Table ofContents

 

**As filed with theSecurities and Exchange Commission on October 27, 2009**

 

 

 

****UNITED STATESSECURITIES AND EXCHANGE COMMISSION****

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

 

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

 

**(Mark one)**

 

x       **Quarterly Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934**

 

**For the quarterly period ended October 3, 2009**

 

**or**

 

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

 

**For the transition period from                  to                  .**

 

**Commission file number 001-32316**

 

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

(Exact name of Registrant as specified in itscharter)

 

| **Delaware**

(State or other  jurisdiction of  incorporation or organization)                           | ** ** | **13-3918742**

(I.R.S. Employer  Identification No.) |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|
| ** **                                                                                               | ** ** | ** **                                            |
| **4 Gatehall  Drive, Suite 110, Parsippany, New Jersey**

(Address of principal  executive offices) | ** ** | **07054**

(Zip Code)                                 |

 

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

 

Indicate by check markwhether the registrant:  (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x Noo

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o No o

 

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

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No x

 

As of October 3,2009, the registrant had 47,367,292 shares of Class A common stock, parvalue $0.01 per share, issued and outstanding, 18,199,058 of which were held inthe form of Enhanced Income Securities (EISs) and 29,168,234 of which were heldseparate from EISs.  Each EIS representsone share of Class A common stock and $7.15 principal amount of 12% seniorsubordinated notes due 2016.  As of October 3,2009, the registrant had no shares of Class B common stock, par value$0.01 per share, issued or outstanding.

 

 

 

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Table ofContents

 

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                                 | 33                |
|                                                                                                |              |
| Item 4. Controls and Procedures                                                                     | 35                |
|                                                                                                |              |
| PART II OTHER INFORMATION                                                                      | 35                |
|                                                                                                |              |
| Item  1. Legal Proceedings                                                                          | 35                |
|                                                                                                |              |
| Item 1A. Risk Factors                                                                               | 36                |
|                                                                                                |              |
| Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 36                |
|                                                                                                |              |
| Item 3. Defaults Upon Senior Securities                                                             | 36                |
|                                                                                                |              |
| Item 4. Submission of Matters to a Vote of Security  Holders                                        | 36                |
|                                                                                                |              |
| Item  5. Other Information                                                                          | 36                |
|                                                                                                |              |
| Item 6. Exhibits                                                                                    | 37                |
|                                                                                                |              |
| SIGNATURE                                                                                           | 38                |

 

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**PART I**

**FINANCIALINFORMATION**

 

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

 

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

**Consolidated Balance Sheets**

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

**(Unaudited)**

 
| ** **                                                                                                                                                                                         | ** ** | **October 3, 2009** | ** ** | **January 3, 2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| **Assets**                                                                                                                                                                                         |       |                     |       |                     |       |
| ** **                                                                                                                                                                                         |       |                     |       |                     |       |
| Current assets:                                                                                                                                                                                    |       |                     |       |                     |       |
| Cash and cash equivalents                                                                                                                                                                          |       | $                        | 117,628    |                     | $          | 32,559 |   |
| Trade accounts receivable, less allowance for  doubtful accounts and discounts of $626 in 2009 and $745 in 2008                                                                                    |       | 33,879                   |       | 36,578                   |       |
| Inventories                                                                                                                                                                                        |       | 103,554                  |       | 88,899                   |       |
| Prepaid expenses                                                                                                                                                                                   |       | 2,084                    |       | 2,475                    |       |
| Income tax receivable                                                                                                                                                                              |       | 2,022                    |       | 2,221                    |       |
| Deferred income taxes                                                                                                                                                                              |       | 1,176                    |       | 1,110                    |       |
| Total current assets                                                                                                                                                                               |       | 260,343                  |       | 163,842                  |       |
|                                                                                                                                                                                               |       |                     |       |                     |       |
| Property, plant and equipment, net of accumulated  depreciation of $69,937 and $64,510                                                                                                             |       | 53,062                   |       | 51,059                   |       |
| Goodwill                                                                                                                                                                                           |       | 253,353                  |       | 253,353                  |       |
| Trademarks                                                                                                                                                                                         |       | 227,220                  |       | 227,220                  |       |
| Customer relationship intangibles, net                                                                                                                                                             |       | 111,480                  |       | 116,318                  |       |
| Net deferred debt financing costs and other assets                                                                                                                                                 |       | 11,644                   |       | 13,298                   |       |
| Total assets                                                                                                                                                                                       |       | $                        | 917,102    |                     | $          | 825,090 |   |
|                                                                                                                                                                                               |       |                     |       |                     |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                     |       |                     |       |                     |       |
|                                                                                                                                                                                               |       |                     |       |                     |       |
| Current liabilities:                                                                                                                                                                               |       |                     |       |                     |       |
| Trade accounts payable                                                                                                                                                                             |       | $                        | 31,036     |                     | $          | 27,286 |   |
| Accrued expenses                                                                                                                                                                                   |       | 14,760                   |       | 16,023                   |       |
| Dividends payable                                                                                                                                                                                  |       | 8,052                    |       | 6,162                    |       |
| Long-term debt, current portion                                                                                                                                                                    |       | 90,000                   |       | —                   |       |
| Total current liabilities                                                                                                                                                                          |       | 143,848                  |       | 49,471                   |       |
|                                                                                                                                                                                               |       |                     |       |                     |       |
| Long-term debt, less current portion                                                                                                                                                               |       | 439,541                  |       | 535,800                  |       |
| Other liabilities                                                                                                                                                                                  |       | 22,790                   |       | 23,671                   |       |
| Deferred income taxes                                                                                                                                                                              |       | 81,560                   |       | 71,500                   |       |
| Total liabilities                                                                                                                                                                                  |       | 687,739                  |       | 680,442                  |       |
|                                                                                                                                                                                               |       |                     |       |                     |       |
| 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; 47,367,292 and 36,246,657 shares issued  and outstanding as of October 3, 2009 and January 3, 2009 |       | 474                      |       | 362                      |       |
| Class B common stock, $0.01 par value per  share. Authorized 25,000,000 shares; no shares issued or outstanding                                                                               |       | —                   |       | —                   |       |
| Additional paid-in capital                                                                                                                                                                         |       | 238,287                  |       | 171,123                  |       |
| Accumulated other comprehensive loss                                                                                                                                                               |       | (11,022                  | )          | (12,358                  | )          |
| Retained earnings (accumulated deficit)                                                                                                                                                            |       | 1,624                    |       | (14,479                  | )          |
| Total stockholders’ equity                                                                                                                                                                    |       | 229,363                  |       | 144,648                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                    |       | $                        | 917,102    |                     | $          | 825,090 |   |

 

See Notes toConsolidated Financial Statements.

 

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

**Consolidated Statements of Operations**

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

**(Unaudited)**

 
| ** **                                                      | ** ** | **Thirteen Weeks Ended**  | ** ** | **Thirty-nine Weeks Ended**  | ** ** |
|-----------------------------------------------------------------|------------|---------------------------|------------|------------------------------|------------|
| ** **                                                      | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** |
|                                                            |       |                      |       |                         |       |   |   |   |   |
| Net sales                                                       |       | $                         | 123,871    |                         | $          | 116,515 |   | $ | 365,408 |   | $ | 352,041 |   |
| Cost of goods sold                                              |       | 87,647                    |       | 85,778                       |       | 253,569 |   | 252,816 |   |
| Gross profit                                                    |       | 36,224                    |       | 30,737                       |       | 111,839 |   | 99,225 |   |
|                                                            |       |                      |       |                         |       |   |   |   |   |
| Operating expenses:                                             |       |                      |       |                         |       |   |   |   |   |
| Sales, marketing and distribution expenses                      |       | 10,659                    |       | 10,813                       |       | 32,575 |   | 34,563 |   |
| General and administrative expenses                             |       | 2,936                     |       | 2,067                        |       | 7,753 |   | 5,307 |   |
| Amortization expense—customer relationships                |       | 1,613                     |       | 1,613                        |       | 4,838 |   | 4,838 |   |
| Operating income                                                |       | 21,016                    |       | 16,244                       |       | 66,673 |   | 54,517 |   |
|                                                            |       |                      |       |                         |       |   |   |   |   |
| Other expenses:                                                 |       |                      |       |                         |       |   |   |   |   |
| Interest expense, net                                           |       | 13,570                    |       | 11,562                       |       | 39,996 |   | 37,041 |   |
| Loss on extinguishment of  debt                                 |       | 674                       |       | —                       |       | 674 |   | — |   |
| Income before income tax expense                                |       | 6,772                     |       | 4,682                        |       | 26,003 |   | 17,476 |   |
| Income tax expense                                              |       | 2,611                     |       | 1,792                        |       | 9,900 |   | 6,647 |   |
| Net income                                                      |       | $                         | 4,161      |                         | $          | 2,890 |   | 16,103 |   | 10,829 |   |
|                                                            |       |                      |       |                         |       |   |   |   |   |
| Basic and diluted weighted average shares  outstanding:         |       |                      |       |                         |       |   |   |   |   |
| Class A common stock                                       |       | 37,790                    |       | 36,797                       |       | 36,644 |   | 36,787 |   |
|                                                            |       |                      |       |                         |       |   |   |   |   |
| Basic and diluted earnings per share:                           |       |                      |       |                         |       |   |   |   |   |
| Class A common stock                                       |       | $                         | 0.11       |                         | $          | 0.08 |   | $ | 0.44 |   | $ | 0.29 |   |
|                                                            |       |                      |       |                         |       |   |   |   |   |
| Cash dividends declared per share of Class A  common stock |       | $                         | 0.17       |                         | $          | 0.21 |   | $ | 0.51 |   | $ | 0.64 |   |

 

See Notes toConsolidated Financial Statements.

 

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

**ConsolidatedStatements of Cash Flows**

**(Inthousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                         | ** ** | **October 3,  2009**   | ** ** | **September 27,  2008** | ** ** |
| ** **                                                                         |       |                        | ** ** | ** ** | ** ** |
| **Cash flows from operating  activities:**                                         |       |                        |       |   |   |
| Net income                                                                         |       | $                           | 16,103     |   | $ | 10,829 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                        |       |   |   |
| Depreciation and  amortization                                                     |       | 10,847                      |       | 11,420 |   |
| Amortization of deferred  debt financing costs                                     |       | 2,222                       |       | 2,376 |   |
| Deferred income taxes                                                              |       | 9,295                       |       | 6,087 |   |
| Unrealized gain on interest  rate swap                                             |       | (108                        | )          | (1,514 | ) |
| Loss on extinguishment of  debt                                                    |       | 674                         |       | — |   |
| Reclassification to  interest expense, net for interest rate swap                  |       | 1,270                       |       | 76 |   |
| Share-based compensation  expense                                                  |       | 3,273                       |       | 510 |   |
| Changes in assets and  liabilities:                                                |       |                        |       |   |   |
| Trade accounts receivable                                                          |       | 2,699                       |       | 3,948 |   |
| Inventories                                                                        |       | (14,655                     | )          | (2,507 | ) |
| Prepaid expenses                                                                   |       | 391                         |       | 382 |   |
| Income tax receivable                                                              |       | 199                         |       | (28 | ) |
| Other assets                                                                       |       | (198                        | )          | 191 |   |
| Trade accounts payable                                                             |       | 3,750                       |       | (2,081 | ) |
| Accrued expenses                                                                   |       | (1,260                      | )          | (1,550 | ) |
| Other liabilities                                                                  |       | (201                        | )          | 387 |   |
| Net cash provided by  operating activities                                         |       | 34,301                      |       | 28,526 |   |
|                                                                               |       |                        |       |   |   |
| **Cash flows from investing  activities:**                                         |       |                        |       |   |   |
| Capital expenditures                                                               |       | (7,943                      | )          | (9,832 | ) |
| Net cash used in investing  activities                                             |       | (7,943                      | )          | (9,832 | ) |
|                                                                               |       |                        |       |   |   |
| **Cash flows from financing  activities:**                                         |       |                        |       |   |   |
| Dividends paid                                                                     |       | (18,388                     | )          | (23,395 | ) |
| Repurchase of senior  subordinated notes                                           |       | (6,635                      | )          | — |   |
| Payment of debt financing  costs                                                   |       | (668                        | )          | — |   |
| Proceeds from issuance of  Class A common stock, net                          |       | 86,612                      |       | — |   |
| Repurchase of Class A  common stock                                           |       | (2,334                      | )          | — |   |
| Net cash provided by (used  in) financing activities                               |       | 58,587                      |       | (23,395 | ) |
|                                                                               |       |                        |       |   |   |
| Effect of exchange rate  fluctuations on cash and cash equivalents                 |       | 124                         |       | (6 | ) |
| Net increase (decrease) in  cash and cash equivalents                              |       | 85,069                      |       | (4,707 | ) |
|                                                                               |       |                        |       |   |   |
| Cash and cash equivalents  at beginning of period                                  |       | 32,559                      |       | 36,606 |   |
| Cash and cash equivalents  at end of period                                        |       | $                           | 117,628    |   | $ | 31,899 |   |
| ** **                                                                         |       |                        |       |   |   |
| **Supplemental  disclosures of cash flow information:**                            |       |                        |       |   |   |
| Cash interest payments                                                             |       | $                           | 41,864     |   | $ | 31,336 |   |
| Cash income tax payments                                                           |       | $                           | 1,602      |   | $ | 708 |   |
| Cash income tax refunds                                                            |       | $                           | (1,179     | ) | $ | (96 | ) |
| Non-cash transactions:                                                             |       |                        |       |   |   |
| Dividends declared and not  yet paid                                               |       | $                           | 8,052      |   | $ | 7,801 |   |

 

See Notes to Consolidated Financial Statements.

