolving credit
facility, including the base lending rate per annum plus an applicable margin
of 2.00%, and LIBOR plus an applicable margin of 3.00%. We pay a commitment fee of 0.50% per annum on
the unused portion of the revolving credit facility. Interest under the term loan facility is
determined based on alternative rates that we may choose in accordance with the
credit facility, including the base lending rate per annum plus an applicable
margin of 1.00%, and LIBOR plus an applicable margin of 2.00%.
Our obligations under the credit
facility are jointly and severally and fully and unconditionally guaranteed on
a senior basis by all of our existing and certain future domestic
subsidiaries. The credit facility is
secured by substantially all of our and our domestic subsidiaries assets
except our and our domestic subsidiaries real property. The credit facility provides for mandatory prepayment
upon certain asset dispositions and issuances of securities, as defined. The credit facility contains covenants that
restrict, among other things, our ability to incur additional indebtedness, pay
dividends and create certain liens. The
credit facility also contains certain financial maintenance covenants, which,
among other things, specify maximum capital expenditure limits, a minimum
interest coverage ratio and a maximum senior and total leverage ratio, each
ratio as defined. As of October 2, 2010,
we were in compliance with all of the covenants in the credit facility. Proceeds of the revolving credit facility are
restricted to funding our working capital requirements, capital expenditures
and acquisitions of companies in the same or a similar line of business as our
company, subject to specified criteria.
The maximum letter of credit capacity under the revolving credit
facility is $10.0 million, with a fronting fee of 3.0% per annum for all
outstanding letters of credit.
At October 2, 2010, the
available borrowing capacity under our revolving credit facility, net of
outstanding letters of credit of $0.5 million, was $24.5 million. We have not drawn upon the revolving credit
facility since its inception in October 2004 and, based upon our cash and
cash equivalents on hand and working capital requirements, we have no plans to
do so for the foreseeable future.
Effective as of February 26,
2007, we entered into a six year interest rate swap agreement in order to
effectively fix at 7.0925% the interest rate payable for $130.0 million of term
loan borrowings through the life of the term loan, ending on February 26,
2013. The counterparty to the swap is
Lehman Special Financing Inc. (Lehman SFI) and the counterpartys guarantor is
Lehman Brothers Holdings Inc. (Lehman).
On September 15, 2008, Lehman filed for protection under Chapter 11
of the U.S. Bankruptcy Code. Lehman SFI
filed for protection under Chapter 11 of the U.S. Bankruptcy Code on October 3,
2008.
We initially designated the swap as a
cash flow hedge. Prior to Lehmans
bankruptcy filing, we recorded changes in the fair value of the swap in
accumulated other comprehensive loss, net of tax in our consolidated balance
sheet. However, as a result of the
Lehman bankruptcy filing, we determined in September 2008 that the
interest rate swap was no longer an effective hedge for accounting
purposes. Accordingly, subsequent to
that determination, we record changes in the swaps fair value in current
earnings in net interest expense in our consolidated statements of
operations. We obtain third-party
verification of the fair value at the end of each reporting period. As of October 2, 2010, the fair value of
our interest rate swap was an unrealized loss of $13.4 million and is recorded
in other liabilities on our consolidated balance sheet. The amount recorded in accumulated other
comprehensive loss will be reclassified to net interest expense over the
remaining life of the term loan borrowings as we make interest payments. Net interest expense in the third quarter and
first three quarters of 2010 includes a charge of $0.5 million and $1.8
million, respectively, relating to the unrealized loss on our interest rate
swap and a reclassification of $0.4 million and $1.3 million, respectively, of the
amount recorded in accumulated other comprehensive loss related to the
swap. Net interest in the third quarter
and first three quarters of 2010 also includes a reduction in interest income
primarily due to
26
Table of Contents
lower interest rates. As of October 2, 2010, we expect to
reclassify $4.1 million to net interest expense during the remainder of the
life of the swap, with $1.7 million being reclassified in the next twelve
months.
