As filed with the Securities and Exchange Commission on August 3, 2006

**** ****

****UNITED STATES****

****SECURITIES AND EXCHANGECOMMISSION****

****Washington,D.C.  20549****

** **

****FORM 10-Q****

**** ****

(Mark one)

**x**                              QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

**For the quarterly period ended July 1, 2006**

** **

**Or**

** **

**o**                                 TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

**For the transition periodfrom              to             .**

** **

**Commission file number001-32316**

** **

****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 areacode:  ****(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 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  Noo

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

| Large accelerated filer o |   | Accelerated  filer x |   | Non-accelerated  filer o |
|---------------------------|--------|----------------------|--------|--------------------------|

 

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

As of August 3, 2006, the registrant had 20,000,000shares of Class A common stock, par value $0.01 per share, and 7,556,443 sharesof Class B common stock, par value $0.01 per share, outstanding.

 

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B&G Foods, Inc. andSubsidiariesIndex
| 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 | 13     |
|                                                                                                |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 31     |
|                                                                                                |   |
| Item 4. Controls and Procedures                                                                     | 32     |
|                                                                                                |   |
| 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. Submission of Matters to a Vote of Security  Holders                                        | 34     |
|                                                                                                |   |
| Item  5. Other Information                                                                          | 34     |
|                                                                                                |   |
| Item 6.  Exhibits                                                                                   | 34     |
|                                                                                                |   |
| SIGNATURE                                                                                           | 35     |

 

|   | i |   |
|--------|---|--------|

 

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**PARTIFINANCIAL INFORMATION**

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

**B&GFoods, Inc. and SubsidiariesConsolidated Balance Sheets(Dollars in thousands, except per share data)(Unaudited)**
|                                                                                                                          | ** ** | **July1, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|-----------------------|------------|
| **Assets**                                                                                                                    |       |            |       |                  |       |
| Current assets:                                                                                                               |       |            |       |                  |       |
| Cash and cash  equivalents                                                                                                    |       | $               | 21,541     |                  | $          | 25,429 |   |
| Trade accounts  receivable, net                                                                                               |       | 29,075          |       | 31,869                |       |
| Inventories                                                                                                                   |       | 90,693          |       | 85,530                |       |
| Prepaid expenses                                                                                                              |       | 3,158           |       | 3,249                 |       |
| Assets held for  sale                                                                                                         |       | 750             |       | 750                   |       |
| Deferred income  taxes                                                                                                        |       | 3,381           |       | 3,381                 |       |
| Income tax  receivable                                                                                                        |       | —          |       | 618                   |       |
| Total current  assets                                                                                                         |       | 148,598         |       | 150,826               |       |
|                                                                                                                          |       |            |       |                  |       |
| Property, plant and  equipment, net of accumulated   depreciation of $44,041 and $40,457                                      |       | 40,719          |       | 40,190                |       |
| Goodwill                                                                                                                      |       | 198,072         |       | 189,028               |       |
| Trademarks                                                                                                                    |       | 200,220         |       | 194,264               |       |
| Customer relationship  intangibles, net                                                                                       |       | 14,746          |       | —                |       |
| Net deferred financing  costs and other assets                                                                                |       | 18,863          |       | 19,867                |       |
| Total assets                                                                                                                  |       | $               | 621,218    |                  | $          | 594,175 |   |
|                                                                                                                          |       |            |       |                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                | ** ** | ** **      | ** ** | ** **            | ** ** |
|                                                                                                                          |       |            |       |                  |       |
| Current liabilities:                                                                                                          |       |            |       |                  |       |
| Trade accounts  payable                                                                                                       |       | $               | 27,747     |                  | $          | 26,337 |   |
| Accrued expenses                                                                                                              |       | 17,444          |       | 16,413                |       |
| Dividends  payable                                                                                                            |       | 4,240           |       | 4,240                 |       |
| Total current  liabilities                                                                                                    |       | 49,431          |       | 46,990                |       |
|                                                                                                                          |       |            |       |                  |       |
| Long-term debt                                                                                                                |       | 430,800         |       | 405,800               |       |
| Other liabilities                                                                                                             |       | 209             |       | 245                   |       |
| Deferred income taxes                                                                                                         |       | 60,660          |       | 57,866                |       |
| Total  liabilities                                                                                                            |       | 541,100         |       | 510,901               |       |
|                                                                                                                          |       |            |       |                  |       |
| Stockholders’ equity:                                                                                                    |       |            |       |                  |       |
| Preferred stock,  $0.01 par value per share.   Authorized 1,000,000 shares; no shares issued or   outstanding                 |       | —          |       | —                |       |
| Class A common  stock, $0.01 par value per share.   Authorized 100,000,000 shares; issued and   outstanding 20,000,000 shares |       | 200             |       | 200                   |       |
| Class B common  stock, $0.01 par value per share.   Authorized 25,000,000 shares; issued and   outstanding 7,556,443 shares   |       | 76              |       | 76                    |       |
| Additional paid-in  capital                                                                                                   |       | 127,632         |       | 136,112               |       |
| Accumulated other  comprehensive income (loss)                                                                                |       | 6               |       | (57                   | )          |
| Accumulated deficit                                                                                                           |       | (47,796         | )          | (53,057               | )          |
| Total  stockholders’ equity                                                                                              |       | 80,118          |       | 83,274                |       |
| Total liabilities and  stockholders’ equity                                                                              |       | $               | 621,218    |                  | $          | 594,175 |   |

 

See Notes to ConsolidatedFinancial Statements.

1

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** **

**B&GFoods, Inc. and SubsidiariesConsolidated Statements of Operations(Dollars in thousands, except per share data)(Unaudited)**

 
| ** **                                                              | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                              | ** ** | **July 1, 2006**         | ** ** | **July 2, 2005**           | ** ** | **July 1, 2006** | ** ** | **July 2, 2005** | ** ** |
|                                                                    |       |                               |       |                                 |       |   |   |   |   |
| Net sales                                                               |       | $                                  | 105,265    |                                 | $          | 94,116 |   | $ | 198,245 |   | $ | 184,227 |   |
| Cost of goods  sold                                                     |       | 76,862                             |       | 67,242                               |       | 141,976 |   | 130,525 |   |
| Cost of goods  sold—restructuring charge                           |       | —                             |       | 3,128                                |       | — |   | 3,244 |   |
| Gross profit                                                            |       | 28,403                             |       | 23,746                               |       | 56,269 |   | 50,458 |   |
|                                                                    |       |                               |       |                                 |       |   |   |   |   |
| Operating  expenses:                                                    |       |                               |       |                                 |       |   |   |   |   |
| Sales, marketing  and distribution expenses                             |       | 11,588                             |       | 10,801                               |       | 22,069 |   | 20,860 |   |
| General and  administrative expenses                                    |       | 1,775                              |       | 1,958                                |       | 3,463 |   | 3,327 |   |
| Amortization  expense—customer relationships                       |       | 354                                |       | —                               |       | 354 |   | — |   |
| Operating income                                                        |       | 14,686                             |       | 10,987                               |       | 30,383 |   | 26,271 |   |
|                                                                    |       |                               |       |                                 |       |   |   |   |   |
| Other expenses:                                                         |       |                               |       |                                 |       |   |   |   |   |
| Interest expense, net                                                   |       | 10,929                             |       | 10,428                               |       | 21,787 |   | 20,862 |   |
| Income before  income tax expense                                       |       | 3,757                              |       | 559                                  |       | 8,596 |   | 5,409 |   |
| Income tax  expense                                                     |       | 1,448                              |       | 223                                  |       | 3,335 |   | 2,115 |   |
| Net income                                                              |       | $                                  | 2,309      |                                 | $          | 336 |   | 5,261 |   | $ | 3,294 |   |
|                                                                    |       |                               |       |                                 |       |   |   |   |   |
| Earnings per  share calculations:                                       |       |                               |       |                                 |       |   |   |   |   |
| Net income available to common stockholders per  share of common stock: |       |                               |       |                                 |       |   |   |   |   |
| Basic and diluted distributed earnings:                                 |       |                               |       |                                 |       |   |   |   |   |
| Class A common stock                                                    |       | $                                  | 0.21       |                                 | $          | 0.21 |   | $ | 0.42 |   | $ | 0.42 |   |
| Earnings (loss) per share:                                              |       |                               |       |                                 |       |   |   |   |   |
| Basic and diluted Class A common stock                                  |       | $                                  | 0.14       |                                 | $          | 0.07 |   | $ | 0.30 |   | $ | 0.23 |   |
| Basic and  diluted Class B common stock                                 |       | $                                  | (0.07      | )                                    | $          | (0.14 | ) | $ | (0.12 | ) | $ | (0.19 | ) |

 

See Notes to ConsolidatedFinancial Statements.

2

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** **

**B&G Foods, Inc. and SubsidiariesConsolidated Statements of Cash Flows(Dollars in thousands)(Unaudited)**

 
| ** **                                                                         | ** ** | **Twenty-six Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **July 1, 2006**           | ** ** | **July 2, 2005** | ** ** |
| ** **                                                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                    | 5,261      |   | $ | 3,294 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                      |       | 3,904                                |       | 3,360 |   |
| Amortization of deferred debt issuance costs                                       |       | 1,412                                |       | 1,396 |   |
| Deferred income taxes                                                              |       | 2,794                                |       | 2,284 |   |
| Restructuring charge—property, plant, equipment and  inventory impairment     |       | —                               |       | 2,813 |   |
| Changes in assets and liabilities, excluding effects  of business combinations:    |       |                                 |       |   |   |
| Trade accounts receivable                                                          |       | 2,794                                |       | 2,749 |   |
| Inventories                                                                        |       | (5,190                               | )          | (9,628 | ) |
| Prepaid expenses                                                                   |       | 91                                   |       | (873 | ) |
| Income tax receivable                                                              |       | 618                                  |       | (305 | ) |
| Other assets                                                                       |       | (4                                   | )          | — |   |
| Trade accounts payable                                                             |       | 1,410                                |       | (520 | ) |
| Accrued expenses                                                                   |       | 990                                  |       | 722 |   |
| Other liabilities                                                                  |       | (36                                  | )          | (36 | ) |
| Net cash provided by operating activities                                          |       | 14,044                               |       | 5,256 |   |
|                                                                               |       |                                 |       |   |   |
| **Cash  flows from investing activities:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Capital expenditures                                                               |       | (4,013                               | )          | (3,371 | ) |
| Payments for acquisition of businesses                                             |       | (30,098                              | )          | — |   |
| Net cash used in investing activities                                              |       | (34,111                              | )          | (3,371 | ) |
|                                                                               |       |                                 |       |   |   |
| **Cash  flows from financing activities:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Proceeds from issuance of long-term debt                                           |       | 25,000                               |       | — |   |
| Dividends paid                                                                     |       | (8,480                               | )          | (7,968 | ) |
| Payment of debt issuance costs                                                     |       | (404                                 | )          | — |   |
| Net cash provided by (used in) financing activities                                |       | 16,116                               |       | (7,968 | ) |
|                                                                               |       |                                 |       |   |   |
| Effect of exchange rate fluctuations on cash and  cash equivalents                 |       | 63                                   |       | (45 | ) |
| Net decrease in cash and cash equivalents                                          |       | (3,888                               | )          | (6,128 | ) |
|                                                                               |       |                                 |       |   |   |
| Cash and cash equivalents at beginning of period                                   |       | 25,429                               |       | 28,525 |   |
| Cash and cash equivalents at end of period                                         |       | $                                    | 21,541     |   | $ | 22,397 |   |
| ** **                                                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| **Supplemental  disclosures of cash flow information:**                            | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Cash interest payments                                                             |       | $                                    | 19,985     |   | $ | 19,714 |   |
| Cash income tax payments                                                           |       | $                                    | 438        |   | $ | 99 |   |
| Cash income tax refunds                                                            |       | $                                    | (800       | ) | $ | — |   |
| Non-cash transactions:                                                             |       |                                 |       |   |   |
| Dividends  declared and unpaid                                                     |       | $                                    | 4,240      |   | $ | 4,240 |   |

 

See Notes to Consolidated Financial Statements.

 

3

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**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Dollars in thousands, except per share data)(Unaudited)**

**(1)**           **Nature of Operations and Recent Acquisitions**

B&G Foods, Inc. is a holding company, theprincipal assets of which are the capital stock of its subsidiaries.  Unless the context requires otherwise,references in this report to “B&G Foods,” “the company,” “we,” “us” and “our”refer to B&G Foods, Inc. and its subsidiaries.  We operate in one industry segment andmanufacture, sell and distribute a diversified portfolio of high-qualityshelf-stable foods across the United States, Canada and Puerto Rico.  Our products include pickles, peppers, jams,jellies and fruit spreads, canned meats and beans, spices, seasonings,marinades, hot sauces, wine vinegar, molasses, maple syrup, salad dressings,Mexican-style sauces, taco shells and kits, salsas and other specialty foodproducts.  We compete in the retailgrocery, food service, specialty store, private label, club and mass merchandiserchannels of distribution.  We distributethese products to retailers in the greater New York metropolitan area through adirect-store-delivery sales and distribution system and elsewhere in the UnitedStates through a nationwide network of independent brokers and distributors.

On December 1, 2005, we acquired the *Ortega* food service dispensing pouch and dipping cupbusiness for approximately $2,513 in cash, including transaction costs, fromNestlé USA, Inc.  On January 10, 2006, weacquired the *Grandma’s*molasses business forapproximately $30,098 in cash, including transaction costs, from Mott’s LLP, aCadbury Schweppes Americas Beverages company. In connection with this transaction, we entered into an amendment to oursenior secured credit facility to provide for, among other things, a new$25,000 term loan and a reduction in the revolving credit facility commitmentsfrom $30,000 to $25,000.  The proceeds ofthe term loan together with cash on hand were used to fund the *Grandma’s*molasses acquisition and pay related transactioncosts.