 

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

**Notes toConsolidated Financial Statements**

**(Unaudited)**

 

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

 

B&G Foods, Inc. is a holding company, theprincipal assets of which are the capital stock of its subsidiaries.  Unless the context requires otherwise,references in this report to “B&G Foods,” “our company,” “we,” “us” and “our”refer to B&G Foods, Inc. and its subsidiaries.  We operate in one industry segment andmanufacture, sell and distribute a diverse portfolio of high-qualityshelf-stable foods across the United States, Canada and Puerto Rico.  Our products include hot cereals, fruitspreads, canned meats and beans, spices, seasonings, marinades, hot sauces,wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces,taco shells and kits, salsas, pickles, peppers and other specialty 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***

 

Our financial statements are presented on aconsolidated basis.  Typically, ourfiscal quarters and fiscal year consist of 13 and 52 weeks, respectively, endingon the Saturday closest to December 31 in the case of our fiscal year andfourth fiscal quarter, and on the Saturday closest to the end of thecorresponding calendar quarter in the case of our fiscal quarters.  As a result, a 53rd week is added to our fiscalyear every five or six years.  In a53-week fiscal year our fourth fiscal quarter contains 14 weeks.  Our fiscal year ending January 2, 2010(fiscal 2009) contains 52 weeks and our fiscal year ended January 3, 2009(fiscal 2008) contained 53 weeks.  Eachquarter of fiscal 2009 and 2008 contains 13 weeks, except the fourth quarter of2008 which contained 14 weeks.

 

***Basis ofPresentation***

 

Theaccompanying consolidated interim financial statements for the thirteen andthirty-nine week periods ended October 3, 2009 (third quarter of 2009 andfirst three quarters of 2009) and September 27, 2008 (third quarter of2008 and first three quarters of 2008) have been prepared by our company inaccordance with accounting principles generally accepted in the United Statesof America without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission (SEC), and include the accounts of B&G Foods, Inc. andits subsidiaries.  Certaininformation and footnote disclosures normally included in annual financialstatements prepared in accordance with generally accepted accounting principleshave been omitted pursuant to such rules and regulations.  However, our management believes, to the bestof their knowledge, that the disclosures herein are adequate to make theinformation presented not misleading.  Allintercompany balances and transactions have been eliminated.  The accompanying unaudited consolidatedfinancial statements contain all adjustments (consisting only of normal andrecurring adjustments) that are, in the opinion of management, necessary topresent fairly our consolidated financial position as of October 3, 2009,the results of our operations for the third quarter and first three quarters of2009 and 2008, and cash flows for the first three quarters of 2009 and2008.  Our results of operations for thethird quarter and first three quarters of 2009 are not necessarily indicativeof the results to be expected for the full year.  We have evaluated subsequent events fordisclosure through October 27, 2009, the date of issuance of theaccompanying unaudited consolidated financial statements.  The accompanying unaudited consolidatedfinancial statements should be read in conjunction with the audited consolidatedfinancial statements and notes for fiscal 2008 included in our Annual Report onForm 10-K for fiscal 2008 filed with the SEC on March 5, 2009.

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

***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 unsaleable inventories;pension benefits; purchase accounting allocations; the recoverability ofgoodwill, trademarks, customer relationship intangibles, property, plant andequipment and deferred tax assets; the accounting for our enhanced income securities (EISs); and theaccounting for share-based compensation expense.  Actual results could differ significantlyfrom 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.

 

***Enhanced IncomeSecurities***

 

Each of our EISs represents one share of our Class Acommon stock and $7.15 principal amount of our senior subordinated notes. Theholders of our EISs may separate each EIS into one share of Class A commonstock and $7.15 principal amount of senior subordinated notes at any time.  Upon the occurrence of certain events(including redemption of the senior subordinated notes or upon maturity of thesenior subordinated notes), EISs will automatically separate.  Conversely, subject to limitations, a holderof separate shares of Class A common stock and senior subordinated notescan combine such securities to form EISs. Separation and combination of EISs will automatically result inincreases and decreases, respectively, in the number of shares of Class Acommon stock not held in the form of EISs. As of October 3, 2009, we had 47,367,292 shares of Class Acommon stock issued and outstanding, 18,199,058 of which were held in the formof EISs and 29,168,234 of which were held separate from EISs.  As of September 27, 2008 we had36,796,988 shares of Class A common stock issued and outstanding,17,077,331 of which were held in the form of EISs and 19,719,657 of which wereheld separate from EISs.  See note 5 fora discussion of the automatic separation of EISs that is scheduled to occur on October 30,2009 in connection with the partial redemption of the senior subordinated noteson November 2, 2009.  Following theautomatic separation of the EISs, holders of shares of Class A commonstock and senior subordinated notes will no longer be able to combine suchsecurities to form EISs.

 

***Recently IssuedAccounting Standards***

 

InJune 2009,theFinancialAccountingStandardsBoard (FASB) established the FASBAccounting Standards CodificationTM (Codification) as the single source ofauthoritative GAAP recognized by the FASB to be applied by nongovernmentalentities. Rules and interpretive releases of the SEC under authority offederal securities laws are also sources of authoritative U.S. GAAP for SECregistrants.  The Codification, which iseffective as of our third quarter of fiscal 2009, supersedes all existingnon-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included inthe Codification will become nonauthoritative. The adoption of this standard did not have any impact on our results ofoperations or financial position.

 

In September 2006, theFASB issued a new standard relating to fair value measurements, which definesfair value, 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, the FASBdelayed the effective date of the standard for all non-financial assets andliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, 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 

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

assetsand non-financial liabilities, which did not have a material impact on ourresults of operations or financial position.

 

In December 2007, theFASB issued new standards relating to business combinations and noncontrollinginterests in consolidated financial statements. The standard relating to business combinations requires an acquirer tomeasure the identifiable assets acquired, the liabilities assumed and anynoncontrolling interest in the acquiree at their fair values on the acquisitiondate, with goodwill being the excess value over the net identifiable assetsacquired.  The noncontrolling intereststandard clarifies that a noncontrolling interest in a subsidiary is anownership interest in the consolidated entity that should be reported as equityin the consolidated financial statements. These standards were effective as of the beginning of our fiscal2009.  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 March 2008, the FASBissued a standard that amended existing standards about derivative instrumentsand hedging activities to require enhanced disclosures about (a) how andwhy an entity uses derivative instruments, (b) how derivative instrumentsand related hedged items are accounted for and (c) how derivativeinstruments and related hedged items affect an entity’s financial position,financial performance, and cash flows. The amendments were effective as of the beginning of our fiscal2009.  Since the amendments requireenhanced disclosures, without a change to existing standards relative tomeasurement and recognition, our adoption of the standard did not have anyeffect on our results of operations or financial position.  See notes 6 and 7 for the requireddisclosures about our derivative instruments and hedging activities.

 

In April 2008, the FASBissued a standard relating to how companies should determine the useful life ofintangible assets.  The standard requirescompanies estimating the useful life of a recognized intangible asset toconsider their historical experience in renewing or extending similararrangements or, in the absence of historical experience, to considerassumptions that market participants would use about renewal or extension asadjusted for entity-specific factors.  Weadopted this standard effective at the beginning of our fiscal 2009, which didnot have a material impact on our results of operations or financial position.

 

In December 2008, theFASB issued a standard relating to an employer’s disclosure aboutpostretirement benefit plan assets.  Thestandard requires additional disclosures about plan assets for defined benefitpension and other postretirement benefit plans. The standard will be effective as of the end of our fiscal 2009.  Since this requires enhanced disclosures,without a change to existing standards relative to measurement and recognition,our adoption of the standard will not have a material impact on our results ofoperations or financial position.

 

In May 2009, the FASBestablished a general standard of accounting for, and requiring disclosure of,events that occur after the balance sheet date but before financial statementsare issued or are available to be issued. The standard was effective beginning with our second quarter of fiscal2009.  The adoption of the standard didnot have a material effect on our on our results of operations or financialposition.

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

Inventories consist of the following, as of the datesindicated (dollars in thousands):

 
| ** **                   | ** ** | **October 3, 2009** | ** ** | **January 3, 2009** | ** ** |
|------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Raw materials and  packaging |       | $                        | 34,862     |                     | $          | 19,402 |   |
| Work in process              |       | 1,290                    |       | 2,658                    |       |
| Finished goods               |       | 67,402                   |       | 66,839                   |       |
|                         |       |                     |       |                     |       |
| Total                        |       | $                        | 103,554    |                     | $          | 88,899 |   |

 

**(4)****                              ****Goodwill, Trademarks andCustomer Relationship Intangibles**

 

Therehas been no change in the carrying amount of goodwill for the period from January 3,2009 to October 3, 2009.

 

Therehas been no change in the carrying amount of trademarks (indefinite-livedintangibles) for the period from January 3, 2009 to October 3, 2009.

 

Thefollowing table reconciles the changes in the carrying amount of customerrelationship intangibles for the period from January 3, 2009 to October 3,2009 (dollars in thousands):

 
| ** **                       | ** ** | **Customer  Relationship  Intangibles** | ** ** | **Less:  Accumulated  Amortization** | ** ** | **Total** | ** ** |
|----------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|-----------|------------|
| Balance at January 3,  2009 |       | $                                       | 129,000    |                                 | $          | (12,682   | )          | $ | 116,318 |   |
| Amortization expense             |       | —                                  |       | (4,838                               | )          | (4,838    | )          |
| Balance at October 3,  2009 |       | $                                       | 129,000    |                                 | $          | (17,520   | )          | $ | 111,480 |   |

 

Customerrelationship intangibles are presented at cost, net of accumulatedamortization, and are amortized on a straight-line basis over their estimateduseful lives of 20 years.  Amortizationexpense associated with customer relationship intangibles for each of the thirdquarter and first three quarters of 2009 and 2008 was $1.6 million and $4.8million, respectively, and is recorded in operating expenses.  We expect to recognize an additional $1.7million of amortization expense associated with our current customerrelationship intangibles during the remainder of fiscal 2009, and thereafter$6.5 million per year for each of the next four succeeding fiscal years.