12% Senior Subordinated Notes due
2016
. In October 2004, we issued $165.8
million aggregate principal amount of 12% senior subordinated notes due
2016. During the third and fourth
quarters of fiscal 2009, we repurchased $96.3 million principal amount of
senior subordinated notes, which resulted in a pre-tax charge of $10.2 million,
representing a cash charge of $5.8 million relating to the repurchase and call
premiums and a non-cash charge of $4.4 million relating to the write-off of
unamortized deferred debt financing costs.
In January 2010, we repurchased
$44.7 million aggregate principal amount of the senior subordinated notes with
the proceeds of our public offering of 7.625% senior notes at a repurchase
price of 106.5% of such principal amount plus accrued and unpaid interest, and
set aside sufficient proceeds of the offering to repurchase or redeem the
remaining senior subordinated notes. In February 2010,
we repurchased or redeemed the remaining $24.8 million aggregate principal
amount of the senior subordinated notes at a price equal to 106.0% of such
principal amount, plus accrued and unpaid interest.
8 % Senior Notes due 2011.
In
October 2004, we issued $240.0 million aggregate principal amount of 8%
senior notes due 2011. In January 2010,
we repurchased $238.9 million aggregate principal amount of the 8% senior notes
with the proceeds of our public offering of 7.625% senior notes at a repurchase
price of 102.375% of such principal amount plus accrued and unpaid interest,
and set aside sufficient proceeds of the offering to repurchase or redeem the
remaining 8% senior notes. In February 2010,
we repurchased or redeemed the remaining $1.1 million aggregate principal
amount of the 8% senior notes at a price equal to 102.0% of such principal
amount, plus accrued and unpaid interest.
Loss on Extinguishment of
Debt.
In
connection with the retirement of our 12% senior subordinated notes and 8%
senior notes, we incurred a loss on extinguishment of debt of approximately
$15.2 million in the first quarter of 2010, including the repurchase premium of
$10.7 million and a write-off and expense of $4.5 million of deferred debt
financing costs.
7.625% Senior Notes due 2018.
In January 2010, we issued
$350.0 million aggregate principal amount of 7.625% senior notes due 2018 at a
price to the public of 99.271% of their face value. Accordingly, the original issue discount and
debt financing costs are being amortized through the maturity date of the
senior notes. Interest on the senior notes is payable on January 15 and July 15
of each year. The senior notes will
mature on January 15, 2018, unless earlier retired or redeemed as
described below.
On or after January 15, 2014,
we may redeem some or all of the senior notes at a redemption price of 103.813%
beginning January 15, 2014 and thereafter at prices declining annually to
100% on or after January 15, 2017.
We may redeem up to 35% of the aggregate principal amount of the notes
prior to January 15, 2013 with the net proceeds from certain equity
offerings. We may also redeem some or
all of the notes at any time prior to January 15, 2014 at a redemption
price equal to a specified make-whole amount.
In addition, if we undergo a change of control, we may be required to
offer to repurchase the notes at the repurchase price of 101% plus accrued and
unpaid interest to the date of redemption.
We may also, from time to time, seek
to retire senior notes through cash repurchases of senior notes and/or exchanges
of senior notes for equity securities, in open market purchases, privately
negotiated transactions or otherwise.
Such repurchases or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be
material.
Our obligations under the senior
notes are jointly and severally and fully and unconditionally guaranteed on a
senior basis by all of our existing and certain future domestic
subsidiaries. The senior notes and the
subsidiary guarantees are our and the guarantors general unsecured obligations
and are effectively junior in right of payment to all of our and the guarantors
secured indebtedness and to the indebtedness and
27
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other liabilities of our
non-guarantor subsidiaries; are
pari passu
in
right of payment to all of our and the guarantors existing and future
unsecured senior debt; and are senior in right of payment to all of our and the
guarantors future subordinated debt.