The acquisitions described above were accounted forusing the purchase method of accounting and, accordingly, the assets acquiredand results of operations are included in our consolidated financial statementsfrom the respective dates of the acquisitions. The excess of the purchase price over the fair value of identifiable netassets acquired represents goodwill. Trademarks are deemed to have an indefinite useful life and are notamortized.  Customer relationship intangiblesare amortized over 20 years.  Goodwill,customer relationship intangibles and trademarks are deductible for income taxpurposes.

During the second quarter of fiscal 2006, we obtainedthird-party valuations of certain acquired assets, including intangible assets,and finalized our internal assessments of the purchase price allocations forboth the *Ortega* food service dispensing pouch anddipping cup business acquisition and the *Grandma’s*molasses acquisition.  The followingtables set forth the respective purchase price allocations:

| Acquisition of the Ortega food service dispensing pouch and dipping cup business | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| Inventory                                                                                                                               |       | $ | 873 |   |
| Indefinite-life  intangible assets—trademarks (after allocation of approximately $1,100 of  negative goodwill)                     |       | 1,640 |   |
| Total                                                                                                                                   |       | $ | 2,513 |   |

 

| Acquisition of the *Grandma’s* molasses business | ** ** |
|--------------------------------------------------------------------------------|------------|
| Equipment                                                                      |       | $ | 25 |   |
| Goodwill                                                                       |       | 9,873 |   |
| Indefinite-life intangible assets—trademarks                              |       | 5,100 |   |
| Amortizable intangible assets—customer relationships                      |       | 15,100 |   |
| Total                                                                          |       | $ | 30,098 |   |

 

4

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**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(1)           Nature of Operations and RecentAcquisitions (Continued)**

***Unaudited Pro Forma Summary of Operations***

The acquisitions of the Ortega food service dispensingpouch and dipping cup business and the *Grandma’s*molasses business did not meet any of the significance tests pursuant to Rule11-01(b)(1) of Regulation S-X.  As such,no pro forma information has been presented.

**(2)**           Summary of Significant AccountingPolicies

***Fiscal Year***

Our financial statements are presented on aconsolidated basis.  Typically, ourfiscal quarters and fiscal year consist of 13 and 52 weeks, respectively, endingon the Saturday closest to December 31st in the case of our fiscal year and fourthfiscal quarter, and on the Saturday closest to the end of the correspondingcalendar quarter in the case of our fiscal quarters.  As a result, a 53rd week is added to our fiscalyear every five or six years.  In a53-week fiscal year our fourth fiscal quarter contains 14 weeks.  The fiscal years ending December 30, 2006(fiscal 2006) and December 31, 2005 (fiscal 2005) each contain 52 weeks.  Each quarter of fiscal 2006 and fiscal 2005contains 13 weeks.

***Basis ofPresentation***

Theaccompanying consolidated interim financial statements for the thirteen andtwenty-six week periods ended July 1, 2006 and July 2, 2005 have been preparedby our company in accordance with accounting principles generally accepted inthe United States of America without audit, pursuant to the rules andregulations of the Securities and Exchange Commission (SEC), and include the accounts of B&G Foods,Inc. and its subsidiaries.  Certaininformation and footnote disclosures normally included in annual financialstatements prepared in accordance with generally accepted accounting principleshave been omitted pursuant to such rules and regulations.  However, our management believes, to the bestof their knowledge, that the disclosures herein are adequate to make theinformation presented not misleading.  Allintercompany balances and transactions have been eliminated.  The accompanying unaudited consolidatedinterim financial statements contain all adjustments (consisting only of normaland recurring adjustments) that are, in the opinion of management, necessary topresent fairly our consolidated financial position as of July 1, 2006, theresults of our operations for the thirteen and twenty-six week periods endedJuly 1, 2006 and July 2, 2005 and cash flows for the twenty-six week periodsended July 1, 2006 and July 2, 2005.  Ourresults of operations for the thirteen and twenty-six week periods ended July1, 2006 are not necessarily indicative of the results to be expected for thefull year.  The accompanying unauditedconsolidated interim financial statements should be read in conjunction withthe audited consolidated financial statements and notes for the fiscal yearended December 31, 2005 included in our Annual Report on Form 10-K for thefiscal year ended December 31, 2005 filed with the SEC on March 7, 2006.

***Use of Estimates***

Thepreparation of financial statements in accordance with U.S. generally acceptedaccounting principles requires our management to make a number of estimates andassumptions relating to the reporting 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; the recoverabilityof goodwill, trademarks, customer relationship intangibles, property, plant andequipment and deferred tax assets; and the 

5

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** **

 

**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(2) Summary ofSignificant Accounting Policies (Continued)**

accountingfor our enhanced income securities (EISs), including their treatment incomputing our income tax expense.  Actualresults could differ from those estimates and assumptions.

***Adoption of New Accounting Standards***

In November 2004, the FASB issued SFAS No. 151, *“Inventory Costs—An Amendment of ARB No. 43, Chapter 4”*(SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material (spoilage). Among otherprovisions, the new rule requires that items such as idle facility expense,excessive spoilage, double freight, and rehandling costs be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal” asstated in ARB No. 43.  Additionally, SFASNo. 151 requires that the allocation of fixed production overheads to the costsof conversion be based on the normal capacity of the production facilities.SFAS No. 151 was adopted by us beginning on January 1, 2006. The adoption ofSFAS No. 151 has not had an impact on our consolidated results of operationsand financial position.

In July 2006, the FASB issued FASB Interpretation No. 48,“*Accounting for Uncertainty in Income Taxes*”(FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN48 requires that we recognize in our consolidated financial statements, theimpact of a tax position, if that position is more likely than not of beingsustained on audit, based on the technical merits of the position.  We currently recognize the impact of a taxposition if it is probable of being sustained. The provisions of FIN 48 are effective as of the beginning of our 2007fiscal year, with the cumulative effect of the change in accounting principlerecorded as an adjustment to opening retained earnings.  At this time, we have not completed ourreview and assessment of the impact of the adoption of FIN 48.

**(3)           Inventories**

Inventoriesconsist of the following, as of the dates indicated:

|                              | ** ** | **July 1, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| Raw materials  and packaging |       | $                          | 26,601     |                            | $          | 14,544 |   |
| Work in process              |       | 1,275                      |       | 2,342                           |       |
| Finished goods               |       | 62,817                     |       | 68,644                          |       |
|                         |       |                       |       |                            |       |
| Total                        |       | $                          | 90,693     |                            | $          | 85,530 |   |

 

**(4)           Asset Held for Sale**

On July 1, 2005, we closed our New Iberia, Louisiana,manufacturing facility as part of our ongoing efforts to improve our productioncapacity utilization, productivity, and operating efficiencies and lower ouroverall costs.  During the thirteen weeksended December 31, 2005, we began negotiations for the sale of the land andbuilding and classified the land and building, with a carrying value of $750,as assets held for sale at such time and ceased depreciation.  On February 9, 2006, we entered into anagreement to sell the New Iberia facility. See note 15.

6

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** **

**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(5)           Goodwilland Customer Relationship Intangibles**

Thefollowing table reconciles the changes in the carrying amount of goodwill forthe period from December 31, 2005 to July 1, 2006:

| Balance at December 31, 2005                                                                               |   | $     | 189,028 |   |
|------------------------------------------------------------------------------------------------------------|--------|-------|---------|--------|
| *Grandma’s  acquisition*                                                                              |   | 9,873 |    |
| Purchase price  allocation adjustment—*Ortega*food  service dispensing pouch and dipping cup business |   | (829  | )       |
| Balance at July 1, 2006                                                                                    |   | $     | 198,072 |   |

 

Customerrelationship intangibles are presented at cost, net of accumulatedamortization, and are amortized on a straight-line basis over their estimateduseful lives of 20 years.

|                                           | ** ** | **July 1, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| Customer relationship  intangibles, gross |       | $                          | 15,100     |                            | $          | — |   |
| Less: accumulated  amortization           |       | (354                       | )          | —                          |       |
| Total                                     |       | $                          | 14,746     |                            | $          | — |   |

 

Amortizationexpense associated with customer relationship intangibles totaled $354 for thethirteen and twenty-six weeks ended July 1, 2006 and is recorded in operatingexpenses.

**(6)           Long-termDebt**

Long-term debt consistsof the following, as of the date indicated:

|                                           | ** ** | **July 1, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| Revolving credit  facility                |       | $                          | —     |                            | $          | — |   |
| Term loan                                 |       | 25,000                     |       | —                          |       |
| Total senior  secured credit facility     |       | 25,000                     |       | —                          |       |
|                                      |       |                       |       |                            |       |
| 12.0% Senior  Subordinated Notes due 2016 |       | 165,800                    |       | 165,800                         |       |
| 8.0% Senior Notes due  2011               |       | 240,000                    |       | 240,000                         |       |
| Total long-term debt                      |       | $                          | 430,800    |                            | $          | 405,800 |   |

 

As of July 1, 2006, theaggregate maturities of long-term debt are as follows:

| Years ending December: |   |    |    |
|------------------------|--------|---------|---------|
| 2006                   |   | $       | —  |   |
| 2007                   |   | —  |    |
| 2008                   |   | —  |    |
| 2009                   |   | —  |    |
| 2010                   |   | —  |    |
| Thereafter             |   | 430,800 |    |
| Total                  |   | $       | 430,800 |   |

 

7

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**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(6)**                                 Long-termDebt (Continued)

*Senior Secured Credit Facility*. Concurrent with our initial public offering and concurrent offerings, weentered into a $30,000 senior secured revolving credit facility on October 14,2004.  In order to finance ouracquisition of the *Grandma’s*molassesbrand, we amended the credit facility in January 2006 to provide for, amongother things, a new $25,000 term loan and a reduction in the revolving creditfacility commitments from $30,000 to $25,000. As amended, all outstanding indebtedness under the credit facilitymatures on January 10, 2011.  Interestunder the revolving credit facility, including any outstanding letters ofcredit, is determined based on several alternative rates as stipulated in therevolving credit facility, including the base lending rate per annum plus anapplicable margin, or LIBOR plus an applicable margin.  We pay a commitment fee of 0.50% per annum onthe unused portion of the revolving credit facility.  Interest under the term loan is variable andis determined based on alternative rates as stipulated in the credit facility,including the base lending rate per annum plus an applicable margin of 1.75%,and LIBOR plus an applicable margin of 2.75%. As of July 1, 2006, the interest rate for the term loan was 7.49% (basedupon a six-month LIBOR contract which expired on July 17, 2006).  The credit facility is secured bysubstantially all of our assets except our real property.  The credit facility provides for mandatoryprepayment based on asset dispositions and certain issuances of securities, asdefined.  The credit facility containscovenants that restrict, among other things, our ability to incur additionalindebtedness, pay dividends and create certain liens.  The credit facility also contains certainfinancial maintenance covenants, which, among other things, specify maximumcapital expenditure limits, a minimum interest coverage ratio and a maximumsenior and total leverage ratio, each ratio as defined.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same line of business as our company,subject to specified criteria.  Therevolving credit facility was undrawn on the date of consummation of ourinitial public offering and concurrent offerings and remained undrawn throughJuly 1, 2006.  The available borrowingcapacity under our revolving credit facility, net of outstanding letters ofcredit of $2,921, was $22,079 at July 1, 2006. The maximum letter of credit capacity under the revolving creditfacility is $10,000, with a fronting fee of 3.0% per annum for all outstandingletters of credit.

*Subsidiary Guarantees*. We have no assets or operations independent of our direct and indirectsubsidiaries.  All of our domestic subsidiariesjointly and severally, and fully and unconditionally, guarantee our seniorsubordinated notes and our senior notes, and management has determined that ouronly subsidiary that is not a guarantor of our senior subordinated notes andsenior notes is a “minor” subsidiary as that term is used in Rule 3-10 ofRegulation S-X promulgated by the Securities and Exchange Commission.  There are no significant restrictions on ourability and the ability of our subsidiaries to obtain funds from our respectivesubsidiaries by dividend or loan. Consequently, separate financial statements have not been presented forour subsidiaries because management has determined that they would not bematerial to investors.

*Deferred Financing Costs*. In connection with the issuance of the 12.0% senior subordinated notesdue 2016 and the 8.0% senior notes due 2011, we capitalized approximately$23,123 of financing costs, which will be amortized over their respectiveterms.  In connection with the issuanceof our term loan in January 2006, we capitalized approximately $404 ofadditional financing costs, which will be amortized over the term of theloan.  As of July 1, 2006, we had netdeferred financing costs of $18,716.

At July 1, 2006 and December 31, 2005 accrued interestof $8,507 and $8,117, respectively, is included in accrued expenses in theaccompanying consolidated balance sheets.

8

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** **

 

**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(7)           Fair Value of Financial Instruments**

Cash and cash equivalents, trade accounts receivable,income tax receivable, trade accounts payable, accrued expenses and dividendspayable are reflected in the consolidated balance sheets at carrying value,which approximates fair value due to the short-term nature of theseinstruments.

We have outstanding$240,000 principal amount of 8.0% senior notes due 2011.  The fair value of the senior notes at July 1,2006 and December 31, 2005, based on quoted market prices, was $242,400 and$246,000, respectively.