 

7

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Table of Contents

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

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

 
| ** **                                               | ** ** | **October 3, 2009** | ** ** | **January 3, 2009** | ** ** |
|----------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Senior secured credit  facility:                         |       |                     |       |                     |       |
| Revolving credit facility                                |       | $                        | —     |                     | $          | — |   |
| Term loan                                                |       | 130,000                  |       | 130,000                  |       |
|                                                     |       |                     |       |                     |       |
| 12% Senior Subordinated  Notes due October 30, 2016 |       | 159,541                  |       | 165,800                  |       |
| 8% Senior Notes due  October 1, 2011                |       | 240,000                  |       | 240,000                  |       |
| Total long-term debt                                     |       | 529,541                  |       | 535,800                  |       |
|                                                     |       |                     |       |                     |       |
| Less current portion                                     |       | 90,000                   |       | —                   |       |
| Long-term debt, less  current portion                    |       | $                        | 439,541    |                     | $          | 535,800 |   |

 

As of October 3, 2009,the aggregate maturities of long-term debt are as follows (dollars inthousands):

 
| Years ending December: | ** ** | ** ** | ** ** |
|------------------------|------------|------------|------------|
| 2009                   |       | $          | 90,000     |   |
| 2010                   |       | —     |       |
| 2011                   |       | 240,000    |       |
| 2012                   |       | —     |       |
| 2013                   |       | 130,000    |       |
| Thereafter             |       | 69,541     |       |
| Total                  |       | $          | 529,541    |   |

 

*Senior Secured CreditFacility*.  During the third quarter of 2009, Credit Suissereplaced Lehman Commercial Paper Inc. (Lehman CPI) as the administrative agentunder our credit facility.  Also duringthe third quarter of 2009, the credit facility was amended to, among otherthings, extend the maturity date for the undrawn revolving credit facility fromJanuary 2011 to February 2013. As amended, our $25.0 million revolving credit facility and our$130.0 million of term loan borrowings mature in February 2013, provided,however, that if we do not repay, redeem or refinance our senior notes prior toApril 1, 2011, the revolving credit facility and the outstanding term loanborrowings will become immediately due and payable on April 1, 2011.  Thefollowing discussion of the credit facility describes the credit facility asamended through the date of issuance of the accompanying unaudited consolidatedfinancial 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

 

8

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Table of Contents

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

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 October 3, 2009, 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.

 

On September 15, 2008,Lehman CPI filed for protection under Chapter 11 of the U.S. BankruptcyCode.  Following that date, we no longerbelieved that Lehman CPI would honor its $3.1 million funding commitment underthe revolving credit facility if we were to make a funding request.  Therefore, when Lehman CPI’s commitment wasassumed by other lenders during the third quarter of 2009, the effectiveavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit increased by $3.1 million.  At October 3, 2009, the availableborrowing capacity under our revolving credit facility, net of outstandingletters 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 the foreseeablefuture.

 

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.  On September 15,2008, (Lehman) filed for protection under Chapter 11 of the U.S. BankruptcyCode.  Lehman SFI filed for protectionunder 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 swap inother comprehensive income (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 October 3, 2009, the fair value of our interest rate swap wasan unrealized loss of $13.0 million and is recorded in other liabilities on ourconsolidated balance sheet.  The amountrecorded in accumulated other comprehensive income (loss) will be reclassifiedto net interest expense over the remaining life of the term loan borrowings aswe make interest payments.  Net interestexpense in the third quarter and first three quarters of 2009 includes a chargeof $0.6 million and a benefit of $0.1 million, respectively, relating to theunrealized gain (loss) on our interest rate swap and a reclassification of $0.4million and $1.3 million, respectively, of the amount recorded in accumulatedother comprehensive income (loss) related to the swap.  During the remainder of fiscal 2009, weexpect to reclassify to net interest expense $0.4 million of the amountrecorded in accumulated other comprehensive income (loss).

 

*Subsidiary Guarantees*. We have no assets or operations independent of our direct and indirectsubsidiaries.  All of our presentdomestic subsidiaries jointly and severally and fully and unconditionallyguarantee our senior subordinated notes and our senior notes, and managementhas determined that our Canadian subsidiary, which is our only subsidiary thatis not a guarantor of our senior subordinated notes and 

 

9

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Table of Contents

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

senior notes, is a “minor subsidiary” as that term isused in Rule 3-10 of Regulation S-X promulgated by the SEC.  There are no significant restrictions on ourability and the ability of our subsidiaries to obtain funds from our respectivesubsidiaries by dividend or loan. Consequently, separate financial statements have not been presented forour subsidiaries because management has determined that they would not bematerial to investors.

 

*Deferred Debt Financing Costs*. In connection with the issuance of our senior subordinated notes and oursenior notes in October, 2004, we capitalized approximately $23.1 million ofdebt financing costs, which will be amortized over their respective terms.  In connection with the issuance of term loanborrowings of $25.0 million in January 2006, we capitalized approximately$0.4 million of additional debt financing costs, which will be amortized overthe term of the loan.  In connection withthe issuance of additional term loan borrowings of $205.0 million in February 2007we capitalized approximately $4.0 million of additional debt financing costs,which will be amortized over the term of the loan.  During the second quarter of 2007 wewrote-off and expensed $1.8 million of deferred debt financing costs inconnection with our May 2007 prepayment of $100.0 million of term loanborrowings.  During the third quarter of2009, we wrote-off and expensed $0.3 million of deferred debt financing costsrelating to the repurchase during the quarter of $6.3 million principal amountof senior subordinated notes.  During thethird quarter of 2009, we also capitalized approximately $0.7 million ofadditional debt financing costs in connection with an amendment to our creditfacility.  As of October 3, 2009 andJanuary 3, 2009 we had net deferred debt financing costs of $11.3 millionand $13.2 million, respectively.

 

At October 3, 2009 and January 3, 2009accrued interest of $4.5 million and $9.4 million, respectively, is included inaccrued expenses in the accompanying consolidated balance sheets.

 

*Repurchase and Partial Redemption of SeniorSubordinated Notes. *During thethird quarter of 2009, we repurchased $6.3 million principal amount of seniorsubordinated notes in a privately negotiated transaction, which resulted in apre-tax charge in our third quarter of $0.7 million, representing a cash chargeof $0.4 million relating to the repurchase premium and a non-cash charge of$0.3 million relating to the write-off of unamortized deferred debt financingcosts.

 

Also during the third quarter of 2009, weissued a notice of partial redemption for $90.0 million principal amount of oursenior subordinated notes at a cash redemption price of 106% of the principalamount of the notes being redeemed, plus accrued and unpaid interest on suchamount, to, but excluding, the redemption date of November 2, 2009.  Upon completion of the redemption, $69.5million principal amount of the senior subordinated notes will remain outstanding.  As a result of the foregoing, we havereclassified $90.0 million principal amount of our senior subordinated notesfrom long-term debt to current portion of long-term debt in the accompanyingunaudited consolidated financial statements.

 

Pursuant to the terms of the indenture governing thesenior subordinated notes, the partial redemption of the senior subordinatednotes will result in an automatic separation of all of the EISs into thecomponent shares of Class A common stock and senior subordinatednotes.  The automatic separation isexpected to occur on October 30, 2009.

 

The partial redemption of the senior subordinatednotes is expected to result in a pre-tax charge in our fourth quarter of fiscal2009 of $9.5 million, which represents a cash charge of $5.4 million relatingto the call premium and a non-cash charge of $4.1 million relating to thewrite-off of unamortized deferred debt financing costs.

 

10

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Table of Contents

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

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

 

The FASB standard relating to fair value measurementsdefines fair value as the price that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsat the 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 acceptedaccounting principles, certain assets and liabilities must be measured at fair value,and the standard details the disclosures that are required for items measuredat fair value.

 

Financialassets and liabilities are measured using inputs from the three levels of thestandard’s fair value hierarchy. The three levels are as follows:

 

Level1—Inputs are unadjusted quoted prices in active markets for identical assets orliabilities.

 

Level2—Inputs include quoted prices for similar assets and liabilities in activemarkets, quoted prices for identical or similar assets or liabilities inmarkets that are not active, inputs other than quoted prices that areobservable for the asset or liability (i.e., interest rates, yield curves,etc.), and inputs that are derived principally from or corroborated byobservable market data by correlation or other means (market corroborated inputs).

 

Level3—Unobservable inputs that reflect our assumptions about the assumptions thatmarket participants would use in pricing the asset or liability.

 

Inaccordance with the fair value hierarchy described above, the following tableshows the fair value of our interest rate swap as of October 3, 2009 and January 3,2009, which is included in other liabilities in our consolidated balance sheet(dollars in thousands):

 
| ** **           | ** ** | ** **         | ** ** | **Fair Value  Measurements** | ** ** |
|----------------------|------------|--------------------|------------|------------------------------|------------|
| ** **           | ** ** | **Description**    | ** ** | **Level 1**                  | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| October 3, 2009 |       | Interest rate swap |       | $                            | —     |   | $ | 13,009 |   | $ | — |   |
| January 3, 2009 |       | Interest rate swap |       | $                            | —     |   | $ | 13,117 |   | $ | — |   |

 

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

 

The carrying values and fairvalues of our term loan borrowings, senior notes and senior subordinated notesas of October 3, 2009 and January 3, 2009 are as follows (dollars inthousands):

 
| ** **                                                | ** ** | **October 3,  2009** | ** ** | **January 3,  2009** | ** ** |
|-----------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                                | ** ** | **Carrying  Value**       | ** ** | **Fair  Value(1)(2)**     | ** ** | **Carrying  Value** | ** ** | **Fair  Value(1)(3)** | ** ** |
| Senior Secured Term Loan  due February 26, 2013      |       | $                         | 130,000    |                      | $          | 128,375 |   | $ | 130,000 |   | $ | 107,900 |   |
| 8% Senior Notes due  October 1, 2011                 |       | 240,000                   |       | 241,800                   |       | 240,000 |   | 207,600 |   |
| 12% Senior Subordinated  Notes due October 30, 2016: |       |                      |       |                      |       |   |   |   |   |
| — represented by EISs                                |       | 123,864                   |       | 127,502                   |       | 124,793 |   | 90,235 |   |
| — held separately                                    |       | 35,677                    |       | 36,725                    |       | 41,007 |   | 29,651 |   |
|                                                           |            |                           |            |                           |            |  |  |  |  |  |  |  |  |

 

----

(1)          Fair values are estimated based on quoted market prices, except asotherwise noted in footnotes (2) and (3) below.

 

11

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Table of Contents

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(6)**                               FairValue Measurements (Continued)

 

(2)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at October 3, 2009 was $7.36, basedupon the $7.84 per share closing price of our separately traded Class Acommon stock and the $15.20 per EIS closing price of our EISs on the New YorkStock Exchange on October 2, 2009 (the last business day of the thirdquarter of 2009).  Each EIS representsone share of Class A common stock and $7.15 principal amount of our seniorsubordinated notes.

 

(3)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at January 3, 2009 was $5.17, basedupon the $5.49 per share closing price of our separately traded Class Acommon stock and the $10.66 per EIS closing price of our EISs on the New YorkStock Exchange on January 2, 2009 (the last business day of fiscal 2008).

 

Our term loan borrowings are subject to an interestrate swap discussed in notes 5 and 7.

 

**(7)****                              ****Disclosures aboutDerivative Instruments and Hedging Activities**

 

We recognize all derivative instruments either as anasset or a liability in the balance sheet and to measure such instruments atfair value.  We do not engage inderivative instruments for trading purposes.

 

The following table presents the fair value and thelocation within our consolidated balance sheet of all assets and liabilitiesassociated with derivative instruments not designated as hedging instruments(dollars in thousands):

 
| **Derivatives not**                   | ** ** | ** **                  | ** ** | **Asset**                               | ** ** | **Liability**                           | ** ** |
|---------------------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| **designated as hedging**             | ** ** | ** **                  | ** ** | **Derivatives**                         | ** ** | **Derivatives**                         | ** ** |
| **instruments under  FASB standards** | ** ** | **Balance Sheet  Location** | ** ** | **Fair Value at  October 3, 2009** | ** ** | **Fair Value at  October 3, 2009** | ** ** |
|                                  |       |                        |       |                                    |       |                                    |       |
| Interest rate swap                    |       | Other liabilities           |       | —                                  |       | $                                       | 13,009     |   |
|                                       |            |                             |            |                                         |            |                                         |            |  |

 

See notes 5and 6 for additional information regarding our interest rate swap.  We do not currently have any derivativesdesignated as hedging instruments under FASB standards.

