B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2007, December 30, 2006 and December 31, 2005
(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 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. We distribute several of our brands in the greater New York metropolitan area primarily through direct-store-delivery.
Sales
of a number of our products tend to be seasonal; however, in the aggregate, our sales are not heavily weighted to any particular quarter. Sales during the first quarter of the
fiscal year are generally below that 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.
Class A Common Stock Offering.
On May 29, 2007, we completed a public offering of 15,985,000 shares of our
Class A common stock as a separately traded security, which includes 2,085,000 shares issued pursuant to the fully exercised underwriters' option to purchase additional shares, at $13.00 per
share. The shares of our separately traded Class A common stock trade on the New York Stock Exchange
under the trading symbol "BGS" and trade separately from our Enhanced Income Securities (EISs), which trade on the New York Stock Exchange under the trading symbol "BGF." Each EIS represents one share
of our Class A common stock and $7.15 principal amount of our senior subordinated notes.
The
proceeds of the Class A common stock offering were $193.2 million, after deducting underwriting discounts and commissions and other expenses. In connection with the
offering, we repurchased 6,762,455 outstanding shares of our Class B common stock for $82.4 million, and the remaining 793,988 shares of our outstanding Class B common stock were
exchanged for an equal number of shares of Class A common stock. See Note 12, "Related-Party Transactions." We also prepaid $100.0 million of our term loan borrowings under our
senior secured credit facility. The remaining funds are being used for general corporate purposes.
The
holders of our EISs may separate each EIS into one share of Class A common stock and $7.15 principal amount of senior subordinated notes at any time. Upon the occurrence of
certain events (including redemption of the senior subordinated notes or upon maturity of the senior subordinated notes), EISs will automatically separate. Conversely, subject to limitations, a holder
of separate shares of Class A common stock and senior subordinated notes can combine such securities to form EISs. Separation and combination of EISs will automatically result in increases and
decreases, respectively, in
57
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(1) Nature of Operations (Continued)
the
number of shares of Class A common stock not held in the form of EISs. As of December 29, 2007, we had 36,778,988 shares of Class A common stock issued and outstanding,
16,652,767 of which were held in the form of EISs and 20,126,221 of which were held separate from EISs. As of December 30, 2006 and December 31, 2005, we had 20,000,000 shares of
Class A common stock issued and outstanding, all of which were held in the form of EISs.
Our financial statements are presented on a consolidated basis. We utilize a 52-53 week fiscal year ending on the Saturday closest to
December 31. The fiscal years ended December 29, 2007 (fiscal 2007), December 30, 2006 (fiscal 2006) and December 31, 2005 (fiscal 2005) contained 52 weeks each.
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. As of December 29, 2007, we do not believe we have any significant concentration of credit risk with
respect to our trade accounts receivable. Our top ten customers accounted for approximately 45.8%, 43.6% and 42.2% of consolidated net sales in fiscal 2007, 2006 and 2005, respectively. Other than
Wal-Mart, which accounted for 11.9% and 10.4% of our consolidated net sales in fiscal 2007 and fiscal 2006, respectively, no single customer accounted for more than 10.0%, of consolidated
net sales in fiscal 2007, 2006 and 2005.
During
fiscal 2007, 2006, and 2005 our sales to foreign countries represented less than 1.0% of net sales. Our foreign sales are primarily to customers in Canada.
On December 1, 2005, we acquired the
Ortega
food service dispensing pouch and dipping cup business for
$2.5 million in cash, including transaction costs, from Nestlé USA, Inc. On January 10, 2006, we acquired the
Grandma's
molasses business for $30.1 million in cash, including
transaction costs, from Mott's LLP, a Cadbury Schweppes Americas
Beverages company. Effective February 25, 2007, we completed the acquisition of the
Cream of Wheat
and
Cream of
Rice
business for $200.5 million in cash, including transaction costs, from Kraft Foods Global, Inc. We refer to the
Cream of
Wheat
and
Cream of Rice
acquisition as the "
Cream of Wheat
acquisition" and the
Cream of
Wheat
and
Cream of Rice
businesses collectively as the
"Cream
of
Wheat business."
The
acquisitions described above were accounted for using the purchase method of accounting and, accordingly, the assets acquired and results of operations are included in our
consolidated financial statements from the respective dates of the acquisitions. The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill.
Trademarks are deemed to have an indefinite useful life and are not amortized. Customer relationship intangibles acquired in the
Grandma's
molasses
acquisition and the
Cream of Wheat
acquisition are amortized over 20 years. Goodwill, customer relationship intangibles and trademarks
amortization are deductible for income tax purposes.
58
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(1) Nature of Operations (Continued)
The
following table sets forth the allocation of the
Cream of Wheat
purchase price to the estimated fair value of the net assets acquired
at the date of acquisition. Inventory has been recorded at estimated selling price less costs of disposal and a reasonable profit. Equipment has been recorded at estimated fair value as determined by
a third-party valuation. We obtained a third-party valuation of the intangible assets acquired (including trademarks and customer relationship intangibles).
Acquisition
of the
Cream of Wheat
business (dollars in thousands):
Inventory
|
|
$
|
1,489
|
Equipment
|
|
|
2,860
|
Goodwill
|
|
|
55,277
|
Trademarksindefinite life intangible assets
|
|
|
27,000
|
Customer relationship intangiblesamortizable intangible assets
|
|
|
113,900
|
|
|
|
|
Total
|
|
$
|
200,526
|
|
|
|
The
following table sets forth the respective purchase price allocations for both the
Ortega
food service dispensing pouch and dipping cup
acquisition and the
Grandma's
molasses acquisition. We obtained third-party valuations of certain acquired assets, including intangible assets
(trademarks and customer relationships).
Acquisition
of the
Ortega
food service dispensing pouch and dipping cup business (dollars in thousands):
Inventory
|
|
$
|
874
|
Trademarksindefinite life intangible assets (after allocation of approximately $1,100 of negative goodwill)
|
|
|
1,639
|
|
|
|
|
Total
|
|
$
|
2,513
|
|
|
|
Acquisition
of the
Grandma's
molasses business (dollars in thousands):
Equipment
|
|
$
|
25
|
Goodwill
|
|
|
9,877
|
Trademarksindefinite life intangible assets
|
|
|
5,100
|
Customer relationship intangiblesamortizable intangible assets
|
|
|
15,100
|
|
|
|
|
Total
|
|
$
|
30,102
|
|
|
|
The following pro forma summary of operations for fiscal 2007 and fiscal 2006 presents our operations as if the
Cream of
Wheat
acquisition had occurred as of the beginning of each period presented. In addition to including the results of operations of the
Cream of
Wheat
business, the pro
59
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(1) Nature of Operations (Continued)
forma
information gives effect to interest on additional borrowings and changes in depreciation of property, plant and equipment and amortization of customer relationship intangibles.
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
|
(dollars in thousands)
|
Net sales
|
|
$
|
482,769
|
|
$
|
473,148
|
Net income
|
|
|
19,833
|
|
|
20,432
|
Basic and diluted earnings per share Class A common stock
|
|
$
|
0.68
|
|
$
|
0.98
|
Basic and diluted earnings (loss) per share Class B common stock
|
|
$
|
(0.24
|
)
|
$
|
0.13
|
The
pro forma information presented above does not purport to be indicative of the results that actually would have been attained if the
Cream of
Wheat
acquisition had occurred as of the beginning of each period presented and is not intended to be a projection of future results.
No
pro forma financial information has been presented for the
Grandma's
molasses acquisition or the
Ortega
food service dispensing pouch and dipping cup
because such pro forma financial information is not material to our consolidated statements of
operations for the periods presented.
(2) Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of B&G Foods, Inc. and its subsidiaries. All intercompany balances and transactions have been
eliminated.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles 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; purchase accounting allocations; the recoverability of goodwill, trademarks, customer relationship intangibles, property, plant and equipment and
deferred tax assets; the accounting for our EISs and the accounting for earnings per share. Actual results could differ from these estimates and assumptions.