We also have outstanding$165,800 principal amount of 12.0% senior subordinated notes due 2016.  Of such outstanding principal amount,$143,000 principal amount is represented by 20.0 million EISs.  Each EIS represents one share of our Class Acommon stock and $7.15 principal amount of our senior subordinated notes.  As of July 1, 2006 and December 31, 2005, thefair value of the EISs, based on the per EIS closing price on the AmericanStock Exchange on June 30, 2006 and December 31, 2005, was $324,200 and$290,400, respectively.  It is notpracticable to estimate the fair value of the $143,000 principal amount ofsenior subordinated notes represented by the EISs.  Of the $165,800 aggregate principal amount ofsenior subordinated notes outstanding, $22,800 principal amount is notrepresented by EISs and trades separately. The fair value of the separate senior subordinated notes at July 1, 2006and December 31, 2005, based on quoted market prices, was $23,916 and $25,511,respectively.

The carrying value of our other borrowingsapproximates their fair value based on the information currently available tous with respect to similar instruments.

**(8)           Comprehensive Income Recognition**

Comprehensive income includes the effect of exchangerate fluctuations on cash and cash equivalents relating to our Canadiansubsidiary.  Comprehensive income was$2,415 and $5,324 for the thirteen and twenty-six weeks ended July 1, 2006.  Comprehensive income was $326 and $3,249 forthe thirteen and twenty-six weeks ended July 2, 2005.

**(9)           Pension Benefits**

Net periodic costs for the thirteen and twenty-sixweek periods ended July 1, 2006 and July 2, 2005 include the followingcomponents: 
| ** **                                           | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                           | ** ** | **July 1, 2006**         | ** ** | **July 2, 2005**           | ** ** | **July 1, 2006** | ** ** | **July 2, 2005** | ** ** |
| Service cost—benefits  earned during the period |       | $                                  | 359        |                                 | $          | 377 |   | $ | 785 |   | $ | 754 |   |
| Interest cost on  projected benefit obligation       |       | 293                                |       | 276                                  |       | 606 |   | 553 |   |
| Expected return on plan  assets                      |       | (286                               | )          | (262                                 | )          | (583 | ) | (524 | ) |
| Amortization of  unrecognized prior service cost     |       | 1                                  |       | 1                                    |       | 2 |   | 2 |   |
| Net amortization and  deferral                       |       | 41                                 |       | 48                                   |       | 105 |   | 96 |   |
| Net pension cost                                     |       | $                                  | 408        |                                 | $          | 440 |   | $ | 915 |   | $ | 881 |   |

 

We previously disclosed in our consolidated financialstatements for the fiscal year ended December 31, 2005 that we expected tocontribute $1,514 to our pension plans in fiscal 2006.  As of July 1, 2006, we have contributed $456to our pension plan during fiscal 2006.

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** **

 

** **

**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(10)         Related-Party Transactions**

We are party to a transaction services agreementpursuant to which Bruckmann, Rosser, Sherrill & Co., Inc. (BRS & Co.),the manager of Bruckmann, Rosser, Sherrill & Co., L.P. (BRS), will be paida transaction fee for management, financial and other corporate advisoryservices rendered by BRS & Co. in connection with acquisitions,divestitures, financings and other transactions by our company, which fee willnot exceed 1.0% of the total transaction value. BRS was our majority owner prior to our initial public offering inOctober 2004 and remains an owner of our Class B common stock.  Stephen C. Sherrill, the chairman of ourboard of directors, is a managing director of BRS & Co.  In connection with our initial publicoffering and the concurrent offerings, the transaction services agreement wasamended to provide that transaction fees will be payable as described above unlessa majority of our disinterested directors determines otherwise.  BRS & Co. did not receive any transactionfees in connection with the initial public offering and the concurrentofferings, the Ortega food service dispensing pouch and dipping cup acquisitionor the *Grandma’s*molasses acquisition.

We lease a manufacturing and warehouse facility from aformer chairman of our board of directors under an operating lease, whichexpires in April 2009.  Total rentexpense associated with this lease was $384 for the twenty-six weeks ended July1, 2006 and July 2, 2005.

On January 10, 2006, through a wholly-ownedsubsidiary, we acquired the *Grandma’s Molasses*business from Mott’s LLP, a Cadbury Schweppes Americas Beverages company, for$30,000 in cash.  James R. Chambers, amember of our board of directors has been the President, Cadbury SchweppesAmericas Confectionary since July 2005. Mr. Chambers did not participate in the negotiation of the transactionnor did he participate in the board’s deliberations or decisions regarding thetransaction.  Mr. Chambers did notpersonally have any direct or indirect pecuniary or other interest in thetransaction as a result of his position at Cadbury.

**(11)         Commitments and Contingencies**

We are subject to environmental laws and regulationsin the normal course of business.  We didnot make any material expenditures during the twenty-six week periods endedJuly 1, 2006 and July 2, 2005 in order to comply with environmental laws orregulations.  Based on our experience todate, management believes that the future cost of compliance with existingenvironmental laws and regulations (and liability for known environmentalconditions) will not have a material adverse effect on our consolidatedfinancial position, 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 be requiredin order to comply with such environmental or health and safety laws orregulations or to respond to such environmental claims.

We are involved in various claims and legal actionsarising in the ordinary course of business, including proceedings involvingproduct liability claims, worker’s compensation and other employee claims, andtort and other general liability claims, for which we carry insurance, as wellas trademark, copyright, patent infringement and related claims and legalactions.  In the opinion of ourmanagement, the ultimate disposition of these matters will not have a materialadverse effect on our consolidated financial position, results of operations orliquidity.

We have employment agreements with our executiveofficers.  The agreements generallycontinue until terminated by the executive or by us, and provide for severancepayments under certain circumstances.  Asof July 1, 2006, if all of our executives were to be terminated by us withoutcause (as defined) or as a result of the employees’ disability, our severanceliability would be approximately $2,036.

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** **

 

** **

**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(12)         Restructuring Charge**

On July 1, 2005, we closed our New Iberia, Louisiana,manufacturing facility as part of our ongoing efforts to improve our productioncapacity utilization, productivity, and operating efficiencies and lower ouroverall costs.  In the fiscal year endedDecember 31, 2005, we recorded a charge of $3,839 (of which $3,128 and $3,244was recorded in the thirteen and twenty-six week periods ended July 2, 2005,respectively).  The charge for the fiscalyear ended December 31, 2005 included a cash charge for employee compensationand other costs of $769 (of which $315 and $431 was recorded in the thirteenand twenty-six week periods ended July 2, 2005, respectively) and a non-cashcharge for the impairment of property, plant, equipment and inventory of $3,070(of which $2,813 was recorded in the thirteen and twenty-six week periods endedJuly 2, 2005).

**(13)         Earnings per Share**

Following the consummation of our initial publicoffering, we have two classes of common stock, designated as Class A commonstock and Class B common stock, and we present basic and diluted earnings pershare using the two-class method.  Thetwo-class method is an earnings allocation formula that determines earnings pershare for each class of common stock according to dividends declared andparticipation rights in undistributed earnings.

Net income available to our common stockholders isallocated between our two classes of common stock based upon the two-classmethod.  Basic and diluted earnings pershare for our Class A and Class B common stock is calculated by dividingallocated net income available to common stockholders by the weighted averagenumber of shares of Class A and Class B common stock outstanding.

 
| ** **                                                                          | ** ** | **Thirteen  Weeks Ended** | ** ** | **Twenty-six  Weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------|------------|----------------------------------|------------|
| ** **                                                                          | ** ** | **July 1, 2006**     | ** ** | **July 2, 2005**       | ** ** | **July 1, 2006** | ** ** | **July 2, 2005** | ** ** |
|                                                                                |       |                           |       |                             |       |   |   |   |   |
| Net income                                                                          |       | $                              | 2,309      |                             | $          | 336 |   | $ | 5,261 |   | $ | 3,294 |   |
| Less: Class A common  stock dividends declared                                      |       | 4,240                          |       | 4,240                            |       | 8,480 |   | 8,480 |   |
| Undistributed (loss)  earnings available to Class A and Class B common stockholders |       | $                              | (1,931     | )                                | $          | (3,904 | ) | $ | (3,219 | ) | $ | (5,186 | ) |
|                                                                                |       |                           |       |                             |       |   |   |   |   |
| Weighted average common  shares outstanding:                                        |       |                           |       |                             |       |   |   |   |   |
| Basic and diluted Class  A common shares outstanding                                |       | 20,000,000                     |       | 20,000,000                       |       | 20,000,000 |   | 20,000,000 |   |
| Basic and diluted Class  B common shares outstanding                                |       | 7,556,443                      |       | 7,556,443                        |       | 7,556,443 |   | 7,556,443 |   |
|                                                                                |       |                           |       |                             |       |   |   |   |   |
| Basic and diluted  allocation of undistributed (loss) earnings:                     |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                                                |       | $                              | (1,401     | )                                | $          | (2,833 | ) | $ | (2,336 | ) | $ | (3,764 | ) |
| Class B common stock                                                                |       | (530                           | )          | (1,071                           | )          | (883 | ) | (1,422 | ) |
| Total                                                                               |       | $                              | (1,931     | )                                | $          | (3,904 | ) | $ | (3,219 | ) | $ | (5,186 | ) |
|                                                                                |       |                           |       |                             |       |   |   |   |   |
| Basic and diluted  earnings per share:                                              |       |                           |       |                             |       |   |   |   |   |
| Undistributed (loss)  earnings:                                                     |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                                                |       | $                              | (0.07      | )                                | $          | (0.14 | ) | $ | (0.12 | ) | $ | (0.19 | ) |
| Class B common stock                                                                |       | $                              | (0.07      | )                                | $          | (0.14 | ) | $ | (0.12 | ) | $ | (0.19 | ) |
| Distributed earnings:                                                               |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                                                |       | $                              | 0.21       |                             | $          | 0.21 |   | $ | 0.42 |   | $ | 0.42 |   |
| Earnings (loss) per  share:                                                         |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                                                |       | $                              | 0.14       |                             | $          | 0.07 |   | $ | 0.30 |   | $ | 0.23 |   |
| Class B common stock                                                                |       | $                              | (0.07      | )                                | $          | (0.14 | ) | $ | (0.12 | ) | $ | (0.19 | ) |

** **

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** **

**B&G Foods, Inc. and SubsidiariesNotes to Consolidated Financial Statements (Continued)(Dollars in thousands, except per share data)(Unaudited)**

**(13)**                          Earningsper Share (Continued)

No dividends were declared on our Class B common stockduring the thirteen and twenty-six weeks ended July 1, 2006 or July 2, 2005;therefore, for purposes of the earnings per share calculation, all distributedearnings are included in Class A common stock earnings per share.

**(14)         Business and Credit Concentrations**

Our exposure to credit loss in the event ofnon-payment of accounts receivable by customers is estimated in the amount ofthe allowance for doubtful accounts.  Weperform ongoing credit evaluations of our customers’ financial conditions.  As of July 1, 2006, we do not believe we haveany significant concentration of credit risk with respect to our trade accountsreceivable.  Our top ten customersaccounted for approximately 43.6%****and41.8% of consolidated net sales for the twenty-six weeks ended July 1, 2006 andJuly 2, 2005, respectively.  Other thanWal-Mart, which accounted for 10.4% of our consolidated net sales for thetwenty-six weeks ended July 1, 2006, no single customer accounted for 10.0% ormore of our consolidated net sales for the twenty-six weeks ended July 1, 2006or July 2, 2005.

**(15)         Subsequent Event**

The sale of our New Iberia facility closed on July 9,2006.  During the third quarter of fiscal2006, we will record a gain on the sale of approximately $500.

 

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**Item2.    Management’s Discussion and Analysisof Financial Condition and Results of Operations**

The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contains forward-lookingstatements 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 inconjunction with the unaudited consolidated interim financial statements andrelated notes for the thirteen and twenty-six weeks ended July 1, 2006 includedelsewhere in this report and the audited consolidated financial statements andrelated notes for the fiscal year ended December 31, 2005 (fiscal 2005)included in our Annual Report on Form 10-K filed with the Securities andExchange Commission (SEC) on March 7, 2006 (2005 Annual Report of Form 10-K).

**General**

We manufacture, sell and distribute a diversifiedportfolio of high quality, shelf-stable, branded food products, many of whichhave leading regional or national retail market shares.  In general, we position our branded productsto appeal to the consumer desiring a high quality and reasonably priced brandedproduct.

Our business strategy is to continue to increasesales, profitability and cash available to pay dividends by enhancing ourexisting portfolio of branded shelf-stable products and by capitalizing on ourcompetitive strengths.  We intend toimplement our strategy through the following initiatives: profitably growingour established brands, leveraging our unique multiple-channel sales anddistribution system, introducing new products, capitalizing on the highergrowth Mexican segment of the food industry, and expanding our brand portfoliothrough acquisitions.

Since 1996, we havesuccessfully acquired and integrated 16 separate brands into ouroperations.  In January 2006, we acquired a seventeenth brand, the *Grandma’s*molassesbrand, which we integrated into our business during the first half of fiscal2006.  We believe that successful future acquisitions, if any, will enhanceour portfolio of existing businesses, further leveraging our existing infrastructure.

We completed the acquisitionof The Ortega Brand of Business from Nestlé Prepared Foods Company on August21, 2003, which we refer to in this report as “Ortega” or the “initial Ortegaacquisition.”  We subsequently completedthe acquisition of the Ortega food service dispensing pouch and dipping cupcheese sauce businesses from Nestlé USA, Inc. on December 1, 2005, which werefer to in this report as the “Ortega food service dispensing pouch anddipping cup acquisition.”  We completedthe acquisition of the *Grandma’s*molasses business from Motts LLP, a Cadbury Schweppes Americas BeveragesCompany, on January 10, 2006.  Both *Ortega* acquisitions and the *Grandma’s* molasses acquisition have beenaccounted for using the purchase method of accounting and, accordingly, theassets acquired, liabilities assumed and results of operations of the acquiredbusinesses are included in our consolidated financial statements from therespective dates of acquisition.  The *Ortega* food service dispensing pouch and dipping cup cheesesauce and the *Grandma’s* molassesacquisitions and the application of the purchase method of accounting for theseacquisitions affect comparability between periods presented in this report.