 

The following tables present the impact of derivativeinstruments and their location within our consolidated statement of operations(dollars in thousands):

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

 

----

*                 The amount included in net interest expensefor the third quarter and first three quarters of 2009 consists of $631unrealized loss and $108 unrealized gain on our interest rate swap, and $424and $1,270 (pre-tax) reclassified to net interest expense from accumulatedother comprehensive income, respectively.

 

12

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Table of Contents

 

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

**Notes toConsolidated Financial Statements (Continued)**

**(Unaudited)**

 

**(8)****                              ****Stockholders’ Equity**

 

*Sale of Class A Common Stock. *In September 2009, we completed an underwritten publicoffering of 11,500,000 shares of our Class A common stock as a separatelytraded security at $8.00 per share.  Theproceeds of the offering were $86.6 million, after deducting underwritingdiscounts and commissions and other transaction expenses.  The offering was made by means of aprospectus and the related prospectus supplement included as part of aneffective shelf registration statement previously filed with the SEC.  The net proceeds of the offering, togetherwith cash on hand, will be used to fund a partial redemption of $90.0 millionprincipal amount of our senior subordinated notes.  See note 5 for a discussion of the partialredemption.

 

**(9)****                               ComprehensiveIncome**

 

Comprehensiveincome includes net income, foreign currency translation adjustments relatingto assets 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 income (loss) related to the swap will bereclassified to net interest expense over the remaining life of the term loanas we make interest payments.

 

Thecomponents of comprehensive income are as follows (dollars in thousands):

 
| ** **                                                                         | ** ** | **Thirteen Weeks Ended**  | ** ** | **Thirty-nine Weeks Ended**  | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------------|------------|
| ** **                                                                         | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** |
|                                                                               |       |                      |       |                         |       |   |   |   |   |
| Net income                                                                         |       | $                         | 4,161      |                         | $          | 2,890 |   | $ | 16,103 |   | $ | 10,829 |   |
| Other comprehensive income:                                                        |       |                      |       |                         |       |   |   |   |   |
| Foreign currency translation adjustments                                           |       | 270                       |       | (21                          | )          | 193 |   | (6 | ) |
| Amortization of unrecognized prior service cost and  pension deferrals, net of tax |       | 134                       |       | 6                            |       | 355 |   | 16 |   |
| Cash flow hedge transaction, net of tax                                            |       | —                    |       | (1,340                       | )          | — |   | (1,023 | ) |
| Reclassification to interest expense, for interest  rate swap, net of tax          |       | 263                       |       | —                       |       | 788 |   | — |   |
| Comprehensive income                                                               |       | $                         | 4,828      |                         | $          | 1,535 |   | $ | 17,439 |   | $ | 9,816 |   |

 

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

 

Net periodic costs for the third quarter and firstthree quarters of 2009 and 2008 include the following components (dollars inthousands):

 
| ** **                                          | ** ** | **Thirteen Weeks Ended**  | ** ** | **Thirty-nine Weeks Ended**  | ** ** |
|-----------------------------------------------------|------------|---------------------------|------------|------------------------------|------------|
| ** **                                          | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** |
|                                                |       |                      |       |                         |       |   |   |   |   |
| Service cost—benefits earned during the period |       | $                         | 411        |                         | $          | 350 |   | $ | 1,249 |   | $ | 1,010 |   |
| Interest cost on projected benefit obligation       |       | 461                       |       | 389                          |       | 1,323 |   | 1,109 |   |
| Expected return on plan assets                      |       | (355                      | )          | (463                         | )          | (1,107 | ) | (1,369 | ) |
| Amortization of unrecognized prior service cost     |       | 11                        |       | 11                           |       | 33 |   | 33 |   |
| Amortization of loss                                |       | 205                       |       | (3                           | )          | 539 |   | (9 | ) |
| Net pension cost                                    |       | $                         | 733        |                         | $          | 284 |   | $ | 2,037 |   | $ | 774 |   |

 

13

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Table ofContents

 

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

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

**(Unaudited)**

 

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

 

Duringthe first three quarters of 2009, we made approximately $2.8 million incontributions to our defined benefit pension plans, $0.7 million of which weremade during the third quarter.  We do notanticipate electing to make contributions to our defined benefit pension plansduring the remainder of fiscal 2009.

 

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

* *

*Environmental. *We are subject to environmental laws and regulationsin the normal course of business.  We didnot make any material expenditures during the third quarter and first threequarters of 2009 or in fiscal 2008 in order to comply with environmental lawsand regulations.  Based on our experienceto date, management believes that the future cost of compliance with existingenvironmental laws and regulations (and liability for any known environmentalconditions) will not have a material adverse effect on our consolidatedfinancial position, results of operations or liquidity.  However, we cannot predict what environmentalor health and safety legislation or regulations will be enacted in the futureor how existing or future laws or regulations will be enforced, administered orinterpreted, nor can we predict the amount of future expenditures that may berequired in order to comply with such environmental or health and safety laws orregulations or to respond to such environmental 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.

 

*Collective Bargaining Agreements*. Approximately 339 of our 724 employees, or 46.8%, as of October 3,2009, 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 six 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 of control,accelerated vesting under compensation plans and potential excise tax liabilityand gross up payments.

** **

**(12)****        ****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 outstanding.  Basicearnings per share for the Class A common stock is calculated by dividingnet income by the weighted average number of shares of Class A commonstock outstanding.  Diluted earnings pershare for each of the periods presented are equal to basic earnings per sharebecause no potentially dilutive securities were outstanding during eitherperiod.

 

14

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Table of Contents

 

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

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

**(Unaudited)**

 

**(13)****        ****Business and Credit Concentrationsand 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 50.1%****and 46.3% of consolidated net salesfor the first three quarters of 2009 and 2008, respectively.  Our top ten customers accounted forapproximately 53.2% and 56.1% of our receivables as of October 3, 2009 andJanuary 3, 2009, respectively. Other than Wal-Mart, which accounted for 15.9% and 13.4% of ourconsolidated net sales for the first three quarters of 2009 and 2008,respectively, no single customer accounted for more than 10.0% of ourconsolidated net sales for the first three quarters of 2009 or 2008.  Other than C&S Wholesale Grocery andWal-Mart, which accounted for 13.8% and 11.8% of our consolidated receivables,respectively, as of October 3, 2009, no single customer accounted for morethan 10.0% of our consolidated receivables as of the end of the first threequarters of 2009.  Other than C&SWholesale Grocery and Wal-Mart, which accounted for 17.7% and 13.2% of ourconsolidated receivables, respectively, as of January 3, 2009, no singlecustomer accounted for more than 10.0% of our consolidated receivables as ofthe end of fiscal 2008.

 

Duringthe third quarter and first three quarters of 2009 and 2008, our sales toforeign countries represented less than 1.0% of net sales.  Our foreign sales are primarily to customersin Canada.****

 

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

 

Therecognition of compensation expense for our performance share long-termincentive awards (LTIAs) is initially based on the probable outcome of theapplicable performance condition based on the fair value of the award on thedate of grant and the anticipated number of shares to be awarded on astraight-line basis over the applicable performance period.  Our company’s performance against theperformance goal defined in the award agreements will be re-evaluated on aquarterly basis throughout the applicable performance period and therecognition of compensation expense will be adjusted for subsequent changes inthe estimated or actual outcome.  Thecumulative effect on current and prior periods of a change in the estimatednumber of performance share awards is recognized as an adjustment to earningsin the period of the revision.

 

Duringthe third quarter and first three quarters of 2009, we recognized $1.5 millionand $3.1 million, respectively, of compensation expense related to performanceshare LTIAs for the 2008 to 2009, 2008 to 2010 and 2009 to 2011 performanceperiods, which is reflected in general and administrative and sales, marketingand distribution expenses in our consolidated statements of operations.  As of October 3, 2009, there was $3.2million of unrecognized compensation expense related to performance shareLTIAs, which is expected to be recognized over the next 27 months.

 

Thefollowing table details the activity in our performance share LTIAs for thefirst three quarters of 2009:

 
| ** **                          | ** ** | **Target Number  of Performance Shares****(1)** | ** ** | **Estimated  Number  of Performance Shares****(1)** | ** ** | **Weighted  Average   Grant Date Fair   Value (per share)****(2)** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                          | ** ** | ** **                                      | ** ** | ** **                                          | ** ** | ** **                                                         | ** ** |
| Beginning of year(3)                |       | 273,814                                         |       | 709,875                                             |       | $                                                                  | 7.25       |   |
| Granted(4)                          |       | 392,824                                         |       | 1,045,611                                           |       | $                                                                  | 1.88       |   |
| Vested                              |       | —                                          |       | —                                              |       | —                                                             |       |
| Forfeited                           |       | —                                          |       | —                                              |       | —                                                             |       |
| End of first three quarters of 2009 |       | 666,638                                         |       | 1,755,486                                           |       | $                                                                  | 4.09       |   |

 

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

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

**(Unaudited)**

 

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

 

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(1)   The target number of unvestedperformance shares is based on the participants earning their target number ofperformance shares at 100%.  The ultimateaward, which we determine at the end of the applicable performance period, canrange from zero to 300% of the target number of performance shares.  The estimated number of unvested performanceshares is based upon the quarterly evaluation we completed at the end of thethird quarter of 2009 of our company’s performance goals against theperformance goals defined in the applicable award agreements.

 

(2)   The fair value of the awardswas determined based upon the closing price of our Class A common stock onthe applicable measurement dates reduced by the present value of expecteddividends using the risk-free interest-rate as the award holders are notentitled to dividends or dividend equivalents during the vesting period.

 

(3)   Represents unvested 2008 to2009 and 2008 to 2010 performance share LTIAs granted in fiscal 2008.

 

(4)   Represents unvested 2009 to2011 performance share LTIAs granted in the first three quarters of 2009.

 

*Non-Employee Director Stock Grants. *Each of our non-employee directors receives an annualequity grant of approximately $35,000 of Class A Common Stock as part ofhis or her non-employee director compensation. These shares fully vest when issued. On June 1, 2009, 24,135 shares of Class A common stock in theaggregate were issued to the non-employee directors based upon the closingprice of our Class A common stock on May 29, 2009 (the business dayimmediately prior to the date of grant) of $7.25 per share.  Share-based compensation expense of $0.2million relating to the non-employee director grants is reflected in generaland administrative expenses in our consolidated statements of operations forthe first three quarters of 2009.

 

**(15)****        ****Stock and Debt Repurchase Plan**

** **

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/orsenior 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.  Under the authorization, we maypurchase shares of Class A common stock and/or senior notes from time totime in the open market or in privately negotiated transactions in compliancewith the applicable rules and regulations of the SEC.

 

Thetiming and amount of such repurchases, if any, will be at the discretion ofmanagement, and will depend on market conditions and other considerations.  Therefore, there can be no assurance as tothe number or aggregate dollar amount of shares that will be repurchased underthe stock and debt repurchase program. Likewise, there can be no assurance as to the principal amount of seniornotes, if any, that will be repurchased. We may discontinue the program at any time.  Any shares repurchased pursuant to the stockrepurchase program will be retired.  Likewise,any senior notes repurchased will be cancelled.

 

During the first two quarters of 2009 we repurchasedand retired 403,500 shares of Class A common stock at an average cost pershare (excluding fees and commissions) of $5.76, or $2.3 million in theaggregate.  We did not repurchase anyshares of Class A common stock during the third quarter of 2009.  During the third quarter of 2009, werepurchased $6.3 million principal amount of our senior subordinated notes for$6.6 million plus accrued and unpaid interest. As of October 3, 2009, we had $13.5 million available for futurerepurchases of Class A common stock and/or senior notes under the stockand debt repurchase plan.

