Table of Contents

 

**As filed with the Securities and Exchange Commission on October 26,2010**

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(Mark one)**

 
| **x** | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|---------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended October 2, 2010**

** **

**or**

 
| **o** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For the transition period from                  to                  .**

 

**Commission file number 001-32316**

 

**B&G FOODS, INC.**

(Exact name of Registrant as specified in its charter)

 

| **Delaware**                     | ** ** | **13-3918742**                        |
|----------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  | ** ** | ** **                            |

 

| **4  Gatehall Drive, Suite 110, Parsippany, New Jersey** | **07054**  |
|---------------------------------------------------------------|------------|
| (Address of principal  executive offices)                     | (Zip Code) |

 

Registrant’s telephone number, including area code:  **(973)401-6500**

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.  Yes x No o

 

Indicate by check mark whetherthe registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o No o

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 
| Large accelerated filer o                      |   | Accelerated filer x         |
|------------------------------------------------|--------|-----------------------------|
|                                           |   |                        |
| Non-accelerated filer o                        |   | Smaller reporting company o |
| (Do not check if a smaller  reporting company) |   |                        |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of October 26, 2010, the registrant had 47,635,640 shares of commonstock, par value $0.01 per share, issued and outstanding.

 

 

 

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B&G Foods, Inc.and Subsidiaries

Index

 
| ** **                                                                                          | **Page No.** |
|-----------------------------------------------------------------------------------------------------|--------------|
|                                                                                                |         |
| PART I FINANCIAL INFORMATION                                                         | 1            |
| Item 1. Financial Statements  (Unaudited)                                                           | 1            |
| Consolidated Balance Sheets                                                                         | 1            |
| Consolidated Statements of  Operations                                                              | 2            |
| Consolidated Statements of  Cash Flows                                                              | 3            |
| Notes to Consolidated  Financial Statements                                                         | 4            |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 17           |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 30           |
| Item 4. Controls and Procedures                                                                     | 31           |
| PART II  OTHER INFORMATION                                                                     | 33           |
| Item  1. Legal Proceedings                                                                          | 33           |
| Item  1A. Risk Factors                                                                              | 33           |
| Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 33           |
| Item 3. Defaults Upon Senior Securities                                                             | 33           |
| Item 4.  Reserved                                                                                   | 33           |
| Item  5. Other Information                                                                          | 33           |
| Item 6.  Exhibits                                                                                   | 33           |
| SIGNATURE                                                                                           | 34           |

 

i

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**PART IFINANCIAL INFORMATION**

 

**Item 1.  Financial Statements (Unaudited)**

 

**B&G Foods, Inc. andSubsidiaries**

**Consolidated Balance Sheets**

**(In thousands, except share and pershare data)**

**(Unaudited)**

** **
| ** **                                                                                                                                                                                             | ** ** | **October 2, 2010** | ** ** | **January 2, 2010** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
|                                                                                                                                                                                                   |       |                          |       |                          |       |
| **Assets**                                                                                                                                                                                             |       |                          |       |                          |       |
| Current  assets:                                                                                                                                                                                       |       |                          |       |                          |       |
| Cash  and cash equivalents                                                                                                                                                                             |       | $                             | 87,525     |                          | $          | 39,930 |   |
| Trade  accounts receivable, less allowance for doubtful accounts and discounts of  $610 in 2010 and $631 in 2009                                                                                       |       | 31,842                        |       | 34,488                        |       |
| Inventories                                                                                                                                                                                            |       | 89,355                        |       | 86,134                        |       |
| Prepaid  expenses                                                                                                                                                                                      |       | 1,881                         |       | 2,523                         |       |
| Income  tax receivable                                                                                                                                                                                 |       | 1,166                         |       | 864                           |       |
| Deferred  income taxes                                                                                                                                                                                 |       | 1,671                         |       | 1,981                         |       |
| Total  current assets                                                                                                                                                                                  |       | 213,440                       |       | 165,920                       |       |
|                                                                                                                                                                                                   |       |                          |       |                          |       |
| Property,  plant and equipment, net of accumulated depreciation of $78,543 in 2010 and  $72,217 in 2009                                                                                                |       | 54,425                        |       | 53,598                        |       |
| Goodwill                                                                                                                                                                                               |       | 253,353                       |       | 253,353                       |       |
| Trademarks                                                                                                                                                                                             |       | 227,220                       |       | 227,220                       |       |
| Customer  relationship intangibles, net                                                                                                                                                                |       | 105,030                       |       | 109,868                       |       |
| Net  deferred debt financing costs and other assets                                                                                                                                                    |       | 9,396                         |       | 6,935                         |       |
| Total  assets                                                                                                                                                                                          |       | $                             | 862,864    |                          | $          | 816,894 |   |
|                                                                                                                                                                                                   |       |                          |       |                          |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                         |       |                          |       |                          |       |
|                                                                                                                                                                                                   |       |                          |       |                          |       |
| Current  liabilities:                                                                                                                                                                                  |       |                          |       |                          |       |
| Trade  accounts payable                                                                                                                                                                                |       | $                             | 26,613     |                          | $          | 22,574 |   |
| Accrued  expenses                                                                                                                                                                                      |       | 18,859                        |       | 18,326                        |       |
| Dividends  payable                                                                                                                                                                                     |       | 8,098                         |       | 8,052                         |       |
| Total  current liabilities                                                                                                                                                                             |       | 53,570                        |       | 48,952                        |       |
|                                                                                                                                                                                                   |       |                          |       |                          |       |
| Long-term  debt                                                                                                                                                                                        |       | 477,668                       |       | 439,541                       |       |
| Other  liabilities                                                                                                                                                                                     |       | 19,422                        |       | 19,265                        |       |
| Deferred  income taxes                                                                                                                                                                                 |       | 90,548                        |       | 83,528                        |       |
| Total  liabilities                                                                                                                                                                                     |       | 641,208                       |       | 591,286                       |       |
| Commitments  and contingencies (Note 11)                                                                                                                                                               |       |                          |       |                          |       |
| Stockholders’  equity:                                                                                                                                                                            |       |                          |       |                          |       |
| Preferred  stock, $0.01 par value per share. Authorized 1,000,000 shares; no shares  issued or outstanding                                                                                             |       | —                        |       | —                        |       |
| Common  stock, $0.01 par value per share. Authorized — 125,000,000 and 100,000,000  shares; 47,635,640 and 47,367,292 issued and outstanding as of  October 2, 2010 and January 2, 2010 |       | 476                           |       | 474                           |       |
| Additional  paid-in capital                                                                                                                                                                            |       | 208,539                       |       | 231,549                       |       |
| Accumulated  other comprehensive loss                                                                                                                                                                  |       | (8,422                        | )          | (9,377                        | )          |
| Retained  earnings                                                                                                                                                                                     |       | 21,063                        |       | 2,962                         |       |
| Total  stockholders’ equity                                                                                                                                                                       |       | 221,656                       |       | 225,608                       |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                       |       | $                             | 862,864    |                          | $          | 816,894 |   |

 

See Notes to Consolidated Financial Statements.

 

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**B&G Foods, Inc. andSubsidiaries**

**Consolidated Statements of Operations**

**(In thousands, except per share data)**

**(Unaudited)**

** **
| ** **                                        | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **October 2,  2010**          | ** ** | **October 3,  2009**             | ** ** | **October 2,  2010** | ** ** | **October 3,  2009** | ** ** |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Net  sales                                        |       | $                                  | 125,144    |                                  | $          | 123,871 |   | $ | 371,471 |   | $ | 365,408 |   |
| Cost  of goods sold                               |       | 85,960                             |       | 87,647                                |       | 250,861 |   | 253,569 |   |
| Gross  profit                                     |       | 39,184                             |       | 36,224                                |       | 120,610 |   | 111,839 |   |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Operating  expenses:                              |       |                               |       |                                  |       |   |   |   |   |
| Sales,  marketing and distribution expenses       |       | 9,901                              |       | 10,659                                |       | 32,022 |   | 32,575 |   |
| General  and administrative expenses              |       | 2,534                              |       | 2,936                                 |       | 7,928 |   | 7,753 |   |
| Amortization  expense—customer relationships |       | 1,613                              |       | 1,613                                 |       | 4,838 |   | 4,838 |   |
| Operating  income                                 |       | 25,136                             |       | 21,016                                |       | 75,822 |   | 66,673 |   |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Other  expenses:                                  |       |                               |       |                                  |       |   |   |   |   |
| Interest  expense, net                            |       | 10,335                             |       | 13,570                                |       | 31,855 |   | 39,996 |   |
| Loss  on extinguishment of debt                   |       | —                             |       | 674                                   |       | 15,224 |   | 674 |   |
| Income  before income tax expense                 |       | 14,801                             |       | 6,772                                 |       | 28,743 |   | 26,003 |   |
| Income  tax expense                               |       | 5,519                              |       | 2,611                                 |       | 10,642 |   | 9,900 |   |
| Net  income                                       |       | $                                  | 9,282      |                                  | $          | 4,161 |   | 18,101 |   | 16,103 |   |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Weighted  average common shares outstanding:      |       |                               |       |                                  |       |   |   |   |   |
| Basic                                             |       | 47,636                             |       | 37,790                                |       | 47,563 |   | 36,644 |   |
| Diluted                                           |       | 48,601                             |       | 37,973                                |       | 48,349 |   | 36,644 |   |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Earnings  per common share:                       |       |                               |       |                                  |       |   |   |   |   |
| Basic                                             |       | $                                  | 0.19       |                                  | $          | 0.11 |   | $ | 0.38 |   | $ | 0.44 |   |
| Diluted                                           |       | $                                  | 0.19       |                                  | $          | 0.11 |   | $ | 0.37 |   | $ | 0.44 |   |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Cash  dividends declared per common share         |       | $                                  | 0.17       |                                  | $          | 0.17 |   | $ | 0.51 |   | $ | 0.51 |   |

 

See Notes to Consolidated Financial Statements.

 

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**B&G Foods, Inc. andSubsidiaries**

**Consolidated Statements of Cash Flows**

**(Inthousands)**

**(Unaudited)**

 
| ** **                                                                                                | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                | ** ** | **October 2, 2010**         | ** ** | **October 3, 2009** | ** ** |
| ** **                                                                                                | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                                                                 |       |                                  |       |   |   |
| Net  income                                                                                               |       | $                                     | 18,101     |   | $ | 16,103 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:                        |       |                                  |       |   |   |
| Depreciation  and amortization                                                                            |       | 11,118                                |       | 10,847 |   |
| Amortization  of deferred debt financing costs and bond discount                                          |       | 1,515                                 |       | 2,222 |   |
| Deferred  income taxes                                                                                    |       | 5,584                                 |       | 9,295 |   |
| Loss  on extinguishment of debt                                                                           |       | 15,224                                |       | 674 |   |
| Share-based  compensation expense                                                                         |       | 2,413                                 |       | 3,273 |   |
| Excess  tax benefits from share-based compensation                                                        |       | (330                                  | )          | — |   |
| Unrealized  loss (gain) on interest rate swap                                                             |       | 1,820                                 |       | (108 | ) |
| Reclassification  to net interest expense for interest rate swap                                          |       | 1,270                                 |       | 1,270 |   |
| Changes  in assets and liabilities:                                                                       |       |                                  |       |   |   |
| Trade  accounts receivable                                                                                |       | 2,646                                 |       | 2,699 |   |
| Inventories                                                                                               |       | (3,221                                | )          | (14,655 | ) |
| Prepaid  expenses                                                                                         |       | 642                                   |       | 391 |   |
| Income  tax receivable                                                                                    |       | 1,188                                 |       | 199 |   |
| Other  assets                                                                                             |       | (16                                   | )          | (198 | ) |
| Trade  accounts payable                                                                                   |       | 4,039                                 |       | 3,750 |   |
| Accrued  expenses                                                                                         |       | 533                                   |       | (1,260 | ) |
| Other  liabilities                                                                                        |       | (1,385                                | )          | (201 | ) |
| Net  cash provided by operating activities                                                                |       | 61,141                                |       | 34,301 |   |
|                                                                                                      |       |                                  |       |   |   |
| **Cash flows from investing activities:**                                                                 |       |                                  |       |   |   |
| Capital  expenditures                                                                                     |       | (7,082                                | )          | (7,943 | ) |
| Net  cash used in investing activities                                                                    |       | (7,082                                | )          | (7,943 | ) |
|                                                                                                      |       |                                  |       |   |   |
| **Cash flows from financing activities:**                                                                 |       |                                  |       |   |   |
| Payments  for repurchase of long-term debt                                                                |       | (320,259                              | )          | (6,635 | ) |
| Proceeds  from issuance of long-term debt                                                                 |       | 347,448                               |       | — |   |
| Payments  for repurchase of common stock                                                                  |       | —                                |       | (2,334 | ) |
| Proceeds  from issuance of common stock, net                                                              |       | —                                |       | 86,612 |   |
| Dividends  paid                                                                                           |       | (24,245                               | )          | (18,388 | ) |
| Excess  tax benefits from share-based compensation                                                        |       | 330                                   |       | — |   |
| Payments  of tax withholding on behalf of employees for net share settlement of  share-based compensation |       | (1,460                                | )          | — |   |
| Payments  of debt financing costs                                                                         |       | (8,246                                | )          | (668 | ) |
| Net  cash (used in) provided by financing activities                                                      |       | (6,432                                | )          | 58,587 |   |
|                                                                                                      |       |                                  |       |   |   |
| Effect  of exchange rate fluctuations on cash and cash equivalents                                        |       | (32                                   | )          | 124 |   |
| Net  increase in cash and cash equivalents                                                                |       | 47,595                                |       | 85,069 |   |
|                                                                                                      |       |                                  |       |   |   |
| Cash  and cash equivalents at beginning of period                                                         |       | 39,930                                |       | 32,559 |   |
| Cash  and cash equivalents at end of period                                                               |       | $                                     | 87,525     |   | $ | 117,628 |   |
|                                                                                                      |       |                                  |       |   |   |
| **Supplemental disclosures of cash flow information:**                                                    |       |                                  |       |   |   |
| Cash  interest payments                                                                                   |       | $                                     | 27,945     |   | $ | 41,864 |   |
| Cash  income tax payments                                                                                 |       | $                                     | 3,909      |   | $ | 1,602 |   |
| Cash  income tax refunds                                                                                  |       | $                                     | (2         | ) | $ | (1,179 | ) |
| Non-cash  transactions:                                                                                   |       |                                  |       |   |   |
| Dividends  declared and not yet paid                                                                      |       | $                                     | 8,098      |   | $ | 8,052 |   |

 

See Notes to Consolidated Financial Statements.