Our foreign subsidiary is not a guarantor, and any future foreign or
partially owned domestic subsidiaries will not be guarantors, of our senior
notes.
Our senior notes indenture contains
covenants with respect to us and the guarantors and restricts the incurrence of
additional indebtedness and the issuance of capital stock; the payment of
dividends or distributions on, and redemption of, capital stock; a number of
other restricted payments, including certain investments; specified creation of
liens, sale-leaseback transactions and sale of certain specified assets;
fundamental changes, including consolidation, mergers and transfers of all or
substantially all of our assets; and specified transactions with
affiliates. Each of the covenants is
subject to a number of important exceptions and qualifications. As of October 2, 2010, we were in
compliance with all of the covenants in the senior notes indenture.
Future Capital Needs
We are highly leveraged. On October 2, 2010, our total long-term
debt and stockholders equity was $477.7 million and $221.7 million,
respectively.
Our ability to generate sufficient
cash to fund our operations depends generally on our results of operations and
the availability of financing. Our
management believes that our cash and cash equivalents on hand, cash flows from
operating activities and available borrowing capacity under our revolving
credit facility will be sufficient for the foreseeable future to fund
operations, meet debt service requirements, fund capital expenditures, make
future acquisitions within our line of business, if any, and pay our
anticipated dividends on our common stock.
We expect to make capital expenditures of up to approximately $11.0
million in the aggregate during fiscal 2010, $7.1 million of which have already
been made during the first three quarters.
Seasonality
Sales of a number of our products
tend to be seasonal. In the aggregate,
however, our sales are not heavily weighted to any particular quarter due to
the diversity of our product and brand portfolio. Sales during the first quarter of the fiscal
year are generally below those of the following three quarters.
We purchase most of the produce used
to make our shelf-stable pickles, relishes, peppers and other related specialty
items during the months of July through October, and we purchase
substantially all of our maple syrup requirements during the months of April through
July. Consequently, our liquidity needs
are greatest during these periods.
Inflation
During the past several years, we
have been faced with increasing prices in certain commodities and packaging
materials. We manage this risk by
entering into short-term supply contracts and advance commodities purchase
agreements from time to time, and if necessary, by raising prices. We believe that through sales price increases
and our cost saving efforts we have to a large degree been able to offset the
impact of raw material, packaging and transportation cost increases that we
have faced from time to time in recent years.
There can be no assurance, however, that any future sales price
increases or cost saving efforts by us will offset any increases in the cost of
raw material, packaging and transportation costs, or that we will be able to
raise prices or reduce costs at all.
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Recently Issued Accounting
Standards
There have been no significant
developments to recently issued accounting standards, including the expected
dates of adoption and estimated effects on our consolidated financial
statements, from those disclosed in our 2009 Annual Report on Form 10-K.
Off-balance Sheet Arrangements
As of October 2, 2010, we did
not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K.
Commitments and Contractual
Obligations
Our contractual obligations and
commitments principally include obligations associated with our outstanding
indebtedness, future minimum operating lease obligations and future pension
obligations. During the first three
quarters of 2010, there were no material changes outside the ordinary course of
business in the specified contractual obligations set forth in the Commitments
and Contractual Obligations table in our 2009 Annual Report on Form 10-K,
except that in January 2010, we issued $350.0 million aggregate principal
amount of 7.625% senior notes due 2018 at a price to the public of 99.271% of
their face value. We used a portion of
the net proceeds from the offering to retire all $240.0 million principal
amount of our 8% senior notes and the remaining $69.5 million principal amount
of our 12% senior subordinated notes.
See Debt above. Our interest
obligations on the 7.625% senior notes are expected to be $26.7 million per
annum. In addition, our expected
contributions to our defined benefit pension plans for fiscal 2010 have
increased from $1.3 million to $2.6 million because, although not obligated to
do so, we made $1.3 million of additional voluntary contributions to our
defined benefit pension plans during the first three quarters of 2010.
