Table of Contents
As filed with the Securities and Exchange
Commission on April 28, 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark
one)
x
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Quarterly
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For the
quarterly period ended April 4, 2009
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or
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o
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Transition
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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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
(State or other
jurisdiction of
incorporation or
organization)
|
13-3918742
(I.R.S. Employer
Identification No.)
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|
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4
Gatehall Drive, Suite 110, Parsippany, New Jersey
(Address of
principal executive offices)
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07054
(Zip Code)
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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. (Check one):
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting
company
o
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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 April 4, 2009, the registrant had 36,033,057 shares of Class A
common stock, par value $0.01 per share, issued and outstanding, 17,858,539 of
which were held in the form of Enhanced Income Securities (EISs) and 18,174,518
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. As of April 4, 2009, the registrant had
no shares of Class B common stock, par value $0.01 per share, issued or
outstanding.
Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
B&G Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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April 4, 2009
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January 3, 2009
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Assets
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Current assets:
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Cash and cash equivalents
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$
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33,498
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$
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32,559
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Trade accounts receivable, less allowance for doubtful accounts and
discounts of $596 in 2009 and $637 in 2008
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31,994
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36,578
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Inventories
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93,883
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88,899
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Prepaid expenses
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2,323
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2,475
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Income tax receivable
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1,438
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2,221
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Deferred income taxes
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1,110
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1,110
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Total current assets
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164,246
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163,842
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Property, plant and equipment, net of accumulated depreciation of
$66,442 and $64,510
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51,548
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51,059
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Goodwill
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253,353
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253,353
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Trademarks
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227,220
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227,220
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Customer relationship intangibles, net
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114,705
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116,318
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Net deferred debt issuance costs and other assets
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12,725
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13,298
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Total assets
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$
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823,797
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$
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825,090
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Liabilities and Stockholders Equity
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Current liabilities:
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Trade accounts payable
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$
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25,774
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$
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27,286
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Accrued expenses
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12,263
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16,023
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Dividends payable
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6,126
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6,162
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Total current liabilities
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44,163
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49,471
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Long-term debt
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535,800
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535,800
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Other liabilities
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24,807
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23,671
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Deferred income taxes
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74,561
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71,500
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Total liabilities
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679,331
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680,442
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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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Class A common stock, $0.01 par value per share. Authorized
100,000,000 shares; 36,033,057 and 36,246,657 shares issued and outstanding
as of April 4, 2009 and January 3, 2009
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360
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362
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Class B common stock, $0.01 par value per share. Authorized
25,000,000 shares; no shares issued or outstanding
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Additional paid-in capital
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164,771
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171,123
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Accumulated other comprehensive loss
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(12,099
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)
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(12,358
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)
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Accumulated deficit
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(8,566
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)
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(14,479
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)
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Total stockholders equity
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144,466
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144,648
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Total liabilities and stockholders equity
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$
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823,797
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$
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825,090
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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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April 4,
2009
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March 29,
2008
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Net sales
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$
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118,638
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$
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116,342
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Cost of goods sold
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79,889
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81,412
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Gross profit
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38,749
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34,930
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Operating expenses:
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Sales, marketing and distribution expenses
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10,987
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12,289
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General and administrative expenses
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2,339
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1,358
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Amortization expensecustomer relationships
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1,613
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1,613
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Operating income
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23,810
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19,670
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Other expenses:
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Interest expense, net
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14,289
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12,571
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Income before income tax expense
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9,521
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7,099
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Income tax expense
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3,608
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2,690
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Net income
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$
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5,913
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$
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4,409
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Basic and diluted weighted average shares outstanding:
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Class A common stock
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36,197
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36,779
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Basic and diluted earnings per share:
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Class A common stock
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$
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0.16
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$
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0.12
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Cash dividends declared per share of Class A common stock
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$
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0.17
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$
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0.21
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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)
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Thirteen Weeks Ended
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April 4, 2009
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March 29, 2008
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Cash flows from operating activities:
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Net income
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$
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5,913
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$
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4,409
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Adjustments to reconcile net income to net cash provided by operating
activities:
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Depreciation and amortization
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3,560
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3,689
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Amortization of deferred debt issuance costs
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792
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792
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Deferred income taxes
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2,834
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2,177
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Unrealized loss on interest rate swap
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743
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Reclassification to interest expense, net from interest rate swap
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422
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Share-based compensation expense
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747
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Changes in assets and liabilities:
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Trade accounts receivable
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4,584
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7,201
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Inventories
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(4,984
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)
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(1,956
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)
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Prepaid expenses
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152
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1,005
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Income tax receivable
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783
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513
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Other assets
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(219
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)
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256
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Trade accounts payable
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(1,512
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)
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(6,420
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)
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Accrued expenses
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(3,760
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)
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(1,134
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)
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Other liabilities
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571
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442
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Net cash provided by operating activities
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10,626
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10,974
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Cash flows from investing activities:
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Capital expenditures
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(2,443
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)
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(6,420
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)
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Net cash used in investing activities
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(2,443
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)
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(6,420
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)
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Cash flows from financing activities:
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Dividends paid
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(6,162
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)
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(7,797
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)
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Payments for repurchase of Class A common stock
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(975
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)
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Net cash used in financing activities
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(7,137
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)
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(7,797
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)
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|
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Effect of exchange rate fluctuations on cash and cash equivalents
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(107
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)
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(37
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)
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Net increase (decrease) in cash and cash equivalents
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939
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(3,280
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)
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Cash and cash equivalents at beginning of period
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32,559
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36,606
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Cash and cash equivalents at end of period
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$
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33,498
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$
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33,326
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Supplemental disclosures of cash flow
information:
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Cash interest payments
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$
|
17,130
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$
|
7,012
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Cash income tax payments
|
|
$
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17
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$
|
10
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Cash income tax refunds
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$
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(24
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)
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$
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(40
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)
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Non-cash transactions:
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Dividends declared and not yet paid
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$
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6,126
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$
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7,797
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|
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 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
year ending January 2, 2010 (fiscal 2009) contains 52 weeks and our fiscal
year ended January 3, 2009 (fiscal 2008) contained 53 weeks. Each quarter of fiscal 2009 and 2008 contains
13 weeks, except the fourth quarter of 2008 which contained 14 weeks.
Basis of Presentation
The accompanying
consolidated interim financial statements for the thirteen week periods ended April 4,
2009 (first quarter of 2009) and March 29, 2008 (first quarter of 2008)
have been prepared by our company in accordance with accounting principles
generally accepted in the United States of America without audit, 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 April 4, 2009, the results of our operations and cash flows for the
first quarter of 2009 and 2008. Our
results of operations for the first quarter of 2009 are not necessarily
indicative of the results to be expected for the full year. The accompanying unaudited consolidated
interim financial statements should be read in conjunction with the audited
consolidated financial statements and notes for fiscal 2008 included in our
Annual Report on Form 10-K for fiscal 2008 filed with the SEC on March 5,
2009.