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

**(1)**           **Nature of Operations**

 

 

B&G Foods, Inc. is aholding company, the principal assets of which are the capital stock of itssubsidiaries.  Unless the contextrequires otherwise, references in this report to “B&G Foods,” “our company,”“we,” “us” and “our” refer to B&G Foods, Inc. and itssubsidiaries.  We operate in one industrysegment and manufacture, sell and distribute a diverse portfolio ofhigh-quality shelf-stable foods across the United States, Canada and PuertoRico.  Our products are marketed undermany recognized brands, including *Ac’cent,B&G, B&M, Brer Rabbit, Cream of Rice, Cream of Wheat, Emeril’s,Grandma’s Molasses, Joan of Arc, Las Palmas,Maple Grove Farms of Vermont, Ortega, Polaner, Red Devil,Regina, Sa-són, Trappey’s, Underwood, Vermont**Maid*and*Wright’s. *Our products include hotcereals, fruit spreads, canned meats and beans, spices, seasonings, marinades,hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-stylesauces, taco shells and kits, salsas, pickles, peppers and other specialty foodproducts.  We compete in the retailgrocery, food service, specialty, private label, club and mass merchandiserchannels of distribution.  We distributeour products throughout the United States via a nationwide network ofindependent brokers and distributors to supermarket chains, food serviceoutlets, mass merchants, warehouse clubs, non-food outlets and specialty fooddistributors.

 

**(2)**           **Summaryof Significant Accounting Policies**

 

***Fiscal Year***

 

Our financial statements arepresented on a consolidated basis. Typically, our fiscal quarters and fiscal year consist of 13 and 52weeks, respectively, ending on the Saturday closest to December 31 in thecase of our fiscal year and fourth fiscal quarter, and on the Saturday closestto the end of the corresponding calendar quarter in the case of our fiscalquarters.  As a result, a 53rd week isadded to our fiscal year every five or six years.  In a 53-week fiscal year our fourth fiscal quartercontains 14 weeks.  Our fiscal yearsending January 1, 2011 (fiscal 2010) and January 2, 2010 (fiscal2009) each contain 52 weeks.  Eachquarter of fiscal 2010 and 2009 contains 13 weeks.

 

***Basis of Presentation***

 

The accompanying unaudited consolidated interim financial statementsfor the thirteen and thirty-nine week periods ended October 2, 2010 (thirdquarter of 2010 and first three quarters of 2010) and October 3, 2009(third quarter of 2009 and first three quarters of 2009) have been prepared byour company in accordance with accounting principles generally accepted in theUnited States of America pursuant to the rules and regulations of theSecurities and Exchange Commission (SEC), and includethe accounts of B&G Foods, Inc. and its subsidiaries.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been omitted pursuant to such rules andregulations.  However, our managementbelieves, to the best of their knowledge, that the disclosures herein areadequate to make the information presented not misleading.  All intercompany balances andtransactions have been eliminated.  Theaccompanying unaudited consolidated interim financial statements contain alladjustments (consisting only of normal and recurring adjustments) that are, inthe opinion of management, necessary to present fairly our consolidatedfinancial position as of October 2, 2010, the results of our operationsfor the third quarter and first three quarters of 2010 and 2009, and cash flowsfor the first three quarters of 2010 and 2009. Our results of operations for the third quarter and first three quartersof 2010 are not necessarily indicative of the results to be expected for thefull year.  We have evaluated subsequentevents for disclosure through the date of issuance of the accompanyingunaudited consolidated interim financial statements.  The accompanying unaudited consolidatedinterim financial statements should be read in conjunction with the auditedconsolidated financial statements and notes for fiscal 2009 included in ourAnnual Report on Form 10-K for fiscal 2009 filed with the SEC on March 1,2010.

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(2)****          ****Summary of Significant Accounting Policies(Continued)**

 

***Use of Estimates***

 

The preparation of financial statements in accordance with accountingprinciples generally accepted in the Unites States of America requires ourmanagement to make a number of estimates and assumptions relating to thereporting of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.  Some of the more significant estimates andassumptions made by management involve trade and consumer promotion expenses;allowances for excess, obsolete and unsaleable inventories; pension benefits;the recoverability of goodwill, trademarks, customer relationship intangibles,property, plant and equipment and deferred tax assets; and the accounting for share-based compensation expense.  Actual results could differ significantlyfrom these estimates and assumptions.

 

Management evaluates its estimatesand assumptions on an ongoing basis using historical experience and otherfactors that management believe to be reasonable under the circumstances, includingthe current economic environment.  Weadjust such estimates and assumptions when facts and circumstancesdictate.  Recent volatility in the creditand equity markets has increased the uncertainty inherent in certain of theseestimates and assumptions.

 

***Recently Issued Accounting Standards***

 

There have been no significantdevelopments to recently issued accounting standards, including the expecteddates of adoption and estimated effects on our consolidated financialstatements, from those disclosed in our 2009 Annual Report on Form 10-K.

 

**(3)****          ****Inventories**

 

Inventories are stated at the lowerof cost or market and include direct material, direct labor, overhead,warehousing and product transfer costs. Cost is determined using the first-in, first-out and average costmethods.  Inventories have been reducedby an allowance for excess, obsolete and unsaleable inventories.  The allowance is an estimate based on ourmanagement’s review of inventories on hand compared to estimated future usageand sales.

 

Inventories consist of thefollowing, as of the dates indicated (dollars in thousands):

 
| ** **                   | ** ** | **October 2, 2010** | ** ** | **January 2, 2010** | ** ** |
|------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| Raw  materials and packaging |       | $                             | 31,182     |                          | $          | 32,793 |   |
| Work  in process             |       | 527                           |       | 1,239                         |       |
| Finished  goods              |       | 57,646                        |       | 52,102                        |       |
|                         |       |                          |       |                          |       |
| Total                        |       | $                             | 89,355     |                          | $          | 86,134 |   |

 

**(4)****          ****Goodwill, Trademarks and CustomerRelationship Intangibles**

 

There has been no change in the carrying amount of goodwill ortrademarks (indefinite-lived intangibles) during the first three quarters of2010.

 

The following table reconciles the changes in the carrying amount ofcustomer relationship intangibles for the first three quarters of 2010 (dollarsin thousands):

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(4)****          ****Goodwill, Trademarks and CustomerRelationship Intangibles (Continued)**

 
| ** **                       | ** ** | **Customer  Relationship  Intangibles** | ** ** | **Less:  Accumulated  Amortization** | ** ** | **Total** | ** ** |
|----------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|-----------|------------|
| Balance  at January 2, 2010 |       | $                                       | 129,000    |                                 | $          | (19,132   | )          | $ | 109,868 |   |
| Amortization  expense            |       | —                                  |       | (4,838                               | )          | (4,838    | )          |
| Balance  at October 2, 2010 |       | $                                       | 129,000    |                                 | $          | (23,970   | )          | $ | 105,030 |   |

 

Customer relationship intangibles are presented at cost, net of accumulatedamortization, and are amortized on a straight-line basis over their estimateduseful lives of 20 years.  Amortizationexpense associated with customer relationship intangibles for each of the thirdquarter and first three quarters of 2010 and 2009 was $1.6 million and $4.8million, respectively, and is recorded in operating expenses.  We expect to recognize an additional $1.7million of amortization expense associated with our current customerrelationship intangibles during the remainder of fiscal 2010, and thereafter$6.5 million per year for each of the next four succeeding fiscal years.

 

 

**(5)****          ****Long-term Debt**

 

Long-term debt consists of thefollowing, as of the dates indicated (dollars in thousands):

 
| ** **                                                                                    | ** ** | **October 2, 2010** | ** ** | **January 2, 2010** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| Senior  secured credit facility:                                                              |       |                          |       |                          |       |
| Revolving  credit facility                                                                    |       | $                             | —     |                          | $          | — |   |
| Term  loan                                                                                    |       | 130,000                       |       | 130,000                       |       |
| 7.625%  Senior Notes due 2018, net of unamortized discount of $2,332 at  October 2, 2010 |       | 347,668                       |       | —                        |       |
| 12%  Senior Subordinated Notes due 2016                                                       |       | —                        |       | 69,541                        |       |
| 8% Senior  Notes due 2011                                                                     |       | —                        |       | 240,000                       |       |
| Total  long-term debt                                                                         |       | $                             | 477,668    |                          | $          | 439,541 |   |

 

As of October 2, 2010, theaggregate contractual maturities of long-term debt are as follows (dollars inthousands):

 
| Years  ending December: | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
| 2010                    |       | $          | —     |   |
| 2011                    |       | —     |       |
| 2012                    |       | —     |       |
| 2013                    |       | 130,000    |       |
| 2014                    |       | —     |       |
| Thereafter              |       | 350,000    |       |
| Total                   |       | $          | 480,000    |   |

 

*Senior Secured Credit Facility*.  As amended, our$25.0 million revolving credit facility and our $130.0 million of term loanborrowings mature in February 2013. The following discussion of the credit 

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(5)****                                ****Long-term Debt****(Continued)**

 

facility describes the credit facilityas amended through the date of issuance of the accompanying unaudited interimconsolidated financial statements.

 

Interest under the revolving creditfacility, including any outstanding letters of credit, is determined based onalternative rates that we may choose in accordance with the revolving creditfacility, including the base lending rate per annum plus an applicable marginof 2.00%, and LIBOR plus an applicable margin of 3.00%.  We pay a commitment fee of 0.50% per annum onthe unused portion of the revolving credit facility.  Interest under the term loan facility isdetermined based on alternative rates that we may choose in accordance with thecredit facility, including the base lending rate per annum plus an applicablemargin of 1.00%, and LIBOR plus an applicable margin of 2.00%.

 

Our obligations under the creditfacility are jointly and severally and fully and unconditionally guaranteed ona senior basis by all of our existing and certain future domesticsubsidiaries.  The credit facility issecured by substantially all of our and our domestic subsidiaries’ assetsexcept our and our domestic subsidiaries’ real property.  The credit facility provides for mandatoryprepayment upon certain asset dispositions and issuances of securities, as defined.  The credit facility contains covenants thatrestrict, among other things, our ability to incur additional indebtedness, paydividends and create certain liens.  Thecredit facility also contains certain financial maintenance covenants, which,among other things, specify maximum capital expenditure limits, a minimuminterest coverage ratio and a maximum senior and total leverage ratio, eachratio as defined.  As of October 2,2010, we were in compliance with all of the covenants in the credit facility.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same or a similar line of business as ourcompany, subject to specified criteria. The maximum letter of credit capacity under the revolving creditfacility is $10.0 million, with a fronting fee of 3.0% per annum for alloutstanding letters of credit.

 

At October 2, 2010, theavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit of $0.5 million, was $24.5 million.  We have not drawn upon the revolving creditfacility since its inception in October 2004 and, based upon our cash andcash equivalents on hand and working capital requirements, we have no plans todo so for the foreseeable future.

 

Effective as of February 26,2007, we entered into a six year interest rate swap agreement in order toeffectively fix at 7.0925% the interest rate payable for $130.0 million of termloan borrowings through the life of the term loan, ending on February 26,2013.  The counterparty to the swap isLehman Special Financing Inc. (Lehman SFI) and the counterparty’s guarantor isLehman Brothers Holdings Inc. (Lehman). On September 15, 2008, Lehman filed for protection under Chapter 11of the U.S. Bankruptcy Code.  Lehman SFIfiled for protection under Chapter 11 of the U.S. Bankruptcy Code on October 3,2008.

 

We initially designated the swap asa cash flow hedge.  Prior to Lehman’sbankruptcy filing, we recorded changes in the fair value of the swap inaccumulated other comprehensive loss, net of tax in our consolidated balancesheet.  However, as a result of theLehman bankruptcy filing, we determined in September 2008 that theinterest rate swap was no longer an effective hedge for accountingpurposes.  Accordingly, subsequent tothat determination, we record changes in the swap’s fair value in currentearnings in net interest expense in our consolidated statements ofoperations.  We obtain third-partyverification of the fair value at the end of each reporting period.  As of October 2, 2010, the fair value ofour interest rate swap was an unrealized loss of $13.4 million and is recordedin other liabilities on our consolidated balance sheet.  The amount recorded in accumulated othercomprehensive loss will be reclassified to net interest expense over theremaining life of the term loan borrowings as we make interest payments.  Net interest expense in the third quarter andfirst three quarters of 2010 includes a charge of $0.5 million and $1.8million, respectively, relating to the unrealized loss on our interest rateswap and a reclassification of $0.4 million and $1.3 million,

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(5)****                                ****Long-term Debt****(Continued)**

 

respectively, of the amount recordedin accumulated other comprehensive loss related to the swap.  Net interest in the third quarter and firstthree quarters of 2010 also includes a reduction in interest income primarilydue to lower interest rates.  As of October 2,2010, we expect to reclassify $4.1 million to net interest expense during theremainder of the life of the swap, with $1.7 million being reclassified in thenext twelve months.

