Table ofContents

** **

**Asfiled with the Securities and Exchange Commission on April 27, 2010**

 

 

**** ****

****UNITED STATES****

****SECURITIES AND EXCHANGE COMMISSION****

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

 

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

** **

**(Markone)**

**x****     ****Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934**

 

**For the quarterly period ended April 3,2010**

** **

**or**

 

**o****        ****Transition Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934****        **

 

**For the transition period from                  to                  .**

 

**Commission file number 001-32316**

 

****B&G FOODS, INC.****

(Exact name of Registrant asspecified 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 telephonenumber, including area code:  ****(973) 401-6500****

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o  No o

 

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

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  Nox

 

As of April 27, 2010, the registrant had47,618,660 shares of Class A common stock, par value $0.01 per share,issued and outstanding; and no shares of Class B common stock, par value$0.01 per share, issued or outstanding.

 

 

 

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Table of Contents

 

B&GFoods, Inc. and Subsidiaries

Index

 
| ** **                                                                                          | **Page No.**                          |
|-----------------------------------------------------------------------------------------------------|--------------------------------------------|
|                                                                                                |                                       |
| PART I  FINANCIAL INFORMATION                                                                  | 1                                          |
|                                                                                                |                                       |   |
| Item  1.                                                                                            | Financial Statements  (Unaudited)          | 1 |
|                                                                                                |                                       |   |
|                                                                                                | Consolidated  Balance Sheets               | 1 |
|                                                                                                |                                       |   |
|                                                                                                | Consolidated  Statements of Operations     | 2 |
|                                                                                                |                                       |   |
|                                                                                                | Consolidated  Statements of Cash Flows     | 3 |
|                                                                                                |                                       |   |
|                                                                                                | Notes to Consolidated Financial Statements | 4 |
|                                                                                                |                                       |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 17                                         |
|                                                                                                |                                       |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 30                                         |
|                                                                                                |                                       |
| Item 4. Controls and Procedures                                                                     | 31                                         |
|                                                                                                |                                       |
| PART II OTHER INFORMATION                                                                      | 32                                         |
|                                                                                                |                                       |
| Item  1. Legal Proceedings                                                                          | 32                                         |
|                                                                                                |                                       |
| Item  1A. Risk Factors                                                                              | 32                                         |
|                                                                                                |                                       |
| Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 32                                         |
|                                                                                                |                                       |
| Item 3. Defaults Upon Senior Securities                                                             | 32                                         |
|                                                                                                |                                       |
| Item 4. Reserved                                                                                    | 32                                         |
|                                                                                                |                                       |
| Item  5. Other Information                                                                          | 32                                         |
|                                                                                                |                                       |
| Item 6. Exhibits                                                                                    | 32                                         |
|                                                                                                |                                       |
| SIGNATURE                                                                                           | 33                                         |

 

i

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**Table of Contents**

** **

**PART I**

**FINANCIAL INFORMATION**

** **

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

** **

**B&G Foods, Inc. and Subsidiaries**

**Consolidated Balance Sheets**

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

**(Unaudited)**

** **
| ** **                                                                                                                                                                                        | ** ** | **April 3, 2010** | ** ** | **January 2, 2010** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|
| **Assets**                                                                                                                                                                                        |       |                   |       |                     |       |
| ** **                                                                                                                                                                                        |       |                   |       |                     |       |
| Current  assets:                                                                                                                                                                                  |       |                   |       |                     |       |
| Cash  and cash equivalents                                                                                                                                                                        |       | $                      | 69,358     |                     | $          | 39,930 |   |
| Trade  accounts receivable, less allowance for doubtful accounts and discounts of  $584 in 2010 and $631 in 2009                                                                                  |       | 30,495                 |       | 34,488                   |       |
| Inventories                                                                                                                                                                                       |       | 88,765                 |       | 86,134                   |       |
| Prepaid  expenses                                                                                                                                                                                 |       | 1,530                  |       | 2,523                    |       |
| Income  tax receivable                                                                                                                                                                            |       | 2,347                  |       | 864                      |       |
| Deferred  income taxes                                                                                                                                                                            |       | 1,671                  |       | 1,981                    |       |
| Total  current assets                                                                                                                                                                             |       | 194,166                |       | 165,920                  |       |
|                                                                                                                                                                                              |       |                   |       |                     |       |
| Property,  plant and equipment, net of accumulated depreciation of $74,320 and $72,217                                                                                                            |       | 53,748                 |       | 53,598                   |       |
| Goodwill                                                                                                                                                                                          |       | 253,353                |       | 253,353                  |       |
| Trademarks                                                                                                                                                                                        |       | 227,220                |       | 227,220                  |       |
| Customer  relationship intangibles, net                                                                                                                                                           |       | 108,255                |       | 109,868                  |       |
| Net  deferred debt financing costs and other assets                                                                                                                                               |       | 10,237                 |       | 6,935                    |       |
| Total  assets                                                                                                                                                                                     |       | $                      | 846,979    |                     | $          | 816,894 |   |
|                                                                                                                                                                                              |       |                   |       |                     |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                    |       |                   |       |                     |       |
|                                                                                                                                                                                              |       |                   |       |                     |       |
| Current  liabilities:                                                                                                                                                                             |       |                   |       |                     |       |
| Trade  accounts payable                                                                                                                                                                           |       | $                      | 25,462     |                     | $          | 22,574 |   |
| Accrued  expenses                                                                                                                                                                                 |       | 14,980                 |       | 18,326                   |       |
| Dividends  payable                                                                                                                                                                                |       | 8,095                  |       | 8,052                    |       |
| Total  current liabilities                                                                                                                                                                        |       | 48,537                 |       | 48,952                   |       |
|                                                                                                                                                                                              |       |                   |       |                     |       |
| Long-term  debt                                                                                                                                                                                   |       | 477,508                |       | 439,541                  |       |
| Other  liabilities                                                                                                                                                                                |       | 18,745                 |       | 19,265                   |       |
| Deferred  income taxes                                                                                                                                                                            |       | 84,691                 |       | 83,528                   |       |
| Total  liabilities                                                                                                                                                                                |       | 629,481                |       | 591,286                  |       |
| Commitments  and contingencies (Note 10)                                                                                                                                                          |       |                   |       |                     |       |
| 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;  47,618,660 and 47,367,292 shares issued and outstanding as of April 3,  2010 and January 2, 2010 |       | 476                    |       | 474                      |       |
| Class B  common stock, $0.01 par value per share. Authorized 25,000,000 shares; no  shares issued or outstanding                                                                             |       | —                 |       | —                   |       |
| Additional  paid-in capital                                                                                                                                                                       |       | 222,785                |       | 231,549                  |       |
| Accumulated  other comprehensive loss                                                                                                                                                             |       | (9,051                 | )          | (9,377                   | )          |
| Retained  earnings                                                                                                                                                                                |       | 3,288                  |       | 2,962                    |       |
| Total  stockholders’ equity                                                                                                                                                                  |       | 217,498                |       | 225,608                  |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                  |       | $                      | 846,979    |                     | $          | 816,894 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

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Table ofContents

 

**B&G Foods, Inc. and Subsidiaries**

**Consolidated Statements of Operations**

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

**(Unaudited)**

** **
| ** **                                        | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|
| ** **                                        | ** ** | **April 3, 2010**   | ** ** | **April 4, 2009** | ** ** |
|                                              |       |                     |       |   |   |
| Net  sales                                        |       | $                        | 125,182    |   | $ | 118,638 |   |
| Cost  of goods sold                               |       | 83,154                   |       | 79,889 |   |
| Gross  profit                                     |       | 42,028                   |       | 38,749 |   |
|                                              |       |                     |       |   |   |
| Operating  expenses:                              |       |                     |       |   |   |
| Sales,  marketing and distribution expenses       |       | 11,507                   |       | 10,987 |   |
| General  and administrative expenses              |       | 2,545                    |       | 2,339 |   |
| Amortization  expense—customer relationships |       | 1,613                    |       | 1,613 |   |
| Operating  income                                 |       | 26,363                   |       | 23,810 |   |
|                                              |       |                     |       |   |   |
| Other  expenses:                                  |       |                     |       |   |   |
| Interest expense, net                             |       | 10,622                   |       | 14,289 |   |
| Loss on extinguishment of debt                    |       | 15,224                   |       | — |   |
| Income  before income tax expense                 |       | 517                      |       | 9,521 |   |
| Income tax expense                                |       | 191                      |       | 3,608 |   |
| Net  income                                       |       | $                        | 326        |   | $ | 5,913 |   |
|                                              |       |                     |       |   |   |
| Basic  weighted average shares outstanding:       |       | 47,434                   |       | 36,197 |   |
| Class A  common stock                        |       |                     |       |   |   |
| Diluted  weighted average shares outstanding:     |       | 47,728                   |       | 36,197 |   |
| Class A  common stock                        |       |                     |       |   |   |
|                                              |       |                     |       |   |   |
| Basic  and diluted earnings per share:            |       |                     |       |   |   |
| Class A  common stock                        |       | $                        | 0.01       |   | $ | 0.16 |   |
|                                              |       |                     |       |   |   |
| Cash  dividends declared per share:               |       |                     |       |   |   |
| Class A  common stock                        |       | $                        | 0.17       |   | $ | 0.17 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

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**B&GFoods, Inc. and Subsidiaries**

**ConsolidatedStatements of Cash Flows**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                               | ** ** | **Thirteen Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                               | ** ** | **April 3, 2010**   | ** ** | **April 4, 2009** | ** ** |
| ** **                                                                                               |       |                     | ** ** | ** ** | ** ** |
| **Cash flows from operating  activities:**                                                               |       |                     |       |   |   |
| Net income                                                                                               |       | $                        | 326        |   | $ | 5,913 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:                       |       |                     |       |   |   |
| Depreciation and amortization                                                                            |       | 3,659                    |       | 3,560 |   |
| Amortization of deferred debt financing costs and  bond discount                                         |       | 515                      |       | 792 |   |
| Deferred income taxes                                                                                    |       | 107                      |       | 2,834 |   |
| Loss on extinguishment of debt                                                                           |       | 15,224                   |       | — |   |
| Share-based compensation expense                                                                         |       | 463                      |       | 747 |   |
| Excess tax benefits from share-based compensation                                                        |       | (330                     | )          | — |   |
| Unrealized loss on interest rate swap                                                                    |       | 303                      |       | 743 |   |
| Reclassification to net interest expense for  interest rate swap                                         |       | 423                      |       | 422 |   |
| Changes in assets and liabilities:                                                                       |       |                     |       |   |   |
| Trade accounts receivable                                                                                |       | 3,993                    |       | 4,584 |   |
| Inventories                                                                                              |       | (2,631                   | )          | (4,984 | ) |
| Prepaid expenses                                                                                         |       | 993                      |       | 152 |   |
| Income tax receivable                                                                                    |       | 7                        |       | 783 |   |
| Other assets                                                                                             |       | (17                      | )          | (219 | ) |
| Trade accounts payable                                                                                   |       | 2,888                    |       | (1,512 | ) |
| Accrued expenses                                                                                         |       | (3,346                   | )          | (3,760 | ) |
| Other liabilities                                                                                        |       | (701                     | )          | 571 |   |
| Net cash provided by operating activities                                                                |       | 21,876                   |       | 10,626 |   |
|                                                                                                     |       |                     |       |   |   |
| **Cash flows from investing  activities:**                                                               |       |                     |       |   |   |
| Capital expenditures                                                                                     |       | (2,164                   | )          | (2,443 | ) |
| Net cash used in investing activities                                                                    |       | (2,164                   | )          | (2,443 | ) |
|                                                                                                     |       |                     |       |   |   |
| **Cash flows from financing  activities:**                                                               |       |                     |       |   |   |
| Payments of long-term debt                                                                               |       | (320,259                 | )          | — |   |
| Proceeds from issuance of long-term debt                                                                 |       | 347,448                  |       | — |   |
| Dividends paid                                                                                           |       | (8,052                   | )          | (6,162 | ) |
| Excess tax benefits from share-based compensation                                                        |       | 330                      |       | — |   |
| Payments of tax withholding on behalf of employees  for net share settlement of share-based compensation |       | (1,460                   | )          | — |   |
| Payments for repurchase of Class A common  stock                                                    |       | —                   |       | (975 | ) |
| Payments of debt financing costs                                                                         |       | (8,246                   | )          | — |   |
| Net cash provided by (used in) financing activities                                                      |       | 9,761                    |       | (7,137 | ) |
|                                                                                                     |       |                     |       |   |   |
| Effect of exchange rate fluctuations on cash and  cash equivalents                                       |       | (45                      | )          | (107 | ) |
| Net increase in cash and cash equivalents                                                                |       | 29,428                   |       | 939 |   |
|                                                                                                     |       |                     |       |   |   |
| Cash and cash equivalents at beginning of period                                                         |       | 39,930                   |       | 32,559 |   |
| Cash and cash equivalents at end of period                                                               |       | $                        | 69,358     |   | $ | 33,498 |   |
| ** **                                                                                               |       |                     |       |   |   |
| **Supplemental disclosures of cash  flow information:**                                                  |       |                     |       |   |   |
| Cash interest payments                                                                                   |       | $                        | 10,676     |   | $ | 17,130 |   |
| Cash income tax payments                                                                                 |       | $                        | 81         |   | $ | 17 |   |
| Cash income tax refunds                                                                                  |       | $                        | (2         | ) | $ | (24 | ) |
| Non-cash transactions:                                                                                   |       |                     |       |   |   |
| Dividends declared and not yet paid                                                                      |       | $                        | 8,095      |   | $ | 6,126 |   |