Use of Estimates
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
4
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(2)
Summary
of Significant Accounting Policies (Continued)
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 enhanced income securities (EISs); 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,
including the current economic environment, that management believe to be reasonable
under the circumstances. We adjust such
estimates and assumptions when facts and circumstances dictate. Recent volatility in the credit, equity and
foreign currency markets has increased the uncertainty inherent in such
estimates and assumptions.
Enhanced Income Securities
Each of our EISs represents one share of our Class A
common stock and $7.15 principal amount of our senior subordinated notes.
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 April 4, 2009, we had 36,033,057
shares of Class A common stock issued and outstanding, 17,858,539 of which
were held in the form of EISs and 18,174,518 of which were held separate from
EISs. As of March 29, 2008 we had
36,778,988 shares of Class A common stock issued and outstanding,
16,680,877 of which were held in the form of EISs and 20,098,111 of which were
held separate from EISs.
Recently Issued Accounting Standards
In September 2006, the FASB issued
Statement of Financial Accounting Standards (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 were effective as of the beginning
of our fiscal 2008, with the exception of certain provisions deferred until the
beginning of our fiscal 2009. In February 2008,
the FASB issued FASB Staff Position SFAS No. 157-2,
Effective Date of FASB Statement No. 157,
which delayed the effective date of SFAS No. 157 for all non-financial
assets and liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, until the beginning of
our fiscal 2009. We adopted SFAS No. 157
effective at the beginning of our fiscal 2008 for financial assets and
financial liabilities, which did not have a material impact on our results of
operations or financial position. We
adopted SFAS No. 157 effective at the beginning of our fiscal 2009 for
non-financial assets and non-financial liabilities, which did not have a
material impact on our results of operations or financial position.
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 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the
5
Table of
Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(2)
Summary of Significant Accounting
Policies (Continued)
consolidated financial
statements. SFAS No. 141R and SFAS No. 160
are effective as of the beginning of our fiscal 2009. SFAS No. 141R will be applied
prospectively. The effects of SFAS No. 141R
will depend on future acquisitions. SFAS
No. 160 requires retroactive adoption.
We currently do not have any noncontrolling interests in subsidiaries.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS No. 161)
. SFAS No. 161 requires enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No. 133
and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entitys financial position, financial
performance, and cash flows. SFAS No. 161
is effective as of the beginning of our fiscal 2009. Since SFAS No. 161 requires enhanced
disclosures, without a change to existing standards relative to measurement and
recognition, our adoption of SFAS No. 161 did not have any effect on our
results of operations or financial position.
See notes 5 and 7 for the required disclosures about our derivative
instruments and hedging activities.
In April 2008, the FASB issued FASB
Staff Position No. FAS 142-3,
Determination of the
Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 requires companies estimating the
useful life of a recognized intangible asset to consider their historical
experience in renewing or extending similar arrangements or, in the absence of
historical experience, to consider assumptions that market participants would
use about renewal or extension as adjusted for entity-specific factors. FSP 142-3 is effective as of the beginning of
our fiscal 2009. We adopted FSP 142-3
effective at the beginning of our fiscal 2009, which did not have a material
impact on our results of operations or financial position.
In December 2008, the FASB issued FASB Staff Position No. FAS
132(R)-1,
Employers Disclosures about Postretirement Benefit
Plan Assets
(FSP 132(R)-1).
FSP 132(R)-1 requires additional disclosures about plan assets for
defined benefit pension and other postretirement benefit plans. FSP 132(R)-1 will be effective as of the end
of our fiscal 2009. Since FSP 132(R)-1
requires enhanced disclosures, without a change to existing standards relative
to measurement and recognition, our adoption of FSP 132(R)-1 will not have a
material impact on our results of operations or financial position.
(3)
Inventories
Inventories
consist of the following, as of the dates indicated (dollars in thousands):
|
|
April 4, 2009
|
|
January 3, 2009
|
|
Raw materials and packaging
|
|
$
|
18,672
|
|
$
|
19,402
|
|
Work in process
|
|
1,538
|
|
2,658
|
|
Finished goods
|
|
73,673
|
|
66,839
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,883
|
|
$
|
88,899
|
|
(4)
Goodwill, Trademarks and
Customer Relationship Intangibles
There has been no change in the carrying
amount of goodwill for the period from January 3, 2009 to April 4,
2009.
6
Table of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(4)
Goodwill, Trademarks and Customer
Relationship Intangibles (Continued)
There has been no change
in the carrying amount of trademarks (indefinite-lived intangibles) for the
period from January 3, 2009 to April 4, 2009.
The following table
reconciles the changes in the carrying amount of customer relationship
intangibles for the period from January 3, 2009 to April 4, 2009
(dollars in thousands):
|
|
Customer
Relationship
Intangibles
|
|
Less:
Accumulated
Amortization
|
|
Total
|
|
Balance at
January 3, 2009
|
|
$
|
129,000
|
|
$
|
(12,682
|
)
|
$
|
116,318
|
|
Amortization expense
|
|
|
|
(1,613
|
)
|
(1,613
|
)
|
Balance at April 4, 2009
|
|
$
|
129,000
|
|
$
|
(14,295
|
)
|
$
|
114,705
|
|
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 first quarter of 2009
and 2008 was $1.6 million, and is recorded in operating expenses. We expect to recognize an additional $4.9
million of amortization expense associated with our current customer relationship
intangibles during the remainder of fiscal 2009, 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):
|
|
April 4, 2009
|
|
January 3, 2009
|
|
Senior secured credit facility:
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
|
|
$
|
|
|
Term loan
|
|
130,000
|
|
130,000
|
|
|
|
|
|
|
|
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
|
|
$
|
535,800
|
|
As of April 4, 2009, the aggregate maturities
of long-term debt are as follows (dollars in thousands):
Years
ending December:
|
|
|
|
2009
|
|
$
|
|
|
2010
|
|
|
|
2011
|
|
240,000
|
|
2012
|
|
|
|
2013
|
|
130,000
|
|
Thereafter
|
|
165,800
|
|
Total
|
|
$
|
535,800
|
|
7
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(5)
Long-term Debt (Continued)
Senior Secured Credit Facility
. Our
$25.0 million revolving credit facility matures on January 10, 2011 and
our $130.0 million of term loan borrowings matures on February 26, 2013,
provided, however, that if we do not repay, redeem or refinance our senior
notes prior to April 1, 2011, the outstanding term loan borrowings will
become immediately due and payable on April 1, 2011.