 

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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 and thirty-nine weeks ended October 3, 2009 (thirdquarter of 2009 and first three quarters of 2009) included elsewhere in thisreport and the audited consolidated financial statements and related notes forthe fiscal year ended January 3, 2009 (fiscal 2008) included in our AnnualReport on Form 10-K filed with the Securities and Exchange Commission(SEC) on March 5, 2009 (which we refer to as our 2008 Annual Report on Form 10-K).

 

**General**

** **

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 acquisitions of complementarybranded businesses, continuing to develop innovative 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.  Although our commodity prices for wheat werelower in the first three quarters of 2009 than those incurred during the firstthree quarters of 2008, our commodity prices for beans and packaging werehigher than those incurred during the first three quarters of 2008.

 

Wepurchase maple syrup primarily from 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.  The 2009 maple syrup crop yield is more consistentwith historic levels.  This together withthe granting of additional production quotas by the Federation of Québec MapleSyrup Producers has brought global supply more in line with global demand andis expected to reduce the price we will pay for maple syrup during theremainder of 2009 as compared to 2008. In addition, unlike 2008, we have been able to purchase sufficient maplesyrup in 2009 to meet our needs.

 

Thecost of 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 

 

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manage these risks by entering into short-term supplycontracts and advance commodities purchase agreements from time to time,implementing cost saving measures and by raising sales prices.  To date, our cost saving measures and salesprice increases have offset increases to our raw material, ingredient andpackaging costs, although in certain cases on a lagging basis.  To the extent we are unable to offset presentand future cost increases, our operating results will be negatively impacted.

 

*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 that we have notpurchased Canadian 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 and 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 and consumerpromotion expenses; allowances for excess, obsolete and unsaleable inventories;pension benefits; purchase accounting allocations; the recoverability ofgoodwill, trademarks, customer relationship intangibles, property, plant andequipment, and deferred tax assets; the accounting for our EISs; and theaccounting for share-based compensation expense.  Actual results could differ significantlyfrom these estimates and assumptions.

 

In our2008 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 3, 2009.

 

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**Results of Operations**

** **

Thefollowing table sets forth the percentages of net sales represented by selecteditems for the third quarter of 2009 and 2008 and first three quarters of 2009and 2008 reflected in our consolidated statements of operations.  The comparisons of financial results are notnecessarily indicative of future results:

 
| ** **                                        | ** ** | **Thirteen Weeks Ended**  | ** ** | **Thirty-nine Weeks Ended**  | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|------------------------------|------------|
| ** **                                        | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** |
| **Statement  of Operations:**                     |       |                      |       |                         |       |   |   |   |   |
| Net sales                                         |       | 100.0                     | %          | 100.0                        | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold                               |       | 70.8                      | %          | 73.6                         | %          | 69.4 | % | 71.8 | % |
| Gross profit                                      |       | 29.2                      | %          | 26.4                         | %          | 30.6 | % | 28.2 | % |
|                                              |       |                      |       |                         |       |   |   |   |   |
| Sales, marketing  and distribution expenses       |       | 8.6                       | %          | 9.3                          | %          | 8.9 | % | 9.8 | % |
| General and  administrative expenses              |       | 2.3                       | %          | 1.8                          | %          | 2.2 | % | 1.5 | % |
| Amortization  expense—customer relationships |       | 1.3                       | %          | 1.4                          | %          | 1.3 | % | 1.4 | % |
| Operating income                                  |       | 17.0                      | %          | 13.9                         | %          | 18.2 | % | 15.5 | % |
|                                              |       |                      |       |                         |       |   |   |   |   |
| Interest  expense, net                            |       | 11.0                      | %          | 9.9                          | %          | 10.9 | % | 10.5 | % |
| Loss on  extinguishment of debt                   |       | 0.5                       | %          | —                       |       | 0.2 | % | — |   |
| Income before  income tax expense                 |       | 5.5                       | %          | 4.0                          | %          | 7.1 | % | 5.0 | % |
|                                              |       |                      |       |                         |       |   |   |   |   |
| Income tax  expense                               |       | 2.1                       | %          | 1.5                          | %          | 2.7 | % | 1.9 | % |
| Net income                                        |       | 3.4                       | %          | 2.5                          | %          | 4.4 | % | 3.1 | % |

 

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 technologyinfrastructure and communication costs, office rent and supplies, professionalservices and other 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 andamortization of deferred debt financing costs, net of interest income andsubsequent to our determination in September 2008, that our interest rateswap is no longer an effective hedge as defined by FASB standards, unrealizedgains (losses) on the interest rate swap and the reclassification of amountsrecorded in accumulated other comprehensive income (loss) related to the swap.

 

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*Loss on Extinguishment of Debt.* Loss on extinguishment of debt for the third quarter and first three quartersof 2009 includes costs relating to our repurchase of senior subordinated notes,including the repurchase premium and the write-off of deferred debt financingcosts.

 

***Non-GAAPFinancial Measures***

 

Certaindisclosures in this report include “non-GAAP (generally accepted accountingprinciples) financial measures.”  Anon-GAAP financial measure is defined as a numerical measure of our financialperformance that excludes or includes amounts so as to be different than themost directly comparable measure calculated and presented in accordance withGAAP in our consolidated balance sheets and related consolidated statements ofoperations, changes in stockholders’ equity and comprehensive income, and cashflows.

 

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,depreciation and amortization and loss on extinguishment of debt because itallows management to focus on what it deems to be a more reliable indicator ofongoing operating performance and our ability to generate cash flow fromoperations. We use EBITDA in our business operations, among other things, toevaluate our operating performance, develop budgets and measure our performanceagainst those budgets, determine employee bonuses and evaluate our cash flowsin terms of cash needs. We also present EBITDA because we believe it is auseful indicator of our historical debt capacity and ability to service debtand because covenants in our credit facility, our senior notes indenture andour senior subordinated notes indenture contain ratios based on thismeasure.  As a result, internalmanagement reports used during monthly operating reviews feature the EBITDAmetric. However, management uses this metric in conjunction with traditional GAAPoperating performance and liquidity measures as part of its overall assessmentof company performance and liquidity and therefore does not place unduereliance on this measure as its only measure of operating performance andliquidity.

 

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 workingcapital, capital expenditures and acquisitions, if any, and pay its incometaxes and dividends. Rather, EBITDA is a potential indicator of an entity’sability to fund these cash requirements. EBITDA is not a complete measure of anentity’s profitability because it does not include costs and expenses fordepreciation and amortization, interest and related expenses, loss onextinguishment of debt and income taxes. Because not all companies useidentical calculations, this presentation of EBITDA may not be comparable toother similarly titled measures of other companies. However, EBITDA can stillbe useful in evaluating our performance against our peer companies becausemanagement believes this measure provides users with valuable insight into keycomponents of GAAP amounts.

 

Areconciliation of EBITDA to net income and to net cash provided by operatingactivities for the third quarter and first three quarters of 2009 and 2008along with the components of EBITDA follows:

 

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| ** **                                                                 | ** ** | **Thirteen  Weeks Ended**   | ** ** | **Thirty-nine  Weeks Ended** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                 | ** ** | **October 3,  2009**   | ** ** | **September 27,  2008** | ** ** | **October 3,  2009** | ** ** | **September 27,  2008** | ** ** |
| ** **                                                                 | ** ** | **(Dollars  in thousands)** | ** ** |
| Net income                                                                 |       | $                           | 4,161      |                         | $          | 2,890 |   | $ | 16,103 |   | $ | 10,829 |   |
| Income tax expense                                                         |       | 2,611                       |       | 1,792                        |       | 9,900 |   | 6,647 |   |
| Interest expense, net                                                      |       | 13,570                      |       | 11,562                       |       | 39,996 |   | 37,041 |   |
| Depreciation and amortization                                              |       | 3,677                       |       | 3,887                        |       | 10,847 |   | 11,420 |   |
| Loss on extinguishment of debt(A)                                          |       | 674                         |       | —                       |       | 674 |   | — |   |
| EBITDA                                                                     |       | 24,693                      |       | 20,131                       |       | 77,520 |   | 65,937 |   |
| Income tax expense                                                         |       | (2,611                      | )          | (1,792                       | )          | (9,900 | ) | (6,647 | ) |
| Interest expense, net                                                      |       | (13,570                     | )          | (11,562                      | )          | (39,996 | ) | (37,041 | ) |
| Deferred income taxes                                                      |       | 3,348                       |       | 2,042                        |       | 9,295 |   | 6,087 |   |
| Amortization of deferred debt financing costs                              |       | 610                         |       | 792                          |       | 2,222 |   | 2,376 |   |
| Unrealized loss (gain) on interest rate swap                               |       | 631                         |       | (1,514                       | )          | (108 | ) | (1,514 | ) |
| Reclassification to interest expense, net for interest rate swap           |       | 424                         |       | 76                           |       | 1,270 |   | 76 |   |
| Share-based compensation expense                                           |       | 1,471                       |       | 152                          |       | 3,273 |   | 510 |   |
| Changes in assets and liabilities, net of effects of business  combination |       | 1,973                       |       | 8,108                        |       | (9,275 | ) | (1,258 | ) |
| Net cash provided by operating activities                                  |       | $                           | 16,969     |                         | $          | 16,433 |   | $ | 34,301 |   | $ | 28,526 |   |

 

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(A)  Losson extinguishment of debt for the third quarter and first three quarters of2009 includes costs relating to our repurchase of senior subordinated notes,including the repurchase premium and the write-off of deferred debt financingcosts.

 

***Third quarter of 2009 compared to the third quarter of 2008.***

** **

*Net Sales. *Net sales increased $7.4 million or 6.3%to $123.9 million for the third quarter of 2009 from $116.5 million for thethird quarter of 2008.  Net sales for thethird quarter of 2009 were negatively impacted by the poor maple syrup crop inCanada in 2008 that led to a global shortfall of pure maple syrup.  Net sales of our *Maple GroveFarms*pure maple syrup products decreased by $0.1 million,consisting of a sales price decline of $0.5 million, partially offset by unitvolume increases of $0.4 million. Excluding net sales of our pure maple syrup products, net sales for thethird quarter of 2009 increased $7.5 million or 7.1%.  The $7.5 million increase was attributable tosales price and unit volume increases of $6.7 million and $0.8 million,respectively.

 

Netsales of our lines of *Ortega, Cream ofWheat, Ac’cent, Las Palmas, Grandma’s*and *Joan of Arc*productsincreased**in the amounts of $6.0million, $1.2 million, $0.9 million, $0.8 million, $0.7 million and $0.5million or 24.3%, 7.9%, 22.3%, 12.5%, 29.5% and 18.4%, respectively.  These increases were offset by a reduction innet sales of *Bloch & Guggenheimer, B&M,Emeril’s*and private label pickles and peppers products of $1.2million, $0.7 million, $0.7 million and $0.3 million or 12.6%, 13.9%, 13.9% and27.1%.  In the aggregate, net sales forall other brands increased $0.3 million, or 0.8%.

 

*Gross Profit. *Gross profit increased $5.5 million or17.9% to $36.2 million for the third quarter of 2009 from $30.7 million for thethird quarter of 2008.  Gross profitexpressed as a percentage of net sales increased 2.8 percentage points to 29.2%in the third quarter of 2009 from 26.4% in the third quarter of 2008.  This increase in gross profit expressed as apercentage of net sales was primarily attributable to increased sales prices of$6.2 million and reduced wheat and maple syrup costs partially offset byincreased costs for beans and packaging and an increase in our accrual forperformance-based compensation of $0.4 million.

 

*Sales, Marketing and Distribution Expenses. *Sales, marketing and distribution expenses decreased$0.1 million or 1.4% to $10.7 million for the third quarter of 2009 from $10.8million for the third quarter of 

 

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2008.  Thisdecrease is primarily due to a decrease in consumer marketing and trade spendingof $0.7 million and selling expense of $0.5 million, offset by an increase inwarehousing expense of $0.4 million and an increase in our accrual forperformance-based compensation of $0.7 million. Expressed as a percentage of net sales, our sales, marketing anddistribution expenses decreased to 8.6% for the third quarter of 2009 from 9.3%for the third quarter of 2008.