For purposes of the consolidated statements of cash flows, all highly liquid debt instruments with maturities of three months or less when acquired are considered
to be cash and cash equivalents.
60
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
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 management's review of inventories on hand compared to estimated future usage and sales.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated using the straight-line method over the estimated
useful lives of the assets, 12 to 20 years for buildings and improvements, 5 to 12 years for machinery and equipment, and 3 to 5 years for office furniture and vehicles. Leasehold
improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Expenditures for maintenance, repairs and minor replacements
are charged to current operations. Expenditures for major replacements and betterments are capitalized. We capitalize interest on qualifying assets based on our effective interest rate.
Goodwill and intangible assets with indefinite useful lives (trademarks) are tested for impairment at least annually and whenever events or circumstances occur
indicating that goodwill or indefinite life intangibles might be impaired.
We
perform the annual impairment tests as of the last day of each fiscal year. The annual goodwill impairment test involves a two-step process. The first step of the
impairment test involves comparing the fair value of our company with our company's carrying value, including goodwill. If the carrying value of our company exceeds our fair value, we perform the
second step of the impairment test to determine the amount of the impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the
carrying value of that goodwill and recognizing a loss for the difference. Calculating our fair value requires significant estimates and assumptions by management. We estimate our fair value by
applying third party market value indicators to our net income before net interest expense, income taxes, depreciation and amortization (EBITDA). We test indefinite life intangible assets for
impairment by comparing their carrying value to their fair value that is determined using a cash flow method and recognize a loss to the extent the carrying value is greater.
We
completed our annual impairment tests for fiscal 2007, 2006 and 2005 with no adjustments to the carrying values of goodwill and indefinite life intangibles. We did not note any events
or circumstances during fiscal 2007, 2006 or 2005 that would indicate that goodwill or indefinite life intangibles might be impaired.
Debt issuance costs are capitalized and amortized over the term of the related debt agreements and are classified as other non-current assets.
Amortization of deferred debt issuance costs for fiscal years 2007, 2006 and 2005 was $3.2 million, $2.8 million and $2.8 million, respectively. During the second quarter of
fiscal 2007, we expensed $1.8 million of deferred debt costs incurred in connection with the repayment of $100.0 million of term loan borrowings under our credit facility.
61
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
Long-lived assets, such as property, plant and equipment, and intangibles with estimated useful lives are depreciated or amortized over their
respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Recoverability of assets held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated cost to sell. Estimating future cash
flows and calculating fair value of assets requires significant estimates and assumptions by management.
Assets
to be disposed of are separately presented in the consolidated balance sheets and are no longer depreciated.
During
fiscal 2007 and 2006, we amortized $5.5 million and $0.7 million, respectively, of the customer relationship intangibles acquired in the
Cream of Wheat
and
Grandma's
molasses acquisitions. We had no customer relationship intangibles in
fiscal 2005.
Accumulated other comprehensive loss includes foreign currency translation adjustments relating to assets and liabilities located in our foreign subsidiaries,
changes in our minimum pension liability, net of tax, changes in our pension benefits due to the initial adoption and ongoing application of SFAS No. 158, net of tax and changes in our cash
flow hedge, net of tax. The components of accumulated other comprehensive loss are as follows (dollars in thousands):
|
|
Foreign
Currency
Translation
|
|
Minimum
Pension Liability,
Net of Tax
|
|
Cash Flow Hedge
|
|
SFAS No.158,
Net of Tax
|
|
Total
|
|
December 30, 2006
|
|
$
|
(86
|
)
|
$
|
(215
|
)
|
$
|
|
|
$
|
(1,603
|
)
|
$
|
(1,904
|
)
|
December 29, 2007
|
|
|
(92
|
)
|
|
|
|
|
(3,665
|
)
|
|
39
|
|
|
(3,718
|
)
|
We account for our derivative and hedging transactions in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,
"
Accounting for Derivative Instruments and Hedging Activities
,"
and SFAS No. 138, "
Accounting for Certain Derivative Instruments and Certain Hedging Activities
" (collectively, with SFAS No. 149 referred
to as Statement No. 133). Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires an entity to recognize all
derivative instruments either as an asset or a liability in the balance sheet and to measure such instruments at fair value. The fair value adjustment is included either in the determination of net
income or as a component of accumulated other comprehensive income (loss) depending on the nature of the hedge. We do not engage in derivative instruments for trading purposes (see Note 8).
62
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
Our EISs include Class A common stock and senior subordinated notes. Upon completion of our initial public offering of EISs in October 2004 (including the
exercise of the over-allotment option), we allocated the proceeds from the issuance of the EISs, based upon relative fair value at the issuance date, to the Class A common stock and
the senior subordinated notes. We have assumed that the price paid in the EIS offering was equivalent to the combined fair value of the Class A common stock and the senior subordinated notes,
and the price paid in the offering for the senior subordinated notes sold separately (not held in the form of EISs) was equivalent to their initial stated principal amount. We have concluded there are
no embedded derivative features related to the EIS that require bifurcation under Statement No. 133. We have determined the fair value of the Class A common stock and the senior
subordinated notes with reference to a number of factors, including the sale of the senior subordinated notes sold separately from the EISs that have the same terms as the senior subordinated notes
included in the EISs. Therefore, we have allocated the entire proceeds of the EIS offering to the Class A common stock and the senior subordinated notes, and the allocation of the EIS proceeds
to the senior subordinated notes did not result in a premium or discount.
We
have concluded that the call option and the change in control put option in the senior subordinated notes do not warrant separate accounting under Statement No. 133 because
they are clearly and closely related to the economic characteristics of the host debt instrument. Therefore, we have allocated the entire proceeds of the offering to the Class A common stock
and the senior subordinated notes. Upon subsequent issuances, if any, of senior subordinated notes, we will evaluate whether the call option and the change in control put option in the senior
subordinated notes require separate accounting under Statement No. 133. We expect that if there is a substantial discount or premium upon a subsequent issuance of senior subordinated notes, we
may need to separately account for the call option and the change in control put option features as embedded derivatives for such subsequent issuance. If we determine that the embedded derivatives, if
any, require separate accounting from the debt host contract under Statement No. 133, the call option and the change in control put option associated with the senior subordinated notes will be
recorded as derivative liabilities at fair value, with changes in fair value recorded as other non-operating income or expense. Any discount on the senior
subordinated notes resulting from the allocation of proceeds to an embedded derivative will be amortized to interest expense over the remaining life of the senior subordinated notes.
The
Class A common stock portion of each EIS is included in stockholders' equity, net of the related portion of the EIS transaction costs allocated to Class A common stock.
Dividends paid on the Class A common stock portion of each EIS are recorded as a decrease to additional paid-in capital when declared by us. The senior subordinated note portion of
each EIS is included in long-term debt, and the related portion of the EIS transaction costs allocated to the senior subordinated notes was capitalized as deferred debt issuance costs and
is being amortized to interest expense using the effective interest method. Interest on the senior subordinated notes is charged to expense as accrued by us.
Revenues are recognized when products are shipped. We report all amounts billed to a customer in a sale transaction as revenue, including those amounts related to
shipping and handling. Shipping and handling costs are included in cost of goods sold. Consideration from a vendor to a retailer is
63
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
presumed
to be a reduction to the selling prices of the vendor's products and, therefore, should be characterized as a reduction of sales when recognized in the vendor's income statement. As a result,
coupon incentives and promotional expenses are recorded as a reduction of net sales.
Advertising costs are expensed as incurred. Advertising costs amounted to approximately $4.0 million, $3.3 million and $2.9 million, for the
fiscal years 2007, 2006 and 2005, respectively.
We offer various sales incentive programs to customers and consumers, such as price discounts, in-store display incentives, slotting fees and coupons.