 

See Notes to Consolidated Financial Statements.

 

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**B&GFoods, Inc. and Subsidiaries**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

 

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

** **

B&GFoods, Inc. is a holding company, the principal assets of which are thecapital stock of its subsidiaries. Unless the context requires otherwise, references in this report to “B&GFoods,” “our company,” “we,” “us” and “our” refer to B&G Foods, Inc.and its subsidiaries.  We operate in oneindustry segment and manufacture, sell and distribute a diverse portfolio ofhigh-quality shelf-stable foods across the United States, Canada and PuertoRico.  Our products include hot cereals,fruit spreads, canned meats and beans, spices, seasonings, marinades, hotsauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-stylesauces, taco shells and kits, salsas, pickles, peppers and other specialty foodproducts.  We compete in the retailgrocery, food service, specialty, private label, club and mass merchandiserchannels of distribution.  We distributeour products throughout the United States via a nationwide network ofindependent brokers and distributors to supermarket chains, food serviceoutlets, mass merchants, warehouse clubs, non-food outlets and specialty fooddistributors.

 

**(2)****          ****Summary of Significant AccountingPolicies**

** **

***Fiscal Year***

 

Ourfinancial statements are presented on a consolidated basis.  Typically, our fiscal quarters and fiscalyear consist of 13 and 52 weeks, respectively, ending on the Saturday closestto December 31 in the case of our fiscal year and fourth fiscal quarter,and on the Saturday closest to the end of the corresponding calendar quarter inthe case of our fiscal quarters.  As aresult, a 53rd week is added to our fiscal year every five or six years.  In a 53-week fiscal year our fourth fiscalquarter contains 14 weeks.  Our fiscalyears ending January 1, 2011 (fiscal 2010) and January 2, 2010(fiscal 2009) each contain 52 weeks. Each quarter of fiscal 2010 and 2009 contains 13 weeks.

 

***Basis of Presentation***

 

The accompanyingconsolidated interim financial statements for the thirteen week periods ended April 3,2010 (first quarter of 2010) and April 4, 2009 (first quarter of 2009)have been prepared by our company in accordance with accounting principlesgenerally accepted in the United States of America without audit, pursuant tothe rules and regulations of the Securities and Exchange Commission (SEC),and include theaccounts of B&G Foods, Inc. and its subsidiaries.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been omitted pursuant to such rules andregulations.  However, our managementbelieves, to the best of their knowledge, that the disclosures herein areadequate to make the information presented not misleading.  All intercompany balances andtransactions have been eliminated.  Theaccompanying unaudited consolidated interim financial statements contain alladjustments (consisting only of normal and recurring adjustments) that are, inthe opinion of management, necessary to present fairly our consolidatedfinancial position as of April 3, 2010, the results of our operations andcash flows for the first quarter of 2010 and 2009.  Our results of operations for the firstquarter of 2010 are not necessarily indicative of the results to be expectedfor the full year.  We have evaluatedsubsequent events for disclosure through the date of issuance of theaccompanying unaudited consolidated interim financial statements.  The accompanying unaudited consolidatedfinancial statements should be read in conjunction with the auditedconsolidated financial statements and notes for fiscal 2009 included in ourAnnual Report on Form 10-K for fiscal 2009 filed with the SEC on March 1,2010.

 

***Use of Estimates***

 

The preparation offinancial statements in accordance with U.S. generally accepted accountingprinciples requires our management to make a number of estimates andassumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Some of

 

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**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(2)**           Summary of SignificantAccounting Policies (Continued)

** **

themore significant estimates and assumptions made by management involve trade andconsumer promotion expenses; allowances for excess, obsolete and unsaleableinventories; pension benefits; purchase accounting allocations; therecoverability of goodwill, trademarks, customer relationship intangibles,property, plant and equipment and deferred tax assets; and the accounting for share-basedcompensation expense.  Actual resultscould differ significantly from these estimates and assumptions.

 

Management evaluates itsestimates and assumptions on an ongoing basis using historical experience andother factors, including the current economic environment, that managementbelieve to be reasonable under the circumstances.  We adjust such estimates and assumptions whenfacts and circumstances dictate.  Recentvolatility in the credit, equity and foreign currency markets has increased theuncertainty inherent in such estimates and assumptions.

 

***Recently Issued Accounting Standards***

 

In September 2006, newauthoritative accounting literature established a single definition of fairvalue, which establishes a framework for measuring fair value and expandsdisclosures about fair value measurements. This standard was effective as of the beginning of our fiscal 2008, withthe exception of certain provisions deferred until the beginning of our fiscal2009.  In February 2008, theeffective date of the standard for all non-financial assets and liabilities,except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis, was delayed until the beginning of our fiscal2009.  We adopted the standard effectiveat the beginning of our fiscal 2008 for financial assets and financialliabilities, which did not have a material impact on our results of operationsor financial position.  We adopted thestandard effective at the beginning of our fiscal 2009 for non-financial assetsand non-financial liabilities, which did not have a material impact on ourresults of operations or financial position.  In January 2010, the standard was amended to require additionaldisclosures related to transfers between levels in the hierarchy of fair valuemeasurement.  We adopted the amendmenteffective as of the beginning of our fiscal 2010. The amendment does not changehow fair values are measured. Accordingly, the amendment has not had an impact on our results ofoperations or financial position.

 

In December 2007, newauthoritative accounting literature was issued relating to businesscombinations and noncontrolling interests in consolidated financialstatements.  The standard relating tobusiness combinations requires an acquirer to measure the identifiable assetsacquired, the liabilities assumed and any noncontrolling interest in theacquiree at their fair values on the acquisition date, with goodwill being theexcess value over the net identifiable assets acquired.  The noncontrolling interest standard clarifiesthat a noncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements.  These standardswere effective as of the beginning of our fiscal 2009.  The business combinations standard**will be applied prospectively, and any effects will dependon future acquisitions.  The standardrelating to noncontrolling interests in consolidated financial statementsrequires retroactive adoption.  Wecurrently do not have any noncontrolling interests in subsidiaries.

 

In December 2008, newauthoritative accounting literature was issued relating to an employer’sdisclosure about postretirement benefit plan assets.  The standard requires additional disclosuresabout plan assets for defined benefit pension and other postretirement benefitplans.  We adopted the standard effectiveas of the end of our fiscal 2009.  Sincethis requires enhanced disclosures, without a change to existing standardsrelative to measurement and recognition, our adoption of the standard did nothave a material impact on our results of operations or financial position.  See Note 9 for the required disclosures aboutour defined benefit plan assets.

 

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**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

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

 

Inventoriesare stated at the lower of cost or market and include direct material, directlabor, overhead, warehousing and product transfer costs.  Cost is determined using the first-in,first-out and average cost methods. Inventories have been reduced by an allowance for excess, obsolete andunsaleable inventories.  The allowance isan estimate based on our management’s review of inventories on hand compared toestimated future usage and sales.

 

Inventoriesconsist of the following, as of the dates indicated (dollars in thousands):

 
| ** **                  | ** ** | **April 3, 2010** | ** ** | **January 2, 2010** | ** ** |
|-----------------------------|------------|------------------------|------------|--------------------------|------------|
| Raw materials and packaging |       | $                      | 29,416     |                     | $          | 32,793 |   |
| Work in process             |       | 587                    |       | 1,239                    |       |
| Finished goods              |       | 58,762                 |       | 52,102                   |       |
|                        |       |                   |       |                     |       |
| Total                       |       | $                      | 88,765     |                     | $          | 86,134 |   |

 

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

** **

There has been no changein the carrying amount of goodwill or trademarks (indefinite-lived intangibles)during the first quarter of 2010.

 

The following tablereconciles the changes in the carrying amount of customer relationshipintangibles for the first quarter of 2010 (dollars in thousands):

 
| ** **                      | ** ** | **Customer   Relationship   Intangibles** | ** ** | **Less:   Accumulated   Amortization** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|----------------------------------------|------------|-----------|------------|
| Balance at January 2, 2010 |       | $                                         | 129,000    |                                   | $          | (19,132   | )          | $ | 109,868 |   |
| Amortization expense            |       | —                                    |       | (1,613                                 | )          | (1,613    | )          |
| Balance at April 3, 2010   |       | $                                         | 129,000    |                                   | $          | (20,745   | )          | $ | 108,255 |   |

 

Customer relationshipintangibles are presented at cost, net of accumulated amortization, and areamortized on a straight-line basis over their estimated useful lives of 20years.  Amortization expense associatedwith customer relationship intangibles for each of the first quarter of 2010 and2009 was $1.6 million, and is recorded in operating expenses.  We expect to recognize an additional $4.9million of amortization expense associated with our current customerrelationship intangibles during the remainder of fiscal 2010, and thereafter$6.5 million per year for each of the next four succeeding fiscal years.