 

*General and Administrative Expenses. *General and administrative expenses increased $0.8million or 42.0% to $2.9 million for the third quarter of 2009 from $2.1million in the third quarter of 2008. The increase in general and administrative expenses primarily resultedfrom an increase in our accrual for performance-based compensation of $1.5 million,partially offset by a decrease in professional fees, reduced head count and adecrease in other expenses.

 

*Amortization Expense*—*Customer Relationships. *Amortization expense—customerrelationships remained consistent at $1.6 million for the third quarter of 2009as compared to the third quarter of 2008.

 

*Operating Income. *As a result of the foregoing, operatingincome increased $4.8 million or 29.4% to $21.0 million for the third quarterof 2009 from $16.2 million for the third quarter of 2008.  Operating income expressed as a percentage ofnet sales increased to 17.0% in the third quarter of 2009 from 13.9% in thethird quarter of 2008.

 

*Net Interest Expense. *Netinterest expense increased $2.0 million or 17.4% to $13.6 million for the thirdquarter of 2009 from $11.6 million in the third quarter of 2008.  Net interest expense in the third quarter of2009 includes a $0.6 million charge relating to an unrealized loss on ourinterest rate swap, and a reclassification of $0.4 million of the amount recordedin accumulated other comprehensive income (loss) related to the swap.  Net interest expense for the third quarter of2009 also reflects a reduction in interest income primarily due to lowerinterest rates.  See “—Liquidity andCapital Resources—Debt” below.

 

*Loss on Extinguishment of Debt. *Loss on extinguishment of debt for the third quarterincludes $0.7 million of costs relating to our repurchase of senior subordinatednotes during the third quarter, including $0.4 million for the payment of arepurchase premium and a non-cash charge of $0.3 million for the write-off ofunamortized deferred debt financing costs associated with the notes repurchased. During the third quarter of 2008 we did not extinguish any debt.

 

*Income Tax Expense. *Income tax expense increased $0.8 millionto $2.6 million for the third quarter of 2009 from $1.8 million for the thirdquarter of 2008.  Our effective tax ratewas 37.9% for the third quarter of 2009 and 2008.  In the third quarter of 2009 and 2008, werecorded a true-up for year-end tax provisions, which, for each period, wasless than $0.1 million.

 

***First three quarters of 2009 compared to first threequarters of 2008.***

** **

*Net Sales. *Net sales increased $13.4 million or 3.8%to $365.4 million for the first three quarters of 2009 from $352.0 million forthe first three quarters of 2008.  Netsales for the first three quarters of 2009 were negatively impacted by the poormaple syrup crop in Canada in 2008 that led to a global shortfall of pure maplesyrup.  Net sales of our *Maple Grove Farms*pure maple syrup products decreased by$2.8 million, consisting of a unit volume decline of $4.1 million, partiallyoffset by sales price increases of $1.3 million.  Excluding net sales of our pure maple syrupproducts, net sales for the first three quarters of 2009 increased $16.2million or 5.1%.  The $16.2 millionincrease was attributable to sales price increases of $21.8 million partiallyoffset by a decrease in unit volume of $5.6 million.

 

Netsales of our lines of *Ortega, Las Palmas, Ac’cent,Joan of Arc, B&M*and *Grandma’s*products increased**in the amounts of $12.8 million, $1.8million, $1.5 million, $1.3 million, $0.8 million and $0.6 million or 16.9%,9.2%, 12.3%, 18.2%, 4.2% and 10.1%, respectively.  These increases were offset by a reduction innet sales of our *Bloch & Guggenheimer,*privatelabel pickles and peppers, and *Cream of Wheat*

 

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products of $1.8 million, $1.0 million and $0.6million or 6.6%, 29.0% and 1.4%.  In theaggregate, net sales for all other brands increased $0.8 million, or 0.8%.

 

*Gross Profit. *Gross profit increased $12.6 million or12.7% to $111.8 million for the first three quarters of 2009 from $99.2 millionfor the first three quarters of 2008. Gross profit expressed as a percentage of net sales increased 2.4percentage points to 30.6% in the first three quarters of 2009 from 28.2% inthe first three quarters of 2008.  Theincrease in gross profit expressed as percentage of net sales was primarilyattributable to increased sales prices of $23.2 million and reduced wheat andmaple syrup costs offset by increased costs for beans and packaging and anincrease in our accrual for performance-based compensation of $0.9 million.

 

*Sales, Marketing and Distribution Expenses. *Sales, marketing and distribution expenses decreased$2.0 million or 5.8% to $32.6 million for the first three quarters of 2009 from$34.6 million for the first three quarters of 2008.  The decrease is primarily due to a decreasein consumer marketing and trade spending of $2.9 million and selling expense of$0.9 million, offset by an increase in our accrual for performance-basedcompensation of $1.2 million and an increase in warehousing expenses of $0.6million.  Expressed as a percentage ofnet sales, our sales, marketing and distribution expenses decreased to 8.9% forthe first three quarters of 2009 from 9.8% for the first three quarters of2008.

 

*General and Administrative Expenses. *General and administrative expenses increased $2.5million or 46.1% to $7.8 million for the first three quarters of 2009 from $5.3million in the first three quarters of 2008. The increase in general and administrative expenses primarily resultedfrom an increase in our accrual for performance-based compensation of $3.2million offset by a decrease in professional fees, reduced head count and adecrease in other expenses.

 

*Amortization Expense—Customer Relationships.* Amortization expense—customer relationships remained consistent at $4.8million for the first three quarters of 2009 as compared to the first threequarters of 2008.

 

*Operating Income. *As a result of the foregoing, operatingincome increased $12.2 million or 22.3% to $66.7 million for the first threequarters of 2009 from $54.5 million for the first three quarters of 2008.  Operating income expressed as a percentage ofnet sales increased to 18.2% in the first three quarters of 2009 from 15.5% inthe first three quarters of 2008.

 

*Net Interest Expense. *Netinterest expense increased $3.0 million or 8.0% to $40.0 million for the firstthree quarters of 2009 from $37.0 million in the first three quarters of2008.  Net interest expense in the firstthree quarters of 2009 included a $0.1 million benefit relating to anunrealized gain on our interest rate swap, partially offset by areclassification of $1.3 million of the amount recorded in accumulated othercomprehensive income (loss) related to the swap.  Net interest expense for the first three quartersof 2009 also reflects a reduction in interest income primarily due to lowerinterest rates.  See “—Liquidity andCapital Resources—Debt” below.

 

*Loss on Extinguishment of Debt. *Loss on extinguishment of debt for the first threequarters of 2009 includes $0.7 million of costs relating to ourrepurchase of senior subordinated notes during the third quarter, including$0.4 million for the payment of a repurchase premium and a non-cash charge of$0.3 million for the write-off of unamortized deferred debt financing costsassociated with the notes repurchased.  During thefirst three quarters of 2008 we did not extinguish any debt.

 

*Income Tax Expense. *Income tax expense increased $3.3 millionto $9.9 million for the first three quarters of 2009 from $6.6 million for thefirst three quarters of 2008.  Oureffective tax rate was 37.9% for the first three quarters of 2009 and2008.  In the first three quarters of2009 and 2008, we recorded a true-up for year-end tax provisions, which, foreach period, was less than $0.1 million.

 

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**Liquidityand 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 $5.8 million to $34.3 million for the firstthree quarters of 2009 from $28.5 million for the first three quarters of2008.  Net income, excluding non-cashitems such as depreciation and amortization, amortization of deferred debtfinancing costs, deferred income taxes, unrealized gain on our interest rate swap,a reclassification to net interest expense, a loss on extinguishment of debtand share-based compensation, increased by $13.8 million.  This increase was offset by an increase innet changes in assets and liabilities of $8.0 million due in large part to anincrease in working capital primarily attributable to an increase in maplesyrup inventory offset by an increase in accounts payable.

 

Netcash used in investing activities for the first three quarters of 2009decreased $1.9 million to $7.9 million from $9.8 million for the first threequarters of 2008.  Net cash used ininvesting activities for the first three quarters of 2009 and 2008 consistedentirely of capital spending.  Capitalexpenditures in the first three quarters of 2009 and 2008 included expendituresfor building improvements, purchases of manufacturing and computer equipmentand capitalized interest.  Capitalexpenditures for the first three quarters of 2008 also included expendituresfor the expansion of our Stoughton, Wisconsin facility and the transfer of aportion of the *Cream of Wheat*production to thatfacility.  That project was completedduring fiscal 2008 and is the primary reason that capital spending decreased inthe first three quarters of 2009 as compared to the first three quarters of 2008.

 

Netcash provided by financing activities for the first three quarters of 2009 was$58.6 million as compared to net cash used in financing activities of $23.4million for the first three quarters of 2008. The primary reason for the increase in net cash provided by financingactivities for the first three quarters of 2009 as compared to the first threequarters of 2008 was our public offering of Class A common stock completedduring the third quarter of 2009, which resulted in net proceeds of $86.6million, after deducting underwriting discounts and commissions and othertransaction expenses, and a reduction in dividend payments of $5.0 million dueto a reduction in our dividend rate from $0.848 per share per annum to $0.68per share per annum, partially offset by our repurchase of $6.3 million principalamount of our senior subordinated notes for $6.6 million plus accrued andunpaid interest and our repurchase of Class A common stock for $2.3million.  Net cash used in financing activities for the firstthree quarters of 2008 was entirely for the payment of dividends to holders ofour Class A common stock.

 

During the third quarter of 2009, we issued a notice of partialredemption for $90.0 million principal amount of our senior subordinated notesat a cash redemption price of 106% of the principal amount of the notes beingredeemed, plus accrued and unpaid interest on such amount, to, but excluding,the redemption date of November 2, 2009. We will use the net proceeds of the Class A common stock offeringplus cash on hand to fund the partial redemption.

 

Based on a number of factors, including ourtrademark, goodwill and customer relationship intangibles amortization for taxpurposes from our prior acquisitions, we realized a significant reduction incash taxes in fiscal 2008 and 2007 as compared to our tax expense for financialreporting purposes.  While we expect ourcash taxes to continue to increase in fiscal 2009 and fiscal 2010 as comparedto the prior two years, we believe that we will realize a benefit to our cashtaxes payable from amortization of our trademarks, goodwill and customerrelationship intangibles for the taxable years 2009 through 2022.

 

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***DividendPolicy***

 

Our dividendpolicy reflects a basic judgment that our stockholders would be better servedif we distributed a substantial portion of our cash available to pay dividendsto 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 offeringof EISs in October 2004 through the dividend payment we made on October 30,2008, the dividend rate for our Class A common stock was $0.848 per 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 subordinated notes indenture, the terms of our revolvingcredit facility and our senior notes indenture contain significant restrictionson our ability to make dividend payments. In addition, certain provisions of the Delaware General Corporation Lawmay 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 three quarters of 2009 and 2008, we had cash flows provided byoperating activities of $34.3 million and $28.5 million, and distributed $18.4million and $23.4 million, respectively, as dividends.  At our current intended dividend rate of$0.17 per share per quarter, the additional 11.5 million shares of Class Acommons stock that we issued in the underwritten public offering we completedin the third quarter of 2009, are expected to increase our aggregate dividendpayments for fiscal 2010 by $7.8 million. However, by using the net proceeds of the offering to redeem $90.0million principal amount of our senior subordinated notes during the fourthquarter of 2009, our payment of dividends on the additional 11.5 million sharesoutstanding will not have an adverse impact on our liquidity as the increasedaggregate dividend payments will be offset by the after-tax effect of thereduction in interest payments relating to the senior subordinated notes.