 

*7.625% Senior Notes due 2018*.  In January 2010,we issued $350.0 million aggregate principal amount of 7.625% senior notes due2018 at a public offering price of 99.271% of face value.  The original issue discount of $2.6 millionwill be amortized over the life of the notes as interest expense.  Interest on the senior notes is payable on January 15and July 15 of each year.  Thesenior notes will mature on January 15, 2018, unless earlier retired orredeemed as described below.

 

On or after January 15, 2014,we may redeem some or all of the senior notes at a redemption price of 103.813%beginning January 15, 2014 and thereafter at prices declining annually to100% on or after January 15, 2017. We may redeem up to 35% of the aggregate principal amount of the notesprior to January 15, 2013 with the net proceeds from certain equityofferings.  We may also redeem some orall of the notes at any time prior to January 15, 2014 at a redemptionprice equal to a specified make-whole amount. In addition, if we undergo a change of control, we may be required tooffer to repurchase the notes at the repurchase price of 101% plus accrued andunpaid interest to the date of redemption.

 

We may also, from time to time, seekto retire senior notes through cash repurchases of senior notes and/orexchanges 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 marketconditions, our liquidity requirements, contractual restrictions and otherfactors.  The amounts involved may bematerial.

 

Our obligations under the seniornotes are jointly and severally and fully and unconditionally guaranteed on asenior basis by all of our existing and certain future domesticsubsidiaries.  The senior notes and thesubsidiary guarantees are our and the guarantors’ general unsecured obligationsand are effectively junior in right of payment to all of our and the guarantors’secured indebtedness and to the indebtedness and other liabilities of ournon-guarantor subsidiaries; are *pari passu* inright of payment to all of our and the guarantors’ existing and futureunsecured senior debt; and are senior in right of payment to all of our and theguarantors’ future subordinated debt. Our foreign subsidiary is not a guarantor, and any future foreign orpartially owned domestic subsidiaries will not be guarantors, of our seniornotes.

 

Our senior notes indenture containscovenants with respect to us and the guarantors and restricts the incurrence ofadditional indebtedness and the issuance of capital stock; the payment ofdividends or distributions on, and redemption of, capital stock; a number ofother restricted payments, including certain investments; specified creation ofliens, certain sale-leaseback transactions and sale of certain specifiedassets; fundamental changes, including consolidation, mergers and transfers ofall or substantially all of our assets; and specified transactions withaffiliates.  Each of the covenants issubject to a number of important exceptions and qualifications.  As of October 2, 2010, we were incompliance with all of the covenants in the senior notes indenture.

 

*12% Senior Subordinated Notes due2016*.  During the third quarter and first threequarters of 2009, we repurchased $6.3 million principal amount of our seniorsubordinated notes for $6.6 million plus accrued and unpaid interest.  In January 2010, we repurchased $44.7million aggregate principal amount of the senior subordinated notes with aportion of the proceeds of our public offering of 7.625% senior notes due 2018at a repurchase price of 106.5% of such principal amount plus accrued andunpaid interest, and set aside sufficient proceeds of the offering torepurchase or redeem the remaining senior subordinated notes.  In February 2010,

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(5)****                                ****Long-term Debt****(Continued)**

 

we repurchased or redeemed theremaining $24.8 million aggregate principal amount of the senior subordinatednotes at a price equal to 106.0% of such principal amount, plus accrued andunpaid interest.

 

*8% Senior Notes due 2011. *InJanuary 2010, we repurchased $238.9 million aggregate principal amount ofthe 8% senior notes with a portion of the proceeds of our public offering of7.625% senior notes due 2018 at a repurchase price of 102.375% of suchprincipal amount plus accrued and unpaid interest, and set aside sufficientproceeds of the offering to repurchase or redeem the remaining 8% seniornotes.  In February 2010, werepurchased or redeemed the remaining $1.1 million aggregate principal amountof the 8% senior notes at a price equal to 102.0% of such principal amount,plus accrued and unpaid interest.

 

*Subsidiary Guarantees*.  We have no assetsor operations independent of our direct and indirect subsidiaries.  All of our present domestic subsidiariesjointly and severally and fully and unconditionally guarantee our long-termdebt, and management has determined that our Canadian subsidiary, which is ouronly subsidiary that is not a guarantor of our long-term debt, is a “minorsubsidiary” as that term is used in Rule 3-10 of Regulation S-Xpromulgated by the SEC.  There are nosignificant restrictions on our ability and the ability of our subsidiaries toobtain funds from our respective subsidiaries by dividend or loan.  Consequently, separate financial statementshave not been presented for our subsidiaries because management has determinedthat they would not be material to investors.

 

*Deferred Debt Financing Costs*.  In connection withthe issuance of our 7.625% senior notes in January 2010, we capitalizedapproximately $8.2 million of debt financing costs during the first quarter of2010, which will be amortized over the term of the senior notes.  During the first quarter of 2010, wewrote-off and expensed $4.5 million of deferred debt financing costs relatingto the retirement during the quarter of our remaining $69.5 million principalamount of 12% senior subordinated notes and $240.0 million principal amount of8% senior notes.  As of October 2,2010 and January 2, 2010 we had net deferred debt financing costs of $9.1million and $6.7 million, respectively.

 

In connection with the retirement ofour remaining 8% senior notes and 12% senior subordinated notes, we incurred aloss on extinguishment of debt of approximately $15.2 million during the firstquarter of fiscal 2010, including the repurchase premium and other expenses of$10.7 million and a write-off and expense of $4.5 million of deferred debtfinancing costs.

 

At October 2, 2010 and January 2,2010 accrued interest of $6.6 million and $7.3 million, respectively, isincluded in accrued expenses in the accompanying consolidated balance sheets.

 

**(6)****                                ****Fair Value Measurements**

 

The authoritative accountingliterature relating to fair value measurements defines fair value as the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date (anexit price). The accounting literature outlines a valuation framework andcreates a fair value hierarchy in order to increase the consistency andcomparability of fair value measurements and the related disclosures. Undergenerally accepted accounting principles, certain assets and liabilities mustbe measured at fair value, and the accounting literature details thedisclosures that are required for items measured at fair value.

 

Financial assets and liabilitiesare measured using inputs from the three levels of the fair value hierarchyunder the accounting literature. The three levels are as follows:

 

Level 1—Inputs are unadjustedquoted prices in active markets for identical assets or liabilities.

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(6)****                                ****Fair Value Measurements (Continued)**

 

Level 2—Inputs, other than quoted market prices included within Level1, that are observable for the asset or liability, either directly orindirectly.  We use a discounted cashflow analysis of the implied yield curves to value our interest rate swap. Wealso consider our credit risk and counterparty credit risk in estimating thefair value of our interest rate swap. While these inputs are observable, theyare not all quoted market prices, so the fair values of our interest rate swapfall in Level 2.

 

Level 3—Unobservable inputs thatreflect our assumptions about the assumptions that market participants woulduse in pricing the asset or liability.

 

In accordance with the fair valuehierarchy described above, the following table shows the fair value of ourinterest rate swap as of October 2, 2010 and January 2, 2010, whichis included in other liabilities in our consolidated balance sheet (dollars inthousands):

 
| ** **            | ** ** | ** **         | ** ** | **Fair Value Measurements** | ** ** |
|-----------------------|------------|--------------------|------------|---------------------------------------|------------|
| ** **            | ** ** | **Description**    | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| October 2,  2010 |       | Interest rate swap |       | $                                     | —     |   | $ | 13,396 |   | $ | — |   |
| January 2,  2010 |       | Interest rate swap |       | $                                     | —     |   | $ | 11,576 |   | $ | — |   |

 

Cash and cash equivalents, tradeaccounts receivable, income tax receivable, trade accounts payable, accruedexpenses and dividends payable are reflected in the consolidated balance sheetsat carrying value, which approximates fair value due to the short-term natureof these instruments.

 

The carrying values and fair valuesof our term loan borrowings, senior notes and senior subordinated notes as of October 2,2010 and January 2, 2010 are as follows (dollars in thousands):

 
| ** **                              | ** ** | **October 2, 2010** | ** ** | **January 2, 2010** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Carrying Value**       | ** ** | **Fair Value(1)**        | ** ** | **Carrying Value** | ** ** | **Fair Value(1)** | ** ** |
| Senior  Secured Term Loan due 2013      |       | $                             | 130,000    |                          | $          | 129,025 |   | $ | 130,000 |   | $ | 127,400 |   |
| 8%  Senior Notes due 2011               |       | —                        |       | —                        |       | 240,000 |   | 243,000 |   |
| 7.625%  Senior Notes due 2018           |       | 347,668                       | (2)        | 364,875                       |       | — |   | — |   |
| 12%  Senior Subordinated Notes due 2016 |       | —                        |       | —                        |       | 69,541 |   | 69,172 |   |
|                                         |            |                               |            |                               |            |  |  |  |  |  |  |  |  |

 

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(1)          Fair values are estimated based on quoted market prices.

(2)          The carrying value of the 7.625% senior notes is net ofdiscount.

 

Our term loan borrowings are subjectto an interest rate swap discussed in Notes 5 and 7.

 

**(7)****                                ****Disclosures about DerivativeInstruments and Hedging Activities**

 

We recognize all derivativeinstruments either as an asset or a liability on our balance sheet and measuresuch instruments at fair value.  We donot engage in derivative instruments for trading purposes.

 

The following table presents thefair value and the location within our consolidated balance sheets of allassets and liabilities associated with derivative instruments not designated ashedging instruments for accounting purposes (dollars in thousands):

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(7)****                                ****Disclosures about DerivativeInstruments and Hedging Activities (Continued)**

 
| **Derivatives not**                         | ** ** | ** **                       | ** ** | **Asset  Derivatives**                                 | ** ** | **Liability  Derivatives**                             | ** ** | **Asset  Derivatives**                                 | ** ** | **Liability  Derivatives**                             | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **designated as hedging  instruments** | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value at  October 2, 2010** | ** ** | **Fair Value at  October 2, 2010** | ** ** | **Fair Value at  January 2, 2010** | ** ** | **Fair Value at  January 2, 2010** | ** ** |
| ** **                                       | ** ** | ** **                       | ** ** | ** **                                             | ** ** | ** **                                             | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Interest  rate swap                              |       | Other liabilities                |       | —                                                 |       | $                                                      | 13,396     |                                                   | —     |                                                   | $          | 11,576 |   |
|                                                  |            |                                  |            |                                                        |            |                                                        |            |                                                        |            |                                                        |            |  |  |

 

See notes 5 and 6 for additionalinformation regarding our interest rate swap. We do not currently have any derivatives designated as hedginginstruments.

 

The following tables present the impactof derivative instruments and their location within our consolidated statementsof operations (dollars in thousands):

 
| **Derivatives not**                         | ** ** | **Amount of (Gain)  Loss Recognized in  Income on Derivatives** | ** ** | **Amount of (Gain)  Loss Recognized in  Income on Derivatives** | ** ** | **Amount of (Gain)  Loss Recognized in  Income on Derivatives** | ** ** | **Amount of (Gain)  Loss Recognized in  Income on Derivatives** | ** ** | **Location of (Gain)  Loss Recognized** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **designated as  hedging instruments** | ** ** | **Thirteen Weeks  Ended October 2, 2010**                                 | ** ** | **Thirteen Weeks  Ended October 3, 2009**                                 | ** ** | **Thirty-nine Weeks  Ended October 2, 2010**                              | ** ** | **Thirty-nine Weeks  Ended October 3, 2009**                              | ** ** | **in Income on  Derivatives**                | ** ** |
| ** **                                       | ** ** | ** **                                                                                    | ** ** | ** **                                                                                    | ** ** | ** **                                                                                    | ** ** | ** **                                                                                    | ** ** | ** **                                             | ** ** |
| Interest rate swap                               |       | $                                                                                             | 894        | *                                                                                             | $          | 1,055                                                                                         | *          | $                                                                                             | 3,090      | *                                                      | $          | 1,162 | * | Interest expense, net |   |
|                                                  |            |                                                                                               |            |                                                                                               |            |                                                                                               |            |                                                                                               |            |                                                        |            |  |  |  |  |

 

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*                The amount included in net interest expense for thethird quarter and first three quarters of 2010 consists of $471 and $1,820unrealized loss on our interest rate swap, and $423 and $1,270 (pre-tax)reclassified to net interest expense from accumulated other comprehensive loss,respectively.  The amount included in netinterest expense for the third quarter and first three quarters of 2009consists of $631 unrealized loss and $108 unrealized gain on our interest rateswap, and $424 and $1,270 (pre-tax) reclassified to net interest expense fromaccumulated other comprehensive income, respectively.

 

**(8)****                                ****Comprehensive Income**

 

Comprehensive income includes netincome, foreign currency translation adjustments relating to assets andliabilities located in our Canadian subsidiary, changes in our pensionbenefits, net of tax and the change in the fair value of an interest rate swapduring the period it was designated as an effective cash flow hedge, net oftax.  The amount recorded in accumulatedother comprehensive loss related to the swap will be reclassified to netinterest expense over the remaining life of the term loan as we make interestpayments.

 

The components of comprehensiveincome are as follows (dollars in thousands):

 
| ** **                                                                         | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                         | ** ** | **October 2,  2010**          | ** ** | **October 3,  2009**             | ** ** | **October 2,  2010** | ** ** | **October 3,  2009** | ** ** |
|                                                                               |       |                               |       |                                  |       |   |   |   |   |
| Net  income                                                                        |       | $                                  | 9,282      |                                  | $          | 4,161 |   | $ | 18,101 |   | $ | 16,103 |   |
| Other  comprehensive income:                                                       |       |                               |       |                                  |       |   |   |   |   |
| Foreign  currency translation adjustments                                          |       | (6                                 | )          | 270                                   |       | (7 | ) | 193 |   |
| Amortization  of unrecognized prior service cost and pension deferrals, net of tax |       | 49                                 |       | 134                                   |       | 173 |   | 355 |   |
| Reclassification  to net interest expense for interest rate swap, net of tax       |       | 263                                |       | 263                                   |       | 789 |   | 788 |   |
| Comprehensive  income                                                              |       | $                                  | 9,588      |                                  | $          | 4,828 |   | $ | 19,056 |   | $ | 17,439 |   |

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(9)****                                ****Capital Stock**

 

*Authorized Common Stock.  *Duringthe third quarter of 2010, we amended our certificate of incorporation to (1) renameour Class A common stock simply as “common stock,” (2) eliminate our25,000,000 authorized shares of Class B common stock, none of which werethen outstanding, and (3) increase our authorized shares of common stockfrom 100 million to 125 million.