 

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

 

Long-termdebt consists of the following, as of the dates indicated (dollars inthousands):

 
| ** **                                                                                 | ** ** | **April 3, 2010** | ** ** | **January 2, 2010** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|
| Senior secured credit facility:                                                            |       |                   |       |                     |       |
| Revolving credit facility                                                                  |       | $                      | —     |                     | $          | — |   |
| Term loan                                                                                  |       | 130,000                |       | 130,000                  |       |
| 7.625% Senior Notes due 2018, net of unamortized  discount of $2,492 at April 3, 2010 |       | 347,508                |       | —                   |       |
| 12% Senior Subordinated Notes due 2016                                                     |       | —                 |       | 69,541                   |       |
| 8% Senior Notes due 2011                                                                   |       | —                 |       | 240,000                  |       |
| Total long-term debt                                                                       |       | $                      | 477,508    |                     | $          | 439,541 |   |

 

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**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

** **

As of April 3, 2010,the aggregate contractual maturities of long-term debt are as follows (dollarsin thousands):

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

 

*Senior Secured Credit Facility*.  Asamended, our $25.0 million revolving credit facility and our $130.0 million ofterm loan borrowings mature in February 2013.  The following discussion of the creditfacility describes the credit facility as amended through the date of issuanceof the accompanying unaudited consolidated financial statements.

 

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

 

Our obligations under thecredit facility are jointly and severally and fully and unconditionallyguaranteed on a senior basis by all of our existing and certain future domesticsubsidiaries.  The credit facility issecured by substantially all of our and our domestic subsidiaries’ assetsexcept our and our domestic subsidiaries’ real property.  The credit facility provides for mandatoryprepayment upon certain asset dispositions and issuances of securities, 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.  As of April 3, 2010, we were incompliance with all of the covenants in the credit facility.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same line of business as our company,subject to specified criteria.  Themaximum letter of credit capacity under the revolving credit facility is $10.0million, with a fronting fee of 3.0% per annum for all outstanding letters ofcredit.

 

At April 3, 2010, theavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit of $0.5 million, was $24.5 million.  We have not drawn upon the revolving creditfacility since its inception in October 2004 and, based upon our cash onhand and working capital requirements, we have no plans to do so for theforeseeable future.

 

7

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Table of Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

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

 

We initially designated theswap as a cash flow hedge.  Prior toLehman’s bankruptcy filing, we recorded changes in the fair value of the swapin accumulated other comprehensive loss, net of tax in our consolidated balancesheet.  However, as a result of theLehman bankruptcy filing, we determined in September 2008 that theinterest rate swap was no longer an effective hedge for accountingpurposes.  Accordingly, subsequent tothat determination, we record changes in the swap’s fair value in currentearnings in net interest expense in our consolidated statements ofoperations.  We obtain third-partyverification of fair value at the end of each reporting period.  As of April 3, 2010, the fair value ofour interest rate swap was an unrealized loss of $11.9 million and is recordedin other liabilities on our consolidated balance sheet.  The amount recorded in accumulated othercomprehensive loss will be reclassified to net interest expense over theremaining life of the term loan borrowings as we make interest payments.  Net interest expense in the first quarter of2010 includes a $0.3 million charge relating to the unrealized loss on ourinterest rate swap and a reclassification of $0.4 million of the amountrecorded in accumulated other comprehensive loss related to the swap.  Net interest in the first quarter of 2010also includes a reduction in interest income primarily due to lower interestrates.  During the remainder of fiscal2010, we expect to reclassify to net interest expense $1.3 million of theamount recorded in accumulated other comprehensive loss.

 

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

 

On or after January 15,2014, we may redeem some or all of the senior notes at a redemption price of103.813% beginning January 15, 2014 and thereafter at prices decliningannually to 100% on or after January 15, 2017.  We may redeem up to 35% of the aggregateprincipal amount of the notes prior to January 15, 2013 with the netproceeds from certain equity offerings. We may also redeem some or all of the notes at any time prior to January 15,2014 at a redemption price equal to a specified make-whole amount.  In addition, if we undergo a change ofcontrol, we may be required to offer to repurchase the notes at the repurchaseprice of 101% plus accrued and unpaid interest to the date of redemption.

 

We may also, from time totime, seek to retire senior notes through cash repurchases of senior notesand/or exchanges of senior notes for equity securities, in open marketpurchases, privately negotiated transactions or otherwise.  Such repurchases or exchanges, if any, willdepend on prevailing market conditions, our liquidity requirements, contractualrestrictions and other factors.  The amountsinvolved may be material.

 

Our obligations under thesenior notes are jointly and severally and fully and unconditionally guaranteedon a senior basis by all of our existing and certain future domesticsubsidiaries.  The senior notes and the subsidiaryguarantees are our and the guarantors’ general unsecured obligations and areeffectively junior in right of payment to all of our and the guarantors’secured indebtedness and to the indebtedness and other liabilities of ournon-guarantor subsidiaries; are *pari passu* inright of payment to all of our and the 

 

8

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Tableof Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

guarantors’ existing andfuture unsecured senior debt; and are senior in right of payment to all of ourand the guarantors’ future subordinated debt. Our foreign subsidiary is not a guarantor, and any future foreign orpartially owned domestic subsidiaries will not be guarantors, of our seniornotes.

 

Our senior notes indenturecontains covenants with respect to us and the guarantors and restricts theincurrence of additional indebtedness and the issuance of capital stock; thepayment of dividends or distributions on, and redemption of, capital stock; anumber of other restricted payments, including certain investments; specifiedcreation of liens, certain sale-leaseback transactions and sale of certainspecified assets; fundamental changes, including consolidation, mergers andtransfers of all or substantially all of our assets; and specified transactionswith affiliates.  Each of the covenantsis subject to a number of important exceptions and qualifications.  As of April 3, 2010, we were incompliance with all of the covenants in the senior notes indenture.

 

*12% Senior Subordinated Notes due2016*.  In January 2010, we repurchased $44.7million aggregate principal amount of the senior subordinated notes with aportion of the proceeds of our public offering of 7.625% senior notes due 2018at a repurchase price of 106.5% of such principal amount plus accrued andunpaid interest, and set aside sufficient proceeds of the offering to repurchaseor redeem the remaining senior subordinated notes.  In February 2010, we repurchased orredeemed the remaining $24.8 million aggregate principal amount of the seniorsubordinated notes at a price equal to 106.0% of such principal amount, plusaccrued and unpaid interest.

 

*8 % Senior Notes due 2011. *In January 2010, we repurchased $238.9 million aggregate principalamount of the 8% senior notes with a portion of the proceeds of our publicoffering of 7.625% senior notes due 2018 at a repurchase price of 102.375% ofsuch principal amount plus accrued and unpaid interest, and set asidesufficient proceeds of the offering to repurchase or redeem the remaining 8%senior notes.  In February 2010, werepurchased or redeemed the remaining $1.1 million aggregate principal amountof the 8% senior notes at a price equal to 102.0% of such principal amount,plus accrued and unpaid interest.

 

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

 

*DeferredDebt Financing Costs*.  In connection with theissuance of our 7.625% senior notes in January 2010, we capitalizedapproximately $8.2 million of debt financing costs during the first quarter of2010, which will be amortized over the term of the senior notes.  During the first quarter of 2010, we wrote-off andexpensed $4.5 million of deferred debt financing costs relating to theretirement during the quarter of our remaining $69.5 million principal amountof 12% senior subordinated notes and $240.0 million principal amount of 8%senior notes.  As of April 3, 2010and January 2, 2010 we had net deferred debt financing costs of $9.9million and $6.7 million, respectively.

 

In connection with the retirement of our remaining8% senior notes and 12% senior subordinated notes, we incurred a loss onextinguishment of debt of approximately $15.2 million during the first quarterof fiscal 2010, including the repurchase premium and other expenses of $10.7million and a write-off and expense of $4.5 million of deferred debt financingcosts.

 

9

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Table of Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

At April 3,2010 and January 2, 2010 accrued interest of $6.0 million and $7.3million, respectively, is included in accrued expenses in the accompanyingconsolidated balance sheets.

 

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

** **

Theauthoritative accounting literature relating to fair value measurements definesfair value as the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants atthe measurement date (an exit price). The standard outlines a valuationframework and creates a fair value hierarchy in order to increase theconsistency and comparability of fair value measurements and the relateddisclosures. Under generally accepted accounting principles, certain assets andliabilities must be measured at fair value, and the standard details thedisclosures that are required for items measured at fair value.

 

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

 

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

 

Level 2—Inputs, otherthan quoted market prices included within Level 1, that are observable for theasset or liability, either directly or indirectly.  We use a discounted cash flow analysis of theimplied yield curves to value our interest rate swaps. We also consider ourcredit risk and counterparty credit risk in estimating the fair value of ourfinancial instruments. While these inputs are observable, they are not allquoted market prices, so the fair values of our interest rate swap fall inLevel 2.

 

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

 

In accordance with the fair valuehierarchy described above, the following table shows the fair value of ourinterest rate swap as of April 3, 2010 and January 2, 2010, which isincluded in other liabilities in our consolidated balance sheet (dollars inthousands):

 
| ** **           | ** ** | ** **          | ** ** | **Fair Value Measurements** | ** ** |
|----------------------|------------|---------------------|------------|-----------------------------|------------|
| ** **           | ** ** | **Description**     | ** ** | **Level 1**                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| April 3, 2010   |       | Interest  rate swap |       | $                           | —     |   | $ | 11,879 |   | $ | — |   |
| January 2, 2010 |       | Interest  rate swap |       | $                           | —     |   | $ | 11,576 |   | $ | — |   |

 

Cashand cash equivalents, trade accounts receivable, income tax receivable, tradeaccounts payable, accrued expenses and dividends payable are reflected in theconsolidated balance sheets at carrying value, which approximates fair valuedue to the short-term nature of these instruments.

 

The carrying values and fairvalues of our term loan borrowings, senior notes and senior subordinated notesas of April 3, 2010 and January 2, 2010 are as follows (dollars inthousands):

 
| ** **                             | ** ** | **April 3, 2010** | ** ** | **January 2, 2010** | ** ** |
|----------------------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | **Carrying Value**     | ** ** | **Fair Value(1)**        | ** ** | **Carrying Value** | ** ** | **Fair Value(1)** | ** ** |
| Senior Secured Term Loan due 2013      |       | $                      | 130,000    |                     | $          | 130,000 |   | $ | 130,000 |   | $ | 127,400 |   |
| 8% Senior Notes due 2011               |       | —                 |       | —                   |       | 240,000 |   | 243,000 |   |
| 7.625% Senior Notes due 2018           |       | 347,508                |       | 356,125                  |       | — |   | — |   |
| 12% Senior Subordinated Notes due 2016 |       | —                 |       | —                   |       | 69,541 |   | 69,172 |   |
|                                        |            |                        |            |                          |            |  |  |  |  |  |  |  |  |

 

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Table of Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

** **

----

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

 

Ourterm loan borrowings are subject to an interest rate swap discussed in Notes 5and 7.

 

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

** **

Werecognize all derivative instruments either as an asset or a liability in thebalance sheet and measure such instruments at fair value.  We do not engage in derivative instrumentsfor trading purposes.