 

Nevertheless,if our cash flows from operating activities for future periods were to fallbelow our minimum expectations (or if our assumptions as to capitalexpenditures or interest expense were too low or our assumptions as to thesufficiency of our revolving credit facility to finance our working capitalneeds were to prove incorrect), we would need either to further reduce oreliminate dividends or, to the extent permitted under our senior notesindenture, our senior subordinated notes indenture and the terms of our creditfacility, fund a portion of our dividends with borrowings or from othersources.  If we were to use workingcapital or permanent borrowings to fund dividends, we would have less cashand/or borrowing capacity available for future dividends and other purposes,which could negatively impact our financial position, our results ofoperations, our liquidity and our ability to maintain or expand our business.

 

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***Acquisitions***

 

Ourliquidity and capital resources have been significantly impacted byacquisitions and may be impacted in the foreseeable future by additional acquisitions.  We have historically financed acquisitionswith borrowings and cash flows from operating activities.  Historically, our interest expense hasincreased as a result of additional indebtedness we have incurred in connectionwith acquisitions, and will increase with any additional indebtedness we mayincur to finance future acquisitions, if any. To the extent future acquisitions are financed by additionalindebtedness, the resulting increase in debt and interest expense could have anegative impact on liquidity.

 

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

 

Wehave not made any material expenditures during the first three quarters of 2009in order 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, we cannotpredict what environmental or health and safety legislation or regulations willbe enacted in the future or how existing or future laws or regulations will beenforced, administered or interpreted, nor can we predict the amount of futureexpenditures that may be required in order to comply with such environmental orhealth and safety laws or regulations or to respond to such environmentalclaims.

 

***Debt***

 

*Senior Secured Credit Facility*. During the third quarter of 2009, Credit Suisse replaced Lehman CommercialPaper Inc. (Lehman CPI) as the administrative agent under our creditfacility.  Also during the third quarterof 2009, the credit facility was amended to, among other things, extend thematurity date for the undrawn revolving credit facility from January 2011to February 2013.  As amended, our$25.0 million revolving credit facility and our $130.0 million of term loanborrowings mature in February 2013, provided, however, that if we do not repay,redeem or refinance our senior notes prior to April 1, 2011, the revolvingcredit facility and the outstanding term loan borrowings will becomeimmediately due and payable on April 1, 2011. The following discussion of the credit facility describes the creditfacility as amended through the date of issuance of the accompanying unauditedconsolidated financial statements.

 

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

 

Our obligations under the credit facility arejointly and severally and fully and unconditionally guaranteed on a seniorbasis by all of our existing and certain future domestic subsidiaries.  The credit facility is secured by substantiallyall of our and our domestic subsidiaries’ assets except our and our domesticsubsidiaries’ real property.  The creditfacility provides for mandatory prepayment upon certain asset dispositions andissuances of securities, as defined.  Thecredit facility contains covenants that restrict, among other things, ourability to incur additional indebtedness, pay dividends and create certainliens.  The credit facility also containscertain financial maintenance covenants, which, among other things, specifymaximum capital expenditure limits, a minimum interest coverage ratio and amaximum senior and total leverage ratio, each ratio as defined.  As of October 3, 2009, 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

 

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specified criteria.  The maximum letter of credit capacity underthe revolving credit facility is $10.0 million, with a fronting fee of 3.0% perannum for all outstanding letters of credit.

 

On September 15, 2008, Lehman CPI filedfor protection under Chapter 11 of the U.S. Bankruptcy Code.  Following that date, we no longer believedthat Lehman CPI would honor its $3.1 million funding commitment under therevolving credit facility if we were to make a funding request.  Therefore, when Lehman CPI’s commitment wasassumed by other lenders during the third quarter of 2009, the effectiveavailable borrowing capacity under our revolving credit facility, net ofoutstanding letters of credit increased by $3.1 million.  At October 3, 2009, the availableborrowing capacity under our revolving credit facility, net of outstandingletters 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, weentered into a six year interest rate swap agreement in order to effectivelyfix at 7.0925% the interest rate payable for $130.0 million of term loanborrowings 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.  On September 15,2008, (Lehman) filed for protection under Chapter 11 of the U.S. BankruptcyCode.  Lehman SFI filed for protectionunder Chapter 11 of the U.S. Bankruptcy Code on October 3, 2008.

 

We initially designated the swap as a cashflow hedge.  Prior to Lehman’s bankruptcyfiling, we recorded changes in the fair value of the swap in othercomprehensive income (loss), net of tax in our consolidated balance sheet.  However, as a result of the Lehman bankruptcyfiling, we determined in September 2008 that the interest rate swap was nolonger an effective hedge.  Accordingly,subsequent to that determination, we record changes in the swap’s fair value incurrent earnings 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 October 3, 2009, the fair value ofour interest rate swap was an unrealized loss of $13.0 million and is recordedin other liabilities on our consolidated balance sheet.  The amount recorded in accumulated othercomprehensive income (loss) will be reclassified to net interest expense overthe remaining life of the term loan borrowings as we make interest payments.  Net interest expense in the third quarter andfirst three quarters of 2009 includes a charge of $0.6 million and a benefit of$0.1 million, respectively, relating to the unrealized gain on our interestrate swap and a reclassification of $0.4 million and $1.3 million,respectively, of the amount recorded in accumulated other comprehensive income(loss) related to the swap.  During theremainder of fiscal 2009, we expect to reclassify to net interest expense $0.4million of the amount recorded in accumulated other comprehensive income(loss).

 

*12% SeniorSubordinated Notes due 2016*.  In October 2004,we issued $165.8 million aggregate principal amount of 12% senior subordinatednotes due 2016, $143.0 million of which in the form of EISs and $22.8 millionseparate from EISs.  As of October 3,2009, there was $159.5 million aggregate principal amount of seniorsubordinated notes outstanding, $123.8 million aggregate principal amount washeld in the form of EISs and $35.7 million aggregate principal amount of seniorsubordinated notes was held separate from EISs.

 

Interest on the senior subordinated notes ispayable quarterly in arrears on each January 30, April 30, July 30and October 30 through the maturity date. The senior subordinated notes will mature on October 30, 2016,unless earlier retired or redeemed as described below.

 

Upon the occurrence of a change of control(as defined in the indenture), unless we have retired the senior subordinatednotes or exercised our right to redeem all senior subordinated notes asdescribed below, each holder of the senior subordinated notes has the right torequire us to repurchase that holder’s senior subordinated notes at a priceequal to 101.0% of the principal amount of the senior subordinated notes beingrepurchased, plus any accrued and unpaid interest to the date ofrepurchase.  In order to exercise thisright, a holder must separate the senior subordinated notes and Class Acommon stock represented by such holder’s EISs.

 

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We may, from time to time, seek to retiresenior subordinated notes through cash repurchases of EISs or separate seniorsubordinated notes and/or exchanges of EISs or separate senior subordinatednotes for equity securities, in open market purchases, privately negotiatedtransactions or otherwise.  Suchrepurchases or exchanges, if any, will depend on prevailing market conditions,our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.  During the third quarter of 2009, werepurchased in a privately negotiated transaction $6.3 million principal amountof the senior subordinated notes for $6.6 million plus accrued and unpaidinterest.

 

In addition, beginning October 30, 2009,we may redeem for cash all or part of the senior subordinated notes at aredemption price of 106% and thereafter at prices declining annually to 100% onor after October 30, 2012.

 

During the third quarter of 2009, we issued a notice of partialredemption for $90.0 million principal amount of the senior subordinated notesat a cash redemption price of 106% of the principal amount of the notes beingredeemed, plus accrued and unpaid interest on such amount, to, but excluding,the redemption date of November 2, 2009. Upon completion of the redemption, $69.5 million principal amount of thesenior subordinated notes will remain outstanding.

 

Pursuantto the terms of the indenture governing the senior subordinated notes, thepartial redemption of the senior subordinated notes will result in an automaticseparation of all of the EISs on the redemption date into the component sharesof Class A common stock and senior subordinated notes.

 

The partial redemption of the seniorsubordinated notes is expected to result in a pre-tax charge in our fourthquarter of fiscal 2009 of $9.5 million, which represents a cash charge of $5.4million relating to the call premium and a non-cash charge of $4.1 millionrelating to the write-off of unamortized deferred debt financing costs.

 

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

 

Our obligations under the senior subordinatednotes are jointly and severally and fully and unconditionally guaranteed by allof our existing domestic subsidiaries and certain future domestic subsidiarieson an unsecured and subordinated basis on the terms set forth in our seniorsubordinated notes indenture.  The seniorsubordinated note guarantees are subordinated in right of payment to allexisting and future senior indebtedness of the guarantors, including theindebtedness under our credit facility and the senior notes.  Our foreign subsidiary is not a guarantor,and any future foreign or partially owned domestic subsidiaries will not beguarantors, of our senior subordinated notes.

 

Our senior subordinated 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 sales of assets; fundamentalchanges, including consolidation, mergers and transfers of all or substantiallyall of our assets; and specified transactions with affiliates.  Each of the covenants is subject to a numberof important exceptions and qualifications. As of October 3, 2009, we were in compliance with all of thecovenants in the senior subordinated notes indenture.

 

*8% Senior Notes due 2011*.  In October 2004,we issued $240.0 million aggregate principal amount of 8% senior notes due2011.  Interest on the senior notes ispayable on April 1 and October 1 of each year.  The senior notes will mature on October 1,2011, unless earlier retired or redeemed as described below.

 

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We may redeem some or all of the senior notesat a redemption price of 102% through September 30, 2010, and at aredemption price of 100% on or after October 1, 2010.  If we or any of the guarantors sell certainassets or experience specific kinds of changes in control, we must offer topurchase the senior notes at the prices as described in our senior notesindenture plus accrued and unpaid interest to the date of redemption.

 

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

 

Our obligations under the senior notes arejointly and severally and fully and unconditionally guaranteed on a seniorbasis by all of our existing and certain future domestic subsidiaries.  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 in right of payment to all of ourand the guarantors’ existing and future unsecured senior debt; and are seniorin right of payment to all of our and the guarantors’ future subordinated debt,including the senior subordinated notes. Our foreign subsidiary is not a guarantor, and any future foreign orpartially owned domestic subsidiaries will not be guarantors, of our senior notes.

 

Our senior notes indenture contains covenantswith respect to us and the guarantors and restricts the incurrence ofadditional indebtedness and the issuance of capital stock; the payment ofdividends or distributions on, and redemption of, capital stock; a number ofother restricted payments, including certain investments; specified creation ofliens, sale-leaseback transactions and sales of assets; fundamental changes,including consolidation, mergers and transfers of all or substantially all ofour assets; and specified transactions with affiliates.  Each of the covenants is subject to a numberof important exceptions and qualifications. As of October 3, 2009, we were in compliance with all of thecovenants in the senior notes indenture.

 

***Stock and DebtRepurchase Plan***

 

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/orsenior 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.  Under the authorization, we maypurchase shares of Class A common stock and/or senior notes from time totime in the open market or in privately negotiated transactions in compliancewith the applicable rules and regulations of the SEC.

 

Thetiming and amount of such repurchases, if any, will be at the discretion ofmanagement, and will depend on market conditions and other considerations.  Therefore, there can be no assurance as tothe number or aggregate dollar amount of shares that will be repurchased underthe stock and debt repurchase program. Likewise, there can be no assurance as to the principal amount of seniornotes, if any, that will be repurchased. We may discontinue the program at any time.  Any shares repurchased pursuant to the stockrepurchase program will be retired. Likewise, any senior notes repurchased will be cancelled.

 

During the first three quarters of 2009, werepurchased and retired 403,500 shares of Class A common stock at anaverage cost per share (excluding fees and commissions) of $5.76, or $2.3million in the aggregate.  During thethird quarter of 2009, we repurchased $6.3 million principal amount of seniorsubordinated notes, which resulted in a pre-tax charge in our third quarter of$0.7 million, representing a cash charge of $0.4 million relating to therepurchase premium and a non-cash charge of $0.3 million relating to thewrite-off of unamortized deferred debt financing costs.  As of October 3, 2009, we had $13.5million available for future repurchases of Class A common stock and/orsenior notes under the stock and debt repurchase plan.