We are subject to a number of challenges that may adverselyaffect our businesses.  These challenges,which are discussed below and under the heading “Forward-Looking Statements,”include:

*Fluctuations in Commodity Prices*. We purchase raw materials, including agricultural products, meat,poultry, other raw materials and packaging materials from growers, commodityprocessors, other food companies and packaging manufacturers.  Raw materials are subject to fluctuations inprice attributable 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.  In the thirteen weeks endedJuly 1, 2006, our commodity prices for maple syrup and corn sweetners were higherthan those incurred during the thirteen weeks ended July 2, 2005.  In addition, the cost of labor,manufacturing, energy, fuel, packaging materials and 

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other costs related to the production and distributionof our food products have risen in recent years, and we believe that they may continueto rise in the foreseeable future.  Wemanage these risks by entering into short-term supply contracts and advancecommodities purchase agreements from time to time, and if necessary, by raisingprices.  We cannot assure you that anysales price increases by us will offset the increased cost of raw materialcommodities.

*Consolidation in the Retail Trade and ConsequentInventory 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 the market categories in which we compete frequently changetheir taste preferences, dietary habits and product packaging preferences.

*Consumer Concern Regarding Food Safety, Quality andHealth*.  The food industry is subject to consumerconcerns regarding the safety and quality of certain food products, includingthe health implications of genetically modified organisms, obesity and transfatty acids.

*Changing Valuations of the Canadian Dollar inRelation to the U.S. Dollar*.  We purchasethe majority of our maple syrup requirements from manufacturers located inQuebec, Canada.  Over the past year theU.S. dollar has weakened against the Canadian dollar, which has in turnincreased our costs relating to the production of our maple syrup products.

To confront these challenges, we continue to takesteps to build the value of our brands, to improve our existing portfolio ofproducts with new product and marketing initiatives, to reduce costs throughimproved productivity and to address consumer concerns about food safety,quality and health.

**Critical Accounting Policies;**Use of Estimates

The preparation of financial statements in accordancewith U.S. generally accepted accounting principles requires our management tomake a number of estimates and assumptions relating to the reporting of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the consolidated financial statements and the reported amounts ofrevenues 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, the recoverabilityof goodwill, trademarks, customer relationship intangibles, property, plant andequipment, and deferred tax assets, and the accounting for our EISs, includingtheir treatment in computing our income tax expense and the accounting forearnings per share.  Actual results coulddiffer from these estimates and assumptions.

Summaries of our significant accounting policies aredescribed more fully in note 2 to our consolidated financial statementsincluded in our 2005 Annual Report of Form 10-K.  We believe the following critical accountingpolicies involve the most significant judgments and estimates used in thepreparation of our consolidated financial statements.

***Trade and Consumer PromotionExpenses***

We offer various sales incentive programs to customersand consumers, such as price discounts, in-store display incentives, slottingfees and coupons.  The recognition ofexpense for these programs involves the use of judgment related to performanceand redemption estimates.  Estimates aremade based on historical experience and other factors.  Actual expenses may differ if the level ofredemption rates and performance vary from estimates.

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*** ***

***Inventories***

Inventories are stated at the lower of cost or market.Cost is determined using the first-in, first-out and average cost methods.  Inventories have been reduced by an allowancefor 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.

***Long-Lived Assets***

Long-lived assets, such as property, plant andequipment, and intangibles with estimated useful lives are depreciated oramortized over their respective estimated useful lives to their estimatedresidual values, and reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable.  Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto estimated undiscounted future cash flows expected to be generated by theasset.  If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset.  Recoverabilityof assets held for sale is measured by a comparison of the carrying amount of anasset or asset group to their fair value less estimated cost to sell.  Calculating fair value of assets requiressignificant estimates and assumptions by management.

***Goodwill andTrademarks***

Goodwill and intangible assets with indefinite usefullives (trademarks) are tested for impairment at least annually and wheneverevents or circumstances occur indicating that goodwill or indefinite lifeintangibles might be impaired.

We perform the annual impairment tests as of the lastday of each fiscal year.  The annualgoodwill impairment test involves a two-step process.  The first step of the impairment testinvolves comparing the fair value of our company with our company’s carryingvalue, including goodwill.  If thecarrying value of our company exceeds our fair value, we perform the secondstep of the impairment test to determine the amount of the impairmentloss.  The second step of the goodwillimpairment test involves comparing the implied fair value of goodwill with thecarrying value of that goodwill and recognizing a loss for the difference.  Calculating our fair value requiressignificant estimates and assumptions by management.  We estimate our fair value by applying thirdparty market value indicators to our earnings before interest, taxes,depreciation and amortization (EBITDA). We test indefinite life intangible assets for impairment by comparingtheir carrying value to their fair value that is determined using a cash flowmethod and recognize a loss to the extent the carrying value is greater.

We completed our annual impairment tests for the yearended December 31, 2005 with no adjustments to the carrying values of goodwilland indefinite life intangibles.  We didnot note any events or circumstances during the thirteen week period ended July1, 2006 that would indicate that goodwill or indefinite life intangibles mightbe impaired.

***Accounting Treatment for EISs.***

Our EISs include Class A common stock and seniorsubordinated notes.  Upon completion ofour initial public offering (including the exercise of the over-allotmentoption), we allocated the proceeds from the issuance of the EISs, based uponrelative fair value at the issuance date, to the Class A common stock and thesenior subordinated notes.  We have assumedthat the price paid in the EIS offering was equivalent to the combined fairvalue of the Class A common stock and the senior subordinated notes, and theprice paid in the offering for the senior subordinated notes sold separately(not in the form of EISs) was equivalent to their initial stated principalamount.  We have concluded there are noembedded derivative features related to the EIS that require bifurcation underFinancial Accounting Standards Board (FASB) Statement No. 133, 

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“Accounting for Derivative Instruments and HedgingActivities,” as amended (SFAS No. 133). We have determined the fair value of the Class A common stock and thesenior subordinated notes with reference to a number of factors, including thesale of the senior subordinated notes sold separately from the EISs that havethe same terms as the senior subordinated notes included in the EISs.  Therefore, we have allocated the entireproceeds of the EIS offering to the Class A common stock and the seniorsubordinated notes, and the allocation of the EIS proceeds to the seniorsubordinated notes did not result in a premium or discount.

We have concluded that the call option and the changein control put option in the senior subordinated notes do not warrant separateaccounting under SFAS No. 133 because they are clearly and closely related tothe economic characteristics of the host debt instrument.  Therefore, we have allocated the entireproceeds of the offering to the Class A common stock and the seniorsubordinated notes.  Upon subsequentissuances, if any, of senior subordinated notes, we will evaluate whether thecall option and the change in control put option in the senior subordinatednotes require separate accounting under SFAS No. 133.  We expect that if there is a substantialdiscount or premium upon a subsequent issuance of senior subordinated notes, wemay need to separately account for the call option and the change in controlput option features as embedded derivatives for such subsequent issuance.  If we determine that the embeddedderivatives, if any, require separate accounting from the debt host contractunder SFAS No. 133, the call option and the change in control put optionassociated with the senior subordinated notes will be recorded as derivativeliabilities at fair value, with changes in fair value recorded as othernon-operating income or expense.  Anydiscount on the senior subordinated notes resulting from the allocation ofproceeds to an embedded derivative will be amortized to interest expense overthe remaining life of the senior subordinated notes.

The Class A common stock portion of each EIS isincluded in stockholders’ equity, net of the related portion of the EIStransaction costs allocated to Class A common stock.  Dividends paid on the Class A common stockare recorded as a decrease to additional paid-in capital when declared byus.  The senior subordinated note portionof each EIS is included in long-term debt, and the related portion of the EIStransaction costs allocated to the senior subordinated notes was capitalized asdeferred financing costs and is being amortized to interest expense using theeffective interest method.  Interest onthe senior subordinated notes is charged to expense as accrued by us anddeducted for income tax purposes.

***Income Tax Expense Estimates andPolicies***

As part of the income tax provision process ofpreparing our consolidated financial statements, we are required to estimateour income taxes.  This process involvesestimating our current tax expenses together with assessing temporarydifferences resulting from differing treatment of items for tax and accountingpurposes.  These differences result indeferred tax assets and liabilities.  Wethen assess the likelihood that our deferred tax assets will be recovered fromfuture taxable income and to the extent we believe the recovery is not likely,we establish a valuation allowance. Further, to the extent that we establish a valuation allowance orincrease this allowance in a financial accounting period, we include such chargein our tax provision, or reduce our tax benefits in our consolidated statementof operations.  We use our judgment todetermine our provision or benefit for income taxes, deferred tax assets andliabilities and any valuation allowance recorded against our net deferred taxassets.

We have recorded deferred tax assets, a portion ofwhich represents net operating loss carryforwards.  A valuation allowance has been recorded forcertain state net operating loss carryforwards.

There are various factors that may cause these taxassumptions to change in the near term, and we may have to record a valuationallowance against our deferred tax assets. We cannot predict whether future U.S. federal and state income tax lawsand regulations might be passed that could have a material effect on ourresults of operations.  We assess theimpact of significant changes to the U.S. federal and state income tax laws andregulations on a regular basis and update the assumptions and estimates used toprepare our consolidated financial statements when new regulations andlegislation are enacted.

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We do not provide for U.S. federal income taxes or taxbenefits on the unremitted earnings or losses of our foreign subsidiary as suchearnings are intended to be indefinitely reinvested.

We have accounted for our issuance of EISs as anissuance of the separate securities evidenced by such EISs and have allocatedthe proceeds received for each EIS between the Class A common stock and seniorsubordinated note represented thereby in the amounts of their respective fairvalues at the time of issuance. Accordingly, we have accounted for the seniorsubordinated notes represented by the EISs as long-term debt bearing a statedinterest rate and maturing on October 30, 2016. In connection with the issuance and initial public offering of the EISs,we received an opinion from counsel that the senior subordinated notes shouldbe treated as debt for United States federal income tax purposes.  We continue to be of the view that the seniorsubordinated notes should be treated as debt for United States federal incometax purposes (although we have not sought a ruling from the IRS on this issue),and we intend to deduct annually interest expense of approximately $19.9million on the senior subordinated notes from taxable income for United Statesfederal and state income tax purposes. There can be no assurance that the classification of senior subordinatednotes as debt (or the amount of interest expense deducted) will not bechallenged by the IRS or other tax jurisdictions or will be sustained by acourt of law if challenged.

If our treatment of the senior subordinated notes asdebt is put at risk in the future as a result of a future ruling by the IRS orother tax jurisdiction or by a court of law, including an adverse ruling forEISs (or other similar securities) issued by other companies or as a result ofa proposed adjustment by the IRS or other tax jurisdiction in an examination ofour company or for any other reason, we will need to consider the effect ofsuch developments on the determination of our future tax provisions andobligations.  In the event the seniorsubordinated notes are required to be treated as equity for income taxpurposes, then the cumulative interest expense associated with the seniorsubordinated notes for prior tax periods that are open to assessment and forfuture tax periods would not be deductible from taxable income and we would berequired to recognize additional tax expense and establish a related income taxliability for prior period treatment. The additional tax due to the federal and state authorities would bebased on our taxable income or loss for each of the years that we claimed theinterest expense deduction and would materially and adversely affect ourfinancial position, cash flow, and liquidity, and could affect our ongoingability to make interest payments on the senior subordinated notes and dividendpayments on the shares of common stock represented by the EISs and our abilityto continue as a going concern.  In addition,non-U.S. holders of our EISs could be subject to withholding taxes on thepayment of interest treated as dividends on equity, which could subject us toadditional liability for the withholding taxes that we do not collect on suchpayments.  However, because in accordancewith the opinion of counsel we received on the date of our initial publicoffering we continue to be of the view that the senior subordinated notesshould be treated as debt for United States federal income tax purposes, we donot record a liability for a potential disallowance of this interest expensededuction or for the potential imposition of these withholding taxes.

A factor in the ongoing determination that noliability should be recorded in our consolidated financial statements withrespect to the deductibility for income tax purposes of the interest on thesenior subordinated notes is the veracity, at the time of the initial publicoffering, of the representations delivered by the purchasers of seniorsubordinated notes sold separately (not in the form of EISs).  In addition, other factors indicating theexistence, at the time of the initial public offering, of any plan orpre-arrangement may also be relevant to this ongoing determination.  It is possible that we will at some point inthe future, as a result of IRS interpretations or other changes incircumstances, conclude that we should establish a reserve for tax liabilitiesassociated with a disallowance of all or part of the interest deductions on thesenior subordinated notes, although our present view is that no such reserve isnecessary or appropriate.  If we decideto maintain such a reserve, our income tax provision, and related income taxpayable, would be materially impacted. As a result, our ability to pay dividends on the shares of our commonstock could be materially impaired and the market price and/or liquidity forthe EISs or our common stock could be adversely affected.

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*** ***

***Earnings Per Share***

Following the consummation of our initial publicoffering, we have two classes of common stock, designated as Class A commonstock and Class B common stock, and we present basic and diluted earnings pershare using the two-class method.  Thetwo-class method is an earnings allocation formula that determines earnings pershare for each class of common stock according to dividends declared andparticipation rights in undistributed earnings.

Net income available to our common stockholders isallocated between our two classes of common stock based upon the two-classmethod.  Basic and diluted earnings pershare for our Class A and Class B common stock is calculated by dividingallocated net income available to common stockholders by the weighted averagenumber of shares of Class A and Class B common stock outstanding.