 

Thefollowing table presents the fair value and the location within ourconsolidated balance sheet of all assets and liabilities associated withderivative instruments not designated as hedging instruments for accountingpurposes (dollars in thousands):

 
| **Derivatives  not**                     | ** ** | ** **                  | ** ** | **Asset  Derivatives**                | ** ** | **Liability  Derivatives**            | ** ** | **Asset  Derivatives**                  | ** ** | **Liability  Derivatives**              | ** ** |
|------------------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| **designated  as hedging   instruments** | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value at  April 3, 2010** | ** ** | **Fair Value at  April 3, 2010** | ** ** | **Fair Value at  January 2, 2010** | ** ** | **Fair Value at  January 2, 2010** | ** ** |
|                                     |       |                        |       |                                  |       |                                  |       |                                    |       |                                    |       |
| Interest rate swap                       |       | Other  liabilities          |       | —                                |       | $                                     | 11,879     |                                    | —     |                                    | $          | 11,576 |   |
|                                          |            |                             |            |                                       |            |                                       |            |                                         |            |                                         |            |  |  |

 

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

 

Thefollowing tables present the impact of derivative instruments and theirlocation within our consolidated statement of operations (dollars inthousands):

 
| ** **                                              | ** ** | **Amount of (Gain)  Loss Recognized in  Income on  Derivatives** | ** ** | **Amount of (Gain)  Loss Recognized in  Income on  Derivatives** | ** ** | **Location of (Gain)  Loss Recognized in** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **Derivatives  not designated  as hedging instruments** | ** ** | **Thirteen Weeks  Ended April 3, 2010**                     | ** ** | **Thirteen Weeks  Ended April 4, 2009**                     | ** ** | **Income on  Derivatives**            | ** ** |
|                                                    |       |                                                             |       |                                                             |       |                                       |       |
| Interest rate swap                                      |       | $                                                                | 726        | *                                                                | $          | 1,165                                      | *          | Interest  expense, net |   |
|                                                         |            |                                                                  |            |                                                                  |            |                                            |            |  |  |

 

----

*  The amount included in net interest expense for thefirst quarters of 2010 and 2009, consist of $303 and $743 unrealized loss onour interest rate swap, and $423 and $422 (pre-tax) reclassified to netinterest expense from accumulated other comprehensive loss, respectively.

 

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Table ofContents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(8)****                                 ComprehensiveIncome**

 

Comprehensive incomeincludes net income, foreign currency translation adjustments relating toassets and liabilities located in our Canadian subsidiary, changes in ourpension benefits, net of tax and the change in the fair value of an interestrate swap during the period it was designated as an effective cash flow hedge,net of tax.  The amount recorded inaccumulated other comprehensive loss related to the swap will be reclassifiedto net interest expense over the remaining life of the term loan as we makeinterest payments.

 

The components ofcomprehensive income are as follows (dollars in thousands):

 
| ** **                                                                         | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                         | ** ** | **April 3, 2010**   | ** ** | **April 4, 2009** | ** ** |
|                                                                               |       |                     |       |   |   |
| Net income                                                                         |       | $                        | 326        |   | $ | 5,913 |   |
| Other  comprehensive income:                                                       |       |                     |       |   |   |
| Foreign  currency translation adjustments                                          |       | (13                      | )          | (114 | ) |
| Amortization  of unrecognized prior service cost and pension deferrals, net of tax |       | 76                       |       | 111 |   |
| Reclassification  to net interest expense for interest rate swap                   |       | 263                      |       | 262 |   |
| Comprehensive  income                                                              |       | $                        | 652        |   | $ | 6,172 |   |

 

**(9)****                                ****Pension Benefits**

 

Net periodic costs for the first quarter of 2010 and2009 include the following components (dollars in thousands):

 
| ** **                                          | ** ** | **Thirteen Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|
| ** **                                          | ** ** | **April 3, 2010**   | ** ** | **April 4, 2009** | ** ** |
|                                                |       |                     |       |   |   |
| Service cost—benefits earned during the period |       | $                        | 441        |   | $ | 419 |   |
| Interest  cost on projected benefit obligation      |       | 487                      |       | 431 |   |
| Expected  return on plan assets                     |       | (487                     | )          | (376 | ) |
| Amortization  of unrecognized prior service cost    |       | 11                       |       | 11 |   |
| Amortization  of loss                               |       | 111                      |       | 167 |   |
| Net  pension cost                                   |       | $                        | 563        |   | $ | 652 |   |

 

Duringthe first quarter of 2010, we made approximately $1.3 million in contributionsto our defined benefit pension plans.  Although notobligated to do so, we expect to make $1.1 million of voluntary contributionsto our defined benefit pension plans during the remainder of fiscal 2010.

 

**(10)****                         ****Commitments andContingencies**

 

*Environmental. *We are subject to environmental laws and regulationsin the normal course of business.  We didnot make any material expenditures during the first quarter of 2010 or 2009 inorder to comply with environmental laws and regulations.  Based on our experience to date, managementbelieves that the future cost of compliance with existing environmental lawsand regulations (and liability for any known environmental conditions) will nothave a material adverse effect on our consolidated financial position, resultsof operations or liquidity.  However, wecannot predict what environmental or health and safety legislation orregulations will be enacted in the future or how existing or future laws orregulations will be enforced,

 

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Table of Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(10)****                         ****Commitmentsand Contingencies (Continued)**

 

administered or interpreted, nor can we predict theamount of future expenditures that may be required in order to comply with suchenvironmental or health and safety laws or regulations or to respond to suchenvironmental claims.

 

*LegalProceedings. *We are from time to time involved invarious claims and legal actions arising in the ordinary course of business,including proceedings involving product liability claims, worker’s compensationand other employee claims, and tort and other general liability claims, as wellas trademark, copyright, patent infringement and related claims and legalactions.  In the opinion of ourmanagement, the ultimate disposition of any currently pending claims or actionswill not have a material adverse effect on our consolidated financial position,results of operations or liquidity.

 

In April 2008,the U.S. Government informed us that it was investigating SK Foods, LP, thenone of our suppliers.  The Governmentinformed us, and subsequent plea agreements confirmed, that SK Foods, togetherwith a broker acting at the direction of certain SK Foods executives, wasbribing purchasing managers at several large food companies, including, amongothers, Frito Lay, Kraft and B&G Foods. As a result of the investigation, several senior executives at SK Foodshave pleaded guilty to various criminal charges, including conspiracy to commithonest services fraud through bribery, resulting in the sale of products atinflated prices and the fraudulent labeling of such products.  In addition, the former owner and presidentof SK Foods is currently being held in prison pending trial.  As a result of SK Foods’ criminal misconductand numerous material breaches of a Co-Pack Agreement between B&G Foods andSK Foods, B&G Foods terminated the Co-Pack Agreement in April 2009.  On May 7, 2009, SK Foods filed avoluntary petition for relief under chapter 11 of the United States BankruptcyCode.   In September 2009, B&GFoods filed proofs of claim in SK Foods’ bankruptcy proceedings to preserveoffset rights against amounts owed to SK Foods or its affiliates and certainother claims against SK Foods and its affiliates for, among other things,fraud, breach of contract, indemnity, RICO and antitrust violations.  On March 24, 2010, the bankruptcytrustee in the bankruptcy proceedings involving SK Foods filed an adversaryproceeding against our company alleging, among other things, breach ofcontract, avoidance of setoff, violation of the automatic stay, goods sold anddelivered, objection to claims and equitable subordination and assertingdamages of approximately $16.0 million. We believe that the bankruptcy trustee’s allegations against B&GFoods are without merit and intend to vigorously defend against this matter, aswell as file a counterclaim.  Our currentdeadline to respond to the complaint in the adversary proceeding is May 17,2010.  As of April 3, 2010, noamounts have been accrued in our unaudited consolidated financial statements aswe believe that a loss is not probable or estimable at this time.

 

*Collective Bargaining Agreements*. Approximately 352 of our 736 employees, or 47.8%, as of April 3,2010, were covered by collective bargaining agreements.  None of our collective bargaining agreementsis scheduled to expire within one year.

 

*Severance and Change of Control Agreements. *We have employmentagreements with each of our seven executive officers.  The agreements generally continue untilterminated by the executive or by us, and provide for severance payments undercertain circumstances, including termination by us without cause (as defined)or as a result of the employees’ disability, or termination by us or a deemedtermination upon a change of control (as defined).  Severance benefits include payments forsalary continuation, continuation of health care and insurance benefits,present value of additional pension credits and, in the case of a change ofcontrol, accelerated vesting under compensation plans and potential excise taxliability and gross up payments.

 

**(11)****                         ****Earnings per Share**

** **

Wecurrently have only one class of common stock issued and outstanding,designated as Class A common stock. During the periods presented there were no shares of Class B commonstock issued or

 

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Table of Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(11)****                         ****Earningsper Share (Continued)**

 

outstanding. Basic earnings per share for the Class A common stock is calculatedby dividing net income by the weighted average number of shares of Class Acommon stock outstanding.  Dilutedearnings per share for the Class A common stock is calculated by dividingallocated net income by the weighted average number of shares of Class Acommon stock outstanding adjusted to include the effect that would haveoccurred if shares of Class A common stock issued during the first quarterof 2010 with respect to performance share awards for which performance periodshad already been completed and performance goals had been satisfied as of thebeginning of the quarter had been issued at the beginning of the quarter.  There were no potentially dilutive sharesassociated with our Class A common stock during the first quarter of 2009.

 

**(12)****                         ****Business and Credit Concentrations and Geographic Information**

 

Ourexposure to credit loss in the event of non-payment of accounts receivable bycustomers is estimated in the amount of the allowance for doubtfulaccounts.  We perform ongoing creditevaluations of our customers’ financial conditions.  Our top ten customers accounted forapproximately 50.2%****and 49.4% of consolidated net salesfor the first quarter of 2010 and 2009, respectively.  Our top ten customers accounted forapproximately 51.7% and 52.7% of our receivables as of April 3, 2010 and January 2,2010, respectively.  Other than Wal-Mart,which accounted for 17.1% and 17.3% of our consolidated net sales for the firstquarter of 2010 and 2009, respectively, no single customer accounted for morethan 10.0% of our consolidated net sales for the first quarter of 2010 or2009.  Other than Wal-Mart, whichaccounted for 14.3% of our consolidated receivables as of April 3, 2010,no single customer accounted for more than 10.0% of our consolidatedreceivables as of the end of the first quarter of 2010.  Other than Wal-Mart and C&S WholesaleGrocery, which accounted for 12.5% and 11.1% of our consolidated receivables,respectively, as of January 2, 2010, no single customer accounted for morethan 10.0% of our consolidated receivables as of the end of fiscal 2009.

 

During the first quarter of2010 and 2009, our sales to foreign countries represented less than 1.0% of netsales.  Our foreign sales are primarilyto customers in Canada.

 

**(13)****                         ****Share-Based Compensation**

 

Beginningin fiscal 2008, our compensation committee has made annual grants ofperformance share long-term incentive awards (LTIAs) to our executive officersand certain other members of senior management under the 2008 Omnibus IncentiveCompensation Plan.  The LTIAs entitle theparticipant to earn shares of Class A common stock upon the attainment ofcertain performance goals over the applicable performance period.  The LTIAs, each have a threshold, target andmaximum payout.  The awards are settledbased upon our performance over the applicable performance period.  For the LTIAs granted to date, the applicableperformance metric is and has been “excess cash” (as defined in the awardagreements).  If our performance fails tomeet the performance threshold, then the awards will not vest and no shareswill be issued pursuant to the awards. If our performance meets or exceeds the performance threshold, then avarying amount of shares from the threshold amount (50% of the target number ofshares) up to the maximum amount (300% of the target number of shares) may beearned.  No shares are earned if theperformance threshold is not met.

 

Basedon the actual results of our company for the 2008 to 2009 performance period,399,842 shares of Class A common stock were earned under the 2008 to 2009LTIAs.  During the first quarter of 2010,251,368 shares of Class A common stock were issued to participants at amarket price of $9.83 per share.  Theremaining 148,474 shares of Class A common stock were withheld to fundrequired statutory minimum withholding taxes on behalf of employees.  The excess tax benefit recorded to additionalpaid in capital as a result of the issuance of the Class A common stockwas $0.3 million.