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%.
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 April 4,
2009, 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 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.
On September 15, 2008, Lehman Brothers
Holdings Inc. (Lehman) filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Lehman Commercial Paper
Inc. (Lehman CPI), a Lehman subsidiary, is the administrative agent under our
credit facility. Lehman CPI filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on October 3,
2008. None of our $130.0 million of
outstanding term loans is currently with Lehman, Lehman CPI or any other
subsidiary of Lehman. Lehman CPI is one
of the lenders participating in our $25.0 million revolving credit facility. However, Lehman CPI has only $3.1 million of
the $25.0 million commitment. The other
lenders under the revolving credit facility and their respective commitments
are as follows: Bank of America, N.A.,
$9.4 million; Citibank, N.A., $9.4 million; and Royal Bank of Canada, $3.1
million. We do not believe that Lehman
CPI would honor its funding commitment under the revolving credit facility if
we were to make a funding request. As a
result, the effective available borrowing capacity under our revolving credit
facility, net of outstanding letters of credit of $0.5 million, was $21.4
million at April 4, 2009. We have
not drawn upon the revolving credit facility since its inception in October 2004
and, based upon our cash 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).
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 under the guidelines of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, as amended by SFAS No. 138,
Accounting
8
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(5)
Long-term Debt
(Continued)
for
Certain Derivative Instruments and Certain Hedging Activities
and SFAS No. 149,
Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities
(collectively referred to as SFAS No. 133). Prior to Lehmans bankruptcy filing, we
recorded changes in the fair value of the swap in other comprehensive income
(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 as defined by SFAS No. 133 and, accordingly,
subsequent changes in the swaps fair value are being recorded in current
earnings in net interest expense in the consolidated statements of
operations. We obtain third-party
verification of fair value at the end of each reporting period. As of April 4, 2009, the fair value of
our interest rate swap was $13.9 million and is recorded in other liabilities
on our consolidated balance sheet. The
amount recorded in accumulated other comprehensive income (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 first quarter of 2009 includes a $0.7
million charge relating to the unrealized loss on our interest rate swap and a
reclassification of $0.4 million of the amount recorded in accumulated other
comprehensive income (loss) related to the swap. During fiscal 2009, we expect to reclassify
to net interest expense $1.1 million of the amount recorded in accumulated
other comprehensive income (loss).
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 Canadian subsidiary, which is our
only subsidiary that is not a guarantor of our senior subordinated notes and
senior notes, 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 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 term loan borrowings of $25.0 million 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 borrowings of $205.0 million in February 2007 we capitalized
approximately $4.0 million of additional debt issuance costs, which will be
amortized over the term of the loan.
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 April 4, 2009 and January 3, 2009 we had net deferred
debt issuance costs of $12.4 million and $13.2 million, respectively.
At April 4,
2009 and January 3, 2009 accrued interest of $4.6 million and $9.4
million, respectively, is included in accrued expenses in the accompanying
consolidated balance sheets.
(6)
Fair Value Measurements
We adopted SFAS No. 157
on December 30, 2007, the first day of our fiscal 2008. SFAS No. 157 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 standard 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 SFAS No. 157 details the disclosures that are required for
items measured at fair value.
9
Table of
Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6)
Fair Value Measurements
(Continued)
Financial assets and liabilities
are measured using inputs from the three levels of the SFAS No. 157 fair
value hierarchy. The three levels are as follows:
Level 1Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities.
Level 2Inputs include quoted
prices for similar assets and liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liability
(i.e., interest rates, yield curves, etc.), and inputs that are derived
principally from or corroborated by observable market data by correlation or
other means (market corroborated inputs).
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 April 4, 2009 and January 3, 2009, which is
included in other liabilities in our consolidated balance sheet (dollars in
thousands):
|
|
|
|
Fair Value Measurements
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
April 4, 2009
|
|
Interest rate swap
|
|
$
|
|
|
$
|
13,860
|
|
$
|
|
|
January 3, 2009
|
|
Interest rate swap
|
|
$
|
|
|
$
|
13,117
|
|
$
|
|
|
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 April 4, 2009 and January 3, 2009 are as follows (dollars in
thousands):
|
|
April 4, 2009
|
|
January 3, 2009
|
|
|
|
Carrying Value
|
|
Fair Value(1)(2)
|
|
Carrying Value
|
|
Fair Value(1)(3)
|
|
Senior Secured Term Loan due February 26, 2013
|
|
$
|
130,000
|
|
$
|
119,600
|
|
$
|
130,000
|
|
$
|
107,900
|
|
8% Senior Notes due October 1, 2011
|
|
240,000
|
|
220,800
|
|
240,000
|
|
207,600
|
|
12% Senior Subordinated Notes due October 30, 2016:
|
|
|
|
|
|
|
|
|
|
represented by EISs
|
|
127,689
|
|
101,972
|
|
124,793
|
|
90,235
|
|
held separately
|
|
38,111
|
|
30,436
|
|
41,007
|
|
29,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 April 4, 2009 was $5.71, based upon the $5.09 per share closing
price of our separately traded Class A common stock and the $10.80 per
EIS closing price of our EISs on the New York Stock Exchange on April 3,
2009 (the last business day of the first quarter of 2009). Each EIS
represents one share of Class A common stock and $7.15 principal amount
of our senior subordinated notes.
|
(3)
|
Solely for purposes of this
presentation, we have assumed that the fair value of each senior subordinated
note at January 3, 2009 was $5.17, based upon the $5.49 per share
closing price of our separately traded Class A common stock and the
|
10
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6)
Fair
Value Measurements (Continued)
$10.66 per EIS closing price of our EISs on
the New York Stock Exchange on January 2, 2009 (the last business day of
fiscal 2008).
Our
term loan borrowings are subject to an interest rate swap discussed in Note 5.
(7)
Disclosures about Derivative Instruments and Hedging
Activities
We
account for our derivative and hedging transactions in accordance with SFAS No. 133. SFAS 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. We do not engage in derivative
instruments for trading purposes.
The
following table presents the fair value and the location within our
consolidated balance sheet of all assets and liabilities associated with
derivative instruments not designated as hedging instruments (dollars in
thousands):
Derivatives not
designated as hedging
|
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
instruments under
SFAS No. 133
|
|
Balance Sheet
Location
|
|
Fair Value at
April 4, 2009
|
|
Fair Value at
April 4, 2009
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
Other liabilities
|
|
|
|
$
|
13,860
|
|
|
|
|
|
|
|
|
|
|
See notes 5 and 6 for additional
information regarding our interest rate swap.