The recognition of expense for
these programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the
level of redemption rates and performance vary from estimates.
We have defined benefit pension plans covering substantially all of our employees. Our funding policy is to contribute annually the amount recommended by our
actuaries. See Note 11 for additional information.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities of our company are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
As
part of the income tax provision process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current
tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities.
We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we establish a valuation allowance.
Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we include such charge in our tax provision, or reduce our tax benefits in
our consolidated statement of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against
our net deferred tax assets.
64
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
There
are various factors that may cause these tax assumptions to change in the near term, and we may have to record a valuation allowance against our deferred tax assets. We cannot
predict whether future U.S. federal and state income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant
changes to the U.S. federal and state income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new
regulations and legislation are enacted. We recognize the benefit of an uncertain tax position that we have taken or expect to take on our income tax returns we file if it is "more likely than not"
that such tax position will be sustained based on its technical merits.
Cash dividends, if any, are accrued as a liability on our consolidated balance sheet and recorded as a decrease to additional paid-in capital when
declared.
We currently have one class of common stock issued and outstanding, designated as Class A common stock. Prior to May 29, 2007, we had two classes of
common stock issued and outstanding, designated as Class A common stock and Class B common stock. For periods in which we had shares of both Class A common stock and
Class B common stock issued and outstanding, we present earnings per share using the two-class method. The two-class method is an earnings allocation formula that
determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings or losses. Net income is allocated between the two
classes of common stock based upon the two-class method. Basic and diluted earnings per share for the
65
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
Class A
common stock and Class B common stock is calculated by dividing allocated net income by the weighted average number of shares of Class A common stock and Class B
common stock outstanding.
|
|
Fiscal
2007
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
17,825
|
|
$
|
11,573
|
|
$
|
8,005
|
|
Less: Class A common stock dividends declared
|
|
|
27,631
|
|
|
16,960
|
|
|
16,960
|
|
|
|
|
|
|
|
|
|
Undistributed loss available to Class A and Class B common stockholders
|
|
$
|
(9,806
|
)
|
$
|
(5,387
|
)
|
$
|
(8,955
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Class A common shares outstanding
|
|
|
29,910,666
|
|
|
20,000,000
|
|
|
20,000,000
|
|
Basic and diluted Class B common shares outstanding
|
|
|
3,093,159
|
|
|
7,556,443
|
|
|
7,556,443
|
|
|
|
|
|
|
|
|
|
Basic and diluted allocation of undistributed loss:
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
(8,887
|
)
|
$
|
(3,910
|
)
|
$
|
(6,499
|
)
|
Class B common stock
|
|
|
(919
|
)
|
|
(1,477
|
)
|
|
(2,456
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(9,806
|
)
|
$
|
(5,387
|
)
|
$
|
(8,955
|
)
|
|
|
|
|
|
|
|
|
Undistributed loss:
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
(0.30
|
)
|
$
|
(0.20
|
)
|
$
|
(0.32
|
)
|
Class B common stock
|
|
$
|
(0.30
|
)
|
$
|
(0.20
|
)
|
$
|
(0.33
|
)
|
Distributed earnings:
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
0.92
|
(1)
|
$
|
0.85
|
|
$
|
0.85
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
0.62
|
|
$
|
0.65
|
|
$
|
0.53
|
|
Class B common stock
|
|
$
|
(0.30
|
)
|
$
|
(0.20
|
)
|
$
|
(0.33
|
)
|
-
(1)
-
"Distributed
earnings" differs from actual per share amounts paid as dividends as the earnings per share computation under GAAP requires the use of the weighted average, rather than
the actual number of shares outstanding.
During fiscal 2007, 2006 and 2005 our board of directors declared quarterly cash dividends of $0.212 per share ($0.848 per share per annum), on
our Class A common stock.
Since
May 29, 2007, we no longer have any shares of Class B common stock issued or outstanding. In addition, no dividends on our Class B common stock were ever
declared prior to such date. Therefore, for purposes of the earnings per share calculation, all distributed earnings are included in Class A common stock earnings per share.
66
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
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 senior notes and senior subordinated notes as of December 29, 2007 and December 26, 2006 are as follows (dollars in thousands):
|
|
December 29, 2007
|
|
December 30, 2006
|
|
|
Carrying Value
|
|
Fair Value
(1)(2)
|
|
Carrying Value
|
|
Fair Value
(1)(3)
|
8% Senior Notes due October 1, 2011
|
|
$
|
240,000
|
|
$
|
235,800
|
|
$
|
240,000
|
|
$
|
244,800
|
12% Senior Subordinated Notes due October 30, 2016
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
represented by EISs
|
|
|
119,067
|
|
|
126,561
|
|
|
143,000
|
|
|
N/A
|
|
held separately
|
|
|
46,733
|
|
|
49,674
|
|
|
22,800
|
|
|
25,510
|
-
(1)
-
Fair
values are estimated based on quoted market prices, except as otherwise noted in footnotes (2) and (3) below.
-
(2)
-
Solely
for purposes of this presentation, we have assumed that the fair value of each senior subordinated note at December 29, 2007 was $7.60, based upon the $10.07 per share
closing price of our separately traded Class A common stock and the $17.67 per EIS closing price of our EISs on the New York Stock Exchange on December 28, 2007 (the last business day of
fiscal 2007). Each EIS represents one share of Class A common stock and $7.15 principal amount of our senior subordinated notes.
-
(3)
-
It
is not practicable to estimate the fair value of the $143.0 million principal amount of senior subordinated notes represented by the EISs at December 30, 2006.
The carrying value of our term loan borrowings approximates fair value because interest rates under the term loan borrowings are variable, based
on prevailing market rates. Our term loan borrowings are subject to the interest rate swap discussed below.
We
use an interest rate swap to manage variable interest rate exposure on our $130.0 million of term loan borrowings. Our objective for holding this derivative is to decrease the
volatility of future cash flows associated with interest payments on our variable rate debt. Derivative instruments are recognized in other assets or liabilities on our consolidated balance sheet at
fair value. We record gains and losses on derivatives qualifying as a cash flow hedge in comprehensive income (loss), to the extent that the hedge is effective and until we recognize the underlying
transactions in net income, at which time these gains and losses are reflected in the consolidated statement of operations. Other comprehensive income for fiscal 2007 includes net unrealized after tax
losses of $3.7 million ($5.9 million pre-tax). The unrealized amounts in comprehensive income (loss) will fluctuate based on changes in the fair value of open contracts
during each reporting period. We did not have any derivatives during fiscal 2006 or fiscal 2005.
In July 2006, the FASB issued FASB Interpretation No. 48, "
Accounting for Uncertainty in Income Taxes
"
(FIN 48). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company
has
67
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
taken
or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is "more likely than not" that the position is
sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a
taxing authority having full knowledge of all relevant information. A tax benefit from an uncertain position was previously recognized if it was probable of being sustained. Under FIN 48, the
liability for unrecognized tax benefits is classified as non-current unless the liability is expected to be settled in cash within 12 months of the reporting date. On May 2,
2007, the FASB issued FASB Staff Position No. 48-1, "
Definition of Settlement in FASB Interpretation 48
"
(FIN 48-1). FIN 48-1 amends FIN 48 to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose
of recognizing previously unrecognized tax benefits. The guidance in FIN 48-1 is to be applied upon the initial adoption of FIN 48. As a result of the adoption of
FIN 48, as amended by FIN 48-1, at the beginning of fiscal 2007, we reclassified $0.2 million to other non-current liabilities.