 

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Table of Contents

 

**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(13)**                          Share-BasedCompensation (Continued)

 

Duringthe first quarter of 2010, we recognized $0.5 million of compensation expensefor performance share LTIAs, $0.3 million of which is reflected in general andadministrative expenses, $0.1 million of which is reflected in sales, marketingand distribution expenses, and $0.1 million of which is reflected in cost ofgoods sold in our consolidated statement of operations.  During the first quarter of 2009, werecognized $0.7 million of compensation expense for performance share LTIAs,$0.5 million of which is reflected in general and administrative expenses, $0.1million of which is reflected in sales, marketing and distribution expenses,and $0.1 million of which is reflected in cost of goods sold in our consolidatedstatement of operations.  As of April 3,2010, there was $4.3 million of unrecognized compensation expense related toperformance share LTIAs, which is expected to be recognized over the next 33months.

 

Thefollowing table details the activity in our performance share LTIAs for thefirst quarter of 2010:

 
| ** **                | ** ** | **Number of  Performance Shares (1)** | ** ** | **Weighted Average   Grant Date Fair   Value (per share)(2)** | ** ** |
|---------------------------|------------|---------------------------------------|------------|---------------------------------------------------------------|------------|
|                      |       |                                  |       |                                                          |       |
| Beginning of fiscal 2010  |       | 1,999,918                             |       | $                                                             | 3.99       |   |
| Granted                   |       | 513,804                               |       | $                                                             | 7.29       |   |
| Vested                    |       | (399,842                              | )          | $                                                             | 7.65       |   |
| Forfeited                 |       | (10,881                               | )          | $                                                             | 7.65       |   |
| End of first quarter 2010 |       | 2,102,999                             |       | $                                                             | 4.08       |   |

 

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(1)          Solely for purposes of thistable, the number of performance shares is based on the participants earningstheir maximum number of performance shares (i.e., 300% of the target number ofperformance shares).

 

(2)          The fair value of the awardswas determined based upon the closing price of our Class A common stock onthe applicable measurement dates (i.e., the deemed grant dates for accountingpurposes) reduced by the present value of expected dividends using therisk-free interest-rate as the award holders are not entitled to dividends ordividend equivalents during the vesting period.

 

**(14)****                         ****Stock and DebtRepurchase Program**

** **

On October 27, 2008, our board of directors authorizeda stock and debt repurchase program for the repurchase of up to $10.0 millionof our Class A common stock and/or 8% senior notes over the next twelvemonths.  On May 5, 2009, the boardof directors authorized an increase in the authorization to $25.0 million andextended the authorization through May 4, 2010.  On August 6, 2009, the board ofdirectors expanded the authorization to include repurchases of our seniorsubordinated notes and extended the authorization through August 5,2010.  Under the authorization, we maypurchase shares of Class A common stock from time to time in the openmarket or in privately negotiated transactions in compliance with theapplicable rules and regulations of the SEC.  None of the 8% senior notes or seniorsubordinated notes remains outstanding.

 

Thetiming and amount of repurchases of our Class A common stock, if any, willbe at the discretion of management, and will depend on market conditions andother considerations.  Therefore, therecan be no assurance as to the number or aggregate dollar amount of shares thatwill be repurchased under the repurchase program.  We may discontinue the program at anytime.  Any shares repurchased pursuant tothe repurchase program will be retired.

 

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**B&GFoods, Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(14)**                          Stockand Debt Repurchase Plan (Continued)

 

We did notrepurchase any shares of Class A common stock during the first quarterfiscal 2010.  During the first quarter of2009 we repurchased and retired 213,600 shares of Class A common stock atan average cost per share (excluding fees and commissions) of $4.53, or $1.0million in the aggregate.  We did notrepurchase any 8% senior notes or 12% senior subordinated notes under therepurchase program during the first quarter of 2010 or 2009.  As of April 3, 2010, we had $13.5million available for future repurchases of Class A common stock under therepurchase program.

 

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

** **

Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations contains forward-looking statements that involve risksand uncertainties.  Our actual resultscould differ materially from those anticipated in these forward-lookingstatements as a result of certain factors, including those set forth under theheading “Forward-Looking Statements” below and elsewhere in this report.  The following discussion should be read inconjunction with the unaudited consolidated financial statements and relatednotes for the thirteen weeks ended April 3, 2010 (first quarter of 2010)included elsewhere in this report and the audited consolidated financialstatements and related notes for the fiscal year ended January 2, 2010(fiscal 2009) included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (SEC) on March 1, 2010 (which we referto as our 2009 Annual Report on Form 10-K).

 

**General**

** **

Wemanufacture, sell and distribute a diverse portfolio of branded, high quality,shelf-stable food products, many of which have leading regional or nationalmarket shares.  In general, we positionour branded products to appeal to the consumer desiring a high quality andreasonably priced product.  We complementour branded product retail sales with institutional and food service sales andlimited private label sales.

 

Ourgoal is to continue to increase sales, profitability and cash flows byenhancing our existing portfolio of branded shelf stable products and bycapitalizing on our competitive strengths. We intend to implement our growth strategy through the followinginitiatives: expanding our brand portfolio with disciplined acquisitions ofcomplementary branded businesses, continuing to develop new products anddelivering them to market quickly, leveraging our multiple channel sales anddistribution system and continuing to focus on higher growth customers anddistribution channels.  Since 1996, wehave successfully acquired and integrated 18 separate brands into ouroperations.

 

We aresubject to a number of challenges that may adversely affect ourbusinesses.  These challenges, which arediscussed below and under the heading “Forward-Looking Statements,” include:

 

*Fluctuationsin Commodity Prices and Production and Distribution Costs:* We purchase raw materials, including agricultural products, meat,poultry, other raw materials, ingredients and packaging materials from growers,commodity processors, other food companies and packaging manufacturers.  Raw materials, ingredients and packagingmaterials are subject to fluctuations in price attributable to a number offactors.  Fluctuations in commodityprices can lead to retail price volatility and intensive price competition, andcan influence consumer and trade buying patterns.

 

Wepurchase maple syrup primarily from Quebec, Canada and Vermont.  In 2008, maple syrup production in Canada,which represents the great majority of global production, was significantlybelow industry needs due to growing global demand and one of the worst cropyields in nearly 40 years.  As a result,the price we paid for maple syrup increased significantly and we were facedwith a shortfall in supply as compared to our needs, which had a negativeimpact on our sales volume of maple syrup products during fiscal 2008 thatcontinued through the first two quarters of 2009.  Early indications suggest that the 2010 maplesyrup crop yield is expected to be more consistent with historic levels.

 

The costof labor, manufacturing, energy, fuel, packaging materials and other costsrelated to the production and distribution of our food products have also risensignificantly in recent years.  Weattempt to manage these risks by entering into short-term supply contracts andadvance commodities purchase agreements from time to time, implementing costsaving measures and by raising sales prices. To date, our cost saving measures and sales price increases have offsetincreases to our raw material, ingredient and packaging costs, although incertain cases on a lagging basis.  To theextent we are unable to offset present and future cost increases, our operatingresults will be negatively impacted.

 

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*Consolidationin the Retail Trade and Consequent Inventory Reductions:* As the retail grocery trade continues to consolidate and our retailcustomers grow larger and become more sophisticated, our retail customers maydemand lower pricing and increased promotional programs.  These customers are also reducing theirinventories and increasing their emphasis on private label products.

 

*ChangingCustomer Preferences:*  Consumers in the marketcategories in which we compete frequently change their taste preferences,dietary habits and product packaging preferences.

 

*ConsumerConcern Regarding Food Safety, Quality and Health:* The food industry is subject to consumer concerns regarding the safetyand quality of certain food products.

 

*Fluctuationsin Currency Exchange Rates:*  We purchasethe majority of our maple syrup requirements from suppliers located in Québec,Canada.  Any weakening of the U.S. dollaragainst the Canadian dollar, could significantly increase our costs relating tothe production of our maple syrup products to the extent we have not purchasedCanadian dollars in advance of any such weakening of the U.S. dollar.

 

Toconfront these challenges, we continue to take steps to build the value of ourbrands, to improve our existing portfolio of products with new product andmarketing initiatives, to reduce costs through improved productivity, toaddress consumer concerns about food safety, quality and health and tofavorably manage currency fluctuations.

 

**Critical Accounting Policies; 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 thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Some of the moresignificant estimates and assumptions made by management involve trade andconsumer promotion expenses; allowances for excess, obsolete and unsaleableinventories; pension benefits; purchase accounting allocations; therecoverability of goodwill, trademarks, customer relationship intangibles,property, plant and equipment, and deferred tax assets; and the accounting forshare-based compensation expense.  Actualresults could differ significantly from these estimates and assumptions.

 

In our2009 Annual Report on Form 10-K, we identified the critical accountingpolicies which affect our more significant estimates and assumptions used inpreparing our consolidated financial statements. There have been no significantchanges to these policies since January 2, 2010.

 

**Results of Operations**

** **

Thefollowing table sets forth the percentages of net sales represented by selecteditems for the first quarter of 2010 and 2009 reflected in our consolidatedstatements of operations.  Thecomparisons of financial results are not necessarily indicative of futureresults:

 

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| ** **                                        | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|
| ** **                                        | ** ** | **April 3, 2010**   | ** ** | **April 4, 2009** | ** ** |
| **Statement  of Operations:**                     |       |                     |       |   |   |
| Net sales                                         |       | 100.0                    | %          | 100.0 | % |
| Cost of goods  sold                               |       | 66.4                     | %          | 67.3 | % |
| Gross profit                                      |       | 33.6                     | %          | 32.7 | % |
|                                              |       |                     |       |   |   |
| Sales, marketing  and distribution expenses       |       | 9.2                      | %          | 9.3 | % |
| General and  administrative expenses              |       | 2.0                      | %          | 2.0 | % |
| Amortization  expense—customer relationships |       | 1.3                      | %          | 1.3 | % |
| Operating income                                  |       | 21.1                     | %          | 20.1 | % |
|                                              |       |                     |       |   |   |
| Interest  expense, net                            |       | 12.2                     | %          | 12.1 | % |
| Loss on  extinguishment of debt                   |       | 8.5                      | %          | — |   |
| Income before  income tax expense                 |       | 0.4                      | %          | 8.0 | % |
|                                              |       |                     |       |   |   |
| Income tax  expense                               |       | 0.1                      | %          | 3.0 | % |
| Net income                                        |       | 0.3                      | %          | 5.0 | % |

 

Asused in this section the terms listed below have the following meanings:

 

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

 

*Gross Profit.*  Our grossprofit 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 Distribution Expenses.* Our sales, marketing and distribution expenses include costs formarketing personnel, consumer advertising programs, internal sales forces,brokerage costs and warehouse facilities.

 

*General and Administrative Expenses.* Our general and administrative expenses include administrative employeecompensation and benefit costs, as well as information technology infrastructureand communication costs, office rent and supplies, professional services andother general corporate expenses.

 

*Amortization Expense—Customer Relationships.* Amortization expense—customerrelationships includes the amortization expense associated with customerrelationship intangibles, which are amortized over their useful lives of 20years.

 

*Net Interest Expense.*  Net interestexpense includes interest relating to our outstanding indebtedness,amortization of bond discount and amortization of deferred debt financingcosts, net of interest income and subsequent to our determination in September 2008that our interest rate swap is no longer an effective hedge for accountingpurposes, unrealized gains or losses on the interest rate swap and thereclassification of amounts recorded in accumulated other comprehensive lossrelated to the swap.

 

*Loss on Extinguishment of Debt.* Loss on extinguishment of debt includes costs relating to the retirementof indebtedness, including any repurchase premium and write-off of deferreddebt financing costs.