We do not currently have any derivatives designated as hedging
instruments under SFAS No. 133.
The
following tables present the impact of derivative instruments and their
location within our consolidated statement of operations (dollars in
thousands):
Derivatives not
designated as hedging
|
|
Amount of (Gain) Loss
Recognized in Income
on Derivatives
|
|
Location of (Gain)
Loss Recognized in
|
|
instruments under
SFAS No. 133
|
|
Thirteen Weeks Ended
April 4, 2009
|
|
Income on
Derivatives
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
1,165
|
*
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
*
|
The amount included in net
interest expense consists of $743 unrealized loss on our interest rate swap,
and $422 (pre-tax) reclassified to net interest expense from accumulated
other comprehensive income.
|
11
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(8)
Comprehensive Income Recognition
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 income (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
|
|
|
|
April 4, 2009
|
|
March 29, 2008
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,913
|
|
$
|
4,409
|
|
Other comprehensive income:
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(114
|
)
|
(37
|
)
|
Amortization of unrecognized prior service cost and pension
deferrals, net of tax
|
|
111
|
|
5
|
|
Cash flow hedge transaction, net of tax
|
|
|
|
(3,417
|
)
|
Reclassification to interest expense, net from interest rate swap
|
|
262
|
|
|
|
Comprehensive income
|
|
$
|
6,172
|
|
$
|
960
|
|
(9)
Pension Benefits
Net periodic costs
for the first quarter of 2009 and 2008 include the following components
(dollars in thousands):
|
|
Thirteen Weeks Ended
|
|
|
|
April 4, 2009
|
|
March 29, 2008
|
|
|
|
|
|
|
|
Service costbenefits earned during the period
|
|
$
|
419
|
|
$
|
330
|
|
Interest cost on projected benefit obligation
|
|
431
|
|
360
|
|
Expected return on plan assets
|
|
(376
|
)
|
(453
|
)
|
Amortization of unrecognized prior service cost
|
|
11
|
|
11
|
|
Amortization of loss (gain)
|
|
167
|
|
(3
|
)
|
Net pension cost
|
|
$
|
652
|
|
$
|
245
|
|
During
the first quarter of 2009, we made no contributions to our defined benefit
pension plans. We anticipate electing to
make contributions of approximately $2.1 million to our defined benefit pension
plans during the remainder of fiscal 2009.
(10)
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 first quarter of 2009 or in
fiscal 2008 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 and
12
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(10)
Commitments and
Contingencies (Continued)
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.
Collective Bargaining Agreements
.
Approximately 354 of our 734 employees, or 48.2%, as of April 4,
2009, were covered by collective bargaining agreements. None of our collective bargaining agreements
is scheduled to expire within one year.
During the first quarter of 2009, we reached an agreement with the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen &
Helpers of America (Local No. 863) to renew the collective bargaining
agreement covering our Roseland, New Jersey facility for the period April 1,
2009 through March 31, 2014.
Severance and Change of Control Agreements.
We have employment
agreements with each of our five 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.
(11)
Earnings per Share
We
currently have only one class of common stock issued and outstanding,
designated as Class A common stock.
During the periods presented there were no shares of Class B common
stock issued or outstanding. Basic
earnings per share for the Class A common stock is calculated by dividing
net income by the weighted average number of shares of Class A common
stock outstanding. Diluted earnings per
share for each of the periods presented are equal to basic earnings per share
because no potentially dilutive securities were outstanding during either
period.
(12)
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 49.4%
and 46.7% of consolidated net sales
for the first quarter of 2009 and 2008, respectively. Our top ten customers accounted for
approximately 52.2% and 56.1% of our receivables as of April 4, 2009 and January 3,
2009, respectively. Other than Wal-Mart,
which accounted for 17.3% and 12.9% of our consolidated net sales for the first
quarter of 2009 and 2008, respectively, no single customer accounted for more
than 10.0% of our consolidated net sales for the first quarter of 2009 or
2008. Other than C&S Wholesale
Grocery and Wal-Mart, which accounted for 13.6% and 12.3% of our consolidated
receivables, respectively, as of April 4, 2009, no single customer
accounted for more than 10.0% of our consolidated receivables as of the end of
the first quarter of 2009. Other than
C&S Wholesale Grocery and Wal-Mart, which accounted for 17.7% and 13.2% of
our
13
Table
of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(12)
Business and Credit
Concentrations and Geographic Information (Continued)
consolidated
receivables, respectively, as of January 3, 2009, no single customer
accounted for more than 10.0% of our consolidated receivables as of the end of
fiscal 2008.
During the first
quarter of 2009 and 2008, our sales to foreign countries represented less than
1.0% of net sales. Our foreign sales are
primarily to customers in Canada.
(13)
Share-Based Compensation
The
recognition of compensation expense for our performance share long-term
incentive awards (LTIAs) is initially based on the probable outcome of the
applicable performance condition based on the fair value of the award on the
date of grant and the anticipated number of shares to be awarded on a
straight-line basis over the applicable performance period. Our companys performance against the
performance goal defined in the award agreements will be re-evaluated on a
quarterly basis throughout the applicable performance period and the
recognition of compensation expense will be adjusted for subsequent changes in
the estimated or actual outcome. The
cumulative effect on current and prior periods of a change in the estimated
number of performance share awards is recognized as an adjustment to earnings
in the period of the revision.
During
the first quarter of 2009, we recognized $0.7 million of compensation expense
related to performance share LTIAs for the 2008 to 2009, 2008 to 2010 and 2009
to 2011 performance periods, which is reflected in general and administrative
and sales, marketing and distribution expenses in our consolidated statements
of operations. As of April 4, 2009,
there was $3.5 million of unrecognized compensation expense related to
performance share LTIAs, which is expected to be recognized over the next 33
months.
The
following table details the activity in our performance share LTIAs for the
first quarter of 2009:
|
|
Number of
Performance Shares (1)
|
|
Weighted Average
Grant Date Fair
Value (per share)(2)
|
|
|
|
|
|
|
|
Beginning of year(3)
|
|
273,814
|
|
$
|
7.25
|
|
Granted(4)
|
|
392,824
|
|
$
|
1.88
|
|
Vested
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
End of first quarter 2009
|
|
666,638
|
|
$
|
4.09
|
|
(1)
|
The
number of unvested performance shares is based on the participants earning
their target number of performance shares at 100%. The ultimate award, which
we determine at the end of the applicable performance period, can range from
zero to 300% of the target number of performance shares.
|
(2)
|
The
fair value of the awards was determined based upon the closing price of our
Class A common stock on the applicable measurement dates 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.
|
(3)
|
Represents
unvested 2008 to 2009 and 2008 to 2010 performance share LTIAs granted in
fiscal 2008.
|
(4)
|
Represents
unvested 2009 to 2011 performance share LTIAs granted in the first quarter of
2009.
|
14
Table of Contents
B&G
Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(14)
Stock and Debt Repurchase Plan
Stock and
Debt Repurchase Plan.