 

*Common Stock Repurchases. *Wedid not repurchase any shares of common stock during the first three quartersof fiscal 2010 or during the third quarter of 2009.  During the first three quarters of 2009 werepurchased and retired 403,500 shares of common stock at an average cost pershare (excluding fees and commissions) of $5.76, or $2.3 million in theaggregate.  Our stock repurchase programexpired pursuant to its terms during the third quarter of 2010.

 

**(10)****                         ****Pension Benefits**

 

Net pension costs for the thirdquarter and first three quarters of 2010 and 2009 include the followingcomponents (dollars in thousands):

 
| ** **                                           | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                           | ** ** | **October 2,  2010**          | ** ** | **October 3,  2009**             | ** ** | **October 2,  2010** | ** ** | **October 3,  2009** | ** ** |
|                                                 |       |                               |       |                                  |       |   |   |   |   |
| Service  cost—benefits earned during the period |       | $                                  | 352        |                                  | $          | 411 |   | $ | 1,145 |   | $ | 1,249 |   |
| Interest  cost on projected benefit obligation       |       | 443                                |       | 461                                   |       | 1,374 |   | 1,323 |   |
| Expected  return on plan assets                      |       | (521                               | )          | (355                                  | )          | (1,530 | ) | (1,107 | ) |
| Amortization  of unrecognized prior service cost     |       | 11                                 |       | 11                                    |       | 33 |   | 33 |   |
| Amortization  of loss                                |       | 67                                 |       | 205                                   |       | 245 |   | 539 |   |
| Net  pension cost                                    |       | $                                  | 352        |                                  | $          | 733 |   | $ | 1,267 |   | $ | 2,037 |   |

 

During the first three quarters of2010, we made approximately $2.6 million of contributions to our definedbenefit pension plans, half of which was made in each of the first two quartersof 2010.  We do not expect to make anycontributions to our defined benefit pension plans during the remainder offiscal 2010.

 

**(11)****                         ****Commitments and Contingencies**

 

*Environmental. *Weare subject to environmental laws and regulations in the normal course ofbusiness.  We did not make any materialexpenditures during the third quarter or first three quarters of 2010 or 2009in order to comply with environmental laws and regulations.  Based on our experience to date, managementbelieves that the future cost of compliance with existing environmental lawsand regulations (and liability for any known environmental conditions) will nothave a material adverse effect on our consolidated financial position, resultsof operations or liquidity.  However, wecannot predict what environmental or health

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(11)****                         ****Commitments and Contingencies (Continued)**

 

and safety legislation orregulations will be enacted in the future or how existing or future laws orregulations will be enforced, administered or interpreted, nor can we predictthe amount of future expenditures that may be required in order to comply withsuch environmental or health and safety laws or regulations or to respond tosuch environmental claims.

 

*Legal Proceedings. *Weare from time to time involved in various claims and legal actions arising inthe ordinary course of business, including proceedings involving productliability claims, worker’s compensation and other employee claims, and tort andother general liability claims, as well as trademark, copyright, patentinfringement and related claims and legal actions.  In the opinion of our management, the ultimatedisposition of any currently pending claims or actions will not have a materialadverse effect on our consolidated financial position, results of operations orliquidity.

 

In April 2008, the U.S.Government informed us that it was investigating SK Foods, LP, then one of oursuppliers.  The Government believed, andsubsequent plea agreements confirmed, that SK Foods, together with a brokeracting at the direction of certain SK Foods executives, was bribing purchasingmanagers at several large food companies, including, among others, Frito Lay,Kraft and B&G Foods.  As a result of the investigation, several seniorexecutives at SK Foods have pleaded guilty to various criminal charges,including conspiracy to commit honest services fraud through bribery, resultingin the sale of products at inflated prices and the fraudulent labeling of suchproducts.  In addition, the former ownerand president of SK Foods has been charged with violations of the RacketeerInfluenced and Corrupt Organizations Act (RICO), wire fraud, obstruction ofjustice, and conspiracy to fix prices and rig bids in violation of the ShermanAntitrust Act, and is currently under house arrest pending trial.  As a result of SK Foods’ criminal and civilmisconduct and numerous material breaches of a Co-Pack Agreement betweenB&G Foods and SK Foods, B&G Foods terminated the Co-Pack Agreement in April 2009.  On May 7, 2009, SK Foods filed avoluntary petition for relief under chapter 11 of the United States BankruptcyCode.  In September 2009, B&GFoods filed proofs of claim in SK Foods’ bankruptcy cases toassert substantial damage claims against SK Foods and its affiliatesfor, among other things, fraud, breach of contract, indemnity, RICO andantitrust violations, and to preserve offset and recoupment rights forsuch claims against any amounts allegedly owing to SK Foods or its affiliatesand certain other claims against SK Foods and its affiliates.  On March 24, 2010, the bankruptcy trusteein the bankruptcy proceedings involving SK Foods filed an adversary proceedingagainst our company alleging, among other things, breach of contract, avoidanceof setoff, violation of the automatic stay, goods sold and delivered, objectionto claims and equitable subordination and asserting damages of approximately$16.0 million.  B&G Foods answeredthe complaint denying the bankruptcy trustee’s allegations against B&GFoods as being without merit and we are vigorously defending against thetrustee’s action.  In addition, B&GFoods filed a counterclaim alleging, among other things, breach of multiplecontracts, breach of express indemnity, breach of warranties, fraudulentinducement, negligent and intentional misrepresentation, violations of theSherman Antitrust Act, violations of the Robinson-Patman Act, violations ofCalifornia’s Cartwright Act, violations of California’s Unfair Practices Act,violations of California’s Unfair Competition Law, RICO violations, accountstated and recoupment.  During the thirdquarter of 2010, to avoid expense and the uncertainly of litigation, we enteredinto a settlement agreement with the bankruptcy trustee and the Bank ofMontreal, the agent for SK Foods’ secured lenders, pursuant to which we haveagreed to pay the Bank of Montreal, on behalf of the secured lenders, $1.6million in exchange for a mutual release pursuant to which the bankruptcytrustee and the Bank of Montreal (as agent for the secured lenders), on the onehand, and B&G Foods, on the other, will release each other from all claims andcounter-claims related to the adversary proceeding and B&G Foods’ proofs ofclaim in SK Foods’ bankruptcy cases.  Thesettlement remains subject to approval by the bankruptcy court.  If approved, we expect to record a gain ofapproximately $1.3 million related to the settlement during the fourth quarterof 2010, resulting from the write-off of $3.1 million of accounts payable onour books relating to SK Foods, partially offset by the $1.6 million settlementpayment and approximately $0.2 million of related expenses.  There can be no assurance, however, that thesettlement agreement will be approved by the bankruptcy court.

 

*Collective Bargaining Agreements*.  As of October 2,2010, approximately 340 of our 719 employees, or 47.3%, were covered bycollective bargaining agreements, of which 162 were covered by collective

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(11)****                         ****Commitments and Contingencies (Continued)**

 

bargaining agreements expiringwithin the next 12 months.  Ourcollective bargaining agreement with the Drivers, Salesmen, Warehousemen, MilkProcessors, Cannery, Dairy Employees and Helpers Union (Local No. 695)that covers are Stoughton, Wisconsin employees is scheduled to expire on March 31,2011.  We expect to begin negotiationsfor a new collective bargaining agreement for our Stoughton, Wisconsinemployees during the first quarter of 2011.  While we believe that ourrelations with our union employees are good, we cannot assure you that we willbe able to negotiate the Stoughton, Wisconsin collective bargaining agreementon terms satisfactory to us, or at all, and without production interruptions,including labor stoppages.  At this time, however, management does notexpect that the outcome of these negotiations will have a material adverse impacton our business, financial condition or results of operations.

 

*Severance and Change of ControlAgreements. *We have employment agreements with each of our six executiveofficers.  The agreements generallycontinue until terminated by the executive or by us, and provide for severancepayments under certain circumstances, including termination by us without cause(as defined) or as a result of the employees’ disability, or termination by usor a deemed termination upon a change of control (as defined).  Severance benefits include payments forsalary continuation, continuation of health care and insurance benefits,present value of additional pension credits and, in the case of a change ofcontrol, accelerated vesting under compensation plans and potential excise taxliability and gross up payments.

 

**(12)****                         ****Earnings per Share**

 

Basic earnings per share for ourcommon stock is calculated by dividing net income by the weighted averagenumber of shares of common stock outstanding. Diluted earnings per share for the common stock is calculated bydividing net income by the weighted average number of shares of common stockoutstanding plus all additional common shares that would have been outstandingif potentially dilutive common shares related to performance shares that may beearned under long-term incentive awards had been issued as of the beginning ofthe period using the treasury stock method.

 
| ** **                                              | ** ** | **Thirteen Weeks Ended**  | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **October 2,  2010**           | ** ** | **October 3,  2009**             | ** ** | **October 2,  2010** | ** ** | **October 3,  2009** | ** ** |
| ** **                                              | ** ** | **(Shares in thousands)** | ** ** |
| Weighted  average common shares outstanding:            |       |                                |       |                                  |       |   |   |   |   |
| Basic                                                   |       | 47,636                              |       | 37,790                                |       | 47,563 |   | 36,644 |   |
| Net  effect of dilutive share-based compensation awards |       | 965                                 |       | 183                                   |       | 786 |   | — |   |
| Diluted                                                 |       | 48,601                              |       | 37,973                                |       | 48,349 |   | 36,444 |   |

 

**(13)****                         ****Business and Credit Concentrationsand Geographic Information**

 

Our exposure to credit loss in theevent of non-payment of accounts receivable by customers is estimated in theamount of the allowance for doubtful accounts. We perform ongoing credit evaluations of our customers’ financialconditions.  Our top ten customersaccounted for approximately 50.1% of consolidated net sales for the first threequarters of 2010 and 2009.  Our top tencustomers accounted for approximately 48.8% and 52.7% of our receivables as of October 2,2010 and January 2, 2010, respectively. Other than Wal-Mart, which accounted for 16.1% and 15.9% of ourconsolidated net sales for the first three quarters of 2010 and 2009,respectively, no single customer accounted for more than 10.0% of ourconsolidated net sales for the first three quarters of 2010 or 2009.  Other than Wal-Mart, which accounted for13.5% of our consolidated receivables as of October 2, 2010, no singlecustomer accounted for more than 10.0% of our consolidated receivables as ofthe end of the first three quarters of 2010. Other than Wal-Mart and C&S Wholesale

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(13)****                         ****Business and Credit Concentrationsand Geographic Information (Continued)**

 

Grocery, which accounted for 12.5%and 11.1% of our consolidated receivables, respectively, as of January 2,2010, no single customer accounted for more than 10.0% of our consolidatedreceivables as of the end of fiscal 2009.

 

During the first three quartersof 2010 and 2009, our sales to foreign countries represented less than 1.0% of netsales.  Our foreign sales are primarilyto customers in Canada.

 

**(14)****                         ****Share-Based Compensation**

 

Beginning in fiscal 2008, ourcompensation committee has made annual grants of performance share long-termincentive awards (LTIAs) to our executive officers and certain other members ofsenior management under the 2008 Omnibus Incentive Compensation Plan.  The LTIAs entitle the participant to earnshares of common stock upon the attainment of certain performance goals overthe applicable performance period.  TheLTIAs, each have a threshold, target and maximum payout.  The awards are settled based upon ourperformance over the applicable performance period.  For the LTIAs granted to date, the applicableperformance metric is and has been “excess cash” (as defined in the awardagreements).  If our performance fails tomeet the performance threshold, then the awards will not vest and no shareswill be issued pursuant to the awards. If our performance meets or exceeds the performance threshold, then avarying amount of shares from the threshold amount (50% of the target number ofshares) up to the maximum amount (300% of the target number of shares) may beearned.  No shares are earned if theperformance threshold is not met.

 

Based on the actual results of our companyfor the 2008 to 2009 performance period, 399,842 shares of common stock wereearned under the 2008 to 2009 LTIAs. During the first quarter of 2010, 251,368 shares of common stock wereissued to participants with a market price at the date of issuance of $9.83 pershare.  The remaining 148,474 shares ofcommon stock were withheld to fund required statutory minimum withholding taxeson behalf of employees.  The excess taxbenefit recorded to additional paid in capital as a result of the issuance ofcommon stock was $0.3 million.

 

During the third quarter and firstthree quarters of 2010, we recognized $0.9 million and $2.2 million,respectively, of compensation expense for performance share LTIAs.  Of the $0.9 million recognized during the thirdquarter of 2010, $0.6 million is reflected in general and administrativeexpenses, $0.1 million is reflected in cost of goods sold and $0.2 million isreflected in sales, marketing and distribution expenses in our consolidatedstatement of operations.  Of the $2.2million recognized during the first three quarters of 2010, $1.4 million isreflected in general and administrative expenses, $0.4 million in cost of goodssold, and $0.4 million is reflected in sales, marketing and distributionexpenses in our consolidated statement of operations.  During the third quarter and first threequarters of 2009, we recognized $1.5 million and $3.1 million, respectively, ofcompensation expense for performance share LTIAs. Of the $1.5 millionrecognized during the third quarter of 2009, $0.9 million is reflected ingeneral and administrative expenses, $0.3 million is reflected cost of goodssold and $0.3 million is reflected in sales, marketing and distributionexpenses in our consolidated statement of operations.   Of the $3.1 million recognized during thefirst three quarters of 2009, $1.9 million is reflected in general andadministrative expenses, $0.6 million is reflected in sales, marketing anddistribution expenses, and $0.6 million is reflected in cost of goods sold in ourconsolidated statement of operations.  Asof October 2, 2010, there was $4.6 million of unrecognized compensationexpense related to performance share LTIAs, which is expected to be recognizedover the next 27 months.