**Results of Operations**

The following table sets forth the percentages of netsales represented by selected items for the thirteen and twenty-six weekperiods ended July 1, 2006 and July 2, 2005 reflected in our consolidatedstatements of operations.  Thecomparisons of financial results are not necessarily indicative of futureresults.

 
| ** **                                          | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                          | ** ** | **July 1, 2006**         | ** ** | **July 2, 2005**           | ** ** | **July 1, 2006** | ** ** | **July 2, 2005** | ** ** |
| **Statement  of Operations:**                       |       |                               |       |                                 |       |   |   |   |   |
| Net sales                                           |       | 100.0                              | %          | 100.0                                | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold                                 |       | 73.0                               | %          | 71.4                                 | %          | 71.6 | % | 70.9 | % |
| Cost of goods  sold—restructuring charge       |       | 0.0                                | %          | 3.3                                  | %          | 0.0 | % | 1.8 | % |
| Gross profit                                        |       | 27.0                               | %          | 25.2                                 | %          | 28.4 | % | 27.4 | % |
|                                                |       |                               |       |                                 |       |   |   |   |   |
| Sales, marketing  and distribution expenses         |       | 11.0                               | %          | 11.5                                 | %          | 11.1 | % | 11.3 | % |
| General and  administrative expenses                |       | 1.7                                | %          | 2.1                                  | %          | 1.7 | % | 1.8 | % |
| Amortization  expense — customer relationships |       | 0.3                                | %          | 0.0                                  | %          | 0.2 | % | 0.0 | % |
| Operating income                                    |       | 14.0                               | %          | 11.7                                 | %          | 15.3 | % | 14.3 | % |
|                                                |       |                               |       |                                 |       |   |   |   |   |
| Interest  expense, net                              |       | 10.4                               | %          | 11.1                                 | %          | 11.0 | % | 11.3 | % |
| Income before income tax expense                    |       | 3.6                                | %          | 0.6                                  | %          | 4.3 | % | 2.9 | % |
|                                                |       |                               |       |                                 |       |   |   |   |   |
| Income tax  expense                                 |       | 1.4                                | %          | 0.2                                  | %          | 1.7 | % | 1.1 | % |
| Net income                                          |       | 2.2                                | %          | 0.4                                  | %          | 2.7 | % | 1.8 | % |

 

As used in this section the terms listed below havethe following meanings:

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

*Gross Profit.* Our gross profit is equal to our net sales less cost of goods sold.  The primary components of our cost of goodssold are cost of internally manufactured products, purchases of finished goodsfrom co-packers plus freight costs to our distribution centers and to ourcustomers.

*Sales, Marketing and DistributionExpenses.*  Our sales, marketing and distribution expensesinclude costs for marketing personnel, consumer advertising programs, internalsales forces, brokerage costs and warehouse facilities.

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* *

*General and Administrative Expenses.* Our general and administrative expenses include administrative employeecompensation and benefit costs, as well as information technologyinfrastructure and communication costs, office rent and supplies, professionalservices, management fees and other general corporate expenses.

*Amortization Expenses—CustomerRelationships.*  Amortization expense—customer relationshipsincludes the amortization expense associated with customer relationshipintangibles and are amortized over their useful lives of 20 years.

*Net Interest Expense.* Net interest expense includes interest relating to our outstandingindebtedness and amortization of deferred debt issuance costs, net of interestincome.

***Thirteen-weekperiod ended July 1, 2006 compared to thirteen-week period ended July 2, 2005.***

*Net Sales. *Net sales increased $11.2 million or 11.9% to $105.3million for the thirteen-week period ended July 1, 2006 from $94.1 million forthe thirteen-week period ended July 2, 2005. The *Ortega* food service dispensing pouch anddipping cup acquisition accounted for $3.4 million of the net sales increase,the *Grandma’s* molasses acquisition accountedfor $1.4 million of the net sales increase and a temporary co-packingarrangement that is expected to remain in place for another three to six monthsaccounted for $1.2 million of the net sales increase.  The remaining $5.2 million increase in netsales was related to increases in sales price and unit volume.  Net sales of our lines of*Ortega*(exclusive of food servicedispensing pouch and dipping cup net sales), *MapleGrove Farms, Las Palmas*, *B&M,Joan of Arc* and *Underwood*productsincreased**in the amounts of $2.1million, $2.0 million, $1.7 million, $1.1 million, $0.6 million and $0.4million or 11.3%, 17.0%, 37.2%, 13.9%, 54.4% and 8.4%, respectively.  These increases were offset by a reduction ofnet sales in *Emeril’s and B&G*pickle and pepper products of $2.1million and $0.8 million or 28.6% and 5.8%, respectively.  All other brands increased, in the aggregate,by $0.2 million or 0.5%.

*Gross Profit. *Gross profit increased $4.7 million or 19.6% to $28.4million for the thirteen-week period ended July 1, 2006 from $23.7 million forthe thirteen-week period ended July 2, 2005. On July 1, 2005, we closed our New Iberia, Louisiana, manufacturingfacility as part of our ongoing efforts to improve our production capacityutilization, productivity, and operating efficiencies and lower our overallcosts.  We recorded as cost of goods solda restructuring charge associated with the plant closing, which included a cashcharge for employee compensation and other costs of $0.8 million and a non-cashcharge for the impairment of property, plant, equipment and inventory of $3.0million.  In the thirteen-weeks endedJuly 2, 2005, we expensed $3.1 million of this $3.8 million charge.  No restructuring charges were recorded orexpensed during the thirteen weeks ended July 1, 2006.

Pro forma gross profit, which excludes therestructuring charge described above, increased $1.5 million or 5.7% to $28.4million for the thirteen-week period ended July 1, 2006 from $26.9 million forthe thirteen-week period ended July 2, 2005. Pro forma gross profit expressed as a percentage of net sales decreased1.6% to 27.0% in the thirteen-week period ended July 1, 2006 from 28.6% in thethirteen-week period ended July 2, 2005. The decrease in pro forma gross profit margin was primarily due tohigher costs for packaging materials, transportation costs, maple syrup andcorn sweeteners, and a shift in the mix of products sold during thethirteen-week period ended July 1, 2006, which were partially offset by salesprice increases.

*Sales, Marketing and DistributionExpenses. *Sales, marketing and distributionexpenses increased $0.8 million or 7.3% to $11.6 million for the thirteen-weekperiod ended July 1, 2006 from $10.8 million for the thirteen-week period endedJuly 2, 2005.  These expenses as apercentage of net sales decreased to 11.0% for the thirteen-week period endedJuly 1, 2006 from 11.5% for the thirteen-week period ended July 2, 2005.  The increase is primarily due to an increasein brokerage and salesmen commissions of $0.7 million relating to the increasedsales volume.

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* *

*General and AdministrativeExpenses. *General and administrative expensesdecreased $0.2 million or 9.4% to $1.8 million for the thirteen-week periodended July 1, 2006 from $2.0 million in the thirteen-week period ended July 2,2005.  The decrease was primarily due toa reduction in professional fees.

*Amortization Expense—CustomerRelationships.*  Amortization expense—customer relationships,all of which relates to the amortization of customer relationship intangiblesacquired in the *Grandma’s* molasses acquisition,was $0.4 million for the thirteen-week period ended July 1, 2006.  We had no amortization expense of customerrelationship intangibles in the thirteen-week period ended July 2, 2005.

*Operating Income. *As a result of the foregoing, operating incomeincreased $3.7 million or 33.7% to $14.7 million for the thirteen-week periodended July 1, 2006 from $11.0 million for the thirteen-week period ended July2, 2005.  Operating income expressed as apercentage of net sales increased to 14.0% in the thirteen-week period endedJuly 1, 2006 from 11.7% in the thirteen-week period ended July 2, 2005.  Operating income for the thirteen-week periodended July 1, 2005 was negatively impacted by $3.1 million as a result of therestructuring charge described above.

*Interest Expense. *Net interest expense increased $0.5 million or 4.8% to$10.9 million for the thirteen-week period ended July 1, 2006 from $10.4million in the thirteen-week period ended July 2, 2005.  The average debt outstanding increasedapproximately $25.0 million in the thirteen-week period ended July 1, 2006 ascompared to the thirteen-week period ended July 2, 2005 as a result of the newterm loan used to finance the *Grandma’s*molasses acquisition.  See “—Liquidityand Capital Resources—Debt” below.

*Income Tax Expense. *Income tax expense increased $1.2 million to $1.4million for the thirteen-week period ended July 1, 2006 from $0.2 million forthe thirteen-week periods ended July 2, 2005. Our effective tax rate was 38.5% for the thirteen-week period ended July1, 2006 and 39.9% for the thirteen-week period ended July 2, 2005.

***Twenty-sixWeek period ended July 1, 2006 compared to Twenty-six Week period ended July 2,2005.***

*Net Sales. *Net sales increased $14.0 million or 7.6% to $198.2million for the twenty-six week period ended July 1, 2006 from $184.2 millionfor the twenty-six week period ended July 2, 2005.  The *Ortega* foodservice dispensing pouch and dipping cup acquisition accounted for $6.2 millionof the net sales increase, the *Grandma’s*molasses acquisition accounted for $2.4 million of the net sales increase and atemporary co-packing arrangement that is expected to remain in place foranother three to six months accounted for $2.1 million of the net salesincrease.  The remaining $3.3 millionincrease in net sales was related to increases in sales price and unitvolume.  Net sales of our lines of*Ortega*(exclusive of food servicedispensing pouch and dipping cup net sales), *Underwood*, *Las Palmas*, *B&M* and *Maple GroveFarms*productsincreased**in the amounts of $3.9million, $0.5 million, $0.5 million, $0.4 million and $0.4 million or 10.3%,5.0%, 4.5%, 3.2% and 1.6%, respectively. These increases were offset by a reduction of net sales in *Emeril’s* and *B&G*pickle andpepper**products of $2.1million and $0.8 million or 15.6% and 3.7%, respectively.  All other brands increased, in the aggregate,by $0.5 million or 1.0%.

*Gross Profit. *Gross profit increased $5.8 million or 11.5% to $56.3million for the twenty-six week period ended July 1, 2006 from $50.5 millionfor the twenty-six week period ended July 2, 2005.  On July 1, 2005, we closed our New Iberia,Louisiana, manufacturing facility as part of our ongoing efforts to improve ourproduction capacity utilization, productivity, and operating efficiencies andlower our overall costs.  We recorded ascost of goods sold a restructuring charge associated with the plant closing, whichincluded a cash charge for employee compensation and other costs of $0.8million and a non-cash charge for the impairment of property, plant, equipmentand inventory of $3.0 million.  In thetwenty-six weeks ended July 2, 2005, we expensed $3.2 million of this $3.8million charge.  No restructuring chargeswere recorded or expensed during the twenty-six weeks ended July 1, 2006.

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Pro forma gross profit, which excludes therestructuring charge described above, increased $2.6 million or 4.8% to $56.3million for the twenty-six week period ended July 1, 2006 from $53.7 millionfor the twenty-six week period ended July 2, 2005.  Pro forma gross profit expressed as apercentage of net sales decreased 0.7% to 28.4% in the twenty-six week periodended July 1, 2006 from 29.1% in the twenty-six week period ended July 2,2005.  The increase in pro forma grossprofit was primarily due to sales price increases, which were partially offsetby higher costs for packaging materials, transportation costs and maple syrup.

*Sales, Marketing and DistributionExpenses. *Sales, marketing and distributionexpenses increased $1.2 million or 5.8% to $22.1 million for the twenty-sixweek period ended July 1, 2006 from $20.9 million for the twenty-six weekperiod ended July 2, 2005.  Theseexpenses as a percentage of net sales decreased to 11.1% for the twenty-sixweek period ended July 1, 2006 from 11.3% for the twenty-six week period endedJuly 2, 2005.  The increase is primarilydue to an increase in brokerage and salesmen commissions of $1.0 millionrelating to the increased sales volume.

*General and AdministrativeExpenses. *General and administrative expensesincreased $0.2 million or 4.1% to $3.5 million for the twenty-six week periodended July 1, 2006 from $3.3 million in the twenty-six week period ended July2, 2005.  The increase was primarily dueto an increase in employee compensation.

*Amortization Expense—CustomerRelationships.*  Amortization expense—customer relationships,all of which relates to the amortization of customer relationship intangiblesacquired in the *Grandma’s* molasses acquisition,was $0.4 million for the twenty-six week period ended July 1, 2006.  We had no amortization expense of customerrelationship intangibles in the twenty-six week period ended July 2, 2005.

*Operating Income. *As a result of the foregoing, operating incomeincreased $4.1 million or 15.7% to $30.4 million for the twenty-six week periodended July 1, 2006 from $26.3 million for the twenty-six week period ended July2, 2005.  Operating income expressed as apercentage of net sales increased to 15.3% in the twenty-six week period endedJuly 1, 2006 from 14.3% in the twenty-six week period ended July 2, 2005.  Operating income for the twenty-six weekperiod ended July 1, 2005 was negatively impacted by $3.2 million as a result ofthe restructuring charge described above.

*Interest Expense. *Net interest expense increased $0.9 million or 4.4% to$21.8 million for the twenty-six week period ended July 1, 2006 from $20.9million in the twenty-six week period ended July 2, 2005.  The average debt outstanding increasedapproximately $25.0 million in the twenty-six week period ended July 1, 2006 ascompared to the twenty-six week period ended July 2, 2005 as a result of thenew term loan used to finance the *Grandma’s*molasses acquisition.  See “—Liquidityand Capital Resources—Debt” below.

*Income Tax Expense. *Income tax expense increased $1.2 million or 57.7% to$3.3 million for the twenty-six week period ended July 1, 2006 from $2.1million for the twenty-six week period ended July 2, 2005.  Our effective tax rate was 38.8% for thetwenty-six week period ended July 1, 2006 and 39.1% for the twenty-six weekperiod ended July 2, 2005.