In
September 2006, the FASB issued SFAS No. 158, "
Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans
,
an Amendment of FASB Statements No. 87,
88, 106, and 132R
" (SFAS No. 158). SFAS No. 158 requires an employer to recognize in its
statement of financial position an asset for a defined benefit plan's over-funded status or a liability for a plan's under-funded status and recognize changes in the funded status of a
defined benefit plan in the year in which the changes occur. These changes will be reported in our accumulated other comprehensive loss and as a separate component of stockholders' equity. We adopted
SFAS No. 158 at the end of fiscal 2006. The adoption of SFAS No. 158 in fiscal 2006 resulted in the recognition of $2.6 million of additional pension obligations, deferred tax
assets of $1.0 million and a decrease to stockholders' equity of $1.6 million, with no impact to our statements of operations or cash flows.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, "
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
" (SAB No. 108), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment. SAB No. 108 allows a one-time transitional cumulative effect adjustment to beginning retained earnings for
errors that were not previously deemed material, but are material under the guidance in SAB No. 108. In accordance with SAB No. 108, we have adjusted our opening accumulated deficit for
fiscal 2006 in the amount of $0.6 million to re-establish certain deferred tax liabilities that were reversed prior to fiscal 2001.
In
September 2006, the FASB issued SFAS No. 157, "
Fair Value Measurements
" (SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective as of the beginning of fiscal 2008, with the
exception of certain provisions deferred until fiscal 2009. We do not anticipate that the adoption of this statement will have a material impact on our consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "
Business Combinations
" (SFAS No. 141R), and SFAS
No. 160, "
Noncontrolling Interests in Consolidated Financial Statements
" (SFAS No. 160). SFAS No. 141R requires an acquirer to
measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value
over the net identifiable assets acquired. SFAS No. 160
68
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(2) Summary of Significant Accounting Policies (Continued)
clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS
No. 141R and SFAS No. 160 are effective as of the beginning of our 2009 fiscal year. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R and
SFAS No. 160 on our consolidated financial statements.
(3) Inventories
Inventories consist of the following as of the dated indicated (dollars in thousands):
|
|
December 29, 2007
|
|
December 30, 2006
|
Raw materials and packaging
|
|
$
|
19,573
|
|
$
|
11,461
|
Work in process
|
|
|
2,641
|
|
|
2,587
|
Finished goods
|
|
|
70,967
|
|
|
64,221
|
|
|
|
|
|
|
Total
|
|
$
|
93,181
|
|
$
|
78,269
|
|
|
|
|
|
(4) Gain on Sale of Property, Plant and Equipment
On July 1, 2005, we closed our New Iberia, Louisiana, manufacturing facility as part of our ongoing efforts to improve our production capacity utilization,
productivity and operating efficiencies, and lower our overall costs. During the thirteen weeks ended December 31, 2005, we began negotiations for the sale of the land and building and
classified the land and building, with a carrying value of $0.8 million, as assets held for sale at such time and ceased depreciation. The sale of our New Iberia facility closed on
July 9, 2006. We received net proceeds of $1.3 million and recorded a gain on the sale of $0.5 million.
(5) Property, Plant and Equipment, net
Property, plant and equipment, net consists of the following as of the dates indicated (dollars in thousands):
|
|
December 29, 2007
|
|
December 30, 2006
|
|
Land
|
|
$
|
1,779
|
|
$
|
1,771
|
|
Buildings and improvements
|
|
|
21,967
|
|
|
16,786
|
|
Machinery and equipment
|
|
|
69,418
|
|
|
58,756
|
|
Office furniture and vehicles
|
|
|
7,314
|
|
|
6,675
|
|
Construction-in-progress
|
|
|
4,859
|
|
|
4,001
|
|
|
|
|
|
|
|
|
|
|
105,337
|
|
|
87,989
|
|
Less: accumulated depreciation
|
|
|
(55,679
|
)
|
|
(47,720
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,658
|
|
$
|
40,269
|
|
|
|
|
|
|
|
69
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(6) Goodwill, Trademarks and Customer Relationship Intangibles
The following table reconciles the changes in the carrying amount of goodwill in fiscal 2007 and 2006 (dollars in thousands):
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Beginning balance
|
|
$
|
198,076
|
|
$
|
189,028
|
|
Cream of Wheat
acquisition
|
|
|
55,277
|
|
|
|
|
Grandma's
molasses acquisition
|
|
|
|
|
|
9,877
|
|
Purchase price allocation adjustment
Ortega
food service dispensing pouch and dipping cup business, reclassified to trademark
|
|
|
|
|
|
(829
|
)
|
|
|
|
|
|
|
Ending balance
|
|
$
|
253,353
|
|
$
|
198,076
|
|
|
|
|
|
|
|
The
following table reconciles the changes in the carrying amount of trademarks, which have an indefinite life, in fiscal 2007 and 2006 (dollars in thousands):
|
|
Fiscal 2007
|
|
Fiscal 2006
|
Beginning balance
|
|
$
|
200,220
|
|
$
|
194,264
|
Cream of Wheat
acquisition
|
|
|
27,000
|
|
|
|
Grandma's
molasses acquisition
|
|
|
|
|
|
5,100
|
Purchase price allocation adjustment
Ortega
food service dispensing pouch and dipping cup business
|
|
|
|
|
|
856
|
|
|
|
|
|
Ending balance
|
|
$
|
227,220
|
|
$
|
200,220
|
|
|
|
|
|
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.
|
|
Customer
Relationship Intangibles
|
|
Less:
Accumulated
Amortization
|
|
Total
|
|
|
|
(dollars in thousands)
|
|
Balance at December 31, 2005
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Grandma's
molasses acquisition
|
|
|
15,100
|
|
|
|
|
|
15,100
|
|
Amortization expense
|
|
|
|
|
|
(731
|
)
|
|
(731
|
)
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006
|
|
$
|
15,100
|
|
$
|
(731
|
)
|
$
|
14,369
|
|
Cream of Wheat
acquisition
|
|
|
113,900
|
|
|
|
|
|
113,900
|
|
Amortization expense
|
|
|
|
|
|
(5,501
|
)
|
|
(5,501
|
)
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
129,000
|
|
$
|
(6,232
|
)
|
$
|
122,768
|
|
|
|
|
|
|
|
|
|
We
expect to recognize $6.5 million of amortization expense per year associated with our current customer relationship intangibles during fiscal 2008 and each of the next four
succeeding years. No amortization expense of customer relationship intangibles was recorded for fiscal 2005.
70
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(7) Leases
We have several noncancelable operating leases, primarily for our corporate headquarters, warehouses, transportation equipment and machinery. These leases
generally require us to pay all executory costs such as maintenance, taxes and insurance.
We
lease a manufacturing and warehouse facility from a former chairman of our board of directors under an operating lease that expires in April 2009. Total rent expense associated with
this lease was $0.8 million per annum for fiscal 2007, 2006 and 2005.
As
of December 29, 2007, future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) for the
periods set forth below are as follows (dollars in thousands):
Fiscal year ending:
|
|
Third Parties
|
|
Related Party
|
|
2008
|
|
$
|
2,923
|
|
$
|
822
|
|
2009
|
|
|
1,611
|
|
|
206
|
|
2010
|
|
|
583
|
|
|
|
|
2011
|
|
|
268
|
|
|
|
|
2012
|
|
|
66
|
|
|
|
|
Thereafter
|
|
|
2
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,453
|
|
$
|
1,028
|
|
|
|
|
|
Total
rental expense was $4.3 million, $4.1 million and $3.6 million, for the fiscal years 2007, 2006 and 2005, respectively.
(8) Long-Term Debt
Long-term
debt consists of the following (dollars in thousands):
|
|
December 29, 2007
|
|
December 30, 2006
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
|
|
$
|
|
|
Term loan
|
|
|
130,000
|
|
|
25,000
|
12% Senior Subordinated Notes due October 30, 2016
|
|
|
165,800
|
|
|
165,800
|
8% Senior Notes due October 1, 2011
|
|
|
240,000
|
|
|
240,000
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
535,800
|
|
$
|
430,800
|
|
|
|
|
|
Senior Secured Credit Facility.