On October 27, 2008, our board of
directors authorized a stock and debt repurchase program for the repurchase of
up to $10.0 million of our Class A common stock and/or senior notes over
the next twelve months. Under the
authorization, we may purchase shares of Class A common stock and/or
senior notes from time to time in the open market or in privately negotiated
transactions in compliance with the applicable rules and regulations of
the SEC.
The
timing and amount of such repurchases, if any, will be at the discretion of
management, and will depend on market conditions and other considerations. Therefore, there can be no assurance as to
the number or aggregate dollar amount of shares that will be repurchased under
the stock and debt repurchase program.
Likewise, there can be no assurance as to the principal amount of senior
notes, if any, that will be repurchased.
We may discontinue the program at any time. Any shares repurchased pursuant to the stock
repurchase program will be retired.
Likewise, any senior notes repurchased will be cancelled. In general, our credit agreement prohibits us
from repurchasing our senior subordinated notes.
During the first quarter of 2009 we
repurchased and retired 213,600 shares of Class A common stock at an
average cost per share (excluding fees and commissions) of $4.53, or $1.0
million in the aggregate. As of April 4,
2009, we had $6.5 million available for any future repurchases of Class A
common stock and/or senior notes under the stock and debt repurchase plan.
15
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 weeks ended April 4, 2009 (first quarter of 2009)
included elsewhere in this report and the audited consolidated financial
statements and related notes for the fiscal year ended January 3, 2009
(fiscal 2008) included in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission (SEC) on March 5, 2009 (which we refer
to as our 2008 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 acquisitions of complementary
branded businesses, continuing to develop innovative new products and
delivering them to market quickly, leveraging our unique 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. Although our commodity prices for wheat were
lower in the first quarter of 2009 than those incurred during the thirteen
weeks ended March 29, 2008 (the first quarter of 2008), our commodity
prices for maple syrup, beans and packaging were higher than those incurred
during the first quarter of 2008.
We
purchase maple syrup primarily from 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 quarter of 2009.
Early indications suggest that the 2009 maple syrup crop yield is
expected to be more consistent with historic levels. This together with the granting of additional
production quotas by the Federation of Québec Maple Syrup Producers, is
expected to bring global supply more in line with global demand and reduce the
price we pay for maple syrup during the remainder of 2009.
The
cost of labor, manufacturing, energy, fuel, packaging materials and other costs
related to the production and distribution of our food products have also risen
significantly in recent years. We
attempt to
16
Table
of Contents
manage
these risks by entering into short-term supply contracts and advance
commodities purchase agreements from time to time, 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, although in certain cases
on a lagging basis. To the extent we are
unable to offset present and future cost increases, our operating results will
be negatively impacted.
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.
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 that 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 and 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 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 share-based compensation expense. Actual results could differ significantly
from these estimates and assumptions.
In our
2008 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 3, 2009.
Results of Operations
The
following table sets forth the percentages of net sales represented by selected
items for the first quarter of 2009 and 2008 reflected in our consolidated
statements of operations. The
comparisons of financial results are not necessarily indicative of future
results:
17
Table of
Contents
|
|
Thirteen Weeks Ended
|
|
|
|
April 4, 2009
|
|
March 29, 2008
|
|
Statement of Operations:
|
|
|
|
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
Cost of goods sold
|
|
67.3
|
%
|
70.0
|
%
|
Gross profit
|
|
32.7
|
%
|
30.0
|
%
|
|
|
|
|
|
|
Sales, marketing and distribution expenses
|
|
9.3
|
%
|
10.6
|
%
|
General and administrative expenses
|
|
2.0
|
%
|
1.1
|
%
|
Amortization expensecustomer relationships
|
|
1.3
|
%
|
1.4
|
%
|
Operating income
|
|
20.1
|
%
|
16.9
|
%
|
|
|
|
|
|
|
Interest expense, net
|
|
12.1
|
%
|
10.8
|
%
|
Income before income tax expense
|
|
8.0
|
%
|
6.1
|
%
|
|
|
|
|
|
|
Income tax expense
|
|
3.0
|
%
|
2.3
|
%
|
Net income
|
|
5.0
|
%
|
3.8
|
%
|
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 and
amortization of deferred debt issuance costs, net of interest income and
subsequent to our determination in September 2008, that our interest rate
swap is no longer an effective hedge as defined by SFAS No.133, unrealized
losses on the interest rate swap and the reclassification of amounts recorded
in accumulated other comprehensive income (loss) related to the swap.
Non-GAAP Financial Measures
Certain
disclosures in this report include non-GAAP (generally accepted accounting
principles) 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.
18
Table
of Contents
EBITDA
is a measure used by management to measure operating performance. EBITDA is defined as net income before net
interest expense, income taxes, depreciation, and amortization. Management
believes that it is useful to eliminate net interest expense, income taxes,
depreciation and amortization 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, our senior notes indenture and our senior subordinated 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, if any, 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 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 first quarter of 2009 and 2008 along with the components of
EBITDA follows:
|
|
Thirteen Weeks Ended
|
|
|
|
April 4, 2009
|
|
March 29, 2008
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
5,913
|
|
$
|
4,409
|
|
Income tax expense
|
|
3,608
|
|
2,690
|
|
Interest expense, net
|
|
14,289
|
|
12,571
|
|
Depreciation and amortization
|
|
3,560
|
|
3,689
|
|
EBITDA
|
|
27,370
|
|
23,359
|
|
Income tax expense
|
|
(3,608
|
)
|
(2,690
|
)
|
Interest expense, net
|
|
(14,289
|
)
|
(12,571
|
)
|
Deferred income taxes
|
|
2,834
|
|
2,177
|
|
Amortization of deferred financing costs
|
|
792
|
|
792
|
|
Unrealized loss on interest rate swap
|
|
743
|
|
|
|
Reclassification to interest expense, net from interest rate swap
|
|
422
|
|
|
|
Share-based compensation expense
|
|
747
|
|
|
|
Changes in assets and liabilities, net of effects of business
combination
|
|
(4,385
|
)
|
(93
|
)
|
Net cash provided by operating activities
|
|
$
|
10,626
|
|
$
|
10,974
|
|
19
Table
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First quarter of 2009 compared to the first quarter of 2008
Net
Sales.