**Liquidity and Capital Resources**

Our primary liquidity requirements include debtservice, capital expenditures, working capital needs and financing foracquisitions.  See also, “Dividend Policy”and “Commitments and Contractual Obligations” below.  We fund our liquidity needs primarily throughcash generated from operations and to the extent necessary, through borrowingsunder our revolving credit facility.

*Cash Flows*. Cash provided by operating activities increased $8.7 million to $14.0million for the twenty-six week period ended July 1, 2006 from $5.3 million inthe twenty-six week period ended July 2, 2005. The increase was due to changes relating to a reduction in the change ininventory and an increase in accrued expenses and accounts payable.  Working capital at July 1, 2006 was $99.2million, a decrease of $4.6 million over working capital at December 31, 2005of $103.8 million.

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Net cash used in investing activities for thetwenty-six week period ended July 1, 2006 was $34.1 million as compared to $3.4million for the twenty-six week period ended July 2, 2005.  Capital expenditures during the twenty-sixweek period ended July 1, 2006 were $4.0 million and included purchases ofmanufacturing and computer equipment. This compares to $3.4 million in similar capital expenditures for thetwenty-six week period ended July 2, 2005. Investment expenditures for the twenty-six week period ended July 1,2006 included $30.1 million for the *Grandma’s*molasses acquisition.

Net cash provided by financing activities for thetwenty-six week period ended July 1, 2006 was $16.1 million as compared to netcash used in financing activities of $8.0 million for the twenty-six weekperiod ended July 2, 2005.  Net cashprovided by financing activities for the twenty-six week period ended July 1,2006 consists of $25.0 million in a new term loan, offset by $8.5 million individends paid on our Class A common stock, and $0.4 million in debt issuancecosts.  The net cash used in financingactivities for the twenty-six week period ended July 2, 2005 consists of $8.0million in dividends paid on our Class A common stock.

Based on a number of factors, including our trademarkand goodwill amortization for tax purposes from our prior acquisitions, and theincome tax effects of our initial public offering, the concurrent offerings andrelated transactions, including our call premium on our outstanding seniorsubordinated notes, other write-offs of existing deferred financing costs andthe compensation expense associated with our repurchase of certain managementstock options, we realized a significant reduction in cash taxes in 2005 as comparedto our tax expense for financial statement purposes, and further, we willrealize a benefit to our cash taxes payable from amortization of our trademarksand goodwill for the taxable years 2006 through 2020.

***Non-GAAP Financial Measures***

Certain disclosures in this report include “non-GAAP(Generally Accepted Accounting Principles) financial measures.”  A non-GAAP financial measure is defined as anumerical measure of our financial performance that excludes or includesamounts so as to be different than the most directly comparable measurecalculated and presented in accordance with GAAP in our consolidated balancesheets and related consolidated statements of operations, changes instockholders’ equity and comprehensive income, and cash flows.  We present EBITDA (net income before netinterest expense, income taxes, depreciation and amortization) and adjustedEBITDA (EBITDA as adjusted for restructuring charges incurred in fiscal 2005)because we believe they are useful indicators of our historical debt capacityand ability to service debt.  We alsopresent this discussion of EBITDA and adjusted EBITDA because covenants in theindenture governing our senior notes, our credit facility and the indenturegoverning our senior subordinated notes contain ratios based on these measures.

A reconciliation of EBITDA and adjusted EBITDA withthe most directly comparable GAAP measure is included below for the thirteenand twenty-six weeks ended July 1, 2006 and July 2, 2005 along with thecomponents of EBITDA and adjusted EBITDA.

 

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*Reconciliationof EBITDA and Adjusted EBITDA to Net Cash Provided by Operating Activities(dollars in thousands)*.
| ** **                                                                 | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                 | ** ** | **July 1, 2006**         | ** ** | **July 2, 2005**           | ** ** | **July 1, 2006** | ** ** | **July 2, 2005** | ** ** |
| Net income                                                                 |       | $                                  | 2,309      |                                 | $          | 336 |   | $ | 5,261 |   | $ | 3,294 |   |
| Income tax expense                                                         |       | 1,448                              |       | 223                                  |       | 3,335 |   | 2,115 |   |
| Interest expense, net                                                      |       | 10,929                             |       | 10,428                               |       | 21,787 |   | 20,862 |   |
| Depreciation and  amortization                                             |       | 2,133                              |       | 1,693                                |       | 3,904 |   | 3,360 |   |
| EBITDA(1)                                                                  |       | 16,819                             |       | 12,680                               |       | 34,287 |   | 29,631 |   |
| Adjustments to EBITDA —  restructuring(1)(2)                          |       | —                             |       | 3,128                                |       | — |   | 3,244 |   |
| Adjusted EBITDA(1)                                                         |       | 16,819                             |       | 15,808                               |       | 34,287 |   | 32,875 |   |
| Income tax expense                                                         |       | (1,448                             | )          | (223                                 | )          | (3,335 | ) | (2,115 | ) |
| Interest expense, net                                                      |       | (10,929                            | )          | (10,428                              | )          | (21,787 | ) | (20,862 | ) |
| Deferred income taxes                                                      |       | 1,178                              |       | 485                                  |       | 2,794 |   | 2,284 |   |
| Restructuring  charge—cash portion                                    |       | —                             |       | (315                                 | )          | — |   | (431 | ) |
| Amortization of  deferred financing costs                                  |       | 704                                |       | 698                                  |       | 1,412 |   | 1,396 |   |
| Changes in assets and  liabilities, net of effects of business combination |       | (928                               | )          | (507                                 | )          | 673 |   | (7,891 | ) |
| Net cash provided by  operating activities                                 |       | $                                  | 5,396      |                                 | $          | 5,518 |   | $ | 14,044 |   | $ | 5,256 |   |

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(1)             Wedefine EBITDA as net income before net interest expense, income taxes,depreciation and amortization.  We defineadjusted EBITDA as EBITDA as adjusted for restructuring charges incurred infiscal 2005.  We believe that the mostdirectly comparable GAAP financial measure to EBITDA and adjusted EBITDA is netcash provided by operating activities. We present EBITDA and adjusted EBITDA because we believe they are usefulindicators of our historical debt capacity and ability to service debt.  We also present this discussion of EBITDA andadjusted EBITDA because covenants in our credit facility and the indenturesgoverning the senior notes and the senior subordinated notes contain ratiosbased on these measures. EBITDA and adjusted EBITDA are not substitutes foroperating income or net income, as determined in accordance with generallyaccepted accounting principles.  EBITDAand adjusted EBITDA are not complete net cash flow measures because EBITDA andadjusted EBITDA are measures of liquidity that do not include reductions forcash payments for an entity’s obligation to service its debt, fund its workingcapital, capital expenditures and acquisitions, if any, and pay its incometaxes and dividends, if any, and in the case of adjusted EBITDA, the cost torestructure our operations.  Rather,EBITDA and adjusted EBITDA are two potential indicators of an entity’s abilityto fund these cash requirements.  EBITDAand adjusted EBITDA also are not complete measures of an entity’s profitabilitybecause they do not include costs and expenses for depreciation andamortization, interest and related expenses and income taxes and in the case ofadjusted EBITDA, the cost of restructuring charges.  EBITDA and adjusted EBITDA, as we definethem, may differ from similarly named measures used by other entities.

(2)             OnJuly 1, 2005, we closed our New Iberia, Louisiana, manufacturing facility aspart of our ongoing efforts to improve our production capacity utilization,productivity, and operating efficiencies and lower our overall costs.  In fiscal 2005, we recorded a charge of $3.8million, of which $3.1 million and $3.2 million was recorded during thethirteen and twenty-six weeks ended July 2, 2005, respectively.  The charge associated with the plant closingincluded a cash charge for employee compensation and other costs of $0.8million and a non-cash charge for the impairment of property, plant, equipmentand inventory of $3.0 million.

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*** ***

***Dividend Policy.***

Prior to the completion of our initial publicoffering, our board of directors adopted a dividend policy that reflects abasic judgment that our stockholders would be better served if we distributedour cash available to pay dividends to them instead of retaining it in our business.  Under this policy, cash generated by ourcompany in excess of operating needs, interest and principal payments onindebtedness, capital expenditures sufficient to maintain our properties andother assets and $6.0 million of dividend restricted cash (that can be used forthe payment of dividends on Class A common stock or for any other purpose otherthan the payment of dividends on the Class B common stock) would in general bedistributed as regular quarterly cash dividends (up to the intended dividendrate as determined by our board of directors) to the holders of our Class Acommon stock and as regular annual cash dividends (up to the dividend ratepermitted under our debt agreements and our organizational documents) to theholders of our Class B common stock and not be retained by us.

Dividend payments, however, are not mandatory orguaranteed and holders of our common stock do not have any legal right toreceive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amendor repeal this dividend policy with respect to the Class A and Class B commonstock at any time.  Our board ofdirectors may decrease the level of dividends for the Class A and Class Bcommon stock below the intended dividend rates or discontinue entirely thepayment of dividends.  Future dividendswith respect to shares of our capital stock, if any, depend on, among otherthings, our results of operations, cash requirements, financial condition, contractualrestrictions, business opportunities, provisions of applicable law and otherfactors that our board of directors may deem relevant.  The indenture governing our seniorsubordinated notes, the terms of our revolving credit facility and the indenturegoverning the senior notes contain significant restrictions on our ability tomake dividend payments.  In addition,certain provisions of the Delaware General Corporation Law may limit ourability to pay dividends.

As a result of our dividend policy, we may not retaina sufficient amount of cash to finance growth opportunities or unanticipatedcapital expenditure needs or to fund our operations in the event of asignificant business downturn.  We mayhave to forego growth opportunities or capital expenditures that wouldotherwise be necessary or desirable if we do not find alternative sources offinancing.  If we do not have sufficientcash for these purposes, our financial condition and our business will suffer.

For the twenty-six weeks ended July 1, 2006, we hadcash flows provided by operating activities of $14.0 million.  If our cash flows from operating activitiesfor future periods were to fall below our minimum expectations (or if ourassumptions as to capital expenditures or interest expense were too low or ourassumptions as to the sufficiency of our revolving credit facility to financeour working capital needs were to prove incorrect), we would need either toreduce or eliminate dividends or, to the extent permitted under the indenturegoverning our senior notes, the indenture governing our senior subordinatednotes and the terms of our credit facility, fund a portion of our dividendswith borrowings or from other sources. If we were to use working capital or permanent borrowings to funddividends, we would have less cash and/or borrowing capacity available forfuture dividends and other purposes, which could negatively impact ourfinancial position, our results of operations, our liquidity and our ability tomaintain or expand our business.

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The table below illustrates for the fiscal year endedDecember 31, 2005 and the latest twelve months ended July 1, 2006,respectively, the amount of cash that we had available for distribution to ourstockholders.
| ** **                                                                        | ** ** | **Fiscal Year   Ended**    | ** ** | **Less:  Twenty-six   Weeks Ended** | ** ** | **Plus:  Twenty-six   Weeks Ended** | ** ** | **Latest Twelve   Months  Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| **Cash Available to Pay Dividends**                           | ** ** | **December 31,  2005**          | ** ** | **July 2,  2005**                        | ** ** | **July 1,  2006**                        | ** ** | **July 1,  2006**(a)                   | ** ** |
| ** **                                                                        | ** ** | **(unaudited)**                      | ** ** | **(unaudited)**                               | ** ** | **(unaudited)**                               | ** ** | **(unaudited)**                             | ** ** |
| ** **                                                                        | ** ** | **(Dollars in thousands)** | ** ** |
| Net cash  provided by operating activities                                        |       | $                                    | 22,523     |                                          | $          | 5,256                                         |       | $                                           | 14,044     |   | $ | 31,311 |   |
| Interest  expense, net                                                            |       | 41,767                               |       | 20,862                                        |       | 21,787                                        |       | 42,692                                      |       |
| Income taxes                                                                      |       | 5,235                                |       | 2,115                                         |       | 3,335                                         |       | 6,455                                       |       |
| Amortization of  deferred debt issuance costs                                     |       | (2,791                               | )          | (1,396                                        | )          | (1,412                                        | )          | (2,807                                      | )          |
| Deferred income  taxes                                                            |       | (4,795                               | )          | (2,284                                        | )          | (2,794                                        | )          | (5,305                                      | )          |
| Restructuring  charge—property, plant, equipment and inventory impairment(b) |       | (3,070                               | )          | (2,813                                        | )          | —                                        |       | (257                                        | )          |
| Changes in  assets and liabilities                                                |       | 3,050                                |       | 7,891                                         |       | (673                                          | )          | (5,514                                      | )          |
| EBITDA                                                                            |       | 61,919                               |       | 29,631                                        |       | 34,287                                        |       | 66,575                                      |       |
| Restructuring  charge(b)                                                          |       | 3,839                                |       | 3,244                                         |       | —                                        |       | 595                                         |       |
| Adjusted EBITDA                                                                   |       | 65,758                               |       | 32,875                                        |       | 34,287                                        |       | 67,170                                      |       |
| Reduction for  cash income tax expense(c)                                         |       | —                               |       | —                                        |       | —                                        |       | —                                      |       |
| Cash interest  expense(d)                                                         |       | (38,976                              | )          | (19,466                                       | )          | (20,375                                       | )          | (39,885                                     | )          |
| Capital  expenditures                                                             |       | (6,659                               | )          | (3,371                                        | )          | (4,013                                        | )          | (7,301                                      | )          |
| Restructuring  charge—cash portion(b)                                        |       | (769                                 | )          | (431                                          | )          | —                                        |       | (338                                        | )          |
| Cash available  to pay dividends on Class A common stock                          |       | 19,354                               |       | 9,607                                         |       | 9,899                                         |       | 19,646                                      |       |
|                                                                              |       |                                 |       |                                          |       |                                          |       |                                        |       |
| Less:                                                                             |       |                                 |       |                                          |       |                                          |       |                                        |       |
| Dividends paid on Class A common stock                                            |       | 16,448                               |       | 7,968                                         |       | 8,480                                         |       | 16,960                                      |       |
| Dividend restricted cash(e)                                                       |       | 6,000                                |       |                                          |       |                                          |       | 6,000                                       |       |
| Cash available  (deficit) to pay dividends on Class B common stock                |       | $                                    | (3,094     | )                                             |       |                                          |       |                                        | $          | (3,314 | ) |
|                                                                                   |            |                                      |            |                                               |            |                                               |            |                                             |            |  |  |  |  |

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(a)             Ourunaudited consolidated statements of operations and cash flow data for thelatest twelve months ended July 1, 2006 was derived from our auditedconsolidated statements of operations and cash flow data for the fiscal yearended December 31, 2005 and (i) subtracting from it our unaudited consolidatedstatements of operations and cash flow data for the twenty-six weeks ended July2, 2005 and (ii) adding to it our unaudited consolidated statements ofoperations and cash flow data for the twenty-six weeks ended July 1, 2006.