In October 2004, we entered into a $30.0 million senior secured revolving credit
facility. In order to finance the
Grandma's
molasses acquisition, we amended the credit facility in January 2006 to provide for, among other things, a
new $25.0 million term loan and a reduction in the revolving credit facility commitments from $30.0 million to $25.0 million. In order to finance the
Cream
of Wheat
acquisition, our credit facility was amended and restated in February 2007 to provide for, among other things, an additional $205.0 million of term loan
borrowings. On May 29, 2007, we prepaid $100.0 million of term loan borrowings. Our $25.0 million revolving credit facility
71
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(8) Long-Term Debt (Continued)
matures
on January 10, 2011 and the remaining $130.0 million of term loan borrowings matures on February 26, 2013.
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, and LIBOR plus an applicable margin. 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%.
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. The interest rate for the remaining $100.0 million of term loan borrowings, which we subsequently prepaid, was 7.36% as of the prepayment date
(based upon a three-month LIBOR rate in effect at that time that expired on May 25, 2007). The swap is designated as a cash flow hedge under the guidelines of SFAS No. 133. The swap is
in place through the life of the term loan, ending on February 26, 2013. Changes in fair value of the swap are recorded in accumulated other comprehensive income (loss), net of tax on our
consolidated balance sheet.
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 subsidiaries' assets except our and our subsidiaries' real property. The credit facility provides for mandatory
prepayment based on asset dispositions and certain 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 December 29, 2007, 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 line of business as our
company, subject to specified criteria. The revolving credit facility was undrawn on the date of its commencement in October 2004 and remained undrawn through December 29, 2007. The available
borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $0.5 million, was $24.5 million at December 29, 2007. 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.
12.0% Senior Subordinated Notes due 2016.
In October 2004, we issued $165.8 million aggregate principal amount of
12.0% senior subordinated notes due 2016, $143.0 million in the form of EISs and $22.8 million separate from EISs. As of December 29, 2007, $119.1 million aggregate
principal amount of senior subordinated notes was held in the form of EISs and $46.7 million aggregate principal amount of senior subordinated notes was held separate from EISs.
Interest
on the senior subordinated notes is payable quarterly in arrears on each January 30, April 30, July 30 and October 30 through the maturity date. The
senior subordinated notes will mature on October 30, 2016, unless earlier retired or redeemed as described below.
72
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(8) Long-Term Debt (Continued)
Upon the occurrence of a change of control (as defined in the indenture), unless we have retired the senior subordinated notes or exercised our right to redeem
all senior subordinated notes as described below, each holder of the senior subordinated notes has the right to require us to repurchase that holder's senior subordinated notes at a price equal to
101.0% of the principal amount of the senior subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must
separate the senior subordinated notes and Class A common stock represented by such holder's EISs.
We
may not redeem the senior subordinated notes prior to October 30, 2009. However, we may, from time to time, seek to retire the senior subordinated notes through cash
repurchases of EISs or separate senior subordinated notes and/or exchanges of EISs or separate senior subordinated 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.
In
addition, on and after October 30, 2009, we may redeem for cash all or part of the senior subordinated notes at a redemption price of 106.0% beginning October 30, 2009
and thereafter at prices declining annually to 100% on or after October 30, 2012. If we redeem any senior subordinated notes, the senior subordinated notes and Class A common stock
represented by each EIS will be automatically separated.
The
senior subordinated notes are unsecured obligations and are subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness,
including the indebtedness under our credit facility and our senior notes. The senior subordinated notes rank pari passu in right of payment with any of our other subordinated indebtedness.
Our
obligations under the senior subordinated notes are jointly and severally and fully and unconditionally guaranteed by all of our existing domestic subsidiaries and certain future
domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in our senior subordinated notes indenture. The senior subordinated note guarantees are subordinated in right of
payment to all existing and future senior indebtedness of the guarantors, including the indebtedness under our credit facility and the senior notes. Our present foreign subsidiaries are not
guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of our senior subordinated notes.
Our
senior subordinated 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 sales of 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 December 29, 2007, we were in compliance with all of the covenants in the senior
subordinated notes indenture.
8.0% Senior Notes due 2011.
In October 2004, we issued $240.0 million aggregate principal amount of 8.0% senior notes
due 2011. Interest on the senior notes is payable on April 1 and October 1 of each year. The senior notes will mature on October 1, 2011, unless earlier retired or redeemed as
described below.
73
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(8) Long-Term Debt (Continued)
We
may not redeem the senior notes prior to October 1, 2008. However, we may, from time to time, seek to retire the 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.
On
or after October 1, 2008, we may redeem some or all of the senior notes at a redemption price of 104.0% beginning October 1, 2008 and thereafter at prices declining
annually to 100% on or after October 1, 2010. If we or any of the guarantors sell certain assets or experience specific kinds of changes in control, we must offer to purchase the senior notes
at the prices as described in our senior notes indenture plus accrued and unpaid interest to the date of redemption.
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, including the senior subordinated notes. Our present foreign subsidiaries
are not guarantors, 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 sales of 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 December 29, 2007, we were in compliance with all of the covenants in the senior notes indenture.
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 senior subordinated notes and our senior notes, and management has determined that our subsidiaries that
are not guarantors of our senior subordinated notes and senior notes are, individually and in the aggregate, "minor subsidiaries" 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 Issuance Costs.
In connection with the issuance of our senior subordinated notes and our senior notes in
October, 2004, we capitalized approximately $23.1 million of debt issuance costs, which will be amortized over their respective terms. In connection with the issuance of our term loan in
January 2006, we capitalized approximately $0.4 million of additional debt issuance costs, which will be amortized over the term of the loan. In connection with the issuance of additional term
loan
74
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(8) Long-Term Debt (Continued)
borrowings
of $205.0 million in February 2007 we capitalized approximately $4.0 million of additional debt issuance costs. During the second quarter of 2007 we wrote-off and
expensed $1.8 million of deferred debt issuance costs in connection with our May 2007 prepayment of $100.0 million of term loan borrowings. As of December 29, 2007 and
December 30, 2006 we had net deferred debt issuance costs of $16.4 million and $17.3 million, respectively.
At
December 29, 2007 and December 30, 2006 accrued interest of $8.9 million and $8.5 million, respectively, is included in accrued expenses in the
accompanying consolidated balance sheets.
As
of December 29, 2007, the aggregate maturities of long-term debt are as follows (dollars in thousands):
Years ended December:
|
|
|
2008
|
|
$
|
|
2009
|
|
|
|
2010
|
|
|
|
2011
|
|
|
240,000
|
2012
|
|
|
|
Thereafter
|
|
|
295,800
|
|
|
|
|
Total
|
|
$
|
535,800
|
|
|
|
(9) Income Taxes
The components of income before income tax expense consist of the following (dollars in thousands):
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Fiscal 2005
|
U.S.
|
|
$
|
28,406
|
|
$
|
17,535
|
|
$
|
13,240
|
Foreign
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,465
|
|
$
|
17,535
|
|
$
|
13,240
|
|
|
|
|
|
|
|
75
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(9) Income Taxes (Continued)
Income
taxes consist of the following (dollars in thousands):
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Fiscal 2005
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,309
|
|
$
|
|
|
$
|
302
|
|
State
|
|
|
(13
|
)
|
|
(203
|
)
|
|
138
|
|
Foreign
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,317
|
|
|
(203
|
)
|
|
440
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,497
|
|
|
6,317
|
|
|
4,513
|
|
State
|
|
|
826
|
|
|
(152
|
)
|
|
282
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
9,323
|
|
|
6,165
|
|
|
4,795
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,640
|
|
$
|
5,962
|
|
$
|
5,235
|
|
|
|
|
|
|
|
Income
tax expense differs from the expected income tax expense (computed by applying the U.S. federal income tax rate of 35% for fiscal years 2007, 2006 and 2005 to income before income
tax expense) as a result of the following:
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Fiscal 2005
|
|
Expected tax expense
|
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
Increase (decrease):
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit/expense
|
|
2.8
|
%
|
(1.6
|
)%
|
3.2
|
%
|
|
Nondeductible expenses, net of deductible revenue
|
|
|
|
0.6
|
%
|
0.1
|
%
|
|
Other differences
|
|
(0.4
|
)%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
37.4
|
%
|
34.0
|
%
|
39.5
|
%
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal income tax benefit in fiscal 2006 includes a reduction in the state effective tax rate used to measure our net deferred liabilities. The decrease in
the state effective tax rate, net of federal benefit for fiscal 2006 was the result of a change in the state apportionment factors.