 

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***Future CapitalNeeds***

 

We are highly leveraged.  On October 3, 2009, our total long-termdebt and stockholders’ equity was $529.5 million and $229.4 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, and pay our anticipated dividends on our Class Acommon stock.  We expect to make capital expenditures ofapproximately $11.0 million in the aggregate during fiscal 2009, $7.9 millionof which have already been made during the first three quarters, andapproximately $11.0 million in the aggregate during fiscal 2010.

 

***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 requirements duringthe months of April through July. Consequently, our liquidity needs are greatest during these periods.

 

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

 

During fiscal thepast 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 wewill be able to offset any present or future increases in the cost of rawmaterials, packaging and transportation, with additional sales price increasesor cost reductions.

 

**Recent AccountingPronouncements**

 

InJune 2009, the Financial Accounting Standards Board (FASB) established the FASBAccounting Standards CodificationTM (Codification) as the single source ofauthoritative GAAP recognized by the FASB to be applied by nongovernmentalentities. Rules and interpretive releases of the SEC under authority of federalsecurities laws are also sources of authoritative U.S. GAAP for SECregistrants.  The Codification, which iseffective as of our third quarter of fiscal 2009, supersedes all existingnon-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included inthe Codification will become nonauthoritative. The adoption of this standard did not have any impact on our results ofoperations or financial position.

 

In September 2006, the FASBissued a new standard relating to fair value measurements, which defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements.  Thisstandard was effective as of the beginning of our fiscal 2008, with theexception of certain provisions deferred until the beginning of our fiscal2009.  In February 2008, the FASBdelayed the effective date of the standard for all non-financial assets andliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, 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 December 2007, theFASB issued new standards relating to business combinations and noncontrollinginterests in consolidated financial statements. The standard relating to business combinations requires an acquirer tomeasure the identifiable assets acquired, the liabilities assumed and anynoncontrolling interest in the acquiree at their fair values on the acquisitiondate, with goodwill being the excess value over

 

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the net identifiable assetsacquired.  The noncontrolling intereststandard clarifies that a noncontrolling interest in a subsidiary is anownership interest in the consolidated entity that should be reported as equityin the consolidated financial statements. These standards were effective as of the beginning of our fiscal2009.  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 March 2008, the FASB issued astandard that amended existing standards about derivative instruments andhedging activities to require enhanced disclosures about (a) how and whyan entity uses derivative instruments, (b) how derivative instruments andrelated hedged items are accounted for and (c) how derivative instrumentsand related hedged items affect an entity’s financial position, financialperformance, and cash flows.  Theamendments were effective as of the beginning of our fiscal 2009.  Since the amendments require enhanceddisclosures, without a change to existing standards relative to measurement andrecognition, our adoption of the standard did not have any effect on ourresults of operations or financial position. See notes 6 and 7 for the required disclosures about our derivativeinstruments and hedging activities.

 

In April 2008, the FASB issued astandard relating to how companies should determine the useful life ofintangible assets.  The standard requirescompanies estimating the useful life of a recognized intangible asset toconsider their historical experience in renewing or extending similararrangements or, in the absence of historical experience, to considerassumptions that market participants would use about renewal or extension asadjusted for entity-specific factors.  Weadopted this standard effective at the beginning of our fiscal 2009, which didnot have a material impact on our results of operations or financial position.

 

In December 2008, the FASB issued astandard relating to an employer’s disclosure about postretirement benefit planassets.  The standard requires additionaldisclosures about plan assets for defined benefit pension and otherpostretirement benefit plans.  Thestandard will be effective as of the end of our fiscal 2009.  Since this requires enhanced disclosures,without a change to existing standards relative to measurement and recognition,our adoption of the standard will not have a material impact on our results ofoperations or financial position.

 

In May 2009, the FASB established ageneral standard of accounting for, and requiring disclosure of, events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued.  Thestandard was effective beginning with our second quarter of fiscal 2009.  The adoption of the standard did not have amaterial effect on our on our results of operations or financial position.

 

**Off-balance Sheet Arrangements**

 

Asof October 3, 2009, wedidnothaveanyoff-balancesheetarrangementsasdefinedin Item 303(a)(4)(ii) of Regulation S-K.

 

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**Commitments and ContractualObligations**

** **

Our contractual obligations and commitmentsprincipally include obligations associated with our outstanding indebtedness,future minimum operating lease obligations and future pension obligations.  During the first three quarters of 2009,there were no material changes outside the ordinary course of business in thespecified contractual obligations set forth in our 2008 Annual Report on Form 10-K,except as follows:

 

·                  During the first quarter of 2009, we enteredinto a new warehouse lease that will require us to make additional rentpayments of approximately $11.5 million in the aggregate over the course of thelease, which expires in 2016.  Theseadditional rent payments are being partially offset by a reduction in rentpayments relating to a warehouse lease that we let expire pursuant to itsterms;

 

·                  Our expected contributions to our definedbenefit pension plans for fiscal 2009 have increased from $1.2 million to $2.8million because, although not obligated to do so, we made $1.6 million ofvoluntary contributions to our defined benefit plans during the first threequarters of 2009.  We do not expect tomake additional voluntary contributions during the remainder of fiscal 2009;and

 

·                  As discussed elsewhere in this report, duringthe third quarter of 2009, we issued a notice of partial redemption for $90.0million principal amount of our senior subordinated notes at a cash redemptionprice of 106% of the principal amount of the notes being redeemed, plus accruedand unpaid interest on such amount, to, but excluding, the redemption date of November 2,2009.  In addition, during the thirdquarter of 2009, we repurchased in a privately negotiated transaction $6.3million principal amount of senior subordinated notes for $6.6 million plus accruedand unpaid interest.  As a result of thepartial redemption during the fourth quarter of 2009 and the repurchase ofsenior subordinates notes during the third quarter of 2009, our interestpayment commitments for 2010 through October 2016 will be reduced by $11.6million per year on an annualized basis.

 

***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;

 

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·                  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 and promotionalspending levels;

 

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

 

·             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; and

 

otherfactors discussed elsewhere in this report and in our other public filings withthe SEC, including under Item 1A, “Risk Factors” in our 2008 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.

 

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 fromadverse changes in interest rates. Market risk is defined for these purposes as the potential change in thefair value of a financial asset or liability resulting from an adverse movementin interest rates.

 

Interest under our $25.0 million 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%.  Interest under our term loan facility isdetermined based on alternative rates that we may choose in accordance with thecredit facility, including the base lending rate per annum plus an applicablemargin of 1.00%, and LIBOR plus an applicable margin of 2.00%.  The revolving credit facility was undrawn at October 3,2009, and we currently have no plans to draw upon the facility for theforeseeable future.  The availableborrowing capacity under our revolving credit facility, net of outstandingletters of credit of $0.5 million, was $24.5 million at October 3, 2009.

 

We have outstanding $130.0 million of termloan borrowings at October 3, 2009 and January 3, 2009.  The term loan borrowings are fixed at 7.0925%based upon a six year interest rate swap agreement that we

 

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entered into on February 26,2007 with an affiliate of Lehman.  Seethe discussion of the interest rate swap and the Lehman bankruptcy filing aboveunder the heading “Liquidity and Capital Resources-Debt-Senior Secured CreditFacility” in Item 2, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” for additional information.

 

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

 

The carrying values and fairvalues of our term loan borrowings, senior notes and senior subordinated notesas of October 3, 2009 and January 3, 2009 are as follows (dollars inthousands):

 
| ** **                                                | ** ** | **October 3, 2009** | ** ** | **January 3, 2009** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                                | ** ** | **Carrying Value**       | ** ** | **Fair Value(1)(2)**     | ** ** | **Carrying Value** | ** ** | **Fair Value(1)(3)** | ** ** |
| Senior Secured Term Loan due February 26, 2013       |       | $                        | 130,000    |                     | $          | 128,375 |   | $ | 130,000 |   | $ | 107,900 |   |
| 8% Senior Notes due October 1, 2011                  |       | 240,000                  |       | 241,800                  |       | 240,000 |   | 207,600 |   |
| 12% Senior Subordinated Notes due October 30,  2016: |       |                     |       |                     |       |   |   |   |   |
| — represented by EISs                                |       | 123,864                  |       | 127,502                  |       | 124,793 |   | 90,235 |   |
| — held separately                                    |       | 35,677                   |       | 36,725                   |       | 41,007 |   | 29,651 |   |
|                                                           |            |                          |            |                          |            |  |  |  |  |  |  |  |  |

 

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(1)          Fair values are estimated based on quoted market prices, except asotherwise noted in footnotes (2) and (3) below.

 

(2)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at October 3, 2009 was $7.36, basedupon the $7.84 per share closing price of our separately traded Class Acommon stock and the $15.20 per EIS closing price of our EISs on the New YorkStock Exchange on October 2, 2009 (the last business day of the thirdquarter of 2009).  Each EIS representsone share of Class A common stock and $7.15 principal amount of our seniorsubordinated notes.

 

(3)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at January 3, 2009 was $5.17, basedupon the $5.49 per share closing price of our separately traded Class Acommon stock and the $10.66 per EIS closing price of our EISs on the New YorkStock Exchange on January 2, 2009 (the last business day of fiscal 2008).

 

The recent volatility in the global financial marketscould negatively impact the fair value of our debt obligations.

 

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**

** **

*Evaluationof Disclosure Controls and Procedures. *As required by Rule 13a-15(b) underthe Securities 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 over financialreporting 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.

** **

**PART II**

**OTHER INFORMATION**

** **

**Item 1.    LegalProceedings**

** **

We arefrom time to time involved in various claims and legal actions arising in theordinary course of business, including proceedings involving product liabilityclaims, worker’s compensation and other employee claims, and tort and othergeneral liability claims, as well as trademark, copyright, patent infringementand related claims and legal actions.  Inthe opinion of our management, the ultimate disposition of any currently

 

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pending claims or actions will not have a materialadverse effect on our consolidated financial position, results of operations orliquidity.

 

**Item 1A. Risk Factors**

** **

Except for the additionalrisk factor set forth below, we do not believe there have been any materialchanges in our risk factors as previously disclosed in our 2008 Annual Reporton Form 10-K.

 

***Followingthe partial redemption of the senior subordinated notes and the automaticseparation of the EISs, the limited liquidity of the trading market for thesenior subordinated notes may adversely affect the trading price of the seniorsubordinated notes and/or require that investors hold the notes until maturityor an earlier redemption, if any.***

 

Pursuant to theterms of the indenture, the partial redemption of the senior subordinated notesby B&G Foods will result in an automatic separation (or “splitting”) of allof the EISs on October 30, 2009.  Asa result, the last day of trading of the EISs on the New York Stock Exchangeunder the symbol “BGF” was October 26, 2009.  When the market opened on October 27,2009, those shares of Class A common stock represented by the EISs, begantrading on the New York Stock Exchange under the symbol “BGS,” together withall other outstanding shares of the Company’s Class A common stock.  The remaining senior subordinated notes thatare not redeemed, whether previously represented by EISs or held separately,will not be listed on an exchange and we do not intend to create or sustain amarket for such notes following the redemption date.  Thus, the extent of any market for theremaining senior subordinated notes will depend upon, among other things, theprincipal amount of the senior subordinated notes that remain outstanding afterthe redemption date, the number of holders remaining at such time and theinterest in maintaining a market in the senior subordinated notes on the partof securities firms. The limited liquidity may adversely affect the tradingprice of the senior subordinated notes and/or require that investors hold theirsenior subordinated notes until maturity or an earlier redemption, if any, byB&G Foods.

 

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

 

Notapplicable.

 

**Item 3.    DefaultsUpon Senior Securities**

** **

Notapplicable.

 

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

** **

Notapplicable.

 

**Item 5.    OtherInformation**

** **

Notapplicable.

 

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**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:  October 27, 2009 | B&G  FOODS, INC. |
|-------------------------------|----------------------|
|                          |                 |
|                          |                 |
|                          | By:                  | /s/  Robert C. Cantwell |
|                          |                 | Robert  C. Cantwell  Executive Vice President and Chief Financial Officer (Principal Financial and  Accounting Officer and Authorized Officer) |

 

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