(b)            OnJuly 1, 2005, we closed our New Iberia, Louisiana manufacturing facility aspart of our ongoing efforts to improve our production capacity utilization,productivity, and operating efficiencies and lower our overall costs.  In fiscal 2005, we recorded a charge of $3.8million, of which $3.2 million was recorded during the twenty-six weeks endedJuly 2, 2005.  The charge associated withthe plant closing included a cash charge for employee compensation and othercosts of $0.8 million and a non-cash charge for the impairment of property,plant, equipment and inventory of $3.0 million.

(c)             Infiscal 2005 we had a net cash tax refund of $5.9 million.  For the latest twelve months ended July 1,2006 we had a net cash tax refund of $6.4 million.

(d)            Cashinterest expense is net interest expense less amortization of deferred debtissuance costs.

(e)             Underour organizational documents, our EBITDA otherwise available for the payment ofannual dividends, if any, on our Class B common stock for any year is reducedby $6.0 million.

There can be no assurance that we will continue to paydividends at historical levels, or at all. Dividend payments are not mandatory or guaranteed, are within theabsolute discretion of our board of directors and will be dependent upon manyfactors and future developments that could differ materially from our currentexpectations.  Over time, our EBITDA,adjusted EBITDA and capital expenditure, working capital and other cash needswill be subject to uncertainties, which could impact the level of dividends, ifany, we pay in the future.

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*** ***

***Acquisitions.***

Our liquidity and capital resources have beensignificantly impacted by acquisitions and may be impacted in the foreseeablefuture by additional acquisitions.  Wehave historically financed acquisitions with borrowings and cash flows fromoperating activities.  Our interestexpense has increased significantly as a result of additional indebtedness wehave incurred as a result of our acquisition of Ortega in August 2003 and the *Grandma’s*molasses business in January 2006, and willincrease with any additional indebtedness we may incur to finance potentialfuture acquisitions, if any.  To theextent future acquisitions, if any, are financed by additional indebtedness,the resulting increase in debt and interest expense could have a negativeimpact on liquidity.

***Environmental and Health andSafety Costs.***

We have not made any material expenditures during thetwenty-six week period ended July 1, 2006 in order to comply with environmentallaws or regulations.  Based on ourexperience to date, we believe that the future cost of compliance with existingenvironmental laws and regulations (and liability for known environmentalconditions) will not have a material adverse effect on our consolidatedfinancial 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.

***Debt.***

*Senior Secured Credit Facility*. Concurrent with our initial public offering and concurrent offerings, weentered into a $30.0 million senior secured revolving credit facility onOctober 14, 2004.  In order to financeour acquisition of the *Grandma’s*molassesbrand, we amended the credit facility in January 2006 to provide for, amongother things, a new $25.0 million term loan and a reduction in the revolvingcredit facility commitments from $30.0 million to $25.0 million.  As amended, all outstanding indebtednessunder the credit facility matures on January 10, 2011.  Interest under the revolving credit facility,including any outstanding letters of credit, is determined based on severalalternative rates as stipulated in the revolving credit facility, including thebase lending rate per annum plus an applicable margin, or LIBOR plus anapplicable margin.  We pay a commitmentfee of 0.50% per annum on the unused portion of the revolving creditfacility.  Interest under the term loanis determined based on alternative rates as stipulated in the credit facility,including the base lending rate per annum plus an applicable margin of 1.75%,and LIBOR plus an applicable margin of 2.75%. As of July 1, 2006, the interest rate for the term loan was 7.49% (basedupon a six-month LIBOR contract which expired on July 17, 2006).  As of August 3, 2006, the interest rate forthe term loan is 8.36% (based upon a six-month LIBOR contract expiring January17, 2007).  The credit facility issecured by substantially all of our assets except our real property.  The credit facility provides for mandatoryprepayment based on asset dispositions and certain issuances of securities, asdefined.  The credit facility containscovenants that restrict, among other things, our ability to incur additionalindebtedness, pay dividends and create certain liens.  The credit facility also contains certainfinancial maintenance covenants, which, among other things, specify maximumcapital expenditure limits, a minimum interest coverage ratio and a maximumsenior and total leverage ratio, each ratio as defined.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same line of business as our company,subject to specified criteria.  Therevolving credit facility was undrawn on the date of consummation of ourinitial public offering and concurrent offerings and remained undrawn throughJuly 1, 2006.  The available borrowingcapacity under our revolving credit facility, net of outstanding letters ofcredit of $2.9 million, was $22.1 million at July 1, 2006.  The maximum letter of credit capacity underthe revolving credit facility is $10.0 million, with a fronting fee of 3% perannum for all outstanding letters of credit.

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* *

*12.0% Senior Subordinated Notes due 2016*. In connection with our initial public offering, we issued on October 14,2004, $124.3 million aggregate principal amount of 12.0% senior subordinatednotes due 2016 in the form of EISs and an additional $22.8 million aggregateprincipal amount of 12.0% senior subordinated notes due 2016 (not in the formof EISs).  In connection with theexercise of the underwriters’ over-allotment option, on October 22, 2004 weissued an additional $18.7 million aggregate principal amount of 12.0% seniorsubordinated notes in the form of EISs. Each EIS represents one share of our Class A common stock and $7.15principal amount of our 12.0% senior subordinated notes.  As of July 1, 2006, $165.8 million aggregateprincipal amount of senior subordinated notes were outstanding.

Interest on the senior subordinated notes is payablequarterly in arrears on each January 30, April 30, July 30 and October 30through the maturity date.  The seniorsubordinated notes will mature on October 30, 2016, unless earlier retired orredeemed at our option as described below.

Upon the occurrence of a change of control (as definedin the indenture), unless we have retired the senior subordinated notes orexercised our right to redeem all senior subordinated notes as described below,each holder of the senior subordinated notes has the right to require us torepurchase that holder’s senior subordinated notes at a price equal to 101.0%of the principal amount of the senior subordinated notes being repurchased,plus any accrued and unpaid interest to the date of repurchase.  In order to exercise this right, a holdermust separate the senior subordinated notes and Class A common stockrepresented by such holder’s EISs.

We may not redeem the notes prior to October 30,2009.  However, we may, from time totime, seek to retire the senior subordinated notes through cash repurchases ofEISs or separate senior subordinated notes and/or exchanges of EISs or separatesenior subordinated 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.  We expect that any repurchaseof EISs or senior subordinated notes would be funded with our existing cashbalances and cash from operations. The amounts involved may be material.

In addition, on and after October 30, 2009, we mayredeem for cash all or part of the senior subordinated notes upon not less than30 or more than 60 days’ notice by mail to the owners of senior subordinatednotes, at a redemption price of 106.0% beginning October 30, 2009 andthereafter at prices declining annually to 100% on or after October 30,2012.  If we redeem any seniorsubordinated notes, the senior subordinated notes and Class A common stockrepresented by each EIS will be automatically separated.

The senior subordinated notes are unsecuredobligations and are subordinated in right of payment to all of our existing andfuture senior secured and senior unsecured indebtedness, including theindebtedness under our credit facility and our senior notes.  The senior subordinated notes rank pari passuin right of payment with any of our other subordinated indebtedness.

The senior subordinated notes are jointly andseverally and fully and unconditionally guaranteed by all of our existingdomestic subsidiaries and certain future domestic subsidiaries on an unsecuredand subordinated basis on the terms set forth in the indenture governing thesenior subordinated notes.  The seniorsubordinated note guarantees are subordinated in right of payment to allexisting and future senior indebtedness of the guarantors, including theindebtedness under our credit facility and the senior notes.  Our present foreign subsidiary, Les ProduitsAlimentaires Jacques et Fils Inc., is not a guarantor, and any future foreignor partially owned domestic subsidiaries will not be guarantors, of our seniorsubordinated notes.

The indenture governing the senior subordinated notescontains covenants with respect to us 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 sales of assets; fundamental changes, 

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including consolidation, mergers and transfers of allor substantially all of our assets; and specified transactions with affiliates.

Although we believe that the senior subordinated notesshould be treated as debt for U.S. federal income tax purposes in accordancewith the opinion of our tax counsel issued on the date of our initial publicoffering, this conclusion cannot be assured. If all or a portion of the senior subordinated notes were treated asequity rather than debt for U.S. federal income tax purposes, then acorresponding portion of the interest on the senior subordinated notes wouldnot be deductible by us for U.S. federal income tax purposes.  In addition, we would be subject to liabilityfor U.S. withholding taxes on interest payments to non-U.S. holders if suchpayments were determined to be dividends. Our inability to deduct interest onthe senior subordinated notes could materially increase our taxable income and,thus, our U.S. federal and applicable state income tax liability. Our liabilityfor income taxes (and withholding taxes) if the senior subordinated notes weredetermined to be equity for income tax purposes would materially reduce ourafter-tax cash flow and would materially and adversely impact our ability tomake interest and/or dividend payments and could impact our ability to continueas a going concern.  See “CriticalAccounting Policies; Use of Estimates—Income Tax Expense Estimates and Policies”for further discussion of income tax matters relating to our seniorsubordinated notes.

*8.0% Senior Notes due 2011*. Concurrently with our initial public offering and offering of separatesenior subordinated notes, we issued $240.0 million aggregate principal amountof 8.0% senior notes due 2011.  Intereston the senior notes is payable on April 1 and October 1 of each year.  Our obligations under the senior notes arefully and unconditionally guaranteed on a senior basis by all of our existingand future domestic subsidiaries.  Thesenior notes and the subsidiary guarantees are our and the guarantors’ generalunsecured obligations and are effectively junior in right of payment to all ofour and the guarantors’ secured indebtedness and to the indebtedness and otherliabilities of our non-guarantor subsidiaries; are pari passu in right ofpayment to all of our and the guarantors’ existing and future unsecured seniordebt; and are senior in right of payment to all of our and the guarantors’future subordinated debt, including the senior subordinated notes.  Our present foreign subsidiary, Les ProduitsAlimentaires Jacques et Fils Inc., is not a guarantor, and any future foreignor partially owned domestic subsidiaries will not be guarantors, of our seniornotes.

On or after October 1, 2008, we may redeem some or allof the senior notes at a redemption price of 104.0% beginning October 1, 2008and thereafter at prices declining annually to 100% on or after October 1,2010.  Prior to October 1, 2007, we mayredeem up to 35% of the aggregate principal amount of the senior notes issuedin the senior note offering with the net proceeds of one or more equityofferings at the redemption price as described in the indenture governing thesenior notes.  If we or any of theguarantors sell certain assets or experience specific kinds of changes incontrol, we must offer to purchase the senior notes at the prices as describedin the indenture governing the senior notes plus accrued and unpaid interest tothe date of redemption.  The indenturegoverning the senior notes limits our ability and the ability of the guarantorsto incur additional indebtedness and issue preferred stock; make restrictedpayments, including dividend payments on our common stock; allow restrictionson the ability of certain subsidiaries to make distributions; sell all orsubstantially all of our assets or consolidate or merge with or into othercompanies; enter into certain transactions with affiliates; or create liens andenter into sale and leaseback transactions. Each of the covenants is subject to a number of important exceptions andqualifications.

***Future Capital Needs***

We are highly leveraged.  On July 1, 2006, our total long-term debt andstockholders’ equity was $430.8 million and $80.1 million, respectively.

Our ability to generate sufficient cash to fund ouroperations depends generally on our results of operations and the availabilityof financing.  Our management believesthat our cash on hand, cash flow from operating activities and availableborrowing capacity under our revolving credit facility, will be sufficient forthe foreseeable future to fund operations, meet debt service requirements, fundcapital expenditures, make 

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future acquisitions within our line of business, ifany, and pay our anticipated dividends on our Class A common stock.  We expect to make capital expenditures ofapproximately $7.0 million for fiscal 2006.

***Seasonality***

Sales of a number of our products tend to beseasonal.  In the aggregate, however, oursales are not heavily weighted to any particular quarter due to the diversityof our product and brand portfolio. Sales during the first quarter of the fiscal year are generally belowthose of the following three quarters.

We purchase most of the produce used to make ourshelf-stable pickles, relishes, peppers and other related specialty itemsduring the months of July through October, and we purchase substantially all ofour maple syrup requirements during the months of April through July.  Consequently, our liquidity needs aregreatest during these periods.