76
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(9) Income Taxes (Continued)
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (dollars in thousands):
|
|
December 29,
2007
|
|
December 30,
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, principally due to allowance
|
|
$
|
38
|
|
$
|
38
|
|
|
Inventories, principally due to additional costs capitalized for tax purposes
|
|
|
513
|
|
|
633
|
|
|
Accruals and other liabilities
|
|
|
2,784
|
|
|
2,727
|
|
|
Net operating loss and tax credit carryforwards
|
|
|
678
|
|
|
1,531
|
|
|
Deferred debt issuance costs
|
|
|
602
|
|
|
22
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
4,615
|
|
|
4,951
|
|
Less valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
4,615
|
|
|
4,951
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
(3,696
|
)
|
|
(4,854
|
)
|
|
Goodwill
|
|
|
(17,398
|
)
|
|
(13,155
|
)
|
|
Trademarks
|
|
|
(50,252
|
)
|
|
(46,309
|
)
|
|
Customer relationship intangibles
|
|
|
(783
|
)
|
|
(88
|
)
|
|
Prepaid expenses
|
|
|
(800
|
)
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(72,929
|
)
|
|
(65,043
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(68,314
|
)
|
$
|
(60,092
|
)
|
|
|
|
|
|
|
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable income and reversal of deferred tax liabilities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences, net of any valuation allowances at December 29, 2007. The amount of
the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during future periods are reduced.
The
valuation allowance at December 29, 2007 and December 30, 2006 was $0.
At
December 29, 2007, we have state net operating loss carryforwards of $36.8 million, which are available to offset future taxable income, if any, through 2021. As a
result of our acquisitions in prior years, the annual utilization of the net operating loss carryforwards acquired is limited under certain provisions of the Internal Revenue Code.
77
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(9) Income Taxes (Continued)
At
December 29, 2007 we have intangibles of $337.9 million for tax purposes, which are amortizable through 2022.
As
a result of the adoption of FIN 48, as amended by FIN 48-1, at the beginning of fiscal 2007 we reclassified $0.2 million to other
non-current liabilities (of which the entire amount would impact our effective tax rate if recognized). This liability for unrecognized tax benefits relates to state income taxes and
Canadian income taxes. During the third quarter of 2007, we paid the Canadian income tax liability in full. At the end of fiscal 2007, our liability for unrecognized tax benefits was approximately
$0.1 million, which includes interest and penalties. If recognized, it would have a favorable impact on our tax expense. Our policy is to classify interest and penalties related to income tax
uncertainties as income tax expense.
|
|
Fiscal 2007
|
|
|
|
(dollars in thousand)
|
|
Reconciliation of unrecognized tax benefits:
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
157
|
|
|
Settlements
|
|
|
(45
|
)
|
|
Expiration of statute of limitations
|
|
|
(21
|
)
|
|
|
|
|
|
Balance as of December 29, 2007
|
|
$
|
91
|
|
|
|
|
|
We
operate in multiple taxing jurisdictions within the United States and Canada and from time to time face audits from various tax authorities regarding the deductibility of certain
expenses, state income tax nexus, intercompany transactions, transfer pricing and other matters.
Although
we do not believe that we are currently under examination in any of our major tax jurisdictions, we remain subject to examination in all of our tax jurisdictions until the
applicable statutes of limitations expire. As of December 29, 2007, a summary of the tax years that remain subject to examination in our major tax jurisdictions are:
United StatesFederal
|
|
2005 and forward
|
United StatesStates
|
|
2000 and forward
|
Canada
|
|
2006 and forward
|
Based
upon the expiration of statutes of limitations and the conclusion of tax examinations in several jurisdictions, we believe it is reasonably possible that the total amount of
previously unrecognized tax benefits may decrease within twelve months of the reporting date.
78
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(10) Capital Stock
Authorized Common Stock.
We have two separate authorized classes of common stock, our Class A common stock, par value
$0.01 per share, and our Class B common stock, par value $0.01 per share. As of December 29, 2007, there were 36,778,988 shares of Class A common stock issued and outstanding,
16,652,767 of which were held as part of EISs and 20,126,221 of which were held separate from EISs. Each EIS represents one share of Class A common stock and $7.15 principal amount of 12%
senior subordinated notes due 2016. The holders of our EISs may separate each EIS into one share of Class A common stock and $7.15 principal amount of senior subordinated notes at any time.
Upon the occurrence of certain events (including redemption of the senior subordinated notes or upon maturity of the senior subordinated notes), EISs will automatically separate. Conversely, subject
to limitations, a holder of separate shares of Class A common stock and senior subordinated notes can combine such securities to form EISs. Separation and combination of EISs will automatically
result in increases and decreases, respectively, in the number of shares of Class A common stock not held in the form of EISs.
As
of December 29, 2007, there were no shares of Class B common stock issued or outstanding.
Voting Rights.
The holders of our common stock are entitled to one vote per share with respect to each matter on which the
holders of our common stock are entitled to vote. Shares of our Class A common stock and Class B common stock, if any, are entitled to the same voting rights per share and vote together
as a single class on all matters with respect to which holders are entitled to vote. The holders of our common stock are not entitled to cumulate their votes in the election of our directors.
Dividends.
The holders of our common stock are entitled to receive dividends, if any, as they may be lawfully declared from
time to time by our board of directors, subject to any preferential rights of holders of any outstanding shares of preferred stock. In the event of any liquidation, dissolution or winding up of our
company, Class A common stockholders are entitled to share ratably in our assets available for distribution to the stockholders, subject to the prior rights of holders of any outstanding
preferred stock.
With
respect to rights to dividends and on liquidation, dissolution or winding up, there is no difference between our Class A and Class B common stock, except that under
our organizational documents,
through the dividend payment dates with respect to the quarterly and annual dividend payment periods ending January 2, 2010, dividends on our Class B common stock (to the extent there
are any issued and outstanding shares of Class B common stock) will be subordinated to the payment of dividends on our Class A common stock and will be paid on an annual basis. In
addition, holders of our Class B common stock, if any, will, subject to the subordination provision described above and certain other conditions, be entitled to dividend payments of 1.1 times
the amount of dividends, if any, paid to the holders of our Class A common stock.
During
fiscal 2007, 2006 and 2005 our board of directors declared quarterly cash dividends of $0.212 per share ($0.848 per share per annum), on our Class A common stock. No
dividends on our Class B common stock were declared in fiscal 2007, 2006 or 2005.
Additional Issuance of Our Authorized Common Stock and Preferred Stock.
Additional shares of our authorized common stock and
preferred stock may be issued, as determined by our board of directors from time to time, without approval of holders of our common stock, except as may be required by applicable law or the rules of
any stock exchange or automated quotation system on which
79
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(10) Capital Stock (Continued)
our
securities may be listed or traded. Our board of directors has the authority by resolution to determine and fix, with respect to each series of preferred stock prior to the issuance of any shares
of the series to which such resolution relates, the designations, powers, preferences and rights of the shares of preferred stock of such series and any qualifications, limitations or restrictions
thereof.