 

The following table details the activityin our performance share LTIAs for the first three quarters of 2010:

 

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**B&G Foods, Inc. andSubsidiaries**

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(14)****                         ****Share-Based Compensation (Continued)**

 
| ** **                | ** ** | **Number of  Performance Shares (1)** | ** ** | **Weighted Average  Grant Date Fair  Value (per share)(2)** | ** ** |
|---------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
|                      |       |                                                 |       |                                                                                 |       |
| Beginning  of fiscal 2010 |       | 1,918,466                                            |       | $                                                                                    | 4.09       |   |
| Granted                   |       | 595,254                                              |       | $                                                                                    | 7.63       |   |
| Vested                    |       | (399,842                                             | )          | $                                                                                    | 7.65       |   |
| Forfeited                 |       | (72,441                                              | )          | $                                                                                    | 3.13       |   |
| At  October 2, 2010  |       | 2,041,437                                            |       | $                                                                                    | 4.46       |   |

 

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(1)         Solely for purposes of this table, the number ofperformance shares granted is based on the participants earnings their maximumnumber of performance shares (i.e., 300% of the target number of performanceshares).

(2)         The fair value of the awards was determined based uponthe closing price of our common stock on the applicable measurement dates(i.e., the deemed grant dates for accounting purposes) reduced by the presentvalue of expected dividends using the risk-free interest-rate as the awardholders are not entitled to dividends or dividend equivalents during thevesting period.

 

*Non-EmployeeDirector Stock Grants. *Each of our non-employee directors receives an annualequity grant as part of his or her non-employee director compensation.  These shares fully vest when issued.  On June 1, 2010, 16,980 shares of commonstock in the aggregate were issued to the non-employee directors based upon theclosing price of our common stock on May 28, 2010 (the business dayimmediately prior to the date of grant) of $10.60 per share.  On June 1, 2009, 24,135 shares of commonstock in the aggregate were issued to the non-employee directors based upon theclosing price of our common stock on May 29, 2009 (the business dayimmediately prior to the date of grant) of $7.25 per share.  For the first three quarters of 2010 and2009, share-based compensation expense of $0.2 million relating to the non-employeedirector grants is reflected in general and administrative expenses in ourconsolidated statements of operations.

 

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**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materiallyfrom those anticipated in these forward-looking statements as a result ofcertain factors, including those set forth under the heading “Forward-LookingStatements” below and elsewhere in this report. The following discussion should be read in conjunction with theunaudited consolidated interim financial statements and related notes for thethirteen and thirty-nine weeks ended October 2, 2010 (third quarter of2010 and first three quarters of 2010) included elsewhere in this report andthe audited consolidated financial statements and related notes for the fiscalyear ended January 2, 2010 (fiscal 2009) included in our 2009 AnnualReport on Form 10-K.

 

**General**

 

We manufacture, sell and distributea diverse portfolio of branded, high quality, shelf-stable food products, manyof which have leading regional or national market shares.  In general, we position our branded productsto appeal to the consumer desiring a high quality and reasonably pricedproduct.  We complement our brandedproduct retail sales with institutional and food service sales and limitedprivate label sales.

 

Our goal is to continue to increasesales, profitability and cash flows by enhancing our existing portfolio ofbranded shelf stable products and by capitalizing on our competitivestrengths.  We intend to implement ourgrowth strategy through the following initiatives: expanding our brand portfoliowith disciplined acquisitions of complementary branded businesses, continuingto develop new products and delivering them to market quickly, leveraging ourmultiple channel sales and distribution system and continuing to focus onhigher growth customers and distribution channels.  Since 1996, we have successfully acquired andintegrated 18 separate brands into our operations.

 

We are subject to a number ofchallenges that may adversely affect our businesses.  These challenges, which are discussed belowand under the heading “Forward-Looking Statements,” include:

 

*Fluctuations in Commodity Pricesand Production and Distribution Costs:*  We purchase raw materials, includingagricultural products, meat, poultry, other raw materials, ingredients and packagingmaterials from growers, commodity processors, other food companies andpackaging manufacturers.  Raw materials,ingredients and packaging materials are subject to fluctuations in priceattributable to a number of factors. Fluctuations in commodity prices can lead to retail price volatility andintensive price competition, and can influence consumer and trade buyingpatterns.

 

We purchase maple syrup primarilyfrom Quebec, Canada and Vermont.  In2008, maple syrup production in Canada, which represents the great majority ofglobal production, was significantly below industry needs due to growing globaldemand and one of the worst crop yields in nearly 40 years.  As a result, the price we paid for maplesyrup increased significantly and we were faced with a shortfall in supply ascompared to our needs, which had a negative impact on our sales volume of maplesyrup products during fiscal 2008 that continued through the first two quartersof 2009.  The 2010 maple syrup crop yieldwas more consistent with historic levels.

 

The cost of labor, manufacturing,energy, fuel, packaging materials and other costs related to the production anddistribution of our food products can from time to time increase significantlyand unexpectedly.  We attempt to managethese risks by entering into short-term supply contracts and advancecommodities purchase agreements from time to time, by implementing cost savingmeasures and by raising sales prices.  Todate, our cost saving measures and sales price increases have offset increasesto our raw material, ingredient and packaging costs.  To the extent we are unable to offset presentand future cost increases, our operating results will be negatively impacted.

 

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*Consolidation in the Retail Tradeand Consequent Inventory Reductions:*  As the retail grocery trade continues toconsolidate and our retail customers grow larger and become more sophisticated,our retail customers may demand lower pricing and increased promotionalprograms.  These customers are alsoreducing their inventories and increasing their emphasis on private labelproducts.

 

*Changing Customer Preferences:*  Consumers in themarket categories in which we compete frequently change their tastepreferences, dietary habits and product packaging preferences.

 

*Consumer Concern Regarding FoodSafety, Quality and Health:*  The food industry is subject to consumerconcerns regarding the safety and quality of certain food products.  If consumers in our principal markets loseconfidence in the safety and quality of our food products even as a result of aproduct liability claim or a product recall by a food industry competitor, ourbusiness could be adversely affected.

 

*Fluctuations in Currency ExchangeRates:*  We purchase the majority of our maple syruprequirements from suppliers located in Québec, Canada.  Any weakening of the U.S. dollar against theCanadian dollar, could significantly increase our costs relating to theproduction of our maple syrup products to the extent we have not purchasedCanadian dollars in advance of any such weakening of the U.S. dollar.

 

To confront these challenges, wecontinue to take steps to build the value of our brands, to improve ourexisting portfolio of products with new product and marketing initiatives, toreduce costs through improved productivity, to address consumer concerns aboutfood safety, quality and health and to favorably manage currency fluctuations.

 

**Critical Accounting Policies; Use of Estimates**

 

The preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America requires our management to make a number of estimatesand assumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Some of the moresignificant estimates and assumptions made by management involve trade andconsumer promotion expenses; allowances for excess, obsolete and unsaleableinventories; pension benefits; the recoverability of goodwill, trademarks,customer relationship intangibles, property, plant and equipment, and deferredtax assets; and the accounting for share-based compensation expense.  Actual results could differ significantlyfrom these estimates and assumptions.

 

In our 2009 Annual Report on Form 10-K,we identified the critical accounting policies which affect our moresignificant estimates and assumptions used in preparing our consolidatedfinancial statements. There have been no significant changes to these policiessince January 2, 2010.

 

**Results ofOperations**

 

The following table sets forth thepercentages of net sales represented by selected items for the third quarterand first three quarters of 2010 and 2009 reflected in our consolidatedstatements of operations.  The comparisonsof financial results are not necessarily indicative of future results:

 
| ** **                                        | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **October 2,  2010**          | ** ** | **October 3,  2009**             | ** ** | **October 2,  2010** | ** ** | **October 3,  2009** | ** ** |
| **Statement of Operations:**                      |       |                               |       |                                  |       |   |   |   |   |
| Net  sales                                        |       | 100.0                              | %          | 100.0                                 | %          | 100.0 | % | 100.0 | % |
| Cost  of goods sold                               |       | 68.7                               | %          | 70.8                                  | %          | 67.5 | % | 69.4 | % |
| Gross  profit                                     |       | 31.3                               | %          | 29.2                                  | %          | 32.5 | % | 30.6 | % |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Sales,  marketing and distribution expenses       |       | 7.9                                | %          | 8.6                                   | %          | 8.6 | % | 8.9 | % |
| General  and administrative expenses              |       | 2.0                                | %          | 2.3                                   | %          | 2.2 | % | 2.2 | % |
| Amortization  expense—customer relationships |       | 1.3                                | %          | 1.3                                   | %          | 1.3 | % | 1.3 | % |
| Operating  income                                 |       | 20.1                               | %          | 17.0                                  | %          | 20.4 | % | 18.2 | % |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Interest  expense, net                            |       | 8.3                                | %          | 11.0                                  | %          | 8.6 | % | 10.9 | % |
| Loss  on extinguishment of debt                   |       | —                             |       | 0.5                                   | %          | 4.0 | % | 0.2 | % |
| Income  before income tax expense                 |       | 11.8                               | %          | 5.5                                   | %          | 7.8 | % | 7.1 | % |
|                                              |       |                               |       |                                  |       |   |   |   |   |
| Income  tax expense                               |       | 4.4                                | %          | 2.1                                   | %          | 2.9 | % | 2.7 | % |
| Net  income                                       |       | 7.4                                | %          | 3.4                                   | %          | 4.9 | % | 4.4 | % |

 

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As used in this section the termslisted below have the following meanings:

 

*Net Sales.*  Our net salesrepresents gross sales of products shipped to customers plus amounts charged tocustomers for shipping and handling, less cash discounts, coupon redemptions,slotting fees and trade promotional spending.

 

*Gross Profit.*  Our gross profit isequal to our net sales less cost of goods sold. The primary components of our cost of goods sold are cost of internallymanufactured products, purchases of finished goods from co-packers plus freightcosts to our distribution centers and to our customers.

 

*Sales, Marketingand Distribution Expenses.*  Our sales, marketing and distributionexpenses include costs for marketing personnel, consumer advertising programs,internal sales forces, brokerage costs and warehouse facilities.

 

*General andAdministrative Expenses.*  Our general and administrative expensesinclude administrative employee compensation and benefit costs, as well asinformation technology infrastructure and communication costs, office rent andsupplies, professional services and other general corporate expenses.

 

*AmortizationExpense—Customer Relationships.*Amortization expense—customer relationships includes the amortization expenseassociated with customer relationship intangibles, which are amortized overtheir useful lives of 20 years.

 

*Net InterestExpense.*  Net interest expense includes interestrelating to our outstanding indebtedness, amortization of bond discount andamortization of deferred debt financing costs, net of interest income andsubsequent to our determination in September 2008 that our interest rateswap was no longer an effective hedge for accounting purposes, unrealized gainsor losses on the interest rate swap and the reclassification of amounts recordedin accumulated other comprehensive loss related to the swap.

 

*Loss onExtinguishment of Debt.*  Loss on extinguishment of debt includes costsrelating to the retirement of indebtedness, including any repurchase premiumand write-off of deferred debt financing costs.

 

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***Non-GAAP FinancialMeasures***

 

Certain disclosures in this reportinclude non-GAAP financial measures.  Anon-GAAP financial measure is defined as a numerical measure of our financialperformance that excludes or includes amounts so as to be different than themost directly comparable measure calculated and presented in accordance withGAAP in our consolidated balance sheets and related consolidated statements ofoperations, changes in stockholders’ equity and comprehensive income, and cashflows.

 

EBITDA is a measure used bymanagement to measure operating performance. We define EBITDA as net income before net interest expense (as definedabove), income taxes, depreciation and amortization and loss on extinguishmentof debt (as defined above). Management believes that it is useful to eliminatenet interest expense, income taxes, depreciation and amortization and loss onextinguishment of debt because it allows management to focus on what it deemsto be a more reliable indicator of ongoing operating performance and ourability to generate cash flow from operations. We use EBITDA in our businessoperations, among other things, to evaluate our operating performance, developbudgets and measure our performance against those budgets, determine employeebonuses and evaluate our cash flows in terms of cash needs. We also presentEBITDA because we believe it is a useful indicator of our historical debtcapacity and ability to service debt and because covenants in our creditfacility and our senior notes indenture contain ratios based on thismeasure.  As a result, internalmanagement reports used during monthly operating reviews feature the EBITDAmetric. However, management uses this metric in conjunction with traditionalGAAP operating performance and liquidity measures as part of its overallassessment of company performance and liquidity and therefore does not placeundue reliance on this measure as its only measure of operating performance andliquidity.

 

EBITDA is not a recognized termunder GAAP and does not purport to be an alternative to operating income or netincome 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 ofliquidity that does not include reductions for cash payments for an entity’sobligation to service its debt, fund its working capital, capital expendituresand acquisitions and pay its income taxes and dividends. Rather, EBITDA is apotential indicator of an entity’s ability to fund these cash requirements.EBITDA is not a complete measure of an entity’s profitability because it doesnot include costs and expenses for depreciation and amortization, interest andrelated expenses, loss on extinguishment of debt and income taxes. Because notall companies use identical calculations, this presentation of EBITDA may notbe comparable to other similarly titled measures of other companies. However,EBITDA can still be useful in evaluating our performance against our peercompanies because management believes this measure provides users with valuableinsight into key components of GAAP amounts.