 

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***Non-GAAPFinancial Measures***

 

Certaindisclosures in this report include non-GAAP 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.

 

EBITDAis a measure used by management to measure operating performance.  We define EBITDA as net income before netinterest expense (as defined above), income taxes, depreciation andamortization and loss on extinguishment of debt (as defined above). Managementbelieves that it is useful to eliminate net interest expense, income taxes, depreciationand amortization and loss on extinguishment of debt because it allowsmanagement to focus on what it deems to be a more reliable indicator of ongoingoperating performance and our ability to generate cash flow from operations. Weuse EBITDA in our business operations, among other things, to evaluate ouroperating performance, develop budgets and measure our performance againstthose budgets, determine employee bonuses and evaluate our cash flows in termsof cash needs. We also present EBITDA because we believe it is a usefulindicator of our historical debt capacity and ability to service debt andbecause covenants in our credit facility and our senior notes indenture containratios based on this measure.  As aresult, internal management reports used during monthly operating reviewsfeature the EBITDA metric. However, management uses this metric in conjunctionwith traditional GAAP operating performance and liquidity measures as part ofits overall assessment of company performance and liquidity and therefore doesnot place undue reliance on this measure as its only measure of operatingperformance and liquidity.

 

EBITDAis not a recognized term under GAAP and does not purport to be an alternativeto operating income or net income as an indicator of operating performance orany other GAAP measure. EBITDA is not a complete net cash flow measure becauseEBITDA is a measure of liquidity that does not include reductions for cashpayments for an entity’s obligation to service its debt, fund its working capital,capital expenditures and acquisitions and pay its income taxes and dividends.Rather, EBITDA is a potential indicator of an entity’s ability to fund thesecash requirements. EBITDA is not a complete measure of an entity’sprofitability because it does not include costs and expenses for depreciationand amortization, interest and related expenses, loss on extinguishment of debtand income taxes. Because not all companies use identical calculations, thispresentation of EBITDA may not be comparable to other similarly titled measuresof other companies. However, EBITDA can still be useful in evaluating ourperformance against our peer companies because management believes this measureprovides users with valuable insight into key components of GAAP amounts.

 

Areconciliation of EBITDA to net income and to net cash provided by operatingactivities for the first quarter of 2010 and 2009 along with the components ofEBITDA follows:

 

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| ** **                                                      | ** ** | **Thirteen  Weeks Ended**            | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                      | ** ** | **April 3,  2010**              | ** ** | **April 4,  2009** | ** ** |
| ** **                                                      | ** ** | **(dollars in thousands)** | ** ** |
| Net income                                                      |       | $                                    | 326        |   | $ | 5,913 |   |
| Income tax expense                                              |       | 191                                  |       | 3,608 |   |
| Interest expense, net                                           |       | 10,622                               |       | 14,289 |   |
| Depreciation and amortization                                   |       | 3,659                                |       | 3,560 |   |
| Loss on extinguishment of debt                                  |       | 15,224                               |       | — |   |
| EBITDA                                                          |       | 30,022                               |       | 27,370 |   |
| Income tax expense                                              |       | (191                                 | )          | (3,608 | ) |
| Interest expense, net                                           |       | (10,622                              | )          | (14,289 | ) |
| Deferred income taxes                                           |       | 107                                  |       | 2,834 |   |
| Amortization of deferred financing costs and bond discount      |       | 515                                  |       | 792 |   |
| Unrealized loss on interest rate swap                           |       | 303                                  |       | 743 |   |
| Reclassification to net interest expense for interest rate swap |       | 423                                  |       | 422 |   |
| Share-based compensation expense                                |       | 463                                  |       | 747 |   |
| Excess tax benefits from share-based compensation               |       | (330                                 | )          | — |   |
| Changes in assets and liabilities                               |       | 1,186                                |       | (4,385 | ) |
| Net cash provided by operating activities                       |       | $                                    | 21,876     |   | $ | 10,626 |   |

 

***First quarter of 2010 compared to the first quarter of 2009***

** **

*Net Sales. *Net sales increased $6.6 million or 5.5% to $125.2 million for thefirst quarter of 2010 from $118.6 million for the first quarter of 2009.  The increase was attributable to unit volumeand sales price increases of $4.7 million and $1.9 million, respectively.  Net sales of our *Ortega,Cream of Wheat, Maple Grove Farms of Vermont, Polaner, Las Palmas*and***Ac’cent***products increased by $2.2 million, $2.1million, $2.1 million, $1.0 million, $0.7 million and $0.6 million or 7.5%,12.8%, 14.4%, 10.6%, 8.7% and 15.8%, respectively.  These increases were offset by a reduction innet sales of *B&M, B&G*and *Regina*productsof $1.1 million, $0.6 million and $0.4 million or 22.0%, 6.6% and 13.3%,respectively.  In the aggregate, netsales for all other brands remained constant. The majority of the net sales increase for *Maple GroveFarms of Vermont* was attributable to an increase in net sales ofprivate label maple syrup.

 

*Gross Profit. *Gross profit increased $3.3million or 8.5% to $42.0 million for the first quarter of 2010 from $38.7million for the first quarter of 2009. Gross profit expressed as a percentage of net sales increased 0.9percentage points to 33.6% in the first quarter of 2010 from 32.7% in the first quarter of 2009.  The increase in gross profit expressed as apercentage of net sales was primarily attributable to increased sales prices of$1.9 million and a decrease in commodity and ingredient costs slightly offsetby an increase in packaging and fuel surcharge costs.

 

*Sales, Marketing and Distribution Expenses. *Sales, marketing and distribution expenses increased$0.5 million or 4.7% to $11.5 million for the first quarter of 2010 from $11.0million for the first quarter of 2009. This increase is primarily due to an increase in consumer and trade marketingof $0.5 million.  Expressed as a percentageof net sales, our sales, marketing and distribution expenses decreased 0.1percentage points to 9.2% for the first quarter of 2010 from 9.3% for the firstquarter of 2009.

 

*General and Administrative Expenses. *General and administrative expenses increased $0.2million or 8.8% to $2.5 million for the first quarter of 2010 from $2.3 millionin the first quarter of 2009.  Theincrease in general and administrative expenses primarily resulted from anincrease in professional fees and other expenses.

 

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*Amortization Expense*—*CustomerRelationships. *Amortization expense—customer relationships remained consistentat $1.6 million for the first quarter of 2010 as compared to the first quarterof 2009.

 

*Operating Income. *As a result of the foregoing, operatingincome increased $2.6 million or 10.7% to $26.4 million for the first quarterof 2010 from $23.8 million for the first quarter of 2009.  Operating income expressed as a percentage ofnet sales increased to 21.1% in the first quarter of 2010 from 20.1% in thefirst quarter of 2009.

 

*Net Interest Expense. *Netinterest expense decreased $3.7 million or 25.7% to $10.6 million for the firstquarter of 2010 from $14.3 million in the first quarter of 2009.  The decrease in net interest expense in thefirst quarter of 2010 was primarily attributable to a decrease of 1.7percentage points in the effective interest rate on our long-term debt to 7.9%in the first quarter of 2010 from 9.6% in the first quarter of 2009 and areduction of $58.3 million in the average principal amount of our long-termdebt outstanding during the first quarter of 2010 as compared to the firstquarter of 2009.  The decrease in theeffective interest rate and the reduction in the average principal amount ofour long-term debt outstanding is the result of the refinancing of our 8%senior notes and 12% senior subordinated notes with the proceeds of theissuance of our 7.625% senior notes during the first quarter of 2010 and ourpublic offering of Class A common stock completed in the third quarter of2009.  See “—Liquidity and CapitalResources—Debt” below.

 

*Loss on Extinguishment of Debt. *Loss on extinguishment of debt for the first quarterof 2010 includes $15.2 million of costs relating to our repurchase andredemption of $69.5 million aggregate principal amount of senior subordinatednotes and $240.0 million aggregate principal amount of senior notes, including$10.7 million for the payment of a repurchase premium and a non-cash charge of$4.5 million for the write-off of unamortized deferred debt financing costsassociated with the notes repurchased. During the first quarter of 2009, we did not extinguish any debt.

 

*Income Tax Expense. *Income tax expense decreased $3.4 millionto $0.2 million for the first quarter of 2010 from $3.6 million for the firstquarter of 2009.  Our effective tax ratewas 37.0% for the first quarter of 2010 and 37.9% for the first quarter of2009.  The decrease in our effective taxrate is primarily due to incremental tax deductions for manufacturing credits.

 

**Liquidity and Capital Resources**

 

Ourprimary liquidity requirements include debt service, capital expenditures andworking capital needs.  See also, “DividendPolicy” and “Commitments and Contractual Obligations” below.  We fund our liquidity requirements, as wellas our dividend payments and financing for acquisitions, primarily through cashgenerated from operations and to the extent necessary, through borrowings underour credit facility.

 

*Cash Flows*.  Cash providedby operating activities increased $11.3 million to $21.9 million for the firstquarter of 2010 from $10.6 million for the first quarter of 2009.  The increase in cash provided from operatingactivities in the first quarter of 2010 as compared to the first quarter of2009 was primarily due to an increase in net sales, improved profitability andworking capital improvements.

 

Netcash used in investing activities for the first quarter of 2010 decreased $0.2million to $2.2 million from $2.4 million for the first quarter of 2009.  Net cash used in investing activities for thefirst quarter of 2010 and 2009 consisted entirely of capital spending.  Capital expenditures in the first quarter of2010 and 2009 included expenditures for building improvements, purchases ofmanufacturing and computer equipment and capitalized interest.

 

Netcash provided by financing activities for the first quarter of 2010 was $9.8million as compared to net cash used in financing activities of $7.1 millionfor the first quarter of 2009.  Net cashprovided by financing activities for the first quarter of 2010 include netproceeds of $347.4 million from the issuance of our 7.625% senior notes and a$0.3 million excess tax benefits from share-based compensation.  Net cash provided 

 

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by financing activities were reduced by $320.3 millionin payments for the repurchase and redemption of $69.5 million principal amountof our 12% senior subordinated notes and $240.0 million principal amount of our8% senior notes, $8.2 million of deferred financing costs, $8.1 million ofdividend payments and $1.5 million in payments of tax withholding on behalf ofemployees for net share settlement of share-based compensation.  Net cash used in financing activities for thefirst quarter of 2009 consisted of the payment of dividends and the repurchaseof Class A common stock.

 

Based on a number offactors, including our trademark, goodwill and customer relationshipintangibles amortization for tax purposes from our prior acquisitions, werealized a significant reduction in cash taxes in fiscal 2009 and 2008 as comparedto our tax expense for financial reporting purposes.  We believe that we will realize a benefit toour cash taxes payable from amortization of our trademarks, goodwill andcustomer relationship intangibles for the taxable years 2010 through 2022.

 

***Dividend Policy***

 

Ourdividend policy reflects a basic judgment that our stockholders would be betterserved if we distributed a substantial portion of our cash available to paydividends to them instead of retaining it in our business.  Under this policy, a substantial portion ofthe cash generated by our company in excess of operating needs, interest andprincipal payments on indebtedness, capital expenditures sufficient to maintainour properties and other assets is in general distributed as regular quarterlycash dividends (up to the intended dividend rate as determined by our board ofdirectors) to the holders of our common stock and not retained by us.  From the date of our initial public offeringin October 2004 through the dividend payment we made on October 30,2008, the dividend rate for our Class A common stock was $0.848 per shareper annum.  Beginning with the dividendpayment we made on January 30, 2009, the current intended dividend ratefor our Class A common stock is $0.68 per share per annum.