Net sales increased $2.3 million or 2.0% to
$118.6 million for the first quarter of 2009 from $116.3 million for the first
quarter of 2008. Net sales were
negatively impacted by the poor maple syrup crop in Canada in 2008 that led to
a global shortfall of pure maple syrup.
Net sales of our
Maple Grove Farms
pure
maple syrup products decreased by $1.9 million, consisting of a unit volume
decline of $3.3 million, partially offset by sales price increases of $1.4
million. Excluding net sales of our pure
maple syrup products, net sales for the first quarter of 2009 increased $4.2
million or 3.8%. The $4.2 million
increase was attributable to sales price increases of $6.4 million, partially
offset by a decrease in unit volume of $2.2 million.
Net sales of our lines of
Ortega,
B&M, Las Palmas,
Emerils,
Regina
and
Joan of Arc
products increased
by $3.5 million, $1.1 million, $1.0 million, $0.8 million, $0.4 million and
$0.4 million or 13.7%, 27.1%, 15.9%, 21.3%, 17.2% and 13.9%, respectively. These increases were offset by a reduction in
net sales of
Cream of Wheat
and
B&G
products
of $1.9 million and $0.7 million or 10.6% and 8.7%, respectively, and a
reduction in net sales of our private label pickles and peppers of $0.4 million
or 37.5%. In the aggregate, net sales
for all other brands remained constant.
Gross Profit.
Gross profit increased $3.8
million or 10.9% to $38.7 million for the first quarter of 2009 from $34.9
million for the first quarter of 2008.
Gross profit expressed as a percentage of net sales increased 2.7
percentage points to 32.7% in the first quarter
of 2009 from 30.0% in the first quarter of 2008. This increase in gross profit expressed as a
percentage of net sales was primarily attributable to increased sales prices
and decreased costs for trade spending, slotting, wheat and transportation,
partially offset by increased costs for maple syrup, beans and packaging.
Sales, Marketing and Distribution Expenses.
Sales, marketing and distribution expenses decreased
$1.3 million or 10.6% to $11.0 million for the first quarter of 2009 from $12.3
million for the first quarter of 2008.
This decrease is primarily due to a decrease in consumer and trade
marketing of $0.8 million, a reduction in compensation expense and warehouse
spending of $0.3 million and a decrease in other expenses of $0.2 million. Expressed as a percentage of net sales, our
sales, marketing and distribution expenses decreased to 9.3% for the first
quarter of 2009 from 10.6% for the first quarter of 2008.
General and Administrative Expenses.
General and administrative expenses increased $0.9
million or 72.2% to $2.3 million for the first quarter of 2009 from $1.4
million in the first quarter of 2008.
The increase in general and administrative expenses primarily resulted
from an increased accrual for performance-based equity compensation.
Amortization Expense
Customer
Relationships.
Amortization expensecustomer relationships remained consistent
at $1.6 million for the first quarter of 2009 as compared to the first quarter
of 2008.
Operating Income.
As a result of the foregoing, operating
income increased $4.1 million or 21.1% to $23.8 million for the first quarter
of 2009 from $19.7 million for the first quarter of 2008. Operating income expressed as a percentage of
net sales increased to 20.1% in the first quarter of 2009 from 16.9% in the
first quarter of 2008.
Net Interest Expense.
Net
interest expense increased $1.7 million or 13.7% to $14.3 million for the first
quarter of 2009 from $12.6 million in the first quarter of 2008. Net interest expense in the first quarter of
2009 included a $0.7 million charge relating to the unrealized loss on our
interest rate swap resulting from our determination in September 2008
following the Lehman bankruptcy filing that the swap was no longer an effective
hedge under the guidelines of SFAS No. 133, and a reclassification of $0.4
million of the amount recorded in accumulated other comprehensive income (loss)
related to the swap. Net interest
expense in the first quarter of 2009 also includes a reduction in interest
income primarily due to lower interest rates.
See Liquidity and Capital ResourcesDebt below.
20
Table
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Income Tax Expense.
Income tax expense increased $0.9 million
to $3.6 million for the first quarter of 2009 from $2.7 million for the first
quarter of 2008. Our effective tax rate
was 37.9% for the first quarter of 2009 and 2008.
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 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 decreased $0.4 million to $10.6 million for the first
quarter of 2009 from $11.0 million for the first quarter of 2008. Net income, excluding non-cash items such as
depreciation and amortization, amortization of deferred debt issuance costs,
deferred income taxes, unrealized loss on our interest rate swap, a
reclassification to net interest expense and share-based compensation increased
by $3.9 million. This increase was
offset by a increase in net changes in assets and liabilities of $4.3 million
due in large part to an increase in working capital primarily attributable to a
decrease in accrued expenses relating primarily to the timing of the payment of
our semi-annual interest payment on our senior notes partially offset by a
decrease in trade accounts receivable.
Our $9.6 million semi-annual interest payment on our senior notes is due
on April 1 of each year. During
2009, April 1 was part of our first quarter and during fiscal 2008, April 1
was part of our second quarter.
Net
cash used in investing activities for the first quarter of 2009 decreased $4.0
million to $2.4 million from $6.4 million for the first quarter of 2008. Net cash used in investing activities for the
first quarter of 2009 and 2008 consisted entirely of capital spending. Capital expenditures in the first quarter of
2009 and 2008 included expenditures for building improvements, purchases of
manufacturing and computer equipment and capitalized interest. Capital expenditures for the first quarter of
2008 also included expenditures for the expansion of our Stoughton, Wisconsin
facility and the transfer of a portion of the
Cream of
Wheat
production to that facility.
That project was completed during fiscal 2008 and is the primary reason
that capital spending decreased in the first quarter of 2009 as compared to the
first quarter of 2008.
Net
cash used in financing activities for the first quarter of 2009 was $7.1
million as compared to $7.8 million for the first quarter of 2008. Net cash used in financing activities for the
first quarter of 2009 consisted of the payment of dividends and the repurchase
of Class A common stock. Net cash
used in financing activities for the first quarter of 2008 was entirely for the
payment of dividends to holders of our Class A common stock.
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 2008 and 2007 as compared to our tax expense for financial
reporting purposes. While we expect our
cash taxes to continue to increase in fiscal 2009 as compared to the prior two
years, 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 2009 through 2022.
21
Table of Contents
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
of EISs in October 2004 through the dividend payment we made on October 30,
2008, the dividend rate for our Class A 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 Class A 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 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 subordinated notes indenture, the terms of our revolving
credit facility and our senior notes indenture 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 quarter of 2009 and 2008, we had cash flows provided by operating
activities of $10.6 million and $11.0 million, and distributed $6.2 million and
$7.8 million, respectively, as dividends. 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, our senior subordinated 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.