 

A reconciliation of EBITDA to netincome and to net cash provided by operating activities for the third quarterand first three quarters of 2010 and 2009 along with the components of EBITDAfollows:

 

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| ** **                                                       | ** ** | **Thirteen Weeks Ended**   | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                                       | ** ** | **October 2,  2010**            | ** ** | **October 3,  2009**             | ** ** | **October 2,  2010** | ** ** | **October 3,  2009** | ** ** |
| ** **                                                       | ** ** | **(Dollars in thousands)** | ** ** |
| Net  income                                                      |       | $                                    | 9,282      |                                  | $          | 4,161 |   | $ | 18,101 |   | $ | 16,103 |   |
| Income  tax expense                                              |       | 5,519                                |       | 2,611                                 |       | 10,642 |   | 9,900 |   |
| Interest  expense, net                                           |       | 10,335                               |       | 13,570                                |       | 31,855 |   | 39,996 |   |
| Depreciation  and amortization                                   |       | 3,761                                |       | 3,677                                 |       | 11,118 |   | 10,847 |   |
| Loss  on extinguishment of debt                                  |       | —                               |       | 674                                   |       | 15,224 |   | 674 |   |
| EBITDA                                                           |       | 28,897                               |       | 24,693                                |       | 86,940 |   | 77,520 |   |
| Income  tax expense                                              |       | (5,519                               | )          | (2,611                                | )          | (10,642 | ) | (9,900 | ) |
| Interest  expense, net                                           |       | (10,335                              | )          | (13,570                               | )          | (31,855 | ) | (39,996 | ) |
| Deferred  income taxes                                           |       | 2,825                                |       | 3,348                                 |       | 5,584 |   | 9,295 |   |
| Amortization  of deferred financing costs and bond discount      |       | 500                                  |       | 610                                   |       | 1,515 |   | 2,222 |   |
| Unrealized  loss (gain) on interest rate swap                    |       | 471                                  |       | 631                                   |       | 1,820 |   | (108 | ) |
| Reclassification  to net interest expense for interest rate swap |       | 423                                  |       | 424                                   |       | 1,270 |   | 1,270 |   |
| Share-based  compensation expense                                |       | 943                                  |       | 1,471                                 |       | 2,413 |   | 3,273 |   |
| Excess  tax benefits from share-based compensation               |       | —                               |       | —                                |       | (330 | ) | — |   |
| Changes  in assets and liabilities                               |       | (559                                 | )          | 1,973                                 |       | 4,426 |   | (9,275 | ) |
| Net cash provided by operating activities                        |       | $                                    | 17,646     |                                  | $          | 16,969 |   | $ | 61,141 |   | $ | 34,301 |   |

 

***Third quarter of 2010 compared to the third quarter of 2009.***

 

*Net Sales. *Netsales increased $1.2 million or 1.0% to $125.1 million for the third quarter of2010 from $123.9 million for the third quarter of 2009.  The increase was attributable to sales priceand unit volume increases of $0.4 million and $0.3 million, respectively, and areduction in coupons and slotting expenses of $0.5 million.  Net sales of our lines of *Ortega, B&M*and *Polaner*productsincreased**by $2.1 million, $0.6million and $0.6 million or 6.8%, 12.2% and 6.2%, respectively.  These increases were offset by a reduction innet sales of our *Cream of Wheat*and *B&G*products of $1.5 million and $0.7 million or 9.2%and 8.4%, respectively.  In theaggregate, net sales for all other brands increased $0.1 million, or 0.7%.

 

*Gross Profit. *Grossprofit increased $3.0 million or 8.2% to $39.2 million for the third quarter of2010 from $36.2 million for the third quarter of 2009.  Gross profit expressed as a percentage of netsales increased 2.1 percentage points to 31.3% in the third quarter of 2010from 29.2% in the third quarter of 2009. This increase in gross profit expressed as a percentage of net sales wasattributable to increased sales prices and a reduction in coupons and slotting,which accounted for 0.5 percentage points. The remaining 1.6 percentage points is attributable to decreases incommodity and ingredient costs and a sales mix shift to higher margin products,slightly offset by an increase in packaging and fuel surcharge costs.

 

*Sales, Marketingand Distribution Expenses. *Sales, marketing and distribution expenses decreased $0.8million or 7.1% to $9.9 million for the third quarter of 2010 from $10.7million for the third quarter of 2009. This decrease is primarily due to a decrease in warehousing costs of $0.6million attributable to warehouse consolidations, and a decrease in consumermarketing and trade spending of $0.2 million. Expressed as a percentage of net sales, our sales, marketing anddistribution expenses decreased to 7.9% for the third quarter of 2010 from 8.6%for the third quarter of 2009.

 

*General andAdministrative Expenses. *General and administrative expenses decreased $0.4 millionor 13.7% to $2.5 million for the third quarter of 2010 from $2.9 million in thethird quarter of 2009.  The decrease ingeneral and administrative expenses primarily resulted from a reduction inshare based compensation expense.

 

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*AmortizationExpense*—*Customer Relationships. *Amortization expense—customer relationships remained consistentat $1.6 million for the third quarter of 2010 as compared to the third quarterof 2009.

 

*OperatingIncome. *Asa result of the foregoing, operating income increased $4.1 million or 19.6% to$25.1 million for the third quarter of 2010 from $21.0 million for the thirdquarter of 2009.  Operating incomeexpressed as a percentage of net sales increased to 20.1% in the third quarterof 2010 from 17.0% in the third quarter of 2009.

 

*Net InterestExpense. *Netinterest expense decreased $3.3 million or 23.8% to $10.3 million for the thirdquarter of 2010 from $13.6 million in the third quarter of 2009.  The decrease in net interest expense in thethird quarter of 2010 was primarily attributable to a decrease of 1.7percentage points in the effective interest rate on our long-term debt to 7.9%in the third quarter of 2010 from 9.6% in the third quarter of 2009 and areduction in the average principal amount of our long-term debt outstandingduring the third quarter of 2010 as compared to the third quarter of 2009.  The decrease in the effective interest rateand the reduction in the average principal amount of our long-term debtoutstanding is the result of the refinancing of our 8% senior notes and 12%senior subordinated notes with the proceeds of the issuance of our 7.625%senior notes during the first quarter of 2010 and our public offering of commonstock completed in the third quarter of 2009. See “—Liquidity and Capital Resources—Debt” below.

 

*Loss onExtinguishment of Debt. *Loss on extinguishment of debt for the third quarter of 2009includes $0.7 million of costs relating to our repurchase of seniorsubordinated notes during the third quarter of 2009, including $0.4 million forthe payment of a repurchase premium and a non-cash charge of $0.3 million forthe write-off of unamortized deferred debt financing costs associated with thenotes repurchased.  During the thirdquarter of 2010, we did not extinguish any debt.

 

*Income TaxExpense. *Incometax expense increased $2.9 million to $5.5 million for the third quarter of2010 from $2.6 million for the third quarter of 2009.  Our effective tax rate was 37.3% for thethird quarter of 2010 and 38.6% for the third quarter of 2009.  The decrease in our effective tax rate isprimarily due to incremental tax deductions for manufacturing credits.

 

***First three quarters of 2010 compared to first three quarters of 2009.***

 

*Net Sales. *Netsales increased $6.1 million or 1.7% to $371.5 million for the first threequarters of 2010 from $365.4 million for the first three quarters of 2009.  The increase was attributable to sales priceand unit volume increases of $3.9 million and $2.9 million, respectively, partiallyoffset by an increase in coupon expenses of $0.7 million.  Net sales of our lines of *Ortega, Maple Grove Farms of Vermont, Las Palmas,Cream of Wheat, Ac’cent, Polaner*and *Underwood*productsincreased**in the amounts of $5.3million, $1.8 million, $1.2 million, $1.1 million, $0.7 million, $0.6 millionand $0.5 million or 5.9%, 3.8%, 5.6%, 2.6%, 5.4%, 2.1% and 3.2%,respectively.  These increases wereoffset by a reduction in net sales of our *B&G, B&M, Joan ofArc*and *Regina*productsof $2.3 million, $2.0 million, $0.5 million and $0.4 million or 8.0%, 9.9%,5.8% and 5.5%.  In the aggregate, netsales for all other brands increased $0.1 million, or 0.3%.

 

*Gross Profit. *Grossprofit increased $8.8 million or 7.8% to $120.6 million for the first three quartersof 2010 from $111.8 million for the first three quarters of 2009.  Gross profit expressed as a percentage of netsales increased 1.9 percentage points to 32.5% in the first three quarters of2010 from 30.6% in the first three quarters of 2009.  This increase in gross profit expressed as apercentage of net sales was attributable to increased sales prices net ofincreased coupon expenses, which accounted for 0.6 percentage points.  The remaining 1.3 percentage points wasprimarily attributable to decreases in commodity and ingredient costs and asales mix shift to higher margin products, slightly offset by an increase inpackaging and fuel surcharge costs.

 

*Sales, Marketingand Distribution Expenses. *Sales, marketing and distribution expenses decreased $0.6million or 1.7% to $32.0 million for the first three quarters of 2010 from$32.6 million for the first three

 

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quarters of 2009.  The decrease is primarily due to decreases inwarehousing costs of $1.2 million due to warehouse consolidations and brokerageof $0.4 million, offset by increases in consumer marketing and trade spendingof $1.0 million.  Expressed as apercentage of net sales, our sales, marketing and distribution expensesdecreased to 8.6% for the first three quarters of 2010 from 8.9% for the firstthree quarters of 2009.

 

*General andAdministrative Expenses. *General and administrative expenses increased $0.1 millionor 2.3% to $7.9 million for the first three quarters of 2010 from $7.8 millionin the first three quarters of 2009.  Theincrease in general and administrative expenses primarily resulted from anincrease in professional fees of $0.2 million, other expenses including fringesof $0.4 million, partially offset by a reduction in share based compensationexpense of $0.5 million.

 

*AmortizationExpense—Customer Relationships.*  Amortization expense—customer relationshipsremained consistent at $4.8 million for the first three quarters of 2010 ascompared to the first three quarters of 2009.

 

*OperatingIncome. *Asa result of the foregoing, operating income increased $9.1 million or 13.7% to$75.8 million for the first three quarters of 2010 from $66.7 million for thefirst three quarters of 2009.  Operatingincome expressed as a percentage of net sales increased to 20.4% in the firstthree quarters of 2010 from 18.2% in the first three quarters of 2009.

 

*Net InterestExpense. *Netinterest expense decreased $8.1 million or 20.4% to $31.9 million for the firstthree quarters of 2010 from $40.0 million in the first three quarters of2009.  The decrease in net interestexpense in the first three quarters of 2010 was primarily attributable to adecrease of 1.7 percentage points in the effective interest rate on ourlong-term debt to 8.1% in the first three quarters of 2010 from 9.8% in thefirst three quarters of 2009 and a reduction in the average principal amount ofour long-term debt outstanding during the first three quarters of 2010 ascompared to the first three quarters of 2009. The decrease in the effective interest rate and the reduction in theaverage principal amount of our long-term debt outstanding is the result of therefinancing of our 8% senior notes and 12% senior subordinated notes with theproceeds of the issuance of our 7.625% senior notes during the first quarter of2010 and our public offering of common stock completed in the third quarter of2009.  See “—Liquidity and Capital Resources—Debt”below.

 

*Loss onExtinguishment of Debt. *Loss on extinguishment of debt increased $14.5 million to$15.2 million for the first three quarters of 2010 from $0.7 million in thefirst three quarters of 2009.  Loss onextinguishment of debt for the first three quarters of 2010 includes $15.2million of costs relating to our repurchase and redemption of $69.5 millionaggregate principal amount of senior subordinated notes and $240.0 millionaggregate principal amount of senior notes, including $10.7 million for thepayment of a repurchase premium and a non-cash charge of $4.5 million for thewrite-off of unamortized deferred debt financing costs associated with thenotes repurchased.  Loss onextinguishment of debt during the first three quarters of 2009 included $0.7million of costs relating to our repurchase of senior subordinated notes duringthe third quarter of 2009, including $0.4 million for the payment of arepurchase premium and a non-cash charge of $0.3 million for the write-off ofunamortized deferred financing costs associated with the notes repurchased.

 

*Income Tax Expense. *Income tax expense increased $0.7 million to $10.6million for the first three quarters of 2010 from $9.9 million for the firstthree quarters of 2009.  Our effectivetax rate was 37.0% for the first three quarters of 2010 and 38.1% for the firstthree quarters of 2009.  The decrease inour effective tax rate is primarily due to incremental tax deductions formanufacturing credits.

 

**Liquidityand Capital Resources**

 

Our primary liquidity requirementsinclude debt service, capital expenditures and working capital needs.  See also, “Dividend Policy” and “Commitmentsand Contractual Obligations” below.  Wefund our

 

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liquidity requirements, as well asour dividend payments and financing for acquisitions, primarily through cashgenerated from operations and to the extent necessary, through borrowings underour credit facility.

 

*Cash Flows*.  Cash provided byoperating activities increased $26.8 million to $61.1 million for the firstthree quarters of 2010 from $34.3 million for the first three quarters of2009.  The increase in cash provided byoperating activities in the first three quarters of 2010 as compared to thefirst three quarters of 2009 was primarily due to an increase in net sales,improved profitability and working capital improvements, with the largestimprovement relating to the change in finished goods inventory.

 

Net cash used in investingactivities for the first three quarters of 2010 decreased $0.8 million to $7.1million from $7.9 million for the first three quarters of 2009.  Net cash used in investing activities for thefirst three quarters of 2010 and 2009 consisted entirely of capitalspending.  Capital expenditures in thefirst three quarters of 2010 and 2009 included expenditures for buildingimprovements, purchases of manufacturing and computer equipment and capitalizedinterest.