Forward-Looking Statements
This report includes forward-looking
statements, including without limitation the statements under Managements
Discussion and Analysis of Financial Condition and Results of Operations. The words believes, anticipates, plans,
expects, intends, estimates, projects and similar expressions are
intended to identify forward-looking statements. These forward looking statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance and achievements, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by any forward-looking statements. We believe important factors that could cause
actual results to differ materially from our expectations include the
following:
·
our substantial leverage;
·
the effects of rising costs for our raw materials,
packaging and ingredients;
·
crude oil prices and their impact on distribution,
packaging and energy costs;
·
our ability to successfully implement sales price
increases and cost saving measures to offset any cost increases;
·
intense competition, changes in consumer preferences,
demand for our products and local economic and market conditions;
·
our continued ability to promote brand equity
successfully, to anticipate and respond to new consumer trends, to develop new
products and markets, to broaden brand portfolios in order to compete
effectively with lower priced products and in markets that are consolidating at
the retail and manufacturing levels and to improve productivity;
·
the risks associated with the expansion of our
business;
·
our possible inability to integrate any businesses we
acquire;
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·
our ability to access the credit markets and our
borrowing costs and credit ratings, which may be influenced by credit markets
generally and the credit ratings of our competitors;
·
the effects of currency movements of the Canadian
dollar as compared to the U.S. dollar;
·
other factors that affect the food industry generally,
including:
·
recalls if products become adulterated or misbranded,
liability if product consumption causes injury, ingredient disclosure and
labeling laws and regulations and the possibility that consumers could lose
confidence in the safety and quality of certain food products;
·
competitors pricing practices and promotional
spending levels;
·
fluctuations in the level of our customers
inventories and credit and other business risks related to our customers
operating in a challenging economic and competitive environment;
·
the risks associated with third-party suppliers and
co-packers, including the risk that any failure by one or more of our
third-party suppliers or co-packers to comply with food safety or other laws
and regulations may disrupt our supply of raw materials or certain finished
goods products; and
·
other factors discussed elsewhere in this report and
in our other public filings with the SEC, including under Item 1A, Risk
Factors in our 2009 Annual Report on Form 10-K.
Developments in any of these areas
could cause our results to differ materially from results that have been or may
be projected by or on our behalf.
All forward-looking statements
included in this report are based on information available to us on the date of
this report. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained in this report.
We caution that the foregoing list
of important factors is not exclusive.
We urge investors not to unduly rely on forward-looking statements
contained in this report.
Item 3.
Quantitative and Qualitative
Disclosures About Market Risk
In the normal course of operations,
we are exposed to market risks arising from adverse changes in interest
rates. Market risk is defined for these
purposes as the potential change in the fair value of a financial asset or liability
resulting from an adverse movement in interest rates.
Interest under our $25.0 million
revolving credit facility, including any outstanding letters of credit, is
determined based on alternative rates that we may choose in accordance with the
revolving credit facility, including the base lending rate per annum plus an
applicable margin of 2.00%, and LIBOR plus an applicable margin of 3.00%. Interest under our term loan facility is
determined based on alternative rates that we may choose in accordance with the
credit facility, including the base lending rate per annum plus an applicable
margin of 1.00%, and LIBOR plus an applicable margin of 2.00%. The revolving credit facility was undrawn at October 2,
2010 and January 2, 2010, and we currently have no plans to draw upon the
facility for the foreseeable future. The
available borrowing capacity under our revolving credit facility, net of
outstanding letters of credit of $0.5 million, was $24.5 million at October 2,
2010.
We have outstanding $130.0 million
of term loan borrowings at October 2, 2010 and January 2, 2010. The term loan borrowings are fixed at 7.0925%
based upon a six year interest rate swap agreement that we entered into on February 26,
2007 with an affiliate of Lehman. See
the discussion of the interest rate swap and the Lehman bankruptcy filing above
under the heading Liquidity and Capital ResourcesDebtSenior Secured Credit
Facility in Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional information.