(11) Pension Benefits
We have defined benefit pension plans covering substantially all of our employees. The benefits are based on years of service and the employee's compensation, as
defined. We make annual contributions to the plans equal to the maximum amount that can be deducted for income tax purposes.
The
following table sets forth our defined benefit pension plans' benefit obligation, fair value of plan assets and funded status recognized in the consolidated balance sheets. We used
December 29,
80
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(11) Pension Benefits (Continued)
2007
and December 30, 2006 measurement dates for fiscal 2007 and 2006, respectively, to calculate end of year benefit obligations, fair value of plan assets and annual net periodic benefit
cost.
|
|
December 29,
2007
|
|
December 30,
2006
|
|
|
|
(dollars in thousands)
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
23,082
|
|
$
|
22,342
|
|
Amendment to plan
|
|
|
|
|
|
471
|
|
Actuarial (loss) gain
|
|
|
(2,857
|
)
|
|
(2,023
|
)
|
Service cost
|
|
|
1,391
|
|
|
1,518
|
|
Interest cost
|
|
|
1,303
|
|
|
1,210
|
|
Benefits paid
|
|
|
(476
|
)
|
|
(436
|
)
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
|
22,443
|
|
|
23,082
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
18,818
|
|
|
14,406
|
|
Actual gain on plan assets
|
|
|
1,579
|
|
|
2,234
|
|
Employer contributions
|
|
|
3,735
|
|
|
2,614
|
|
Benefits paid
|
|
|
(476
|
)
|
|
(436
|
)
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
23,656
|
|
|
18,818
|
|
|
|
|
|
|
|
Net amount recognized:
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
1,213
|
|
$
|
536
|
|
Other long-term liabilities
|
|
|
|
|
|
(4,800
|
)
|
|
|
|
|
|
|
Funded status at the end of the year
|
|
$
|
1,213
|
|
$
|
(4,264
|
)
|
|
|
|
|
|
|
Amount recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
(440
|
)
|
$
|
(485
|
)
|
Actuarial gain (loss)
|
|
|
503
|
|
|
(2,444
|
)
|
Deferred taxes
|
|
|
(24
|
)
|
|
1,111
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
39
|
|
$
|
(1,818
|
)
|
|
|
|
|
|
|
The
amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost fiscal 2008 are as follows (dollars in thousands):
Prior service cost
|
|
$
|
45
|
|
Actuarial gain (loss)
|
|
|
(13
|
)
|
|
|
|
|
|
|
$
|
32
|
|
|
|
|
|
81
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(11) Pension Benefits (Continued)
|
|
December 29,
2007
|
|
December 30,
2006
|
|
Weighted-average assumptions:
|
|
|
|
|
|
Discount rate
|
|
6.50
|
%
|
5.90
|
%
|
Rate of compensation increase
|
|
4.00
|
%
|
4.00
|
%
|
Expected long-term rate of return
|
|
7.75
|
%
|
7.75
|
%
|
The
discount rate used to determine year-end fiscal 2007 pension benefit obligations was derived by matching the plans' expected future cash flows to the corresponding yields
from the
Citigroup Pension Discount Curve. This yield curve has been constructed to represent the available yields on high-quality fixed-income investments across a broad range of future
maturities.
Net
periodic cost includes the following components (dollars in thousands):
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Fiscal 2005
|
|
Service costbenefits earned during the period
|
|
$
|
1,391
|
|
$
|
1,518
|
|
$
|
1,534
|
|
Interest cost on projected benefit obligation
|
|
|
1,303
|
|
|
1,210
|
|
|
1,127
|
|
Expected return on plan assets
|
|
|
(1,485
|
)
|
|
(1,154
|
)
|
|
(1,013
|
)
|
Amortization of unrecognized prior service cost
|
|
|
45
|
|
|
35
|
|
|
4
|
|
Amortization of (gain)/loss
|
|
|
(3
|
)
|
|
188
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
|
$
|
1,251
|
|
$
|
1,797
|
|
$
|
1,871
|
|
|
|
|
|
|
|
|
|
The
asset allocation for our pension plans at the end of fiscal 2007 and fiscal 2006, and the target allocation for fiscal 2008, by asset category, follows. The fair value of plan assets
for these plans is $23.7 million and $18.8 million at the end of fiscal 2007 and fiscal 2006, respectively. The expected long-term rate of return on these plan assets was
7.75% in fiscal 2006 and fiscal 2007.
Our
pension plan assets are managed by outside investment managers; assets are rebalanced at the end of each quarter. Our investment strategy with respect to pension assets is to
maximize return while protecting principal. The investment manager has the flexibility to adjust the asset allocation and move funds to the asset class that offers the most opportunity for investment
returns.
|
|
|
|
Percentage of Plan Assets at Year End
|
|
Asset Category
|
|
Target
Allocation
|
|
December 29,
2007
|
|
December 30,
2006
|
|
Equity securities
|
|
60
|
%
|
64
|
%
|
63
|
%
|
Fixed income securities
|
|
35
|
%
|
30
|
%
|
28
|
%
|
Cash
|
|
5
|
%
|
6
|
%
|
9
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
82
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(11) Pension Benefits (Continued)
Information
about the expected cash flows for the pension plan follows (dollars in thousands):
|
|
Pension Benefits
|
Expected company contribution:
|
|
|
|
|
2008
|
|
$
|
100
|
Expected benefit payments:
|
|
|
|
|
2008
|
|
$
|
635
|
|
2009
|
|
|
658
|
|
2010
|
|
|
759
|
|
2011
|
|
|
837
|
|
2012
|
|
|
976
|
|
2013 to 2017
|
|
|
7,411
|
We
sponsor a defined contribution plan covering substantially all of our employees. Employees may contribute to this plan and these contributions are matched by us at varying amounts.
Contributions for the matching component of this plan amounted to $0.6 million, $0.6 million and $0.7 million for fiscal 2007, fiscal 2006 and fiscal 2005, respectively.
Pension
expense relating to a multi-employer pension plan amounted to $0.9 million, $0.8 million and $0.7 million for fiscal 2007, fiscal 2006 and fiscal 2005,
respectively.
(12) Related-Party Transactions
Transaction Services Agreement.
We were party to a transaction services agreement pursuant to which Bruckmann, Rosser,
Sherrill & Co., Inc. (BRS & Co.), the manager of Bruckmann, Rosser, Sherrill & Co., L.P. (BRS), would be paid a transaction fee for management,
financial and other corporate advisory services rendered by BRS & Co. in connection with acquisitions, divestitures, financings and other transactions by our company, which fee would not
exceed 1.0% of the total transaction value. BRS was our majority owner prior to our EIS offering in October 2004 and remained a majority owner of our Class B common stock prior to our
Class A common stock offering in May 2007. Stephen C. Sherrill, the chairman of our board of directors, is a managing director of BRS & Co. The transaction services agreement
provided that transaction fees would be payable as described above unless a majority of disinterested directors determined otherwise. Upon the consummation of the Class A common stock offering,
the transaction services agreement was terminated. No transaction fees were paid under the transaction services agreement during fiscal 2007 prior to its termination or during fiscal 2006 or fiscal
2005.
Roseland Lease.
We lease a manufacturing and warehouse facility from a former chairman of our board of directors under an
operating lease, which expires in April 2009. Total rent expense associated with this lease was $0.8 million for fiscal 2007, 2006 and 2005.
Acquisition of Grandma's Molasses.
On January 10, 2006, through a wholly-owned subsidiary, we acquired the
Grandma's
molasses business from Mott's LLP, a Cadbury Schweppes Americas Beverages company, for $30.0 million in cash. James R. Chambers,
a member of our board of directors has been the President, Cadbury Schweppes Americas Confectionary since July 2005. Mr. Chambers did not participate in the negotiation of the transaction nor
did he participate in the board's deliberations or
83
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(12) Related-Party Transactions (Continued)
decisions
regarding the transaction. Mr. Chambers did not personally have any direct or indirect pecuniary or other interest in the transaction as a result of his position at Cadbury.