22
Table of Contents
Acquisitions
Our liquidity and
capital resources have been significantly impacted by acquisitions and may be
impacted in the foreseeable future by additional acquisitions. We have historically financed acquisitions
with borrowings and cash flows from operating activities. Historically, our interest expense has 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.
To the extent future acquisitions are financed by additional
indebtedness, the resulting increase in debt and interest expense could have a
negative impact on liquidity.
Environmental
and Health and Safety Costs
We have not made
any material expenditures during the first quarter of 2009 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.
Debt
Senior Secured Credit Facility
. Our
$25.0 million revolving credit facility matures on January 10, 2011 and
our $130.0 million of term loan borrowings matures on February 26, 2013,
provided, however, that if we do not repay, redeem or refinance our senior notes
prior to April 1, 2011, the outstanding term loan borrowings will become
immediately due and payable on April 1, 2011.
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%.
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 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 April 4, 2009, 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
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.
On September 15, 2008, Lehman Brothers
Holdings Inc. (Lehman) filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Lehman Commercial Paper
Inc. (Lehman CPI), a Lehman subsidiary, is the administrative agent under our
credit facility. Lehman CPI filed for
protection under Chapter 11 of the U.S.
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Bankruptcy Code on October 3, 2008. None of our $130.0 million of outstanding
term loans is currently held by Lehman, Lehman CPI or any other subsidiary of
Lehman. Lehman CPI is one of the lenders
participating in our $25.0 million revolving credit facility. However, Lehman CPI has only $3.1 million of
the $25.0 million commitment. The other
lenders under the revolving credit facility and their respective commitments
are as follows: Bank of America, N.A.,
$9.4 million; Citibank, N.A., $9.4 million; and Royal Bank of Canada, $3.1
million. We do not believe that Lehman
CPI would honor its funding commitment under the revolving credit facility if
we were to make a funding request. As a
result, the effective available borrowing capacity under our revolving credit
facility, net of outstanding letters of credit of $0.5 million, was $21.4
million at April 4, 2009. We have
not drawn upon the revolving credit facility since its inception in October 2004
and, based upon our cash 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).
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 under the guidelines of SFAS No. 133
Accounting
for Derivative Instruments and Hedging Activities,
as amended (SFAS
No. 133). Prior to Lehmans
bankruptcy filing, we recorded changes in the fair value of the swap in other
comprehensive income (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 as defined by SFAS No. 133 and, accordingly,
subsequent changes in the swaps fair value are being recorded in current
earnings in net interest expense in the consolidated statements of operations. We obtain third-party verification of fair
value at the end of each reporting period.
As of April 4, 2009, the fair value of our interest rate swap was
$13.9 million and is recorded in other liabilities on our consolidated balance
sheet. The amount recorded in
accumulated other comprehensive income (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 first quarter of 2009 includes a $0.7 million charge relating to the
unrealized loss on our interest rate swap and a reclassification of $0.4
million of the amount recorded in accumulated other comprehensive income (loss)
related to the swap. During fiscal 2009,
we expect to reclassify to net interest expense $1.1 million of the amount
recorded in accumulated other comprehensive income (loss).
12%
Senior Subordinated Notes due 2016
. In October 2004,
we issued $165.8 million aggregate principal amount of 12% senior subordinated
notes due 2016, $143.0 million of which in the form of EISs and $22.8 million
separate from EISs. As of April 4,
2009, $127.7 million aggregate principal amount of senior subordinated notes
was held in the form of EISs and $38.1 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.
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 holders 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 holders EISs.
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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, would first require an amendment to or a
waiver under our credit agreement and, in any event, will depend on prevailing
market conditions, our liquidity requirements, contractual restrictions and
other factors. 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 foreign subsidiary is not a guarantor,
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 April 4, 2009, we were in compliance with all of the
covenants in the senior subordinated notes indenture.
8% Senior Notes due 2011
. In October 2004,
we issued $240.0 million aggregate principal amount of 8% 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.
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 100.0% 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.
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.
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
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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 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 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 April 4, 2009, we were in compliance with all of the
covenants in the senior notes indenture.
Stock and Debt
Repurchase Plan
On October 27,
2008, our board of directors authorized a stock and debt repurchase program for
the repurchase of up to $10.0 million of our Class A common stock and/or
senior notes over the next twelve months.
Under the authorization, we may purchase shares of Class A common
stock and/or senior notes from time to time in the open market or in privately
negotiated transactions in compliance with the applicable rules and
regulations of the SEC.
The
timing and amount of such repurchases, if any, will be at the discretion of
management, and will depend on market conditions and other considerations. Therefore, there can be no assurance as to
the number or aggregate dollar amount of shares that will be repurchased under
the stock and debt repurchase program.
Likewise, there can be no assurance as to the principal amount of senior
notes, if any, that will be repurchased.
We may discontinue the program at any time. Any shares repurchased pursuant to the stock
repurchase program will be retired.
Likewise, any senior notes repurchased will be cancelled. In general, our credit agreement prohibits us
from repurchasing our senior subordinated notes.
During the first quarter of 2009, we
repurchased and retired 213,600 shares of Class A common stock at an
average cost per share (excluding fees and commissions) of $4.53, or $1.0
million in the aggregate. As of April 4,
2009, we had $6.5 million available for any future repurchases of Class A
common stock and/or senior notes under the stock and debt repurchase plan.
Future Capital
Needs
We are highly leveraged. On April 4, 2009, our total long-term
debt and stockholders equity was $535.8 million and $144.5 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 on hand, cash flow 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, and pay our anticipated dividends on our Class A
common stock.
We expect to make capital expenditures of
approximately $11.0 million in the aggregate during fiscal 2009, $2.4 million
of which have already been made during the first quarter.
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 a
re generally below those of the following
three quarters.
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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.
Inflat
ion
During
fiscal 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 recent raw material, packaging and
transportation cost increases, although in certain cases on a lagging
basis. There can be no assurance,
however, that we will be able to offset any present or future increases in the
cost of raw materials, packaging and transportation, with additional sales
price increases or cost reductions.
Recent Accounting
Pronouncements
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 were
effective as of the beginning of our fiscal 2008, with the exception of certain
provisions deferred until the beginning of our fiscal 2009. In February 2008, the FASB issued FASB
Staff Position SFAS No. 157-2,
Effective
Date of FASB Statement No. 157,
which delayed the effective
date of SFAS No. 157 for all non-financial assets and liabilities, except
those that are recognized or disclosed at fair value in the financial
statements on a recurring basis, until the beginning of our fiscal 2009. We adopted SFAS No. 157 effective at the
beginning of our fiscal 2008 for financial assets and financial liabilities,
which did not have a material impact on our results of operations or financial
position. We adopted SFAS No. 157
effective at the beginning of our fiscal 2009 for non-financial assets and
non-financial liabilities, which did not have a material impact on our results
of operations or financial position.