***Inflation***

During fiscal 2005 and the twenty-six weeks ended July1, 2006, we were faced with increasing prices in certain commodities,particularly in packaging materials, pork and chicken and we expect this trendmay continue.  We manage this risk byentering into short-term supply contracts and advance commodities purchaseagreements from time to time, and if necessary, by raising prices.  Our cost increases in fiscal 2005 werepartially attributable to the spike in oil and natural gas prices, which havehad a substantial impact on our raw material, packaging and transportationcosts.  During 2005, our transportationcosts also increased as a result of a shortage in truck carrier availabilityfollowing Hurricanes Katrina and Rita. We believe that through sales price increases and our cost savingefforts we have to some degree been able to offset the impact of recent rawmaterial, packaging and transportation cost increases.  There can be no assurance, however, that anyfuture sales price increases or cost saving efforts by us will offset theincreased cost of raw material, packaging and transportation costs, or that wewill be able to raise prices or reduce costs at all.

**Recent AccountingPronouncements**

In November 2004, the FASB issued SFAS No. 151, *“Inventory Costs—An Amendment of ARB No. 43, Chapter 4”*(SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material (spoilage). Among otherprovisions, the new rule requires that items such as idle facility expense,excessive spoilage, double freight, and rehandling costs be recognized ascurrent-period charges regardless of whether they meet the criterion of “soabnormal” as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the allocation of fixedproduction overheads to the costs of conversion be based on the normal capacityof the production facilities. SFAS No. 151 was adopted by us beginning onJanuary 1, 2006. The adoption of SFAS No. 151 has not had an impact on ourconsolidated results of operations and financial position.

In July 2006, the FASB issued FASB Interpretation No.48, “*Accounting for Uncertainty in Income Taxes*”(FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN48 requires that we recognize in our consolidated financial statements, theimpact of a tax position, if that position is more likely than not of beingsustained on audit, based on the technical merits of the position.  We currently recognize the impact of a taxposition if it is probable of being sustained. The provisions of FIN 48 are effective as of the beginning of our 2007fiscal year, with the cumulative effect of the change in accounting principlerecorded as an adjustment to opening retained earnings.  At this time, we have not completed ourreview and assessment of the impact of the adoption of FIN 48.

 

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** **

**Off-balance SheetArrangements**

As of July 1, 2006, we did not have any off-balancesheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

**Commitments andContractual Obligations**

Our contractual obligationsand commitments principally include obligations associated with our outstandingindebtedness and future minimum operating lease obligations as set forth in thefollowing table as of December 31, 2005.

 
| ** **                        | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations:** | ** ** | **Total**                                 | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010 and   Thereafter** | ** ** |
| ** **                        | ** ** | **(Dollars in thousands)**      | ** ** |
| Long-term debt (1)                |       | $                                         | 731,733    |   | $ | 39,096 |   | $ | 39,096 |   | $ | 39,096 |   | $ | 39,096 |   | $ | 575,349 |   |
| Operating leases                  |       | 11,921                                    |       | 4,044 |   | 3,192 |   | 3,119 |   | 1,470 |   | 96 |   |
| Other long-term  obligations (2)  |       | 1,514                                     |       | 1,514 |   | — |   | — |   | — |   | — |   |
| Total                             |       | $                                         | 745,168    |   | $ | 44,654 |   | $ | 42,288 |   | $ | 42,215 |   | $ | 40,566 |   | $ | 575,445 |   |

 

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(1)             Includesinterest obligations on our senior notes at an interest rate of 8.0% per annumthrough maturity on October 1, 2011 and on our senior subordinated notes of 12%per annum through maturity on October 30, 2016. In January 2006, we incurred additional long-term debt of $25.0 millionin the form of a new term loan, which is not reflected in the table.  See “Debt—*Senior Secured CreditFacility*” above.

(2)             Representsexpected contributions under our defined benefit pension plans in 2006.  The expected contributions beyond 2006 arenot currently determinable.

During the twenty-six week period ended July 1, 2006,there were no material changes outside the ordinary course of business in thespecified contractual obligations set forth in the table above, except that inJanuary 2006, we issued additional long-term debt of $25.0 million in the formof a new term loan under our amended senior secured credit facility due January10, 2011, which is not reflected in the table. See “Debt—Senior Secured Credit Facility” above.

***Forward-Looking Statements***

This report includes forward-looking statements,including without limitation the statements under “Management’s Discussion andAnalysis 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;

·                  intense competition, changes in consumerpreferences, demand for our products, the effects of changing prices for ourraw materials 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, to improve productivity and to maintainaccess to credit markets;

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·                  the risks associated with the expansion ofour business;

·                  our possible inability to integrate anybusinesses we acquire;

·                  our borrowing costs and credit ratings, whichmay be influenced by the credit ratings of our competitors;

·                  factors that affect the food industrygenerally, including:

·                  recalls if products become adulterated ormisbranded, liability if product consumption causes injury, ingredientdisclosure and labeling laws and regulations and the possibility that consumerscould lose confidence in the safety and quality of certain food products, aswell as recent publicity concerning the health implications of obesity andtrans fatty acids; and

·                  the effects of currency movements inCanada and fluctuations in the level of our customers’ inventories and creditand other business risks related to our customers operating in a challengingeconomic and competitive environment; and

·                  the risk that our senior subordinated notesmay be treated as equity for U.S. federal income tax purposes; and

·                  other factors discussed elsewhere in thisreport and in our public filings with the SEC, including under Item 1A, “RiskFactors” in our Annual Report on Form 10-K for fiscal 2005.

Developments in any of these areas could cause ourresults to differ materially from results that have been or may be projected byor on our behalf.

All forward-looking statements included in this reportare based on information available to us on the date of this report. Weundertake no obligation to publicly update or revise any forward-lookingstatement, whether as a result of new information, future events or otherwise.All subsequent written and oral forward-looking statements attributable to usor persons acting on our behalf are expressly qualified in their entirety bythe cautionary statements contained in this report.

We caution that the foregoing list of importantfactors is not exclusive.  We urgeinvestors not to unduly rely on forward-looking statements contained in thisreport.

**Item 3.**                          Quantitativeand Qualitative Disclosures About Market Risk

In the normal course of operations, we are exposed tomarket risks arising from adverse changes in interest rates.  Market risk is defined for these purposes asthe potential change in the fair value of a financial asset or liabilityresulting from an adverse movement in interest rates.  As of July 1, 2006, our revolving creditfacility was undrawn.  As a result, ouronly variable rate borrowing as of July 1, 2006, are under our term loan.  Interest under the term loan is determinedbased on alternative rates as stipulated in the credit facility, including thebase lending rate per annum plus an applicable margin of 1.75%, and LIBOR plusan applicable margin of 2.75%.  Interestunder our revolving credit facility is determined based on several alternativerates as stipulated in the revolving credit facility, including the baselending rate per annum plus an applicable margin, or LIBOR plus an applicablemargin.  As of July 1, 2006, the interestrate for the term loan was 7.49% (based upon a six-month LIBOR contract expiringon July 17, 2006).  A 100 basis pointincrease in interest rates, applied to our variable rate borrowings at July 1,2006, would result in an annual increase in interest expense and acorresponding reduction in cash flow of $0.3 million.

We also have outstanding $240.0 million principalamount of 8.0% senior notes due October 1, 2011, with interest payablesemiannually on April 1 and October 1 of each year.  The fair value of the senior notes at July 1,2006 and December 31, 2005, based on quoted market prices, was $242.4 millionand $246.0, respectively.

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We also have outstanding $165.8 million principalamount of 12.0% senior subordinated notes due October 30, 2016, with interestpayable quarterly on January 30, April 30, July 30 and October 30 of eachyear.  Of such outstanding principalamount, $143.0 million principal amount is represented by 20.0 millionEISs.  Each EIS represents one share ofour Class A common stock and $7.15 principal amount of our senior subordinatednotes.  As of July 1, 2006 and December31, 2005, the fair value of the EISs, based on the per EIS closing price on theAMEX on June 30, 2006 and December 31, 2005 was $324.2 million and $290.4million, respectively.  It is notpracticable to estimate the fair value of the $143.0 principal amount of seniorsubordinated notes represented by the EISs. Of the $165.8 million aggregate principal amount of senior subordinatednotes outstanding, $22.8 million principal amount is not represented by EISsand trades separately.  The fair value ofthe separate senior subordinated notes at July 1, 2006 and December 31, 2005,based on quoted market prices, was $23.9 million and $25.5 million,respectively.

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

**Item 4.**                          Controlsand Procedures

*Evaluation of Disclosure Controlsand Procedures. *As required by Rule 13a-15(b) under theSecurities Exchange Act of 1934, as amended, our management, including ourchief executive officer and our chief financial officer, conducted anevaluation of the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the period covered by this report.  As defined in Rules 13a-15(e) and 15d-15(e)under the Exchange Act, disclosure controls and procedures are controls andother procedures that we use that are designed to ensure that informationrequired to be disclosed by us in the reports we file or submit under theExchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed byus in the reports we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our chief executive officer and ourchief financial officer, as appropriate, to allow timely decisions regardingrequired disclosure.

Based on that evaluation, our chief executive officerand our chief financial officer concluded that our disclosure controls andprocedures were effective as of the end of the period covered by this report.

*Changes in Internal Control OverFinancial Reporting*.  As required by Rule 13a-15(d) under theExchange 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 on Effectiveness of Controls.* Our company’s management, including the chief executive officer andchief financial officer, does not expect that our disclosure controls or ourinternal control over financial reporting will prevent or detect all errors andall fraud.  A control system, no matterhow well designed and operated, can provide only reasonable, not absolute,assurance that the control system’s objectives will be met.  The design of a control system must reflectthe fact that there are resource constraints, and the benefits of controls mustbe considered relative to their costs. Further, because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that misstatements due toerror or fraud will not occur or that all control issues and instances offraud, if any, within our company have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Controls can also be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of the 

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controls.  Thedesign of any system of controls is based in part on certain assumptions aboutthe likelihood of future events, and there can be no assurance that any designwill succeed in achieving its stated goals under all potential futureconditions.  Projections of anyevaluation of controls effectiveness to future periods are subject torisks.  Over time, controls may becomeinadequate because of changes in conditions or deterioration in the degree ofcompliance with policies or procedures.

**PART IIOTHER INFORMATION**

**Item 1.**                          LegalProceedings

We are involved in various claims and legal actionsarising in the ordinary course of business, including proceedings involvingproduct liability claims, worker’s compensation and other employee claims, andtort and other general liability claims, for which we carry insurance, as wellas trademark, copyright, patent infringement and related claims and legalactions.  In the opinion of ourmanagement, the ultimate disposition of these matters will not have a materialadverse effect on our consolidated financial position, results of operations orliquidity.

**Item 1A.**                 Risk Factors

We do not believe there have been any material changesin our risk factors as previously disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2005 filed with the Securities and ExchangeCommission on March 7, 2006.

**Item 2.**                          UnregisteredSales of Equity Securities and Use of Proceeds

Not applicable.

**Item 3.**                          DefaultsUpon Senior Securities

Not applicable.

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** **

**Item 4.**                          Submissionof Matters to a Vote of Security Holders

Our annual meeting of stockholders was held on May 9,2006.  At the annual meeting, ourstockholders considered and voted upon the election of six Class A directorsand one Class B director to serve until the next annual meeting of stockholdersand until their successors have been elected and qualified.  All seven of the nominees for the board ofdirectors were elected by the following vote:
| **Class A Director Nominee** | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|---------------------------------------------|------------|------------|------------|--------------|------------|
| David L. Wenner                             |       | 24,890,311 |       | 90,813       |       |
|                                        |       |       |       |         |       |
| Robert C.  Cantwell                         |       | 24,889,988 |       | 91,136       |       |
|                                        |       |       |       |         |       |
| James R.  Chambers                          |       | 24,877,057 |       | 104,067      |       |
|                                        |       |       |       |         |       |
| Cynthia T.  Jamison                         |       | 24,872,139 |       | 108,985      |       |
|                                        |       |       |       |         |       |
| Dennis Mullen                               |       | 24,882,619 |       | 98,505       |       |
|                                        |       |       |       |         |       |
| Alfred Poe                                  |       | 24,871,802 |       | 109,322      |       |

 

 
| **Class B Director Nominee** | ** ** | **For**   | ** ** | **Withheld** | ** ** |
|---------------------------------------------|------------|-----------|------------|--------------|------------|
|                                        |       |      |       |         |       |
| Steven C. Sherrill                          |       | 5,537,212 |       | —       |       |

** **

**Item 5.**                          Other Information

Not applicable.

**Item 6.**                          Exhibits
| EXHIBIT   NO. | ** ** | **DESCRIPTION**                                                                                                                                                                                                                    |
|---------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |       |                                                                                                                                                                                                                               |
| 10.1          |       | Fourth Amendment, dated as of May 19, 2006, to  Revolving Credit Agreement, among B&G Foods, Inc., as Borrower,  Lehman Commercial Paper, Inc., as Administrative Agent, and the Lenders  parties thereto. |
| 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.                                                                          |
| 32.2          |       | 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 Financial Officer.                                                                          |

 

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** **

**SIGNATURE**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
| Dated: August 3, 2006 |   | B&G FOODS, INC. |
|-----------------------|--------|---------------------|
|                  |   |                |
|                  |   | By:                 | /s/ Robert C. Cantwell |
|                  |   |                | Robert C. Cantwell   Executive Vice President and Chief Financial   Officer (Principal Financial and Accounting   Officer and Authorized Officer) |

 

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INDEX TO EXHIBITS
| EXHIBIT 

**NO.** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                    |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |       |                                                                                                                                                                                                                               |
| 10.1              |       | Fourth Amendment, dated as of May 19, 2006, to  Revolving Credit Agreement, among B&G Foods, Inc., as Borrower,  Lehman Commercial Paper, Inc., as Administrative Agent, and the Lenders  parties thereto. |
| 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.                                                                          |
| 32.2              |       | 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 Financial Officer.                                                                          |

 

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