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Table of
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Cash and cash equivalents, trade
accounts receivable, income tax receivable, trade accounts payable, accrued
expenses and dividends payable are reflected on our consolidated balance sheets
at carrying value, which approximates fair value due to the short-term nature
of these instruments.
The carrying values and fair values
of our term loan borrowings, senior notes and senior subordinated notes as of October 2,
2010 and January 2, 2010 are as follows (dollars in thousands):
|
|
October 2, 2010
|
|
January 2, 2010
|
|
|
|
Carrying Value
|
|
Fair Value(1)
|
|
Carrying Value
|
|
Fair Value(1)
|
|
Senior
Secured Term Loan due 2013
|
|
$
|
130,000
|
|
$
|
129,025
|
|
$
|
130,000
|
|
$
|
127,400
|
|
8%
Senior Notes due 2011
|
|
|
|
|
|
240,000
|
|
243,000
|
|
7.625%
Senior Notes due 2018
|
|
347,668
|
(2)
|
364,875
|
|
|
|
|
|
12.0%
Senior Subordinated Notes due 2016
|
|
|
|
|
|
69,541
|
|
69,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Fair values are estimated based on quoted market prices.
(2)
The carrying value of the 7.625% senior notes is net of
discount.
The information under the heading Inflation
in Item 2, Managements Discussion and Analysis of Financial Condition and
Results of Operations is incorporated herein by reference.
Item 4.
Controls and Procedures
Evaluation of
Disclosure Controls and Procedures.
As required by Rule 13a-15(b) under the Securities
Exchange Act of 1934, as amended, our management, including our chief executive
officer and our chief financial officer, conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. As defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, disclosure controls and procedures are
controls and other procedures that we use that are designed to ensure that
information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
chief executive officer and our chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
Based on that evaluation, our chief
executive officer and our chief financial officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this report.
Changes in
Internal Control Over Financial Reporting
. As required by Rule 13a-15(d) under
the Exchange Act, our management, including our chief executive officer and our
chief financial officer, also conducted an evaluation of our internal control
over financial reporting to determine whether any change occurred during the
quarter covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting. Based on that evaluation, our
chief executive officer and our chief financial officer concluded that there
has been no change during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitations on
Effectiveness of Controls.
Our companys management, including the chief
executive officer and chief financial officer, does not expect that our
disclosure controls or our internal control over financial reporting will
prevent or detect all errors and all fraud.
A control system, no matter how well
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Table of Contents
designed and operated, can provide
only reasonable, not absolute, assurance that the control systems objectives
will be met. The design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of
any system of controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
32
Table of Contents
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
The information set forth under the
heading
Legal Proceedings
in Note 11 of Notes
to Consolidated Financial Statements in Part I, Item 1 of this
quarterly report on Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors
We do not believe there have been
any material changes in our risk factors as previously disclosed in our 2009
Annual Report on Form 10-K.
Item 2.
Unregistered Sales of Equity
Securities and Use of Proceeds
Not applicable.
Item 3.
Defaults Upon Senior Securities
Not applicable.
Item 4.
Reserved
Item 5.
Other Information
Not applicable.
Item 6.
Exhibits
EXHIBIT
NO.
|
|
DESCRIPTION
|
|
|
|
31.1
|
|
Certification pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 of the Chief Executive Officer.
|
|
|
|
31.2
|
|
Certification pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 of the Chief Financial Officer.
|
32.1
|
|
Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Executive Officer and Chief Financial Officer.
|
33
Table of Contents
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated: October 26, 2010
|
B&G FOODS, INC.
|
|
|
|
|
|
By:
|
/s/ Robert C. Cantwell
|
|
|
Robert C. Cantwell
Executive Vice President
and Chief Financial
Officer (Principal Financial and Accounting
Officer and Authorized Officer)
|
34
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