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 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 fiscal
2009. SFAS No. 141R will be applied
prospectively. The effects of SFAS No. 141R
will depend on future acquisitions. SFAS
No. 160 requires retroactive adoption.
We currently do not have any noncontrolling interests in subsidiaries.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS No. 161)
. SFAS No. 161 requires enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No. 133
and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entitys financial position, financial performance, and
cash flows. SFAS No. 161 is
effective as of the beginning of our fiscal 2009. Since SFAS No. 161 requires enhanced
disclosures, without a change to existing standards relative to measurement and
recognition, our adoption of SFAS No. 161 did not have any effect on our
results of operations or financial position.
In April 2008, the FASB issued FASB
Staff Position No. FAS 142-3,
Determination of the
Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 requires companies estimating the
useful life of a
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recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the
absence of historical experience, to consider assumptions that market
participants would use about renewal or extension as adjusted for
entity-specific factors. FSP 142-3 is
effective as of the beginning of our fiscal 2009. We adopted FSP 142-3 effective at the
beginning of our fiscal 2009, which did not have a material impact on our
results of operations or financial position.
In December 2008, the FASB issued FASB
Staff Position No. FAS 132(R)-1,
Employers Disclosures
about Postretirement Benefit Plan Assets
(FSP 132(R)-1). FSP 132(R)-1 requires additional disclosures
about plan assets for defined benefit pension and other postretirement benefit
plans. FSP 132(R)-1 will be effective as
of the end of our fiscal 2009. Since FSP
132(R)-1 requires enhanced disclosures, without a change to existing standards
relative to measurement and recognition, our adoption of FSP 132(R)-1 will not
have a material impact on our results of operations or financial position.
Off-balance Sheet Arrangements
As of April 4,
2009, 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 quarter of 2009, there were
no material changes outside the ordinary course of business in the specified
contractual obligations set forth in our 2008 Annual Report on Form 10-K,
except that we entered into a new warehouse lease that will require us to make
additional rent payments of approximately $11.5 million in the aggregate over
the course of the lease, which expires in 2016.
These additional rent payments are expected to be partially offset by a
reduction in rent payments relating to certain expiring warehouse leases that
will no longer be needed. In addition,
our expected contributions to our defined benefit pension plans for fiscal 2009
have increased from $1.2 million to $2.1 million because, although not
obligated to do so, we expect to make $0.9 million of voluntary contributions
to our defined benefit pension plans during the remainder of fiscal 2009.
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;
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·
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;
·
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, as well as
recent publicity concerning the health implications of obesity and trans fatty
acids;
·
competitors pricing practices and
promotional spending levels;
·
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
·
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; 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 2008 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, and LIBOR plus an applicable margin.
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 April 4, 2009, and we currently
have no plans to draw upon the facility for the foreseeable future. If we were to make a funding
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request, we do not believe that Lehman CPI
would honor its $3.1 million funding commitment under the revolving credit
facility. As a result, the effective
available borrowing capacity under our revolving credit facility, net of outstanding
letters of credit of $0.5 million, was $21.4 million at April 4, 2009.
We have outstanding $130.0 million of term
loan borrowings at April 4, 2009 and January 3, 2009. 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 Resources-Debt-Senior Secured Credit
Facility in Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional information.
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 April 4, 2009 and January 3, 2009 are as follows (dollars in
thousands):
|
|
April 4, 2009
|
|
January 3, 2009
|
|
|
|
Carrying Value
|
|
Fair Value(1)(2)
|
|
Carrying Value
|
|
Fair Value(1)(3)
|
|
Senior Secured Term Loan due February 26, 2013
|
|
$
|
130,000
|
|
$
|
119,600
|
|
$
|
130,000
|
|
$
|
107,900
|
|
8% Senior Notes due October 1, 2011
|
|
240,000
|
|
220,800
|
|
240,000
|
|
207,600
|
|
12% Senior Subordinated Notes due October 30, 2016:
|
|
|
|
|
|
|
|
|
|
represented by EISs
|
|
127,689
|
|
101,972
|
|
124,793
|
|
90,235
|
|
held separately
|
|
38,111
|
|
30,436
|
|
41,007
|
|
29,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 April 4, 2009 was $5.71, based
upon the $5.09 per share closing price of our separately traded Class A
common stock and the $10.80 per EIS closing price of our EISs on the New York
Stock Exchange on April 3, 2009 (the last business day of the first quarter
of 2009). Each EIS represents one share
of Class A common stock and $7.15 principal amount of our senior
subordinated notes.
(3)
Solely for purposes of this presentation, we have assumed that the fair
value of each senior subordinated note at January 3, 2009 was $5.17, based
upon the $5.49 per share closing price of our separately traded Class A
common stock and the $10.66 per EIS closing price of our EISs on the New York
Stock Exchange on January 2, 2009 (the last business day of fiscal 2008).
The
recent volatility in the global financial markets could negatively impact the
fair value of our debt obligations.
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.
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Item 4
. C
ontrols 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 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.
31
Table of Contents
PART II
OTHER INFORMATION
Item 1. 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.
Item 1A. Risk
Factors
We do not believe
there have been any material changes in our risk factors as previously
disclosed in our 2008 Annual Report on Form 10-K.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity
Securities
The
following table sets forth information with respect to shares of our Class A
common stock that we purchased during the first quarter of 2009:
Period
|
|
Total Number
of Shares
Purchased
|
|
Average Price
Paid per Share
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
|
Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the
Plans or
Programs(a)
|
|
|
|
|
|
|
|
|
|
|
|
January 4, 2009 to January 26, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2009 to February 23, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2009 to April 4, 2009
|
|
213,600
|
|
$
|
4.53
|
|
213,600
|
|
$
|
6,497,552
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
213,600
|
|
$
|
4.53
|
|
213,600
|
|
$
|
6,497,552
|
|
(a)
On October 27, 2008, our board of
directors authorized a stock and debt repurchase program for the repurchase of
up to $10.0 million of our Class A common stock and/or senior notes over
the next twelve months. Under the
authorization, we may purchase shares of Class A common stock and/or
senior notes from time to time in the open market or in privately negotiated
transactions in compliance with the applicable rules and regulations of
the SEC.
Item 3. Defaults
Upon Senior Securities
Not
applicable.
Item 4.
S
ubmission of Matters to a Vote of
Security Holders
Not
applicable.
32
Table of Contents
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:
April 28, 2009
|
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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