 

Dividendpayments, however, are not mandatory or guaranteed and holders of our commonstock do not have any legal right to receive, or require us to pay,dividends.  Furthermore, our board ofdirectors may, in its sole discretion, amend or repeal this dividendpolicy.  Our board of directors maydecrease the level of dividends below the intended dividend rate or discontinueentirely the payment of dividends. Future dividends with respect to shares of our common stock depend on,among other things, our results of operations, cash requirements, financialcondition, contractual restrictions, business opportunities, acquisitionopportunities, the condition of the debt and equity financing markets,provisions of applicable law and other factors that our board of directors maydeem relevant.  Our board of directors isfree to depart from or change our dividend policy at any time and could do so,for example, if it was to determine that we have insufficient cash to takeadvantage of growth opportunities.  Inaddition, over time, our EBITDA and capital expenditure, working capital andother cash needs will be subject to uncertainties, which could impact the levelof dividends, if any, we pay in the future. Our senior notes indenture and the terms of our credit facility containsignificant restrictions on our ability to make dividend payments.  In addition, certain provisions of theDelaware General Corporation Law may limit our ability to pay dividends.

 

As aresult of our dividend policy, we may not retain a sufficient amount of cash tofinance growth opportunities or unanticipated capital expenditure needs or tofund our operations in the event of a significant business downturn.  We may have to forego growth opportunities orcapital expenditures that would otherwise be necessary or desirable if we donot find alternative sources of financing. If we do not have sufficient cash for these purposes, our financialcondition and our business will suffer.

 

Forthe first quarter of 2010 and 2009, we had cash flows provided by operatingactivities of $21.9 million and $10.6 million, and distributed $8.1 million and$6.2 million, respectively, as dividends. At our current intended dividend rateof $0.680 per share per annum, we expect our aggregate dividend payments infiscal 2010 to be $32.4 million.  If ourcash flows from operating activities for future periods were to fall below ourminimum expectations (or if our assumptions as to capital expenditures orinterest expense were too low or our assumptions as to the sufficiency of ourrevolving credit facility to finance our working capital 

 

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needs were to prove incorrect), we would need eitherto further reduce or eliminate dividends or, to the extent permitted under oursenior notes indenture and the terms of our credit facility, fund a portion ofour dividends with borrowings or from other sources.  If we were to use working capital orpermanent borrowings to fund dividends, we would have less cash and/orborrowing capacity available for future dividends and other purposes, whichcould negatively impact our financial position, our results of operations, ourliquidity and our ability to maintain or expand our business.

 

***Acquisitions***

 

Ourliquidity and capital resources have been significantly impacted byacquisitions and may be impacted in the foreseeable future by additionalacquisitions.  As discussed elsewhere inthis report, as part of our growth strategy we plan to expand our brandportfolio with disciplined acquisitions of complementary brands.  We have historically financed acquisitionswith borrowings and cash flows from operating activities.  As a result, our interest expense has in thepast increased as a result of additional indebtedness we have incurred inconnection with acquisitions, and will increase with any additionalindebtedness we may incur to finance future acquisitions, if any.  The impact of future acquisitions, whetherfinanced with additional indebtedness or otherwise, may have a material impacton our liquidity.

 

***Environmental and Health and Safety Costs***

 

Wehave not made any material expenditures during the first quarter of 2010 inorder to comply with environmental laws or regulations.  Based on our experience to date, we believethat the future cost of compliance with existing environmental laws andregulations (and liability for known environmental conditions) will not have amaterial adverse effect on our consolidated financial condition, results ofoperations or liquidity.  However, wecannot predict what environmental or health and safety legislation orregulations will be enacted in the future or how existing or future laws orregulations will be enforced, administered or interpreted, nor can we predictthe amount of future expenditures that may be required in order to comply withsuch environmental or health and safety laws or regulations or to respond tosuch environmental claims.

 

***Debt***

 

*Senior Secured Credit Facility.*  Asamended, our $25.0 million revolving credit facility and our $130.0 million ofterm loan borrowings mature in February 2013.  The following discussion of the creditfacility describes the credit facility as amended through the date of issuanceof the accompanying unaudited consolidated financial statements.

 

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

 

Our obligations under thecredit facility are jointly and severally and fully and unconditionallyguaranteed on a senior basis by all of our existing and certain future domesticsubsidiaries.  The credit facility issecured by substantially all of our and our domestic subsidiaries’ assetsexcept our and our domestic subsidiaries’ real property.  The credit facility provides for mandatoryprepayment upon certain asset dispositions and issuances of securities, 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.  As of April 3, 2010, we were incompliance with all of the covenants in the credit 

 

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facility.  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.  Themaximum letter of credit capacity under the revolving credit facility is $10.0million, with a fronting fee of 3.0% per annum for all outstanding letters ofcredit.

 

At April 3, 2010, theavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit of $0.5 million, was $24.5 million.  We have not drawn upon the revolving creditfacility since its inception in October 2004 and, based upon our cash onhand and working capital requirements, we have no plans to do so for theforeseeable future.

 

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

 

We initially designated theswap as a cash flow hedge.  Prior toLehman’s bankruptcy filing, we recorded changes in the fair value of the swapin accumulated other comprehensive loss, net of tax in our consolidated balancesheet.  However, as a result of theLehman bankruptcy filing, we determined in September 2008 that theinterest rate swap was no longer an effective hedge.  Accordingly, subsequent to thatdetermination, we record changes in the swap’s fair value in current earningsin net interest expense in our consolidated statements of operations.  We obtain third-party verification of fairvalue at the end of each reporting period. As of April 3, 2010, the fair value of our interest rate swap wasan unrealized loss of $11.9 million and is recorded in other liabilities on ourconsolidated balance sheet.  The amountrecorded in accumulated other comprehensive loss will be reclassified to netinterest expense over the remaining life of the term loan borrowings as we makeinterest payments.  Net interest expensein the first quarter of 2010 includes a $0.3 million charge relating to theunrealized loss on our interest rate swap and a reclassification of $0.4million of the amount recorded in accumulated other comprehensive loss relatedto the swap.  Net interest in the firstquarter of 2010 also includes a reduction in interest income primarily due tolower interest rates.  During theremainder of fiscal 2010, we expect to reclassify to net interest expense $1.3million of the amount recorded in accumulated other comprehensive loss.

 

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

 

In January 2010, werepurchased $44.7 million aggregate principal amount of the senior subordinatednotes with the proceeds of our public offering of 7.625% senior notes at arepurchase price of 106.5% of such principal amount plus accrued and unpaidinterest, and set aside sufficient proceeds of the offering to repurchase orredeem the remaining senior subordinated notes. In February 2010, we repurchased or redeemed the remaining $24.8million aggregate principal amount of the senior subordinated notes at a priceequal to 106.0% of such principal amount, plus accrued and unpaid interest.

 

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

 

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redeemed the remaining $1.1million aggregate principal amount of the 8% senior notes at a price equal to102.0% of such principal amount, plus accrued and unpaid interest.

 

*Loss on Extinguishment ofDebt. *In connection with the retirement of our 12%senior subordinated notes and 8% senior notes, we incurred a loss onextinguishment of debt of approximately $15.2 million in the first quarter of2010, including the repurchase premium of $10.7 million and a write-off andexpense of $4.5 million of deferred debt financing costs.

 

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

 

On or after January 15,2014, we may redeem some or all of the senior notes at a redemption price of103.813% beginning January 15, 2014 and thereafter at prices decliningannually to 100% on or after January 15, 2017.  We may redeem up to 35% of the aggregateprincipal amount of the notes prior to January 15, 2013 with the netproceeds from certain equity offerings. We may also redeem some or all of the notes at any time prior to January 15,2014 at a redemption price equal to a specified make-whole amount.  In addition, if we undergo a change ofcontrol, we may be required to offer to repurchase the notes at the repurchaseprice of 101% plus accrued and unpaid interest to the date of redemption.

 

We may also, from time totime, seek to retire senior notes through cash repurchases of senior notesand/or exchanges of senior notes for equity securities, in open marketpurchases, privately negotiated transactions or otherwise.  Such repurchases or exchanges, if any, willdepend on prevailing market conditions, our liquidity requirements, contractualrestrictions and other factors.  Theamounts involved may be material.

 

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

 

Our senior notes indenturecontains covenants with respect to us and the guarantors and restricts theincurrence of additional indebtedness and the issuance of capital stock; thepayment of dividends or distributions on, and redemption of, capital stock; anumber of other restricted payments, including certain investments; specifiedcreation of liens, sale-leaseback transactions and sale of certain specifiedassets; fundamental changes, including consolidation, mergers and transfers ofall or substantially all of our assets; and specified transactions withaffiliates.  Each of the covenants issubject to a number of important exceptions and qualifications.  As of April 3, 2010, we were incompliance with all of the covenants in the senior notes indenture.

 

***Stock and DebtRepurchase Program***

 

On October 27,2008, our board of directors authorized a stock and debt repurchase program forthe repurchase of up to $10.0 million of our Class A common stock and/or8% senior notes over the next twelve months. On May 5, 2009, the board of directors authorized an increase inthe authorization to $25.0 million and extended the authorization through May 4,2010.  On August 6, 2009, the boardof directors expanded the authorization to include repurchases of our seniorsubordinated notes and extended the authorization through 

 

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August 5, 2010. Under the authorization, we may purchase shares of Class A commonstock from time to time in the open market or in privately negotiatedtransactions in compliance with the applicable rules and regulations ofthe SEC.  None of the 8% senior notes orsenior subordinated notes remains outstanding.

 

Thetiming and amount of repurchases of our Class A common stock, if any, willbe at the discretion of management, and will depend on market conditions andother considerations.  Therefore, therecan be no assurance as to the number or aggregate dollar amount of shares thatwill be repurchased under the repurchase program.  We may discontinue the program at anytime.  Any shares repurchased pursuant tothe repurchase program will be retired.

 

We didnot repurchase any shares of Class A common stock during the first quarterfiscal 2010.  During the first quarter of2009 we repurchased and retired 213,600 shares of Class A common stock atan average cost per share (excluding fees and commissions) of $4.53, or $1.0million in the aggregate.  We did notrepurchase any 8% senior notes or 12% senior subordinated notes under the repurchaseprogram during the first quarter of 2010 or 2009.  As of April 3, 2010, we had $13.5million available for future repurchases of Class A common stock under therepurchase program.

 

***Future CapitalNeeds***

 

We are highly leveraged.  On April 3, 2010, our total long-termdebt and stockholders’ equity was $477.5 million and $217.5 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 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 of up toapproximately $11.0 million in the aggregate during fiscal 2010, $2.2 millionof which have already been made during the first quarter.

 

***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 below those of the followingthree quarters.

 

Wepurchase most of the produce used to make our shelf-stable pickles, relishes,peppers and other related specialty items during the months of July throughOctober, and we purchase substantially all of our maple syrup requirementsduring the months of April through July. Consequently, our liquidity needs are greatest during these periods.

 

***Inflat******ion***

 

Duringthe past several years, we have been faced with increasing prices in certaincommodities and packaging materials.  Wemanage this risk by entering into short-term supply contracts and advancecommodities purchase agreements from time to time, and if necessary, by raisingprices.  We believe that through salesprice increases and our cost saving efforts we have to a large degree been ableto offset the impact of recent raw material, packaging and transportation costincreases, although in certain cases on a lagging basis.  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.