 

Net cash used in financingactivities for the first three quarters of 2010 was $6.4 million as compared tonet cash provided by financing activities of $58.6 million for the first threequarters of 2009.  Net cash used infinancing activities for the first three quarters of 2010 include $320.3million in payments for the repurchase and redemption of $69.5 millionprincipal amount of our 12% senior subordinated notes and $240.0 millionprincipal amount of our 8% senior notes, $24.2 million of dividend payments,$8.2 million of deferred financing costs and $1.5 million in payments of taxwithholding on behalf of employees for net share settlement of share-basedcompensation.  Net cash used in financingactivities were reduced by net proceeds of $347.4 million from the issuance ofour 7.625% senior notes and a $0.3 million excess tax benefits from share-basedcompensation.  Net cash provided byfinancing activities for the first three quarters of 2009 consisted of ourpublic offering of common stock completed during the third quarter of 2009,which resulted in net proceeds of $86.6 million, after deducting underwritingdiscounts and commissions and other transaction expenses, offset by $18.4million of dividend payments and $6.6 million in payments for the repurchaseand redemption of $6.3 million principle amount of our senior subordinatednotes, $2.3 million for the repurchase of common stock and $0.7 million ofdeferred financing costs.

 

Based on a number of factors,including our trademark, goodwill and customer relationship intangiblesamortization for tax purposes from our prior acquisitions, we realized asignificant reduction in cash taxes in fiscal 2009 and 2008 as compared to ourtax expense for financial reporting purposes. We believe that we will realize a benefit to our cash taxes payable fromamortization of our trademarks, goodwill and customer relationship intangiblesfor the taxable years 2010 through 2022.

 

***Dividend Policy***

 

Our dividend policy reflects a basicjudgment that our stockholders would be better served if we distributed asubstantial portion of our cash available to pay dividends to them instead ofretaining it in our business.  Under thispolicy, a substantial portion of the cash generated by our company in excess ofoperating needs, interest and principal payments on indebtedness, capitalexpenditures sufficient to maintain our properties and other assets is ingeneral distributed as regular quarterly cash dividends (up to the intendeddividend rate as determined by our board of directors) to the holders of ourcommon stock and not retained by us. From the date of our initial public offering in October 2004through the dividend payment we made on October 30, 2008, the dividendrate for our common stock was $0.848 per share per annum.  Beginning with the dividend payment we madeon January 30, 2009, the current intended dividend rate for our commonstock is $0.68 per share per annum.

 

Dividend payments, however, are notmandatory or guaranteed and holders of our common stock do not have any legalright to receive, or require us to pay, dividends.  Furthermore, our board of directors may, inits sole discretion, amend or repeal this dividend policy.  Our board of directors may decrease the levelof dividends below the intended dividend rate or discontinue entirely thepayment of dividends.  Future dividends

 

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with respect to shares of our commonstock depend on, among other things, our results of operations, cashrequirements, financial condition, contractual restrictions, businessopportunities, acquisition opportunities, the condition of the debt and equityfinancing markets, provisions of applicable law and other factors that ourboard of directors may deem relevant. Our board of directors is free to depart from or change our dividendpolicy at any time and could do so, for example, if it was to determine that wehave insufficient cash to take advantage of growth opportunities.  In addition, over time, our EBITDA andcapital expenditure, working capital and other cash needs will be subject touncertainties, which could impact the level of dividends, if any, we pay in thefuture.  Our senior notes indenture andthe terms of our credit facility contain significant restrictions on ourability to make dividend payments.  Inaddition, certain provisions of the Delaware General Corporation Law may limitour ability to pay dividends.

 

As a result of our dividend policy,we may not retain a sufficient amount of cash to finance growth opportunitiesor unanticipated capital expenditure needs or to fund our operations in theevent of a significant business downturn. We may have to forego growth opportunities or capital expenditures thatwould otherwise be necessary or desirable if we do not find alternative sourcesof financing.  If we do not havesufficient cash for these purposes, our financial condition and our businesswill suffer.

 

For the first three quarters of 2010and 2009, we had cash flows provided by operating activities of $61.1 millionand $34.3 million, and distributed $24.2 million and $18.4 million,respectively, as dividends. At our current intended dividend rate of $0.680 pershare per annum, we expect our aggregate dividend payments in fiscal 2010 to be$32.3 million.  If our cash flows fromoperating activities for future periods were to fall below our minimum expectations(or if our assumptions as to capital expenditures or interest expense were toolow or our assumptions as to the sufficiency of our revolving credit facilityto finance our working capital needs were to prove incorrect), we would needeither to further reduce or eliminate dividends or, to the extent permittedunder our senior notes indenture and the terms of our credit facility, fund aportion of our dividends with borrowings or from other sources.  If we were to use working capital orpermanent borrowings to fund dividends, we would have less cash and/orborrowing capacity available for future dividends and other purposes, whichcould negatively impact our financial position, our results of operations, ourliquidity and our ability to maintain or expand our business.

 

***Acquisitions***

 

Our liquidity and capital resourceshave been significantly impacted by acquisitions and may be impacted in theforeseeable future by additional acquisitions. As discussed elsewhere in this report, as part of our growth strategy weplan to expand our brand portfolio with disciplined acquisitions ofcomplementary brands.  We havehistorically financed acquisitions with borrowings and cash flows fromoperating activities.  As a result, our interestexpense has in the past increased as a result of additional indebtedness wehave incurred in connection with acquisitions, and will increase with anyadditional indebtedness we may incur to finance future acquisitions, ifany.  The impact of future acquisitions,whether financed with additional indebtedness or otherwise, may have a materialimpact on our liquidity.

 

***Environmental and Healthand Safety Costs***

 

We have not made any materialexpenditures during the first three quarters of 2010 in order to comply withenvironmental laws or regulations.  Basedon our experience to date, we believe that the future cost of compliance withexisting environmental laws and regulations (and liability for knownenvironmental conditions) will not have a material adverse effect on ourconsolidated financial condition, results of operations or liquidity.  However, we cannot predict what environmentalor health and safety legislation or regulations will be enacted in the futureor how existing or future laws or regulations will be enforced, administered orinterpreted, nor can we predict the amount of future expenditures that may berequired in order to comply with such environmental or health and safety lawsor regulations or to respond to such environmental claims.

 

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***Debt***

 

*Senior Secured Credit Facility.*  As amended, our$25.0 million revolving credit facility and our $130.0 million of term loanborrowings mature in February 2013. The following discussion of the credit facility describes the creditfacility as amended through the date of issuance of the accompanying unauditedinterim consolidated financial statements.

 

Interest under the revolving creditfacility, including any outstanding letters of credit, is determined based onalternative rates that we may choose in accordance with the revolving creditfacility, including the base lending rate per annum plus an applicable marginof 2.00%, and LIBOR plus an applicable margin of 3.00%.  We pay a commitment fee of 0.50% per annum onthe unused portion of the revolving credit facility.  Interest under the term loan facility isdetermined based on alternative rates that we may choose in accordance with thecredit facility, including the base lending rate per annum plus an applicablemargin of 1.00%, and LIBOR plus an applicable margin of 2.00%.

 

Our obligations under the creditfacility are jointly and severally and fully and unconditionally guaranteed ona senior basis by all of our existing and certain future domesticsubsidiaries.  The credit facility issecured by substantially all of our and our domestic subsidiaries’ assetsexcept our and our domestic subsidiaries’ real property.  The credit facility provides for mandatory prepaymentupon certain asset dispositions and issuances of securities, as defined.  The credit facility contains covenants thatrestrict, among other things, our ability to incur additional indebtedness, paydividends and create certain liens.  Thecredit facility also contains certain financial maintenance covenants, which,among other things, specify maximum capital expenditure limits, a minimuminterest coverage ratio and a maximum senior and total leverage ratio, eachratio as defined.  As of October 2, 2010,we were in compliance with all of the covenants in the credit facility.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same or a similar line of business as ourcompany, subject to specified criteria. The maximum letter of credit capacity under the revolving creditfacility is $10.0 million, with a fronting fee of 3.0% per annum for alloutstanding letters of credit.

 

At October 2, 2010, theavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit of $0.5 million, was $24.5 million.  We have not drawn upon the revolving creditfacility since its inception in October 2004 and, based upon our cash andcash equivalents on hand and working capital requirements, we have no plans todo so for the foreseeable future.

 

Effective as of February 26,2007, we entered into a six year interest rate swap agreement in order toeffectively fix at 7.0925% the interest rate payable for $130.0 million of termloan borrowings through the life of the term loan, ending on February 26,2013.  The counterparty to the swap isLehman Special Financing Inc. (Lehman SFI) and the counterparty’s guarantor isLehman Brothers Holdings Inc. (Lehman). On September 15, 2008, Lehman filed for protection under Chapter 11of the U.S. Bankruptcy Code.  Lehman SFIfiled for protection under Chapter 11 of the U.S. Bankruptcy Code on October 3,2008.

 

We initially designated the swap as acash flow hedge.  Prior to Lehman’sbankruptcy filing, we recorded changes in the fair value of the swap inaccumulated other comprehensive loss, net of tax in our consolidated balancesheet.  However, as a result of theLehman bankruptcy filing, we determined in September 2008 that theinterest rate swap was no longer an effective hedge for accountingpurposes.  Accordingly, subsequent tothat determination, we record changes in the swap’s fair value in currentearnings in net interest expense in our consolidated statements ofoperations.  We obtain third-partyverification of the fair value at the end of each reporting period.  As of October 2, 2010, the fair value ofour interest rate swap was an unrealized loss of $13.4 million and is recordedin other liabilities on our consolidated balance sheet.  The amount recorded in accumulated othercomprehensive loss will be reclassified to net interest expense over theremaining life of the term loan borrowings as we make interest payments.  Net interest expense in the third quarter andfirst three quarters of 2010 includes a charge of $0.5 million and $1.8million, respectively, relating to the unrealized loss on our interest rateswap and a reclassification of $0.4 million and $1.3 million, respectively, of theamount recorded in accumulated other comprehensive loss related to theswap.  Net interest in the third quarterand first three quarters of 2010 also includes a reduction in interest incomeprimarily due to 

 

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lower interest rates.  As of October 2, 2010, we expect toreclassify $4.1 million to net interest expense during the remainder of thelife of the swap, with $1.7 million being reclassified in the next twelvemonths.

 

*12% Senior Subordinated Notes due2016*.  In October 2004, we issued $165.8million aggregate principal amount of 12% senior subordinated notes due2016.  During the third and fourthquarters of fiscal 2009, we repurchased $96.3 million principal amount ofsenior subordinated notes, which resulted in a pre-tax charge of $10.2 million,representing a cash charge of $5.8 million relating to the repurchase and callpremiums and a non-cash charge of $4.4 million relating to the write-off ofunamortized deferred debt financing costs.

 

In January 2010, we repurchased$44.7 million aggregate principal amount of the senior subordinated notes withthe proceeds of our public offering of 7.625% senior notes at a repurchaseprice of 106.5% of such principal amount plus accrued and unpaid interest, andset aside sufficient proceeds of the offering to repurchase or redeem theremaining senior subordinated notes.  In February 2010,we repurchased or redeemed the remaining $24.8 million aggregate principalamount of the senior subordinated notes at a price equal to 106.0% of suchprincipal amount, plus accrued and unpaid interest.

 

*8 % Senior Notes due 2011. *InOctober 2004, we issued $240.0 million aggregate principal amount of 8%senior notes due 2011.  In January 2010,we repurchased $238.9 million aggregate principal amount of the 8% senior noteswith the proceeds of our public offering of 7.625% senior notes at a repurchaseprice of 102.375% of such principal amount plus accrued and unpaid interest,and set aside sufficient proceeds of the offering to repurchase or redeem theremaining 8% senior notes.  In February 2010,we repurchased or redeemed the remaining $1.1 million aggregate principalamount of the 8% senior notes at a price equal to 102.0% of such principalamount, plus accrued and unpaid interest.

 

*Loss on Extinguishment ofDebt. *Inconnection with the retirement of our 12% senior subordinated notes and 8%senior notes, we incurred a loss on extinguishment of debt of approximately$15.2 million in the first quarter of 2010, including the repurchase premium of$10.7 million and a write-off and expense of $4.5 million of deferred debtfinancing costs.

 

*7.625% Senior Notes due 2018.** *In January 2010, we issued$350.0 million aggregate principal amount of 7.625% senior notes due 2018 at aprice to the public of 99.271% of their face value.  Accordingly, the original issue discount anddebt financing costs are being amortized through the maturity date of thesenior notes. Interest on the senior notes is payable on January 15 and July 15of each year.  The senior notes willmature on January 15, 2018, unless earlier retired or redeemed asdescribed below.

 

On or after January 15, 2014,we may redeem some or all of the senior notes at a redemption price of 103.813%beginning January 15, 2014 and thereafter at prices declining annually to100% on or after January 15, 2017. We may redeem up to 35% of the aggregate principal amount of the notesprior to January 15, 2013 with the net proceeds from certain equityofferings.  We may also redeem some orall of the notes at any time prior to January 15, 2014 at a redemptionprice equal to a specified make-whole amount. In addition, if we undergo a change of control, we may be required tooffer to repurchase the notes at the repurchase price of 101% plus accrued andunpaid interest to the date of redemption.

 

We may also, from time to time, seekto retire senior notes through cash repurchases of senior notes and/or exchangesof senior notes for equity securities, in open market purchases, privatelynegotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing marketconditions, our liquidity requirements, contractual restrictions and otherfactors.  The amounts involved may bematerial.

 

Our obligations under the seniornotes are jointly and severally and fully and unconditionally guaranteed on asenior basis by all of our existing and certain future domesticsubsidiaries.  The senior notes and thesubsidiary guarantees are our and the guarantors’ general unsecured obligationsand are effectively junior in right of payment to all of our and the guarantors’secured indebtedness and to the indebtedness and 

 

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other liabilities of ournon-guarantor subsidiaries; are *pari passu* inright of payment to all of our and the guarantors’ existing and futureunsecured senior debt; and are senior in right of payment to all of our and theguarantors’ future subordinated debt. Our foreign subsidiary is not a guarantor, and any future foreign orpartially owned domestic subsidiaries will not be guarantors, of our seniornotes.