Repurchase and Exchange of Class B Common Stock.
We used a portion of the proceeds of the Class A common stock
offering to repurchase 6,762,455 shares of our Class B common stock, which were held
by, among others, BRS, Mr. Sherrill and certain of our current and former executive officers, at a per share repurchase price equal to the offering price of our Class A common stock, or
$13.00 per share, less discounts and commissions. We also exchanged the remaining 793,988 shares of our Class B common stock, which were held by certain of our current and former executive
officers, for an equal numbers of shares of our Class A common stock in order to eliminate all of our outstanding Class B common stock. Our board of directors established a special
committee comprised solely of our independent directors to recommend to our board of directors the repurchase price and exchange ratio for our Class B common stock, to negotiate with the
holders of the Class B common stock, and to recommend to our board of directors if the transaction was in our best interests and fair to the holders of our Class A common stock. The
special committee retained a financial advisor to provide information, advice and analysis to assist the special committee in its review of the proposed transaction. The special committee also engaged
its own legal counsel to advise the special committee on its duties and responsibilities. The financial advisor delivered to the special committee an opinion that the proposed consideration to be paid
by us to the holders of the Class B common stock was fair to us and the holders of the Class A common stock from a financial point of view. After considering all of the information it
had gathered, the special committee recommended to our board of directors that from a valuation standpoint, the purchase price for the Class B common stock to be repurchased should be the
offering price of the Class A common stock in the offering, net of underwriting discounts and commissions, and that each share of our Class B common stock to be exchanged should be
exchanged for one share of our Class A common stock. The special committee also recommended to our board of directors that based on the repurchase price and Class A and Class B
exchange ratio and other material terms of the transaction, the transaction was advisable and in our best interests and fair to the holders of our Class A common stock.
(13) Commitments and Contingencies
We are subject to environmental laws and regulations in the normal course of business. We did not make any material expenditures during fiscal 2007, 2006 or 2005
in order to comply with environmental laws or regulations. Based on our experience to date, management believes 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.
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, worker's
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
84
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(13) Commitments and Contingencies (Continued)
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.
We
have employment agreements with our executive officers. The agreements generally continue until terminated by the executive or by us, and provide for severance payments under certain
circumstances. As of December 29, 2007, if all of our executive officers were to be terminated by us without cause (as defined) or as a result of the employees' disability, our severance
liability, including salary continuation, continuation of health care and insurance benefits, present value of additional pension credits, and accelerated vesting under compensation plans, would have
been approximately $4.0 million. As of December 29, 2007, if all of our executives were to be terminated or deemed terminated by us upon a change of control (as defined), our severance
liability, including salary continuation, continuation of health care and insurance benefits, present value of additional pension credits, accelerated vesting under compensation plans, and potential
excise tax liability and gross up payments, would have been approximately $6.4 million.
(14) Incentive Plans
Annual Bonus Plan.
Annually, our board of directors establishes a bonus plan that provides for cash awards to be made to our
executive officers and other senior managers upon our company's attainment of pre-set annual financial objectives. Awards are normally paid in cash in a lump sum following the close of
each plan year.
2004 Long-Term Incentive Plan.
In connection with our 2004 EIS offering, we adopted a long-term
incentive plan (2004 LTIP) to strengthen the mutuality of interests between our executive officers and other senior management employees and the holders of our EISs. In February 2007, the compensation
committee of our board of directors decided to postpone setting a
participant pool and minimum per EIS distributable cash target under the 2004 LTIP for fiscal 2007 until it had time to reassess the 2004 LTIP and contemplate other long term incentive programs. On
September 25, 2007, the compensation committee terminated the 2004 LTIP. No amounts were earned by participants under the 2004 LTIP from the date of its inception through the date of its
termination and thus there was no expense related to the 2004 LTIP in fiscal 2007, 2006 or 2005.
Special Bonus Awards.
On September 25, 2007, our compensation committee approved a special bonus pool designed to
recognize the significant contributions of our executive officers and certain members of senior management to the successful completion of the
Cream of
Wheat
acquisition and the Class A common stock offering. The size of the special bonus pool was based upon the expected attainment of certain cash flow based performance
targets for fiscal 2007 and was to be adjusted upwards or downwards by the compensation committee based upon actual results for fiscal 2007. The formula used to determine the special
one-time bonus pool was designed to approximate the formula previously used under the 2004 LTIP. Our general and administrative expenses for fiscal 2007 includes an accrual of
$1.9 million for the payment of the special bonus awards. The special cash bonus awards will be paid in March 2008.
New Long-Term Incentive Program.
The compensation committee is working with an outside consultant to structure a
new long-term incentive compensation program for 2008 and beyond. It is anticipated that awards granted in 2008 by the compensation committee under any new long-term
85
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(14) Incentive Plans (Continued)
incentive
program would be performance-based awards payable in Class A common stock. Any such awards would be subject to stockholder approval of an equity incentive plan at the 2008 annual
meeting of stockholders.
(15) Restructuring Charges
On July 1, 2005, we closed our New Iberia, Louisiana, manufacturing facility as part of our ongoing efforts to improve our production capacity utilization,
productivity, and operating efficiencies and lower our overall costs. In fiscal 2006, we recorded a charge of $3.8 million to cost of goods sold. The charge associated with the plant closing
included a cash charge for employee compensation and other costs of $0.8 million and a non-cash charge for the impairment of property, plant, equipment and inventory of
$3.1 million.
(16) Quarterly Financial Data (unaudited)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
103,745
|
|
$
|
118,204
|
|
$
|
117,003
|
|
$
|
132,384
|
|
|
2006
|
|
$
|
92,980
|
|
$
|
105,265
|
|
$
|
101,854
|
|
$
|
111,207
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
32,683
|
|
$
|
37,323
|
|
$
|
38,278
|
|
$
|
39,736
|
|
|
2006
|
|
$
|
27,866
|
|
$
|
28,403
|
|
$
|
29,353
|
|
$
|
28,631
|
|
Net income available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
4,074
|
|
$
|
3,737
|
|
$
|
4,846
|
|
$
|
5,168
|
|
|
2006
|
|
$
|
2,952
|
|
$
|
2,309
|
|
$
|
3,443
|
|
$
|
2,869
|
|
Basic and diluted net income (loss) available to common stockholders per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007Class A common stock
|
|
$
|
0.20
|
|
$
|
0.17
|
|
$
|
0.13
|
|
$
|
0.14
|
|
|
2007Class B common stock
|
|
$
|
(0.01
|
)
|
$
|
(0.13
|
)
|
|
N/A
|
|
|
N/A
|
|
|
2006Class A common stock
|
|
$
|
0.16
|
|
$
|
0.14
|
|
$
|
0.18
|
|
$
|
0.16
|
|
|
2006Class B common stock
|
|
$
|
(0.05
|
)
|
$
|
(0.07
|
)
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
Basic and diluted earnings distributed per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007Class A common stock
|
|
$
|
0.21
|
|
$
|
0.30
|
|
$
|
0.21
|
|
$
|
0.21
|
|
|
2006Class A common stock
|
|
$
|
0.21
|
|
$
|
0.21
|
|
$
|
0.21
|
|
$
|
0.21
|
|
Earnings
per share were computed individually for each of the periods presented; therefore, the sum of the earnings per share and distributed earnings amounts for the quarters may not
equal the total for
the year. During fiscal 2007, 2006 and 2005 our board of directors declared quarterly cash dividends of $0.212 per share ($0.848 per share per annum), on our Class A common stock. Since
May 29, 2007, we no longer have any shares of Class B common stock issued or outstanding. In addition, no dividends on our Class B common stock were ever declared prior to such
date. Therefore, for purposes of the earnings per share calculation, all distributed earnings are included in Class A common stock earnings per share.
86