 

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**Recent AccountingPronouncements**

** **

In September 2006, newauthoritative accounting literature established a single definition of fairvalue, which establishes a framework for measuring fair value and expandsdisclosures about fair value measurements. This standard was effective as of the beginning of our fiscal 2008, withthe exception of certain provisions deferred until the beginning of our fiscal2009.  In February 2008, theeffective date of the standard for all non-financial assets and liabilities,except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis, was delayed until the beginning of our fiscal2009.  We adopted the standard effectiveat the beginning of our fiscal 2008 for financial assets and financialliabilities, which did not have a material impact on our results of operationsor financial position.  We adopted thestandard effective at the beginning of our fiscal 2009 for non-financial assetsand non-financial liabilities, which did not have a material impact on ourresults of operations or financial position.  In January 2010, the standard was amended to require additionaldisclosures related to transfers between levels in the hierarchy of fair valuemeasurement.  We adopted the amendmenteffective as of the beginning of our fiscal 2010. The amendment does not changehow fair values are measured.  Accordingly,the amendment has not had an impact on our results of operations or financialposition.

 

In December 2007, newauthoritative accounting literature was issued relating to businesscombinations and noncontrolling interests in consolidated financialstatements.  The standard relating tobusiness combinations requires an acquirer to measure the identifiable assetsacquired, the liabilities assumed and any noncontrolling interest in theacquiree at their fair values on the acquisition date, with goodwill being theexcess value over the net identifiable assets acquired.  The noncontrolling interest standardclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity that should be reported as equity in theconsolidated financial statements.  Thesestandards were effective as of the beginning of our fiscal 2009.  The business combinations standard**will be applied prospectively, and any effects will dependon future acquisitions.  The standardrelating to noncontrolling interests in consolidated financial statementsrequires retroactive adoption.  Wecurrently do not have any noncontrolling interests in subsidiaries.

 

In December 2008, newauthoritative accounting literature was issued relating to an employer’sdisclosure about postretirement benefit plan assets.  The standard requires additional disclosuresabout plan assets for defined benefit pension and other postretirement benefitplans.  We adopted the standard effectiveas of the end of our fiscal 2009.  Sincethis requires enhanced disclosures, without a change to existing standardsrelative to measurement and recognition, our adoption of the standard did nothave a material impact on our results of operations or financial position.  See Note 9 for the required disclosures aboutour defined benefit plan assets.

 

**Off-balance Sheet Arrangements**

 

As of April 3,2010, we did not have any off-balance sheet arrangements as defined in Item303(a)(4)(ii) of Regulation S-K.

 

**Commitments and ContractualObligations**

** **

Our contractual obligationsand commitments principally include obligations associated with our outstandingindebtedness, future minimum operating lease obligations and future pensionobligations.  During the first quarter of2010, there were no material changes outside the ordinary course of business inthe specified contractual obligations set forth in the Commitments andContractual Obligations table in our 2009 Annual Report on Form 10-K,except that in January 2010, we issued $350.0 million aggregate principalamount of 7.625% senior notes due 2018 at a price to the public of 99.271% oftheir face value.  We used a portion ofthe net proceeds from the offering to retire all $240.0 million principalamount of our 8% senior notes and the remaining $69.5 million principal amountof our 12% senior subordinated notes. See “Debt” above.  Our interestobligations on the 7.625% senior notes are expected to be $26.7 million perannum.  In addition, our expectedcontributions to our defined benefit pension plans for fiscal 2010 haveincreased from 

 

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$1.3 million to $2.4 millionbecause, although not obligated to do so, we expect to make $1.1 million ofvoluntary contributions to our defined benefit pension plans during theremainder of fiscal 2010.

 

***Forward-LookingStatements***

** **

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

 

·                  our substantial leverage;

 

·                  the effects of rising costs for our rawmaterials, packaging and ingredients;

 

·                  crude oil prices and their impact ondistribution, packaging and energy costs;

 

·                  our ability to successfully implement salesprice increases and cost saving measures to offset any cost increases;

 

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

 

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

 

·                  the risks associated with the expansion ofour business;

 

·                  our possible inability to integrate anybusinesses we acquire;

 

·                  our ability to access the credit markets andour borrowing costs and credit ratings, which may be influenced by creditmarkets generally and the credit ratings of our competitors;

 

·                  the effects of currency movements of theCanadian dollar as compared to the U.S. dollar;

 

·                  other 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;

 

·                  competitors’ pricing practices andpromotional spending levels;

 

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

 

·                  the risks associated with third-partysuppliers and co-packers, including the risk that any failure by one or more ofour third-party suppliers or co-packers to comply with food safety or otherlaws and regulations may disrupt our supply of raw materials or certainfinished goods products; and

 

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

 

Developmentsin any of these areas could cause our results to differ materially from resultsthat have been or may be projected by or on our behalf.

 

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Allforward-looking statements included in this report are based on informationavailable to us on the date of this report. We undertake no obligation topublicly update or revise any forward-looking statement, whether as a result ofnew information, future events or otherwise. All subsequent written and oralforward-looking statements attributable to us or persons acting on our behalfare expressly qualified in their entirety by the cautionary statementscontained in this report.

 

Wecaution that the foregoing list of important factors is not exclusive.  We urge investors not to unduly rely onforward-looking statements contained in this report.

 

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

** **

In thenormal course of operations, we are exposed to market risks arising from adversechanges in interest rates.  Market riskis defined for these purposes as the potential change in the fair value of afinancial asset or liability resulting from an adverse movement in interestrates.

 

Interest under our $25.0million revolving credit facility, including any outstanding letters of credit,is determined based on alternative rates that we may choose in accordance withthe revolving credit facility, including the base lending rate per annum plusan applicable margin of 2.00%, and LIBOR plus an applicable margin of3.00%.  Interest under our term loanfacility is determined based on alternative rates that we may choose inaccordance with the credit facility, including the base lending rate per annumplus an applicable margin of 1.00%, and LIBOR plus an applicable margin of2.00%.  The revolving credit facility wasundrawn at April 3, 2010 and January 2, 2010, and we currently haveno plans to draw upon the facility for the foreseeable future.  The available borrowing capacity under ourrevolving credit facility, net of outstanding letters of credit of $0.5million, was $24.5 million at April 3, 2010.

 

We have outstanding $130.0million of term loan borrowings at April 3, 2010 and January 2,2010.  The term loan borrowings are fixedat 7.0925% based upon a six year interest rate swap agreement that we enteredinto on February 26, 2007 with an affiliate of Lehman.  See the discussion of the interest rate swapand the Lehman bankruptcy filing above under the heading “Liquidity and CapitalResources—Debt—Senior Secured CreditFacility” in Item 2, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” for additional information.

 

Cash and cash equivalents,trade accounts receivable, income tax receivable, trade accounts payable,accrued expenses and dividends payable are reflected in the consolidatedbalance sheets at carrying value, which approximates fair value due to theshort-term nature of these instruments.

 

The carrying values and fairvalues of our term loan borrowings, senior notes and senior subordinated notesas of April 3, 2010 and January 2, 2010 are as follows (dollars inthousands):

 
| ** **                               | ** ** | **April 3, 2010** | ** ** | **January 2, 2010** | ** ** |
|------------------------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                               | ** ** | **Carrying Value**     | ** ** | **Fair Value(1)**        | ** ** | **Carrying Value** | ** ** | **Fair Value(1)** | ** ** |
| Senior Secured Term Loan due 2013        |       | $                      | 130,000    |                     | $          | 130,000 |   | $ | 130,000 |   | $ | 127,400 |   |
| 8% Senior Notes due 2011                 |       | —                 |       | —                   |       | 240,000 |   | 243,000 |   |
| 7.625% Senior Notes due 2018             |       | 347,508                |       | $                        | 356,125    |   | — |   | — |   |
| 12.0% Senior Subordinated Notes due 2016 |       | —                 |       | —                   |       | 69,541 |   | 69,172 |   |
|                                          |            |                        |            |                          |            |  |  |  |  |  |  |  |  |

 

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(1)          Fair values are estimated based on quotedmarket prices.

 

Theinformation under the heading “Inflation” in Item 2, “Management’s Discussionand Analysis of Financial Condition and Results of Operations” is incorporatedherein by reference.

 

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**Item 4.    Controlsand Procedures**

** **

*Evaluation of Disclosure Controls and 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 thisreport.  As defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, disclosure controls and procedures arecontrols and other procedures that we use that are designed to ensure thatinformation required to be disclosed by us in the reports we file or submitunder the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by us in the reports we file or submit under theExchange Act is accumulated and communicated to our management, including ourchief executive officer and our chief financial officer, as appropriate, toallow timely decisions regarding required disclosure.

 

Basedon that evaluation, our chief executive officer and our chief financial officerconcluded that our disclosure controls and procedures were effective as of theend of the period covered by this report.

 

*Changes in Internal Control Over Financial Reporting*. As required by Rule 13a-15(d) under the Exchange Act, ourmanagement, including our chief executive officer and our chief financialofficer, also conducted an evaluation of our internal control over financialreporting to determine whether any change occurred during the quarter coveredby this report that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.  Based on that evaluation, our chief executiveofficer and our chief financial officer concluded that there has been no changeduring the period covered by this report that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

*InherentLimitations on Effectiveness of Controls.*  Our company’smanagement, including the chief executive officer and chief financial officer,does not expect that our disclosure controls or our internal control overfinancial reporting will prevent or detect all errors and all fraud.  A control system, no matter how well designedand operated, can provide only reasonable, not absolute, assurance that thecontrol system’s objectives will be met. The design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs.  Further, because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that misstatements due to error or fraud will notoccur or that all control issues and instances of fraud, if any, within ourcompany have been detected.  Theseinherent limitations include the realities that judgments in decision-makingcan be faulty and that breakdowns can occur because of simple error ormistake.  Controls can also becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the controls.  The design of any system of controls is basedin part on certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. Projections of any evaluation of controls effectiveness to futureperiods are subject to risks.  Over time,controls may become inadequate because of changes in conditions ordeterioration in the degree of compliance with policies or procedures.

 

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**PART II**

**OTHER INFORMATION**

** **

**Item 1.**    Legal Proceedings

** **

The information set forth under the heading “*Legal Proceedings*” in Note 10 of Notes to ConsolidatedFinancial Statements in Part I, Item 1 of this quarterly report on Form 10-Qis incorporated herein by reference.

 

**Item 1A. Risk Factors**

** **

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

 

**Item 2.**    Unregistered Sales of Equity Securities and Useof Proceeds

** **

Not applicable.

 

**Item 3.**    Defaults Upon Senior Securities

** **

Not applicable.

 

**Item 4.**    Reserved

** **

**Item 5.**    Other Information

** **

Not applicable.

 

**Item 6.    Exhibits**

 
| **EXHIBIT    NO.** | ** ** | **DESCRIPTION**                                                                                                                                                                                  |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |       |                                                                                                                                                                                             |
| 31.1               |       | Certification  pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities  Exchange Act of 1934 of the Chief Executive Officer.                                          |
| 31.2               |       | Certification  pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the  Securities Exchange Act of 1934 of the Chief Financial Officer.                                          |
| 32.1               |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive  Officer and Chief Financial Officer. |

 

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**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| Dated:  April 27, 2010 | B&G  FOODS, INC. |
|-----------------------------|----------------------|
|                        |                 |
|                        |                 |
|                        | By:                  | /s/  Robert C. Cantwell |
|                        |                 | Robert  C. Cantwell |
|                        |                 | Executive  Vice President and Chief Financial Officer (Principal Financial and  Accounting Officer and Authorized Officer) |

 

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