 

Our senior notes indenture containscovenants with respect to us and the guarantors and restricts the incurrence ofadditional indebtedness and the issuance of capital stock; the payment ofdividends or distributions on, and redemption of, capital stock; a number ofother restricted payments, including certain investments; specified creation ofliens, sale-leaseback transactions and sale of certain specified assets;fundamental changes, including consolidation, mergers and transfers of all orsubstantially all of our assets; and specified transactions withaffiliates.  Each of the covenants issubject to a number of important exceptions and qualifications.  As of October 2, 2010, we were incompliance with all of the covenants in the senior notes indenture.

 

***Future Capital Needs***

 

We are highly leveraged.  On October 2, 2010, our total long-termdebt and stockholders’ equity was $477.7 million and $221.7 million,respectively.

 

Our ability to generate sufficientcash to fund our operations depends generally on our results of operations andthe availability of financing.  Ourmanagement believes that our cash and cash equivalents on hand, cash flows fromoperating activities and available borrowing capacity under our revolvingcredit facility will be sufficient for the foreseeable future to fundoperations, meet debt service requirements, fund capital expenditures, makefuture acquisitions within our line of business, if any, and pay ouranticipated dividends on our common stock. We expect to make capital expenditures of up to approximately $11.0million in the aggregate during fiscal 2010, $7.1 million of which have alreadybeen made during the first three quarters.

 

***Seasonality***

 

Sales of a number of our productstend to be seasonal.  In the aggregate,however, our sales are not heavily weighted to any particular quarter due tothe diversity of our product and brand portfolio.  Sales during the first quarter of the fiscalyear are generally below those of the following three quarters.

 

We purchase most of the produce usedto make our shelf-stable pickles, relishes, peppers and other related specialtyitems during the months of July through October, and we purchasesubstantially all of our maple syrup requirements during the months of April throughJuly.  Consequently, our liquidity needsare greatest during these periods.

 

***Inflation***

 

During the past several years, wehave been faced with increasing prices in certain commodities and packagingmaterials.  We manage this risk byentering into short-term supply contracts and advance commodities purchaseagreements from time to time, and if necessary, by raising prices.  We believe that through sales price increasesand our cost saving efforts we have to a large degree been able to offset theimpact of raw material, packaging and transportation cost increases that wehave faced from time to time in recent years. There can be no assurance, however, that any future sales priceincreases or cost saving efforts by us will offset any increases in the cost ofraw material, packaging and transportation costs, or that we will be able toraise prices or reduce costs at all.

 

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**Recently Issued AccountingStandards**

 

There have been no significantdevelopments to recently issued accounting standards, including the expecteddates of adoption and estimated effects on our consolidated financialstatements, from those disclosed in our 2009 Annual Report on Form 10-K.

 

**Off-balance Sheet Arrangements**

 

As of October 2, 2010, we didnot have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) ofRegulation S-K.

 

**Commitments and ContractualObligations**

 

Our contractual obligations andcommitments principally include obligations associated with our outstandingindebtedness, future minimum operating lease obligations and future pensionobligations.  During the first threequarters of 2010, there were no material changes outside the ordinary course ofbusiness in the specified contractual obligations set forth in the Commitmentsand Contractual Obligations table in our 2009 Annual Report on Form 10-K,except that in January 2010, we issued $350.0 million aggregate principalamount of 7.625% senior notes due 2018 at a price to the public of 99.271% oftheir face value.  We used a portion ofthe net proceeds from the offering to retire all $240.0 million principalamount of our 8% senior notes and the remaining $69.5 million principal amountof our 12% senior subordinated notes. See “Debt” above.  Our interestobligations on the 7.625% senior notes are expected to be $26.7 million perannum.  In addition, our expectedcontributions to our defined benefit pension plans for fiscal 2010 haveincreased from $1.3 million to $2.6 million because, although not obligated todo so, we made $1.3 million of additional voluntary contributions to ourdefined benefit pension plans during the first three quarters of 2010.

 

***Forward-Looking Statements***

 

This report includes forward-lookingstatements, including without limitation the statements under “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”  The words “believes,” “anticipates,” “plans,”“expects,” “intends,” “estimates,” “projects” and similar expressions areintended to identify forward-looking statements.  These forward looking statements involveknown and unknown risks, uncertainties and other factors that may cause ouractual results, performance and achievements, or industry results, to bematerially different from any future results, performance, or achievementsexpressed or implied by any forward-looking statements.  We believe important factors that could causeactual results to differ materially from our expectations include thefollowing:

 

·      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 priceincreases and cost saving measures to offset any cost increases;

 

·      intense competition, changes in consumer preferences,demand for our products and local economic and market conditions;

 

·      our continued ability to promote brand equitysuccessfully, to anticipate and respond to new consumer trends, to develop newproducts and markets, to broaden brand portfolios in order to competeeffectively with lower priced products and in markets that are consolidating atthe retail and manufacturing levels and to improve productivity;

 

·      the risks associated with the expansion of ourbusiness;

 

·      our possible inability to integrate any businesses weacquire;

 

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·      our ability to access the credit markets and ourborrowing costs and credit ratings, which may be influenced by credit marketsgenerally and the credit ratings of our competitors;

 

·      the effects of currency movements of the Canadiandollar 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 andlabeling laws and regulations and the possibility that consumers could loseconfidence in the safety and quality of certain food products;

 

·      competitors’ pricing practices and promotionalspending levels;

 

·      fluctuations in the level of our customers’inventories and credit and other business risks related to our customersoperating in a challenging economic and competitive environment;

 

·      the risks associated with third-party suppliers andco-packers, including the risk that any failure by one or more of ourthird-party suppliers or co-packers to comply with food safety or other lawsand regulations may disrupt our supply of raw materials or certain finishedgoods products; and

 

·      other factors discussed elsewhere in this report andin our other public filings with the SEC, including under Item 1A, “RiskFactors” in our 2009 Annual Report on Form 10-K.

 

Developments in any of these areascould cause our results to differ materially from results that have been or maybe projected by or on our behalf.

 

All forward-looking statementsincluded in this report are based on information available to us on the date ofthis report. We undertake no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, futureevents or otherwise. All subsequent written and oral forward-looking statementsattributable to us or persons acting on our behalf are expressly qualified intheir entirety by the cautionary statements contained in this report.

 

We caution that the foregoing listof important factors is not exclusive. We urge investors not to unduly rely on forward-looking statementscontained in this report.

 

**Item 3.****   ****Quantitative and QualitativeDisclosures About Market Risk**

 

In the normal course of operations,we are exposed to market risks arising from adverse changes in interestrates.  Market risk is defined for thesepurposes as the potential change in the fair value of a financial asset or liabilityresulting from an adverse movement in interest rates.

 

Interest under our $25.0 millionrevolving credit facility, including any outstanding letters of credit, isdetermined based on alternative rates that we may choose in accordance with therevolving credit facility, including the base lending rate per annum plus anapplicable margin of 2.00%, and LIBOR plus an applicable margin of 3.00%.  Interest under our term loan facility isdetermined based on alternative rates that we may choose in accordance with thecredit facility, including the base lending rate per annum plus an applicablemargin of 1.00%, and LIBOR plus an applicable margin of 2.00%.  The revolving credit facility was undrawn at October 2,2010 and January 2, 2010, and we currently have no plans to draw upon thefacility for the foreseeable future.  Theavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit of $0.5 million, was $24.5 million at October 2,2010.

 

We have outstanding $130.0 millionof term loan borrowings at October 2, 2010 and January 2, 2010.  The term loan borrowings are fixed at 7.0925%based upon a six year interest rate swap agreement that we entered into on February 26,2007 with an affiliate of Lehman.  Seethe discussion of the interest rate swap and the Lehman bankruptcy filing aboveunder the heading “Liquidity and Capital Resources—Debt—Senior Secured CreditFacility” in Item 2, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” for additional information.

 

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Cash and cash equivalents, tradeaccounts receivable, income tax receivable, trade accounts payable, accruedexpenses and dividends payable are reflected on our consolidated balance sheetsat carrying value, which approximates fair value due to the short-term natureof these instruments.

 

The carrying values and fair valuesof our term loan borrowings, senior notes and senior subordinated notes as of October 2,2010 and January 2, 2010 are as follows (dollars in thousands):

 
| ** **                                | ** ** | **October 2, 2010** | ** ** | **January 2, 2010** | ** ** |
|-------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | **Carrying Value**       | ** ** | **Fair Value(1)**        | ** ** | **Carrying Value** | ** ** | **Fair Value(1)** | ** ** |
| Senior  Secured Term Loan due 2013        |       | $                             | 130,000    |                          | $          | 129,025 |   | $ | 130,000 |   | $ | 127,400 |   |
| 8%  Senior Notes due 2011                 |       | —                        |       | —                        |       | 240,000 |   | 243,000 |   |
| 7.625%  Senior Notes due 2018             |       | 347,668                       | (2)        | 364,875                       |       | — |   | — |   |
| 12.0%  Senior Subordinated Notes due 2016 |       | —                        |       | —                        |       | 69,541 |   | 69,172 |   |
|                                           |            |                               |            |                               |            |  |  |  |  |  |  |  |  |

 

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(1)   Fair values are estimated based on quoted market prices.

 

(2)   The carrying value of the 7.625% senior notes is net ofdiscount.

 

The information under the heading “Inflation”in Item 2, “Management’s Discussion and Analysis of Financial Condition andResults of Operations” is incorporated herein by reference.

 

**Item 4.****   ****Controls and Procedures**

 

*Evaluation ofDisclosure Controls and Procedures. *As required by Rule 13a-15(b) under the SecuritiesExchange Act of 1934, as amended, our management, including our chief executiveofficer and our chief financial officer, conducted an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures as of the end of the period covered by this report.  As defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, disclosure controls and procedures arecontrols and other procedures that we use that are designed to ensure thatinformation required to be disclosed by us in the reports we file or submitunder the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by us in the reports we file or submit under theExchange Act is accumulated and communicated to our management, including ourchief executive officer and our chief financial officer, as appropriate, toallow timely decisions regarding required disclosure.

 

Based on that evaluation, our chiefexecutive officer and our chief financial officer concluded that our disclosurecontrols and procedures were effective as of the end of the period covered bythis report.

 

*Changes inInternal Control Over Financial Reporting*.  As required by Rule 13a-15(d) underthe Exchange Act, our management, including our chief executive officer and ourchief financial officer, also conducted an evaluation of our internal controlover financial reporting to determine whether any change occurred during thequarter covered by this report that has materially affected, or is reasonablylikely to materially affect, our internal control over financialreporting.  Based on that evaluation, ourchief executive officer and our chief financial officer concluded that therehas been no change during the period covered by this report that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

*Inherent Limitations onEffectiveness of Controls.*  Our company’s management, including the chiefexecutive officer and chief financial officer, does not expect that ourdisclosure controls or our internal control over financial reporting willprevent or detect all errors and all fraud. A control system, no matter how well 

 

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designed and operated, can provideonly reasonable, not absolute, assurance that the control system’s objectiveswill be met.  The design of a controlsystem must reflect the fact that there are resource constraints, and thebenefits of controls must be considered relative to their costs.  Further, because of the inherent limitationsin all control systems, no evaluation of controls can provide absoluteassurance that misstatements due to error or fraud will not occur or that allcontrol issues and instances of fraud, if any, within our company have beendetected.  These inherent limitationsinclude the realities that judgments in decision-making can be faulty and thatbreakdowns can occur because of simple error or mistake.  Controls can also be circumvented by theindividual acts of some persons, by collusion of two or more people, or by managementoverride of the controls.  The design ofany system of controls is based in part on certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controlseffectiveness to future periods are subject to risks.  Over time, controls may become inadequatebecause of changes in conditions or deterioration in the degree of compliancewith policies or procedures.

 

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**PART II**

**OTHER INFORMATION**

 

**Item 1.****   ****Legal Proceedings**

 

The information set forth under theheading “*Legal Proceedings*” in Note 11 of Notesto Consolidated Financial Statements in Part I, Item 1 of thisquarterly report on Form 10-Q is incorporated herein by reference.

 

**Item 1A.   Risk Factors**

 

We do not believe there have beenany material changes in our risk factors as previously disclosed in our 2009Annual Report on Form 10-K.

 

**Item 2.****   ****Unregistered Sales of EquitySecurities and Use of Proceeds**

 

Not applicable.

 

**Item 3.****   ****Defaults Upon Senior Securities**

 

Not applicable.

 

**Item 4.****   ****Reserved**

 

**Item 5.****   ****Other Information**

 

Not applicable.

 

**Item 6.****   ****Exhibits**

 
| **EXHIBIT  NO.** | ** ** | **DESCRIPTION**                                                                                                                                         |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                    |
| 31.1             |       | Certification pursuant to  Rule 13a-14(a) or Rule 15d-14(a) of the Securities  Exchange Act of 1934 of the Chief Executive Officer. |
|             |       |                                                                                                                                                    |
| 31.2             |       | Certification pursuant to  Rule 13a-14(a) or Rule 15d-14(a) of the Securities  Exchange Act of 1934 of the Chief Financial Officer. |

 
| 32.1 |   | Certification pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002, of the Chief Executive Officer and Chief Financial Officer. |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**SIGNATURE**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
| Dated: October 26, 2010 | B&G FOODS, INC. |
|------------------------------|--------------------------|
|                         |                     |
|                         |                     |
|                         | By:                      | /s/ Robert C. Cantwell |
|                         |                     | Robert C. CantwellExecutive Vice President  and Chief Financial   Officer (Principal Financial and Accounting   Officer and Authorized Officer) |

 

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